The benefits
of diversification
2015
Annual Report & Accounts
ANGLO PACIFIC GROUP PLC
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Financial statements
Independent auditor’s report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated and Company balance sheets
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated statement of cash flows and
Company statement of cash flows
Notes to the consolidated financial statements
Other information
Performance measures
Shareholder statistics
Directory
Contents
01
02
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04
06
08
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10
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26
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41
44
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59
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Group overview
Mining royalties explained
Anglo Pacific at a glance
Our royalty portfolio
Chairman’s statement
Strategic report
Chief Executive Officer’s statement
Our strategy
Market overview
Our business model
Business review
Key performance indicators
Financial review
Principal risks and uncertainties
Corporate social responsibility
Governance
Corporate governance report
The Board
Nomination Committee
Audit Committee
Remuneration Committee
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities
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Our aim
To develop as a leading international diversified royalty
company with a portfolio centred on base metals and bulk
materials.
Anglo Pacific Group PLC (‘Anglo Pacific’, the ‘Company’ or
the ‘Group’) is the only listed company on the London Stock
Exchange focused on royalties connected with the mining of
natural resources. Our strategy is to build a diversified portfolio
of royalties and metal streams, focusing on accelerating income
growth through acquiring royalties in cash or near-term cash
producing assets.
It is an objective of the Company to pay a substantial portion of
these royalties and metal streams to shareholders as dividends.
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
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APG12 | AR15 | 24.03.16 | FRONT - ART
GROUP OVERVIEW
Mining royalties explained
A mining royalty is a non-operating interest in a mining project that
provides the royalty holder with the right to a proportion of revenue,
profit or production.
Historically, royalties originated as a result of the sale of a mineral
property, allowing the seller to retain some ongoing economic
participation in the property. However, an increasing number of
royalties are now created directly by operators and developers as
a source of finance. A royalty holder is not generally obligated to
contribute towards operating or capital costs, nor environmental
or reclamation liabilities.
Primary versus secondary royalties
Primary royalties are entered into between a royalty
company and the property owner directly, where the
property owner grants a royalty to the royalty company
in return for one or more up-front cash payments from
the royalty company. In contrast, secondary royalties
are existing royalties that are acquired from a third party
with no payment made to the owner of the underlying
property.
Metal Streams
A metal stream is an agreement that provides, in
exchange for an upfront payment, the right to purchase
all or a portion of one or more metals produced from a
mine, at a price determined for the life of the stream.
Streams, whilst providing similar outcomes for Anglo
Pacific, are not royalties because they do not constitute
an interest in land and there is an ongoing cash
payment required to purchase the physical metal.
However, a stream holder is not ordinarily required to
contribute towards operating or capital costs, nor
environmental or reclamation liabilities.
Types of royalties
The Group’s royalties are mostly revenue or
production-based royalties. Typically, these royalties
are either Gross Revenue royalties or Net Smelter
Return royalties, each of which can be described
as follows:
GRR : Gross Revenue royalty
A GRR entitles the royalty holder to a fixed portion
of the gross revenues generated from the sales of
mineral production from a property. In calculating
a GRR payment, deductions, if any, applied by the
property owner to reduce the royalty payment are
usually minimal, and GRRs are therefore the simplest
form of royalty to account for and implement.
GRR examples in royalty portfolio on page 05
NSR : Net Smelter Return royalty
An NSR entitles the royalty holder to a fixed portion
of the net revenues received from a smelter or refinery
from the sales of mineral production from a property,
after the deduction of certain offsite realisation costs.
Typical realisation costs include those related to
transportation, insurance, smelting and refining. These
deductions are generally higher in base metals mines
due to the semi-finished product, such as concentrate,
often being produced at the mine site, when compared
to precious metals mines, which produce a nearly-
finished product on site.
NSR examples in royalty portfolio on page 05
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ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART Anglo Pacific at a glance
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· Listing: London Stock Exchange (primary) and Toronto
Stock Exchange (secondary)
· 149% increase in royalty income in the year
· 34.5% reduction in overheads in the year
· 11 principal royalty assets across five continents
· Over 82% of royalties by value, across five commodities, in production
· Considerable production upside potential within the portfolio, most
noticeably with Narrabri and Salamanca
· Net assets at December 31, 2015 of £162.0m
DIVERSIFIED PORTFOLIO OF ROYALTIES
GEOGR APHIC E XPOSURE
31/12/2015
Australia
Brazil
Spain
Canada
Other
79.3%
7.7%
3.6%
1.8%
7.5%
STAGE OF PRODUCTION
31/12/2015
Producing
Development
Early stage
82.8%
2.4%
14.8%
COMMODIT Y E XPOSURE
31/12/2015
Coking coal
Thermal coal
Iron ore
Gold
Uranium
Other
48.4%
24.5%
8.2%
8.2%
2.3%
8.5%
SHAREHOLDER RE TURNS
AFFORDABLE AND
MAINTAINABLE DIVIDENDS
F TSE 350 MINING INDE X VS ANGLO PACIFIC GROUP
2010 - 2015
10.20 10.20
9.75
8.45
7.00
11
12
13
14
15
Dividend per share
(p)
200
150
100
50
0
0
0
1
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02.01.10
02.01.11
02.01.12
02.01.13
02.01.14
02.01.15
02.01.16
FTSE 350 Mining
Anglo Pacific Group
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
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APG12 | AR15 | 24.03.16 | FRONT - ART
GROUP OVERVIEW
Our royalty portfolio
PRODUCING
OUR AIM
6 PRODUCING ROYALTIES
To develop as a leading international
diversified royalty company with
a portfolio centred on base metals
and bulk materials.
Over 82% of the royalty portfolio by
value are in production and 93% of the
portfolio are located in well established
mining jurisdictions.
OUR PRINCIPAL ROYALTIES
RING OF FIRE
7
10
GROUNDHOG
EL VALLE-BOINÁS/CARLÉS (‘EVBC’)
SALAMANCA
4
6
DUGBE 1
11
AMAPÁ & TUCANO
8
3
MARACÁS MENCHEN
KESTREL
PILBARA
9
5
1
2
FOUR MILE
NARRABRI
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ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
APG12 | AR15 | 24.03.16 | FRONT - ART G
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PRODUCING
PRODUCING ROYALTIES
Royalty
Commodity
Operator
Location
Royalty rate
and type
Balance sheet
classification
1 Kestrel
Coking coal
Rio Tinto
Australia
7 – 15% GRR 1
2 Narrabri
Thermal &
PCI coal
Whitehaven
Coal
Australia
1% GRR
3 Maracás
Menchen
Vanadium
Largo
Resources
Brazil
2% NSR
4 El Valle-
Boinás/Carlés
(‘EVBC’)
Gold, copper
& silver
Orvana
Minerals
Spain
2.5 – 3% NSR 2
5 Four Mile
Uranium
Quasar
Resources
Australia
1% NSR
Investment
property
Royalty
intangible
Royalty
intangible
Royalty
financial
instrument
Royalty
intangible
DE VELOPMENT ROYALTIES
6 Salamanca
Uranium
Berkeley
Energia
Spain
1% NSR
Royalty
intangible
7 Groundhog
Anthracite
Atrum Coal
Canada
8 Amapá &
Tucano
Iron ore
Zamin Ferrous Brazil
/ Beadell
Resources
1% GRR or
US$1.00/t
Royalty
intangible
1% GRR 3
Royalty
intangible
E ARLY-STAGE ROYALTIES
9 Pilbara
Iron ore
BHP Billiton
Australia
1.5% GRR
10 Ring of Fire
Chromite
11 Dugbe 1
Gold
Cliffs Natural
Resources
Hummingbird
Resources
Canada
1% NSR
Liberia
2 – 2.5% NSR 4
Loan 5
Royalty
intangible
Royalty
intangible
1. Kestrel: 7% of value up to A$100/tonne, 12.5% of the value over A$100/tonne and up to A$150/tonne, 15% thereafter.
2. EVBC: 2.5% escalates to 3% when the gold price is over US$1,100 per ounce.
3. Tucano: 1% GRR is only on iron ore and other non-precious metals (other than copper). The Company is also entitled to royalties
over a number of concessions governed by a joint exploration agreement between Zamin and Beadell. The royalty rate for these
royalties is either 0.7% or 1% depending on the concession.
4. Dugbe 1: 2% except where both the average gold price is above US$1,800 per ounce and sales of gold are less than 50,000 ounces,
in which case it increases to 2.5% in respect of that quarter.
5. This becomes a royalty upon the operator entering into a mineral development agreement with the government of Liberia.
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
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APG12 | AR15 | 24.03.16 | FRONT - ART
GROUP OVERVIEW
Chairman’s statement
2015 has seen the beginnings of a turnaround in the fortunes
of Anglo Pacific. Our royalty income has doubled from £3.5m
to £8.7m as our Narrabri acquisition contributes for the first time
and mining at Kestrel begins to return to our royalty lands.
This, coupled with a significant reduction in our operating expenses
following a stringent review of our cost base, has led to a return
to profitability at operating level with an operating profit of £2.1m
(2014: operating loss £2.8m).
Such growth could have been stronger but for the
impact of continuing falls in commodity prices, which
directly affected our royalty income and led to certain
non-cash impairments and revaluation adjustments
totalling £32.5m (2014: £43.4m), leading to an overall
loss before tax of £30.5m (2014: loss £42.4m).
This resulted in a basic and diluted loss per share of
14.06p (2014: 42.09p). Due to the large number of
valuation and non-cash items included in the Income
Statement, we also present an adjusted earnings
measure as outlined in note 11 to the accounts.
This measure more closely reflects the performance
within management’s control. Adjusted earnings per
share were 2.47p (2014: loss of 1.97p).
Dividends
Our review of our dividend policy twelve months
ago, in conjunction with the Narrabri acquisition,
was underpinned by financial projections based on
consensus forward prices at the time. The subsequent
volatility in commodity prices coupled with a significant
reduction in the forward consensus pricing outlook,
both of which are above and beyond what we had
anticipated, have more than offset the benefits of a
significant reduction in costs along with production
outperformance at Narrabri. We stressed last year
that a dividend policy had to be both affordable and
appropriate and in the current circumstances believe
an amended policy is necessary. Consequently, as
advised in our trading update statement of January 28,
2016, we are recommending a final dividend for the
year ended December 31, 2015, of 3p per share.
Longer term, however, we retain our target of paying
dividends of at least 65% of adjusted earnings (as
defined in note 11) with a medium term minimum
annual dividend of 6p per share.
Royalty portfolio
In reviewing our current royalty portfolio, it is
particularly encouraging to note that, despite the
ongoing turmoil in the mining sector in general and
commodity prices in particular, all of the Group’s
royalties that were in production in 2014 remain in
production and continue to generate royalty income.
We are, all the more determined to ensure that any new
royalty or streaming acquisition meets our exacting
investment requirements, as described in our strategy
on pages 10 to 11. This approach has resulted in no
major acquisitions being made following Narrabri and
many of the opportunities presented to us during the
year being discarded. However, we are confident that
more attractive opportunities will arise during 2016
and beyond as the cost of capital in the sector
continues to increase and the Group continues to
progress a number of potential opportunities.
Details of our current portfolio are shown on
pages 04 to 05. It is worth highlighting the particular
performance of our Narrabri royalty. When the royalty
was purchased permitted production levels were
8Mtpa, and Whitehaven Coal, the operator, has now
obtained permission to increase this to 11Mtpa and
is ramping up production towards this higher level.
Lower commodity prices did however reduce the
carrying value of certain of the Group’s royalty assets
in the period, although impairment charges of £4.4m
were considerably lower than the £25.3m recognised in
2014. The largest adjustment was to the carrying value
of Kestrel, which showed a valuation deficit of £27.2m
as a result of revisions to long term coking coal prices,
although there was a tax shield associated with this
deficit of £8.2m.
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ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART PRODUCING
ROYALT Y INCOME MORE THAN
DOUBLED IN 2015
PRODUCING
AT TR ACTIVE OPPORTUNITIES
We have seen our royalty income more
than double in the year as Narrabri
contributes for the first time
The cost of capital in the industry
continues to increase, which should
present attractive opportunities
Board
2015 has seen further changes to the Board. As advised
last year, Anthony Yadgaroff retired from the Board
on December 31, 2015 after almost 13 years’ service.
I should like to thank him again for his hard work,
diligence and sage advice during that period.
In anticipation of Anthony’s retirement, we appointed
Patrick Meier to the Board on April 30, 2015. Patrick has
over thirty years of experience in investment banking,
most recently with RBC Capital Markets, with specialist
knowledge of the mining sector. He has already had a
significant impact on the workings of the Board.
Our Strategic Report
Our 2015 Strategic Report, from pages 08 to 35, was
reviewed and approved by the Board on March 22, 2016.
Outlook
2016 onwards should be a period of sustained organic
growth for Anglo Pacific as production at Kestrel moves
increasingly into our royalty lands while that at Narrabri
continues to ramp up towards the increased permitted
levels. In addition, the continuing challenges facing the
mining sector are bringing and will continue to bring
further opportunities for the Group. We believe that our
ability to be innovative and imaginative in our approach
to these opportunities will bear fruit in the year ahead.
In conclusion, I should like to thank all Directors and
staff for their continued diligence and hard work during
what has been another challenging year.
W.M. Blyth
Chairman
March 22, 2016
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GROUP OVERVIEWANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART STRATEGIC REPORT
Chief Executive Officer’s statement
I am pleased to report that, following completion of the Narrabri
royalty acquisition in early 2015, the Group has experienced strong
growth in royalty income during 2015 which it expects to continue
during 2016. We believe the Group’s strategy is now beginning to
bear fruit.
Challenging environment
The mining sector continues to face difficult times
which we have not been immune to over the previous
year. However, Anglo Pacific remains well placed to
acquire attractive new royalties. We have a good
platform of five producing royalties with Kestrel,
Narrabri, Maracás Menchen and EVBC providing
improved royalty flows in 2015, together with Four Mile
producing maiden royalty receipts in February 2016.
Our royalty income grew strongly last year and we
expect further significant growth during 2016 and
beyond. We have a strong balance sheet with little debt
and we continue to carefully monitor costs and make
reductions wherever possible. We believe these
challenging times for the mining sector will provide
opportunities for the Company to identify attractive
new royalties which will enhance the lifespan and
diversity of our existing portfolio.
The Narrabri mine continues to perform well, with
production for the year ending December 31, 2015
reaching 8.3Mt, well in excess of the original design
capacity of 6Mtpa. We are encouraged that Whitehaven
Coal has recently received approval to increase
production to 11Mtpa from 8Mtpa, which should lead
to increased royalty income from the mine despite
reduced commodity prices. In addition, the potential to
expand operations into Narrabri South provides further
upside to this royalty. Additionally, during the past year
production at Kestrel has increasingly moved into our
royalty area and updated tonnage sales forecasts from
Rio Tinto, which we receive as part of our information
rights, confirm previous guidance that 60-65% of
Kestrel coal production will be within the Group’s
royalty area during 2016. This should lead us to report a
further increase in royalty income in 2016.
Despite these positive aspects, we have not been
immune to the declines which have beset commodity
prices over the past year. Though our income grew, this
growth would have been even more impressive had the
price of thermal and coking coal not declined by
between 15% and 25%. In addition, the indiscriminate
selling which has affected commodity stocks has also
impacted our share price, to an extent that we trade
well below our net asset value per share, at a very high
dividend yield. Ordinarily, such a yield would suggest to
the market a further dividend cut. However, we have
now made the cuts we believe are necessary to protect
our balance sheet at this time, subject to ongoing
market conditions being relatively stable.
Dividend levels
Provided prevailing market conditions are maintained
and with further growth in royalty income expected
throughout this year, we believe an annual dividend
level of 6p per share going forward should be close to
being covered during 2016 and covered in 2017. We
hope that the market will recognise the 6p level as a
base from which we will grow. It remains a continuing
policy of the Company to pay a substantial proportion
of royalties to shareholders as dividends, and our
long-term target dividend continues to be 65% of
adjusted earnings (as defined in note 11 to the financial
statements).
Positioned to take advantage
of opportunities
We recognise the attractive opportunities present in
the market at this time and are determined not to let
these prospects pass without obtaining some high
quality, attractive royalties. However, the cost of equity
remains too high at our current share price to access
accretive deals funded entirely by equity. In contrast,
our cost of debt remains significantly lower, which will
enable the Group to complete smaller acquisitions as
they arise.
We are very mindful of the risks of debt in a highly
cyclical industry; however, at times like this, nearer the
bottom of the commodity price cycle than at the top,
sensible use of debt is appropriate. Accordingly, we
expect to utilise our borrowing facilities in the first
instance to finance acquisitions and where the
opportunities are larger, we anticipate syndicating
these investments with third parties in return for royalty
and fee related income, or a mixture of both. We have
been progressing such discussions for many months
and a number of supportive institutional investors have
expressed interest in funding larger deals.
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ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART Costs
Cost reductions have been a major focus in this new era
for the mining sector and we recognise this new reality.
Our central costs have always been relatively low as the
business operates from a small single office with 11
employees. We are pleased that we have been able to
reduce the Company’s year-on-year costs, excluding
provisions for non-cash share based payments, by
34.5% from £4.9m in 2014 to £3.2m in 2015. On an
inflation adjusted basis, we believe our costs are roughly
unchanged over five years. Anglo Pacific operates on a
very conservative basis and we continue to have the
capacity to run a much larger portfolio with the current
infrastructure.
Currency
As a result of our main sources of royalty income being
received in Australian dollars which require translation
to pounds, the continued weakening of the Australian
dollar against the pound over the past two years, has
had an unfavourable impact on the Group’s reported
income. 2016 has seen a weakening of the pound,
which if sustained should benefit the Group’s results
in 2016.
Growth
Following payment of the interim dividend in February
2016, the Group currently has over £4.0m in cash and
headroom under our revolving credit facility subject to
continued covenant compliance and our facility terms
(as per note 23). Although we do not expect a rapid
turnaround in the sector in the foreseeable future, we
are beginning to see opportunities due to protracted
periods of subdued capital markets in the mining
sector. Despite the considerable capital outflows
recently seen from the sector, we are actively seeking
to deploy capital in a countercyclical fashion to take
advantage of the current favourable market conditions.
J.A. Treger
Chief Executive Officer
March 22, 2016
We are now seeing investment opportunities with well
positioned counterparties which have not been as
freely available in recent years. The cost of capital in the
mining space has risen, suggesting that counterparties
may be more willing to engage with us at the returns we
require, rather than pursuing the traditional equity and
debt options. 2015 has seen several measures being
announced by mining operators to strengthen their
balance sheets. Streaming, in particular, has been a
popular source of finance as conventional capital
markets remain subdued. We believe that this trend
is likely to continue in the short term to enable
refinancing and in the longer term to facilitate growth.
Alternative financing has the added benefit of reducing
onerous compliance testing and reporting, which is
attractive when attempting to reduce gearing levels
and maintaining credit ratings.
Upside exposure
Though we have had significant write-downs over
recent years, we wish to highlight the important upside
contained in the portfolio that is not reflected in its
reported carrying value, as an increasing portion of our
assets are not held at fair value. A key criteria we look
for when acquiring royalties is the upside potential.
This can take the form of accelerated production, as is
occurring at Narrabri, or an increase in reserves and
resources, as has occurred at Salamanca. Both of these
events have the potential to increase the value of the
underlying royalty.
Outlook
Coal
A continuing concern for Anglo Pacific over the past
year has been the negative sentiment associated with
coal. Despite some perceptions in the UK, we believe
that many countries, particularly in south-east Asia, will
continue to rely on coal to fuel their growth. It is far
more realistic to push for cleaner, high quality, less-
polluting coals than adopting a broadly held negative
attitude towards all coal. I am pleased to report that
this is precisely the area we had targeted for royalty
exposure. Narrabri produces some of the cleanest
and lowest polluting coal with low ash content which
attracts a premium compared to the benchmark,
precisely for these virtues. That said, we remain keen
to reduce our overall coal exposure, unless we can
generate very high returns, and we have identified
uranium as an alternative commodity to coal on the
energy side. We already have two uranium royalties
within our portfolio and see this as a preferred
commodity under our investment criteria.
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STRATEGIC REPORTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART STRATEGIC REPORT
Our strategy
During 2015, the Group continued to progress towards achieving its
strategy through the completion of the Narrabri royalty acquisition
and identification of a number of royalty and streaming opportunities
to pursue in 2016 that fit our stringent investment criteria.
AIM
To develop as a leading international diversified royalty
company with a portfolio centred on income producing
base metals and bulk materials royalties and streams
STR ATEGY
Achieving our aim through the acquisition of both primary
and secondary royalties, together with metal streams
CRITERIA
Achieving strategy
through acquisitions
which satisfy these
criteria
• Established natural resources jurisdictions
• Long-life assets
• High-quality and low-cost assets
• Near-term producing assets
• Production and exploration upside potential
• Strong operational management teams
• Diversification of royalty portfolio
GOAL
Executing the strategy will result in additional cash
producing royalties, a substantial proportion of whose
cash flows will be paid to shareholders as dividends
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ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
APG12 | AR15 | 24.03.16 | FRONT - ART S
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ESTABLISHED NATUR AL RESOURCES
JURISDICTIONS
The Group continues to review potential
business opportunities globally and in
order to manage its risk profile, intends
to focus predominantly on mines in
established, relatively low-risk mining
jurisdictions, primarily those in North
America, South America, Europe and
Australia. As at December 31, 2015,
92.5% of the Group’s existing assets
were based in such jurisdictions.
LONG-LIFE ASSE TS
Long mine life assets can provide long-
term revenue, which in turn can
contribute to ensuring that acquisitions to
replace depleted royalties and maintain
cash flows are not required on a regular
basis. Three of the royalties in the Group’s
existing portfolio are over mines that have
reserves of 20 years or more.
HIGH-QUALIT Y AND LOW-COST ASSE TS
The Group is also focused on ensuring that
new royalties are over high-quality and
low-cost operations. This helps ensure
longevity of cash flows by reducing the
risk of mining operations ceasing to be
economically viable. Within its existing
portfolio, the Group has exposure to low
cash cost assets in the Kestrel and
Narrabri mines. Both Kestrel and Narrabri
operate in the lowest quartile on the cost
curve in comparison to similar mines.
NE AR-TERM PRODUCING ASSE TS
The Group is seeking to grow its royalty
income beyond the existing organic
growth profile of its current royalty
portfolio by investing in producing or
near-term producing assets.
PRODUCTION AND E XPLOR ATION
UPSIDE POTENTIAL
The Group seeks to acquire royalties
where it may benefit from improvements
made to the scale of mining operations.
Any increases in production can result in
higher royalty payments, without
requiring the Group to contribute to the
cost of expanding or optimising the
operation. Royalties can also benefit from
exploration successes that lead to
enlarged economic reserves. Increased
reserves can extend a mine’s life or
facilitate an expansion of the existing
operations, potentially providing higher
revenue over a longer period.
STRONG OPER ATIONAL MANAGEMENT
TE AMS
Strong operational management teams
are integral to delivering a successful
project and to optimising the value of a
mine and, therefore, a royalty or stream.
The Group’s current royalty portfolio
includes mines operated by highly
experienced management teams.
DIVERSIFICATION OF ROYALT Y
PORTFOLIO
The Group is seeking to build a diversified
portfolio of royalties across a variety of
different commodities and geographic
locations to reduce dependency on its
cornerstone royalty, Kestrel.
The Group’s target portfolio would result
in an increased exposure across various
base metals and bulk materials. The Group
may also selectively pursue royalties in
energy commodities, such as uranium and
oil and gas, as well as other commodities,
such as platinum group metals and
precious stones.
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
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APG12 | AR15 | 24.03.16 | FRONT - ART
STRATEGIC REPORT
Market overview
The Directors believe
that protracted
periods of subdued
capital markets
financing activity,
against the backdrop
of a low commodity
price environment,
have led to materially
increased demand
for alternative
sources of financing,
including royalty and
stream financing.
2015 proved to be a challenging
period for the global metals and
mining industry as commodity
prices continued to decline and, as
a result, accessing capital via the
conventional channels of equity
and debt remained difficult for the
industry as a whole.
Global mining equity issuance
during 2015, was around
US$20.0bn, representing just
40% of 2010 issuance levels.
Equity financing has become an
increasingly scarce and dilutive
option. The 48.6% decline of the
FTSE 350 Mining Index in 2015
highlights the impact that the low
commodity price environment has
had not only on the smaller cap
mining companies, but also on the
largest global mining operators.
Many of these companies have
recently announced balance sheet
strengthening initiatives in an
effort to reduce gearing levels
and protect credit ratings.
Metals and mining debt financing
transactions have also proved
challenging in recent years, and
have become increasingly
characterised by companies
undertaking balance sheet
strengthening measures. Most of
the debt issuances in 2015 were to
refinance or restructure existing
debt, resulting in few new sources
of finance. Notably, the Bloomberg
World Mining Index net debt to
EBITDA ratio rose from 1.8x on
December 31, 2014, to 4.1x one year
later. The Company believes this
significant rise serves to underline
the necessity of debt reduction
measures as cash flow becomes
increasingly constrained across
the industry. This is demonstrated
by investment grade metals
and mining debt issuance of
approximately US$18.5bn in 2015,
which is roughly half of the five-year
high of US$35.3bn raised in 2012.
Mining equity issuances
(US$ billions)
40.1
19.8
20.3
16.4 17.0
11
12
13
14
15
Source: Dealogic
Mining high yield bond
issuances
(US$ billions)
15.3
13.3
8.3
7.1
6.2
11
12
13
14
15
Source: Dealogic
12
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
2015 was a record year for streaming transactions, with the trend
continuing in the first quarter of 2016
Announcement date
Buyer
Vendor
Asset
February 26, 2016
Franco Nevada
Glencore
Antapaccay
November 3, 2015
Silver Wheaton
Glencore
Antamina
October 7, 2015
Franco Nevada
Teck Resources
Antamina
August 5, 2015
Royal Gold
Barrick Gold
Pueblo Viejo
Upfront proceeds
(US$ million)
$500
$900m
$610m
$610m
July 9, 2015
Royal Gold
Teck Resources
Carmen de Andacollo $525m
March 2, 2015
Silver Wheaton
Vale
Salobo
$900m
Almost all of the royalty and
streaming transactions announced
recently were related to precious
metals, highlighting the industry’s
continued focus on
disproportionately channelling
investments into this segment. With
a number of companies currently
rumoured to be running streaming
processes, the major streaming
companies may struggle to meet
all of the demand in the market.
This has the potential to increase
the range of opportunities available
to Anglo Pacific as companies in
need of financing may have to look
outside the traditional precious
metals segment in order to attract
a greater set of buyers.
Financing provided by the royalty
and streaming industry has grown
considerably in recent years.
In 2015, the role of royalties and
streams as an alternative financing
source has gained prominence
against the backdrop of reduced
access to capital from more
traditional sources such as the
public equity, public debt and bank
lending markets. During 2015, more
than double the number of royalty
and streaming transactions were
announced relative to 2014, with
the total transaction value
increasing by more than 300%
from approximately US$1.2bn to
approximately US$4.8bn. Notably,
six transactions with upfront
proceeds greater than US$500.0m
were announced during the past
twelve months, highlighted in the
table above, primarily as a result
of major mining companies
monetising precious metals
by-product streams from core
operations.
The most recent of these
transactions was the US$500.0m
gold and silver stream with
Glencore announced by Franco
Nevada, which some commentators
believe resulted in an internal rate
of return close to 10%, almost
double the average return that
streaming companies have been
obtaining. This transaction and
those completed in 2015
demonstrate, in our view, the
increasing cost of capital in the
mining sector in general and
perhaps also indicate a scarcity
of capital in the precious metals
streaming space.
With the major streaming
companies likely to remain
focused on competing for the
larger precious metals royalties and
streams, Anglo Pacific should be
in a good position to compete for
non-precious royalties and streams,
potentially generating higher yields
than have traditionally been seen
on precious royalties.
13
STRATEGIC REPORTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
STRATEGIC REPORT
Our business model
Creating value for our
shareholders
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The Group is seeking to grow its
portfolio of cash-generative royalties
and streams by investing in producing
or near-term producing assets with long
mine lives. Given the relatively low
overhead requirements of the business,
the Group believes cash flow to
shareholders can be maximised through
economies of scale, which would allow
for growth in the portfolio without
significantly increasing our cost base.
Revenue-based royalties limit the Group’s direct exposure to
operating or capital cost inflation of the underlying mine
operations, as there is no ongoing requirement for the Group to
contribute to capital, exploration, environmental or other operating
costs at mine sites.
The Group is seeking to build a diversified portfolio of royalties
across a variety of different commodities and geographic locations.
Investing in royalties across a wide spectrum of commodities and
jurisdictions reduces the dependency on any one asset or location
and any corresponding cyclicality. A fully diversified portfolio can
help to reduce the level of income volatility, stabilising cash flows
which contribute towards investment and dividend payments.
Royalty holders generally benefit from improvements made to the
scale of a mining operation. Exploration success, or lower cut-off
grades as a result of rising commodity prices, can serve to increase
economic reserves and resources. Increased reserves will extend a
mine’s life, or facilitate an expansion of the existing operations. Any
subsequent increases in production will generally result in higher
royalty payments, without the requirement for the royalty holder to
contribute to the cost of expanding or optimising the operation.
Lower risk through
top-line, revenue
participation in
mining companies
Lower volatility
through commodity
and geographic
diversification
Exposure to
increases in
mineral reserves
and production
Exposure to
commodity price
upside
Royalties and streams provide exposure to underlying commodity
prices. The Group expects to benefit from a rising commodity
price environment, with the upside feeding through to increased
royalty receipts.
14
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
Creating value for our
counterparties
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L
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We serve as a
partner to the
mine operator
An alternative
form of financing
to conventional
equity, which can
be an expensive
form of finance
Flexible financing
structures to suit
the mine operator,
often structured
as non-debt
instruments,
therefore do not
impact on credit
ratings
Source of liquidity
for holders of
existing royalties
PARTNERS
VALUE
CREATION
Royalties and streams reduce the upfront
capital required to fund the development
of a project. These are generally
structured as asset (or even by-product)
specific, often leaving the remaining
assets of the operator unencumbered
for raising additional finance.
Compared to the issuance of new equity, royalties and streams
do not depend on the prevailing state of the capital markets but
are rather the result of bilateral negotiations. The issuance of new
equity can also serve to dilute existing shareholders, particularly
during periods of depressed share prices. Furthermore, as royalties
and streams are asset specific, the reduction in the upside for
existing shareholders can be limited to a certain mine or product.
Royalties and streams do not typically levy interest, nor do they
typically require principal repayments or have a maturity date.
More importantly, unlike conventional debt arrangements where
interest payments tend to start immediately or are capitalised until
cash payments can be made from a project’s cash flow, most
royalties are payable only once the project comes into production
and is generating sales. In addition, many forms of debt, such as
project finance, include restrictive covenants and may require
commodity price hedges to be put in place. These are not only
typically costly in terms of fees, but can also limit the miner’s
exposure to upside in the prices of their core commodities.
The value of a royalty is realised over the duration of the mine life.
Often royalty owners may have a need to free up cash in order
to recycle capital. There is a limited secondary market for royalties
and Anglo Pacific can be a source of valuable liquidity for private
royalty holders.
15
STRATEGIC REPORTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
PRODUCING
INCRE ASED ROYALT Y PRODUCTION
Despite the difficulties faced by the
wider mining industry, all of our
income generating royalties remain
in production.
16
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
APG12 | AR15 | 24.03.16 | FRONT - ART Cairns
Townsville
Q
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KESTREL
Rockhampton
Brisbane
STRATEGIC REPORT
Business review
Producing royalties
Kestrel, Coking coal, Australia
What we own
Kestrel is an underground coal mine located in the Bowen Basin, Queensland,
Australia. It is operated by Rio Tinto Limited (‘Rio Tinto’). The Group owns 50% of
certain sub-stratum lands which, under Queensland law, entitle it to coal royalty
receipts from the Kestrel mine.
The royalty rate to which the Group is presently entitled is prescribed by the
Queensland Mineral Resources Regulations. These regulations currently stipulate
that the basis of calculation is a three-tiered fixed percentage of the invoiced value
of the coal as follows:
Average price per tonne for period
Up to and including A$100
Over A$100 and up to and including A$150
More than A$150
Rate
7%
7%
12.5%
7%
12.5%
15%
First A$100
Balance
First A$100
Next A$50
Balance
Performance
The Group received royalty income of £3.6m from Kestrel during 2015, compared
to £1.7m in 2014. The significant increase in royalty income in 2015 was due to
increased Kestrel production within the Group’s private royalty land.
In accordance with Anglo Pacific’s Kestrel information rights, the Group estimates
that 60-65% of mining at Kestrel will be within our royalty lands during 2016 (H1
2016: 30-35% and H2 2016: 85-90%), increasing to over 90% during 2017.
Valuation
The Kestrel royalty was independently valued at A$167.6m (£82.6m) and accounts
for 42% of the Group’s total assets as at December 31, 2015 (2014: A$223.0m;
£117.1m; 59%). The value of the land is calculated by reference to the discounted
expected royalty income from mining activity, using a discount rate of 7%.
The independent valuation has been undertaken by a Competent Person in
accordance with the Valmin Code (AusIMM, 2005), which provides guidelines for
the preparation of independent expert valuation reports. The Group monitors the
accuracy of this valuation by comparing the actual cash received to that forecasted.
The fall in fair value is largely due to the decline in coking coal prices, partially offset
by a weakening of the Australian dollar.
Coal royalty income
£m
32.0
11.0
9.9
3.6
1.7
Coal royalty valuation
£m
166.0 171.0
131.4
117.1
82.6
11
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13
14
15
11
12
13
14
15
17
STRATEGIC REPORTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
STRATEGIC REPORT
Business review
continued
Producing royalties
continued
Narrabri, Thermal Coal, Australia
What we own
In March 2015, the Group acquired a royalty interest in the Narrabri coal project,
a low cost thermal coal and pulverised coal injection (‘PCI’) coal mine located in
New South Wales, Australia, operated by ASX-listed Whitehaven Coal Limited
(‘Whitehaven’). The Narrabri royalty entitles the Group to royalty payments equal
to 1% of gross revenue on all coal produced from within the area covered by
the Narrabri royalty. The Narrabri royalty includes the Narrabri mine, and the
Narrabri South project.
The Narrabri mine has scope to materially increase production over the short
and medium term. Whitehaven estimates Narrabri to have a reserve based
mine life of 25 years, and the potential to extend production thereafter with the
development of Narrabri South.
Performance
Under the terms of the royalty sale agreement, the Group was entitled to all royalties
from January 1, 2015, and as a result the Group received royalty income of £3.2m
during 2015 from Narrabri. During the calendar year 2015, Narrabri set an annual
production record of 8.3Mt run of mine (‘ROM’).
On December 10, 2015, Whitehaven announced that the New South Wales
Government’s Department of Planning and Environment had granted Whitehaven
approval to increase annual production from 8Mtpa to 11Mtpa, and to install a
400 metre wide longwall face at the Narrabri mine. The 400 metre wide longwall
face is expected to initially increase ROM coal production by an estimated 750Ktpa.
The first 400 metre wide longwall panel is expected to come into production in
the first half of calendar year 2017.
On February 5, 2016, Whitehaven announced it intends to extend the Narrabri
North longwall panels in the Narrabri South area, and that work to integrate Narrabri
South into existing operations at Narrabri North had commenced. This has the
potential to significantly increase Narrabri North’s mine life beyond current
Whitehaven estimates of 25 years. Drilling to convert Narrabri South resources to
reserves is scheduled to occur during Whitehaven’s fiscal year ending June 30, 2017.
