THE GLOBAL NATURAL
RESOURCES ROYALTY
COMPANY
2016
ANNUAL REPORT & ACCOUNTS
Anglo Pacific Group PLC
APG AR16 | 30.03.17 | ARTWORK Anglo Pacific Group Plc Annual Report & Accounts 2016
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Welcome to the
Anglo Pacific Group
Annual Report 2016
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APG AR16 | 30.03.17 | ARTWORK
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
Performance measures
Throughout this report a number of financial
measures are used to assess the Group’s performance.
The measures are defined as follows:
Operating profit/(loss)
Operating profit/(loss) represents the Group’s underlying
operating performance from its royalty interests. Operating
profit/(loss) is royalty 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.
Adjusted earnings per share
Adjusted earnings represents the Group’s underlying operating
performance from core activities. Adjusted earnings is the
profit/(loss) attributable to equity holders less all valuation
movements, and non-cash impairments (which are non-cash
items that arise primarily due to changes in commodity prices),
amortisation charges, share based payments, finance costs, any
associated deferred tax and any profit or loss on non-core asset
disposals as these are not expected to be ongoing. Adjusted
earnings divided by the weighted average number of shares in
issue gives adjusted earnings per share. Refer to �note 11 to
the financial statements for adjusted earnings/(loss) per share.
Dividend cover
Dividend cover is calculated as the number of times adjusted
earnings per share exceeds the dividend per share. Refer to
�note 12 to the financial statements for dividend cover.
Free cash flow per share
Free cash flow per share is calculated by dividing net cash
generated from operating activities, plus proceeds from the
disposal of non-core assets, less finance costs, by the weighted
average number of shares in issue. Refer to �note 33 to the
financial statements for free cash flow per share.
Contents
01
02
03
04
06
08
08
10
12
14
16
18
24
25
37
42
44
44
45
48
49
52
53
67
69
70
70
75
76
77
78
79
80
81
116
116
116
117
Group overview
Anglo Pacific at a glance
Mining royalties explained
Our portfolio
Chairman’s statement
Strategic report
Chief Executive Officer’s
statement
New royalty acquisition
Market overview
Our business model
Our strategy
Principal risks and uncertainties
Key performance indicators
Business review
Financial review
Corporate social responsibility
Governance
Corporate governance report
The Board
Nomination Committee
Audit Committee
Remuneration Committee
Directors’ remuneration report
Directors’ report
Statement of Directors’
responsibilities
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
Shareholder statistics
Corporate details
Forward-looking statements
for more information visit
� anglopacificgroup.com
APG AR16 | 30.03.17 | ARTWORK GROUP OVERVIEW
Our aim
01
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To develop as the 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.
More on how we are achieving our strategy � pages 10 and 11
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
02
GROUP OVERVIEW
Anglo Pacific at a glance
KPIs
Key facts 2016
Royalty income (£m)
£19.7m
19.7
15.2
14.7
8.7
3.5
2
1
3
1
4
1
5
1
6
1
Adjusted earnings per share (p)
9.76p
8.69
8.39
9.76
2.47
-1.97
2
1
3
1
4
1
5
1
6
1
Dividend cover (x)
1.6x
0.9
0.8
1.6
0.4
2
1
3
1
0.0
4
1
5
1
6
1
Free cash flow per share (p)
7.93p
10.36
7.93
7.93
2.93
2.93
2
1
3
1
4
1
5
1
6
1
Royalty assets acquired (£m)
Nil
45.0
16.2
6.9
6.3
2
1
3
1
4
1
5
1
0.0
6
1
See more �page 24
Primary listing
London Stock
Exchange
Secondary listing
Toronto Stock
Exchange
Royalty income
increased in the year
+127%
Net assets
at December 31, 2016
£210.1m
Assets in production
by value
Over 86% of our
portfolio by value,
across 5 commodities
is in production
Shareholder returns
Dividend per share (p)
6.00p
Dividend cover of
1.6x in 2016 provides
platform for growth
10.20
10.20
8.45
7.00
6.00
2
1
3
1
4
1
5
1
6
1
Global royalty assets
11 principal royalty
and streaming
related assets across
5 continents
Production potential
Significant, fully funded,
organic growth in the
current portfolio from
Kestrel, Narrabri and
Salamanca
FTSE 350 Mining Index
vs. Anglo Pacific Group
2011-2016
(Rebased to 100)
FTSE 350 Mining Index
Anglo Pacific Group
150
120
90
60
30
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APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
03
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Diversified portfolio of royalties
Mining royalties explained
Commodity exposure
at December 31, 2016
Targeting
reduction in coal
exposure to less
than 50% through
diversification
Geographic exposure
at December 31, 2016
95.2% of the
portfolio is in
established
natural resources
jurisdictions
Stage of production
at December 31, 2016
86.9% of the
portfolio is
producing
royalties
Coking coal
Thermal coal
Iron ore
Gold
Uranium
Other
55.7%
22.5%
7.0%
4.9%
1.9%
8.0%
Australia
Brazil
Spain
Canada
Other
84.4%
6.2%
2.8%
1.8%
4.8%
Producing
Development
Early stage
86.9%
1.1%
12.0%
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.
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.
See the Group's portfolio of assets �pages 04 and 05
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
04
GROUP OVERVIEW
Our portfolio
Our principal assets
McClean Lake Mill
Ring of Fire
3
8
10
Groundhog
11 principal royalty and
streaming related assets over
five continents. More than
86% of the portfolio by value
is producing and 95% of the
portfolio is located in well
established mining jurisdictions.
Our 11 principal assets are split across three stages.
Six are Producing, two are in Development and three are Early-stage
EVBC
Salamanca
5
7
Dugbe 1
11
4
Maracás Menchen
Kestrel
Pilbara
9
6
1
2
Four Mile
Narrabri
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016 05
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How are our assets performing?
More on �pages 25-36
Producing royalties
Royalty
Commodity
Operator
Location
Royalty rate
and type
1 Kestrel
2 Narrabri
3 McClean
Lake Mill
Coking coal
Rio Tinto
Australia
7 – 15% GRR 1
Thermal &
PCI coal
Uranium
Whitehaven
Coal
Denison Mines Inc./
AREVA / Cameco
Australia
1% GRR
Canada
Tolling revenue
4 Maracás
Menchen
Vanadium
5 El Valle-
Boinás/Carlés
(‘EVBC’)
Gold, copper
& silver
6 Four Mile
Uranium
Development royalties
7 Salamanca
Uranium
Largo
Resources
Orvana
Minerals
Quasar
Resources
Berkeley
Energia
Brazil
Spain
2% NSR
2.5 – 3% NSR 2
Australia
1% NSR
Spain
1% NSR
8 Groundhog
Anthracite
Atrum Coal
Canada
1% GRR or
US$1.00/t
Early-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 3
1. Kestrel: 7% of the 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. 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.
Balance sheet
classification
Investment
property
Royalty
intangible
Loan & royalty
financial
instrument
Royalty
intangible
Royalty
financial
instrument
Royalty
intangible
Royalty
intangible
Royalty
intangible
Royalty
intangible
Royalty
intangible
Royalty
financial
instrument
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
06
GROUP OVERVIEW
Chairman’s
statement
12 months ago I reported
that 2015 had seen the
beginnings of a turnaround
in the fortunes of Anglo
Pacific. It is therefore
extremely gratifying to now
report that that turnaround
has become a full scale
recovery with a further
doubling in royalty income
from £8.7m to £19.7m and
more significant growth
anticipated in 2017.
2017 should be a
year of continued
organic growth
for Anglo Pacific
W.M. Blyth
Chairman
Key results
Royalty income, up from £8.7m
in 2015 to £19.7m
£19.7m
Basic and diluted earnings
per share
15.60p
Basic and diluted adjusted
earnings per share
9.76p
Upward revaluation of Kestrel
£17.9m
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016 07
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Our royalty income benefited from a
range of factors in 2016. Mining at
Kestrel returned increasingly to our
royalty lands, a trend which will
continue in 2017 and beyond. There
was a recovery in commodity prices
during 2016, notably for Anglo Pacific,
in coking coal. While there was slippage
in spot prices towards the end of the
year, the average price achieved was
still significantly ahead of 2015, and the
EU referendum and subsequent sterling
weakness also benefited our royalty
income, all of which is either Australian,
Canadian or US dollar denominated.
With operating expenses remaining
broadly unchanged, this led to a six fold
increase in operating profit, up from
£2.1m in 2015 to £12.7m in 2016.
Our results were, as usual, impacted by
a number of revaluation adjustments
and non-cash impairments, which this
year resulted in a net credit of £10.9m
(2015: charge £32.5m). The main driver
for this turnaround was an upward
revaluation of our Kestrel royalty of
£17.9m due to the improvement in
coking coal prices together with a
favourable exchange rate movement.
As a result, overall profit before tax was
£28.3m compared to a loss of £30.5m
in 2015. Basic and diluted earnings per
share were 15.60p (2015: loss per share
14.06p). Stripping out these non-cash
items, we present an adjusted earnings
measure (refer to �note 11 to the
accounts) which, we believe, more
closely reflects the performance within
management’s control. On this basis
adjusted earnings per share were
9.76p (2015: 2.47p).
Dividends
Twelve months ago we rebased our
dividend levels to a minimum annual
payment of 6p per share, while retaining
our overall target of paying dividends
of 65% of adjusted earnings. On an
adjusted basis, our dividend cover for
2016 is 1.6 times and current projections
suggest that we should be reviewing
dividend levels upwards during the
course of 2017. Those projections are,
however, heavily dependent on
commodity prices in general and coal
prices in particular. The latter were
subject to significant fluctuations during
2016 and we wish to have much greater
certainty about how they perform
during 2017 before committing to a
sustainable dividend increase.
Royalty portfolio
Once again it is encouraging to note
that all of the Group’s royalties that
were in production in 2015 remain in
production and continue to generate
royalty income. It is equally encouraging
to see that all of those royalties, with the
exception of El Valle which remained
flat, increased their contributions and
that our Four Mile royalty contributed
for the first time. Payments from
Narrabri and, in particular, Kestrel
increased significantly. Both benefited
from improvements in coal pricing while
at Kestrel, mining was increasingly
within our royalty lands. More detail of
our royalty performance is shown on
�pages 25 to 36.
No major acquisitions were concluded
last year but we did announce a
financing and streaming arrangement
with Denison Mines Corp. earlier in the
current year. Further details on this
transaction are given in the case study
on �pages 10 and 11.
The improved trading performance
referred to above coupled with the
additional firepower available to us
through headroom under our
refinanced revolving credit facility and
the steadily increasing value of our
share portfolio have enabled us to
extend our investment criteria.
As shown on �pages 16 and 17, this
now includes pre-production royalties,
which, we believe, offer the opportunity
of significantly higher returns, albeit
some distance in the future.
Our principal objective, however, will
remain the acquisition of producing
or near production royalty and
streaming assets.
Board
There were no changes to the Board
during 2016. We have collectively, I
believe, all the skills and expertise
necessary to drive the Company forward.
As you will have noted, however, we
recently announced that I will be
stepping down as chairman at the
conclusion of the forthcoming AGM
and will be succeeded by Patrick Meier.
The Company is now extremely well
positioned to take advantage of the
renewed confidence within the mining
sector and the opportunities that will
provide. Patrick, with his extensive
experience in investment banking in
general and the mining sector in
particular, is perfectly placed to lead
the Company through the next stage
in its development.
Our Strategic report
Our 2016 Strategic report, from �pages
08 to 43, was reviewed and approved by
the Board on March 29, 2017.
Outlook
2017 should be a year of continued
organic growth for Anglo Pacific as
production at Kestrel moves
increasingly into our royalty lands and
we receive our first contributions from
the Denison financing arrangement.
Much, however, will depend on how
coal prices move during the year.
In addition, as confidence returns to
the mining sector, fresh opportunities
should arise. We have shown our ability
to be innovative and imaginative in
our approach to the Denison opportunity
and believe that approach will continue
to 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 the year.
On behalf of the Board
W.M. Blyth
Chairman
March 29, 2017
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
08
STRATEGIC REPORT
Chief Executive
Officer’s
statement
I am pleased to
report that
royalty income
grew strongly in
2016 and is
expected to do so
again this year.
The result was
strong growth in
profits, dividend
cover and net
asset value.
J.A. Treger
Chief Executive Officer
Market outlook
The outlook for the mining sector has
changed markedly over the past year,
primarily due to a combination of
Chinese production restrictions and
improved macro-economic conditions.
Whereas a year or so ago, people
expected a negative macroeconomic
environment, today the combination
of supply restrictions and faster growth
prospects has led to a much more
optimistic outlook and a rapid rebound
in equity prices. This also suggests that
we are at the beginning of another
multiyear cycle and that we need to
accelerate our level of activities over
the next year or two, as this should be
a relatively favourable period to put
capital to work in the sector.
With regards to the royalty and
streaming markets, this about turn has
significant implications. First, some of
the very large bulk royalties we were
working on during 2016 with the majors
are unlikely now to materialise. The
rebound in commodity prices is rapidly
resulting in the deleveraging of their
balance sheets so they have little need
for further assistance and soon will be
looking to expand again. There is still
a lack of capital flowing to the sector
and so there may be room in the
coming mergers and acquisitions
activity for royalty financing. However,
more prospective is the mid-tier and
development arena where the expected
supply deficits as a result of consistent
underinvestment in the sector should
spur renewed investment in developing
the next wave of projects for the future.
We are, as a result, already seeing an
uplift in activity and royalty financing
opportunities for those seeking to
engage in mergers and acquisitions
or moving projects forward.
Coal outlook
Whilst we continue to diversify the
portfolio away from Kestrel, coal, and
in particular coking coal, continue to
be a major area of exposure for your
company. Whilst we suffered with lower
coal prices in 2015, fortunately at a time
when our share of Kestrel's production
was also low, the recovery in coal pricing
together with the growth in that share
contributed significantly to our growth
in 2016 and is expected to do the same
this year. In that context, the outlook for
coal continues to be important to us.
The coal price has seen significant
volatility over the past year, driven largely
by restrictions on Chinese production in
the autumn. This was part of a general
trend to reduce poor quality coal
production and consumption in China
to improve air quality. The impact of this
reduction in supply increased the price
of energy or thermal coal by around a
third in H2. The effect on the rarer form
of coal which Kestrel produces, namely
coking coal, was even more extreme
and the spot price tripled. Subsequently
over the Chinese winter, the authorities
relaxed their restrictions and the price of
thermal coal dropped by 20%, with the
spot price of coking coal almost halving.
It is worth noting that coking coal prices
nevertheless remain roughly double
the level of a year ago.
Looking forward, we expect the
direction of travel to remain unchanged
i.e. continued Chinese volume
reductions. It is possible that further
restrictions will be imposed during Q2
after the Chinese winter which in turn
will send prices back up. However, we
are making much more conservative
assumptions in our internal forecasts
and assume prices average slightly less
than current spot levels for the year.
What is important is that the
environment for coal has changed
and prices are unlikely to return to
their previous low levels.
Shareholders should note that we are
well positioned in coal with royalties on
modern mines in safe locations and
exposure to high quality, cleaner coals.
Denison financing
and streaming agreements
Though this transaction was announced
early in 2017, we had been working
on it for much of last year. As the case
study presented on �pages 10 and 11
highlights, it is a transaction which should
provide a stable long-term stream of
income with some upside. Shareholders
should expect to see the positive effects
of the Denison transaction start to
come through in our results from Q1
of this year.
Reflecting the different structure of the
Denison transaction, where income will
be derived in part from the repayment of
debt, we are now introducing a new KPI
in the form of cash generation which we
believe will be a more accurate measure
of progress going forward than earnings.
We expect to execute on further
transactions in the year ahead, though
the structure of the Denison transaction
was a one off and future deals should be
more in the form of traditional royalties
and streams.
Anglo Pacific Group Plc Annual Report & Accounts 2016 09
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Board developments
I would like to take the opportunity to
pay tribute to the chairmanship of Mike
Blyth over the past few years. He has
made a significant difference to the way
the Company is run and governed,
instigating a series of disciplines and
controls which reflect best practice, and
which should stand us in good stead for
the years ahead. We are fortunate that
he has decided to retain his presence
on the Board.
I look forward to working closely with
Patrick Meier in the years ahead to take
the Company to a new level.
Outlook
In summary we have moved forward
significantly over the past 12 months
and are now in the fortunate position of
having the resources to take advantage
of being in the early stages of the
upcycle. We expect this progress to
continue during 2017, both from
organic growth and new acquisitions.
J.A. Treger
Chief Executive Officer
March 29, 2017
Central costs
Central costs continued to be well
controlled. One of the virtues of the
Anglo Pacific model is that overheads
do not increase in line with income,
providing additional operating leverage.
This proved to be the case in 2016
where income slightly more than
doubled but operating profits rose
almost six fold.
Financial resources
We are pleased to have repaid
significant amounts of our borrowings
last year and took advantage of the
Denison opportunity to renew our
borrowing facilities and extend them.
If we had not invested in Denison, we
would have been debt free by the end
of Q1 2017. With our much higher
income levels, we expect the new debt
assumed for Denison to be repaid in
short order leaving our new facility
available for new acquisitions. This,
together with our equity portfolio and
income, provides considerable
firepower for new deals. We intend to
be prudent with regards to debt levels,
with the intention of not exceeding 2x
free cash flow and generally operating
well below this level.
Net assets and share price
The increase in net asset value per
share to 124p after the payment of 6p
of dividends during the year is good
news for all shareholders. The share
price has recovered along with the
sector and provides us with a better
currency to move forward. However, it
continues to trade at a discount to what
we consider to be the true net asset
value, and gives no credit for those
assets in our portfolio which we believe
have increased in value considerably
since we acquired them and which is
not reflected on the balance sheet.
Our shares continue to provide a much
higher dividend yield than our global
peers and we hope that the process of
rerating will continue during the year.
We were gratified that approximately 20
new institutional investors joined the
register with the Denison transaction
and we welcome these new shareholders
on board.
New strategy
Although our main focus will continue
to be on immediately revenue
producing royalties, we announced
early in the year that we were
broadening our investment mandate
to include development royalties.
These could take up to a decade to bring
into development, should generate
higher returns, given the development
risk, and have the potential to increase
in value significantly in the coming
years. The size of these investments
is unlikely to exceed US$20m and the
intention is to fund them primarily
from retained earnings.
Dividend
The recovery in our earnings has
significantly improved our dividend
cover and it is pleasing that this
exceeded 1.6x last year. With further
improvement expected this year, there
should be scope for dividend increases
on a prudent and progressive basis.
However, the levels of our earnings are
in turn driven by the price of coking coal
and this has been extremely volatile of
late. Barring a transformational large
transaction which fundamentally alters
this relationship, your Board therefore
intends to await the outcome of the first
half of the year before considering any
alterations to dividend levels. Any new
level of dividends announced needs to
be a new base from which we can
comfortably grow in the years ahead.
Taxation
Assisted in part by the disposal of our
Isua royalty, announced with the year
end results, we have created significant
tax losses. These should reduce our tax
charge in the coming year, more than
we had previously indicated to the
market. We also have significant capital
losses, some of which were used to
shield against our equity profits in the
current period, and which hopefully
will be utilised during this cycle.
Currencies
The weakening of sterling as a result
of the EU referendum has had the effect
of increasing our income and profits.
In order to maintain this benefit, we have
instituted a rolling hedging program
over part of our income, hedging against
the main currencies in which our
income is denominated. As at year end,
this program had generated £0.7m of
additional income.
Anglo Pacific Group Plc Annual Report & Accounts 2016
10
STRATEGIC REPORT
McClean Lake Mill financing
and streaming agreements
On February 13, 2017, the Group
announced the completion of the
C$43.5m financing and streaming
agreements with the TSX-listed
Denison Mines Corp. (‘Denison’).
Transaction highlights
· Anglo Pacific Group entered into
a financing agreement related to
the toll revenues generated from
Denison’s 22.5% ownership of
McClean Lake Mill under a toll
milling agreement for treatment
of uranium from Cigar Lake ore.
· Total cash consideration of
C$43.5 million (~£26.4 million)
was structured as a:
· C$40.8 million 13-year loan at
an interest rate of 10%
· C$2.7 million subsequent stream
to take advantage of the upside
from a potential Cigar Lake Phase II
mine life extension
· Payment in respect of toll milling
revenues was backdated to
July 1, 2016.
· The McClean Lake Mill, operated
by AREVA Resources Canada Inc,
receives all of the output from the
Tier 1 Cigar Lake uranium mine,
operated by Cameco Corporation.
· According to the Cigar Lake
Qualified Persons report1, the mine
is the world’s highest grade uranium
mine with an average ore grade
above 18%, and has current
published Proven Mineral Reserves
and Probable Mineral Reserves of
221.6 Mlbs U3O8 making the deposit
one of the largest in the world.
· Full production of 18.0 Mlbs per
annum is expected by Cameco in
2017 and a remaining mine life of
the deposit based on current Mineral
Reserves of approximately 12 years.
1. Cigar Lake Operation Northern Saskatchewan, Canada.
Cameco National Instrument 43-101 technical report
(dated March 29, 2016)
Transaction summary
Cigar
Lake Mine
Ore
treatment
Tolling
revenues
Denison
McClean
Lake Mill
22.5% of tolling revenues
1. Representing interest, mandatory prepayments or stream revenue
Loan (C$40.8m)
+ Stream (C$2.7m)
Tolling revenues1
Stable production profile with upside potential
Toll Milling Revenues attributable
to Denison 1 (US$m)
Toll Milling Revenues attributable
to Denison 1, 2 (mlb U3O8 )
.
8
5
.
9
5
.
1
6
.
2
6
.
3
6
.
4
6
.
6
6
.
4
6
.
1
8
1
.
2
8
1
.
2
8
1
.
2
8
1
.
2
8
1
.
2
8
1
.
2
8
1
.
2
8
1
.
2
8
1
.
2
8
1
.
8
6
1
.
0
4
.
1
4
.
9
3
7
1
8
1
9
1
0
2
1
2
2
2
3
2
4
2
5
2
6
2
7
2
7
1
8
1
9
1
0
2
1
2
2
2
3
2
4
2
5
2
6
2
7
2
1. Cigar Lake Operation Northern Saskatchewan, Canada.
Cameco National Instrument 43-101 technical report
(dated March 29, 2016); forecast toll milling revenue
adjusted for inflation at midpoint of Bank of Canada
inflation target of 1-3%
1. Phase 1 in the eastern area of the project with a
12 year mine life, is the focus of the current mine
plan and includes 223.7 kt of Proven Reserves and
375.7 Mt of Probable Reserves
2. Mineral Resources are exclusive of Mineral Reserves
Further diversification of Group’s portfolio of assets
Commodity exposure
Pre acquisition
Commodity exposure
Post acquisition
Coking coal
Thermal coal
Iron ore
Gold
Uranium
Other
55.7%
22.5%
7.0%
4.9%
1.9%
8.0%
Coking coal
Thermal coal
Iron ore
Gold
Uranium
Other
49.4%
19.9%
6.2%
4.4%
13.0%
7.1%
Anglo Pacific Group Plc Annual Report & Accounts 2016 11
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This transaction ticks all the
boxes for Anglo Pacific and
moves forward our growth and
diversification in a material way
J.A. Treger
Chief Executive Officer
Achieving our strategy
The completion of the McClean Lake Mill financing and streaming
agreements demonstrates the Group’s progress towards its aim of
developing as the leading international diversified royalty company
with a portfolio centred on income production based metals and
bulk materials royalties and streams.
