October 30, 2018 / 12:52 PM / 13 days ago

Anglo Pacific aims to expand using $100 million warchest

LONDON (Reuters) - Anglo Pacific (APF.L) has a warchest of $100 million to spend on two new revenue streams over the coming months, preferably in the Americas, its chief executive said at the Reuters Global Commodities Summit. 

FILE PHOTO: A man walks by the iron ore blending site at Dalian Port, Liaoning province, China September 21, 2018. Picture taken September 21, 2018. REUTERS/Muyu Xu/File Photo

Anglo Pacific, the only small-cap, global, non-precious metals royalty company, has reported record revenues this year and a more than tripling in free cash flow as a reluctance to invest in the mining sector has driven companies to sell royalties as they struggle for finance.

In August, Anglo Pacific broadened its portfolio by buying a 4.25 percent stake in Canada’s Labrador Iron Ore Royalty Corp (LIORC). The deal gave it access to high quality, relatively unpolluting iron ore concentrate and pellets, which command a premium.

Its CEO Julian Treger has his eye on more deals.

“There are some big royalties coming into the market,” he told Reuters on Tuesday. He predicted the opportunities would be in the Americas over the next couple of months, but said he could not be more specific.

To fund acquisitions, Anglo Pacific has $100 million in available funds and for an especially tempting deal could seek extra from the market, Treger said.

The appetite to finance mining, which demands a willingness to take on risk for a long period of time as it can take decades to build a mine, is subdued.

That means some companies raise cash by selling royalties, which provide the holder with the right to a share of revenue, profit or production.

They may also sell development royalties from projects not yet in production in return for a stake in future earnings, although Anglo Pacific says the bulk of its investment will be in producing royalties as an immediate income boost.

After a brief recovery from the commodities crash of 2015-16, mining has been hit by trade tensions between the United States and China, which could limit demand from China, the biggest commodity consumer.

Resource nationalism is also an issue. Rio Tinto (RIO.AX) (RIO.L), for instance, has done a deal to exit Indonesia, where the government’s push for greater national ownership has made it more difficult for international firms to operate.

Treger said Anglo Pacific would stick with more politically stable countries.

“We have seen it over and over again that jurisdictional risk trumps everything, if things go badly,” Treger said.

In terms of choosing commodities, Treger saw downside ahead for battery minerals such as lithium and cobalt.

But he said there was a flight to quality as China, for instance, seeks to curb pollution, meaning there was still upside potential for the best quality iron ore and coal.

Additional reporting by Pratima Desai, Veronica Brown, Julia Payne and Alexandra Hudson

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