A N G L O P A C I F I C G R O U P P L C
1 Savile Row, London W1S 3JR
United Kingdom
T +44 (0)20 3435 7400
F +44 (0)20 7629 0370
info@anglopacificgroup.com
www.anglopacificgroup.com
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THE GLOBAL NATURAL RESOURCES
ROYALT Y COMPANY
2 0 1 7 A N N U A L R E P O R T & A C C O U N T S
Anglo Pacific Group PLC
APG_AR17_28.03.18_COVER_ARTWORKAPG_AR17_28.03.18_COVER_ARTWORK
C O N T E N T S
01
02
03
04
06
08
08
10
12
14
16
18
24
25
37
42
44
44
45
48
49
52
53
66
68
69
69
75
76
77
78
79
80
81
119
119
119
120
GROUP OVERVIEW
Anglo Pacific at a glance
Mining royalties explained
Our portfolio
Chairman’s statement
STR ATEGIC REPORT
Chief Executive Officer’s statement
Market overview
Our business model
Our strategy
New royalty acquisition
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
F O R M O R E I N F O V I S I T
www.anglopacificgroup.com
P E R F O R M A N C E M E A S U R E S
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, amortisation charges,
share based payments, finance costs, any associated deferred
tax and any profit or loss on non-core asset disposals. 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 and any cash considered as
repayment of principal, 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.
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APG_AR17_28.03.18_COVER_ARTWORKAPG_AR17_28.03.18_COVER_ARTWORK 01
G R O U P O V E R V I E W
OUR AIM IS TO DEVELOP AS THE LEADING
INTERNATIONAL DIVERSIFIED ROYALT Y 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.
H O W W E A R E AC H I E V I N G O U R
S T R A T E G Y – PAG E S 14 T O 17
F O R M O R E I N F O V I S I T
www.anglopacificgroup.com
GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 02
G R O U P O V E R V I E W
ANGLO PACIFIC AT A GLANCE
K P I s
K E Y H I G H L I G H T S 2 0 1 7
Royalty income (£m)
£37.4m
Primary listing
London Stock Exchange
37.4
19.7
Secondary listing
Toronto Stock Exchange
Assets in production
by value
Over 89% of our portfolio by
value, across 5 commodities
is in production
Production potential
Significant, organic growth
in the current portfolio
from Kestrel, Narrabri and
Salamanca
Global royalty assets
12 principal royalty and
streaming related assets
across 5 continents
14.7
2013
8.7
3.5
2014
2015
2016
2017
Adjusted earnings per share (p)
16.82p
8.39
16.82
9.76
2.47
-1.97
2014
2013
2015
2016
2017
Dividend cover (x)
2.4x
2.4
1.6
0.8
2013
0.0
2014
0.4
2015
2016
2017
+90%
ROYALTY INCOME INCREASED
90% IN THE YEAR
£10.5m
PROFIT AFTER TAX
FOR THE YEAR
£218.9m
NET ASSETS
AT DECEMBER 31, 2017
Free cash flow per share (p)
23.20p
S H A R E H O L D E R R E T U R N S
10.65
7.93
23.20
Dividend per share (p)
7.00p
4.93
2013
2014
2.93
2015
Royalty assets acquired (£m)
£29.4m
45.0
2016
2017
10.20
8.45
7.00
16.2
6.3
0.0
29.4
2013
2014
2015
2013
2014
2015
2016
2017
M O R E D E T A I L S O N PAG E 2 4
FTSE 350 Mining Index
vs. Anglo Pacific Group 2013-2017
(Rebased to 100)
110
90
70
50
30
10
7.00
2017
6.00
2016
3
1
.
1
0
.
2
0
4
1
.
1
0
.
2
0
5
1
.
1
0
.
2
0
6
1
.
1
0
.
2
0
7
1
.
1
0
.
2
0
8
1
.
1
0
.
2
0
FTSE 350 Mining Index
Anglo Pacific Group
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 03
D I V E R S I F I E D P O R T F O L I O O F R O Y A L T I E S
51.2%
51.2% OF THE PORTFOLIO IS NOW
NON-COKING COAL
98.4%
98.4% OF THE PORTFOLIO
IS IN ESTABLISHED NATURAL
RESOURCES JURISDICTIONS
89.3%
89.3% OF THE PORTFOLIO IS
PRODUCING ROYALTIES
Commodity exposure
by asset value at December 31, 2017
Reduction in coking coal
exposure, with 51.2% of the
portfolio now non-coking coal
Geographic exposure
by asset value at December 31, 2017
98.4% of the portfolio is in
established natural resources
jurisdictions
Stage of production
by asset value at December 31, 2017
89.3% of the portfolio is
producing royalties
Coking coal
Thermal coal
Iron ore
Vanadium
Gold
Uranium
Other
48.8%
20.8%
5.3%
6.3%
3.5%
12.6%
2.7%
Australia
Brazil
Spain
Canada
Other
75.5%
7.1%
3.0%
12.8%
1.6%
Producing
Development
Early-stage
89.3%
1.8%
8.9%
S E E T H E G R O U P ' S P O R T F O L I O O F A S S E T S PAG E S 0 4 A N D 0 5
M I N I N G R O Y A L T I E S E X P L A I N E D
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.
T YPES 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 ROYALT Y
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 ROYALT Y
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.
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.
GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK
04
G R O U P O V E R V I E W
OUR PORTFOLIO
12
PRINCIPAL ROYALT Y AND
STREAMING RELATED ASSETS
OVER FIVE CONTINENTS
6
PRODUCING
3
DEVELOPMENT
3
EARLY-STAGE
DIVERSIFIED
COMMODIT Y EXPOSURE
Coking coal
Thermal coal
Vanadium
Gold
Uranium
Anthracite
Nickel-Cobalt
Chromite
Iron ore
89.3%
89.3% OF THE PORTFOLIO
IS PRODUCING
98.4%
98.4% OF THE PORTFOLIO
IS IN ESTABLISHED NATURAL
RESOURCES JURISDICTIONS
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 05
Pilbara
5.3%
Kestrel
48.8%
Four Mile
0.7%
Narrabri
20.8%
P R I N C I P A L A S S E T S
% of portfolio by asset value
at December 31, 2017
McClean Lake Mill
10.8%
Groundhog
0.3%
Ring of Fire
1.7%
EVBC
1.9%
Salamanca
1.1%
Dugbe 1
1.6%
Piauí
0.7%
Maracás Menchen
6.3%
H O W A R E O U R A S S E T S P E R F O R M I N G ? S E E PAG E S 2 5 - 3 6
P R O D U C I N G R O Y A L T I E S
R O Y A LT Y
C O M M O D I T Y
O P E R A T O R
L O C A T I O N
Coking coal
Rio Tinto
Australia
Kestrel
Narrabri
McClean
Lake Mill
Maracás
Menchen
El Valle-
Boinás/Carlés
(‘EVBC’)
Four Mile
Thermal &
PCI coal
Uranium
Vanadium
Gold, copper
& silver
Uranium
D E V E L O P M E N T R O Y A L T I E S
Salamanca
Uranium
R O Y A LT Y R A T E
A N D T Y P E
7 – 15% GRR 1
Whitehaven
Coal
Denison Mines Inc./
AREVA / Cameco
Australia
1% GRR
Canada
Tolling revenue
Largo
Resources
Orvana
Minerals
Quasar
Resources
Berkeley
Energia
Brazil
Spain
2% NSR
2.5 – 3% NSR 2
Australia
1% NSR
Spain
1% NSR
Groundhog
Anthracite
Atrum Coal
Canada
Piauí
Nickel & Cobalt
Brazilian Nickel
Brazil
1% GRR or
US$1.00/t
1% GRR
E A R LY- S T A G E R O Y A L T I E S
Pilbara
Iron ore
BHP Billiton
Australia
1.5% GRR
Ring of Fire
Chromite
Noront Resources
Canada
1% NSR
Dugbe 1
Gold
Hummingbird
Resources
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.
B A L A N C E S H E E T
C L A S S I F I C A T I O N
Investment
property
Royalty
intangible
Loan & royalty
financial
instrument
Royalty
intangible
Royalty
financial
instrument
Royalty
intangible
Royalty
intangible
Royalty
intangible
Royalty
financial
instrument
Royalty
intangible
Royalty
intangible
Royalty
financial
instrument
GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK
06
G R O U P O V E R V I E W
CHAIRMAN’S STATEMENT
WE ENTER 2018 IN A STRONG FINANCIAL
POSITION AND WITH AN EXCITING PIPELINE
FOR GROWTH
This is my first report as Chairman, having assumed the role after
the 2017 AGM. Undoubtedly, 2017 has been a year of considerable
progress for Anglo Pacific with record royalty revenue, two
successful transactions and an increase in the dividend whilst
repaying our borrowings in full. We enter 2018 in a strong financial
position and with an exciting pipeline for growth, which is the clear
focus for the year ahead.
K E Y R E S U L T S
+90%
OUR ROYALTY INCOME INCREASED
BY 90% FROM £19.7m TO £37.4m
5.88p
BASIC AND DILUTED EARNINGS
PER SHARE 5.88p (2016: 15.60p)
+235%
CASH FLOW FROM OPERATIONS
+120%
OPERATING PROFIT INCREASED
FROM £12.7m TO £28.4m
16.82p
ADJUSTED EARNINGS PER SHARE
16.82p (2016: 9.76p)
23.2p
FREE CASH FLOW PER SHARE
23.2P (2016: 7.9p)
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 07
CORPOR ATE CULTURE AND GOVERNANCE
Anglo Pacific seeks to maintain the highest standards in
all areas of its business. I believe this starts at the top.
We broadened the agenda at our annual strategy day in 2017
to include sessions on strategy, including corporate social
responsibility, risk and board effectiveness. These sessions
were primarily facilitated by industry experts who brought
an objective and impartial insight as to how the Board
approaches these areas in executing its strategy.
Whilst we acknowledge that we are not directly responsible
for the operation of many of the underlying assets in our
portfolio, we are committed to making the pursuit of best
practice in environmental, social and community, human
rights, health and safety and diversity matters a high priority.
BOARD
We were disappointed to announce in February 2018 that
Rachel Rhodes had decided not to put herself forward for
re-election at the forthcoming AGM due to the ever-increasing
time commitments of her other roles. Rachel has played an
enormous part in the success of the Company over the past
few years, and we will miss her valuable sector insights and
views. We have commenced the process to find a suitable
replacement. Mike Blyth has assumed the role of chair of
the audit committee.
Since taking over from Mike Blyth as Chairman at the 2017
AGM, I have been actively seeking to help drive the growth of
the business on which the whole team is focused. The other
Directors bring different skills to the table and, I believe, enable
the Board to operate effectively with appropriate diversity of
approach whilst operating the various Board Committees with
the independence expected of us as a listed company on the
London Stock Exchange.
I am indebted to Mike Blyth for his efforts during his tenure
as Chairman to ensure we have robust corporate governance
structures and culture in place. I am delighted that he has
agreed to continue as a Director such that we may still benefit
from his wise counsel.
OUR STR ATEGIC REPORT
Our 2017 Strategic Report, from pages 08 to 43, was reviewed
and approved by the Board on March 27, 2018.
OUTLOOK
2018 should be a year of continued growth for Anglo Pacific
as production at our key assets continues to demonstrate
strength and as new assets make their contribution.
Much, however, will depend on how prices move during the
year. In addition, as confidence returns to the mining sector,
fresh opportunities will arise. We have shown our ability to be
innovative and imaginative in our approach to the Denison
and Piaui opportunities and believe that such an approach
will continue to bear fruit in the year ahead.
In conclusion, I should like to thank all Directors and the entire
executive team led by Julian Treger for their continued
diligence and hard work during the year.
On behalf of the Board
N.P.H. MEIER
Chairman
March 27, 2018
PERFORMANCE IN 2017
Our royalty income in 2017 increased by 90% from £19.7m to
£37.4m, continuing the trend of recent years, and representing
a record year for the Company. This was primarily due to a
significant increase in volumes from Kestrel being subject to
the Group’s royalty (93% in 2017 vs 67% in 2016) in addition
to higher coal prices. Commodity prices exceeded most
commentators’ expectations at the beginning of 2017, with
the average price achieved at Kestrel being some 30% higher
than the previous year. Thermal coal and vanadium prices
were also strong which contributed to the Group’s record
performance. We have also enjoyed income from the Denison
investment for the first time.
The higher commodity prices and revenues during 2017
translated directly into higher profits and cash generation.
Operating profit increased to £28.4m from £12.7m in 2016.
Operating costs also increased in the period due to a
combination of higher staff costs and a greater level of
investment in business development as we target a higher
rate of growth in the coming year.
Our results were, as usual, impacted by a number of
revaluation adjustments which led to overall profit before tax
being £11.8m compared to £28.3m in 2016, the decline being
driven in the main by the valuation of the Kestrel royalty.
Basic and diluted earnings per share were 5.88p compared
with 15.60p in 2016. 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 16.82p (2016: 9.76p).
DIVIDENDS
In light of the strong results in 2017, and the strength of our
dividend cover, the Board has recommended that the final
dividend be increased by 1p per share (subject to approval by
shareholders at the 2018 AGM), which will result in an overall
dividend for the year of 7p per share. We have also increased
the level of the interim dividend payments from 1.5p to
1.625p, which will be reflected in the Q1 2018 dividend.
We believe that these levels strike the right balance between
offering shareholders an attractive dividend yield and
retaining sufficient resources to drive the growth strategy.
FOCUS FOR 2018
Given the strong financial position that we now enjoy, and
the positive outlook for the sector, we are focused on
accelerating the growth of our asset base in the coming years.
We wish to increase the diversity of our portfolio such that it
includes a wider range of commodities and assets, thereby
reducing the percentage of our income coming from coal, and
Kestrel in particular. We have also announced a desire to build
a meaningful presence in commodities which are focused on
the growing electric vehicle market, where we see great
potential. Our investment in 2017 in the Piauí nickel project is
an example of this focus combined with our strategy of
looking to add pre-production royalties which will offer high
return potential over the years. Our principal objective,
however, remains the acquisition of producing or near
production royalty and streaming assets.
The team continues to be very disciplined in ensuring that
acquisitions are of the highest quality in terms of project
characteristics both technically and commercially and that we
design transaction structures to optimise risk management.
H O W W E A R E AC H I E V I N G O U R S T R A T E G Y – PAG E S 14 T O 17
GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK The business review on pages 25 to 36 and the finance review
on pages 37 to 41, will provide the detail behind the significant
increase in our KPIs during the year and a review of the
performance and progress at the underlying operations over
which we have royalties. As such, the following is my summary
on the market, our focus for the year and some comments
on the dividend.
MARKET OUTLOOK
The recovery of the mining sector has continued over the past
year with prices generally rising. Despite being clearly in the
upward phase of the cycle, there is still a good window for
Anglo Pacific to make investments which will provide good
returns in the coming years and we intend to take advantage
of this opportunity.
Fortunately, our area of focus is also one of the most
promising for commodity investment. The world is finally, for
the first time in a decade, in a moment of coordinated global
growth. The beneficiary of this will be the base and bulk
materials which we specialise in and where demand is driven
by GDP growth. Even more positively, the developments in
new technologies such as electric vehicles and improved
battery storage should create significant incremental demand
for associated materials. In contrast to this positive demand
picture, the supply side can be expected to be constrained for
a number of years, first by the general lack of investment in
new mines over the past five years but also by the continued
relative scarcity of finance for new projects even today. The
result should be an extenuated cycle longer than the previous
one where Anglo Pacific, as a supplier of scarce capital to the
sector, should be able to capture enhanced returns.
Within this context, we will continue to focus on base
commodities like copper, nickel and zinc where we see visible
industrial demand and deficits which could be increased by
new technologies. We will also focus on alloys which can be
used for light weighting and more specialised commodities
such as vanadium, which we already have exposure to, and
where we believe demand will outstrip supply.
Opportunistically, we will look at bulks where we believe the
price and risk equation is attractive.
In contrast, we believe many commodities are already in the
upper range of their pricing and have more downside risk
than upside, and we will be avoiding them. This includes gold
which, though a beneficiary of inflation, may underperform in
a situation where cryptocurrency alternative abounds, and
interest rates increase holding costs. In addition materials
such as lithium, are temporarily in short supply but we will
need to model opportunities very conservatively for longer
term investment given longer-term supply prospects.
08
S T R A T E G I C R E P O R T
CHIEF EXECUTIVE
OFFICER’S STATEMENT
THE FOCUS FOR THE
YEAR AHEAD IS FIRMLY
ON GROWING AND
DIVERSIFYING THE
PORTFOLIO
Anglo Pacific delivered on its guidance
during the year. Including the cash received
from our Denison investment, our income
more than doubled, the third consecutive
year in which it has done so. With less
organic revenue growth expected in 2018,
the focus for the year ahead is firmly on
growing and diversifying the portfolio.
With a strong balance sheet and improved
market fundamentals, we believe we are
well placed to deliver innovative and
accretive transactions in the year ahead.
H O W A R E O U R A S S E T S P E R F O R M I N G ? S E E PAG E S 2 5 - 3 6
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 09
COAL OUTLOOK
The continuing strength of coal pricing has surprised many,
particularly in the U.K. who had believed the commodity to be
ex growth. In fact, coal consumption continues to increase in
absolute terms though coal's share of the global energy mix is
slowly declining. Demand for energy coal, particularly in the
East, is being fuelled by higher demand for grid power from
new sources like electric vehicles. At the same time, supply
is being squeezed, first by the Chinese restrictions on low
quality product which seem to be a permanent feature of the
market, but also because of continued depletion of mines
without any sizable investment in bringing on new capacity.
As a result, we expect coal prices to be higher for longer than
the market consensus (which is rising already).
Within the coal complex, we have always argued for longer-
term exposure to the higher quality less polluting material
which, we believe, will serve to reduce pollution quicker than
the impact which the gradual introduction of clean
technology will achieve in the medium term. The Chinese
policy is supportive of this trend and, in the market, we have
observed higher discounts or premia being applied to lower
or higher quality products. We are pleased that our exposure
is to premium cleaner product and are comfortable with our
ongoing strategy of reducing, exposure to this commodity.
STR ATEGY
Consistent with the above market view and our enhanced
balance sheet, we intend to accelerate our rate of growth in
transforming Anglo Pacific into the preferred royalty vehicle
for twenty first century commodities. There is a gap in the
market to be a derisked mode of providing exposure to the
raw material for new technologies and Anglo Pacific, as the
only truly global non-precious metals royalty company, is
well placed to occupy this niche. We believe that as we
continue to execute on this pivot, the rating of the Company
should increase.
Given our confident outlook, we are also prepared at this
stage of the cycle to take slightly more risk and also to invest
more in growth. We announced last year a new strategy to
include development royalties as a new minor focus for
our investments. We are pleased to have executed one of
these and would hope for more in the current year. These
investments should be largely funded through cash on
hand. We have also decided to consider exposure to new
geographies such as South America, Africa and Eastern
Europe. However, we are unlikely to compound risk by
investing in development opportunities in these countries,
instead we will focus on operating assets.
From a financing perspective, with a strong balance sheet
and income, we will seek to fund transactions by using our
cash and by leveraging our balance sheet in the first instance.
We have an undrawn revolving credit facility and believe this
can be comfortably expanded whilst retaining low borrowing
metrics. Should we come across larger transformative deals,
we will consider other sources of finance.
DIVIDEND
Although our focus is on investing in growth at this stage
of the cycle (and shareholders should thus expect ongoing
higher due diligence costs), we will seek to balance this
with continuing to pay a proportion of this growth to our
shareholders in the form of progressive dividends.
We announced an overhaul in our dividend structure during
2017 which created quarterly payments, reduced the period
between announcement and payment by almost three
months, and created a flexible final quarter dividend.
This was well received by shareholders.
We put this policy into action with the recommendation
(subject to shareholder approval) of a final dividend for the
year of 2.5p per share which increased the level of total
dividends for the year from 6p in 2016 to 7p for the year just
gone. We have also reset the level of the quarterly interim
dividends from 1.5p to 1.625p per share, meaning that the
run rate for 2018 has increased from 6p to 6.5p per share,
with any overall increase for 2018 being reserved for the final
quarter. As such, and on a cash basis, shareholders will actually
receive 7.375p per share in the next 12 months.
We believe this dividend policy strikes the right balance at this
stage of the cycle between returns to shareholders and
investing in growth.
OUTLOOK
We enter 2018 in a position of strength, having enjoyed a
record 2017. Strong earnings have translated directly into cash
flow, we are debt free and see many opportunities in what is
still a capital constrained sector. We expect to generate
significant cash as commodity prices continue to remain at
much higher levels than anticipated even just 12 months ago.
With less organic revenue growth anticipated in 2018, our
focus is to accelerate the growth of our asset base by
acquiring royalties which provide immediate cash flow or the
potential to deliver significant growth over the longer term.
J. A . TREGER
Chief Executive Officer
March 27, 2018
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 10
S T R A T E G I C R E P O R T
MARKET OVERVIEW
2017 WAS A YEAR OF CONTINUED IMPROVEMENT
OF PERFORMANCE AND SENTIMENT IN THE
MINING SECTOR
2017 was a year of continued improvement of performance and
sentiment in the mining sector. This trend is forecast to carry
through to 2018 with miners having returned to financial stability
and regained a positive growth outlook. Additionally, battery related
materials, particularly vanadium, cobalt, lithium, nickel and
graphite, were amongst the top performing commodities during 2017
due to expectations of strong energy storage and electric vehicle
demand growth in the coming years.
C O M M O D I T Y P R I C E S
at December 31, 2017
Coking coal (US$/t)
Thermal coal (US$/t)
350
300
250
200
150
100
800
700
600
500
Dec 16
Apr 17
Aug 17
Dec 17
Dec 16
Apr 17
Aug 17
Dec 17
Gold (US$/oz)
Cobalt (US$/t)
1400
1350
1300
1250
1200
1150
1100
80,000
60,000
40,000
20,000
0
Dec 16
Apr 17
Aug 17
Dec 17
Dec 16
Apr 17
Aug 17
Dec 17
Vanadium (US$/kg)
Copper (US$/t)
50
45
40
35
30
25
20
330
310
290
270
250
230
Dec 16
Apr 17
Aug 17
Dec 17
Dec 16
Apr 17
Aug 17
Dec 17
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017
11
On the demand side, better than expected economic
activity in China, combined with Chinese Government
environmental initiatives which resulted in cutbacks in
domestic Chinese processing and mining output, were
prominent drivers of underlying commodity prices in 2017.
Closures in iron ore mining and anticipated higher vanadium
requirements in Chinese reinforcement steel were key factors
behind the ~75% YoY increase in the price of vanadium over
the course of 2017.
Supply side constraints also played a role in dictating
commodity pricing dynamics; in particular coal, where
lower Chinese production and logistical disruptions arising
from seasonal factors, in particular Cyclone Debbie in April,
which sent coking coal prices to a year high of US$314/t.
Such supply side constraints were a key feature for many
other commodities in 2017, including zinc, which hit its
highest level in a decade (+32% YoY), aluminium (+34% YoY),
and lead which rose to a six year high (+29% YoY).
A further theme that has supported underlying prices
in certain commodities is speculation over future
electric vehicle (EV) demand. Copper, in particular, hit a
three-year high (+33% YoY) off the back of net long positioning
in the futures market as well as supply side disruptions
(Escondida, Grasberg) and strong Chinese demand.
Cobalt also saw significant price gains (+130% YoY) from a
combination of EV demand and long expected structural
supply issues.
Stronger commodity pricing has helped strengthen
balance sheets in 2017 with many of the majors choosing to
increase capital return to shareholders via share buybacks and
dividends. Capital discipline remained intact across the sector
as companies focused on controlling capital expenditure and
minimising operational costs. Companies largely opted to
de-lever, with an estimated 15% reduction in net debt across
the sector.
M&A deal value in the sector rose to US$51bn in 2017
(+15% YoY), its highest level since 2013, despite the
number of transactions falling by 6% YoY. However, portfolio
realignment was a key driver of M&A related activity, as
diversified producers looked to divest non-core assets in
favour of leaner, more consolidated portfolios.
This divestment trend opened up opportunities for
financial investors, who were responsible for 22% of deal
activity in 2017. Private equity investors showed a preference
for copper, which saw ~70% of investment, with Africa being
the most popular jurisdiction, seeing 13 deals, totalling
US$1,036m (45%; 2017). The strong performances of coking
and thermal coal in 2016 similarly led to large increases in
deal flow, with coal acquisitions growing 156% YoY and steel
transactions doubling in value to US$3.8bn.
Deal activity in the exploration space was also
significantly more popular in 2017 with a total of 31
transactions, up from six in 2016. China continued to be a key
driver of M&A activity at ~28% (2017) of value, closely followed
by North America which captured ~25% (2017) of deal volume
and led by number of transactions.
Rising commodity prices have also had an impact on
equity valuations. In 2017 IPO and secondary market
activity rose to its highest level in six years with US$2.8bn
and US$30.7bn raised respectively.
Demand for debt instruments remained relatively
unchanged, despite the easing of credit conditions with
US$218bn raised, similar to the US$219bn recorded in 2016.
Convertible bonds remained less prevalent, accounting for
1% (2017) of new capital.
Alternative financing options, such as mineral royalties
and metal streams, continue to be a popular and well
supported form of raising capital, especially in the mid to
junior end of the mining sector. Our view is that the availability
of traditional financing such as equity for development
projects, or debt, will remain constrained in the near term.
Anglo Pacific Group, through its current focus on bulks, base
metal and battery material royalties and streams, enjoys a
financing space which is far less crowded than its precious
metals focused peers, and we continue to see a considerable
number of new opportunities.
Looking towards 2018, we expect a continuation of the
battery materials theme to drive an increasing proportion of
M&A in mining and capital markets activity. Demand for these
materials is predicted by some analysts to grow exponentially
due to government commitments to shift to electric vehicles,
and carmakers looking to lock-in longer-term access to
materials supply. Whilst some investors remain wary on
battery materials given price volatility, lithium assets in lower
political risk regions such as South America and Australia
should see growing interest, whilst cobalt assets outside of the
Democratic Republic of Congo are likely to be of interest given
the challenges posed in that country. The DRC’s heightened
risk profile is driven in part by the recently revised mining code
which includes increases in mining royalties, the government
free carry and also an excess-profits tax, in addition to the
re-designation of cobalt as a strategic metal.
The mining market outlook for 2018 remains broadly
positive as commentators expect underlying commodity
prices to remain strong, balance sheets to continue improving
and equity valuations to tend towards mid-cycle multiples.
A major driver for 2018 will be continued supply-side
constraints driven in part by Chinese environmental reform
initiatives which should continue to negatively impact supply.
The political backdrop in key producing and trading countries
will also increasingly impact sentiment towards the sector,
especially as a potential trade war emerges between the US
and China. Overall, volatility in 2018 should help surface
attractive growth opportunities for Anglo Pacific.
1. EY Report, ‘Mergers, acquisitions and capital raising in mining
and metals – 2018 Outlook’
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 12
S T R A T E G I C R E P O R T
OUR BUSINESS MODEL
C R E A T IN G VA L U E F O R O U R
S H A R EHOL DER S
C R E A T IN G VA L U E F O R O U R
C OUN T ER PA R T IE S
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
S
N
R
U
T
E
R
H
S
A
C
M
R
E
T
-
G
N
O
L
G
N
I
T
A
R
E
N
E
G
An alternative form of financing
to conventional equity, which can be
an expensive form of finance
P R I M A R Y R O Y A L T I E S
Alternative form of finance to
conventional debt providing greater
flexibility and which does not impact
on credit ratings
S E C O N D A R Y R O Y A L T I E S
Source of liquidity for holders of
existing royalties
R
O
T
A
R
E
P
O
E
N
I
M
E
H
T
O
T
R
E
N
T
R
A
P
A
S
A
E
V
R
E
S
E
W
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK
13
HO W W E CR E AT E VA L UE
F OR OUR S H A R EHOL DER S
Our most recent investments (Narrabri, Maracás
Menchen, the Denison financing arrangement
and Piauí) demonstrate, by adhering to exacting
investment criteria and conducting rigorous due
diligence, how management has created value for
shareholders to date. We will look to leverage this
experience and our reputation in the market to
execute our strategy over the coming years.