The financing and streaming agreements clearly
satisfy the Group’s stated investment criteria:
Established natural resources jurisdictions
· Established North American mining jurisdiction
Long-life, high-quality & low-cost asset
· 12 year reserve based mine life
· Underlying mine is the highest grade uranium operation globally,
well positioned on the global uranium cost curve
Near-term producing assets
· The McClean Lake Mill is a producing asset with immediate cashflow
generation and full production expected in 2017
Production & exploration upside potential
· Production upside potential from Cigar Lake Phase II mine life extension
or mill capacity expansion
Strong operational management team
· Mine & mill operators amongst the world’s largest publicly traded
uranium companies
Diversification of royalty portfolio
· Further diversified asset base, commodity exposure and geography
· Growing exposure to non-carbon energy
In addition to satisfying the Group’s investment criteria,
the completion of the financing and streaming agreements
was supported by a strong financial rationale:
·
·
Immediately accretive to adjusted EPS and dividend cover
Income backdated to July 1, 2016
· Toll milling revenue expected to provide stable cashflow base to
Anglo Pacific’s broader royalty portfolio
· Reduced commodity price risk given toll milling fees are inflation-
linked and based on units of production
Established natural resources
jurisdiction
C
A
MCCLEAN LAKE
N
A
D
A
Existing or proposed
uranium mining
developments
City or settlement
Fond-du-Lac
Stony Rapids
A T H A B A S C A B A S I N
Cluff Lake
Black Lake
Midwest
CIGAR LAKE
McArthur River
Rabbit Lake
Wollaston Lake
Key Lake
S A S K A T C H E W A N
MCCLEAN LAKE MILL
La Ronge
©Denison/Areva
Diversification of geographic
exposure
Geographic exposure
Pre acquisition
Australia
Brazil
Spain
Canada
Other
84.4%
6.2%
2.8%
1.8%
4.8%
Geographic exposure
Post acquisition
Australia
Brazil
Spain
Canada
Other
74.9%
5.5%
2.5%
12.8%
4.3%
Anglo Pacific Group Plc Annual Report & Accounts 2016
12
STRATEGIC REPORT
Market overview
2016 saw a marked
recovery in market
sentiment. The mining
sector outperformed
global markets following
five straight years of
underperformance as
commodity prices
recovered, balance sheets
were recalibrated, and
corporates trended toward
increased cash flows and
shareholder returns.
Commodity prices
as at 31 Dec for each calendar year
Coking coal (US$/t)
Thermal coal (US$/t)
350
300
250
200
150
100
50
140
120
100
80
60
40
2
1
3
1
4
1
5
1
6
1
7
1
2
1
3
1
4
1
5
1
6
1
7
1
Anglo Pacific Group Plc Annual Report & Accounts 2016
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an increase on 2015 levels. The upturn in
commodity price environments across
the board provided investors with greater
confidence. Notwithstanding this, funding
from equity markets remains significantly
below pre-crash levels and therefore
royalty and alternative financing remains
an attractive and complementary source
of capital for mining companies.
Looking to 2017, the sentiment towards
the mining sector appears more positive
than it has been for several years.
Commentators broadly expect to see an
uptick in M&A, as majors signal a potential
end to their focus on divestments, and
an increase in initial public offerings
as commodity prices have firmed. It is
expected that the majors will look to
maintain efficient balance sheets and
will enjoy enhanced cash flows having
extensively reduced capex. They may
look to spend on organic and inorganic
development and exploration projects
and this may increasingly be done by way
of joint venture. The return of a sector
wide focus on reserve and resource
expansion may be of a higher priority
now, and the return of growth to the
sector in 2017 may require companies
to look for additional capital to fund
projects. As equity and debt financing
return to favour, companies may look to
balance these sources with alternative
financing such as royalties and streams
in order to ensure the long-term success
of projects and create the capacity to
return value to shareholders.
The positive performance has continued
into the first quarter of 2017 and that
momentum is anticipated to be
maintained for the remainder of the year.
Despite this improving sentiment, the
market remains cautious with regard to a
second year of outperformance in light of
slowing Chinese growth, global political
instability and uncertainty of the impact
of President Trump’s economic policies.
Throughout 2016, equity values of
miners globally rebounded in a manner
reminiscent of the recoveries seen in
2009. Broadly, commentators are of the
view that the multi-year commodity
nadirs have passed and the sector as a
whole may be at the beginning of
another cycle. Commodity prices were
pushed higher in part due to new fiscal
support in China, reversing the
deflationary conditions seen for the past
two years. Additionally, improved
economic performance in the US,
Europe and Japan supported commodity
price and equity recoveries.
The top performing commodity in the
year was coal, with coking coal and
thermal coal prices up 146% and 102%
respectively. Restrictions in Chinese
domestic coal supply and strong steel
demand saw hard coking coal prices
nearly quadruple to $310/t from January
to November with thermal coal prices
doubling to $110/t. With the restrictions
relaxed in the second half of the year the
prices have now eased off somewhat to
around $150/t.
Industrial metals also performed well
as supply met sustained demand and
a perceived lack of investment during
the downturn meant that supply deficits
are widely anticipated. Copper prices
ran from October rising to $2.50/lb
by year end, an annual gain of 17%, as
supply side concerns and stronger global
demand positively impacted prices.
Other top performing commodities
included zinc (+86%), palladium (+52%)
and lead (+44%).
Gold prices rallied for the first nine
months of the year, reaching highs of
$1,375 per ounce, but prices softened
to $1,150 per ounce by year end due to
a stronger US dollar and the Federal
Reserve decision to raise interest rates
in December.
The tough operating environment faced
in 2014-15 has led to continued focus
on cost optimisation, capital discipline,
balance sheet strengthening and debt
reduction. Companies focused on
projects with higher returns on capital
with greater optionality and flexibility
across asset portfolios and improved
cost curve positions. Dividend policies
were revised by the majors in 2016 and
several companies decided to suspend
payments, certainly a signal of the low
point in the cycle. A theme across the
sector was to link dividend policies
directly to earnings and cash flow within
revised dividend policies.
Positive sector sentiment and rising
commodity prices led to an increase in
M&A volumes in 2016 despite the overall
value of deals falling compared to the
previous year. The diversified majors
who typically drive acquisitions are still
focused on portfolio realignment and
balance sheet strengthening rather than
acquisitions for future growth, with
divestments still featuring in 2016. Junior
and intermediate producers however did
look to consolidate market share in the
last 12 months, taking advantage of asset
and corporate transactions which may
not have been available under different
operating environments.
The most targeted commodity continued
to be gold and the most active geography
was Canada. Capital raising saw a slight
resurgence in 2016; global funds raised
increased 9% year-on-year to $249 billion.
Excluding China, corporate bond issuance
fell, as did overall lending. Convertible
bond issuance remained relatively flat
and IPO activity was negligible. However,
equity issuance volume and value saw
Gold (US$/oz)
Uranium (US$/lbs)
Vanadium (US$/lbs)
2,000
1,800
1,600
1,400
1,200
1,000
60
50
40
30
20
10
7
6
5
4
3
2
2
1
3
1
4
1
5
1
6
1
7
1
2
1
3
1
4
1
5
1
6
1
7
1
2
1
3
1
4
1
5
1
6
1
7
1
Anglo Pacific Group Plc Annual Report & Accounts 2016
14
STRATEGIC REPORT
Our business model
Creating
value for our
shareholders
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.
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.
S
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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
Anglo Pacific Group Plc Annual Report & Accounts 2016
15
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Creating
value for our
counterparties
W E S E R V E A S A P A R T N E R T O
T H E M I N E O P E R A T O R
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.
P
R
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A
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Y
R
O
Y
A
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T
I
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S
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
Anglo Pacific Group Plc Annual Report & Accounts 2016
16
STRATEGIC REPORT
Our strategy
New strategy
Although income
producing royalties remain
our key focus, we will now
selectively deploy modest
amounts of capital on
royalties which have the
potential to offer superior
returns albeit with some
development risk.
During 2016, the Group
continued to progress
towards achieving its
strategy and is pleased to
have completed the Denison
financing and streaming
agreements in February
2017. The Group is currently
evaluating a number of
royalty and streaming
opportunities against our
disciplined investment
criteria.
Strategy
Achieving our aim through
the acquisition of both
primary and secondary
royalties, together with
metal streams.
Aim
To develop as the leading
international diversified
royalty company with a
portfolio centred on
income producing base
metals and bulk materials
royalties and streams.
Anglo Pacific Group Plc Annual Report & Accounts 2016 17
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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.
Established natural resources
jurisdictions
Production and exploration
upside potential
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, 2016, 95.2% of
the Group’s existing assets were based
in such jurisdictions.
Long-life assets
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-quality and low-cost
assets
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.
Near-term producing assets
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.
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 operational management
teams
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 royalty
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.
Criteria
Achieving our 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
See our latest acquisition �pages 10 and 11
Anglo Pacific Group Plc Annual Report & Accounts 2016
18
STRATEGIC REPORT
Principal risks and uncertainties
Background
The Board, in conjunction with the Audit
Committee, reviewed the Group’s previous risk
disclosures since the publication of the 2015
Annual Report and Accounts. Although risk is
an area which is frequently considered by the
Board, the latest review was performed against
the backdrop of a much-improved outlook
for commodities in particular and the sector
in general. As such, the risks which have the
potential to materially affect the Group’s
prospects now are likely to have a different
weighting to those considered 12 months
ago. In addition, an improved outlook for the
sector, whilst positive for the Group’s financial
prospects, could result in less demand for
royalty financing which would have a material
impact on the Group’s ability to execute its
strategy. The table below presents the outcome
of the Board’s assessment of principal risks.
Risk appetite and viability
The Company is once again voluntarily
complying with provision C2.2 of the 2014
Combined Code, which requires a statement
on viability to be made in this report, including
the determination and consideration of stress
tested ‘severe but plausible’ scenarios.
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.
The viability statement, and underlying
supporting papers, is intended to intertwine
risk disclosure and going concern into a more
meaningful discussion about the financial
impact of principal risks. Risk can never be
fully eliminated, but can be mitigated to a level
which the Directors are prepared to accept as
necessary to execute the Group’s strategy.
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 revisions to the principal risks detailed in the table below.
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.
2016
ranking
Risk
Category
2016 update
1
2
Concentration
risk associated
with Kestrel
Strategic
Strategic
That the Group
fails to identify and
acquire new royalty
and streaming
opportunities
3
Dependence on
operators
Operational
The Kestrel royalty is key to the Group’s success and until such time that sufficient
acquisitions are made to materially reduce the dependence on this asset.
Any prolonged geological issues or an inability to produce at Kestrel would result
in a significant loss of income to the Group.
In addition, risk relating to government royalty rates, change of ownership or the
economic viability of the mine could materially impact on the Group’s prospects.
The Group has limited means to alter or enhance the terms of or add any further level
of protection to the royalty to mitigate the risk associated with Kestrel. The Board,
however, takes assurances from the asset being located in Australia, governed by
Australian law, operated by a world class miner and sufficiently low on the cost curve,
which combined should reduce the risk associated with Kestrel.
Deal flow is crucial for Anglo Pacific due to the depleting nature of the Group’s assets
over the long-term and limited residual value.
Although the recent strong performance of commodity prices has taken some
pressure off larger mining companies, there remains a large section of the market
which we believe is still experiencing capital constraints. As such, opportunities to
acquire accretive royalties should still continue to exist.
Furthermore, the Group will now pursue two investment strategies: core income
generating royalties and development royalties. The latter has not been the focus for
the Group whilst we have rebuilt our income, but we now intend to deploy modest
sums into pre-production assets with a view to higher returns.
The Group has always been reliant on the mine operators for determining the correct
royalty payable, providing information and production guidance and acknowledging
the Group’s rights as a royalty holder. Counterparty risk is relevant throughout the
cycle although for different reasons. Towards the bottom of the cycle the risk of
non-payment or operator survival is higher. At the other end of the cycle there is a
greater chance of M&A activity and change of control, which could lead to an inferior
operator taking control of projects or a new operator taking a different interpretation
of the requirements under the royalty agreement.
2015
ranking
NEW RISK
4
2
Anglo Pacific Group Plc Annual Report & Accounts 2016 19
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2016 update
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6
7
8
That the current
portfolio will not
generate sufficient
cash
Operational
Commodity prices recovered strongly in H2 16 which has improved the Group’s
financial prospects considerably. This is still a principal risk for the Group, although the
direct impact between absolute levels of income and debt has subsided somewhat
with the recovery in coal price and increased volumes at Kestrel.
Even if the price of the Group’s two principal commodities fell by 50%, the Group is
forecasting full compliance with its financial covenants over the viability statement
look out period, although it would have a higher refinancing risk.
Strategic
That the Group
cannot finance
royalty and
streaming
opportunities
With three fund raises behind it, the Group has demonstrated its ability to successfully
finance royalty acquisitions.
Equity markets are, by their nature, volatile and there can be no certainty that the
Group will be able to successfully raise equity in the future. Equity will most likely be
required as part of any large transformational deal, with the Group most likely to be
able to use its balance sheet to fund smaller transactions.
Development
royalties fail to
reach production
Strategic
The Group will now consider royalties on operations which are not in production but
have the potential to generate considerably higher returns. With higher returns
comes a higher risk profile and there is a risk that those investments do not come into
production and generate a return on investment.
Although this risk cannot be mitigated in its entirety, management have exercised
considerable discipline over the past few years in applying the Group’s investment
criteria as outlined as its core strategy. The Group will ensure any pre-production
royalties satisfy our pre-defined investment criteria and we have a wealth of expertise,
both at Board and management level, to identify those opportunities which have a
greater likelihood of becoming successful investments.
Strategic
That the reputation
of coal will
deteriorate and
impact on its
appeal as an
investment
proposition
This was a new risk added to the register in 2015 post the Paris climate accord when
the sentiment toward fossil fuel extraction and consumption, including coal,
deteriorated suddenly. Although the price of coal has recovered, and there has been
recent M&A in the sector, it is still not clear that market sentiment has fully reversed.
For Anglo Pacific specifically, we are aware that some European banks will no longer
provide finance to the Group until we have further diversified away from coal
(although non-coal co-investments could still be possible). This issue was not really
encountered, nor provided any obstacle, in the recent equity raise. The Directors
are supportive of cleaner energy, and note that the Group’s royalties cover mines
producing higher quality and lower polluting coal.
That the Group
fails to meet its
obligations under
its secured
borrowing facility
and is unable to
refinance
Operational
The ability to refinance is no longer as urgent as it was 12 months ago following
the refinancing of the Group’s borrowing facility until 2021. The risk associated with
financial covenants has abated somewhat with the recovery in commodity prices
in the past six months and the resulting impact on the Group’s cash balances.
Should leverage be deployed in a meaningful fashion in conjunction with an
acquisition then this risk might heighten once again.
2015
ranking
1
5
NEW RISK
6
3
Anglo Pacific Group Plc Annual Report & Accounts 2016
20
STRATEGIC REPORT
Principal risks and uncertainties
continued
Principal risks
L
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Risk
Possible cause
Mitigation
Management comment
• Disputes over the
quantum of royalty
payable
• Non-payment of royalty
• Adhering to existing
obligation under royalty
contract in the case of a
change of control
The best way the Group can
mitigate against operator
reliance is to continue
diversifying its sources of
income and reducing its
reliance on any one operator.
The Group has audit rights at
several of its royalties which
affords it the opportunity to
challenge and verify royalty
calculations.
For those royalties without
audit rights, underlying
royalty information and
forecasts are often provided
on a voluntary basis by the
operator. As such, change
of control at the Group’s
material assets could
interfere with the systems
and communication
established over the years
with the existing operators.
• Further falls in
commodity prices
• Unexpected production
issues at Kestrel and/or
Narrabri
• Reduction in Queensland
royalty rate
• Foreign exchange risk
(discussed separately on
�page 23)
• Breach of financial
covenant associated with
a reduction in royalty
income or unexpected
liabilities (via commodity
price declines or
production disruption)
could result in the banks
enforcing security
The Group has little ability
to influence the quantum of
royalties it receives post
acquisition as it cannot readily
and cheaply hedge its
commodity exposure, nor can
it influence the royalty rate.
Detailed cash flow projections
are prepared which include
downside scenarios to
understand the sensitivity of
price and quantity assumptions
for the Group’s material assets.
Detailed cash flow forecasts
provide timely warning of any
upcoming tightening of
headroom under financial
covenants.
The Group has discretion over
its cost base and has some
further liquidity in its equity
portfolio which could be
monetised to reduce
borrowings.
The Group is exposed to
commodity price volatility,
although unlike mine
operators its cost base is
flexible and fully within its
control.
The Group cannot control or
correct a severe production
outage at Kestrel which could
impact materially on
covenant compliance.
Dependence on
operators
The Group depends on mine
operators to correctly
calculate royalties payable,
to pay the royalty promptly
when due, to provide
information and guidance
on the operator and to
co-operate with any audit
rights and requirements. In
more extreme circumstances,
the ability for the operation to
remain economically viable is
of upmost importance to the
Group’s financial prospects.
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.
That the Group fails to
meets its obligations under
its secured borrowing
facility and is unable to
refinance
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 recent increases in coal
prices enabled the Group to
deleverage and, with dividend
cover now re-established, the
Group’s leverage ratios should
be much less sensitive to
volatility in commodity prices.
Anglo Pacific Group Plc Annual Report & Accounts 2016
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Risk
Possible cause
Mitigation
Management comment
Concentration
risk associated with
Kestrel
That the Group fails to
identify and acquire new
royalty and streaming
opportunities
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.
Ultimately, there is little
that the Group can do to
mitigate the dominant
impact of Kestrel on the
Group’s prospects other than
diversifying this through
material and transformational
royalty acquisitions, which is
very much the focus of
management.
There can be no guarantee
that royalties will always be in
demand throughout mining
cycles. However, the Group
has an extensive network of
advisors and contacts
globally, in addition to its own
marketing initiatives, which
provides a regular source of
deal flow to appraise at any
one time.
• Kestrel accounted for
over 65% of the Group’s
royalty income in 2016
and is likely to be the main
source of revenue growth
in 2017
• Any significant mining
issues could result in
considerable production
disruption, impacting on
the Group’s expected
cash flow
• The royalty rate
applicable to Kestrel is
determined by the
Queensland government
and so any material
downward revision to
rates would directly
impact on the Group
• Change of control could
result in disruption to
royalty payments or
processes
• A material reduction in
the coking coal price
would impact on the level
of income the Group
expects to receive from
the royalty
• The recent recovery
in commodity prices
has shifted sentiment
in the sector and eased
the financial pressure
on operators, making
identifying royalty
opportunities more
difficult
• Pricing competitiveness
of royalties versus
conventional sources
of finance, particularly
when the outlook for the
sector is improving
• Appetite of
counterparties to
relinquish operating
margin in favour of
restrictive debt or
dilutive equity
The Group has a good working
relationship with the operator,
Rio Tinto, and has received
royalties from the operator
consistently since 1992.
The Group is also provided with
production forecasts for the next
four quarters which assists it in
cash flow preparation, budgeting
analysis and guiding the market.
The map which Rio Tinto
published at the beginning of
2016 showed for the first time the
area covered by private royalty.
This provided considerable
assurance regarding the direction
of mining, confirming our
expectation that over 90% of
production would be within our
royalty land by the end of 2017.
The map referred to above was
published as part of a licence
extension at Kestrel to obtain
permitting beyond the currently
approved mine plan. Although
this will not impact on the Group
as this area is outside our royalty
area, it clearly demonstrates the
economic viability of the
operation.
The Group could be impacted if
Rio Tinto were to dispose of the
mine as the Group would need to
develop a relationship with a new
counterparty which could result
in some transitioning issues.
Generally, demand for royalty
financing is greater when the
underlying market conditions
are challenging.
The past six months have seen
considerable recovery in the
sector which has resulted in a
windfall for those with
producing assets, which means
there is likely to be reduced
pressure for royalty financing.
For operators not yet in
production, the dynamic has
not changed significantly and
there remains high competition
for capital, which should provide
opportunities for the Group to
add to its royalty portfolio.
The Group also looks to acquire
existing royalties, and these
opportunities exist throughout
the cycle.
Anglo Pacific Group Plc Annual Report & Accounts 2016
22
STRATEGIC REPORT
Principal risks and uncertainties
continued
Principal risks
continued
C
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A
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Risk
Possible cause
Mitigation
Management comment
That the Group cannot
finance royalty and
streaming opportunities
• Sudden adverse change
in equity market
conditions
There can be no certainty
that the Group will have ready
access to capital to finance
royalty opportunities.
• The Group’s cost of
capital makes executing
accretive deals more
challenging
• Production issues or
significant price volatility
could adversely impact
on the Group’s borrowing
capacity
Development royalties
fail to reach production
• Unproven reserves/
resources
Development royalties,
by their nature, are exposed
to greater risk than income
producing royalties.
Conversely, they offer the
potential for higher returns.
• Geological/technical
issues
• Overspend/insolvency
• Inexperienced
management
• Climate change lobbyists
continue to target the
natural resource sector
and coal producers in
particular
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
akin to an indirect investment
in coal.
The Group demonstrated that
royalty opportunities which
meet its strict investment
criteria, such as the Narrabri
and Denison transactions, are
capable of being financed.
Management regularly meets
both existing and potential
investors and listens to any
concerns or feedback with a
view to future acquisitions.
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.
The recent refinancing has
reduced sole dependence on
one bank which should provide
greater financing capability.
The Group only intends to
allocate a modest amount
of capital, mainly retained
income, to this asset class.
As such, any failure will largely
be immaterial.
The Company has an
experienced management
team with in-house geological
and finance experience to help
identify those opportunities
which represent the greatest
chance of success.
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.
There can be no guarantee
market conditions will always
be optimal for raising finance.
Similar to production risk
with the Group’s existing
royalties, risk around
development royalties
cannot be fully mitigated,
although its impact is likely
to be less detrimental due to
the modest amounts likely
to be invested.
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.
Anglo Pacific Group Plc Annual Report & Accounts 2016 23
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Risk
Possible cause
Mitigation
Management comment
Liquidity risk
That the Group cannot meet
all of its obligations as they
fall due.
• Unexpected financial
claim
• Insufficient access to
cash
Credit risk
• Royalty payment default
That there is a risk of default
by those owing the Group
money or those institutions
holding the Group’s cash
reserves.
• 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 dollar 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 dollar 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 publicly 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 sufficient headroom
under 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.
The Board approved a
currency hedging policy
during the year which looks to
protect a significant amount
of the Group’s next 12 month
expected royalty income.
Under the policy, the Group
can hedge up to 70% of the
next quarter’s income, 60% of
the second quarter followed
by 30% and 25% thereafter.
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 Group will always be
exposed to foreign exchange
risk on future acquisitions
but has sought to commence
a cash flow hedging
programme for its current
income producing assets.
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.
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’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.
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.
Anglo Pacific Group Plc Annual Report & Accounts 2016
24
STRATEGIC REPORT
Measuring our progress
Key performance indicators
Royalty income reflects the revenue from the Group’s underlying
royalty and streaming assets on an accruals basis (refer to �note 4
for further details).
19.7
15.2
14.7
Royalty income (£m)
£19.7m
Adjusted earnings
per share (p)
9.76p
Adjusted earnings per share reflects the profit which management
is capable of influencing. It disregards any valuation movements,
which reflect short-term commodity price fluctuations, impairments,
amortisation and share-based payment expenses.
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. Adjusted earnings divided by the weighted average
number of shares in issue gives adjusted earnings per share (refer to
�note 11 for further details).
Dividend cover (x)
1.6x
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 (refer to �note 12 for further details).
In any period where there is an adjusted loss, the dividend cover
will be reported as nil.
Free cash flow
per share (p)
7.93p
The structure of a number of the Group’s royalty financing
arrangements, such as the Denison transaction completed in
February 2017, result in a significant amount of cash flow being
reported as principal repayments, which are not included in the
income statement. As the Group considers dividend cover based
on the free cash flow generated by its assets, management have
determined that free cash flow per share is a key performance
indicator, going forward.
Free cash flow per share is calculated by dividing net cash generated
from operating activities, plus proceeds from the disposal of non-core
assets, less finance costs, by the weighted average number of shares
in issue (refer to �note 33 for further details).
Royalty assets
acquired (£m)
Nil
The Group’s strategy is to acquire cash or near-cash producing
royalties which will be accretive and in turn enable dividend growth.
The chart opposite shows how much the Group invested in royalty
acquisitions in each period.
8.7
3.5
£m
2
1
3
1
4
1
5
1
6
1
8.69
8.39
9.76
2.47
-1.97
2
1
3
1
4
1
5
1
6
1
0.9
0.8
1.6
0.4
2
1
3
1
0.0
4
1
5
1
6
1
10.36
7.93
7.93
2.93
2.93
2
1
3
1
4
1
5
1
6
1
p
x
p
45.0
16.2
6.9
6.3
£m
2
1
3
1
4
1
5
1
0.0
6
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Anglo Pacific Group Plc Annual Report & Accounts 2016 STRATEGIC REPORT
Business review
25
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Our 11 principal assets are split
across three stages. Six are
Producing, two are in Development
and three are Early-stage
Producing royalties
�page 26
Development royalties
�page 32
Early-stage royalties
�page 34
Record levels of sales
volumes at Kestrel,
Narrabri and Maracás
in 2016
Anglo Pacific Group Plc Annual Report & Accounts 2016
26
STRATEGIC REPORT
Business review
The significant growth
in royalty income in
2016 was due primarily
to increased Kestrel
production within the
Group’s private royalty
land and the weakening
of the pound.
