Date: Nov 15, 2018

Anglo Pacific Group PLC (LON:APF)(TSE:APY) should receive a significant boost in royalty income in the wake of strong third-quarter results from Largo Resources (TSE:LGO).

Largo is the owner and operator of the Maracas-Menchen vanadium mine, over which Anglo Pacific holds a 2% net smelter return royalty (NSR).

Most tellingly, revenue from Maracás Menchen increased by 148% when set against the corresponding quarter a year ago.

The backdrop to that is vanadium price that continues to go from strength to strength. Vanadium has been the best performing metal by some stretch on the markets for a while now, comfortably outstripping cobalt and lithium, both of which have lost a significant amount of their lustre in recent months.

Vanadium though is in short supply, and demand continues to skyrocket as its use in electricity storage grows. At the moment the metal is trading at a 13-year high, with no sign of any reversal of the upward trend.

The consequent effects on Largo have been marked.

When Anglo Pacific first bought the Maracás Menchen royalty, Largo’s market capitalisation stood at around C$276mln. Now it’s well over C$2.2bn, and still continuing to find favour with punters as the go-to Canadian vanadium play.

Precisely what these bullish vanadium conditions mean for the valuation of Anglo Pacific’s royalty at Maracás Menchen remains an open question, but it can’t be anything other than positive.

After all, the Largo numbers speak for themselves. Quarter-on-quarter, Largo’s cash balance has increased by 64% to C$127mln, net income is up from just under C$14mln in the three months to September 2017 to more than C$91mln in the quarter just gone, while earnings per share have jumped from C$0.03 to C$0.14.

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