Financing investment in
natural resources to enable
a sustainable future
2019 Annual Report & Accounts
A N G L O P A C I F I C G R O U P P L C
APG_AR19_07.04.20_FRONT_ARTWORK Natural resources royalties
and streams explained
A natural resources royalty is a non-operating interest in a
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 Y P E S O F N AT U R A L R E S O U R C E S R O YA LT I E S A N D S T R E A M S
The Group’s royalties are mostly revenue or production-based royalties.
Typically, these royalties are either Gross Revenue 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
NSR royalties entitle the 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.
P R I M A R Y V E R S U S S E C O N D A R Y R O YA LT I E S
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.
M E TA L S T R E A M S
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.
I N N O VAT I V E S T R U C T U R E S
Our primary focus is on royalty and streaming transactions, however, we will
also review alternative structures that deliver superior long-term cash flows.
An example would be the Denison financing arrangement executed in 2017
which was structured as a long-term loan with a separate stream element,
deriving income from a tolling agreement on the McClean Lake uranium mill,
which processes ore from the world class Cigar Lake uranium operation in
Canada. We will always look for ways of gaining exposure to tier one natural
resource projects and sometimes this will involve creative thinking and
structuring to support our main objective of acquiring royalties and streams.
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:
P o r t f o l i o c o n t r i b u t i o n
Portfolio contribution represents the funds received or receivable from the
Group’s underlying royalty related assets which is taken into account by the
Board when determining dividend levels.
Portfolio contribution is royalty related revenue (refer to note 5) plus royalties
received or receivable from royalty financial instruments carried at fair value
through profit or loss (‘FVTPL’) and principal repayment received under the
Denison financing agreement (refer to note 21). Refer to note 35 to the
financial statements for portfolio contribution.
O p e r a t i n g p r o f i t /( l o s s )
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.
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S TR ATEGIC REPORT
Anglo Pacific at a glance
Our approach and investment strategy
Our portfolio
Chairman’s statement
Chief Executive Officer’s statement
Our business model
Engaging with our stakeholders
Environmental, Social & Governance
Principal risks and uncertainties
Key Performance Indicators
Our strategy in action
Market overview
Business review
Financial review
G OVERNANCE
Corporate governance report
The Board
Nomination Committee
Audit Committee
Remuneration Committee
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities
F INANCIAL 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
A d j u s t e d e a r n i n g s p e r s h a r e
Adjusted earnings represents the Group’s underlying operating performance
from core activities. Adjusted earnings is the profit/(loss) attributable to
equity holders, plus royalties received from royalty financial instruments
carried at fair value through profit or loss, less all valuation movements
and impairments (which are non-cash adjustments that arise primarily
due to changes in commodity prices), together with amortisation charges,
share-based payments, foreign exchange gains/(losses), 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 12 to the financial
statements for adjusted earnings/(loss) per share.
D i v i d e n d c o v e r
Dividend cover is calculated as the number of times adjusted earnings
per share exceeds the dividend per share. Refer to note 13 to the financial
statements for dividend cover.
F r e e c a s h f l o w p e r s h a r e
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 34 to the
financial statements for free cash flow per share.
APG_AR19_07.04.20_FRONT_ARTWORK S
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01
Financing investment in natural resources to enable a sustainable future
Our aim is to become a leading natural resources company through investing
in high-quality projects in preferred jurisdictions with trusted counterparties,
underpinned by strong ESG principles.
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Financing investment in natural resources to enable a sustainable future
08
12.5% increase in
Our aim is to become a leading, global company, by growing our natural
dividends for 2019
resources portfolio to deliver consistent stakeholder value through
investment in high quality projects, in preferred jurisdictions with
The Board is recommending a final
dividend of 4.125p, if approved total
counterparties, which are underpinned by the highest ESG principles.
dividends for 2019 would be 9p,
an increase of 12.5% on the 8p paid
in 2018
N . P. H . M E I E R
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Another record year in
2019 for Anglo Pacific
Our portfolio contribution increased
by 20% to £59.5m for the year,
and we added a record £62.6m of
income producing royalty assets to
our portfolio
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We believe that a strong
focus on ESG is vital
for long-term success
We systematically integrate ESG factors
into our investment decisions
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N . P. H . M E I E R
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J . A . T R E G E R
20
18
Investing in less
Growing and
polluting commodities
diversifi ed portfolio
We believe long-term value can
Increasing the number of producing
only be achieved through sustainable
assets to eight across eight
and responsible investment with a
commodities, across four continents.
strong focus on ESG
51
Facility in place to
finance our growth
ambitions
Our borrowing facility has been
increased from US$60m to US$90m,
maintaining a further US$30m
accordion option to finance further
acquisitions
K . F LY N N
For more...
www.anglopacificgroup.com
new screen
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K . F LY N N
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
01
Financing investment in natural resources to enable a sustainable futureOur aim is to become a leading, global company, by growing our natural resources portfolio to deliver consistent stakeholder value through investment in high quality projects, in preferred jurisdictions with counterparties, which are underpinned by the highest ESG principles.08 Etiam record year eget adipiscing lobortisVestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonN.P.H. MEIER10 Adipiscing delivering strategy vestibulum Vestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonJ.A. TREGER50 Adipiscing odi lobortis performance lacus Vestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonK. FLYNNFor more...www.anglopacificgroup.com18 Growing and diversifi ed portfolioIncreasing the number of producing assets to eight across eight commodities, across four continents.20 ESG phasellus eget adipiscing lobortisVestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonnew screenSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS01APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
ANGLO PACIFIC AT A GLANCE
Key highlights
Diversified portfolio of royalties
See business review page 35
60%
of the royalty portfolio
is non-coal
C O M M O D I T Y E X P O S U R E
by asset value at 31 December 2019
Coking coal
Iron ore
Copper
Thermal coal
Vanadium
Gold
Uranium
Other
26%
26%
15%
14%
5%
3%
9%
1%
98%
of the portfolio is in
established natural
resources jurisdictions
G E O G R A P H I C E X P O S U R E
by asset value at 31 December 2019
Australia
Canada
Chile
Brazil
Spain
Other
44%
32%
15%
5%
2%
2%
92%
of the portfolio is
producing royalties
S TA G E O F P R O D U C T I O N
by asset value at 31 December 2019
Producing
Development
Early-stage
92%
2%
6%
P R I M A R Y L I S T I N G
London Stock Exchange (LSE: APF)
S E C O N D A R Y L I S T I N G
Toronto Stock Exchange (TSX: APY)
I N V E S T I N G R E S P O N S I B LY
Commitment to investing in high-quality
project underpinned by the strong ESG
principles, with no further investment
in thermal coal
P R O D U C T I O N P O T E N T I A L
Significant organic growth in the current
portfolio from Kestrel, Mantos Blancos,
Piauí and Narrabri
G L O B A L R O YA LT Y A S S E T S
15 principal royalty and streaming
related assets across five continents
02
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS KPIs 2019
See five-year track record page 29
19
18
46.1
£55.7m
17
39.6
16
19.7
15
8.7
19
£62.6m
15
45.0
18
39.3
17
29.4
16
0.0
R O YA LT Y R E L AT E D R E V E N U E ( £ m )
R O YA LT Y A S S E T S A C Q U I R E D ( £ m )
19
17
16.82
18
18.02
20.41p
19
17
23.62
18
22.28 26.44p
16
9.76
15
2.47
16
7.93
15
2.93
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)
F R E E C A S H F L O W P E R S H A R E ( p)
19
9.00p
18
8.00
17
2.4
18
19
2.3
2.3x
16
1.6
15
7.00
17
7.00
16
6.00
15
0.4
D I V I D E N D P E R S H A R E ( p)
D I V I D E N D C O V E R ( x )
S H A R E H O L D E R R E T U R N S
FTSE 350 Mining Index vs. Anglo Pacific Group 2010-2019
( R e b a s e d t o 1 0 0 )
FTSE 350 Mining Index
Anglo Pacific Group
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18016014012010080604020001.01.1001.01.1101.01.1201.01.1301.01.1401.01.1501.01.1601.01.1701.01.1801.01.19APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
OUR APPROACH AND INVESTMENT STRATEGY
We diligently evaluate each
potential project, focusing on ESG
impact together with the viability
for production and potential
exploration upside. We look to
select the best operations, to
support the sustainable growth
of our diversified portfolio.
Acquisitions have diversified our
portfolio and significantly reduced
our thermal coal exposure
63.2%
15
36.8%
16
78.6%
21.4%
93.2%
Non-thermal coal is now
93.2% of total portfolio share
88.4%
17
11.6%
93.0%
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7.0%
19
6.8%
N A R R A B R I S H A R E O F T O TA L P O R T F O L I O
C O N T R I B U T I O N ( %¹ )
Narrabri (thermal coal)
Other royalties/stream assets1
1. Other royalties/stream assets include the Kestrel, Mantos Blancos,
Maracás, EVBC and Four Mile royalties, Denison financing principal
and interest and LIORC dividend based on APG’s ~6.3% stake
and BBG broker consensus estimates
Our disciplined investment
approach
Commodity
• Bulk materials
• Base metals
• Industrial minerals
• Opportunistically considering other
commodities that also support a more
sustainable world
Asset specific considerations
• Compliance with ESG criteria
• Management’s operating track
record
• Profit margin & position on the industry
cost curve
• Counterparty risk
• Jurisdictional risk
Valuation considerations
• Detailed due diligence on mine production
profile
• Site visits by technical team and
independent technical advisors
• Production assumptions based on existing
mineable reserves, resource conversion
assumptions evaluated
on case-by-case basis
• Consider other factors such as
geology, infrastructure and permitting,
which could impact production
volumes or mine life
04
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS ESG emphasis has influenced our investment approach in
the following ways...
An agent for positive change
Our responsible initiatives
We look to be an influencer to our royalty and stream
counterparties and seek to be an agent for positive
change in the mining sector
1
I D E N T I F Y R I S K S I N R E L AT I O N T O N E W I N V E S T M E N T S
• ESG due diligence aimed at identifying key
risk areas
• Anglo Pacific primarily targets jurisdictions
where political risk and corruption/bribery
are considered low
2
M I T I G AT E R I S K S I N R E L AT I O N T O N E W I N V E S T M E N T S
• Seek or require counterparty implementation
of ESG practices and standards
3
M O N I T O R A N D I N F L U E N C E
• Encourage royalty/stream counterparties to adopt
best practices voluntarily
4
C O M M U N I C AT E
• Disclose Anglo Pacific ESG policies and due
diligence processes in relation to new investments
as well as highlight best performing counterparties
Anglo Pacific continues to focus on how best to
align our business with the development of socially
responsible mining as part of our efforts to help
address the challenges around carbon dependence
and sustainability.
We have introduced three new initiatives:
1
M O R E S U S TA I N A B L E C O M M O D I T I E S
• An increased focus on commodities that support
a more sustainable world
2
C O M M I T M E N T T O N O F U R T H E R I N V E S T M E N T
I N T H E R M A L C O A L
• Consistent with our track record over the past
five years, no further investment in thermal
coal assets
3
E S TA B L I S H I N G S U S TA I N A B I L I T Y C O M M I T T E E
• The establishment of a Sustainability Committee
to further strengthen the Company’s already
rigorous ESG due diligence processes
K E Y A R E A S O F A P G E S G D U E D I L I G E N C E
• Impact of mining, operations and related activities on surrounding communities
• Tailings impoundments and waste rock storage at the project
• Water requirements, water sourcing and water discharge
• Ethical track record and any history of corruption
• Workplace standards, protections and policies
• Community initiatives and engagement with indigenous peoples
• Safety and human rights records
• Mine closure plans
• Climate change risks specific to a project and plans adopted by the operator to manage such risks
• Impact of development and operations on fauna, flora and biodiversity
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
OUR PORTFOLIO
15 principal royalty and streaming
related assets across five continents.
92% of the portfolio by value is
producing and 98% of the portfolio
is located in well established mining
jurisdictions, providing diversified
commodity exposure.
• McClean Lake Mill
Groundhog •
Ring of Fire •
• LIORC
• Cañariaco
• Piauí
• Maracás
Menchen
• Mantos Blancos
Producing
Royalt y
Kestrel
Commodit y
Operator
Location
Royalt y rate and t ype
Balance sheet classification
Coking coal
Kestrel Coal Pty Ltd
Australia
7 – 15% GRR¹
Investment property
Labrador Iron Ore Royalty
Corporation (‘LIORC’)
Iron ore &
iron ore pellets
Iron Ore Company of
Canada (‘IOC’) / Rio Tinto
Canada
Indirect interest
in 7% GRR
Royalty financial
instrument
1.525% NSR
Royalty intangible
2% NSR
Royalty intangible
Tolling revenue
1% GRR
1% NSR
Loan & royalty
financial instrument
Royalty intangible
Royalty intangible
Royalty financial
instrument
p34
Mantos Blancos
Copper
Mantos Copper
Maracás Menchen
Vanadium
Largo Resources
McClean Lake Mill
Uranium
Orano
Chile
Brazil
Canada
Narrabri
Four Mile
Thermal & PCI coal
Whitehaven Coal
Australia
Uranium
Quasar Resources
Australia
El Valle-Boinás /
Carlés (‘EVBC’)
Gold, copper
& silver
Orvana
Minerals
Spain
2.5 – 3% NSR²
• EVBC
• Salamanca
• Dugbe 1
06
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Development
Royalt y
Salamanca
Commodit y
Uranium
Operator
Berkeley
Energia
Location
Spain
Groundhog
Anthracite
Atrum Coal
Canada
Piauí
Nickel & cobalt
Brazilian Nickel
Brazil
Royalt y rate and t ype
Balance sheet classification
1% NSR
1% GRR or
US$1.00/t
1.00% GRR
Royalty
intangible
Royalty
intangible
Royalty financial
instrument
• Pilbara
• Kestrel
• Narrabri
• Four Mile
Early-stage
Royalt y
Pilbara
Cañariaco
Ring of Fire
Dugbe 1
Commodit y
Iron ore
Copper, gold
& silver
Chromite
Gold
Operator
BHP
Candente
Copper
Location
Australia
Peru
Royalt y rate and t ype
Balance sheet classification
1.5% GRR
0.5% NSR
Royalty intangible
Royalty intangible
Noront Resources
Canada
1% NSR
Royalty intangible
Hummingbird
Resources
Liberia
2 – 2.5% NSR³
Royalty financial
instrument
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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. APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
CHAIRMAN’S STATEMENT
COVID-19 poses a significant global
challenge but Anglo Pacific is in a
strong financial position to continue
growing its business following
another record year in 2019
N . P. H . M E I E R
Chairman
In these challenging times it would be easy to overlook the fact that
2019 was a record year for Anglo Pacific with portfolio contribution
increasing by 20% to £59.5m (or ~US$75m). We also deployed a
record £62.6m of capital in income producing royalty assets.
The outbreak of COVID-19 is a very significant humanitarian and
economic event facing many countries and businesses. It has
become clear that the combination of supply chain disruption,
widespread travel restrictions and the lock down of many
conurbations will result in a significant economic slowdown if not
recession in the months ahead. The additional factor of a price war
between major oil producers has added to the negative pressures.
Despite the severe disruption, there are some positives for Anglo
Pacific in that the prices of the commodities from which the majority
of our revenue is derived have held up well thus far this year.
Furthermore, as of writing, we understand that there has not been
any significant disruption reported by the majority of the operators
of the mines from which we generate our royalty income, with
Kestrel thus far unaffected. We have seen temporary shutdowns at
EVBC and Cigar Lake (from which we earn a toll revenue) for a two
and four week period respectively which would have represented
less than 1% of our 2019 portfolio contribution. We are encouraged
that the countries from which our material royalty revenue is
derived, namely Australia and Canada, classify mining activity as a
key economic activity and it is likely that every effort will be made to
keep these businesses operational but naturally this could change
depending on localised outbreaks of the virus which could see
restrictions being imposed.
In this period of huge uncertainty, it is very difficult to make forward
looking statements or predictions with any great certainty. However,
we believe that the impact of COVID-19 will be a temporary
disruption and will ultimately pass. In the meantime, we have stress
tested our business model to understand what the impact would
be under several shut down scenarios, as discussed in the Going
Concern statements in this report.
We take comfort from the geographic diversification of our portfolio
and that our revenue derives from multiple royalties. Importantly,
the Group has a low level of gearing, with a leverage ratio of under
0.7x at December 2019 and no amortisation or deleveraging
commitments. We remain in strong financial health and continue to
look for growth opportunities despite the macro economic turmoil
going on around us. With the cost of equity having increased
significantly of late, we would anticipate opportunities arising as
we move forward in 2020.
Given the strength of the cash flow we generated during 2019, and
despite recent events, we are pleased to propose an increase in
the full year dividend to 9p in line with our previous guidance, which
would represent a 32% increase in the final dividend to 4.125p
should it be approved by shareholders at the 2020 AGM. With
access to liquidity and with market conditions being favourable for
deal flow given the significant recent increase in the cost of capital
for many, we believe that we are well placed to continue delivering
on our growth strategy in the year ahead.
08
Although the threat posed by COVID-19 is serious and will impact on
many economies, it should eventually pass. It is rightly consuming the
focus of all governments, central banks and investors at present.
However, the other longer-term priority is how the world responds
to the threat posed by climate change. This remains at the forefront
of our minds as we enter 2020 and we have recently refined our
approach to this as discussed below.
2 0 1 9 P E R F O R M A N C E
Our record year of portfolio contribution is attributable to both
organic growth and income from the £62.6m (~US$75m) of
acquisitions undertaken during the year. Allowing for a modest
increase in costs associated with investment in business
development, our profit after tax is in line with the previous year at
£29.0m, resulting in earnings per share of 16.06p. When valuation
and other non-cash items are removed, our underlying adjusted
earnings per share increased by 13% to 20.41p.
At the beginning of 2019 we noted the owners of Kestrel were
targeting a 40% increase in volume output for the year. Whilst this
seemed ambitious at the time, we were very pleased to see that
during the year a 42% increase in saleable coal production was
achieved resulting in a 13% uplift in revenue from our royalty,
despite pricing pressure.
Continuing our growth strategy during the year, we added two income
producing royalties to our portfolio, representing a capital allocation
ratio of 4:1 towards growth. The highlight for the year was the
acquisition of a £42.3m (~US$50m) royalty over the Mantos Blancos
copper project in Chile. Copper is a commodity which we have sought
for several years and is a material which will play an increasingly
significant role in developing the technology to enable the ongoing
electrification movement. This will be an important part of the climate
change solution in the years ahead.
We recently increased our financing capabilities by negotiating an
increase in our committed lending facilities from US$60m to US$90m
whilst retaining the option of a further US$30m through an accordion
feature. Total potential borrowing lines now stand at US$120m of
which some US$75m is available to finance future acquisitions.
D I V I D E N D
On the back of another record year, we have recommended that
the final dividend be 4.125p, a 32% increase on the 2018 final
dividend. Should this be approved at the 2020 AGM, the total
dividends for 2019 would be 9p, an increase of 12.5% on the 8p
paid in 2018. We believe that this level of dividend rewards the
continued support of our shareholders whilst also allowing us to
invest in growth opportunities which are essential for the long-term
future of the business.
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS K E Y R E S U LT S I N 2 0 1 9
+21%
Royalty related revenue increased by 21% from £46.1m to £55.7m
+21%
Operating profit increased from £37.1m to £44.8m
16.06p
Basic earnings per share 16.06p (2018: 15.97p)
20.41p
Adjusted earnings per share 20.41p (2018: 18.02p)
£47.1m
Cash flow from seriations increased from £36.9m to £47.1m
26.44p
Free cash flow per share 26.44p (2018: 22.28p)
R E F I N E D S T R AT E G Y A N D E S G
The Company has refined its strategy to move towards lighter,
greener materials, which encompass environmental benefits.
Many of these materials form part of the new wave of technologies
around electrification, including renewable energy. Examples
include higher quality iron ore pellets enabling improved energy
efficiency by steel mills, base materials linked to energy storage or
power transition, specialist alloying materials like niobium, vanadium
and aluminium and battery materials like lithium, cobalt and nickel.
Anglo Pacific has been focused on environmental, social and
governance (ESG) matters for some time. We have recently been
engaged, with the help of expert consultants, in updating our policies
and practices such that we ensure we operate to the highest
standards. This is more fully described later in this Annual Report.
The acquisitions we have undertaken during the year are
representative of the transactions we intend to pursue in the
future, with commodities that will make a positive contribution
towards climate change solutions -(Mantos) or those which are
purer and more energy efficient (LIORC – premium iron ore pellet).
As we have recently announced, the Group will not make any
additional investments in thermal coal and with the Kestrel
depletion now accelerating we would expect our coal contribution
to be very low in five years’ time.
We are enthusiastic about our ability to play a positive role by
implementing our refined strategy and financing those commodities
which will be essential in delivering the technology required to
reduce dependence on fossil fuel and ultimately improve the planet.
B O A R D
We were delighted to announce the appointments of Graeme
Dacomb, Jim Rutherford as Non-Executive Directors and Kevin
Flynn as an Executive Director to the Board during the year – a
detailed biography of each is included on pages 60 and 61.
Graeme was a partner at Ernst and Young for 26 years where, for his
last 12 years, he was a lead partner in the extractive industry. He
brings a wealth of finance, governance and risk analysis experience
to the Board. In June 2019, he was appointed as a non-executive
director of Ferrexpo plc and chair of its audit committee.
Jim has over 25 years’ experience in investment banking and
investment management and brings capital markets expertise and
an in-depth knowledge of the mining industry to the Board. He is an
independent non-executive director of Anglo American plc, deputy
chairman of Centamin plc, and independent non-executive director
of GT Gold Corp.
Kevin has been with Anglo Pacific since 2012 as Chief Financial
Officer & Company Secretary and his appointment to the Board is
in recognition of his strong contribution to the Company.
Following five years of service on the Board, David Archer stepped
down as a Non-Executive Director as of 1 November 2019 in order
to focus on his other business interests. David was instrumental in
assisting the Company through its considerable growth, particularly
with his perspectives from his experience in the international
mining industry.
We recently announced that Mike Blyth will retire from the Board
after the forthcoming AGM. Mike joined the board as a Non-
Executive Director in March 2013 and served as Chairman from April
2014 to May 2017. He was instrumental in establishing the current
board structure and alignment with governance requirements and
assisting the Company through its considerable growth.
I would like to express my sincere thanks to both Mike and David for
their enormous contribution to the Company and their wise advice
over the years. We all wish them well. They will be missed.
Following Mike’s retirement, Vanessa Dennett will assume the Chair
of the Remuneration Committee and Graeme Dacomb will assume
the Chair of the Audit Committee. Jim Rutherford has assumed the
role of Senior Independent Director.
We have resolved to establish a Sustainability Committee under
the chairmanship of Jim Rutherford, which will be responsible for
overseeing compliance with the Group’s Environmental, Social
and Governance policy and the development, implementation
and on-going monitoring of the Group’s processes supporting
sustainable investment.
The changes listed above leave us with an invigorated and diverse
Board with an excellent collection of varied skills and experience,
which will be instrumental in determining strategy for the Company
and providing guidance and oversight to management. The
composition of the Board will be kept under constant review and
further changes may be made when appropriate.
I would like to reiterate our commitment to ensuring that we maintain
the highest standards in all areas of our business. It is a key
responsibility of the Board to set the right tone and guidelines for the
Group to operate with integrity and to the highest ethical standards.
O U T L O O K
Despite the recent threat posed by COVID-19 and the resultant
economic turmoil, our focus has not changed, and will not change
so long as the underlying mining operations from which we
generate our royalties suffer no material disruption. We remain
committed to building on the significant progress we have made
recently in creating a portfolio of royalties which will replace our
Kestrel income when mining moves outside of our private royalty
area in the next five years. We believe that we are on track to do so.
With a recently upsized borrowing facility available to us to utilise
we would expect to see opportunities arise in the near-term for
those who have access to capital such as Anglo Pacific. With a
refined investment focus and a clear strategy to be part of the
climate change solution, along with a well-covered dividend, we
are confident that our equity story continues to be appealing to a
wide range of stakeholders.
Finally, I would like to thank the Board, the executive team under
the leadership of Julian Treger and all staff for their hard work and
dedication to the success of Anglo Pacific and its development and
growth. We were delighted that this was recognised at the recent
2019 Mines and Money awards when the Company was announced
joint winner of the Best Alternative Finance Provider of the Year
recognising the great work by our team. We have a first-class
management team in place capable of sourcing and delivering the
growth we are targeting in the coming years.
The team’s response to the recent extraordinary challenges has
been exemplary and their loyalty and ability to adjust to working in
these difficult times has been very impressive. The health and well
being of all our employees has been our top concern and we have
worked hard to ensure that our working practices have been
amended to eliminate unnecessary risks to staff.
Our 2019 strategic report from pages 02 to 51 was reviewed and
approved by the Board on 6 April 2020.
N . P. H . M E I E R
Chairman
6 April 2020
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
ROYALTY PORTFOLIO CONTRIBUTION EVOLUTION
P O R T F O L I O C O N T R I B U T I O N ( £ m )
Anglo Pacific royalty related portfolio pre-2014¹
Acquisitions 2014 to 2019²
59.5m
20.0m
39.5m
49.4m
14.6m
34.8m
42.6m
11.9m
30.7m
20.0m
5.1m
14.9m
8.9m
3.8m
5.1m
3.7m
2014
2015
2016
2017
2018
2019
Portfolio contribution (£m)
3.7m
8.9m
20.0m
42.6m
49.4m
59.5m
Asset
Commodities
Transaction date
Maracás Menchen
Narrabri
McClean Lake
LIORC 4.25%
Mantos Blancos
Vanadium
Thermal & PCI coal
Uranium
Iron ore
Copper
June 2014
March 2015
February 2017
August 2018
August 2019
Acquisition consideration (£m)
Cumulative income (£m)
14.4m³
12.0m
41.7m
19.9m
26.6m
11.8m
58.7m⁴
8.4m⁵
42.3m
1.0m
1. Includes Kestrel, EVBC, Four Mile and Jogjakarta royalties.
2. Includes Narrabri, Maracás Menchen and Mantos Blancos royalties, Denison/McClean Lake royalty financing agreement and investment in LIORC.
3. US$22m payable in cash on completion plus up to US$3m in milestone payments. First US$1.5m deferred payment paid in Q3 2017.
4. The Group made an initial investment of £38.4m during 2018 to acquire a 4.25% interest in LIORC. During 2019, the Group increased its holding to 6.30%, investing a further £20.3m.
5. Represents the cumulative income on the Group’s initial investment of £38.4m in 2018. The Group has received dividends totalling £9.9m between 01 January 2018 and 31
December 2019 on its entire holding.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
CHIEF EXECUTIVE OFFICER’S STATEMENT
Our strong financial position is
largely due to another year of record
revenue and investment activity in
2019 as we continued to deliver
on our strategy
J . A . T R E G E R
Chief Executive Officer
As the Chairman has noted, the recent COVID-19 pandemic has
caused significant market turmoil. This remains largely outside
of our control, but the Company is in sound financial health
operating well within our banking covenants and with no
near-term refinancing pressures. The flight to safe assets has
inevitably impacted on the global equity markets. In times of
equity sell offs such as these, there is often an opportunity for
alternative finance providers to put capital to work and, with our
strong balance sheet and access to liquidity, we remain firmly in
growth mode as the market conditions move in our favour.
Our strong financial position is largely due to another year of
record revenue and investment activity in 2019 as we continued
to deliver on our strategy. We posted record portfolio contribution
for the second year in a row, added £62.6m (~US$75m) of
income producing royalties to our portfolio – financed entirely
from our balance sheet – and increased our dividend once again
from 8p per share in 2018 to 9p for 2019.
The business and finance reviews will go into further detail on our
results, but it is particularly noteworthy that the ambitious 40%
volume growth from the operators of Kestrel materialised during
the year – a record level of saleable coal production for the mine
which bodes well for the coming years.
Although pricing for coking coal and vanadium posted gains in
the early part of 2020, the outlook for the year remains uncertain
in light of the recent COVID-19 outbreak and its potential to
impact on global economic growth, mining operations and
commodity demand. At present, we are not aware of any
significant operational disruptions at the mines from which our
material royalty revenue is derived and absent any COVID-19
related restrictions we would anticipate further volume growth
to come in 2020, but clearly there is a lot of uncertainty involved
in making predictions at present.
Our focus remains on growth, and the recent spike in the cost
of capital caused by the COVID-19 pandemic could create
opportunities for us to invest our capital in a sector starved of
liquidity. It remains business as usual for us in trying to uncover
further investment opportunities and our team remains fully
operational and active despite having to work remotely.
K E S T R E L
The accelerated volumes which we are receiving from Kestrel will
boost our cash flow in the short-term, but will also shorten the
expected life of mining within our private royalty land. Replacing
the Kestrel revenue has been a clear focus over the past number
of years. We have made great progress to date and are confident
that we will see opportunities in the coming years not just to
replace the Kestrel revenue but to exceed it and create a bigger,
more diversified business for our stakeholders.
We would expect, at the current levels of production, that there
will be two to three years of very high volumes from Kestrel,
following which we would expect volumes to reduce for a further
two to three years before tailing off.
We have added ~£20m of annual income, based on 2019
revenue, to our portfolio through acquisitions over the past five
years at a cost of ~£190m. To replace the Kestrel income earned
in 2019 would require a further £17m of additional annual
revenue to be acquired over the next five years. We believe we
are on track to do so and add even more, given that we have
access to liquidity through our borrowing facilities and we expect
to generate significant free cash flow in the coming years. This is
in stark contrast to many who operate in the sector, where capital
continues to be scarce and alternative financing, including
royalties, are becoming more mainstream, which should create
further opportunities for the Group.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
CHIEF EXECUTIVE OFFICER’S STATEMENT
continued
19
18
49.4
£59.5m
17
42.6
16
20.0
15
8.9
19
£62.6m
15
45.0
18
39.3
17
29.4
16
0.0
P O R T F O L I O C O N T R I B U T I O N ( £ m )
R O YA LT Y A S S E T S A C Q U I R E D ( £ m )
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16.82
18
18.02
20.41p
16
9.76
15
2.47
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)
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£16.2m
18
14.4
17
12.6
15
11.9
16
10.5
D I V I D E N D S ( £ m )
A C Q U I S I T I O N S
We completed £62.6m (~US$75m) of income producing
acquisitions in 2019, all financed without needing to raise capital.