Cairns
Townsville
Rockhampton
Brisbane
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KESTREL
Area already
mined
K E S T R E L N O R T H
( h i s t o r i c m i n e )
K E S T R E L S O U T H
( c u r r e n t m i n e )
Royalty area
AREA BEING
MINED AS OF
Q4 2016
Kestrel mine plan, showing direction of mining
compared to private land boundary
Producing royalties
Kestrel
Stage
Commodity
Operator
Location
Producing
Coking coal
Rio Tinto
Australia
Royalty rate and type
7 – 15% GRR
Balance sheet
classification
Investment
property
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
Anglo Pacific Group Plc Annual Report & Accounts 2016 27
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The Group
received royalty
income of £13.1m
from Kestrel during
2016, compared to
£3.6m in 2015
Coal royalty income (£m)
13.1
11.0
9.9
3.6
1.7
2
1
3
1
4
1
5
1
6
1
Coal royalty valuation (£m)
171.0
131.4
117.1
116.9
82.6
2
1
3
1
4
1
5
1
6
1
stipulate that the basis of calculation
is a three-tiered fixed percentage of the
invoiced value of the coal as follows:
during 2017 (2016: 67%), increasing
to over 90% from the end of 2017 for
a period of ~8-9 years.
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
First A$100
Balance
First A$100
Next A$50
Balance
Rate
7%
7%
12.5%
7%
12.5%
15%
Performance
The Group received royalty income
of £13.1m from Kestrel during 2016,
compared to £3.6m in 2015. The
significant increase in royalty income
in 2016 was due primarily to increased
Kestrel production within the Group’s
private royalty land and the weakening
of the pound during 2016.
In accordance with Anglo Pacific’s
Kestrel information rights, the Group
estimates that 80-90% of mining at
Kestrel will be within our royalty lands
In addition to the percentage of
production within the Group’s private
land increasing in 2016, the Group
was encouraged by Rio Tinto’s fourth
quarter production announcement on
January 17, 2017 which reported overall
production from Kestrel of 4.9mt for
2016 compared to 4.1mt in 2015.
Valuation
The Kestrel royalty was independently
valued at A$200.3m (£116.9m) and
accounts for 46% of the Group’s total
assets as at December 31, 2016 (2015:
A$167.7m; £82.6m; 42%). The increase
in the valuation of Kestrel resulted in a
gain of £17.9m (2015: loss £27.2m) on the
income statement, together with a foreign
currency translation gain of £16.3m
(2015: loss £7.2m). The value of the land is
calculated by reference to the discounted
expected royalty income from mining
activity, as described in �note 14.
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.
As the asset has a nominal cost base,
the carrying value virtually represents
the valuation surplus. The Group
recognises a deferred tax provision
against the valuation surplus and, as
such, the net value on the balance
sheet is £82.4m (2015: £58.3m).
The increase in fair value is largely due
to the recovery in coking coal consensus
prices, combined with the translation
benefit following the weakening of the
pound during H2 16.
Anglo Pacific Group Plc Annual Report & Accounts 2016
In their 2016 annual report, Whitehaven
issued guidance of 8.0-8.3mt ROM for
Narrabri, a significant increase on the
6.8mt achieved in FY 2016. On January 9,
2017 Whitehaven announced a revision
to their guidance for FY 17 to 7.5-7.8mt.
This was due to adverse geotechnical
conditions at certain areas within the
longwall panel. Despite this, and a period
of wet weather, they remain on track to
achieve their FY 17 saleable production
guidance. The Group receives its royalty
based on sales and not production.
Whitehaven remains on track to bring
in the 400m wide longwall panel in the
first half of 2017, and the surface
infrastructure and electrical upgrades
were completed on schedule.
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. Drilling to convert Narrabri
South Mineral Resources to Mineral
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. Its
carrying value does, however, reflect
the impact of translation from Australian
dollars to pounds which, at the year-end,
resulted in a favourable uplift. Royalty
intangible assets are amortised when
commercial production commences,
on a straight-line basis over the expected
life of the mine.
28
STRATEGIC REPORT
Business review
continued
Narrabri royalty
income (£m)
4.2
3.2
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Canberra
Brisbane
NARRABRI
Newcastle
Sydney
Area already
mined
Narrabri North
longwalls
NARRABRI
SOUTH
POTENTIAL
EXPANSION
AREA
Narrabri
Stage
Producing
Commodity
Thermal & PCI coal
Operator
Location
Whitehaven Coal
Australia
Royalty rate and type
1% GRR
Balance sheet
classification
Royalty
intangible
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
The Group received royalty income
of £4.2m during 2016 from Narrabri
compared to £3.2m the previous year.
Although the thermal coal price had
a mixed year, production at Narrabri
continued its impressive ramp up. In their
FY 2016 (to June 30, 2016), Whitehaven
announced that Narrabri produced
6.8mt run-of-mine (‘ROM’), the top end
of their guidance. They achieved 7.3mt
of product, ahead of their previous
guidance of 7.0-7.2mt. One of their key
stated priorities at the time was to get
the 400m wide longwall panel at Narrabri
operational during FY 17.
The Narrabri mine has
scope to materially increase
production over the short
and medium term
In 2016 Whitehaven
have announced
its intention to extend
the Narrabri North
longwall panels into
the Narrabri South
area in the near term
Anglo Pacific Group Plc Annual Report & Accounts 2016
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Performance
The Group received royalty income of
£0.8m in 2016, an increase from the
£0.6m it received in 2015, which was the
first year of royalty revenue. Production
ramp up was slower than envisaged at
the time the Group acquired the royalty,
not assisted by the pronounced decrease
in the vanadium price during 2015
which persisted into the first half of 2016
and which will have impacted on the
operator’s cash flow profile.
Despite the weak vanadium price, and
following a series of financings announced
by Largo, production began to increase
significantly from H2 15 onwards.
Largo announced production of 600t
of Vanadium in July 2015, increasing to
730t in April 2016, achieving a run rate
of ~800t thereafter with a record month
of 828t in December 2016.
This steady ramp up in production
coincided with a recovery in the vanadium
price in H2 16 which increased from
$2.38/lb at the start of 2016 to reach
$5.02/lb at December 31, 2016, and the
Group’s royalty income began to increase
towards the end of 2016 accordingly.
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 achieved
in H2 16 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 26 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. Based on the
current guidance however, 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.
I
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Salvador
Vitória de
Conquista
MARACÁS PROJECT
Maracás Menchen
Stage
Commodity
Operator
Location
Producing
Vanadium
Largo Resources
Brazil
Royalty rate and type
2% NSR
Balance sheet
classification
Royalty
intangible
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 listed Largo Resources Limited
(‘Largo’).
Maracás royalty
income (£m)
0.8
0.6
5
1
6
1
B R A Z
The project is located 250km
south-west of the city of Salvador,
the capital of Bahia State, Brazil
The Group received
royalty income of
£0.8m in 2016, an
increase from the
£0.6m it received
in 2015
Anglo Pacific Group Plc Annual Report & Accounts 2016
30
STRATEGIC REPORT
Business review
continued
EVBC royalty income (£m)
4.0
1.6
1.7
1.2
1.2
2
1
3
1
4
1
5
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El Valle-Boinás/
Carlés (‘EVBC’)
Stage
Producing
Commodity
Gold, copper & silver
Operator
Location
Orvana Minerals
Spain
Royalty rate and type
2.5 – 3% NSR
Balance sheet
classification
Royalty financial
instrument
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.
Performance
The Group received royalty income
of £1.2m from EVBC during the past year.
This compares to £1.2m received in
2015. EVBC has been one of the Group’s
most consistent royalties over the past
few years.
Orvana acknowledged that EVBC
produced a disappointing financial result
in Q4 2016 (their Q1 FY 17). This resulted
in overall production for the calendar
year 2016 being some 20% lower than
in 2015.
Orvana are determine to extract
operational efficiencies at the mine
by targeting higher grade oxide zones
along with targeting a ramp up from the
recommenced Carlés operation. They
also intend to revisit the mine plan to
transition away from zones with poor
ground conditions which impacted on
production in 2016.
The strategy seems to be succeeding,
as EVBC reached nameplate capacity
of 2,000t per day in December 2016.
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.
Gijón
Santander
Aviles
Bilbao
EL VALLE(cid:26)BOINÁS/CARLÉS
León
S
P
Madrid
A
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Anglo Pacific Group Plc Annual Report & Accounts 2016
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Four Mile is operated by Quasar
Resources Pty Ltd (‘Quasar’)
The key benefit of
this royalty should
accrue when Quasar
enters into longer-
term supply contracts
which achieve higher
pricing levels
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Port Augusta
Adelaide
Gijón
Santander
Aviles
Bilbao
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León
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Stage
Commodity
Operator
Location
Producing
Uranium
Quasar Resources
Australia
Royalty rate and type
1% NSR
Balance sheet
classification
Royalty
intangible
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
Total royalty income was £0.3m with
maiden royalty receipts of £0.1m from
Four Mile in February 2016, following
the commencement of sales by Quasar.
Although royalties to date have not been
to the level the Group was expecting,
due to lower sales volumes and higher
deductions – which the Group are
currently disputing – the key benefit of
this royalty should accrue when Quasar
enters into supply contracts which
achieve higher pricing levels.
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.
Anglo Pacific Group Plc Annual Report & Accounts 2016
32
STRATEGIC REPORT
Business review
continued
Zamora
S
SALAMANCA
P
Madrid
A
Cáceres
I
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Development royalties
Salamanca
Stage
Development
Commodity
Uranium
Operator
Location
Berkeley Energia
Spain
Royalty rate and type
1% NSR
Balance sheet
classification
Royalty
intangible
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
Berkeley had a very eventful and
successful 2016 which saw them build
on the progress they made in 2015 by
raising finance during the year to fund
construction.
On January 31, 2017, Berkeley
announced its fourth quarter update
in which it reported an oversubscribed
$30m equity raise, signing of an off-take
agreement and continued to develop
the infrastructure required to construct
the mine. They appear on track to
complete the construction of the mine
during 2017 which, if completed, should
bring forward the start date for the
commencement of our royalty.
In addition to having a royalty over
the Salamanca project, Anglo Pacific is
also a large shareholder in the company
and currently holds just over 9%.
The value of this investment increased
considerably over the course of the
year and the Group took the opportunity
to realise a modest amount of cash from
this position. We were pleased to see
the successful fundraisings undertaken
in 2016 which clearly demonstrates
considerable support for the project
and has increased liquidity in the stock.
We were also pleased to see the
announcement on June 8, 2016 that
Berkeley had entered into a financing
agreement with Resource Capital Funds
(RCF), which included a further 0.375%
royalty on the project for US$5m. This
would imply a fair value of $13.3m for
the Group’s 1% royalty. Anglo Pacific paid
A$4.1m for the royalty a number of years
ago, which implies that the value of the
Group’s royalty, which is not reflected on
our balance sheet, is considerably higher.
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.
Located in the Salamanca Province,
Spain, approximately 250km west
of Madrid
Berkeley had a very
eventful and successful
2016 which saw them
build on the progress
they made in 2015
Anglo Pacific Group Plc Annual Report & Accounts 2016 Zamora
S
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Madrid
A
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C
The Groundhog anthracite
project is located in north-west
British Columbia, Canada
An underground
project capable of
producing 880ktpa
of ultra-high grade
anthracite over a
mine life of 28 yrs
A
Performance
On June 9, 2016, Atrum announced
a revised PFS which outlined an
underground project capable of
producing 880ktpa of ultra-high grade
anthracite over a mine life of 28 years.
Atrum published its key objectives for
2017 on February 14, 2017 which targets
a small mine permit to enable them to
produce up to 250kt from Groundhog
per annum.
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.
N
GROUNDHOG
Stewart
A
Prince Rupert
Prince George
D
Vancouver
A
Groundhog
Stage
Commodity
Operator
Location
Development
Anthracite
Atrum Coal
Canada
Royalty rate and type
1% GRR or US$1.00/t
Balance sheet
classification
Royalty
intangible
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 licences in 2014 to the project’s
operator, ASX-listed Atrum Coal Limited
(‘Atrum’). The royalty entitled the Group
to the higher of 1% of gross revenue
on a mine gate basis or US$1.00/t from
coal sales derived from the Panorama
licences. Following a series of discussions
during 2016, an agreement was reached
to settle amounts outstanding under a
promissory note in return for additional
royalties as follows:
0.5% GRR covering all production
within Atrum’s Groundhog Anthracite
Project (‘Groundhog’) tenements from
first production until ten years from the
date that Atrum declares commercial
production on the project; and
subsequently
0.1% GRR from production within the
Groundhog North Mining Complex
project area.
Anglo Pacific Group Plc Annual Report & Accounts 2016
34
STRATEGIC REPORT
Business review
continued
Early-stage royalties
Ring of Fire
Stage
Commodity
Operator
Early-stage
Chromite
Cliffs Natural
Resources
Location
Canada
Royalty rate and type
1% NSR
Balance sheet
classification
Royalty
intangible
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
The projects which Noront intend to
develop require considerable capital
expenditure to be invested along with
co-operation from local government and
native land owners, all of which will take
time. On September 29, 2016 Noront
announced that the Premier of Ontario
was targeting commencing road work
access to the region beginning in 2018.
Although this will not directly benefit
the underlying licences which the Group
has a royalty over, the commencement
of infrastructure works will mark a
significant event in progressing the asset
towards production.
In the meantime, the price of chromite
increased fourfold in 2016, which continued
to underpin the carrying value of the
royalty on the Group’s balance sheet.
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.
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RING OF FIRE
Thunder Bay
D
A
Anglo Pacific Group Plc Annual Report & Accounts 2016
Pilbara
Stage
Early-stage
Commodity
Iron ore
Operator
Location
BHP Billiton
Australia
Royalty rate and type
1.5% GRR
Balance sheet
classification
Royalty
intangible
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.
The Group was encouraged that BHP
approached the Company in 2016
to seek certain consents to advance
the tenements towards planning, an
indication that BHP is moving this asset
towards production.
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.
BHP approached the Company
in 2016 to seek certain
consents to advance the
tenements towards planning
Strong indications
that BHP is moving
this asset towards
production
Performance
Due to limited progress during the year,
and Hummingbird’s short-term focus
on its Yanfolila project in Mali, the Group
extended the likely start date of the
Dugbe 1 project. This resulted in the net
present value no longer exceeding cost
and a fair value adjustment was recorded
in the income statement.
Valuation
The Dugbe 1 royalty is classified as an
available-for-sale debt 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.
Dugbe 1
Stage
Early-stage
Commodity
Gold
Operator
Hummingbird
Resources
Location
Liberia
Royalty rate and type
2 – 2.5% NSR
Balance sheet
classification
Royalty financial
instrument
What we own
The Group entered into a royalty
financing agreement with AIM-listed
Hummingbird Resources PLC
(‘Hummingbird’) in December 2012
in relation to its 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.
PILBARA
Karratha
Port Hedland
R
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DUGBE 1
Anglo Pacific Group Plc Annual Report & Accounts 2016
36
STRATEGIC REPORT
Business review
continued
AMAPÁ
Belém
São Luís
B R A Z I L
Recife
Salvador
I N D O N E S I A
Jakarta
JOGJAKARTA
Amapá
Commodity
Iron ore
Operator
Location
Zamin Ferrous
Brazil
Royalty rate and type
1% GRR
Balance sheet
classification
Royalty
intangible
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.
Jogjakarta
Stage
Commodity
Operator
Location
Early-stage
Iron Sands
Indo Mines
Indonesia
Royalty rate and type
1 - 2% NSR
Balance sheet
classification
Royalty financial
instrument
What we own
The Group has a 1% life of mine NSR
royalty on the Jogjakarta iron sands
project operated by ASX-listed Indo
Mines Limited (‘Indo Mines’). Until the
project reaches commercial product, the
Group receives 8% interest on the initial
advance of US$4.0m in perpetuity.
Upon entering commercial production
the NSR royalty is calculated at 2% until
the initial advance of U$4.0m is repaid.
The NSR royalty remains at 2% where
the pig iron price is more than US$700/t.
Performance
Indo Mines continued a program of
quantitative test work on the quality
of the iron concentrates produced
from their test plant throughout 2016.
On February 6, 2017, the Group entered
Performance
Production at Amapá has been
suspended since 2013 following a major
port incident. The mine’s operator, Zamin,
had previously indicated that attempts
were being made to restructure its
finances in order to fund the rebuilding
of the port facilities, however, in 2016
the Directors understand that Zamin has
filed for bankruptcy protection in Brazil.
Valuation
The Directors have assessed the timing
of Amapá returning to commercial
production as being indeterminable and
have recognised an impairment charge
of £2.0m at the year end. Following the
impairment charges recognised during
the year and taking into account
movements in foreign exchange, the
residual carrying value was £nil as at
December 31, 2016 (2015: £1.8m).
into a deed of variation with Indo Mines
agreeing to defer 70% of the interest
due for the period September 1, 2016 to
March 31, 2017 until June 30, 2017 to assist
Indo in managing their cash flows position.
The Group noted that Indo Mines applied
for a voluntary suspension from the ASX
pending the finalisation and lodging of
their December 31, 2016 half yearly
accounts on March 17, 2017. Indo Mines
announced that they were in the process
of finalising two transaction, the first
relating to the sale of their 51% share
in a cash generating subsidiary and the
second relating to the issuance of a
quasi-debt instrument for between
US$20.0 – US$24.0m would provide the
necessary funding to bring the project
into commercial production, along with
repaying the US$4.0m advance provided
by the Group.
Valuation
The Jogjakarta royalty interest is
accounted for as an available-for-sale
debt instrument at fair value, calculated
on a discounted future cash flow basis
using a market rate of interest to give a
carrying value at December 31, 2016
of £3.2m (US$4.0m).
Anglo Pacific Group Plc Annual Report & Accounts 2016 Financial review
The Group’s financial position and prospects improved considerably during 2016, building on the growth which we had already
experienced in 2015. This is the second year in a row in which we report noticeable increases in royalty income, and this resulted in the
Group achieving dividend cover for 2016, the first time since 2011, as well as becoming debt free at the end of January, prior to the Denison
financing transaction. With further growth in royalty revenue expected in 2017, the Group is in a strong financial position to grow its asset
base and continue to reward shareholders through a progressive dividend policy.
Income statement
The combination of an increase in mining within the Group’s royalty land at Kestrel along with the weakening of the pound following the
EU referendum had the largest impact on the Group’s earnings in 2016. The impact of much higher coal prices in Q4 16 ensured a very
strong finish to the year.
Royalty income
Operating expenses – excluding share-based payments (�see page 38)
Finance costs
Finance income
Other income (�see page 39)
Tax (�see page 39)
Adjusted earnings
Weighted average number of shares (’000)
2016
£'000
19,705
(3,327)
(1,086)
2,347
309
(1,454)
16,494
2015
£'000
8,683
(3,220)
(629)
712
416
(1,994)
3,968
127%
3%
(73%)
230%
(26%)
(27%)
316%
169,016
9.76p
160,512
2.47p
295%
The Group continued to keep its cost base in line with the previous year, despite a significant increase in revenue. The benefit of the
weaker pound, particularly in H2 16, led to considerable realised currency gains during 2016. All of this combined to produce earnings
per share for the year of 15.60p and adjusted earnings per share of 9.76p. On the adjusted metric, the Group’s dividend cover was 1.6x.
37
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Royalty income
Kestrel
Narrabri
EVBC
Maracas Menchen
Four Mile
Recurring royalty income
Other
Total royalty income
2016
£'000
13,134
4,243
1,223
791
314
263%
32%
(2%)
31%
2015
£'000
3,614
3,217
1,246
606
-
19,705
127%
8,683
163%
-
-
19,705
127%
8,683
149%
118%
2014
£'000
1,657
-
(24%)
1,650
-
-
3,307
174
3,481
Royalty income increased by 127% to £19.7m in the year, from £8.7m in 2015 and a world apart from the £3.5m earned in 2014. The reason
for the growth in royalty income year on year since 2014 is largely due to the previously mentioned combination of higher sales volumes
from Kestrel in 2016 and a greater proportion of this being within Anglo Pacific’s royalty land.
Kestrel
Overall production from Kestrel in 2016 was 4.9mt compared with 4.1mt in 2015, a 19.5% increase in volume. Of greater significance to the
Group’s earnings was that the percentage of sales attributable to the Group’s royalty land increased significantly, in line with our previous
guidance and expectations.
In total, 67% of all sales from Kestrel in 2016 were from coal mined within our land, an increase on the 49% in 2015. The map included on
�page 26. illustrates the direction of mining at the Kestrel South mine, and adds colour as to why the Group’s income has been so volatile
over the past three years. However, the map also illustrates why we believe that 2017 will show further growth for the Group as, save for
a period in Q1 2017, we expect virtually all mining to be within our land for the foreseeable future. Our guidance for 2017 is for 80-90%
of production to be within our land, and 90% thereafter.
Although Anglo Pacific attributable volume is the key driver of revenue growth at Kestrel, there are three other factors worth mentioning. Firstly,
the prices which we realised from Kestrel were largely flat from 2015 levels up until Q4 2016 when the coking coal priced spiked suddenly from
US$89t in Q3 2016 to $200t in Q4 2016. Although this level of pricing only relates to one quarter of income in 2016 it did provide a significant
boost to our end of year income. Secondly, and a knock-on effect of the price increase, is that with the higher coal price, the highest royalty rate
will apply due to a ratchet mechanism as outlined on �page 27. The more than doubling of the coal price for the final quarter ensured a greater
portion of sales was attracting the highest royalty rate. This led to royalty revenue for Q4 16 being the fourth highest quarterly coal royalty
received by Anglo Pacific in Australian dollar terms. Finally, the weakening of the pound, following the EU referendum and as discussed further
below, meant that the Group was translating its Australian dollar revenue at more favourable rates throughout 2016.
All of this resulted in income from Kestrel increasing by 262% to £13.1m in the year, compared to £3.6m in 2015.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
38
Financial review
Narrabri
Narrabri also contributed strongly to the Group’s increase in earnings in 2016 generating income of £4.2m, an increase of 32% on the
£3.2m earned in 2015. This increase has also been driven largely by favourable movements in coal price and foreign exchange rates.
Sales by Whitehaven in 2016 were 7.8mt, slightly ahead of 7.6mt in 2015.
Similar to Kestrel, revenue from Narrabri also benefited from a sharp and sudden increase in coal prices in the final quarter of 2016,
whereas prices had been falling throughout the first six months of the year. The implied average price received by the Group was ~10%
higher than the previous year. The remainder of the increase is attributable to the benefit of translating Australian dollar revenue into
pounds at a more favourable exchange rate following the weakening of the pound subsequent to the EU referendum.
Details on guidance for Narrabri are discussed in more detail on �page 28, explaining why the Group expects further growth in royalty
income in 2017.
EVBC
EVBC continues to be a consistent performer for the Group, generating revenue of £1.2m in 2016, which is 6% lower than 2015. The
operator, Orvana Minerals (‘Orvana’), does not publish specific sales information in relation to individual mines. They do, however, provide
production information. Overall, production was approximately 21% lower in calendar year 2016 at 41,513oz gold, 130,301oz silver and
3.9mlbs copper. Their guidance for their fiscal year ending on September 30, 2017 shows anticipated increases to 50-55,000oz gold,
170-200,000oz silver and 6-6.5mlbs of copper, which would represent a significant uplift from 2016.
The average price for each commodity had mixed fortunes in 2016, with copper down 11.6%, gold up 7.6% and silver up 8.9%. Again,
the Group’s revenue benefited from translating the Canadian dollars it receives into pounds at a much more favourable exchange rate
subsequent to the EU referendum.
Maracás
Income from Maracás increased by 29% in the period to just under £0.8m. The increase was largely attributable to sales volumes
increasing significantly during the year as Largo reported very strong production numbers in H2 2016. Production increased from 630t
in July to 828t in December 2016.
Strong sales numbers in H2 16 coincided with a recovery in the price of vanadium, which ended the year at $5.02/lb, more than double
the level of $2.38/lb at the end of 2015.
