SIF Folio: Why I’m tempted to mine royalties with Anglo Pacific (+ Bilby update)

Tuesday, Sep 04 2018 by
SIF Folio Why Irsquom tempted to mine royalties with Anglo Pacific  Bilby update

It’s been almost a month since I last added a new UK stock to the SIF folio. The company in question was small-cap building services firm Bilby. This holding hasn’t got off to the best start as it’s already fallen by 17%.

This makes Bilby the second biggest faller in SIF. Regular readers will know that I don’t use stop losses or sell stocks ahead of schedule. So Bilby will keep its place in the folio for at least nine months. However, I think it’s worth taking a quick look to see what, if anything, has gone wrong.

Bilby - founder share sale?

I’m not too concerned by the sudden drop in Bilby’s share price. The firm’s full-year results in July were good and there’s been no newsflow to justify a fall since then.

One possible explanation is that there’s a big seller in the market. This idea seems to be supported by market data on 3 September, which suggested that more than a quarter of the group’s stock has just changed hands:


The only shareholder who controls this many shares is founder and Deputy Chairman Phil Copolo. Mr Copolo’s last-reported stake was 35.9% (14.5m shares).

Update 04/09/2018: An RNS has been released this morning confirming that Phil Copolo has sold his entire stake in the business and plans to retire, after 40 years in the hot seat. Given that he’s 65, this doesn’t seem overly worrying. The shares have been placed with institutional shareholders at 100p, hence the recent price weakness. You can read the full announcement here.

Moving on, I think it’s worth noting that the technical picture still looks reasonably supportive, with the 50-day moving average now ahead of the 100-day figure:


The black line is mine and suggests the share price could find support at this level.

Can Anglo Pacific deliver another 42% gain?

Although it’s an area where I have an interest, SIF’s exposure to the natural resources sector has been limited so far.

The highlight to date is last year’s investment in FTSE 100 iron ore giant Rio Tinto, which generated a total return of 42%. However, my screen is now highlighting another potential opportunity in this sector, mining royalties…

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Bilby Plc is a building services company serving local authorities, housing associations and domestic customers. The Company operates through provision of support services segment. It provides outsourced services to the public and private sectors. The Company and its subsidiaries operate in the gas heating, electrical and general building services industries. The Company's building services include internal and external building maintenance, refurbishment and conversion projects, living solutions, domestic and commercial plumbing, bathroom plumbing and installations, ground works and roofing. Its electrical services include testing and commissioning services, and installations. Its gas services include servicing and repairs, fault finding, system upgrades, meter connections, full central heating systems, boiler installations and cooker installations. The Company is a holding company for P & R Installation Co Ltd, Purdy Contracts Ltd, DCB (Kent) Ltd and Spokemead Maintenance Ltd. more »

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Anglo Pacific Group PLC (Anglo Pacific) is a United Kingdom-based company, which focuses on royalties connected with the mining of natural resources. The Company's producing royalties include Kestrel, Narrabri, Maracas Menchen, El Valle- Boinas/Carles (EVBC) and Four Mile. The Company's development royalties include Salamanca, Groundhog, and Amapa & Tucano. The Company's early-stage royalties include Pilbara, Ring of Fire and Dugbe 1. Kestrel is an underground coal mine located in the Bowen Basin, Queensland, Australia. The Company holds interests in the Narrabri coal project, which is located in New South Wales, Australia. The Narrabri royalty includes the Narrabri mine, and the Narrabri South project. The Maracas Menchen project is located in approximately 250 kilometers south-west of the city of Salvador, the capital of Bahia State, Brazil. EVBC is located in the Rio Narcea Gold Belt of northern Spain. The Salamanca uranium project is located in Spain. more »

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  Is LON:BILB fundamentally strong or weak? Find out More »

14 Comments on this Article show/hide all

andrea34l 4th Sep '18 1 of 14

I was very interested to read this latest SIF article as I have holdings in both companies :-)

I have watched the Anglo Pacific (LON:APF) share price move in both directions since I acquired my shares in March, and I am happy to continue holding. I think that their increasing diversification across different resources should hopefully offer better protection to resource price cycles.

Yesterday I topped up with a third (albeit still small compared to most on Stockopedia I am sure) tranche of Bilby (LON:BILB) shares having seen the huge sale that went through, as I assumed that this was (hopefully) the end to the selling activity that has resulted in a ridiculous decline in the share price from the recent high of 137. I agree that the departure of Mr Copolo should not be a concern, after such a long spell with the company why shouldn't he retire at 65? Today's announcement includes reassuring repositioning of personnel to fill his shoes. The content of the recent results looked extremely positive.

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leishylegs 4th Sep '18 2 of 14

Hi Roland,

Many thanks for another interesting and thought provoking article.

I am intrigued by your comments - "But if my view that we’re in the early stages of a mining growth market is correct.." and would be interested in your thoughts behind that.

I hold a number of mining and energy stocks in my own SIPP and have been wondering if I have let things get a little out of balance so another perspective on the mining sector, even a brief one, would be very welcome.


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Roland Head 4th Sep '18 3 of 14

In reply to post #396004

Hi Richard,

Thanks for your comment. I'm not a mining analyst, but I do have some interest in this sector. Broadly speaking, my view on the market at the moment is that having recovered from the downturn and strengthened their balance sheets, mining operators are now starting to think about consolidation and perhaps investing in new projects.

