Berenberg has spied growth opportunities at mining royalty specialist Anglo Pacific Group PLC (LON:APF), reiterating a ‘buy’ recommendation on the stock.

The London-listed mining royalty company, which focuses on commodities like iron ore and thermal coal, said in November that it was on track for a record year.

Income for the first nine months of 2019 had risen by 39% to £46mln and looks on course to comfortably to beat last year’s £46.1mln, which Anglo Pacific said was down to a substantial production rise at the Kestrel coal mine in Australia helping to offset weaker coal and vanadium prices.

READ: Anglo Pacific on course for record revenues and more acquisitions

In a note to clients on Monday, the German investment bank’s analysts said: “With the new operator of the Kestrel mine (Adaro acquired it from Rio Tinto in 2018) accelerating the production rate, Anglo Pacific will benefit from rising income in 2020-21.”

“We believe it is likely to reinvest the proceeds in acquisitions ahead of mining progressively moving out of the Kestrel royalty area from 2022,” the added, noting that poor royalty income between 2014 and 2016 had suppressed Anglo Pacific’s acquisition plans.

As Kestrel has improved and “more recently acquired royalties” such as LIORC and Mantos have started supplying cash, Berenberg’s analysts said they expected that this will “unlock an ability to finance growth with only limited equity issuance out to 2025”.

They highlighted five acquisitions over the last six years with an“average” deal cost US$50mln that have delivered US$6mln of annual royalty income.

According to the analysts, this means Anglo Pacific will need to spend between US$450mln and US$500mln on acquisitions to replace the Kestrel income by 2025, or around two deals a year, which “feels achievable” given the accelerating pace of Anglo Pacific’s investments.

Back in November, Anglo Pacific said that it was looking at investment opportunities, helped by weakness in commodity prices as well as ongoing global economic uncertainty.

Berenberg’s analysts trimmed their price target for Anglo Pacific shares to 213p from 235p, saying this reflected recent drops in coal prices, lower iron-ore pellet premiums, lower vanadium prices and forex movements.

“Despite this, the Buy case remains clear,” the analysts concluded.

Anglo Pacific shares, which have risen by 30% over this year, took a slight dip of 0.5% to 184p in afternoon trading on Monday.