Ecora Royalties PLC (ECOR) Earnings Call Transcript & Summary

Welcome to the Anglo Pacific AGM. There will be a presentation followed by Q&A, where the whole Board are available to answer any questions. [Operator Instructions] I'll now hand over to Chairman, Patrick Meier, to begin. Welcome, Patrick.

Thank you very much for the introduction. Ladies and gentlemen, for those of you who don't know me, my name is Patrick Meier, and I've been a member of the Board of Anglo Pacific since April 2015. And I was appointed Chairman in May 2017. On behalf of the Board, I would like to thank all of you for your continued support and commitment and welcome you to this webcast. I'm glad that you've all managed to join in without any technical difficulties. I think we're all learning a new way of life these days with remote access. Further, given the unprecedented current situation and following government guidance, it is most unfortunate that shareholders are unable to attend today's AGM in person. We believe that the AGM is a very important date in the company's calendar because it is, after all, the opportunity for shareholders to meet with us, hear from us in person and learn more about the company. We do understand that beyond voting for the formal business, this forum is extremely important. But at the end of the presentation that Julian and Kevin will be giving, we will open the floor to questions. The AGM was convened and concluded earlier this afternoon with the minimum necessary quorum, and I'm pleased to inform you that all 18 resolutions were duly passed, as you could see on Slide 3. Our proxy voting results will shortly be updated to our website and available via the National Storage Mechanism. I would like to take the opportunity to officially welcome 2 new directors to the Board: Graeme Dacomb and Jim Rutherford, who joined as Non-Executive Directors in October last year. Together, they bring a wealth of experience in the mining industry, and they have already made a very positive contribution to the Board, and we very much look forward to their continued participation in the coming years. Whilst we welcome 2 new directors to the Board, we're also saying a sad farewell to another, Mike Blyth. Mike has stepped down from the Board as Non-Executive Director following the conclusion of this year's AGM. He has served on the Board for 7 years, serving part of his time as Chairman. Mike has played an enormous part in shaping Anglo Pacific into the company it is today, and I've asked him to continue his participation through this investor presentation such that he may like to say a few words at this point. Mike, over to you.

I'm not going to attempt to summarize the last 7 years during which Anglo Pacific has played a very large part in my life. Suffice it to say that the year after I joined the Board, our royalty income hit a new low point of just over GBP 3 million from just 2 producing royalties. In 2019, it was almost GBP 60 million, a mere twentyfold increase. It has been an interesting journey, challenging, stimulating, a steep learning curve at times and almost always enjoyable. It will take some getting used to no longer being involved. I have been very fortunate, over the years, to have worked with a highly talented and dedicated group of people, both in the office and in the Board room. I will miss the whole. Our company is extremely well placed with both the financial and, more importantly, the human resources to execute our growth strategy. I leave the company in extremely good hands, and I wish Patrick and the Board every success going forward. I will be watching from the sidelines as a very interested shareholder. Thank you.

Thank you, Mike. We will all miss you, and we wish you all the very best indeed for the future. I'd like to now hand over to our new directors, firstly, to Graeme and then Jim, to formally introduce themselves. Graeme, over to you, first.

Good afternoon, all. I'm Graeme Dacomb. And as Patrick mentioned earlier, I joined the Board as a Non-Executive Director in October last year. I'll be taking over as the Audit Committee Chairman after this AGM, which, as you've just heard, marks the retirement from the Board of Mike Blyth. My background is in accounting and auditing, primarily with Ernst & Young in the U.K., where for the last 12 years, I was focused on serving clients in the extractive industry sector. I have another Board position at Ferrexpo plc, a London listed but Ukrainian-based iron ore miner, where I am also the audit committee Chair. For me, Anglo Pacific, occupies a unique position in the mining industry, offering alternative sources of finance for mining companies struggling to obtain traditional financing. I'm very pleased to be able to contribute to that strategy. Thank you, and back to you, Patrick.

Thanks, Graeme. Maybe I can now hand over to, Jim, Jim Rutherford.

Thank you, Patrick. My name is Jim Rutherford. And as Patrick has indicated, I joined the Board last October, and I was appointed senior Independent Director in January of this year. My background is in investment management and investment banking, primarily with Capital Group, which is a long-established investment management firm based in the U.S. where I was responsible for our investments in the metals and mining industry. My other Board positions include Anglo American plc, which is a large diversified mining company listed in London; and Centamin plc, which is one of the main London-listed gold producers. And as Graeme has also indicated, for me, Anglo Pacific occupies a very interesting position in the mining industry today as the traditional sources of mine finance have declined. This has opened up multiple opportunities for royalty and streaming companies, and that is a trend which I believe will continue for a long time. Thank you, and back to you, Patrick.