Generating long-term cash returns
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.
Lower risk through top-line, revenue participation in
mining companies
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.
Lower volatility through commodity and geographic
diversification
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.
Exposure to increases in mineral reserves and production
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 of the royalty holder to
contribute to the cost of expanding or optimising the operation.
Exposure to commodity price upside
Royalties and streams provide exposure to underlying commodity
prices. The Group expects to benefit from a rising commodity price
environment, with the upside feeding through to increased royalty
receipts.
HO W W E CR E AT E VA L UE
F OR OUR C OUN T ER PA R T IE S
An investment by Anglo Pacific, after conducting
thorough due diligence, is seen as an endorsement
of the project, which can provide other stakeholders
with greater confidence and possibly result in a
re-rating for the operator.
We serve as a partner to the mine operator
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.
An alternative form of financing to conventional equity,
which can be an expensive form of 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.
PRIMARY ROYALTIES
Alternative form of finance to conventional debt providing
greater flexibility and which does not impact on credit ratings
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.
SECONDARY ROYALTIES
Source of liquidity for holders of existing royalties
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.
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 14
S T R A T E G I C R E P O R T
OUR STRATEGY
Our strategy is to accelerate our rate of growth by acquiring new
royalties and metal streams in base metals and bulk materials,
focusing on commodities important for new technologies.
DEVELOPMENT
ROYALTIES
Higher returns
OBJECTIVE
Continue to develop as the
leading international
diversified royalty company
with a strong portfolio of
producing and development
assets
STRATEGY
Achieving our objective
through the acquisition
of both primary and
secondary royalties/
streams
CRITERIA
Safe jurisdiction
Long-life assets
High-quality & low-cost assets
Strong operational management team
Diversification of royalty portfolio
Production & exploration upside potential
Near-term production
Cash-flow accretive
PRODUCING
ROYALTIES
Utilising our balance sheet to finance growth, replenishing
the income from our existing portfolio whilst allowing us to pay
shareholders a meaningful and progressive dividend.
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 15
GOAL
Executing the strategy will
result in additional cash
producing royalties and a
stronger portfolio with
long-term upside potential
and dividends to our
shareholders
C A S E S T U D Y
PIAUÍ NICKEL-COBALT
PROJECT
TRANSACTION CONSISTENT
WITH ANGLO PACIFIC’S
GROWTH STRATEGY
This transaction illustrates and ticks all of the
boxes for Anglo Pacific’s strategy to invest a
modest amount of capital into development
assets with future upside potential
H O W W E A R E AC H I E V I N G O U R S T R A T E G Y – PAG E S 16 A N D 17
GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 16
S T R A T E G I C R E P O R T
OUR STRATEGY IN ACTION
PIAUÍ NICKEL-COBALT PROJECT
TRANSACTION CONSISTENT WITH ANGLO PACIFIC’S
GROWTH STRATEGY
STAGE
COMMODIT Y
OPER ATOR
LOC ATION
ROYA LT Y R ATE & T Y PE
BA L A NCE SHEET
CL ASSIFIC ATION
DEV ELOPMENT
NICK EL & COBA LT
BR A ZILI A N NICK EL
LIMITED
BR A ZIL
1% GRR
ROYA LT Y
FINA NCI A L
INSTRUMENT
This transaction illustrates and ticks a ll of the boxes
for A nglo Pacific’s strateg y to invest a modest amount
of capita l into development assets w ith future
upside potentia l.
D I V E R S I F I E D P O R T F O L I O O F R O Y A L T I E S
Pi
Salvador
~£52m1
ALL PIAUÍ TRANCHES
Meaningful potential exposure to
energy storage related commodities
(Nickel & Cobalt)
Current royalty exposure
by asset value at December 31, 2017
Illustrative diversification
All Piauí Tranches 1
Coking coal
Thermal coal
Iron ore
Vanadium
Gold
Uranium
Other
48.8%
20.8%
5.3%
6.3%
3.5%
12.6%
2.7%
Coking coal
Thermal coal
Iron ore
Vanadium
Gold
Uranium
Nickel & Cobalt
Other
39.2%
16.7%
4.2%
5.1%
2.8%
10.2%
20.1%
1.7%
1. Adjusted for book value of Piauí tranche 2 and 3 considerations (US$70m or ~£52.9m). Anglo Pacific has
the right to acquire tranche 2 and tranche 3 royalties upon the achievement of certain Piauí development
milestones subject to final Anglo Pacific board approval
DEMONSTR ATION PL A NT,
TEST HE A PS A ND OTHER
INFR ASTRUCTURE
NICKEL MI X ED H Y DROX IDE
PRODUCT (MHP)
CRUSHING CIRCUIT
©Brazilian Nickel
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK
17
TRANSACTION HIGHLIGHTS
GROW TH STRATEGY
Enhances Anglo Pacific exposure to energy storage
& electric vehicle related commodities
High purity nickel and cobalt hydroxide products
expected to be used for lithium ion batteries and in
traditional markets 1
Further diversifies the Anglo Pacific royalty portfolio
in addition to existing vanadium royalty.
Future growth potential
Potential for attractive returns once Project is ramped-
up with ability to increase exposure as and when Piauí
is de-risked
Low-cost operation 1
Operating costs expected to be less than US$ 3.00/lb
of nickel after refining charges and cobalt credits 1
Established mining jurisdiction 1
Located in an area of Brazil with nearby water, power,
and transport infrastructure in place 1
Partnering with an experienced management team
Established track record in mining and nickel heap
leach operations
Detailed due diligence process
Review of technical and other not publicly available
information
1. Brazilian Nickel disclosure
Anglo Pacific Group entered into a royalty agreement
with Brazilian Nickel Ltd (Brazilian Nickel) to acquire
an initial 1% gross revenue royalty (GRR) over the Piauí
nickel-cobalt project (Piauí or the Project) for a US$2m
(~£1.6m) cash payment
The initial US$2m consideration part funded further
project assessment and the expansion of the existing
nickel-cobalt demonstration plant to a nameplate
production capacity of 1,000 tonnes of nickel per annum
Once the process is proven at the 1,000 tonnes of
nickel per annum level, Brazilian Nickel intends to
ramp-up production to 24,000 tonnes, or alternatively
Brazilian Nickel may pursue a lower-capex staged
development first ramping-up to 10,000 tonnes and then
to 24,000 tonnes of nickel per annum
Upon the achievement of certain Piauí development
milestones and Anglo Pacific board approval for each
tranche, the Company has the right to invest up to a total
of US$70m (~£51.9m) in additional GRRs with proceeds
restricted to funding in-part the construction or expansion
of a processing facility:
Under the staged ramp-up development scenario:
US$20m for an incremental 2.0% GRR when plans for
the construction of a processing plant with a nameplate
capacity of 10,000 tonnes of nickel per annum are
implemented and US$50m for an incremental 2.5% GRR
when plans to ramp-up to 24,000 tonnes of nickel per
annum are implemented; OR
US$70m for an incremental 3.0% GRR at the point when
plans for the construction of a processing plant with a
nameplate capacity of 24,000 tonnes of nickel per annum
are implemented
The staged consideration approach allows for
flexibility with regards to potential Piauí development
scenarios as well as for the Project to be de-risked prior to
Anglo Pacific proceeding with additional tranches
The transaction is in-line with the Company’s strategy
to invest in development opportunities with significant
growth potential to complement its existing portfolio of
income producing assets.
GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 18
S T R A T E G I C R E P O R T
PRINCIPAL RISKS AND UNCERTAINTIES
BACKGROUND
Risk is integral to every aspect of the Group’s
business model and how it executes on its
strategy. We ensure that our investors
understand our business model and how an
investment in Anglo Pacific is different to
investing in an operating company, albeit we
address operating risk closely through our due
diligence procedures. The Board is responsible
for identifying, understanding and managing
these risks. The Audit Committee is then tasked
with overseeing how risk is being managed on
a regular basis.
RISK APPETITE AND VIABILIT Y
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, are 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,
2017
rank
Risk
Catastrophic event
Risk
Category
Market
including the dividend. Under our “severe but
plausible” case, this results in the Group drawing
down 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.
INTER ACTION WITH STR ATEGY
Risk is often perceived purely as a negative and
associated with loss or prevention. In fact, for
Anglo Pacific, the acceptance of a certain level
of risk is part and parcel of its business model
and is necessary in order to generate
investment returns and can often present
opportunities for growth. It is the point at which
the Board determines to accept a higher or
lower appetite for risk that is important in the
context of the Group’s risk framework i.e. the
Board should anticipate or acknowledge that an
event has occurred which has altered the
previously held position on risk.
We have seen this recently at Anglo Pacific,
when the Board relaxed its investment criteria at
the beginning of 2017 to include non-producing
royalties. This was a function of the impact that
the sudden recovery in commodity prices at the
end of 2016 had on the Group’s cash position
which enabled the Board to determine that it
was prepared to accept more risk when
investing modest amounts of surplus cash into
royalties which have the potential to deliver
superior returns over a longer time horizon –
whilst still sticking to strict investment criteria
(as outlined on page 14). Key to this was the view
of the Board that the outlook for commodity
prices was favourable, particularly in the
commodities from which the Group currently
derives most of its income.
Examples
The Board also re-examined country risk, in light
of any developments observed over the course
of the last 12 months. It was decided that there
are some countries, or regions, which have
made considerable progress of late and which
the Group could now consider investing in. This
included certain countries in South America,
Eastern Europe and Africa, although it is unlikely
that the Group will compound risk by investing
in non-income producing royalties in such
jurisdictions.
The Group’s risk framework is designed to
identify instances such as these when the risk
environment changes and there could be an
impact on the Group’s business model or
strategy, in addition to providing the basis for
continuous and robust monitoring and
management of risk.
ACTIVIT Y DURING 2017
The Board was keen to re-examine risk during
2017, and made this a focal point of its annual
strategy day, led by the Chairman. Keen to
encourage an open dialogue and to avoid
“group-think”, the session was facilitated by a
risk expert from outside of the mining industry
who was able to bring an impartial perspective
to the debate.
The Board and senior management were asked
to list their “top three” principal risks in relation
to the business model or strategy. From this list,
the facilitator asked the Chairman and Company
Secretary to compile a list of the top ten risks
which resulted from this exercise.
The following table summarises the top ten
risks (in terms of impact on viability, not
likelihood) as identified and agreed by the Board.
1
2
3
4
5
6
7
8
9
• Prolonged disruption to mining at key royalties
• Material change in mining legislation / nationalisation
Demand for royalties
Market
• Continued price recovery followed by equity demand
Investment approval
Strategic
• Incorrect valuation judgement on jurisdiction / commodity / price /
Operational management
Operational
counterparty / tax
• Monitoring performance of portfolio
• Internal controls / cost control / FX
Operator dependence
Financial
• Honouring royalty obligations
• Remaining focused on maximising the returns of the project
Management performance
Operational
• Focused and motivated to deliver strategy
Pipeline / supply
Strategic
• Lack of suitable opportunities
• Ineffective marketing
Increased competition
Strategic
• Recovery in price outlook triggers increased competition
Financing capability
Financial
• Ability to finance acquisitions
• Dependence
10
Stakeholder support
Operational
• Loss of support from shareholders / lending banks / brokers /
analysts / employees
2016
rank
1
2
4
6
NEW
3
NEW
2
NEW
5
8
7
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 19
Having agreed on the principal risks, the Board
wanted to ensure that it was addressing each
risk appropriately and actively managing any risk
exposure that is within the Board’s control. In
order to do this, a mapping exercise was
undertaken, assisted by the facilitator. Given the
bespoke nature of the Group’s business model,
and being one step removed from being in
control of how the mines are operated, it
became apparent that conventional mapping
tools did not really apply to the Group. As such
the matrix opposite was agreed upon as the
most appropriate.
The template focuses on a “prediction vs
control” concept. This acknowledges that the
impact of market events (in the top right box) on
the Group’s prospects, both pre and post-
acquisition, are both difficult to predict and,
once occurred, are difficult to control. It is risks
that fall into this category which are primarily
outside of management’s ability to either
manage or mitigate, other than by monitoring.
Some risks which are easier to predict (i.e.
operational and financial) can still be difficult to
control, whilst the risks in the bottom two boxes
can be more effectively managed.
The table opposite demonstrates how there
will always be a level of risk tolerated by the
Board in executing the Group’s strategy. It also
identifies techniques which management
should be looking to implement when
addressing risks which have some element to
either control or predict.
CONCLUSION
Monitoring risk is an ongoing process and not
an annual exercise. In order to better govern this,
the Board determined it appropriate that the risk
matrix above be reviewed by the Board on a
quarterly basis, with a more fulsome discussion
on strategy and risk to occur twice a year. This, it
is intended, should allow reporting against the
green and amber risks along with a discussion
where there have been changes in the market
circumstances in the red box.
Taking into account the quantitative
analysis performed around each risk
identified above and having tested these
scenarios under a “severe but plausible”
set of criteria, the Directors conclude that
they have a reasonable expectation that
the Group will be able to continue in
operation and meet its liabilities as they
fall due over the period of their
assessment.
L
O
R
T
N
O
C
O
T
D
R
A
H
L
O
R
T
N
O
C
O
T
Y
S
A
E
F I N A N C I A L
M A R K E T
A N D E V E N T
CATASTROPHIC
EVENT
OPERATOR
DEPENDENCE
FINANCING
CAPABILITY
O P E R A T I O N A L
STAKEHOLDER
SUPPORT
OPERATIONAL
MANAGEMENT
MANAGEMENT
PERFORMANCE
ROYALTY
DEMAND
S T R A T E G I C
PIPELINE
INCREASED
COMPETITION
INVESTMENT
APPROVAL
E A S Y T O P R E D I C T
H A R D T O P R E D I C T
Risk
Characteristics
Management / mitigation
2018 Action points
T
N
E
V
E
D
N
A
T
E
K
R
A
M
L
A
I
C
N
A
N
I
F
C
I
G
E
T
A
R
T
S
L
A
N
O
I
T
A
R
E
P
O
• Difficult to predict outside
of the short term
• Tend to be driven by
market forces or extreme
localised events
Limited ability to manage
or mitigate other than
through ongoing
monitoring
Increase
frequency of
monitoring with
formal review
twice a year
• Easier to predict
through regular cash
flow projections, pipeline
review and operator
updates
• Harder to control as
dependent on
counterparties
Increasing control is
important, with regular
dialogue with lenders and
shareholders (both existing
and potential) considered
important in anticipating the
availability of finance.
Dialogue with counterparties
is also equally important to
discover any early warning
signs of underperformance.
Continue to
focus on operator
performance
and promote the
business with
potential new debt
/ equity investors
and seek
alternative means
of financing
• Easier to control as
the Board can influence
strategic direction based
on market conditions
• Deal-flow is harder to
predict
Increasing prediction
of strategic risks (deal-flow)
is a core focus. The Group
increased its marketing
initiatives significantly
in 2017.
Use the Group’s
strong balance
sheet to
considerably
increase deal-flow
during 2018
• Risks for which good
governance and
internal controls should
limit any financial or
reputational loss
Board Committees, along
with the internal controls,
are designed to mitigate
and prevent loss due to
operational events or
mismanagement.
Zero-tolerance
for escalation i.e.
ensure that
operational risk
remains in the
“green box”.
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017
20
S T R A T E G I C R E P O R T
PRINCIPAL RISKS AND UNCERTAINTIES
continued
T
N
E
V
E
D
N
A
T
E
K
R
A
M
C
I
G
E
T
A
R
T
S
Risk
Possible cause
Mitigation
Management comment and actions
CATASTROPHIC EVENT
• Mine collapse
Monitor
LIKELIHOOD : REMOTE
IMPACT : HIGH
A significant event which
causes revenue to halt from
one of the Group’s key
income producing royalties
would have a profound
impact on the Group’s
prospects.
LACK OF DEMAND
FOR ROYALTIES
IMPACT : HIGH
In order to execute its
strategy, the Group needs
to acquire further royalties
to ultimately replace the
income from Kestrel.
Demand for royalties can
change depending on
macro-economic conditions
at any point in the cycle.
INVESTMENT APPROVAL
IMPACT : MEDIUM
Anglo Pacific’s success will
depend on the performance
of the royalties acquired
matching or exceeding
expectations at the point
of acquisition.
The governance and due
diligence process adopted
by the Group when looking
at each unique investment is
key to reduce the risk of
making a bad investment.
• Natural disaster
• Destruction of
infrastructure
• Resource nationalisation
• Resource contamination
• Failure by royalty
counterparty to make
payments
• Improvement in
commodity prices
• Inflows into mining funds
• Availability of debt
• Demand for
commodities
• Global GDP growth
These risks, by their nature,
are difficult to predict or
influence. The Board monitors
its royalty portfolio and
underlying performance
regularly.
Monitor
The Group monitors the
market closely and pays close
attention to trends and
commentary.
Secondary royalties are less
sensitive to market conditions
and are generally available
through the cycle.
By continuing to focus on
investing in well-established
mining jurisdictions with stable
political and geological history,
along with investing in good
operations and management,
the Group can reduce the
likelihood of the occurrence
of this risk.
LIKELIHOOD : MEDIUM /
LOW
Demand for royalties can
never be predicted, but
demand is usually greater
when the underlying market
conditions are challenging for
small/mid-sized operators.
We continue to see good
demand for royalties and our
pipeline is significantly
developed for growth during
2018.
Misjudging:
• Geology & technical
process
• Long-term commodity
price assumption
• Country risk
• Time to production
• Counterparty covenant
• Economic viability
(project or counterparty)
• Tax regime
Thorough due diligence
The Group has considerable
in-house technical, financial
and tax expertise to identify
potential fatal flaws and uses
consultants to assist with due
diligence.
The Board also has significant
mining experience and
constructively challenges
management on the due
diligence process.
LIKELIHOOD : MEDIUM /
LOW
The current management
team has demonstrated a
track record of successful
investments to date.
Anglo Pacific has strict and
exacting investment criteria
and avoids overly competitive
bidding processes where these
could result in sub-optimal
outcomes.
PIPELINE / SUPPLY
• Ineffective marketing/
Increase deal-flow
IMPACT : HIGH
The Group needs to be
working several potential
deals at any one point
which requires constant
replenishment of
opportunities in its deal
pipeline.
PR
• Insufficiently networked
• Size / financing
credibility
The Group devotes a
considerable amount of
management time to
marketing and attending
trade shows and conferences
with a view to identifying
royalty opportunities.
LIKELIHOOD : MEDIUM /
LOW
The Group has a significant
global network of brokers,
advisors and consultants who
constantly bring deal-flow. In
addition, our significant
management and Board
industry expertise enables us to
identify opportunities internally.
The Group is confident that it
has not lost out on any material
deals during 2017, and is invited
to participate in bidding
processes on a regular basis.
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017
21
C
I
G
E
T
A
R
T
S
L
A
N
O
I
T
A
R
E
P
O
Risk
Possible cause
Mitigation
Management comment and actions
INCREASED
COMPETITION
IMPACT : MEDIUM
Anglo Pacific does not
compete with the well
established precious metals
royalty companies, instead
focusing on the base and bulk
sector.
Competition can always arise,
and Anglo Pacific is not
complacent in driving the
growth of its business.
• Recovery in the mining
Continue to scale
sector
• Inflows into private
equity funds
• Low bond yields entice
life assurance / pension
funds
• Change of focus from
precious metal peers
Anglo Pacific has considerable
first mover advantage in a
capital-intensive business
model, with a highly cash
generative portfolio to
leverage and facilitate growth.
It also has considerable
contacts throughout the
sector to generate deal-flow
along with expertise in terms
of appraising and valuing
royalty transactions.
LIKELIHOOD : MEDIUM /
LOW
Some direct competition exists
but this has not had a material
impact on our growth hitherto.
With a focus on non-precious
metals and being a permanent
capital vehicle, management
considers itself well placed to
be an attractive partner for
small/medium-sized operators.
Risk
Possible cause
Mitigation
Management comment
OPERATIONAL
MANAGEMENT
IMPACT : LOW
Inadequate attention to detail
in managing the business.
MANAGEMENT
PERFORMANCE
IMPACT : LOW
Ensuring that management is
performing to the standards
expected of them for the
benefit of all stakeholders.
• Monitoring accuracy of
royalty payments
Maintaining high
standards
• Monitoring newsflow
impacting counter-
parties
• Lax cost control
• Managing risky
investment processes
• Appropriateness and
functioning of internal
controls
• Leadership
The Group undertakes a
thorough budgeting process
each year which highlights the
reasons for variances.
Costs are reported against
budget on a monthly basis to
identify timely instances of
any unexpected expenditure.
Management performance is
monitored by the Board.
LIKELIHOOD : LOW
Management are committed to
the highest standards of
internal control, in running the
Company to the standards
which would be expected of a
FTSE listed organisation in
order to maximise shareholder
returns.
• Underperformance
Performance review
LIKELIHOOD : LOW
• Unmotivated
• Uncommitted
• Lack of focus
Anglo Pacific is a small
organisation in terms of
headcount where everybody
has to perform to the highest
standards.
Any underperformance would
be readily evident and dealt
with by the CEO and Board
promptly.
The Remuneration Committee
undertakes a thorough review
of performance each year,
with any rewards being strictly
granted upon demonstrated
meeting of pre-agreed
objectives.
In addition, the Board regularly
undertakes an annual
self-assessment, which was
performed by a consultant
during 2017 to identify any
skills gaps or the way in which
the Board works together.
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 22
S T R A T E G I C R E P O R T
PRINCIPAL RISKS AND UNCERTAINTIES
continued
L
A
N
O
I
T
A
R
E
P
O
Risk
Possible cause
Mitigation
Management comment
STAKEHOLDER SUPPORT
• Underperformance
• Deviating from strategy
• Alterations to dividend
• Excessive risk-taking
• Poor communications
IMPACT : MEDIUM/LOW
Anglo Pacific needs to be well
supported by all stakeholders
including:
• Shareholders
• Lending banks
• Brokers
• Analysts
• Employees
• Media
Close dialogue with
stakeholders
LIKELIHOOD : MEDIUM/
LOW
Anglo Pacific keeps in close
contact with all stakeholders.
We spend a considerable
amount of time working
with our bankers, brokers
and analysts, explaining our
strategy, progress and
development plans which
gives us a gauge for what the
likely market reaction to our
plans will be.
We remain close to lenders
and brokers to anticipate
demand for any increase in
debt/equity capacity.
We regularly conduct
roadshows to see major
shareholders, engage with
retail investors through private
client broker networks and
often visit potential new
investors, both in Europe and
North America.
We actively encourage
participation at our AGM, which
gives shareholders of all sizes
the opportunity to ask
questions to our entire Board
and management.
We regularly meet and discuss
investment opportunities.
L
A
I
C
N
A
N
I
F
OPERATOR
DEPENDENCE
IMPACT : MEDIUM
The Group is dependent on
the operators of the mines
over which it has royalties to
continue to honour royalty
contracts and make timely
and accurate royalty
payments, and to continue
to operate and finance their
business in a sensible and
responsible manner.
FINANCING
CAPABILITY
IMPACT : MEDIUM / HIGH
The Group is dependant on
access to capital in order to
finance its growth ambitions.
• Market conditions
Diversify dependence
LIKELIHOOD : MEDIUM
The Group has a good
relationship with most of the
underlying operators and aims
to visit site at least once every
second year.
• Poor CSR/environmental
record
• Overleveraging
• Inaccurate royalty
calculation
• Non-payment/disputes
The best way the Group can
mitigate dependence on any
one operator is to continue
to expand and diversify its
royalty portfolio to ensure that
it has a well-balanced source
of income.
APG has audit rights which
it generally exercises on the
identification of any
unexpected royalty outcome.
The Group tries to insert
change of control clauses into
its new royalty agreements to
ensure its exposure is to
counterparties of good
reputation.
• Sudden adverse
change in equity market
conditions
• 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
• Execution risk through
inadequate immediate
access to finance
High quality deal-flow
LIKELIHOOD : MEDIUM
It is managements’ view that
high quality, accretive deals
should always be capable of
being financed. We regularly
meet with advisors,
shareholders and lenders to
discuss the types of deals we
are looking at to gauge their
support.
We will look to finance
non-income producing
royalties primarily from our
internal resources.
Our record income year in 2017,
along with being debt free and
cash generative, naturally
increases the financing
capability of the Group.
Given the strength of the
balance sheet and the outlook
for 2018, we believe we have
higher debt capacity and will
look to use internal resources
before needing to rely on
equity markets to finance
opportunities.
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 23
L
A
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C
N
A
N
I
F
Risk
Possible cause
Mitigation
Management comment
CREDIT RISK
IMPACT : LOW
That there is a risk of default
by those owing the Group
money or those institutions
holding the Group’s cash
reserves.
FOREIGN EXCHANGE
RISK
IMPACT : MEDIUM/LOW
That foreign exchange
movements adversely impact
on the Group’s cash flow
projections.
INTEREST RATE
RISK
IMPACT : LOW
That an increase in interest
rates could adversely impact
on the Group’s prospects.
COMMODITY AND
OTHER PRICING RISK
IMPACT : HIGH
The Group’s results are
determined by other pricing
inputs which could result in
unrealised losses at each
reporting date.
• Royalty payment default
• Bank collapse
• 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’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 has a portfolio
of certain publicly
quoted equity
investments which are
marked to market at
each reporting date
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.
LIKELIHOOD : LOW
The risk of counterparty default
is assessed when entering into
new royalty agreements. The
Directors are confident that the
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 Board approved a
currency hedging policy
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.
LIKELIHOOD : MEDIUM
Management engaged with a
specialist consultant during the
year to review foreign exchange
risk. The review concluded that
the Group’s policy is, by and
large, sufficient. Commodity
price risk is the primary risk and
the objective is to keep foreign
exchange as a secondary risk.
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.
LIKELIHOOD : LOW
Interest rates currently remain
at low levels, although they
have been rising recently. This
could impact on the cost of the
Group’s capital when acquiring
future royalties.
The Group uses independent
third party consensus prices
at each reporting date in
assessing for impairment.
The Group’s equity portfolio
has largely been divested,
meaning any future
impairment should be much
less material to the Group.
LIKELIHOOD : HIGH
The Group is exposed to
commodity prices and a
significant decrease in
commodity prices is likely to
result in further impairment
charges.
At this stage the Board does
not hedge against specific
commodity risk, and will
continue to review this position
in light of commodity prices.
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 24
S T R A T E G I C R E P O R T
MEASURING OUR PROGRESS
KEY PERFORMANCE INDICATORS
R O Y A L T Y I N C O M E ( £ m )
£37.4m
+90%
A D J U S T E D E A R N I N G S
P E R S H A R E ( p )
16.82p
+72%
D I V I D E N D C O V E R ( x )
2.4x
+50%
F R E E C A S H F L O W
P E R S H A R E ( p )
23.20p
+193%
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)
Adjusted earnings per share excludes any non-cash valuation
movements, 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.
Valuation and other non-cash movements such as these are
not considered by management in assessing the level of profit
and cash generation available for distribution to shareholders.
As such, an adjusted earnings measure is used which reflects
the underlying contribution from the Group’s royalties during
the year.
Adjusted earnings divided by the weighted average number
of shares in issue gives adjusted earnings per share.