These transactions, as detailed below, are not only financially
accretive to the Company, but are also additive to the quality of
the portfolio of royalties which we are building, particularly from
an ESG perspective. These acquisitions were made in the second
half of the year, so 2020 will see the benefit of a full year of
revenue from these acquisitions compared to the partial benefit
reported in our 2019 results.
M A N T O S B L A N C O S ( ‘ M A N T O S ’ )
A clear highlight of 2019 was the £42.3m (~US$50m) copper
royalty over the Mantos mine in Chile which provides us with our
first exposure to copper without having to compromise on our
strict investment and ESG criteria.
Conclusions from the ESG diligence conducted at the time of
the acquisition include an environmental mitigation policy which
seeks to minimise the mine’s environmental impact, and that
Mantos has a good safety track record which is underpinned
by integrated safety, occupational health, environmental
management and quality policies which are applied consistently
across the organisation under an Integrated Management
System in compliance with the ISO 9001 certification. Mantos
produces high grade copper concentrates with low levels of
deleterious materials such as arsenic, as well as cathode
products which are primarily Grade A 99.99% purity and LME
registered. Mantos maintains a dialogue with communities in
the areas of its mining operations and seeks to provide targeted
economic and social development.
We are confident in the medium-term outlook for copper given
the limited new supply coming online and what should be
increased demand as the world transitions towards electrification
as a means of reducing dependence on carbon intensive energy
production. For this reason, we believe that there is a reasonable
prospect that copper will perform well over time. Along with ramp
up potential at the operation, we believe we identified a good
entry point for copper over what will be a mine life in excess
of 15 years.
L A B R A D O R I R O N O R E R O YA LT Y C O R P O R AT I O N ( ‘ L I O R C ’ )
In 2018 we announced that we had acquired a 4.28% equity
stake in Labrador Iron Ore Royalty Corporation (LIORC). LIORC is
a Toronto listed company which holds both a royalty and equity
interest in the Labrador Iron Ore (IOC) project. This entitles LIORC
to revenue from its 7% gross revenue royalty (along with a small
commission) on revenue from the operation, along with dividend
income from its equity stake.
The investment thesis behind this was based on the underlying
quality of the premium iron ore pellet product which the operation
produces. This is very much in keeping with our view that, over
time, cleaner, purer and more efficient commodities will command
premium pricing (or conversely, those lower quality products will
become unmarketable). High-quality iron ore pellets are much
more efficient in the production of steel, meaning that steel mills
which use iron ore pellets as an input will have a better carbon
footprint than those which do not. We believe that a big focus for
the steel industry will be on reducing carbon emissions in future
years, and high-quality iron ore pellet can greatly assist in this.
A cornerstone of our ESG agenda is to support those
commodities which will contribute towards a cleaner planet.
However, the quality of the product will not be sufficient.
We must be certain that the mines are operated to the highest
standards in respect of safety, environmental impact and social
support. This is, in our view, key to ensuring sustainability in
mining. Mining operations which source electricity from
renewable energy sources, such as the Iron Ore Company of
Canada which benefits from access to hydro power generation,
are key to reducing the mining industry’s carbon footprint.
From a financial perspective, the investment we made in 2018
yielded 16.5% in 2019. Following a decline in the share price in
the middle of the year, we identified an opportunity to add to this
investment during 2019, acquiring a further 1.83% at a cost of
£20.3m (~US$25m), bringing our total investment to £62.6m
(~US$75m) for a 6.12% ownership. We have added a further
£5.7m (~US$7.5m) in 2020, which represents the reinvestment
of the dividend received, taking our holding up to 7%.
12
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS Key investment highlights
P R O V E N T R A C K R E C O R D
~$250 million of acquisitions in the last six years achieving
portfolio diversification
Adjusted earnings growth of ~8x between 2014 and 2019
to ~18p/sh
R E L AT I V E VA L U AT I O N
Steady increase in dividend per share since 2016 with
~6% dividend yield
Currently trading at a relative discount to Canadian royalty
company peers
H I G H M A R G I N , S C A L A B L E B U S I N E S S M O D E L
Growth requires minimal increase in cost base driving high
operating margins
Lower operating costs in 2019 vs. 2014 despite ~13-fold
increase in portfolio contribution
The investment is considered by management to be the part
ownership of a royalty given its single exposure to the Labrador
Iron Ore project, but the investment was acquired through
on-market share purchases in the single asset vehicle.
The LIORC share price has not been immune to the recent global
equity sell off, which has resulted in a significant reduction in
value on our balance sheet. However, we do not hold this for
trading or for capital, our investment is based our income
expectation based on the high quality iron ore pellet premium we
would expect this operation to generate. As equities are now in
many cases undervalued, we consider this to now represent an
even more attractive entry price and may choose to selectively
increase our exposure as we go through 2020.
I N C O A
We were pleased to announce our recent participation in the
Incoa Financing Arrangement, led by Orion Mine Finance Partners
(‘Orion’) which affords the Company the opportunity to invest
$20m into a calcium carbonate project at a point when it is in
production and generating a certain level of revenue.
There are various conditions precedent which need to be met
before our financing is unconditional so we see this as a
de-risked option to invest capital at a time when the operation
is successful, and the product has found an end market and is
being operated in compliance with our ESG requirements.
The investment would further diversify our portfolio and
represent our first exposure to industrial minerals which is less
correlated with more cyclical base materials. The operation is
located in the Dominican Republic. The product will be shipped
untreated to the US where it will be treated at Incoa’s processing
plant and converted into its final state ready for market.
The financing transaction is with Incoa’s US parent company.
We are delighted to once again work with Orion (whom we
participated with in the Mantos project) and hope to create other
co-investment opportunities with them as a means of generating
deal flow in the coming years.
H I G H - Q U A L I T Y P O R T F O L I O W I T H S T R O N G E S G F O C U S
Investment in high-quality projects in preferred jurisdictions
with significant upside potential underpinned by strong
ESG principles
S T R O N G G O V E R N A N C E
High-quality Board provides leadership to the Group and
is responsible for its long-term success
Strong governance and rigorous DD process reduces risks
and enables us to better determine the long-term success
of a project
U N C O R R E L AT E D I N V E S T M E N T O P P O R T U N I T Y
Limited exposure to mine operator cost base
Demonstrably lower correlation to MSCI World Index than
global mining peers
O U T L O O K
Ordinarily, the market background would be favourable for our
prospects in the year ahead, both from our existing portfolio and
also for growth opportunities. However, the outbreak of COVID-19
and its impact on the global economy has created a market
environment rarely witnessed before. Global economic growth
will be affected and the outlook for capital markets looks highly
volatile and uncertain.
Those in the strongest position will be those with access to
capital. Having recently announced an upsize and extension to
our borrowing facility, along with operating at less than 0.7x
levered, we are confident that we are not only in a strong financial
position to withstand the current headwinds but to also continue
deploying capital into growth opportunities.
We will continue to focus on diversifying our portfolio away from
coal, with ESG at the forefront of our strategy going forward.
A strong mining industry will be vital in providing the materials to
enable the technological change required to reduce the global
dependency on carbon generated energy. Mining will ultimately
form part of the climate change solution and we will work to
promote its virtues by financing the most sustainable operations
which produce the materials required for a better world. This will
remain our focus in the year ahead.
J . A . T R E G E R
Chief Executive Officer
6 April 2020
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
OUR BUSINESS MODEL
We seek to create long-term
value for our stakeholders by
investing responsibly and
generating superior cash
returns from a diverse and
growing portfolio.
14
1
O U R P U R P O S E
Financing investment in natural resources
to enable a sustainable future
2
S T R AT E G Y
To become a leading natural resources company
through investing in high-quality projects in preferred
jurisdictions with trusted counterparties, underpinned
by strong ESG principles
3
O U R VA L U E S U N D E R P I N E V E R Y T H I N G W E D O . . .
Sustainability
We believe long-term value can only be achieved
through sustainable and responsible investment
Integrity and Respect
We are committed to the highest ethical standards
of conduct and best practices
Diversity
We seek to achieve diversity in our investments
and our team
Collaboration
We believe teamwork is essential to achieving our
purpose and delivering value to our stakeholders
4
S T R AT E G I C D R I V E R S
Achieving our strategy through acquisitions which
satisfy these criteria
• High-quality and low-cost assets
• Attractive returns
• Strong operational management teams
• Long-life assets
• Diversification of royalty portfolio
• Established natural resources jurisdictions
• Strong ESG credentials
• Production and exploration upside potential
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS We seek to create long-term value for all stakeholders by generating superior cash returns
from a diverse and growing portfolio of royalty and streaming investments, and other
innovative structures in the natural resources sector.
How we create value
for our counterparties
An investment by Anglo Pacific, after conducting thorough
due diligence, can be 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.
W E S E R V E A S A P A R T N E R T O T H E O P E R AT O R S
Royalties and streams reduce the upfront capital financing
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.
A N A LT E R N AT I V E F O R M O F F I N A N C I N G T O
C O N V E N T I O N A L D E B T A N D E Q U I T Y
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. Royalties and
streams are not dilutive, unlike the issuance of new equity.
In addition, royalties and streams are not regarded as debt nor
do they encumber assets.
P R I M A R Y R O YA LT I E S
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 operator’s
exposure to upside in the prices of their core commodities.
S E C O N D A R Y R O YA LT I E S
Source of liquidity for holders of existing royalties
The value of a royalty is realised over the duration of the project’s
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.
How we create value
for our shareholders
Our track record demonstrates how management has
created value to date by adhering to exacting investment
criteria and conducting rigorous due diligence. We adopt a
strong focus on operations producing high-quality, lower
polluting products which are operated ethically and
responsibly. We will look to leverage this experience and
our reputation in the market to execute our strategy over
the coming years.
G E N E R AT I N G L O N G -T E R M C A S H R E T U R N S
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 time horizons. 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.
L O W E R R I S K T H R O U G H T O P - L I N E , R E V E N U E
P A R T I C I P AT I O N
Revenue-based royalties limit the Group’s direct exposure to
operating or capital cost inflation of the underlying operations,
as there is no ongoing requirement for the Group to contribute
to capital, exploration, environmental or other operating costs
post investment.
L O W E R V O L AT I L I T Y T H R O U G H C O M M O D I T Y
A N D G E O G R A P H I C D I V E R S I F I C AT I O N
The Group is building a diversified portfolio of royalties across
a variety of different commodities and geographic locations.
This diversification 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
returns and dividend payments.
E X P O S U R E T O I N C R E A S E S I N M I N E R A L
R E S E R V E S A N D P R O D U C T I O N
Royalty holders generally benefit from improvements made to
the scale of a project. 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 project’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.
E X P O S U R E T O C O M M O D I T Y P R I C E S
Royalties and streams provide exposure to underlying commodity
prices. Anglo Pacific offers the opportunity for investors to gain
exposure to commodities which do not have a liquid Exchange
Traded Fund (ETF) without having to invest in the underlying
operation.
I N N O VAT I V E S T R U C T U R E S
Our primary focus is on royalty and streaming transactions, however, we will also review alternative structures that
deliver superior long-term cash flows. An example would be the Denison financing arrangement executed in 2017
which was structured as a long-term loan with a separate stream element, deriving income from a tolling agreement
on the McClean Lake uranium mill, which processes ore from the world class Cigar Lake uranium operation in Canada.
We will always look for ways of gaining exposure to tier one natural resource projects and sometimes this will involve
creative thinking and structuring to support our main objective of acquiring royalties and streams.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
ENGAGING WITH OUR STAKEHOLDERS
Anglo Pacific aims to create
both short and long-term value
for its stakeholders. In doing so,
we actively engage with our
stakeholders to understand the
issues and factors that are
significant for them and to
ensure the Group’s purpose,
culture and values are aligned
with this objective.
Employees
H O W W E E N G A G E
With only 11 employees, the Board is often in
direct contact with the Group’s entire workforce.
In addition to such direct contact, Ms. Dennett was
appointed as the designated Non-Executive Director
for workforce engagement and is responsible for
meeting with employees at least twice per year
through one-on-one meetings and town halls.
S I G N I F I C A N T T O P I C S R A I S E D
• Engagement and alignment with the Group’s revised
purpose and values
• Proposed changes to the Group’s workforce related
policies and procedures
• Opportunities for personal development
• Workforce remuneration policies, particularly
focused on long-term retention
16
Investors
H O W W E E N G A G E
AGM, investor roadshows, one-on-one meetings,
conferences and results webcasts
S I G N I F I C A N T T O P I C S R A I S E D
• Progress on the diversification of the Group’s royalty
portfolio
• Acquisition of the Mantos Blancos royalty
• Capital returns to shareholders – dividends and share
buy backs
Counterparties
& mine operators
H O W W E E N G A G E
Contract negotiation, site visits and ongoing
monitoring of developments, with a focus on ESG
at the operations generating our royalty related
income.
S I G N I F I C A N T T O P I C S R A I S E D
• Evidence of environmentally and socially responsible
performance and risk management
• Performance of the underlying operations and outlook
• Terms and conditions of royalty and streaming
agreements
Communities
H O W W E E N G A G E
As a royalty and streaming company, Anglo Pacific
does not operate any of the underlying assets within
its portfolio. While this limits the direct involvement
the Group has with the communities impacted by
the operations underlying the portfolio, the Board,
through the Executive Committee led by the Chief
Executive Officer, engage with the mine operators
seeking to influence and encourage compliance
with relevant environmental, social and governance
standards.
S I G N I F I C A N T T O P I C S R A I S E D
• Updates on significant environmental or community
related incidents
• The standards adopted by the Group in relation to
ESG and the standards expected of our operators
Industry peers
H O W W E E N G A G E
We are currently engaging with other royalty and
streaming companies globally with the intention to
establish a Royalty Forum.
S I G N I F I C A N T T O P I C S R A I S E D
• Educating the markets to the benefits of royalty and
streaming financing arrangements.
• The ability of the royalty and streaming industry to
positively influence the ESG performance of mine
operators.
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS Having regard to our stakeholders in Board decision-making.
S E C T I O N 1 7 2 ( 1 ) S TAT E M E N T
When making decisions, the Directors
have acted in a way that they considered
to be most likely to promote the success
of the Company for the benefit of its
members as a whole, while also
considering the broad range of
stakeholders who interact with or are
impacted by its business. In doing so
the Board had regard, amongst other
matters, to:
• the likely consequences of any decision
in the long-term;
• the interests of the Company’s
employees;
• the need to foster the Company’s
business relationships with its
counterparties;
• the impact of the Company’s operations
on the community and the environment;
• the desirability of the Company
maintaining a reputation for high
standards of business conduct; and
• the need to act fairly as between
members of the Company.
You can find out more about how Anglo
Pacific engages with its stakeholders
on the previous page.
Considering a broad range of stakeholder
interests is an important part of the
Board’s decision-making process,
however in doing so, it will not always be
possible to deliver everyone’s desired
outcome.
H O W D O E S T H E B O A R D E N G A G E
W I T H S TA K E H O L D E R S ?
Due to the size of the Group’s operations
and the niche position it has as the only
listed natural resources royalty company
on the London Stock Exchange, the Board
will sometimes engage directly with
certain stakeholders on certain issues.
Where this is not possible or efficient,
stakeholder engagement takes place at
the Executive Committee level, led by the
Chief Executive Officer.
The Board considers and discusses
information from across the organisation
to help it understand the impact of the
Group’s operations, and the interests
and views of our key stakeholders. It also
reviews strategy, financial and operational
performance, as well as information
covering areas such as key risks, and legal
and regulatory compliance. This information
is provided to the Board through reports
sent in advance of each Board meeting,
and through in-person presentations.
As a result of these activities, the Board
has an overview of engagement with
stakeholders, and other relevant factors,
which enables the Directors to comply
with their legal duty under section 172
of the Companies Act 2006.
E N G A G E M E N T I N A C T I O N
The following are some examples of how
the Directors have considered matters
set out in sections 172(1)(a)-(f) when
discharging their section 172 duties and
the effect of such considerations on
certain decisions taken by them. These
examples also illustrate how the views
and interests of some of the stakeholder
set out on the page opposite impact the
Directors' decision-making.
P R I N C I P A L D E C I S I O N S
Revision to commodity focus and
commitment to no further thermal
coal investment
As outlined in ‘Our approach and
investment strategy’ on pages 04 to 05 and
the Chairman’s statement on pages 08 to 09,
the Board has refined the Group’s
commodity focus to move towards lighter,
greener materials, which encompass
environmental benefits, while committing
to no further investment in thermal coal.
During our engagement with investors
and to some extent potential lenders, the
Group’s exposure to thermal coal was
seen as a potential barrier to entry for new
institutions and an incentive to sell for
others. Despite the Group choosing not to
invest in a thermal coal asset since 2014,
the Board decided to publicly commit to
no further investment in thermal coal,
which is aligned with the Group’s stated
purpose of financing investment in natural
resources to enable a sustainable future.
In order to support the Group’s revised
commodity focus, the Group, with the
assistance of external consultants, has
developed an ESG framework to both
manage ESG in existing investments and
evaluate initial investment opportunities
to assess the full range of ESG risks facing
the Company. This is explained more fully
on pages 18 to 19.
A C Q U I S I T I O N O F M A N T O S B L A N C O S
R O YA LT Y
In August 2019, the Board approved
the £42.3m (~US$50m) acquisition of a
royalty over the Mantos copper mine in
Chile. Before approving this acquisition,
the Board considered its alignment with
and the achievement of the Group’s
purpose, strategy and values; full details
on these considerations are provided in
the case study on page 30.
The Board gave significant consideration
to Mantos as a counterparty and the
positive impact the Group’s investment
could have, and pleasingly has had, on
their operations.
Further supporting the Board’s decision
to approve this acquisition is the Group’s
positive medium-term outlook for copper
given the limited new supply coming on
stream and the anticipated increased
demand as the world transitions towards
electrification as a means of reducing
dependence on carbon intensive energy
production. Such outlook provides a
reasonable prospect that copper will
outperform consensus prices over time.
In addition, the operations are immediately
cash flow generative with ramp up
potential and a 15 year + mine life.
Weighing up all the above considerations,
the Board concluded that the acquisition
of the Mantos Blancos royalty is an
excellent opportunity to create both short
and long-term value for our investors.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
ENVIRONMENTAL, SOCIAL & GOVERNANCE
Our approach
We believe that a strong focus on ESG is vital for the
long-term success of our underlying assets and the
maximisation of shareholder value. As a result, we are
committed to integrating ESG considerations into our
strategic decision-making and capital allocation.
While we do not control or directly operate any of the assets in which we have an interest, we
recognise that our main ESG exposure results from the investments we make. Our investment
decision-making is guided by our ESG policy, which outlines how we mitigate ESG risk through
our investment decisions, due diligence, contractual agreements and ongoing engagement
with our operating partners.
We systematically
integrate ESG factors
into our investment
decisions
Investing responsibly
We systematically integrate ESG factors into our investment decisions to ensure that we allocate capital in accordance
with the highest environmental, social and governance standards.
E S G - F O C U S E D
I N V E S T M E N T
D E C I S I O N S
Our robust due diligence
processes enable us to
select projects and
operators facing low levels
of ESG risk and which have
strong ESG management
processes in place.
H O W W E D O I T
Our investment decision-
making process involves
the following steps:
• We employ a rigorous ESG
screening tool to evaluate
initial investment
opportunities
• Following this, we use a
tailored and detailed due
diligence framework to
assess the full range of ESG
risks facing particular assets
• We assess potential
investments using a set of
qualitative and quantitative
criteria, which look at the level
of a particular ESG risk and
the way in which it is being
managed
P O R T F O L I O W I T H
A S T R O N G E S G
P E R F O R M A N C E
We are focused on building
a diversified portfolio
comprised of projects
characterised by strong ESG
performance. All our assets
meet a set of stringent ESG
investment criteria.
H O W W E D O I T
In our due diligence process
and our ongoing monitoring
of the portfolio, we look for
counterparties that:
• Take adequate measures to
avoid adverse environmental
impacts on stakeholders and
effectively mitigate climate
risks
• Implement international best
practice on water and waste
management
• Respect and protect
internationally recognised
human rights and labour
rights
• Conduct their operations in
accordance with high health
and safety standards
• Establish positive social and
community relationships
• Maintain high integrity
standards in all areas of their
business
E N G A G E M E N T
W I T H O P E R AT I N G
P A R T N E R S
We aim to positively
influence our operating
partners and ensure their
continued strong ESG
performance.
TA K I N G A
L E A D E R S H I P
R O L E
We work with our peers
to encourage and promote
best practice in the mining
industry.
H O W W E D O I T
• We participate in roundtable
discussions with sector
participants, our peers and
our investee companies
• We are establishing an
industry forum of royalty
companies, which provides
a platform for ensuring a
unified approach on ESG
• We regularly review our
internal ESG systems and
processes to ensure that
we are meeting evolving
stakeholder expectations
and continuously improving
our ESG performance
H O W W E D O I T
To the maximum extent
achievable, we aim to:
• Incorporate ESG-related audit
and inspection rights into our
agreements
• Conduct regular site visits and
gather periodic reports from
our operating partners on
their ESG activities
• Insert change of control
clauses which help us ensure
that the assets will continue to
be operated by responsible
companies in cases of
ownership change
• Encourage our counterparties
to align with leading ESG
initiatives, including the ICMM
Sustainable Development
Framework, IFC Performance
Standards and the Voluntary
Principles on Security and
Human Rights, among others
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS Our portfolio
We proactively engage with our operating partners to stay informed of their overall ESG
performance and to encourage ESG best practice.
Some of the recent ESG achievements of our operators include:
E N V I R O N M E N TA L
S O C I A L
G O V E R N A N C E
Mine site rehabilitation
The Iron Ore Company of Canada
progressively rehabilitates its project
sites through a comprehensive
revegetation programme. It has already
restored over 600 hectares of land
and commits to increasing this amount
each year.
Regular environmental
monitoring
The Cigar Lake Mine regularly monitors
water, flora and fauna around the project
to effectively mitigate any environmental
impacts. Its environmental monitoring
results are regularly reviewed by relevant
regulatory authorities.
Climate resilience testing
Whitehaven Coal, the operator of our
Narrabri asset, mitigates climate risk by
testing the resilience of its portfolio under
the International Energy Agency climate
scenarios. The Company also aligns its
climate reporting with the guidelines set
by the Task Force for Climate-Related
Financial Disclosures (TCFD).
Engagement with
indigenous peoples
Cameco, the operator of the Cigar
Lake Mine, has a wide range of initiatives
in place to support the local indigenous
population. Cameco’s socio-economic
contributions to aboriginal communities
are enshrined in collaboration
agreements and memorandums of
understanding.
Community development
Whitehaven, the operator of our
Narrabri asset, supports local
communities through strong social
investment practices. Over the last three
years, they have contributed nearly
A$1.0million to local groups, and since
2012 have contributed more than
A$1.5billion to the local economy in
north-west New South Wales.
Promoting local services
Largo, the operator of our Maracás
Menchen asset, puts a strong focus on
fostering local economic development.
In 2018, nearly half of its approved
suppliers were from the local Bahia
region and 65% of the mine’s materials
and services were locally sourced.
Strong ESG policy
architecture
Cameco, the operator of the Cigar
Lake Mine, structures its ESG activities
under a strong governance framework,
which includes an overall Sustainability
Policy supported by initiatives such
as its Global Anti-Corruption Programme
and its Code of Conduct and Ethics.
Alignment with leading
industry standards
The Iron Ore Company of Canada is
a member of the Mining Association
of Canada and complies with the
Association’s Toward Sustainable Mining
programme’s guiding principles.
Business integrity
Largo, the operator of our Maracás
Menchen asset, encourages employees
to raise any business integrity concerns
through a secure reporting channel.
The operator also requires all of its
sub-contractors to abide by its Terms of
Business Commitment, which oblige
them to meet high integrity standards.
Commitment to continuous improvement
Anglo Pacific continues to focus on how best to align our business
with the development of socially responsible mining as part of our
efforts to help address the challenges around carbon dependence
and sustainability. We have introduced three new initiatives:
1
M O R E S U S TA I N A B L E C O M M O D I T I E S
• An increased focus on commodities that support a more sustainable world
2
N O F U R T H E R I N V E S T M E N T I N T H E R M A L C O A L
• Consistent with our track record over the past five years, no further
investment in thermal coal assets
3
E S TA B L I S H I N G S U S TA I N A B I L I T Y C O M M I T T E E
• The establishment of a Sustainability Committee to further strengthen
the Company’s already rigorous ESG due diligence processes
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Financing investment in natural resources to enable a sustainable futureOur aim is to become a leading, global company, by growing our natural resources portfolio to deliver consistent stakeholder value through investment in high quality projects, in preferred jurisdictions with counterparties, which are underpinned by the highest ESG principles.08 Etiam record year eget adipiscing lobortisVestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonN.P.H. MEIER10 Adipiscing delivering strategy vestibulum Vestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonJ.A. TREGER50 Adipiscing odi lobortis performance lacus Vestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonK. FLYNNFor more...www.anglopacificgroup.com18 Growing and diversifi ed portfolioIncreasing the number of producing assets to eight across eight commodities, across four continents.20 ESG phasellus eget adipiscing lobortisVestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonnew screenSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS01APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
Financing investment in
natural resources to enable
a sustainable future
Investing in lighter, greener materials
We believe long-term value can only be achieved through sustainable
and responsible investment with a strong focus on ESG
2019
60%
60% of the Group’s royalty
portfolio was non-coal
2013
40%
40% of the Group’s royalty
portfolio was non-coal
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS 23
V
Vanadium
A low-carbon future is coming and vanadium can play
a big role.
Vanadium-flow batteries could become a valuable substitute
for lithium-ion batteries.
Vanadium-flow batteries can be charged thousands of times
without degrading, making them ideal for projects that require
immense cycling. In addition to being long-lasting, vanadium-
flow batteries are extremely durable and can hold immense
amounts of energy.
Currently, more than 80% of the vanadium produced is used
as a steel alloy in products like car crankshafts and gears and
jet engine parts and springs and tools. However, its importance
to the energy sector, is rapidly growing.
As we accelerate the ongoing energy transition and rely
increasingly on renewable energy storage technologies, the
transparent and responsible sourcing of strategic minerals
will become even more necessary.
R E N E W A B L E E N E R G Y
F L O W B A T T E R I E S
E L E C T R I C C A R
F L O W B A T T E R I E S
C A R G E A R S
T O O L S
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
PRINCIPAL RISKS AND UNCERTAINTIES
B A C K G R O U N D
Risk assessment and management are integral to every aspect
of the Group’s business model and how it executes on its strategy.
We seek to ensure that our investors understand our business
model and how an investment in Anglo Pacific is different from
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 is not a static constant within the Group’s business model,
and changing circumstances and sentiment plays a significant role
in shaping strategy. At Anglo Pacific we have seen this many times
over the years: new technologies (Electric vehicles, mass storage)
and their impact on certain commodities; natural and manmade
disasters (Fukushima, tailings dam collapses); banking crisis of
2008; macroeconomic policies (US led trade wars, Chinese
economic policy), uncertainty surrounding Brexit; and most recently
COVID-19 and its potential to impact on global economic growth.
It is for this reason, that risk is a regular agenda item at Board
meetings and is formally reviewed at least twice a year to ensure
that the Group’s strategy responds to any changes in our risk profile.
V I A B I L I T Y S TAT E M E N T
Context
Viability for Anglo Pacific is to have a long-term diversified stream
of income producing royalty assets, which creates a sustainable
business that can grow and provide investors with a compelling
investment story with ESG at its core. But the current outlook is
now very much influenced by significant uncertainty surrounding
the possible impact and escalation of COVID-19.
Putting COVID-19 to one side, there are certain key strategic
challenges to meet in order to achieve our objectives, primarily
generating the deal flow to replace and exceed the Kestrel royalty
income as it declines over the coming years. Although the strategic
focus remains on replacing the Kestrel revenue, viability is
measured on the next three years, a period when it is expected
that volumes from Kestrel will remain very high.
The Board regularly receives cash flow projections which show
the Group’s expected net debt position. At the end of 2019, the
Group had £28.8m of net debt under a facility which matures,
and therefore becomes repayable, in September 2022, within the
viability review period.
As such, the Group must be sure that it will either generate enough
cash flow in order to repay its borrowings in full by that time or be
sufficiently confident that any refinancing risk is low. In order to
conduct a base case review, we have held the cost base (overheads
and dividends constant) and assumed no further investment.
On this basis, the Group would expect to repay its borrowings well
in advance of maturity in 2022.
The assessment process and key assumptions
Assessment of the Group’s viability is based on a financial forecast
covering the next three years, which is consistent with the Group’s
medium-term planning horizon and the terms of its borrowing facility.
The financial forecast has been stress tested on a ‘severe but
plausible’ scenario to see whether the same conclusion would be
reached should this materialise. In normal circumstances this
scenario would be the Group’s base case financial model adjusted for:
• 20% reduction in volumes (this does not impact on LIORC which
is not volume based)
• 20% reduction in consensus commodity price assumptions
(Denison is not impacted by this as it is a toll)
• 20% weakening in the pound from its current level
On this basis, it would be expected that there would be a small
amount outstanding on the Group’s borrowing facility at maturity but
there would be several financial levers available to the Group in order
to remedy any potential breaches in covenants or amounts due at
maturity including reducing the overall level of dividend to align with
the level of income being generated or to liquidate certain assets.
However, given the recent COVID-19 pandemic, the possibility of
operational disruption has heightened and we have already seen
some instances of mines being placed on care and maintenance.
COVID-19 will cause widespread economic disruption but its
impact should be temporary. Although the Group has reasonable
geographical diversity within its royalty portfolio, we have materially
increased our stress testing to assess the impact of up to a
12-month operational shutdown across the portfolio, which we
believe is an extreme downside scenario. In this circumstance, the
Group would breach certain borrowing covenants in the next 12
months and would require either waivers from its lending banks
or to liquidate certain assets to repay borrowings.
Given the widespread government-led support to businesses,
including certain guidance to lending banks, it is the expectation
of management, however, that in this downside scenario the banks
will waive the convenants for a short period due to the nature of any
covenant breaches being solely as a result of COVID-19 imposed
restrictions and being of a temporary nature and upon resumption
of mining activities we would expect to become compliant and
being to repay borrowings. For Anglo Pacific, with a low and flexible
cost base, COVID-19 should result in the deferral rather than the loss
of revenue and should not impact on the Group’s longer-term
prospects once business returns to normal. The assumption of bank
support for covenant breaches is a significant judgement of the
Director’s in the context of approving the Group’s prospects and
viability under this downside case.
Directors’ statement on viability
The Directors confirm they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as
they fall due for the next three years, despite the material uncertainties
associated with production assumptions as a result of COVID-19.
