Anglo Pacific is a one-off in this country. It is the only listed business focused on mining royalties – which means the group provides cash to miners in return for a slice of their revenues.
Some of these mines are already in production, some are nearly there and some are at an early stage. Overall, however, the business is designed to offer investors stable dividend growth by investing in a range of commodities from a variety of countries.
Chief executive Julian Treger was appointed in 2013 when the company was struggling. He has worked hard to turn Anglo round and recent results are encouraging. Over the past four years, income has almost tripled, the balance sheet has been strengthened and Treger has broadened the firm’s exposure to premium commodities.
Profit flow: Anglo Pacific earns royalties from providing cash for mining
This has allowed Anglo to raise its dividend by 50 per cent since 2016 while ensuring that the dividend is increasingly well covered by group earnings.
Earlier this month, Treger unveiled results for 2019, including a 21 per cent rise in royalty revenue to £56 million, a 13 per cent climb in earnings per share to 20.41p and a 12.5 per cent increase in the total dividend to 9p.
Anglo pays dividends quarterly – offering 1.625p for the first three quarters of the year, topped up with a variable final dividend. For 2019, the proposed final payment is 4.125p, it should be paid in mid-June and any investor on the share register by June 4 will be entitled to that money.
Midas looked at Anglo in 2017, then again in 2018, when the price was £1.45. By last year, it had risen to £2.13 but on Friday, the shares closed at just £1.35. The lacklustre performance reflects understandable concern about the future.
Most commodities tend to follow the economic cycle so they fall in price when times are bad. With experts predicting a plunge in global growth, the outlook for Anglo may seem bleak.
The company should prove more resilient than a superficial glance would suggest, however. A few years ago, a coal mine in Australia accounted for the lion’s share of royalty income. Now, there are eight royalty-producing assets, covering commodities such as copper, uranium, gold and silver.
Treger has also been shifting the portfolio to less polluting products, such as iron ore pellets and coking coal, both ‘cleaner’ than lowergrade alternatives.
Various mines should come on stream soon, adding to Anglo’s income, and the Australian coal asset is targeting strong growth this year, despite Covid-19. Treger is also looking for more deals – and he may find some bargains.
Bank finance for mining projects was scarce even before the coronavirus outbreak – now it is likely to be in even shorter supply so miners will be forced to look to alternative providers of cash, such as Anglo.
Midas verdict: It is rare to find a dividend-paying stock in today’s markets but Anglo’s final payment for 2019 – 4.125p – looks pretty secure. Brokers also expect a total dividend for the current year of 9.5p, putting the stock on a yield of more than 7 per cent.
Some commodities may be turbulent in the short term but ultimately, prices should rise. Investors who bought Anglo Pacific in 2017 should hold.
New investors in search of sustained, long-term income could also be lured in at current levels.
Traded on: Main market Ticker: APF Contact: anglopacificgroup.com or 020 3435 7400