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Anglo Pacific pivots towards battery metals as world turns green

What Anglo Pacific does:

Anglo Pacific Group PLC (LON:APF) (TSE:APY) gathers royalties through investments in mining and exploration assets.

The group has built its presence in the mining royalty space on the back of its coal royalty at the Kestrel mine in Australia but in the past few years, it has branched out into new areas and invested in new commodities to diversify its portfolio.

That saw it make its largest-ever deal with the acquisition of a royalty stream from Canadian cobalt mine Voisey Bay for US$205mln

Its royalty portfolio is primarily in Australia, North and South America, and Europe.

The Kestrel mine is Anglo’s biggest income contributor but the company’s portfolio also includes a royalty held over the Maracas Menchen vanadium mine in Brazil and over licences in the Pilbara iron ore district in Australia.

How it’s doing:

In late February, Anglo Pacific struck a deal to acquire a 70% net interest in a stream on cobalt production from the Voisey’s Bay mine in Canada.

The company, in a statement, highlighted that it will provide a significant long-life revenue stream from an established, world-class operation. At the same time, it provides exposure to a market that’s fuelled by the fast-rising demand for electric vehicles.

Royalty income in the year to end-December 2020 was affected by a reduction in production from its largest coal investment, Kestrel in Australia, and dropped to £34mln from £55.7mln.

Anglo Pacific also wrote down the value of its investment in Kestrel by £44mln, which along with £3.4mln for other impairments meant a loss for the year of £27.2mln (2019: £37.6mln profit).

What the broker says:

In February, broker Peel Hunt reiterated its ‘buy’ recommendation and upped its target price for Anglo Pacific to 170p on the announced acquisition of the Voisey’s Bay cobalt stream that analysts said will kick-start a significant transition for the company in years to come.

“Not only do we now view Voisey’s Bay as the most significant asset in the APF portfolio, we believe its Tier 1 profile will give APF visibility on streams and royalties with larger scale, helping to increase its exposure to battery metals sooner rather than later. Growth momentum has returned to APF sooner in 2021 than we anticipated.”

What the boss says:

On the Voisey’s Bay deal, chief executive Julian Treger said: “It will provide a significant long-life income source for Anglo Pacific and materially progresses our ambition to focus on 21st-century commodities that support a more sustainable world.

“We believe that this transaction largely solves Anglo Pacific’s two major strategic challenges: it addresses the medium-term declining income at Kestrel and significantly repositions the company’s portfolio away from coal.

“We are delivering on our promise to recycle our short-term coal cash flow into clean commodities whose use is largely in facilitating cleaner energy and technology.”

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