(refer to note 11 for further details)
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.
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 has 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 and any cash considered as
repayment of principal, less finance costs by the weighted
average number of shares in issue.
(refer to note 33 for further details)
R O Y A L T Y A S S E T S
A C Q U I R E D ( £ m )
£29.4m
The Group’s strategy is to acquire royalties which will be
accretive and in turn enable dividend growth. The chart
shows how much the Group invested in royalty acquisitions
in each period.
37.4
19.7
8.7
3.5
2014
2015
2016
2017
16.82
9.76
14.7
2013
8.39
2.47
-1.97
2014
2013
2015
2016
2017
2.4
1.6
0.8
2013
0.0
2014
0.4
2015
2016
2017
23.20
10.65
7.93
4.93
2013
2014
2.93
2015
2016
2017
45.0
16.2
29.4
6.3
0.0
2013
2014
2015
2016
2017
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 S T R A T E G I C R E P O R T
BUSINESS REVIEW
25
6
PRODUCING
ROYALTIES
KESTREL
NARRABRI
MARACÁS
MENCHEN
EL VALLE-BOINÁS/
CARLÉS (EVBC)
FOUR MILE
McCLEAN LAKE
MILL
89.3%
89.3% OF THE PORTFOLIO
IS PRODUCING
ROYALTIES
5
COMMODITIES
C
COKING COAL
C
THERMAL COAL
VVANADIUM
Au
GOLD
U
URANIUM
48.8%
EXPOSURE TO COKING COAL
NOW LESS THAN 50%
GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 26
S T R A T E G I C R E P O R T
BUSINESS REVIEW
continued
KESTREL
STAGE
PRODUCING
COMMODIT Y
COKING COA L
OPER ATOR
LOC ATION
RIO TINTO
AUSTR A LI A
ROYA LT Y R ATE & T Y PE
7 – 15% GRR
BA L A NCE SHEET
CL ASSIFIC ATION
IN V ESTMENT
PROPERT Y
K
WHAT WE OWN
Kestrel is an underground coal mine
located in the Bowen Basin, Queensland,
Australia. It is operated by Rio Tinto
Limited (‘Rio Tinto’). The Group owns 50%
of certain sub-stratum lands which,
under Queensland law, entitle it to coal
royalty receipts from the Kestrel mine.
The royalty rate to which the Group is
presently entitled is prescribed by the
Queensland Mineral Resources
Regulations. These regulations currently
stipulate that the basis of calculation is
a three-tiered fixed percentage of the
invoiced value of the coal as follows:
Average price per tonne for period
UP TO AND INCLUDING A$100
Brisbane
OVER A$100 AND UP TO
AND INCLUDING A$150
MORE THAN A$150
FIRST A$100
BAL ANCE
FIRST A$100
NEXT A$50
BAL ANCE
Rate
7%
7%
12.5%
7%
12.5%
15%
PERFORMANCE
The Group received royalty income of
£28.7m from Kestrel during 2017, an
increase of 119% compared to £13.1m in
2016 and £3.6m in 2015. The significant
increase in royalty income in 2017 was due
to a combination of higher overall tons
sold, a much higher portion of these sales
from production within the Group’s private
royalty land (see below), higher average
realised prices and a favourable exchange
gain on translating the Australian dollar
income into pounds (average rate in 2017:
1.6811; 2016: 1.8252).
OUTLOOK
In accordance with Anglo Pacific’s
Kestrel information rights, the Group
estimates that 90%+ of mining at Kestrel
will be within our royalty lands during
2018 (2017: 93%, 2016: 67%).
KESTREL MINE PL A N, SHOW ING
DIRECTION OF MINING COMPA RED TO
PRI VATE L A ND BOUNDA RY
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 2017
Overall production from Kestrel in 2017
was 5.1mt, which was slightly ahead of
the 4.9mt produced in the previous year.
With life of mine ROM guidance of 5.7mt
per annum, there remains some growth
to come in terms of volumes from Kestrel.
VALUATION
The Kestrel royalty was independently
valued at A$180.2m (£104.3m) and
accounts for 41% of the Group’s total
assets as at December 31, 2017 (2016:
A$200.3m; £116.9m; 46%). Having
generated £28.7m of income from Kestrel
during the year, the decrease in valuation
of £12.6m means that resource depletion
has been offset somewhat by a revision to
forward price assumptions, with the
consensus view showing that the
long-term price for coal has increased by
6% compared to the end of 2016.
The decrease in the valuation of Kestrel
resulted in a loss of £11.9m (2016: gain
£17.9m) on the income statement,
together with a foreign currency
translation loss of £0.7m (2016: gain
£16.3m). 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 £75.1m
(2016: £82.4m).
Coal royalty income (£m)
Coal royalty valuation (£m)
28.7
131.4
117.1
116.9
104.3
82.6
13.1
3.6
2015
2016
2017
2013
2014
2015
2016
2017
9.9
2013
1.7
2014
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017
27
NARRABRI
STAGE
PRODUCING
COMMODIT Y
THERM A L & PCI COA L
OPER ATOR
LOC ATION
W HITEH AV EN COA L
AUSTR A LI A
ROYA LT Y R ATE & T Y PE
1% GRR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y
INTA NGIBLE
Brisbane
N
Sydney
NA RR A BRI MINE PL A N, SHOW ING
SOUTH POTENTI A L E X PA NSION A RE A
Area
already
mined
Area
currently
being
mined
N A R R A B R I
N O R T H
L O N G W A L L S
NARRABRI
SOUTH
POTENTIAL
EXPANSION
AREA
THE NA RR A BRI MINE H AS SCOPE TO
M ATERI A LLY INCRE ASE PRODUCTION
OV ER THE SHORT A ND MEDIUM TERM
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 increase
production over the short and medium
term, following Whitehaven’s approval to
expand production to 11Mt per annum.
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
Production continues to be impacted
by a fault which runs through a portion
of the deposit, as announced by
Whitehaven at the start of 2017. They
are also experiencing changing roof
conditions in certain parts of the
longwall which is also slowing down
production rates.
As such, Whitehaven revised its guidance
for FY 2017 (12 months ended June 30,
2017) downwards by ~0.5mt. Actual ROM
produced was just below guidance.
Bringing these numbers into a calendar
year, and translating to sales, Narrabri
posted sales of 6.7mt in 2017, which was
down on 7.8mt in 2016.
Importantly for Anglo Pacific, the pricing
environment was favourable over this
period, such that price more than
compensated for the reduced volumes
allowing Anglo Pacific to show an
increase in royalty income of 17%.
Whitehaven noted an increase in
demand for higher quality thermal coal
along with some supply disruptions in
South East Asia combined to support a
higher price for seaborne Australian
thermal coal over the past 12 months.
Whitehaven considers the outlook for
thermal coal in the short to medium
term to be favourable.
OUTLOOK
Whitehaven has reduced its guidance
for FY 2018 from 8.0-8.4mt to 6.0-6.5mt,
reflecting the geotechnical issues noted
above. It has guided production levels of
7.7mt for FY 2019 and 7.0mt for FY 2020.
Whitehaven is a supplier of some of the
highest quality coal globally. Many of its
customers operate high efficiency low
emission (HELE) technologies, particularly
in South East Asia. Combining high quality
coal with HELE technology, Whitehaven
believes, will have a positive impact on
air pollution. It sees considerable growth
in this technology which should ensure
good demand for their products in the
longer term.
Source: Whitehaven 2017 Annual Report pages 20-23
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.
Narrabri ROM production 2014-17
Narrabri royalty income (£m)
6,000
5,000
4,000
3,000
2,000
1,000
4
1
.
2
H
5
1
.
1
H
5
1
.
2
H
6
1
.
1
H
6
1
.
2
H
7
1
.
1
H
7
1
.
2
H
4.9
4.2
3.2
2015
2016
2017
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 28
S T R A T E G I C R E P O R T
BUSINESS REVIEW
continued
MARACÁS MENCHEN
STAGE
COMMODIT Y
OPER ATOR
LOC ATION
PRODUCING
VA NA DIUM
L A RGO RESOURCES
BR A ZIL
ROYA LT Y R ATE & T Y PE
2% NSR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y
INTA NGIBLE
Ma
Salvador
THE PROJECT IS LOC ATED 250K M
SOUTH-W EST OF THE CIT Y OF SA LVA DOR,
THE C A PITA L OF BA HI A STATE, BR A ZIL
Maracás production 2015-17
Production Cost US$/lb Spot
3,000
2,500
2,000
1,500
1,000
500
2015
2016
2017
14.00
12.00
10.00
8.00
6.00
4.00
2.00
Maracás royalty income (£m)
2.0
0.8
0.6
2015
2016
2017
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 covers an
area in excess of the current permits which
offers the Group the potential for some
exploration upside. Maracás Menchen is
99.97% owned and operated by TSX listed
Largo Resources Limited (‘Largo’).
PERFORMANCE
Largo has had a very strong year,
regularly posting record levels of monthly
production at Maracás Menchen. This has
coincided with a notable recovery in the
price of vanadium pentoxide (‘V2O5’) during
2017. As a result, the Group’s revenue
increased from £0.8m in 2016 to £2.0m
in 2017, a 155% increase.
Largo announced a record quarter of
production for Q4 2017 of 2,539 tonnes,
which was 5.8% above the nameplate
capacity of the plant. Total production for
2017 was 9,297 tonnes, a 17% increase
from the previous year.
The chart (left) shows the progress Largo has
made since they commenced commercial
production at the beginning of 2015.
Largo has been achieving steady
production since Q2 2016, with a slight
reduction at the start of 2017 reflecting a
planned 20 day shut down of the plant to
perform improvement works.
The chart also shows the strong recovery
in vanadium prices over the past 18 months
or so. Largo, one of the lowest cost global
pure play producers of vanadium has, at
the same time, managed to considerably
reduce its costs, meaning at current prices
it is highly profitable at operating level. V2O5
prices were approximately $10/lb at the
end of 2017 and have traded above these
levels in 2018.
The strength of production at Maracás
Menchen during the year resulted in the
first US$1.5m tranche of the deferred
consideration becoming due and payable
in November 2017. This amount had been
expected to become payable for some time,
and was fully provided for at December 31,
2016. 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.
VANADIUM PRICING AND OUTLOOK
The vanadium market is relatively small and
pricing opaque. That said, the fundamentals
behind pricing, both in terms of supply and
demand, currently look favourable. V2O5
prices increased by 130% over the past year
due to tightened supply, stricter steel
regulations in China and strong orders from
steel manufacturers.
On the supply side, a lot was taken out of
the market when lower quality Chinese
iron ore mines were forced to shut over
the last 12 months. Vanadium is often a
by-product of iron ore, with 70% of the
global supply coming from slag generated
in Russia and China.
A significant amount of supply came off
the market with the Highveld operation in
South Africa, Atlantic Vanadium and MVPL
going into administration in 2015, although
the fall in prices around that time was, in
our view, most likely down to product
being dumped onto the market following
the closure of mines. As a result, the supply
side pressure has come out of the market
somewhat over the past few years.
On the demand side, the Chinese
environmental closures coincided with
relatively low stock levels prompting a
price spike. In addition, in the second half
of 2017 it appeared that there was a shift
in demand for higher rebar quality steel in
China, following the collapse of buildings
constructed using weaker steel in recent
earthquakes. This was confirmed by Largo
on February 9, 2018 which it expected to
result in higher demand for high strength
low alloy vanadium steel.
Longer term, vanadium has also been
proven to be highly efficient in the
manufacture and performance of large
battery storage technology. This could
provide a very significant secondary use
for vanadium and alter the supply
demand profile even more favourably
towards producers in what is already a
tight market for steel demand.
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.
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 29
EL VALLE-BOINÁS/CARLÉS
(EVBC)
STAGE
PRODUCING
COMMODIT Y
GOLD, COPPER & SILV ER
OPER ATOR
LOC ATION
ORVA NA MINER A LS
SPA IN
ROYA LT Y R ATE & T Y PE
2.5 – 3% NSR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y FINA NCI A L
INSTRUMENT
Ev
Bilbao
Madrid
EVBC royalty income (£m)
4.0
1.7
1.2
1.2
1.7
2013
2014
2015
2016
2017
FOUR MILE
STAGE
COMMODIT Y
OPER ATOR
LOC ATION
PRODUCING
UR A NIUM
QUASA R RESOURCES
AUSTR A LI A
ROYA LT Y R ATE & T Y PE
1% NSR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y
INTA NGIBLE
Fm
Adelaide
Sydney
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
£1.7m from EVBC during the past year.
This compares to £1.2m received in 2016.
Orvana achieved a much better outcome
in 2017, with gold production up 24% and
copper production up 44%.
The production increases achieved during
2017 followed investment by Orvana in
infrastructure and equipment over the
course of the last 18 months. Increased
production and throughput helped to
compensate for declining grades during
the year. Orvana are focused on increasing
the proportion of high grade ore being fed
to the process plant during FY 2018.
Orvana sustained a mill throughput rate
of over 2, 000t per day in the second half
of their FY 2017, matching those reported
in December 2016.
OUTLOOK
Using a midpoint range, Orvana is guiding
gold production of 68,500oz for FY 2018
(to September 30, 2018), which would
represent an increase of 32.9% on FY 2017.
Orvana is also targeting near mine
exploration at the Carles Mine, with
2,700m of infill drilling undertaken during
FY 2017, along with 23,000m at El Valle.
It is also continuing to explore greenfield
expansion on the investigation permits
which are located adjacent to the EVBC
mine. As such, we remain of the view that
there is a good prospect of mine life
extension at EVBC.
Anglo Pacific earns a royalty over all
throughput from the EVBC process plant
and is not restricted to licence geographic
boundaries.
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.
WHAT WE OWN
The Group has a 1% life of mine NSR
royalty on the Four Mile uranium mine in
South Australia. Four Mile is operated by
Quasar Resources Pty Ltd (‘Quasar’).
PERFORMANCE
The Group did not receive any income
from its Four Mile royalty in 2017
compared to the £0.3m it received
during 2016. This is due to the ongoing
dispute with the operator over how the
royalty should be calculated. Quasar
continues to treat the contract, in our
view, as akin to a profit interest, whereas
the Group remain of the view that this is
an NSR and that refining or processing
costs should not be taken into account.
We have engaged with senior counsel,
lawyers and experts in Australia to build
a case file and, once complete, we will be
seeking to escalate the matter through
the judicial system in South Australia.
We remain confident of being successful
in this process.
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.
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 30
S T R A T E G I C R E P O R T
BUSINESS REVIEW
continued
McCLEAN LAKE MILL
STAGE
COMMODIT Y
OPER ATOR
PRODUCING
UR A NIUM
DENISON MINES INC./
A REVA / C A MECO
LOC ATION
C A NA DA
ROYA LT Y R ATE & T Y PE
TOLLING REV ENUE
BA L A NCE SHEET
CL ASSIFIC ATION
LOA N & ROYA LT Y
FINA NCI A L
INSTRUMENT
Mc
Saskatoon
Vancouver
LOC ATED W EST OF WOLL ASTON L A K E, ON
THE E ASTERN EDGE OF THE ATH A BASC A
BASIN IN NORTHERN SASK ATCHEWA N,
C A NA DA, A PPROX IM ATELY 750
KILOMETRES NORTH OF SASK ATOON
WHAT WE OWN
Anglo Pacific provided Denison Mines Inc
(Denison) with a C$40.8m 13-year loan
bearing interest at a rate of 10%pa. The
interest payments are payable from the
cash flows which Denison receives from
the toll revenue generated from its 22.5%
interest in the McClean Lake mill,
operated by Orano Group (previously
Areva). The mill processes all ore currently
produced from the nearby, world class,
Cigar Lake uranium mine, operated by
Cameco, and pays a $/lb toll rate for use
of the mill. In any period where the cash
flow from the toll revenue exceeds the
interest payment, the balance is received
by Anglo Pacific as a repayment of
principal. In any period where the cash
flows are less than the interest, the
interest will capitalise and be repaid out
of cash flows in the following period.
Any amounts outstanding at maturity are
due and payable regardless of the cash
generated from the toll.
In addition to the loan, the Group also
entered into a financial transaction with
Denison to purchase the entire share of
their toll receipts received from Cigar Lake
for C$2.7m. This allows for potential mine
life extension at Cigar Lake.
PERFORMANCE
The Cigar Lake mine produced 18Mlbs
of uranium during 2017, meeting
Cameco’s production guidance and our
expectations. The cash flow received by
Denison under the toll arrangement
should produce a regular and predictable
flow of cash, owing to the world class
deposit and blue-chip operator supplying
the mill. The cash received of £5.0m
during 2017 included an amount of
£1.8m relating to H2 2016. As such, the
remaining £3.2m generated represents
the level of run rate we would expect to
see on an annual basis.
The income from the toll revenue is not
sensitive to movements in the uranium
price, which continues to be depressed.
As such, the Group’s cash flows will not
alter with uranium price fluctuations.
The risk to the Group’s cash flow from
this asset could arise if uranium prices fall
to a level where the operation providing
the throughput to the mill became
uneconomic and shutdown. The Group
considers this unlikely in the case of
Cigar Lake.
VALUATION
The loan instrument is accounted for
as a receivable and carried at amortised
cost. The stream is considered a financial
instrument in accordance with the
Group’s accounting policies and is
therefore carried at fair value.
THE MCCLE A N L A KE MILL IS SPECI A LLY
DESIGNED A ND CONSTRUCTED TO PROCESS
HIGH GR A DE UR A NIUM ORES IN A SA FE A ND
EN V IRONMENTA LLY RESPONSIBLE M A NNER
THE MILL PROCESSES A LL ORE CURRENTLY
PRODUCED FROM THE NE A RBY, WORLD CL ASS,
CIGA R L A KE MINE
©Denison Mines
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017
31
3
DEVELOPMENT
ROYALTIES
SALAMANCA
GROUNDHOG
PIAUI
(pages 15 to 17)
1.8%
1.8% OF THE PORTFOLIO
IS DEVELOPMENT
ROYALTIES
3
COMMODITIES
U
URANIUM
C
ANTHRACITE
Ni
NICKEL-COBALT
GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 32
S T R A T E G I C R E P O R T
BUSINESS REVIEW
continued
SALAMANCA
STAGE
DEV ELOPMENT
COMMODIT Y
UR A NIUM
OPER ATOR
LOC ATION
BERKELEY ENERGI A
SPA IN
ROYA LT Y R ATE & T Y PE
1% NSR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y
INTA NGIBLE
Sa
Madrid
THE SA L A M A NC A PROJECT IS BEING
DEV ELOPED IN A N HISTORIC UR A NIUM
MINING A RE A IN W ESTERN SPA IN
A BOUT 250K M W EST OF M A DRID
These fundraising initiatives largely
remove the financing risk associated
with construction of the mine. Progress
is continuing at site, with the delivery to
site of the primary crusher in July 2017.
Berkeley continues to explore for
additional deposits similar to that of
Zona 7.
Berkeley expect construction to be
largely completed by the end of 2018
with production commencing shortly
thereafter.
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. In 2016,
we noted that Resource Capital Funds
acquired a separate royalty over the
project. This royalty was on identical
terms to Anglo Pacific’s and on a pro-rate
basis would value the Group’s royalty at
US$13.3m, compared to its carrying cost
of A$4.1m (~US$3.2m).
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 another eventful and
successful year.
Berkeley began the year by announcing
an offtake agreement with Curzon
Resources under which it will provide
2Mlbs of uranium per annum over five
years at US$43/lb, a significant
commercial milestone. Berkeley
announced in December that it has now
contracted uranium for 2.75Mlbs for the
first six years, and has granted the Oman
sovereign wealth fund the right to match
any future long-term offtake agreements.
A large focus for the year was on raising
finance to fund the construction of the
mine. To that extent and undoubtedly
the highlight of the year for Berkeley was
the agreement entered into with the
sovereign wealth fund of the Sultanate
of Oman to invest up to $120m into the
project. The first $65m was received in
November 2017. This is in addition to
Berkeley’s $30.0m equity raise in H1 2017.
BERKELEY E X PECT CONSTRUCTION TO
BE L A RGELY COMPLETED BY THE END OF
2018 W ITH PRODUCTION COMMENCING
SHORTLY THERE A FTER
©Berkeley Energia
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 33
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.
PERFORMANCE
There was limited progress by Atrum
in relation to Groundhog during the
year as it focused its efforts on acquiring
outright the Elan hard coking coal
project in Alberta. Atrum is continuing
discussions with potential partners to
help advance the project.
Atrum is currently awaiting the results
of drilling undertaken on the Panorama
North deposits and will announce these
results as soon as they are signed off.
VALUATION
The Groundhog royalty is classified as a
royalty intangible asset on the balance
sheet. As such, this asset is carried at
cost less amortisation and impairments.
Royalty intangible assets are amortised
when commercial production
commences, on a straight-line basis over
the expected life of the mine.
GROUNDHOG
STAGE
COMMODIT Y
OPER ATOR
LOC ATION
DEV ELOPMENT
A NTHR ACITE
ATRUM COA L
C A NA DA
ROYA LT Y R ATE & T Y PE
1% GRR OR US$1.00/T
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y
INTA NGIBLE
G
Vancouver
THE GROUNDHOG A NTHR ACITE
PROJECT IS LOC ATED IN NORTH-W EST
BRITISH COLUMBI A, C A NA DA
A N UNDERGROUND PROJECT C A PA BLE OF
PRODUCING 880K TPA OF ULTR A-HIGH
GR A DE A NTHR ACITE OV ER A MINE LIFE
OF 28 Y RS
©Reuters
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 34
S T R A T E G I C R E P O R T
BUSINESS REVIEW
continued
3
EARLY-STAGE
ROYALTIES
RING OF FIRE
PILBARA
DUGBE 1
8.9%
8.9% OF THE PORTFOLIO
IS EARLY-STAGE
ROYALTIES
3
COMMODITIES
Cr
CHROMITE
Fe
IRON ORE
Au
GOLD
ANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017APG_AR17_28.03.18_FRONT_ARTWORK 35
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.
MINE DEVELOPMENT
STR ATEGY
FIRST DEV ELOPMENT
W ILL BE E AGLE’S NEST,
FOLLOW ED BY BL ACKBIRD
BUTLER
McFAULDS
BLACKBIRD
THUNDER
BIRD
JJJ
KYLE
AT-12
BIG DADDY
BLACK THOR
BLACK
LABEL
McFADYEN
FUTURE
OPTIONS
PRELIMINARY
ECONOMIC ANALYSIS
EAGLE’S
NEST
FEASIBILITY
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
There was limited progress reported by
Noront in the year. Noront has several
projects in the region, and it is currently
appraising sites for the location of its
proposed ferrochrome production facility.
In its AGM presentation, published on
June 7, 2017, Noront indicated that the
Eagle’s Nest project is currently within
the feasibility stage, while preliminary
economic analysis is being undertaken in
respect of the Blackbird and Black Thor
projects, with the latter being subject to
the Group’s Ring of Fire royalty.
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 Angeles 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.
We were further encouraged by BHP’s
announcement on June 26, 2017 that
they were approving capex of $184m to
commence funding its South Flank
project. Although this does not bring
mining within the Group’s royalty
licences, it does indicate that BHP are
now moving in this direction. The
expansion will leverage the existing
infrastructure around Mining Area C.
VALUATION
The Pilbara royalty is classified as a
royalty intangible asset on the balance
sheet. As such, this asset is carried at
cost less amortisation and impairments.
Royalty intangible assets are amortised
when commercial production
commences, on a straight-line basis over
the expected life of the mine.
RING OF FIRE
STAGE
COMMODIT Y
OPER ATOR
LOC ATION
E A RLY-STAGE
CHROMITE
NORONT
RESOURCES
C A NA DA
ROYA LT Y R ATE & T Y PE
1% NSR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y
INTA NGIBLE
R
Thunder Bay
THE GROUP H AS CL A IMS ON THE BL ACK
THOR, BL ACK L A BEL A ND BIG DA DDY
CHROMITE DEPOSITS IN THE RING OF
FIRE REGION OF NORTHERN ONTA RIO,
C A NA DA
PILBARA
STAGE
E A RLY-STAGE
COMMODIT Y
IRON ORE
OPER ATOR
LOC ATION
BHP BILLITON
AUSTR A LI A
ROYA LT Y R ATE & T Y PE
1.5% GRR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y
INTA NGIBLE
Pi
Perth
THE GROUP H AS THREE E X PLOR ATION
TENEMENTS IN THE CENTR A L PILBA R A
REGION OF W ESTERN AUSTR A LI A
APG_AR17_28.03.18_FRONT_ARTWORKGROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017
36
S T R A T E G I C R E P O R T
BUSINESS REVIEW
continued
DUGBE 1
STAGE
E A RLY-STAGE
COMMODIT Y
GOLD
OPER ATOR
HUMMINGBIRD
RESOURCES
LOC ATION
LIBERI A
ROYA LT Y R ATE & T Y PE
2 – 2.5% NSR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y FINA NCI A L
INSTRUMENT
Monrovia,
Liberia
Du
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.
PERFORMANCE
There has been limited progress in the
year to advance the Dugbe 1 project.
Although the Mineral Development
Agreement has been signed by the
Government, it has yet to be passed into
law. Until such time as this is done, it is
unlikely that any meaningful investment
will be made. In the meantime,
Hummingbird are making considerable
progress in bringing their Yanfolila gold
mine in Mali into production, which
achieved first gold pour on December
19, 2017. Hummingbird’s management
team has done a great job in bringing a
project to production, and this
experience should stand it in good stead
when it turns its attention to Dugbe 1.
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. There are
certain provisions within the contract
which would entitle Anglo Pacific to seek
its capital to be returned, however, at
present the prospect of these being
triggered seems remote.
JOGJAKARTA
STAGE
COMMODIT Y
OPER ATOR
LOC ATION
E A RLY-STAGE
IRON SA ND
INDO MINES
INDONESI A
ROYA LT Y R ATE & T Y PE
1 - 2% NSR
BA L A NCE SHEET
CL ASSIFIC ATION
ROYA LT Y FINA NCI A L
INSTRUMENT
Jakarta,
Java
Jo
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
The Group fully provided for the
remaining carrying value of its Indo Mines
debenture at June 30, 2017. Since then,
Indo Mines’ main shareholder, the
Rajawali Group, has launched a takeover
approach for the company, having
invested considerable amounts of capital
over the past few years. The takeover is
intended to cover both debt and equity.
Anglo Pacific agreed to settle the
remaining outstanding debt of
US$4.0m at 50c in the dollar and for
full recovery of interest (both capitalised
and accruing) up until the date of the
completion of the takeover, currently
expected to be March 28, 2018.
Importantly, the debt settlement is not
conditional on a successful takeover
outcome but is contractually payable ten
business days after the close of the
takeover period. As such, the Group can
expect to receive ~US$2.3m around the
middle of April 2018. This receivable has
not been included on the balance sheet.
VALUATION
The Jogjakarta royalty interest is
accounted for as an available-for-sale
debt instrument at fair value, currently
deemed to be £nil.
APG_AR17_28.03.18_FRONT_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017
37
FINANCIAL REVIEW
2017 was another year of significant growth for Anglo Pacific. Royalty income increased by 90% to a record £37.4m, the third year of posting a
significant increase in revenue. The increase in the current year was due to a combination of increased commodity prices across the portfolio
along with a significant increase in mining within the Group’s private royalty land at Kestrel compared to 2016.
This record level of royalty revenue led to significant cash being generated during 2017 which, when including the £5.0m receipts from the
Denison financing arrangement and £2.4m from non-core assets, resulted in free cash flow of £41.5m (2016: £13.4m). This cash was used to
invest £16.4m into the portfolio, pay £15.9m to shareholders as dividends and repay our borrowings in full.