Thank you, Jim. As for the coordinator, I should have maybe suggested that you move the slides on to Slide #6 and 7. And then on to Slide 9, please. So thank you, Jim and Graeme. We also have the other members of the Board on the line. And I'd like to just introduce them briefly. Vanessa Dennett. Vanessa joined the Board in November 2018, and she has a wealth of experience in multiple jurisdictions and commodities. She has a deep knowledge of the mining industry, which allows her to make a significant contribution to our assessment of potential deals and transactions, and she is well versed in the requirements of good governance, regulatory issues and managing risk, all of which is an asset to the Board. And moving on to Slide 10. Bob Stan, joined the Board in February 2014. He has 40 years of experience in the mining and resource sector, and he provides the Board with valuable insight from an operational perspective, which allows him to constructively challenge and robustly scrutinize matters that come before the Board and the committees on which he serves. All of the Directors will be available to answer questions during the Q&A session at the end of the presentation. I'll shortly hand over to Julian Treger, the Chief Executive Officer, and he will provide an overview and update on the company. And he will then hand over to Kevin Flynn, the Chief Financial Officer, who will run through the financials. So if I could ask you to move to Slide 12, and I'd like to hand over to Julian, who joined the Board in October 2013. During his time with us, he successfully led the company's acquisition of GBP 180 million in income-producing royalties, which have further diversified and strengthened the portfolio in terms of commodity, grade and geography while also reducing the reliance on Kestrel. So if I may hand over to Julian, please.

