“We’ve been looking for a big transformational acquisition for some time,” says Julian Treger of Anglo Pacific Group PLC (LON:APF).
“And this is it.”
He’s talking about the company’s just announced acquisition of a 70% interest in a stream on cobalt production from Voisey’s Bay.
The deal, at a stroke, places Anglo Pacific front and centre of the new green revolution, given the preponderance of cobalt use in electric vehicles and next generation batteries. By the same token, the relative exposure of Anglo Pacific to coal is much reduced.
The official calculation has it that on a pro forma basis that takes the new cobalt stream into account around 61% of Anglo Pacific’s royalty and streaming portfolio is now dedicated to battery-related metals.
But given that the company’s Kestrel coal royalty is due for revaluation before too long, the likelihood is that the relative percentages will shift further in favour of the battery metals.
The company already has significant exposure to vanadium, through its 2% royalty on the Maracás Menchen project in Brazil, and to nickel, another key commodity for electric vehicle batteries, through its royalty on the Piauí project, also in Brazil, and which incidentally also contains cobalt.
Anglo Pacific also has gold, copper, silver and iron ore in its royalty portfolio, although it was notable that to help finance the Voisey’s Bay acquisition a stake in Labrador Iron Ore Company was sold. This equated to a total return on investment of nearly 60% inclusive of dividends received, with Treger commenting that, with the iron ore price way above consensus, now represents an opportune time to take some profits.
That kind of thinking lies at the heart of the way Anglo Pacific operates. Cobalt is one of the few metals that has yet to really catch fire in the wake of the general uplift in commodities prices that has been evidence since the coronavirus crisis began.
Treger’s view, though, is that it will move significantly higher, and that when it does Anglo Pacific will be a significant beneficiary.
After all, following the Voisey’s Bay deal, Anglo Pacific can now become a go-to destination for anybody wanting direct exposure to cobalt. True, some companies, like Glencore (LON:GLEN), have much bigger overall exposure, but in terms of weighting Anglo Pacific wins it.
So, with the company looking forward into the twenty-first century and beyond, rather than back into the twentieth, what’s next?
Anglo Pacific will now no longer be the royalty company heavily geared towards coking coal and thermal coal prices. Rather, it will be geared towards cobalt and the battery metals. How that affects valuation in tangible terms, only the market can decide. But it’s not unreasonable to postulate that its battery metals exposure will appeal to wider audience looking for a shift towards investing in twenty-first century metals.
In corporate terms, meanwhile, more deals are on the cards. The company has already spoken of a potential deal worth around US$50mln, and there’ll be others down the line too. And if the direction of travel wasn’t clear before, it’s certainly clear now.
“We’ve now changed the agenda,” says Treger. “We’ve moved away from coal and stabilised our earnings profile for the future.”
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