There is some organic growth expected from the portfolio during 2018, but this is not expected to result in a material increase in revenue as
has been the case in the past three years. As such, the focus for 2018 is to leverage our unencumbered balance sheet and strong cash flow
to add further royalties to our portfolio.
2018 will also see the introduction of IFRS9, which will have an impact on how our results are presented. Income from EVBC will no longer be
shown as royalty income on the face of the Income Statement. Instead, the royalty will appear as a debt like asset with the cash being split
between a deemed effective interest and principal element. Its revaluation at each reporting date, previously recognised in other
comprehensive income, will now be recognised in the income statement, along with any deferred tax. Had this been adopted in 2017,
reported royalty income would have been £1.7m lower. It is for this reason, along with the completion of the Denison financing arrangement
in February 2017, that we introduced a cash based key performance indicator in 2016, which is designed to show the cash generated by the
portfolio and against which the dividend cover can be assessed. The full impact of IFRS9 is discussed in note 3.1.2.
INCOME STATEMENT
Overall, the Group reported a profit after tax for the year of £10.5m compared to £26.4m in 2016. This resulted in basic earnings per share of
5.88p compared to 15.60p in the prior year.
Our Income Statement includes a number of valuation items which account for significant volatility and, in our view, does not present the true
underlying performance during the year. The largest variance is in relation to the valuation of Kestrel, an investment property. This showed a
surplus of £17.9m in 2016 only to reverse to a deficit of £11.9m in 2017, a swing of £29.8m. Also included is the fair value movement on our
royalty assets which are accounted for as IAS 39 debt instruments. In the current period, the £6.3m deficit includes the full provision for the
Jogjakarta debenture and a £3.3m fair value charge against the Group’s Dugbe 1 royalty. There were no impairment charges in relation to the
Group’s royalty intangible assets in the period. These valuation movements also result in a corresponding but opposite deferred tax
adjustment.
Royalty income
Operating expenses – excluding share based payments
Finance costs
Finance income
Other (losses)/income
Tax
Adjusted earnings
Weighted average number of shares ('000)
2017
£'000
37,382
(4,716)
(795)
1,198
(42)
(2,934)
30,093
2016
£'000
19,705
(3,327)
(1,086)
2,347
309
(1,454)
16,494
90%
42%
(27%)
(49%)
102%
82%
178,895
16.82p
169,016
9.76p
72%
Adjusted earnings increased by 72% during the year to £30.1m from £16.5m in 2016. This increase is primarily attributable to the 90% increase
in royalty income, despite receiving no income from the Four Mile royalty as the dispute continues. This has been offset somewhat by a 42%
increase in overheads to £4.7m due to higher staff costs and a greater investment by the Company in pursuing growth.
Elsewhere, finance income includes the £1.9m portion of the £5.0m Denison cash flows treated as interest. This also includes the impact of
foreign exchange on the Group’s monetary assets, which had a much higher impact in 2016 post the result of the EU referendum and
associated impact on the value of the pound. The pound has been much more stable during 2017. Finance costs are lower, reflecting lower
financing activities during the year. The tax charge doubled in the period to reflect a higher level of profit in the Group and higher withholding
tax on royalties. In addition, 2016 benefitted from tax recoveries.
Overall, adjusted earnings per share were 16.8p in 2017, a 72% increase on the 9.76p earned in 2016. This results in dividend cover of 2.4x in
2017 compared to 1.6x in 2016.
ROYALT Y INCOME
Kestrel
Narrabri
EVBC
Maracás Menchen
Four Mile
Royalty income
2017
£'000
28,746
4,946
1,689
2,001
–
119%
17%
38%
153%
2016
£'000
13,134
4,243
1,223
791
314
263%
32%
-2%
31%
37,382
90%
19,705
127%
2015
£'000
3,614
3,217
1,246
606
–
8,683
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 38
FINANCIAL REVIEW
continued
Royalty income increased by 90% during the year to £37.4m, which represents a record year of royalty revenue for Anglo Pacific. The Group’s
income continues to be heavily weighted towards Kestrel, which contributed £28.7m (76.9%) of the total. Elsewhere, there was a record
contribution of £2.0m from Maracás Menchen, more than two and a half times of that in the previous year. Frustratingly, we did not receive
any royalty income from Four Mile, where our dispute over the basis for calculating the royalty continues along the path towards judicial
review.
Kestrel
Income from Kestrel increased by 119% in the year. This was mainly a function of a significant increase in the portion of mining at Kestrel
being within the Group’s private royalty land (92% in 2017 vs 67% in 2016) and much higher coal prices.
The increase in volumes from the Group’s land was largely anticipated at the beginning of the year and can be seen clearly on the chart on
page 26. We now expect to receive >90% of the royalties from Kestrel in the medium-term. Overall, production from Kestrel remained
relatively static during 2017 at ~5mt. We anticipate some organic growth in these volumes, as the stated ROM is 5.7mtpa.
In addition to volume, the Group benefitted from significantly higher coal prices throughout 2017 compared to what most forecasters had
anticipated at the beginning of the year. The average price realised at Kestrel was some 30% higher in 2017. This not only impacts on the
headline royalty rate, it also serves to increase the weighted average royalty rate due to the ratchet-based calculation. As such, the weighted
average royalty rate increased from 8.8% in 2016 to 10.5% in 2017.
Finally, the average GBP:AUD exchange rate in 2017 was 1.6811 compared to 1.8252; the latter was higher as the impact of Brexit was only in
H2 2016. As such, converting the Australian dollar income into sterling resulted in a favourable variance in 2017 compared to 2016 of ~£2.3m.
All of this combined to produce overall royalty revenue of £28.7m in 2017 (2016: £13.1m), a record year of income from the Kestrel royalty.
Narrabri
Narrabri had a mixed year. The higher thermal coal price compensated for an overall reduction in sales volumes. Volumes at Narrabri continue
to be impacted by a fault which is currently being experienced in part of the longwall panels, resulting in a step around being required which
is impacting on production levels. Whitehaven are also experiencing changing roof conditions earlier than expected, which has slowed down
the pace of mining. As such, they twice reduced their guidance for FY 2017 and achieved sales of 6.7mt in calendar year 2017 compared to
7.8mt in 2016. They expect the fault to persist for the next three years and have reduced their guidance accordingly.
The lower volumes in 2017 were compensated for by higher coal prices. Thermal coal prices were very resilient during 2017 and remained
at levels well in advance of most commentators’ expectations. Coal prices were, on average, 31% higher during 2017, which more than
compensated for the 16% lower volume. The outlook for thermal coal, certainly in the short term, remains relatively favourable, as discussed
on page 27.
Maracás Menchen
Royalty income increased by more than two and a half times in 2017 to £2.0m, a record contribution from this royalty which was acquired
in 2014. This reflected an increase in both volume and pricing.
In terms of volume, Largo achieved a record year of production at Maracás Menchen. Total production in 2017 was 9,297 tonnes, a 17%
increase on the previous year and all the more impressive considering the 20-day planned shut down in Q1 2017 for minor modifications.
Largo achieved regular monthly records during the course of 2017, culminating in a quarterly record of 2,539 tonnes in Q4 2017. These
productions levels resulted in the first deferred consideration payment of US$1.5m becoming due and payable in November 2017.
In addition to strong underlying production, the vanadium price recovered significantly in 2017 with average prices almost double those
of 2016. Spot prices to date in 2018 are at levels considerably higher than the average for 2017.
EVBC
Income from EVBC also showed a meaningful increase of 38% in 2017, contributing £1.7m. This is as a result of a 24% increase in gold
production over the calendar year, and a 44% increase in copper production. The copper price has also produced significant gains during the
course of 2017. The increase in production levels follows capital investments made by Orvana over the past 18 months or so. Orvana continue
to examine the potential for mine life extension at EVBC.
Four Mile
The Group continues to be frustrated by the lack of income from Four Mile during 2017, owing to a dispute with the operator as to what costs
are allowable deductions in accordance with the royalty agreement. At present, the operator is treating the royalty, in our view, akin to a profit
share. The Group disagrees with this and considers this contract to be a net smelter return royalty. We have engaged legal and technical
experts to assist us in compiling a file, at which point we will commence formal proceedings through the Australian judicial system. We are
confident in the outcome of this process and will update the market when we have further clarity.
OPER ATING EXPENSES
Operating expenses increased by 42% in the period to £5.9m compared to £4.1m in 2016. Excluding the non-cash share-based payment
provision, underlying costs increased from £3.4m in 2016 to £4.7m in 2017.
Staff costs
Professional fees
Other costs
Operating expenses – excluding share based payments
Share based payments – including NI
Total operating expenses per the income statement
2017
£'000
2,528
1,073
1,115
4,716
1,174
5,890
(41.7%)
2016
£'000
1,746
626
955
3,327
803
4,130
STRATEGIC REPORTAPG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 39
The main increase is in relation to staff costs, which increased by 45% to £2.5m. Part of the reason for the increase was that 2016 was lower than
usual due to an overprovision for bonus payments of £0.2m in 2015 which unwound in 2016. Secondly, the bonus period was altered in 2016 to
be rebased to a calendar year. As such there was a one-off top up of £0.3m in 2017 to reflect the under provision at the end of 2016. Finally,
salaries increased by £0.2m in 2017, which, when combined with a higher level of bonus provision, resulted in an additional £0.3m in the year.
Elsewhere, other noticeable differences include a large increase in listing costs. This is due to listing costs being a function of market
capitalisation, which increased during the year. In addition, there are now a greater number of shares in issue post the Denison equity raise.
The investment costs more than doubled in the period, which reflects a provision for legal costs incurred to date in resolving the Four Mile
dispute along with some additional costs incurred in pursuing growth opportunities. We expect to incur additional costs in 2018 in searching
and appraising potential royalty acquisitions.
Although costs increased during the period, management believe that a run-rate of below £5m is not excessive, and our internal controls are
focused on disciplined procurement around due diligence and avoiding unnecessary costs.
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
2017
£'000
(188)
(185)
(422)
2016
£'000
(278)
(132)
(676)
(795)
26.7%
(1,086)
19
1,926
(747)
1,198
(49.0%)
56
26
2,265
2,347
Finance income includes the exchange differences realised during the year and the exchange effect on monetary assets, which includes the
Denison loan. The gain booked in 2016 was largely as a result of devaluation of the pound following the EU referendum in Q2 2016. The
sterling has been less volatile in 2017, but a loss of £0.7m is being reported in 2017 which reflects the exchange difference on the Denison
receivable.
Finance income also includes the interest income on the Denison loan, which accrues interest at the rate of 10% pa.
Finance costs reduced by £0.3m in 2017. This largely reflects lower costs associated with raising finance during the year compared to 2016.
The 2016 costs included aborted deal costs which did not repeat in 2017.
OTHER INCOME/LOSSES
Other income has reduced by £1.2m in 2017. This is mainly due to a reversal in the fair value of the forward hedges entered into during the
year, which showed a small deficit at December 31, 2017.
Effective interest
Other
Included in adjusted earnings
Mark to market of currency hedges
Other (losses)/income
2017
£'000
258
(300)
(42)
(188)
(230)
2016
£'000
246
63
309
664
973
Included within other income is the effective interest on the Group’s Jogjakarta debenture instrument. This was fully impaired at June 30, 2017
and a full provision was raised against the accrued interest. As part of the ongoing takeover process of Indo Mines Limited by its majority
shareholder, the Group has reached a settlement in relation to its debenture instrument. As part of this settlement, the Group will receive
50c in the dollar on its US$4m debenture and full payment of interest (both capitalised and accrued) up to the date of the takeover. This is
expected to conclude in April 2018, in the meantime, we have continued to provide for the interest in full.
TA X
The current tax charge for the year is £1.9m, which is £1.4m higher than that of 2016. The charge for 2016 was reduced by the receipt of £0.8m
of tax rebates, which had not been provided for. Elsewhere, the increase is primarily attributable to withholding tax on a higher level of royalty
income during 2017.
United Kingdom corporation tax
Overseas taxes
Adjustments in respect of prior years
Deduction claimed for amortisation
Tax per adjusted earnings
2017
£'000
3
1,231
763
1,997
935
2,932
2016
£'000
0
1,403
(809)
594
860
1,454
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 40
FINANCIAL REVIEW
continued
BAL ANCE SHEET
Net assets increased from £210.1m at the beginning of 2017 to £218.9m at the end of the year. Taking into account the shares issued as
part of the Denison transaction in February 2017, the closing net assets per share remained broadly flat at 121p per share (2016: 124p).
Net assets reconciliation £m
m
£
275
255
235
215
195
175
(9)
11
(3)
(2)
30
(1)
(1)
(16)
210
219
January 1
Adjusted
earnings
Kestrel
(net of tax)
Denison
(equity raise)
Amortisation
MtM
royalties
MtM
equity p/f
Other
Dividend
December 31
2016
162
16
24
–
(5)
(2)
10
17
(12)
210
The adjusted earnings, less dividends, added £14m during 2017. The dividend payment above reflects three payments due to the change in
dividend policy in Q3 2017 which effectively brought forward the payment of the interim dividend for the year into 2017. The ongoing annual
dividend, based on 7p, is expected to be ~£13m rather than the £16m included in the above table.
The addition for the Denison financing arrangement includes only the portion which was financed from the issuance of equity; the remaining
portion was financed from internal resources.
The royalty portfolio reduced in value by £18m during 2017. £13m of this relates to the fair value of the Kestrel royalty, a further £7m relates to
the fair value movement of the Group's Dugbe 1 and Jogjakarta royalty financial instruments and £3m relates to an amortisation charge on
the Group's intangible assets (mainly Narrabri, Maracás Menchen and Four Mile).
Despite income from Kestrel of £29m, the overall decline in the Kestrel valuation (after tax) was only £7m. This is due to an upward revision
to long-term coal prices somewhat offsetting the impact of depletion. The following table illustrates the pre-tax valuation movement of the
Kestrel royalty.
Kestrel – reconciliation
m
£
130
120
110
100
90
80
(20.9)
116.9
2.5
(0.6)
9.4
0.1
(3.2)
104.2
January 1
Depletion
Yields
Product mix
Coal price
Deductions
Translation
December 31
2016
82.6
(0.5)
–
–
18.5
–
16.3
116.9
CASH FLOW AND BORROWINGS
The Group generated considerable cash during 2017. Net cash generated from operating activities more than trebled to £34.6m compared
to £10.3m in 2016. Management consider this number to understate the true cash flow within their control as it does not include the cash
received from Denison treated as principal, nor does it include the cash generated from the disposal of non-core equity investments which
is within managements control. Including these amounts, the free cash flow generated (i.e. cash generated before dividend and debt repayment)
was £41.5m in 2017 compared to £13.4m in 2016. This equates to free cash flow per share of 23.2p in 2017, compared to 7.93p in 2016.
The following table reconciles the opening cash balance at the beginning of the year to the closing cash balance of £8.1m.
STRATEGIC REPORTAPG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 41
Free cash flows
2.4
(4.2)
(1.0)
(0.7)
0.6
(13.7)
(1.6)
(1.1)
(15.9)
2017 cash flow sources and usage
m
£
60
50
40
30
20
10
0
44.4
5.3
January 1
Royalty
income
Non-core
sales
Admin
Finance
Tax
FX and
other
McClean
Lake
Brazilian
Nickel
Maracás
Menchen
2016
5.7
12.3
4.0
(3.0)
(1.2)
–
1.0
–
–
–
(11.8)
(1.3)
–
(6.1)
(0.3)
8.1
Dividends Borrowings Other December
31
5.7
The £44.4m royalty income includes the cash flow from the Denison financing arrangement of £5.0m. Of this amount, £1.8m relates to the
back dating of cash flows for H2 2016. The royalty cash flow in 2017 benefitted from the transition to monthly payments from the Kestrel
royalty following a change to the Queensland tax regime in Q2 2017. As such, the Group received an additional £4m of income in 2017
than it would have otherwise expected. This accounted for 2.23p of the increase in adjusted earnings per share noted above.
In total, the Group allocated capital in the following way: £16.4m in royalty acquisitions; £15.9m in dividends; and £6.2m repaying all
outstanding borrowings.
The strength of the cash generated in 2017 meant that the Group repaid all of its outstanding borrowings and ended the year debt free with
£8.1m in cash. We triggered the US$10m accordion option on our borrowing facility in Q4 2017, which means we now have full access to a
US$40m borrowing facility. This, along with ~US$10m of cash on hand gives us ready access to US$50m. With a well-covered dividend, this
liquidity is intended to be put towards royalty acquisitions during 2018.
DIVIDEND
As mentioned previously, the Group revised its dividend policy in H2 2017 to move towards quarterly dividend payments. This was largely
due to much smoother and regular sales volumes expectation from Kestrel, now that production is largely within the Group’s private land.
As part of this transition, the Board also determined to narrow the time gap between declaring a dividend and the date on which this dividend
is paid. This resulted in the 2017 interim dividend being paid in November 2017 whereas previously this would not have been paid until
February 2018. Consequently, in 2017, total dividends of 9p per share (or £15.9m) were paid as illustrated in the following table:
6 Interim dividend
1
0
2
Final dividend
7
1
0
2
8
1
0
2
Interim dividend
Q3 Interim dividend
Final dividend
Q1 Interim dividend
Q2 Interim dividend
Q3 Interim dividend
Q4 Interim dividend
Q4 FY adjustment
Cash flow
2019
2018
2017
FY Earnings
NTM
3
3
3
6
7
6.5
+/- xp
7.375
1.5
2.5
1.625
1.625
1.625
1.625
+/- xp
7.25
9
The Directors are proposing an increase in the final dividend for 2017 of 1p per share, meaning that the total dividend for 2017 will be 7p rather
than the 6p paid in respect of 2016, subject to shareholder approval at the 2018 AGM. In addition, the level of the quarterly interim dividends
has been increased from 1.5p to 1.625p effective from the first interim dividend of 2018. This means that the total cash dividends received by
shareholders over the next 12 months will be 7.375p. We will, once again, adjust the final dividend in 2018 to reflect the overall dividend level
for 2018.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 42
CORPORATE SOCIAL RESPONSIBILIT Y
Anglo Pacific Group PLC is committed
to responsible mining extraction in all
aspects of its investments including
with respect to environmental, social
and governance issues.
Anglo Pacific’s core business is investing in the business of others
and Anglo Pacific does not directly operate any of its assets and
hence does not control or influence the operations of any of the
properties over which it has an interest. The projects on which the
Company has royalties and streams are owned and operated by
independent mining companies which are typically publicly listed.
We are nevertheless committed to responsible mining extraction
and seek to address environmental, social and governance issues
through a combination of the following:
• Our policies which guide investment decisions
• Our due diligence process for new investments
• Our contractual rights in our royalty and stream agreements
• Monitoring investments for their adherence to adequate
standards
The approach taken by Anglo Pacific has generated value for
shareholders and has allowed Anglo Pacific to acquire royalties and
streams on projects operated by some of the best operators in the
industry. Anglo Pacific is committed to considering potential
partnerships with its operators to support appropriate environmental
and social initiatives in the communities associated with its
producing assets.
In terms of Anglo Pacific’s own environmental impact, the
Company’s carbon footprint is very small. Anglo Pacific operates
solely within one office environment with a small workforce. The
Company has 10 employees located at its head office in London.
DUE DILIGENCE PROCESS IN NEW ACQUISITIONS
When conducting due diligence, environmental, social and
governance issues are considered as these are critical to the
long-term success of a project and the industry generally, which
in turn, is key to Anglo Pacific’s success. Anglo Pacific will typically
assess the following as part of its due diligence:
• community initiatives and engagement with indigenous peoples
• safety records
• whether the operator is committed to the principles of the
International Council on Mining & Metals or other relevant
standards
• water management and reduction plans
• other environmental programmes and initiatives put in place
by the operator including carbon reduction and biodiversity
protection
• operating plans and closure plans
• workplace standards, protections and policies
Following the completion of due diligence, if management proposes
to proceed with a transaction in excess of a threshold amount,
it must first seek Board approval. Below this threshold amount,
management has discretion to proceed with an investment but must
report the transaction to the Board in order to refresh its executive
authority before being able to proceed with another investment.
The due diligence process will vary in each case as Anglo Pacific
deems necessary or appropriate in the circumstances, all applied
on a risk-adjusted basis. For instance, the purchase of newly created
royalties or streams, requiring the negotiation of a binding
agreement with the operator of a project, will typically permit more
comprehensive due diligence than the acquisition of existing
royalties where Anglo Pacific is acquiring royalty interests, often
within a royalty portfolio on an as-is, where-is basis, from a third
party rather than the operator. In such cases, Anglo Pacific must rely
on the limited information provided by the third party as well as any
publicly available information with respect to the operator and the
project. The due diligence process will also vary based on the
jurisdiction, type of mineral, and whether the project is an exploration,
development or producing project, among other things.
INTEGRIT Y
Anglo Pacific is committed to maintaining the highest standards of
integrity in all areas of its business and 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 expects
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.
STRATEGIC REPORTAPG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 43
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 SAFET Y
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.
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
10 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 and stream income is outside its
control, it is unable to report on these emissions.
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 27, 2018
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 2017, as
part of the Brazilian Nickel agreement, Anglo Pacific engaged an
independent consultant to conduct an environmental review
relating to the project. No breaches 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 COMMUNIT Y 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 Brazilian Nickel
agreement, Anglo Pacific reviewed the social and community factors
associated with the Piauí Project. No issues were identified as part of
this process.
DIVERSIT Y
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, 2017, 50% of
the Group’s employees were female as the Group had 10 employees,
five 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.
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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 of the UK Corporate Governance Code 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.
At the conclusion of the 2017 AGM in May 2017, Patrick Meier
assumed the role of Non-Executive Chairman from Mike Blyth and is
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. Meier’s other 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 Chairman and CEO have distinct
roles which have been defined in writing and agreed 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.
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 is Anglo Pacific’s Senior Independent Director (‘SID’).
The role of the SID is to be available to shareholders to discuss any
concerns they may have about the running of Anglo Pacific where
the normal channels of communication are not appropriate. The SID
is not required to seek meetings with shareholders, however is
available to do so if required in order to understand shareholder
concerns and take them to the Board for discussion. The SID is also
required to lead discussions at meetings of Non-Executive Directors
without the Chairman present at least annually to appraise the
chairman’s performance and on such other occasions as are
deemed appropriate.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 45
THE BOARD
CHAIRMAN
NON-EXECUTIVE DIRECTORS
N.P.H. Meier
68, was appointed Non-Executive Director in April 2015 and
assumed the role of Non-Executive Chairman at the conclusion of
the 2017 AGM in May 2017. 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. In addition to his role at
Anglo Pacific Mr. Meier acts as a Senior Adviser to Bacchus Capital
Advisers, an advisory boutique and in various other advisory roles
from time to time.
Committee Chair: Nomination Committee
CHIEF EXECUTIVE OFFICER
J. A . Treger
55, 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. He currently serves as
Non-Executive Chairman of Audley Capital Advisors LLP, an
investment advisory firm, which he co-founded in 2005, which
specialises in 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 external Non-Executive Directorships with Mantos
Copper S.A., EBT Digital Communications Retail Group, Broadwell
Capital and Ilari Exploration OY for which he earned fees during the
year. These directorships do not affect Mr. Treger’s ability to perform
his role as CEO of the Company, as they form part of his 10% time
commitment outside Anglo Pacific.
SENIOR INDEPENDENT DIRECTOR
D.S. Archer
61, was appointed Non-Executive Director in October 2014. 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.
He 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.
Committee member: Remuneration Committee, Nomination
Committee
W.M. Blyth
67, was appointed Director in March 2013 and became Non-
Executive Chairman on April 1, 2014 until stepping down from this
role at the conclusion of the 2017 AGM in May 2017. 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 directorship 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.
Committee Chair: Audit Committee, Remuneration Committee
Committee member: Nomination Committee
R.C. Rhodes
46, was appointed Non-Executive Director in May 2014. 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. Due to her ever increasing executive responsibilities,
Ms Rhodes has decided not to put herself forward for re-election
at the 2018 AGM.
Committee member: Audit Committee, Nomination Committee
R.H. Stan
64, 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.
Committee member: Audit Committee, Nomination Committee,
Remuneration Committee
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 46
THE BOARD
continued
BOARD EVOLUTION
There have been no appointments to the Board during 2017,
however, Mr. Blyth, having overseen revisions to the Group’s internal
governance and investment process, stepped down as Chairman at
the conclusion of the 2017 AGM and was succeeded by Mr. Meier.
In February 2018 Rachel Rhodes announced her intention to step
down as a Non-Executive Director at the conclusion of the 2018
AGM in order to focus on her other professional commitments. The
Board is in the process of seeking to appoint a further Non-Executive
Director.
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.
The Company’s Directors have a wide range of skills as well as
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.
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. As part of the Board effectiveness review in the current year,
the Chairman asked the facilitator to review the Board packs which
the Directors receive and provide any recommendations, if any, as
to how these could be improved. There was a particular focus on the
ad-hoc reports which the Directors receive in relation to potential
investments, as this is an area where the Board spends considerable
time challenging management decisions and judgements.
The Group’s Company Secretary is responsible for advising the
Board, through the Chairman, on all governance matters. A large
area of focus in the current year was in relation to risk and risk
management, which is the responsibility of the Board. There were
a number of action points raised as part of this review to ensure
that there is a more formal and regular monitoring of risk at Board
meetings. This process is discussed in more detail on pages 18 and 19.
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 2017 was as follows:
Full Board
Audit Remuneration
Nomination
Total meetings held
Attendance:
D.S. Archer
W.M. Blyth
N.P.H. Meier1
R.C. Rhodes
R.H. Stan
J.A. Treger
11
11
11
11
11
11
11
5
–
5
–
5
5
–
3
3
3
1
–
3
–
2
2
2
2
2
2
–
1 N.P.H. Meier stood down from the Remuneration Committee on May 10, 2017.
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 commissioned
an external review from Clare Chalmers Limited to examine the
effectiveness of the Board and its Committees as well as to make
recommendations as to where the effectiveness could be enhanced.
The review included interviews with all the directors, the Chief
Financial Officer and Company Secretary and senior management,
as well as a desktop review of Board materials and corporate
governance documentation. In addition, the review team attended
certain Board and Committee meetings.
The findings of this review along with recommendations for
improvement were presented by Clare Chalmers Limited and
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
effectively, with the following key points noted:
• The Board comprised a wide range of skills and experience with
a spirit of openness combined with a robust degree of challenge.
• Leadership of the Board is effective and a high level of integrity
exists throughout the organisation beginning at the Board.
• The Board governance and Committee structure is effective.
• Detailed discussion around material matters impacting the
Company takes place including risk management, which was
the focus of a dedicated session with external professional
input at a Strategy Away Day in November 2017.
The areas for focus and continuous improvement are:
• Board papers – need to rationalise and improve use of executive
summaries to aid readability of the papers;
• Timing of meetings – monitor the timing of Board and Board
Committee meetings to make sure that there remains sufficient
time to address all the relevant issues, in particular strategic
matters;
• Increase frequency of meetings of Non-Executive Directors; and
• Development of a skills matrix to identify skills needed to optimise
the composition of the Board.
The Board is committed to making improvements in these areas
highlighted in the Board evaluation.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 47
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, 2017 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.
REL ATIONS 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 and risks amongst investors
and an effective two-way communication with fund managers,
institutional investors and analysts. Management undertake regular
meetings with shareholders following results or investment
announcements. The Chairman and SID also 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 2017 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,
Cannacord Genuity and Peel Hunt, and the Board remains satisfied
that the UK, Europe and Canada, which are the 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.
As discussed in the principal risk section on pages 18 and 19, risk
was a significant focus during the year and the Group engaged
with a consultant to assist the Board in taking a fresh look at our
approach to risk.