From a non-financial perspective, the execution of the Group’s strategy
is vital to sustain Anglo Pacific as a viable concern for all stakeholders
in the longer-term. With an ever closer alignment to the interests of
stakeholders following recent strategic modifications, along with the
current favourable demand environment for alternative finance, the
Directors remain confident that management will generate the
deal-flow required to continue growing and diversifying the Company’s
sources of revenue for the long-term benefit of all stakeholders.
R I S K A P P E T I T E
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 portfolio to
generate sufficient cash to meet the Group’s outgoings, including
the dividend. Under our ‘severe but plausible’ case it would be
expected that there would be a need to refinance the Group’s
facility at maturity or take other corrective action. 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.
We have run a further extreme downside scenario to stress test
the financial model for COVID-19 shutdowns across our portfolio for
up to a 12 month period, although this is not the case on which the
Board considers risk appetite in normal business circumstances.
E M E R G I N G R I S K S
We define an emerging risk as a risk that may become a principal
risk in time but is not expected to materialise in the next five years.
Emerging risks that are currently being monitored are:
• Long term demand for the minerals in the Group’s royalty
portfolio may change (positively or negatively) as a result of
societal demands for climate change abatement and the growth
of the circular economy; and
• Failure to acquire new royalties to replace our existing portfolio
of producing royalties which by their very nature are depleting.
The above risks are closely monitored and actively managed to
minimise their threat.
22
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS 2 0 1 9 A P P R O A C H T O R I S K
Risk is a regular item on the board agenda and is formally reviewed
twice a year in line with the Group’s overall strategic review. In the
year just past, the Board has completed a robust assessment of
the Group’s emerging and principal risks, focusing on three risks
in particular: ESG & climate change; progress to date in replacing
Kestrel; and stakeholder support. These are discussed in turn
below. The Board also refreshed the Group’s principal risks for
changes observed during the year as summarised in the ranking
table on pages 24 to 25 and detailed on pages 26 to 28. The impact of
COVID-19 already features throughout the risk framework in places
such as catastrophic events, financing capability and demand.
COVID-19
There is little doubt that the outbreak of COVID-19 will have severe
economic and humanitarian consequences in 2020, and this is
already underway. For Anglo Pacific, the risk posed by what should
be a temporary (less than one-year) event can largely be mitigated.
The threat will come either through disruption to production at the
underlying operations or through an inability to finance the Group’s
growth ambitions. The former cannot be mitigated per se, although
our geographic diversification should mean that any disruptions will
not all happen at once, whilst the latter can be someway mitigated
by virtue of the liquidity available to the Group through its undrawn
and available borrowing facility
The global response to COVID-19 has seen equity markets suffer in
particular as investors realign their portfolios towards safer assets.
Although Anglo Pacific’s share price has suffered along with the
market, the companies we look to finance will now find the cost of
their equity prohibitively high which could in turn present greater
investment opportunities for the Group in the year ahead.
We will remain vigilant and keep a close eye on the underlying
operations as the year progresses. However, with low levels of debt
and no significant debt maturities until September 2022 the Group
is well placed to weather the current market turmoil whilst seeking
further growth opportunities. In light of the speed at which the
pandemic has spread and the drastic actions which authorities
have taken to reduce the spreading of the virus, we have performed
additional stress tests on our financial model specific to COVID-19
and these are discussed more in the viability statement section.
Climate change and ESG
It could be argued that the most important change facing every
organisation today is climate change and the way in which
companies understand how their business models contribute
towards it. We at Anglo Pacific, have been giving this careful
consideration over the past number of years.
No longer is profit or stakeholder returns the sole underlying
motivation when appraising investment. We will continue to use
our expertise to identify the commodities which will be required to
create the technologies needed to address climate targets with a
focus on supporting those projects which are operated ethically and
which have a strong social licence to operate in jurisdictions which
govern the industry in a responsible and sustainable manner.
We believe that this approach is in line with those of our principal
stakeholders, who will likely focus more on sustainability when
making investment decisions in future.
We have outlined in this report how we have modified our strategy
and our investment criteria in this regard. We have decided that we
will not add any further thermal coal royalties to our portfolio. We
will continue to monitor our portfolio for instances of ESG breaches.
However, as described in the ESG section on pages 18 and 19, we
see the area of ESG and climate change as an opportunity for Anglo
Pacific to shape its business model and investment practices to
align to the requirements of stakeholders. Mining will continue to
be essential to enable the technological change required for a
cleaner world and we will work to identify those commodities and
operations which can deliver these in the most sustainable fashion.
We remain believers that high quality, lower polluting commodities
will command more of a premium over time. Our portfolio is well
positioned in this regard.
Climate change will impact on the mining sector in other ways.
The last decade was officially the hottest on record. The decade
showed signs of more extreme weather that is expected to be a
feature of a two-degree hotter world. Such extreme weather could
impact day to day life in future. For the mining industry, this could
result in additional operational disruption through flooding or bush
fires. For lower lying operations, the impact of higher sea levels
could threaten the ongoing sustainability of projects. Port
infrastructure could also be impacted by rising sea levels.
Although it is difficult to predict what the impact of a warmer world
will be, our diligence focuses on these issues when we look at
projects. As the impact of climate change materialises, we would
expect to see the interaction between local communities and
mining operations become even more important in providing
mining companies with a social licence to operate.
One area which is likely to be of significant importance will be the
access and use of water which, at present, is an important input
into many mining processes. Mining companies will also be held to
further account for their own local carbon footprint and the sources
of energy which they use to power their operations. We will build
this analysis into our diligence and monitoring.
Our ESG agenda is set out in further detail on pages 18 and 19. We at
Anglo Pacific see this as a key risk facing the business over the next
generation, and we believe there will be a real determination by
governments and business leaders to make a difference. There is
no doubt the mining industry will continue to play an important role
in building the technologies needed to deliver tangible benefits on
climate change and also provide the materials which will lift
populations out of poverty. At Anglo Pacific we will focus on those
projects which can deliver this in the most responsible manner for
the benefit of a better world.
Kestrel & growth
Risk is regularly discussed by the Board at micro level also,
primarily in relation to generating the deal-flow required to continue
diversifying the Group’s royalty portfolio.
Mining assets are, by their very nature, depleting, with every dollar
earned ultimately needing to be replaced. This is particularly the
case in instances such as Kestrel where there is limited reserve
upside within a pre-determined royalty area.
The strategic challenge facing the Group is to replace this revenue
in order to have a long-term sustainable business which will
support a progressive dividend policy whilst allowing cash to be
reinvested for growth.
There can be no certainty that sufficient deal-flow will materialise
in order to fully replace the Kestrel revenue, although as outlined
on pages 10 to 13 the Group has, based on annualised revenue from
transactions acquired up to 2019, acquired ~£20m of additional
annual income and has a three to five year window in which to
add further growth.
Deal-flow and the demand for royalties is an inherent risk in the
Group’s business model. It can never be mitigated in full. Furthermore,
given the cyclical nature of the mining sector, the risk appetite of
management can alter as the demand for royalties change through
the cycle. Anglo Pacific has strict investment criteria, outlined on
pages 14 and 15, which shapes the discussion around acquisitions at
the board level and the underlying risks within each opportunity.
Stakeholder support
The Board considers stakeholders interests and views through
every decision which it makes. Stakeholder views help to shape the
Group’s strategy. Stakeholders are not simply shareholders who are
interested in financial returns. Our stakeholders also include our
employees, counterparties, suppliers, co-investors and financiers
amongst others. Stakeholder support is key to the Group’s viability.
As outlined above, ESG has become a focal point for all stakeholders.
We have reviewed our business model and strategy against that
background. We are mindful that in order to execute on our strategy
we will need to attract and retain the support of shareholders and
banks. As such, our strategy and focus must be aligned to the values,
reputation and investment criteria of stakeholders.
Whilst we acknowledge that some potential investors will have a
closed investment mandate around mining as a blanket rule, we
expect others will continue to see the virtue of the sector as an
enabler of continued technological advancement and ultimately
part of the solution to climate change.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
PRINCIPAL RISKS AND UNCERTAINTIES
continued
We have witnessed the continued pressure which the thermal
coal industry has come under from investment groups, lobbyists
and environmental activists. We have seen some investors clarify
their position around coal and fossil fuel extraction generally.
At Anglo Pacific we have not invested in thermal coal since 2015
and we have always communicated to stakeholders that a
significant part of our strategy is to reduce our exposure to coal.
We have recently announced our formal policy not to add any
further thermal coal to our asset base.
Further, the evolution of our ESG programme will, we hope,
provide the comfort to our stakeholders that this is something at
the very heart of our investment decisions and that by investing
in Anglo Pacific they are supporting commodities for the future
good of the planet.
Outside of ESG, the equity markets continue to be impacted by the
ever-rising trend of indexation and passive investment. As such,
vast quantities of capital are being concentrated at the larger end
of stock exchanges primarily driven by the need for liquidity.
Furthermore, the fund industry suffered its own reputational damage
during 2019 with widespread redemptions caused by liquidity issues
in underlying investments. It remains to be seen whether the sector
can recover its reputation. A large portion of the Group’s shareholder
base is represented by UK income funds so a healthy fund industry
will be important for Anglo Pacific in the years ahead.
We never take the support of our stakeholders for granted and
remain in regular dialogue with them to ensure that the Group’s
strategy and focus does not adversely impact on their ability to
remain invested both now and in the future.
S U M M A R Y
Overall, it was concluded that the risks which were identified as
principal in the 2018 Annual Report had not materially changed,
but the way in which they might impact on the business has.
Some changes to the risk register have been made and these are
outlined in the Principal risks summary table below and opposite.
P R I N C I P A L R I S K S S U M M A R Y TA B L E
2019
Rank
Risk
1
CATASTROPHIC
EVENT
Risk
category
Market
Examples
ESG interaction
• The COVID-19 pandemic could
spread in a way which prevents
mining or shipping activities
• Material change in mining legislation
/ nationalisation
2
SUPPLY &
DEMAND FOR
ROYALTIES
Market
• Availability of conventional capital
• General level of M&A
• Credibility of Anglo Pacific in
marketing and bidding
• Environmental disaster could result in
loss of social licence to operate
• Extreme weather / natural disasters
(i.e. recent Australian bush fires) could
impact severely on the ability to
operate
• Rising sea levels could impact both on
operations (flooding) or shipping
infrastructure
• Demand for primary royalties will
usually require wider activity in the
equity and debt market – but ESG
issues are impacting on the
investment mandates within
conventional capital providers
• ESG discipline could be tested by the
prospect for greater financial returns
3
STAKEHOLDER
SUPPORT
Operating
• Changing perception of mining
• Ever increasing numbers of institutions
industry among some stakeholder
groups
• Continuing trend of passive
investment indexation jeopardises
liquidity for small / medium cap
companies
• Reputation of UK fund industry post
Woodford
are withdrawing support from the
mining industry on ESG / climate
change grounds, potentially shrinking
the pool of capital which Anglo Pacific
can access to execute on its strategy
• Danger that institutions will prevent
themselves from supporting the
supply of key commodities required to
provide greener energy technology
4
5
FINANCING
CAPABILITY
Financial
• Accessing capital for acquisitions
• Complying with financial covenants
• Increasing levels of ESG compliance
within borrowing terms (aligned to
APG’s investment criteria)
• Some institutions are withdrawing
from the sector, or specific parts of
the sector (i.e. fossil fuels) in line with
stakeholder demand
OPERATOR
DEPENDENCE
Financial /
Strategic
• Operating the mine in accordance
with the Group’s ESG criteria
• Honouring royalty obligations
• Change of control and smooth
transition
• Remaining focused on maximising
the social and economic returns of
the project
• It is vital that the operators of the
projects subject to our royalties
operate in a way which is in line with
our ESG criteria and remain fully
integrated with the local communities
which allow them to operate – any
environmental or social violations
could impact the Group’s reputation
and jeopardise stakeholder support
24
2018
Rank
1
2
6
4
8
3
Cause of change
• Increased volumes from Kestrel in
the year results in continued
concentration risk on this royalty –
a catastrophic event would adversely
impact on the Group’s long-term
prospects
• The recent COVID-19 outbreak
heightens the risk of disruption to
operations and the deferral of
revenue for a period of time
• Remains high on register due to
the strategic imperative of replacing
the Kestrel income and creating a
long-term sustainable business for
stakeholders
• The recent global equity sell off
following the COVID-19 outbreak
means it will be even more
challenging and expensive to raise
capital
• Significant activity in this area during
2019 with many institutions removing
their support for the sector on ESG
grounds
• Capital markets have not yet
recovered from a year in limbo due to
Brexit, now compounded by
COVID-19 effects – it remains to be
seen whether investment levels
increase in 2020
• Reduced in the year as we became
familiar with the new operator of
Kestrel and their ability to meet their
operational targets
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS P R I N C I P A L R I S K S S U M M A R Y TA B L E (c o n t i n u e d )
2019
Rank
Risk
Risk
category
Examples
ESG interaction
2018
Rank
Cause of change
6
7
INCREASED
COMPETITION
Strategic
• Some precious metal royalty
• Competitive bidding processes or
companies and private equity
houses are considering branching
out into other commodities
limited deal-flow could challenge ESG
objectives in favour of growth or
financial returns
INVESTMENT
APPROVAL
Strategic
• Incorrect judgement on ESG /
jurisdiction / commodity / price /
counterparty / tax
• Co-investors might have less stringent
ESG criteria
• Failure to identify environmental or
social issues or to predict the likely
future governmental commitment to a
sustainable mining industry could
result in reputational damage for Anglo
Pacific and jeopardise stakeholder
support
• Going forward, and in conjunction
with the Sustainability Committee, the
Group will seek greater contractual
influence in relation to compliance
with ESG and, in some instances,
sanctions for breaches
8
OPERATIONAL
MANAGEMENT
Operational
• Monitoring performance of portfolio
• Internal controls/cost control/FX
• Focused and motivated to deliver
strategy
• Future compensation packages will
need to include ESG targets and
performance in order to ensure
alignment with stakeholder criteria
• Limited new competition during the
year and no significant deals missed
out on
• Management track record to date
is good, with investment criteria
effectively applied
• Management track record to date
is good, with investment criteria
effectively applied
5
7
9
10
The Group’s template for recording its principal risks has
remained the same as in previous years and is briefly described
in the diagram opposite
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, is both difficult to predict and, once occurred, is
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 quadrants can be more effectively managed.
The diagram 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.
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EASY TO PREDICT
HARD TO PREDICT
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25
Operator dependenceCatastrophic eventRoyalty demandOperational managementPipelineIncreased competitionInvestment approvalManagement performanceFinancing capabilityStakeholder supportCharacteristicsManagement / mitigation2020 Action points• 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 on-going monitoring• The Group modified its strategy during 2019 as it saw pressure from the market in relation to coal / fossil fuel exposure• Be proactive in terms of ESG and how this represents an opportunity and not just a threat• 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.• Regular dialogue with all stakeholders and counterparties to ensure there are no financial surprises or misalignment of interests• 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, ESG) is a core focus. The Group invested significantly in growth during the year both in terms of deal-flow and costs associated with sourcing potentially transformational acquisitions.• Accelerate the rate of growth in the year ahead• Risks for which good governance and internal controls should limit any financial or reputational loss• Board Committees, along with management focus and 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’.MARKET AND EVENTFINANCIALSTRATEGICOPERATIONALAPG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
• Significant operational
disruption (COVID-19)
• Mine collapse
• Environmental disaster (inc.
climate change and potential
for increased sea levels)
• Natural disaster
• Destruction of infrastructure
• Resource nationalisation
• Resource contamination
• Failure by royalty counterparty
to make payments
• Recovery in market conditions
for conventional sources of
capital
• M&A activity
• Demand for commodities
• Global GDP growth
• Maintaining APG’s brand and
reputation in being able to
identify and execute successful
royalty transactions
• Having financial credibility in
bidding processes
Mitigation
MONITOR
Management comment and actions
LIKELIHOOD : MEDIUM
• These risks, by their nature, are
difficult to predict or influence.
The Board monitors its royalty
portfolio and underlying
performance regularly.
• The impact of climate change
is also difficult to predict with
certainty and ESG targets will
often be subjective and difficult
to measure accurately.
We engage specialist technical
advisors to assist us in
understanding risk around
permitting and social licence
to operate.
• The recent COVID-19 pandemic has seen significant
humanitarian and economic disruption, particularly in
Europe. In many instances, whole cities have been in
lock down with significant restrictions on movement of
people. If COVID-19 reaches the remote locations from
where the Group receives the majority of its revenue,
then there could be a deferral of revenue if mines are
forced to go on care and maintenance.
• Ordinarily, by continuing to focus on investing in
well-established mining jurisdictions with stable
political and geological history, along with investing
in good operations with strong management and
community support, the Group can reduce the
likelihood of the occurrence of this risk, although
COVID-19 presents unprecedented challenges.
MONITOR
LIKELIHOOD : MEDIUM
• 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.
• APG has built a credible global
brand and network, backed by
a successful track record of
identifying and executing
royalty transactions.
• Demand for royalties can never be predicted, but
demand is usually greater when the underlying market
conditions are challenging for small/mid-sized
operators.
• However, the recent COVID-19 outbreak has led to a
sudden equity sell off with investors fleeing to safety.
We have seen widespread declines in indices and
individual stocks across the sector, including our own.
Ordinarily, this could prevent opportunities, but there
is a risk that some operations could face temporary
closure should COVID-19 reach remote mining
locations. The prospect of this risk is likely to see
limited appetite for capital raisings in the mining
sector in the short-term.
• In addition, capital raising in the mining sector faced
significant challenges over the past year in light of
ESG mandate changes within the institutional
investor universe This should, if and when the threat
of COVID-19 subsides, result in a more favourable
financing environment for Anglo Pacific in 2020.
• APG believes it is generally aware of all significant
royalty transactions that take place and receives
regular inbound calls for financing. We participate
in all material sale processes in our target market.
We remain confident that we are not missing out on
any material opportunities.
LIKELIHOOD : MEDIUM / LOW
• The current management team has demonstrated a
track record of successful investments to date.
• The Board was strengthened during the year by the
appointment of Jim Rutherford and Graeme Dacomb,
both of whom have a wealth of experience in the
sector.
• Anglo Pacific has strict and exacting investment and
ESG criteria and avoids overly competitive bidding
processes where these could result in sub-optimal
outcomes or compromising on fundamental strategic
principles.
Misjudging:
• Projected operating
assumptions, environmental
compliance and best practice
• Social licence to operate
• Geology & technical process
• Long-term commodity price
assumptions
• 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 Group has worked with
specialist consultants in the
year to develop a bespoke ESG
template to help appraise the
environmental and social risks
associated with each potential
investment.
• The Board also has significant
experience and constructively
challenges management on the
due diligence process.
S t r a t e g i c r e p o r t
PRINCIPAL RISKS AND UNCERTAINTIES
continued
MARKET AND EVENT
Risk
Possible cause
CATASTROPHIC EVENT
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.
SUPPLY AND DEMAND
OUTLOOK FOR THE
GROUP’S ROYALTY
PRODUCT
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.
• The Group must be sufficiently
connected in the investment
communities from which it
seeks to source investment
opportunities.
STRATEGIC
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 importance of ESG when
appraising investments,
alongside more value and
operating based criteria, has
become even more important
as underperformance in this
area post acquisition threatens
APG’s reputation and
jeopardises stakeholder
support.
• 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.
26
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS STRATEGIC
Risk
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.
• New competition can always
arise, and Anglo Pacific is not
complacent in driving the
growth of its business.
OPERATIONAL
OPERATIONAL
MANAGEMENT
IMPACT : LOW
• Inadequate attention to detail in
managing the business
• Ensuring that management is
performing to the standards
expected of them for the benefit
of all stakeholders
Possible cause
Mitigation
Management comment and actions
• Recovery in the mining sector
• Inflows into private equity funds
• Low bond yields entice life
assurance / pension funds
• Change of focus from precious
metal peers
CONTINUE TO SCALE
LIKELIHOOD : MEDIUM / LOW
• Anglo Pacific has considerable
• Some direct competition exists but this has not had a
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.
material impact on our growth hitherto, as
demonstrated by the $75m of acquisitions completed
during 2019.
• 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.
• Increased competition can also result in opportunities
and we have enjoyed working with other capital
providers recently such that the risk of financing
projects can be spread amongst several
counterparties reducing the risk.
• Monitoring accuracy of royalty
payments
• Monitoring news flow impacting
counterparties
• Insufficient interaction with
counterparties
• Lax cost control
• Managing risky investment
processes
• Appropriateness and
functioning of internal controls
• Poor leadership
MAINTAINING HIGH
STANDARDS
• The Group undertakes a
thorough budgeting process
each year which highlights the
reasons for variances.
• Management performance is
monitored by the Board and the
Remuneration Committee.
• Compensation is aligned to
strategic objectives of the
Company
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.
• Despite our considerable growth over the past five
years, our cost base has remained largely unchanged
over the same period.
• Anglo Pacific is a small organisation in terms of
headcount where everybody has to perform to the
highest standards.
• Any underperformance should be readily evident and
dealt with by the CEO and Board promptly.
STAKEHOLDER SUPPORT
IMPACT : MEDIUM / LOW
Anglo Pacific needs to be well
supported by all stakeholders
including:
• Royalty counterparties
• Employees
• Shareholders
• Lending banks
• Brokers
• Analysts
• Media
• Reputational consequences
of mining disasters / poor
standards of social
responsibility
• Failure to respond to emerging
trends within the investment
community (particularly around
ESG)
• Underperformance
• Deviation from strategy
• Alterations to dividend
• Excessive risk-taking
• Poor communications
• Substandard CSR/
environmental record
• Overleveraging
• Inaccurate royalty calculation
• Non-payment/disputes
FINANCIAL
OPERATOR DEPENDENCE
IMPACT : MEDIUM / HIGH
The Group is dependent on the
operators of the mines over which
it has royalties to continue to
operate effectively and thereby
provide the expected sustainable
royalty income and to operate in
line with our ESG principles.
We also rely on operators to
honour royalty contracts and
make timely and accurate royalty
payments.
LIKELIHOOD : MEDIUM / LOW
• 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.
This enables us to understand the key concerns which
potential investors face when considering investing
in Anglo Pacific, particularly around ESG and the
mining industry.
• Recent market turmoil as a result of COVID-19 has seen
considerable market uncertainty. The support of all
stakeholders in coming months will be more important
than ever in retaining access to liquidity for growing
our business.
• We actively encourage participation at our AGM, which
gives shareholders of all sizes the opportunity to ask
questions of our entire Board.
CLOSE DIALOGUE WITH
STAKEHOLDERS
• Anglo Pacific keeps in close
contact with all stakeholders.
This influenced the recent
modifications to the Group’s
strategy in the current year,
particularly in relation to future
coal investment in order to align
our portfolio to the investment
criteria of 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.
DIVERSIFY DEPENDENCE
LIKELIHOOD : MEDIUM
• The Group has a good relationship with most of the
underlying operators.
• Site visits conducted over the past 12 months include
Kestrel and Narrabri, two of the top three sources of
the Group’s revenue, and we will target other visits in
the next 12 months.
• 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.
This is particularly important in
light of the recent COVID-19
pandemic and its potential to
disrupt mining operations.
• APG has audit rights which it
generally exercises on the
identification of any unexpected
royalty outcome. It has also
developed an ESG template
which assists pre and
post-acquisition reporting on
matters which are fundamental
to the APG investment thesis.
• The Group tries to insert change
of control clauses into its new
royalty agreements to help
ensure its exposure continues
to be to counterparties of good
reputation.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Possible cause
Mitigation
Management comment and actions
S t r a t e g i c r e p o r t
PRINCIPAL RISKS AND UNCERTAINTIES
continued
FINANCIAL
Risk
FINANCING CAPABILITY
IMPACT : MEDIUM / HIGH
The Group is dependent on access
to capital in order to finance its
growth ambitions.
• Coal exposure limiting the
universe of potential investors
• Sudden adverse change in
equity market conditions
• Production issues or significant
price volatility could adversely
impact on the Group’s borrowing
capacity
• Execution risk through
inadequate immediate access
to finance
• Royalty payment default
• Bank collapse
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
That foreign exchange
movements adversely impact on
the Group’s cash flow projections.
• 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 other
currencies
• Financing risk when raising
equity in GBP to fund dollar
denominated acquisitions
HIGH-QUALITY DEAL-
FLOW
• The recent COVID-19 outbreak
has had a significant impact on
the capital markets both for
potential investee companies
and for the Company. This could
make raising equity prohibitively
expensive.
• We regularly meet with advisors,
shareholders and lenders to
discuss the types of deals we
are looking at to gauge their
support – which has resulted in
strategic modifications to our
coal policy (see opposite).
• We will look to finance
non-income producing royalties
primarily from our internal
resources.
• Our due diligence process
focuses on the creditworthiness
of counterparties with whom we
transact ongoing monitoring
• The Group operates controlled
treasury policies which spreads
the concentration of the Group’s
cash balances amongst
separate financial institutions
with sufficiently high credit
ratings.
• The Board approved a currency
hedging policy which looks to
enter into forward contracts
sufficient to acquire the majority
of the sterling required to meet
the Group’s dividend and
overhead cost.
• 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
• We remain confident that stakeholders identify the
advantages of the derisked nature of the royalty
business model and that we will be able to leverage
our track record to finance our growth ambitions in
the years ahead.
• However, the recent equity market sell off caused by
COVID-19, along with the potential significant
economic deterioration and/or recession could result
in liquidity pressures for many.
• We have reviewed the terms of our borrowing facility
and, although there are some areas where material
adverse event clauses exist, we have not yet seen
any instances where lending banks are trying to
enforce these. As such, we retain significant liquidity
to both withstand the current turmoil and to act
opportunistically should investment opportunities
arise through recent capital constraint.
• The Group does not have any material capital
commitments or debt amortisations until Q3 2022 and
as such has a significant time horizon from which to
withstand the current, near-term, impact of COVID-19.
LIKELIHOOD : LOW
• The risk of counterparty default is assessed when
entering into new royalty agreements. Absent the
potential for operational disruption as a result of
COVID-19, which in any case could result in the deferral
rather than the loss of review, the Group is comfortable
that our material 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 and
their track record over the past number of years.
LIKELIHOOD : MEDIUM
• Commodity price risk represents the primary risk
and the objective is to keep foreign exchange as a
secondary risk.
• The recent COVID-19 outbreak has led to
unprecedented global Central Bank responses which
have impacted on exchange rates. The Australian
dollar has weakened significantly against both the USD
and the pound. The former is important as a weaker
Australian dollar increases the weighted average
royalty rate at Kestrel (assuming constant coal prices),
and the favourable exchange variable on this more
than offsets the adverse variance of translating the
resulting Australian dollar income back to pounds.
• We have protected forward a good portion of our
expected Australian dollar revenue for 2020 at rates
more favourable to the current spot rate.
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 impacted
by commodity and certain other
pricing inputs which could result
in lower earnings and cash flow
and unrealised losses at each
reporting date.
• The Group is exposed to the
US and UK LIBOR rate as part
of its bank facility
• The Group has a relatively
LIKELIHOOD : LOW
low level of borrowings and, as
such, interest rate risk is not
considered material when
assessing the Group’s
longer-term prospects
• Recent Central Bank activity in responding to COVID-19
has seen most authorities cut their interest rates to
record lows and, in some cases, close to 0%. This will
benefit Anglo Pacific in the near-term by reducing the
cost of borrowing and increasing the accretion metrics
for acquisitions when financed through borrowings.
• 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 most significant of
which is LIORC where the Group
has invested ~US$82m to date.
• The Group uses independent
LIKELIHOOD : HIGH
third-party consensus prices at
each reporting date in assessing
for impairment.
• The success of the Group’s
investment will largely depend
on the point of entry in relation
to the commodity at the time of
investment. To date, the Group’s
investments have largely proved
to be well timed. Equally
important is to avoid making
investments in commodity price
bubbles, recent examples of
which include vanadium, lithium
and cobalt.
• The Group is exposed to commodity prices and a
significant decrease in commodity prices is likely to
result in lower earnings and cash flow and further
impairment charges and a narrowing of dividend cover.
• At this stage the Board does not hedge against specific
commodity risk, as derisked commodity price
exposure is what we understand our stakeholders to
be looking for, and will continue to review this position
in light of market conditions.
• The recent equity market sell off following the
COVID-19 outbreak has impacted on the carrying value
of the Group’s LIORC royalty as its value is determined
based on the share price of the publicly quoted vehicle
which holds the royalty.
28
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS KEY PERFORMANCE INDICATORS
19
18
46.1
£55.7m
17
39.6
16
19.7
15
8.7
R O YA LT Y R E L AT E D R E V E N U E ( £ m )
Royalty related revenue reflects the revenue from the Group’s underlying royalty
and streaming assets on an accruals basis, including the interest earned on
royalty financing arrangements and the dividend income received from the Group’s
investment in LIORC (refer to note 5 for further details).
19
17
16.82
18
18.02
20.41p
16
9.76
15
2.47
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)
17
2.4
18
19
2.3
2.3x
16
1.6
15
0.4
Adjusted earnings per share excludes any non-cash valuation movements,
impairments, amortisation, foreign exchange gains/(losses) 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 12 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 13 for further details).
D I V I D E N D C O V E R ( x )
In any period where there is an adjusted loss, the dividend cover will be reported as nil.
19
17
23.62
18
22.28
26.44p
16
7.93
15
2.93
F R E E C A S H F L O W P E R S H A R E ( p)
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. Management have determined that free cash flow per share is
a key performance indicator, as the Board considers the free cash flows generated
by its assets when recommending dividends.
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 34 for further details).
