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Dec 22, 2020

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I plan on doing this more often: $APF Anglo Pacific Group is a London based royalty streamer with assets in mostly tier 1 jurisdictions It currently trades at a MC of 200 million pounds and has been buying back shares - over 5 million worth Company has EV of 240 million pounds

In 2019 the company had $55.7 million pounds in revenue and EBIT of 37.6 million Trailing 12 months revenue dropped to 42.2 million and EBIT of 29 million This was mainly due to Covid 19 crashing commodities prices and shutting down mines which Anglo Pacific is invested in

Asset 1 Kestrel: Australian Coke coal mine (coal for steel) The mine is under new ownership and has a new accelerated timeline. The royalty area APF owns is expected to bring in £55 million to £75 over the next 3 years after which APF has no more stake in the project

Asset 2 Labrador Iron Ore Royalty Corporation is a public royalty company in Canada that owns 15% of a huge high quality iron ore mine (IOC) and has 7% royalty on the project APF owns 6.3% of it currently worth £80 million Mine life is +25 years and Rio tinto owns most of IOC

Asset 3 Narrabi is an Australian Thermal Coal mine. APF earned £3.5 million last year from it. The mine life is up to 2042 with production approved to nearly double from current levels. Broker value of royalty £48 million

Asset 4 Mantos Blancos is a copper mine in Chile . Recent investment in 2019 for £38 million with proceeds designed to increase production by 70%. In 2019 royalty would have produced £2.8 million with relatively low copper prices

Asset 5 Maracas Menchen Brazilian high grade Vanadium mine (used to strengthen steel for things like jets) Production is expected to increase by 35% in future. Mine has low operating cost meaning that royalty will pay out money even if Vanadium prices are low

In 2019 payout was £3 million which is great for a £12 million investment This royalty has 3 additional ways to make more money 1. The current mine owner fired its intermediary and instead will market the high grade vanadium to European customers

2. The mine owner is building a new ferrovanadium conversion plant which would increase project revenue and thus royalty revenue 3. APF owns the royalty on surrounding land which will allow it to earn more from expansions or new mines in the area Broker value £29

Asset 6 13 year loan at 10% for the Denson mill for £21 million Denson owns 22.5% of Mc Clean Lake mill. The mill processes uranium for Cameco’s cigar lake which has had many covid disruptions. Payment is due every quarter and totaled £3 million in 2019.

Failure to pay triggers the loan to roll over to next quarter. APF also owns the right to the mill should Cigar Lake get an expansion

Asset 7 EVBC Gold mine in Spain with 3 to 4 year mine life It has suffered from Covid 19 shut down but due to high gold prices owner is investing to find further deposits Royalty paid £2 million last year

Asset 8 Incoa is a calcium carbonate mine in the Dominican Republic. It will begin operations within the next 2 years and is expected to bring in £1.25 million to £1.5 million in royalty. Over the long term it will increase £2 million to £2.25 million

Mine life of 30 years with potential for 100 years. The £15 million investment is only due when the mine becomes operational

Further upside for APF: Legal dispute over royalties in four mile mine. This may lead to multiple million dollar payout. Likely this will occur. US government invested $25 million to develop mine Nickel mine in Brazil which APF owns royalty to

APF has a royalty on undeveloped land in Liberia that has gold. It may be bought out for £11 million. A gold company is drilling holes to check out the grade

***Note all the broker values were when underlying commodities where significantly lower Yet despite that , the company trades around P/NAV of .7 (I didn’t write about their other prospective assets which you can find in their annual filing )

Investment thesis: This is a stable dividend payer trading at a 7.6% yield. It has a 2.3 dividend cover ratio. This company can be treated like an inflation protected bond with upside from its royalties increasing production.

As long as the company continues to grow through intelligent deployment of capital this is a company you want to hold for a while . (Unless a commodity boom occurs and the P/NAV is over valued)

Two final notes: 1. It borrows capital at Libor +1.75 which juniors can’t and thus has a sustainable business of borrowing and investing at higher rates

2. Its recent deals structure are phenomenal. In Incoa it’s gets a royalty and it’s capital is only deployed once the mine is operational. This de-risks investment significantly In Chile, it tied its royalty investment such that the proceeds go to increase production capacity



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