A statement of Directors’ responsibilities in respect of the financial
statements is set out on page 68.
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.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION MAIN ACTIVITIES COVERED DURING 2017
The Nomination Committee was actively involved during 2017 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 approved the
appointment of Mr. Meier as Chairman in succession to Mr. Blyth and
the continuing appointment of Mr. Blyth as a Non-Executive Director.
It concluded that no other changes were required during the year.
Subsequent to the year end, the announced intention by Ms. Rhodes
to step down has led to the Committee initiating a search for a
suitably qualified replacement, who can also contribute to the
diversity of the Board.
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.
N.P.H. Meier
Chairman of the Nomination Committee
March 27, 2018
48
NOMINATION COMMITTEE
COMPOSITION
Compliant with the Code:
N. P. H. Meier – Chairman
W.M. Blyth
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.
DIVERSIT Y 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. The announced
intention by Ms. Rhodes to step down as a Non-Executive Director
is a step backwards in addressing this. The Company will ensure that
the search for a replacement Non-Executive Director is focused on
re-establishing diversity to the Board and will 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_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 49
MAIN ACTIVITIES COVERED DURING 2017
In 2017 the Committee’s activities focused on:
• reviewing asset carrying values and other material accounting
matters;
• reviewing the accounting classification and treatment of potential
acquisitions;
• considering the impact of new standards, specifically IFRS 9 and
IFRIC 23, on the Group’s financial statements;
• monitoring legal and tax exposures 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 REL ATING TO THE FINANCIAL STATEMENTS
The significant issues considered by the Committee in relation to the
financial statements are set out in the table below, together with a
summary of how the issue was addressed by the Committee. In
addition, the Committee and the external auditors have discussed
the significant issues addressed by the Committee during the year
and the areas of particular audit focus, as described in the
Independent Auditor’s Report on pages 69 to 74 .
AUDIT COMMITTEE
COMPOSITION
Compliant with the Code:
W.M. Blyth – Chairman from February 16, 2018
R.C. Rhodes – Chairman until February 16, 2018
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.
ROLE 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, to establish sound systems of internal control
and to facilitate robust risk management processes.
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 their independence and their
effectiveness;
• making recommendations to the Board on the appointment,
retention and removal of the external auditors and the 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.
The Committee’s terms of reference can be found on the Group’s
website.
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AUDIT COMMITTEE
continued
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
Adoption of new accounting standards (IFRS 9, IFRIC 23)
Group tax exposures
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. The Committee is satisfied with
the conclusion that there is no impairment charge for the year ended
December 31, 2017.
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, 2017. The Committee is satisfied with management’s assessment
that there are no further impairments at December 31, 2017.
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
deficit of £11.9m in relation to coal royalties, together with the
revaluation charge of £6.3m in relation to royalty financial
instruments, described in notes 14 and 15 respectively, for the year
ended December 31, 2017. Particular focus was given to the Group’s
Dugbe 1 royalty, and the changes to the assumptions regarding
discount rate and start date given public announcements (or lack
thereof) by the operator, which resulted in a valuation deficit of £3.4m.
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, 2017 and is adequately disclosed.
The Committee considered the impact on the Group’s financial
statements on the imminent introduction of new accounting
standards, particularly IFRS 9 and IFRIC 23. The Committee noted that
the material impact on the Group’s financial statements will be that
the EVBC royalty income will no longer be presented as such, rather
it will be disclosed with the fair value movement on the face of the
income statement.
The Committee also considered IFRIC 23 in the context of uncertain
tax provisions, which requires a weighted average approach. The
potential impact of this on any tax matters arising during 2019 will be
carefully monitored by the Committee.
The Committee considered the Group’s material accumulated tax
losses and management’s assessment of any tax exposures (whether
included in current tax provisions or deferred tax assets). The
Committee challenged management, and its professional advisors, on
tax positions taken where there is no precedent or guidance in the
public domain and concluded that the disclosures contained in note 2
are sufficient and that no additional provision or derecognition of
deferred tax assets is appropriate.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 51
There are no significant issues disclosed in the report and financial
statements for the year ended December 31, 2017 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.
EX TERNAL 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 2018. Resolutions to
authorise the Board to re-appoint and determine the remuneration
of Deloitte LLP will be proposed at the AGM on May 10, 2018.
W.M. Blyth
Chairman of the Audit Committee
March 27, 2018
FAIR, BAL ANCED 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 process
undertaken during the year is discussed in more detail within
the Principal Risks and Uncertainties section on pages 18 to 23.
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.
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The Remuneration Committee’s activities focused on:
• designing the CEO’s 2017 bonus framework and the associated
performance scorecard criteria;
• providing guidance to the CEO on salaries and bonuses to be
awarded to his direct reports and approving salaries and bonuses
paid; and
• reviewing the levels of Company pension contributions and other
benefits.
52
REMUNERATION COMMITTEE
COMPOSITION
Compliant with the Code:
W.M. Blyth – Chairman from May 10, 2017
D.S. Archer – Chairman until May 10, 2017
N.P.H. Meier – stood down from the Remuneration Committee
on May 10, 2017
R.H. Stan
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.
EX TERNAL ADVISORS
The Remuneration Committee has access to the advice of
independent remuneration consultants when required. During 2017,
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. Total fees paid to NBS in respect of its services were
£31,494.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 53
The Unapproved Share Option Plan (‘USOP’) approved by
shareholders at the 2016 AGM was established to provide the Group
additional scope to incentivise employees, particularly those who do
not participate in the VCP, over and above the limit of the Company
Share Ownership Plan. The first grant of awards under the USOP
occurred during the year and did not include any participation by the
Executive or Non-Executive Directors. Further details can be found
in note 28.
The main objectives for the Remuneration Committee in 2018 will
be to:
• Review and further tailor the senior executive bonus criteria for the
2018 financial year; 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 resolution
to approve this report at the forthcoming AGM.
Yours sincerely
W.M Blyth
Chairman of the Remuneration Committee
March 27, 2018
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 2017. 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.
This report is set against a background of continued strong
Company performance during 2017, which generated total
shareholder returns (‘TSR’) of 24.7% in the period. 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’) was comprehensively benchmarked
at the end of 2017. The Committee concluded that a 5% increase to
the basic salary of the CEO was appropriate 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 Company contributes to money purchase pension
arrangements on behalf of staff on a matched basis subject to an
overall cap. This cap has been increased for 2018 to 11% (2017: 10%)
for the CEO and 7% (2017: 5%) for all other staff. In addition, the
Company has introduced a private health insurance scheme on
behalf of all staff.
The fees for the Chairman and the Non-Executive Directors were
re-assessed at the beginning of 2017 and will remain unchanged.
They will be reviewed again with effect from January 1, 2019.
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 2017 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 2016 both in recognition of the
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 60.
The CEO was awarded a bonus of £256,680 under the bonus criteria
matrix or 71.3% of the total potential award.
The Value Creation Plan ('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 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. The changes made to the VCP at
the 2016 AGM 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 also approved at the 2016 AGM were granted in the year,
following the end of a closed period. Further details can be found in
the Remuneration Policy part of this report.
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DIRECTORS’ REMUNERATION REPORT
continued
The remuneration report is in two parts.
REMUNER ATION 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 (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 (£276m at
December 31, 2017) and the number of its employees (11, as at
December 31, 2017, 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 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.
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; the VCP Principal Terms and Conditions section
has been updated to provide an overview of the key features of the
plan. Other 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 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.
H.
Determinations to be made by and discretions available to the
Committee;
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 2017, details
the remuneration paid to Directors during 2017 with a comparison
to the previous year. It will be put to an advisory shareholder vote at
the 2018 AGM. It is structured as follows:
A. Single figure total remuneration
B. Annual bonus for the year ended December 31, 2017
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. 2018 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.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 55
C. The remuneration policy for Executive Directors
The policy approved by shareholders at the 2016 AGM 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 roles 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. In addition to a
death in service policy which the Company subscribes to, a private medical
insurance scheme has now been introduced for all staff.
Pension: 11% (2017: 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 Value Creation Plan (VCP) with a performance
period to June 16, 2021.
Awards that were granted in 2014 were amended in 2016 with a performance
period of seven years to June 16, 2021 and are subject to the following
performance condition:
• Minimum growth in TSR of 7% per annum, with growth measured over the
seven-year period
2016 awards (granted in 2017) have a performance period 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
For participants with 2014 and 2016 awards, the 2016 awards 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.
In 2016, the Committee allocated the pool
as follows (and granted to participants in
2017):
CEO
Non-Board senior managers
Unallocated reserve:
20.0%
4.0%
13.1%
In 2014, the Committee allocated the pool
as follows:
CEO
Non-Board senior managers
56.0%
6.9%
The potential rewards achievable by Executive Directors under the remuneration policy are illustrated at section F. The policy in respect of any
future Director appointments is discussed at section I below.
D. Annual bonus – Choice of performance measures and approach to target setting
Annual bonuses are based on a scorecard of performance during the calendar year. The scorecard sets challenging targets for triggering
bonus, and for rewarding outperformance on a sliding scale. The scorecard will be split between corporate objectives and personal objectives,
both of which are expected to form a substantial part of the scorecard.
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DIRECTORS’ REMUNERATION REPORT
continued
The corporate objectives are agreed by the Board at the beginning
of each year, together with an assessment of the potential for
outperformance and the risk of shortfall. This covers such areas as
business performance, finance, relationships and reputation. This
constitutes the criteria for triggering a bonus and for assessing the
levels of challenge and outperformance that would warrant higher
levels of bonus. The CEO’s personal objectives for the year are
agreed at the beginning of the year by the Chairman of the Board in
conjunction with the Committee. The personal objectives focus on
the required contribution of the individual Executive Director to the
achievement of the Company’s objectives for the year, but also on
important but less measurable aspects such as leadership, building
personal and team relationships, and the extent to which they
personally have ‘gone the extra mile’.
The CEO’s performance against corporate and personal objectives
is assessed by the Chairman and the Committee at the beginning
of the following year, and bonus is awarded on the basis of the
agreed criteria.
E . LTIP – Principal terms and conditions and reward scenarios
The LTIP takes the form of a Value Creation Plan (VCP). The key
features of the VCP are as follows:
Key features:
• Eligibility – 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.
• Alignment with Shareholders – 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.
• Reward pool cap – 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
provides an effective cap of total growth in TSR above 300%.
Two sets of awards have been made under the VCP:
• 2014 awards, which were modified in 2016; and
• 2016 awards, which used the units from the unallocated pool and
were granted in 2017.
Both the modification of the 2014 awards and the new 2016 awards
were approved by shareholders at the 2016 AGM.
Performance
period
Allocation of
the pool*
Operation
2014 Awards
2016 Awards
Seven-year performance period, ending on June 16, 2021.
Performance is measured from the net asset value as at
December 31, 2015 to June 16, 2021.
CEO:
56%
Non-Board Senior Managers: 6.9%
Total Allocated:
62.9%
CEO:
20%
Non-Board Senior Managers: 4.0%
Total Allocated:
24.0%
Subject to threshold growth of 7% per annum, participants
become entitled to receive nil or nominal cost options over
ordinary shares in the capital of the Company, subject to
the cap.
The number of options is set by reference to a share of a pool
value equal to 10% of the growth in the Company’s TSR over the
seven-year period or, if less, 50% of the growth in the Company’s
TSR over the seven-year period in excess of the threshold growth.
This will mean that, if the total growth in TSR over the 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; and
• between 76% and the 300% effective cap, the value that
accrues is equal to 10% of the growth in the Company’s TSR
over a seven-year period.
This pool value is adjusted to reflect the percentage of the pool
allocated to these awards (62.9% of the total).
Subject to a threshold growth of 7% per annum over £161.3m,
participants become entitled to receive nil or nominal cost
options over ordinary shares in the capital of the Company,
subject to the cap. £161.3m was the net asset value at December
31, 2015 and a premium of approximately 61% to the market
capitalisation on the same date.
The number of options is 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. There is no “catch-up” once the threshold
growth is achieved.
This means that if the total growth in TSR is:
• 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 the performance period.
This pool value is adjusted to reflect the percentage of the pool
allocated to these awards (37.1% of the total, when including the
unallocated reserve).
In addition, a relative measure of TSR ensures it is at least equal
to the movement in the index of the FTSE 350 Mining Index. In
the event that the increase in TSR does not equal or exceed the
aforementioned index, no value will accrue to the new awards.
Pay-outs to the CEO and other participants who have 2014
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 2014 awards, value
accrues on only half of the units under the 2017 awards held by
the CEO and any non-Board members of the senior management
team who have an existing award.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 57
Vesting
Options to which participants become entitled at the end of the relevant performance period ending on June 16, 2021 will become
exercisable as follows:
• One-third immediately;
• One-third after 12 months;
• One-third after 24 months
Maximum
value
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.
* Unallocated reserve: 13.1%
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 performance period to June 16, 2021:
CEO – 2014 award
CEO – 2016 award
CEO Total
Others – 2014 award
Others – 2016 award
Unallocated
Overall Total
Shareholders
Benefit assuming total growth in TSR (from an illustrative starting market
capitalisation plus capital inflows of £262.1m) over a seven-year period of:
Allocation
of pool
56%
20%
76%
6.9%
4%
13.1%
100%
50%
£0.0m
£2.3m
76%*
100%
150%**
£10.6m
£3.2m
£13.9m
£3.8m
£20.8m
£5.0m
£2.3m
£13.8m
£17.7m
£25.8m
£0.0m
£0.5m
£1.5m
£1.3m
£0.7m
£2.3m
£1.7m
£0.9m
£3m
£2.6m
£1.3m
£4.4m
£4.27m
£18.07m
£23.24m
£34.14m
£119.73m
£170.91m
£224.76m
£337.86m
*Approximately 76% growth in TSR over the seven-year period results in a total pool equal to 9.3% of the growth. This reflects a pool equal to 10% for the original awards and a pool for the new awards
which reflects the reduction in the value that accrues for participants with original awards once the threshold growth of 7% per annum is met.
**At the effective 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 2014 award and £8.7m under the 2016 award.
TSR performance must match or exceed the performance of the FTSE 350 All Mining Index for new awards to payout. Awards in the table are calculated from the respective starting market
capitalisations (Illustrative starting market capitalisation of £248.0m for original awards and £161.3m for new awards (based on the net asset value as at December 31, 2015)).
F. Reward scenarios
The Company’s policy results in a significant portion of remuneration received by the CEO being dependent on Company performance. The
chart below illustrates how the total pay opportunity for the CEO varies under three different performance scenarios: below target (fixed pay
only), on-target and maximum. This chart is indicative as share price movement and dividend accrual have been excluded. All assumptions
made are noted below the chart.
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 at the on-target level. The maximum level includes the fair value of the VCP assuming outperformance of the FTSE 350 Mining
Index is achieved. To aid comparability with standard LTIP structures, the chart reflects the total pay opportunity if the VCP (both the 2014
awards and the 2016 awards) is included on an annualised basis.
Below
Target
100%
£396,000
On-Target
69%
31%
£576,000
Maximum
44%
40%
16%
£897,835
£0
£200,000
£400,000
£600,000
£800,000
£1,000,000
1200000
1400000
1600000
Fixed Pay
Annual Bonus
LTIP
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 58
DIRECTORS’ REMUNERATION REPORT
continued
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 (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, granted in 2017. The
annualised value reflects a seven-year performance period of the
2014 award and five-year performance period of the 2016 award;
• Salary levels (on which other elements of the package are
calculated) are based on those which apply from January 1, 2018.
Salary for the CEO is 90% of his full time equivalent salary. The CEO
does not receive any taxable benefits; and
• The fair value of the VCP has been calculated using a stochastic
model as at the date of grant (or in the case of the 2014 awards, the
date of modification). The model projects the share price of Anglo
Pacific using the historical volatility of the Company (whilst past
behaviour is not always a good indicator of movements in the
future, it is difficult to determine a more accurate method). For
each simulation the resulting share price and thus payout is
determined. The fair value is the average of 100,000 possible
simulations.
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 2017 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.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 59
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.
The current Executive Director’s service contract is for an indefinite term and contains a notice period of six months, which is in line with 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.
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 biennially 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
£600,000 limit set out in the
Company’s Articles of Association.
Mr. Meier, Mr. Archer, Mr. Blyth, 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.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 60
DIRECTORS’ REMUNERATION REPORT
continued
The details of the Non-Executive Directors’ letters of appointment are as follows:
Non-Executive
N.P.H. Meier
D.S. Archer
W.M. Blyth
R.C. Rhodes
R.H. Stan
Date of appointment
April 30, 2015
October 15, 2014
March 20, 2013
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 REMUNER ATION REPORT FOR 2017
This part of the report details the remuneration paid to Directors during 2017 with a comparison to the previous year. It will be put to an
advisory shareholder vote at the 2018 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
Executive Directors
J.A. Treger1
Non-Executive Directors
N.P.H. Meier3
D.S. Archer
W.M. Blyth2
R.C. Rhodes
R.H. Stan
Salary/fees
£’000
Benefits
£’000
Total bonus
£’000
Pension
£’000
Other
£’000
Total
remuneration
£’000
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
360
360
90
40
56
48
74
95
51
43
46
40
–
–
–
–
–
–
–
–
–
–
–
–
257
167
–
–
–
–
–
–
–
–
–
–
36
36
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
653
563
90
40
56
48
74
95
51
43
46
40
1 J.A. Treger agreed to receive 90% of his contractual salary for both 2016 and 2017 as outlined in section K below.
2 W.M.Blyth was Non-Executive Chairman until May 10, 2017.
2 N.P.H. Meier became Non-Executive Chairman on May 10, 2017.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 61
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 2017 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
evidenced by his championing the evolving strategy regarding
development royalties and also the evolving jurisdictional criteria.
The legacy share portfolio continued to be realised under his
direction. He helped increase the proceeds from the disposal of a
non-core royalty. He marketed the Company increasingly in multiple
jurisdictions and increased our Canadian profile. And finally he
professionally guided the Company's evolving commodity bias
towards electric vehicle and battery materials. An overall score of
12.5 % out of a possible 15%.
The overall bonus score was agreed at 71.3% under the bonus
scoring matrix for a total award of £256,680 (71.3% x £400,000 x
90%). The overall aggregate bonus of £256,680 bonus falls within
the 100% bonus limit set out in the policy table.
The CEO’s direct senior reports, none of whom are Executive
Directors, have individually crafted bonus objectives which were
agreed for the 2017 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 100% 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 2018 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 2017 is detailed below. Specific
measures are excluded due to commercial sensitivity.
B. Annual bonus for the year ending December 31, 2017
A set of individually crafted corporate and personal bonus criteria
were agreed with the CEO for the 2017 financial year which 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 2017 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, finally
Professionalism (15%). The largest factor in the CEO’s bonus matrix
at 40% of the total bonus payable relates to growth and securing
new royalty opportunities.
Growth: The main acquisition during the year was the transaction
with Denison in February. In addition, a development royalty,
Brazilian Nickel, was acquired in September 2017. Growth bonus in
relation to these transactions was 10%. An element of the growth
bonus was in respect of the performance of 2017 acquisitions, which
earned a score of 5.3%. A further part of the growth bonus related to
the performance of investments in 2015 and 2016 meeting
modelled returns. The returns as modelled gave an overall score
of 3%. Total overall score of 18.3% out of a possible 40%.
Financial Performance: Adjusted earnings of £30.1m was 1.5x the
budgeted amount of £19.4m and earned the maximum bonus of
10%. Capital of £13m was raised in 2017 in relation to the Denison
transaction. The bonus earned in relation to this metric was 9%. As at
year end, the share price was £1.525 versus NAV per share of £1.210
and hence exceeded the hurdle of >1 and earned the full bonus
allocation of 5%. Total overall score of 24% out of a possible 25%.
Financial Control: The currency management plan implemented in
2016 resulted in the Group effectively hedging its Australian dollar
denominated royalty income against the pound. A longer-term
currency hedging strategy is currently under consideration. This
area earned a bonus allocation of 3.5%. Budgeting and financial
reporting continued to be very effectively carried out and met the
hurdle bonus level of superior to earn a score of 4%. Total overall
score of 7.5 % out of a possible 10%.
Relationships, Reputation and Business Development: The investor
relations plan implemented in 2017 was vigorously followed and a
very active programme of engagement with equity providers was
undertaken both during and subsequent to the Denison capital
raise. 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 9%
out of a possible 10%.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 62
DIRECTORS’ REMUNERATION REPORT
continued
2017 CEO Scorecard
Criteria
CORPOR ATE PERFORMANCE CRITERIA
A. Growth
Measures for assessment included:
• Acquisition of producing and/or near producing royalties (transformational and medium-sized)
• Acquisition of development royalties
• Previous acquisitions meeting targeted returns
• Royalty accretiveness to earnings
B. Financial Performance
Measures for assessment included:
• Net profit after tax
• Capital raisings
• Price/net asset value
C. Financial Control
Measures for assessment included:
• Risk and currency management plan and implementation
• Budgeting and financial reporting
PERSONAL PERFORMANCE CRITERIA
Maximum award
(%)
Actual outcome
(%)
40
18.3
25
24
10
7.5
D. Relationships, Reputation and Business Development
10
9
•
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
C. Vesting of long-term incentive awards
No awards vested in 2017.
15
12.5
100
71.3
Long-term incentive awards made during the year
There were no awards granted to Executive Directors under the JSOP, the CSOP or USOP in 2017.
As highlighted in last year's report, the allocations determined under the VCP made in 2016 were not allocated in 2016 as the Company was
in a closed period. During 2017, these allocations under the VCP were made as outlined in the 2015 remuneration report and as approved by
shareholders at the 2016 AGM.
The CEO’s allocation of units under the VCP out of the pool to Executive Directors has therefore increased from 56,000 units or 56% of the
total number of units to 76,000 units or 76% of the total number of units. As at the date of this report there are a total of 86,880 units issued
out of a total pool of 100,000 units, including the awards for non-Board senior managers (2016: 66,880 units).
Outstanding share awards
There are currently no awards to Executive Directors outstanding under the JSOP, the CSOP or the USOP.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 63
D. Directors’ shareholding and share interests
The Committee encourages the Executive Directors to build up a shareholding in the Company, so as to ensure the alignment of their interest
with those of shareholders, but there is no formal shareholding guideline. In addition, the VCP is designed to increase this alignment.
The Chairman and Non-Executive Directors are also encouraged to hold shares in the Company although the Chairman and independent
Non-Executive Directors are expected to ensure that the level of their individual shareholdings is not significant and thereby call into question
their continuing independence.
Details of the Directors’ interests in shares are shown in the table below.
Executive Directors
J.A. Treger
Non-Executive Directors
N.P.H. Meier
D.S. Archer
W.M. Blyth
R.C. Rhodes
R.H. Stan
Beneficially
owned at
March 27,
2018
Beneficially
owned at
December 31,
2017
5,626,454
5,626,454
195,878
20,000
137,590
22,500
195,878
20,000
137,590
22,500
170,540
170,540
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 2017 (2016: 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
2017
400
36
257
99
8
49
2016
400
36
167
81
8
49
% change
–
–
54%
22%
–
–
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.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 64
DIRECTORS’ REMUNERATION REPORT
continued
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, 2017 is shown in the graph opposite. Both have been
re-based at the start of the period in order to provide a graphical
measure of comparative performance.
The Company has chosen the FTSE 350 Mining Index as a
comparator for historical reporting purposes as it believes it to be
the nearest relevant index appropriate to the Group.
The middle market price of an ordinary share on December 31, 2017
was 152.50p. During the year the share price ranged from a low of
103.00p to a high of 158.00p.
FTSE 350 Mining Index
vs. Anglo Pacific Group 2013-2017
(Rebased to 100)
110
90
70
50
30
10
3
1
.
1
0
.
2
0
4
1
.
1
0
.
2
0
5
1
.
1
0
.
2
0
6
1
.
1
0
.
2
0
7
1
.
1
0
.
2
0
8
1
.
1
0
.
2
0
FTSE 350 Mining Index
Anglo Pacific Group
I. Total remuneration for the CEO over time
Total remuneration (£’000)
Bonus outturn (%)
Bonus (£’000)
LTIP vesting (%)
2011
253
37%
84
–
2012
209
–
–
–
2013
J. Theobald1
1933
–
–
–
2013
2014
39
–
–
–
432
64%
160
–
2015
374
–
–
–
2016
2017
J.A. Treger2
563
47%
167
–
653
71%
257
–
1) J. Theobald was appointed CEO on October 6, 2010.
2) J.A. Treger was appointed CEO on October 21, 2013.
3) J. Theobald also received £63,333 as payment in lieu of notice, £95,000 termination payment (paid in January 2014) and £2,400 for legal advice.
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
2017
3.79
15.87
2016
2.55
11.83
% (decrease)/
increase
45%
34%
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.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 65
L . 2018 salary review
The Executive Directors’ full time equivalent (‘FTE’) salaries were reviewed in January 2018, 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, 2018
FTE Salary as at
January 1, 2017
420,000
400,000
Increase
5%
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
Committee member
Base fee
Increment
Senior Independent Director
Committee Chairmanship
2018
2017
% Increase
115,000
115,000
46,000
40,000
10,000
5,000
46,000
40,000
10,000
5,000
–
–
–
–
–
The Chairman’s fee of £115,000 was set with effect from January 1, 2017 for a two-year period.
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 £10,000 per annum, reducing to £6,000
when a committee chairmanship is held, to reflect his extra duties.
N. Performance targets for the annual bonus and LTIP awards to be granted in 2018 and beyond
Annual bonuses for 2017 were made in accordance with the policy approved by shareholders in 2015.
The CEO was awarded a bonus of £256,680 which reflects his performance against his scorecard being assessed as 71.3%. The 2017
scorecard for the CEO is detailed on page 62. A similar scorecard approach will continue in 2018. 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 2018 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 2018 scorecard will be
provided in the 2018 Directors’ Remuneration Report.
No long-term incentive awards are due to be made in 2018. Details of the awards made in 2014 and 2017 under the VCP can be found in the
notes of the policy table on page 56.
O. Statement of shareholder voting
At last year’s AGM held on May 10, 2017, 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
The Directors’ remuneration policy was last put to shareholders at the AGM held on May 10, 2016:
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 27, 2017 and signed on its behalf by
W. M. Blyth
Chairman of the Remuneration Committee
Votes
Percentage
92,143,925
105,139
99.82%
0.11%
92,249,064
100.00%
28,556
Votes
Percentage
72,615,262
5,166,921
93.36%
6.64%
77,782,183
100.00%
119,824
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 66
DIRECTORS’ REPORT
The Directors present their report and audited consolidated financial
statements for the year ended December 31, 2017.
PRINCIPAL ACTIVITIES
The Group’s principal royalty activities are set out in the Strategic
Report on pages 25 and 36.
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 and 23, and considered
key sensitivities which could impact on the level of available
borrowings. As at December 31, 2017, the Group had cash and cash
equivalents of £8.1m as set out in note 22 and subject to continued
covenant compliance, has access to £29.6m through its undrawn
secured US40.0m revolving credit facility.
The Directors have considered the Group’s cash flow forecasts for
the period to the end of March 2019. 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 cash position and access to the undrawn
revolving credit facility, 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 £10.5m (2016: £26.4m).
Total dividends for 2017 will amount to 7.00p per share (2016: 6.00p
per share), combining the recommended final dividend of 2.50p per
share for the year ended December 31, 2017 with the interim
dividends of 3.00p per share paid on November 15, 2017 and 1.50p
per share paid on February 15, 2018. The final dividend for the year
ended December 31, 2017, is subject to shareholder approval at the
2018 AGM. The Board proposes to pay the final dividend on May 31,
2018 to shareholders on the Company’s share register at the close
of business on May 18, 2018. The shares will be quoted ex-dividend
on the London and Toronto Stock Exchanges on May 17, 2018.
