Battery metals will be needed to build electric vehicles and renewable power. Demand for graphite, nickel and cobalt may increase 20-fold, and lithium could increase as much as 40-fold, according to Pallinghurst Group. It’s “mind-boggling” how many new mines will be required for energy transition, said Anglo Pacific CEO, Mark Lafleche.
Anglo Pacific is a royalty and streaming company with a focus on metals needed for decarbonization. Metals in the company’s portfolio include cobalt, copper, nickel, vanadium and uranium. The company has been exiting its coal business. Last year Anglo Pacific sold its thermal coal interest, a 1% gross revenue royalty over the Narrabri mine, to Whitehaven Coal for approximately $36 million.
The company got a lift from high commodity prices. In its 2021 year-end, the company touted a year-on-year increase of 80%. The total portfolio contribution was $85.57 million, with coal and cobalt prices significantly higher.
Traditionally streaming and royalty businesses are associated with the precious metal space, where companies like Franco Nevada and Wheaton Precious Metals take a by-product metal in exchange for financing. However, lithium, nickel and other energy transition metals are often a miner’s primary metal.
“The reality is the royalty and streaming model is a fantastic way to get funding even if people are looking at primary products. For example, a royalty or stream generally can be much more creative relative to equity and therefore, it does make sense in some circumstances to take a small royalty and to displace some equity,” said Lafleche.
“Some commodities like lithium, rare earths, vanadium, amongst others, are very difficult to hedge. Many project finance lenders typically require mining businesses to hedge for at least the short-term horizon when the loan is outstanding. Therefore our product is a really nice substitute, but it is also much more flexible than debt.
“A royalty doesn’t have fixed interest payments, mandatory repayments. It achieves a much smoother cash flow profile for mining companies.
“It’s mind-boggling how many more new mines are actually required [for energy transition], so therefore it’s a very big investable universe for us,” said Lafleche.