Valuation
The Narrabri royalty is classified as a royalty intangible asset on the balance sheet.
As such, this asset is carried at cost less amortisation and impairments and does not
benefit from any valuation uplift resulting from the positive developments in the year
as described above. Royalty intangible assets are amortised when commercial
production commences, on a straight line basis over the expected life of the mine.
B R A
Z
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Petrolina
Salvador
F
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T
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MARACÁS PROJECT
Vitória de
Conquista
Q U EENS
L
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NEW S
W
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S
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Brisbane
NARRABRI
Newcastle
Sydney
Canberra
Area already
mined
Narrabri North
Longwalls
NARRABRI
SOUTH
POTENTIAL
EXPANSION
AREA
18
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
Maracás Menchen, Vanadium, Brazil
What we own
The Group has a 2% NSR royalty on all mineral products sold from the area of
the Maracás Menchen project to which the royalty interest relates. The project is
located 250km south-west of the city of Salvador, the capital of Bahia State, Brazil,
and is 99.97% owned and operated by TSX Venture Exchange listed Largo Resources
Limited (‘Largo’).
Performance
The Group received its maiden royalty receipts from Maracás Menchen in Q1 2015,
following the commencement of vanadium pentoxide (‘V2O5’) production on August
2, 2014. Largo continued to ramp up production at the Maracás Menchen mine
towards nameplate production capacity of 9,634t of V2O5 per annum throughout
2015, resulting in royalty income of £0.6m for the Group, from production of 5,840t
of V2O5 for the year ended December 31, 2015.
Largo announced that it had achieved commercial production on October 1, 2015,
and also achieved new daily production records in Q3 2015 of 27t and 29t of V2O5,
representing 102% and 110% of nameplate capacity respectively. Despite these
records, Largo announced that it is undertaking several critical optimisation projects
on the plant aimed at addressing ongoing variances in daily production rates, such
that production capacity is achieved more consistently.
Largo has issued guidance for 2016 production levels of between 9,195t and 10,195t
of V2O5. Under the terms of the royalty sale agreement, the Group is required to
pay a further US$1.5m once production reaches an annualised rate over a quarter of
9,500t. Given the production guidance issued by Largo, the Directors consider it
probable that this production milestone will be achieved, possibly in the next 18 to
24 months, and as such the Group has recognised both an asset and corresponding
liability for this additional payment, as set out in note 25 to the financial statements.
A further payment of US$1.5m would be payable if production reaches an annualised
rate over a quarter of 12,000t, however, based on the current guidance the Directors
do not consider this probable and as such no liability has been recognised.
Valuation
The Maracás Menchen royalty is classified as a royalty intangible asset on the balance
sheet. As such, this asset is carried at cost less amortisation and impairments. Royalty
intangible assets are amortised when commercial production commences, on a
straight line basis over the expected life of the mine.
B R A
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H
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B
A
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Petrolina
F
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Salvador
I
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MARACÁS PROJECT
Vitória de
Conquista
19
STRATEGIC REPORTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
STRATEGIC REPORT
Business review
continued
Producing royalties
continued
El Valle-Boinás/Carlés (‘EVBC’), Gold, Copper
and Silver, Spain
Aviles
Gijón
Santander
EL VALLE(cid:26)BOINÁS/CARLÉS
Bilbao
León
S
P
A
What we own
The Group has a 2.5% life of mine NSR royalty on the EVBC gold, copper and silver
mine owned by TSX-listed Orvana Minerals Corp (‘Orvana’). EVBC is located in the
Rio Narcea Gold Belt of northern Spain and was previously mined from 1997 to 2006
by Rio Narcea Gold Mines. The royalty rate increases to 3% when the gold price is
over US$1,100 per ounce.
I
Performance
The Group received royalty income of £1.2m from EVBC during the past year.
This compares to £1.7m received in 2014.
N
On December 18, 2015, Orvana announced EVBC production for the 12 month
period ending September 30, 2015 of 53,733oz of gold (2014: 62,957oz), 166,744oz
of silver (2014: 156,977oz) and 6.1Mlbs of copper (2014: 5.6Mlbs). Orvana also
announced EVBC production guidance for the 12 month period ending September
30, 2016, of 43,000oz to 48,000oz of gold, 120,000oz to 130,000oz of silver, and
4.5Mlbs to 5.0Mlbs of copper.
During 2015, production at the El Valle mine was impacted by a number of challenges
including dewatering, power and maintenance issues together with a transition from
contractor mining to owner/operator mining. However, from August 2015 onwards,
the production level at El Valle reached previously achieved production and
development rates. Orvana continues to focus on productivity improvements,
infrastructure upgrades and costs reductions at the mine and expects to implement
solutions to some of the on-going challenges the mines faces during its fiscal year
2016 (ending September 30).
At the end of February 2015, the Carlés mine was placed on care and maintenance.
Orvana has stated its intention to leave the Carlés mine on care and maintenance
while it reviews alternative mining methods, or until the price of gold becomes more
sustainable for the mine.
On February 3, 2016, Orvana announced its FY2016 first quarter production results
for EVBC. The mine produced 13,893oz of gold (Q1 FY2015:15,276oz), 1.2Mlbs of
copper (Q1 FY2015: 1.85Mlbs) and 43,431oz of silver (Q1 FY2015: 43,946oz).
On February 3, 2016, Orvana announced a new Mineral Resource at the Villar
Zone of the El Valle mine, and at the nearby La Brueva Zone, in-line with Orvana’s
previously announced plans to increase the EVBC Reserves and Resource estimates.
EVBC royalty income
£m
4.0
1.6
1.7
1.2
0.6
11
12
13
14
15
Valuation
The EVBC royalty is classified as an available-for-sale equity financial asset within
royalty financial instruments on the balance sheet. As such, the asset is carried
at fair value by reference to the discounted expected future cash flows over the life
of the mine.
20
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART FOUR MILE
S
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A
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T R A L I A
Port Augusta
Adelaide
S
Zamora
P
A
Madrid
I
SALAMANCA
Cáceres
Four Mile, Uranium, Australia
What we own
The Group has a 1% life of mine NSR royalty on the Four Mile uranium mine in South
Australia. Four Mile is operated by Quasar Resources Pty Ltd (‘Quasar’).
Performance
The Four Mile uranium mine was previously a joint venture between Quasar (75%)
and ASX-listed Alliance Resources Limited (‘Alliance’). On September 18, 2015,
Alliance announced the completion of the sale of its 25% interest in the joint venture
to Quasar.
Production commenced at Four Mile in 2014 with the intention to produce 2.8Mlbs
of uranium ore concentrates in 2015. All production in 2014 and 2015 was stockpiled.
As a result, the Group did not receive any royalty income from Four Mile in 2015.
In February 2016, the Group received maiden royalty receipts of £0.1m from Four
Mile, following the commencement of sales by Quasar.
Valuation
The Four Mile royalty is classified as a royalty intangible asset on the balance sheet.
As such, this asset is carried at cost less amortisation and impairments. Royalty
intangible assets are amortised when commercial production commences, on a
straight line basis over the expected life of the mine.
Development royalties
Salamanca, Uranium, Spain
What we own
The Group has a 1% life of mine NSR royalty on the Salamanca uranium project located
in Spain and operated by ASX-listed Berkeley Energia Limited (‘Berkeley’). The project
consists of four main deposits (Retortillo, Alameda, Zona 7 and Gambuta) and is
located in the Salamanca Province, Spain, approximately 250km west of Madrid.
Performance
On July 20, 2015, Berkeley announced that the Nuclear Safety Council had issued a
favourable report for the grant of the Initial Authorisation of the proposed process
plant to be built at Retortillo, as a radioactive facility, the first in a three-step process
required to authorise the plant for operation. On October 21, 2015, Berkeley
announced the receipt of all the European Union, National, Regional and Provincial
level approvals required for the initial infrastructure development of the Salamanca
project. These represent major milestones in advancing the project towards first
production, with the Environmental Licence and the Mining Licence already granted
at the Retortillo deposit.
N
On October 7, 2015, Berkeley announced that following an infill drill programme
at Zona 7, the mineral resource estimate for Zona 7 was updated for an increase in
resource grade, an increase in resource pounds and the upgrade of almost 90% of
the Inferred Resource to the Indicated category.
On November 4, 2015, Berkeley announced an updated pre-feasibility study (‘PFS’)
on the Salamanca project that now includes the updated Zona 7 deposit. Its inclusion
in the updated PFS has increased the mine life from 11 to 18 years and reduced
operating costs from US$24.60 to US$15.60 per pound of uranium produced during
steady state operations, which should make it amongst the lowest cost producers in
the world, once developed.
21
STRATEGIC REPORTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
STRATEGIC REPORT
Business review
continued
During 2016, Berkeley expects to conduct additional exploration drilling at
Salamanca to test a number of drill targets located within 10km of the approved
processing facility and where historical drilling has intersected high grades of
uranium without being fully advanced.
Valuation
The Salamanca royalty is classified as a royalty intangible asset on the balance
sheet. As such, this asset is carried at cost less amortisation and impairments.
Royalty intangible assets are amortised when commercial production commences,
on a straight line basis over the expected life of the mine.
Groundhog, Anthracite, Canada
What we own
The Group retained a royalty on the Groundhog anthracite project located in
north-west British Columbia, Canada, following its disposal of the related mining
licenses in 2014 to the project’s operator, ASX-listed, Atrum Coal NL (‘Atrum’).
The royalty entitles the Group to the higher of 1% of gross revenue on a mine
gate basis or US$1.00/t from coal sales.
Performance
In 2014, Atrum announced the results of a Supplementary PFS for a 5.4Mtpa ROM
underground mine. Based on inputs on pricing from Wood Mackenzie, the project
generated a post-tax NPV10 (nominal) of approximately A$1.7b, on a capex of
US$596m and FOB production cost including royalties of US$86/t.
Exploration activities in 2015 focussed on consolidating knowledge of the two key
economic targets, Discovery B seam and the lower, Duke E seam. Atrum is currently
finalising a new PFS study which includes underground mines in these target
horizons, and low cost highwall options.
Atrum announced on February 26, 2015, that it had signed non-binding
memorandums of understanding for offtake with Japanese counterparties for
anthracite produced from the Groundhog North Mining Complex. In March 2015,
Atrum signed a binding equipment finance agreement with China Coal Technology
& Engineering Group Corp (‘CCTEG’) for the supply and finance of anthracite mining
equipment to facilitate development at the Groundhog North project. Stage one of
the equipment finance package is valued at US$100m and includes the supply of
mining equipment required to complete the initial small scale mine and subsequent
mine wall development for the full scale mine.
Valuation
The Groundhog royalty is classified as a royalty intangible asset on the balance
sheet. As such, this asset is carried at cost less amortisation and impairments.
Royalty intangible assets are amortised when commercial production commences,
on a straight line basis over the expected life of the mine.
GROUNDHOG
Stewart
B
RITIS
H
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U
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Prince George
B
I
A
Vancouver
Edmonton
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ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
Belém
São Luís
B
R
AMAPÁ (cid:26) TUCANO
Recife
A
Z
I
L
Salvador
Amapá & Tucano, Iron Ore, Brazil
What we own
Amapá
The Group has a 1% life of mine GRR on all iron ore and other non-precious minerals
produced from the Amapá Iron Ore System (‘Amapá’) in northern Brazil, owned and
operated by Zamin Ferrous Limited ('Zamin'). Amapá consists of the mine in Pedra
Branca do Amapári and the port in Santana, which are linked by a railway. The mine
has not resumed commercial production since it was suspended in mid-2013
following the port incident. Prior to production being suspended it was producing
a mix of sinter feed, pellet feed and spiral concentrates.
Tucano
The Group has a 1% life of mine GRR on all iron ore and other non-precious metals
(other than copper) produced from the Tucano project, owned by ASX-listed Beadell
Resources Limited (‘Beadell’). Tucano was acquired by Beadell in 2010 and is located
adjacent to Amapá in northern Brazil. Tucano is focused on gold mining, with first
gold being poured in 2012. However, it also has the capacity to produce an iron ore
concentrate from the tailings created by its gold processing plant. Any iron ore
produced can be sold to Zamin pursuant to an off-take agreement for 500Ktpa of
~65% Fe concentrate.
The Group is also entitled to royalties over a number of concessions governed by
a joint exploration arrangement between Zamin and Beadell.
Performance
Operations at Amapá remained suspended throughout 2015, with Zamin attempting
to restructure its finances to fund the rebuilding of the Santana port. In light of the
continued suspension of operations at Amapá, together with further declines in iron
ore prices, the Directors have recognised a further impairment charge of £2.8m
during the year, reducing the carrying value of the Amapá royalty to £1.8m as at
December 31, 2015.
Valuation
The Amapá and Tucano royalties are classified as royalty intangible assets on
the balance sheet. As such, these assets are carried at cost less amortisation and
impairments. Royalty intangible assets are amortised when commercial production
commences, on a straight line basis over the expected life of the mine.
23
GROUNDHOG
Stewart
B
RITIS
H
C
O
L
U
M
B
I
A
Prince George
Vancouver
Edmonton
STRATEGIC REPORTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART
STRATEGIC REPORT
Business review
continued
Early-stage royalties
Ring of Fire, Chromite, Canada
What we own
The Group has a 1% life of mine NSR royalty over a number of claims on the Black
Thor, Black Label and Big Daddy chromite deposits, owned by TSX-listed Noront
Resources Limited. (‘Noront’), in the Ring of Fire region of Northern Ontario, Canada.
Performance
On April 28, 2015, Noront completed its acquisition of the claims on the Black Thor,
Black Label and Big Daddy chromite deposits from Cliffs Resources Limited (‘Cliffs’).
These claims are adjacent to Noront’s Eagle’s Nest nickel-copper-platinum group
element and Blackbird chromite deposit.
Noront intends to complete a strategic plan and preliminary economic assessment
for the development of the newly acquired chromite deposits during 2016. Whilst
Noront’s acquisition of these deposits is considered very favourable by the Group,
the timeline to production remains unclear and chromite prices remain under
pressure. As a result, the Directors have recognised a further impairment charge of
£1.6m during the year, reducing the carrying value of the Group’s Ring of Fire royalty
to £3.1m as at December 31, 2015.
Valuation
The Ring of Fire royalty is classified as a royalty intangible asset on the balance sheet.
As such, this asset is carried at cost less amortisation and impairments. Royalty
intangible assets are amortised when commercial production commences, on a
straight line basis over the expected life of the mine.
Pilbara, Iron ore, Australia
What we own
The Group has a 1.5% life of mine GRR over three exploration tenements in the
central Pilbara region of Western Australia, owned by a wholly-owned subsidiary
of BHP Billiton Limited (‘BHP Billiton’), which is dual-listed on the LSE and ASX.
The tenements, covering 263km2, host a number of known iron occurrences,
including the Railway deposit. The tenements are supported by extensive rail
infrastructure including the rail lines from Rio Tinto’s West Angelas and Yandicoogina
mines and BHP Billiton’s rail line serving its current operations at Mining Area C,
which lie immediately to the east of the Railway deposit.
Performance
The Pilbara royalties are over undeveloped tenements of BHP Billiton’s iron ore
operations in Western Australia.
Valuation
The Pilbara royalty is classified as a royalty intangible asset on the balance sheet.
As such, this asset is carried at cost less amortisation and impairments. Royalty
intangible assets are amortised when commercial production commences,
on a straight line basis over the expected life of the mine.
RING OF FIRE
O
N
T
A
R
I O
Thunder Bay
PILBARA
Karratha
Port Hedland
W
A
U
E
S
S
T
T
E
R
R
A
N
L
I
A
Perth
24
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART Monrovia
L
I
B
E
DUGBE 1
R
I
A
Greenville
Dugbe 1, Gold, Liberia
What we own
The Group entered into a royalty financing agreement with AIM-listed Hummingbird
Resources PLC (‘Hummingbird’) in December 2012 in relation to Hummingbird’s
Dugbe 1 gold project in Liberia. In exchange for US$15.0m, payable in three tranches
of US$5.0m, the Group is entitled to a 2% life of mine NSR royalty from any sales of
gold mined within a 20km radius of a specified point in the Dugbe 1 Resource.
Performance
On July 10, 2015, Hummingbird announced that it had has signed a 25 year mineral
development agreement (‘MDA’) with the Government of Liberia for the Dugbe Shear
Zone which contains the Dugbe project. Hummingbird is currently in the process of
optimising an ongoing definitive feasibility study on the project in order to unlock
further value of this large-scale development opportunity.
Valuation
The advances made to Hummingbird under the royalty financing arrangement are
classified as non-current receivables and carried at fair value on the balance sheet.
25
PILBARA
Karratha
Port Hedland
W
E
A
U
S
T
S
T
E
R
R
A
N
L
I
A
Perth
STRATEGIC REPORTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART STRATEGIC REPORT
Key performance indicators
1.9
45.0
28.4
16.2
6.9
6.3
11
12
13
14
15
£45.0m
ROYALT Y ASSE TS ACQUIRED
(£m)
The Group’s strategy is to
acquire cash or near-cash
producing royalties which will
be accretive and in turn enable
dividend growth. The above
chart shows how much the
Group invested in royalty
acquisitions in each period.
18.96
8.69
8.39
2.47
0.9
0.8
11
12
13
14
15
11
12
13
0.4
15
0.0
14
-1.97
2.47p
ADJUSTED E ARNINGS
PER SHARE
(p)
Adjusted earnings per share
reflects the profit which
management is capable of
influencing. It disregards any
valuation movements caused
by short-term commodity
price fluctuations along with
any non-cash impairment or
similar charges.
It also adjusts for any profits or
losses which are realised from
the sale of equity instruments
within the mining and
exploration interests as these
are determined based on
market forces outside the
control of the Directors (see
note 11 for further details).
0.4x
DIVIDEND COVER
(x)
It is a policy of the Group
to pay a significant portion
of its royalty income as
dividends. Just as important
as maintaining the dividend,
is maintaining the quality of
the dividend. Dividend cover
is calculated as the number
of times adjusted earnings per
share exceeds the dividend
per share.
In any period where there is
an adjusted loss, the dividend
cover will be reported as nil.
26
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015APG12 | AR15 | 24.03.16 | FRONT - ART Financial review
2015 saw Anglo Pacific make considerable progress in growing its royalty income, which should mean that 2014 will, in hindsight, have
been the lowest point for the Group's income both historically and looking forward. Equally as encouraging was the significant reduction
in overheads reported in the year, resulting in a £6.2m increase in adjusted earnings in the year to £4.0m (2014: loss £2.2m). The results
for the year would have been even stronger but for the continued declines in commodity prices experienced in 2015, leading to further
revaluation losses and impairment charges, as described below. The Group is proposing to revise its annual dividend level from the
previous 8p per share to 6p per share. It is envisaged that this level will be maintained in the immediate future, subject to commodity
prices remaining at their current level.
Income statement
Royalty income
Kestrel
Amapá
El Valle
Like-for-like royalty income
Narrabri
Maracás Menchen
Total royalty income
2015
£’000
3,614
–
1,246
4,860
3,217
606
8,683
2014
£’000
1,657
174
1,650
3,481
–
–
3,481
Total royalty income in the year was £8.7m, more than double the £3.5m reported in 2014.
Royalty income, on a like-for-like basis, for the period was £4.9m, compared with £3.5m in 2014. The increase was driven by a greater
proportion of overall production, 49%, mined from within the Group's royalty land at Kestrel. This was broadly in line with our expectations.
The proportion should increase to between 60-65% in 2016 based on the forward-looking information which Rio Tinto provide to us, and
the expectation is for this to increase to 90% during 2017. The full benefit of this increased production was offset somewhat by further
declines in the price of coking coal throughout the year. At EVBC, a combination of lower gold prices and production led to income being
24% lower in the period at £1.2m.
The Group earned £3.8m of income from its two recent royalty acquisitions during the year. The majority of this was associated with the
Narrabri royalty which the Group acquired in March 2015, but was entitled to income from January 1, 2015. The mine operator, Whitehaven,
announced a record level of production for 2015 which was comfortably in excess of the level of production assumed at the time of
acquisition although, similar to Kestrel, the decline in the coal price during the year reduced some of the benefit of this excellent
production achievement on the Group’s reported income.
The other source of additional income in 2015 was initial receipts from the Group’s Maracás Menchen royalty which was acquired in June
2014. Although the Group is pleased with the production progress which the operator, Largo, is making, the vanadium price has fallen by
over 70% since the royalty was acquired which has significantly reduced the royalty income being reported.
Operating expenses
In addition to reporting a significant increase in royalty income in the year, the Group is also pleased to report a considerable reduction in
its operating costs in the year.
Staff costs (excluding share-based payments)
Professional fees
Other costs
Non-cash share-based payments
Operating expenses
2015
£’000
1,937
418
865
3,220
840
4,060
2014
£’000
3,057
834
1,024
4,915
609
5,524
(34.5%)
(26.5%)
This reduction of 34.5%, excluding non-cash share-based payments, followed an increased focus on cost control in light of the impact
of falling commodity prices on overall profitability. A large portion of the reported reduction in costs in 2015 can be attributed to certain
positions being vacated during the year which were not replaced. Furthermore, there was a significant reduction in bonus provisions in
the current year. Management has identified other areas where there is the potential to reduce costs further in the year ahead without
impacting on the day-to-day business of the Group, and intends to implement these.
Taxation
Current tax in the year amounted to £1.0m (2014: £1.4m), largely representing the payment of withholding taxes. No corporate tax was
paid in the current year due to the utilisation of carried forward tax losses. The Group still has significant carried forward tax losses which
it expects to utilise in the coming years and which in turn should help to reduce the effective tax rate in the short-term.
27
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCESTRATEGIC REPORT STRATEGIC REPORT
Financial review
Earnings per share
All of the above results in an increase to adjusted earnings for the year ended December 31, 2015 of £6.2m to £4.0m (2014: adjusted loss
of £2.2m) which results in an adjusted earnings per share of 2.47p (2014: loss of 1.97p). See note 11 for a detailed calculation of adjusted
earnings per share.
The income statement also includes non-cash charges relating to amortisation, impairment and fair value adjustments, along with
a corresponding deferred tax credit.
The amortisation charge in 2015 relates to the Group’s Narrabri, Maracás Menchen and Four Mile royalties, which are accounted for
as intangible assets, all of which came into production during the year. The amortisation charge in 2014 related to the Amapá royalty.
As there has been no production from this mine since mid-2013, amortisation was suspended in 2015 until such time as production
recommences.
Other fair value adjustments reflected in the income statement include the revaluation of the Kestrel royalty and impairment charges
relating to both mining and exploration interests and royalty intangibles net of the corresponding deferred tax allowance. These items
are discussed in more detail in the balance sheet section below.
Allowing for these charges, the Group reported a loss after tax of £22.6m (2014: £47.6m) which equates to a loss per share of 14.06p
(2014: 42.09p).
Balance sheet
The Group’s reported net assets increased from £161.3m at the beginning of the year to £162.0m at December 31, 2015. Although a small
increase, there were some large movements during the year which largely netted off, as illustrated in the table below.
Net asset value
At January 1, 2015
Narrabri acquisition
Royalty impairments
Amortisation
Kestrel valuation (net of deferred tax)
Dividends
Other
At December 31, 2015
Pence per
share (p)
138p
£’000
161,250
44,971
(4,414)
(2,573)
(24,114)
(11,901)
(1,236)
161,983
95p
The addition of the Narrabri royalty in March 2015 for £45.0m, including acquisition costs, was the Group’s largest ever royalty acquisition.
This was funded by way of share issue. Although this increased net assets considerably, the benefit of this was largely offset in 2015 by the
impact of falling commodity prices on the carrying value of the Group’s other assets.
Kestrel is included on the balance sheet at fair value and remeasured at each report date. There is also a corresponding deferred tax
liability recognised on this revalued amount. The net reduction on the balance sheet in the period relating to Kestrel was £24.1m. This
comprised a decrease in its fair value of £34.5m, largely due to a revision to the long term coal price as outlined in note 14, partially offset
by a decrease in the associated deferred tax liability of £10.3m. .
Impairment
Amapá
Ring of Fire
Isua
Bulqiza
Cresso
Total royalty related impairments
Impairment of mining and exploration interests
Other
Total impairments
2015
£’000
2,793
1,621
–
–
–
2014
£’000
8,414
–
15,288
700
222
4,414
24,624
930
–
4,873
1,352
5,344
30,849
The Group’s royalty intangibles decreased by £10.6m in the period. Of this amount, £4.4m related to impairment provisions made in
accordance with our accounting policy, caused by further falls in commodity prices and revising estimated production commencement
dates, both of which impact on the expected future discounted cash flows. £2.8m of the provision related to the Amapá royalty whereby
further falls in the iron ore price along with continued delays in rebuilding the port infrastructure have resulted in a further delay to the
expected restart date. Pricing revisions also led to a further provision of £1.6m in relation to the Ring of Fire royalty.
The Group’s intangible royalties, as described above, are amortised upon the commencement of production. The amortisation charge of
£2.6m in the period included Narrabri, Maracás Menchen and Four Mile. Furthermore, as a considerable portion of the Group’s assets are
held in an Australian structure, there was a £3.6m translation loss at the reporting date.
28
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015STRATEGIC REPORT The Group’s net asset value per share was 95p at December 31, 2015 (2014: 138p). Even allowing for the 2015 interim dividend paid in
February 2016 of 4p per share, the net asset value is at a considerable premium to the share price of 58p at December 31, 2015.
It is worth highlighting that positive developments at certain of the Group’s royalties during the period have, we believe, increased the
value of these assets to the Group, although this is not reflected on the balance sheet. The following are some examples of this:
• Narrabri: the exceptional operating performance at Narrabri in the period, along with Whitehaven’s announcement that they had
received a permit to increase production to 11Mtpa from 8Mtpa has the effect of accelerating production, therefore increasing revenue,
beyond the level which the Group had factored into the acquisition price. This acceleration and enhancement of production brings
forward income which increases the present value of the royalty.
• Berkeley Energia: have made considerable progress advancing their uranium project in Spain. Recent drilling has produced some very
encouraging results suggesting a near doubling of the resource. As the Group had only priced the royalty based on the original Zona 7
deposit, the additional reserves which were unknown at the time, represent additional value.
Under IFRS these royalties are accounted for as intangible assets which requires them to be carried at cost and amortised over the life of
mine once production commences.
Cash flow and borrowings
30
25
20
15
10
5
7.5
(4.3)
1.7
(3.7)
(0.8)
(0.6)
3.7
5.3
(11.9)
5.7
Cash
generated
from
non-royalty
assets
Non-core
asset
disposals
RCF
drawdown
Royalty
acquisition
net of equity
raise
Admin
costs
Tax, FX
and other
Finance
costs
Dividends
Closing
8.8
Opening
Royalty
receipts
2014
15.7
6.3
0.0
8.7
0.0
(6.6)
(5.6)
1.8
0.0
(11.5)
8.8
Cash flows generated from operations in the period were £1.5m compared to £3.0m in 2014. Although this seems at odds with the
increase in royalty income reported in the period, this is largely due to timing differences. Royalty income for Q4 in any one year is not
received until the following month. As such, the income is recognised in the income statement but not in the cash flow statement.
Income in Q4 2014 (£0.1m) is included in the 2015 cash flow whereas the income for Q4 2015 (£2.9m) is not.
As part of the Narrabri royalty acquisition the Group entered into a US$30.0m three year secured revolving credit facility for working
capital purposes. At December 31, 2015 the Group had net debt of £1.8m. The Group’s cash position was enhanced by the recovery
in full, upon maturity in December 2015, of the C$5.0m loan which it had provided to Laramide Resources Limited.
The Group retains its 16.67% equity holding in Berkeley Energia which increased in value considerably in the second half of 2015.
This holding was included on the balance sheet at December 31, 2015 at US$£7.2m, being the market value at that point in time.
Although the preference is to retain this stake, it does provide a further source of liquidity.
The single largest outgoing which the Group has is its dividend. This was uncovered in terms of free cash flow in 2015. Due to a lower
commodity price outlook, which is outside the control of management, the Directors are proposing a slight reduction in the final dividend
from 4p in the prior year to 3p, making a full year payment of 7p per share for 2015. The 3p half yearly payment is intended to remain
unchanged in the short term, subject to any deterioration in the Group's financial prospects. At 6p per share, the annual dividend should
be much closer to being covered in 2016 with full cover achieved from 2017 onwards.
Financial prospects for the year ahead
Although further declines in commodity prices reduced the overall level of income being reported in the year, the Group was very pleased
with the underlying production performance achieved by the royalty operators. In spite of a difficult year for the mining sector, all of the
Group’s income generating royalties remained in production. With the proportion of production from Kestrel expected to increase to
60-65% in 2016, along with the Narrabri ramp up and initial royalty receipts from Four Mile, the Group expects to report a higher level of
royalty income over the next twelve months, subject to commodity price stabilisation.
Foreign exchange also has the potential to increase reported revenue in 2016. The pound has weakened somewhat against the US and
Australian dollar in the first few months of 2016. Should this trend continue, the Group’s results would benefit from foreign exchange as
most of its income is received in Australian dollars with the underlying pricing in US dollars.
The organic growth within the portfolio, along with plenty of financial headroom under the Group’s revolving credit facility and a
continued focus on costs, mean that the Group remains in a strong financial position for the year ahead.
29
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCESTRATEGIC REPORT Principal risks and uncertainties
Background
The Board undertook a comprehensive review of risk during the year. This review involved the Directors completing a risk
questionnaire which required them to rank each risk on the Group’s risk register and to identify any risks which they
considered significant that were missing from the report. The results were compiled and presented to the Board in
November 2015, which resulted in some changes to the principal risks as described below.
Following another challenging year for the mining sector which has seen even the largest global mining companies
initiate measures to strengthen their balance sheets, the Board, led by the Audit Committee, has dedicated considerable
time to analysing the risks and opportunities that this presents. For Anglo Pacific, further declines in commodity prices
and the Company’s share price provided further focus for the Board to carefully consider the risks facing the Group in
being able to execute its strategy. This exercise was performed in conjunction with a wider analysis of the Group’s
prospects in voluntarily complying with provision C2.2 of the 2014 Combined Code, which requires a statement on
viability to be made in the annual report, including the determination and consideration of a stress tested ‘severe but
plausible’ scenario.
Risk appetite and viability
The underlying work involved in making a positive statement on viability, in accordance with C2.2 of the Combined Code,
involves articulating the risk appetite of the Board in executing the Group’s strategy. Although the Group refreshes its risk
register on a regular basis, further quantitative analysis was included in the current year to enable the Board to consider in
more detail the risks and mitigations so the net risk could be evaluated against the Group’s risk appetite. In accordance
with the Code, this exercise also considered an additional downside scenario which attempted to determine at what point
strategic intervention would be required under a ‘severe but plausible’ case in order for the Group to remain viable.
This analysis was performed for a three year period, consistent with the Group’s medium term planning horizon and the
term of its borrowing facility.
Although the ultimate success of Anglo Pacific will depend on its ability to continue to add value enhancing royalties and
streams to its portfolio, the focus of the viability statement is on the existing business of the Group and the ability of the
current royalty portfolio to generate sufficient cash to meet the Group’s outgoings, including the dividend. Under our
‘severe but plausible’ case, this results in the Group drawing down further on its borrowing facilities as income reduces.
The Directors’ risk appetite is therefore capped with reference to an acceptable and supportable level of borrowings
relative to the Group’s income profile over the next three years on a ‘severe but plausible’ basis.
Conclusion
The outcome of the Board’s risk assessment resulted in the following revisions to the principal risks as follows:
2014 Risks
Revisions in 2015
2015 Risks
1. Commodity price risk
2.
Achieving investment
projections
2014 risks combined
into one risk
1.
That the current portfolio
will not generate sufficient
cash
Description
Operational
3. Dependence on operators
No change
2. Dependence on operators
Operational
4.
Financial covenants
associated with
secured debt
2014 risk expanded to
include refinancing risk
3.
4.
5.
6.
That the Group fails to meet
its obligations under its
secured borrowing facility
and is unable to refinance
Operational
That royalty financing
continues to be in demand
Strategic
That the Group cannot
finance royalty and
streaming opportunities
That the reputation of coal
will deteriorate and impact
on its appeal as an
investment proposition
Strategic
Strategic
30
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015STRATEGIC REPORT Taking into account the quantitative analysis performed around each risk identified above and having tested these
scenarios under a ‘severe but plausible’ set of criteria, the Directors conclude that they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
l
a
n
o
i
t
a
r
e
p
O
Principal risks
Risk
Possible cause
Mitigation
Unmitigated risk
That the current
portfolio will not
generate sufficient
cash
The Group expects the current
portfolio to generate a certain
level of income, largely driven
by increased mining at Kestrel
within the Group’s land and
continued production upside
at Narrabri.
• Further falls in commodity
prices
• Unexpected production
issues at Kestrel and/or
Narrabri
• Reduction in Queensland
royalty rate
• Foreign exchange risk
(discussed separately below)
The Group has little ability to
influence the quantum of
royalties it receives post
acquisition as it does not
hedge its commodity
exposure, nor can it influence
the royalty rate at Kestrel.
The Group is exposed to
commodity price volatility,
although unlike mine
operators its cost base is
flexible and fully within its
control.
Risk
Possible cause
Mitigation
Unmitigated risk
Dependence on
operators to remain
in production
The Group depends on mine
operators to remain in
production in order to earn
royalty income.
This will require the underlying
operations to remain
economically viable and for
the operator to remain a
going concern.
• Project becomes
uneconomic due to falling
commodity prices and is
placed on care and
maintenance
• Operator gets into financial
difficulty through
over-leverage (covenant
pressure, refinancing risk) or
inability to access capital to
meet capex requirements
The best way the Group can
mitigate against operator
reliance is to continue
diversifying its source of
income and reducing its
reliance on any one operator,
which in the past has been
Rio Tinto at Kestrel. The
acquisition of the Narrabri
royalty was an example of
such diversification.
The last twelve months has
been as tough a period as any
in recent times for the mining
sector, yet all of our royalties
which were in production in
2014, or acquired since,
remain in production, showing
the resilience of the operators
and reflecting their position at
the lower end of the cost
curve.
Risk
Possible cause
Mitigation
Unmitigated risk
• Breach of financial covenant
associated with a reduction
in royalty income (via
commodity price declines
or production disruption)
• Further deterioration in
market conditions
impacting on the Group’s
ability to refinance
Detailed cash flow forecasts
provide timely warning of any
upcoming tightening of
headroom under financial
covenants.
The Group has some further
liquidity in its equity portfolio
which could be monetised to
reduce borrowings.
Refinancing risk will depend
on market conditions at a
future point in time which is
outside the control of
management.
The existing facility is
committed until 2018 and
the Group will pro-actively
refinance ahead of that to
mitigate the dependency
on market conditions at
that time.
That the Group fails
to meet its obligations
under its secured
borrowing facility
The Group’s borrowings are
secured and subject to certain
financial covenants, the
failing of which could impact
on the ability of the Group to
continue to run its business
independently.
The decline in commodity
prices since the facility was
entered into has also
increased the refinancing
risk upon maturity.
31
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCESTRATEGIC REPORT Principal risks and uncertainties
c
i
g
e
t
a
r
t
S
Risk
Possible cause
Mitigation
Unmitigated risk
There can be no guarantee
that royalties will always be
in demand throughout
mining cycles.
