RIO TINTO's Kestrel coking coal mine in Queensland, subject to a royalty held by Anglo Pacific. Photo: Anglo Pacific

RIO TINTO's Kestrel coking coal mine in Queensland, subject to a royalty held by Anglo Pacific. Photo: Anglo Pacific

Anglo Pacific in Royalty Talks with Pension Funds

Issue 91, July 2014

London-listed royalty group Anglo Pacific is in discussions with pension funds in the UK over striking joint royalty deals, chief executive Julian Treger told Global Mining Observer this week, positioning the company for its largest transactions to date.

Anglo Pacific struck a $25m vanadium royalty in June over the Marajas mine, Brazil, which is ramping up to production equal to a tenth of all global supply. Treger, appointed in October to up the company’s deal flow, describes it as “the beginning”, forecasting “one or two more this year, but maybe considerably more.”

Part funded by a $17m book-build, the deal offers a scalable template for future deals that would turn Anglo Pacific into a major royalty player. The company has cash of $20m and $15m in an undrawn credit facility, but a similar cash-to-equity funding mix in future agreements would lift its firepower above $150m.

Co-investments by pension funds could hike that further, allowing Anglo Pacific to expand beyond its flagship Kestrel coking coal royalty in Queensland, operated by Rio Tinto. New deals are likely to be in copper, coal and oil and gas, Treger says, with targeted returns “in the low-to-mid teens.”

A renowned activist investor known for formidable proxy battles, Julian Treger is lead partner at London-based hedge fund Audley Capital, which previously managed money for Glencore founder Marc Rich. Treger says Anglo Pacific is “not limited” to capital in London and is enjoying rising support from international investors.

With shares yielding 5.6 per cent, he has pledged to grow the dividend by boosting near-term cash flow, saying it is not an either-or between payouts and expansionary deals. “We don’t think we have to choose between them. We can do both.”

Pension funds are arguably an ideal passive partner to the royalty industry, given their income requirements and lengthy investment horizons. In December, Canadian royalty group Altius led a pension fund-backed consortium that bought a C$460m royalty portfolio from nickel miner Sherritt. In April, gold miner Osisko also structured a C$275m streaming deal with Quebec-based pension fund La Caisse de depot, though Osisko’s eventual takeover later scuppered the deal.

“We don’t think we have to choose between them. We can do both.”

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