OUTLOOK
The outlook for and likely future developments of the Group are
described within the Chairman’s Statement on pages 06 and 07,
together with the Chief Executive Officer’s Statement on pages 08
and 09, and the Group’s Strategic Report on pages 08 to 43.
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 2018 AGM,
with the exception of R.C. Rhodes who announced her intention to
step down from the Board following the 2018 AGM.
A table of Directors’ attendance at Board and Committee meetings
during 2017 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 2017
AGM, held on May 10, 2017, the Directors were given the power to
issue new shares up to an aggregate nominal amount of £1,206,013.
This power will expire at the earlier of the conclusion of the 2018
AGM or June 30, 2018. Further, the Directors were given the power
to make market purchases of ordinary shares up to a maximum
number of 18,090,203. This power will expire at the earlier of the
conclusion of the 2018 AGM or June 30, 2018.
At the AGM held on May 10, 2017, 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 2018 AGM or June 30, 2018.
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 21,
2018 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.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 67
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 REGUL ATORY 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 2018 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 27, 2018
Registered office
1 Savile Row
London
W1S 3JR
Treasury
The Company holds 925,933 £0.02 ordinary shares in treasury for
the purposes of settling the Group’s share-based compensation
plans, as described in note 27.
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 24). 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 note 27 to the financial statements.
As a result of the preceding issuance, 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 39,468,814 new Ordinary Shares other than as part of a pre-
emptive offer in the three years preceding the date of this Annual
Report and Accounts, representing an aggregate of approximately
22% of the Company’s share capital as at the date of this Annual
Report.
SUBSTANTIAL SHAREHOLDINGS
The Company has been notified, aside from the interests of the
Directors, of the following interests of 3% or more in the share capital
of the Company at March 21, 2018.
Ordinary Shares
of 2p each
Representing
Liontrust Investment Partners LLP
Aberforth Partners LLP
Schroders PLC
Canacoord Genuity Group Inc
Miton Group PLC
Ransome’s Dock Limited
17,952,410
17,044,444
12,210,712
11,077,308
9,287,252
7,489,360
AXA Investment Managers UK (Framlington)
5,494,332
See page 63 for a list of Directors’ interests in shares.
9.92%
9.42%
6.75%
6.12%
5.13%
4.14%
3.04%
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 68
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
TR ANSPARENCY 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
N.P.H. Meier
Chairman
March 27, 2018
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_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GOVERNANCE 69
F I N A N C I A L S T A T E M E N T S
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ANGLO PACIFIC GROUP PLC
OPINION
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
2017 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.
We have audited the financial statements of Anglo Pacific Group plc
(the ‘Parent Company’) and its subsidiaries (the ‘Group’) which
comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated balance sheet and Company balance sheet;
• the consolidated and Company statement of changes in equity;
• the consolidated and Parent Company statements of cash flows;
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.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s
responsibilities for the audit of the financial statements section of
our report.
We are independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with
these requirements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the
Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
SUMMARY OF OUR AUDIT APPROACH
Key audit
matters
The key audit matters that we identified in the current year were:
• Valuation of the Kestrel royalties
• Impairment assessment of the royalties intangibles portfolio
• Accounting for the Denison transaction
• Accounting for deferred and current tax
Within this report, any new key audit matters are identified with and any key audit matters which are the same as the prior
year are identified with .
Materiality
The materiality that we used for the Group financial statements was £4.3m which was determined on the basis of 2% on net
assets.
Scoping
Consistent with how the Group is managed we consider the Group to be one component. Consequently all assets, liabilities,
income and expenses are subject to a full scope audit.
Significant
changes in
our approach
We have not included the Dugbe valuation as a key audit matter for 2017. In 2016 the royalty was converted from being held
at cost on the balance sheet to fair value which meant there was the potential for a significant change in carrying value.
Having audited the fair value methodology and sources of assumptions during 2016, the potential for a material
misstatement this year is considered significantly lower.
We have included a new key audit matter for the accounting for the Denison transaction because of the complexity of the
accounting and the valuation of the loan and streaming royalty that was measured in February 2017.
We have included a new key audit matter in respect of the uncertainty around the tax treatment of the intercompany loan
between two subsidiary entities.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 70
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ANGLO PACIFIC GROUP PLC
continued
CONCLUSIONS REL ATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILIT Y STATEMENT
Going concern
We have reviewed 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 and Company’s ability to continue to do so over a period of at least 12 months from the
date of approval of the financial statements.
We are required to state whether we have anything material to add or draw attention to in relation to that statement
required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained
in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with the knowledge we
obtained in the course of the audit, including the knowledge obtained in the evaluation of the directors’ assessment of
the Group’s and the Company’s ability to continue as a going concern, we are required to state whether we have anything
material to add or draw attention to in relation to:
• the disclosures on pages 18-23 that describe the principal risks and explain how they are being managed or mitigated;
• 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; or
• 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 are also required to report whether the directors’ statement relating to the prospects of the Group required by Listing
Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We confirm
that we have
nothing
material to
report, add
or draw
attention to
in respect of
these
matters.
We confirm
that we have
nothing
material to
report, add
or draw
attention to
in respect of
these
matters.
KEY AUDIT MAT TERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team.
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.
VALUATION OF THE KESTREL ROYALT Y
Key audit
matter
description
Royalties arrangements held at fair value have a value of £115.0m as at 31 December 2017 (2016: £130.4m). The Kestrel
royalty comprises £104.3m (2016: £116.9m) of the total and management engaged 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.
Due to the high level of judgements involved, we have determined that there was a potential for fraud through possible
manipulation of this balance.
The price and discount rate assumptions are set out in note 14 along with the related sensitivity analysis. The Group discloses
this risk as a critical accounting judgement in note 2.
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.
How the
scope of
our audit
responded
to the key
audit
matter
We obtained the valuation model used by management’s independent specialist to determine the fair value of the Kestrel
royalty. We challenged the assumptions adopted by management`s independent specialist by comparison to recent third
party forecast commodity price data, reference to third party documentation and the relevant reserves and resources
reports. To challenge the discount rates we prepared independent discount rates and compared those to the rates adopted
by management.
We evaluated the independence, objectivity and competence of management’s independent specialist. We challenged the
valuation assumptions adopted in line with the above methodology by directly reviewing their reporting 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.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTS 71
Key
observations
We concur that the fair value of the Kestrel royalty is within an acceptable range.
IMPAIRMENT ASSESSMENT OF THE ROYALT Y INTANGIBLES PORTFOLIO
Key audit
matter
description
Royalty arrangements held as intangibles have a gross carrying amount of £115.8m at 31 December 2017 (2016: £115.7m)
and a net carrying amount of £77.4m (2016: 80.0m). As a consequence of the volatility in current commodity prices, the
assessment of whether impairment/reversal indicators exist and estimating the recoverable amount of royalty
arrangements accounted for as intangible assets where necessary require management to adopt key judgements 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 Pilbara with carrying amounts of £1.5m (2016: £1.7m) and £11.2m
(2016: £11.3m) respectively. Indicators of impairment reversal were also identified for Ring of Fire which has a carrying
amount of £3.7m (2016: £3.8m).
No impairment or impairment reversal was recognised for 2017. In 2016 an impairment of £2.1m was recognised at Amapá
(see note 16). The Group discloses this risk as a critical accounting judgement in note 2.
Refer to the Audit Committee report where this matter is considered by the Audit Committee as part of the significant issue,
“Review of the carrying values of royalties held at amortised cost along with the investment portfolio and resulting
impairment charges” on page 50.
How the
scope of
our audit
responded
to the key
audit
matter
We challenged management’s assessment as to whether indicators of impairment exist for specific royalty arrangements
through evaluation of changes in production and pricing forecasts and a review of publically available information. Where
such indicators were identified, we obtained copies of the valuation models and challenged the assumptions adopted by
management by comparison to third party forecast commodity price data, reference to third party documentation and
the relevant reserves and resources reports.
To challenge the discount rates we prepared independent discount rates and compared those to the rates adopted by
management.
We reviewed and challenged management’s assessment of whether projects still in the development phase would reach
commercial production through 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 impairment assessment, in respect of the intangible assets where indicators of impairment
were identified, we found that the assumptions used were within a reasonable range and had been determined and applied
on a consistent basis across the Group.
ACCOUNTING FOR THE DENISON TR ANSACTION
Key audit
matter
description
During 2017 the Group entered into two new contracts, known together as “the Denison Financing Agreement”. As at 31
December 2017 management has accounted for the transaction as two separate financial instruments as follows:
1. A £21.3m 13-year secured loan held as a financial liability at amortised cost. The asset was designated as a loan measured
at amortised cost due to
• the mandatory repayment term;
• the intention of management to hold the asset in order to collect the interest payments and principal repayments
associated with the contract; and
• the instrument being unquoted in an active market.
See note 20 for further details;
2. A £1.9 million available-for-sale debt financial instrument relating to an entitlement to a percentage of the future McClean
Lake Mill revenue earned by Denison, excluding that revenue earned in relation to the first 215mlbs of throughput. The
contract meets the definition of an available-for-sale debt as
•
•
it provides a contractual right to receive cash;
it has no maturity date; and
• the cash flows are not fixed and determinable.
See note 15 for further details.
The Group discloses this risk as a critical accounting judgement in note 2.
Refer to the Audit Committee report where this matter is considered by the Audit Committee as a significant issue, “Review
of the carrying values of royalties held at amortised cost along with the investment portfolio and resulting impairment
charges” and “Review of the carrying value of royalties held at fair value” on page 50.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 72
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ANGLO PACIFIC GROUP PLC
continued
How the
scope of
our audit
responded
to the key
audit
matter
We challenged management’s assessment as to whether this transaction is appropriately accounted for as two separate
financial instruments through our consideration of the key terms in the contracts. We have reviewed the contracts and
assessed whether the two instruments are separate due to different contractual rights to cash and ability to sell separately
the royalty from the loan or vice versa.
We have reviewed the contracts and assessed whether the appropriate accounting treatment was applied to the financial
instruments under IAS39.
We have engaged our valuation specialists in order to challenge whether the fair value of the loan on day one is appropriate
through recalculation of loan’s initial value.
We obtained the available-for-sale debt valuation model and challenged the key assumptions adopted by management in
relation to this model by comparison to third party forecast commodity price data, reference to third party documentation
and the relevant reserves and resources reports.
To challenge the discount rates for the available-for-sale debt and effective interest rate for the loan we prepared
independent rates and compared those to the rates adopted by management.
Key
observations
We concur that the accounting treatment and valuation of the transactions appear reasonable.
ACCOUNTING FOR DEFERRED AND CURRENT TA X
Key audit
matter
description
The Group undertook a restructuring of certain loss making entities during the year. The Group obtained advice from
professional advisors in respect of these transactions. The tax treatment in relation to the restructure is uncertain given the
lack of precedence and guidance from the tax authorities. In the event this aspect was successfully challenged by the tax
authorities, possibly through litigation, this would result in a reduction in the deferred tax asset of £3.3m and the recognition
of current tax liability of £3.6m as at December 31, 2017 with a £6.9 million corresponding income statement tax charge for
2017.
Management disclosed this as an uncertain tax position in note 10 to the financial statements. The Group discloses this risk
as a critical accounting judgement in note 2.
Refer to the Audit Committee report where this matter is considered by the Audit Committee as part of the significant issue,
“Group tax exposures” on page 50.
How the
scope of
our audit
responded
to the key
audit
matter
We reviewed the papers prepared by management’s independent tax expert.
We utilised our specialists to review management’s tax advice and position papers and consider the appropriateness of the
position for the purposes of the audit; this involved reviewing the tax legislation and case law applied to determine if the tax
treatment was reasonable.
We held a meeting with management to discuss our concern that there is no clear precedence or guidance on this matter
and, as such, this results in an uncertain tax position.
We recalculated management’s analysis of the accounting impact detailed above if the non-taxable treatment was
successfully challenged by the tax authorities in order to assess whether it is reasonable.
Key
observations
Given the uncertainty related to the tax accounting treatment, we concurred with management’s conclusion to disclose this
as an uncertain tax position.
OUR APPLICATION OF MATERIALIT Y
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 financial statements
Parent Company financial statements
Materiality
£4.3m (2016: £4.0m)
£2.7 (2016: £2.5m)
Basis for determining materiality
2% of net assets (2016: 2%)
2% of net assets (2016: 2%)
Rationale for the benchmark
applied
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 was considered a more stable base
than profits due to the effect of unrealised fair
value gains/losses in each financial year.
The long-term value for shareholders is also in
the asset base as the Group generates its wealth
through royalties acquired. Considering that
these are often bought in the development
phase of an asset's life a significant portion of the
Company’s value at this moment is not reflected
in the income statement.
The long-term value for shareholders is also in
the asset base as the Company generates its
wealth through royalties acquired. Considering
that these are often bought in the development
phase of an asset's life a significant portion of the
Company’s value at this moment is not reflected
in the income statement.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTS 73
Net assets
£218.9m
Group
materiality
£4.3m
Audit Committee
reporting threshold
£0.09m
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £86,000 (2016: £80,000) for
the Group, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Consistent with how the Group is managed we consider the Group to be one component. Consequently all assets, liabilities, income and
expenses are subject to full scope audit.
There were no changes to the overall scope of the audit compared to the prior year.
OTHER INFORMATION
The Directors are responsible for the other information. The other information comprises the
information included in the Annual Report, other than the financial statements and our auditor’s
report thereon.
We have nothing to report in respect
of these matters.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that
fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the Directors that they consider
the Annual Report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
• Audit Committee reporting – the section describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
Directors’ statement required under the Listing Rules relating to the Company’s compliance
with the UK Corporate Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from
a relevant provision of the UK Corporate Governance Code.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 74
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ANGLO PACIFIC GROUP PLC
continued
AUDITOR ’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
USE OF OUR REPORT
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.
REPORT ON OTHER LEGAL AND REGUL ATORY REQUIREMENTS
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• 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 Group and the Parent Company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
MAT TERS 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.
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 in respect
of these matters.
We have nothing to report in respect
of these matters.
OTHER MAT TERS
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by shareholders at the AGM on June 11, 2014 to audit the financial
statements for the year ending December 31, 2014 and subsequent financial periods. The period of total uninterrupted engagement including
previous renewals and reappointments of the firm is four years, covering the years ending December 31, 2014 to December 31, 2017.
Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).
Christopher Thomas ACA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
27 March 2018
APG_AR17_04.04.18_MIDDLE_AMENDSANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT
for the year ended December 31, 2017
Royalty income
Amortisation of royalties
Operating expenses
Operating profit before impairments, revaluations and gains on disposals
Gain on sale of mining and exploration interests
Impairment of mining and exploration interests
Impairment of royalty and exploration intangible assets
Revaluation and impairment of royalty financial instruments
Revaluation of coal royalties (Kestrel)
Finance income
Finance costs
Other (losses)/income
Profit before tax
Current income tax charge
Deferred income tax credit/(charge)
Profit attributable to equity holders
Total and continuing earnings per share
Basic and diluted earnings per share
The notes on pages 81 to 118 are an integral part of these consolidated financial statements.
75
Notes
4
16
5a
17
17
16
15
14
7
8
9
10
10
2017
£’000
37,382
(3,116)
(5,890)
2016
£’000
19,705
(2,869)
(4,130)
28,376
12,706
1,774
(219)
–
(6,324)
(11,933)
1,198
(795)
(230)
2,449
(29)
(2,009)
(4,939)
17,900
2,347
(1,086)
973
11,847
28,312
(1,997)
677
(594)
(1,356)
10,527
26,362
11
5.88p
15.60p
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 76
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended December 31, 2017
Profit attributable to equity holders
Notes
2017
£’000
2016
£’000
10,527
26,362
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 (loss)/gain on translation of foreign operations
Other comprehensive (loss)/profit for the year, net of tax
Total comprehensive profit for the year
The notes on pages 81 to 118 are an integral part of these consolidated financial statements.
15, 17
25
2,233
(1,774)
219
341
(883)
136
9,184
(2,449)
29
27
26,125
32,916
10,663
59,278
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 77
2017
£’000
44
–
3,979
2,349
13,273
449
70,207
56,862
–
Company
2016
£’000
77
–
6,724
2,349
13,861
155
56,543
39,303
–
CONSOLIDATED BALANCE SHEET AND COMPANY BALANCE SHEET
as at December 31, 2017
Notes
2017
£’000
Group
2016
£’000
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
13
14
15
16
17
18
19
20
25
20
21
22
24
26
25
26
27
27
44
77
104,266
116,885
10,867
77,421
16,431
689
–
21,259
5,484
13,556
80,047
17,062
1,370
–
–
9,126
236,461
238,123
147,163
119,012
8,702
100
8,099
16,901
12,090
711
5,331
18,132
427
–
1,349
1,776
8,551
–
924
9,475
253,362
256,255
148,939
128,487
–
418
31,507
31,925
5
2,495
2,500
6,167
1,491
36,637
44,295
465
1,357
1,822
–
419
676
1,095
5
12,715
12,720
3,100
276
662
4,038
465
1,090
1,555
34,425
46,117
13,815
5,593
218,937
210,138
135,124
122,894
3,618
61,966
64,752
88,601
3,399
49,211
63,600
93,928
3,618
61,966
42,495
27,045
3,399
49,211
40,923
29,361
218,937
210,138
135,124
122,894
The notes on pages 81 to 118 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 £13,538,000 (2016: £7,892,000).
The financial statements of Anglo Pacific Group PLC (registered number: 897608) on pages 69 to 118 were approved by the Board and
authorised for issue on March 27, 2018 and are signed on its behalf by:
N.P.H. Meier
Chairman
J.A. Treger
Chief Executive Officer
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
78
CONSOLIDATED STATEMENT OF CHANGES IN EQUIT Y
for the year ended December 31, 2017
Other reserves
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Warrant
reserve
£’000
Notes
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
Balance at January 1, 2016
3,399
49,211
29,134
143
3,917
1,308
(2,557)
632
(2,601) 79,397 161,983
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
profit
Dividends
Issue of ordinary shares
Value of employee services
Total transactions with
owners of the company
Balance at December 31,
2016
–
–
–
–
–
–
–
–
–
26,362
26,362
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,184
(2,449)
29
27
–
–
–
–
–
–
57
–
–
1
26,067
6,791
– 26,125
–
–
–
–
–
–
708
708
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,241
(2,449)
29
28
26,067
– 26,362 59,278
– (11,831)
(11,831)
–
–
–
–
–
708
– (11,831) (11,123)
25
12
27
28
3,399 49,211
29,134
143 10,708
2,016 23,568
632 (2,601) 93,928 210,138
Balance at January 1, 2017
3,399
49,211
29,134
143
10,708
2,016
23,568
632
(2,601) 93,928 210,138
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
profit
Dividends
Issue of ordinary shares
Value of employee services
Total transactions with
owners of the company
Balance at December 31,
2017
–
–
–
–
–
–
–
–
–
10,527
10,527
–
–
–
–
–
–
–
–
–
–
–
–
–
–
219
12,755
–
–
219 12,755
25
12
27
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,233
(1,774)
219
341
–
1,019
–
–
–
–
–
–
–
–
–
–
–
–
1,016
1,016
8
–
–
1
(892)
(883)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,241
(1,774)
219
342
(892)
– 10,527 10,663
– (15,869)
(15,869)
–
–
–
15
12,974
1,031
– (15,854)
(1,864)
3,618 61,966
29,134
143 11,727
3,032 22,685
632 (2,601) 88,601 218,937
The notes on pages 81 to 118 are an integral part of these consolidated financial statements.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 COMPANY STATEMENT OF CHANGES IN EQUIT Y
for the year ended December 31, 2017
79
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Warrant
reserve
£’000
Notes
Other reserves
Investment
revaluation
reserve
£’000
Share
based
payment
reserve
£’000
Foreign
currency
translation
reserve
£’000
Special
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
3,399
49,211
29,134
143
2,613
1,308
82
632
33,300 119,822
Balance at January 1, 2016
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 period
Total recognised income and
expenses
Dividends
Issue of ordinary shares
Value of employee services
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
27
28
Balance at December 31, 2016
3,399 49,211
29,134
Balance at January 1, 2017
Changes in equity for 2017
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 period
Total recognised income and
expenses
Dividends
Issue of ordinary shares
Value of employee services
3,399
49,211
29,134
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
219
12,755
–
–
12
27
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
143
143
8,916
2,016
8,916
2,016
82
82
632 29,361 122,894
632
29,361 122,894
–
–
–
–
–
–
–
–
–
–
2,331
(1,774)
13
(14)
556
–
556
–
–
–
–
–
–
–
–
–
–
–
–
1,016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,331
(1,774)
13
(14)
556
13,538
13,538
13,538
14,094
– (15,869)
(15,869)
–
–
–
15
12,974
1,031
Balance at December 31, 2017
3,618 61,966
29,134
143
9,472
3,032
82
632 27,045 135,124
The notes on pages 81 to 118 are an integral part of these consolidated financial statements.
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 80
CONSOLIDATED STATEMENT OF CASH FLOWS AND
COMPANY STATEMENT OF CASH FLOWS
for the year ended December 31, 2017
Cash flows from operating activities
Profit before taxation
Adjustments for:
Finance income – excluding foreign exchange gains/losses
Finance costs
Other income
Gain 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
Decrease/(Increase) in trade and other receivables
Increase/(Decrease) in trade and other payables
Cash generated from/(used in) operations
Income taxes (paid)/refunded
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
Purchases of royalty financial instruments
Advances under commodity related financing agreements
Repayments under commodity related financing agreements
Other royalty related repayments/(advances)
Prepaid acquisition costs
Sundry income
Finance income
Investment in subsidiaries
Return of capital from subsidiaries
Intercompany dividends
Loans granted to subsidiary undertakings
Loan repayments from subsidiary undertakings
Notes
2017
£’000
Group
2016
£’000
2017
£’000
Company
2016
£’000
11,847
28,312
13,725
7,324
(1,927)
335
(35)
–
560
(246)
(1,774)
(2,406)
7
8
9
17
17
16
15
19
14
13
16
6a
10
17
16
9
15
20
20
20
18
9
7
19
19
31
31
(1,945)
795
230
(1,774)
219
–
6,324
–
11,933
33
3,116
1,174
–
–
(82)
1,086
(973)
(2,449)
29
2,009
4,939
–
(17,900)
36
2,869
708
–
–
31,952
18,584
3,402
1,138
36,492
(1,863)
34,629
2,424
(1,125)
258
(3,323)
(24,990)
3,051
–
(224)
–
1,945
–
–
–
–
–
(8,613)
282
10,253
63
10,316
3,431
–
246
–
–
–
352
(155)
63
82
–
–
–
–
–
13
–
3,076
1,467
–
33
–
1,174
(6,483)
(11,399)
(1,795)
86
900
(809)
(321)
(1,130)
2,424
–
258
–
(24,990)
3,051
–
(224)
209
1,927
(4,084)
–
11,399
(2,374)
405
26
–
–
50
–
36
–
708
6,956
(10,387)
2,621
(231)
166
2,556
897
3,453
3,326
–
246
–
–
–
–
(155)
185
–
–
2
–
(258)
2,788
6,134
3,600
(500)
–
–
–
(11,831)
(560)
(9,291)
296
410
218
924
Net cash (used in)/generated from investing activities
(21,984)
4,019
(11,999)
Cash flows from financing activities
Drawdown of revolving credit facility
Repayment of revolving credit facility
Loans from subsidiary undertakings
Proceeds from issue of share capital
Transaction costs of share issue
Dividends paid
Finance costs – excluding foreign exchange gains/losses
Net cash (used in)/generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
23, 24
23, 24
27
12
8
7,498
(13,651)
–
13,700
(726)
(15,869)
(795)
(9,843)
2,802
5,331
8,000
(9,256)
–
–
–
(11,831)
(1,086)
(14,173)
162
5,708
Unrealised foreign currency gain/(loss)
(34)
(539)
7,498
(10,451)
18,764
13,700
(726)
(15,869)
(335)
12,581
(548)
924
973
Cash and cash equivalents at end of period
8,099
5,331
1,349
The notes on pages 81 to 118 are an integral part of these consolidated financial statements.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
1 GENER AL 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,
vanadium, 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 UNCERTAINT Y
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 the
fair value of certain royalty arrangements 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_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
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
• Investment is presented as an
• Narrabri
receive cash other than through
a royalty related to production
Available-for-sale debt financial
asset
• Royalty arrangement with a
contractual right to receive
cash (e.g. through a mandated
interest rate or milestones
which, if not met, trigger
repayment)
intangible asset and carried at cost
less accumulated amortisation
and any impairment provision
• Maracás Menchen
• Four Mile
• Salamanca
• Pilbara
• Ring of Fire
• Jogjakarta
• Dugbe 1
• McClean Lake
• Piauí*
• Royalty income is recognised as
revenue in the income statement
• Intangible asset is amortised on
a systematic basis
• Intangible asset is assessed for
indicators of impairment at each
period end
• Financial asset is recognised at
fair value on the balance sheet
• Changes in fair value due to
changes in expected future cash
flows are recognised within the
income statement with other
valuation changes taken to
reserves
• Fixed effective interest income
recognised in the income
statement
• Royalty receipts reduce the
asset’s carrying value
Available-for-sale equity financial
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
* Due to having one or more embedded options that are not closely related, the Group has decided to evoke the fair value option for Piauí. We note that on transition to IFRS 9 all royalties currently
accounted for under IAS 39 will be accounted for as FVTPL under IFRS 9.
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 Group’s 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 are set
out in note 14.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 83
Impairment review of intangible assets
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 6.50% and 18.00%
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.
Uncertain tax provisions
The Group has incurred significant losses and impairment charges over the last four years. These losses have resulted, in some instances, in
capital restructuring involving related Group entities, for which the Group obtained advice from professional advisors. This advice involved the
interpretation of certain tax legislation for which there is no clear precedent or guidance. Absent clear guidance from relevant tax authorities
there is the possibility that those tax authorities could interpret the legislation in a different way from the Group, which could result in a
material reduction in the deferred tax asset and the recognition of a material current tax provision at December 31, 2017. These amounts are
estimated at £3.3m and £3.6m respectively. See note 10 for further details.
SIGNIFICANT ACCOUNTING POLICIES
3
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)
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 page 18 to 23 as well as access to funding as set out in our borrowings note 24 and considered key sensitivities
which could impact on the level of available borrowings. As at December 31, 2017, the Group had cash and cash equivalents of £8.1m and
subject to continued covenant compliance, has access to £29.6m through its undrawn secured US$40.0m revolving credit facility.
The Directors have considered the Group’s cash flow forecasts for the period to the end of March 2019. 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 cash position and access to the undrawn revolving credit facility, 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, 2017:
• Annual Improvements to IFRSs 2014-2016 cycle: IFRS 12 Disclosure of Interests in Other Entities
• Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative
• Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
The adoption of these amendments has not had a significant impact on the accounting policies, methods of computation or presentation
applied by the Group.
The Group has not early adopted any other amendment, standard or interpretation that has been issued but is not yet effective. It is expected
that where applicable, these standards and amendments will be adopted on each respective effective date.
(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 15 Revenue from Contracts with Customers
The Group’s royalty income is 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 accounted for as intangibles (Narrabri, Maracás Menchen and Four Mile) under IAS 38.
The royalty income derived from investment properties will continue to be accounted for in accordance with IAS 40, while the royalty income
derived from assets at fair value will be accounted for under IFRS 9 following its adoption. The royalty income derived from assets classified as
intangibles will be accounted for in accordance with IFRS 15, which the Directors do not believe will have a material impact on the recognition
and disclosure of revenue.
