When looking for new stocks to invest in, it’s quite easy to forget that the best option might be one you already own. Bolstering one’s position in companies that are performing well is a great way to get rich. And that’s precisely what I did last week with Anglo Pacific Group (LSE:APF).
The opportunity
Anglo Pacific is a mining company that doesn’t do any mining. That may sound odd at first, but it’s actually quite brilliant. The firm provides funding for other mining businesses – like Rio Tinto and BHP Group – to develop and operate new sites in exchange for royalties in the form of minerals dug up from the ground.
I’ve previously explored how Anglo Pacific’s unique business model creates extraordinary levels of profitability within an industry that has virtually no pricing power. Since then, two new pieces of information have been released – third-quarter earnings, and an exciting announcement for shareholders.
The earnings report mostly followed expectations, with a slight decline in royalty revenue from £6m to £5.7m. This reduction hardly good news. However, the cause is mainly due to a longwall change out at the Kestrel mine in Australia.
Put simply, the mine was extended and fourth quarter royalties are expected to see an increase in production.
Another change out is planned for Q3 2021. It is expected to cause a similar level of disruption but once again, will further increase the production of the site.
A more impressive result is that two sites extracting uranium and vanadium saw a triple percentage growth of 117% and 131%, respectively. Despite the massive disruptions from Covid-19, both minerals – in addition to copper and iron – are reaching multi-year highs in value.
Share buyback scheme
Beyond earnings, it successfully completed a £5m share buyback scheme. As a reminder, share buybacks are an alternative to dividends, as a method of returning profits to shareholders. Buying back shares reduces the number of shares available on the market and thus increases the value for existing shareholders.
Therefore, since Anglo Pacific has around 180m shares outstanding, the firm indirectly paid a dividend 2.8p per share. This is in addition to the direct dividend payments of 1.75p due on 13th November 2020 and 17th February 2021.
At the current stock price of £1.03, collectively these payments represent a 6.1% return on investment over the next three months.
The bottom line
The closure of mines back in March had a significant impact on operations. As such, the stock is unlikely to achieve its historical double-digit growth this year. However, the performance loss is not due to a problem with the company but rather a pandemic that affected the entire world.
Of course, this is only my opinion. But it also appears to be similar to the views of the management team. Several of the board members – including CEO Julian Treger – have been buying up shares over the past month.
In light of all this new information combined with an incredibly attractive share price, I have doubled my stake in the business in my attempt to get rich.