Four Mile
Royalties from Four Mile commenced during 2016, although at a very low level. We have been disappointed with the level of deductions
which the operator, Quasar Resources (‘Quasar’), a subsidiary of Heathgate Resources (themselves a division of General Atomic), have
applied in determining the royalty payable. We have disputed the manner in which Quasar have interpreted the royalty agreement, but
have not been able to resolve this to date. We are considering our options in relation to this matter but currently, and conservatively, we
are assuming limited royalty income from this royalty until the matter is resolved.
Operating expenses
Total operating expenses for the year were in line with 2015 which demonstrates one of the key benefits of the royalty model
i.e. a significant increase in revenue does not necessitate a corresponding increase in the cost base.
Staff costs
Professional fees
Other costs
Operating expenses1
Share-based payments – including NI
Total operating expenses2
1 As included in the calculation of adjusted earnings.
2 As per the income statement.
2016
£'000
1,746
626
955
3,327
803
4,130
2015
£'000
1,937
418
865
3,220
840
4,060
(3.3%)
Professional fees increased in the period, mainly due to costs associated with recovering tax, costs associated with revisions to the Group’s
value creation plan and general management of the Group’s royalty portfolio. Staff costs decreased modestly in the period as headcount
was higher in the first half of 2015. Overall, management are of the view that central costs are not excessive, and exercise discipline around
cost control, identifying savings where possible.
STRATEGIC REPORTAPG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Finance income and costs
Interest expense on borrowing facility
Non-utilisation fee on undrawn borrowings
Aborted transaction costs/professional fees
Finance costs
Bank interest
Interest on other investments
Realised foreign exchange gains
Finance income
2016
£'000
(278)
(132)
(676)
(1,086)
72.7%
56
26
2,265
2,347
229.6%
2015
£'000
(138)
(133)
(358)
(629)
23
278
411
712
Finance costs increased significantly in the year, due to the combination of higher interest costs associated with running at higher average
borrowings in the year and an increase in aborted costs associated with acquisitions which failed to complete. Aborted costs associated
with acquisitions is a business cost which is incurred as part of the Group’s efforts to add royalties to its portfolio. The Group invested a
considerable amount of time during the year on certain transactions which unfortunately proved not to meet the Group’s exacting
investment criteria.
Finance income is dominated by realised foreign exchange gains in the period due to the weakening of the pound post Brexit. At a high
level, it represents the difference between income accounted for at average rates versus the actual amount received. This was particularly
noticeable during 2016, where the GBP:AUD rate averaged 1.95 in H1 16 whereas the average for H2 16 was 1.70. Even though the average
for H2 16 was 1.70, the full year Australian revenue was translated at the average rate for the year, which was 1.82. With most of our
revenue generated in H2 16, this created a large realised foreign exchange gain as the revenue was reflected in the income statement
at a higher translation rate than what was ultimately received. A similar trend occurred with the Group’s Canadian and US dollar derived
revenue. Realised foreign exchange gains and losses are included within the calculation of adjusted earnings.
Other income
Other income comprises the effective income received in relation to royalty instruments along with any other forms of revenue which the
Group earns through managing its activities. This income is included in the adjusted earnings calculation.
Effective interest
Other
Included in adjusted earnings
Mark to market of currency hedges
Other income
2016
£'000
246
63
309
664
973
(25.7%)
2015
£'000
213
203
416
–
416
The mark to market ‘gain’ represents the extent to which the Group’s forward currency hedges were in the money at the balance sheet
date. As noted in the CEO report, the Group took advantage of the sudden devaluation of the pound to put in place a series of forward
contracts designed to lock in favourable rates of converting its Australian dollar income over the following four quarters. The Group
entered into these trades in December 2016. The policy is to hedge, on a sliding scale, a percentage (70%-25%) of the next four quarters’
expected dollar income and this represents cash flow hedging rather than anything speculative. As this is a point in time valuation, this
gain is not included in adjusted earnings.
Tax
The Group was successful in obtaining a number of tax rebates in the year, some of which were not provided for in previous periods.
The Group utilised tax losses in the year, resulting in no corporation tax being paid in 2016.
United Kingdom corporation tax
Overseas taxes
Adjustments in respect of prior years
Less deduction claimed for amortisation
Tax per adjusted earnings
2016
£'000
–
1,403
(809)
594
860
1,454
2015
£'000
–
1,338
(329)
1,009
985
1,994
Deferred tax generally is a non-cash tax reflecting the probable tax on valuation gains which have yet to crystallise. As such, they are
excluded from adjusted earnings.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Financial review
Profit after tax
Profit after tax of £26.4m for the year ended December 31, 2016, is represented by adjusted earnings as outlined above, plus the gain on
sale of certain of the Group’s mining and exploration interests of £2.4m, together with the favourable Kestrel revaluation of £17.9m, less
the impairment charge of £2.0m in relation to the Amapá royalty and the revaluation charge of £4.9m in relation to the Group’s Dugbe 1
royalty and tax thereon.
Balance sheet
Net assets increased from £162.0m at the beginning of the year to £210.1m at December 31, 2016, an increase of 28.5%. This equates
to net assets per share of 124p per share at the end of 2016 compared to 95p at the end of the previous year. The main catalyst for
the increase was undoubtedly the weakening of the pound in the second half of the year, as the majority of the Group’s assets are
denominated in dollar currencies. The impact of currency was most pronounced for Kestrel, which is fair valued at each reporting date.
The following table reconciles the movement in net assets during 2016:
January 1, 2016
Kestrel:
Coal price (income statement)
Translation from AUD:GBP
Other (inc depletion & discount)
Deferred tax (income statement)
Deferred tax (other comprehensive income)
Other:
Foreign exchange on royalties held at cost
Amortisation and impairment of royalties held at cost
Fair value of royalties categorised as financial assets (net of tax)
Tax asset on disposal of Isua royalty
Mark to market of equity portfolio
Adjusted earnings
Dividends
Other
December 31, 2016
FX
£'000
£'000
161,983
Pence
95p
18,540
16,336
(640)
(5,510)
(4,754)
16,336
(4,754)
12,784
2,178
(419)
26,125
23,972
12,784
(4,878)
(1,528)
4,426
9,534
16,494
(11,831)
(818)
210,138
124p
The upward revision to the forward price outlook for coal translated into a noticeable increase in the underlying value of the Group’s Kestrel
royalty. The balance sheet also benefited from translating this Australian dollar asset into pounds at a more favourable rate on the reporting
date following the weakening of the pound following the EU referendum. In line with IFRS, the Group recognises a deferred tax charge in
relation to any movement in the value, resulting in an overall £24.0m increase in net assets during the period attributable to Kestrel.
The other main increase in value was the £12.8m translation benefit associated with the portfolio of assets accounted for as intangible
assets. Intangible assets are recognised at the lower of fair value and amortised cost. As these assets are largely denominated in Australian
dollars, the increase here relates to the weakening of the pound throughout 2016. The main constituent of the royalty intangible category
is the Group’s Narrabri royalty. The value of this royalty, similar to Kestrel, has increased considerably with the outlook for thermal coal
along with higher production rates. The Group, in accordance with IFRS, does not recognise this increase on the balance sheet but the
unaudited valuation would indicate an increase of as much as 50% on what we paid for it two years ago.
In December 2016, the Group received several offers from the owner of the Isua project to purchase its Isua royalty, an asset which was
carried on the balance sheet at £nil. After due consideration, the Group decided to accept an offer and disposed of its interest for £16,000.
This gave rise to a tax asset of £4.4m which is expected to be available to shelter royalty income during 2017.
The Group recorded further impairment charges of £2.0m in relation to its Amapá royalty, along with a £5.0m reduction in value of its
Dugbe 1 asset. These non-cash charges arose due to revisions made to the likely restart/start date of the projects, with the operator of
Amapá experiencing financial difficulties. Using these revised cash flow projections for Dugbe 1 resulted in the value being less than cost
and an adjustment was made accordingly.
The Group took the opportunity to realise a modest amount of cash from its non-core equity portfolio during the year. Despite this, the
overall value of the portfolio grew by £4.1m, due largely to an increase in the share price of Berkeley Energia in which the Group has a large
equity position.
STRATEGIC REPORTAPG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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m
£
30
25
20
15
10
5
0.6
3.4
0.1
(3.0)
(0.4)
(0.8)
1.0
(1.3)
(0.5)
12.3
5.7
Cash
01.01.2016
Royalty
related
receipts
Other
income
from
royalty
portfolio
Equity
sales
Net tax
receipts
Admin
costs
Borrowing
costs
Deal
costs
FX and
other
RCF
repayments
Unrealised
FX
Dividends
Cash
31.12.2016
(11.8)
5.3
2015
8.8
5.3
3.7
1.7
(0.8)
(3.7)
(0.6)
(4.3)
(0.9)
7.5
0.9
(11.9)
5.7
The Group generated cash of £12.9m from its royalty portfolio during 2016, compared to £9.0m in the previous year. With royalty related
receipts of £12.3m (2015: £5.3m) and other income from the royalty portfolio of £0.6m (2015: £3.7m), sufficient cash was generated during
the year to allow a partial repayment of £1.3m on the borrowing facility. The Group ended the year with cash of £5.3m and had £6.3m
drawn on its borrowing facility, resulting in net debt of £1.0m, down from £1.8m at the end of 2015.
The cash and borrowings analysis above has moved on considerably since the balance sheet date. Prior to the completion of the Denison
transaction, the Group received the Q4 16 royalty receipts of £11.3m in full and paid the 2016 interim dividend of £5.1m. As a result, the
Group was in a net cash position prior to the Denison transaction. With dividend cover now established, the borrowing facility should be
used solely for acquisitions moving forward.
As part of the Denison transaction, the Group took the opportunity to refinance and extend by two years its existing borrowing facility,
which was due to mature in February 2018. A key criterion in refinancing was the creation of a flexible borrowing feature. As such, although
the committed amount remains unchanged at $30.0m, there is an accordion feature which allows for this to potentially increase to $40m
for an acceptable accretive investment opportunity.
The refinancing also presented the Group with the opportunity to engage with other lenders. We decided that, with the Denison
transaction imminent, it was the opportune time to establish a syndicate of lenders with the view that having two blue chip banks involved
should result in greater borrowing capacity as the business grows. Accordingly, we were pleased to welcome Investec as our banker
alongside Barclays.
Given the increasing level of cash flow generation expected over the coming years, primarily from Kestrel, and the increasing level of
macroeconomic volatility, the Group has commenced a policy of hedging the currencies in which it receives its royalty income. This
became particularly attractive immediately after the EU referendum. The Group will look to continue hedging a proportion of its forecast
next 12 month cash flow.
Free cash flow per share
The structure of the Denison transaction will result in a significant amount of cash flow being reported as loan principal repayment,
which will not be included in the income statement. As such, we have decided to introduce a key performance indicator measuring the
cash generated by the Group. This is important as in addition to the Group assessing dividend cover by making reference to the adjusted
earnings per share, the Group will also consider the free cash flow per share as a means of assessing the sustainability of the Group’s
dividend.
During 2016, the free cash flow generated by the Group was £13.2m (2015: £4.7m) versus dividend payments of £11.8m (2015: £11.9m).
Most of the group’s royalty income for 2016 was earned in the final quarter, and so not received until Q1 17. As such free cash flow, and
associated dividend cover, in 2017 is expected to be considerably higher than 2016. With mining expected to be firmly within the Group’s
private royalty land at Kestrel from Q2 2017, the cash flow profile is expected to be much smoother than it has been over the past few
years, which saw most of the revenue generated in the second half of the year. Refer to note 33 for further detail details of the free cash
flow per share.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
42
Corporate social responsibility
Anglo Pacific seeks to maintain the
highest standards in all areas of its
business.
An extensive review was commissioned in 2014 by the Board,
taking 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,
together with CSR reporting and CSR commitments of the mines
that it is invested in. Consequently, the Group has extended and
strengthened its due diligence process to reflect current best
practices.
The mechanism that the Group uses to monitor CSR issues has
been given greater granularity. In particular, it directs the Group
to consider the governance, policy provision, management,
measurement and reporting of each material issue. During 2016,
the Group 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 Group has further improved its office
practices, in particular those within its London head office. The
Group has implemented improvements, including but not confined
to measures to conserve energy, which we are pleased to report
has improved by 14%.
During 2016, the Group improved its recycling policy and now
recycles 35% of all office waste (2015: 25%). The Group plans
to improve this further during 2017.
The Group 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 Group does not offer, give or receive bribes
or inducements whether directly or through a third party.
The Group 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 Group 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 Group’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 Group 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 Group does not make facilitation payments.
Where business is conducted in countries with laws that are less
restrictive than the Group’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 2016, as part of the Denison financing
agreement, Anglo Pacific engaged an independent consultant,
Golder Associates, to review the key environmental risks and
environmental liabilities relating to the project. 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 2016 Denison financing agreement, Anglo Pacific reviewed
the social and community factors associated with the Cigar Lake
Project. 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, 2016, 54% of
the Group’s employees were female (2014: 54%) as the Group had
11 employees, six of whom were female. In terms of the Company’s
Board of Directors, there were six Directors, five of whom were
male and one 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 48.
STRATEGIC REPORTAPG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016 43
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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. The Group’s
small size allows the day-to-day responsibility to remain at Board
level, being monitored by the Chief Executive Officer. The Group
has both a health and safety policy and office risk assessments in
place, which are reviewed on an annual basis. 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 2016; however, the Group will continue to
consider supporting select charities during 2017.
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 and has improved by
14%.
The information on �pages 08 to 43 represents the Group’s
Strategic Report and has been approved by the Board.
J.A. Treger
Chief Executive Officer
March 29, 2017
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Corporate governance report
Our approach towards corporate governance
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 is subject to the relevant Listing Rules, the Disclosure
and Transparency Rules and the Prospectus Rules. However, it is
not required to comply with the super-equivalent provisions of the
Listing Rules which apply to companies with a premium listing.
The Company is, however, complying on a voluntary basis with
related party requirements that are substantially equivalent to
those set out in Chapter 11 of the Listing Rules.
The Board remains committed to high standards of corporate
governance, and considers all Non-Executive Directors to be
independent.
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.
In 2016, the Board continued to be chaired by Mike Blyth, as
Non-Executive Chairman, responsible for the leadership and
effectiveness of the Board. 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 45,
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 the 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 continued to act as the Group’s Senior Independent
Director (‘SID’) this year. 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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016GOVERNANCE 45
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The Board
Chairman
Non-Executive Directors
W.M. Blyth
66, 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
54, 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 Anglo Pacific.
Senior Independent Director
D.S. Archer
60, 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
67, was appointed Non-Executive Director in April 2015. Mr. Meier
has over 30 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
46, 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
63, 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
There have been no appointments to the Board during 2016,
however, Mike Blyth, having overseen revisions to the Group’s
internal governance and investment process, has announced
that he will be stepping down as chairman at the conclusion of
the forthcoming AGM and will be succeeded by Patrick Meier.
The Nomination Committee consider Patrick, with his extensive
experience in investment banking in general and the mining sector
in particular, well placed to lead the Company through the next
stage in its development.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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 2016 was as follows:
Full
Board
Audit
Remuneration
Nomination
Total meetings held
Attendance:
D.S. Archer
W.M. Blyth
N.P.H. Meier
R.C. Rhodes1
R.H. Stan
J.A. Treger
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1
1
1
1
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and had attended all three meetings held up to that date.
46
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 three-year term, renewable
at the Board’s discretion for up to two further three-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, we carried out
a self-evaluation of 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 the Chairman in one-to-one meetings
held during October 2016. The findings of this review were
discussed at a meeting of the Board in November and a number
of actions to further improve Board performance were agreed.
Overall, the review concluded that the Board is performing well,
with no significant issues identified. The Board is seen to be well
balanced with a good mix of relevant skills and experience.
During the review process, the Board discussed a number of
further performance enhancement opportunities. In summary,
the Board has agreed to further refine our risk management
procedures and the process of defining strategic objectives
and monitoring progress against these throughout the year.
In addition, the Board agreed on a number of minor administrative
changes which have already been implemented.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016GOVERNANCE 47
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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 meet
with major shareholders, a range of fund managers and institutions
on a regular basis.
There are over 2,000 private investors in the Group. The Board
was pleased by the attendance at the 2016 AGM and the active
engagement of investors to further their understanding of the
current business activity.
The Company has three joint brokers, BMO Capital Markets,
Macquarie Bank and Peel Hunt, and 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 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 69.
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, 2016 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 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 2017.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
Main activities covered during 2016
The Nomination Committee was actively involved during 2016
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
concluded that no changes are required at this time.
Subsequent to the year end, the Committee unanimously
approved the appointment of Patrick Meier as chairman in
succession to Mike Blyth and the continuing appointment of
Mike Blyth as a Non-Executive Director.
The Committee has reviewed the Company’s Succession Planning
Policy for Executive Directors and senior staff members and the
policy to govern any future changes to executive management.
W.M. Blyth
Chairman
March 29, 2017
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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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016GOVERNANCE 49
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Main activities covered during 2016
In 2016 the Committee’s activities focused on:
• assessing management’s projections under different scenarios
to allow the Board to make its assessment of the longer-term
viability of the Company;
• reassessing and refining the Group’s principal risks and
overall risk appetite documented in 2015;
• monitoring the effectiveness of the Group’s risk management
systems;
• reviewing asset carrying values and other material accounting
matters;
• reviewing the accounting classification and treatment
of potential acquisitions;
• monitoring legal and tax matters and reviewing associated
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 Auditors’ Report on �pages 70 to 74.
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 45.
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.
The Committee’s terms of reference set out its main responsibilities,
and are available on the Group’s website. The Committee is
responsible for:
• monitoring the integrity of the Company’s annual and interim
financial statements, the accompanying reports to the
shareholders and corporate governance statements;
• making recommendations to the Board concerning the
adoption of the annual and interim financial statements;
• reviewing and challenging the consistency of, and any
changes 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 18 to 23 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.
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Audit Committee
Significant issues considered by the Committee in relation to the financial statements
How the issue was addressed by the Committee
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 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
£2.0m described in note 16 for the year ended December 31, 2016.
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
impairment charge described in note 17 for the year ended
December 31, 2016.
The Committee concluded the impairment charges recognised
during the year ended December 31, 2016 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 reviewed the disclosures related to the revaluation
gain of £17.9m in relation to coal royalties, together with the
revaluation charge of £4.9m in relation to royalty financial
instruments, described in notes 14 and 15 respectively, for the
year ended December 31, 2016.
The Committee concluded that the fair value has been calculated
in accordance with the Group’s accounting policy outlined in note 2,
is appropriate as at December 31, 2016 and adequately disclosed.
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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016GOVERNANCE 51
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There are no significant issues disclosed in the report and financial
statements for the year ended December 31, 2016 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 there have been no significant changes
to the system of internal controls, nor have there been any
significant breaches reported during the year. As a result the Board
has 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
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.
The Committee has satisfied itself that the external auditors’
independence was not impaired.
The Committee held meetings with the external auditors without
the presence of management on three occasions and the
Chairman of the Committee held regular meetings with the lead
audit engagement partner during the year.
The Committee’s assessment of the external auditors’ performance
and independence underpins its recommendation to the Board to
propose to shareholders the re-appointment of Deloitte LLP as
auditors until the conclusion of the AGM in 2017. Resolutions to
authorise the Board to re-appoint and determine the remuneration
of Deloitte LLP will be proposed at the AGM on May 10, 2017.
R.C. Rhodes
Chairman
March 29, 2017
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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Remuneration Committee
Composition
Compliant with the Code:
D.S. Archer – Chairman
N.P.H. Meier
R.H. Stan
R.C. Rhodes – stood down from the Remuneration Committee
on November 8, 2016
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
2016, 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.
Main activities covered during 2016
The Remuneration Committee’s activities focused on:
• the implementation of the amendments to the VCP approved
by shareholders at the 2016 Annual General Meeting;
• designing the CEO’s 2016 bonus framework and the associated
performance scorecard criteria;
• the 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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016GOVERNANCE 53
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Directors’ remuneration report
Dear Shareholder,
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 during 2016. There have been no changes
to the policy in the current year and, as such, the format for the
forthcoming AGM vote will be advisory rather than of formal
approval. However, and as described below, we are looking for
approval to amend the Company’s articles of association to
increase the ceiling on total fees payable to non-executive
directors as a result of the increases effected from January 1,
2017 onwards and to refresh headroom.
This report is set against a background of strong Company
performance during 2016, which generated total shareholder
returns (‘TSR’) of 134% in the period. A key component of
long-term executive compensation is to align the interests of
management with shareholders. The changes made to the Value
Creation Plan (‘VCP’) at the AGM last year extended the term
of the plan such that there are still four years remaining before
management’s performance will be assessed against TSR. The
Committee continues to believe this is an effective plan to
incentivise its participants and to encourage the retention of key
employees by giving them an opportunity to share in the growth
of the company over the long term. The 2016 awards which were
approved at the last AGM have not yet been granted due to a
closed period which ends with the publication of this report and
it is intended these will be made shortly.
The main focus for the Committee this year was in relation to the
setting of bonus matrices, director fees and salary benchmarking.
The salary of the Chief Executive Officer (‘CEO’), and his direct
reports were comprehensively benchmarked at the end of 2016.
The committee concluded that no change to the basic salary of
the CEO was required at this stage and will continue to conduct
this exercise on a regular basis in order to ensure that the Company
is paying market rates that attract and retain key personnel.
The Chairman’s fee remained unchanged during 2016. However,
the Committee reviewed the level of the Chairman’s fees, noting
that the fee had not been increased since April 1, 2014 and that
the Chairman had waived the consideration of an increase at the
end of 2015. The purpose of the review was to ensure that we
were offering a market competitive fee that takes into account
the need to attract and retain an individual of the right calibre
and experience and having regards to their responsibilities and
time commitment. The Remuneration Committee conducted a
benchmarking exercise which examined companies of a similar
market capitalisation within a comparable sector. As a result, the
Remuneration Committee resolved to recommend an increase
in the Chairman’s fees from £95,000 to £115,000 effective from
January 1, 2017 and that this be set for a period of two years.
Directors’ fees, which were set in 2015, remained unchanged for
2016. However, the Chairman and the CEO reviewed the level of
the directors’ fees in conjunction with an industry benchmarking
exercise and concluded that the fees be increased as follows from
January 1, 2017:
• Base fee assuming at least one committee membership £46,000
(previous £40,000);
• Committee chairman – an additional £5,000 (previously £3,000)
and
• Senior Independent Director – either an additional £6,000
(previously £5,000) or, if combined with a committee
chairmanship, £10,000
With the increases in the Chairman’s and Non-Executive Directors’
fees we are seeking shareholder approval to increase the ceiling for
the aggregate level of Director fees paid from the current £400,000
ceiling in the Company’s articles of association. With the increases
to the Chairman’s and the Directors’ fees in 2017, the ceiling is
being approached which would limit the ability of the board to
increase the size of the non-executive board beyond the current
five members, or indeed to allow for future increases in fees in line
with the growth of the Company. The proposal is to increase this
to £600,000.
The Remuneration Committee spent some time considering
the most appropriate balance between salary and short-term
incentives. The Committee is of the view that short-term incentives
such as bonuses should not be considered as de-facto salary. As
a result, the Remuneration Committee is looking to modulate
the balance between salary and bonus by way of ensuring that:
• base salary levels compare favourably with industry
comparables; and
• bonus hurdle matrices are related to superior outcomes
which truly constitute stretch-performance.
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 2016 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. The criteria
have been amended from those of 2015 both in recognition of the
slightly changed circumstances of the Company and to introduce
more precision to the link between the real ‘stretch-performance’
targets and favourable outcomes for the Company. This score is
then applied to a maximum bonus calculated as a percentage of
total salary as outlined on �page 61.
It is notable that the CEO elected, having regard to the then
challenging resources industry conditions, to forgo being
considered for the award of a bonus in 2015. The CEO’s bonus
criteria were 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. The CEO was awarded
a bonus of £167,400 under the bonus criteria matrix or 46.5% of
the total potential award.
The last Annual General Meeting approved the award of further
Value Creation Plan (‘VCP’) units to the CEO and others during
2016. However, this was not actioned out of caution around
potential closed periods. It is likely that the anticipated awards
will be made in 2017, as mentioned above.
The VCP is a major plank in our overall remuneration strategy and
is a long-term incentive plan 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 executives for increases in Total Shareholder
Return (‘TSR’) at rates above 7% per annum. The VCP is designed
to support the Company’s growth strategy by providing incentives
aligned with shareholder interests. Further details can be found
in the Remuneration Policy part of this report.