That royalty
financing continues
to be in demand
In order to execute its strategy,
the Group needs to acquire
further royalties. The success
of this strategy will depend on
the future demand for royalty
financing as part of the
financing mix in the sector.
• Recovery in the outlook
for mining markets could
trigger a sector rerating and
share price appreciation
• Pricing competitiveness
of royalties versus
conventional sources
of finance (alternative
financing can be perceived
as more expensive on a
headline basis)
• Appetite of counterparties
to relinquish operating
margin in operating margin
in favour of restrictive debt
or dilutive equity
Generally, demand for royalty
financing is greater when the
underlying market conditions
are challenging, as they are
now. The past twelve months
has seen considerable activity
in the sector, primarily by way
of streaming, which
demonstrates that there is a
need for alternative financing.
The Directors acknowledge
that there can be no
guarantee market conditions
will always be optimal for
raising finance.
Risk
Possible cause
Mitigation
Unmitigated risk
There can be no guarantee
market conditions will always
be optimal for raising finance.
That the Group
cannot finance royalty
opportunities
Given the difficulties being
experienced in the wider
mining industry, there can be
no certainty that the Group
will have ready access to
capital to finance royalty
opportunities.
• Further fall in share price
results in excessive dilution
where the acquisition
consideration is funded
by equity
• Further capital outflows
from the sector may
dampen investor appetite
for new equity issuances
• The Group’s cost of capital,
due to its current dividend
yield, makes executing
accretive deals more difficult
• Further commodity price
declines reduce the debt
capacity of the Group
The Group demonstrated that
royalty opportunities which
meet its strict investment
criteria, such as the recent
Narrabri transaction, should
be capable of being financed.
The Group remains in close
dialogue with several
institutions who are interested
in co-investing in appropriate
opportunities. This should
significantly de-risk financing
risk for larger transactions.
Risk
Possible cause
Mitigation
Unmitigated risk
• Climate change lobbyists
continue to target the
natural resource section and
coal producers in particular
Australian coal, on which the
Group’s Kestrel and Narrabri
royalties are based, is
generally regarded as low in
ash and low in sulphur and
much cleaner in nature.
Anglo Pacific believes that
the coal industry is beginning
to promote cleaner, more
sustainable coal which clearly
has a place in future power
solutions.
The Group’s strategy is to build
a diversified royalty portfolio
which should naturally reduce
the Group’s exposure to coal
going forward.
The Directors continue to
believe in the future of coal as
both a power source and raw
material, especially less
polluting coal from mines
such as Kestrel and Narrabri.
That the reputation
of coal will
deteriorate and
impact on its appeal
as an investment
proposition
The coal industry has
attracted considerable
criticism in recent years as
environmental lobbyists
continue to exert pressure on
the investment community
not to support extractive
industries. Although Anglo
Pacific is not a coal operator,
it continues to be considered
similar to an indirect
investment in coal.
32
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015STRATEGIC REPORT l
a
i
c
n
a
n
i
F
Risk
Possible cause
Mitigation
Unmitigated risk
Liquidity risk
That the Group cannot meet
all of its obligations as they
fall due
• Unexpected financial claim
• Insufficient access to cash
Credit risk
That there is a risk of default by
those owing the Group money
or those institutions holding
the Group’s cash reserves
• Royalty payment default
• Bank collapse
Foreign exchange risk
That foreign exchange
movements adversely impact
on the Group’s cash flow
projections
Interest rate risk
That an increase in interest
rates could adversely impact
on the Group’s prospects
Other pricing risk
The Group’s results are
determined by other pricing
inputs which could result in
unrealised losses at each
reporting date
• Cash flow risk associated
with US$ derived income
and costs (including
dividend) largely payable
in pounds.
• Translation risk of having
a presentational currency
in GBP but assets
denominated in A$
• Financing risk when raising
equity in GBP to fund US$
denominated acquisitions
• The Group is exposed to the
US and UK LIBOR rate as part
of its bank facility
• The Group has a portfolio
of certain publically quoted
equity investments which
are marked to market at
each reporting date
• The Group’s asset values are
underpinned by the forward
commodity price outlook
at each reporting date. A
decline in these prices could
result in further impairment
or revaluation charges.
The Group prepares regular
cash flow projections which
highlight all anticipated and
probable expenses including
routine overheads, tax and
any capital commitments.
The Group has over US$15m
undrawn on its existing RCF
and potential access to the
capital markets to provide
additional liquidity.
The Group operates
controlled treasury policies
which spreads the
concentration of the Group’s
cash balances amongst
separate financial institutions
with sufficiently high credit
ratings
Management is considering
hedging a portion of the
Group’s foreign currency
exposure now that there is
a reliable track record of
forecasting at Kestrel along
with the significant income
being received from Narrabri.
The Directors have carefully
considered this risk in making
a positive statement about
going concern and viability.
The risk of counterparty
default is assessed when
entering into new royalty
agreements. The Directors
are confident that the Kestrel
and Narrabri royalties, which
represent the majority of the
Group’s receivables, are at
relatively low risk of default
due to the nature of the
operators involved.
The Directors take into
account foreign exchange
risk when entering into royalty
acquisitions and financing
transactions.
The Group has a relatively low
level of borrowings and, as
such, interest rate risk is not
considered material when
assessing the Group’s longer
term prospects.
The Group’s equity portfolio
has largely been divested,
meaning any future
impairment should be much
less material to the Group.
The Group uses independent
third party consensus prices
at each reporting date in
assessing for impairment.
Interest rates currently remain
at historically low levels. There
can be no guarantee that this
will continue in the short to
medium term which could
impact on the cost of the
Group’s capital when
acquiring future royalties.
The Group is exposed to
commodity prices and a
significant decrease in
commodity prices is likely to
result in further impairment
charges. There is little the
Directors can do to mitigate
against this risk once a royalty
has been acquired.
33
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCESTRATEGIC REPORT STRATEGIC REPORT
Corporate social responsibility
Anglo Pacific seeks to maintain
the highest standards in all areas
of its business.
During 2014, the Board commissioned a review of all
of Anglo Pacific’s current corporate social responsibility
(‘CSR’) practices and activities. Its purpose was to
identify best practice. Where the review highlighted
scope for improvement, the Company made practical
and effective changes which it built on during 2015.
The review took into account international guidance.
The standards considered included: the Extractive
Industries Transparency Initiative; the Global Reporting
Initiative Mining and Metal Sectors Supplement; the
United Nations’ Guiding Principles on Human Rights;
and the Voluntary Principles on Security and Human
Rights. The Company also reviewed the CSR reporting
and CSR commitments of the mines that it is invested
in. Further, the Company evaluated the implications of
the United Kingdom Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013 for its
own CSR reporting.
Following this extensive review, the Company extended
and strengthened its due diligence process to reflect
current best practices. The mechanism that the
Company uses to monitor CSR issues has been given
greater granularity. In particular, it directs the Company
to consider the governance, policy provision,
management, measurement and reporting of each
material issue. During 2015, the Company has applied
this to the consideration of potential investments,
including it as a key royalty acquisition criterion, and
uses it in the monitoring of existing investments.
At the same time the Company has further improved
its office practices. The Company has implemented
improvements, including but not confined to measures
to conserve energy, which it will report against in the
2016 Annual Report and Accounts, and the reduction of
office waste. During 2015, the Company successfully
implemented a recycling policy and now recycles 25%
of all office waste (2014: 0%). The Company plans to
improve this further during 2016. In addition, to improve
energy efficiency office lighting is now on motion and
daylight sensors to minimise energy consumption.
The Company is confident that the changes made will
enable it to achieve improvements in its CSR practice.
Integrity
Anglo Pacific is committed to maintaining its
reputation for fair dealing. The Company does not offer,
give or receive bribes or inducements whether directly
or through a third party.
The Company has policies and procedures in place
to ensure that all Directors, officers, employees,
consultants, advisors, business partners, and anyone
else who may be acting on its behalf, are aware of their
responsibilities in this area. The Company actively
promotes a transparent approach to all of its business
dealings and expect employees to adopt a zero
tolerance attitude to corruption. Employees are
encouraged to report any potential or apparent
misconduct in accordance with the Company’s internal
whistle-blowing policy and any employee that refuses
to pay bribes, or raises any issues honestly, and in
good faith, will be supported by the Group.
The Company chooses business partners and
counterparties carefully, based on merit and reputation,
and only works with persons of known integrity, who
it believes will act consistently with its own standards.
The Company does not make facilitation payments.
Where business is conducted in countries with laws
that are less restrictive than the Company’s policies
and procedures, it will seek to follow its own policies
and procedures, promoting its standard of integrity
wherever possible.
Environment
Anglo Pacific is committed to an environmental policy
of collaborating fully with statutory authorities, local
communities and other interested parties in order to
limit any potential adverse impacts of its activities
on the natural and human environments associated
with its operations. The nature of the Group’s royalty
investments is such that it does not operate any of
the properties underlying its royalty portfolio and,
consequently, it does not always have the ability to
influence the manner in which the operations are
carried out. Nevertheless, a responsible approach to a
project’s environmental impact and its sustainability
management is essential to the success of the project
over its life.
As part of the Group’s investment decision process,
careful consideration is given to the environmental
aspects of any potential asset purchase during the
due diligence phase. In particular, the Group typically
engages with consultants who have the requisite
expertise to ensure that it can consider and, if
necessary, mitigate any risks in this regard to a properly
maintainable level. In 2015, as part of its acquisition of a
royalty on the Narrabri mine, Anglo Pacific engaged an
independent consultant to review the environmental
34
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015STRATEGIC REPORT aspects of the mine and comment on those likely
to affect the surrounding community, including
subsidence, noise and air quality. No issues were
identified as part of this process.
The Group expects employees to address
environmental and sustainability responsibilities within
the framework of normal operating procedures and
to look to minimise waste as much as economically
practicable. The Audit Committee is responsible for
periodically reviewing the Group’s environmental
practices and for monitoring their effectiveness.
Social and community issues
Anglo Pacific acknowledges that, whilst its activities
have little direct contact with communities, it can
positively influence the social practices and policies of
companies it conducts business with. Positive social
and community relationships are essential to profitable
and successful mining activities. The Group endeavours
to ensure that companies it works with have
appropriate procedures in place to facilitate this. More
specifically, Anglo Pacific’s investment decision process
for potential asset purchases involves due diligence
relating to the full range of CSR issues, including the
social and community aspects of the project. As part
of its 2015 acquisition of a royalty on the Narrabri mine,
Anglo Pacific extensively reviewed Whitehaven Coal’s
policies on community development, Aboriginal
engagement, safety and environmental responsibilities.
No issues were identified as part of this process.
Diversity
The Group’s employees are instrumental to its success,
and it respects and values the individuality and diversity
that every employee brings to the business. As at
December 31, 2015, 54% of the Group’s employees
were female (2014: 46%) as the Group had 11
employees, 6 of whom were female. In terms of the
Company’s Board of Directors, there were 6 Directors,
5 of whom were male and 1 of whom was female. Prior
to any appointment to the Board, the Nomination
Committee gives due regard to diversity and gender
with a view to appointing the best placed individual for
the role. The Group recognises that it has more to do
in encouraging and supporting diversity and hopes to
be able to identify and develop talent at all levels in
the organisation as the Group continues to grow.
More information on the Nomination Committee’s
approach to diversity can be found on page 40.
Human rights
The debate on the role of business and human rights
has gained increasing prominence in recent years.
Anglo Pacific welcomes this focus as respect for human
rights is implicit across the Group’s employment
practices. Further, a commitment to human rights
is an important part of any successful organisation.
As part of the Group’s investment decision process,
if necessary, consultants with the requisite expertise
are engaged to assist in identifying and mitigating
any such risks.
Health and safety
The health and safety of the Group’s employees is of
fundamental importance and is a responsibility it takes
seriously. During 2015, the Group implemented a new
health and safety policy and undertook an office risk
assessment. The Group’s small size allows the day-to-
day responsibility to remain at Board level, being
monitored by the Chief Executive Officer. Furthermore,
a commitment to health and safety is a fundamental
component of any mining project, and, as part of the
Group’s investment decision process, consultants
with the requisite expertise are engaged to assist in
identifying and mitigating any such risks.
Donations
The Group’s philosophy on charity has historically been
that this is a decision best made by shareholders with
their own resources. The Group has revised its policy
and will now consider supporting select charities at
the discretion of the Directors. No donations were
made during 2015; however, the Group will continue
to consider supporting select charities during 2016.
Greenhouse gas emissions
The UK Government requires that UK listed companies
should report their global levels of greenhouse gas
emissions in their Annual Report. Anglo Pacific is a
relatively small organisation, with 11 employees, which
means that any emission sources within its operational
and financial control, such as business travel, purchase
of electricity, heat or cooling by the Group, are not
material in their impact. As the management and
operation of the underlying mines generating the
Group’s royalty income are outside its control, it is
unable to report on these emissions.
Following the Group’s move to a new office at the end of
2014, power consumption has been monitored in 2015
and the Group will look to improve this going forward.
The information on pages 08 to 35 represents the Group’s
Strategic Report and has been approved by
the Board.
J.A. Treger
Chief Executive Officer
March 22, 2016
35
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCESTRATEGIC REPORT Corporate governance report
Our approach towards corporate governance
As announced by the Company and approved by special resolution
of the Company’s shareholders on September 17, 2015, the
Company transferred its listing category from a ‘premium listing
(commercial company)’ on the Official List and into the category of
a ‘standard listing’ on October 16, 2015 (the ‘Transfer’). The Transfer
was the result of ongoing discussions with the UKLA in relation to
the appropriate categorisation of the Company under the Listing
Rules with respect to technical considerations relating to the
Company’s royalty business model.
As a standard listed company on the London Stock Exchange,
the Company is required to comply with the minimum regulatory
requirements imposed by the EU that apply to all securities
admitted to trading on EU regulated markets. Accordingly, the
Company remains subject to the relevant Listing Rules, the
Disclosure and Transparency Rules and the Prospectus Rules.
However, it will not be required to comply with the super-equivalent
provisions of the Listing Rules which apply to companies with a
premium listing. Such super-equivalent provisions include:
• certain continuing obligations set out in Chapter 9 of the Listing
Rules such as providing pre-emption rights to shareholders
(although the pre-emption rights under the Companies Act 2006
will continue to apply), the Model Code, certain rules regarding
employee share schemes and long-term incentive plans, certain
rules regarding the conduct of rights issues, open offers and
placings and certain disclosures in annual financial reports;
• complying with or explaining against the UK Corporate
Governance Code (although the Company will still be required
to make a corporate governance statement under paragraph
7.2 of the Disclosure and Transparency Rules);
• complying with the requirement to obtain shareholder consent
by way of special resolution for the cancellation of the listing of
any of its shares as set out in Chapter 5 of the Listing Rules; and
• complying with provisions in Chapter 10 of the Listing Rules
relating to significant transactions.
The Company is, however, continuing to comply on a voluntary
basis with related party requirements that are substantially
equivalent to those set out in Chapter 11 of the Listing Rules.
A more detailed summary of the key differences between the
regulatory requirements of standard listing companies and
premium listing companies is contained at Part III of the
‘Proposed transfer of listing category on the Official List from
premium to standard’ circular which is available on the
Company’s website at www.anglopacificgroup.com/circulars.
The Board remains committed to high standards of corporate
governance.
Board and Committee structure
The Board is collectively responsible for approving the Group’s
long-term objectives and strategy and for reviewing performance
against them. The Board is also responsible for the general
oversight of the Group’s operations and management.
The Board was chaired by Mike Blyth, as Non-Executive Chairman,
responsible for the leadership and effectiveness of the Board, during
2015. The time commitment expected of the Non-Executive
Chairman is around six days per month. Mr. Blyth’s other (mainly
charitable) commitments are shown on page 37, none of which is
considered to be significant.
The day-to-day management of the Group is delegated to the
Chief Executive Officer (‘CEO’), save for certain matters reserved
for consideration by the Board. The CEO is supported by the Chief
Financial Officer, & Company Secretary and head of Investments
who meet as an Executive Committee. The Executive Committee
is no longer a formal Board Committee because it is not currently
comprised of a majority of Executive Directors. The Chairman and
CEO have distinct roles which have been defined in writing and
agreed by the Board.
Other responsibilities are devolved to the Nomination,
Remuneration and Audit Committees; their members are all
Non-Executive Directors and their work is described more fully
below. The terms of reference of each Committee, and the matters
reserved to the Board, are available on the Group’s website.
David Archer acted as the Group’s Senior Independent Director
(‘SID’) during 2015, following his appointment on November 14,
2014. The role of the SID is to provide a sounding board for the
Chairman and to serve as an intermediary for the other Directors
where necessary. The SID takes the lead on meetings of the
Non-Executive Directors outside the formal committee structure,
and is available to shareholders if they have concerns that have
not been resolved through the normal channels of Chairman,
CEO or other member of the Executive Committee, or where
such channels would be inappropriate.
The Board considers all Non-Executive Directors to be
independent. Consequently, the Board believes that it has
complied with the requirement of the UK Corporate Governance
Code to have at least two independent Non-Executive Directors
on the Board throughout the year.
36
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 The Board
Chairman
Non-Executive Directors
W.M. Blyth
65, was appointed Director in March 2013 and became Non-Executive
Chairman on April 1, 2014. He has a BSc from St Andrews University
and is a Chartered Accountant. He was, until his retirement in 2011,
a partner for 30 years in RSM (previously Baker Tilly), specialising
in providing audit and related services to AIM and full list clients.
During his career he held a number of senior management
positions with the firm, including a period on its National Executive
Committee. In addition to his chairmanship of Anglo Pacific,
Mr. Blyth is a board member of Wheatley Housing Group; and
director of Haldane Property Company Ltd and Glasgow &
Suburban Property Company Ltd. Mr. Blyth also acts as trustee
for a number of small charities.
Chief Executive Officer
J.A. Treger
53, joined the Group as Chief Executive Officer and Executive
Director on October 21, 2013. He has an MBA from Harvard
Business School and a BA from Harvard University. He began
his career working for Lord Rothschild as an in-house corporate
financier, managing a portfolio of public and private equity
investments before co-founding Active Value Advisors Ltd. to
invest in undervalued, predominantly UK-listed companies, where
he advised on more than US$900.0m of funds over a 12-year
period. Most recently, he has served as one of the principals of
Audley Capital Advisors LLP, an investment advisory firm, which he
co-founded in 2005, managing value-orientated, special situations
investment strategies through hedge fund and co-investment
vehicles, with a principal focus on the natural resources sector.
Mr Treger holds an external Non-Executive Directorship with
Mantos Copper S.A. for which he earned fees during the year.
This directorship does not affect Mr. Treger’s ability to perform
his role as CEO of the Company, as this directorship forms part
of his 10% time commitment outside of Anglo Pacific.
Senior Independent Director
D.S. Archer
59, was appointed Non-Executive Director in October 2014 and
currently chairs the Group’s Remuneration Committee. He is also
the Group’s Senior Independent Director. He has over 34 years’
international resources industry experience in the Americas, Asia,
Australia and the Middle East. He is the Chief Executive Officer of
AIM-listed Savannah Resources PLC, which owns majority stakes
in a mineral sands project in Mozambique and a copper project in
Oman, and was previously the Managing Director of ASX-listed
company Hillgrove Resources Limited, where he was responsible
for growing the company into a significant, dividend paying,
mineral explorer and copper producer with assets in Australia
and Indonesia. Mr. Archer was the founder and Deputy Chairman
of Savage Resources Limited, a coal, copper and zinc producer,
and the founder and Executive Chairman of PowerTel Limited.
He is also a barrister (non-practising) of the Supreme Court of
New South Wales.
N.P.H. Meier
66, was appointed Non-Executive Director in April 2015. Mr. Meier
has over thirty years of experience in investment banking with
specialist knowledge of the Mining sector. He has an MA in Natural
Sciences from Cambridge University. Most recently Mr. Meier
headed up the investment banking activities for RBC Capital
Markets in Europe and Asia and drove a major expansion of RBC’s
European presence. Prior to this role, he headed up RBC’s activities
in the Metals and Mining sector in Europe, Africa and Asia for many
years, and continues to enjoy strong relationships within the
sector. Mr. Meier also served as a Director on the Board of RBC’s
main operating subsidiary in Europe.
R.C. Rhodes
45, was appointed Non-Executive Director in May 2014 and
currently chairs the Group’s Audit Committee. She has an MA in
Economics from the University of Cambridge and is a member of
the Institute of Chartered Accountants in England and Wales,
having qualified with Coopers and Lybrand in London in 1997. She
has over 15 years of experience in the mining industry, including
with Anglo American PLC (until August 2008) and London Mining
PLC (until November 2013) and is now CFO of Alufer Mining
Limited. Ms. Rhodes also serves on the boards of Alufer Mining
Services Limited and Bel Air Mining SA, and has played a leading
role in listing companies on LSE, AIM and JSE, in raising significant
project and corporate finance and in negotiating mining licences
and fiscal platforms.
R.H. Stan
62, was appointed Non-Executive Director in February 2014.
He has over 34 years of experience in the mining industry. He has
held several senior positions with Fording Coal Limited, Westar
Mining Ltd, and TECK Corporation before becoming a founding
shareholder and director of publicly quoted Grande Cache Coal
Corporation (GCC), an Alberta-based metallurgical coal mining
company, in 2000. At GCC, he served as President, CEO and Director
from 2001 to 2012, when the company was sold for US$1.0b to
Winsway Coking Coal and Marubeni Corp, an Asian-backed strategic
investor consortium. He has served as Chairman of the Coal
Association of Canada Board of Directors and has acted as a board
member of the International Energy Agency’s Coal Industry
Advisory Board. He currently serves on the board of several private
companies, including Quantex Resources Limited, Lighthouse
Resources Inc and Spruce Bluff Resources Limited, and formerly
served on the board of publicly-listed Whetstone Minerals Limited.
Board evolution
During 2015, the Company continued the process of Board
rejuvenation and reinvigoration. Mark Potter resigned from his role
as Chief Investment Officer and Executive Director of the Company
on May 31, 2015 and Anthony Yadgaroff retired from his role as
Non-Executive Director on December 31, 2015.
During the year, following the recommendation of the Nomination
Committee, the Board appointed Patrick Meier as a Non-Executive
Director and his experience is detailed on above.
The Company believes that the Board’s composition is sufficient at
this time because, following a series of appointments over the past
couple of years, the Board now has the skills and experience
necessary to drive the Company forward.
37
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE The Board
Appointment, development and assessment of directors
All Directors are subject to election by shareholders at the first
opportunity after their appointment. Under the terms of the
Company’s Articles of Association, all Directors are required to
retire and seek reappointment by shareholders at an AGM on the
third anniversary of their appointment. All current Non-Executive
Directors were appointed for an initial 3-year term, renewable
at the Board’s discretion for up to two further 3-year periods
thereafter, and the Board intends that all future Non-Executive
Director appointments will be on similar terms. Notwithstanding
this, it is the Board’s intention that all Directors, including the
Non-Executive Directors, shall be subject to re-election at
each AGM.
Each Director is required to disclose to the Board their other
significant commitments prior to appointment and when there is
any significant change. The Board considers that all of the Directors
allocate sufficient time to the Company to discharge their
responsibilities effectively.
Actual and potential conflicts of interest are regularly reviewed.
Also, as permitted under the Companies Act 2006, the Company’s
Articles of Association contain provisions that enable the Board to
authorise conflicts or potential conflicts that individual Directors
may have and to impose such limits or conditions as the Board
deems appropriate.
The Company’s Directors have a wide range of skills as well as
appropriate experience in financial, commercial, audit and mining
activities and provide a challenge to senior management and the
Company’s strategy. Each Director takes responsibility for
undertaking the appropriate training required for developing and
updating their knowledge and capabilities. The Chairman regularly
reviews the Directors’ training needs and, where appropriate, the
Group provides the resources to meet the Directors’ requirements.
The Board has in place a formal induction process for new
Directors on joining the Board, which is tailored to the needs of
the individual.
Board Evaluation
Every year, the Board undertakes an evaluation of its own
performance and that of the Board Committees and individual
Directors (including the Chairman). This year, PricewaterhouseCoopers
(PwC) were asked to facilitate an independent evaluation against
key areas of the Board’s work including: roles and responsibilities;
Committees; strategy setting; performance monitoring; risk
management; and internal control.
Each of the Directors completed a self assessment questionnaire
and discussed views with PwC in one-to-one meetings held during
October and early November 2015. The findings of PwC’s review
were discussed at a meeting of the Board in November and a
number of actions to improve Board performance were agreed.
Overall the review conducted by PwC concluded that the Board
is performing well, with no significant issues identified. The Board
is seen to be young and evolving with the appointments made to
the Board in recent years having been welcomed and viewed as
positively adding to the skills balance and experience of the overall
Board.
The Board has recognised the importance of increased focus on
risk and risk management and has agreed to extend the remit of
the Audit Committee to monitor the effectiveness of the
Company’s risk management processes on behalf of the Board.
During the review process, the Board discussed a number of
further performance enhancement opportunities. In summary,
the Board has agreed to enhance the process of defining strategic
objectives and monitoring progress against these throughout the
year whilst also conducting more regular debate and monitoring
of Board training needs, succession planning and Director
performance. New and revised processes will be put in place
during the coming year to progress these. In addition, the Board
agreed on a number of minor administrative changes which have
already been implemented.
Functioning of the Board
The Chairman, in conjunction with the Company Secretary, is
responsible for setting the Board’s agenda and for ensuring that
the Board receives accurate, timely and clear information. The
agenda includes regular reports from the executive management
and from the Board’s committees on all matters relating to the
running of the Group. The Chairman is also responsible for
ensuring that adequate time is available for discussion of all
agenda items and in particular strategic issues.
The Group’s Company Secretary is responsible for advising the
Board, through the Chairman, on all governance matters. All of the
Directors have access to the Company Secretary’s services and
advice. All of the Directors may also seek independent professional
advice in the performance of their duties, at the Group’s expense.
Directors’ attendance at Board and Committee meetings which
they were eligible to attend during 2015 was as follows:
Total meetings held
Attendance:
D.S. Archer
W.M. Blyth1
N.P.H. Meier 2
M.R. Potter3
R.C. Rhodes
R.H. Stan
J.A. Treger
A.H. Yadgaroff
Full
Board
11
11
11
4/4
7/7
10
11
11
11
Audit
Remuneration
Nomination
3
–
3
–
–
3
3
–
–
5
5
1/1
4/4
–
4
5
–
–
3
3
3
–
–
2
3
–
–
1 W.M. Blyth stepped down from the Remuneration Committee on May 8, 2015.
2 N.P.H. Meier was appointed to the Board and to the Remuneration Committee on April 30,
2015 and May 8, 2015 respectively.
3 M.R. Potter resigned from the Board on May 31, 2015.
38
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Relations with shareholders
The Group is the only major natural resources royalty company
listed on the LSE and recognises the importance of developing
a fuller understanding of its business model amongst investors
and an effective two-way communication with fund managers,
institutional investors and analysts. The Chairman and SID met
with major shareholders, a range of fund managers and institutions
during the year.
There are over 2,000 private investors in the Group. The Board
was pleased by the attendance at the 2015 AGM and the active
engagement of investors to further their understanding of the
current business activity.
As disclosed in the 2014 Annual Report and Accounts, the
Board appointed Macquarie Bank and Peel Hunt as joint brokers
alongside its existing broker, BMO Capital Markets. The Board
remains satisfied that the UK, Australia and Canada, which are
the three jurisdictions likely to make up most of our shareholder
base, are well covered by brokers with significant local expertise.
At the same time, the Board continues to receive more regular
investor relations reports, including commentary on the
perception of the Company, views expressed by the investment
community, media reports, share price performance and analysis,
so as to ensure that all Directors are made aware of the major
shareholders’ issues and concerns.
Risk management and internal control
The Board retains overall responsibility for the Group’s system of
internal control and risk management and determines the nature
and extent of the significant risks it is willing to take in achieving its
strategic objectives. As discussed above, the Board has recognised
the importance of increased focus on risk and risk management
and has agreed to extend the remit of the Audit Committee to
monitor the effectiveness of the Company’s risk management
processes on behalf of the Board. The Board, supported by
executive management, will also enhance the review and
monitoring of the Group’s principal risks.
A statement of Directors’ responsibilities in respect of the financial
statements is set out on page 61.
The Group’s system of internal control is designed to provide the
Directors with reasonable, but not absolute, assurance that the
Group will not be hindered in achieving its business objectives,
or in the orderly and legitimate conduct of its business, by
circumstances that may reasonably be foreseen. However, no
system of internal control can eliminate the possibility of poor
judgement in decision-making, human error, fraud or other
unlawful behaviour, management overriding controls, or the
occurrence of unforeseeable circumstances and the resulting
potential for material misstatement or loss.
The key elements of the control system in operation are:
• The Board meets regularly with a formal schedule of matters
reserved to it for decision and has put in place an organisational
structure with clear lines of responsibility and appropriate
delegation of authority.
• There are established procedures for planning and approving
investments and information systems for monitoring the Group’s
financial performance against budgets and forecasts.
• The Chief Financial Officer is required to undertake an annual
assessment process, to identify and quantify the risks that face
the Group’s businesses and functions, and to assess the
adequacy of the prevention, monitoring and mitigation practices
in place for those risks. This process covers all material controls,
including financial, operational and compliance controls. The
Board is responsible for reviewing the risk assessment and risk
management processes for completeness and accuracy.
• In addition to its work on the above, the Audit Committee also
receives reports about significant risks and associated control
and monitoring procedures. The Group’s internal controls and
procedures documentation are regular agenda items for the
Committee. The Committee also receives regular reports from
the external auditors.
• The Audit Committee reports regularly to the Board on these
matters, so as to enable the Directors to review the effectiveness
of the system of internal control. The Board also receives regular
reports or updates from its other Committees and directly from
management in addition to carefully considering the Group’s risk
register at regular intervals.
• The system accords with the Financial Reporting Council’s
Internal Control: Revised Guidance for Directors on the
Combined Code.
There are no significant issues disclosed in the report and financial
statements for the year ended December 31, 2015 and up to the
date of approval of the report and financial statements that have
required the Board to deal with any related material internal control
issues.
During 2015, the Company’s internal controls and procedures
were modified to take into account a reduction in senior personnel.
The Directors confirm that the Board has reviewed the
effectiveness of the system of internal control during the period
and concluded that the controls and procedures are adequate.
The Board will continue to review the adequacy of the Company’s
internal controls and will test the controls and procedures again
during 2016.
39
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE Main activities covered during 2015
The Nomination Committee was actively involved during 2015 in
reviewing the structure, size and composition of the Board, in light
of the need to maintain a balance of appropriate skills and accepted
best corporate governance practice. The Committee is responsible
for identifying and nominating candidates for both Executive and
Non-Executive Directorships for approval by the Board.
The Committee has the authority to use an external search
consultancy or open advertising. For the appointment of Mr. Meier,
the Board was seeking a candidate with the financial and investment
experience of Mr. Yadgaroff, prior to the latter’s retirement on
December 31, 2015. To assist with this, the Board employed the
services of a search consultancy, Heidrick & Struggles.
The Committee has, with assistance from Heidrick & Struggles,
reviewed the Company’s Succession Planning Policy for Executive
Directors and senior staff members and has implemented an
appropriate policy to govern any future changes to executive
management.
W.M. Blyth
Chairman
March 22, 2016
Nomination Committee
Composition
Compliant with the Code:
W.M. Blyth – Chairman
D.S. Archer
R.C. Rhodes
R.H. Stan
Role and responsibilities
The primary responsibilities of the Nomination Committee are to:
• Set guidelines (with the approval of the Board) for the types
of skills, experience and diversity being sought when making
a search for new directors. With the assistance of external
consultants, identifying and reviewing in detail each potential
candidate available in the market and agreeing a ‘long list’ of
candidates for each directorship. Following further discussions
and research, deciding upon a shortlist of candidates for
interview. Interview of shortlisted candidates by the Committee
members who then convene to discuss their impressions and
conclusions, culminating in a recommendation to the Board.
• Make recommendations as to the composition of the Board and
its Committees and the balance between Executive Directors
and Non-Executive Directors, with the aim of cultivating a board
with the appropriate mix of skills, experience, independence
and knowledge of the Company.
• Ensure that the succession plans for Directors and senior
management are regularly reviewed for subsequent debate
with the Non-Executive Directors and Chief Executive Officer.
The Committee’s terms of reference can be found on the
Group’s website.
Diversity policy
To increase diversity, in particular the representation of women
and ethnicity on the Board.
The Board recognises the benefits of diversity and that its
current composition is still deficient in several respects. Whilst
the appointment of Ms. Rhodes as Non-Executive Director and
Audit Committee Chair in 2014 was a positive step in addressing
this, the Company continues to seek further opportunities to
promote both diversity to the Board and to maintain a policy
to appoint positions on merit and the needs of the Group at any
one time. The opportunities for developing and appointing
women to Executive Directorships will be kept under review.
40
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Audit Committee
Composition
Compliant with the Code:
R.C. Rhodes – Chairman
W.M. Blyth
R.H. Stan
The Committee members have a wide range of financial and
commercial expertise, which the Board considers appropriate
to fulfil the Committee’s duties. Biographies of the Committee
members are set out on page 37.
Roles and responsibilities
The objective of the Audit Committee is to assist the Board in
monitoring decisions and processes designed to ensure the
integrity of financial reporting, sound systems of internal control
and risk management.
Main activities covered during 2015
In 2015 the Committee’s activities focused on:
• recommending that the Board comply on a voluntary basis
with provision C.2.2 of the 2014 Combined Code in making a
statement on the Group’s viability (these provisions only apply to
companies listed on the premium segment of the London Stock
Exchange but following the Company’s transition from the
premium to the standard segment in 2015 the Board committed
to maintaining high levels of corporate governance);
• assessing management’s projections under different scenarios
to allow the Board to make its assessment of the longer-term
viability of the Company;
•
leading a comprehensive review of the Group’s principal risks
and overall risk appetite;
• monitoring the effectiveness of the Group’s risk management
The Committee is responsible for:
systems;
• monitoring the integrity of the Company’s annual and interim
• reviewing asset carrying values and other material accounting
financial statements, the accompanying reports to the
shareholders and corporate governance statements;
matters;
• reviewing the accounting classification and treatment of
• making recommendations to the Board concerning the adoption
significant acquisitions;
of the annual and interim financial statements;
• monitoring legal and tax matters and reviewing associated
• reviewing and challenging the consistency of, and any changes
accounting provisions; and
• considering the requirement for the Annual Report and
Accounts, taken as a whole, to be fair, balanced and
understandable.
Significant issues relating to the financial statements
The significant issues considered by the Committee in relation to
the financial statements are set out in the table below, together
with a summary of how the issue was addressed by the Committee.
In addition, the Committee and the external auditors have
discussed the significant issues addressed by the Committee
during the year and the areas of particular audit focus, as described
in the Independent Auditor’s Report on pages 62 to 64.
to, accounting policies, methods and standards;
• overseeing the Group’s relations with the external auditors,
including the assessment of independence, and their
effectiveness;
• making recommendations to the Board on the appointment,
retention and removal of the external auditors and tendering
of external audit services;
• advising the Board on the external auditor’s remuneration for
both audit and any non-audit work;
• reviewing and monitoring the reports from management on the
principal risks of the Group outlined on pages 30 to 33 and the
management of those risks;
• monitoring and reviewing the adequacy and effectiveness of the
Company’s internal financial controls;
• considering the need for and managing the effectiveness of the
Company’s approach to internal audit; and
• reviewing and monitoring the environmental and social impact
of the Company’s activities, the Company’s whistle-blowing
procedure and the Company’s systems and controls for the
prevention of bribery.