19
£62.6m
15
45.0
18
39.3
17
29.4
16
0.0
R O YA LT Y A S S E T S A C Q U I R E D ( £ m )
The Group’s strategy is to acquire cash or near-cash producing royalty related assets
which will be accretive and in turn enable dividend growth. The graph shows how
much the Group invested in royalty acquisitions in each period.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
• Mantos Blancos
Mantos Blancos royalty acquisition
O U R S T R AT E G Y I N A C T I O N / A U G U S T 2 0 1 9
Transaction consistent with
Anglo Pacific’s investment criteria
Stage
Producing
Commodit y
Copper
Operator
Mantos Copper
Location
Chile
Royalt y rate and t ype
Balance sheet classification
1.525% NSR
Royalty intangible
S T R U C T U R E
The Mantos Blancos mine
Producing open pit mine located in Chile, approximately 45km
from the city of Antofagasta
Produces high purity copper concentrates, LME Grade A copper
cathodes and silver by-products
Proceeds will part fund US$219m of capital costs as well as
working capital associated with a concentrator debottlenecking
project which is expected to increase sulphide ore throughput
capacity to 7.3Mtpa from 4.3Mtpa currently, prior to the expected
depletion of oxide ore Reserves in 2023
This project extends the life of the Mantos Blancos mine to 2035
and reduces operating costs
During the first ten years following the completion of the
debottlenecking project in 2021, the mine is expected to produce
an average of 52 Kt of copper per annum at an average C1 cash
cost of US$1.87/lbs (including silver by-product credits) with
further production upside and mine life extension potential
M E E T I N G O U R I N V E S T M E N T C R I T E R I A
Enhanced commodity mix with exposure to highly attractive
copper market outlook
• Portfolio further diversified to include producing copper royalty
• Global copper supply currently in a deficit position which is
forecast to further widen
Immediately accretive and maintains low-risk geographic
footprint
• Producing royalty immediately accretive to EPS
• Chile ranks amongst the top six most attractive global
jurisdictions for mining investment
Mantos Blancos mine produces high-quality copper products
• High grade copper concentrates with low levels of impurities
or deleterious materials and primarily Grade A LME registered
99.99% purity cathode products
Strong ESG practices
• Community support – Mantos has implemented programmes to
regularly assess the community impact of its operations in line
with national laws and guidelines. A Sustainability Committee
manages several local community support projects
• Health and safety – Systems comply with international best
practices with critical controls in place to prevent fatal or
severe incidents. Mantos Copper has repeatedly obtained the
J.T. Ryan prize awarded by the Mine Institute of Canada and
Sernageomin
• Environmental responsibility – Environmental performance
and management policies are in place – the environmental
mitigation policy seeks to minimise the environmental impact
of Mantos’ operations
Long production track record with upside potential
• One of the first private copper mines in Chile with demonstrated
ability to operate through the cycle
• 16-year reserve based mine life at planned production rates,
with extension upside
• Production upside potential via concentrator plant capacity
expansion to ~9.7Mtpa and treatment of oxide ore stockpiles
High-quality management team
• Proven operational track record at Chilean and South American
copper mines
• Prior experience at blue-chip miners including Anglo American,
BHP, Codelco, and Barrick South America
Demonstrates Anglo Pacific’s ability to finance acquisitions
from its balance sheet
• Approximately US$75m in balance sheet financed acquisitions
over the past 12 months
30
Financing investment in natural resources to enable a sustainable futureOur aim is to become a leading, global company, by growing our natural resources portfolio to deliver consistent stakeholder value through investment in high quality projects, in preferred jurisdictions with counterparties, which are underpinned by the highest ESG principles.08 Etiam record year eget adipiscing lobortisVestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonN.P.H. MEIER10 Adipiscing delivering strategy vestibulum Vestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonJ.A. TREGER50 Adipiscing odi lobortis performance lacus Vestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonK. FLYNNFor more...www.anglopacificgroup.com18 Growing and diversifi ed portfolioIncreasing the number of producing assets to eight across eight commodities, across four continents.20 ESG phasellus eget adipiscing lobortisVestibulum ac lacus est fermentum penatibus eusit hendrerit. Sed laborum vestibulum faucibus nonnew screenSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS01APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS S
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Cu
Copper
Copper is an essential component in the infrastructure
for renewable energy.
Copper is relatively inexpensive and extremely plentiful.
Used for its superior properties, such as having the best
electrical and thermal conductivity of any commonly used
metal, as well as its durability and hygienic properties, copper
is a key material for innovation in a number of sectors including
renewable energy supplies, energy efficiency, sustainable
buildings, transport systems and healthcare.
Therefore copper is a prominently relied upon and utilised
material of any emerging or expanding industrial economy.
W I N D F A R M S
M O B I L E P H O N E S
E L E C T R I C C A R S
S O L A R P A N E L S
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
MARKET OVERVIEW
C O M M O D I T Y P R I C E S 2 0 1 7- 2 0 1 9
high
350
300
250
200
150
100
50
0
low
latest
12.15
06.16
12.16
06.17
12.17
06.18
12.18
06.19
12.19
C O K I N G C O A L ( U S $ / t )
high
latest
140
120
100
80
60
40
20
0
low
12.15
06.16
12.16
06.17
12.17
06.18
12.18
06.19
12.19
T H E R M A L C O A L ( U S $ / t )
US$75
low
US$300
high
US$160
latest
at 27 March 2020
US$47
low
US$122
high
US$67
latest
at 27 March 2020
financing in the form of debt and equity, crucial for those
advancing their projects towards production, was at its lowest
level since 2014.
Given the challenges in accessing capital in conventional forms,
the conditions were favourable for alternative financings.
Transactions in the royalty and streaming sector in 2019 were
just over US$1.3bn.
The largest transactions in the royalty and streaming industry
were once again by those focused on precious metals, with the
top four transactions representing 58% of overall transactions
(although the Franco Nevada acquisition was that of an oil and
gas royalty), reflecting the level of M&A within the sector. Anglo
Pacific’s ~US$50m Mantos Blancos copper royalty transaction
is all the more impressive in the context of the limited number
of overall transactions outside of the precious metals space.
In the precious metals space, the increased competition for
assets during the year led to an expansion of investment into
direct ownership of the underlying mining assets, which to
some degree erodes the de-risked nature of a royalty vehicle
in gaining commodity exposure. We do not see the same level
of competitiveness or pressure for growth in the base and bulk
space and will continue to focus on taking non-operational
exposure.
E Q U I T Y M I N I N G M A R K E T S
According to the Mining Journal, in their annual review to October
2019, the number of IPOs in the mining sector grew from 43 to
46 but the value of these IPOs was down 57%. The equity capital
markets have fundamentally changed over the past number of
years. In the past, a good mining asset would have had a good
chance of being identified and supported by specialist mining
funds, who would attract financing through their specialist skill
and expertise to deploy capital in the sector.
However, the rise of indexation and the losses that have been
experienced in the mining sector in recent years have resulted in
less capital flowing into specialist fund managers meaning that
the pool of capital available to smaller companies has shrunk.
The lower supply of capital has, therefore, increased the cost of
equity, regardless of the quality of the underlying asset. For
mining, this has led to a concentration of capital being invested in
the largest companies, as they have been paying high dividends
and also enjoy significant liquidity. As a result, the funds raised
from IPOs have declined sharply.
Alternative finance providers traditionally seek to be part of a
balanced capital structure. Absent a fluid equity or debt capital
market, it is unlikely that any one provider of alternative financing
will accept significant equity style risk by financing an entire
The following section includes an overview of financing in the
mining sector in 2019 and certain trends which emerged.
However, two recent events dominate the market outlook for
the mining sector as a whole: COVID-19; and ESG investing. The
former is a recent event which is largely outside of the control of
the industry but likely to have a significant impact on the global
economy in 2020. The latter, however, has been a trend which
is gathering momentum and is impacting the way in which the
sector has been viewed over the past year and is likely to attract
even greater scrutiny in the years ahead. Both will be discussed
after we recap 2019.
The analysis and commentary below looks at mining specific
factors and trends which have emerged during the course of
the last year.
2 0 1 9 M I N I N G F I N A N C E R E V I E W
Equity markets in general performed well during 2019 as investors
sought income and returns in an environment of low corporate and
government bond yields, in many cases negative yielding. The low
yielding bond market led investors to look elsewhere for returns
and, coupled with the abundant capital in the financial markets
following widespread quantitative easing over the last number
of years, led to record highs in major equity indices.
The strong global growth of technology and fin-tech stocks
led to a further withdrawal of support from more blue-chip,
traditional industries, of which mining is part. This impact was
felt particularly by companies at the small to medium end of the
mining indices which sit outside of most index tracking funds.
As a result, the smaller end of the mining sector struggled to
find new sources of capital.
Further, certain sub sectors of the mining industry performed
better than others. A large portion of the overall financing activity
in the mining sector was represented by those in the precious
metals space with greater levels of M&A in the year particularly
by those at the larger end of the scale. There was a lot of
competition for acquisitions along with steady capital market
support to finance this activity.
It remained a challenging year for those operators of financing
bulk and base materials, as ongoing uncertainty surrounding
trade wars and sentiment surrounding climate change and ESG
increased the cost of capital as discussed below.
R O YA LT Y A N D S T R E A M I N G Y E A R I N R E V I E W
Although financing in the wider industry totalled ~US$117bn,
the vast majority of this was represented by either asset sales
or bond issuances. Many of the bond issuances in 2019 were
refinancings and not necessarily new capital. Conventional
32
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS 35
30
25
20
15
10
5
0
low
high
latest
12.15
06.16
12.16
06.17
12.17
06.18
12.18
06.19
12.19
US$2.40
low
US$34.00
high
US$6.20
latest
at 27 March 2020
1,750
1,500
1,250
low
1,000
high
latest
12.15 06.16 12.16 06.17 12.17 06.18 12.18 06.19 12.19
VA N A D I U M ( U S $ / l b s)
G O L D ( U S $ /o z )
high
latest
120
100
80
60
40
20
low
12.15
06.16
12.16
06.17
12.17
06.18
12.18
06.19
12.19
US$38
low
US$119
high
US$80
latest
at 27 March 2020
high
latest
3.5
3.0
2.5
2.0
1.5
low
12.15
06.16
12.16
06.17
12.17
06.18
12.18
06.19
12.19
I R O N O R E ( U S $ / t )
C O P P E R ( U S $ / l b s)
US$1,051
low
US$1,680
high
US$1,625
latest
at 27 March 2020
US$1.96
low
US$3.33
high
US$2.17
latest
at 27 March 2020
operation. Consequently, we saw a higher level of collaboration
during the year between alternative finance providers, as was
the case with our recent Mantos Blancos and Incoa transactions.
We would see this trend continuing in the years ahead as capital,
particularly equity capital, remains very scarce and expensive,
especially following the recent global equity sell off following
the outbreak of COVID-19.
R E C E N T M A R K E T V O L AT I L I T Y A R O U N D C O V I D - 1 9
As noted above, the equity markets were challenging for many
mining operators over the past year. The recent market reaction to
COVID-19 and the equity sell off that ensued in a flight to safety has
had a significant impact on valuations and the ability for new equity
capital to be raised. The hardest hit in the mining sector have been
those who have had a high level of debt in their business.
It would now seem inevitable that there will be considerable
economic decline in the year ahead. However, for Anglo Pacific,
at present, it is business as usual as no material asset is located in
Europe and virtually none of the products on which the Group earns
a royalty are sold to the European markets. There is the possibility
that the virus could impact on the labour force and the ability to
operate in jurisdictions in which the mining operations are located.
We will be keeping a close eye on this in the coming months.
With the virus now almost in decline in China, as this is written,
the focus there will continue to be on their infrastructure led
economic stimulus measures. This will continue to require coking
coal and iron ore and prices have remained robust in the year to
date despite considerable market turmoil.
With subdued equity markets we would expect to see opportunities
to deploy capital in an environment where capital has become even
scarcer and more expensive in the past few months.
E S G I N V E S T I N G
The other noticeable trend in the mining industry is in relation to
ESG, with considerable attention being paid to the fossil fuel
extractive industry and the carbon footprint of each underlying
operation, including scope 3 emissions. This is an aspect in which
Anglo Pacific has been proactive in approaching through our ESG
framework and the particular commodities which we have been
targeting.
It is becoming increasingly likely that some projects will struggle
to obtain public funding due to either the nature of the product
being produced or the way in which it is being produced. We have
seen some noticeable recent announcements by large mining
and extractive companies in relation to their targets for carbon
emissions and ESG initiatives.
Consequently, for public companies, it would seem that an
increasing trend will be to run off existing operations in
commodities like thermal coal and oil whilst committing to explore
ways in which to create new technology to replace its use in energy
generation. This new technology will require increasing quantities
of commodities such as copper, lithium, niobium, vanadium and
other rare earths in order to create the infrastructure required to
transition the world away from dependence on fossil fuel energy.
At present, parts of the investment community and environmental
lobbyists do not seem to differentiate between the fossil fuel
extractive side of the mining industry and that which focuses on the
commodities which will be required to facilitate the transition away
from such carbon dependence. As long as all mining is perceived to
be part of the climate change problem, rather than an enabler of the
changes which will be required, then there is the risk that the sector
will continue to be underrated and financing new sources of vital
materials like copper will be continue to be prohibitively expensive,
and could actually hold back technological advances in addressing
climate change solutions. At Anglo Pacific, we believe that mining
can be part of the solution and that these trends around lack of
access to wider capital are favourable for our business.
O P P O R T U N I T I E S
The outlook for the year ahead remains uncertain given recent
global events. It looks like the small and mid-tier operators will
continue to find traditional forms of finance difficult to source
which should increase the demand for alternative forms of
financing including royalties.
We would expect to see the market for primary royalties as an area
where numerous opportunities will arise, but investment grade
opportunities will remain limited given the quantum of capital
required to bring most projects into development. This could,
however, result in more collaboration amongst providers of
alternative finance being prepared to take a larger portion of the
capital structure through sharing of the risk, as demonstrated by
our two most recent transactions where we have co-invested
with Orion (refer to the case studies on page 30).
The alternative finance industry has become more innovative in
terms of how it can create opportunities to invest. We would
expect this trend to continue both in relation to primary and
secondary transactions. Alternative financing has become more
of a mainstream feature as part of the capital structure and this
bodes well for our deal-flow and growth in the years ahead.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Producing royalties
A record £62.6m of income producing royalty assets
was added to our portfolio in 2019, increasing our
total number of producing royalties to 8.
92%92% of the portfolio by value is in production
34
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
BUSINESS REVIEW
The following review covers each of our material assets. The COVID-19 pandemic is causing
significant humanitarian and economic disruption worldwide. Although most of this is currently
focused in Europe and the USA there can be no certainty that the virus will not spread further in
Australia, Canada and Brazil, the jurisdictions where most of our revenue is generated from.
We are unaware of any material operational disruptions to our existing operations caused by the
COVID-19 pandemic, however that is not to say that our existing operations could not be affected
by it should there be more widespread cases in jurisdictions where the underlying operations are
undertaken. The following section is based on the current position assuming no material
operational disruption other than those which we are currently aware of.
26.2%
Kestrel is 26.2% of the portfolio
by asset value as at 31.12.19
Kestrel
Stage
Producing
Commodit y
Operator
Location
Royalt y rate and t ype
Balance sheet classification
Coking coal
Kestrel Coal Pty Ltd
Australia
7 – 15% GRR
Investment property
W H AT W E O W N
Kestrel is an underground predominantly metallurgical coal mine
located in the Bowen Basin, Queensland, Australia. The Group
owns 50% of certain sub-stratum lands which, under Queensland
law, entitle it to coal royalty receipts from the Kestrel mine.
The vast majority of sales from the operation are to India, Japan
and South Korea.
The royalty rate to which the Group is presently entitled is
prescribed by the Queensland Mineral Resources Regulations.
These regulations currently stipulate that the basis of calculation
is a three-tiered fixed percentage of the invoiced value of the coal
as follows:
Average price per tonne for period
Up to and including A$100
Over A$100 and up to and including A$150
More than A$150
Rate
7%
7%
12.5%
7%
12.5%
15%
First A$100
Balance
First A$100
Next A$50
Balance
The mine is operated by Kestrel Coal Resources (KCR), a private
joint venture between EMR Capital (an Australian private equity
investment company) and Adaro Energy (a major coal mine
operator and developer based in Indonesia). KCR acquired the
operation from Rio Tinto in the second half of 2018 for US$2.25bn
and immediately embarked on a programme to significantly
increase production. KCR has made exceptional progress in doing
so in the 18 months since they took over operational control.
P E R F O R M A N C E
For the third year in a row the Group received record royalty
income from Kestrel in 2019. Total revenue in 2019 was £37.0m,
a 13.4% increase on the previous record of £32.6m in 2018.
We have seen our income grow tenfold over the past five years,
primarily due to volume increases, initially as mining moved
further within our private royalty land and latterly as overall
volumes increased following the change of operator.
At the end of 2018, Adaro announced its intention to increase
saleable production at the mine by 40% in 2019 compared to
2018, following the implementation of a change programme by
new management. Although this seemed to be quite a stretch
target at the time, we were delighted to see the progress made
during the year resulting in overall sales volumes increasing by
36% for the year as a whole, a fantastic achievement by the new
operating team.
The record level of sales volumes in 2019 generated £37.0m of
revenue for the Group. This number would have been higher had
it not been for an 11% decrease in average pricing during the year
compared to 2018, and the associated impact on the weighted
average royalty rate.
Pricing came under pressure in the second half of 2019 due to
a combination of slower economic growth in China resulting in
subdued steel demand and additional supply coming online from
Australia and Russia. The ongoing trade dispute between the US
and China has largely impacted other commodities, although it is
likely there has been some impact on the demand for domestically
produced steel. The spot price has also been impacted by port
restrictions imposed by Chinese authorities and, although this
has largely impacted thermal coal imports, it has also impacted
the risk, and therefore the price, which traders are prepared to
take in securing seaborne coal, including metallurgical coal.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
BUSINESS REVIEW
continued
O U T L O O K
We would expect production to continue to increase at the mine
in 2020, building on the fantastic track record that the new
owners have set in the short time that they have been operating
the project. At these rates of production, we would expect to see
higher levels of production within our royalty land for the next 24
months, at which stage we would then expect to see volumes
reduce by approximately 50% as production commences to move
outside of the Group’s private royalty land. The very high volumes
expected in the next two years will have a positive impact on the
Group’s cash flow, depending on commodity prices.
Currency is also an important determinant for the Kestrel royalty,
as the royalty ratchet is determined based on the average
Australian dollar price achieved. As the price is set in relation to
US dollars, the AUD:USD rate influences the weighted average
royalty rate. Given the headwinds facing the Australian economy
of late we have seen its currency continue to weaken. We have
seen the AUD:USD reduce from an average of 0.78 in 2017 to
0.695 in 2019, and currently spot is at 0.65. As an illustration, at
a US$130t average price this would result in a weighted average
royalty rate of 9.45% in 2017 versus 10.05% in 2019. At current
spot levels however, this would increase to 10.9%.
The pricing outlook for coking coal has softened somewhat since
the end of 2019 as demand from China remains uncertain in light
of the COVID-19 outbreak, although the spot price has held up
well in the year to date. The December 2019 consensus price
forecast for coking coal in 2020 was US$154.5t, a small increase
on what prices were expected to be twelve months ago.
Absent any COVID-19 disruption, either at mine site or elsewhere
in the logistic chain, including import restrictions for the end user,
we would expect the output from Kestrel to continue to find
demand from customers in the Asian market and the growth
targets from the owners to be met.
VA L U AT I O N
The Kestrel royalty’s carrying value of £96.4m (A$181.3m) is
based on an independent valuation and accounts for 31% of the
Group’s total assets as at 31 December 2019 (2018: A$198.2m;
£109.8m; 41%).
Depletion associated with the record revenue of £37.0m was
offset by the impact of significantly higher levels of production
which brings forward cash flow, along with revisions to pricing
inputs, noticeably more favourable underlying exchange rates
and a revision downwards to the discount rate due to falling
global government bond rates.
The independent valuation of Kestrel was undertaken by a
Competent Person in accordance with the Valmin Code (AusIMM,
2005), which provides guidelines for the preparation of
independent expert valuation reports. The Group monitors the
accuracy of this valuation by comparing the actual cash received
to that forecasted. The value of the land is calculated by
reference to the discounted expected royalty income from mining
activity, as described in note 15.
As the asset has a nominal cost base, the carrying value almost
entirely 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 £66.9m (2018: £75.3m).
19
37.0m
18
32.6
17
28.7
16
13.1
15
3.6
K E S T R E L R O YA LT Y R E L AT E D R E V E N U E ( £ m )
16
116.9
18
109.8
17
104.3
19
96.4m
15
82.6
C O A L R O YA LT Y VA L U AT I O N ( £ m )
36
300
SERIES
PANEL S
200
SERIES
PANEL S
400
SERIES
PANEL S
500
SERIES
PANEL S
Royalty area
Area currently
being mined
1
2
3
4
kilometres
Kestrel mine plan
Showing area being mined compared to private land boundary
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS 14.8%
Mantos Blancos is 14.8% of the portfolio
by asset value as at 31.12.19
Mantos Blancos
Stage
Producing
Commodit y
Copper
Operator
Mantos Copper
Location
Chile
Royalt y rate and t ype
Balance sheet classification
1.525% NSR
Royalty intangible
W H AT W E O W N
The Group acquired a 1.525% royalty over the Mantos Blancos
copper mine in Chile for US$50.25m. The Mantos Blancos mine
is an open pit operation located in Chile, producing copper with
silver by-products. The NSR entitlement applies exclusively to
copper production at the Mantos Blancos mine. The operation is
majority owned by Orion Mine Finance LLP, who acquired the
asset from Anglo American plc. The operators are former Anglo
American employees with an impressive operational track record.
P E R F O R M A N C E
The royalty contributed to cash flow for the last four months of
2019. In that period, revenue was in line with our expectations
at the time of acquisition, at £1.0m.
O U T L O O K
2020 will be the first year we will earn a full year of revenue from
the royalty. A simple extrapolation of the revenue earned in the
four months of ownership in 2019 would produce £3.0m of
income, although there is potentially some upside to these
numbers, depending on copper prices.
The proceeds of the investment are to be deployed for the
construction of a process plant debottlenecking project which is,
when complete, expected to improve throughput and therefore
sales volumes.
In addition to volume upside, we remain of the view that over
the medium-term there is the potential for a supply shortage
of copper given the continued demand for the metal, both in its
traditional end use and also its growing demand for use in
electric vehicle manufacturing. In the short-term, copper
continues to get caught up in the cross winds of the trade war
between the US and China and declining global copper grades of
existing mines. Our view at the time of acquisition was that the
longer-term copper consensus price was on the conservative
side and did not fully recognise the potential supply shortages
in light of demand growth.
Furthermore, the copper produced at the Mantos Blancos mine
is of very high-quality, with low levels of impurities and therefore
should be in high demand as consumers look to meet ESG
targets for their manufacturing processes. This is very much in
line with our view that high-quality products will command a
greater premium going forward.
VA L U AT I O N
The Mantos Blancos 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.
Did you know...?
Mantos Copper has repeatedly obtained the J.T. Ryan prize awarded
by the Canadian Institute of Mining, Metallurgy and Petroleum
for health and safety.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
26
Fe
Iron
The primary use of iron ore is to make steel, which is
one of the world’s most recycled materials.
98% of the world’s iron ore is made into steel which accounts
for over 90% of all metals used in the world.
As a necessary input for the production of primary steel, iron
ore feeds the world’s largest metal market and the backbone
of global infrastructure. The trillion-dollar-a-year steel market
accounts for 95% of all metal sold every year.
Most of the iron produced is used to make steel. Steel is used
to make automobiles, locomotives, ships, buildings, furniture,
tools, bicycles, and thousands of other items.
B I C Y C L E S
B U I L D I N G S
F U R N I T U R E
C U T L E R Y
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
BUSINESS REVIEW
continued
22.6%
LIORC is 22.6% of the portfolio
by asset value as at 31.12.19
Labrador Iron Ore
Royalty Corporation (LIORC)
Stage
Producing
Commodit y
Operator
Iron ore &
iron ore pellets
Iron Ore Company of
Canada (‘IOC’)/Rio Tinto
Location
Canada
Royalt y rate and t ype
Balance sheet classification
Indirect interest
in 7% GRR
Royalty financial
instrument
W H AT W E O W N
Anglo Pacific acquired a 4.28% equity stake in Labrador Iron Ore
Royalty Corporation (LIORC) during the second half of 2018,
investing £38.4m. A further 2.03% was acquired during 2019 for
£20.3m bringing the total holding to 6.31% at a cost of £58.7m
(~US$75m). LIORC is a Toronto listed company which holds both a
royalty and equity interest in the Labrador Iron Ore (IOC) project.
This entitles LIORC to revenue from its 7% gross revenue royalty
(along with a small commission) on revenue from the operation,
along with dividend income from its equity stake.
LIORC is effectively a pass-through vehicle in so much that it
has limited mandate other than to pass through its net cash to
shareholders by way of dividend, subject to retaining sufficient
working capital. This dividend is paid on a quarterly basis and
includes a base level and a special dividend, the latter fluctuating
depending on the level of distributions received from the
underlying iron ore operation. Given the restricted investment
mandate available to its management, Anglo Pacific considers
this to effectively be a part ownership of the IOC royalty and
accounts for this income as such.
U N D E R LY I N G O P E R AT I O N
As the investment in LIORC is considered to be a part ownership
of the royalty, an understanding of the underlying operation and
product is important. This was a key focus of our due diligence
when considering making this investment during H2 2018.
IOC is one of Canada’s top iron ore producers, operated by Rio
Tinto, and is among the top five producers of seaborne iron ore
pellets in the world. It is a long-life operation with reserves
sufficient for ~25 years at the current rate of production. The
operation extracts ~55Mt of crude ore annually and processes
this into concentrate and pellets before transporting this on rail
to port at Sept-Iles in Quebec. All of the infrastructure is owned
by the operation, another key attraction of this investment.
IOC produces a high-quality iron ore pellet which is highly sought
after due to its efficient use in steel mills, which reduces the carbon
footprint of the steel produced. Its quality is supported by its low
levels of impurities, noticeably low in phosphorus, alumina and
sulphur. These attributes are very desirable, particularly in Asia.
P E R F O R M A N C E
The Group earned income of £8.0m in 2019 from its investment
in LIORC, an increase of 321% earned in 2018 due to a full year
of revenue in 2019 along with an increased stake acquired
during the year.
The total dividend paid during 2019 by LIORC was C$4.00 per
share. This reflected the distribution of excess cash retained in
the business at the beginning of 2019 along with the continued
strong iron ore pellet prices achieved during the year as supply
restrictions remained in force in Brazil following the regrettable
Vale tailing dam collapse in February 2019.
The dividend in Q1 2019 benefitted from the distribution of
surplus funds retained in the business as management sought
shareholder approval to amend their articles of association in
order to invest in other royalties. When it became apparent that
shareholder support would not be forthcoming the surplus cash
was distributed to shareholders. The closed investment mandate,
reinforced by shareholders in Q1 2019, supports our view that
this is a single asset vehicle and that our holding represents an
indirect ownership in the underlying royalty.
O U T L O O K
We continue to believe in the long-term outlook for premium iron
ore pellets given that they reduce the carbon footprint associated
with steel manufacturing from reduced energy consumption
versus iron ore concentrate. Pricing during 2019 benefitted from
the continued supply currently offline in Brazil due to the Vale
tailing dam disaster.
Our pricing and investment thesis focused more on a ‘normal’
pricing environment. The dividend received in 2019 of C$4.00 per
share also benefitted from the distribution of surplus cash which
is no longer held by LIORC. It is possible that this number will be
lower in 2020 and, prior to the outbreak of COVID-19 the broker
consensus was C$2-2.50. The recent announcement by IOC
that it is going to focus on producing slightly more concentrate
following the slowdown in demand for pellets caused by
COVID-19, will have some impact on the level of dividend we
expect to receive.
The average cost of the position acquired in 2018 was C$24.06
per share. As such, the C$4.00 dividend for 2019 represented
a very impressive running yield on the holding of 16.6%. At the
end of 2019 the average cost of the entire holding was C$24.55
per share, just below the price at the end of the year of C$24.62.
Following the global equity market sell off as a result of the
COVID-19 pandemic the share price has recently traded
significantly lower.
We have reinvested the dividends we received at the end of
January 2020, adding a further C$7m to our position.
VA L U AT I O N
The investment in LIORC is classified as a royalty financial
instrument on the balance sheet. It is carried at fair value by
reference to the quoted bid price of LIORC at the reporting date.
On initial recognition, the Group made the irrevocable election
to designate its investment in LIORC as fair value through other
comprehensive income (FVTOCI). As a result, all fair value
movements accumulate in the investment revaluation reserve,
with ‘Other Reserves’.
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18
5.9
19
2.7m
17
2.0
15
0.6
16
0.8
M A R A C Á S R O YA LT Y R E L AT E D R E V E N U E ( £ m )
Maracás Menchen
5.0%
Maracás Menchen is 5.0%
of the portfolio by asset
value as at 31.12.19
Stage
Producing
Commodit y
Vanadium
Operator
Largo Resources
Location
Brazil
Royalt y rate and t ype
Balance sheet classification
2% NSR
Royalty intangible
W H AT W E O W N
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 mining permits which offers the Group the
potential for exploration upside. Maracás Menchen is 99.97%
owned and operated by TSX listed Largo Resources Limited (‘Largo’).
P E R F O R M A N C E
Revenue from Maracás Menchen was impacted by the noticeable
decline in the vanadium price which began in Q4 2018 and
persisted through 2019. As a result, revenue from the Maracás
Menchen royalty decreased by 54% in the year to £2.7m despite
a 4.5% increase in sales.
Production benefitted from the successful expansion project
completed in December 2019 which was designed to achieve a
20% increase in throughput at the processor. As a result, total
production in 2019 was 10.6kt, an 8% increase on 2018
production. This included a record 3kt produced in Q4 2019,
suggesting that its expansion targets are well on track to achieve
12kt of annual production going forward.
The increased efficiency and output have also had a positive
impact on their unit cost, which averaged US$3.21 per pound,
a ~20% improvement on 2018.
The reduction in operating cost derived from the expansion plan
was timely given the fortunes of the vanadium price during 2019.
The vanadium price began to decline as China announced a general
relaxation of certain regulatory policies in an attempt to stimulate
its heavy industries as its economy came under pressure due to
its trade dispute with the US. This included the implementation
timetable for its new rebar standards. This meant that steel stocks
on hand and steel in the process of being manufactured could
conform to the previous standards.
This was important for vanadium as it is a key strengthening alloy for
steel whilst also acting as a light weighting agent. As such, when the
new rebar standard was announced it led to a rush for supply which
drove prices. When the timetable for the implementation of the new
standard was clarified it meant that stocks of vanadium in China
were high and demand for new vanadium reversed. This explains the
volatility in the price of vanadium experienced over the past 18
months, where the price peaked in the mid $30lbs range and reverted
back below $6lbs in 2019.
It is encouraging that, even at $5-6lbs vanadium pricing Maracás is still
generating operating margin, suggesting that Largo’s aim to become
one of the lowest cost producers is being achieved.
O U T L O O K
The outlook remains relatively positive both in the short-term and
medium-term.
