Anglo Pacific Group PLC (LON:APF) (TSX:APY) has continued its diversification, with an agreement which will see it help fund the construction of Incoa Performance Minerals LLC’s calcium carbonate mine and associated infrastructure in the Dominican Republic, as well as a processing facility located in Mobile, Alabama, in the USA.
In a statement, the main market-listed firm said that the financing, made together with Orion Mineral Royalty Fund LP - Series 1 and Orion Mineral Royalty Fund LP - Overflow Series 1, will fund Incoa’s production of high-quality ground calcium carbonate to be marketed principally to the domestic US calcium carbonate market.
High-quality ground calcium carbonate is used as a functional filler agent in a variety of end-products, including sealants and caulks, adhesives, rubber and as an active ingredient in food and pharmaceutical products which primarily serve to supplement dietary calcium consumption products.
The financing is structured into two tranches, with Tranche 1 proceeds financing the project through construction and into production. Orion will fund Tranche 1 in full, and Tranche 1 funding is expected to close in the first-quarter of 2020.
Anglo Pacific's US$20mln Tranche 2 commitment, expected to be funded in 2021, follows construction completion when the operation is in production and generating cash flow, and will provide Incoa with additional capital to bring its ground calcium carbonate products to market.
Under the terms of the Financing, Anglo Pacific is entitled to receive quarterly payments of approximately 1.23% of Incoa gross revenue following the Tranche 2 funding.
Anglo Pacific said its participation provides its first exposure to industrial mineral products and fits into its strategy of investing in high-quality products with reduced environmental footprints.
Further diversification of portfolio
Commenting on the investment, Julian Treger, CEO and executive director of Anglo Pacific said: "We are delighted to announce the opportunity to invest US$20 million into the Incoa calcium carbonate project, allowing us to expand our portfolio further to include industrial minerals.
“The transaction is structured such that funds are only invested when the operation is in production and generating cashflow.”
He added: “The Incoa project meets many of the Group's investment criteria, especially in relation to ESG, product quality, long mine life, attractive cost profile and, by the time the funds are invested, the project will be generating cashflow. This will further diversify our portfolio and will continue our trajectory of reduced exposure to coal.
“The US$20 million Anglo Pacific Tranche 2 Commitment provides the Group with a proportionate portfolio exposure to the Dominican Republic, an established mining jurisdiction with a number of companies operating high-value assets, the most prominent of which is Barrick Gold's Pueblo Viejo project which constitutes the largest gold mining project in Latin America.
“We are also delighted to continue partnering with Orion following the previously completed Mantos acquisition."
Investment looks derisked
In a note to clients, analysts at Peel Hunt commented: “The deferred US$20m investment into Incoa looks derisked and immediately accretive to the top line, probably from 2021. The investment moves APF forward in its ESG framework while also opening up a new investment market and leaving room for further growth in 2020.”
Peel Hunt repeated its ‘buy’ recommendation and 240p target price on Anglo Pacific shares, which in early trading were 4.3% higher at 135p.