In the same vein, no awards were made under the shareholder
approved Unapproved Share Option Plan (‘USOP’) out of caution
around potential closed periods although it is likely that awards
will be made in 2017. The USOP was approved by shareholders
at the 2016 AGM.
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Directors’ remuneration report
Salaries
The main objectives for the Remuneration Committee in 2017
will be to:
• Review and further tailor the senior executive bonus criteria
for the 2017 financial year;
• Action the award of further units under the VCP and USOP; and
• Maintain an ongoing review of 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 2016.
Yours sincerely
D.S. Archer
Chairman of the Remuneration Committee
March 29, 2017
The remuneration report is in two parts.
The first part constitutes the ‘Remuneration Policy Report’ and
sets out the remuneration strategy that the Company has applied
following its approval by shareholders at the 2016 AGM. The
approved policy can be found in the Report and Accounts for the
year ended 31 December 2015 which can accessed via the Group’s
website www.anglopacificgroup.com. The Policy is set out below
for information only; minor changes to the text of the Policy have
been made, to reflect the fact that it has previously been approved
by shareholders. 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. Annual bonus – Choice of performance measures and
approach to target-setting;
E. VCP – Principal Terms and Conditions and Reward Scenarios;
F. Reward scenarios;
G. Determinations to be made by and discretions available
to the Committee;
H. Differences in remuneration policy for Executive Directors
compared to other employees;
I.
Approach towards appointment of new Executive Directors;
J. Service contracts and payments for loss of office;
K. Non-Executive Directors; and
L. Legacy arrangements
The second part, the Annual Remuneration Report for 2016, details
the remuneration paid to Directors during 2016 with a comparison
to the previous year. It will be put to an advisory shareholder vote at
the 2017 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 VCP 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.
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 focused 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. A relative measure
in relation to the VCP whereby the rewards for the holders of
2016 awards to be granted in 2017 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 (£220.1m
at December 31, 2016) and the number of its employees (nine,
as at December 31, 2016, 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.
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 2016, most noticeably in
relation to the amendment to the VCP which was then approved
by shareholders at the 2016 AGM. The Remuneration Committee
also considers shareholder feedback received in relation to the
AGM each year. Details of votes cast for and 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.
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.
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C. The remuneration policy for Executive Directors
The policy approved by shareholders at the 2016 AGM in respect of basic salary and annual bonus covers the three years 2016-2019 and
was effective from May 10, 2016. The VCP, which was initially approved at the 2014 AGM and amended following shareholder approval at
the 2016 AGM, remains in place. The Committee’s specific policy for each element of remuneration is as follows:
Element, purpose
and link to strategy
Salary
To recruit, retain and
reward executives of a
suitable calibre for the
role and duties required
Operation
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.
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.
Maximum
There is no prescribed maximum
annual increase.
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 in section D overleaf.
The LTIP takes the form of a VCP with a performance period of
approximately five years from the date of grant, or amendment,
to June 16, 2021.
Awards that were granted in 2014 were amended, as outlined in
section E overleaf.
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 to 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 in section E overleaf.
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%
Unallocated reserve:
13.1%
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 in section F. The policy in respect of
any future Director appointments is discussed in section I below.
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D. Annual bonus – Choice of performance measures and
• For these awards made in June 2014, the performance period
was 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 2014 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.
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 a bonus is awarded on the basis of the
agreed criteria.
E. 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%.
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:
56.0%
6.9%
62.9%
37.1%
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016GOVERNANCE 57
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New awards to be granted in 2017
• The Remuneration Committee wished to avoid rewriting the
general principles of remuneration as adopted at the 2014 AGM
and wished 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 December 31, 2015 (£161.3m) which was 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 2017 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 – new award
Others – original awards
Others – new 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 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 pay out. 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)).
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Directors’ remuneration report
F. 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%
On-Target
69%
Maximum
45%
£440,000
31%
41%
£640,000
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 new awards) are included on an annualised basis.
CEO full-time equivalent total remuneration at different levels of performance
Below
Target
100%
On-Target
69%
Maximum
49%
£440,000
31%
45%
£640,000
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, to
be granted in 2017;
• 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, to be granted in 2017;
• 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 new awards and there are 169.9m shares
in issue.
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G. 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
being deemed 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.
H. 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 a combination of the two.
I. 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.
J. 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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In summary, the contractual provisions for Executive Directors are as follows:
Provision
Notice period
Detailed terms
One year or less.
Termination payment
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.
K. 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, although
the Company is
seeking shareholder
approval to increase
this to £600,000
following the fee
increases effective
January 1, 2017.
Mr. Blyth, Mr. Archer, Mr. Meier, Ms. Rhodes and Mr. Stan were appointed for an initial three-year term, renewable at the Board’s discretion
for up to two further three-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.
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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
L. 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.
Annual Remuneration Report for 2016
This part of the report details the remuneration paid to Directors during 2016 with a comparison to the previous year. It will be put to an
advisory shareholder vote at the 2017 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
Allowance5
£’000
Other
£’000
Total
remuneration
£’000
Executive Directors
J.A. Treger1
Non-Executive Directors
W.M. Blyth
D.S. Archer
N.P.H. Meier2
R.C. Rhodes
R.H. Stan
Former Directors
M.R. Potter3
A.H. Yadgaroff4
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
360
342
95
95
48
48
40
27
43
43
40
40
–
93
–
38
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
167
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36
32
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
563
374
95
95
48
48
40
27
43
43
40
40
–
95
–
38
1 J.A. Treger agreed to receive 90% of his contractual salary as outlined in section K overleaf.
2 N.P.H. Meier was appointed to the Board on April 30, 2015.
3 M.R. Potter resigned from the Board on May 31, 2015.
4 A.H. Yadgaroff resigned from the Board on December 31, 2015.
5 J.A. Treger and M.R. Potter received contributions toward pension plans, all other amounts were cash payments in lieu of pension.
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B. Annual bonus for the year ending December 31, 2016
A set of individually crafted corporate and personal bonus criteria
were agreed with the CEO for the 2016 financial year. These criteria
differed somewhat from the criteria for 2015 and took into account
the evolving corporate and financial priorities of the Group.
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 2016
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.
In addition, many of the bonus criteria are referenced to the
achievement of hurdle performance that is either ‘superior’ or
‘exceptional’. No bonus is earned for ‘poor’ or merely ‘adequate’
performance.
The main bonus categories which total 100% are: Growth (40%);
Financial Performance (25%); Financial Control (10%):
Relationships, Reputation and Business Development (10%); and
Professionalism (15%). The largest factor in the CEO’s bonus matrix
at 36% of the total bonus payable relates to growth and securing
new royalty opportunities.
Growth: The recent transaction with Denison in February was an
out-of-period event and fell into the 2017 bonus year and hence
no bonus was attributable to growth and securing new royalty
opportunities for 2016. Part of the Growth bonus (4%) related to
the performance of investments in 2015 (Narrabri) and 2016
(none) meeting modelled returns. The returns as modelled gave
an overall score of 4%. Total overall score of 4%.
Financial Performance: Net profit after tax of £26.4m was a multiple
of the budgeted amount and earned the maximum bonus of 10%.
There were no capital raisings in 2016 hence no bonus was earned
in relation to this metric. As at year end, the share price was £1.295
versus NAV per share of £1.225 and hence exceeded the hurdle of
>1 and earned the full bonus allocation of 5%. Total overall score
of 15%.
Financial Control: A new risk and currency management plan
was successfully implemented in 2016 resulting in the Group
effectively hedging its Q4 2016 Australian dollar denominated
royalty income against the pound, together with the first three
quarters of 2017 royalty income, this plan earned a bonus
allocation of 2.5%. Budgeting and financial reporting continued
to be very effectively carried out with timely high quality and met
the hurdle bonus level of superior to earn a score of 2.5%. Total
overall score of 8%.
Relationships, Reputation and Business Development: The
implementation of a new investor relations plan was undertaken
and a very active programme of engagement with equity providers
was undertaken which laid a strong base for the capital raise
associated with Denison. Continued high calibre engagement was
both maintained and developed with royalty sourcing networks.
Superior hurdles were met in each of the three metrics. Total
overall score of 8.5%.
Professionalism: Under the guidance of the CEO, the senior
management team, whilst small, continued to develop its capability
and maintained a high tempo of activity in 2016 in terms of
developing the pipeline of new prospects and evaluating a number
of significant new business opportunities. Focus was applied to the
development of a collaborative, goal oriented, ethical company
with harmonious working relationships. Superior hurdles were met
in each of the two metrics. The CEO’s personal contribution was
demonstrated as a result of the excellent outcomes around the
increase in value of the legacy share portfolio and the realisation
of profits and the judgement applied to defer acquisitions so as to
limit dilution and having regard to the Company’s cost of capital.
An overall score of 11 %.
The overall bonus score was agreed at 46.5% under the bonus
scoring matrix for a total award of £167,400 (46.5% x £400,000 x
90%). The overall aggregate bonus of £167,400 bonus falls within
the 100% bonus limit set out in the policy table of the 2015 Annual
Report.
The CEO’s direct senior reports, none of whom are Executive
Directors, have individually crafted bonus objectives which were
agreed for the 2016 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 up to 150% of salary depending on
the executive’s position and their level of individual participation
in the VCP.
Bonus criteria will be further tailored for the 2017 year to ensure
that these closely match key performance metrics and at the same
time provide real ‘stretch-performance’ targets.
The bonus matrix for the CEO for 2016 is detailed below. Specific
measures are excluded due to commercial sensitivity.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016GOVERNANCE 2016 CEO Scorecard
Criteria
Corporate Performance Criteria
A. Growth
Measures for assessment included:
• Acquisition of royalties (transformational and medium-sized)
• Previous acquisitions meeting targeted returns
• Royalty accretiveness to earnings
B. Financial Performance
Measures for assessment included:
• Net profit after tax
• Capital raisings
• Price/book value
C. Financial Control
Measures for assessment included:
• Risk and currency management implementation
• Budgeting and financial reporting
Personal Performance Criteria
D. Relationships, Reputation and Business Development
• Implementation of IR plan
• Engagement with debt and equity providers
• Engagement with and development of royalty sourcing network
E. Leadership
• Senior management development and succession
• Development of a collaborative, goal-oriented, ethical company with harmonious working relationships
• Personal contribution
Total
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Maximum Award
(%)
40
25
10
10
15
100
C. Vesting of long-term incentive awards
No allocations under the VCP were made in 2016, although the Committee intends to allocate the awards outlined in the 2015
remuneration report as soon as the Company exits the close period following the completion of the Denison financing transaction and
the publication of the 2016 Annual Report and Accounts. Allocation of units under the VCP out of the pool to Executive Directors have
remained unchanged with 56,000 units or 56% of the total number of units allocated to the CEO. As at the date of this report there are a
total of 66,880 units issued out of a total pool of 100,000 units, including the awards for non-Board senior managers (2015: 66,880 units).
Long-term incentive awards made during the year
There were no awards granted to Executive Directors under the JSOP, the CSOP or USOP in 2016.
Outstanding share awards
There are currently no awards to Executive Directors outstanding under the JSOP, the CSOP or the USOP.
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.
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Directors’ remuneration report
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 24,
2017
Beneficially
owned at
December 31,
2016
5,586,454
5,546,454
126,822
118,822
20,000
–
173,318
157,318
22,500
15,000
147,540
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 2016 (2015: nil).
G. Percentage increase in the remuneration of the CEO
CEO £’000
– salary (full time equivalent basis)
– benefits
– bonus
Average per employee £’000
– salary
– benefits
– bonus
2016
400
–
167
81
–
49
2015
380
–
–
85
–
26
% change
5%
–
100%
(5%)
–
88%
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, 2016 is shown in the graph above. 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,
2016 was 129.50p. During the year the share price ranged from
a low of 52.50p to a high of 132.00p.
150
120
90
60
30
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03.01.12
03.01.13
03.01.14
03.01.15
03.01.16
03.01.17
FTSE 350 Mining
Anglo Pacific Group
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I. Total remuneration for the CEO over time
Total remuneration (£’000)
Bonus outturn (%)
Bonus (£’000)
LTIP vesting (%)
1 J. Theobald was appointed CEO on October 6, 2010.
2 J.A. Treger was appointed CEO on October 21, 2013.
2011
2012
2013
2013
2014
2015
2016
253
37%
84
–
J. Theobald1
209
1933
–
–
–
–
–
–
39
–
–
–
432
64%
160
–
J.A. Treger2
563
47%
167
–
374
–
–
–
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.
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
2016
2.55
11.80
2015
2.68
11.90
% (decrease)
/increase
(5%)
(1%)
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 from Anglo Pacific (see ‘The Board’ section of the Governance Report). As a result, Mr. Treger is paid 90% of his full-time equivalent
salary of £400,000.
L. 2017 salary review
The Executive Directors’ full-time equivalent (‘FTE’) salaries were reviewed in January 2017, and the current salaries (on a FTE basis) are
as follows:
Current salaries for the Executive Directors
Executive
J.A. Treger
FTE Salary as at
January 1, 2017
FTE Salary as at
January 1, 2016
400,000
400,000
Increase
–
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
2017
2016
% Increase
115,000
40,000
57,000
51,000
46,000
95,000
38,000
48,000
43,000
40,000
21%
5%
19%
19%
15%
The Chairman’s fee of £95,000 was set with effect from April 1, 2014 for a two-year period, however, the Chairman elected to maintain this
fee for the duration of 2016. On the recommendation of the Remuneration Committee, the Chairman’s fee has been set at £115,000 per
annum for a two-year period effective from January 1, 2017.
Members of the main Board Committees are paid an additional amount, currently £6,000 per annum, to reflect extra commitments, with a
Committee Chair receiving a further £5,000. The SID also receives a further additional fee, currently £6,000 per annum, to reflect his extra
duties.
N. Performance targets for the annual bonus and LTIP awards to be granted in 2016 and beyond
Annual bonuses for 2016 were made in accordance with the policy approved by shareholders in 2015.
The CEO was awarded a bonus of £167,400 which reflects his performance against his scorecard being assessed as 46.5%. The 2016
scorecard for the CEO is detailed on �page 63. A similar scorecard approach will continue in 2017. 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 2017 will cover areas such as business performance, funding and finance,
relationships and reputation. Due to the commercially sensitive nature of the Group’s corporate objectives, further details of the 2017
scorecard will be provided in the 2017 Directors’ Remuneration Report.
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Directors’ remuneration report
No long-term incentive awards were made during 2015 or 2016. 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); this was extended to seven years following approval by the
shareholders at the 2016 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 2017 will be made under the amended terms of the VCP, approved by shareholders at the 2016 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 May 10, 2016, 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
Approval
This report was approved by the Board on March 29, 2017 and signed on its behalf by
D.S. Archer
Chairman of the Remuneration Committee
Votes
Percentage
77,507,658
99.53%
366,113
0.47%
77,873,771
100.00%
28,236
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Directors’ report
The Directors present their report and audited consolidated
financial statements for the year ended December 31, 2016.
a maximum number of 16,994,203. This power will expire at the
earlier of the conclusion of the 2017 AGM or June 30, 2017.
At the AGM, held on May 10, 2016, 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 2017 AGM or June 30, 2017.
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 24,
2017 was as follows:
Issued No.
Nominal value
per share
Total
% of
total capital
Ordinary
shares
180,902,034
0.02
3,618,041
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 56 below
and in �note 28 to the financial statements.
Treasury
No shares are currently held in treasury by the Company.
Principal activities
The Group’s principal royalty activities are set out in the Strategic
Report on �pages 04 and 05.
Going concern
The financial position of the Group and its cash flows are set out
on �pages 77 and 80. The directors have considered the principal
risks of the company which are set out on �pages 18 to 23, and
considered key sensitivities which could impact on the level of
available borrowings. As at December 31, 2016, the Group had
net debt of £1.0m as set out in note 22 and subject to continued
covenant compliance, has access to a further £18.0m 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 2018. 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 75 of the
financial statements.
The Group reported a profit after tax of £26.4m (2015: loss £22.6m).
Total dividends for 2016 will amount to 6.00p per share (2015:
7.00p per share), combining the recommended final dividend of
3.00p per share for the year ended December 31, 2016, with the
interim dividend of 3.00p per share paid on February 8, 2017. The
final dividend for the year ended December 31, 2016, is subject
to shareholder approval at the 2017 AGM. The Board proposes to
pay the final dividend on August 9, 2017 to shareholders on the
Company’s share register at the close of business on June 30, 2017.
The shares will be quoted ex-dividend on the London Stock
Exchange on June 29, 2017, and the Toronto Stock Exchange on
June 28, 2017.
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 45.
All Directors will stand for election or re-election at the 2017 AGM.
A table of Directors’ attendance at Board and Committee meetings
during 2016 is on �page 46.
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
2016 AGM, held on May 10, 2016, 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 2017 AGM or June 30, 2017. Further, the Directors were given
the power to make market purchases of ordinary shares up to
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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.
On January 18, 2017, the Company resolved to create 294,695
warrants, to be issued pursuant to a warrant instrument dated
February 10, 2017, with Investec Bank PLC as part of the refinancing
of the Group’s revolving credit facility (�refer to note 34 ). These
warrants entitle the warrant holders to subscribe in cash for
ordinary shares at the subscription price of £1.58 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 three years
from the date of the grant of the warrants and in accordance with
the warrant instrument.
Allotment of ordinary shares
On February 6, 2017, the Company issued 10,960,000 new
Ordinary Shares at a price of 125p per share amounting to an
aggregate nominal value of £219,200 and aggregate consideration
of £13,700,000 as part of a firm placing announced on February 1,
2017. The issue price was fixed on February 1, 2017 and represented
a discount of approximately 5.1% to the closing middle market
price on the London Stock Exchange of 131.75p per share on
January 31, 2017. The net proceeds were used to provide the
majority of funding for the Denison financing and streaming
agreements, further details of which are set out in notes 32
to the financial statements.
As a result of the preceding issuances, the Company has issued
10,960,000 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 6% of the
Company’s share capital as at the date of this Annual Report.
The Company has issued a further 36,429,609 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 26% 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 24, 2017.
Ordinary Shares
of 2p each
Representing
Liontrust Investment Partners LLP
15,578,644
Aberforth Partners LLP
Schroders PLC
Ransome’s Dock Limited
AXA Investment Managers UK
(Framlington)
Kings Chapel International Limited*
17,044,444
12,210,712
7,489,360
5,494,332
5,285,204
* Kings Chapel International Limited is a connected person of Mr. J.A. Treger.
See �page 64 for a list of Directors’ interests in shares.
8.61%
9.42%
6.75%
4.14%
3.04%
2.92%
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 26 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 29, 2017
Registered office
1 Savile Row
London
W1S 3JR
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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 29, 2017
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 Group’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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
70
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 31 December
2016 and of the group’s profit 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.
Summary of our audit approach
The financial statements that we have audited comprise:
• the Consolidated income statement;
• the Consolidated statement of comprehensive income;
• the Consolidated and Company balance sheets;
• the Consolidated and Company statements of changes
in equity;
• the Consolidated and Company cash flow statements;
and the related notes 1 to 35.
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.
Key risks
The key risks that we identified in the current year were:
• Impairment assessment of the royalty intangibles portfolio
Materiality
Scoping
• Valuation of the Kestrel & Dugbe royalties
Within this report, any new risks are identified with and any risks which are the same as the prior
year identified with .
The materiality that we used in the current year was £4.0 million which was determined on the basis
of 2% of net assets.
Consistent with the how the Group is managed, we consider the Group to be one component.
Consequently all assets, liabilities, income and expenses were subject to a full scope audit.
Significant changes
in our approach
Last year our report included a risk on classification of the Narrabri transaction. This was not included
in our report this year as there were no new material royalties transacted in the period.
Going concern and the directors’ assessment of the principal risks that would threaten
the solvency or liquidity of the group
As required by the Listing Rules we have reviewed the directors’ statement regarding the
appropriateness of the going concern basis of accounting contained within note 3.1.1 to the financial
statements and the directors’ statement on the longer-term viability of the group contained within the
strategic report on page 18.
We are required to state whether we have anything material to add or draw attention to in relation to:
• the directors' confirmation on page 18 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 18 to 23 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; and
• the directors’ explanation on page 18 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 confirm that we have
nothing material to add or
draw attention to in respect
of these matters.
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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 71
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Independence
We are required to comply with the Financial Reporting Council’s
Ethical Standards for Auditors and confirm that we are independent
of the group and we have fulfilled our other
ethical responsibilities in accordance with those standards.
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.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team.
As described above, the risk identified in the prior year titled 'Classification of the Narrabri transaction’ is no longer applicable to this year,
and there were no other new material royalties transacted in the period.
In respect of the ‘Valuation of royalty arrangements held at fair value’ risk reported in the prior year, this has been focussed on the Kestrel
royalty asset in the current year as it is the most material royalty asset held at fair value. This risk is now described as the ‘Valuation of the
Kestrel royalty’.
In respect of the ‘Impairment assessment of the royalty and investment portfolio’ risk reported in the prior year, this has been focussed on
the intangible royalty assets in the current year reflecting that the remainder of the investment portfolio had a lesser effect on our audit
strategy and allocation of resources during the current audit. This risk is now described as the ‘Impairment assessment of the royalty
intangibles portfolio’.
Valuation of the Kestrel royalty (notes 14)
Risk description
How the scope of our audit
responded to the risk
Royalties arrangements held at fair value, have a value of £130.4 million at 31 December 2016 (2015:
£89.2 million). The Kestrel royalty comprises £116.9 million (2015: £82.6 million) of the total and
management engage an independent valuation specialist to perform an independent valuation of the
royalty asset. The valuation of the Kestrel royalty is subjective and contains significant levels of
judgement in relation to the discount rate used, the forecast commodity prices and the expected
production profile. In addition, the heightened coal price volatility during the year has widened the
range of analyst forecasts and increased the subjectivity in the valuation.
The price and discount rate assumptions are set out in note 14 along with the related sensitivity
analysis.
Refer to the Audit Committee report where this matter is considered by the Audit Committee as
a significant issue, ‘Review of the carrying value of royalties held at fair value’ on page 50
We obtained the valuation model used by management’s expert to determine the fair value of the
Kestrel royalty 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. To challenge the discount rates we used independent
valuation experts to create independent discount rates and compared them back to the rates used
by management.
We evaluated the independence, objectivity and competence of management’s expert. We challenged
the valuation assumptions consistent with the above methodology directly by reviewing their report
and speaking directly with the specialist. In doing so we assessed the extent to which management
may have influenced the key assumptions in the valuation model to address the risk of any possible
management bias.
Key observations
The fair value of the Kestrel royalty is in an acceptable range.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
72
Independent auditor’s report to the members
of Anglo Pacific Group PLC
Impairment assessment of the royalty intangibles portfolio (notes 16)
Risk description
How the scope of our audit
responded to the risk
Royalty arrangements held as intangibles have a gross carrying amount of £115.7 million at 31
December 2016 (2015: £97.5 million) and a carrying amount of £80.0 million (2015: 71.5 million). As a
consequence of the volatility in current commodity prices, the assessment of the recoverable amount
of royalty arrangements accounted for as intangible assets involve key judgements. The recoverable
amount valuations are subjective and contain significant levels of judgement in relation to the discount
rates used, the forecast commodity prices, the expected production profiles and where relevant the
probability of production commencing.
Impairment indicators were identified for Four Mile and Amapá with carrying amounts of £1.7 million
and £2.1 million (pre-impairment) respectively. Indicators of impairment reversal were also identified
for Ring of Fire which has a carrying amount of £3.8 million.
In the year an impairment of £2.1 million has been recognised at Amapá (see note 16)
Refer to the Audit Committee report where this matter is considered by the Audit Committee as part
of the significant issue, ‘Review of carrying values of royalties held at amortised cost along with the
investment portfolio and resulting impairment charges ’ on page 50.
We challenged management’s assessment as to whether indicators of impairment exist for specific
royalty arrangements through discussions with management, evaluation of changes in production
and pricing forecasts and review of publically available information. 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.
To challenge the discount rates we used independent valuation experts to create independent
discount rates and compared them back to the rates used by management
We also reviewed and challenged management’s assessment of whether projects still in the
development phase would reach production and performed an independent assessment based
on third party data available from asset operators.
Where there were indicators of impairment reversal for royalty assets we evaluated whether it was
appropriate to reverse previous impairments.
Key observations
We concur with management’s full impairment of the Amapá royalty. In respect of the other intangible
assets where indicators were identified, we found that the assumptions used were reasonable and had
been determined and applied on a consistent basis across the Group. No additional impairments or
impairment reversals were identified from the work performed.