IFRS 9 Financial Instruments
The impact of adopting IFRS 9 on the Group’s results for the year ended December 31, 2017 would have been as follows:
Classification and measurement
The measurement and accounting treatment of the Group’s financial assets impacted by the application of IFRS 9 are outlined in the
table below:
Assets
IFRS 9 Classification
IFRS 9 Accounting Treatment
Royalty Financial Instruments
• McClean Lake
• Dugbe 1
• Piauí
• EVBC
• Jogjakarta
Fair value through
profit or loss
(‘FVTPL’)
Held at fair value on the balance sheet, with fair value movements taken through
the income statement.
Royalty income is not recognised as revenue in the income statement and instead
reduces the fair value of the asset.
Other non-current receivables
Amortised cost
• McClean Lake
Mining and exploration interests
Carried at amortised cost less impairment on the balance sheet, interest is recognised
in the income statement at the effective interest rate for the asset.
Fair value through other
comprehensive income
(‘FVOCI’)
Held at fair value on the balance sheet, with fair value movements taken through other
comprehensive income and not recycled to the income statement on disposal.
Dividends recognised as income in the income statement.
There would have been no impact on the Group’s net assets at January 1, 2017 or December 31, 2017. The Group’s results for the year would
have reduced from the reported profit after tax of £11,203,000 to £8,222,000 as a result of the following:
• (£1,774,000) – gain on disposal of mining and exploration interest, no longer recycled and recognised in the income statement;
• (£1,689,000) – royalty income received from EVBC, now recognised in the fair value movement; and
• £482,000 – revaluation of EVBC now recognised in the income statement (net of deferred tax).
Impairment
IFRS 9 introduces an ‘expected credit loss’ model for the assessment of impairment of financial assets held at amortised costs. The Group has
not undertaken a detailed assessment of expected credit loss applicable to the Group’s other non-current receivable arising from the Denison
transaction, however, it is not expected to have a material impact on the Group’s results. The Group’s royalty financial instrument in relation to
the Jogjakarta royalty was fully impaired during 2017 and therefore no further losses would arise from expected credit loss.
IFRS 9 and IFRS 15 became effective for the Group from January 1, 2018. As the effects of applying these standards are considered immaterial
to the Group, the Group has elected not to restate prior period on adoption of the new standards in 2018.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 85
IFRS 16 Leases
IFRS 16 was published in January 2016 and will be effective for the Group from January 1, 2019, replacing IAS 17 Leases.
The principal impact of IFRS 16 will be to change the accounting treatment by lessees of leases currently classified as operating leases. Lease
agreements will give rise to the recognition by the lessee of an asset, representing the right to use the leased item, and a related liability for
future lease payments. Lease costs will be recognised in the income statement in the form of depreciation of the right-of-use asset over the
lease term, and finance charges representing the unwinding of the discount on the lease liability.
As the Group’s operating leases relate primarily to office space and office equipment, the adoption of IFRS 16 is not expected to result in
a material increase in lease liabilities or a corresponding increase in property, plant and equipment right-of-use assets. Information on the
Group’s operating lease commitments is disclosed in note 30.
Other issued standards and amendments that are not yet effective are not expected to have a significant impact on the financial statements.
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. If a foreign operation is partially disposed of or sold, exchange
differences that were recorded in equity are reclassified in the income statement as part of the gain or loss on sale.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
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
Units of production (over reserves)
Coal tenures
Units of production (over reserves)
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.
3.5 Coal royalties (investment property)
Royalty arrangements which are derived from the ownership of sub-stratum lands are accounted for as investment properties in accordance
with IAS 40. Investment property is held to earn a return in the form of royalty entitlements arising from mining activity and is initially
measured at cost including any transaction costs. Investment property is subsequently measured at fair value at each reporting date with any
valuation movements recognised in the income statement. Fair value is determined by a suitably qualified independent external consultant
based on the discounted future royalty income expected to accrue to the Group.
3.6 Intangible assets
(a) Royalty arrangements
Royalty arrangements which are identified and classified as intangible assets are initially measured at cost, including any transaction costs.
Upon commencement of production at the underlying mining operation intangible assets are amortised on a straight-line basis over the life
of the mine. Amortisation rates are adjusted on a prospective basis for all changes to estimates of the life of mine.
(b) Exploration and evaluation costs
Exploration expenditure relates to the initial search for deposits with economic potential. Evaluation expenditure arises from a detailed
assessment of deposits or other projects that have been identified as having economic potential.
Expenditure on exploration and evaluation activities is capitalised when there is a high degree of confidence in the project’s viability and
hence it is probable that future economic benefits will flow to the Group. If this is no longer the case, an impairment loss is recognised in the
income statement. Amortisation of capitalised exploration and evaluation costs does not commence until the underlying project commences
commercial production.
3.7 Impairment of property, plant and equipment and intangible assets
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine
whether there is any indication that those assets are impaired. If such an indication is identified, the recoverable amount of the asset is
estimated in order to determine the extent of any impairment.
The recoverable amount is the higher of fair value (less costs of disposal) and value in use. In assessing value in use, the estimated cash flows
are discounted to their present value using a pre-tax discount rate that has been adjusted to reflect the risks specific to that asset. If the
recoverable amount of the asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its recoverable
amount. An impairment loss is also recognised in the income statement.
Should an impairment loss subsequently reverse, 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.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 87
(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 time frame 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.
(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 as 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and
the present value of the estimated cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the income
statement. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through
the income statement.
Impairment losses relating to available-for-sale equity investments are recognised when the decline in fair value is considered significant or
prolonged, which are defined as follows:
• Prolonged: a period of greater than 18 months that the interest’s fair value is below cost; or
• Significant: a decline in fair value of greater than 25% relative to an individual asset’s original acquisition cost, or its rebased cost post
impairment.
These impairment losses are recognised by transferring the cumulative loss that has been recognised in the statement of comprehensive
income to the income statement. The loss recognised in the income statement is the difference between the acquisition cost or rebased
cost and the current fair value. Once the Group has recognised an impairment loss on an available-for-sale equity investment, it cannot
recognise a reversal through the income statement.
Impairment losses on debt instruments classified as available-for-sale are reversed only if in a subsequent period, the fair value of that debt
instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised. The amount
of such reversal is recognised through the income statement.
3.10 Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated by using tax rates and laws that have been enacted or substantively
enacted by the reporting date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet
liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets
and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests
in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such
investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the liability is settled or the asset is realised based
on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group
expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities
on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they related to items that are recognised in other comprehensive
income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly
in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is
included in the accounting for the business combination.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 89
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
Maracás royalty.
’Investment revaluation reserve‘ represents gains and losses due to the revaluation of the investments in mining and exploration interests
and royalty instruments from the opening carrying values, including the effects of deferred tax and foreign currency changes.
‘Share based payment reserve’ represents equity-settled share-based employee remuneration until such share options are exercised.
‘Foreign currency reserve’ represents the differences arising from translation of investments in overseas subsidiaries.
‘Special reserve’ represents the level of profit attributable to the Group for the period ended June 30, 2002 which was created as part of a
capital reduction performed in 2002.
‘Investment in own shares’ represents the shares held by the Anglo Pacific Group Employee Benefit Trust for awards made under the Joint
Share Ownership Plan (‘JSOP’) (note 27 and note 28).
‘Retained earnings’ represents retained profits.
Of these reserves £88,601,000 are considered distributable as at December 31, 2017 (December 31, 2016: £93,928,000).
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
SEGMENT INFORMATION
4
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: McClean Lake, Maracás Menchen, Ring of Fire, Piauí, Amapá and Tucano
Europe:
EVBC, Salamanca, Bulqiza
Jogjakarta, Dugbe I, and includes the Group’s mining and exploration interests
Other:
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, 2017 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
33,692
(2,623)
(2,987)
28,082
Americas
Royalties
£’000
2,001
(493)
–
1,508
Europe
Royalties
£’000
1,689
–
–
1,689
All other
segments
£’000
–
–
(2,903)
(2,903)
Total
£’000
37,382
(3,116)
(5,890)
28,376
168,823
43,122
6,328
35,089
253,362
Additions to non-current assets (other than financial instruments and
deferred tax assets)
Total segment liabilities
The segment information for the year ended December 31, 2016 is as follows:
–
30,539
Australia
Royalty
£’000
17,691
(2,416)
(1,652)
13,623
–
–
–
676
–
–
2,732
33,947
Americas
Royalty
£’000
791
(453)
–
338
Europe
Royalty
£’000
1,223
–
–
1,223
All other
segments
£’000
–
–
(2,478)
(2,478)
Total
£’000
19,705
(2,869)
(4,130)
12,706
187,879
19,106
12,314
36,956
256,255
Royalty related income
Amortisation of royalties
Operating expenses
Total segment operating profit/(loss)
Total segment assets
Total assets include:
Additions to non-current assets (other than financial instruments and
deferred tax assets)
–
–
–
–
–
Total segment liabilities
35,799
1,215
662
8,441
46,117
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 £33,692,000 (2016: £17,691,000) includes the Kestrel and Narrabri royalties which generated
£28,746,000 and £4,946,000 respectively (2016: Kestrel £13,134,000; Narrabri: £4,243,000). Individually the revenue generated by Kestrel
and Narrabri royalties represents greater than 10% of the Group’s revenue in 2016 and 2017.
Impairments
There has been no impairment of the Group’s royalty intangible assets during the year ended December 31, 2017. 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. Refer to note 16 for further details on the Group’s impairments.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017
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
91
2017
£’000
2016
£’000
3,794
1,073
127
227
669
2,547
626
93
220
644
5,890
4,130
2017
£’000
2016
£’000
83
34
117
–
30
23
53
97
18
115
222
20
–
242
1 Audit related assurance services relate wholly to the reporting accountant work performed in 2016 by the auditors for fundraising activities.
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 are safeguarded are set out in the Audit Committee Report on page 49.
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
2017
£’000
2,293
1,174
261
66
Group
2016
£’000
1,501
708
278
60
3,794
2,547
2017
£’000
2,171
1,174
258
66
3,669
Company
2016
£’000
1,452
708
275
60
2,495
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 £66,000 (2016: £60,000) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at December 31, 2017, contributions of £8,500 (2016: £8,000) due in respect of the current reporting
period had not been paid over to the schemes.
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
6c Average number of people employed
Group
Number of employees
Group
Average number of people (including executive directors) employed:
Executive directors
Administration
Company
The average number of administration staff employed by the Company during the year, including Executive Directors was 9 (2016: 9).
Directors’ salaries are shown in the Directors’ Remuneration Report on pages 53 to 65, including the highest paid Director.
7
FINANCE INCOME
Group
Interest on bank deposits
Interest on long-term receivables
Foreign exchange (loss)/gain
8
FINANCE COSTS
Group
Professional fees
Revolving credit facility fees and interest
9 OTHER (LOSSES)/INCOME
Group
Effective interest income on royalty financial instruments
Revaluation of foreign exchange instruments
Write-off of interest receivable
Sundry income
2017
£’000
19
1,926
(747)
1,198
2017
£’000
(422)
(373)
(795)
2017
£’000
258
(188)
(300)
–
(230)
2017
2016
10
2017
1
9
10
9
2016
1
8
9
2016
£’000
56
26
2,265
2,347
2016
£’000
(676)
(410)
(1,086)
2016
£’000
246
664
–
63
973
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 93
INCOME TA X EXPENSE
10
The effective tax rate for the year of 11.2% (2016: 6.9%) is lower (2016: lower) than the applicable weighted average statutory rate of
corporation tax in the United Kingdom of 19.25% (2016: 20.00%). The reconciling items are:
Analysis of charge for the year
United Kingdom corporation tax charge
Overseas tax
Adjustments in respect of prior years
Current tax
Deferred tax charge in current year
Adjustments in respect of prior years
Deferred tax
Income tax (credit)/expense
Factors affecting tax charge for the year:
Profit before tax
Tax on profit calculated at United Kingdom corporation tax rate of 19.25% (2016: 20.00%)
Tax effects of:
Items non-taxable/deductible for tax purposes:
Non-deductible expenses
Temporary difference adjustments
Utilisation of losses not previously recognised
Current year losses not recognised
Deferred tax not previously recognised
Write down of deferred tax assets previously recognised
Adjustment in deferred tax due to change in tax rate
Other temporary difference adjustments
Other adjustments
Withholding taxes
Effect of differences between local and United Kingdom tax rates
Prior year adjustments to current tax
Other adjustments
Income tax (credit)/expense
2017
£’000
3
2,132
(138)
1,997
853
(1,530)
(677)
1,320
2016
£’000
–
1,403
(809)
594
1,356
–
1,356
1,950
11,847
2,281
28,312
5,662
1,120
(310)
(1,986)
199
–
1,016
(2,418)
(667)
2,132
1,309
(1,668)
2
1,320
–
801
(4,954)
–
–
399
1,349
192
(809)
(380)
1,950
The Group’s effective tax rate for the year ended December 31, 2017 was 11.2% (2016: 6.9%). The lower effective tax rate in 2017 compared
to the headline tax rate is mainly due to the utilisation of carried forward losses not previously recognised and the reduction in the tax rates
applicable to certain deferred tax liabilities.
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.
Uncertain tax provisions
The Group has investments in a large number of jurisdictions and has established structures in certain of those jurisdictions where its royalties
are located. Due to the complexity of tax in relation to royalty assets, the Group frequently takes local tax advice in relation to transactions.
Where the amount of tax payable or receivable is uncertain, the Group could establish provisions based on its interpretation of tax law and its
judgement of the most likely amount of the liability or recovery, assisted by third party tax advice received. There can be no certainty that tax
authorities would make the same interpretation. See note 2 for further details.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
11 EARNINGS PER SHARE
Earnings per ordinary share is calculated on the Group’s profit after tax of £10,527,000 (2016: £26,362,000) and the weighted average number
of shares in issue during the year of 178,895,115 (2016: 169,016,101).
Net profit attributable to shareholders
Earnings – basic
Earnings – diluted
Weighted average number of shares in issue
Basic number of shares
Dilutive effect of employee share option schemes (note 28)
Diluted number of shares outstanding
Earnings per share – basic
Earnings per share – diluted
2017
£’000
2016
£’000
10,527
10,527
26,362
26,362
2017
2016
178,895,115 169,016,101
267,660
13,385
179,162,775 169,029,486
5.88p
5.88p
15.60p
15.60p
Earnings 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, 2017 (December 31, 2016: 925,933).
Adjusted earnings per share
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.
Valuation and other non-cash movements such as these are not considered by management in assessing the level of profit and cash
generation available for distribution to shareholders. As such, an adjusted earnings measure is used which reflects the underlying
contribution from the Group’s royalties during the year.
Net profit attributable to shareholders
Earnings – basic and diluted for the year ended December 31, 2017
10,527
5.88p
5.88p
Earnings
£’000
Earnings
per share
p
Diluted
earnings
per share
p
Adjustment for:
Amortisation of royalty intangible assets
Gain on sale of mining and exploration interests
Impairment of mining and exploration interests
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
Adjusted earnings – basic and diluted for the year ended December 31, 2017
3,116
(1,774)
219
6,324
11,933
188
1,174
(1,614)
30,093
16.82p
16.80p
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 95
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
Gain 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
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
Dilutive effect of Employee Share Option Scheme
Diluted number of shares outstanding
2017
2016
178,895,115 169,016,101
267,660
13,385
179,162,775 169,029,486
12 DIVIDENDS AND DIVIDEND COVER
On February 4, 2017 an interim dividend of 3.00p per share was paid to shareholders in respect of the year ended December 31, 2016. On
August 9, 2017 a final dividend of 3.00p per share was paid to shareholders to make a total dividend for the year ended December 31, 2016 of
6.00p per share. Following the Group’s move to a quarterly dividend payment, on November 15, 2017, an interim dividend of 3.00p per share
was paid to shareholders in respect of the year ended December 31, 2017. Total dividends paid during the year were £15.9m (2016: £11.8m).
On February 15, 2018 a further interim dividend of 1.50p per share was paid to shareholders in respect of the year ended December 31, 2017.
This dividend has not been included as a liability in these financial statements. The Directors propose that a final dividend of 2.50p per share
be paid to shareholders on May 31, 2018, to make a total dividend for the year of 7.00p per share. This dividend is subject to approval by
shareholders at the AGM and has not been included as a liability in these financial statements.
The proposed final dividend for 2017 will be payable to all shareholders on the Register of Members on May 18, 2018. The total estimated
dividend to be paid is £4.5m. 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, 2017 is 16.82p per share (note 11) with dividends for the year totalling 7.00p, resulting
in dividend cover of 2.4x (2016: adjusted earnings per share 9.76p, dividends totalling 6.00p, dividend cover 1.6x).
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
13 PROPERT Y, PL ANT AND EQUIPMENT
Group
Gross carrying amount
At January 1, 2017 and December 31, 2017
Depreciation and impairment
At January 1, 2017
Depreciation
At December 31, 2017
Carrying amount December 31, 2017
Group
Gross carrying amount
At January 1, 2016 and December 31, 2016
Depreciation and impairment
At January 1, 2016
Depreciation
At December 31, 2016
Carrying amount December 31, 2016
Other
assets
£’000
Equipment
and fixtures
£’000
Total
£’000
1,356
276
1,632
(1,356)
–
(1,356)
–
Other
assets
£’000
(199)
(33)
(232)
44
Equipment
and fixtures
£’000
(1,555)
(33)
(1,588)
44
Total
£’000
1,356
276
1,632
(1,356)
–
(1,356)
–
(163)
(36)
(199)
77
(1,519)
(36)
(1,555)
77
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 2016
or 2017.
Company
Gross carrying amount
At January 1, 2017 and December 31, 2017
Depreciation and impairment
At January 1, 2017
Depreciation
At December 31, 2017
Carrying amount December 31, 2017
Company
Gross carrying amount
At January 1, 2016 and December 31, 2016
Depreciation and impairment
At January 1, 2016
Depreciation
At December 31, 2016
Carrying amount December 31, 2016
Other
assets
£’000
Equipment
and fixtures
£’000
Total
£’000
821
276
1,097
(821)
–
(821)
–
Other
assets
£’000
(199)
(33)
(232)
44
Equipment
and fixtures
£’000
(1,020)
(33)
(1,053)
44
Total
£’000
821
276
1,097
(821)
–
(821)
–
(163)
(36)
(199)
77
(984)
(36)
(1,020)
77
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 14 COAL ROYALTIES (KESTREL )
At January 1, 2016
Foreign currency translation
Gain on revaluation of coal royalties
At December 31, 2016
Foreign currency translation
Loss on revaluation of coal royalties
At December 31, 2017
97
Group
£’000
82,649
16,336
17,900
116,885
(686)
(11,933)
104,266
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 2017 at £104.3m (A$180.2m) (2016: £116.9m and A$200.3m) by an independent coal industry
advisor, on a net present value of the pre-tax cash flow discounted at a nominal rate of 7.50% (2016: 7.50%). The key assumptions in the
independent valuation relate to price and discount rate.
The price assumptions used in the 2017 valuation decrease from US$141/t in the short-term to a long-term flat nominal price of US$119/t.
If the price were to increase or decrease 10% 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$152.8m (£88.4m) and an increase of £28.2m
in the revaluation loss in the income statement to £16.3m; and
• a 10% increase in the coal price would have resulted in the coal royalties being valued at A$209.5m (£121.2m) and a £17.4m reversal of the
revaluation loss in the income statement, resulting in a revaluation gain of £5.5m.
The pre-tax nominal discount rate used for the asset is 7.50%, of 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$186.7m (£108.0m) and a £3.9m
reduction in the revaluation loss in the income statement to £8.0m; and
• a 1% increase in the nominal discount rate would have resulted in the coal royalties being valued at A$174.2m (£100.8m) and a £3.6m
increase in the revaluation loss in the income statement to £15.5m.
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. As it is not the Group’s present intention to dispose of the coal royalty, these losses have not been included in the deferred tax
calculation (note 25). Were the coal royalty to be carried at cost the carrying value would be £0.2m (2016: £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_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
15 ROYALT Y FINANCIAL INSTRUMENTS
The Group’s royalty instruments are represented by five royalty and toll milling agreements which entitle the Group to 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 or tolling receipts. 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, 2017
Carrying value
£,000
December 31, 2016
Carrying value
£,000
Commodity
Gold, Silver,
Copper
EVBC
Jogjakarta
Iron Sands
US$4,000
C$7,500
2.50%
2.00%
Dugbe 1
Gold
US$15,000
2.00%
3% gold >US$1,100/oz
Available-for-sale equity
–
Available-for-sale debt
2.5% >US$1,800/oz &
production <50,000oz/qrt Available-for-sale debt
McClean Lake Uranium
C$2,700
–
22.5% of tolling milling
receipt on production
>215Mlbs
Piauí
Nickel-Cobalt
US$2,000
1.00%
–
Available-for-sale debt
Fair value
3,979
–
3,408
1,877
1,603
10,867
3,483
3,241
6,832
–
–
13,556
The Group’s entitlements to cash by way of the repayment of the principal and either the NSR royalty or the GRR, or by way of tolling receipts
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 December 31, 2016
Additions
Revaluation of royalty financial instruments recognised in profit or loss
Revaluation of royalty financial instruments recognised in equity
Foreign currency translation
At December 31, 2016
Additions
Revaluation and impairment of royalty financial instruments
Revaluation of royalty financial instruments recognised in equity
Foreign currency translation
At December 31, 2017
Group
£’000
Company
£’000
6,534
10,133
(4,939)
(350)
2,178
13,556
3,323
(6,324)
496
(184)
10,867
6,534
–
–
(350)
540
6,724
–
(3,076)
496
(165)
3,979
Effective interest of £0.3m was recognised in other income (see note 9) for the year ended December 31, 2017 (2016: £0.2m). This was directly
offset by cash received in the period of the same amount.
Jogjakarta
During 2017, the Group’s convertible debenture with Indo Mines Limited, including a gross revenue royalty over the Jogjakarta project, was
fully provided for as a result of inherent uncertainty of this project reaching commercial production due to the limited progress made to
date by the operator in securing long-term strategic investment. This has resulted in a £3.1m impairment charge to the income statement.
Indo Mines is subject to a takeover bid by its majority shareholder, which could see the Group recover some of the debenture provided for.
Dugbe 1
On February 23, 2016, Hummingbird Resources PLC (‘Hummingbird’), the operator of the Dugbe 1 project, gave notice under the US$15.0m
royalty financing arrangement with the Group that a Mineral Development Agreement (‘MDA’) had been approved by the Liberian
Government although this is yet to be signed into law. There are certain mechanisms available to the Group to recover the US$15.0m
investment, although at present these seem unlikely to be triggered.
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, 2017, the Group assessed the likely start date of commercial production at Dugbe 1 to be 2025, and have applied a 75%
probability factor to the project reaching commercial production to the discounted future flows of the royalty with an 18% post tax nominal
discount rate, resulting in a valuation of £3.4m (2016: £6.8m). The £3.4m decrease in carrying value has been recognised as an impairment
to the income statement for the year.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 99
McClean Lake
On February 13, 2017, the Group completed a C$43.5m (£26.6m) financing and streaming agreement with Denison Mines Inc (‘Denison’).
The financing agreement comprises two separate transactions: a 13-year amortising secured loan of C$40.8m (£24.9m) with an interest rate
of 10% per annum payable to the Group and is classified as non-current other receivables (note 20); and a 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 from
July 1, 2016, was acquired for C$2.7m (£1.7m) and is classified as available-for-sale debt in accordance with note 2. Given the early stage nature
of the project the Group has considered there to be no value to the option.
As at December 31, 2017, the Group assessed the probability of the McClean Lake Mill achieving throughput in excess of 215Mlbs at 50%, and
applied this to the discounted future cash flows of the stream with a 6.5% post tax nominal discount rate, resulting in a valuation of £1.9m.
The £0.2m increase in the carrying value of the stream has been recognised in the income statement for the year.
Piauí
On September 14, 2017, the Group acquired a 1% gross revenue royalty over the Piauí nickel-cobalt project in Brazil for US$2.0m (£1.6m).
Under the acquisition agreement, subject to certain development milestones, the Group has the option to acquire up to a total of US$70.0m
in additional gross revenue royalties. The Group has decided to evoke the fair value option in classifying this royalty financial instrument, due
to there being one or more embedded options that are not closely related in the underlying contract (note 2).
As at December 31, 2017, the Group assessed the probability of the Piauí project reaching commercial production at 30% and applied this to
the discounted future cash flows of the royalty with a 12% post tax nominal discount rate, resulting in a valuation of £1.6m which is equal to
the acquisition cost.
16 ROYALT Y AND EXPLOR ATION INTANGIBLE ASSETS
The Group’s intangibles comprise capitalised exploration and evaluation costs and royalty interests.
Group
Gross carrying amount
At January 1, 2017
Transfer from deferred acquisition costs
Foreign currency translation
At December 31, 2017
Amortisation and impairment
At January 1, 2017
Amortisation charge
Foreign currency translation
At December 31, 2017
Carrying amount December 31, 2017
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
Exploration and
evaluation costs
£’000
Royalty
interests
£’000
Total
£’000
697
115,017
115,714
–
–
1,125
(1,073)
1,125
(1,073)
697
115,069
115,766
(697)
(34,970)
(35,667)
–
–
(3,116)
438
(3,116)
438
(697)
(37,648)
(38,345)
–
77,421
77,421
Exploration and
evaluation costs
£’000
Royalty
interests
£’000
697
96,845
–
–
697
650
17,522
115,017
Total
£’000
97,542
650
17,522
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
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
Company
Royalty interests
At January 1 and at December 31
2017
£’000
2016
£’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
Under the terms of the Maracás Menchen royalty sale agreement entered into in 2014, a further US$3.0m of cash is payable when the project
reaches certain annualised production milestones. The first of these milestones was annualised production over a quarter of 9,500t which
was achieved in Q3 2017, resulting in the Group paying the first tranche of deferred consideration of US$1.5m (£1.1m) in November 2017.
This amount had previously been provided for with a corresponding deferred acquisition cost asset (see note 18) which was transferred to
intangibles on payment in the year.
The second tranche of deferred consideration of US$1.5m, becomes payable once annualised production over a quarter reaches 12,000t.
Based on the current publicly available production profile, management do not consider it probable that this milestone will be achieved in
the foreseeable future. As a result no liability for this portion of the deferred consideration has been recognised as at December 31, 2017.
On March 31, 2016, in satisfaction of the outstanding principal of £0.7m, owed by Atrum Coal NL, the Group accepted a 0.10% gross revenue
royalty over the Groundhog project in British Columbia. The promissory note arose from the 2014 sale of the Group’s Panorama Coal
tenements, which included the Groundhog project.
Amortisation of royalty interests
The Group’s royalty intangible assets are amortised on a straight-line basis, upon the commencement of production at the underlying mining
operation, over the life of mine.
Three of the underlying mining operations of the Group’s royalty intangibles assets were in production during 2017, and were amortised on
the following basis:
Royalty interest
Narrabri
Maracás Menchen
Four Mile
Carrying value
December 31, 2017
A$’000
Carrying value
December 31, 2016
A$’000
Estimated life of mine
Remaining life of mine
76,715
23,456
2,597
80,754
22,318
2,968
22 years
29 years
10 years
19 years
26 years
7 years
Amortisation of the Group’s remaining royalty interests will commence once they begin commercial production. As at December 31, 2017, 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 notes 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.
There were no impairments recognised during the year ended December 31, 2017 in respect of the Group’s royalty intangible assets. During
the year ended December 31, 2016, the Group’s Amapá royalty was fully impaired, as detailed below.
Amapá
Production at Amapá has been suspended since 2013 following a major port incident. The mine’s then 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 understood that Zamin had filed for bankruptcy protection in Brazil. As a result the Directors assessed the timing of Amapá
returning to commercial production as being indeterminable and recognised an impairment charge of £2.0m for the year ended December
31, 2016, reducing the carrying value to nil.