Thank you, Patrick. So my part of the presentation will cover a brief update on the COVID situation; some news on the portfolio; a brief summary of the first quarter's results, which obviously came out since the annual report and results; and then also 2019 highlights before handing over to Kevin to cover the finance and portfolio review. So turning first to COVID, and this is now on Slide 13. As you can see, business has been very much as usual for Anglo Pacific with all staff members continuing to work remotely. Investment opportunities are being rigorously pursued. The cash flow operations are continuing, and social distancing measures have not impacted productivity or the ability to export product there. IOC has temporarily adjusted production to meet increased demand for 65% iron concentrate in response to a slowdown in demand for pellets and, therefore, its mix has moved away from pellets. After a 2-week shutdown in early April, which we informed the market, EVBC has now resumed full production. McClean Lake continues to be on care and maintenance and is working to determine a restart date. Anglo Pacific received a full Q1 contribution from this royalty and expects to receive a reduced contribution in Q2. But for the year as a whole, McClean Lake only accounted for 6% of our portfolio contribution in 2019. Operations underlying are Maracás Menchen, and Mantos Blanco's royalties in Brazil and Chile continue as usual. And commodity prices, which underpins -- which underpin the group's revenues have seen a mixed impact year-to-date, the coking coal and thermal coal price has gone down, but the iron ore price has gone up, but most have started recovering since the levels seen in February and March. On a more positive front, we have had some good developments in a number of companies and royalties we own within the portfolio. Most recently, on the 22nd of May, it was announced at Fortescue, which is a very large major iron-ore-listed company in Australia, had increased its holding in TSX-listed Candente copper to close to 20%. We own the royalty on the underlying assets of Candente, which is one of the largest underdeveloped copper projects in the world, known as the Cañariaco Copper Project. And at its cost, Fortescue is now allocating some engineers to work with Candente on a technical committee to identify the optimum strategy for the development of this project. And that bodes well for our [ 0.5% ] royalty. We also saw in May that the Incoa calcium carbonate project, which we announced our commitment to early in the year, had the first tranche of its financial close. And that project is now proceeding with construction. And then finally, with regards to our vanadium royalty at Maracás Menchen, which is one of the highest-grade vanadium resources in the world, Largo Resources announced that its vanadium offtake agreement with Glencore had expired on the 30th of April, which should lead to higher revenues for Largo and higher royalties for us. And they also announced Board approval to build a ferrovanadium plant, which also will be very positive for our royalty in due course. So that's a very recent update on developments on Slide 13. Turning to Slide 14, and now moving back in time, I suppose. Q1 for Anglo Pacific saw relatively constant revenues compared to Q4 in 2019, which was a good result in the circumstance where we saw the COVID crisis really starting to affect all sectors in the world. Cash flow benefited from higher coking coal prices and a weaker Australian dollar. LIORC had a one-off decrease in revenues, but we saw a good increase year-on-year in Narrabri. And overall, the results were basically flat, which we were quite pleased with, and that allowed us to increase the quarterly interim dividend level to 1.75p per share, up by 7.7%. And that higher royalty will -- sorry, higher dividend will kick in from August onwards. So we were pleased with the Q1 results. Going back further now on to Slide 15 for the full year of 2019. Generally, we saw increases in most metrics of around 20%. The royalty revenues went from around GBP 46 million to approximately GBP 56 million. The total portfolio contribution also increased roughly 20% as did operating profits. Adjusted earnings per share increased by less because there was a much higher tax charge payable of our tax shield overall. Overheads went up as we invested in additional resources to deliver the group's growth ambitions but we were encouraged by the results and also the prospects for 2020. And so we increased the total dividend for the year to 9p per share. That was still 2.3x covered. And as a result, there will be significant dividend payable in June to those on the register on the 5th of June. Cash -- free cash flow went up around 20% as did many other metrics. And the net asset value rose by around GBP 10 million despite the fact that we had earned GBP 40 million from cash flow during the year. Net debt at year-end was around GBP 30 million, reflecting the GBP 40 million of Mantos Blancos acquisition and the GBP 20 million additional investment in LIORC, both of which were completed in the second half of the year. Kevin will run through some of the operational highlights, but it was gratifying to see that LIORC became the second largest source of revenue in 2019, with the group's initial investment yielding 17%. And we did both increase the stake further during 2019, and we made a small additional investments in LIORC in the first quarter of this year. So we earn many more shares on which we will earn incomes. Cash flow grew nicely even though the coal price was down as the new owners ramped up production last year by 42%. And this year, we expect further growth. We were hedged by some decline in vanadium prices, but that was -- wasn't that material. But making the Mantos Blancos investment was a big step in diversifying into base metals, and we should see the full year benefits of that in 2020. And fortunately, just before the COVID crisis hit, we also refinanced with an additional $30 million of borrowing facilities, which gives us good firepower to take advantage of the opportunity set, which we think will now develop in the mining finance sector given the increased restrictions on finance generally and to mining, specifically. So turning to Slide 17. We now look at the last 6 years from the time that Mike Blyth referenced when he joined the Board as -- and became Chairman. You'll see the way in which the income has grown by roughly 20x and the way in which we've managed to diversify away from cash flow successfully such that by 2019, we had almost made up the cash flow contribution in 2017, and we should see further progress this year. And what's interesting when we look back at this over the past 6 years is the track record, which we've developed with successful new royalty acquisitions. I don't think that's because we always get it right. I think we are driven by our model where we expect to earn 8% to 12% or more for our royalties to commodities, which are temporarily having a difficult time. And so the best while making profitable investments in the mining space, which is what our financing ultimately relies upon, is to have a good entry point for a commodity. And that's the pattern that we seem to have repeated over and over again. Slide 18 just looks at the way in which the royalty portfolio has evolved from 2013 when, as you can see, cash flow was 76% of our net asset value. As of the end of 2019, it was 26%. And you can see the way what was a very over -- portfolio overexposed to one asset has now become more appropriately diversified, and that process is continuing in 2020. And that's true as well for geographical exposure. Australia, which was 90%, now down to 44%; Canada, which was 4%, is now 32%. And as the portfolio expands and the income becomes more stable, we would hope that our rating from investors will continue to grow. Page 19 looks at the way in which the acquisitions have diversified the portfolio year-by-year reducing coal exposure. This is obviously topical given the fact that we announced at the beginning of the year that we were no longer going to be investing in thermal coal. You can see here this is a broker estimate number. The actual number is lower. But even in terms of broker estimates over the last 4 years, the proportion of cash flow in our net asset value has halved from 65% to 33%. And at the same time, the share of Narrabri's contribution to our income has dropped from 37% in 2015 to under 7% in 2019. And those processes will continue. Page 20 of the slide just looks at the way in which we've been incorporating ESG metrics more and more into our business. We think that there's a real strategic opportunity for Anglo Pacific to pivot from being a largely core-based royalty business in 2013 to being one of the world's leading, if not the leading, 21st century materials and battery materials, clean energy royalty business in this decade. And as part of that, we've rapidly increased the standards that we have been applying to new investments, and we've been auditing existing investments much more rigorously than would have been the case 5 years ago. And we have already been focusing on funding better quality and cleaner underlying commodities, which are good for the world. So the portfolio that you are exposed to is a portfolio increasingly of high purity, more highly valued commodities than general commodities. And often people ask us which commodities we want to grow in, and those would include bulk materials like iron ore or met coal, more base materials, more battery materials, perhaps phosphates and potash. But even within those commodities, we look to get exposure to the very premium end of those commodities, and we think that those premium characteristics will be increasingly valued. Turning to my final slide, Slide 21. You'll see there the way in which we've grown our dividends per share progressively over the past couple of years but maintained pretty high dividend cover. So there should be no risks in the short term to touch dividends. But despite the great way in which the earnings have grown and the dividends have grown, it's been very frustrating, as you can see on the right-hand side of the page, the way in which we've been derated. So in 2016, we were trading at as much as 20x EBITDA. Now we're around 5 or 6x. Equally, we were trading at 1.2x our net asset value. Now we're probably -- with the share price having grown recently, we're probably at around 0.7, 0.8x, but still quite a derating during a period when we feel that we have executed well. With that, I will hand over to Kevin Flynn for the financial and portfolio review. Kevin joined the company as Chief Financial Officer in January 2012 and was appointed Executive Director in January of this year. During this time, Kevin has successfully originated and negotiated all of the group's foreign facilities and, today, the leading role in raising equity. Together, we continue to further diversify and strengthen the portfolio. Kevin, over to you.