Anglo American (LON:AAL) and BHP Billiton (LON:BLT) have both approved multi-billion dollar projects recently (here and here) and Rio Tinto (LON:RIO) also announced an increase in capex in its recent results. Prices for most commodities remain supportive and there seems to be a consensus that the supply-demand balance for copper in particular may tighten over the next few years. 

In this environment, my view is that there will be winners and losers. I don't think all mining stocks are cheap at the moment, but I do think that some offer good value on a medium-term view.

A diversified mining royalty company offers an alternative way to gain exposure to this market. To this end, I think it should be possible for Anglo Pacific (LON:APF) to deliver attractive returns over the next few years.

Of course, I may be completely wrong! All of this is my opinion only, so please DYOR.



Disclosure: I own shares of Rio Tinto and Anglo Pacific.

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Andrew niven 5th Sep '18 4 of 14

Hi roland,
I was interested to read your article on bilby .
My concerm would be the historic profit levels are rather lack of profit that worries me.
Last years figures good , but can that be maintained With this type of business .
Having said that seems a possible buying opportunity at present price

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Metatron 5th Sep '18 5 of 14

Anglo Pacific is listed also on the Canadian Exchange and as I prefer the Canadian Dollar to the £ I bought it on the Canadian 2 years ago.

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simoan 5th Sep '18 6 of 14

In reply to post #396099

A diversified mining royalty company offers an alternative way to gain exposure to this market. To this end, I think it should be possible for Anglo Pacific (LON:APF) to deliver attractive returns over the next few years.


I'm a little confused by this after you mentioned in your article that 75% of royalty revenue comes from only a part of a thermal coal deposit that was SOLD by Rio Tinto. So it's difficult to see how you could claim Anglo Pacific (LON:APF) is diversified (single mine + single commodity) or that there is upside from investments that the likes of Rio Tinto (LON:RIO) are making for the future, when in fact they are divesting thermal coal interests?

All the best, Si

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Roland Head 5th Sep '18 7 of 14

In reply to post #396379

Hi Si,

Thanks for your comment. You're right in that Anglo Pacific (LON:APF) is probably still too dependent on coal. But the firm is taking steps to improve diversification. Revenue from Vanadium trebled during H1 and the company has spent $51m so far this year on diversifying its portfolio (e.g. new copper and iron ore royalties).

In the near term, global demand for thermal coal remains still strong for electricity generation. So I expect Kestrel to continue to generate plenty of cash.

I mentioned recent new spending by companies such as Rio Tinto (LON:RIO), BHP Billiton (LON:BLT) and Anglo American (LON:AAL) to support my suggestion that the mining sector is cautiously returning to growth. In such an environment, I believe Anglo Pacific should be able to make some attractive new investments. But I didn't intend to suggest that there was a direct link between Rio's spending and Anglo's profits.

Hope this helps,


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parkin47 6th Sep '18 8 of 14

I have bought and sold Anglo Pacific for some years now and never had to sell at a loss with a good div too
I will hold for some time I guess

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johnsmith68 6th Sep '18 9 of 14

Hi Roland. Can I ask how you got the view in the first picture at the top of this page showing Bilby's trading volume etc.? I don't seem to be able to find this view in Stocko. Thanks.

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johnsmith68 6th Sep '18 10 of 14

In reply to post #396704

Sorry, please ignore me - I couldn't see it for looking but now I found it.

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ramonvasquez 7th Sep '18 11 of 14

Hi Roland ...
Thanks for your comments on Anglo Pacific .
l have always liked the idea of collecting " ticket punchers " .
Frankly , aside from my green credentials being in tatters , l cannot see how the world could ever reduce
coal consumption any any significant way .
Hence coal is now o.k with me , especially since l did not have the courage to buy Whitehaven at the very bottom !
My chart of APF shews a distinct trading break-out in place .
Beat wishes , Ramon .

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brileen 8th Sep '18 12 of 14

Hi Roland
Thanks for bringing this company to my attention. I really like it and it would certainly help to diversify my portfolio. I am not an expert on these things but I cannot get over paying a premium to book value for the shares. Should I be using different valuation metrics? You mention that you consider P/B attractive at these levels.
I should be grateful of any further comment that you can make.

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Roland Head 9th Sep '18 13 of 14

In reply to post #397204

Hi BB,

Thanks for your comment. As a value investor at heart, I also like buying asset-backed stocks at a discount to book value. But the reality is that this is often only possible during severe downturns, such as that seen a couple of years ago in the mining sector.

Although Anglo Pacific (LON:APF) now trades at a premium to book value, I don't see the stock as overvalued given recent results. If these are sustainable then I feel comfortable with the current valuation.

It's worth noting that stocks trading at a discount to book value are often doing so for valid reason. The assets on which the book value depends may be worth less than expected in the open market for example. This is potentially the situation with retail property stocks at the moment (e.g. £INTU).

These situations can sometimes take much longer than expected to resolve. Several of the big FTSE 100 banks have traded at a discount to their book value for years now, due to the low returns they've generated during this time.

Having said all of that, buying good assets at a discount is still possible sometimes. And it can still be very profitable when you get it right!



Disclosure: I own shares of Anglo Pacific

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brileen 9th Sep '18 14 of 14

Thank you for this reply and sharing your expertise.
I have decided to hold off buying until the price goes below 140p (when/if?) which is approximately a 50% retracement on the recent spike as I would feel more comfortable with an entry point at those levels.

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 Are LON:BILB's fundamentals sound as an investment? Find out More »

About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I have passed the CFA Level 1 exam and hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style.  I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »


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