There have been no developments at Amapá during the year ended December 31, 2017, that would result in a reversal of management’s
assessment.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 17 MINING AND EXPLOR ATION INTERESTS
Fair value
At January 1, 2016
Mining and exploration interests received in lieu of payment
Disposals
Revaluation adjustment
Foreign currency translation
At December 31, 2016
Disposals
Revaluation adjustment
Foreign currency translation
At December 31, 2017
101
Group
£’000
Company
£’000
10,898
47
(3,431)
9,534
14
17,062
(2,424)
1,737
56
8,259
–
(3,326)
8,928
–
13,861
(2,424)
1,836
–
16,431
13,273
The current strategy of the Group is to obtain royalties by other means, and as such, these assets, which have historically been acquired with
a view to negotiating royalty acquisitions, have been gradually disposed of as they are now non-core to the Group’s primary business. The
fair values of listed securities are based on quoted market prices. Unquoted investments are initially recognised using cost where fair value
cannot be reliably determined. In the absence of an active market for these securities, the Group considers each unquoted security to ensure
there has been no material change in the fair value since initial recognition. Further guidance on fair value measurement is provided in note 2.
An impairment charge (representing the recognition of losses previously deferred to equity) is recognised in the income statement when
the absolute decline in value below cost of any individual investment is considered ‘significant’ or ‘prolonged’ in accordance with the Group’s
impairment policy. Following further declines in the quoted market prices of a number of the listed securities in which the Group has
an interest, an impairment charge of £219,000 for the year ended December 31, 2017 (December 31, 2016: £29,000) was recognised.
For the year ended December 31, 2017, the Group realised £2.4m in cash (December 31, 2016: £3.4m) 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 £1.8m for the year ended December 31, 2017 (December 31, 2016: £2.4m).
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, 2017
Transferred from borrowings
Additions
Transfer to royalty intangible assets
Transfer to royalty financial instrument
Transfer to interest bearing receivable
Released to income during the year
Foreign currency translation
Carrying amount at December 31, 2017
Group
£’000
13,270
3,161
16,431
2017
Company
£’000
13,095
178
13,273
Group
£’000
14,070
2,992
17,062
2016
Company
£’000
13,680
181
13,861
10
8
10
8
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
1,370
–
224
(1,125)
(11)
(153)
(13)
(90)
202
–
133
632
–
–
–
(279)
1
487
Total
£’000
1,370
133
856
(1,125)
(11)
(153)
(292)
(89)
689
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
Group
Carrying amount
At January 1, 2016
Additions
Foreign currency translation
Carrying amount at December 31, 2016
Company
Carrying amount
At January 1, 2017
Additions
Transfer to interest bearing receivable
Released to income during the year
Transfer to subsidiary
Carrying amount at December 31, 2017
Company
Carrying amount
At January 1, 2016
Additions
Carrying amount at December 31, 2016
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
1,013
155
202
1,370
–
–
–
–
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
155
224
(153)
(13)
(11)
202
–
355
–
(108)
–
247
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
–
155
155
–
–
–
Total
£’000
1,013
155
202
1,370
Total
£’000
155
579
(153)
(121)
(11)
449
Total
£’000
–
155
155
Deferred acquisition costs
As at December 31, 2016, deferred acquisition costs largely represented the corresponding asset for the deferred consideration payable
by the Group in relation to its acquisition of the Maracás Menchen vanadium royalty in 2014 (see note 16). Under the terms of the royalty
sale agreement, the Group was required to pay an additional US$1.5m (£1.1m) once production reached an annualised rate over a quarter
of 9,500t. The production rate was achieved in Q3 2017, resulting in the Group remitting the deferred consideration in November 2017,
with the deferred cost asset transferred to give a corresponding increase in the royalty intangible assets (refer to note 16).
As at December 31, 2017, deferred acquisition costs represent those costs associated with royalty acquisitions that the Group are actively
pursuing and expect to complete in 2018.
Deferred financing costs
As at December 31, 2017, deferred financing costs represent the costs associated with entering into the new undrawn US$30.0m, three-
year secured revolving credit facility with a US$10.0m accordion that have been deferred and will be amortised over the term of the facility.
All deferred costs relating to the Group’s previous facility were released to the income statement, at the time of refinancing with the new
facility and accordion.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 103
£’000
70,734
15,131
–
85,865
(14,191)
(1,467)
(15,658)
70,207
£’000
70,736
–
(2)
70,734
(14,141)
(50)
(14,191)
56,543
2016
Company
£’000
–
87
70
356
8,038
8,551
INVESTMENTS IN SUBSIDIARIES
19
The Group’s full listing of subsidiaries is provided in note 33. The Company’s investment in subsidiaries as December 31, 2017 and
December 31, 2016 is as follows:
Cost
At January 1, 2017
Capital injection into subsidiaries
Return of capital from subsidiaries
At December 31, 2017
Impairment of investment in subsidiaries
At January 1, 2017
Impairment of investment in subsidiaries
At December 31, 2017
Carrying amount December 31, 2017
Cost
At January 1, 2016
Capital injection into subsidiaries
Return of capital from subsidiaries
At December 31, 2016
Impairment of investment in subsidiaries
At January 1, 2016
Impairment of investment in subsidiaries
At December 31, 2016
Carrying amount December 31, 2016
20 TR ADE 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
388
130
8,131
53
–
8,702
2017
Company
£’000
–
116
264
47
–
427
Group
£’000
373
101
11,257
359
–
12,090
21,259
–
21,259
21,259
35,603
56,862
–
–
–
–
39,303
39,303
Current trade and other receivables
Trade and other receivables principally comprise amounts relating to royalties receivable for the final quarter in each year. The decrease in
royalty receivables as at December 31, 2017 is the result of the Kestrel royalty being remitted on a monthly basis since July 2017, compared
to 30 days after the end of the quarter in 2016.
The Directors consider that the carrying amount of trade and other receivables is approximately their fair value.
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
Non-current other receivables
On February 13, 2017, the Group completed a C$43.5m (£26.6m) financing and streaming agreement with Denison. The streaming agreement
is classified as an available-for-sale debt royalty financial instrument (note 15), with an initial value of C$2.7m (£1.7m).
The financing agreement is structured as a 13-year secured loan of C$40.8m (£24.9m) with an interest rate of 10% per annum payable to the
Group. The loan contains mandatory repayment provisions in any period where the equivalent toll revenues exceed the interest liability.
Conversely, in any period when toll revenues are less than the interest payment, the shortfall is capitalised and carried forward to the next
period. The loan principal, along with any capitalised interest, is repayable in full at maturity.
Subsequent to entering the financing agreement, the Group has earned £1.9m in interest revenue (2016: nil) and received principal
repayments of £3.1m for the period to December 31, 2017.
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 implemented a policy whereby foreign exchange forward contracts can be entered into to manage its exposure to foreign
exchange risk associated with its Australian dollar denominated royalty income (note 32). 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 1
Revaluation gain included in profit or loss (note 9)
(Loss)/Gain on settlement foreign currency forward contracts
Fair value as at December 31
Group
£’000
711
(188)
(423)
100
2017
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
8,099
–
8,099
2017
Company
£’000
1,349
–
1,349
Group
£’000
–
664
47
711
Group
£’000
5,196
135
5,331
2016
Company
£’000
–
–
–
–
2016
Company
£’000
789
135
924
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 cash and cash equivalents/(debt)
Group
£’000
–
8,099
8,099
2017
Company
£’000
–
1,349
1,349
Group
£’000
(6,300)
5,331
(969)
2016
Company
£’000
(3,100)
924
(2,176)
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 105
Net debt
£’000
(1,819)
1,418
(568)
(969)
8,740
328
8,099
2016
Company
£’000
3,100
–
3,100
Cash and cash
equivalents
£’000
Medium and
long-term
borrowings
£’000
7,527
(1,256)
29
6,300
(6,153)
(147)
–
Group
£’000
6,300
(133)
6,167
5,708
162
(539)
5,331
2,587
181
8,099
Group
£’000
2017
Company
£’000
–
–
–
–
–
–
–
–
–
–
6,300
3,100
Movement in net debt
At January 1, 2016
Cash flow
Currency movements
At December 31, 2016
Cash flow
Currency movements
At December 31, 2017
24 BORROWINGS
Secured borrowing at amortised cost
Revolving credit facility
Deferred borrowing costs
Amount due for settlement within 12 months
Amount due for settlement after 12 months
As at December 31, 2016, the Group’s borrowings related 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.
In February 2017, the Group refinanced its existing facility with a further three-year revolving credit facility of US$30.0m with a US$10.0m
accordion, maturing in February 2020, which is available at LIBOR plus 300bps. The Group triggered the accordion in November 2017,
and as at December 31, 2017 has access to US$40.0m (£29.6m).
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, 2017.
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
25 DEFERRED TA X
The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during the period:
Group
At January 1, 2016
Charge/(credit) to profit or loss
Charge/(credit) to other
comprehensive income
Exchange differences
Effect of change in tax rate:
– equity
At December 31, 2016
Charge/(credit) to profit or loss
Charge/(credit) to other
comprehensive income
Exchange differences
Effect of change in tax rate:
– income statement
– equity
At December 31, 2017
Coal royalties
Available-for sale-investments
Revaluation
of coal royalty
£’000
24,279
5,510
–
4,754
–
34,543
(2,908)
–
(356)
(2,154)
–
29,125
Effects of
tax losses
£’000
(1,356)
–
–
(249)
–
(1,605)
1,636
–
(31)
–
–
–
Revaluation
of royalty
instruments
£’000
767
(1,583)
(66)
–
(38)
(920)
(316)
84
14
(264)
(70)
(1,472)
Revaluation
of mining
interests
£’000
107
(19)
92
(16)
–
164
190
(356)
10
–
–
8
Accrual of
royalty
receivable
£’000
567
1,874
–
226
–
2,667
(964)
–
3
–
–
Other tax
losses
£’000
(2,912)
(4,426)
–
–
–
(7,338)
4,103
–
(109)
–
–
Total
£’000
21,452
1,356
26
4,715
(38)
27,511
1,741
(272)
(469)
(2,418)
(70)
1,706
(3,344)
26,023
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:
Deferred tax liabilities
Deferred tax assets
2017
£’000
2016
£’000
(31,507)
(36,637)
5,484
9,126
(26,023)
(27,511)
As at December 31, 2017, the Group has unused tax losses of £11.0m (2016: £10.7m) 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
–
–
–
–
–
–
–
–
–
2017
Total
£’000
–
–
–
Tax losses –
trading
£’000
Tax losses –
capital
£’000
Other
temporary
differences
–
–
–
–
–
–
–
–
–
2016
Total
£’000
–
–
–
17,683
17,683
36,959
36,959
5,899
5,899
60,541
60,541
18,786
18,786
34,946
34,946
5,823
5,823
59,555
59,555
Temporary differences associated with investments in subsidiaries, joint ventures and associates are insignificant.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 107
The following are the major deferred tax liabilities recognised by the Company and the movements thereon during the period:
Company
At January 1, 2016
Released to income for the year
Charge to equity for the year
At December 31, 2016
Released to income for the year
Charge to equity for the year
At December 31, 2017
Available-for-
sale-investments
Revaluation of
royalty
instruments
£’000
766
–
(104)
662
–
14
676
Total
£’000
766
–
(104)
662
–
14
676
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 TR ADE AND OTHER PAYABLES
Current
Other taxation and social security payables
Trade payables
Borrowings from subsidiaries
Other payables
Accruals and deferred income
2017
£’000
676
–
676
Group
£’000
64
187
–
361
745
2016
£’000
662
–
662
2016
Company
£’000
59
185
–
175
671
1,357
1,090
Group
£’000
72
16
–
582
1,824
2,494
2017
Company
£’000
68
14
10,726
176
1,731
12,715
The average credit period taken for trade purchases is 25 days (2016: 34 days). The Directors consider that the carrying amount of trade and
other payables approximates their fair value. All amounts are considered short-term and none are past due.
Non-current
Deferred consideration
Other taxation and social security payables
Group
£’000
–
419
419
2017
Company
£’000
–
419
419
Group
£’000
1,215
276
1,491
2016
Company
£’000
–
276
276
Non-current other taxation and social security payables relates to employer national insurance due on vesting of the certain share-based
payments.
Deferred consideration of £1.2m as at December 31, 2016 related to the first tranche of deferred consideration of US$1.5m due under the
2014 royalty sale and purchase agreement to acquire the Maracás Menchen royalty. Following production reaching an annualised rate over
a quarter of 9,500t in Q3 2017, the Group paid the US$1.5m due in November 2017 (note 18).
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
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 169,942,034
Issue of share capital under placing
Ordinary shares of 2p at December 31, 2016
10,960,000
180,902,034
3,399
219
3,618
49,211
12,755
61,966
29,134
–
29,134
Number of
shares
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Total
£’000
81,744
12,974
94,718
On February 6, 2017, the Group issued 10,960,000 new ordinary shares of 2p each to part fund the Denison transaction (refer to notes 15
and 20). The shares were placed at 125p per share raising gross proceeds of £13.7m (C$22.4m), and net proceeds of £13.0m.
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
2017
£’000
Number of
shares
2016
£’000
925,933
925,933
(2,601)
(2,601)
925,933
925,933
(2,601)
(2,601)
As the EBT has waived its right to receive dividends, the Company’s shares held by the EBT are excluded from the weighted average number
of shares in issue for the purposes of calculating earnings per share in note 11.
28 SHARE-BASED PAYMENTS
The Group operates fur equity-settled share-based compensation plans as follows:
• The HMRC approved Company Share Ownership Plan (the ‘CSOP’);
• The Unapproved Share Ownership Plan (the ‘USOP’);
• 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 Executive 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
Forfeited during the year
Outstanding at December 31
2017
Weighted
average
exercise
price (£)
0.9764
–
Options
133,981
–
133,981
0.9764
Options
157,812
(23,831)
133,981
Out of the 133,981 outstanding options (2016: 133,981), nil options (2016: nil) were exercisable.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
2016
Weighted
average
exercise
price (£)
0.9557
0.8392
0.9764
Options
2016
24,600
37,954
71,427
Exercise price in
£ per share
1.6258
0.9221
0.7700
2017
24,600
37,954
71,427
133,981
133,981
7.82
8.82
Expiry date
2024
2025
2025
Weighted average remaining contractual life
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 109
No awards were made under the CSOP during 2016 or 2017. In accordance with the terms of the CSOP, an employee forfeited 23,831
options upon their resignation in 2016.
(b) Unapproved Share Option Plan
The Group’s USOP was approved by shareholders at the 2016 AGM. The plan was established to provide the Group additional scope to
incentivise employees, particularly those who do not participate in the VCP, over and above the limit of the CSOP. In addition, the USOP
is intended to replace the Group’s JSOP.
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 and have a contractual option term of five 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
Outstanding at December 31
2017
Weighted
average
exercise
price (£)
–
0.8801
0.8801
2016
Weighted
average
exercise
price (£)
–
–
–
Options
–
–
–
Options
–
2,097,593
2,097,593
The weighted average fair value of options granted during 2017 determined using a Black-Scholes valuation model was £0.39 per option
granted in April 2017. The significant inputs into the model were the weighted average share price of £1.258 at the grant date, exercise price
of £0.88, volatility of 40.21%, expected dividend yield of 4.77%, expected option life of four years and an annual risk free rate of 0.21%.
Out of the 2,097,593 outstanding options (2016: nil), nil options (2016: nil) were exercisable.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry date
2027
2027
Weighted average remaining contractual life
Exercise price in
£ per share
2017
2016
Options
–
633,334
1.2607
1,464,259
2,097,593
4.28
–
–
–
–
(c) Joint Share Ownership Plan
Under the JSOP, the Remuneration Committee invites selected Executive 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 2016 or 2017, as a result there are no outstanding awards under this plan.
(d) Value Creation Plan
Following the approval at the 2014 AGM, the Group implemented 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.
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
VCP awards outstanding at December 31, 2017 and December 31, 2016 are as follows:
Expiry date
Outstanding at January 1
Awarded in May 2017
Forfeited during the year
Outstanding at December 31
Weighted average remaining contractual life
Units
2017
66,880
24,000
(4,013)
86,867
Units
2016
66,880
–
–
66,880
3.50
4.50
At the 2016 AGM, the shareholders approved an amendment to the VCP extending the performance period from five years to seven years,
resulting in the weighted average remaining contractual life increasing by two years to 4.5 years.
The weighted average fair value of options granted during 2017 determined using a Monte Carlo valuation model was £35.46 per option
granted in May 2017. The significant inputs into the model were the weighted average share price of £1.145 at the grant date, exercise price
of nil, volatility of 40.25%, expected dividend yield of 5.25%, expected option life of four years and an annual risk free rate of 0.30%.
Refer to note 6(a) 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, 2017 and December 31, 2017
30 FINANCIAL COMMITMENTS
Group
£’000
632
Company
£’000
632
Operating leases
The Group’s most significant operating lease commitments relate to premises maintained in both London, England and Shetland, Scotland.
At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases. The total commitments due
under these leases are shown according to the scheduled expiry dates of the leases as follows:
Group
Within one year
In the second to fifth years inclusive
After five years
Capital commitments
At the year end the Group had capital commitments of £nil (2016: £nil) in respect of purchases of quoted investments.
31 REL ATED PART Y TR ANSACTIONS
During the year, the Company entered into the following transactions with subsidiaries:
Net financing of related entities
Management fee
Amounts owed by related parties at year end
All transactions were made in the course of funding the Group’s continuing activities.
2017
£’000
2016
£’000
330
252
–
582
300
526
–
826
2017
£’000
1,969
2,778
35,603
Company
2016
£’000
(2,530)
1,632
47,341
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 111
Remuneration of key management personnel
The remuneration of the key management personnel including Directors of the Group is set out below in aggregate for each of the categories
specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited
part of the Directors’ Remuneration Report on pages 53 to 65.
Short-term employee benefits
Post-employment benefits
Share-based payment
2017
£’000
1,559
52
936
2,547
2016
£’000
1,275
50
791
2,116
Directors’ transactions
The Group received £68,547.76 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, 2017 (2016: £59,533.94). At December 31, 2017 there
were no amounts owing from Audley Capital Advisors LLP (2016: £27,952.16).
The Group paid £4,562.50 to Audley Capital Advisors LLP, a company which Mr. J.A. Treger, Chief Executive Officer, is both a director and
shareholder, for office expenses and subscriptions during the year ended December 31, 2017 (2016: nil). No amounts were owing to Audley
Capital Advisors LLP as at December 31, 2017 or 2016.
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.
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 instruments
Loans and receivables
Trade and other receivables
Cash at bank and in hand
Financial liabilities
Trade and other payables
Borrowings
Deferred consideration
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.
Group
£’000
2017
Company
£’000
Group
£’000
2016
Company
£’000
104,266
–
116,885
–
10,867
16,431
3,979
13,273
13,556
17,062
6,724
13,861
100
–
711
–
29,444
8,099
57,173
1,349
11,616
5,331
47,767
924
16
–
–
14
–
–
187
6,300
1,215
185
3,100
–
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
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, 2017 the Group was debt free (2016: borrowings of £6.3m) and continued to have access to its undrawn US$40.0m (£29.6m)
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, 2017
Interest bearing revolving credit facility
December 31, 2016
Interest bearing revolving credit facility
Weighted average effective
interest rate
%
1-5 years
£’000
Total
£’000
3.50
2.76
–
–
–
–
6,300
6,300
6,300
6,300
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 £37.5m at December 31,
2017 (£16.9m at December 31, 2016).
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 flows 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 70%
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 £1.6m at December 31, 2017 (£1.7m at December 31,
2016). 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.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 113
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. With royalty income from Kestrel and Narrabri accounting for over 90% of the Group’s income (2016: 88%), the Group’s
primary foreign exchange exposure is to the Australian dollar, which these royalties are denominated in. In 2016, the Group implemented a
hedging policy whereby foreign exchange forward contracts can be entered into with a maximum exposure of 70% of forecast Australian
dollar denominated royalty revenue expected to be received during a period not exceeding 12 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, 2017. The
Group has no other hedging programme in place.
In terms of material commitment, the risk in relation to currency fluctuations is assessed by the Executive Committee at the time the
commitment is made and regularly reviewed.
Financial assets and liabilities are split by currency as follows:
Financial assets
Financial liabilities
Net exposure
GBP
£’000
AUD
£’000
CAD
£’000
USD
£’000
NOK
£’000
9,985 131,815 23,092
4,192
1,760
27
2
–
8,225 131,788 23,090
4,192
–
–
–
2017
EUR
£’000
24
52
(28)
GBP
£’000
AUD
£’000
CAD
£’000
USD
£’000
NOK
£’000
7,904 148,511
1,347
7,354
7,163
1
1
741 148,510
1,346
1,215
6,139
1
–
1
2016
EUR
£’000
45
67
(22)
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 has been excluded.
In terms of the cash balance, the significant sensitivities are as follows:
• A +/- 10% change in the GBP: AUD rate would increase/decrease profit after tax and equity by £243k (2016: £114k);
• A +/- 10% change in the GBP: CAD rate would increase/decrease profit after tax and equity by £117k (2016: £117k);
• A +/- 10% change in the GBP: USD rate would increase/decrease profit after tax and equity by £50k (2016: £82k).
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 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.
In funding the business activities of the Group, the Directors consider both debt and equity, having regard to the Group’s available debt facility
and the prevailing share price at the time funding is required. Where funding is obtained through debt, the Group maintains its targeted debt
capacity of 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.
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
The following table presents the Group’s assets that are measured at fair value at December 31, 2017:
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
2017
Total
£’000
(a)
(b)
(c)
(d)
(e)
–
–
13,270
–
–
13,270
–
–
–
3,161
100
3,261
104,266
104,266
10,867
–
–
–
10,867
13,270
3,161
100
115,133
131,664
The following table presents the Group’s assets 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
–
–
14,070
–
–
–
2,992
711
3,703
116,885
116,885
13,556
–
–
–
13,556
14,070
2,992
711
130,441
148,214
The following table presents the Company’s assets that are measured at fair value at December 31, 2017:
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)
–
13,095
–
13,095
–
–
178
178
The following table presents the Company’s assets that are measured at fair value at December 31, 2016:
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
(a)
(b)
(c)
–
13,680
–
13,680
–
–
181
181
There have been no significant transfers between Levels 1 and 2 in the reporting period.
2017
Total
£’000
3,979
13,095
178
17,252
2016
Total
£’000
6,724
13,680
181
3,979
–
–
3,979
Level 3
£’000
6,724
–
–
6,724
20,585
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 115
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% (2016: 7.5%) 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 6.5% and 18.0%. 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 instruments 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, 2017
December 31, 2016
EVBC
Jogjakarta
Dugbe 1
Available-for-sale equity
Available-for-sale debt
Available-for-sale debt
McClean Lake
Available-for-sale debt
Piauí
Available-for-sale debt
7.00%
10.00%
18.00%
6.50%
12.00%
100%
–
75%
50%
30%
6%
8%
13%
–
–
100%
100%
75%
–
–
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.
(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 rates that reflect
the credit risk of various counterparties.
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
Fair value measurements in Level 3
The Group’s financial assets classified in Level 3 use 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, 2017.
At January 1, 2017
Additions
Revaluation gains or losses recognised in:
Other comprehensive income
Income statement
Foreign currency translation
At December 31, 2017
Royalty financial
instruments
£’000
Coal royalties
(Kestrel)
£’000
Total
£’000
13,556
3,323
496
(6,324)
(184)
116,885
130,441
–
–
3,323
496
(11,933)
(18,257)
(686)
(870)
10,867
104,266
115,133
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
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.
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 117
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.
Net cash generated from operating activities
Net cash generated from operating activities for the year ended December 31, 2017
Adjustment for:
Proceeds on disposal of mining and exploration interests
Finance income – excluding foreign exchange gains/losses
Finance costs
Proceeds from royalty financial instruments
Repayments under commodity related financing agreements
Free cash flow for the year ended December 31, 2017
Net cash generated from operating activities
Net cash generated from operating activities for the year ended December 31, 2016
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
2017
£’000
Free cash flow
per share
p
34,629
2,424
1,945
(795)
258
3,051
41,512
23.20p
2016
£’000
Free cash flow
per share
p
10,316
3,431
82
(1,086)
246
352
63
Free cash flow for the year ended December 31, 2016
13,404
7.93p
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 AF TER YEAR END
No events have occurred subsequent to year end that require additional disclosure.
2017
2016
178,895,115 169,016,101
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended December 31, 2017
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.
Principal activities
Class of shares held
Proportion
of class held at
December 31,
2017
%
Group interest
at December 31, 2017
%
Company and country of
incorporation/operation
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
APG Aus No 8 Pty Ltd
APG Aus No 9 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
Owner of nickel-cobalt royalties
Investments
Investments
Owner of coal royalties
HydroCarbon Holdings Pty Ltd
Dormant
Indian Ocean Resources Pty Ltd
Investments
Indian Ocean Ventures Pty Ltd
Starmont Holdings Pty Ltd
Starmont Ventures Pty Ltd
Woodford Wells Pty Ltd
Dormant
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
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
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$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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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
Scotland
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
FINANCIAL STATEMENTSAPG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017 O T H E R I N F O R M A T I O N
SHAREHOLDER STATISTICS
(a) Size of Holding (at March 21, 2018)
Category
UK and Canada
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – and over
119
Number of
Shareholders
%
Number
of Shares
580
607
157
326
34.73%
295,735
36.35%
1,419,445
9.40%
1,151,647
19.52% 178,035,207
1,670
100% 180,902,034
%
0.16%
0.78%
0.64%
98.42%
100%
(b) The percentage of total shares held by or on behalf of the twenty largest shareholders as at March 21, 2018 was 63.27%.
CORPORATE DETAILS
Registered office
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
Shareholders
Stockbrokers
BMO Capital Markets Limited
1st Floor
95 Queen Victoria Street
London EC4V 4HG
Peel Hunt LLP
120 London Way
London EC2Y 5ET
Canacord Genuity Limited
Ropemaker Place
88 Wood Street
London EC2V 7QR
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_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017GROUP OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 120
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
such forward-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.
APG_AR17_28.03.18_BACK_ARTWORKANGLO PACIFIC GROUP PLC ANNUAL REPORT & ACCOUNTS 2017OTHER INFORMATION C O N T E N T S
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37
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G ROUP OVERVIEW
Anglo Pacific at a glance
Mining royalties explained
Our portfolio
Chairman’s statement
S TR ATEGIC REPORT
Chief Executive Officer’s statement
Market overview
Our business model
Our strategy
New royalty acquisition
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
O THER INFORMATION
Shareholder statistics
Corporate details
Forward-looking statements
F O R M O R E I N F O V I S I T
www.anglopacificgroup.com
P E R F O R M A N C E M E A S U R E S
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, amortisation charges,
share based payments, finance costs, any associated deferred
tax and any profit or loss on non-core asset disposals. 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 and any cash considered as
repayment of principal, 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.
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APG_AR17_28.03.18_COVER_ARTWORKAPG_AR17_28.03.18_COVER_ARTWORK A N G L O P A C I F I C G R O U P P L C
1 Savile Row, London W1S 3JR
United Kingdom
T +44 (0)20 3435 7400
F +44 (0)20 7629 0370
info@anglopacificgroup.com
www.anglopacificgroup.com
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THE GLOBAL NATURAL RESOURCES
ROYALT Y COMPANY
2 0 1 7 A N N U A L R E P O R T & A C C O U N T S
Anglo Pacific Group PLC
APG17 | 27.03.18 | COVER – PROOF 5APG17 | 27.03.18 | COVER – PROOF 5