The Committee’s terms of reference can be found on the
Group’s website.
41
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE Audit Committee
Significant issues considered by the Committee in relation to the financial statements
How the issue was addressed by the Committee
Review of the accounting classification and treatment of
significant acquisitions
Review of carrying values of royalties held at amortised cost
along with the investment portfolio and resulting impairment
charges
Review of the carrying value of royalties held at fair value
Review and challenge the inputs and judgement used in
arriving at the conclusion on going concern and viability
The Committee reviewed and interrogated management’s
assessment of the individual characteristics and contractual
terms and conditions of each royalty arrangement entered into
by the Group during the year, to ensure the classification was
consistent with the Group’s accounting policies, stated in note 2.
The Committee concluded the new royalties had been
appropriately classified.
The Committee reviewed and interrogated management’s key
assumptions including production profiles, forecast commodity
prices and discount rates used to estimate the recoverable
amount of each royalty and compared this to the respective
carrying value. The Committee reviewed the disclosures related
to the Group’s impairment policy outlined in note 2 and the
impairment charge of £4.4m described in note 16 for the year
ended December 31, 2015.
The Committee reviewed management’s application of the
Group’s impairment policy in relation to available for sale equity
investments outlined in note 3.9 together with the disclosures
related to the £0.9m impairment charge described in note 17 for
the year ended December 31, 2015.
The Committee concluded the impairment charges recognised
during the year ended December 31, 2015 were appropriate and
have been adequately disclosed.
The Committee reviewed and interrogated management’s key
assumptions including production profiles, forecast commodity
prices and discount rates used to determine the carrying value
of those royalties held at fair value.
The Committee concluded that the fair value has been
calculated in accordance with the Group’s accounting policy
outlined in note 2 and is appropriate as at December 31, 2015.
The Committee critically assessed the projections of future
cash flows under different scenarios, including the ‘severe
but plausible’ case, and compared these with cash balances
and committed facilities available to the Group. The Committee
satisfied itself that it was appropriate to recommend to the
Board the adoption by the Group of the going concern basis
of preparation.
42
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 There are no significant issues disclosed in the report and financial
statements for the year ended December 31, 2015 and up to the
date of approval of the report and financial statements that have
required the Board to deal with any related material internal control
issues.
The Directors confirm that the Board has reviewed the
effectiveness of the system of internal control as described during
the period and concluded that the controls and procedures are
adequate.
The Committee also considers, on an annual basis, whether an
internal audit function is required. Its present view is that one is not
yet justified given the compact size of the Group and the Directors’
involvement with individual transactions.
External audit
The Committee considers the effectiveness of the external audit
process, the appointment of the external auditor and also assesses
their independence on an ongoing basis.
Deloitte UK LLP were appointed as the Group’s new independent
auditor in June 2014 following a tender process. Resolutions to
authorise the Board to re-appoint the auditors and to determine
their remuneration for the year ending December 31, 2016 will be
proposed at the AGM on May 10, 2016.
To safeguard the objectivity and independence of the external
audit process, it remains the Committee’s policy to review and
approve all fees related to non-audit services. The policy prohibits
the auditors from providing certain services such as accounting
or valuation services. Details of the auditors’ remuneration are
disclosed in note 5b.
The Committee will continue to review its activities in light of any
regulatory developments going forward.
R.C. Rhodes
Chairman
March 22, 2016
Fair, balanced and understandable
A key requirement of the Group’s Annual Report and Accounts is
that it be fair, balanced and understandable. The Audit Committee
and the Board are satisfied that the Annual Report and Accounts
meet this requirement as appropriate weight has been given to
both positive and negative developments in the year.
In justifying this statement, the Audit Committee has considered
the robust process which operates in creating the Annual Report
and Accounts, including:
• the thorough process of review, evaluation and verification by
senior management, which considered and drew on best
practice for the creation of the Annual Report and Accounts;
• a meeting of the Audit Committee held to review and consider
the draft Annual Report and Accounts in advance of the final
sign-off; and
• final sign-off provided by the Board.
Internal control and risk management
The Committee is responsible for the oversight of internal control
and risk management systems across the Group.
In carrying out its role, the Committee reviews the following:
• Regular updates of key internal control matters in respect of the
Group financial reporting processes, such as financial reporting
systems and controls.
• Procedures developed by management to identify and evaluate
key business, financial and operational risks, and the
effectiveness of the responses being implemented to mitigate
the potential impacts.
• Policies and procedures in place to detect, monitor and
investigate activity in respect of anti-fraud, bribery and
corruption, such as the Group whistle-blowing facilities.
The key elements of the control system in operation are:
• The Board meets regularly with a formal schedule of matters
reserved to it for decision and has put in place an organisational
structure with clear lines of responsibility and appropriate
delegation of authority.
• There are established procedures for planning and approving
investments and information systems for monitoring the Group’s
financial performance against budgets and forecasts.
• The Chief Financial Officer is required to undertake an annual
assessment process to identify and quantify the risks that face
the Group’s businesses and functions, and to assess the
adequacy of the prevention, monitoring and mitigation practices
in place for those risks. This process covers all material controls,
including financial, operational and compliance controls. The
Audit Committee is responsible for reviewing the risk assessment
process for completeness and accuracy.
• In addition to its work on the above, the Audit Committee also
receives regular reports about significant risks and associated
control and monitoring procedures. The Group’s risk register and
internal controls and procedures documentation are regular
agenda items for the Committee. The Committee also receives
regular reports from the external auditors.
• The Audit Committee reports to the Board on these matters,
so as to enable the Directors to review the effectiveness of
the system of internal control. The Board also receives reports
from its other Committees and directly from management.
• The system accords with the Financial Reporting Council’s
Internal Control: Revised Guidance for Directors on the
Combined Code.
43
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE Main activities covered during 2015
The Remuneration Committee’s activities focused on:
• the review of the effectiveness of the Value Creation Plan (‘VCP’)
and developing, in conjunction with NBS, a set of tailored
amendments to the VCP for the consideration of shareholders;
• designing the CEO’s 2015 bonus framework and the associated
performance scorecard criteria;
• considering the grant of additional VCP allocations;
• the design and implementation of the Unapproved Share Option
Plan (‘USOP’) to incentivise both direct and indirect reports of
the CEO; and
• providing guidance to the CEO on salaries and bonuses to
be awarded to his direct reports and approving salaries and
bonuses paid.
Remuneration Committee
Composition
Compliant with the Code:
D.S. Archer – Chairman
N.P.H. Meier – appointed to the Remuneration Committee on
May 8, 2015
R.C. Rhodes
R.H. Stan
W.M. Blyth – stood down from the Remuneration Committee
on May 8, 2015
Role and responsibilities
The primary responsibilities of the Remuneration Committee are to:
• establish and develop the Group’s general policy on executive
and senior management remuneration;
• determine specific remuneration packages for the Chairman
and Executive Directors; and
• design the Company’s share incentive schemes.
The Remuneration Committee’s terms of reference can be found
on the Group’s website.
External advisors
The Remuneration Committee has access to the advice of
independent remuneration consultants when required. During
2015, the Remuneration Committee received advice from New
Bridge Street (‘NBS’). NBS was first appointed by the Remuneration
Committee on January 20, 2014. NBS is a signatory to the
Remuneration Consultants’ Code of Conduct and has no other
connection with the Company. The Remuneration Committee
is satisfied that the advice that it receives from NBS is objective
and independent.
44
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Directors’ remuneration report
Dear Shareholder,
The remuneration report is in two parts.
Our remuneration report is, as last year, in two parts: a statement
of the Company’s policy on Directors’ remuneration, and an
Annual Remuneration Report which describes how the policy
was implemented in 2015. Reflecting proposed amendments to
the Long-Term Incentive Plan (‘LTIP’), the revised Remuneration
Policy Report is being put to a binding shareholder resolution
at the forthcoming Annual General Meeting (‘AGM’) and the
Annual Remuneration Report will be subject to an advisory
shareholder resolution.
Whilst we have an excellent established remuneration
framework in place for short-term incentives for the CEO and
his direct reports, the Remuneration Committee has concerns
with the current effectiveness of the LTIP both to incentivise
its participants as originally intended and to encourage the
retention of key employees.
The LTIP is in the form of a Value Creation Plan (‘VCP’) which
provides awards of shares (in the form of nil cost share options)
at the end of five years to the CEO and to senior managers for
increases in Total Shareholder Return (‘TSR’) at rates above 7%
per annum. The VCP, as originally crafted, was designed to support
the Company’s growth strategy by providing incentives aligned
with shareholder interests. Following an extensive review of the
VCP we are proposing amendments to the plan to ensure it
remains effective in aligning the interests of management with
those of shareholders. Further details can be found in the
Remuneration Policy part of this report.
In terms of short-term incentives, the CEO and the CEO’s direct
senior reports have individually crafted bonus objectives which
were agreed for the 2015 financial year. The bonus award criteria
relate to a series of agreed corporate and personal performance
targets which are scored out of a total of 100 points. This score is
then applied to a maximum bonus calculated as a percentage of
total salary as outlined on page 53.
While a number of the 2015 scorecard targets would have been
achieved and there was a return to positive adjusted earnings per
share, the CEO has elected to forgo a bonus in the current year.
Bonus criteria will be further tailored for the 2016 year, both to
ensure that they closely match key performance metrics and
at the same time provide real ‘stretch-performance’ targets.
With respect to the VCP, no awards were made during 2015
although the Committee is planning to recommend the issue
of further units in 2016.
The main objectives for the Remuneration Committee in 2016
will be to:
• Review and further tailor the senior executive bonus criteria for
the 2016 financial year;
• Consider the award of further units under the VCP; and
• Review and determine the most appropriate balance between
salary and bonus for the senior executive.
More detail is provided in the body of the Remuneration Report
and the Remuneration Committee trusts you will endorse the level
of remuneration paid during 2015 and the revisions to the VCP and
Remuneration Policy.
Yours sincerely
D.S. Archer
Chairman of the Remuneration Committee
March 22, 2016
The first part constitutes the ‘Remuneration Policy Report’ and sets
out the remuneration strategy that the Company will be applying
(subject to approval by shareholders at the 2016 AGM) and outlines
revisions to the VCP that the Company proposes to apply going
forward. It has been developed taking into account the principles
of the UK Corporate Governance Code 2014 and the views many of
our major shareholders. The previous Policy Report was approved
by shareholders at the 2014 AGM. However, in light of the proposed
amendments to the VCP, the Remuneration Policy Report has been
revised and will be put to a binding shareholder vote at the 2016
AGM. It is structured in the following sections:
A. Strategic overview and policy drivers;
B. How the views of shareholders and employees have been
taken into account;
C. The new remuneration policy for Executive Directors;
D. Reasons for changing the previous remuneration policy;
E. Annual bonus – Choice of performance measures and
approach to target-setting;
F. LTIP – Principal Terms and Conditions and Reward Scenarios;
G. Reward scenarios;
H. Determinations to be made by and discretions available to
the Committee;
I.
Differences in remuneration policy for Executive Directors
compared to other employees;
J. Approach towards appointment of new Executive Directors;
K. Service contracts and payments for loss of office;
L. Non-Executive Directors; and
M. Legacy arrangements
The second part, the Annual Remuneration Report for 2015, details
the remuneration paid to Directors during 2015 with a comparison
to the previous year. It will be put to an advisory shareholder vote at
the 2016 AGM. It is structured as follows:
A. Single figure total remuneration
B. Annual bonus for the year ended December 31, 2015
C. Vesting of long-term incentive awards
D. Directors’ shareholding and share interests
E. Total pension entitlements
F. Loss of office payments
G. Percentage increase in the remuneration of the CEO
H. Total shareholder return
I. Total remuneration for the CEO over time
J. Relative importance of spend on pay
K. External directorships
L. 2016 salary review
M. Fees for the Chairman and Non-Executive Directors
N. Performance targets for the annual bonus and LTIP awards
granted in 2014 and beyond
O. Statement of shareholder voting
The information in sections A to G and I to M has been audited,
the remaining sections are unaudited.
45
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE
Directors’ remuneration report
Remuneration policy report
A. Strategic overview and policy drivers
The foundations for our remuneration strategy were first
enumerated in the 2013 Annual Report and Accounts, and largely
continue to apply today. The strategy was, historically, based on
the following Company specific elements, which continue to
form the backdrop to the overall remuneration strategy:
• Long investment horizons; often there can be an interval of
between two and 10 years before a royalty comes on stream
and the royalty may continue to flow for 20 years or more. As
business development is now focussed on royalty acquisitions,
incentives are heavily weighted towards longer-term
performance.
• No comparable peer group; certainly in the UK, for the purposes
of benchmarking Director performance. As a result, our incentive
plans have been based on absolute performance rather than
performance relative to other companies. We are introducing a
relative measure in relation to the proposed amendments to the
VCP whereby the rewards for the holders of awards granted in
2016 will only be earned should the Company’s share price
performance match or exceed the performance of the FTSE 350
All Mining Index.
• A relatively high ratio between its market capitalisation
(£98.5m at December 31, 2015) and the number of its employees
(11, as at March 1, 2015, of whom one is an Executive Director).
The investment team is relatively small and much of the Company’s
royalty know-how rests with them. The risk to the business
of losing these and other key employees is correspondingly
significant, and we have traditionally regarded retention as
an important objective of our remuneration strategy.
As reported in our 2013 and 2014 reports, a new executive
management team was appointed in October 2013 with a view
to, amongst other things, increase Total Shareholder Return
(‘TSR’) over a five-year period. With the help of our remuneration
consultants, a Value Creation Plan (‘VCP’) was constructed,
discussed with major shareholders and ultimately approved
at the 2014 AGM.
When the VCP was introduced, circumstances within the mining
sector and the value and income streams from the Company’s
royalties were significantly different from the current projections
for the rest of the performance period. Given what has happened
to commodity prices since 2014, we are concerned that the VCP
is highly unlikely to be seen to be able to deliver a tangible
incentive over the original period to either the CEO or other
holders of VCP units. The VCP is based on the growth in the
absolute TSR achieved over a five-year period from June 16, 2014.
We believe that this offers the most direct alignment of Directors’
interests with those of shareholders.
It is the Committee’s view that these market influences, in addition
to the reduction in royalties from legacy investments, are beyond
what could reasonably have been anticipated at the time of the
VCP’s introduction and are outside the current management’s
control. As a result of these circumstances, the Committee has
reviewed the efficacy of the VCP and has considered a number of
different alternatives, which included cancelling the scheme and
replacing it with a more standard LTIP with annual awards or an
alternative one-off award. The Remuneration Committee wishes to
avoid rewriting the general principles of remuneration as adopted
at the 2014 AGM and wishes to avoid changing the key principles
of the VCP whilst at the same time reflecting the major change in
market conditions. Taking this into consideration, the Committee
feels that an extension to the life of the initial awards and an
amendment to the performance conditions for future awards is
the best way to incentivise senior management and align them
with shareholders, whilst retaining the principles which formed
the basis of the scheme as originally designed. The performance
target that has to be achieved before any options are awarded
continues to be challenging. More details of this scheme are
included in section F below.
Since 2014, salaries for the Executive Directors have been pre-set
for the period through to December 31, 2016. Going forward
Executive Directors salaries will be reviewed annually. Salaries will
be increased where justified by role change, increased responsibility
or a change in the latest available market data.
During 2015, the CEO’s bonus criteria were extensively re-designed
to incorporate a higher proportion of quantitative measures. The
Committee is also very conscious of remuneration relativities
within the organisation and keeps under review the bonus
structure for non-Board senior managers to ensure a sensible
relationship between Board and non-Board remuneration (see
section I below).
B. How the views of shareholders and employees have been
taken into account
The Remuneration Committee has a policy of active engagement
with shareholders on remuneration matters. The Chairman of
the Remuneration Committee met with a number of shareholders
to discuss remuneration matters during 2015 and 2016. The
Remuneration Committee also considers shareholder feedback
received in relation to the AGM each year. Details of votes cast
forand against the resolution to approve last year’s remuneration
report are provided in the Annual Remuneration Report. This
feedback, plus any additional feedback received during any
meetings from time to time, is then considered as part of the
Company’s annual review of remuneration policy. Feedback during
2015 included concerns around the retention of senior executives
and the efficacy of the VCP as currently designed. Concerns were
also voiced by some shareholders over the level of remuneration
of the CEO and the fixed salary increases contained within the
policy report for Executive Directors.
The Remuneration Committee has actively engaged with most of
our major shareholders on the potential changes to the VCP and
the proposed introduction of an Unapproved Share Option Plan
(‘USOP’) and was encouraged by the general support shown for
both of these proposals. A revised remuneration framework has
been established which is expected to remain in place for the next
three years. Should there be a need for a material change to the
framework within this period, the Remuneration Committee
Chairman will consult major shareholders in advance.
Non-Board employees are consulted individually on the executive
remuneration policy to the extent that it impacts upon the
structure and level of their own pay and bonuses.
46
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 C. The new remuneration policy for Executive Directors
The policy proposed for shareholder approval in respect of basic salary and annual bonus covers the three years 2016-2019 and will be
effective from the date of shareholder approval. The VCP, which was approved at the 2014 AGM, remains in place. The only change being
proposed to the awards which have already been made is to extend the term by two years to June 16, 2021 (previously June 16, 2019),
which also requires the annual growth target of 7% to be achieved over seven years. Any future awards under the existing VCP will cover a
period of approximately five years from the date of its grant to June 16, 2021, and will be based on the revised terms as outlined in the table
below, subject to approval at the forthcoming AGM, the date which this Policy will be effective from. The Committee’s specific policy for
each element of remuneration is as follows:
Element, purpose
and link to strategy
Operation
Salary
To recruit, retain and
reward executives of a
suitable calibre for the
role and duties required
Salaries are set with reference to individual performance,
experience and responsibilities to reflect the market rate for
the individual and their role, determined with reference to
remuneration levels in companies of similar size and complexity,
taking into account pay levels within the Company in general.
Maximum
There is no prescribed maximum
annual increase.
Salaries are reviewed annually. Increases for Executive Directors
will normally be in line with those for the general workforce
except where there is a change of role or responsibilities or in
other exceptional circumstances.
Pension and benefits
To provide market
competitive benefits
A Company contribution to a money purchase pension scheme,
or a cash allowance in lieu of pension at the request of the
individual. Other than a death in service policy which the Company
subscribes to, no other benefits are provided.
Pension: 10% of salary.
Death in service policy:
five times salary.
Annual bonus
To encourage and
reward delivery
of the Company’s
operational objectives
Long-term incentives
To encourage and
reward delivery of the
Company’s strategic
objectives and provide
alignment with
shareholders through
the use of shares and
incentivise retention
of key personnel
Executive Directors are entitled to 30 days’ leave.
The annual bonus will be paid wholly in cash with no deferred
component, but with a provision for clawback.
The maximum annual bonus
opportunity is 100% of salary.
Bonus payments are determined based on the achievement
of a combination of corporate and personal performance targets.
Both are expected to form a substantial part of the scorecard.
Corporate performance targets are agreed by the Board at the
beginning of the year.
Personal performance targets are agreed with the Chairman
and the Committee.
The Committee will use a balanced scorecard approach to
assess performance against targets at the end of the year.
The targets are discussed more fully at section E below.
The LTIP takes the form of a VCP with a performance period of
approximately five years from the date of grant to June 16, 2021.
Awards that were granted in 2014 will be amended, as outlined
in section F below.
New awards will have a performance period of five years to June
16, 2021 and will be subject to two TSR performance conditions:
• Minimum growth in TSR of 7% per annum, with growth
measured from a premium to the market capitalisation based
on the net asset value per share as at December 31, 2015.
• A relative measure of TSR which requires median performance
compared a comparator group
New awards to participants with an existing award will accrue
at a lower level once the 2014 awards reach the threshold growth
of 7% per annum.
The detailed design is discussed at section F below.
The maximum number of shares
that can be awarded under the
option grants equates to 7.5% of
the Company’s issued share
capital as at the end of the
measurement period.
The Committee intends to allocate
the remaining pool as follows:
CEO
20.0%
Non-Board senior managers 4.0%
13.1%
Unallocated reserve:
In 2014, the Committee allocated
the pool as follows:
CEO
56.0%
Non-Board senior managers
6.9%
The potential rewards achievable by Executive Directors under the remuneration policy are illustrated at section G. The policy in respect of
any future Director appointments is discussed at section J below.
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APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE Awards granted in 2014
• Awards were made following shareholder approval of the VCP
at the 2014 AGM. The current allocation is as follows:
– CEO:
– Non-Board Senior Management:
– Total Allocated:
– Unallocated:
56%
6.9%
62.9%
37.1%
The unallocated pool reflects the exit of the former Chief
Investment Officer, who forfeited his 24% allocation on
departure and an unallocated reserve.
• For these awards made in June 2014, the performance period will
be extended by a further two years. No value accrues under the
VCP to its participants unless growth in the Company’s TSR over
a seven-year performance period is at least equal to 7% growth
per annum (or approximately 61% total growth over the period).
• Subject to such threshold growth, participants become entitled
to receive nil or nominal cost options over ordinary shares in the
capital of the Company, subject to a cap, set by reference to a
share of a pool value equal to 10% of the growth in the
Company’s TSR over the five-year period or, if less, 50% of the
growth in the Company’s TSR over the five-year period in excess
of the threshold growth, adjusted to reflect the percentage of the
pool allocated
• For the existing awards this will mean that, if the total growth in
TSR over the extended seven-year period is:
– below approximately 61%, no value accrues;
– between approximately 61% and 76%, the value that accrues
is equal to 50% of the growth in the Company’s TSR over the
seven-year period in excess of the threshold growth, adjusted
to 31.5% to reflect the percentage of the pool allocated; and
– between 76% and the 300% cap, the value that accrues is
equal to 10% of the growth in the Company’s TSR over a
seven-year period, adjusted to 6.29% to reflect the percentage
of the pool allocated.
• Options to which participants become entitled at the end of the
seven-year period (extended from five-years) will become
exercisable as follows:
– One-third immediately;
– One-third after 12 months;
– One-third after 24 months.
Directors’ remuneration report
D. Reasons for changing the previous remuneration policy
The revised remuneration package summarised above represents
proposed changes to the salary review process and the VCP. The
salary policy no longer prescribes fixed increases for the CEO and
salaries will be reviewed annually. Under the VCP, additional awards
will be allocated to the CEO and other senior non-Board managers
under revised terms outlined in section F below. In addition, the
performance period of existing awards would be extended by two
years. The Committee believes that these changes will continue to
align shareholders and management and therefore retain the
original purposes of the scheme. The performance target that has
to be achieved before any options are awarded continues to be
considered challenging; and there is a sufficient incentive for both
outperformance and retention over the next five years. The rigid
ratio between corporate and personal performance bonus targets
has been eliminated so as to introduce more flexibility in designing
appropriate weightings to deal with individual circumstances at the
time. No other changes to the Remuneration policy are proposed.
E. Annual bonus – Choice of performance measures and
approach to target setting
Annual bonuses are based on a scorecard of performance during
the calendar year. The scorecard sets challenging targets for
triggering bonus, and for rewarding outperformance on a sliding
scale. The scorecard will be split between corporate objectives and
personal objectives, both of which are expected to form a
substantial part of the scorecard.
The corporate objectives are agreed by the Board at the beginning
of each year, together with an assessment of the potential for
outperformance and the risk of shortfall. This covers such areas as
business performance, finance, relationships and reputation. This
constitutes the criteria for triggering a bonus and for assessing the
levels of challenge and outperformance that would warrant higher
levels of bonus. The CEO’s personal objectives for the year are
agreed at the beginning of the year by the Chairman of the Board
in conjunction with the Committee. The personal objectives focus
on the required contribution of the individual Executive Director
to the achievement of the Company’s objectives for the year, but
also on important but less measurable aspects such as leadership,
building personal and team relationships, and the extent to which
they personally have ‘gone the extra mile’.
The CEO’s performance against corporate and personal objectives
is assessed by the Chairman and the Committee at the beginning
of the following year, and bonus is awarded on the basis of the
agreed criteria.
F. LTIP – Principal terms and conditions and reward scenarios
The LTIP takes the form of a VCP. The key features of the VCP are
as follows:
• All employees are eligible to participate in the VCP; although
participation has been limited to the Executive Directors
together with other non-Board members of the senior
management team at the discretion of the Committee acting
in consultation with the CEO.
• No value accrues under the VCP to its participants unless growth
in the Company’s TSR over the performance period is at least
equal to 7% growth per annum.
• The maximum number of shares to be awarded under the VCP
option grants will not be capable of exceeding such number
equating to 7.5% of the Company’s issued share capital as at the
end of the measurement period. This cap would apply to total
growth in TSR above 300%.
48
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 New awards to be granted in 2016
• As mentioned above, the Remuneration Committee wishes
to avoid rewriting the general principles of remuneration as
adopted at the 2014 AGM and wishes to avoid changing the
key principles of the VCP whilst at the same time reflecting
the major change in market conditions.
• To achieve this, further awards are to be granted over the
unallocated pool and will be measured to the same date as
the original awards (i.e. June 16, 2021) on a similar basis as
the original awards except that:
– Rather than measuring growth from the market capitalisation
in June 16, 2014, growth will be measured on the net asset
value as at 31 December 2015 (£161.3m) which is a premium
of approximately 61% to the market capitalisation on the
same date.
– Subject to a threshold growth of 7% per annum over £161.3m
net asset value, participants become entitled to receive nil or
nominal cost options over ordinary shares in the capital of the
Company, subject to a cap, set by reference to a share of a pool
value equal to 10% of the growth in the Company’s TSR over
the five-year period, adjusted to 3.71% to reflect the
percentage of the pool allocated. There will be no ‘catch-up’
once the threshold growth is achieved. This means:
– below approximately 40%, no value accrues;
– above approximately 40% the value that accrues is equal to
10% of the growth in the Company’s TSR over 94.9p per
share over a five-year period, adjusted to reflect the
percentage of the pool allocated
– Pay-outs under the proposed additional awards to the CEO
and other participants who already have awards will accrue at
a lower level based on the outcome of the awards currently
allocated. Once the share price reaches the threshold at which
value accrues under the existing awards, value accrues on only
half of the units under the additional awards held by the CEO
and any non-Board members of the senior management team
who have an existing award.
– In addition, a relative measure of TSR will be introduced to
ensure it is at least equal to the movement in the index of a
relevant comparator group. Although there is no directly
comparable peer group, using the FTSE 350 Mining Index
would support the strategy of diversifying the portfolio and
reflect other companies impacted by commodity prices. In the
event that the increase in TSR does not equal or exceed the
aforementioned index, no value will accrue to the new awards.
• Options to which participants become entitled at the end of the
five-year period will become exercisable as follows:
– One-third immediately;
– One-third after 12 months;
– One-third after 24 months.
• The Committee intends to allocate the pool as follows:
– CEO:
– Non-Board senior managers:
– Unallocated reserve:
20.0%
4.0%
13.1%
The maximum value that can accrue for the full award pool (which
includes both the 2014 and the 2016 awards) is capped at 7.5%
of the Company’s issued share capital as at the end of the
measurement period.
Illustrative returns
The following table illustrates the potential return for the CEO and other participants and shareholders for various levels of growth in
TSR over the seven-year performance period to June 16, 2021:
CEO – original award
CEO – proposed award
Others – original awards
Others – proposed awards
Total
Shareholders
Allocation
of pool
56%
20%
6.9%
17.1%
100%
Benefit assuming total growth in TSR (from an illustrative starting
market capitalisation of £248.0m) over a seven-year period of:
50%
£0.0m
£2.3m
£0.0m
£2.0m
76%**
100%
150%
£10.6m
£13.9m
£20.8m
£3.2m
£1.3m
£3.0m
£3.8m
£1.7m
£3.9m
£5.0m
£2.6m
£5.7m
£4.27m
£18.07m
£23.24m
£34.14m
£119.73m £170.91m £224.76m £337.86m
* Approximately 76% growth in TSR over the seven-year period results in a total pool equal to 9.3% of the growth. This reflects a pool equal to 10% for the original awards and a pool for the new
awards which reflects the reduction in the value that accrues for participants with original awards once the threshold growth of 7% per annum is met.
** At the cap of total growth in TSR of 300% over the period, the benefit to shareholders would be £677.20m and total participant awards would be £66.80m, of which the CEO would receive £41.7m
under the original award and £8.7m under the new proposed award.
TSR performance must match or exceed the performance of the FTSE 350 All Mining Index for new awards to payout. Awards in the table are calculated from the respective starting market
capitalisations (£248.0m for original awards and £161.3m for new awards (based on the net asset value as at December 31, 2015)).
49
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE
Directors’ remuneration report
G. Reward scenarios
The Company’s policy results in a significant portion of remuneration received by the Executive Director being dependent on
Company performance. The charts below illustrate how the total pay opportunity for the Executive Director varies under three different
performance scenarios: below target (fixed pay only), on-target and maximum. These charts are indicative as share price movement
and dividend accrual have been excluded. All assumptions made are noted below the charts.
The chart below illustrates the total pay opportunities under three levels. Below target and on-target do not include any VCP vesting
and simply allow for salary and pension for the below target level with a bonus award included in the on-target level. The maximum level
includes the current fair value of the VCP should the full 300% TSR hurdle and outperformance of the FTSE 350 Mining Index be achieved.
CEO full time equivalent total remuneration at different levels of performance
Below
Target
100%
£440,000
On-Target
69%
31%
£640,000
Maximum
45%
41%
14%
£977,516
£0
£200,000
£400,000
£600,000
£800,000
£1,000,000
£1,200,000
£1,400,000
£1,600,000
Fixed Pay
Annual Bonus
LTIP
To aid comparability with standard LTIP structures, the chart below reflects the total pay opportunity if the VCP (both the original awards
made in 2014 and the proposed awards to be made in 2016) are included on an annualised basis.
CEO full time equivalent total remuneration at different levels of performance
Below
Target
100%
£440,000
On-Target
69%
31%
£640,000
Maximum
49%
45%
6%
£895,346
£0
£200,000
£400,000
£600,000
£800,000
£1,000,000
£1,200,000
£1,400,000
£1,600,000
Fixed Pay
Annual Bonus
LTIP
Assumptions:
• Below Target = fixed pay only (salary + benefits + pension);
• On-target = fixed pay, 50% vesting of the annual bonus and 0% of the VCP awards (i.e. the value that accrues for threshold performance);
• Maximum (2016 VCP award included in full in the year of grant) = fixed pay and 100% vesting of the annual bonus and 2016 VCP award;
• Maximum (2014 and 2016 VCP awards included on an annualised basis) = fixed pay and 100% vesting of the annual bonus and annualised
2014 and 2016 VCP awards;
• Salary levels (on which other elements of the package are calculated) are based on those which applied from January 1, 2016. Salary for
the CEO is on a full-time equivalent basis. The Executive Director does not receive any taxable benefits; and
• The fair value of the VCP in both charts has been calculated using a stochastic model as at February 29, 2016 using assumptions that, at
grant, the start value from which the TSR growth is calculated is £248.0m for 2014 awards (which includes the adjustment for additional
capital raised), the start value from which the TSR growth is calculated is £161.3m for the 2016 awards and there are 169.9m shares in issue.
50
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 H. Determinations to be made by and discretions available
to the Committee
The Committee operates the Group’s variable incentive plans
according to their respective rules and in accordance with HMRC
rules where relevant. To ensure the efficient administration of
these plans, the Committee will be required to make
determinations and apply certain operational discretions. These
include the following:
• selecting the participants in the plans on an annual basis;
• determining the timing of grants of awards and/or payment;
• adjusting basic salaries for changes in time commitment (within
the full-time equivalent levels set out in this policy);
• determining the quantum of awards and/or payments (within
the limits set out in the policy table above);
• determining the extent of vesting based on the assessment
of performance;
• making the appropriate adjustments required in certain
circumstances (e.g. change of control, variation of share capital
including rights issues and corporate restructuring events, and
special dividends);
• determining ‘good leaver’ status for incentive plan purposes
and applying the appropriate treatment; and
• undertaking the annual review of weighting of performance
measures, and setting targets for the annual bonus plan from
year-to-year.
If an event occurs which results in the annual bonus plan or
long-term incentive performance conditions and/or targets
beingdeemed no longer appropriate (e.g. a material acquisition
or divestment), the Committee will have the ability to adjust
appropriately the measures and/or targets and alter weightings,
provided that the revised conditions or targets are not materially
less difficult to satisfy.
I. Differences in remuneration policy for Executive Directors
compared to other employees
The Committee aims to ensure, over time, a proper differential
between the level of the remuneration of Executive Directors and
other employees, but also appropriate differences in the structure
of remuneration to reflect different levels of responsibility and
planning horizons of employees across the Company.
The remuneration framework of non-Board employees was
reviewed during 2015 and will continue to be reviewed going
forward. There are currently three main differences to the
remuneration framework:
• the Committee will continue to reserve access to the VCP to
the most senior executives who have the greatest potential
to influence the Company’s long-term performance; and
• the Executive Directors will receive any annual bonus wholly
in cash because of the large potential shareholding offered by
the VCP; but
• in order to encourage employees without access (or with less
access) to the VCP to build up a shareholding in the Company,
consideration will be given to either including a share
component in any annual bonuses awarded to non-Board
employees and continuing to offer them options pursuant to
the CSOP or the USOP, or the Unapproved Share Option Plan,
or a combination of the two.
J. Approach to appointment of new Executive Directors
The remuneration package for a new Executive Director would
be set in accordance with the terms of the Company’s approved
remuneration policy in force at the time of appointment. Currently,
for an Executive Director, this would include a potential annual
bonus of no more than 100%. There is also provision within the
VCP arrangements for the Committee to dilute the pool by an
additional 10% for new appointees.
The salary for a new Executive Director may be set below the
normal market rate, with phased increases following an initial
probationary period and over the first few years as the executive
gains experience in their new role. The Committee may offer new
appointees additional cash and/or share-based elements when it
considers these to be in the best interests of the Company and its
shareholders, including the use of awards made under 9.4.2 of the
Listing Rules. Such payments would take account of remuneration
relinquished when leaving the former employer and would reflect
(as far as practicable) the nature and time horizons attaching to
that remuneration and the impact of any performance conditions.
Shareholders will be informed of any such payments at the time
of appointment.
For an internal Executive Director appointment, any variable pay
element awarded in respect of the prior role will be allowed to
pay out according to its terms, adjusted as relevant to take into
account the appointment. In addition, any other ongoing
remuneration obligations existing prior to appointment may
continue, provided that they are put to shareholders for approval
at the earliest opportunity.
For external Executive Director appointments, the Committee
may agree that the Company will meet certain relocation expenses
as appropriate.
For the appointment of a new Chairman or Non-Executive Director,
the fee arrangement would be set in accordance with the approved
remuneration policy in force at that time.
K. Service contracts and payments for loss of office
The Committee, together with the Nomination Committee, reviews
the contractual terms for new Executive Directors to ensure that
these reflect best practice.
Although the current Executive Director’s service contract is for an
indefinite term, it is the Company’s continuing policy that service
contracts should not have a notice period of more than one year.