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.
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
£4.0 million (2015: £3.2 million)
Basis for determining
materiality
Rationale for the
benchmark applied
2% (2015: 2%) of net assets
Net assets was considered a more stable base than profits due to the effect of unrealised
fair value gains/losses in each financial year.
Net assets
£210.1m
Group
materiality
£4.0m
Audit Committee
reporting threshold
£0.08m
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £0.08 million
(2015: £0.06 million), 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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS
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An overview of the scope of our audit
Consistent with the how the Group is managed, we consider the Group to be one component. Consequently all assets, liabilities, income
and expenses were subject to a full scope audit.
There were no changes to the overall scope of the audit compared the prior year.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
• 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; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not
identified any material misstatements in the Strategic Report and the Directors’ Report.
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.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the Corporate Governance Statement
relating to the company’s compliance with certain provisions of the UK Corporate Governance Code.
We have nothing to report
arising from our review.
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.
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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
74
Independent auditor’s report to the members
of Anglo Pacific Group PLC
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 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 29, 2017
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 75
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Consolidated income statement
for the year ended December 31, 2016
Royalty income
Amortisation of royalties
Operating expenses
Operating profit before impairments, revaluations and gains on disposals
Gain/(Loss) on sale of mining and exploration interests
Impairment of mining and exploration interests
Impairment of royalty and exploration intangible assets
Revaluation of royalty financial instruments
Revaluation of coal royalties (Kestrel)
Finance income
Finance costs
Other income
Profit/(Loss) before tax
Current income tax charge
Deferred income tax (charge)/credit
Profit/(Loss) attributable to equity holders
Earnings/(Loss) per share
Basic and diluted earnings/(loss) per share
The notes on �pages 81 to 115 are an integral part of these consolidated financial statements.
Notes
4
16
5a
17
17
16
15
14
7
8
9
10
10
2016
£’000
19,705
(2,869)
(4,130)
2015
£’000
8,683
(2,573)
(4,060)
12,706
2,050
2,449
(29)
(2,009)
(4,939)
17,900
2,347
(1,086)
973
(484)
(930)
(4,414)
–
(27,201)
712
(629)
416
28,312
(30,480)
(594)
(1,356)
(1,009)
8,913
26,362
(22,576)
11
15.60p
(14.06p)
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Consolidated statement of comprehensive income
for the year ended December 31, 2016
Profit/(Loss) attributable to equity holders
Notes
2016
£’000
2015
£’000
26,362
(22,576)
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
Net exchange gain/(loss) on translation of foreign operations
Other comprehensive income/(expense) for the year, net of tax
15, 17
25
9,184
(2,449)
29
27
26,125
32,916
857
484
930
159
(8,597)
(6,167)
Total comprehensive income/(expense) attributable to equity holders for the year
59,278
(28,743)
The notes on �pages 81 to 115 are an integral part of these consolidated financial statements.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 77
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Consolidated balance sheet and Company balance sheet
as at December 31, 2016
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
Derivative financial instruments
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
2016
£’000
Group
2015
£’000
2016
£’000
Company
2015
£’000
13
14
15
16
17
18
19
20
25
20
21
22
24
26
25
26
27
27
77
116,885
13,556
80,047
17,062
1,370
–
–
9,126
113
82,649
6,534
71,491
10,898
1,013
–
10,132
3,094
77
–
6,724
2,349
13,861
155
56,543
39,303
–
113
–
6,534
2,349
8,259
–
56,595
46,518
–
238,123
185,924
119,012
120,368
12,090
711
5,331
18,132
5,106
–
5,708
10,814
8,551
1,474
–
924
–
410
9,475
1,884
256,255
196,738
128,487
122,252
6,167
1,491
36,637
44,295
465
1,357
1,822
7,272
1,193
24,546
33,011
574
1,170
1,744
3,100
276
662
4,038
465
1,090
1,555
–
180
766
946
465
1,019
1,484
46,117
34,755
5,593
2,430
210,138
161,983
122,894
119,822
3,399
49,211
63,600
93,928
3,399
49,211
29,976
79,397
3,399
49,211
40,923
29,361
3,399
49,211
33,912
33,300
210,138
161,983
122,894
119,822
The notes on �pages 81 to 115 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 profit for the parent Company for the year was £7,892,000 (2015: loss £1,359,000).
The financial statements of Anglo Pacific Group PLC (registered number: 897608) on �pages 75 to 115 were approved by the Board
and authorised for issue on March 29, 2017 and are signed on its behalf by:
W.M. Blyth
Chairman
J.A. Treger
Chief Executive Officer
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Consolidated statement of changes in equity
for the two years ended December 31, 2016
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Warrant
reserve
£’000
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
Other reserves
Balance at January 1, 2015
2,329 29,328
9,453
143
1,487
678
6,040
632
(2,601) 113,761 161,250
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 expense
Dividends
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Issue of ordinary shares
1,070 19,883
19,681
Value of employee services
–
–
–
Total transactions with
owners of the company
Balance at
December 31, 2015
1,070 19,883 19,681
3,399 49,211 29,134
Balance at January 1, 2016
3,399
49,211
29,134
Profit 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 income
Dividends
Value of employee services
Total transactions with
owners of the company
Balance at
December 31, 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
—
857
–
–
–
–
–
–
–
–
–
143
143
–
484
930
159
–
2,430
–
–
–
–
–
–
9,184
– (2,449)
–
–
–
–
–
–
–
29
27
–
6,791
–
–
–
–
–
–
–
–
–
51
–
–
1
– (8,649)
– (8,597)
–
–
630
630
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (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
–
–
–
–
–
–
57
–
–
1
– 26,067
– 26,125
–
708
708
–
–
–
–
–
–
–
–
–
–
–
–
–
– 26,362 26,362
–
–
–
–
–
–
9,241
– (2,449)
–
–
29
28
– 26,067
– 26,362 59,278
– (11,831) (11,831)
–
–
708
– (11,831) (11,123)
3,917
1,308 (2,557)
632 (2,601) 79,397 161,983
3,917
1,308
(2,557)
632
(2,601) 79,397 161,983
The notes on �pages 81 to 115 are an integral part of these consolidated financial statements.
3,399 49,211 29,134
143 10,708
2,016 23,568
632 (2,601) 93,928 210,138
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 79
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Company statement of changes in equity
for the two years ended December 31, 2016
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Warrant
reserve
£’000
Investment
revaluation
reserve
£’000
Share based
payment
reserve
£’000
Foreign
currency
translation
reserve
£’000
Special
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Other reserves
Balance at January 1, 2015
2,329
29,328
9,453
143
1,301
678
82
632
46,447
90,393
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 year
Total recognised income
and expenses
Dividends
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Issue of ordinary shares
1,070
19,883
19,681
Value of employee services
–
–
–
Balance at
December 31, 2015
3,399
49,211
29,134
Balance at January 1, 2016
3,399
49,211
29,134
–
–
–
–
–
–
–
–
–
–
272
(13)
618
435
1,312
–
1,312
–
–
–
–
–
–
–
–
–
–
–
–
630
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
272
(13)
618
435
1,312
(1,359)
(1,359)
(1,359)
(47)
– (11,901)
(11,901)
–
–
–
40,634
113
743
143
143
2,613
2,613
1,308
1,308
82
82
632
33,300 119,822
632
33,300 119,822
Changes in equity for 2016
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
Profit for the year
Total recognised income
and expenses
Dividends
Issue of ordinary shares
Value of employee services
Balance at
December 31, 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,578
(2,406)
26
105
6,303
–
6,303
–
–
–
–
–
–
–
–
–
–
–
–
708
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,892
8,578
(2,406)
26
105
6,303
7,892
7,892
14,195
– (11,831)
(11,831)
–
–
–
–
–
708
3,399
49,211
29,134
143
8,916
2,016
82
632
29,361 122,894
The notes on �pages 81 to 115 are an integral part of these consolidated financial statements.
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Consolidated statement of cash flows and
Company statement of cash flows
for the year ended December 31, 2016
Cash flows from operating activities
Profit/(Loss) before taxation
Adjustments for:
Finance income
Finance costs – excluding foreign exchange gains/losses
Other income
(Gain)/Loss on disposal of mining and exploration interests
Impairment of mining and exploration interests
Impairment of royalty and exploration intangible assets
Revaluation of royalty financial instruments
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
Increase/(Decrease) in trade and other payables
Cash generated from/(used in) operations
Income taxes refunded/(paid)
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Proceeds on disposal of mining and exploration interests
Purchases of royalty and exploration intangible assets
Proceeds from royalty financial instruments
Other royalty related repayments
Prepaid acquisition costs
Sundry income
Finance income
Investment in subsidiaries
Return of capital from subsidiaries
Loans granted to subsidiary undertakings
Loan repayments from subsidiary undertakings
Notes
2016
£’000
Group
2015
£’000
2016
£’000
Company
2015
£’000
28,312
(30,480)
7,324
(1,263)
7
8
9
17
17
16
15
19
14
13
16
6a
10
17
16
9
20
18
9
7
19
19
31
31
(82)
1,086
(973)
(2,449)
29
2,009
4,939
–
(301)
629
(416)
484
930
4,414
–
–
(17,900)
27,201
36
2,869
708
–
–
40
2,573
840
–
–
18,584
5,914
(8,613)
282
10,253
63
10,316
3,431
246
352
(155)
63
82
–
–
–
–
(2,653)
(1,767)
1,494
(1,466)
28
1,722
(41,587)
213
2,868
–
203
301
–
–
–
–
–
560
(246)
(2,406)
26
–
–
6,956
–
36
–
708
50
(10,387)
2,621
(231)
166
2,556
897
3,453
3,326
–
246
–
(155)
185
–
–
2
(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
(258)
(22,553)
2,788
6,134
16,001
(25,635)
Net cash generated from/(used in) investing activities
4,019
(36,280)
Cash flows from financing activities
Drawdown of revolving credit facility
Repayment of revolving credit facility
Proceeds from issue of share capital
Dividends paid
Finance costs
Net cash used in/(generated from) financing activities
23, 24
23, 24
27
12
8
8,000
(9,256)
–
(11,831)
(1,086)
(14,173)
10,853
(3,326)
37,326
(11,901)
(629)
32,323
3,600
(500)
–
(11,831)
(560)
(9,291)
–
–
37,326
(11,901)
(231)
25,194
Net increase/(decrease) in cash and cash equivalents
162
(3,929)
296
(2,454)
Cash and cash equivalents at beginning of year
Unrealised foreign currency (loss)/gain
Cash and cash equivalents at end of year
5,708
8,769
(539)
868
5,331
5,708
410
218
924
1,996
868
410
The notes on �pages 81 to 115 are an integral part of these consolidated financial statements.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 81
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Notes to the consolidated financial statements
for the year ended December 31, 2016
1 General information
Anglo Pacific Group PLC (the ‘Company’) and its subsidiaries (together, the ‘Group’) secure natural resources royalties and streams by
creating new royalties directly with operators or by acquiring existing royalties. 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 represented
by coal, uranium, gold and iron ore.
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).
Critical accounting judgements and key sources of estimation uncertainty
2
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 or unreasonable assumptions in assessments made for any of these estimates
could result in a significant impact on the 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 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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Notes to the consolidated financial statements
for the year ended December 31, 2016
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
• 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
• Amapá & Tucano
• Four Mile
• Salamanca
• Pilbara
• Ring of Fire
• Bulqiza
• Mount Ida
• Maracás Menchen
• Intangible asset is assessed for
indicators of impairment at each
period end
• Creso
• Narrabri
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)
• Financial asset is recognised at
fair value on the balance sheet
• Changes in fair value due to
• Isua
• Jogjakarta
• Dugbe 1
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 assets
• Similar in contractual terms
• Financial asset is carried at fair
• EVBC
to an intangible asset
• However, includes a right to
convert into equity (noting
that for EVBC this right was
subsequently extinguished)
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
Investment property
• Direct ownership of sub-
stratum land
• Investment property is carried at
fair value on the balance sheet
• Kestrel
• Crinum
• Returns based on royalty related
• Movements in fair value
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.
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.
The Group’s most significant royalty arrangement held at fair value is Kestrel, for which the key assumptions and sensitivity analysis is set
out in �note 14.
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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
13% is applied to the future cash flows. The discount rate of each royalty arrangement is derived using a capital asset pricing model
specific to the underlying project, making reference to the risk free rate of return expected on an investment with the same time horizon
as the expected mine life, together with the country risk associated with the location of the operation. Changes in discount rate are most
sensitive to changes in the risk free rate and the expected mine life.
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.
We highlight on the face of the income statement the following material balances which have been separated to assist users understand
the performance of the Group:
• Gain/(Loss) on sale of mining and exploration interests (�refer to note 17)
• Impairment of mining and exploration interests (�refer to note 17)
• Impairment of royalty and exploration intangible assets (�refer to �note 16)
• Revaluation of royalty financial instruments (�refer to �note 15)
• Revaluation of coal royalties – Kestrel (�refer to �note 14)
Net foreign exchange gains in the year of £2,265,000 have been included in ‘Finance income’. The comparative presentation has been
restated to be on a consistent basis with gains of £411,000 being reclassified from ‘Finance costs’ to ‘Finance income’ (�refer to �notes 7 and 8).
3.1.1 Going concern
The financial position of the Group and its cash flows are set out on �pages 77 and 80. The directors have considered the principal risks of the
company which are set out on �pages 18 to 23 as well as access to funding as set out in in our borrowings �note 24 and considered key
sensitivities which could impact on the level of available borrowings. As at December 31, 2016, the Group had net debt of £1.0m and subject to
continued covenant compliance, has access to a further £18.0m 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 2018. 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 basis in preparing its financial statements.
3.1.2 Changes in accounting policies and disclosures
(a) Amendments to IFRSs that are mandatorily effective for the current year
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board
(IASB) that are mandatorily effective for an accounting period that begins on or after January 1 2016. Their adoption has not had any
material impact on the disclosures or on the amounts reported in these financial statements.
• Amendments to IAS 1 ‘Presentation of Financial Statements – Disclosure Initiative’
The Group has adopted the amendments to IAS 1 Disclosure Initiative for the first time in the current year. The amendments clarify that an
entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, and give
guidance on the bases of aggregating and disaggregating information for disclosure purposes. However, the amendments reiterate that
an entity should consider providing additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable
users of financial statements to understand the impact of particular transactions, events and conditions on the entity’s financial position
and financial performance.
In addition, the amendments clarify that an entity’s share of the other comprehensive income of associates and joint ventures accounted
for using the equity method should be presented separately from those arising from the Group, and should be separated into the share of
items that, in accordance with other IFRSs: (i) will not be reclassified subsequently to profit or loss; and (ii) will be reclassified subsequently
to profit or loss when specific conditions are met.
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Notes to the consolidated financial statements
for the year ended December 31, 2016
The amendments also address the structure of the financial statements by providing examples of systematic ordering or grouping
of the notes.
The adoption of these amendments has not resulted in any impact on the financial performance or financial position of the Group.
• Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation
The Group has adopted the amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation for
the first time in the current year. The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items
of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis
for amortisation of an intangible asset. This presumption can only be rebutted in the following two limited circumstances:
(i) when the intangible asset is expressed as a measure of revenue; or
(ii) when it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset are highly correlated.
As the Group already uses the straight-line method for depreciation and amortisation for its property, plant and equipment and intangible
assets, respectively, the adoption of these amendments has had no impact on the Group’s consolidated financial statements.
• Annual Improvements to IFRSs 2012-2014 Cycle
The Group has adopted the amendments to IFRSs included in the Annual Improvements to IFRSs 2012-2014 Cycle for the first time in the
current year.
The amendments to IFRS 5 introduce specific guidance in IFRS 5 for when an entity reclassifies an asset (or disposal group) from held for
sale to held for distribution to owners (or vice versa). The amendments clarify that such a change should be considered as a continuation
of the original plan of disposal and hence requirements set out in IFRS 5 regarding the change of sale plan do not apply. The amendments
also clarifies the guidance for when held-for-distribution accounting is discontinued.
The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred
asset for the purpose of the disclosures required in relation to transferred assets.
The amendments to IAS 19 clarify that the rate used to discount post-employment benefit obligations should be determined by reference
to market yields at the end of the reporting period on high quality corporate bonds. The assessment of the depth of a market for high
qualify corporate bonds should be at the currency level (i.e. the same currency as the benefits are to be paid). For currencies for which
there is no deep market in such high quality corporate bonds, the market yields at the end of the reporting period on government bonds
denominated in that currency should be used instead.
The adoption of these amendments has had no effect on the Group’s consolidated financial statements.
(b) New and revised IFRSs in issue but not yet effective
At the date of authorisation of these financial statements, The Group has not applied the following new and revised IFRSs that have been
issued but are not yet effective and in some cases had not yet been adopted by the EU:
• IFRS 2 ‘Classification and Measurement of Share-based Payment Transactions – amendments’
• IFRS 9 ‘Financial Instruments’
• IFRS 15 ‘Revenue from Contracts with Customers’
• IFRS 16 ‘Leases’
• IAS 7 ‘Disclosure Initiative – amendments’
• IAS 12 ‘Recognition of Deferred Tax Assets for Unrealised Losses – amendments’
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the
Group in future periods, except as noted below:
• IFRS 9 will impact both the measurement and disclosures of financial instruments
The Directors have considered the impact of IFRS 9 on the Group’s royalty interests and have concluded that the application of this
standard will not have any impact on those royalty interest classified as Investment Property (�refer to �note 3.5) or Intangibles (�refer to
�note 3.6), as both are considered to be outside the scope of IFRS 9.
The Group’s royalty financial instruments, which are either classified as available-for-sale debt or available-for-sale equity financial
instruments will however, be impacted by the requirement to either account for such interests at amortised cost or fair value through
profit or loss. The Directors do not consider this change will have a material impact on the Group’s financial statements, as fair value
movements relating to the Group’s available-for-sale debt financial instruments are largely recognised in the income statement and
the Group’s only available-for-sale equity financial instrument is approaching the end of the life of mine.
• IFRS 15 may have an impact on revenue recognition and related disclosures
The Group’s royalty income are derived from three sources; assets accounted for as investment property (Kestrel) under IAS 40, assets at
fair value (EVBC) accounted for under IAS 39 and assets account for as intangibles (Narrabri, Maracás Menchen and Four Mile) under IAS 38.
The royalty income derived from these sources will continue to be accounted for in accordance with the assets overriding standards,
with exception of assets at fair value, which will be accounted for under IFRS 9 following its adoption. As a result the Directors do not
believe that IFRS 15 will have a material impact on the recognition and disclosure of revenue.
• IFRS 16 may have an impact on the presentation, recognition and disclosure of the operating leases disclosed in �note 30.
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review
has been completed.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 85
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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.
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.
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Notes to the consolidated financial statements
for the year ended December 31, 2016
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.
3.8 Financial instruments
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) Derivative financial instruments
The Group will selectively enter into foreign exchange forward contracts to manage its exposure to foreign exchange risk associated with
its Australian dollar denominated royalty income, when considered necessary. Further details of derivative financial instruments are
disclosed in �note 21.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a
financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is
more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets
or current liabilities.
(d) 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.
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(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
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.
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Notes to the consolidated financial statements
for the year ended December 31, 2016
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.
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.
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•
•
‘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 27 and note 28).
‘Retained earnings’ represents retained profits.
Of these reserves £93,928,000 are considered distributable as at December 31, 2016 (December 31, 2015: £79,397,000).
3.13 Revenue recognition
The revenue of the Group comprises mainly royalty 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.
3.16 Alternative Performance Measures
The financial statements include certain Alternative Performance Measures (APMs) which include adjusted earnings per share, dividend
cover and free cash flow per share. These APMs are defined in the table of contents and explained in the Strategic Report on page 24,
and are reconciled to GAAP measures in the �notes 11, 12 and 33 respectively.
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 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, Ring of Fire
Europe: EVBC, Salamanca, Bulqiza
Other: Jogjakarta, 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, 2016 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 Profit/(Loss) before tax on the face
of the consolidated income statement):
Royalty related income
Amortisation of royalties
Operating expenses
Total segment operating profit/(loss)
Total segment assets
Total assets include:
Australia
Royalties
£’000
17,691
(2,416)
(1,652)
13,623
Americas
Royalties
£’000
791
(453)
–
338
187,879
19,106
Europe
Royalties
£’000
1,223
–
–
1,223
12,314
All other
segments
£’000
–
–
(2,478)
(2,478)
Total
£’000
19,705
(2,869)
(4,130)
12,706
36,956
256,255
Additions to non-current assets (other than financial instruments
and deferred tax assets)
Total segment liabilities
–
35,799
–
1,215
–
662
–
–
8,441
46,177
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Notes to the consolidated financial statements
for the year ended December 31, 2016
The segment information for the year ended December 31, 2015 is as follows:
Royalty related income
Amortisation of royalties
Operating expenses
Total segment operating profit/(loss)
Total segment assets
Total assets include:
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
34,446
196,738
Additions to non-current assets (other than financial instruments
and deferred tax assets
Total segment liabilities
44,971
23,573
–
1,013
–
767
–
9,402
44,971
34,755
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 £17,691,000 (2015: £6,831,000) includes the Kestrel and Narrabri royalties which generated
£13,134,000 and £4,243,000 respectively (2015: Kestrel £3,614,000; Narrabri: £3,217,000). Individually the revenue generated by Kestrel
and Narrabri royalties represents greater than 10% of the Group’s revenue in 2015 and 2016. In addition, royalty related income in Europe
of £1,223,000 (2015: £1,246,000) is derived from a single gold royalty, EVBC, and in 2015 represented greater than 10% of the Group’s
revenue.
Impairments
The Group recognised an impairment charge of £2.0m in relation to the Amapá royalty, which is within the ‘Americas Royalties’ segment
during the year ended December 31, 2016. The Group recognised impairment charges of £2.8m and £1.6m in relation to the Amapá
and Ring of Fire royalties respectively, both within the ‘Americas Royalties’ segment, during the year ended December 31, 2015. Refer
to �note 16 for further details on the Group’s impairments.
5a Expense by nature
Group
Employee benefit expense (�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
1 Audit related assurance services relate wholly to the reporting accountant work performed in 2016 by the auditors for fundraising activities.
2016
£’000
2015
£’000
2,547
2,680
626
93
220
644
418
116
152
694
4,130
4,060
2016
£’000
2015
£’000
97
18
115
222
20
–
242
84
6
90
–
22
–
22
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 91
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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 �page 51.
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
2016
£’000
1,501
708
278
60
Group
2015
£’000
1,539
840
241
60
2016
£’000
1,452
708
275
60
Company
2015
£’000
1,479
840
239
60
2,547
2,680
2,495
2,618
Share-based awards to directors and employees are stated net of National Insurance of £0.1m (2015: £0.1m).
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 (2015: £60,000) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at December 31, 2016, contributions of £8,000 (2015: £4,000) due in respect of the current
reporting period had not been paid over to the schemes.
6c Average number of people employed
Group
Number of employees
Group
Average number of people (including executive directors) employed:
Executive directors
Administration
2016
2015
9
2016
1
8
9
9
2015
1
8
9
Company
The average number of administration staff employed by the Company during the year, including Executive Directors was 9 (2015: 9).
Directors’ salaries are shown in the Directors’ Remuneration Report on �pages 54 to 66, including the highest paid director.
7 Finance income
Group
Interest on bank deposits
Interest on long-term receivables
Net foreign exchange gain
2016
£’000
2015
£’000
56
26
2,265
2,347
23
278
411
712
The continuing the weakness of the pound, has resulted in the Group’s net foreign exchange gain to increase year on year. In light of the
quantum of the gain in 2016, net foreign exchange gains have been reclassified from finance costs (�note 8) to finance income, with the
2015 comparative being restated.
