Anglo Pacific Group has acquired a 4.25% stake in Labrador Iron Ore Royalty (LIORC) for around $50m to gain exposure to the company’s iron ore assets and the high margin pellet market.
With a market capitalisation of around C$1.5bn, LIORC has an indirect exposure to a 7% gross revenue royalty (GRR) and a C$0.10 per tonne commission on all iron ore products sold by the Rio Tinto-operated Iron Ore Company of Canada (IOC).
LIORC also has a 15.1% equity position in IOC, which has mining and processing operations located in Labrador City, Canada.
IOC is a major producer of iron ore and seaborne iron ore pellets, with standard and low silica acid pellets, flux pellets, direct reduction pellets and iron ore concentrates among its primary products.
The company also sells an iron ore concentrate product based on the 65% Fe index.
At existing production rates, IOC’s ore reserves are expected to last for around 25 years.
The transaction is anticipated to further diversify Anglo Pacific’s income profile, commodity and geographic exposure.
Anglo Pacific Group CEO Julian Treger said: “This transaction continues Anglo Pacific’s growth trajectory, and is in-line with Anglo Pacific’s stated strategy of diversifying its sources of income and commodity exposure.
“The transaction is expected to be immediately accretive to adjusted earnings and free cash flow per share, and based on Anglo Pacific’s current shareholding and LIORC broker consensus 2019 dividend forecasts (Bloomberg), the company expects to receive between C$4.7-C$5.7m of royalty related revenue during the 2019 calendar year via LIORC dividends.”
The investment in LIOC will increase the company’s iron ore exposure to 20% from the existing 5%.
The company intends to capitalise on the demand for high quality iron ore products, fuelled by structural changes in the Chinese steel industry.