In the short-term, the expansion project delivered during the year
has resulted in increased volumes and lower unit costs. Annual
maintenance to the plant is scheduled for April, which will see
lower production in the month. As such, guidance for the year is
11.75-12.25kt of production with sales forecast to be 9.5-10.0kt –
the latter would suggest a slight decline in volumes for the Group’s
royalty in 2020.
Largo announced during 2019 that they are terminating their offtake
agreement with Glencore when it expires in April 2020. This will
remove the offtake discount and increase margin. It will also enable
Largo to determine which market it chooses to sell its vanadium into,
and may result in Largo targeting the premium end of the market
given quality of the vanadium produced is to the standard required
for use in mass energy storage and battery equipment. Due to the
transition of bringing sales in house it is expected there will be a
one-off stock level spike whilst initial lead times are delivered.
In addition, Largo announced it has approved the construction of a
ferrovanadium conversion plant, which will enable it to produce a
ferrovanadium product in addition to vanadium pentoxide which is
currently produced. Combined with bringing the sales function in
house, these developments should result in higher margins for
Largo and for our royalty in the medium-term.
It is looking likely that the pronounced volatility in the vanadium
market might calm down somewhat in the coming months and
remain within a narrower range. However, it remains to be seen
what the impact of COVID-19 will have on the vanadium market in
2020 given the impact on the Chinese economy in Q1 2020.
Volatility in 2019 saw some trade buyers in Europe switching to
niobium as their strengthening alloy given greater certainty of
supply and less volatile prices. However, there are certain
constraints on the perfect substitution from vanadium to niobium,
not least that the niobium market is around half the size of the
vanadium market at present and so there is simply not enough
niobium to replace vanadium.
The switch to niobium in 2019 served to increase vanadium volumes
on the seaborne market going to China at a time when Chinese
demand waivered and Chinese supply increased. The impact on the
price was profound. At prices sub $8lbs it is highly likely that Chinese
production is not economic and may well come offline, providing
support to the seaborne market which was lacking in 2019.
The recent volatility has been driven largely by short-term market
forces, particularly the demand shock from the Chinese rebar
standard relaxation. The trend for more robust steel is likely to remain
though, as is the use of lower polluting more energy efficient iron ore,
particularly in China which could see domestic Chinese iron ore
supply, and therefore vanadium, reduce in the medium-term.
The growing use of vanadium in large, mass energy storage
technologies is also likely to continue, and the vanadium produced
by Largo conforms to the necessary standards. This could become a
key focus for Largo’s new in-house sales function going forward.
VA L U AT I O N
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.
40
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS 8.0%
McClean Lake Mill is 8.0% of the
portfolio by asset value as at 31.12.19
McClean Lake Mill
Stage
Producing
Commodit y
Uranium
Operator
Orano
Location
Canada
Royalt y rate and t ype
Balance sheet classification
Tolling revenue
Loan & royalty
financial instrument
W H AT W E O W N
In February 2017, 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, Tier-one, Cigar Lake uranium mine, operated by
Cameco, and pays a $/lbs 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.
P E R F O R M A N C E
The cash flow received by Denison under the toll arrangement
should produce a regular and predictable flow of cash, owing to
high-quality of the deposit and mine operator supplying the mill.
Receipts from the financing arrangement in 2019 were £3.5m
compared to £3.3m earned in 2018.
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
shut down. The Group currently considers this unlikely in the case
of Cigar Lake. However, Cameco, the operator of the Cigar Lake
mine, has, due to COVID-19, enforced a four-week shut down of
operations. This shut down is in place at the time of writing this
report. Upon the resumption of operations, we continue to expect
revenue of ~C$0.5m per month.
VA L U AT I O N
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. All valuation movements
are recognised directly in the income statement.
Did you know...?
Cameco, the operator of the Cigar Lake Mine, has a wide range of
initiatives in place to support the local indigenous communities, including
socio-economic contributions which are enshrined in collaboration
agreements and memorandums of understanding which underpin its
licence to operate.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
BUSINESS REVIEW
continued
14.3%
Narrabri is 14.3% of the portfolio
by asset value as at 31.12.19
Narrabri
Stage
Producing
Commodit y
Operator
Location
Royalt y rate and t ype
Balance sheet classification
Thermal & PCI coal
Whitehaven Coal
Australia
1% GRR
Royalty intangible
W H AT W E O W N
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 to 2042.
P E R F O R M A N C E
Total revenue from Narrabri increased by 14% in the year to
£4.0m (A$7.4m). This was due to increased levels of production
offset somewhat by lower prices.
The geotechnical challenges faced by Whitehaven over the past
number of years in respect of a localised fault within the coal
body had impacted production numbers as there was a delay in
passing the longwall infrastructure through the fault. This now
appears to be coming to an end, and Whitehaven announced
that they successfully mined through the fault in Q2 2019 with
normal production rates resuming immediately afterwards.
Total production for the year was 20% higher at 5.7Mt. Due to
successful mining through the fault area during the year,
Whitehaven beat their production guidance for their FY 2019
(ended 30 June 2019), achieving 6.4Mt of ROM compared to
guidance of 5.6-6.0Mt.
Anglo Pacific’s royalty is paid based on cash received during
the quarter. Due to working capital and higher stock levels on
hand at the beginning of 2019, the Group received royalties
based on sales volumes of 6.2Mt in 2019, a 48% increase
compared to 2018.
Offsetting the significant volume increases was a decline in
the realised price achieved for those sales during the year. Coal
prices were 19% lower on average during 2019. Pricing was
impacted by a higher portion of higher ash quality coal from
Narrabri in H2 2019 primarily due to out of seam dilution at the
end of the Longwall (LW) 08 panel. This dragged the weighted
average price down in the second half of the year. Whitehaven
expect product quality to improve as they move into LW 09 at the
beginning of 2020 and for pricing to converge towards the
benchmark.
On a macro level, Australian thermal coal markets were impacted
by an import restriction at various Chinese ports. This resulted in
a surge of capacity being available on the seaborne market as
suppliers searched for alternative trade buyers. Chinese
purchasers seeking immediate access to thermal coal were
instead turning towards alternative supply from Indonesia and
Russia, which were not included in the port restrictions, driving
down the price of seaborne Australian thermal coal.
It was unclear as to whether this specific restriction on Australian
thermal coal was an attempt to promote the domestic coal
market or whether there was a greater political motivation behind
it. Either way, the price of thermal coal came under pressure, as
did the Australian dollar.
The majority of the thermal coal produced at Narrabri is not
exported to China, so certainty of demand should remain for this
product. However, with a huge market now closed to Australian
thermal coal, the increased supply available on the seaborne
market has driven the price down. It looks likely that the port
restrictions are set to endure into 2020.
At the same time as thermal coal restrictions, the price of
seaborne LNG reduced further at the same time as the price of
carbon in developed economies, particularly in mainland Europe,
increased. This encouraged those who could use either to switch
towards LNG, increasing the volumes of thermal coal on the
seaborne market.
The weakening of the Australian dollar during the year largely
rounded out as the benefit of higher Australian dollar revenue on
a US dollar price was offset by a stronger pound when translating
back into pounds. There is no equivalent ratchet in place as there
is with Kestrel.
17
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N A R R A B R I R O YA LT Y R E L AT E D R E V E N U E ( £ m )
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS Area
already
mined
Area currently
being mined
NARR ABRI
NORTH
LONGWALL S
NARR ABRI
SOUTH
POTENTIAL
E XPANSION
AREA
Narrabri mine plan
Showing south potential expansion area
O U T L O O K
Whitehaven is guiding between 6.0-6.5Mt for Narrabri in its FY
2020 which runs to 30 June 2020. Having produced just over
2Mt in the second half of 2019 this would suggest the mine will
produce between 4-4.5Mt in H1 2020 which would be the
highest level in three years.
Pricing should move closer to the benchmark during the first half
of 2020 as the product mix being produced reverts more towards
higher quality thermal coal from the high ash coal produced
towards the end of 2019. However, it would appear that the wider
Australian thermal coal market will continue to face downward
pressure from Chinese import restrictions and cheap LNG
seaborne prices.
Whitehaven continues to advance its Narrabri expansion
ambitions, which will see future longwall panels extended into
the Narrabri South Exploration Licence area. Anglo Pacific has a
royalty over the Narrabri North and Narrabri South licences.
The project has received its Secretary’s Environmental
Assessment Requirements from the NSW Government as well
as its EPBC Act referral from the Federal Government. Based on
these requirements, Whitehaven has been developing an EIS
which it plans to lodge with DPIE in the second half of the year.
VA L U AT I O N
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.
Royalty intangible assets are amortised when commercial
production commences, on a straight-line basis over the
expected life of the mine.
0.4%
Four Mile is 0.4% of the portfolio
by asset value as at 31.12.19
Four Mile
Stage
Producing
Commodit y
Uranium
Operator
Location
Royalt y rate and t ype
Balance sheet classification
Quasar Resources
Australia
1% NSR
Royalty intangible
W H AT W E O W N
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’).
P E R F O R M A N C E
The Group received a small amount of income from Four Mile
during the year, although it remains of the view that this amount
should be considerably higher due to the ongoing dispute with
the owner, Quasar Resources, around the level of deductions
which they continue to apply. Quasar continues to treat the
contract, in our view, as akin to a profit interest, whereas the
Group remains of the view that this is an NSR and that refining
or processing costs should not be taken into account.
During 2019 we continued the legal process with an application
to the court for a date for a hearing in an attempt to resolve the
ongoing dispute. We will provide further updates as and when
they materialise, but as we are in a legal process, it is prudent not
to disclose further details. We remain of the view that we have a
very good case to be heard, that our legal argument is robust and
are confident of a positive outcome.
VA L U AT I O N
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.
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S t r a t e g i c r e p o r t
BUSINESS REVIEW
continued
1.2%
EVBC is 1.2% of the portfolio
by asset value as at 31.12.19
El Valle-Boinás /Carlés (EVBC)
Stage
Producing
Commodit y
Operator
Gold, copper
& silver
Orvana Minerals
Location
Spain
Royalt y rate and t ype
Balance sheet classification
2.5 – 3% NSR
Royalty financial
instrument
W H AT W E O W N
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.
P E R F O R M A N C E
Income from EVBC continues to outperform our expectations,
and showed a further 8% growth in 2019. Growth was largely due
to the higher gold prices during 2019, particularly in the second
half of the year.
Volumes from EVBC were largely in line with those of 2018,
and would have been higher had it not been for abnormally high
rainfall in November and December 2019 which impacted
production and increased ore stock levels. Despite this, Orvana
have maintained their guidance for their FY 2020 (ending 30
September 2020) which would suggest higher sales levels to
come in 2020.
The gold price experienced considerable gains during the second
half of 2019, moving from a range around US$1,275oz to
>US$1,500oz and now above US$1,600oz.
There are many macro factors which have increased the demand
for gold. The trend during the past 12 months of negative yielding
bonds has made holding bullion attractive once again. Further,
continued economic stagnation in many developed economies
and falling interest rates have increased the demand for safe
haven assets, of which gold tends to be one of the easiest to
access. Also, previous safe haven assets, such as the Japanese
yen, have appeared less safe. With the outlook for bond yields set
to remain subdued demand for gold has increased and looks set
to remain so in the short-term.
O U T L O O K
Orvana management has done a great job in improving
efficiencies at the mine over the past two years, focusing
on feeding higher grade ore whilst continuing to explore for
additional resources to extend mine life.
Orvana has committed capex to exploration development at EVBC
during the final quarter of 2019 and has commenced a drilling
program. They carried out 320 metres in drill holes in Q1 2020,
and a relevant drilling program at EBVC will continue during 2020.
This will include a larger exploration drill program is targeted at the
Carles mine, comprising 3,500 metres. it is also considering
exploring other regional targets within its licence area.
All of the above is positive for potential mine life extension, and
Orvana will provide further updates on progress during the
course of 2020. In the meantime, absent specific updates, we
continue to consider the mine life to be approximately three to
four years. Orvana is guiding production in the range of 60koz
to 65koz in its FY 2020.
Anglo Pacific earns a royalty over all throughput from the EVBC
process plant and is not restricted to licence geographic
boundaries.
As a result of the severity of COVID-19 in Spain, Orvana announced
that it is placing its operations on care and maintenance for a
period of 14 days. This is in effect at the time of writing this report.
VA L U AT I O N
The EVBC royalty is classified as a financial asset within royalty
financial instruments on the balance sheet. It is carried at fair
value by reference to the discounted expected future cash flows
over the life of the mine. All valuation movements are recognised
directly in the income statement.
19
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E V B C R O YA LT Y R E C E I P T S ( £ m )
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Development royalties
The Group holds three development royalties, across
three commodities, in three well established mining
jurisdictions.
2%2% of the portfolio by value is in development
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S t r a t e g i c r e p o r t
BUSINESS REVIEW
continued
Salamanca
0.9%
Salamanca is 0.9% of the portfolio
by asset value as at 31.12.19
Stage
Development
Commodit y
Uranium
Operator
Berkeley Energia
Location
Spain
Royalt y rate and t ype
Balance sheet classification
1% NSR
Royalty intangible
W H AT W E O W N
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.
The outlook for uranium continues to remain uncertain as the
US have not yet concluded on their position following the s232
trade investigation.
As the Company awaits the finalisation of the permitting process,
it remains fully financed and ready to commence construction
upon the granting of remaining permits.
P E R F O R M A N C E
The uncertainty at the end of 2018 in relation to permitting
continued in 2019 with limited progress being made.
Management has continued to meet with and provide evidence
to the Ministry for Ecological Transition and Demographic
Challenge (‘MITECO’), the Nuclear Safety Council (‘NSC’) and
regional authorities and governments. Finding a resolution
remains the core focus.
VA L U AT I O N
The Salamanca royalty is classified as a royalty intangible asset
on the balance sheet. As such, this asset is carried at cost less
amortisation and impairments. Royalty intangible assets are
amortised when commercial production commences, on a
straight-line basis over the expected life of the mine.
Groundhog
0.3%
Groundhog is 0.3% of the portfolio
by asset value as at 31.12.19
Stage
Commodit y
Operator
Development
Anthracite
Atrum Coal
Location
Canada
Royalt y rate and t ype
Balance sheet classification
1% GRR or US$1.00/t
Royalty intangible
W H AT W E O W N
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
entitles 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.
P E R F O R M A N C E
Atrum’s focus for 2019 was on the Elan project, and so there
was limited progress in relation to the Groundhog licences.
Atrum is hoping to complete their expanded Elan feasibility
study in Q1 2020.
VA L U AT I O N
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.
46
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
0.5%
Piauí is 0.5% of the portfolio
by asset value as at 31.12.19
Piauí
Stage
Commodit y
Operator
Development
Nickel & cobalt
Brazilian Nickel
Location
Brazil
Royalt y rate and t ype
Balance sheet classification
1.00% GRR
Royalty financial
instrument
W H AT W E O W N
The Group entered into an agreement with Brazilian Nickel
Limited in 2017 to acquire a royalty over its Piauí nickel project in
Brazil. The initial investment was for US$2m which provided the
Group with a 1.0% GRR. Anglo Pacific has, at its election, the right
to increase this investment by a further US$70m for a total gross
royalty of 5.75% upon the satisfaction of certain developmental
milestones. The transaction is very much in keeping with the
Group’s strategy of investing in materials closely aligned to
21st century technological developments around electric vehicles
and mass storage infrastructure.
P E R F O R M A N C E
During the year, the project received its Preliminary
Environmental Licence (Licença Prévia) from the Brazilian Piauí
State Environmental Agency which confirms government and
community support for the project. The company is focused on
securing the remaining finance it needs in order to continue its
path towards construction. Should the project come online in
accordance with our expectations, and once fully invested, this
could become the Group’s second largest source of income.
As such, we have been in regular dialogue with the company to
provide any support or advice in relation to their fund raising.
VA L U AT I O N
The Piauí royalty is classified as a royalty financial instrument on
the balance sheet. It is carried at fair value by reference to the
discounted expected future cash flows over the life of the mine.
The option to invest further amounts is also classified as a royalty
financial instrument on the balance sheet and carried at fair
value. All valuation movements relating to the royalty and the
option are recognised directly in the income statement.
Did you know...?
High purity nickel and cobalt hydroxide products to be produced
from Piauí are expected to be used for lithium ion batteries and used
in electric vehicles
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Early-stage royalties
The Group holds three early-stage royalties, across
three commodities, in three well established mining
jurisdictions.
6%6% of the portfolio by value is early-stage
48
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
BUSINESS REVIEW
continued
Ring of Fire
0.9%
Ring of Fire is 0.9% of the portfolio
by asset value as at 31.12.19
Stage
Early-stage
Commodit y
Chromite
Operator
Location
Royalt y rate and t ype
Balance sheet classification
Noront Resources
Canada
1% NSR
Royalty intangible
W H AT W E O W N
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.
P E R F O R M A N C E
Noront successfully refinanced its borrowings during the year,
extending the terms and agreed an additional royalty over its
Eagles Nest project with Franco Nevada. We were encouraged
to see both Franco Nevada and Resource Capital Funds continue
to support the Company during the year as they continue to
progress their Eagles Nest project and required infrastructure.
Eagles Nest will be the first deposit to be brought into production.
Anticipated timing of first production is 2024, with construction due
to start in 2021. This reflects positive discussions with the province
of Ontario and First Nation groups over the past few years.
Although there is no specific guidance in relation to the Group’s
royalties, the Black Thor deposit is the third deposit expected to
be brought online should market conditions be favourable for
chromite projects at that time.
VA L U AT I O N
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.
Given the guidance in relation to first production at Eagles Nest
we have altered our expectation for first production at Black Thor
and now estimate this will commence in 2034 (2018: start date
2030). Applying this start date to the Group’s valuation model,
together with a pre-tax nominal discount rate of 10.00% and a
long-term chromite price of US$175/t resulted in a net present
value of the discounted future royalty cash flows of C$3.9m,
compared to the carrying value of C$6.2m. As a result of the
net present value being lower than the carrying value, the Group
recognised an impairment charge of C$2.3m (£1.4m) for the
year ended 31 December 2019.
Pilbara
3.2%
Pilbara is 3.2% of the portfolio
by asset value as at 31.12.19
Stage
Early-stage
Commodit y
Iron ore
Operator
BHP
Location
Australia
Royalt y rate and t ype
Balance sheet classification
1.5% GRR
Royalty intangible
W H AT W E O W N
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.
P E R F O R M A N C E
Although no tangible progress on the royalty tenements was
seen in 2019, BHP continue to progress the permitting of their
South Flank licences. Whilst this will have minimal consequences
for Anglo Pacific’s tenements, we are encouraged that BHP are
expanding their plans adjacent to Mining Area C, and that it
remains likely they will focus on higher grade deposits, that the
Group’s royalties cover.
VA L U AT I O N
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.
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APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
BUSINESS REVIEW
continued
Dugbe 1
1.5%
Dugbe 1 is 1.5% of the portfolio
by asset value as at 31.12.19
Stage
Early-stage
Commodit y
Gold
Operator
Hummingbird
Resources
Location
Liberia
Royalt y rate and t ype
Balance sheet classification
2 – 2.5% NSR
Royalty financial
instrument
W H AT W E O W N
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$15m, payable in three tranches of US$5m,
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
within the Dugbe 1 resource.
P E R F O R M A N C E
We were pleased to see that Hummingbird has been evaluating
options for the Dugbe 1 project and has signed a non-binding
memorandum of understanding with ARX Resources Limited
whereby ARX would acquire the operation and commit US$30m
towards its development.
Although there are many conditions precedent to be performed,
the current gold price is clearly making the project more
economically interesting. Our royalty would survive any change
of control, and depending on how this would be structured,
could result in Anglo Pacific electing to terminate its royalty in
return for the US$15m invested.
VA L U AT I O N
The Dugbe 1 royalty is classified as a royalty financial instruments
on the balance sheet. It is carried at fair value by reference to the
discounted expected future cash flows over the life of the mine.
Despite there being limited progress made by Hummingbird in
developing the Dugbe 1 project during 2019, the Group continues
to estimate the likely start date for production to be 2030 (2018:
start date 2030). Applying this start date to the Group’s valuation
model with a pre-tax nominal discount rate of 30.00% (2018:
22.00%) and a long-term gold price of US$1,507/oz resulted in a
net present value of the discounted future royalty cash flows of
A$1.3m, compared to the carrying value of A$2.2m.
As a result of the net present value being lower than the carrying
value, the Group recognised a valuation charge of A$0.9m
(£0.5m) for the year ended 31 December 2019.
There are certain provisions within the contract which would
entitle Anglo Pacific to seek its capital to be returned, as noted
above.
Did you know...?
The Government of Liberia passed Hummingbird Resources’ 25 year mineral
development agreement into law during Q2 2019. A requirement of the
mineral development agreement is the establishment of a community
development fund to support the local communities neighbouring the mine.
50
APG_AR19_07.04.20_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
FINANCIAL REVIEW
The recently upsized and extended
borrowing facility provides us
with ~$75m to finance further
acquisitions in the year ahead
K . F LY N N
Chief Financial Officer & Company Secretary
2019 was another year of growth for Anglo Pacific, with record income from our royalty portfolio – the third consecutive year of record
income. Total portfolio contribution was £59.5m, a 20% increase year on year. This was mainly due to increased volumes from Kestrel
during the year as the operator delivered on its target to increase saleable coal production by 40% in the year, achieving an actual
increase of 42%.
The story in 2019 was very much volume driven, with record production numbers achieved at Kestrel and Maracás, a recovery at Narrabri
following the impact of a fault intrusion during 2018 and EVBC continuing to benefit from ongoing plant efficiencies. Offsetting some of
these gains was a softer commodity pricing background, particularly for coking and thermal coal and vanadium following a slowdown in
the Chinese economy due to its ongoing trade dispute with the US.
With a low and flexible cost base, our income translates directly to cash. The Group generated free cash flow of £47.7m which, along with
utilising our borrowing lines, financed £62.6m of income generating acquisitions and dividends of £14.4m, a capital allocation of 4.3:1 in
favour of growth. The level of earnings and cash flow enabled us to once again recommend an increase in dividend for 2019, to 9p per
share from 8p in 2018, a 12.5% increase in the total dividend and a 32% increase in the recommended final dividend.
The increased volumes from Kestrel and the revenue generated from the £100.9m (~US$125m) of acquisitions completed over the past
two years has significantly increased the Group’s borrowing capacity. We negotiated an increase to our borrowing facility from US$60m
to US$90m, maintaining a further US$30m accordion option, and extending the maturity by twelve months to September 2022.
The Group ended 2019 with drawn borrowings of £36.5m. This leaves approximately US$75m available to finance further acquisitions, a
number which will increase as we generate additional free cash flow during the year. With accelerated volumes from Kestrel, our leverage
ratio remains low at under 0.7x.
On a more macro level, currencies continued to be volatile during the year. The pound was marginally weaker against the dollar during
2019 as Brexit uncertainty persisted, although the US dollar was also held back due to ongoing concerns in its economy regarding low
inflation and the downward pressure on interest rates. The Australian dollar weakened in the year, against both the US dollar and the
pound. The former is important as a weaker Australian dollar impacts favourably on the weighted average royalty rate at Kestrel, and
therefore Anglo Pacific benefitted from this rate during the year. This benefit reversed when translating the Australian dollar income back
to pounds as the pound was almost 3% stronger in 2019. Currency is discussed further on in this section, particularly in relation to recent
market volatility as Central Banks attempt to shield the market from the economic impact of COVID-19.
The outlook for the year ahead was positive for volume growth as we expected further increases from Kestrel, Narrabri, Maracas and a
full year of contribution from Mantos and our increased shareholding in LIORC. However, this depends on whether the operations remain
free from restrictions being imposed as a result of COVID-19 and its impact on the global demand for our commodities. We have seen
minor disruption at EVBC and Cigar Lake with the operators putting a temporary shutdown in place for a period of two and four weeks
respectively – shut downs of this nature would only have represented ~1% of our 2019 portfolio contribution which is immaterial to our
day to day business.
With a strong balance sheet, modest levels of leverage and no refinancing obligations until Q3 2022 our balance sheet is strong enough
to endure a period of COVID-19 related revenue disruption whilst we retain access to liquidity to take advantage of any opportunities
which could arise as a result of the recent spike in the cost of capital in the sector.
INCOME STATEMENT
Profit after tax for the year of £29.0m was largely in line with the previous year and resulting in basic earnings per share of 16.06p
(2018: 15.97p). The results for both years were impacted by the fair value movement in relation to Kestrel, with a £10.1m surplus being
recognised in the Income Statement in 2018 and a £9.2m reduction being recorded in the current year. There was a £1.4m impairment
charge recorded in the Income Statement in the year in relation to the Ring of Fire royalty as the royalty remains many years from
generating income as detailed on page 49. Finally, 2018 benefitted from the utilisation of tax losses whereas there was a full tax charge
in 2019.
Adjusted earnings
To remove the impact of such volatility and other non-cash items, we present an adjusted earnings measure which, we feel, better
represents the underlying trading performance of the Group and is the measure used by the Board in considering dividend levels.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
S t r a t e g i c r e p o r t
FINANCIAL REVIEW
continued
Royalty related revenue
Receipts from royalty financial instruments
Operating expenses – excluding share-based payments
Finance costs
Finance income
Net foreign exchange gains/losses
Other (losses)/income
Tax
Adjusted earnings
Weighted average number of shares ('000)
2019
£'000
55,728
2,166
(6,018)
(1,337)
34
-
(165)
(13,560)
36,848
%
21%
10%
28%
28%
-58%
-100%
-110%
23%
13%
2018
£'000
46,104
1,975
(4,709)
(1,042)
82
(593)
1,656
(10,991)
32,483
180,544
20.41p
180,278
18.02p
13%
Adjusted earnings increased by 13% to £36.8m in 2019 from £32.5m the previous year. This translated into a 13% in adjusted earnings
per share to 20.41p in 2019 from 18.02p in 2018. The main reason this increase was the significant increase in volumes from Kestrel as
the operators delivered on their ambitious target to increase saleable coal production by 40% in 2019.
Royalty related revenue
The Group’s royalty related revenue is represented by royalties received from Kestrel together with the Group’s royalty intangible assets
(Narrabri, Maracás Menchen, Mantos Blancos and Four Mile) in addition to the interest received from the Denison financing arrangements
and dividends received from the Group’s investments in LIORC and Flowstream (both flow through royalty companies).
For the year ended 31 December 2019, the Group recorded its third year of record royalty related revenue, increasing from £46.1m in
2018 to £55.7m in 2019.
Kestrel was once again the single largest contributor to the Group’s portfolio, although less concentrated than the previous year owing
to the acquisitions we have made over the past two years, accounting for 62% (2018: 66%) due to a significant increase in volumes during
the year. The £8.0m in dividends received from the Group’s investment in LIORC became the second largest contributor in the Group’s
portfolio, driven by a combination of the Group investing a further £20.3m into LIORC and holding its 2018 investment for a full year. There
was a significant decline in contribution from Maracás Menchen despite setting record production levels at the mine as the underlying
vanadium price fell from an average of U$16.20/lbs achieved in 2018 to U$9.25/lbs in 2019.
Movement in royalty related revenue £m
1.9
7.8
10.2
0.9
0.8
55.7
11.7
46.1
1 January
2019
Kestrel
volume
Acquisitions
Other
volume
Commodity
prices
FX
Other
31 December
2019
70
60
50
40
m
£
2018
2019
£0m
£10.0m
£20.0m
£30.0m
£40.0m
£50.0m
£60.0m
Kestrel
LIORC &
Flowstream
Narrabri
Maracás
Mantos
Four Mile
2018
2019
32.6
37.0
1.9
8.7
3.5
4.0
5.9
2.8
0.0
1.0
0.1
0.3
McClean
Lake
2.1
1.9
52
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK As can be seen in the chart opposite, volume increases were the largest factor behind the increase in 2019, predominantly as a result of
significant increases from Kestrel, where the operator delivered on its target to increase volumes by 40% in the year resulting in an uplift
in our revenue of £11.7m. In addition, the benefit of a full year of revenue from the LIORC position acquired during 2018, along with further
additions in 2019, combined with four months of revenue from Mantos, contributed £7.8m. The benefit of the increased volumes and
acquisitions was somewhat offset by lower commodity prices on average during the year.
Kestrel
Revenue from Kestrel increased by 13% in the period, as the operator increased its saleable coal production by 42% in the year, meeting
its ambitious target to increase production by 40%. Some of this benefit was offset by a lower coal price, particularly in the second half
of the year as the Chinese authorities enforced import restrictions at certain ports in an attempt to promote their domestic industry. Our
revenue also benefitted from a more favourable AUD:USD exchange rate, which increases the weighted average royalty rate through the
ratchet structure. Adaro Energy have announced a target to increase saleable production by a further 6.5% in 2020.
LIORC
LIORC represents the Group’s second largest source of income and has exceeded expectations since we first began acquiring
the position in Q2 2018. LIORC is a TSX listed single asset pass through vehicle, whose main income is that from a 7% gross revenue
royalty earned from the Labrador Iron Ore mine operated by Rio Tinto. Given its single asset status and closed investment mandate,
the position is considered akin to a part ownership of the royalty.
The Group acquired a 4.28% stake in LIORC during H2 2018 at an average on-market price of C$24.06 per share. The total dividend
paid on this stake during the year was C$4.00 per share, representing a cash yield of 16.6%. This yield reflected the benefit of a one-off
distribution of retained cash in Q1 2019 along with iron ore pellet premia remaining well supported as restrictions on Brazilian supply
remained in force during 2019. The cash retained in the business in 2018 occurred as management contemplated seeking shareholder
approval to increase its investment mandate rather than to continue as a pure pass through vehicle. This strategy was abandoned as it
appeared shareholder support would not be forthcoming and so excess cash was then distributed to shareholders.
The Group took advantage of favourable on-market prices during the second half of 2019 and increased its stake by a further 2.03%.
Including the £5.7m (~US$7.5m) added in the first quarter of 2020 through dividend reinvestment the Group now holds a 7% stake in the
business at a cost of £64.4m (~US$82m).
Narrabri
Volume recovery at Narrabri led to a 16.2% increase in revenue in the year. Volumes improved as the operator continues to implement
solutions related to moving the longwall infrastructure through a localised fault area within the deposit, a geotechnical issue which has
hampered production in the previous two years.
Whitehaven reported a 20% increase in total saleable production in the period to 5.7Mt, although actual sales were higher at 6.2Mt, a 48%
increase on sales volumes in 2018. Similar to Kestrel, some of this benefit was reduced by lower average prices received in the period due
to a combination of Chinese import restrictions and a period of lower quality coal being extracted at the outer edge of longwall panel 08
prior to changeout.