The service contracts contain provision for early termination. A
Director’s service contract may be terminated without notice and
without any further payment or compensation, except for sums
accrued up to the date of termination, on the occurrence of certain
events such as gross misconduct. If the employing company
terminates the employment of an Executive Director in other
circumstances, compensation is limited to salary due for any
unexpired notice period and any amount assessed by the
Committee as representing the value of other contractual benefits
(including pension) which would have been received during the
period. Payments in lieu of notice are not pensionable. The service
contract of Mr. Treger provides for a six-month notice period and
an additional termination payment equivalent to six months’ basic
salary. In the event of a change of control of the Company there is
no enhancement to contractual terms. The service contract of the
Executive Director is available for inspection at the Company’s
registered office.
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APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE Directors’ remuneration report
In summary, the contractual provisions for Executive Directors are as follows:
Provision
Notice period
Termination payment
Detailed terms
One year or less.
Basic salary plus benefits (including pension), paid monthly and subject to mitigation.
In addition, any statutory entitlements or sums to settle or compromise claims in
connection with the termination would be paid as necessary.
Additional termination payment to bring the total payment to the equivalent of 12 months’
basic salary.
Remuneration entitlements
A pro-rata bonus may also become payable for the period of active service along with
vesting for outstanding share awards (in certain circumstances – see below).
Change of control
There are no enhanced terms in relation to a change of control.
In all cases performance targets would apply.
Any share-based entitlements granted to an Executive Director under the VCP will be determined based on the plan rules. The default
treatment is that any outstanding unvested awards lapse on cessation of employment. However, in certain prescribed circumstances,
such as death, disability, retirement or other circumstances at the discretion of the Committee (taking into account the individual’s
performance and the reasons for their departure) ‘good leaver’ status can be applied. For good leavers, the unvested awards remain
subject to performance conditions (measured over the original time period) and are reduced pro-rata in size to reflect the proportion of
the performance period actually served. The Committee has the discretion to disapply time pro-rating if it considers it appropriate to do
so. In determining whether an executive should be treated as a good leaver or not, the Committee will take into account the performance
of the individual and the reasons for their departure.
L. Non-Executive Directors
The Company aims to attract and retain a high-calibre Non-Executive Chairman and Non-Executive Directors by offering a market
competitive fee level.
The Committee’s specific policy is as follows:
Element, purpose and link to
strategy
Operation
Board Fees
Attract, retain
and fairly reward
high calibre
individuals
Fees are currently paid in cash. Non-Executive Directors are not eligible to participate
in the Company’s annual performance related incentive schemes, share option
schemes or pension scheme.
The Chairman is paid a single fee for all his responsibilities. The Non-Executive
Directors are paid a basic fee. Additional fees are paid to Chairmen and members
of the main Board Committees and to the SID to reflect their extra responsibilities.
Fees are reviewed by the Board taking into account individual responsibilities,
factors such as Committee Chairmanships, time commitment, other pay increases
being made to employees in the Company, and fees payable for the equivalent role
in comparable companies.
Normally fees are reviewed bi-annually and fee increases are generally effective from
annual re-election after the AGM.
The Board may adjust the fees for an individual Non-Executive Director during the
intervening period if there is a significant change in their responsibilities and/or
time commitments.
Maximum
Current fee levels
are set out in the
Annual Report on
Remuneration.
Overall fee limit
will be within the
£400,000 limit
set out in the
Company’s Articles
of Association.
Mr. Blyth, Mr. Archer, Mr. Meier, Ms. Rhodes and Mr. Stan were appointed for an initial 3-year term, renewable at the Board’s discretion for
up to two further 3-year periods thereafter and the Board intends that all future Non-Executive Directors’ appointments will be on similar
terms. None of the letters of appointment have provisions that relate to a change of control of the Company.
The details of the Non-Executive Directors’ letters of appointment are as follows:
Non-Executive
W.M. Blyth
D.S. Archer
N.P.H. Meier
R.C. Rhodes
R.H. Stan
Date of appointment
March 20, 2013
October 15, 2014
April 30, 2015
May 8, 2014
February 19, 2014
Notice period
One month
One month
One month
One month
One month
M. Legacy arrangements
In approving this Policy Report, authority is given to the Company to honour any commitments entered into with current or former
Directors (such as the payment of a pension or the unwinding of legacy share schemes) that have been disclosed to shareholders in
previous remuneration reports. Details of any payments to former Directors will be set out in the Annual Remuneration Report as they arise.
52
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Annual Remuneration Report for 2015
This part of the report details the remuneration paid to Directors during 2015 with a comparison to the previous year. It will be put to an
advisory shareholder vote at the 2016 AGM. The information in sections A to G and I to M has been audited, the remaining sections are
unaudited.
A. Single figure for total remuneration
Salary/fees
£’000
Benefits
£’000
Total bonus
£’000
Pension/cash
allowance13
£’000
Other
£’000
Total
remuneration
£’000
Executive Directors
J.A. Treger
Non-Executive Directors
W.M. Blyth1
D.S. Archer2
N.P.H. Meier3
R.C. Rhodes4
R.H. Stan5
A.H. Yadgaroff6
Former Directors
M.H. Atkinson7
P.M. Boycott8
P.N.R. Cooke9
M.R. Potter10
J.G. Whellock11
B.M. Wides12
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
342
248
95
81
48
8
27
–
43
25
40
33
38
38
–
19
–
3
–
28
93
179
–
19
–
121
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
160
32
24
–
–
374
432
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
113
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
95
81
48
8
27
–
43
25
40
33
38
38
–
19
–
3
–
28
95
298
–
19
–
121
1 W.M. Blyth was appointed Non-Executive Chairman on April 1, 2014.
2 D.S. Archer was appointed to the Board on October 15, 2014.
3 N.P.H. Meier was appointed to the Board on April 30, 2015.
4 R.C. Rhodes was appointed to the Board on May 8, 2014.
5 R.H. Stan was appointed to the Board on February 19, 2014.
6 A.H. Yadgaroff resigned from the Board on December 31, 2015.
7 M.H. Atkinson resigned from the Board on June 11, 2014.
8 P.M. Boycott passed away on January 7, 2014.
9 P.N.R. Cooke resigned from the Board on October 15, 2014.
10 M.R. Potter resigned from the Board on May 31, 2015.
11 J.G. Whellock resigned from the Board on June 11, 2014.
12 B.M. Wides resigned from the Board on May 8, 2014.
13 J.A. Treger and M.R. Potter received contributions toward pension plans, all other amounts were cash payments in lieu of pension.
53
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE
Directors’ remuneration report
B. Annual bonus for the year ending December 31, 2015
A set of individually crafted corporate and personal bonus criteria
were agreed with the CEO for the 2015 financial year.
The Remuneration Committee was conscious of the need to
‘sense check’ the bonus arrangements for the CEO both for major
negative external influences and for truly outstanding
performance. As a result, the bonus criteria and calculations were
made subject to two major caveats:
• That the Company had not suffered an exceptional negative
event in the bonus year or in the lead up to the determination
of the quantum of the bonus; and
• The Remuneration Committee may look at overriding some
or all of the bonus criteria should the CEO’s efforts in the 2015
financial year result in a major transformational outcome that
demonstrably benefits shareholders, is reflected in a material
share price increase and would not otherwise be adequately
captured in the bonus matrix.
The CEO elected not to receive a bonus for the 2015 year. As a
result of his election, his performance against these bonus criteria
was not formally measured. The performance of the CEO was,
nevertheless, assessed as part of his annual performance review.
No bonus was awarded to the Chief Investment Officer, Mr. Potter,
an Executive Director who left the Company on May 31, 2015.
The CEO’s direct senior reports have individually crafted bonus
objectives which were agreed for the 2015 financial year. The
bonus award criteria relate to a series of agreed corporate and
personal performance criteria which are scored out of a total of
100 points. This score is then applied to a maximum bonus
calculated as a percentage of total salary. The percentages range
from 100% to 120% of salary depending on the executive’s position
and his level of individual participation in the VCP.
Bonus criteria will be further tailored for the 2016 year to ensure
that these closely match key performance metrics and at the same
time provide real ‘stretch-performance’ targets.
The scorecard for the CEO for 2015 is detailed below. Specific
measures are excluded due to commercial sensitivity.
54
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 2015 CEO Scorecard
Criteria
Corporate Performance Criteria
A. Growth
Measures for assessment included:
• Acquisition of royalties (transformational and medium-sized)
• Acquisition costs of royalties
• Recovery of outstanding royalty related advances
• Royalty accretiveness to earnings
B. Financial Performance
Measures for assessment included:
• EBITDA
• Cash flow
• EV/EBITDA
• Price/book value
• Share price growth
C. Financial Control
Measures for assessment included:
• Risk management and succession planning
• Budgeting and financial reporting
Personal Performance Criteria
D. Relationships, Reputation and Business Development
• Implementation of IR plan
• Alignment with a strategic partner
• Engagement with debt and equity providers
• Engagement with and development of royalty sourcing network
E. Leadership
• Leadership and development of a senior management team
• Development of a collaborative, goal-oriented, ethical company with harmonious working relationships
• Personal contribution
Total
Maximum
Award (%)
26
26
8
18
22
100
C. Vesting of long-term incentive awards
Allocation of units under the VCP out of the pool to Executive Directors were 56,000 units or 56% of the total number of units to the CEO
and 24,000 units or 24% to the CIO. Following the resignation of the then CIO on May 31, 2015, the 24,000 units allocated to him were
returned to the un-allocated pool. As at the date of this report there are a total of 62,887 units issued out of a total pool of 100,000 units,
including the awards for non-Board senior managers.
Long-term incentive awards made during the year
There were no awards granted to Executive Directors under either the JSOP or the CSOP in 2015.
Outstanding share awards
There are currently no awards to Executive Directors outstanding under the JSOP, the CSOP or the USOP.
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D. Directors’ shareholding and share interests
The Committee encourages the Executive Directors to build up a shareholding in the Company, so as to ensure the alignment of their interest
with those of shareholders, but there is no formal shareholding guideline. In addition, the VCP is designed to increase this alignment.
The Chairman and Non-Executive Directors are also encouraged to hold shares in the Company although the Chairman and independent
Non-Executive Directors are expected to ensure that the level of their individual shareholdings is not significant and thereby call into
question their continuing independence.
Details of the Directors’ interests in shares are shown in the table below.
Executive Directors
J.A. Treger
Non-Executive Directors
W.M. Blyth
D.S. Archer
N.P.H. Meier
R.C. Rhodes
R.H. Stan
Beneficially
owned at
March 18,
2016
Beneficially
owned at
December 31,
2015
5,506,454
5,506,454
104,822
104,822
–
–
120,000
120,000
15,000
15,000
123,540
123,540
Not subject to
performance conditions
Subject to
performance conditions
LTIP
Deferred
bonus shares
LTIP
Deferred
bonus shares
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
None of the Directors hold their shares in hedging arrangements or as collateral for loans. Such an arrangement would require the
express permission of the Board.
E. Total pension entitlements
The Company makes contributions to employees’ pensions and has designated the National Employment Savings Trust (NEST) as
its stakeholder pension provider. The Committee is prepared to pay additional basic salary (or fees) in lieu of part or all of a Director’s
pension contribution.
F. Loss of office payments
There were no loss of office payments made to Directors in 2015 (2014: nil).
G. Percentage increase in the remuneration of the CEO
CEO £’000
– salary
– benefits
– bonus
Average per employee £’000
– salary
– benefits
– bonus
2015
380
–
–
85
–
26
2014
356
3
160
78
–
58
% change
7%
(100%)
(100%)
9%
–
(55%)
The table above shows the movement in the salary, benefits and annual bonus for the CEO between the current and previous financial year
compared to that for the average UK employee. The Committee has chosen this comparator and it feels that it provides a more appropriate
reflection of the earnings of the average worker than the movement in the Group’s total wage bill, which is distorted by movements in the
number of employees. For the benefits and bonus per employee, this is based on those employees eligible to participate in such schemes.
H. Total shareholder return
The performance of the Company’s ordinary shares compared
with the FTSE 350 Mining Index for the five-year period ended
on December 31, 2015 is shown in the graph opposite. Both
have been re-based at the start of the period in order to provide
a graphical measure of comparative performance.
The Company has chosen the FTSE 350 Mining Index as a
comparator for historical reporting purposes as it believes it
to be the nearest relevant index appropriate to the Group.
The middle market price of an ordinary share on December 31,
2015 was 58.00p. During the year the share price ranged from
a low of 53.75p to a high of 102.59p.
200
150
100
50
0
0
0
1
o
t
d
e
s
a
b
e
R
56
02.01.10
02.01.11
02.01.12
02.01.13
02.01.14
02.01.15
02.01.16
FTSE 350 Mining
Anglo Pacific Group
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
I. Total remuneration for the CEO over time
2010
2010
2011
2012
2013
2013
2014
2015
B.M. Wides
J. Theobald1
J.A. Treger2
J.A. Treger
Total remuneration
(£’000)
Bonus outturn (%)
Bonus (£’000)
LTIP vesting (%)
155
N/A4
76
–
69
N/A4
38
–
253
37
84
–
209
1933
–
–
–
–
–
–
39
–
–
–
432
64%
160
–
374
1 J. Theobald was appointed CEO on October 6, 2010.
2 J.A. Treger was appointed CEO on October 21, 2013.
3 J. Theobald also received £63,333 as payment in lieu of notice, £95,000 termination payment (paid in January 2014) and £2,400 for legal advice.
4 For 2010, this is not applicable as there were no caps in place.
The table above shows the total remuneration for the CEO during each of the financial years. The total remuneration figure includes the
annual bonus. No LTIP awards vested. The bonus outturn percentage is expressed as a percentage of the cap, where applicable, for the
period in question. As there were no caps on bonus in 2010, the actual bonus payable based on performance in those years has been
included for information in the table.
J. Relative importance of spend on pay
(£m)
Staff costs
Dividends
2015
2.68
11.90
2014
3.66
11.53
% increase
(27%)
3%
K. External directorships
Mr. Treger holds an external non-executive directorship with Mantos Copper S.A. for which he earned fees during the year. This directorship
does not affect Mr. Treger’s ability to perform his role as CEO of the Company, as this directorship forms part of his 10% time commitment
aside of Anglo Pacific (see ‘The Board’ section of the Governance Report).
L. 2016 salary review
The Executive Directors’ full time equivalent (‘FTE’) salaries were reviewed in January 2014, following the initial probationary period (see
Section J of the Policy Report). The increases took effect from January 22, 2014 and the current salaries (on a FTE basis) are as follows:
Current salaries for the Executive Directors
Executive
J.A. Treger
M.R. Potter1
1 M.R. Potter resigned from the Board on May 31, 2015.
FTE Salary as at
January 1, 2016
FTE Salary as at
January 22,
2015
400,000
380,000
–
190,000
Increase
5%
–
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M. Fees for the Chairman and Non-Executive Directors
As detailed in the Remuneration Policy, the Company’s approach to setting Non-Executive Directors’ remuneration is with reference to
market levels in similar companies, levels of responsibility and time commitments. A summary of current fees is as follows:
Chairman
Base fee
Senior Independent Director
Committee Chairman
Committee Member
2016
2015
% Increase
95,000
38,000
48,000
43,000
40,000
95,000
38,000
48,000
43,000
40,000
–
–
–
–
–
Up to the end of March 2014, the Chairman was a part-time Executive Director post, and the Chairmanship component was not separately
remunerated. On March 28, 2014, the Company announced the appointment of Mr. Blyth as Non-Executive Chairman with effect from
April 1, 2014. On the recommendation of the other members of the Remuneration Committee, his fee was set at £95,000 per annum for
a two-year period, having regard to the time commitment required (six days a month) and the level of fees in similar companies.
The Chairman has elected to maintain the Chairman’s fee at £95,000 for the duration of 2016.
Members of the main Board Committees are paid an additional amount, currently £2,000 per annum, to reflect extra commitments, with
a Committee Chair receiving a further £3,000. The SID also receives a further additional fee, currently £5,000 per annum, to reflect his
extra duties.
N. Performance targets for the annual bonus and LTIP awards to be granted in 2015 and beyond
Annual bonuses and long-term incentive awards for 2015 were made in accordance with the policy approved by shareholders in 2014.
The CEO elected not to receive a bonus for the 2015 bonus year, as a result his performance against his scorecard was not formally
measured. A similar scorecard approach will continue in 2016. The scorecard will set challenging targets for triggering bonus, and for
rewarding outperformance on a sliding scale. The scorecard will be a combination of corporate objectives and personal objectives.
Corporate objectives for 2016 will cover areas such as business performance, funding and finance, relationships and reputation.
The 2015 scorecard for the CEO is detailed on page 55.
No long-term incentive awards were made during 2015. Long-term incentive awards for 2014 were made under the VCP with a five-year
performance period from the date of grant (i.e. to mid-2019) to be extended to seven years (subject to approval by shareholders at the
forthcoming AGM). No value accrues under the VCP to its participants unless growth in the Company’s TSR over the performance period
is at least equal to 7% growth per annum (or approximately 40% total growth over the period).
Long-term incentive awards for 2016 will be made under the amended terms of the VCP (subject to approval by shareholders at the
forthcoming AGM) with a performance period from the date of grant to June 16, 2021. No value accrues under the VCP to its participants
unless growth in the Company’s TSR over the performance period is at least equal to 7% growth per annum (or approximately 40% total
growth over the period). Growth will be measured based on the net asset value per share as at December 31, 2015. A relative measure of
TSR will be introduced to ensure it is outperforming a relevant comparator group.
O. Statement of shareholder voting
At last year’s AGM held on April 30, 2015, the Directors’ remuneration report was approved by shareholders on a show of hands. Details of
the valid proxy votes received for the resolution are detailed below:
Votes cast in favour (including proxy appointments that gave discretion to the Chairman)
Votes cast against
Total votes cast (excluding votes directed to be withheld)
Votes withheld
Votes
Percentage
70,833,806
26,497,588
97,331,394
44,594
72.78%
27.22%
100%
As a result of the number of proxy votes received (27.22% of the total number of proxy votes received) against the Directors’ remuneration
report resolution presented to the AGM held on April 30, 2015, the Chairman and the SID met with shareholders both in and outside of the
Company’s top 10 shareholders to understand their potential concerns. The discussions centred around the VCP, the salary level of the
CEO and bonus levels and associated criteria. More recently, the Chairman and the SID extensively canvassed the views of a number of
the larger shareholders, both institutions and individuals, concerning the efficacy of the VCP, both to provide an incentive to the Executive
Directors and as a retention mechanism. Shareholders were supportive of the introduction of a secondary performance measure for new
VCP awards. Shareholders were generally understanding that the mandated annual salary increases for the CEO had been contractually
agreed at the time of his appointment in 2014. It was agreed that it was desirable to increase the depth of disclosure regarding the bonus
scorecard elements. To this end, we have included the 2015 bonus scorecard in this report which details the individual personal and
corporate performance bonus criteria to further improve transparency. In addition, we are proposing that any new VCP awards are subject
to a secondary performance condition (i.e. the Company’s share price to at least match or exceed the performance of the FTSE 350 Mining
Index) as a hurdle for an award.
Approval
This report was approved by the Board on March 22, 2016 and signed on its behalf by
D.S. Archer
Chairman of the Remuneration Committee
58
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The Directors present their report and audited consolidated
financial statements for the year ended December 31, 2015.
Principal activities
The Group’s principal royalty activities are set out in the Group
Overview on page 4 and 5.
Going concern
The financial position of the Group and its cash flows are set out
on pages 67 and 70. The directors have considered the principal risks
of the company which are set out on pages 30 to 33 and considered
key sensitivities which could impact on the level of available
borrowings. As at December 31, 2015, the Group had net debt of
£1.8m as set out in note 22 and subject to continued covenant
compliance, has access to a further £12.8m in undrawn borrowings
from its secured revolving credit facility.
The Directors have considered the Group’s cash flow forecasts for
the period to the end of March 2017. The Board is satisfied that the
Group’s forecasts and projections, taking into account reasonably
possible changes in trading performance and other uncertainties,
together with the Group’s net debt position and access to the
undrawn facilities, show that the Group will be able to operate
within the level of its current facilities for the foreseeable future.
For this reason the Group continues to adopt the going concern
basis in preparing its financial statements.
Results and dividends
The consolidated income statement is set out on page 65 of the
financial statements.
The Group reported a loss after tax of £22.6m (2014: £47.6m).
Total dividends for 2015 will amount to 7.00p per share (2014:
8.45p per share), combining the recommended final dividend of
3.00p per share for the year ended December 31, 2015 with the
interim dividend of 4.00p per share paid on February 4, 2016.
The final dividend for the year ended December 31, 2015, is subject
to shareholder approval at the 2016 AGM. The Board proposes to
pay the final dividend on August 5, 2016 to shareholders on the
Company’s share register at the close of business on June 24, 2016.
The shares will be quoted ex-dividend on the London Stock
Exchange on June 23, 2016, and the Toronto Stock Exchange on
June 22, 2016. At the present time the Board has resolved not to
offer a scrip dividend alternative.
Directors
The names of the Directors in office on the date of approval of
these financial statements, together with their biographical details
and other information, are shown on page 37.
All Directors will stand for election or re-election at the 2016 AGM.
A table of Directors’ attendance at Board and Committee meetings
during 2015 is on page 38.
Directors’ disclosures
With regard to the appointment and replacement of Directors,
the Company is governed by its Articles of Association, the
Companies Act 2006 and related legislation. At the next AGM,
all of the Company’s Directors will be offering themselves for
election or re-election.
The Directors may exercise all the powers of the Company subject
to applicable legislation and regulation and the Articles of
Association of the Company. The Company’s Articles of Association
may be amended by special resolution of the shareholders. At the
2015 AGM, held on April 30, 2015, the Directors were given the
power to issue new shares up to an aggregate nominal amount of
£1,132,947. This power will expire at the earlier of the conclusion of
the 2020 AGM or May 1, 2020. Further, the Directors were given the
power to make market purchases of ordinary shares up to a
maximum number of 16,994,203. This power will expire at the
earlier of the conclusion of the 2016 AGM or October 30, 2016.
At the AGM, held on April 30, 2015, the Directors were given the
power to allot equity shares or sell treasury shares for cash other
than pro-rata to existing shareholders. This power was limited to
5% of the Company’s issued ordinary share capital (other than in
connection with a rights or other similar issue) and will expire at the
earlier of the conclusion of the 2016 AGM or July 30, 2016.
The Group maintains insurance for its Directors and officers against
certain liabilities in relation to the Group. The Group has entered
into qualifying third party indemnity arrangements for the benefit
of all its Directors in a form and scope which comply with the
requirements of the Companies Act 2006.
Capital structure
The structure of the Company’s ordinary share capital at March 18,
2016 was as follows:
Issued No.
Nominal value
per share
Total
% of
total capital
Ordinary
shares
169,942,034
0.02
3,398,841
100%
Change of control
There are a number of agreements that terminate upon a change
of control of the Company such as certain commercial contracts
and the revolving credit facility. None of these are considered
significant in terms of the business as a whole. There is no change
of control provision in any of the Directors’ contracts.
Rights and obligations
Dividends
The £0.02 ordinary shares carry the right to dividends determined
at the discretion of the Board.
Voting rights
The £0.02 ordinary shares carry the right to one vote per share.
Restrictions on transfer of holdings
There are no specific restrictions on the size of a holding nor on
the transfer of the Company’s shares, which are both governed
by the general provisions of the Articles of Association of the
Company and prevailing legislation. There are no known
agreements between holders of the Company’s shares that may
result in restrictions on the transfer of shares or voting rights.
Special control rights
The Company’s ordinary shares are subject to transfer restrictions
and forced transfer provisions that are intended to prevent, among
other things, the assets of the Company from being deemed to be
‘plan assets’ under US Employment Retirement Income Security
Act of 1974 (ERISA). For more information refer to the important
notices section.
Employee share schemes
Details of employee share schemes are set out on page 48 and in
note 27 to the financial statements.
Treasury
No shares are currently held in treasury by the Company.
59
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Warrants
On May 22, 2014, the Company resolved to create 500,000
warrants, to be issued pursuant to a warrant instrument dated June
10, 2014. These warrants entitle the warrant holders to subscribe
in cash for ordinary shares at the subscription price of £2.50 per
ordinary share (subject to any adjustment events in accordance
with the warrant instrument). The rights to subscribe for ordinary
shares conferred by the warrants may only be exercised within five
years from the date of the grant of the warrants and in accordance
with the warrant instrument.
Allotment of ordinary shares
On February 27, 2015, the Company issued 49,375,000 new
Ordinary Shares at a price of 80p per share amounting to an
aggregate nominal value of £987,500 and aggregate consideration
of £39,500,000 as part of a firm placing, placing and open offer
announced on February 4, 2015. The issue price was fixed on
February 6, 2015 and represented a discount of approximately
3.6% to the closing middle market price on the London Stock
Exchange of 83p per share on February 5, 2015. 15,460,557 of
the shares issued were pursuant to the open offer, representing
approximately 68% of the maximum shares available under the
open offer. The 7,164,443 shares not applied for pursuant to the
open offer were taken up by placees under the placing, with the
remaining 26,750,000 shares being issued pursuant to the firm
placing. The net proceeds were used to provide the majority of
funding for the acquisition of the Narrabri royalty, further details
of which are set out in notes 16 and 26 to the financial statements.
On March 12, 2015, the Company issued 4,135,238 new Ordinary
Shares at a price of 80p per share amounting to an aggregate
nominal value of £82,704.76 and aggregate consideration of
£3,308,190.40. The issue price was fixed on February 6, 2015 and
represented a discount of approximately 3.6% to the closing middle
market price on the London Stock Exchange of 83p per share on
February 5, 2015. The shares comprised part of the consideration
for the acquisition of the Narrabri royalty, further details of which
are set out in notes 16 and 26 to the financial statements.
As a result of the preceding issuances, the Company has issued
36,429,609 new Ordinary Shares other than as part of a pre-
emptive offer in the 12 months preceding the date of this
Annual Report and Accounts, representing approximately 21%
of the Company’s share capital as at the date of this Annual Report.
The Company has issued a further 1,698,210 new Ordinary Shares
other than as part of a pre-emptive offer in the three years
preceding the date of this Annual Report and Accounts,
representing an aggregate of approximately 22% of the Company’s
share capital as at the date of this Annual Report.
Substantial shareholdings
The Company has been notified, aside from the interests of the
Directors, of the following interests of 3% or more in the share
capital of the Company at March 18, 2016.
Ordinary Shares
of 2p each
Representing
Liontrust Investment Partners LLP
17,388,541
10.48%
Schroders PLC
Ransome’s Dock Limited
Aberforth Partners LLP
AXA Investment Managers UK
(Framlington)
12,210,712
7,489,360
6,549,032
5,494,332
Kings Chapel International Limited*
5,235,204
7.19%
4.51%
3.94%
3.31%
3.15%
* Kings Chapel International Limited is a connected person of Mr. J.A. Treger.
See page 56 for a list of Directors’ interests in shares.
Statement as to disclosure of information to auditors
The Directors who were in office on the date of approval of these
financial statements have confirmed that, as far as they are aware,
there is no relevant audit information of which the auditors are
unaware. Each of the Directors has confirmed that they have taken
all the steps that they ought to have taken as Directors in order to
make themselves aware of any relevant audit information and to
establish that it has been communicated to the auditors.
Other statutory and regulatory information
Information in relation to the Group’s payment policy can be
found in note 25 and a statement on Going Concern is provided
in note 3.1.1.
Auditors
Deloitte LLP have expressed willingness to continue in office.
In accordance with section 489(4) of the Companies Act 2006 a
resolution to appoint auditors will be proposed at the 2016 AGM.
Designated Foreign Issuer status
The Company continues to be listed on the TSX and to be a
‘reporting issuer’ in the Province of Ontario, Canada. The Company
also continues to be a ‘designated foreign issuer’, as defined in
National Instrument 71-102 – Continuous Disclosure and Other
Exemptions Relating to Foreign Issuers of the Canadian Securities
Administrators. As such, the Company is not subject to the same
ongoing reporting requirements as most other reporting issuers in
Canada. Generally, the Company will be in compliance with
Canadian ongoing reporting requirements if it complies with the
UK Financial Conduct Authority in its capacity as the competent
authority for the purposes of Part VI of the Financial Services and
Markets Act 2000 (United Kingdom), as amended from time to
time, and the applicable laws of England and Wales (the ‘UK Rules’)
and files on its SEDAR profile at www.sedar.com any documents
required to be filed or furnished pursuant to the UK Rules.
By Order of the Board
K. Flynn
Company Secretary
March 22, 2016
Registered office
1 Savile Row
London
W1S 3JR
60
GOVERNANCEAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Statement of directors’ responsibilities
The Directors are responsible for preparing the Annual Report and
Accounts, the Directors’ Remuneration Report and the financial
statements in accordance with applicable law and regulations.
Directors’ statement pursuant to the Disclosure and
Transparency Rules
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with IFRSs as
adopted by the EU, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company and the
undertakings included in the consolidation taken as a whole;
• the strategic report includes a fair review of the development
and performance of the business and the position of the
company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
• the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s
performance, business model and strategy.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group’s
website, www.anglopacificgroup.com. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
By Order of the Board
W.M. Blyth
Chairman
March 22, 2016
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the Group and parent Company financial
statements in accordance with International Financial Reporting
Standards (‘IFRSs’) as adopted by the European Union (‘EU’). Under
company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
the profit or loss of the Group and the Company for that period. In
preparing these financial statements, International Accounting
Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
• make an assessment of the Company’s ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable
them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006
(United Kingdom) and, as regards the Group financial statements,
Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and the Group and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors who were in office at the date of this statement
confirm that:
• so far as they are each aware there is no relevant audit
information of which the Company’s auditors are unaware; and
• the Directors have taken all steps that they ought to have taken
to make themselves aware of any relevant audit information and
to establish that the auditors are aware of that information.
61
APG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015GOVERNANCE Our assessment of risks of material misstatement
We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and we confirm that we are independent
of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not
provided any of the prohibited non-audit services referred to in those standards.
Risk
How the scope of our audit responded to the risk
Classification of the Narrabri transaction
Anglo Pacific Group (‘APG’) entered into one new royalty
agreement in the year for a 1% gross overriding royalty on
Narrabri, an Australian coal mine operated by Whitehaven.
The accounting treatment for each royalty arrangement entered
into by Anglo Pacific Group is a key area of judgement as the
underlying terms of each arrangement are often complex and
bespoke in nature in terms of how the Group will achieve a return
on its investment.
Impairment assessment of the royalty and investment
portfolio (notes 16 and 17)
As a consequence of the volatility in current commodity prices,
the assessment of the recoverable amount of royalty
arrangements accounted for as intangible assets, property, plant
and equipment, available for sale equity financial instruments
and loans and receivables to mining and exploration companies
are key judgements. The recoverable amount valuations are often
subjective and contain significant levels of judgement in relation
to the discount rates used, the forecast commodity prices and
the expected production profiles.
In the year impairments totalling £4.4m have been recognised
at Amapá and Ring of fire (see note 16).
In the year impairments of the available for sale equity portfolio
totalled £0.9m (see note 17).
We have assessed and challenged management’s accounting
treatment for the Narrabri royalty entered into in the year through
obtaining the underlying contract and reviewing the key terms
and conditions, specifically whether there were any mandated
interest rates or milestones which, if not met, would trigger
repayment, which would affect the classification of the royalty.
We challenged management’s assessment as to whether indicators
of impairment exist for specific royalty arrangements through
discussions with management, review of publicly available
information and discussions with the entity’s third party specialists.
Where such indicators were identified, we obtained copies of the
valuation models and challenged the assumptions made by
management in relation to these models by comparison to third
party forecast commodity price data, reference to third party
documentation and review of reserves and resources reports.
Additionally, we used specialists to independently calculate our
own discount rates as expectations to assess management’s
application of discount rates for specific royalty arrangements.
We also considered management’s assessment of whether
projects still in the development phase would reach production.
For loans and receivables we challenged management’s
assessment of recoverability based on the publicly available
financial statements and interest payments received.
In respect of the Group’s equity investments, where the valuation
was below cost, we challenged whether there was a significant or
prolonged decrease in value.
In all cases, required impairments were appropriately recognised
in the income statement.
Valuation of royalty arrangements held at fair value (note 15)
Royalties arrangements held at fair value, which have a value
of £89.1m at 31 December 2015, have a material impact on the
financial statements. The valuations are often subjective and
contain significant levels of judgement in relation to the discount
rates used, the forecast commodity prices and the expected
production profiles.
We obtained the valuation models used by management to
determine the fair value of royalty arrangements held at fair
value. We challenged the assumptions made by management by
comparison to recent third party forecast commodity price data,
reference to third party documentation and review of reserves
and resources reports.
Last year our report included one risk which is not included in our report this year:
Classification of new royalty arrangements acquired in transactions during 2014, this has been replaced in the current year
with Classification of the Narrabri transaction
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee
discussed on pages 41 to 43.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
63
APG12 | AR15 | 24.03.16 | Middle – ARTFINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
Independent auditor’s report to the members of
Anglo Pacific Group PLC
Opinion on financial statements of Anglo Pacific Group plc
In our opinion:
• the financial statements give a true and fair view of the state of
the Group’s and of the Parent Company’s affairs as at December
31, 2015 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated income
statement, the Consolidated statement of comprehensive income,
the Consolidated and Company balance sheet, the Consolidated
and Company statement of changes in equity, the Consolidated
and Company cash flow statement and the related notes 1 to 33.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union and, as regards the Parent Company financial statements,
as applied in accordance with the provisions of the Companies
Act 2006.
Going concern and the directors’ assessment of the
principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to in relation to:
• the Directors' confirmation on page 30 that they have carried
out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity;
• the disclosures on pages 30 to 33 that describe those risks and
explain how they are being managed or mitigated;
• the Directors’ statement in note 3.1.1 to the financial statements
about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s ability
to continue to do so over a period of at least twelve months
from the date of approval of the financial statements;
• the director's explanation on page 30 as to how they have
assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern
basis of accounting and we did not identify any such material
uncertainties. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the
Group’s ability to continue as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s
Ethical Standards for Auditors and we confirm that we are
independent of the Group and we have fulfilled our other ethical
responsibilities in accordance with those standards. We also
confirm we have not provided any of the prohibited non-audit
services referred to in those standards.
62
FINANCIAL STATEMENTSAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Independent auditor’s report to the members of
Anglo Pacific Group PLC
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the directors’ statement that they consider
the annual report is fair, balanced and understandable and whether
the annual report appropriately discloses those matters that we
communicated to the audit committee which we consider should
have been disclosed. We confirm that we have not identified any
such inconsistencies or misleading statements.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). We also comply with
International Standard on Quality Control 1 (UK and Ireland). Our
audit methodology and tools aim to ensure that our quality control
procedures are effective, understood and applied. Our quality
controls and systems include our dedicated professional standards
review team and independent partner reviews.
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and/or those further matters we have
expressly agreed to report to them on in our engagement letter
and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s and the Parent Company’s circumstances and have
been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information
in the annual report to identify material inconsistencies with the
audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Christopher Thomas ACA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
March 22, 2016
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be
changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
We determined materiality for the Group to be £3.2m (2014: £3.0m),
which represents 2% of equity (2014: 2% of equity). Equity was
considered a more stable base than profits which in the current year
was a loss due to the effect of unrealised fair value losses
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £64,000 (2014:
£60,000), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters that we identified
when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Consistent with the how the Group is managed and consistent
with the prior year, we consider the Group to be one component.