8 Finance costs
Group
Professional fees
Revolving credit facility fees and interest
2016
£’000
2015
£’000
(676)
(410)
(1,086)
(358)
(271)
(629)
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Notes to the consolidated financial statements
for the year ended December 31, 2016
9 Other income
Group
Effective interest income on royalty financial instruments
Revaluation of derivative financial instruments (�note 21)
Sundry income
2016
£’000
2015
£’000
246
664
63
973
213
–
203
416
10 Income tax expense
The effective tax rate for the year of 6.9% (2015: (25.9%)) is lower (2015: higher) than the applicable weighted average statutory rate
of corporation tax in the United Kingdom of 20% (2015: 20.25%). The reconciling items are:
Analysis of charge for the year
United Kingdom corporation tax
Overseas tax
Adjustments in respect of prior years
Current tax
Deferred tax
Income tax expense/(credit)
Factors affecting tax charge for the year:
Profit/(Loss) before tax
Tax on profit/(loss) calculated at United Kingdom corporation tax rate of 20.00% (2015: 20.25%)
Tax effects of:
Items non-taxable/deductible for tax purposes:
Non-deductible expenses
Non-taxable income
Temporary difference adjustments
Current year losses not recognised
Deferred tax not 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
2016
£’000
2015
£’000
–
1,403
(809)
594
1,356
1,950
–
1,338
(329)
1,009
(8,913)
(7,904)
28,312
(30,480)
5,662
(6,172)
(310)
–
681
(2)
801
(4,954)
–
399
1,349
192
(809)
(380)
96
–
–
1,180
(3,046)
(329)
(312)
Income tax expense/(credit)
1,950
(7,904)
The Group’s effective tax rate for the year ended 31 December 2016 was 6.9% (2015: 25.9%). The lower rate in 2016 is mainly due to the
recognition of a deferred tax asset of £4.8m in relation to Australian tax losses arising on the disposal of the Group’s fully-impaired Isua
royalty interest. Refer to �note 15 for further detail regarding the disposal of the Isua royalty interest.
In future periods, it is expected that the Group’s effective tax rate will mainly be driven by withholding taxes suffered in overseas
jurisdictions.
Refer to �note 25 for information regarding the Group’s deferred tax assets and liabilities.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 93
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11 Earnings/(Loss) per share
Earnings/(Loss) per ordinary share is calculated on the Group’s profit after tax of £26,362,000 (2015: loss £22,576,000) and the weighted
average number of shares in issue during the year of 169,016,101 (2015: 160,512,425).
Earnings/(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, 2016 (December 31, 2015: 925,933).
Net profit/(loss) attributable to shareholders
Earnings/(Loss) – basic
Earnings/(Loss) – diluted
Weighted average number of shares in issue
Basic number of shares outstanding
Dilutive effect of Employee Share Option Scheme
Diluted number of shares outstanding
2016
£’000
2015
£’000
26,362
26,362
(22,576)
(22,576)
2016
2015
169,016,101 160,512,425
13,385
–
169,029,486 160,512,425
In 2015 the Group was 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.
Adjusted earnings represents the Group’s underlying operating performance from core activities. Adjusted earnings is the profit
attributable to equity holders less all valuation movements, non-cash impairments and amortisation charges (which are non-cash
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 profit attributable to shareholders
Earnings – basic and diluted for the year ended December 31, 2016
26,362
15.60p
15.60p
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 royalty financial instruments
Revaluation of coal royalties (Kestrel)
Revaluation of foreign currency instruments
Share-based payments and associated national insurance
Tax effect of the adjustments above
2,869
(2,449)
29
2,009
4,939
(17,900)
(664)
803
496
Adjusted earnings – basic and diluted for the year ended December 31, 2016
16,494
9.76p
9.76p
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Notes to the consolidated financial statements
for the year ended December 31, 2016
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
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 calculating basic and diluted earnings per share and 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
2016
2015
169,016,101 160,512,425
13,385
–
169,029,486 160,512,425
As the Group was loss making in 2015 the Employee Share Option Scheme was considered anti-dilutive as including them in the diluted
number of shares outstanding would decrease the loss per share.
12 Dividends and dividend cover
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. On
August 5, 2016 a final dividend of 3.00p per share was paid to shareholders to make a total dividend for the year of 7.00p per share. Total
dividends, paid during the year were £11.8m (2015: £11.9m).
On February 8, 2017 an interim dividend of 3.00p per share was paid to shareholders in respect of the year ended December 31, 2016. 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 9, 2017, to make a total dividend for the year of 6.00p 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 2016 will be payable to all shareholders on the Register of Members on June 30, 2017. The total estimated
dividend to be paid is £5.4m. At the present time the Board has resolved not to offer a scrip dividend alternative.
Dividend cover
Dividend cover is calculated as the number of times adjusted earnings per share exceeds the dividend per share. The Group’s adjusted
earnings per share for the year ended December 31, 2016, is 9.76p per share (�note 11) with dividends for the year totalling 6.00p, resulting
in dividend cover of 1.6x (2015: adjusted earnings per share 2.47p, dividend cover 0.4x).
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS
13 Property, plant and equipment
Group
Gross carrying amount
At January 1, 2016
Additions
Disposals
At December 31, 2016
Depreciation and impairment
At January 1, 2016
Depreciation
At December 31, 2016
Carrying amount December 31, 2016
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
95
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Other
Assets
£’000
Equipment
and
Fixtures
£’000
Total
£’000
1,356
276
1,632
–
–
–
–
–
–
1,356
276
1,632
(1,356)
–
(1,356)
–
Other
Assets
£’000
(163)
(36)
(199)
77
Equipment
and
Fixtures
£’000
(1,519)
(36)
(1,555)
77
Total
£’000
1,356
276
1,632
–
–
–
–
–
–
1,356
276
1,632
(1,356)
–
(1,356)
–
(123)
(40)
(163)
113
(1,479)
(40)
(1,519)
113
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.
Impairment
In 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 2015 or 2016.
Company
Gross carrying amount
At January 1, 2016
Additions
At December 31, 2016
Depreciation and impairment
At January 1, 2016
Depreciation
Impairment
At December 31, 2016
Carrying amount December 31, 2016
Other
Assets
£’000
Equipment
and
Fixtures
£’000
Total
£’000
1,097
–
1,097
(984)
(36)
–
276
–
276
(163)
(36)
–
(199)
(1,020)
77
77
821
–
821
(821)
–
–
(821)
–
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Notes to the consolidated financial statements
for the year ended December 31, 2016
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
14 Coal royalties (Kestrel)
At January 1, 2015
Foreign currency translation
Loss on revaluation of coal royalties
At December 31, 2015
Foreign currency translation
Gain on revaluation of coal royalties
At December 31, 2016
Other
Assets
£’000
821
–
821
(821)
–
–
(821)
–
Equipment
and
Fixtures
£’000
276
–
276
(123)
(40)
–
(163)
113
Total
£’000
1,097
–
1,097
(944)
(40)
–
(984)
113
Group
£’000
117,097
(7,247)
(27,201)
82,649
16,336
17,900
116,885
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 2016 at £116.9m (A$200.3m) (2015: £82.6m and A$167.6m) by an independent coal industry
advisor, on a net present value of the pre-tax cash flow discounted at a nominal rate of 7.5% (2015: 7%). The key assumptions in the
independent valuation relate to price and discount rate.
The price assumptions used in the 2016 valuation decrease from US$154/t in the short term to a long term flat nominal price of US$142/t.
If the price were to increase or decrease 10 per cent over the life of the mine the valuation effect would be:
• a 10% reduction in the coal price would have resulted in the coal royalties being valued at A$170.7m (£99.6m) and a reduction in the
revaluation uplift in the income statement of £16.2m; and
• a 10% increase in the coal price would have resulted in the coal royalties being valued at A$233.7m (£136.4m) and an increase in the
revaluation uplift in the income statement of £18.3m.
The pre-tax nominal discount rate used for the asset is 7.50%, if the discount rate used were to increase or decrease by 1% the valuation
effect would be:
• a 1% reduction in the nominal discount rate would have resulted in the coal royalties being valued at A$208.6m (£121.7m) and
a reduction in the revaluation uplift in the income statement of £4.2m; and
• a 1% increase in the nominal discount rate would have resulted in the coal royalties being valued at A$192.6m (£112.4m) and an increase
in the revaluation uplift in the income statement of £4.5m.
The net royalty income from this investment is currently taxed in Australia at a rate of 30%. The revaluation of the underlying Australian
dollar asset is recognised in the Income Statement with the retranslation of the Group’s sterling presentation currency recognised in the
foreign currency translation reserve.
Were the coal royalty to be realised at the revalued amount there are £5.3m (A$9.2m) 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 (2015: £0.2m). The Directors do not presently have any intention to dispose of the coal royalty.
Refer to �note 32 for additional fair value disclosures relating to Kestrel.
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 borrowing facility (�note 24).
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS
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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:
Original Cost
‘000
Royalty
Rate
Escalation
Classification
December 31, 2016
Carrying Value
£,000
December 31, 2015
Carrying Value
£,000
Commodity
Gold, Silver,
Copper
EVBC
C$7,500
2.50%
3% gold >US$1,100/
oz
Jogjakarta
Iron Sands
US$4,000
2.00%
–
Available-for-sale equity
Available-for-sale debt
Dugbe 1
Gold
US$15,000
2.00%
2.5% >US$1,800/oz &
production
<50,000oz/qrt
Available-for-sale debt
3,483
3,241
6,832
13,556
3,832
2,702
–
6,534
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, 2015
Revaluation recognised in other comprehensive income
Foreign currency translation
At December 31, 2015
Additions
Revaluation recognised in profit or loss
Revaluation recognised in other comprehensive income
Foreign currency translation
At December 31, 2016
Group
£’000
Company
£’000
8,142
8,142
(1,909)
(1,909)
301
6,534
10,133
(4,939)
(350)
2,178
13,556
301
6,534
–
–
(350)
540
6,724
Effective interest of £0.2m was recognised in other income (�note 9) for the year ended December 31, 2016 (2015: £0.2m). This was
directly offset by cash received in the period of the same amount.
On February 23, 2016, Hummingbird Resources PLC (‘Hummingbird’), the operator of the Dugbe 1 project, gave notice under the U$15.0m
royalty financing arrangement with Group that a Mineral Development Agreement (‘MDA’) had been signed with the Liberian government.
The signing of the MDA satisfied Hummingbird’s obligations to repay the US$15.0m advanced by the Group, previously accounted for as
a non-current receivable and imposed a 2.00% net smelter return royalty, increasing to 2.50% where the gold price is >US$1,800/oz and
quarterly production is <50,000oz, over the life of the mine.
The net smelter return royalty over the Dugbe 1 project is accounted for as an available-for-sale debt financial asset as outlined in �note 2.
As at December 31, 2016, the Group’s assessed the likely start date of commercial production at Dugbe 1 to be 2020, this change resulted
in the royalty being valued at £6.8m and a £4.9m revaluation charge to the income statement.
On December 7, 2016, the Group sold its royalty over the Isua project for £16,000 to General Nice Limited. The Group had assessed the fair
value of Isua royalty to be nil in 2014, following the appointment of administrators to the project’s previous operator London Mining PLC.
At the time of the sale, the Group continued to consider the likelihood of this project entering commercial production as remote.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Notes to the consolidated financial statements
for the year ended December 31, 2016
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, 2016
Additions
Foreign currency translation
At December 31, 2016
Amortisation and impairment
At January 1, 2016
Amortisation charge
Impairment charge
Foreign currency translation
At December 31, 2016
Carrying amount December 31, 2016
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
Company
Royalty interests
At January 1 and at December 31
Exploration and
Evaluation Costs
£’000
Royalty
Interests
£’000
Total
£’000
697
96,845
97,542
–
–
650
650
17,522
17,522
697
115,017
115,714
(697)
(25,354)
(26,051)
–
–
–
(2,869)
(2,009)
(4,738)
(2,869)
(2,009)
(4,738)
(697)
(34,970)
(35,667)
–
80,047
80,047
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
2016
£’000
2015
£’000
2,349
2,349
Exploration and evaluation costs
The exploration and evaluation costs comprise expenditure that was directly attributable to the Trefi coal project in British Columbia,
Canada. Due to the inherent uncertainty that the Trefi coal project will be developed, the Group fully impaired it in 2014.
Acquisition of royalty interests
On March 31, 2016, in satisfaction of the outstanding principal of £0.7m, owed by Atrum Coal NL, the Group accepted a 0.10% gross
revenue royalty over the Groundhog project in British Columbia. The promissory note arose from the 2014 sale of the Group’s Panorama
Coal tenements, which included the Groundhog project.
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.
Under the terms of the Maracás Menchen royalty sale agreement, a further US$3.0m (£2.4m) of cash is payable when the project reaches
certain annualised production milestones. As set out in �notes 18 and 26, the Directors consider it highly probable that the first of these
milestones will be achieved in the next eighteen months which would require the Group to pay US$1.5m. As a result the Directors have
recognised a non-current liability for the deferred consideration, together with an asset under deferred acquisition costs.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 99
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Amortisation of royalty interests
The Group’s royalty intangible assets are amortised on a straight-line basis, upon the commencement of production at the underlying
mining operation, over the life of mine.
Three of the underlying mining operations of the Group’s royalty intangibles assets were in production during 2016, and were amortised
on the following basis:
Royalty interest
Narrabri
Maracás Menchen
Four Mile
Carrying Value
December 31, 2016
A$’000
Carrying Value
December 31, 2015
A$’000
80,754
22,318
2,968
84,794
23,145
3,339
Estimated life
of mine
Remaining life
of mine
22 years
29 years
10 years
20 years
27 years
8 years
Amortisation of the Group’s remaining royalty interests will commence once they begin commercial production. As at December 31, 2016,
the shares over the entity which is the beneficial owner of the Narrabri royalty have been guaranteed as security in connection with the
Group’s borrowing facility (�note 24).
Impairments of royalty intangible assets
As described in �note 3.6 and 3.7, at each reporting date the Group’s royalty intangible assets are reviewed for any impairment indicators.
Consideration is given to the presence or occurrence of adverse operational developments at the underlying mines, together with any
significant declines in commodity prices. Where impairment indicators exist, a full impairment review is carried out to determine whether
the discounted future expected cash flows (calculated on a value-in use basis) exceed cost. �note 2 outlines the impairment methodology
applied.
Amapá
Production at Amapá has been suspended since 2013 following a major port incident. The mine’s operator, Zamin Ferrous Limited,
had previously indicated that attempts were being made to restructure its finances in order to fund the rebuilding of the port facilities,
however, in 2016 the Directors understand that Zamin has filed for bankruptcy protection in Brazil. As a result the Directors have the
assessed the timing of Amapá returning to commercial production as being indeterminable and have recognised an impairment charge
of £2.0m at the year end (2015: £2.8m). Following the impairment charges recognised during the year and taking into account movements
in foreign exchange, the residual carrying value of the Amapá royalty was £nil as at December 31, 2016 (2015: £1.8m).
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
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 resulted in
the Group recognising an impairment charge of £1.6m during the year ended December 31, 2015. No additional impairment has been
recognised during the current year, as such the residual carrying value of the Ring of Fire royalty, after movement in foreign exchange,
was £3.7m as at December 31, 2016 (2015: £3.1m).
17 Mining and exploration interests
Fair value
At January 1, 2015
Mining and exploration interests received in lieu of payment
Disposals
Revaluation recognised in other comprehensive income
Foreign currency translation
At December 31, 2015
Mining and exploration interests received in lieu of payment
Disposals
Revaluation recognised in other comprehensive income
Foreign currency translation
At December 31, 2016
Group
£’000
Company
£’000
9,896
51
(2,206)
2,766
391
6,190
–
(113)
2,182
–
10,898
8,259
47
–
(3,431)
(3,326)
9,534
14
8,928
–
17,062
13,861
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.
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Notes to the consolidated financial statements
for the year ended December 31, 2016
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
£29,000 for the year ended December 31, 2016 (December 31, 2015: £0.9m).
For the year ended December 31, 2016, the Group realised £3.4m in cash (December 31, 2015: £1.7m) 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 gain of £2.4m for the year ended December 31, 2016 (December 31, 2015: loss of £0.5m).
Total mining and exploration interests at December 31 are represented by:
Quoted investments
Unquoted investments
Number of investments
18 Deferred costs
Group
Carrying amount
At January 1, 2016
Additions
Foreign currency translation
Carrying amount at December 31, 2016
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
Company
Carrying amount
At January 1, 2016
Additions
Carrying amount at December 31, 2016
Company
Carrying amount
At January 1, 2015
Released to income during the year
Carrying amount at December 31, 2015
Group
£’000
14,070
2,992
17,062
2016
Company
£’000
13,680
181
Group
£’000
8,405
2,493
13,861
10,898
2015
Company
£’000
8,112
147
8,259
10
8
10
8
Deferred
acquisition
costs
£’000
Deferred
financing costs
£’000
1,013
155
202
1,370
–
–
–
–
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
1,335
1,013
127
382
Total
£’000
1,013
155
202
1,370
Total
£’000
1,462
1,395
(1,254)
(254)
(1,508)
(81)
–
1,013
–
(255)
–
Deferred
acquisition
costs
£’000
Deferred
financing costs
£’000
–
155
155
–
–
–
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
(81)
(255)
1,013
Total
£’000
–
155
155
Total
£’000
1,254
(1,254)
–
127
(127)
–
1,381
(1,381)
–
Deferred acquisition costs
As at December 31, 2016, 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 (£1.2m) once production reaches an annualised rate over a quarter of 9,500t. Following the latest production guidance issued by
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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 eighteen months and as such have recognised both an asset and a corresponding liability (�refer to �note 26).
In addition to the deferred acquisition costs relating to the Group’s acquisition of the Maracás Menchen vanadium royalty, the Group had
incurred £0.2m in costs associated with the acquisition of the C$43.5m Denison Mines Inc financing agreement and associated streaming
agreement completed on February 13, 2017 (�refer to �note 34).
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. Upon drawing on the facility in 2015, these costs have been offset
against borrowings (�refer to �note 23).
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, 2016 and
December 31, 2015 is as follows:
Company
Cost
At January 1, 2016
Return of capital from subsidiaries
At December 31, 2016
Impairment of investment in subsidiary
At January 1, 2016
Impairment of investment in subsidiaries
At December 31, 2016
Carrying amount December 31, 2016
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
£’000
70,736
(2)
70,734
(14,141)
(50)
(14,191)
56,543
£’000
51,114
23,712
(4,090)
70,736
(14,141)
–
(14,141)
56,595
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
102
Notes to the consolidated financial statements
for the year ended December 31, 2016
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
2016
Company
£’000
373
101
11,257
359
–
12,090
–
87
70
356
8,038
8,551
Group
£’000
1,056
108
2,902
1,040
–
2015
Company
£’000
329
95
117
70
863
5,106
1,474
–
–
–
–
10,132
39,303
39,303
–
10,132
–
46,518
46,518
Current trade and other receivables
Trade and other receivables principally comprise amounts relating to royalties receivable for the final quarter in each year. The significant
increase in royalty receivables as at December 31, 2016 is the result of the Kestrel royalty for Q4 2016 totalling A$15.2m (£8.9m) in
comparison to the Q4 2015 royalty of A$3.8m (£1.9m).
The Directors consider that the carrying amount of trade and other receivables is approximately their fair value.
Non-current other receivables
The non-current other receivables of £10.1m as at December 31, 2015 represented the US$15.0m in advances made to Hummingbird
Resources PLC under a royalty financing agreement entered into in 2012. Under the agreement the advances remained repayable until
Hummingbird entered into a Mineral Development Agreement with the Liberian Government. As described in �note 15, the Mineral
Development Agreement was signed in February 2016 satisfying Hummingbird’s obligations to repay the US$15.0m advanced by the
Group, in exchange or a 2.00% net smelter return royalty, increasing to 2.50% where the gold price is greater than US$1,800/oz and
quarterly production is less than 50,000oz, over the life of the mine. This royalty is accounted for as an available-for-sale debt financial
asset and classified as a royalty financial instruments.
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.
21 Derivative financial instruments
In 2016, the Group entered into foreign exchange forward contracts to manage its exposure to foreign exchange risk associated with its
Australian dollar denominated royalty income. These foreign exchange forward contracts are accounted for as financial assets or liabilities
carried at fair value through profit or loss in accordance with �note 3.8(c). The fair value of the foreign exchange forward contracts as at
December 31 is as follows:
Financial assets carried at fair value through profit or loss
Held for trading derivatives – Foreign currency forward contracts:
Fair value as at January 01
Revaluation gain included in profit or loss (�note 9)
Foreign currency translation
Fair value as at December 31
Group
£’000
–
664
47
711
2016
Company
£’000
Group
£’000
2015
Company
£’000
–
–
–
–
–
–
–
–
–
–
–
–
22 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
5,196
135
5,331
2016
Company
£’000
789
135
924
Group
£’000
5,708
–
5,708
2015
Company
£’000
410
–
410
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23 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:
Revolving credit facility
Cash and cash equivalents
Net (debt)/cash and cash equivalents
Movement in net debt
At January 1, 2015
Cash flow
Currency movements
At December 31, 2015
Cash flow
Currency movements
At December 31, 2016
24 Borrowings
Secured borrowing at amortised cost
Revolving credit facility
Deferred borrowing costs
Group
£’000
2016
Company
£’000
(6,300)
(3,100)
5,331
(969)
924
(2,176)
Cash and cash
equivalents
£’000
8,769
(3,930)
869
5,708
162
(540)
5,330
Group
£’000
6,300
(133)
6,167
2016
Company
£’000
3,100
–
3,100
Group
£’000
(7,527)
5,708
(1,819)
Medium and
long-term
borrowings
£’000
–
2015
Company
£’000
–
410
410
Net debt
£’000
8,769
7,527
(11,457)
–
7,527
(1,256)
29
6,300
Group
£’000
7,527
(255)
7,272
869
(1,819)
1,418
(569)
(970)
2015
Company
£’000
–
–
–
–
–
Amount due for settlement within 12 months
–
–
–
Amount due for settlement after 12 months
6,300
3,100
7,527
The Group’s borrowings relate to the partial draw-down of the three-year revolving credit facility maturing in February 2018, 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, 2016, the Group had utilised US$7.8m (£6.3m) of the US$30.0m (£24.3m) 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, 2016.
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Notes to the consolidated financial statements
for the year ended December 31, 2016
25 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
Group
At January 1, 2015
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
At December 31, 2015
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
At December 31, 2016
Revaluation
of coal
royalty
£’000
34,615
(8,190)
Effects of
Tax losses
£’000
(943)
(469)
–
–
(2,146)
–
–
–
24,279
5,510
–
–
–
–
56
–
–
–
(1,356)
–
–
–
4,754
(249)
–
–
–
–
–
–
34,543
(1,605)
Revaluation
of royalty
instruments
£’000
1,206
–
–
(382)
–
–
–
(57)
767
(1,583)
–
(66)
–
–
–
(38)
(920)
Revaluation
of mining
interests
£’000
(522)
350
Accrual of
royalty
receivable
£’000
30
537
Other tax
losses
£’000
(1,785)
(1,141)
–
276
(1)
–
–
4
107
(19)
–
92
(16)
–
–
–
–
–
–
–
–
–
–
–
14
–
–
–
567
1,874
(2,912)
(4,426)
–
–
226
–
–
–
–
–
–
–
–
–
Total
£’000
32,601
(8,913)
–
(106)
(2,077)
–
(53)
21,452
1,356
–
26
4,715
–
(38)
164
2,667
(7,338)
27,511
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
2016
£’000
2015
£’000
(36,637)
(24,546)
9,126
3,094
(27,511)
(21,452)
As at December 31, 2016, the Group has unused tax losses of £10.7m (2015: £13.5m) 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
–
–
–
–
–
–
–
–
–
2016
Total
£’000
–
–
–
Tax losses –
trading
£’000
Tax losses –
capital
£’000
Other temporary
differences
–
–
–
–
–
–
–
–
–
2015
Total
£’000
–
–
–
18,786
18,786
34,946
34,946
5,823
5,823
59,555
59,555
24,539
24,539
37,230
37,230
6,547
6,547
68,316
68,316
Temporary differences associated with investments in subsidiaries, joint ventures and associates are insignificant.
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The following are the major deferred tax liabilities recognised by the Company and the movements thereon during the period:
Company
At January 1, 2015
Charge to equity for the year
At December 31, 2015
Charge to equity for the year
At December 31, 2016
Available-for sale-investments
Revaluation
of royalty
instruments
£’000
Revaluation
of mining
interests
£’000
1,206
(440)
766
(104)
662
(5)
5
–
–
–
Total
£’000
1,201
(435)
766
(104)
662
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:
Company
Deferred tax liabilities
Deferred tax assets
26 Trade and other payables
Current
Other taxation and social security payables
Trade payables
Other payables
Accruals and deferred income
2016
£’000
2015
£’000
662
–
662
Group
£’000
61
31
277
801
766
–
766
2015
Company
£’000
56
28
176
759
Group
£’000
64
187
361
745
2016
Company
£’000
59
185
175
671
The average credit period taken for trade purchases is 34 days (2015: 19 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.
