Anglo Pacific Group plc Another Year of Significant Growth in Income

Anglo Pacific Group PLC (LON:APF) (TSX:APY) has today announced its full year results for the year ended 31 December 2017 and the publication of its audited 2017 Annual Report and Accounts. These are available on the Group’s website at www.anglopacificgroup.com and on SEDAR at www.SEDAR.com. The following statement should be read in conjunction with the audited financial statements.

Royalty Income Highlights

* Royalty income does not include income from the Group’s Denison financing arrangement of which £5.0m was received in 2017 (£1.8m relating to H2 2016)

Financial Highlights

§ Record £37.4m in royalty income, an increase of 90% on last year (2016: £19.7m)

§ Free cash flow more than tripled in 2017 to £41.5m (2016: £13.4m) resulting in free cash flow per share2 of 23.20p (2016: 7.93p)

§ 72% increase in adjusted earnings per share1 to 16.82p (2016: 9.76p) which excludes non-cash valuation items that do not impact on dividend cover

§ 16.7% increase in the total dividend for 2017 to 7p per share (2016: 6p per share) with dividend cover, based on adjusted earnings, of 2.4x (2016: 1.6x)

§ Cash of £8.1m at 31 December 2017 (31 December 2016: Net debt £1.0m) after investing £29.4m, paying £15.9m dividends and repaying all outstanding borrowings

Operating Highlights

§ Strong increase in commodity prices driving the Group’s revenue; noticeably coking coal, thermal coal and vanadium

§ Significant increase in sales volumes derived from within our private royalty area at Kestrel – 93% in 2017 compared to 67% in 2016 – with potential to increase ROM production to 5.7mt in the short to medium term

§ Higher coal prices compensated for lower sales volumes at Narrabri, leading to an overall increase in revenue

§ Record production at Maracás Menchen in 2017 of 9,297 tonnes, a 17% increase from 2016 with a more than doubling of average vanadium prices year on year

§ Received £5.0m in cash from Denison in line with expectations

§ Revenue from EVBC was higher owing to increased production from Orvana, which is continuing to explore possible mine life extension

§ The Group acquired a Gross Revenue Royalty interest for the development of the Piaui Nickel Cobalt Project located in north eastern Brazil for an initial US$2m consideration

Julian Treger, Chief Executive Officer of Anglo Pacific, commented: “2017 was a record year for Anglo Pacific with royalty income of £37.4m, and total income of £42.4m when the cash flows from our Denison transaction are included. This was achieved through a combination of higher commodity prices across our portfolio and a significant increase in mining from within our private royalty area at Kestrel – up from 67% in 2016 to 93% – very much in line with our guidance.

Anglo Pacific has enjoyed two years of significant growth in income and aims to maintain this momentum for future years by acquiring new royalties. With access to over US$50m of liquidity from our balance sheet and a favourable commodity pricing outlook, we believe we are well placed to take advantage of the opportunities to deploy capital in an accretive manner.

Our pipeline is in very good shape and we move forward into 2018 with optimism.”

1 Adjusted earnings/(loss) represents the Group’s underlying operating performance from core activities. Adjusted earnings/(loss) is the profit/(loss) attributable to equity holders less all valuation movements, non-cash impairments and amortisation charges (which are non-cash IFRS adjustments that arise primarily due to changes in commodity prices), finance costs, any associated deferred tax and any profit or loss on non-core asset disposals as these are not expected to be ongoing. See note 11 to the financial statements for adjusted earnings/(loss).

2 Free cash flow is the net increase/(decrease) in cash and cash equivalents prior to core acquisitions, equity raising and changes in the level of borrowings. See note 33 to the financial statements for free cash flow per share.

This is my first report as Chairman, having assumed the role after the 2017 AGM. Undoubtedly, 2017 has been a year of considerable progress for Anglo Pacific with record royalty revenue, two successful transactions and an increase in the dividend whilst repaying our borrowings in full. We enter 2018 in a very strong financial position and with a very exciting pipeline for growth, which is the clear focus for the year ahead.

Performance in 2017

Our royalty income in 2017 increased by 90% from £19.7m to £37.4m, continuing the trend of recent years, and representing a record year for the Company. This was primarily due to a significant increase in volumes from Kestrel being subject to the Group’s royalty (93% in 2017 vs 67% in 2016) in addition to higher coal prices. Commodity prices exceeded most commentators’ expectations at the beginning of 2017, with the average price achieved at Kestrel being some 30% higher than the previous year. Thermal coal and vanadium prices were also strong which contributed to the Group’s record performance. We have also enjoyed income from the Denison investment for the first time.