Consequently all assets, liabilities, income and expenses were
subject to a full scope audit by the Group audit team.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006; and
• the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements
are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the Directors’ Remuneration Report
to be audited is not in agreement with the accounting records and
returns. We have nothing to report arising from these matters.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we
are required to report to you if, in our opinion, information in the
annual report is:
• materially inconsistent with the information in the audited
financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
• otherwise misleading.
64
FINANCIAL STATEMENTSAPG12 | AR15 | 24.03.16 | Middle – ARTANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Consolidated income statement
for the year ended December 31, 2015
Royalty related income
Amortisation of royalties
Operating expenses
Operating profit/(loss) before impairments, revaluations and gain/(losses) on disposals
(Loss)/Gain on sale of mining and exploration interests
Gain on disposal of coal tenures
Impairment of mining and exploration interests
Impairment of royalty and exploration intangible assets
Impairment of royalty financial instruments
Impairment of property, plant and equipment
Revaluation of coal royalties (Kestrel)
Finance income
Finance costs
Other income
Loss before tax
Current income tax charge
Deferred income tax credit/(charge)
Loss attributable to equity holders
Total and continuing loss per share
Basic and diluted loss per share
Notes
4
16
5a
17
13
17
16
15
13
14
7
8
9
10
10
2015
£’000
8,683
(2,573)
(4,060)
2014
£’000
3,481
(759)
(5,524)
2,050
(2,802)
(484)
–
1,350
1,409
(930)
(4,873)
(4,414)
(10,033)
–
–
(15,288)
(1,352)
(27,201)
(11,822)
301
(218)
416
439
(1,408)
1,981
(30,480)
(42,399)
(1,009)
8,913
(1,386)
(3,804)
(22,576)
(47,589)
11
(14.06p)
(42.09p)
The notes on pages 71 to 106 are an integral part of these consolidated financial statements.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 (United Kingdom) not to present the
parent company profit and loss account.
The loss for the parent Company for the year was £1,359,000 (2014: £20,684,000).
65
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Consolidated statement of comprehensive income
for the year ended December 31, 2015
Loss attributable to equity holders
Note
2015
£’000
2014
£’000
(22,576)
(47,589)
Items that will not be reclassified to profit or loss
–
–
Items that have been or may be subsequently reclassified to profit or loss
Available-for-sale investments
Revaluation of available-for-sale investments
Reclassification to income statement on disposal of available-for-sale investments
Reclassification to income statement on impairment
Deferred tax relating to items that have been or may be reclassified
24
Net exchange loss on translation of foreign operations
Other comprehensive loss for the year, net of tax
Total comprehensive loss for the year
The notes on pages 71 to 106 are an integral part of these consolidated financial statements.
857
484
930
159
(8,597)
(6,167)
(8,640)
(1,350)
4,873
1,034
(2,710)
(6,793)
(28,743)
(54,382)
66
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Consolidated balance sheet and Company balance sheet
as at December 31, 2015
Non-current assets
Property, plant and equipment
Coal royalties (Kestrel)
Royalty financial instruments
Royalty and exploration intangible assets
Mining and exploration interests
Deferred costs
Investments in subsidiaries
Other receivables
Deferred tax
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Non-current liabilities
Borrowings
Other payables
Deferred tax
Current liabilities
Income tax liabilities
Trade and other payables
Total liabilities
Net assets
Capital and reserves attributable to shareholders
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Notes
2015
£’000
Group
2014
£’000
2015
£’000
Company
2014
£’000
13
14
15
16
17
18
19
20
24
20
21
23
25
24
25
26
26
113
153
82,649
117,097
6,534
71,491
10,898
1,013
–
10,132
3,094
8,142
37,110
9,896
1,462
–
9,657
2,307
113
–
6,534
2,349
8,259
–
56,595
46,518
–
153
–
8,142
2,349
6,190
1,381
36,973
22,318
5
185,924
185,824
120,368
77,511
5,106
5,708
5,272
8,769
10,814
14,041
1,474
410
1,884
15,681
1,996
17,677
196,738
199,865
122,252
95,188
7,272
1,193
24,546
33,011
–
83
34,908
34,991
574
1,170
1,744
687
2,937
3,624
–
180
766
946
465
1,019
1,484
–
83
1,206
1,289
623
2,883
3,506
34,755
38,615
2,430
4,795
161,983
161,250
119,822
90,393
3,399
49,211
29,976
79,397
2,329
29,328
15,832
113,761
3,399
49,211
33,912
33,300
161,983
161,250
119,822
2,329
29,328
12,289
46,447
90,393
The notes on pages 71 to 106 are an integral part of these consolidated financial statements.
The financial statements of Anglo Pacific Group PLC (registered number: 897608) on pages 65 to 106 were approved by the Board and
authorised for issue on March 22, 2015 and are signed on its behalf by:
W.M. Blyth
Chairman
J.A. Treger
Chief Executive Officer
67
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Consolidated statement of changes in equity
for the two years ended December 31, 2015
Other reserves
Investment
revaluation
reserve
£’000
Share-
based
payment
reserve
£’000
Foreign
currency
translation
reserve
£’000
Special
reserve
£’000
Investment
in own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
5,570
158
8,750
632
(2,601) 172,796 216,851
–
– (2,993)
– (4,083)
– (2,710)
Balance at January 1, 2014
2,218 29,328
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Warrant
reserve
£’000
–
–
–
–
–
–
–
–
111
–
111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,453
–
–
–
–
–
–
–
143
–
9,453
143
– (8,640)
– (1,350)
4,873
1,034
–
–
–
–
–
Loss for the year
Other comprehensive income:
Available-for-sale investments
Valuation movement taken
to equity
Transferred to income
statement on disposal
Transferred to income
statement on impairment
Deferred tax
Foreign currency translation
Total comprehensive loss
Dividends
Issue of ordinary shares
Value of employee services
Total transactions with
owners of the company
Balance at
December 31, 2014
2,329 29,328
9,453
Balance at January 1, 2015
2,329 29,328
9,453
Loss for the year
Other comprehensive income:
Available-for-sale investments:
Valuation movement taken
to equity
Transferred to income
statement on disposal
Transferred to income
statement on impairment
Deferred tax
Foreign currency translation
Total comprehensive loss
Dividends
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Issue of ordinary shares
1,070 19,883
19,681
Value of employee services
–
–
–
1,070 19,883 19,681
Total transactions with
owners of the company
Balance at
December 31, 2015
143
143
–
1,487
1,487
–
–
–
–
–
–
–
–
–
–
–
857
484
930
159
–
2,430
–
–
–
–
–
–
–
–
–
–
302
–
–
(19)
–
–
520
520
678
678
–
–
–
–
–
–
–
–
–
6,040
6,040
–
51
–
–
1
– (8,649)
– (8,597)
–
–
630
630
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (47,589) (47,589)
–
–
–
–
–
– (8,338)
– (1,350)
–
–
4,873
1,015
– (2,993)
– (47,589) (54,382)
– (11,535) (11,535)
–
–
–
89
9,707
609
– (11,446)
(1,219)
632 (2,601) 113,761 161,250
632
(2,601) 113,761 161,250
–
–
–
–
–
–
–
–
–
–
–
– (22,576) (22,576)
–
–
–
–
–
–
–
–
–
908
484
930
160
– (8,649)
– (22,576) (28,743)
– (11,901) (11,901)
–
–
– 40,634
113
743
– (11,788) 29,476
3,399 49,211 29,134
143
3,917
1,308 (2,557)
632 (2,601) 79,397 161,983
The notes on pages 71 to 106 are an integral part of these consolidated financial statements.
68
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Company statement of changes in equity
for the two years ended December 31, 2015
Balance at January 1, 2014
2,218
29,328
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
–
Warrant
reserve
£’000
Investment
revaluation
reserve
£’000
–
5,386
Share-
based
payment
reserve
£’000
158
Foreign
currency
translation
reserve
£’000
Special
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
82
632
78,577 116,381
Other reserves
Changes in equity for 2014
Available-for-sale
investments:
Valuation movement taken
to equity
Transferred to income
statement on disposal
Transferred to income
statement on impairment
Deferred tax on valuation
Net income recognised direct
into equity
Loss for the period
Total recognised income
and expenses
Dividends
–
–
–
–
–
–
–
–
Issue of ordinary shares
Value of employee services
111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,453
–
Balance at
December 31, 2014
2,329
29,328
9,453
Balance at January 1, 2015
2,329
29,328
9,453
Changes in equity for 2015
Available-for-sale investments:
Valuation movement taken
to equity
Transferred to income
statement on disposal
Transferred to income
statement on impairment
Deferred tax on valuation
Net income recognised direct
into equity
Loss for the period
Total recognised income
and expenses
Dividends
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Issue of ordinary shares
1,070
19,883
19,681
Value of employee services
–
–
–
–
–
–
–
–
–
–
–
143
–
143
143
–
–
–
–
–
–
–
–
–
–
(7,892)
(1,786)
4,557
1,036
(4,085)
–
(4,085)
–
–
–
1,301
1,301
272
(13)
618
435
1,312
–
1,312
–
–
–
–
–
–
–
–
–
–
–
–
520
678
678
–
–
–
–
–
–
–
–
–
630
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7,892)
(1,786)
4,557
1,036
(4,085)
– (20,684)
(20,684)
– (20,684)
(24,769)
– (11,535)
(11,535)
–
–
–
89
9,707
609
82
82
632
632
46,447
90,393
46,447
90,393
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
272
(13)
618
435
1,312
(1,359)
(1,359)
(1,359)
(47)
– (11,901)
(11,901)
–
–
–
40,634
113
743
Balance at
December 31, 2015
3,399
49,211
29,134
143
2,613
1,308
82
632
33,300 119,822
The notes on pages 71 to 106 are an integral part of these consolidated financial statements.
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APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Consolidated statement of cash flows and
Company statement of cash flows
for the year ended December 31, 2015
Cash flows from operating activities
Loss before taxation
Adjustments for:
Finance income
Finance costs – excluding foreign exchange gains/losses
Other income
Loss/(Gain) on disposal of mining and exploration interests
Gain on disposal of coal tenures
Impairment of mining and exploration interests
Impairment of royalty and exploration intangible assets
Impairment of royalty financial instruments
Impairment of property, plant and equipment
Impairment of investment in subsidiaries
Revaluation of coal royalties (Kestrel)
Depreciation of property, plant and equipment
Amortisation of royalty intangible assets
Share-based payment
Forgiveness of loan to subsidiary undertaking
Intercompany dividends
(Increase)/Decrease in trade and other receivables
(Decrease)/Increase in trade and other payables
Cash generated from/(used in) operations
Income taxes paid
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Proceeds on disposal of mining and exploration interests
Purchases of mining and exploration interests
Purchases of royalty and exploration intangible assets
Proceeds from royalty financial instruments
Other royalty related repayments/(advances)
Prepaid acquisition costs
Proceeds on disposal of coal tenures
Purchases of property, plant and equipment
Dividend and fixed income received from mining and exploration
interests
Sundry income
Finance income
Investment in subsidiaries
Return of capital from subsidiaries
Loans granted to subsidiary undertakings
Loan repayments from subsidiary undertakings
Net cash used in investing activities
Cash flows from financing activities
Drawdown of revolving credit facility
Repayment of revolving credit facility
Proceeds from issue of share capital
Transaction costs of share issue
Dividends paid
Prepaid fundraising costs
Finance costs – excluding foreign exchange gains/losses
Net cash generated from/(used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Unrealised foreign currency gain/(loss)
Cash and cash equivalents at end of period
Notes
2015
£’000
Group
2014
£’000
2015
£’000
Company
2014
£’000
(30,480)
(42,399)
(1,263)
(12,621)
7
8
9
17
13
17
16
15
13
19
14
13
16
6a
10
17
17
16
9
20
13
13
9
9
7
19
19
30
30
22, 23
22, 23
26
26
12
8
(301)
629
(416)
484
–
930
4,414
–
–
–
27,201
40
2,573
840
–
–
5,914
(2,653)
(1,767)
1,494
(1,466)
28
1,722
–
(41,587)
213
2,868
–
–
–
–
203
301
–
–
–
–
(36,280)
10,853
(3,326)
37,326
–
(11,901)
–
(629)
32,323
(3,929)
8,769
868
5,708
(439)
1,042
(1,981)
(1,350)
(1,409)
4,873
10,033
15,288
1,352
–
11,822
23
759
609
–
–
(1,777)
2,588
2,175
2,986
(27)
2,959
9,549
(1,161)
(13,213)
826
(3,002)
(359)
302
(188)
169
475
439
–
–
–
–
(6,163)
–
–
9,980
(416)
(11,535)
(320)
(1,042)
(3,333)
(6,537)
15,706
(400)
8,769
(1)
231
(213)
(13)
–
618
–
–
–
–
–
40
–
840
149
–
388
47
(1,864)
(1,429)
(584)
(2,013)
113
–
–
213
–
–
–
–
–
212
1
(23,712)
4,090
(22,553)
16,001
(25,635)
–
–
37,326
–
(11,901)
–
(231)
25,194
(2,454)
1,996
868
410
(127)
871
(1,788)
(1,786)
–
4,557
701
–
817
9,954
–
23
–
609
4,387
(5,251)
346
52
1,407
1,805
(611)
1,194
6,350
(391)
–
826
–
(295)
–
(147)
–
451
127
(1,452)
–
(14,870)
9,245
(156)
–
–
9,980
(416)
(11,535)
(306)
(871)
(3,148)
(2,110)
4,106
–
1,996
The notes on pages 71 to 106 are an integral part of these consolidated financial statements.
70
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
1 General information
Anglo Pacific Group PLC (the ‘Company’) and its subsidiaries (together, the ‘Group’) secure natural resources royalties by acquisition and
through investment in mining and exploration interests. The Group has royalties and investments in mining and exploration interests
primarily in Australia, North and South America and Europe, with a diversified exposure to commodities that is strongly represented by
coal, iron ore, gold and uranium.
The Company is a public limited company, which is listed on the London Stock Exchange and Toronto Stock Exchange and incorporated
and domiciled in the United Kingdom. The address of its registered office is 1 Savile Row, London, W1S 3JR, United Kingdom (registered
number: 897608).
2 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, the Directors are required to make judgements and estimates that can have a
significant impact on the financial statements. Estimates and judgements are regularly evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The most critical
accounting judgement relates to the classification of royalty arrangements and the key sources of estimation uncertainty relate to the
calculation of certain royalty arrangement’s fair value and the key assumption used when assessing impairment of property, plant and
equipment and intangible assets. The use of inaccurate assumptions in assessments made for any of these estimates could result in a
significant impact on financial results.
Critical accounting judgements
Classification of royalty arrangements: initial recognition and subsequent measurement
The Directors must decide whether the Group’s royalty arrangements should be classified as:
• Intangible Assets in accordance with IAS 38 ‘Intangible assets’;
• Financial Assets in accordance with IAS 32 ‘Financial Instruments: Presentation’ and IAS 39 ‘Financial Instruments: Recognition and
Measurement’; or
• Investment properties in accordance with IAS 40 ‘Investment Property’.
The Directors use the following selection criteria to identify the characteristics which determine which accounting standard to apply to
each royalty arrangement:
Type 1 – Intangible assets ( ‘vanilla’ royalties): Royalties, in their simplest form, are classified as intangible assets by the Group. The Group
considers the substance of a simple vanilla royalty to be economically similar to holding a direct interest in the underlying mineral asset.
Existence risk (the commodity physically existing in the quantity demonstrated), production risk (that the operator can achieve production
and operate a commercially viable project), timing risk (commencement and quantity produced, determined by the operator) and price
risk (returns vary depending on the future commodity price, driven by future supply and demand) are all risks which the Group participates
in on a similar basis to an owner of the underlying mineral licence. Furthermore, in a vanilla royalty, there is only a right to receive cash to
the extent there is production and there are no interest payments, minimum payment obligations or means to enforce production or
guarantee repayment. These are accounted for as intangible assets under IAS 38.
Type 2 – Financial assets (royalties with additional financial protection): In certain circumstances where the ‘vanilla’ risk is considered
too high, but the Group still fundamentally believes in the quality or potential of the underlying resource, the Group will look to introduce
additional protective measures. This has typically taken the form of performance milestone penalties (usually resulting in the receipt of
cash or cash equivalent), minimum payment terms and interest provisions or mechanisms to convert the initial outlay into the equity
instruments of the operator in the event of project deferral. Once an operation is in production, these mechanisms generally fall away
such that the royalty will display identical characteristics and risk profile to the vanilla royalties; however, it is the contractual right to
enforce the receipt of cash through to production which results in these royalties necessarily being treated as financial assets in
accordance with IAS 32 and IAS 39.
Type 3 – Investment property: Royalties which are derived from the ownership of sub-stratum land are accounted for as investment
properties under IAS 40, even though the substance of their commercial terms is identical to vanilla royalties. The Group does not
expect to obtain royalties in this manner going forward, as it is unusual for sub-stratum minerals not to be the property of the state.
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for the year ended December 31, 2015
A summary of the Group’s accounting approach is set out below:
Accounting classification
Substance of contractual terms
Accounting treatment
Examples
Intangible assets
• Simple royalty with no right
to receive cash other than
through a royalty related
to production
Available-for-sale debt
financial asset
• Royalty arrangement with
a contractual right to receive
cash (e.g. through a mandated
interest rate or milestones
which, if not met, trigger
repayment)
•
Investment is presented as
an intangible asset and carried
at cost less accumulated
amortisation and any
impairment provision
• Royalty income is recognised
as revenue in the income
statement
•
•
Intangible asset is amortised
on a systematic basis
Intangible asset is assessed
for indicators of impairment
at each period end
• Amapá & Tucano
• Four Mile
• Salamanca
• Pilbara
• Ring of Fire
• Bulqiza
• Mount Ida
• Maracás Menchen
• Creso
• Narrabri
• Financial asset is recognised at
fair value on the balance sheet
•
•
Isua
Jogjakarta
• Changes in fair value due to
changes in expected future
cash flows are recognised
within the income statement
with other valuation changes
taken to reserves
• Fixed effective interest
income recognised in the
income statement
• Royalty receipts reduce
the asset’s carrying value
Available-for-sale equity
financial asset
Investment property
• Similar in contractual terms
• Financial asset is carried
• EVBC
to an intangible asset
• However, includes a right to
convert into equity (noting
that for EVBC this right was
subsequently extinguished)
at fair value with fair value
movements recognised
in reserves
• Royalty income is recognised
as revenue in the income
statement
• Asset is assessed for impairment
at each reporting period end
• Direct ownership of
sub-stratum land
•
Investment property is carried
at fair value on the balance sheet
• Kestrel
• Crinum
• Returns based on royalty
• Movements in fair value
related production
recognised in income statement
• Royalty income is recognised as
revenue in the income statement
The Group considers that the application of the above accounting standards, and the resulting accounting classification and financial
impact of each in the financial statements, most appropriately reflects the substance of the underlying commercial terms of each royalty
arrangement. The application of each standard to the underlying royalty arrangement, rather than electing to apply IAS 32 and IAS 39 to
all royalties is consistent currently with the Group’s international peer group and as such enables its stakeholders to make informed
investment decisions.
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FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Key sources of estimation uncertainty
Assessment of fair value of royalty arrangements held at fair value
A number of the Groups’ royalty arrangements are held at fair value. Fair value is determined based on discounted cash flow models (and
other valuation techniques) using assumptions considered to be reasonable and consistent with those that would be applied by a market
participant. The determination of assumptions used in assessing fair values is subjective and the use of different valuation assumptions
could have a significant impact on financial results.
In particular, expected future cash flows, which are used in discounted cash flows models are inherently uncertain and could materially
change over time. They are significantly affected by a number of factors including reserves and resources and timing/likelihood of mines
entering production together with economic factors such as commodity prices, discount rates and exchange rates.
Impairment review of property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets are assessed for indicators of impairment at each reporting date with the assessment
considering variables such as the production profiles, production commissioning dates where applicable, forecast commodity prices and
guidance from the mine operators.
Where indicators are identified, the starting point for the impairment review will be to measure the expected future cash flows expected
from the royalty arrangement should the project continue/come into production. A pre-tax nominal discount rate of between 7% and 10%
is applied to the future cash flows. This discount rate is driven from the discount rate of 7% which is used by the independent consultant in
their valuation of Kestrel, which should be the lowest discount rate applied to any of the Group’s assets. The Directors use considerable
judgement to assign a discount rate, with rates varying according to mineral quality, jurisdiction, commodity, stage of production and
counterparty credentials.
The outcome of this net present value calculation is then risk weighted to reflect management’s current assessment of the overall
likelihood and timing of each project coming into production and royalty income arising. This assessment is impacted by news flow
relating to the underlying operation in the period, in conjunction with management’s assessment of the economic viability of the
project based on commodity price projections.
3 Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all the years presented unless otherwise stated.
3.1 Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial
statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial
statements comply with Article 4 of the EU IAS Regulation.
The financial statements have been prepared on the historical costs basis, as modified by the revaluation of coal royalties (investment
property) and certain financial instruments.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed
in note 2.
3.1.1 Going concern
The financial position of the Group and its cash flows are set out on pages 67 and 70. The directors have considered the principal risks of
the company which are set out on pages 30 to 33, and considered key sensitivities which could impact on the level of available borrowings.
As at December 31, 2015, the Group had net debt of £1.8m as set out in note 22 and subject to continued covenant compliance, has
access to a further £12.8m in undrawn borrowings from its secured revolving credit facility.
The Directors have considered the Group’s cash flow forecasts for the period to the end of March 2017. The Board is satisfied that the
Group’s forecasts and projections, taking into account reasonably possible changes in trading performance and other uncertainties,
together with the Group’s net debt position and access to the undrawn facilities, show that the Group will be able to operate within the
level of its current facilities for the foreseeable future. For this reason the Group continues to adopt the going concern basis in preparing
its financial statements.
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for the year ended December 31, 2015
3.1.2 Changes in accounting policies and disclosures
(a) New and amended standards adopted by the Group
The following standards have been adopted by the Group for the first time for the financial year beginning on or after January 1, 2015:
• Annual Improvements to IFRSs 2010 – 2012 Cycle
The Group has adopted the amendments to IFRSs included in the Annual Improvements to IFRSs 2010 – 2012 Cycle for the first time
in the current year.
The majority of the amendments are in the nature of clarification rather than substantive changes to existing requirements. However,
the amendments to IFRS 8 ‘Operating Segments – Aggregation of operating segments’ and IAS 24 ‘Related Party Disclosures – Key
management personnel’ represent changes to existing requirements.
The amendments to IFRS 8 require an entity to disclose the judgements made by management in applying the aggregation criteria
to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in
determining whether the operating segments have similar economic characteristics. As the Group does not aggregate its operating
segments, these amendments have had no material impact on the disclosures or on the amounts recognised in the Group’s
consolidated financial statements. Refer to note 4 for further details on the Group’s segment information.
The amendments to IAS 24 clarify that a management entity providing key management personnel services to a reporting entity is
a related party of the reporting entity. Consequently, the reporting entity must disclose as related party transactions the amounts
incurred for the service paid or payable to the management entity for the provision of key management personnel services. However,
disclosure of the components of such compensation is not required. As the Group does not engage with a management entity, these
amendments have had no material impact on the disclosures or the amounts recognised in the Group’s consolidated financial
statements. Refer to note 30 for details of the Group’s related party transactions.
• Annual Improvements to IFRSs 2011 – 2013 Cycle
The Group has adopted the amendments to IFRSs included in the Annual Improvements to IFRSs 2011 – 2013 Cycle for the first time
in the current year.
The amendments are in the nature of clarifications rather than substantive changes to existing requirements.
The application of the amendments has had no material impact on the disclosures or on the amounts recognised in the Group’s
consolidated financial statements.
There are no other IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after January 1,
2015 that would be expected to have a material impact on the Group.
(b) New standards and interpretations not yet adopted
The Group has not applied the following pronouncements which are not mandatory for 2015.
Mandatory for 2016 – endorsed by the EU
• Amendment to IAS 1 ‘Presentation of Financial Statements – Disclosure Initiative’. The amendment provides clarification of guidance
in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of
accounting policies.
• Amendments to IAS 16 ‘Property, Plant & Equipment’ and IAS 38 ‘Intangibles’. The amendments provide clarification of acceptable
methods of depreciation and amortisation.
• Annual improvements to IFS 2012 – 2014 cycle.
Mandatory for 2017 – not yet endorsed by the EU
• Amendments to IAS 12 ‘Recognition of Deferred Tax Assets for Unrealised Losses’. These amendments on the recognition of deferred tax
assets for unrealised losses clarify how to account for deferred tax assets related to debt instruments measured at fair value.
• IAS 7 ‘Statement of cash flows, narrow-scope amendments’. The amendments introduce an additional disclosure that will enable users
of financial statement to evaluate changes in liabilities arising from financing activities.
Mandatory for 2018 – not yet endorsed by the EU
• IFRS 15 ‘Revenue from Contracts with Customers’. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer
to promised goods and services when control of the goods and services passes to customers. The amount of revenue recognised should
reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. A modified transitional
approach is permitted under which a transitional adjustment is recognised in retained earnings at the date of implementation of the
standard without adjustment of comparatives. The new standard will only be applied to contracts that are not completed at that date.
The Group is finalising its evaluation of the standard, but it does not expect the standard to change the timing, quantum or presentation
of its revenues.
• IFRS 9 ‘Financial Instruments’. The standard includes a single approach for the classification of financial assets, based on cash flow
characteristics and the entity’s business model. It introduces a new model for the recognition of impairment losses, the expected credit
losses model, which requires expected losses to be recognised when financial instruments are first recognised. The standard amends the
rules on hedge accounting to align the accounting treatment with risk management practices of an entity.
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FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Mandatory for 2019 – not yet endorsed by the EU
• IFRS 16 ‘Leases’. Under the new standard, a lessee is in essences required to:
(a)
(b)
(c)
recognise all lease assets and liabilities (including those currently classed as operating leases) on the balance sheet, initially
measured at the present value of unavoidable lease payments;
recognise amortisation of lease assets and interest on lease liabilities in the income statement over the lease term; and
separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (which
companies can choose to present within operating or financing activities consistent with presentation of any other interest paid)
in the cash flow statement.
The Group is currently evaluating the impact of the above pronouncements which may have an impact on the Group’s earnings or
shareholders’ funds in future years. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected
to have a material impact on the Group.
3.2 Consolidation
Subsidiaries
The financial statements incorporate a consolidation of the financial statements of the Company and entities controlled by the Company
(its subsidiaries). Control is achieved when the Company has the power over the investee, is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its power over the investee.
The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the
Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
de-consolidated from the date that control ceases.
Investments in subsidiaries are accounted for in the parent company at cost less impairment. Cost is adjusted to reflect changes in
consideration arising from contingent consideration amendments.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with
the policies adopted by the Group.
3.3 Foreign currencies
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in pounds
sterling, which is the Company’s functional and the Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates
prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the income statement. Non-monetary assets and liabilities measured at historical cost are translated
using the exchange rates at the date of the transaction (and not retranslated). Non-monetary assets and liabilities measured at fair value
are translated using the exchange rates at the date when fair value was determined.
(c) Group companies
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii)
income and expenses for each income statement are translated at average exchange rates; and
(iii) all resulting exchange differences are charged/credited to other comprehensive income and recognised in the currency translation
reserve in equity.
Exchange differences on foreign currency balances with foreign operations for which settlement is neither planned nor likely to occur
in the foreseeable future, and therefore form part of the Group’s net investment in these foreign operations are recognised in other
comprehensive income and accumulated in the foreign currency translation reserve in equity. When a foreign operation is partially
disposed of or sold, exchange differences that were recorded in equity are reclassified in the income statement as part of the gain or
loss on sale.
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Notes to the consolidated financial statements
for the year ended December 31, 2015
3.4 Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated depreciation and accumulated impairment losses. The cost of property,
plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by management. Once a mining project has been established as
commercially viable, expenditure other than that on land, buildings, plant and equipment is capitalised as a producing asset within ‘Other
Assets’ together with any amount transferred from ‘Exploration and Evaluation Costs’ (note 3.6(b)).
Property, plant and equipment is depreciated over its useful life, or where applicable over the remaining life of the mine if shorter once it is
operating in the manner intended by management. The major categories of property, plant and equipment are depreciated on a units of
production and/or straight-line basis as follows:
Equipment and Fixtures
4 to 10 years
Other Assets:
Producing assets
Coal tenures
Units of production (over reserves)
Units of production (over reserves)
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in profit or loss.
3.5 Coal royalties (investment property)
Royalty arrangements which are derived from the ownership of sub-stratum lands are accounted for as investment properties in
accordance with IAS 40. Investment property is held to earn a return in the form of royalty entitlements arising from mining activity and
is initially measured at cost including any transaction costs. Investment property is subsequently measured at fair value at each reporting
date with any valuation movements recognised in the income statement. Fair value is determined by a suitably qualified independent
external consultant based on the discounted future royalty income expected to accrue to the Group.
3.6 Intangible assets
(a) Royalty arrangements
Royalty arrangements which are identified and classified as intangible assets are initially measured at cost, including any transaction costs.
Upon commencement of production at the underlying mining operation intangible assets are amortised on a straight-line basis over the
life of the mine. Amortisation rates are adjusted on a prospective basis for all changes to estimates of the life of mine.
(b) Exploration and evaluation costs
Exploration expenditure relates to the initial search for deposits with economic potential. Evaluation expenditure arises from a detailed
assessment of deposits or other projects that have been identified as having economic potential.
Expenditure on exploration and evaluation activities is capitalised when there is a high degree of confidence in the project’s viability and
hence it is probable that future economic benefits will flow to the Group. If this is no longer the case, an impairment loss is recognised in
the income statement. Amortisation of capitalised exploration and evaluation costs does not commence until the underlying project
commences commercial production.
3.7 Impairment of property, plant and equipment and intangible assets
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine
whether there is any indication that those assets are impaired. If such an indication is identified, the recoverable amount of the asset is
estimated in order to determine the extent of any impairment.
The recoverable amount is the higher of fair value (less costs of disposal) and value in use. In assessing value in use, the estimated cash
flows are discounted to their present value using a pre-tax discount rate that has been adjusted to reflect the risks specific to that asset.
If the recoverable amount of the asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its
recoverable amount. An impairment loss is also recognised in the income statement.
Should an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no
impairment been recognised. A reversal of an impairment loss is also recognised in the income statement.
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Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group has become a party to the
contractual provisions of the instrument.
(a) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments
that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
On initial recognition loans and receivables are stated at their fair value. After initial recognition these are measured at amortised cost
using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial.
The Group’s trade and other receivables fall into this category of financial instruments.
(c) Mining and exploration interests
Mining and exploration interests are recognised and derecognised on a trade date where a purchase or sale of an investment is under
a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially
measured at fair value, including transaction costs.
Mining and exploration interests are classified upon initial recognition as available-for-sale financial assets.
Interests classified as available-for-sale are measured at subsequent reporting dates at their fair value. For available-for-sale investments,
unrealised gains and losses arising from changes in fair value are recognised directly in other comprehensive income and accumulated in
the investment revaluation reserve, until the security is either disposed of or is determined to be impaired, at which time the cumulative
gain or loss previously recognised in other comprehensive income is included in profit or loss for the period. Unquoted investments are
measured at cost where fair value cannot be reliably determined. When a market price can be established these investments are revalued
to fair value accordingly.
(d) Royalty instruments
Royalty instruments are recognised or derecognised on completion date where a purchase or sale of the royalty is under a contract,
and are initially measured at fair value, including transaction costs.
Royalty instruments are classified as either debt or equity instruments depending on the nature of the individual agreement.
Debt
Assets classified as debt instruments are carried on the balance sheet at fair value. Upon initial recognition an effective interest rate is
computed based on the estimated future cash flows. Expected future cash flows are determined based on non-observable market data
such as commodity price forecasts and estimated production schedules. Valuation movements caused by changes in expected future
cash flows, which could be caused by changes in resource estimates or commodity price assumptions, are recognised in the income
statement along with the effective interest, if material, with other valuation changes taken to other comprehensive income. Amounts
are required to be recognised whether received in cash or not.
Equity
Similar to debt instruments, equity instruments are carried at fair value at each reporting date, based on the estimated future cash flows
from the underlying operation. All valuation movements are recognised in other comprehensive income, except to the extent where
valuation is below cost and is considered ‘significant’ or ‘prolonged’ in accordance with IAS 39 and the policy outlined in Note 3.9. In this
case, the valuation difference is recycled through the Income Statement.
(e) Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
(f) Trade payables
Trade payables are not interest bearing and are stated at their fair value on initial recognition. After initial recognition these are
measured at amortised cost using the effective interest method.
(g) Borrowings
Interest bearing bank facilities are initially recognised at fair value, net of directly attributable transaction costs. Transaction costs are
recognised in the income statement on a straight-line basis over the term of the facility.
(h) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
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APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
3.9 Impairment of financial assets (including receivables)
A financial asset not measured at fair value through profit or loss is assessed at each reporting date to determine whether there is any
objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the
initial recognition of the asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount
and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the
income statement. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is
reversed through the income statement.
Impairment losses relating to available for sale equity investments are recognised when the decline in fair value is considered significant
or prolonged which are defined as follows:
• Prolonged: a period of greater than 18 months that the interest’s fair value is below cost; or
• Significant: a decline in fair value of greater than 25% relative to an individual asset’s original acquisition cost, or its rebased cost post
impairment.
These impairment losses are recognised by transferring the cumulative loss that has been recognised in the statement of comprehensive
income to the income statement. The loss recognised in the income statement is the difference between the acquisition cost or rebased
cost and the current fair value. Once the Group has recognised an impairment loss on an available-for-sale equity investment, it cannot
recognise a reversal through the income statement.
Impairment losses on debt instruments classified as available-for-sale are reversed only if in a subsequent period, the fair value of that
debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised.
The amount of such reversal is recognised through the income statement.
3.10 Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated by using tax rates and laws that have been enacted or substantively
enacted by the reporting date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance
sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from
the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests
in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with
such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against
which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the liability is settled or the asset is realised based
on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets
and liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they related to items that are recognised in other comprehensive
income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly
in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is
included in the accounting for the business combination.
78
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 3.11 Share-based payments
The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from
employees as consideration for equity instruments (options and jointly-owned shares) of the Company. The fair value of the employee
services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined
by reference to the fair value of the options granted:
• including any market performance conditions;
• excluding the impact of any service and non-market performance vesting conditions; and
• including the impact of any non-vesting conditions.
Non-market vesting conditions are included in assumptions about the number of options and jointly-owned shares that are expected
to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are
to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options and jointly-owned shares that
are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in
the income statement, with a corresponding adjustment to equity.
When options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are
credited to share capital and share premium when the options are exercised.
3.12 Reserves
Equity comprises the following:
• ‘Share capital’ represents the nominal value of equity shares in issue.
•
‘Share premium’ represents the excess over nominal value of the fair value of consideration received for equity shares, net of issuance costs.
Other reserves
• ‘merger reserve’ is created when more than 90% of the shares in a subsidiary are acquired and the consideration includes the issue
of new shares by the Company.
• ‘warrant reserve’ The warrant reserve was created in June 2014 in connection with the issue of share warrants as part consideration
of the Maracas royalty.
• ‘Investment revaluation reserve’ represents gains and losses due to the revaluation of the investments in mining and exploration
interests and royalty instruments from the opening carrying values, including the effects of deferred tax and foreign currency changes.
• ‘Share-based payment reserve’ represents equity-settled share-based employee remuneration until such share options are exercised.
• ‘Foreign currency reserve’ represents the differences arising from translation of investments in overseas subsidiaries.