Thank you, Julian, and hello, everybody, and I'd like just said that it was a privilege to join the Board at the beginning of the year, and I look forward to many years of continuing the growth and success that we have put into the company since Julian took over in 2014. Turning to Slide 24, which is our financial highlights for the year. As Julian mentioned, 2019 was another record year of revenue for us. Story has been very much around volume growth from our income-producing assets, noticeably Kestrel, where the operator delivered on what was very much thought to be an ambitious target to increase its volumes by 40% in 2019. Overall, our revenue increased by 20%. I'll discuss the individual components on the next slide. Adjusted earnings increased by 13%, not quite at the same rate as revenue, and this is due to 2 main factors: the increase in our cost base associated with investing in business development, very much in line with our focus on accelerating our growth. And secondly, 2019, contained a full year's tax charge, whereas 2018 benefited from a 6-month tax shield effectively. The middle graph shows dividend cover maintained at a very healthy 2.3x in 2019 even as the dividend increased. So that shows that the dividend cover was maintained as the earnings increased with a 1p increase in the overall dividend for the year. The business continues to generate significant levels of free cash flow, and we'll look at how this was deployed in 2019 on a later slide. Turning to Slide 25, which looks at our income breakdown. And I'll use this slide as well to discuss some of the portfolio developments over the last year or so. The table was broken down into 3 main segments, reflecting the different accounting treatments for our royalty assets. And what we do here is to combine these into one overall number, which shows the contribution, which our portfolio generates and is available for us to either invest or distribute. It's worth noting that one of our most recent investments, LIORC, is now our second largest revenue source, but I'll run down through the royalties briefly in order as they appear on the table. Kestrel continued to account for the majority of our revenue, GBP 37 million. The increase in the year was mainly as a result of the volume growth. As I've mentioned, the operator achieved growth in volume by 40% in its full first year of operating the asset. The revenue from Kestrel also benefits from exchange rates in the period because coking coal is priced from a contractual basis in U.S. dollar, but the royalty ratchet rate that we're exposed to is determined based on the average Australian dollars realized. So the weaker the Australian dollar is against the U.S. dollar, the higher our royalty revenue, and this was the case during 2019. But I guess offsetting some of these gains was a lower coking coal price environment in 2019 or the average price achieved at Kestrel was about 13% lower than 2018. In terms of outlook, despite achieving 40% growth in volumes in 2019, the owners are now targeting a further 6% volume growth to come in 2020, although the pricing environment at the moment looks a bit softer than the average achieved in 2019. The next royalty, Maracás. And I suppose here to compare revenue to 2018, not to do so on a like-for-like or a sustainable basis or indeed recognizes the considerable operational success achieved by the operator during the period where there were record sales of 10,200 tonnes in 2019. It's probably more of a comparable metric to look at 2019 against 2017 because 2018 benefited from a very sudden spike in the vanadium price, which saw the pricing go from about $6 a pound to over $34 a pound largely due to a buying response in China, which is required then to meet the new deal rebar standards being enforced by the government. The pricing has since reverted back to around $6 a pound if some of that buying pressure has come off the market. In terms of outlook, I think there are a few very positive updates recently, which bode well for revenue. Firstly, Largo completed an expansion plan recently, which was allowing for production to increase from about 10,000 tonnes to about 12,000 tonnes per annum. And we saw that coming through in the first quarter in terms of our royalty. Largo's offtake agreement, which contains a certain level of discount to spot ended at the end of April. And Largo is now selling its own product direct to market, and our royalty should benefit from the additional margin, which they would hope to achieve in doing so. Finally, Largo is progressing plans to construct a ferrovanadium plant, which will see a different slightly higher-margin product being produced. And for these reasons, we still consider the Maracás royalty to be an important source of revenue for the group going forward. Looking at Narrabri. Sales volumes recovered noticeably during the year, posting an increase of about 48% to 6.2 million tonnes. They continue to successfully navigate their way through a localized part within the coal deposit, well-documented issue that they've been experiencing over the past few years. However, as was the case for Kestrel, a softer coal price environment in 2019 eroded some of the benefits of the additional volumes. Longer term, Whitehaven are progressing their plans around expanding the long wall further into their southern license area, which would allow them to increase annual production rates closer towards their permitted 11 million tonnes per annum, almost double the levels achieved in 2019. They've now indicated that a mine life beyond 2040 is their current estimate. It's worth remembering that Anglo Pacific paid no value at the time of acquiring the royalty for any potential conversion of the southern license area versus a very positive development for our royalty. Looking at Mantos. This is the most recent addition to the portfolio, and it's a first direct exposure to copper. Revenue in 2019 only represented the 4 months of production from our time of acquiring the royalty. For 2020, we'll obviously enter the full year longer term. I think we remain optimistic about copper. Although it's fortunate to have been quite volatile as far in 2020, it's probably a commodity, which was immediately impacted by trade wars and COVID-19 in the early part, although prices have rebounded somewhat since. Four Mile, we're still progressing our case against the operator at Four Mile, whereby we can attest that they have significantly underpaid our royalty by including deductions which were not permittable. As with any legal process, progress has been quite slow as we've gone through our diligence process of discovery and documentation. But we've now filed a statement of claim, and we expect further judicial directions in relation to trial dates over the summer months. In the meantime, what has been encouraging is that the spot price of uranium has increased significantly, which will bode well for the royalty in the second quarter. EVBC, another strong year from EVBC volumes increasing by 10%. The operator continues their focus on plant efficiency. Revenue probably would have been higher had it not been for abnormally high levels of rainfall in the last 2 months of the year. Their target remains to produce about 65,000 ounces per annum. The operator did have to shut down activity at the mine for a 2-week period in April following the instructions of the Spanish government in relation to instructions around COVID-19, but we'd be hopeful that the much higher gold price environment that we're currently in at the moment will benefit the royalty for the remainder of the year. Looking at LIORC. Our interest in LIORC was acquired through on-market purchases in which shares in the single asset Canadian listed pass-through vehicle, which owns the underlying LIORC iron ore royalty. Our average buying price in 2019 was CAD 24. And the dividend we received in 2019 was $4 per share, representing a running cash yield of about 16.7% on the cash that was invested throughout the year, a very healthy initial return on our investment. The income benefited in 2019 from a one-off distribution at the beginning of the year of cash that was retained in the business at the end of 2018. So we would not expect that same level of dividend to come through in 2020, although the broker consensus for the year is still around CAD 2.50 plus, which, at those levels, would still represent a very attractive yield of 10% plus. And there is the potential, obviously, for iron ore to benefit from supply issues in Brazil should the outbreak of COVID-19 worsen by country. McClean Lake is the operation, which has been placed on care and maintenance, as Julian mentioned earlier. Ordinarily, we would expect around CAD 450,000 to CAD 550,000 a month on this revenue source, so around about CAD 5.5 million per annum. And 2019, this accounted for about 6% of our