Maracás Menchen
Revenue from Maracás was impacted by the noticeable decline in the vanadium price which began to occur in Q3 2018 and persisted
throughout 2019. The price of vanadium reduced from a high of ~US$34/lbs to current levels of US$5-6/lbs mainly due to China rowing
back on the timetable it is requiring steel manufacturers to increase rebar standards for use in domestic construction.
When first announced, this change in rebar standard resulted in a rush for strengthening alloys such as vanadium and pushed prices
up significantly. The relaxation of certain CSR policies, in some way designed to stimulate heavy industry in the wake of ongoing weak
Chinese economic performance as a result of trade disputes with the US, led to excess stock of vanadium and therefore a slowdown
in demand for the metal.
Despite a 4% increase in sales volumes in the year, the impact of the pronounced decline in pricing resulted in a 53% reduction in revenue
from the royalty in 2019.
EVBC
Although not included in royalty revenue, underlying revenue from EVBC increased by 10% in the period despite slightly lower production
due to abnormally high levels of rainfall in November and December. The slight decline in volumes was compensated for by a higher gold
price in the period, which has increased further above US$1,600oz thus far in 2020 due to higher demand for safe haven assets.
Orvana are continuing to prioritise efficiency at the plant by targeting higher grades. They are, however, in the meantime continuing to
explore options for mine life extension in the surrounding licence area. Having achieved 3.8x payback on the original investment, any
mine life extension at this stage is largely a bonus.
McClean Lake
Interest earned on the financing arrangement was in line with the previous year. It is the interest portion which is included in the income
statement. Income from the financing arrangement should be relatively consistent at C$0.5-0.6m per month as there is no exposure to
price fluctuations with the loan being repaid from a toll revenue from throughput from the Cigar Lake uranium mine in Canada.
Four Mile
Revenue in the year continued to be impacted by the ongoing legal dispute in relation to the level of deductions permissible under the
royalty agreement. The Group is continuing to progress its dispute with Quasar over the allowable deductions, having filed a statement
of claim in the Supreme Court of Western Australia. The initial discovery process was completed in early 2020, and the case was
transferred to the commercial and managed case list in February 2020 with further directions expected to be given by the judge
appointed to the case in July 2020.
OPERATING EXPENSES
Excluding the impact of share-based payments, operating expenses were £6.0m in the year, a 28% increase compared to £4.7m in 2018.
The main reason for the increase is due to planned investment in additional resources to align with the Group’s growth ambition.
The majority of the increase is in relation to staff costs, which increased by £0.7m. This is due to additional headcount in our investment
team, as we continue to invest in searching for and appraising new deals. The bonus levels in 2019 were slightly higher due to the Group’s
record performance and the £62.6m (~US$75m) of acquisitions undertaken.
The Group also incurred an additional £0.3m in aborted deal costs in 2019 as we actively sought to originate larger deals. There were also
additional PR & IR costs as we continue to market the Company in North America.
Given the record revenue being generated by the Group, we are continuing to allocate additional resources to growth initiatives, although
in most instances we look to recover costs associated with our diligence processes, from our counter parties.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
S t r a t e g i c r e p o r t
FINANCIAL REVIEW
continued
Finance costs
Finance costs increased by £0.3m in the year, largely due to the increased average level of borrowings resulting from the LIORC
acquisition in H2 2018 and the Mantos acquisition in H2 2019.
Income tax
In line with the increased revenue generated in 2019, the Group’s tax cost increased by 48% in the year, although this is not purely on
a like for like basis as H1 2018 benefitted from the utilisation of the remaining Australian tax losses. As such, only 50% of the revenue
in 2018 was subject to income tax whereas all of the income in 2019 was taxable.
Dividends
Having taken into account the record year of portfolio contribution, including key metrics such as adjusted earnings per share and free
cash flow per share, the Board has recommended increasing the total dividend for the year to 9p, a 12.5% increase on the 8p per share
paid in respect of 2018. The Group has paid quarterly instalments of 1.625p per share in the first three quarters, so the final dividend
will be 4.125p.
With adjusted earnings per share of 20.41p, the dividend is 2.3 times covered, a similar coverage ratio to that in 2018 achieving a
sensible balance of increased returns to shareholders at the same time as reinvesting in growth.
BALANCE SHEET
Net assets increased from £218m at the beginning of 2019 to £226m at 31 December 2019. The increase in net assets, which is largely
due to the preservation of the Kestrel valuation despite record levels of income in 2019, resulted in the closing net assets per share
increasing by 4p per share to 124p per share (31 December 2018: 120p).
Movement in net assets £m
275
255
235
215
195
175
m
£
37
218
9
0
5
0
1
2
14
226
1 January
2019
Adjusted
earnings
Kestrel
(net of tax)
Equity funded
acquisitions
Amortisation
& impairment
MtM
royalties
MtM
equity p/f
Other
Dividend
31 December
2019
2018
219
32
5
1
(5)
(3)
(12)
(6)
(13)
218
Despite earning £37m of income from Kestrel in 2019, the fair value of the royalty at the end of 2019 only decreased by £13.3m. This is
due to a combination of the accelerated volumes being produced from the mine (the operator achieved a 42% increase in saleable coal
production in 2019 and is targeting a further 6.5% in 2020) which was not considered at the end of 2018. The accelerated volumes,
although shortening the mine life, increase the NPV. Secondly, the underlying AUD:USD exchange rate assumption, which forecasts a
weaker Australian dollar in the short-term, serves to increase the weighted average royalty rate.
The Group’s investment in LIORC produced a running yield of 16% during the year, which had a favourable impact on net assets as there
is no depletion associated with this income being it is determined by the closing share price at the period end. As the asset was acquired
through an on market equity purchase in the pass through vehicle, the value of the asset is subject to share price volatility following the
recent equity sell off associated with the COVID-19 pandemic as investors turned towards safe assets and currencies. Along with our own
share price decline, we have seen the share price of LIORC reduce also. The balance sheet carrying value was based on a year-end price
of C$24.62, but following the recent sell off the stock has traded significantly lower.
The Group does not hold this asset for trading or capital appreciation. It is considered to be a royalty asset and its value in use is based on
our expectation of royalty income based on our view that the quality of the iron ore being produced will continue to command a premium
going forward based on its greater energy efficiency properties in the production of steel, enabling mills to reduce their carbon footprint.
It is possible that based on the current share price and our view on longer-term iron ore that we could selectively add to our position at
these levels.
The £62.6m (~US$75m) of acquisitions has had no impact on net asset value as these were financed from cash and borrowings.
The Group ended 2019 with £102m of royalty intangible assets, after amortisation of £3.8m and an impairment charge of £1.4m as
detailed on page 49. As the Group’s royalty intangible assets are carried on the balance sheet at either the lower of amortised cost or value,
any inherent increase in carrying value is not recognised, only impairments. Consequently, the reported net asset position of the Company
at the end of 2019 does not reflect the true NAV of the business which, given the constraint on recognising losses and not surpluses,
means that this number understates the true value of the business.
CASH AND BORROWINGS
The Group generated free cash flow, before acquisitions, dividends and borrowings, of £47.8m during 2019. With opening net debt of
£3.1m, this left £44.7m available for the Group to allocate.
54
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK 2019 cash flow sources and usage £m
80
70
60
50
40
30
20
10
0
(10)
m
£
62.1
5.2
0.3
0.0
5.3
1.1
7.9
0.5
62.6
14.4
30.7
7.6
1 January
2019
Royalty related
income
Non-core
sales
Royalty
instrument
disposal
Admin
Finance
Tax
FX &
Other
Acquisitions Borrowings
Dividends
31 December
2019
2018
8.1
47.7
1.4
1.7
(5.1)
(1.3)
(4.5)
0.2
(38.4)
8.3
(12.9)
5.2
After dividends of £14.4m in the year, the Group drew down a further £31.4m to finance income producing acquisitions of £62.5m in 2019
leaving net debt of £28.8m at the end of 2019. This represents a capital allocation ratio of 4.3:1 in favour of growth during the year, very
much in line with the growth strategy which management is pursuing.
Even with net debt of £28.8m at the end of 2019 the Group operates at leverage of under 0.7x, comfortably below its covenant level of 2x.
Given that the previous borrowing facility was negotiated before the Kestrel operator targeted 40% volume increases, the Group decided to
amend its borrowing facility to increase commitments by US$30m and extend the term by twelve months to better reflect its current debt
capacity as a result of a higher Kestrel run rate. As such, the Group’s borrowing facility now stands at US$90m with a US$30m accordion.
With net debt of £28.8m and projections for further organic volume growth to come from the portfolio and the acquisitions made in 2019
in the year ahead, we expect to have immediate access to ~US$75m to finance growth opportunities, and would expect this number to
increase as we generate free cash flow in the months ahead.
However, the outbreak of COVID-19 and subsequent lock down and restrictions on movement of people have heightened the possibility
of mining operations being placed on a period of care and maintenance as we have seen with the recent four week shut down announced
at Cigar Lake and the two week shutdown at EVBC. We have stress tested our financial models to analyse the impact of receiving no
revenue from our portfolio for a period of up to twelve months. Although this is a severe and extreme scenario and viewed as unlikely to
happen due to our geographic diversity, the results show that only in a nine and twelve month period would our covenants be breached,
and this would only be for a brief period of time. As we would continue to have cash on hand and no material financial commitments or
debt redemptions, we consider it reasonable to expect that the banks would be flexible in these circumstances. Our longer-term
prospects remain unchanged as any operational disruption would result in the deferral rather than the loss of revenue.
CURRENCY
The Group’s results were impacted by both volatility in commodity prices and currencies during the year. The Group does not hedge its
commodity prices, as this exposure is what most stakeholders seek through their investment in Anglo Pacific and there is no ready
market for hedging coal or iron ore like there is for gold or oil.
The Group does, however, hedge a portion of its currency exposure and mainly does so by selling forward Australian dollars and
purchasing sterling. The Group benefitted from the underlying AUD:USD rate during the period, as the Australian dollar remained under
pressure in the face of a weaker domestic economy not helped by restrictions on Australian imports into China. With the underlying coal
commodities being priced in USD but royalty paid in AUD equivalent, we benefited from a higher level of Australian dollars, particularly
at Kestrel where the royalty ratchet varies depending on the Australian dollar price achieved.
We have sold forward ~A$33m in 2020 at a weighted average contract rate of 1.86 to the pound. The current rate is closer to 2.00.
Against this, the Group is also exposed to translation currency by reporting in pounds, which is the currency in which its dividend and
majority of costs are incurred. To this extent, the pound appreciated in value against the weaker Australian dollar in the period, although
we did put in place an effective hedging programme during the period which produced a net benefit of £0.4m in 2019.
Several macro-economic events impacted on currency during 2019, noticeably the protracted Brexit process and downward pressure
on the US economy which resulted in bond rates falling over the course of the year. Although the latter did not result in a US recession,
the US dollar was held back by lower inflation numbers despite record employment levels, a trend mirrored in the UK economy.
The outlook for currency in 2020 remains mixed. It could be expected that the Australian dollar will weaken further, particularly as its
economy is intrinsically linked to China which was heavily impacted by COVID-19 in Q1 2020 and was already showing increased signs
of slowing down due to the ongoing US trade dispute and Chinese restrictions on Australian coal imports. The weaker Australian dollar
has a favourable impact on our revenue from Kestrel as the AUD:USD rate determines the weighted average royalty rate.
Elsewhere, Central Banks and governments have responded quickly to the economic disruption being caused by COVID-19, by cutting
headline interest rates to their historic recent lows and providing unprecedented financial support to markets and those businesses and
employees are significantly impacted. The magnitude of the financial support, which in some instances has been projected to be between
10-15% of some economies’ GDP, and the increase in government borrowing to support it looks likely to result in lower interest rates for
the foreseeable future.
We will continue to keep a close eye on currency as we progress through 2020 but, commodity prices remain the primary price risk
which ultimately impacts on profitability and cash flow.
K . F LY N N
Chief Financial Officer & Company Secretary
6 April 2020
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
G o v e r n a n c e
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, at a minimum, the
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, Guidance and Transparency Rules and the
Prospectus Rules. However, it is not required by law 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 2018 UK CORPORATE GOVERNANCE CODE
Although the Company is not subject to the UK Corporate
Governance Code (‘the Code’) on account of its standard listing on
the London Stock Exchange, the Company has voluntarily agreed
to adhere to the requirements of the Code.
A revised version of the Code was published in 2018, and came
into effect for our financial year beginning on 1 January 2019 and
accordingly, Anglo Pacific has reported against the requirements
of the Code in this Annual Report.
A copy of the Code can be found at frc.org.uk. For the year
ended 31 December 2019, and as at the date of this report, we
are pleased to confirm that we applied all of the principles and
complied with all of the provisions of the Code, save provision
36 and provision 37 as described in the Directors’ Remuneration
Report on page 80.
The Code specifically requires companies to report on how it
complies with five main areas of governance: Board leadership
and company purpose; division of responsibilities; composition,
succession and evaluation; audit, risk and internal control; and
remuneration.
1. BOARD AND COMMITTEE STRUCTURE
Role of the Board
The Company’s governance is structured to deliver an effective
and entrepreneurial Board which:
• is effective in providing challenge, advice and support to
management
• drives informed, collaborative and accountable decision
making
• creates long-term sustainable value for our shareholders,
having regard to our other stakeholders
The Board is collectively responsible for approving the Group’s
purpose, long-term objectives and strategy and for reviewing
performance against them. The Board is also responsible for the
general oversight of the Group’s operations and management.
The Company’s purpose, values and strategy and alignment
with culture
Through the Anglo Pacific Group Code of Conduct, the Board
sets the Company’s purpose, values, and standards for the
Group’s employees, contractors, consultants and agents. The
Board is committed to acting in accordance with these values,
championing, and embedding these in the organisation. The Board
assesses and monitors the ongoing alignment of the Company’s
culture with its purpose, values and standards. The Company has
an open culture where employees are encouraged to provide their
views on strategic direction and ways in which communication can
be improved. This is overseen by Ms. Dennett, as the designated
non-executive director responsible for workforce engagement,
as described below in ‘stakeholder engagement’ and on page 16.
Company performance and risk management
The Board oversees the Company’s performance and reviews
each potential investment at several stages prior to transacting.
It aims to make informed, quality decisions in a timely manner, to
achieve the Company’s objectives, in alignment with our purpose,
values and strategy.
The role of the Board in establishing and monitoring the internal
control environment is set out in more detail on pages 59 and 66. The
way in which the Company assesses and manages risk is set out
in the Principal Risks and Uncertainties section on pages 22 to 28.
The formal schedule of matters reserved for the Board’s decision,
available on our website, covers areas including: setting the
Group’s purpose and strategic vision; monitoring performance
of the delivery of the approved strategy; approving major
investments, acquisitions and divestments; the oversight of risk
and the setting of the Group’s risk appetite; and reviewing the
Group’s governance framework.
Stakeholder engagement
The Group is the only major natural resources royalty company
listed on the London Stock Exchange and recognises the
importance of developing a fuller understanding of its business
model and risks amongst investors, through effective two-way
communication with fund managers, institutional investors
and analysts. This is particularly important in ensuring that the
Company’s values and objectives are aligned our current and
prospective stakeholders, as further explained in our section
172 (1) statement, set out on page 16 to 17.
Management undertake regular meetings with shareholders
following results or investment announcements. The Chairman
and Senior Independent Director also offer to meet with
stakeholders on a regular basis. In addition, the committee chairs
also engage with their relevant stakeholders and details of this
engagement are provided in each of the committee reports.
There are over 2,000 private investors in the Group. The Board
was pleased by the attendance at the 2019 AGM and the active
engagement of investors to further the investors’ understanding
of the current business activity of the Group.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance 2. DI VISIONS OF RESPONSIBILITY
The Chairman, Mr. Meier, leads the Board and is responsible
for its overall effectiveness. He was independent on the date
of his appointment. He recognises the importance of creating
a boardroom culture which encourages openness and debate
and facilitates constructive relations between Executive and
Non-Executive Directors.
The Chairman is responsible for: the management of the Board
and its Committees; Director performance; induction; training and
development; succession planning; engagement with external
stakeholders, and attendance by the Board at shareholder
meetings. The Chairman is supported by the Senior Independent
Director, the Chief Executive Officer and the Company Secretary.
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, the Head of Investments and Head of
Development who meet as an Executive Committee. The Executive
Committee remains an informal Board Committee because it is
not comprised of a majority of Executive Directors.
Other responsibilities are devolved to the Nomination,
Remuneration, Audit and Sustainability Committees; their
members are all Non-Executive Directors, save for the
Sustainability Committee where the CEO is a member, 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.
The Senior Independent Director, Mr. Rutherford, is responsible
for acting as a sounding board for the Chairman and engages
with shareholders to develop a balanced understanding of
their interests and concerns. On an annual basis, the Senior
Independent Director leads the other Non-Executive Directors
in the appraisal of the Chairman’s performance. The Senior
Independent Director 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.
Time commitment
All potential new Directors are asked to disclose their other
significant commitments. The Nomination Committee then takes
this into account when considering a proposed appointment
to ensure that the potential new Directors can discharge their
responsibilities to Anglo Pacific effectively. This means not
only attending and preparing for formal Board and Committee
meetings, but also making time to understand the business, and
to undertake training. The time commitment is agreed with each
Non-Executive Director on an individual basis. In addition, all
Directors must seek approval before accepting any significant
new commitment.
Where circumstances require it, all Directors are expected to
commit additional time as necessary to their work on the Board.
The Company Secretary and Head of Legal maintain a record of
each Director’s commitments. For the year ended 31 December
2019 and as at the date of publication, the Board is satisfied that
none of the Directors is over-committed and that each of the
Directors allocates sufficient time to his or her role in order to
discharge their responsibilities effectively.
The Company has three joint brokers, RBC Capital Markets,
Berenberg and Peel Hunt, and the Board remains satisfied that
the UK, Europe and North America, 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.
The Company’s AGM is a particular highlight of the year for the
Board, and we are always very pleased with the turn out and enjoy
spending time with our individual shareholders and listening to
their feedback, suggestions and concerns. The recent turmoil in
the market caused by COVID-19 has led to rapid declines in the
equity markets and we have received a number of
communications from shareholders in relation to their concerns
and have responded to each one. We look forward to furthering
this dialogue at our forthcoming AGM.
The Company’s small number of employees are centrally located at
the Company’s Head Office, which aids regular direct engagement
with the whole Board. To further enhance the Board’s interaction
with the Company’s employees, Ms. Dennett was appointed as
the designated Non-Executive Director responsible for workforce
engagement in 2018. The terms of reference for the designated
Non-Executive Director are available on the Group’s website:
www.anglopacificgroup.com/governance. As part of this role, Ms. Dennett
met with all employees of the Group during the year in order to
collaboratively agree the remit of the role and how this was to
work. She followed this up with one on one meetings with each
employee. Further feedback from the employees indicated
a high level of professional development was gained through
participation at the Board’s two main strategy sessions during the
year. As a result, the Board will continue to encourage employee
attendance at these sessions.
Our workforce policies and practices
All of the Company’s workforce related policies are approved
by the Board. The Board is ultimately responsible for our
whistleblowing process, with day to day oversight by the Audit
Committee and every member of the workforce has access
to ‘safe call’, an independent third-party provider enabling all
employees to raise any matters of concern anonymously.
There were no instances of whistleblowing over the past year.
Conflicts of interest
In accordance with the Companies Act 2006 and the Articles of
Association, conflicts of interest must be authorised by the Board
and this ensures that the influence of third parties does not
compromise the independent judgement of the Board. Directors
are required to declare any potential or actual conflicts of interest
that could interfere with their ability to act in the best interests of
the Group. The Company Secretary and Head of Legal maintain
a conflicts register, which is a record of actual and potential
conflicts, together with any Board authorisation of the conflict.
The authorisations are for an indefinite period but are reviewed
annually by the Board, which also considers the effectiveness
of the process of authorising Directors’ conflicts of interest. The
Board retains the power to vary or terminate these authorisations
at any time.
The main potential conflict which the Board addressed during
the year was in relation to the Mantos Blancos acquisition, where
the Board considered if the transaction could constitute a
transaction with a related party, due to the CEO’s indirect part
ownership of the operator and his involvement as a non-executive
director of the operating company. Although the Company’s
advisors concluded that the transaction was not a related party
transaction, the Board decided that it would nevertheless conduct
the transaction as if it were and the CEO recused himself from
decision making accordingly. In this instance, the Chairman
oversaw the execution of the transaction.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
CORPORATE GOVERNANCE REPORT
continued
Directors’ attendance at Board and Committee meetings which
they were eligible to attend during 2019 was as follows:
Full Board
Audit
Remuneration
Nomination
Total meetings held
Attendance:
D.S. Archer1
W.M. Blyth
R.G. Dacomb2
V.A. Dennett
N.P.H. Meier
J.E. Rutherford3
R.H. Stan
J.A. Treger
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1 D.S. Archer resigned from the Board on 1 November 2019.
2 R.G. Dacomb was appointed to the Board on 1 November 2019.
3 J.E. Rutherford was appointed to the Board on 1 November 2019.
3. C OMPOSITION, SUCCESSION AND EVALUATION
Appointments to the Board
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.
The Nomination Committee ensures a formal, rigorous and
transparent procedure for the appointment of new Directors. It is
also responsible for Board and senior management succession
planning, regularly assessing the balance of skills, experience,
knowledge, diversity and capacity required to oversee the delivery
of Anglo Pacific’s strategy.
The remit of the Nomination Committee includes reviewing
proposals for appointments to the Executive Committee, and
monitoring executive succession planning, including ensuring
that both of these are based on merit and objective criteria and
within this context seeks to promote diversity of gender, social
and ethnic backgrounds, cognitive and personal strengths.
All Non-Executive Directors are members of the Nomination
Committee. The committee is chaired by the Chairman, apart
from when the committee is dealing with the appointment of his
or her successor. The Nomination Committee report on page 62
sets out the board’s approach to succession planning and how
this supports the development of a diverse pipeline, at all levels.
All directors are subject to annual re-election at the AGM.
There were several Board changes announced over the past
12 months, largely as a result of both skills gap analysis and
succession planning initiatives. In relation to the Non-Executive
appointments, the Group conducted a thorough search in
conjunction with an external specialist search firm. This process
lasted a number of months, led to numerous candidates being
interviewed and ultimately the appointment of Mr. Rutherford
and Mr. Dacomb to the Board in November 2019.
Mr. Rutherford’s appointment bolsters the Board’s capital markets
expertise and breadth of all-round knowledge of the mining
industry. Mr. Dacomb brings specialist and recent audit knowledge
along with an up to date understanding of corporate governance
and risk practices which is an important element of our Committee
succession planning.
At the same time as we announced their appointment, Mr. Archer
notified the Board of his intention to step down in order to focus
on his other business commitments, notably as CEO of Savannah
Resources plc. Mr. Rutherford was appointed Senior Independent
Director (‘SID’) following Mr. Archer’s resignation.
Recently, Mr. Blyth informed the Board of his decision not to seek
re-election at the 2020 AGM. Mr. Blyth had previously served as
Chairman and both he and Mr. Archer played an enormous part in
shaping Anglo Pacific as the Company it is today. We will miss their
contributions, but we feel that we have found two very capable
replacements in Mr. Dacomb and Mr. Rutherford and they have
already made noticeable contributions to discussions around
strategy and sustainability.
Finally, Mr. Flynn, the Group’s Chief Financial Officer since January
2012, was appointed to the Board as an Executive Director in
January 2020. His appointment is in recognition of his significant
contribution to the Group over the past number of years and to
bolster the number of Executive Directors on the Board which
hitherto was just the CEO.
Details of external search consultancies used for board
appointments can be found in the Nomination Committee report
on page 62.
Skills, experience and knowledge of the Board and its Committees
The Group’s succession planning, aims to bring a diverse and
complementary range of skills, knowledge and experience to the
Board, so that the Board is equipped to navigate current and
future challenges, and maximise value from current and future
opportunities. Achieving the right blend of skills, experience,
knowledge and diversity to support effective decision-making
is a continuing process and forms part of the annual Board
Effectiveness review, which also attempts to identify any skills
gaps, and is described below. 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. In the current year this
was supplemented with Mr. Dacomb and Mr. Rutherford attending
the Board’s strategy day.
The Chairman regularly reviews the Directors’ training needs and,
where appropriate, the Group provides the resources to meet
the Directors’ requirements. At least biannually, external subject
matter experts are engaged to update and advise the Board on
governance and secretarial changes.
A large area of focus in the current year was in relation to s172
considerations around stakeholder support and on the emerging
risks in relation to ESG. The Board received a presentation from
a specialist law firm in relation to s172 and other changes to the
Corporate Governance Code at its Board meeting in May 2019.
The Group appointed consultants in order to direct and refine its
strategy around ESG during the year, and the Board received
regular updates on the progress being made in relation to this
which ultimately culminated in the recent strategy refinement
announcement.
58
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance • 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
Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting.
There are no significant issues disclosed in the report and financial
statements for the year ended 31 December 2019 and up to the
date of approval of the report and financial statements that have
required the Board to deal with any 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 on an ongoing basis and will test the controls
and procedures again during 2020.
For further detail, please refer to the Audit Committee report
on pages 63 to 66.
Fair, balanced and understandable assessment
The Board is responsible for the presentation of a fair, balanced
and understandable assessment of the Company’s position and
prospects, not only in the Annual Report. The Company has a
thorough process in place for the preparation of the interim and
Annual Reports, together with quarterly trading updates and
other market announcements, to ensure that this is the case.
Risk management and internal control framework
The Board is ultimately responsible for aligning the risk appetite
of the Company with its long-term strategic objectives, taking into
account the principal and emerging risks faced by the Company
and the risks it is willing to take in achieving its strategic objectives
and how these support the Group’s longer-term viability statement.
Risk and volatility have been a particular feature of the markets
to date in 2020 and the Board has risk as a regular agenda item
in order to respond to risk as and when significant and sudden
changes materialise which may need action to be taken. The Audit
Committee monitors the work that the Board does in relation to
risk on a regular basis.
The Group’s principal risks are discussed in detail on pages 22 to 28.
These are determined based on two formal reviews undertaken
each year, once around the AGM and the other at the Group’s
strategy day in the fourth quarter. The session in November 2019
benefitted from the input from our new directors for the first time
and it was pleasing that there were no significant gaps identified.
Board evaluation
A Board and Committee effectiveness evaluation is carried out
each year. The evaluation considers (but is not limited to): the
balance of Board members’ skills and experience; independence;
diversity; the running of the Board; and Directors’ knowledge of
the Company. Every third year, the Board evaluation is externally
facilitated. The next externally facilitated Board evaluation will be
carried out in 2020. The terms of reference for this review and
the outcomes will be detailed in the 2020 Annual Report and
Accounts.
In the interim years, each of the Directors and the Company
Secretary discussed their views with the Chairman in one-to-one
meetings. Overall, the review for 2019 concluded that the Board
and its Committees were performing well, with no significant
issues identified. Although no specific skills gaps were identified,
there were certain areas where it was felt current skills
surrounding capital markets and governance could be enhanced
and this was a particular area of focus in the search process
for the new Non-Executive Directors in 2019, resulting in the
appointment of Mr. Dacomb and Mr. Rutherford.
4. AUDIT, RISK AND INTERNAL CONTROL
Internal and external audit
The Audit Committee monitors the independence and
effectiveness of the external auditor, and makes an annual
assessment of whether an internal audit function is required.
The Audit Committee is responsible for reviewing key judgements
within the Group’s financial statements and narrative reporting,
with the aim of maintaining the integrity of the Group’s financial
reporting.
The Group’s policies and system of internal control is designed to
provide the Directors with reasonable assurance that the Group
will not be hindered in achieving its business objectives, or in the
orderly and legitimate conduct of its business, by circumstances
that may reasonably be foreseen. However, no system of internal
control can eliminate the possibility of poor judgement in
decision-making, human error, fraud or other unlawful behaviour,
management overriding controls, or the occurrence of
unforeseeable circumstances and the resulting potential for
material misstatement or loss.
The key elements of the control system in operation are:
• The Board meets regularly with a formal schedule of matters
reserved to it for decision and has put in place an organisational
structure with clear lines of responsibility and appropriate
delegation of authority.
• There are established procedures for planning and approving
investments and information systems for monitoring the Group’s
financial performance against budgets and forecasts.
• The Chief Financial Officer is required to undertake an annual
assessment process, to identify and quantify the risks that
face the Group’s businesses and functions, and to assess the
adequacy of the prevention, monitoring and mitigation practices
in place for those risks. This process covers all material controls,
including financial, operational and compliance controls.
• The Board is responsible for reviewing the risk assessment and
risk management processes for completeness and accuracy.
• In addition to its work on the above, the Audit Committee also
receives reports about significant risks and associated control
and monitoring procedures. The Group’s internal controls and
procedures documentation are regular agenda items for the
Committee. The Committee also receives regular reports from
the external auditor.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
THE BOARD
P AT R I C K M E I E R
M I K E B LY T H
J U L I A N T R E G E R
G R A E M E D A C O M B
K E V I N F LY N N
VA N E S S A D E N N E T T
J A M E S R U T H E R F O R D
R O B E R T S TA N
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance CHAIRMAN
N . P. H . M E I E R
70, was appointed Non-Executive Director in April 2015 and assumed
the role of Non-Executive Chairman at the conclusion of the 2017 AGM.
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. 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 Non-Executive Director of Firestone Diamonds plc and
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 . T R E G E R
57, joined the Group as Chief Executive Officer and Executive Director on
21 October 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.
CHIEF FINANCIAL OFFICER
K . F LY N N
39, joined Anglo Pacific as Chief Financial Officer in January 2012, and was
appointed Executive Director in January 2020. He sits on the Executive
Committee. Mr. Flynn is a Chartered Accountant with over 18 years of
experience of corporate finance both in practice and in the London listed
market, most recently in senior roles within FTSE 100 and FTSE 250 real
estate businesses. In his time with Anglo Pacific he has originated and
negotiated all of the Group’s borrowing facilities and played a leading
role in raising equity. Mr. Flynn is involved in all investment decisions,
specifically in relation to structuring and tax. He also acts as Company
Secretary and advises the Board on regulatory and governance matters.