• ‘Special reserve’ represents the level of profit attributable to the Group for the period ended June 30, 2002 which was created as part
of a capital reduction performed in 2002.
• ‘Investment in own shares’ represents the shares held by the Anglo Pacific Group Employee Benefit Trust for awards made under the
Joint Share Ownership Plan (‘JSOP’) (note 26 and note 27).
• ‘Retained earnings’ represents retained profits.
Of these reserves £79,397,000 are considered distributable as at December 31, 2015 (December 31, 2014: £113,761,000).
3.13 Revenue recognition
The revenue of the Group comprises mainly royalty related income. It is measured at the fair value of the consideration received or
receivable after deducting discounts, value added tax and other sales tax. The royalty income becomes receivable on extraction and sale
of the relevant minerals, and once able to be reliably measured, the revenue is recognised.
Interest income is accrued on a time basis, by reference to the carrying value and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
3.14 Leases
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the lease except where another
more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate
benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease, except where another systematic
basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
3.15 Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which
the dividends are approved by the Company’s shareholders or, in the case of the interim dividend, when it is paid to the shareholders.
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APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
4 Segment information
The Group’s chief operating decision maker is considered to be the Executive Committee. The Executive Committee evaluates the financial
performance of the Group based on a portfolio view of its individual royalty arrangements. Royalty related income and its associated
impact on operating profit is the key focus of the Executive Committee. The income from royalties is presented based on the jurisdiction
in which the income is deemed to be sourced as follows:
Australia: Kestrel, Narrabri, Four Mile, Pilbara, Mount Ida
Americas: Amapá and Tucano, Maracás Menchen, Churchrock, Ring of Fire
Europe: EVBC, Salamanca, Bulqiza
Other: Jogjakarta, Isua, Dugbe I, and includes the Group’s mining and exploration interests.
The following is an analysis of the Group’s results by reportable segment. The key segment result presented to the Executive Committee
for making strategic decisions and allocation of resources is operating profit as analysed below.
The segment information for the year ended December 31, 2015 is as follows (noting that total segment operating profit corresponds to
operating profit before impairments, revaluations and gains/losses on disposals which is reconciled to (Loss)/Profit before tax on the face
of the consolidated income statement):
Royalty income
Amortisation of royalties
Operating expenses
Total segment operating (loss)/profit
Total segment assets
Total assets include:
Additions to non-current assets (other than
financial instruments and deferred tax assets)
Total segment liabilities
Australia
Royalties
£’000
6,831
(2,167)
(1,898)
2,766
Americas
Royalties
£’000
606
(406)
–
200
138,635
17,359
Europe
Royalties
£’000
1,246
–
–
1,246
6,298
All other
segments
£’000
–
–
(2,162)
(2,162)
Total
£’000
8,683
(2,573)
(4,060)
2,050
34,447
196,738
44,971
23,573
–
1,013
–
767
–
9,402
44,971
34,755
The segment information for the year ended December 31, 2014 is as follows:
Royalty income
Amortisation of royalties
Operating expenses
Total segment operating profit/(loss)
Total segment assets
Total assets include:
Additions to non-current assets (other than
financial instruments and deferred tax assets)
Total segment liabilities
Australia
Royalty
£’000
1,657
–
(3,269)
(1,612)
Americas
Royalty
£’000
174
(759)
–
(585)
129,666
22,711
Europe
Royalty
£’000
1,650
–
–
1,650
8,091
All other
segments
£’000
–
–
(2,255)
(2,255)
Total
£’000
3,481
(759)
(5,524)
(2,802)
39,397
199,865
–
13,166
–
33,702
–
1,364
235
3,549
13,401
38,615
The amounts provided to the Executive Committee with respect to total segment assets are measured in a manner consistent with that
of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.
The amounts provided to the Executive Committee with respect to total segment liabilities are measured in a manner consistent with
that of the financial statements. These liabilities are allocated based on the operations of the segment.
The royalty related income in Australia of £6,831,000 (2014: £1,657,000) is derived from the Kestrel and Narrabri royalties which generated
£3,614,000 and £3,217,000 respectively (2014: Kestrel £1,657,000; Narrabri: £nil). Individually the revenue generated by Kestrel and
Narrabri royalties represents greater than 10% of the Group’s revenue in 2014 and 2015. In addition, royalty related income in Europe of
£1,246,000 (2014: £1,650,000) is derived from a single gold royalty, EVBC, and represent greater than 10% of the Group’s revenue in 2014
and 2015.
80
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 5a Expense by nature
Group
Employee costs (note 6a)
Professional fees
Listing fees
Operating lease payments
Other expenses
5b Auditor’s remuneration
Group
Fees payable to Company’s auditor for the audit of parent
Company and consolidated financial statements
Fees payable to the Company’s auditor and its associates for other services:
– The audit of Company’s subsidiaries
Total audit fees
– Audit-related assurance services1
– Other assurance services pursuant to legislation
– Other services
Total non-audit fees
2015
£’000
2014
£’000
2,680
3,666
418
116
152
694
834
142
175
707
4,060
5,524
2015
£’000
2014
£’000
84
6
90
–
22
–
22
70
2
72
499
17
19
535
1 Audit related assurance services relate wholly to the reporting accountant work performed in 2014 by the auditors on the acquisition of the Narrabri royalty, details of which is set out in note 16.
Details of the Company’s policy on the use of auditors for non-audit services, the reasons why the auditor was used rather than another
supplier and how the auditor’s independence and objectivity was safeguarded are set out in the Audit Committee Report on pages 41 to 43.
No services were provided pursuant to contingent fee arrangements.
6a Employee costs
Wages and salaries
Share-based awards to directors and employees
Social security costs
Other pension costs
2015
£’000
1,539
743
338
60
Group
2014
£’000
2,695
609
309
53
2015
£’000
1,479
743
336
60
Company
2014
£’000
2,609
609
306
53
2,680
3,666
2,618
3,577
Share-based awards to directors and employees are stated net of National Insurance of £0.1m (2014: £nil).
6b Retirement benefits plans
The Group operates a money purchase group personal pension scheme. Under this scheme the Group makes contributions to personal
pension plans of individual Directors and employees. The pension cost charge represents contributions payable by the Group to these
plans in respect of the year.
The total cost charged to income of £60,000 (2014: £53,000) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at December 31, 2015, contributions of £4,000 (2014: £4,000) due in respect of the current
reporting period had not been paid over to the schemes.
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for the year ended December 31, 2015
6c Average number of people employed
Group
Number of employees
Group
Average number of people (including executive directors) employed:
Executive directors
Administration
2015
2014
11
2015
1
10
11
13
2014
2
11
13
Company
The average number of administration staff employed by the Company during the year, including Executive Directors was 9 (2014: 11).
Directors’ salaries are shown in the Directors’ Remuneration Report on pages 53 to 58, including the highest paid director.
7 Finance income
Group
Interest on bank deposits
Interest on royalty financial instruments
Interest on long-term receivables
8 Finance costs
Group
Professional fees
Revolving credit facility fees and interest
Net foreign exchange gain/(loss)
9 Other income
Group
Dividends received from mining and exploration interests
Shares in-lieu of interest on mining and exploration interests
Effective interest income on royalty financial instruments (note 15)
Recovery of royalty financial instrument
Sundry income
2015
£’000
2014
£’000
23
–
278
301
2015
£’000
(358)
(271)
411
(218)
98
116
225
439
2014
£’000
(883)
(159)
(366)
(1,408)
2015
£’000
2014
£’000
–
–
213
–
203
416
169
511
194
632
475
1,981
82
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 10 Income tax expense
Analysis of charge for the year
United Kingdom corporation tax credit
Overseas tax
Adjustments in respect of prior years
Current tax
Deferred tax
Income tax (credit)/expense
Factors affecting tax charge for the year:
Loss before tax
Tax on loss calculated at United Kingdom corporation tax rate of 20.25% (2014: 21.5%)
Tax effects of:
Items non-taxable/deductible for tax purposes:
Non-deductible expenses
Non-taxable income
Temporary difference adjustments
Utilisation of losses not previously recognised
Current year losses not recognised
Write down of deferred tax assets previously recognised
Adjustment in deferred tax due to change in tax rate
Other temporary difference adjustments
Other adjustments
Withholding taxes
Effect of differences between local and United Kingdom tax rates
Prior year adjustments to current tax
Other adjustments
Income tax (credit)/expense
2015
£’000
2014
£’000
–
1,338
(329)
1,009
(8,913)
(7,904)
329
1,057
–
1,386
3,804
5,190
30,480
(6,172)
42,399
(9,116)
681
(2)
5,998
(227)
–
96
–
–
–
(1,048)
139
7,628
177
2,754
1,180
961
(3,046)
(1,239)
(329)
(312)
(7,904)
–
(837)
5,190
Refer to note 24 for information regarding the Group’s deferred tax assets and liabilities.
11 (Loss)/Earnings per share
Loss per ordinary share is calculated on the Group’s loss after tax of £22,576,000 (2014: £47,589,000) and the weighted average number
of shares in issue during the year of 160,512,425 (2014: 113,075,454).
Loss per ordinary share excludes the issue of shares under the Group’s JSOP, as the Employee Benefit Trust has waived its right to receive
dividends on the 925,933 ordinary 2p shares it holds as at December 31, 2015 (December 31, 2014: 925,933).
Net loss attributable to shareholders
Earnings – basic
Earnings – diluted
2015
£’000
2014
£’000
(22,576)
(47,589)
(22,576)
(47,589)
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APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
Weighted average number of shares in issue
Basic number of shares outstanding
Dilutive effect of Employee Share Option Scheme
Diluted number of shares outstanding
2015
2014
160,512,425 113,075,454
–
–
160,512,425 113,075,454
In 2015 and 2014, the Group is loss making, therefore the Employee Share Option Scheme is considered anti-dilutive as including them in
the diluted number of shares outstanding would decrease the loss per share.
Adjusted earnings per share
Due to the growing number of valuation and other non-cash movements being recognised in the income statement, the Group presents an
adjusted earnings per share metric to better reflect the underlying performance of the Group during the year. In calculating the adjusted
earnings per share, the weighted average number of shares in issue remains consistent with those used in the earnings per share calculation.
Adjusted earnings/(loss) represents the Group’s underlying operating performance from core activities. Adjusted earnings/(loss) is the
profit/(loss) attributable to equity holders less all valuation movements, non-cash impairments and amortisation charges (which are
non-cash IFRS adjustments that arise primarily due to changes in commodity prices), finance costs, any associated deferred tax and any
profit or loss on non-core asset disposals as these are not expected to be ongoing.
Net loss attributable to shareholders
Loss – basic and diluted for the year ended December 31, 2015
(22,576)
(14.06p)
(14.06p)
Earnings
£’000
Earnings
per share
p
Diluted
earnings
per share
p
Adjustment for:
Amortisation of royalty intangible assets
Loss on sale of mining and exploration interests
Impairment of mining and exploration interests
Impairment of royalty and exploration intangible assets
Revaluation of coal royalties (Kestrel)
Effective interest income on royalty financial instruments
Share-based payments and associated national insurance
Tax effect of the adjustments above
Adjusted earnings - basic and diluted for the year ended December 31, 2015
2,573
484
930
4,414
27,201
(213)
840
(9,685)
3,968
2.47p
2.47p
Earnings
£’000
Earnings
per share
p
Diluted
earnings
per share
p
Net loss attributable to shareholders
Loss – basic and diluted for the year ended December 31, 2014
(47,589)
(42.09p)
(42.09p)
Adjustment for:
Amortisation of royalty intangible assets
Gain on sale of mining and exploration interests
Gain on disposal of coal tenures
Impairment of mining and exploration interests
Impairment of royalty and exploration intangible assets
Impairment of royalty financial instruments
Impairment of property, plant and equipment
Revaluation of coal royalties (Kestrel)
Effective interest income on royalty financial instruments
Share-based payments and associated national insurance
Tax effect of the adjustments above
Adjusted loss – basic and diluted for the year ended December 31, 2014
759
(1,350)
(1,409)
4,873
10,033
15,288
1,352
11,822
(194)
609
3,577
(2,229)
(1.97p)
(1.97p)
84
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 In calculating the adjusted earnings per share, the weighted average number of shares in issue takes into account the dilutive effect of the
Employee Share Option Scheme in those years where the Group has adjusted earnings. In years where the Group has an adjusted loss, the
Employee Share Option Scheme is considered anti-dilutive as including them in the diluted number of shares outstanding would decrease
the loss per share, as such they are excluded.
The weighted average number of shares in issue for the purpose of calculated basic and diluted adjusted earnings per share are as follows:
Weighted average number of shares in issue
Basic number of shares outstanding
Dilutive effect of Employee Share Option Scheme
Diluted number of shares outstanding
2015
2014
160,512,425 113,075,454
2,267
–
160,514,692 113,075,454
12 Dividends
On February 4, 2015 an interim dividend of 4.45p per share was paid to shareholders in respect of the year ended December 31, 2014.
On August 7, 2015 a final dividend of 4.00p per share was paid to shareholders to make a total dividend for the year of 8.45p per share.
Total dividends, paid during the year were £11.9m (2014: £11.5m).
On February 4, 2016 an interim dividend of 4.00p per share was paid to shareholders in respect of the year ended December 31, 2015.
This dividend has not been included as a liability in these financial statements. The Directors propose that a final dividend of 3.00p per
share be paid to shareholders on August 5, 2016, to make a total dividend for the year of 7.00p per share. This dividend is subject to
approval by shareholders at the AGM and has not been included as a liability in these financial statements.
The proposed final dividend for 2015 is payable to all shareholders on the Register of Members on June 24, 2016. The total estimated
dividend to be paid is £5.1m. At the present time the Board has resolved not to offer a scrip dividend alternative.
13 Property, plant and equipment
Group
Gross carrying amount
At January 1, 2015
Additions
Disposals
At December 31, 2015
Depreciation and impairment
At January 1, 2015
Depreciation
At December 31, 2015
Carrying amount December 31, 2015
Group
Gross carrying amount
At January 1, 2014
Additions
Disposals
Foreign currency translation
At December 31, 2014
Depreciation and impairment
At January 1, 2014
Disposals
Depreciation
Impairment
At December 31, 2014
Carrying amount December 31, 2014
Other
Assets
£’000
Equipment
and Fixtures
£’000
Total
£’000
1,356
276
1,632
–
–
–
–
–
–
1,356
276
1,632
(1,356)
–
(1,356)
–
(123)
(40)
(163)
113
Other
Assets
£’000
Equipment
and Fixtures
£’000
(1,479)
(40)
(1,519)
113
Total
£’000
2,093
188
(617)
(32)
129
147
–
–
276
1,632
(100)
–
(23)
–
(123)
153
(104)
–
(23)
(1,352)
(1,479)
153
1,964
41
(617)
(32)
1,356
(4)
–
–
(1,352)
(1,356)
–
Other assets relate to the Group’s Panorama and Trefi coal projects in British Columbia, Canada and the Group’s talc deposit in Shetland,
Scotland.
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APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
Impairment
As at December 31, 2014 the Directors took a view that the Group’s ability to monetise both the Trefi coal project and the Shetland talc
deposit was inherently uncertain and as a result fully impaired these assets resulting in an impairment charge of £1.4m. There were no
impairments during the year ended December 31, 2015.
Disposals (gain on coal tenures)
On September 2, 2014 the Group completed its disposal of the Panorama Coal Project to Atrum Coal NL. The carrying value of Panorama
was £0.9 million comprising £0.6m recognised within property, plant and equipment and £0.3m recognised within royalty and exploration
intangible assets (see note 16).
The Group received total consideration of £2.3 million comprising US$0.5m (£0.3m) in cash, 1,000,000 Atrum Coal NL shares (valued at
£0.8m) and deferred consideration of US$2.0m (£1.2m) in the form of a 12-month promissory note with an interest coupon of 8.0% per
annum. Thus generating a profit on disposal of £1.4m.
In addition, the Group retained a royalty on coal sales from the assets being sold equivalent to the higher of 1% of gross revenue on a mine
gate basis or US$1/tonne. Due to the uncertainty regarding the Panorama project entering production this royalty has been considered to
have £nil value at December 31, 2015 (2014: £nil).
Other
Assets
£’000
821
–
821
(821)
–
–
(821)
–
Other
Assets
£’000
821
–
821
(4)
–
(817)
(821)
–
Equipment
and
Fixtures
£’000
276
–
276
(123)
(40)
–
(163)
113
Equipment
and
Fixtures
£’000
129
147
276
(100)
(23)
–
(123)
153
Total
£’000
1,097
–
1,097
(944)
(40)
–
(984)
113
Total
£’000
950
147
1,097
(104)
(23)
(817)
(944)
153
Company
Gross carrying amount
At January 1, 2015
Additions
At December 31, 2015
Depreciation and impairment
At January 1, 2015
Depreciation
Impairment
At December 31, 2015
Carrying amount December 31, 2015
Company
Gross carrying amount
At January 1, 2014
Additions
At December 31, 2014
Depreciation and impairment
At January 1, 2014
Depreciation
Impairment
At December 31, 2014
Carrying amount December 31, 2014
86
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 14 Coal royalties (Kestrel)
At January 1, 2014
Foreign currency translation
Loss on revaluation of coal royalties
At December 31, 2014
Foreign currency translation
Loss on revaluation of coal royalties
At December 31, 2015
Group
£’000
131,434
(2,515)
(11,822)
117,097
(7,247)
(27,201)
82,649
The Group’s coal royalty entitlements comprise the Kestrel and Crinum coal royalties, and derive from mining activity carried out within the
Group’s private land area in Queensland, Australia. Rather uniquely to this royalty, the sub-stratum land is the property of the freeholder,
including the minerals contained within. The ownership of the land therefore entitles the Group to a royalty, equivalent to what the State
receives on areas outside the Group’s private land. This royalty is accounted for as Investment Property in accordance with IAS 40.
The coal royalty was valued during December 2015 at £82.6m (A$167.6m) (2014: £117.1m and A$223.0m) by an independent coal industry
advisor, on a net present value of the pre-tax cash flow discounted at a nominal rate of 7%. The net royalty income from this investment is
currently taxed in Australia at a rate of 30%. This valuation is incorporated in the accounts and the above revaluation adjustment represents
the difference between the opening carrying value and the external valuation, excluding the effects of foreign currency changes.
Were the coal royalty to be realised at the revalued amount there are £3.7m (A$7.5m) of capital losses potentially available to offset against
taxable gains. These losses have been included in the deferred tax calculation (note 24). Were the coal royalty to be carried at cost the
carrying value would be £0.2m (2014: £0.2m). The Directors do not presently have any intention to dispose of the coal royalty.
The shares over the entity which is the beneficial owner of the Kestrel royalty have been guaranteed as security in connection with the
Group’s three year secured revolving credit facility entered into in February 2015 (note 23).
15 Royalty financial instruments
The Group’s royalty instruments are represented by three royalty agreements which entitle the Group to either the repayment of principal
and a net smelter return (‘NSR’) royalty for the life of the mine or a gross revenue royalty (‘GRR’) where the project commences commercial
production or the repayment of principal where it does not. Details of the Group’s royalty financial instruments, which are held at fair value
are summarised below:
Project
Commodity
Original Cost
’000
Royalty
Rate
Escalation
Classification
EVBC
Gold, Silver,
Copper
C$7,500
Jogjakarta
Iron Sands
US$4,000
Isua
Iron Ore
A$28,000
2.50%
2.00%
1.00%
3% gold
>US$1,100/oz
–
–
Available-for-sale equity
Available-for-sale debt
Available-for-sale debt
December 31, 2015
Carrying value
£’000
December 31, 2014
Carrying value
£’000
3,832
2,702
–
6,534
5,742
2,400
–
8,142
The Group’s entitlements to cash by way of the repayment of the principal and the NSR royalty or the GRR have been classified as
available-for-sale financial assets in accordance with IAS 39 and are carried at fair value in accordance with the classification of royalty
arrangements criteria set out in note 2.
Fair value
At January 1, 2014
Impairment of royalty financial instruments
Revaluation of royalty financial instruments recognised in equity
Foreign currency translation
At December 31, 2014
Revaluation of royalty financial instruments recognised in equity
Foreign currency translation
At December 31, 2015
Group
£’000
Company
£’000
27,847
12,839
(15,288)
–
(4,697)
(4,697)
280
8,142
(1,909)
301
6,534
–
8,142
(1,909)
301
6,534
87
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
Effective interest of £0.2m was recognised in other income (see note 9) for the year ended December 31, 2015 (2014: £0.2m). This was
directly offset by cash received in the period of the same amount.
On October 16, 2014 London Mining PLC, the operator of the Isua project over which the Group holds a royalty, announced that it has
appointed administrators. In January 2015, the Isua project was sold to General Nice Limited, with the Group’s royalty interest being
transferred concurrently. Given the inherent uncertainty of this project reaching commercial production, the Group’s royalty financial
instrument arising from its interest in the Isua royalty was fully impaired in 2014 and continues to have a carrying value of £nil as at
December 31, 2015.
16 Royalty and exploration intangible assets
The Group’s intangibles comprise capitalised exploration and evaluation costs and royalty interests.
Group
Gross carrying amount
At January 1, 2015
Additions
Foreign currency translation
At December 31, 2015
Amortisation and impairment
At January 1, 2015
Amortisation charge
Impairment charge
Foreign currency translation
At December 31, 2015
Carrying amount December 31, 2015
Group
Gross carrying amount
At January 1, 2014
Additions
Disposals
Foreign currency translation
At December 31, 2014
Amortisation and impairment
At January 1, 2014
Amortisation charge
Impairment charge
Foreign currency translation
At December 31, 2014
Carrying amount December 31, 2014
Company
Royalty interests
At January 1
Impairment charge
At December 31
Exploration and
Evaluation Costs
£’000
Royalty
Interests
£’000
697
–
–
59,705
44,971
(7,831)
697
96,845
Total
£’000
60,402
44,971
(7,831)
97,542
(697)
(22,595)
(23,292)
–
–
–
(2,573)
(4,414)
4,228
(2,573)
(4,414)
4,228
(697)
(25,354)
(26,051)
–
71,491
71,491
Exploration and
Evaluation Costs
£’000
Royalty
Interests
£’000
951
47
(275)
(26)
697
48,713
13,166
–
(2,174)
59,705
Total
£’000
49,664
13,213
(275)
(2,200)
60,402
–
–
(12,376)
(12,376)
(759)
(759)
(697)
(9,336)
(10,033)
–
(124)
(124)
(697)
(22,595)
(23,292)
–
37,110
37,110
2015
£’000
2014
£’000
2,349
–
2,349
3,050
(701)
2,349
Exploration and evaluation costs
The exploration and evaluation costs comprise expenditure that was directly attributable to the Panorama and Trefi coal projects in British
Columbia, Canada. The Group disposed of its interest in the Panorama coal project and fully impaired its interests in the Trefi coal project
in 2014.
88
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Acquisition of royalty interests
On March 11, 2015, the Group completed its acquisition of the Narrabri royalty for £45.0m. The Narrabri royalty is a 1% gross revenue
royalty over all coal produced from the Narrabri mine located in New South Wales, Australia, owned and operated by Whitehaven Coal
Limited. The total cost of the Narrabri acquisition was total consideration of US$65.0m, US$60.0m (£40.0m) was paid in cash and US$5.0m
(£3.3m) was satisfied by the issue of 4,135,238 ordinary shares (refer to note 26) and £1.7m in capitalised acquisition costs.
Under the terms of the Maracás Menchen royalty sale agreement, a further US$3.0m (£1.9m) of cash is payable when the project reaches
certain annualised production milestones. As set out in notes 18 and 25, the Directors consider it highly probable that the first of these
milestones will be achieved in the next eighteen to twenty-four months which would require the Group to pay US$1.5m. As a result the
Directors have recognised a non-current liability for the deferred consideration, together with an asset under deferred acquisition costs.
Amortisation of royalty interests
The Group’s royalty intangible assets are amortised on a straight-line basis, pon the commencement of production at the underlying
mining operation, over the life of mine.
Three of the underlying mining operations of the Group’s royalty intangibles assets were in production during 2015, and were amortised
on the following basis:
Royalty interest
Narrabri
Maracás Menchen
Four Mile
Estimated
life of mine
Remaining
life of mine
22 years
21 years
29 years
28 years
10 years
9 years
Under the terms of the Narrabri royalty sale agreement, the Group was entitled to royalty receipts from January 1, 2015 and has
recognised royalty income of £3.2m for the year ended December 31, 2015. In accordance with the Group’s amortisation accounting
policy, the Narrabri royalty has been amortised from January 1, 2015 resulting in an amortisation charge of £2.0m for the year ended
December 31, 2015.
The Group recognised maiden royalty receipts from its Maracás Menchen royalty of £0.6m for the year ended December 31, 2015. The
Maracás Menchen royalty is a 2% net smelter return royalty interest on all mineral products sold from the area of the Maracás Menchen
project that the Group acquired on June 10, 2014. The Group commenced amortising the Maracás Menchen royalty following its entry
into commercial production and recognised an amortisation charge of £0.4m for the year ended December 31, 2015.
As noted in the Group’s business review, the Four Mile uranium mine, over which the Group holds a 1% net smelter return royalty,
continues to produce and stockpile uranium ore concentrate. The Group considers the production and stockpiling of the concentrate to
constitute commercial production and commenced amortising the Group Mile royalty from January 1, 2015, recognising an amortisation
charge of £0.2m for the year ended December 31, 2015.
Amortisation of the remaining interests will commence once they begin commercial production. No intangible assets have been pledged
as security for liabilities.
Impairments of royalty interests
As described in note 3.6 and 3.7, an annual impairment review is carried out to determine whether the future expected cash flows
(calculated on a value-in use basis) exceed cost. This has resulted in the Directors determining that two of the Group’s intangible royalties
were impaired at December 31, 2015 as outlined below. See note 2 for the impairment methodology applied.
Amapá
Production at Amapá remained suspended for the year ended December 31, 2015, whilst the operator, Zamin Ferrous Limited,
commenced the restructuring of its finances in order to fund the rebuilding of the port facilities. Taking into account the Directors
assessment as to when production will restart, the discounted cash flow model, using a discount rate of 10%, required an impairment
charge of £2.8m to the year ended December 31, 2015 to be recognised (2014: £8.4m). Following the impairment charges recognised
during the year, the residual carrying value of the Amapá royalty was £1.8m as at December 31, 2015 (2014: £4.9m).
Ring of Fire
Following the sale of the Ring of Fire chromite assets by Cliffs Natural Resources Inc to Noront Resources Ltd in April 2015, the Directors
have reassessed the timeline to production in light of the new operator needing to complete a comprehensive preliminary economic
analysis for development options for the project. The revision to the anticipated date of the mine entering commercial production has
resulted in the Group recognising an impairment charge of £1.6m during the year ended December 31, 2015 (2014: £nil). Following the
impairment charge recognised during the year, the residual carrying value of the Ring of Fire royalty was £3.1m as at December 31, 2015
(2014: £5.2m).
89
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
Notes to the consolidated financial statements
for the year ended December 31, 2015
17 Mining and exploration interests
Fair value
At January 1, 2014
Additions
Disposals
Revaluation adjustment
Foreign currency translation
At December 31, 2014
Mining and exploration interests received in lieu of payment
Disposals
Revaluation adjustment
Foreign currency translation
At December 31, 2015
Group
£’000
Company
£’000
20,072
13,975
1,161
(8,197)
(3,162)
22
9,896
51
(2,206)
2,766
391
391
(6,350)
(1,826)
–
6,190
–
(113)
2,182
–
10,898
8,259
The current strategy of the Group is to obtain royalties by other means, and as such, these assets, which have historically been acquired
with a view to negotiating royalty acquisitions, have been gradually disposed of as they are now non-core to the Group’s primary business.
The fair values of listed securities are based on quoted market prices. Unquoted investments are initially recognised using cost where fair
value cannot be reliably determined. In the absence of an active market for these securities, the Group considers each unquoted security
to ensure there has been no material change in the fair value since initial recognition. Further guidance on fair value measurement is
provided in note 2.
An impairment charge (representing the recognition of losses previously deferred to equity) is recognised in the income statement when
the absolute decline in value below cost of any individual investment is considered ‘significant’ or ‘prolonged’ in accordance with the
Group’s impairment policy. Following continued declines in mining equity markets, the Group recognised an impairment charge of £0.9m
for the year ended December 31, 2015 (December 31, 2014: £4.9m).
For the year ended December 31, 2015, the Group realised £1.7m in cash (December 31, 2014: £9.5m) through its disposal of a number of
its mining and exploration interests from which management no longer considered royalty opportunities to exist. These disposals resulted
in a loss of £0.5m for the year ended December 31, 2015 (December 31, 2014: gain of £1.4m).
Total mining and exploration interests at December 31 are represented by:
Quoted investments
Unquoted investments
Group
£’000
8,405
2,493
10,898
2015
Company
£’000
8,112
147
8,259
Group
£’000
8,821
1,075
9,896
2014
Company
£’000
6,024
166
6,190
Number of investments
10
7
16
12
90
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 18 Deferred costs
Group
Carrying amount
At January 1, 2015
Additions
Released to income during the year
Transferred to royalty intangible assets
Offset against borrowings
Carrying amount at December 31, 2015
Group
Carrying amount
At January 1, 2014
Additions
Carrying amount at December 31, 2014
Deferred
acquisition
costs
£’000
Deferred
financing costs
£’000
1,335
1,013
127
382
Total
£’000
1,462
1,395
(1,254)
(254)
(1,508)
(81)
–
1,013
–
(255)
–
Deferred
acquisition
costs
£’000
Deferred
financing costs
£’000
–
1,335
1,335
–
127
127
(81)
(255)
1,013
Total
£’000
–
1,462
1,462
Deferred acquisition costs
On March 11, 2015 the Group announced the completion of its acquisition of the Narrabri thermal coal royalty. This acquisition was funded
by a firm placing and open offer, together with the partial utilisation of a newly agreed bank facility (refer to note 23 for further details).
As at December 31, 2014, the Group had incurred a significant portion of the costs associated with the transaction. Those costs directly
attributable to the asset acquisition, together with those costs associated with the firm placing and open offer were deferred and classified
as deferred acquisition costs.
Upon the completing of the Narrabri acquisition and the associated firm placing and open offer in 2015, those costs deferred as at
December 31, 2014 were released to the income statement or where applicable transferred to the cost base of the royalty intangible
asset recognised in relation to the Narrabri royalty.
As at December 31, 2015, deferred acquisition costs represent the deferred consideration payable by the Group in relation to its
acquisition of the Maracás Menchen vanadium royalty in 2014. Under the terms of the royalty sale agreement, the Group is required
to pay an additional US$1.5m (£1.0m) once production reaches an annualised rate over a quarter of 9,500t. Following the latest
production guidance issued by the operator of the Maracás Menchen mine, Largo Resources Ltd, the Directors consider it probable
that this production milestone will be achieved within the next 18 to 24 months and as such have recognised both an asset and a
corresponding liability (refer to note 25).
Deferred financing costs
Deferred financing costs represent the costs associated with entering into the US$30.0m, three year secured revolving credit facility
that have been deferred and will be amortised over the term of the facility.
Company
Carrying amount
At January 1, 2015
Released to income during the year
Carrying amount at December 31, 2015
Company
Carrying amount
At January 1, 2014
Additions
Carrying amount at December 31, 2014
Deferred
acquisition
costs
£’000
Deferred
financing costs
£’000
1,254
(1,254)
–
127
(127)
–
Deferred
acquisition
costs
£’000
Deferred
financing costs
£’000
–
1,254
1,254
–
127
127
Total
£’000
1,381
(1,381)
–
Total
£’000
–
1,381
1,381
91
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
19 Investments in subsidiaries
The Group’s full listing of subsidiaries is provided in note 33. The Company’s investment in subsidiaries as December 31, 2015 and
December 31, 2014 is as follows:
Investments in
subsidiaries
£’000
51,114
23,712
(4,090)
70,736
(14,141)
–
(14,141)
56,595
49,662
1,452
51,114
(4,187)
(9,954)
(14,141)
36,973
Company
Cost
At January 1, 2015
Capital injection into subsidiaries
Return of capital from subsidiaries
At December 31, 2015
Impairment of investment in subsidiary
At January 1, 2015
Impairment of investment in subsidiaries
At December 31, 2015
Carrying amount December 31, 2015
Company
Cost
At January 1, 2014
Capital injection into subsidiaries
At December 31, 2014
Impairment of investment in subsidiary
At January 1, 2014
Impairment of investment in subsidiaries
At December 31, 2014
Carrying amount December 31, 2014
92
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 20 Trade and other receivables
Current
Income tax receivable
Prepayments
Royalty receivables
Other receivables
Deposits with subsidiaries
Non-current
Other receivables
Amounts due from subsidiaries
Group
£’000
1,056
108
2,902
1,040
–
5,106
2015
Company
£’000
329
95
117
70
863
1,474
10,132
–
10,132
–
46,518
46,518
Group
£’000
763
13
98
4,398
–
5,272
9,657
–
9,657
2014
Company
£’000
–
–
–
328
15,353
15,681
–
22,318
22,318
Trade and other receivables principally comprise amounts relating to royalties receivable for the final quarter in each year, the promissory
note receivable from Atrum Coal NL and the royalty related advances made to Hummingbird Resources PLC and Laramide Resources
Limited.
Promissory note
On September 2, 2014 the Group completed its disposal of the Panorama Coal Project to Atrum Coal NL as described in note 13. Forming
part of the consideration received by the Group is a US$2.0m 12-month promissory note with an interest coupon of 8.0% per annum.
Atrum Coal NL were granted an extension to the maturity date of the promissory note to March 2016 following a partial repayment of
US$0.8m in principal and interest together with agreeing to an increase in the interest coupon to 10.0% per annum. The balance of
US$1.2m (£1.0m) is held as other receivables.
Hummingbird Resources PLC
On December 18, 2012 the Group entered into a royalty financing agreement with Hummingbird Resources PLC, under which the Group
provided a non-interest bearing advance of US$15.0m (£10.1m) in three tranches of US$5.0m subject to the satisfaction of various
conditions precedents in return for 2.0-2.5% NSR over the Dugbe 1 project. During the 2013, the Group advanced two of the three
tranches. The third and final tranche of US$5.0m (£3.0m) was advanced on March 6, 2014.
Laramide Resources Ltd
On August 13, 2012, the Group provided Laramide Resources Ltd with an interest bearing facility of C$5.0m (£2.9m). The Group were
repaid in full during December 2015.
The Directors consider that the carrying amount of trade and other receivables is approximately their fair value.
Amounts due from subsidiaries, are considered long-term loans. The Directors consider that the carrying amount of amounts due from
subsidiaries is approximately their fair value.
93
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
21 Cash and cash equivalents
Cash and cash equivalents include the following for the purposes of the statement of cash flows:
Cash at bank and on hand
Trading deposits with brokers
Cash and cash equivalents
Group
£’000
5,708
–
5,708
2015
Company
£’000
410
–
410
Group
£’000
7,395
1,374
8,769
2014
Company
£’000
622
1,374
1,996
22 Net debt
See note 3.8(a) and note 3.8(g) for the Group’s accounting policy on cash and debt.
Net debt is a measure of the Group’s financial position. The Group uses net debt to monitor the sources and uses of financial resources, the
availability of capital to invest or return to shareholders, and the resilience of the balance sheet. Net debt is calculated as total borrowings
less cash and cash equivalents.