overall contribution, but we would be optimistic that production will resume in due course, and then we'll wait to hear updates from the operator around that and perhaps the uranium price movements of late might provide categories for them to do so sooner. Looking at Slide 26, which is a summary of our income statement. We've just gone through the breakdown of the royalty-related income, which doesn't include EVBC or the Denison financing arrangement treated us repayment principal. Looking elsewhere, amortization increased slightly as we now have an additional income-generating royalty in the portfolio in Maracás, and that is subject to amortization. But amortization and depreciation charges are removed when we look at adjusted earnings. Operating expenses on a pro forma basis includes the noncash charge for the VCP share plan, and these were just over GBP 7 million in 2019. Excluding those share-based charges, overheads were GBP 6 million, which is about a 28% increase compared to 2018. Most of this increase was in relation to business development with planned additional resources in our investment and deal-origination functions alongside higher bonus levels, recognizing the record levels of income and investments made over the course of 2019. So taking all of that into consideration, our operating profit was GBP 44.8 million, a 20% increase from 2018. Looking below the line, we include 3 valuation and impairment categories, all of which are noncash and excluded from our adjusted earnings metric. The additional impairment provision in the period relates to the ring-of-fire royalty, where changes to the assumed start date, once again, has impacted on its current value. The previous year included a provision on a similar basis for the Pilbara royalty. Revaluation of royalty instruments relates to EVBC, but this line now also includes its revenue in accordance with IFRS 9, so limited valuation movement. And the revaluation of Kestrel, this swung from a profit of GBP 10 million in 2018 to a loss of GBP 9 million in 2019. We'll discuss this movement in more detail on the next slide, but it's worth noting that this is just the noncurrency portion of the valuation because the FX portion is included in other comprehensive income. Finance costs in the period, these were higher, reflecting the higher level of borrowings on average in the business over the course of the last 12 months as we invested $75 million in growth. Foreign exchange relates mainly to the translation of our foreign-denominated borrowings. And in the current year, we had a gain, and that was the difference between the FX rate at the time we acquired Mantos and the FX rate at the end of the period. Looking at tax, as I said earlier, the tax charge increased considerably, but the comparative year did benefit from a full tax shield for a 6-month period, so not quite apples and apples. We'd expect the tax charge to normalize in 2020 around the level that we see in 2019. So overall, profit after tax was GBP 29 million, which was in line with 2018. However, when adjusting for noncash charges and valuation movements, adjusted earnings, which is our KPI, were GBP 36.8 million compared to GBP 32.5 million in 2018, which translates to adjusted earnings of just under 20.5p in 2019 compared to 18p in 2018. And as Julian mentioned, with a full year dividend of 9p, our dividend is very well covered by our earnings. Turning to Slide 27. This is a snapshot of our balance sheet showing that our net assets grew by 3.5% to GBP 226 million in the period. As I've mentioned before, the balance sheet value is a mixture of assets carried at fair value and those that are either carried at cost or the lower of value. We are not allowed to reflect any valuation increases in our intangible assets since we acquired them or if they progressed production in accordance to IFRS. Looking at Kestrel, the valuation of the royalty declined by GBP 13.4 million in the year, which was actually a robust valuation movement considering you actually generated income of GBP 37 million in that period. So although the increased production levels serve to shorten the mine life, it also serves to increase the net present value of the royalty, but the cash flows expected to materialize quicker. And this increased run rate that the operator achieved was not factored into the 2018 valuation. In addition, the Australian dollar weakened, as I mentioned, against the U.S. dollar in the period, which starts to increase the expected Australian revenue we receive. And it also increases the weighted-average royalty rate, which related to the Australian dollar coal price. Looking down the balance sheet. Royalty financial instruments includes our $75 million investment in LIORC and also includes the EVBC royalty. The increase in our royalty intangible assets mainly relates to our Mantos acquisition in the period. Other long-term receivables is the majority of our investment in the Denison financing arrangement. So total royalty-related assets on the balance sheet were GBP 282 million at the end of 2019 compared to GBP 247 million year-over-year. Mining and exploration interests relate mainly to our legacy portfolio of equities, the main one being our minority stake in Berkeley Energia. We will look at the cash and the borrowings on the next slide, receivables mainly relate to the royalty revenue that was due at the balance sheet date. These are usually received in full within 45 days of the period end, and that was the case at the end of December. Our deferred tax balance is mainly the tax impact of the fair value of the Kestrel royalty, which unwinds with the value of the asset. The majority of other payables related to our income tax in relation to earnings in 2019, and these are mainly payable in July this year. Also included in this number is the provision for $1.5 million in relation to the final deferred time -- deferred payment for the Maracás royalty, which was triggered with the Q1 2020 royalty submission and will be paid at the beginning of next month. Turning to Slide 28, which is our liquidity, cash and net debt. The group generated close to GBP 48 million of free cash flow in 2019. The record level of investment of $75 million or GBP 62 million made during the year were financed both from cash on hand and drawing down on our borrowings. So we did not need to raise equity to finance our growth. Dividends paid of GBP 14.5 million implies a capital allocation ratio of over 4:1 in favor of investment in 2019, very much in line with our objective of accelerating our rate of growth in the coming years. Although borrowings were higher at the end of 2019, it's important to note that our operating leverage, which is our key financial covenant, remained low. The operating leverage is less than 0.7x. The group is permitted to operate with leverage of up to 2x. And although we are always cautious in respect of using borrowings in our business, the confidence that we have from the volumes, primarily coming from Kestrel, gives us adequate assurance at the moment that we're in a position to repay our borrowings and comply with our covenants throughout the period and use our borrowings to finance our immediate growth opportunities. As Julian said, we took the opportunity early on this year to modify our borrowing facility, which now appears quite timely in the context of COVID-19. Including the accordion feature, we now have a borrowing facility of $120 million, and as of today, we have around about $75 million of liquidity through this available to finance immediate growth opportunities. But we remain in a very strong financial position with liquidity on our balance sheet in a favorable market to continue on our growth trajectory. The final slide for me is Slide 29, which looks at dividends. We recommended a final dividend of 4.125p for the year, which I'm pleased to say was approved by shareholders at the AGM this afternoon. This is a 32% increase in the final dividend being recommended for 2018, and brings the total dividend for the year to 9p compared to 8p per share, which was paid in 2018. In addition to this, we increased the quarterly interim dividend level to 1.75p per share from 1.625p previously. This is really in relation to trying to smooth out the payment of dividends over the calendar year in light of the increases recently in the total dividends from 7p in 2017 to 9p in the current year. So I think the key message here is that along with the 4.125p final dividend, we would expect -- our shareholders should expect to receive a total dividend of 5.875p of income between now and the 14th of August. The shares go x dividend on the 4th of June to be eligible for the final dividend of 4.125p, and we include a dividend calendar, which shows the key dates around the dividend. And with that, I'll hand back to Julian to look at the highlights and the outlook.

