Anglo Pacific: Dotty

Issue 181, April 2017

Anglo Pacific, the only royalty group listed in London, reported its full-year results on Thursday. Royalty income doubled to £20m ($25m), free cash flow nearly tripled to £13m and the company pledged to “reconsider” its dividend levels, after they were dropped in 2015.

A spike in coal prices and a sharp drop in sterling both helped. But three and a half years after appointing dealmaker Julian Treger as its chief executive, Anglo Pacific was able to report “the beginnings of a turnaround”.

Treger is one of London's best connected fund managers, having previously run money for Glencore founder Marc Rich. Anglo Pacific hit the buffers and Treger took over in 2013, relocating its office to Savile Row and filling the building with paintings by Damien Hirst. In uranium and thermal coal, he has also done the odd royalty deal.

On top of Anglo Pacific, Treger continues to run his private equity fund, Audley Capital, which bought two copper mines in Chile off Anglo American in 2015. New York-based Orion stumped-up the bulk of the cash for the $300m transaction, but Audley collects the management fees and has more deals in the offing.

Not all of Treger's deals at Anglo Pacific have worked out. A vanadium royalty the company bought for $22m in cash soon after he joined has only recouped around £1.4m ($1.8m). But still, shareholders should thank Treger for keeping a lid on performance. The alternative would have been costly.

When Treger jumped across to Anglo Pacific, the company re-pegged some of its key policies: if he hit targets over five years, its new CEO was entitled to a windfall payout of £37.8m ($47.4m), to be paid in tranches. That's 13 times more than Randy Smallwood collected in 2015 as chief executive of streaming giant Silver Wheaton. It's also twenty times more generous than last year's pay for BHP boss Andrew Mackenzie, who's charged with over 80,000 employees.

The hurdle was high. Anglo Pacific had to deliver a 300 per cent TSR (share price gains plus dividends), but it's not clear where the money would have come from. Anglo Pacific only has cash of £5.3m, plus borrowing of £6.3m, so it is fortunate for investors that the shares have underwhelmed, flatlining since Treger joined.

As such, he only collected £563,000 in 2016, according to the company's latest annual report. And Treger is undoubtedly worth every penny. Anglo Pacific's remuneration report clearly shows, its boss is sharper than rivals. At just eight times earnings and with a five per cent dividend yield, maybe it's not too late for the shares to get up to speed.

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