1,357
1,090
1,170
1,019
Non-current
Deferred consideration
Other taxation and social security payables
Group
£’000
1,215
276
1,491
2016
Company
£’000
–
276
276
Group
£’000
1,013
180
1,193
2015
Company
£’000
–
180
180
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 operator, 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 (£1.2m)
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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
106
Notes to the consolidated financial statements
for the year ended December 31, 2016
27 Share capital and share premium
Issued share capital
Group and Company
Ordinary shares of 2p each at January 1, 2016
and December 31, 2016
Number
of shares
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Total
£’000
169,942,034
3,399
49,211
29,134
81,744
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 Anglo Pacific Group Employee Benefit Trust
Total
Number
of shares
2016
£’000
Number
of shares
2015
£’000
925,933
(2,601)
925,933
925,933
(2,601)
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.
28 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 January 1
Granted during the year
Exercised during the year
Surrendered during the year
Forfeited during the year
Outstanding at December 31
2016
Weighted
average
exercise
price (£)
Options
157,812
1.0275
–
–
–
–
–
–
(23,831)
133,981
0.8392
1.0275
2015
Weighted
average
exercise
price (£)
2.1205
0.8257
–
Options
44,222
133,212
–
(19,622)
3.0577
–
–
157,812
1.0275
Out of the 133,981 outstanding options (2015: 157,812), nil options (2015: nil) were exercisable.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry date
2024
2025
2025
Exercise price in
£ per share
2016
2015
Options
1.6258
0.9221
0.7700
24,600
37,954
71,427
24,600
48,798
84,414
133,981
157,812
Weighted average remaining contractual life
8.82
9.84
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No awards were made under the CSOP during 2016. 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.
In accordance with the terms of the CSOP, an employee forfeited 23,831 options upon their resignation in 2016.
(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.
No shares were awarded under the JSOP during 2015 or 2016. 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, as a result there are no outstanding awards under this
plan.
(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. At the 2016 AGM, shareholders approved the
extension of the measurement period from five to seven years.
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 outstanding at December 31, 2016 and December 31, 2015 are as follows:
Expiry date
Outstanding at January 1
Forfeited during the year
Outstanding at December 31
Weighted average remaining contractual life
Units
2016
Units
2015
66,880
88,000
–
(21,120)
66,880
66,880
4.50
3.50
No awards were made under the VCP during 2015 or 2016. In accordance with the terms of the VCP, Mr. Potter forfeited his awards upon
his resignation on May 31, 2015.
At the 2016 AGM, the shareholders approved an amendment to the VCP extending the performance period from 5 years to 7 years,
resulting in the weighted average remaining contractual life increasing by 2 years to 4.5 years.
Refer to �note 6a for the total expense recognised in the income statement for awards under the Group’s CSOP, JSOP and VCP granted
to Directors and employees.
29 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, 2016, this reserve remains unavailable for distribution.
At January 1, 2016 and December 31, 2016
Group
£’000
632
Company
£’000
632
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Notes to the consolidated financial statements
for the year ended December 31, 2016
30 Financial commitments
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
Capital commitments
At the year end the Group had capital commitments of £nil (2015: £nil) in respect of purchases of quoted investments.
31 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
2016
£’000
2015
£’000
300
526
–
826
300
830
–
1,130
2016
£’000
(2,530)
1,632
47,341
2015
£’000
6,552
1,825
47,381
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 54 to 66.
Short-term employee benefits
Post-employment benefits
Share-based payment
2016
£’000
1,275
50
791
2015
£’000
1,487
50
734
2,116
2,271
Directors’ transactions
The Group received £59,533.94 from Audley Capital Advisors LLP, a company which Mr J.A. Treger, Chief Executive Officer, is both a director
and shareholder, for the subletting of office space during the year ended December 31, 2016 (2015: £47,654.51). During the year ended
December 31, 2015 the Group made payments of £5,590.87 to Audley Capital Advisors LLP, for the reimbursement of travel related
expenditure and IT recharges, no such payments were made in 2016. At December 31, 2016 a total of £27,952.16 was owing from Audley
Capital Advisors LLP (2015: £nil). No amounts were owing to Audley Capital Advisors LLP as at December 31, 2016 or 2015.
32 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. The Group’s financial risk management should be read in
conjunction with the principal risks outlined on �pages 18 to 23 of the Strategic Report.
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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)
Available-for-sale
Royalty financial instruments
Mining and exploration interests
Fair value through profit or loss
Derivative financial instruments1
Loans and receivables
Trade and other receivables 2
Cash at bank and in hand
Financial liabilities
Trade and other payables 3
Borrowings4
Deferred consideration5
Group
£’000
2016
Company
£’000
Group
£’000
2015
Company
£’000
116,885
–
82,649
–
13,556
17,062
6,724
13,861
6,534
10,898
6,534
8,259
711
–
–
–
11,616
5,331
47,767
924
14,073
5,708
47,568
410
932
6,300
1,215
856
3,100
–
832
7,272
1,013
787
–
–
1 Derivative financial instruments include the Group’s foreign exchange forward contracts, as set out in �note 21.
2 Trade and other receivables include royalty receivables and other non-current receivables only, as set out in �note 20.
3 Trade and other payables include trade payables and accruals only, as set out in �note 26.
4 Borrowings include the revolving credit facility only, as set out in �note 24.
5 Other payables include the deferred consideration only, as set out in �note 26.
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, 2016 the Group had £6.3m in borrowings (2015: £7.5m) and access to a further £18.0m 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, 2016
Interest bearing revolving credit facility
December 31, 2015
Interest bearing revolving credit facility
Weighted average effective
interest rate
%
1-5 years
£’000
Total
£’000
2.76
2.95
6,300
6,300
6,300
6,300
7,527
7,527
7,527
7,527
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Notes to the consolidated financial statements
for the year ended December 31, 2016
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 £16.9m at December 31,
2016 (£19.8m at December 31, 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 interests 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.
The Group’s credit risk on foreign exchange forward contracts is mitigated by entering into these agreements with large financial
institutions. The Group limits its exposure to credit risk, together with that of the contracting financial institution by restricting the
settlement date to no more than a year from the contract date. In addition the Group limits the quantum of the forward contracts
to no more than an average 50% of forecast royalty revenue expected to be received by the date of settlement.
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 £1.7m at December 31, 2016 (£1.1m at
December 31, 2015). 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 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.
Other price risk
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, limited analysis of the impact of fluctuations on the valuations of the royalties has been undertaken in �note 14 and
�note 15.
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. In light of the continued weakness in the pound against the Australian dollar, the Group implemented
a hedging policy whereby foreign exchange forward contracts can be entered into with a maximum exposure of 60% of forecast Australian
dollar denominated royalty revenue expected to be received during a period not exceeding twelve months from contract date to
settlement. Refer to �note 20 for further details on the fair value of the foreign exchange forward contracts outstanding at December 31,
2016. The Group has no other hedging programs in place.
Group
Financial assets
Financial liabilities
Net exposure
GBP
£’000
AUD
£’000
CAD
£’000
USD
£’000
NOK
£’000
7,903 148,511
1,347
7,354
7,163
1
1
1,215
740 148,510
1,346
6,139
1
–
1
GBP
£’000
AUD
£’000
CAD
£’000
USD
£’000
NOK
£’000
5,919 93,271
3,389 17,187
6,036
1
1
3,040
(22)
(117) 93,270
3,388 14,147
2016
EUR
£’000
45
67
2015
EUR
£’000
95
39
56
1
–
1
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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS 111
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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 £114k (2015: £13k);
• A +/- 10% change in the GBP:CAD rate would increase/decrease profit after tax and equity by £117k (2015: £309k);
• A +/- 10% change in the GBP: USD rate would increase/decrease profit after tax and equity by £82k (2015: £87k).
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.
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, 2016:
Group
Assets
Coal royalties (Kestrel)
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
Financial derivative instruments
Net fair value
Notes
Level 1
£’000
Level 2
£’000
Level 3
£’000
2016
Total
£’000
(a)
(b)
(c)
(d)
(e)
–
–
14,070
–
–
–
–
–
2,992
711
116,885
116,885
13,556
–
–
–
13,556
14,070
2,992
711
14,070
3,703
130,441
148,214
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
2015
Total
£’000
(a)
(b)
(c)
(d)
–
–
8,405
–
8,405
–
–
–
2,493
2,493
82,649
82,649
6,534
–
–
6,534
8,405
2,493
89,183
100,081
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
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Notes to the consolidated financial statements
for the year ended December 31, 2016
The following table presents the Company’s assets and liabilities that are measured at fair value at December 31, 2016:
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)
–
13,680
–
13,680
–
–
181
181
6,724
–
–
6,724
20,585
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
2016
Total
£’000
6,724
13,680
181
2015
Total
£’000
6,534
8,112
147
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.
(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 7.5% (2015: 7.0%) by an independent
valuation consultant. Refer to �note 14 for details of the key inputs into the valuation, together with a sensitivity analysis for fluctuations
in the price assumptions and discount rate. All unobservable inputs are obtained from third parties.
(b) Royalty instruments
At the reporting date, the royalty financial instruments are valued based on the net present value of pre-tax cash flows discounted at a
rate between 7% and 13%. The discount rate of each royalty arrangement is derived using a capital asset pricing model specific to the
underlying project, making reference to the risk free rate of return expected on an investment with the same time horizon as the expected
mine life, together with the country risk associated with the location of the operation.
For those royalty financial instrument not in production, 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.
The table below outlines the discount rate and risk weighting applied in the valuation of the Group’s royalty financial instruments:
Classification
Discount Rate
Risk Weighting
Discount Rate
Risk Weighting
December 31, 2016
December 31, 2015
EVBC
Jogjakarta
Dugbe 1
Available-for-sale equity
Available-for-sale debt
Available-for-sale debt
6%
8%
13%
100%
100%
75%
9%
8%
–
100%
100%
–
The Dugbe 1 royalty financial instrument was previously classified as a non-current receivable, as detailed in �note 15.
The Group has reviewed the impact on the carrying value of its royalty financial instruments, and does not consider a +/- 1% change
in the discount rate or a +/- 10% change in the underlying commodity prices to have a material impact.
(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.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS (e) Derivative financial instruments
The derivative financial instruments consist of the foreign exchange forward contracts entered into to hedge the Group’s Australian dollar
denominated royalty income. At the reporting date the foreign exchange forward contracts are valued based on the net present value of
the discounted future cash flows estimated based on forward exchange rates and contract forward rates, discounted at a rate that reflect
the credit risk of various counterparties.
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, 2016.
At January 1, 2016
Additions
Revaluation gains or losses recognised in:
Other comprehensive income
Income statement
Foreign currency translation
At December 31, 2016
Royalty financial
instruments
£’000
Coal royalties
(Kestrel)
£’000
6,534
10,133
(350)
(4,939)
2,178
82,649
–
–
17,900
16,336
Total
£’000
89,183
10,133
(350)
12,961
18,514
13,556
116,885
130,441
The following table presents the changes in Level 3 instruments for the year ended December 31, 2015.
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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)
–
(1,909)
–
301
(27,201)
(27,201)
(7,247)
6,534
82,649
(6,946)
89,183
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.
33 Free cash flow
The structure of a number of the Group’s royalty financing arrangement, such as the Denison transaction completed in February 2017,
result in a significant amount of cash flow being reported as principal repayments, which are not included in the income statement. As the
Group considers dividend cover based on the free cash flow generated by its assets, management have determined that free cash flow per
share is a key performance indicator, going forward.
Free cash flow per share is calculated by dividend net cash generated from operating activities, proceeds from the disposal of non-core
assets, less finance costs divided by the weighted average number of shares in issue.
2016
£’000
Free cash flow
per share
p
Net cash generated from operating activities
Net cash generated from operating activities for the year ended December 31, 2016
10,316
Adjustment for:
Proceeds on disposal of mining and exploration interests
Finance income – excluding foreign exchange gains/losses
Finance costs
Proceeds from royalty financial instruments
Other royalty related repayments/(advances)
Sundry income
3,431
82
(1,086)
246
352
63
Free cash flow for the year ended December 31, 2016
13,403
7.93p
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
114
Notes to the consolidated financial statements
for the year ended December 31, 2016
Net cash generated from operating activities
Net cash generated from operating activities for the year ended December 31, 2015
28
(14.06p)
2015
£’000
Free cash flow
per share
p
Adjustment for:
Proceeds on disposal of mining and exploration interests
Finance income - excluding foreign exchange gains/losses
Finance costs
Proceeds from royalty financial instruments
Other royalty related repayments/(advances)
Sundry income
Free cash flow for the year ended December 31, 2016
1,722
301
(629)
213
2,868
203
4,706
2.93p
The weighted average number of shares in issue for the purpose of calculating the free cash flow per shares is as follows:
Weighted average number of shares in issue
34 Events occurring after year end
2016
2015
169,016,101 160,512,425
Revolving credit facility refinancing
On February 8, 2017, the Group amended and extended the terms of its US$30.0m revolving credit facility with Barclays Bank PLC to
include an accordion facility with Investec Bank PLC of US$10.0m and an overall maturity date of 2021. Forming part of the agreement to
amended and extend the facility, on February 10, 2017, the Group issued 294,695 warrants to Investec Bank PLC. These warrants entitle
the Investec Bank PLC to subscribe in cash for ordinary shares at the subscription price of £1.58 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 three years from the date of the grant of the warrants and in accordance with the warrant instrument
McClean Lake Mill – financing and streaming agreement
On February 13, 2017, the Group completed a C$43.5m financing and streaming agreement with Denison Mines Inc (‘Denison’). The
financing agreement is structured as a 13 year loan of C$40.8m with an interest rate of 10 per cent per annum payable to the Group. The
streaming agreement which entitles the Group to receive Denison’s portion of toll milling proceeds from the McClean Lake Mill after the
first 215Mlbs of throughput was acquired for C$2.7m.
The Group funded the Denison financing and streaming agreements in part by the placing of 10,960,000 new ordinary shares of 2p each
at a placing price of 125p per share raising gross proceeds of £13.7m (C$22.4m). The new shares were admitted to trading on February 6,
2017.
The remaining C$21.1m was funded by the Group’s own cash resources (C$8.8m) and a partial utilisation totalling C$12.3m of the Group’s
amended and extended US$30.0m revolving credit facility with Barclays Bank PLC and Investec Bank PLC which now offers the Group a
US$10.0m accordion feature.
Jogjakarta deed of variation
On February 6, 2017, the Group entered into a deed of variation with Indo Mines Limited (‘Indo’), the operator of the Jogjakarta project over
which the Group has a 2.0% gross revenue royalty structured as a US$4.0m interest bearing debenture, refer to �note 15. Under the terms
of the deed of variation, the Group has agreed to defer 70% of the interest due in the period September 01, 2016 to March 31, 2017 until
June 30, 2017 to assist Indo in managing their cash flow position.
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016FINANCIAL STATEMENTS
115
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35 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.
Company and country of incorporation/operation Principal activities
Class of shares held
Australia1
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
Argo Royalties Pty Ltd
Gordon Resources 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
Investments
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
1 The registered office of all of the entities listed above is, 6 Price Street, Subiaco, Western Australia 6008
Canada2
Advance Royalty Corporation
Owner of uranium royalties
Albany River Royalty Corporation
Owner of chromite royalties
Panorama Coal Corporation
Owner of coal royalties
Polaris Royalty Corporation
Intermediate holding company
Trefi Coal Corporation
Owner of coal tenures
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
Ordinary C$0.01
Ordinary C$1.00
Ordinary C$0.01
Ordinary C$1.00
Ordinary C$0.01
2 The registered office of all of the entities listed above is, 1720 Queens Avenue, West Vancouver, British Columbia, Canada V7V 2X7
England3
Anglo Pacific Cygnus Ltd
Centaurus Royalties Ltd
Southern Cross Royalties Ltd
Investments
Investments
Investments
3 The registered office of all of the entities listed above is, 1 Savile Row, London, England W1S 3JR
Ordinary £1.00
Ordinary £1.00
Ordinary £1.00
Proportion
of class held at
December 31,
2016
%
Group
interest at
December 31,
2015
%
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%
Guernsey4
Anglo Pacific Group Employee
Benefit Trust
Administering Group incentive plans
100%
100%
4 The registered office of the entity listed above is, Frances House, Sir William Place, St Peter Port GY1 4HQ
Ireland5
Anglo Pacific Finance Ltd
Treasury
Ordinary £1.00
100%
100%
5 The registered office of the entity listed above is, Atlantic Avenue, Westpark Business Campus, Shannon, Co Clare
Scotland6
Shetland Talc Ltd
Mineral exploration
Ordinary £1.00
100%
100%
6 The registered office of the entity listed above is, Grant Thornton, 95 Bothwell Street, Glasgow, Scotland G2 7JZ
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016
116
Shareholder statistics
(a) Size of Holding (at March 24, 2017)
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
590
659
156
319
34.22
38.23
9.05
308,847
1,537,873
1,150,179
18.50
177,905,135
1,724
100.00
180,902,034
%
0.17
0.85
0.64
98.34
100.00
(b) The percentage of total shares held by or on behalf of the twenty largest shareholders as at March 24, 2017 was 60.75%.
Corporate details
Registered office
Shareholders
Stockbrokers
Anglo Pacific Group PLC
1 Savile Row
London W1S 3JR
Registered in England
No. 897608
Telephone: +44 (0)20 3435 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
APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016APG AR16 | 30.03.17 | ARTWORKOTHER INFORMATIONAPG AR16 | 30.03.17 | ARTWORK 117
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Forward-looking statements
Performance measures
Throughout the Strategic Report, we use a number
of financial measures to assess our performance.
The measures are defined on �inside front cover.
Third party information
As a royalty holder, the Group often has limited, if any,
access to non-public scientific and technical
information in respect of the properties underlying its
portfolio of royalties, or such information is subject to
confidentiality provisions. As such, in preparing this
Annual Report, the Group has relied upon the public
disclosures of the owners and operators of the
properties underlying its portfolio of royalties, as
available at the date of this Annual Report.
References in this Annual Report to websites are made
as inactive textual references and for informational
purposes only. Information found at the relevant
websites is not incorporated by reference into this
Annual Report. The Group makes no representation as
to the accuracy of any such information.
Cautionary statement on forward-looking
statements and related information
Certain statements in this Annual Report, other than
statements of historical fact, are forward-looking
statements based on certain assumptions and reflect
the Group’s expectations and views of future events.
Forward-looking statements (which include the phrase
‘forward-looking information’) are provided for the
purposes of assisting readers in understanding the
Group’s financial position and results of operations as at
and for the periods ended on certain dates, and of
presenting information about management’s current
expectations and plans relating to the future. Readers
are cautioned that suchforward-looking statements
may not be appropriate other than for purposes outlined
in this Annual Report. These statements may include,
without limitation, statements regarding the operations,
business, financial condition, expected financial results,
cash flow, requirement for and terms of additional
financing, performance, prospects, opportunities,
priorities, targets, goals, objectives, strategies, growth
and outlook of the Group including the outlook for the
markets and economies in which the Group operates,
costs and timing of acquiring new royalties, mineral
reserve and resources estimates, estimates of future
production, production costs and revenue, future
demand for and prices of precious and base metals and
other commodities, for the current fiscal year and
subsequent periods.
Forward-looking statements include statements that
are predictive in nature, depend upon or refer to future
events or conditions, or include words such as ‘expects’,
‘anticipates’, ‘plans’, ‘believes’, ‘estimates’, ‘seeks’,
‘intends’, ‘targets’, ‘projects’, ‘forecasts’, or negative
versions thereof and other similar expressions, or future
or conditional verbs such as ‘may’, ‘will’, ‘should’, ‘would’
and ‘could’. Forward-looking statements are based upon
certain material factors that were applied in drawing a
conclusion or making a forecast or projection, including
assumptions and analyses made by the Group in light of
its experience and perception of historical trends,
current conditions and expected future developments,
as well as other factors that are believed to be
appropriate in the circumstances. The material factors
and assumptions upon which such forward-looking
statements are based include: the stability of the global
economy; the stability of local governments and
legislative background; the relative stability of interest
rates; the equity and debt markets continuing to provide
access to capital; the continuing of ongoing operations
of the properties underlying the Group’s portfolio of
royalties by the owners or operators of such properties
in a manner consistent with past practice; the accuracy
of public statements and disclosures (including
feasibility studies, estimates of reserve, resource,
production, grades, mine life and cash cost) made by the
owners or operators of such underlying properties; no
material adverse change in the price of the commodities
underlying the Group’s portfolio of royalties and
investments; no material adverse change in foreign
exchange exposure; no adverse development in respect
of any significant property in which the Group holds a
royalty or other interest, including but not limited to
unusual or unexpected geological formations and
natural disasters; successful completion of new
development projects; planned expansions or additional
projects being within the timelines anticipated and at
anticipated production levels; and maintenance of
mining title. Forward-looking statements are not
guarantees of future performance and involve risks,
uncertainties and assumptions, which could cause
actual results to differ materially from those anticipated,
estimated or intended in the forward-looking
statements.
By its nature, this information is subject to inherent risks
and uncertainties that may be general or specific and
which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will
not prove to be accurate; that assumptions may not be
correct and that objectives, strategic goals and priorities
will not be achieved. A variety of material factors, many
of which are beyond the Group’s control, affect the
operations, performance and results of the Group, its
businesses and investments, and could cause actual
results to differ materially from those suggested by any
forward-looking information. Such risks and
uncertainties include, but are not limited to current
global financial conditions, royalty portfolio and
associated risk, adverse development risk, financial
viability and operational effectiveness of owners and
operators of the relevant properties underlying the
Group’s portfolio of royalties, royalties subject to other
rights, and contractual terms not being honoured,
together with those risks identified in the ‘Principal Risks
and Uncertainties’ section herein. If any such risks
actually occur, they could materially adversely affect the
Group’s business, financial condition or results of
operations. Readers are cautioned that the list of factors
noted in the section herein entitled ‘Risk’ is not
exhaustive of the factors that may affect the Group’s
forward-looking statements. Readers are also cautioned
to consider these and other factors, uncertainties and
potential events carefully and not to put undue reliance
on forward-looking statements.
This Annual Report also contains forward-looking
information contained and derived from publicly
available information regarding properties and mining
operations owned by third parties. The Group’s
management relies upon this forward-looking
information in its estimates, projections, plans, and
analysis. Although the forward-looking statements
contained in this Annual Report are based upon what
the Group believes are reasonable assumptions, there
can be no assurance that actual results will be consistent
with these forward-looking statements. The
forward-looking statements made in this Annual Report
relate only to events or information as of the date on
which the statements are made and, except as
specifically required by applicable laws, listing rules and
other regulations, the Group undertakes no obligation
to update or revise publicly any forward-looking
statements, whether as a result of new information,
future events or otherwise, after the date on which the
statements are made or to reflect the occurrence of
unanticipated events.
US Employment Retirement Income
Security Act
Fiduciaries of (i) US employee benefit plans that are
subject to Title I of the US Employment Retirement
Income Security Act of 1974 (ERISA), (ii) individual
retirement accounts, Keogh and other plans that are
subject to Section 4975 of the US Internal Revenue
Code of 1986, as amended (the Internal Revenue Code),
and (iii) entities whose underlying assets are deemed to
be ERISA ‘plan assets’ by reason of investments made in
such entities by such employee benefit plans, individual
retirement accounts, Keogh and other plans (collectively
referred to as Benefit Plan Investors) should consider
whether holding the Company’s ordinary shares will
constitute a violation of their fiduciary obligations under
ERISA or a prohibited transaction under ERISA or the
Internal Revenue Code. Shareholders should be aware
that the assets of the Company may be or become
treated as ‘plan assets’ that are subject to ERISA fiduciary
requirements and/or the prohibited transaction rules of
ERISA and the Internal Revenue Code. The Company’s
ordinary shares are subject to transfer restrictions and
provisions that are intended to mitigate the risk of,
among other things, the assets of the Company being
deemed to be ‘plan assets’ under ERISA. Shareholders
who believe these provisions may be applicable to them
should review these restrictions which are set forth in
the Company’s Articles of Association and should
consult their own counsel regarding the potential
implications of ERISA, the prohibited transaction
provisions of the Internal Revenue Code or any similar
law in the context of an investment in the Company and
the investment of the Company’s assets.
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APG AR16 | 30.03.17 | ARTWORKAnglo Pacific Group Plc Annual Report & Accounts 2016APG AR16 | 30.03.17 | ARTWORK
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
APG AR16 | 30.03.17 | ARTWORK