Thank you very much, Kevin. So now we're on Slide 30. And I think the highlight and outlook very much echo the themes that Kevin and I have been expressing so far. I think we've demonstrated the ability to grow and diversify the portfolio. We are accelerating that rate of growth and diversification at the same time as upgrading our focus on ESG and the quality of the portfolio so that it is a premium portfolio fiscal 21st century materials and needs of 21st century society. And in that respect, we've made a commitment to make no further investment in thermal coal. From an outlook perspective, we've been relatively unaffected by COVID thus far. And the Q1 results were gratifying and flat with Q4 of last year. Prior to for COVID crisis, we're expecting healthy organic growth this year, both from growth in cash flow, growth from the vanadium royalty, which should have less charges placed on it by its marketers and a full year's worth of contribution from Mantos as well as the increased shareholding we have in Labrador Iron Ore. So that is a positive backdrop to hopefully executing on further transactions during the remainder of the year as we can deploy capital at higher return rates, reflecting the scarcity of funds available to the mining sector for development. We, as Kevin mentioned, are fortunate that we have access to liquidity for further royalty acquisitions. And so we're firmly focused on growth and diversification and look forward to the second half of the year with confidence. With that, I'll hand back to Patrick, who will deal with the Q&A session. Patrick?

Thank you, Julian, and thank you, Kevin, for the update. So we'd like to go now to the Q&A session and open the floor. And what I'd like to do is to pass back to our host, who will remind us of the process to ask questions, and then we'll proceed. So over to you.