SENIOR INDEPENDENT DIRECTOR
J . E . R U T H E R F O R D
60, was appointed Non-Executive Director in October 2019. He is also
the Group’s Senior Independent Director. He has over 25 years’ experience
in investment banking and investment management. Mr. Rutherford
has extensive international experience, and contributes to the Board
considerable financial insight from the perspective of the capital markets
and a deep understanding of the mining industry. Mr. Rutherford was
appointed a non-executive director of GT Gold Corp with effect from
11 October 2019 and deputy non-executive Chairman of Centamin plc
with effect from 1 January 2020. Since November 2013, Mr. Rutherford
has served as a non-executive director of Anglo American plc and until
September 2018, was chairman of Dalradian Resources Inc. Between
1997 and 2013, he was a senior vice president of Capital International
Investors, a division of Capital Group, and had responsibility for
investments in the mining and metals industry. Prior to joining Capital
Group, Mr. Rutherford was an investment analyst covering the South
American mining and metals industry for HSBC James Capel in New York.
Committee member: Remuneration Committee,
Nomination Committee, Audit Committee
NON-EXECUTIVE DIRECTORS
W. M . B LY T H
69, was appointed Non-Executive Director in March 2013 and became
Non-Executive Chairman on 1 April 2014 until stepping down from this
role at the conclusion of the 2017 AGM. 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 director of Haldane Property
Company Ltd and Glasgow & Suburban Property Company Ltd. He was
until September 2019 a board member of Wheatley Housing Group.
Mr. Blyth also acts as trustee for a number of small charities. After seven
years of service to the Anglo Pacific Board, Mr. Blyth has indicated his
intention to retire at the conclusion of the 2020 AGM and will therefore
not be putting himself forward for re-election.
Committee Chair: Audit Committee, Remuneration Committee
Committee member: Nomination Committee
R.G. DACOMB
64, was appointed Non-Executive Director in November 2019.
He was a partner at Ernst and Young for 26 years where, for his last
12 years, he was a lead partner in the extractive industry, responsible
for coordinating the provision of a full suite of services to multinational
mining and oil and gas clients including Xstrata, Fresnillo, and BP across
a broad range of countries including emerging markets. In addition to
audit services, Graeme provided critical advice for his clients on corporate
governance structures, risk management, acquisitions, disposals and
financial systems and controls. From 2011 to 2018, Mr. Dacomb was
a member of the Financial Reporting Review Panel. Mr. Dacomb was
appointed a non-executive director of Ferrexpo plc with effect from
10 June 2019.
Committee member: Audit Committee, Remuneration Committee,
Nomination Committee
V.A. DENNETT
55, was appointed Non-Executive Director in November 2018. She has
over 28 years’ experience as an international lawyer, most recently as
Senior Legal Counsel at Anglo American PLC where she specialised in
acquisitions, disposals and joint ventures in multiple commodities and
jurisdictions as well as leading teams of lawyers based in the mining
operations in various different jurisdictions. Prior to that she was a
consultant in London at international law firm Hogan Lovells (then Lovells)
and a Partner in Johannesburg at Webber Wentzel, a leading South African
law firm with a long history of acting for mining clients. Ms. Dennett has
a Bachelor of Arts and a Bachelor of Laws from the University of KwaZulu
– Natal, South Africa (then University of Natal) and a Master of Laws from
the University of Witwatersrand, South Africa. She is admitted as a solicitor
in England and Wales (non-practising) and as an attorney, notary and
conveyancer (also non-practising) in South Africa.
Committee member: Audit Committee, Remuneration Committee,
Nomination Committee
R.H. STAN
66, was appointed Non-Executive Director in February 2014. He has a
B.Comm from the University of Saskatchewan and has over 40 years’
experience in mining and resource development. He 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. At GCC, he served as President, CEO
and Director from 2001 to 2012 and in 2012 negotiated the sale of the
company to an Asian-backed strategic investor consortium (Winsway
Coking Coal and Marubeni Corp) for US$1.0bn. Mr. Stan served two terms
as Chairman of the Coal Association of Canada Board of Directors, was a
board member of the International Energy Agency’s Coal Industry Advisory
Board and represented the mining industry on the Alberta Economic
Development Agency. He currently serves on the board of several private
companies, including Quantex Resources Ltd, Lighthouse Resources Inc.,
CanWhite Sands Corp. and Spruce Bluff Resources Ltd.
Committee member: Audit Committee, Nomination Committee,
Remuneration Committee
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
NOMINATION COMMITTEE
COMMITTEE MEMBERS
N.P.H. Meier – Chairman
W.M. Blyth
D.S. Archer – resigned 31 October 2019
R.G. Dacomb – appointed 1 November 2019
V.A. Dennett
J.E. Rutherford – appointed 1 November 2019
R.H. Stan
The Chief Executive and Company Secretary also attend
meetings of the Committee.
For more on biographies and Board experience details refer
to pages 60 – 61.
ROLE AND RESPONSIBILITIES
The Committee’s objectives and responsibilities are set out in our
terms of reference, which are available to view online. For more
information, visit www.anglopacificgroup.com/our-approach
The Committee’s main responsibilities are:
• Setting guidelines (with the approval of the Board) for the types
of skills, experience and diversity being sought when recruiting
new Directors.
• Making 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.
• 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.
• Ensuring that the succession plans for Directors and the
Executive Committee are regularly reviewed for subsequent
debate with the Non-Executive Directors and Chief Executive
Officer.
OUR APPROACH TO DIVERSITY
Anglo Pacific is committed to promoting behaviours that support
an inclusive and diverse workplace and that reflect our values of
sustainability, integrity and respect, diversity and collaboration.
This commitment is set out in our Code of Conduct.
The Board aims to lead by example and recognises the benefits
of having a diverse membership and sees increasing diversity at
Board level as an essential element in maintaining a competitive
advantage. A truly diverse Board will include and make good
use of differences in the skills, regional and industry experience,
background, race, gender and other distinctions between
Directors. These differences will be considered in determining
optimum composition of the Board and when possible should
be balanced appropriately.
Anglo Pacific considers true diversity to encompass more than
gender. As a result, we make our appointments to the Board and
throughout the business on merit and against objective selection
criteria to identify and recruit the most suitable candidate,
regardless of gender. Having achieved gender equality in terms
of the Group’s employees, we will prioritise the objective of
increasing female representation on the Board as vacancies arise.
APPOINTMENTS TO THE BOARD
We base our appointments to the Board on merit, and on objective
selection criteria, with the aim of bringing a range of skills,
knowledge and experience to Anglo Pacific. This involves a formal
and rigorous process to source strong candidates from diverse
backgrounds and conducting appropriate background and
reference checks on the shortlisted candidates. We aim to appoint
people who will help us to achieve the Group’s strategic objectives
now and in the future.
During 2019, the Committee worked alongside independent
external search firm Savannah Group Limited, which has no
connection to Anglo Pacific or any of the Directors other than
to assist with searches for executive and non-executive talent,
resulting in the appointment of Mr. Dacomb and Mr. Rutherford.
Open advertising for Board positions was not used this year.
Further details of the process followed for the Board appointments
during the year are included in the Corporate Governance report
on pages 56 to 59.
COMMITTEE FOCUS IN 2019
The Committee met three times during 2019. Discussions at
the meetings covered the responsibilities outlined above, with a
particular focus on Non-Executive Director succession planning
and Committee membership.
The following matters were considered during 2019:
• The composition, structure and size of the Board and its
Committees.
• Recommending that the Board support the election or re-
election of each of the Directors standing at the 2019 AGM.
The length of tenure of Non-Executive Directors was taken into
account when considering supporting their re-election, to
ensure they remain independent and recognising the need
to progressively refresh the Board.
• Recommending to the Board the appointment of Mr. Dacomb
and Mr. Rutherford as independent Non-Executive Directors
in light of Mr. Archer stepping down from the Board.
• Recommending to the Board the appointment of the Group’s
Chief Financial Officer, Mr. Flynn as an Executive Director.
• The time commitment expected from each of the Non-Executive
Directors to meet the expectations of their role.
• Board Committee membership changes for recommending to
the Board in light of Mr. Archer stepping down from the Board
and the appointment of Mr. Dacomb and Mr. Rutherford as
independent Non-Executive Directors.
• Recommending to the Board the appointment of Ms. Dennett
as the Group’s designated Non-Executive Director for workforce
representation, together with the terms of reference for this role.
• Succession planning for the Group’s Senior Independent Director,
the Chairs of the Audit and Remuneration Committees and
members of the Group’s Executive Committee.
• The appointment of an independent external consultant to
facilitate the evaluations of the Board and Committee in 2020.
• Reviewing the Committee’s terms of reference.
N . P. H . M E I E R
Chairman of the Nomination Committee
6 April 2020
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance AUDIT COMMITTEE
COMMITTEE MEMBERS
W.M. Blyth* – Chairman
D.S. Archer – resigned 31 October 2019
R.G. Dacomb* – appointed 1 November 2019
V. Dennett
J.E. Rutherford – appointed 1 November 2019
R.H. Stan
*Audit Committee members deemed to have recent and relevant financial
experience in accordance with the UK Corporate Governance code.
The Chairman, the Chief Executive, the Chief Financial Officer &
Company Secretary, The Group Financial Controller and the Group
Head of Legal also participate in meetings of the committee,
as required.
For more on biographies and Board experience details refer to
pages 60 and 61.
ROLE AND RESPONSIBILITIES
The Committee’s objectives and responsibilities are set out in our
terms of reference, which are available to view online. For more
information, visit www.anglopacificgroup.com/our-approach
The Committee’s main responsibilities are:
• Monitoring the integrity of the 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 auditor,
including the assessment of their independence and their
effectiveness.
• Making recommendations to the Board on the appointment,
retention and removal of the external auditor and the tendering
of external audit services.
During the year ended 31 December 2019, the Audit Committee
was responsible for the review and monitoring of the Group’s
environmental, social and governance programme. Subsequent
to the year end, the Board resolved to form the Sustainability
Committee whose remit now includes the review and monitoring
of the Group’s environmental, social and governance programme.
The Committee has authority to investigate any matter within its
remit. It has the power to use any Group resources it may
reasonably require and it has direct access to the external auditor.
The Committee can also obtain independent professional advice
at the Group’s expense where it deems necessary. The Committee
chairman reports to the Board after each meeting on the main
items discussed and the minutes of its meeting are circulated
to the Board.
FAIR, BALANCED AND UNDERSTANDABLE
A key requirement of the Group’s interim and annual financial
statements is that they be fair, balanced, understandable and
provide the information necessary for shareholders to assess
the Group’s position, performance, business model and strategy.
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 producing the Annual Report
and Accounts, including:
• The thorough process of review, evaluation and verification by
senior management, who considered and drew on best practice
for the creation of the Annual Report and Accounts.
• The provision of advice by external advisors to management and
the Board on best practice with regard to the preparation of the
Annual Report and Accounts.
• A meeting of the Audit Committee held specifically to review and
consider the draft Annual Report and Accounts in advance of the
final sign-off by the Board. This review included the significant
accounting matters explained in the notes to the consolidated
financial statements.
• Advising the Board on the external auditor’s remuneration for
• Consideration by the Audit Committee of the conclusions of the
external auditor on the key audit matters that contributed to their
audit opinion, specifically the valuation of the Kestrel royalty,
impairments and taxation.
both audit and any non-audit work.
• Reviewing the reports from management on the principal risks
of the Group outlined on pages 22 and 28 and monitoring the
management of those risks.
• Monitoring and reviewing the adequacy and effectiveness of the
Group’s internal financial controls.
• Considering the need for an internal audit function and reviewing
the Group’s approach to assessing the effectiveness of internal
controls in the absence of an internal audit function.
• Reviewing and monitoring the Group’s whistle-blowing
procedure and the Group’s systems and controls for the
prevention of bribery and money laundering.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
AUDIT COMMITTEE
COMMITTEE FOCUS IN 2019
Throughout 2019, the Audit Committee has focused on the valuation of the Kestrel royalty and the Group’s royalty financial instruments,
management’s assessment of indicators of impairment in relation to the Group’s royalty intangible assets and taxation matters. In addition,
the Committee monitored the progress of formalising the Group’s Code of Conduct and the implementation of the Group’s revised
antibribery, corruption and money laundering policy which includes an annual certification by all employees, contractors and agents.
The Audit Committee held three meetings in 2019 and has met twice to date in 2020, covering the key topics set out in the tables below.
Significant issues considered by
the Audit Committee in relation to
the Group’s financial statements
Review of carrying value
of the Kestrel coal royalty
Response of the Audit Committee
The Committee has reviewed the independent valuation of the Group’s Kestrel coal royalty, together
with management’s review and challenge of the key assumptions used by the independent valuer to
determine the carrying value of the coal royalty as at 31 December 2019.
The Committee reviewed the disclosures related to the revaluation charge of £9.2m in relation to
Kestrel coal royalty described in note 15, for the year ended 31 December 2019.
The Committee concluded that the fair value has been calculated in accordance with the Group’s
accounting policy outlined in note 3, is appropriate as at 31 December 2019 and is adequately disclosed.
Review of carrying value of
royalty financial instruments
The Committee reviewed and challenged management’s key assumptions including production
profiles, forecast commodity prices and discount rates used to determine the carrying value of those
royalties held at fair value.
The Committee reviewed the disclosures related to the revaluation gain of £2.3m in relation to royalty
financial instruments, described in note 16 for the year ended 31 December 2019.
The Committee concluded that the fair value has been calculated in accordance with the Group’s
accounting policy outlined in note 3, is appropriate as at 31 December 2019 and is adequately disclosed.
Review of carrying values
of royalties held at amortised
cost and resulting
impairment charges
The Committee reviewed and challenged 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 3 and the impairment charge
of £1.3m described in note 17 for
the year ended 31 December 2019.
The Committee concluded that the impairment charges recognised during the year ended
31 December 2019 were appropriate and have been adequately disclosed.
Group tax exposures
The Committee considered management’s assessment of any potential or uncertain tax exposures.
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 notes 4, 11 and 36 are sufficient and that no additional provision is appropriate.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance Other issues considered
by the Audit Committee
Application of the policy
for calculating adjusted
earnings
Response of the Audit Committee
The Committee has reviewed the Group’s policy for the calculation of adjusted earnings and confirmed
the consistent application of this policy year on year.
Adjusted earnings is the profit/(loss) attributable to equity holders, plus royalties receipts from the
EVBC royalty, less all valuation movements and impairments, together with amortisation charges,
share-based payments, foreign exchange gains and losses, any associated deferred tax and any profit
or loss on non-core asset disposals. A reconciliation of adjusted earnings to profit/(loss) attributable
to equity holders is presented in note 12.
Going concern basis of
accounting in preparing
the financial statements
The Committee assessed the forecast levels of net debt, headroom on existing borrowing facilities
and compliance with debt covenants. This analysis covered the period to 31 December 2021 and
considered a range of downside sensitivities, including the impact of lower commodity prices. The
Committee concluded it was appropriate to adopt the going-concern basis.
Following the outbreak of COVID-19 subsequent to the year end, the Committee and Management
agreed that further stress tests should be undertaken to understand the impact of a range of
operational shutdowns in the event of COVID-19 impacting mining communities. This analysis
considered portfolio wide shut downs for a period of up to twelve months. Although this is an extreme
downside scenario given the Group’s royalties are derived from operations in different jurisdictions,
the consequence of not receiving revenue for a twelve month period would result in covenant breaches
which would then require waivers from the Group’s lending banks. However, as this would specifically
relate to COVID-19 and should be a temporary deferral rather than loss of revenue, the Committee
concluded that it would be reasonable to expect that the banks would continue to support the
business in such circumstances and that the Going Concern assumption remains unchanged.
The waiving of banking covenants is, however, an event outside of management control and in this
extreme downside scenario, would represent a material uncertainty in the context of the Group’s
going concern status. The same conclusion has been made in relation to the statement on
longer-term viability as discussed on page 22 of the report.
The Committee reviewed the time period over which the assessment is made, along with the scenarios
that are analysed, the potential financial consequences and assumptions made in the preparation of
the statement.
The Committee concluded that the scenarios analysed were sufficiently severe but plausible and the
time period of the Viability Statement was appropriate, given the alignment with the budgeting process.
The Committee considers on an annual basis,whether an internal audit function is required. The
Committee’s present view is that one is not yet justified given the small number of employees within
the Group combined with the level of oversight and involvement in individual transactions by the
Executive Directors.
The Committee reviews and monitors the mitigation plans in place and the appropriate senior
management responsibilities to address the principal risks (refer to pages 22 – 28) identified and ranked
by the Board.
The Committee reviewed the progress of the formalisation of the Group’s Code of Conduct to be rolled
out across the Group in 2020. As part of the process surrounding the formalisation of the Code of
Conduct, the Committee received updates on the revisions to and implementation of various policies
including anti-bribery, corruption and money laundering, conflicts of interest, related party
transactions, share dealing and whistleblowing.
The Committee, along with all other Board members, participated in training provided to senior
management and staff, including the annual certification of compliance with the Group’s anti-bribery,
corruption and money laundering policy.
The Committee reviewed and approved management’s anti-bribery, corruption and money laundering
risk assessment, together with management’s work plans associated with addressing risk areas
identified.
The Committee reviewed and approved the planning report from the Group’s external auditor, Deloitte,
outlining the final audit plan and fee, in December 2019, having given due consideration to the audit
approach, materiality levels and audit risks. In March 2020, the Committee reviewed the output of the
external audit work that contributed to the auditor’s opinion, including the challenge to the Group’s
assumptions on the issues noted in this report.
The effectiveness, performance and integrity of the external audit process were evaluated through
joint discussions between the Committee, Chief Financial Officer and Group Financial Controller. The
evaluation of the 2019 external audit concluded that the external auditor was independent, objective
and effective in the delivery of the audit. Service levels had remained largely constant in key areas
compared with the previous year. The next evaluation of the quality of external audit will be performed
in May 2020 with key themes incorporated into the 2020 audit planning cycle.
Viability Statement
Internal audit
Risk management
Code of Conduct
External audit
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
ENSURING INDEPENDENCE OF THE EXTERNAL AUDITOR
Following an external audit tender in 2014, Deloitte was appointed
as Anglo Pacific’s statutory auditor with effect from the year
ended 31 December 2014. Paul Barnett of Deloitte is the Senior
Statutory Auditor and was appointed to this role with effect from
the year ended 31 December 2019.
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. With the exception of the interim review,
no non-audit services were provided during 2019 by the Group’s
external auditor. Details of the external auditor’s remuneration
are disclosed in note 6b.
Conclusion of the Audit Committee for 2019
The Committee has satisfied itself that the external auditor’s
independence was not impaired.
The Committee held meetings with the external auditor 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.
Consideration given to the appointment of the external auditor
The Committee’s assessment of the external auditor’s
performance and independence underpins its recommendation
to the Board to propose to shareholders the re-appointment of
Deloitte LLP as auditor until the conclusion of the AGM in 2021.
Resolutions to authorise the Board to re-appoint and determine
the remuneration of Deloitte LLP will be proposed at the AGM on
11 May 2020.
W. M . B LY T H
Chairman of the Audit Committee
6 April 2020
AUDIT COMMITTEE
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 22
to 28. 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 auditor.
• 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.
There are no significant issues disclosed in the report and financial
statements for the year ended 31 December 2019 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.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance REMUNERATION COMMITTEE
COMMITTEE MEMBERS
W.M. Blyth – Chairman
D.S. Archer – resigned 31 October 2019
R.G. Dacomb – appointed 1 November 2019
V.A. Dennett
J.E. Rutherford – appointed 1 November 2019
R.H. Stan
The Chairman, the Chief Executive, the Chief Financial Officer &
Company Secretary, The Group Financial Controller and the Group
Head of Legal also participate in meetings of the Committee.
They were not present when matters associated with their own
remuneration were considered. The Committee will normally hold
private sessions at Committee meetings where no executives
or other members of senior management are present.
For more on biographies and Board experience details refer to
pages 60 - 61.
COMMITTEE FOCUS IN 2019
The Remuneration Committee held five meetings in 2019 and has
met twice to date in 2020, to fulfil its responsibilities as set out in
the Committee’s terms of reference.
The Committee’s activities during 2019 and the early part of 2020
focused on:
• Designing the CEO’s 2019 bonus framework and the associated
performance scorecard criteria;
• Reviewing and approving the salaries and bonuses to be
awarded to members of the Group’s Executive Committee;
• Providing guidance to the CEO on salaries and bonuses to be
awarded to the wider workforce;
• Implementing the Company’s deferred share bonus plan as set
out in the remuneration policy approved by shareholders at the
2019 AGM;
• Approving awards under the Company’s Unapproved Share
Option Plan; and
ROLE AND RESPONSIBILITIES
The Committee’s objectives and responsibilities are set out in our
terms of reference, which are available to view online. For more
information, visit www.anglopacificgroup.com/our-approach
• Selecting and appointing a new advisor to the Committee with a
view to designing a replacement for our current Value Creation
Plan, which will mature in 2021, along with reviewing the Group’s
employee-wide long-term incentive plans.
The Committee’s main responsibilities are:
• Establishing and developing the Group’s general policy on
executive and senior management remuneration;
• Determining specific remuneration packages for the Chairman,
Executive Directors and members of the Group’s Executive
Committee;
• Designing the Company’s share incentive schemes;
• Reviewing the remuneration of the wider workforce and
associated policies; and
• Consulting shareholders and other stakeholders, when
appropriate, regarding executive remuneration.
The Committee takes account of the level of pay and conditions
throughout the Group when determining executive remuneration.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
DIRECTORS’ REMUNERATION REPORT
Dear Shareholder,
This report is set against a background of continued strength in
the Company’s performance following a third consecutive record
contribution from its underlying royalty portfolio of £59.5m,
together with a record year of royalty related acquisitions totalling
£62.6m. The main focus for the Committee this year was in
relation to the setting of bonus matrices, Director fees and salary
benchmarking as well as the implementation of the Company’s
deferred share bonus plan, approved at last year’s AGM.
Looking ahead, the Committee is taking the first steps in the
design and implementation of a new long-term incentive plan to
replace our existing Value Creation Plan by appointing consultants
to assist with this process. The Committee has also recognised
the increasing focus being placed on environmental, social and
governance (‘ESG’) best practice as part of our portfolio
investment strategy. We are therefore ensuring that ESG forms
part of the scorecard criteria within the 2020 bonus matrices.
SALARIES
The Committee has decided to increase the salary of the Chief
Executive Officer (‘CEO’) in 2020 by 2%, in line with the Group’s
UK based employees. Following the appointment of the Chief
Financial Officer (‘CFO’) to the Board as an Executive Director, the
Committee undertook a benchmarking exercise and concluded
that a basic salary of £250,000 was appropriate at this stage.
The Committee will continue to review the market in order to
ensure that the Company is paying appropriate rates that attract
and retain key personnel, with any increases made by reference
to individual performance, experience and responsibilities.
The Company contributes to money purchase pension
arrangements on behalf of staff on a matched basis subject to
an overall cap. This cap will remain static for 2020.
The fees for the Chairman and the Non-Executive Directors were
re-assessed at the beginning of 2019 and will remain unchanged
throughout 2020, as detailed in section M.
ANNUAL BONUS
In terms of short-term incentives, the CEO and members of the
Executive Committee, together with the wider workforce, have
individually crafted bonus objectives which were agreed for the
2019 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 continued to
be refined from those of 2018 with greater focus on awards based
on the achievement of the Group’s corporate objectives of growth
and stakeholder returns, as well as personal performance, and
continued 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 76.
The CEO was awarded a bonus of £293,040 under the bonus
criteria matrix or 74% of the total potential award. The Committee
believes that the bonus is appropriate based on the Company’s
performance during the year and that the level of rewards is
proportionate after having had regard to the Company’s broad
range of stakeholders.
LONG-TERM INCENTIVE
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 is still one year 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. Further details can be found in
the Remuneration Policy part of this report.
CONTEXT OF DIRECTORS’ PAY WITHIN THE COMPANY
There are only 9 employees in the UK and our average number
of UK employees does not meet the threshold requirement for
publication of CEO pay ratio information. Given the numbers of
employees in the UK the ratio produced by comparing CEO
remuneration with that of our UK workforce is likely to be
misleading. As such, the Committee has decided not to publish
this information this year.
LOOKING AHEAD TO 2020
The main objectives for the Remuneration Committee in 2020
will be to:
• Review and further tailor the Executive Committee’s and wider
workforce’s bonus criteria for the 2020 financial year, in
particular incorporating elements covering ESG;
• Design a long-term incentive plan for Executive Directors and
senior management when the Group’s existing Value Creation
Plan expires in 2021;
• Review the long-term incentive plans for the wider workforce
with a view to encouraging share ownership; and
• Maintain an ongoing review of and determine the most
appropriate balance between, salary and bonus for the
Executive Committee with reference to the Group’s performance
together with the salary and bonus levels of the wider workforce.
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 B LY T H
Chairman of the Remuneration Committee
6 April 2020
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance The remuneration report is in two parts.
REMUNERATION POLICY REPORT
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 2019 AGM. For ease
of reference, the Committee has decided to reproduce the
remuneration policy in full below which has been updated to
reflect how it is currently operating in several minor respects.
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:
The report is structured in the following sections:
• 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. However, a relative
measure in relation to the VCP was added 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
(£384m at 31 December 2019) and the number of its employees
(11, as at 31 December 2019, 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.
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. LTIP – Principal terms and conditions and reward scenarios;
F. Reward scenarios;
G. Determinations to be made by and discretions available
to the Committee;
H. Differences in remuneration policy for Executive Directors
compared to other employees;
I. Approach to 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 2019,
details the remuneration paid to Directors during 2019 with a
comparison to the previous year. It will be put to an advisory
shareholder vote at the 2020 AGM. It is structured as follows:
A. Single figure for total remuneration;
B. Annual bonus for the year ended 31 December 2019;
C. Vesting of long-term incentive awards;
D. Directors’ shareholding and share interests;
E. Total pension entitlements;
F. Loss of office payments;
G. Change in the CEO’s remuneration in 2019 relative
to UK employees;
H. Total shareholder return;
I.
Total remuneration for the CEO over time;
J. Distribution statement for 2019;
K. External directorships;
L. 2020 salary review;
M. Fees for the Chairman and Non-Executive Directors;
N. Performance targets for the annual bonus
and LTIP awards granted in 2014 and beyond;
O. Compliance with the 2018 UK Corporate Governance Code;
P. Statement of shareholder voting;
Q. External advisors.
The information in sections A to G and I to M has been audited;
the remaining sections are unaudited.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
DIRECTORS’ REMUNERATION REPORT
C. The remuneration policy for Executive Directors
The Company’s remuneration policy, as set out in the 2018 Annual Report and Accounts, received approval from shareholders at the
AGM held on 13 May 2019. As the VCP expires in 2021, the Company may seek approval for a new policy at next year’s AGM. For ease
of reference, the Committee has decided to reproduce the remuneration policy in full in the following sections. 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 and has been updated to reflect how it is currently operating in several
minor respects:
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, the main
benefits currently provided are: death in service, long-term illness and private
medical insurance schemes which are provided to all staff.
Pension: 11% (2018: 11%) of salary.
Pension contributions for any future
Executive Director will be aligned with
the wider workforce.
ANNUAL BONUS
To encourage and
reward delivery of the
Company’s operational
objectives
For annual bonuses in respect of FY2019 and onwards, a portion of any bonus
earned has or will be deferred into awards over shares with awards normally
vesting after a two-year period.
Any new external Executive Director appointment will have at least 40% of any
bonus deferred.
For the existing Executive Directors – CEO and as of 1 January 2020, the CFO –
20% of the bonuses awarded in respect of FY2019 have been deferred. 30% of
bonuses will be deferred in respect of any bonus awarded for FY2020 and 40%
in respect of FY2021.
At the discretion of the Committee, an Executive Director may also be entitled to
receive the value of dividends paid between grant and vesting on vested shares.
The payment may be in cash or shares and may assume dividend reinvestment.
Bonus outturns 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 uses a balanced scorecard approach to assess performance
against targets at the end of the year, while retaining overall discretion in the
calculation of the final bonus outturn.
The targets are discussed more fully in section D overleaf.
LONG-TERM
INCENTIVES
The LTIP takes the form of a Value Creation Plan (VCP) with a performance period
to 16 June 2021.
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
Awards that were granted in 2014 were amended in 2016 with a performance
period of seven years to 16 June 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 16 June 2021
and are subject to two TSR performance conditions:
Death in service policy: five times salary.
The maximum value of benefit overall is
not predetermined and is based upon the
cost to the Company.
The maximum annual bonus opportunity
is 100% of salary.
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 2014, the Committee allocated
the pool as follows:
CEO: 56.0%
Non-Board senior managers: 6.9%
• 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 31 December 2015.
In 2016, the Committee allocated
the pool as follows (and granted
to participants in 2017):
• A relative measure of TSR which requires outperformance of 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.
CEO: 20.0%
Non-Board senior managers: 4.0%
Unallocated reserve: 13.1%
The detailed design is discussed in section E overleaf.
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 overleaf.
70
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance 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 bonuses, and for rewarding outperformance on a sliding
scale. The scorecard will be split between corporate objectives
and personal objectives, both of which are expected to form a
substantial part of the scorecard.
The corporate objectives are agreed by the Board at the beginning
of each year, together with an assessment of the potential for
outperformance and the risk of shortfall. This covers such areas
as business performance, finance, relationships, reputation and,
for 2020, ESG. 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 CEO
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’.
Following the internal appointment of the Chief Financial Officer
to the Board as an Executive Director on 1 January 2020, his
personal objectives for the year will also be agreed at the
beginning of the year with the Chairman of the Board in
conjunction with the Committee.
The CEO’s and Chief Financial Officer’s performance against
corporate and personal objectives are assessed by the Chairman
and the Committee at the beginning of the following year, and
bonuses are 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 of
approximately 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.
2014 Awards
2016 Awards
PERFORMANCE
PERIOD
Seven-year performance period, ending on
16 June 2021.
Performance is measured from the net asset value
as at 31 December 2015 to 16 June 2021.