The Group and Company’s net (debt)/cash and cash equivalents position after offsetting the revolving credit facility against cash and cash
equivalents is as follows:
Group
£’000
(7,527)
5,708
(1,819)
2015
Company
£’000
–
410
410
Group
£’000
–
8,769
8,769
Cash and cash
equivalents
£’000
Medium and
long-term
borrowings
£’000
2014
Company
£’000
–
1,996
1,996
Net debt
£’000
15,706
(6,537)
(400)
8,769
15,706
(6,537)
(400)
8,769
(3,930)
869
5,708
–
–
–
–
7,527
(11,457)
–
869
7,527
(1,819)
Revolving credit facility
Cash and cash equivalents
Net (debt)/cash and cash equivalents
Movement in net debt
At January 1, 2014
Cash flow
Currency movements
At December 31, 2014
Cash flow
Currency movements
At December 31, 2015
94
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 23 Borrowings
Secured borrowing at amortised cost
Revolving credit facility
Deferred borrowing costs
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Group
£’000
7,527
(255)
7,272
–
7,527
2015
Company
£’000
Group
£’000
2014
Company
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The Group’s borrowings relate to the partial draw-down of the three-year revolving credit facility, which is available at LIBOR plus 250bps.
Deferred borrowing costs relate to the establishment fees associated with the facility and will be amortised over its three year term. As at
December 31, 2015, the Group had utilised US$11.1m (£7.5m) of the US$30.0m (£20.3m) available under the facility.
The Group’s revolving credit facility is secured by way of a floating charge over the Group’s assets and is subject to a number of financial
covenants, all of which have been met during the year ended December 31, 2015.
24 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during the period:
Coal royalties
Available-for sale-investments
Revaluation
of coal
royalty
£’000
38,463
Effects of
Tax losses
£’000
Revaluation
of royalty
instruments
£’000
Revaluation
of mining
interests
£’000
Impairment of
Intangible
royalties
£’000
Accrual of
royalty
receivable
£’000
Other tax
losses
£’000
Total
£’000
(516)
3,116
(9,099)
(2,330)
731
–
30,365
Group
At January 1, 2014
Charge/(credit) to
profit or loss
Reclassification from
current to deferred
tax asset
Charge/(credit) to other
comprehensive income
Exchange differences
Effect of change in
tax rate:
– income statement
– equity
(3,858)
(460)
–
–
10
–
–
–
–
33
–
–
–
–
(1,629)
–
–
(281)
1,206
At December 31, 2014
34,615
(943)
Charge/(credit) to
profit or loss
(8,190)
(469)
–
Charge/(credit) to other
comprehensive income
–
Exchange differences
(2,146)
Effect of change in
tax rate:
– income statement
– equity
–
–
–
–
56
–
–
–
At December 31, 2015
24,279
(1,356)
(382)
–
–
–
(57)
767
7,682
2,330
(714)
(1,176)
3,804
–
877
19
–
(1)
(522)
350
276
(1)
–
–
4
107
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13
–
–
30
(650)
(650)
–
41
–
–
(752)
116
–
(282)
(1,785)
32,601
537
(1,141)
(8,913)
–
–
–
–
–
–
14
–
–
–
(106)
(2,077)
–
(53)
567
(2,912)
21,452
95
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the
deferred tax balances (after offset) for financial reporting purposes:
Group
Deferred tax liabilities
Deferred tax assets
2015
£’000
2014
£’000
24,546
(3,094)
21,452
34,908
(2,307)
32,601
As at December 31, 2015, the Group has unused tax losses of £13.5m (2014: £8.5m) available for offset against future profits. A deferred tax
asset has been recognised in respect of these losses which may be carried forward indefinitely.
The Group has the following balances in respect of which no deferred tax asset has been recognised:
Expiry date
Within one year
Greater than one year,
less than five years
Greater than five years
No expiry date
Tax losses –
trading
£’000
Tax losses –
capital
£’000
Other
temporary
differences
–
–
–
–
–
–
–
–
–
2015
Total
£’000
–
–
–
Tax losses –
trading
£’000
Tax losses –
capital
£’000
Other
temporary
differences
–
–
–
–
–
–
–
–
–
2014
Total
£’000
–
–
–
24,539
24,539
37,230
37,230
6,547
6,547
68,316
68,316
4,843
4,843
4,879
4,879
22,828
22,828
32,550
32,550
Temporary differences associated with investments in subsidiaries, joint ventures and associates are insignificant.
The following are the major deferred tax liabilities recognised by the Company and the movements thereon during the period:
At January 1, 2014
Released to income for the year
Charge to equity for the year
At December 31, 2014
Released to income for the year
Charge to equity for the year
At December 31, 2015
Available-for sale-investments
Revaluation
of royalty
instruments
£’000
2,244
–
(1,038)
1,206
–
(440)
766
Revaluation
of mining
interests
£’000
(8,016)
8,013
(2)
(5)
–
5
–
Total
£’000
(5,772)
8,013
(1,040)
1,201
–
(435)
766
Deferred tax assets and liabilities are offset where the Company has a legally enforceable right to do so. The following is the analysis of the
deferred tax balances (after offset) for financial reporting purposes:
2015
£’000
2014
£’000
766
–
766
1,206
(5)
1,201
Company
Deferred tax liabilities
Deferred tax assets
96
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 25 Trade and other payables
Current
Other taxation and social security payables
Trade payables
Other payables
Accruals and deferred income
Group
£’000
61
31
277
801
2015
Company
£’000
56
28
176
759
1,170
1,019
Group
£’000
240
107
231
2,359
2,937
2014
Company
£’000
236
91
225
2,331
2,883
The average credit period taken for trade purchases is 19 days (2014: 16 days). The Directors consider that the carrying amount of trade
and other payables approximates their fair value. All amounts are considered short-term and none are past due.
Non-current
Deferred consideration
Other taxation and social security payables
Group
£’000
1,013
180
1,193
2015
Company
£’000
–
180
180
Group
£’000
–
83
83
2014
Company
£’000
–
83
83
On June 10, 2014, the Group acquired a 2% net smelter return royalty interest on all mineral products sold from the area of the Maracás
Menchen project to which the royalty interest relates in exchange for US$22.0m and 500,000 warrants, which entitle the holder to acquire
one Anglo Pacific ordinary share at a strike price of £2.50, which are exercisable over five years, and a further US$3.0m cash when the
project reaches the following annualised production thresholds:
• US$1.5m cash when production reaches an annualised rate over a quarter of 9,500t; and
• A further US$1.5m cash when production reaches an annualised rate over a quarter of 12,000t.
Following the latest production guidance issued by the Largo Resources Ltd, the Directors consider it probable that an annualised rate
over a quarter of 9,500t will be achieved. As such a contingent liability has been recognised for the US$1.5m (£1.0m) deferred consideration
that will become payable once this criteria has been satisfied. A corresponding asset has been recognised under deferred acquisition costs
(note 18).
Non-current other taxation and social security payables relates to employer national insurance due on vesting of the certain share-based
payments.
97
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
26 Share capital and share premium
Issued share capital
Group and Company
Number of
shares
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Total
£’000
Ordinary shares of 2p each at January 1, 2014
110,887,425
2,218
29,328
Issue of share capital under private placing (a)
5,544,371
111
–
Ordinary shares of 2p each at December 31, 2014
116,431,796
2,329
29,328
Issue of share capital under placing and placing and
open offer (b)
Issue of share capital for royalty acquisition (b)
49,375,000
4,135,238
987
83
Ordinary shares of 2p each at December 31, 2015
169,942,034
3,399
16,658
3,225
49,211
–
9,453
9,453
19,681
–
29,134
31,546
9,564
41,110
37,326
3,308
81,744
(a) On June 2, 2014 the Group completed the placing of 5,544,371 new ordinary shares of 2 pence each at a price of 180 pence per
share raising £10.0m against which £0.4m in allowable transaction costs were offset. The proceeds of this placing were ultimately
used in the acquisition of the 2% net smelter return royalty over the Maracás Menchen Project described in note 16. As the shares
were placed in return for acquiring over 90% of the share capital of a related entity, the proceeds raised in excess of the nominal
value issued is recorded in the merger reserve.
(b) On February 27, 2015, the Group completed a firm placing, placing and open offer that resulted in the issue of 49,375,000 new
ordinary shares of 2 pence each at a price of 80p per share, raising £39.5m, against which £2.2m in allowable transaction costs were
offset. The funds raised were used to satisfy the US$60.0m (£38.2m) cash component of the Narrabri royalty acquisition.
On March 11, 2015, the Group issued 4,135,238 new ordinary shares of 2 pence each at a price of 80p per share to satisfy the non-cash
component of US$5.0m (£3.3m) upon the completion of the Narrabri royalty acquisition. Total consideration for the Narrabri royalty
acquisition was US$65.0m (note 16).
Own shares
Included in the Company’s issued share capital are shares held by the Anglo Pacific Group Employee Benefit Trust (‘EBT’) in accordance
with the Group’s JSOP as follows:
Own shares
Own shares held by the EBT
Total
Number of
shares
2015
£’000
Number of
shares
2014
£’000
925,933
925,933
(2,601)
(2,601)
925,933
925,933
(2,601)
(2,601)
As the EBT has waived its right to receive dividends, the Company’s shares held by the EBT are excluded from the weighted average
number of shares in issue for the purposes of calculating earnings per share in note 11.
98
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 27 Share-based payments
The Group operates three equity-settled share-based compensation plans as follows:
• The HMRC approved Company Share Ownership Plan (the ‘CSOP’);
• The JSOP operated through the Anglo Pacific Group Employee Benefit Trust; and
• The Value Creation Plan (the ‘VCP’).
(a) Company Share Ownership Plan
Under the CSOP, share options are granted to Directors and to selected employees. The exercise price of the granted options is equal to
the average mid-market closing price of an ordinary share for the three days before the grant. The options are conditional on the employee
completing three years’ service (the vesting period). The options are exercisable starting three years from the grant date, subject to the
Group achieving its target growth in absolute TSR over the period of 3% per annum (not compounded) in excess of the UK Retail Price
Index; the options have a contractual option term of ten years. The Group has no legal or constructive obligation to repurchase or settle
the options in cash.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Outstanding at 1 January
Granted during the year
Exercised during the year
Surrendered during the year
Forfeited during the year
Outstanding at 31 December
2015
Weighted
average
exercise
price (£)
2.1205
0.8257
–
2014
Weighted
average
exercise
price (£)
2.7406
1.6258
–
Options
52,880
24,600
–
Options
44,222
133,212
–
(19,622)
3.0577
(33,258)
2.7060
–
–
–
–
157,812
1.0275
44,222
2.1205
Out of the 157,812 outstanding options (2014: 44,222), nil options (2014: nil) were exercisable.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry date
2022
2022
2024
2025
2025
Weighted average remaining contractual life
Exercise price in
£ per share
3.3043
2.8454
1.6258
0.9221
0.7700
2015
–
–
24,600
48,798
84,414
Options
2014
9,079
10,543
24,600
–
–
157,812
44,222
9.84
9.11
The weighted average fair value of options granted during 2015 determined using the Black-Scholes valuation model was £0.472 per
option granted in May 2015 and £0.394 per option granted in October 2015. The significant inputs into the model were weighted average
share price of £0.922 and £0.77 at the grant date in May and October respectively, exercise price shown above, volatility of 40%, expected
option life of three years and an annual risk-free interest rate of 1.5% for both grants.
The weighted average fair value of options granted during 2014 determined using the Black-Scholes valuation model was £0.816 per
option granted in September 2014. The significant inputs into the model were weighted average share price of £1.626 at the grant date,
exercise price shown above, volatility of 40%, expected option life of three years and an annual risk-free interest rate of 1.1%. See note 6a
for the total expense recognised in the income statement for share options granted to Directors and employees.
Two employees surrendered a total of 19,622 options during the year ended December 31, 2015, after the options lapsed due to the
performance criteria not being satisfied (2014: 33,258).
99
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
(b) Joint Share Ownership Plan
Under the JSOP, the Remuneration Committee invites selected directors and employees to enter into an agreement with the Anglo Pacific
Group Employee Benefit Trust (the ‘Co-owner’) to acquire a number of ordinary shares in the capital of the Company. The shares are held in
the name of the Co-owner, however, the selected Directors and employees maintain a beneficial interest in these shares.
Awards under the JSOP are conditional on the employee completing three years’ service (the vesting period) and the Group’s absolute total
shareholder return growing at an annual rate (not compounded) of 3% in excess of the UK Retail Price Index over the three-year vesting
period. In addition the Company’s share price must reach a hurdle price during the three year vesting period as determined by the
Remuneration Committee at the time of making the award.
Upon satisfying the performance targets and service requirements, the beneficial interest conferred will entitle the Director or employee
to receive a proportion of the proceeds of sale of the ordinary shares. Their entitlement will be to receive the equivalent of all sales proceeds
in excess of the threshold amount, settled in ordinary shares of the Company. The threshold amount is fixed by the Remuneration
Committee and will not be set less than the market value of the ordinary shares of the Company at the time the JSOP award is made.
JSOP awards made during the year were as follows:
Outstanding at January 1
Awarded in March 2011
Awarded in September 2011
Awarded in March 2012
Awarded in September 2012
Surrendered during the year
Forfeited during the year
Outstanding at December 31
Weighted average remaining contractual life
Grant price in £
per share
Hurdle price in £
per share
2015
2014
Expiry Date
Shares
2.480
3.260
2.919
3.320
2.668
3.150
4.225
4.625
4.500
3.692
2014
2015
2015
2016
2016
154,660
277,357
–
–
–
–
–
–
–
–
–
(122,697)
(154,660)
–
–
–
154,660
2.50
No shares were awarded under the JSOP during 2014 or 2015. A total of 154,660 shares were surrendered in 2015 as a result of
performance criteria not being satisfied in accordance with the terms of the JSOP (2014: 122,697).
See note 6a for the total expense recognised in the income statement for share options granted to Directors and employees.
(c) Value Creation Plan
Following the approval at the 2014 AGM, the Group implements a new long-term incentive arrangement for the executive directors and
selected senior management. The VCP was designed by the Remuneration Committee to incentivise the executive directors and senior
management to drive growth in shareholder return over a five year measurement period.
Under the terms of the VCP, no value would accrue to the participants unless growth in the Group’s total shareholder return over the
measurement period is at least equal to 7% per annum. Subject to such threshold growth, participants would become entitled to receive
nil or nominal cost options over the ordinary shares of the Company, subject to a cap, set by reference to a share of a pool value equal to
10% of the growth in the Company’s total shareholder return over the measurement period or, if less, 50% of the growth in the Company’s
total shareholder return over the measurement period in excess of the threshold growth.
Options granted under the VCP will comprise three equal tranches, the first tranche exercisable as from the time of the grant of the
options and the other tranches exercisable as from one and two years thereafter respectively. Subject to appropriate adjustments in
accordance with the terms of the VCP, the maximum number of shares set under the option grants will not be capable of exceeding such
number equating to 7.5% of the Company’s issued share capital as at the end of the measurement period.
VCP awards made during the year were as follows:
Expiry date
Outstanding at January 1
Awarded in June 2014
Forfeited during the year
Outstanding at December 31
Weighted average remaining contractual life
Expiry Date
2019
2019
Units
2015
88,000
Units
2014
–
–
88,000
(21,120)
66,880
–
88,000
3.50
4.50
100
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 No awards were made under the VCP during 2015. The weighted average fair value of options granted during 2014 determined using
the Monte Carlo valuation model was £54.86 per option granted in June 2014. The significant inputs into the model were weighted average
share price of £1.833 at the grant date, exercise price of nil, volatility of 33.3%, expected dividend yield of 5.57%, expected option life of five
years and an annual risk-free interest rate of 1.95%.
In accordance with the terms of the VCP, Mr. Potter forfeited his awards upon his resignation on May 31, 2015.
See note 6a for the total expense recognised in the income statement for share options granted to Directors and employees.
28 Special reserve
As part of the capital reduction in 2002, a special reserve was created, which represents the level of profit attributable to the Group for the
period ended June 30, 2002. At December 31, 2015, this reserve remains unavailable for distribution.
At January 1, 2015 and December 31, 2015
29 Financial commitments
Group
£’000
632
Company
£’000
632
Operating leases
The Group’s most significant operating lease commitments relate to premises maintained in both London, England and Shetland, Scotland.
At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases. The total commitments due
under these leases are shown according to the scheduled expiry dates of the leases as follows:
Group
Within one year
In the second to fifth years inclusive
After five years
2015
£’000
2014
£’000
300
830
–
1,130
176
1,171
–
1,347
Capital commitments
At the year end the Group had capital commitments of £nil (2014: £nil) in respect of purchases of quoted investments.
30 Related party transactions
During the year, Group companies entered into the following transactions with subsidiaries:
Net financing of related entities
Management fee
Amounts owed by related parties at year end
2015
£’000
6,552
1,825
2014
£’000
5,625
3,251
47,381
37,671
All transactions were made in the course of funding the Group’s continuing activities.
Remuneration of key management personnel
The remuneration of the key management personnel including Directors of the Group is set out below in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided
in the audited part of the Directors’ Remuneration Report on pages 53 to 58.
Short-term employee benefits
Post-employment benefits
Share-based payment
2015
£’000
1,487
50
734
2014
£’000
1,973
42
563
2,271
2,578
Directors’ transactions
The Group made payments of £5,590.87 to Audley Capital Advisors LLP, a company which Mr J.A. Treger, Chief Executive Officer, is both a
director and shareholder, for the reimbursement of travel related expenditure and IT recharges during the year ended December 31, 2015
(2014: £21,842.77). During the same period, the Group received £47,654.51 from Audley Capital Advisors LLP for the subletting of office
space (2014: £nil). In 2014, the Group received £48,201.60 for the reimbursement of office relocation expenditure. At December 31, 2015
a total of £nil was owing to or from Audley Capital Advisors LLP (2014: £nil).
101
APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
Notes to the consolidated financial statements
for the year ended December 31, 2015
31 Financial risk management
The Group’s principal treasury objective is to provide sufficient liquidity to meet operational cash flow and dividend requirements and to
allow the Group to take advantage of new growth opportunities whilst maximising shareholder value. The Group’s activities expose it to
a variety of financial risks including liquidity risk, credit risk, foreign exchange risk and price risk. The Group operates controlled treasury
policies which are monitored by management to ensure that the needs of the Group are met while minimising potential adverse effects
of unpredictability of financial markets on the Group’s financial performance.
Financial instruments
The Group and Company held the following investments in financial instruments (this includes investment properties):
Investment property (held at fair value)
Coal royalties (Kestrel)
Financial instruments
Available-for-sale (held at fair value)
Royalty financial instruments
Mining and exploration interests
Loans and receivables
Trade and other receivables1
Cash at bank and in hand
Financial liabilities
Trade and other payables2
Borrowings3
Other payables4
Group
£’000
2015
Company
£’000
Group
£’000
2014
Company
£’000
82,649
–
117,097
–
6,534
10,898
6,534
8,259
8,142
9,896
8,142
6,190
14,073
5,708
47,568
410
14,153
8,769
37,999
1,996
832
7,527
1,013
787
–
–
2,466
2,422
–
–
–
–
1 Trade and other receivables include royalty receivables and other non-current receivables only, as set out in note 20.
2 Trade and other payables include trade payables and accruals only, as set out in note 25.
3 Borrowings include the revolving credit facility only, as set out in note 23.
4 Other payables include the deferred consideration only, as set out in note 25.
Cash and cash equivalents comprise cash and short-term deposits held by the Group treasury function. The carrying amount of these
assets approximates their fair value.
Liquidity and funding risk
The objective of the Company in managing funding risk is to ensure that it can meet its financial obligations as and when they fall due.
At December 31, 2015 the Group had £7.5m in borrowing (2014: £nil) and access to a further £12.5m in undrawn funds from its revolving
credit facility.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayments
periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the
Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate,
the undiscounted amount is derived from the interest rate at the balance sheet date. The contractual maturity is based on the earliest
date on which the Group may be required to pay.
December 31, 2015
Interest bearing revolving credit facility
Weighted average
effective interest rate
%
1-5 years
£’000
Total
£’000
2.95
7,526
7,526
7,526
7,526
Credit risk
The Group’s principal financial assets are bank balances, royalty instruments held as financial assets, trade and other receivables and
investments. These represent the Group’s maximum exposure to credit risk in relation to financial assets and total £19.8m at December 31,
2015 (£22.9m at December 31, 2014).
102
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
The Group’s credit risk is primarily attributable to its other receivables, including royalty receivables. It is the policy of the Group to present
the amounts in the balance sheet net of allowances for doubtful receivables, estimated by the Group’s management based on prior
experience and the current economic environment. In certain cases the Group has the right to audit the reported royalty income.
The Group’s credit risk on royalty instruments held as financial instruments, has been reviewed and the estimated current exposure is as
disclosed in note 15 where the future contractual right to cash flow from these instruments is reflected in their fair value.
The credit risk on bank deposits is mitigated by banking with household name financial institutions in reputable jurisdictions. The Group
has no significant concentration of credit risk, with exposure spread over a large number of currencies and counterparties.
Share price risk
The Group is exposed to share price risk in respect of its mining and exploration interests which include listed and unlisted equity
securities and any convertible instruments.
A 10% increase or decrease in the fair value of our mining and exploration interests (listed and unlisted) would increase/decrease the
mining and exploration interests balance (and investment revaluation reserve in equity) by £1.1m at December 31, 2015 (£1.0m at
December 31, 2014). We note that if a 10% decrease were to occur then a further assessment would be required to determine whether
the decrease was considered to be ‘significant’ with any resulting impairment recognised in the income statement.
The royalty portfolio exposes the Group to other price risk through fluctuations in commodity prices, particularly the prices of coking coal,
iron ore, gold and uranium. As the Directors obtain independent commodity price forecasts, the generation of which takes into account
fluctuations in prices, no detailed analysis of the impact of fluctuations on the valuations of the royalties has been undertaken.
The Group’s mining and exploration interests are held for the purposes of generating additional royalties and are considered long-term,
strategic investments. This strategy is unaffected by recent fluctuations in prices for mining and exploration equities; however, interests
are continually monitored for indicators that may suggest problems for these companies raising capital or continuing their day-to-day
business activities to ensure remedial action can be taken if necessary. This is expected to be a less significant part of the Group’s strategy
going forward.
No specific hedging activities are undertaken in relation to these interests and the voting rights arising from these equity instruments are
utilised in the Group’s favour.
Foreign exchange risk
The Group’s transactional foreign exchange exposure arises from income, expenditure and purchase and sale of assets denominated
in foreign currencies. As each material commitment is made, the risk in relation to currency fluctuations is assessed by the Executive
Committee and regularly reviewed. The Group does not consider it necessary to have a hedging programme in place at this time.
Financial assets and liabilities, are split by currency as follows:
GBP
£’000
AUD
£’000
CAD
£’000
USD
£’000
NOK
£’000
Financial assets
5,919 93,271
3,389 17,187
Financial liabilities
6,291
1
1
3,040
Net exposure
(372) 93,270
3,388 14,147
1
–
1
2015
EUR
£’000
95
39
56
GBP
£’000
AUD
£’000
CAD
£’000
USD
£’000
NOK
£’000
9,963 125,579
5,661 16,852
2,457
8
1
–
7,506 125,571
5,660 16,852
–
–
–
2014
EUR
£’000
2
–
2
Foreign exchange sensitivities
With the exception of the cash balances, the majority of the financial instruments not denominated in GBP are held in entities with the
same functional currency and for the purpose of this sensitivity analysis, the impact of changing exchange rates on the translation of
foreign subsidiaries into the Group’s presentation currency have been excluded.
In terms of the cash balance, the significant sensitivities are as follows:
• A +/- 10% change in the GBP: AUD rate would increase/decrease profit after tax and equity by £13k (2014: £28k);
• A +/- 10% change in the GBP:CAD rate would increase/decrease profit after tax and equity by £309k (2014: £246k);
• A +/- 10% change in the GBP: USD rate would increase/decrease profit after tax and equity by £87k (2014: £355k).
Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis
above is considered to be representative of the Group’s exposure to currency risk.
Capital management and procedures
The Group’s capital management objectives when managing capital are to safeguard the Group’s ability to continue as a going concern
in order to realise the full value of its assets and to enhance shareholder value in the company and returns to shareholders by acquiring
further royalty assets.
The Directors continue to monitor the capital requirements of the Group by reference to expected future cash flows. Capital for the
reporting periods presented is summarised in the consolidated statement of changes in equity.
The optimal capital structure for the Group is to fund its business via equity. In certain circumstances the Directors will tolerate a level
of gearing. The targeted debt capacity will be 1.5-2 times free cash flow, although a higher ratio can be tolerated for shorter periods
when there is a reasonable expectation of a recovery in free cash flow.
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APG12 | AR15 | 22/03/2016 | Back – Proof 5FINANCIAL STATEMENTSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 Notes to the consolidated financial statements
for the year ended December 31, 2015
Fair value hierarchy
The following tables present financial assets and liabilities measured at fair value in the balance sheet in accordance with the fair value
hierarchy. This hierarchy aggregates financial assets and liabilities into three levels based on the significance of the inputs used in
measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:
• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair
value measurement.
The following table presents the Group’s assets and liabilities that are measured at fair value at December 31, 2015:
Group
Assets
Coal royalties (Kestrel)
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
Net fair value
Notes
Level 1
£’000
Level 2
£’000
Level 3
£’000
(a)
(b)
(c)
(d)
–
–
8,405
–
8,405
–
–
–
2,493
2,493
82,649
6,534
–
–
89,183
100,081
2015
Total
£’000
82,649
6,534
8,405
2,493
The following table presents the Group’s assets and liabilities that are measured at fair value at December 31, 2014:
Group
Assets
Coal royalties (Kestrel)
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
Net fair value
Notes
Level 1
£’000
Level 2
£’000
Level 3
£’000
2014
Total
£’000
(a)
(b)
(c)
(d)
–
–
8,821
–
8,821
–
–
–
1,075
1,075
117,097
117,097
8,142
–
–
8,142
8,821
1,075
125,239
135,135
The following table presents the Company’s assets and liabilities that are measured at fair value at December 31, 2015:
Company
Assets
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
Net fair value
Company
Assets
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
Net fair value
Notes
Level 1
£’000
Level 2
£’000
Level 3
£’000
(a)
(b)
(c)
–
8,112
–
8,112
–
–
147
147
6,534
–
–
6,534
14,793
Notes
Level 1
£’000
Level 2
£’000
Level 3
£’000
(a)
(b)
(c)
–
6,024
–
6,024
–
–
166
166
8,142
–
–
8,142
14,332
2015
Total
£’000
6,534
8,112
147
2014
Total
£’000
8,142
6,024
166
The following table presents the Company’s assets and liabilities that are measured at fair value at December 31, 2014:
There have been no significant transfers between levels 1 and 2 in the reporting period.
The methods and valuation techniques used for the purposes of measuring fair value of royalty financial instruments gives more
prominence to the probability of production by applying a risk weighting to the discounted net present value outcome in order to fully
reflect the risk that the operation never comes into production rather than factoring this risk into the discount rate applied to the future
cash flow.
104
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 (a) Coal royalties (Investment Property)
The Group’s coal royalties derive from its ownership of certain sub-stratum land in Queensland, Australia. In accordance with IAS 40, this
land is revalued at each reporting date on the basis of future expected income discounted at 7% by an independent valuation consultant.
See note 14 for further details. All unobservable inputs are obtained from third parties.
The Group’s independent coal industry adviser who prepares the coal royalty valuation provided an analysis of the valuation’s sensitivity
to fluctuations in coal prices as follows:
• a 10% reduction in the coal price would have resulted in the coal royalties being valued at A$141.7m (£69.9m) and an additional charge
to the income statement of £12.7m; and
• a 10% increase in the coal price would have resulted in the coal royalties being valued at A$195.9m (£96.6m) and a decrease in the
charge to the income statement of £14.0m.
(b) Royalty instruments
At the reporting date the royalty instruments are valued based on the net present value of the pre-tax cash flows discounted at a rate
management considers reflects the risk associated with each of the underlying projects. The outcome is then risk weighted to reflect
the likelihood of the project achieving production based on any published updates in the year. Note 15 details the discount rates used.
This is the only unobservable input determined by management. All other unobservable inputs are obtained from third parties.
(c) Mining and exploration interests – quoted
All the quoted mining and exploration interests have been issued by publicly traded companies on well established security markets.
Fair values for these securities have been determined by reference to their quoted bid prices at the reporting date.
(d) Mining and exploration interests – unquoted
All the unquoted mining and exploration interests are initially recognised using cost as the best approximation of fair value. The Group
notes any trading activity in the unquoted instruments and will value its holding accordingly. At present the Group holds these
investments with a view to generating future royalties and there is no present intention to sell. The vast majority of these are in
investments which the Group anticipates a realistic possibility of a future listing.
Fair value measurements in Level 3
The Group’s financial assets classified in Level 3 uses valuation techniques based on significant inputs that are not based on observable
market data.
The following table presents the changes in Level 3 instruments for the year ended December 31, 2015.
At January 1, 2015
Revaluation gains or losses recognised in:
Other comprehensive income
Income statement
Foreign currency translation
At December 31, 2015
Royalty
financial
instruments
£’000
Coal royalties
(Kestrel)
£’000
Total
£’000
8,142
117,097
125,239
(1,909)
–
301
6,534
–
(1,909)
(27,201)
(27,201)
(7,247)
82,649
(6,946)
89,183
The following table presents the changes in Level 3 instruments for the year ended December 31, 2014.
At January 1, 2014
Revaluation gains or losses recognised in:
Other comprehensive income
Income statement
Impairment
Foreign currency translation
At December 31, 2014
Royalty financial
instruments
£’000
Coal royalties
(Kestrel)
£’000
Total
£’000
27,847
131,434
159,281
(4,697)
–
(4,697)
–
(11,822)
(11,822)
(15,288)
–
(15,288)
280
8,142
(2,515)
(2,235)
117,097
125,239
There have been no transfers into or out of Level 3 in any of the years.
The Group measures its entitlement to the royalty income and any optionality embedded within the royalty instruments using discounted
cash flow models. In determining the discount rate to be applied, management considers the country and sovereign risk associated with
the projects, together with the time horizon to the commencement of production and the success or failure of projects of a similar nature.
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for the year ended December 31, 2015
32 Events occurring after year end
No events have occurred subsequent to year end that require additional disclosure.
33 Principal subsidiaries
The following tables outline the Group’s subsidiaries, as defined in Regulation 7 of the UK Companies Act 2006.
All subsidiaries are included in the Group consolidation.
Principal activities
Class of shares held
Proportion
of class held at
December 31,
2015
%
Group interest
at December 31,
2015
%
Company and country of
incorporation/operation
Australia
Alkormy Pty Ltd
APG Aus No 1 Pty Ltd
APG Aus No 2 Pty Ltd
APG Aus No 3 Pty Ltd
APG Aus No 4 Pty Ltd
APG Aus No 5 Pty Ltd
APG Aus No 6 Pty Ltd
APG Aus No 7 Pty Ltd
Investments
Owner of iron ore royalties
Owner of iron ore royalties
Owner of uranium royalties
Owner of iron ore royalties
Owner of iron ore royalties
Owner of vanadium royalties
Owner of coal royalties
Argo Royalties Pty Ltd
Investments
Gordon Resources Ltd
Owner of coal royalties
HydroCarbon Holdings Pty Ltd
Dormant
Indian Ocean Resources Pty Ltd
Investments
Indian Ocean Ventures Pty Ltd
Dormant
Starmont Holdings Pty Ltd
Starmont Ventures Pty Ltd
Woodford Wells Pty Ltd
Investments
Investments
Dormant
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$0.20
Ordinary A$1.00
Ordinary A$0.25
Ordinary A$0.20
Ordinary A$1.00
Ordinary A$1.00
Ordinary A$0.25
Canada
Advance Royalty Corporation
Owner of uranium royalties
Albany River Royalty Corporation
Owner of chromite royalties
Panorama Coal Corporation
Owner of coal royalties
Ordinary C$0.01
Ordinary C$1.00
Ordinary C$0.01
Polaris Royalty Corporation
Intermediate holding company
Ordinary C$1.00
Trefi Coal Corporation
Owner of coal tenures
Ordinary C$0.01
England
Anglo Pacific Cygnus Ltd
Centaurus Royalties Ltd
Investments
Investments
Southern Cross Royalties Ltd
Investments
Guernsey
Anglo Pacific Group Employee
Benefit Trust
Administering Group
incentive plans
Ireland
Ordinary £1.00
Ordinary £1.00
Ordinary £1.00
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Anglo Pacific Finance Ltd
Treasury
Ordinary £1.00
100%
100%
Scotland
Shetland Talc Ltd
Mineral exploration
Ordinary £1.00
100%
100%
106
FINANCIAL STATEMENTSAPG12 | AR15 | 22/03/2016 | Back – Proof 5ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 OTHER INFORMATION
Performance measures
Throughout this report a number of financial measures are used to assess the Group’s performance. The measures are defined as follows:
Adjusted earnings/(loss)
Adjusted earnings/(loss) represents the Group’s underlying operating performance from core activities. Adjusted earnings/(loss) is the
profit/(loss) attributable to equity holders less all valuation movements, non-cash impairments and amortisation charges (which are
non-cash IFRS adjustments that arise primarily due to changes in commodity prices), finance costs, any associated deferred tax and any
profit or loss on non-core asset disposals as these are not expected to be ongoing. See note 11 to the financial statements for adjusted
earnings/(loss).
Operating profit/(loss)
Operating profit/(loss) represents the Group’s underlying operating performance from its royalty interests. Operating profit/(loss) is
royalty related income, less amortisation of royalties and operating expenses, and excludes impairments, revaluations and gain/(loss)
on disposals. Operating profit/(loss) reconciles to ‘operating profit/(loss) before impairments, revaluations and gain/(losses) on
disposals’ on the income statement.
Shareholder statistics
(a) Size of Holding (at March 21, 2016)
Category
UK and Canada
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – and over
Number of
Shareholders
%
Number
of Shares
605
761
187
356
31.69
39.86
9.80
315,096
1,784,571
1,349,642
18.65
166,492,725
%
0.19
1.05
0.79
97.97
1,909
100.00
169,942,034
(b) 100.00
(b) The percentage of total shares held by or on behalf of the twenty largest shareholders as at March 21, 2016 was 67.77%.
107
APG12 | AR15 | 22/03/2016 | Back – Proof 5OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2015 DIRECTORY
Contact details
Registered office
Shareholders
Stockbrokers
Anglo Pacific Group PLC
1 Savile Row
London W1S 3JR
Registered in England
No. 897608
Telephone: +44 (0)20 7435 7400
Fax: +44 (0)20 7629 0370
Website
www.anglopacificgroup.com
BMO Capital Markets Limited
1st Floor
95 Queen Victoria Street
London EC4V 4HG
Macquarie Capital
Ropemaker Place
28 Ropemaker Street
London EC2Y 9HD
Peel Hunt
120 London Way
London EC2Y 5ET
Please contact the respective
registrar if you have any queries
about your shareholding.
Equiniti Registrars Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone: +44 (0)371 384 2030
Equity Transfer & Trust Company
Suite 400
200 University Avenue
Toronto
Ontario M5H 4H1
Telephone: +1 416 361 0152
108
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ANGLO PACIFIC GROUP PLC
1 Savile Row
London W1S 3JR
United Kingdom
T +44 (0)20 3435 7400
F +44 (0)20 7629 0370
e
info@anglopacificgroup.com
w www.anglopacificgroup.com