Thank you, Patrick. [Operator Instructions] We've had a number of questions come in. Firstly, from [ Stephen Reeve ]. The question is "given the issues surrounding China regarding the virus, Hong Kong and new regulations concerning imports of thermal coal possibly targeted at Australia and their potential impact on international relations and trade, how aligned is Anglo Pacific on the China market? And so can it take any actions to mitigate any potential impact should relations and trade deteriorate?

Thank you, [ Stephen ]. Julian, can I pass that one to you?

Sure, Patrick. Thank you for the question, Stephen. The answer is obviously that the commodity sector is exposed to China. It is the largest consumer of commodities globally, and their actions do affect commodity pricing. But Anglo Pacific per se does not supply through its royalties much commodities into the Chinese market. So our thermal coal goes to Korea and Japan, who are shareholders in the Narrabri project. And equally, our coking coal from Australia goes more to India than to any other market. So I think we are relatively immune. And if China stops buying raw materials, for instance, from Australia, they'll have to push up the global price of those commodities in order to source them elsewhere. And that could actually benefit us even though we're not selling into China because the price of the global seaborne commodities rises. Hopefully, that answers your question.

We have another question from [ Jeffrey Buxton ]. "Given the current global economic environment, where does the Board see future growth coming from both in terms of portfolio expansion as well as top line revenue growth?"

Again, Julian, I'll pass that to you.

Thank you, Patrick. Well, I think in terms of portfolio expansion, we always are opportunistic, and we have very high standards that we need to meet to put capital to work. But ideally, our direction is to, as I've said previously, reduce our coal exposure to well below 10%, to have iron ore exposure of around 25%, 30%, to have base metal exposure, copper, nickel, zinc of around 30%, maybe 20% in other battery materials such as lithium, cobalt, vanadium and then possibly another 10% in potash and phosphate. That's the sort of direction we want to grow in. But it will obviously depend upon the opportunity set we see. But the existing portfolio has a lot of growth within it. And in the presentation we did around the results, which are -- which is available on our website, there is a page which shows the potential both for mine life extensions and for production growth, which exists in a large portion of the portfolio. And when I mentioned at the beginning of this presentation the good news with respect to the Cañariaco copper project, the Incoa calcium carbonate project and, obviously, developments that are positive with regards to building a ferrovanadium plant at Maracás Menchen, our vanadium project, those are all examples of growth, which is sort of pregnant within the portfolio, which should come through in the coming years. So there's both organic growth and, of course, we can deploy the strong cash flows and the borrowing lines we have to acquire growth as well. Next question.