The higher commodity prices and revenues during 2017 translated directly into higher profits and cash generation. Operating profit increased to £28.4m from £12.7m in 2016. Operating costs also increased in the period due to a combination of higher staff costs and a greater level of investment in business development as we target a higher rate of growth in the coming year.

Our results were, as usual, impacted by a number of revaluation adjustments which led to overall profit before tax being £11.8m compared to £28.3m in 2016, the decline being driven in the main by the valuation of the Kestrel royalty. Basic and diluted earnings per share were 5.88p compared with 15.60p in 2016. Stripping out these non-cash items, we present an adjusted earnings measure which, we believe, more closely reflects the performance within management’s control. On this basis adjusted earnings per share were 16.82p (2016: 9.76p).

Dividends

In light of the strong results in 2017, and the strength of our dividend cover, the Board has recommended that the final dividend be increased by 1p per share (subject to approval by shareholders at the 2018 AGM), which will result in an overall dividend for the year of 7p per share. We have also increased the level of the interim dividend payments from 1.5p to 1.625p, which will be reflected in the Q1 2018 dividend. We believe that these levels strike the right balance between offering shareholders an attractive dividend yield and retaining sufficient resources to drive the growth strategy.

Focus for 2018

Given the strong financial position that we now enjoy, and the positive outlook for the sector, we are focused on accelerating the growth of our asset base in the coming years. We wish to increase the diversity of our portfolio such that it includes a wider range of commodities and assets, thereby reducing the percentage of our income coming from coal, and Kestrel in particular. We have also announced a desire to build a meaningful presence in commodities which are focused on the growing electric vehicle market, where we see great potential. Our investment in 2017 in the Piauí nickel project is an example of this focus combined with our strategy of looking to add pre-production royalties which will offer high return potential over the years. Our principal objective, however, remains the acquisition of producing or near production royalty and streaming assets

The team continues to be very disciplined in ensuring that acquisitions are of the highest quality in terms of project characteristics both technically and commercially and that we design transaction structures to optimise risk management.

Corporate Culture and Governance

Anglo Pacific seeks to maintain the highest standards in all areas of its business. I believe this starts at the top. We broadened the agenda at our annual strategy day in 2017 to include sessions on strategy, including corporate social responsibility, risk and board effectiveness. These sessions were primarily facilitated by industry experts who brought an objective and impartial insight as to how the Board approaches these areas in executing its strategy.

Whilst we acknowledge that we are not directly responsible for the operation of many of the underlying assets in our portfolio, we are committed to making the pursuit of best practice in environmental, social and community, human rights, health and safety and diversity matters a high priority.

Board

We were disappointed to announce in February 2018 that Rachel Rhodes had decided not to put herself forward for re-election at the forthcoming AGM due to the ever-increasing time commitments of her other roles. Rachel has played an enormous part in the success of the Company over the past few years, and we will miss her valuable sector insights and views. We have commenced the process to find a suitable replacement. Mike Blyth has assumed the role of chair of the Audit Committee.

Since taking over from Mike Blyth as Chairman at the 2017 AGM, I have been actively seeking to help drive the growth of the business on which the whole team is focused. The other Directors bring different skills to the table and, I believe, enable the Board to operate effectively with appropriate diversity of approach whilst operating the various Board Committees with the independence expected of us as a listed company on the London Stock Exchange.

I am indebted to Mike Blyth for his efforts during his tenure as Chairman to ensure we have robust corporate governance structures and culture in place. I am delighted that he has agreed to continue as a Director such that we may still benefit from his wise counsel.

Outlook

2018 should be a year of continued growth for Anglo Pacific as production at our key assets continues to demonstrate strength and as new assets make their contribution. Much, however, will depend on how prices move during the year. In addition, as confidence returns to the mining sector, fresh opportunities will arise. We have shown our ability to be innovative and imaginative in our approach to the Denison and Piaui opportunities and believe that such an approach will continue to bear fruit in the year ahead.

In conclusion, I should like to thank all Directors and the entire executive team led by Julian Treger for their continued diligence and hard work during the year.

On behalf of the Board

N.P.H. Meier

Chairman
March 27, 2018