We have a question from [ Stephen Payne ]. "Given the large income derived from coal mining and the proposed elimination of fossil fuels over the next few years, what is the strategy of APS over the next 5 years? And how will this be enacted?"

Julian?

Yes. I mean, I think the problem with this system is that people can't see for other questions. So I think I largely answered that. But, of course, we have announced earlier in the year that we would no longer be investing in thermal coal. I think over the next couple of years, cash flow will decline as a proportion of our revenue mix and asset mix naturally as we generate significant cash flow from that asset. So I think we will be largely not free, but we'll be much reduced in coal over the next couple of years. And of course, on the other side of the equation, we'll be deploying large amounts of capital into these new materials to the 21st century. So if we can achieve both of those, and I think we can, the complexion of the company's revenue base will be very different within 2 or 3 years. Next question.

Another question from [ Jeffrey Buxton ]. "With ESG having become such an important issue for all companies, but especially the resource sector, how is Anglo Pacific going about achieving its ESG goals?"

Well, if I may, Patrick. That is something which we are spending an enormous amount of time and attention on. We've created the sustainability committee. We have greatly increased the amount of ESG due diligence we do on new royalties. And as I said earlier, we also are ramping up the monitoring on the existing portfolio very significantly. On top of that, we have this emphasis on nonpolluting purer less contaminated commodities in whatever we do. So we're trying to be cleaner and trying to fund a world with a better carbon footprint. And of course, as part of that, we've announced the commitment not to invest any further in thermal coal and run off our exposure to coking coal, which will naturally occur in the next couple of years. So we are very much on this. We think that there's an enormous price and opportunity for Anglo Pacific to become the leading green royalty company globally. And that's definitely the space we would like to occupy. Next question.

A question from [ Mervyn Bradlow ]. "Why have you resisted the request to institute a share buyback program to address the substantial undervaluation of the shares?"

Julian, maybe I'll take that one first, and you can add some points. [ Mervyn ], I certainly recognize your views on this matter, and I've had the privilege of talking to you about it with your experience brought there in that. I think the Board, first of all, does review this matter regularly. And I would say that in the recent past, when we had the share price volatility, we gave it very serious thought, given the volatility in all share prices, which meant that many companies were trading at very low valuations indeed. We always look at it in the context of what's best for shareholders overall. And I guess that falls into 2 parts. There is the balance between growing the company and returning funds to shareholders. And I think we have demonstrated, over the years, a very strong focus and determination to reward shareholders for holding our stock and staying with our story. And I think that the recent increase in the final dividend, to give a total dividend of 9p, plus the further increase in the interim dividend at a time when most companies are either cutting dividends, withdrawing them all together or certainly not increasing them, I think that demonstrates not only the confidence in our business but also how seriously we take the need to reward our shareholders. So it's not a question of wishing to deprive shareholders of value. But the other side of the equation is we do need to grow the business, and we've talked quite a bit about Kestrel and the need to decrease our dependence on coal. And we can't do that without investing in new assets, and we can't do that without funds. And cash flow is obviously the best source of funding with which to do that. So on balance, we believe that focusing on the dividend is the right way to go, maintaining some element of our income for growth. And I suppose the other thing I would say is that although some shareholders feel very strongly that the share buyback would be beneficial for the share price, which would be good, obviously, there are other shareholders who don't hold that view. And likewise, we have to take into account the views of everybody and in the full knowledge, I suppose, that we won't please everybody all the time. But I do think our focus is on our shareholders, and this buyback question does get raised and is considered very seriously alongside all the other matters. And I would hope that, in the longer term, that will be proven to be the right strategy. Julian, I don't know whether you want to add anything to that.

No. I think that was a very fulsome answer. Thank you, Patrick.

We currently have no further questions. [Operator Instructions] There are no further questions. There was a message of support from [ Anthony Yatros ]. Patrick, if I now hand it over back to you for any closing remarks.

Thank you, Anthony, and thank you to all of you for participating in this rather strange AGM. We -- as I said at the beginning, we really enjoy the opportunity of meeting with you in person once a year, and I think we're very lucky in having a group of shareholders who show such a lively interest and an educated interest in our company. So thank you for that. Thank you for the questions. I hope you found this useful, and I'd like to wish all of you prosperity and safety through these hard times, and we look forward to seeing you in person next year. And with that, I'd like to close the meeting. Thank you.