ALLOCATION
OF THE POOL*
OPERATION
CEO:
Non-Board senior managers:
Total allocated:
56%
6.9%
62.9%
CEO:
Non-Board senior managers:
Total allocated:
20%
4.0%
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 31 December 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.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
DIRECTORS’ REMUNERATION REPORT
VESTING
Options to which participants become entitled at the end of the relevant performance period ending on 16 June 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 16 June 2021:
End share price required (p)
CEO – 2014 award
CEO – 2016 award
CEO TOTAL
Others – 2014 award
Others – 2016 award
Unallocated
OVERALL TOTAL
Shareholders
Allocation
of pool
56%
20%
76%
6.9%
4%
13.1%
100%
Benefit assuming total growth in TSR (from an illustrative starting market
capitalisation plus capital inflows of £262.1m) over a seven-year period of:
50%
168p
£0.0m
£2.6m
£2.6m
£0.0m
£0.5m
£1.7m
75%*
196p
£10.6m
£3.3m
£13.9m
£1.3m
£0.7m
£2.4m
100%
224p
£13.5m
£3.8m
£17.3m
£1.7m
£0.8m
£3.1m
150%**
280p
£19.2m
£4.8m
£24.0m
£2.4m
£1.0m
£4.4m
£4.91m
£18.31m
£22.83m
£34.29m
£140.10m
£190.13m
£241.48m
£342.86m
*Approximately 75% 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 (which would require the share price to be at 448p), the benefit to shareholders would be £647.10m
and total participant awards would be £58.50m, of which the CEO would receive £36.20m under the 2014 award and £7.88m under the 2016 award.
TSR performance must match or exceed the performance of the FTSE 350 All Mining Index for new awards to pay out. Awards in the table are calculated from the respective
starting market capitalisations (Illustrative starting market capitalisation of £248.0m for original awards and £161.3m for new awards (based on the net asset value as at
31 December 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 four different performance scenarios: below target
(fixed pay only), on-target, maximum and maximum with 50% share price growth. 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, benefits 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.
Chief Executive Officer
Below target
100%
£466,200
On-target
69%
Maximum
42%
Maximum + 50%
share price growth
38%
31%
£676,200
38%
35%
13%
£1,103,635
18%
£1,212,352
£0
£200,000
£400,000
£600,000
£800,000
£1,000,000
£1,200,000
£1,400,000
Fixed pay
Annual bonus
LTIP
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance
Chief Financial Officer
Below target
100%
£267,500
On-target
68%
Maximum
48%
Maximum + 50%
share price growth
47%
32%
£392,500
45%
44%
5%
£555,164
7%
£573,997
£0
£200,000
£400,000
£600,000
Fixed pay
Annual bonus
LTIP
Assumptions:
• Below target = fixed pay only (salary + benefits + pension);
• On-target = fixed pay, 50% vesting of the annual bonus and
0% of the VCP awards (i.e. the value that accrues for threshold
performance);
• Maximum (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;
• Maximum plus 50% share price growth = fixed pay and 100%
vesting of the annual bonus and annualised 2014 and 2016 VCP
awards, granted in 2017 with 50% share price growth applied
to the awards.
• Salary levels (on which other elements of the package are
calculated) are based on those which apply from 1 January
2019. Salary for the CEO is 90% of his full time equivalent salary;
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 pay-out
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;
• determining the quantum of awards and/or payments, including
grant price (within the limits set out in the policy table above);
• determining the entitlement of participants to receive dividends
or dividend equivalents;
• determining the extent, and where applicable the timing
of vesting based on the assessment of performance;
• adjusting basic salaries for changes in time commitment
(within the full-time equivalent levels set out in this policy);
• 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 2019 and will continue to be reviewed going
forward. The Committee notes the current difference between
the pension contribution of the CEO at 11% and for all other staff,
including the CFO who was appointed an Executive Director on
1 January 2020, at 7%. It has agreed to align pension contributions
of future Executive Directors with the wider workforce. 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 albeit, given
the short timetable to the end of the performance period, further
awards are unlikely; and
• the Executive Directors will receive any annual bonus partly in
cash and partly in the form of deferred shares as described on
page 70 of the remuneration policy; 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 any replacement thereof), or a combination of the two.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
DIRECTORS’ REMUNERATION REPORT
I. Approach to appointment of new Executive Directors
The remuneration package for a new Executive Director will 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 external Executive Director appointments, the bonus deferral
level will be set in line with the terms of the policy (currently 40% of
any bonus earned). For internal Executive Director appointments
prior to 2021, the bonus deferral level will typically be transitioned
to full level, as described in the policy table above.
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 Directors’ service contracts are for an
indefinite term and contain 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
contracts of Mr. Treger and Mr. Flynn provide 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 contracts of the Executive Directors are 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.
Share-based awards granted to an Executive Director in respect of a deferred bonus will generally vest in full in accordance with the
plan’s award timetable where cessation of employment is due to death, ill-health, injury or disability (evidenced to the satisfaction of the
Committee) or in circumstances where the Committee determines that ‘good leaver’ status should be applied. The Committee retains
discretion in exceptional circumstances to allow awards to vest at the date of cessation.
Where an Executive Director ceases to be employed in circumstances where they are not a ‘good leaver’, share-based awards granted
in respect of the deferred bonus will lapse whether vested or unvested.
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.
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.
74
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance 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. The Chairman and the Non-Executive Directors
are entitled to reimbursement of reasonable expenses. They may also receive limited travel or
accommodation-related benefits in connection with their role as a Director.
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 every two years and fee increases are generally effective from
1 January, in the year of review.
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. Blyth, Mr. Dacomb, Ms. Dennett, Mr. Rutherford 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.
The details of the Non-Executive Directors’ letters of appointment are as follows:
Non-Executive
N.P.H. Meier
W.M. Blyth
R.G. Dacomb
Date of appointment
Notice period
Non-Executive
30 April 2015
20 March 2013
One month
V.A. Dennett
One month
J.E. Rutherford
1 November 2019
One month
R.H. Stan
Date of appointment
1 November 2018
1 November 2019
19 February 2014
Notice period
One month
One month
One month
L. Legacy arrangements
In approving this Policy Report, authority is given to the Company to honour any commitments entered into with current or former Directors
(such as the payment of a pension or the unwinding of legacy share schemes) that have been disclosed to shareholders in previous
remuneration reports. Details of any payments to former Directors will be set out in the Annual Remuneration Report as they arise.
ANNUAL REMUNERATION REPORT FOR 2019
This part of the report details the remuneration paid to Directors during 2019 with a comparison to the previous year. It will be put
to an advisory shareholder vote at the 2020 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. Meier
D.S. Archer2
W.M. Blyth
R.G. Dacomb3
V.A. Dennett4
R.C. Rhodes5
J.E. Rutherford6
R.H. Stan
Salary/fees
£’000
Benefits
£’000
Total bonus
£’000
Pension
£’000
Other
£’000
Total
remuneration
£’000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
396
378
125
115
53
56
62
55
8
–
48
8
–
18
8
–
48
46
5
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
293
274
43
40
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
737
696
125
115
53
56
62
55
8
–
48
8
–
18
8
–
48
46
1 J.A. Treger agreed to receive 90% of his contractual salary for both 2018 and 2019 as outlined in section K below.
2 D.S. Archer resigned from the Board on 31 October 2019.
3 R.G. Dacomb was appointed to the Board on 1 November 2019.
4 V.A. Dennett was appointed to the Board on 1 November 2018.
5 R.C. Rhodes resigned from the Board on 15 May 2018.
6 J.E. Rutherford was appointed to the Board on 1 November 2019.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
DIRECTORS’ REMUNERATION REPORT
B. Annual bonus for the year ending 31 December 2019
A set of individually crafted corporate and personal bonus criteria were agreed with the CEO for the 2019 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 2019 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 bonus matrix for the CEO for 2019 is detailed below.
2019 CEO scorecard
Criteria
CORPORATE PERFORMANCE CRITERIA
A. GROWTH
Measures for assessment included:
• Acquisition (actually completed and announced) of new value adding producing
and/or near producing royalties.
• Significant value adding M&A deal to grow the size of the Company
• Achieve meaningful re-rating
B. FINANCIAL PERFORMANCE
Measures for assessment included:
• Meet and exceed budget for net income, AEPS and FCF
C. MANAGEMENT AND CONTROL
Measures for assessment included:
• Superior performance by whole team
• Risk management and financial control
PERSONAL PERFORMANCE CRITERIA
D. PROFESSIONALISM AND HOLISTIC CONTRIBUTION
• Leadership and direction
• Team development and succession planning
• Setting culture
• Personal contribution
TOTAL
Maximum award
(%)
Actual outcome
(%)
50
34
20
15
15
15
15
10
100
74
Growth: 2019 was a record year of acquisition for the Group, deploying £62.6m in capital to acquire the £42.3m producing Mantos
Blancos copper royalty and £20.3m in additional investment in Labrador Iron Ore Royalty Corporation. The growth bonus in relation to
these transactions was 24%. An element of the growth bonus was in respect of the Group’s share price performance over the 12 months,
increasing from 142p/share at 31 December 2018 to 192p/share at 31 December 2019, which earned a score of 10%. Total overall score
of 34% out of a possible 50%.
Financial performance: Despite the Group generating record adjusted earnings of £36.8m which was 1.1x the budgeted amount of
£32.8m, the outperform against budget was slightly lower than the 1.3x achieved in 2018. Adjusted earnings per share of 20.41p were
1.1x the budgeted amount of 18.18p per share. The Group’s free cash flow increased from £40.2m in 2018 to £47.7m in 2019 and was
1.3x the budgeted amount of £35.9m. Total overall score of 15% out of a possible 20%.
Management and control: Management of the Group’s exposure to exchange rate risk has remained a key focus throughout 2019 to
ensure that the Group is optimally positioned around Brexit and the trade wars. The CEO has led in continuing to ensure that we adopt the
highest standards of due diligence in exploring investment opportunities while, at the same time, increasingly offsetting due diligence
costs to minimise lost deal costs. In addition, the CEO has continued to focus on the realisation of the Group’s non-core equity portfolio.
Total overall score of 15% out of a possible 15%.
Professionalism and holistic contribution: Under the guidance of the CEO, the Group has further defined and refined its approach to ESG
issues, resulting in increased engagement with our existing operators and a more comprehensive assessment of the ESG profile of
potential counterparties. Supporting the Group’s approach to ESG issues, the CEO led a wholesale review of the Group’s underlying
policies and procedures which led to the engagement of staff at all levels to ensure revisions to the existing policies and procedures were
fit for purpose. This process, championed by the CEO, led to the development of the Group’s values and ultimately our Code of Conduct.
The development and retention of the Group’s talent continues to be a priority of the CEO, with a number of staff members reaching ten
years of continuous service with the Group throughout 2019. In addition the recruitment of a new Head of Legal and an Investment
Analyst resulted in the Group achieving an equal gender split. Superior hurdles were met in relation to personal contribution, resulting
in an overall score of 10% out of a possible 15%.
76
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance Professionalism: Under the guidance of the CEO, staff at all levels have continued to develop throughout 2019, with a number of internal
promotions resulting in better support for and the expansion of the existing management team. The addition to the Group’s small
management team has diversified the skill set available and better placed it to develop and evaluate the pipeline of new prospects.
The CEO’s personal contribution was evidenced by his championing the review of the Group’s approach to ESG issues. In particular he
instigated a comprehensive ESG risk assessment of the operators of the Group’s producing assets. In addition, he added the ESG risk
assessment as a key component to management’s due diligence in evaluating business opportunities. Superior hurdles were met in
relation to professionalism, resulting in an overall score of 13.0% out of a possible 15%.
Bonus outturn
The overall bonus score was agreed at 74% under the bonus scoring matrix for a total award of £293,040 (74% x £440,000 x 90%). The
overall aggregate bonus of £293,040 bonus falls within the 100% bonus limit set out in the policy table. Of this bonus, 20% (£58,608) has
been deferred under the Deferred Share Bonus Plan with the balance of £234,432 being paid in cash.
The CEO’s direct senior reports, none of whom were Executive Directors during 2019, have individually crafted bonus objectives which
were agreed for the 2019 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 bonus calculated as a percentage of total salary, up to 100%.
Bonus criteria will be further tailored for the 2020 year to ensure that these closely match key performance metrics and at the same time
provide real ‘stretch-performance’ targets.
C. Vesting of long-term incentive awards
No awards vested in 2019 (2018: nil).
Long-term incentive awards made during the year
There were no awards granted to Executive Directors under the JSOP, the CSOP or USOP in 2019.
The CEO’s allocation of units under the VCP out of the pool to Executive Directors has remained constant at 76,000 units or 76% of the
total number of units (2018: 76,000 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 (2018: 86,880 units).
Outstanding share awards
There are currently no awards to Executive Directors outstanding under the JSOP, the CSOP or the USOP.
D. Directors’ shareholding and share interests
The Committee encourages the Executive Directors to build up a shareholding in the Company, so as to ensure the alignment of their
interest with those of shareholders, but there is no formal shareholding guideline. In addition, the VCP is designed to increase this
alignment.
The Chairman and Non-Executive Directors are also encouraged to hold shares in the Company although the Chairman and independent
Non-Executive Directors are expected to ensure that the level of their individual shareholdings is not significant and thereby calls into
question their continuing independence.
Details of the Directors’ interests in shares are shown in the table below.
EXECUTIVE DIRECTORS
J.A. Treger
K. Flynn
NON-EXECUTIVE DIRECTORS
N.P.H. Meier
W.M. Blyth
R.G. Dacomb
V.A. Dennett
J.E. Rutherford
R.H. Stan
Beneficially
owned at
31 March 2020
Beneficially
owned at
31 December
2019
5,513,296
5,478,296
39,066
36,336
248,437
143,850
35,000
4,800
25,000
242,127
143,850
25,000
4,800
25,000
265,265
257,265
Not subject to
performance conditions
Subject to
performance conditions
LTIP
Deferred
bonus shares
LTIP
Deferred
bonus shares
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
None of the Directors holds 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 2019 (2018: nil).
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
DIRECTORS’ REMUNERATION REPORT
G. Change in the CEO’s remuneration in 2019 relative to UK employees
CEO £’000
– salary (full time equivalent basis)
– benefits
– bonus
Average per employee £’000
– salary
– benefits
– bonus
2019
440
43
293
114
9
65
2018
420
40
274
108
7
43
% change
5%
8%
7%
6%
29%
51%
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.
There are only 10 employees in the UK and our average number of UK employees does not meet the threshold requirement for publication
of CEO pay ratio information. Given the numbers of employees in the UK the ratio produced by comparing CEO remuneration with that of
our UK workforce is likely to be misleading. As such, the committee has decided not to publish this information this year.
H. Total shareholder return
FTSE 350 Mining Index vs. Anglo Pacific Group 2010-2019
180
160
140
120
100
80
60
40
20
0
.
0
1
1
0
1
0
.
.
1
1
1
0
1
0
.
.
2
1
1
0
1
0
.
.
3
1
1
0
1
0
.
.
4
1
1
0
1
0
.
.
5
1
1
0
1
0
.
.
6
1
1
0
1
0
.
.
7
1
1
0
1
0
.
.
8
1
1
0
1
0
.
.
9
1
1
0
1
0
.
FTSE 350 Mining Index
Anglo Pacific Group
The performance of the Company’s ordinary shares compared with the FTSE 350 Mining Index for the five-year period ended on
31 December 2019 is shown in the graph above. Both have been re-based at the start of the period in order to provide a graphical
measure of comparative performance.
The Company has chosen the FTSE 350 Mining Index as a comparator for historical reporting purposes as it believes it to be the nearest
relevant index appropriate to the Group.
The middle market price of an ordinary share on 31 December 2019 was 192.00p. During the year the share price ranged from a low of
137.50p to a high of 228.00p.
I. Total remuneration for the CEO over time
2010
2010
2011
2012
2013
2013
2014
2015
2016
2017
2018
2019
Total remuneration (£’000)
Bonus outturn (%)
Bonus (£’000)
LTIP vesting (%)
B.M. Wides
155
N/A4
76
–
69
N/A4
38
–
253
37%
84
–
J. Theobald1
209
1933
–
–
–
–
–
–
J.A. Treger2
39
–
–
–
432
64%
160
–
374
–
–
–
563
47%
167
–
655
71%
257
–
696
72%
274
–
737
74%
293
–
1 J. Theobald was appointed CEO on 6 October 2010.
2 J.A. Treger was appointed CEO on 21 October 2013.
3 J. Theobald also received £63,333 as payment in lieu of notice, £95,000 termination payment (paid in January 2014) and £2,400 for legal advice.
4 For 2009 and 2010, this is not applicable as there were no caps in place.
The table above shows the total remuneration for the CEO during each of the financial years. The total remuneration figure includes the
annual bonus. No LTIP awards vested. The bonus outturn percentage is expressed as a percentage of the cap, where applicable, for the
period in question. As there were no caps on bonus in 2010, the actual bonus payable based on performance in those years has been
included for information in the table.
78
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance
J. Distribution statement for 2019
(£m)
Employee benefit expense1
Dividends
Acquisition of royalty related assets2
Income taxes paid3
2019
4.40
14.44
62.57
7.85
2018
3.87
12.89
38.41
4.82
% (decrease)/
increase
13.7%
12.0%
62.9%
62.9%
1 Employee benefit expense for the financial year as per note 7a to the financial statements.
2 Acquisition of royalty related assets during the financial year is the sum of the cash flows for the purchase of royalty
and exploration intangibles and the purchase of royalty financial instruments per the Group’s statement of cash flows.
3 Income taxes paid are as per the Group’s statement of cash flows.
K. External directorships
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 these directorships form 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 £440,000.
L. 2020 salary review
The Executive Directors’ full time equivalent (‘FTE’) salaries were reviewed in January 2020 as outlined in the Chairman’s letter to
shareholders, and the current salary (on a FTE basis) is as follows:
Current salaries for the Executive Directors
Executive
J.A. Treger
K. Flynn1
1 K. Flynn was appointed an Executive Director on 1 January 2020.
FTE salary as at
1 January 2020
FTE Salary as at
1 January 2019
448,800
440,000
250,000
-
Increase
2.0%
-
The 2.0% increase in the CEO’s salary was the same as the increase in the salaries of the wider workforce.
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
Senior Independent Director (if also chairing a committee)
Committee Chairmanship
Committee Membership
2020
2019
% Increase
125,000
125,000
48,000
42,000
48,000
42,000
10,000
10,000
7,000
7,000
6,000
7,000
7,000
6,000
-
-
-
-
-
-
-
The Chairman’s fee of £125,000 was set with effect from 1 January 2019 for a two-year period.
N. Performance targets for the annual bonus and LTIP awards granted in 2014 and beyond
The annual bonus scorecard approach will continue in 2020. 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 2020 will cover areas such as business performance, funding and finance, relationships and reputation and, for
the first time, ESG. Due to the commercially sensitive nature of the Group’s corporate objectives, further details of the 2020 scorecard will
be provided in the 2020 Directors’ Remuneration Report.
No long-term incentive awards are due to be made in 2020. Details of the awards made in 2014 and 2017 under the VCP can be found in
the notes of the policy table on page 70.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
DIRECTORS’ REMUNERATION REPORT
O. Compliance with the 2018 UK Corporate Governance Code
As described in the Corporate Governance Report on page 56 to 59, while the Company is not subject to the UK Corporate Governance Code
on account of its standard listing on the London Stock Exchange, the Company has voluntarily agreed to adhere to the requirements of
the Code.
The Company’s remuneration policy approved at the 2019 AGM, complies with provisions 32 to 40 of the Code relating to remuneration
with the exception of provision 36 and provision 37.
Provision 36
The Company’s remuneration policy complies in all respects with provision 36 of the Code, except that the Company does not have a
formal policy for post-employment shareholding requirements for both unvested and vested share awards. Throughout 2019 and indeed
since Mr. Treger’s appointment as an Executive Director no share awards have vested. The Value Creation Plan does not vest until 2021
and then awards may only be exercised in three tranches until 2024, whether Mr Treger is employed or not. In light of this phasing of the
exercise until 2024, a formal post-employment shareholding policy is not considered necessary at this time. This will be considered as
part of the review of the remuneration policy that is taking place during the year.
Provision 37
The Company’s remuneration policy complies in all respects with provision 37 of the Code, except that there are currently no provisions
within the policy that would enable the Company to recover the cash element of any bonus payments. As the award of bonuses is at the
full discretion of the Remuneration Committee and because the newly implemented deferred share bonus plan includes provisions for
recovery, an amendment to the remuneration policy at this stage is not considered necessary. This will be considered as part of the review
of the remuneration policy that is taking place during the year.
The Committee intends to keep compliance with the Code under review in a way that is proportionate to the size and complexity of the
Company.
P. Statement of shareholder voting
At last year’s AGM held on 13 May 2019, the resolutions relating to the Directors’ remuneration policy and Directors’ remuneration report
were approved by shareholders on a show of hands. Details of the valid proxy votes received for each resolution are detailed below:
Resolution
Approval of Directors’ remuneration report
Total votes cast
Votes for
Votes against
Votes withheld(a)
93,298,271
93,273,541
99.97%
24,730
0.03%
69,096
Approval of the Directors’ remuneration policy
92,341,747
85,237,760
7,103,987
1,025,620
92.31%
7.69%
(a) A vote ‘withheld’ is not a vote in law, and is not counted in the calculation of the proportion of votes for and against the resolution.
Q. External advisors
The Remuneration Committee has access to the advice of independent remuneration consultants when required. During 2019, the
Remuneration Committee received advice from the Executive Compensation practice of Aon plc. Aon was first appointed by the
Remuneration Committee on 20 January 2014. Aon is a signatory to the Remuneration Consultants’ Code of Conduct and has no other
connection with the Company or any of the Directors. The Remuneration Committee is satisfied that the advice that it receives from
Aon is objective and independent. Total fees paid to Aon in respect of its services were £25,412 (2018: £37,656).
Approval
This report was approved by the Board on 6 April 2020 and signed on its behalf by
W. M. Blyth
Chairman of the Remuneration Committee
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance DIRECTORS’ REPORT
The Directors present their report and audited consolidated
financial statements for the year ended 31 December 2019.
PRINCIPAL ACTIVITIES
The Group’s principal royalty activities are set out in the Strategic
Report on pages 3 and 51.
GOING CONCERN
The financial position of the Group and its cash flows are set out
on pages 92 and 95. The Directors have considered the principal risks
of the Group which are set out on pages 22 to 28, and considered key
sensitivities which could impact on the level of available
borrowings. As at 31 December 2019 the Group had
cash and cash equivalents of £7.6m as set out in note 23 and
borrowings under its revolving credit facility of £36.4m (U$48.0m)
as set out in note 25. Subsequent to year end, the Group amended
its existing revolving credit facility, increasing the committed
facility to U$90.0m (£68.3m) and extending the term by twelve
months to September 2022. Following this amendment and
extension, subject to continued covenant compliance, the Group
has access to a further £31.9m (U$42.0m) through its enlarged
facility.
Absent the extraordinary circumstances brought about by the
COVID-19 pandemic, we would be satisfied that the Group’s
forecasts and projections, taking into account reasonable 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 would be able to
operate within its current facilities for at least 12 months from the
date of approval of the financial statements. Even assuming a
20% downturn in commodity prices, sales volumes and foreign
exchange, the Group would still operate comfortably within its
banking covenant limits with no debt redemption or amortisation
commitments.
However, given the recent COVID-19 pandemic, which has seen
widespread humanitarian and economic disruption across the
globe, the possibility of operational disruption has heightened
and we have already seen some instances of mines being placed
on care and maintenance, including the Cigar Lake uranium mine
in Canada from which the Group receives income through a toll
financing arrangement and the EVBC gold mine in Spain.
COVID-19 will cause widespread economic disruption but its
impact will hopefully be temporary. Although the Group has
reasonable geographical diversity within its royalty portfolio,
we have materially increased our stress testing to assess the
impact of up to a twelve-month operational shutdown across
the portfolio, which we believe is an extreme downside scenario.
In this circumstance, the Group would breach certain borrowing
covenants and would require either waivers from its lending
banks or to liquidate certain assets to repay borrowings.
It is the expectation of management, however, that in this
downside scenario the banks will waive the covenants for a short
period due to the nature of any covenant breaches being solely
as a result of COVID-19 imposed restrictions and being of a
temporary nature and upon resumption of mining activities
management would expect the Group to become compliant and
begin to repay borrowings. For Anglo Pacific, with a low and
flexible cost base, COVID-19 should result in the deferral rather
than the loss of revenue and should not impact on the Group’s
longer-term prospects once business returns to normal. For this
reason, the Directors have concluded that it is appropriate to
prepare the financial statements on a going concern basis.
However, as the waiver of covenants in the event of a breach
under this downside case is not wholly within management’s
control, this represents a material uncertainty which could cast
a significant doubt upon the Group’s and the Company’s continued
ability to operate as a going concern, such that it may be unable
to realise its assets and discharge its liabilities in the normal
course of business.
RESULTS AND DIVIDENDS
The consolidated income statement is set out on page 90 of the
financial statements.
The Group reported a profit after tax of £29.0m (2018: £28.8m).
Total dividends for 2019 will amount to 9.00p per share (2018:
8.00p per share), combining the recommended final dividend of
4.125p per share for the year ended 31 December 2019 with the
interim dividends of 1.625p per share paid on 15 August 2019,
14 November 2019 and 13 February 2020. The final dividend
for the year ended 31 December 2019, is subject to shareholder
approval at the 2020 AGM. In light of the disruption caused
by COVID-19, the Board will announce the revised record and
payment dates for the final dividend once the timing of the 2020
AGM has been confirmed.
OUTLOOK
The outlook for and likely future developments of the Group
are described within the Chairman’s Statement on pages 8 and 9,
together with the Chief Executive Officer’s Statement on pages 10
to 13, and the Group’s Strategic Report on pages 3 to 51.
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 pages 60 to 61.
All Directors will stand for election or re-election at the 2020 AGM,
with the exception of W.M. Blyth who announced his intention to
retire from the Board following the 2020 AGM.
A table of Directors’ attendance at Board and Committee meetings
during 2019 is on page 57.
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, with the exception of W.M. Blyth who has
announced his intention to retire, 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
2019 AGM, held on 13 May 2019, the Directors were given the
power to issue new shares up to an aggregate nominal amount of
£1,209,803. This power will expire at the earlier of the conclusion of
the 2020 AGM or 30 June 2020. Further, the Directors were given
the power to make market purchases of ordinary shares up to a
maximum number of 18,147,039. This power will expire at the
earlier of the conclusion of the 2020 AGM or 30 June 2020.
At the AGM held on 13 May 2019, 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 2020 AGM or 30 June 2020.
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 20 March
2020 was as follows:
Issued no.
Nominal value
per share
Total
% of total
capital
Ordinary shares
181,470,392
0.02
3,629,408
100%
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
DIRECTORS’ REPORT
continued
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 71 to 73
and in note 29 to the financial statements.
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 29.
Warrants
On 18 January 2017, the Company resolved to create 294,695
warrants, to be issued pursuant to a warrant instrument dated
10 February 2017, with Investec Bank PLC as part of the
refinancing of the Group’s revolving credit facility (refer to note 25).
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). In accordance with the original warrant
instrument dated 10 February 2017, the rights to subscribe for
ordinary shares conferred by the warrants could only be exercised
within three years from the date of grant. On 10 February 2020,
the Company resolved to extend the exercise period to 10 August
2020, due to the holder being restricted from exercising the
warrants during the past 12 months, as result of being in
possession of inside information.
Allotment of ordinary shares
On 16 May 2018, the Company issued 37,954 new Ordinary
Shares at a price of 92.21p per share amounting to an aggregate
nominal value of £759 and aggregate consideration of £34,998
following the exercise of options awarded to employees under the
Company Share Option Plan (‘CSOP’). Further details are set out in
notes 29 and 30 to the financial statements.
On 10 October 2018, the Company issued 51,453 new Ordinary
Shares at a price of 77p per share amounting to an aggregate
nominal value of £1,029 and aggregate consideration of £39,619
following the exercise of options awarded to employees under the
CSOP. Further details are set out in notes 29 and 30 to the financial
statements.
On 11 June 2018, the Company issued 478,951 new Ordinary
Shares at a price of 156.6p per share amounting to an aggregate
nominal value of £9,579 and aggregate consideration of £750,037.
This issue price was fixed on 4 June 2018 and represented the
30-day VWAP. There shares were the total consideration for the
acquisition of the Canariaco copper royalty, further details of which
are set out in notes 18 and 29 to the financial statements.
There were no allotments of ordinary shares during the year ended
31 December 2019. As a result, the Company has not issued any
new Ordinary Shares other than as part of a pre-emptive offer in
the 12 months or three years preceding the date of this Annual
Report and Accounts.
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 31 March 2020.
Ordinary Shares
of 2p each
Representing
Schroder Investment Management
19,526,412
10.76%
Aberforth Partners
16,131,444
Canaccord Genuity Wealth Management
13,622,144
AXA Investment Manager
Ransome’s Dock Limited
BlackRock Investment Management
Mr J.A. Treger
12,281,615
8,591,120
7,748,786
5,513,296
8.89%
7.51%
6.77%
4.73%
4.27%
3.04%
See page 77 for a list of Directors’ interests in shares.
I N T E R N A L C O N T R O L S
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.
S TAT E M E N T A S T O D I S C L O S U R E O F I N F O R M AT I O N T O A U D I T O R S
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.
O T H E R S TAT U T O R Y A N D R E G U L AT O R Y I N F O R M AT I O N
Information in relation to the Group’s payment policy can be
found in note 27 and a statement on Going Concern is provided
in note 3.1.1.
A U D I T O R S
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 2020 AGM.
D E S I G N AT E D F O R E I G N I S S U E R S TAT U S
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 . F LY N N
Company Secretary
6 April 2020
R E G I S T E R E D O F F I C E
1 Savile Row
London
W1S 3JR
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKGovernance STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and
Accounts, the Directors’ Remuneration Report and the financial
statements in accordance with applicable law and regulations.
DIRECTORS’ STATEMENT PURSUANT TO THE DISCLOSURE AND
TRANSPARENCY RULES
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with IFRSs
as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole;
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
• the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group’s
website, www.anglopacificgroup.com. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
By Order of the Board
N . P. H . M E I E R
Chairman
6 April 2020
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.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
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
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
1. OPINION
In our opinion:
• the financial statements of Anglo Pacific Group plc (the ‘parent
company’) and its subsidiaries (the ‘group’) give a true and fair
view of the state of the group’s and of the parent company’s
affairs as at 31 December 2019 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 which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes
in equity;
• the consolidated and parent company cash flow statements;
and
• the related notes 1 to 37.
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.
2. 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 Financial
Reporting Council’s (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.
3. MATERIAL UNCERTAINTY RELATING TO GOING CONCERN
We draw attention to note 3.1.1 in the financial statements, which
indicates that due to the recent COVID-19 pandemic there is a
possibility of operational disruption across the Group`s portfolio
which in certain downside scenarios could cause a breach of
borrowing covenants.
In response to this, we:
• Obtained an understanding of the relevant controls over the
going concern assessment process;
• Evaluated the directors’ plans for future actions in relation to
the going concern assessment;
• Reviewed the cash flow forecasts produced by management
and challenged the underlying data and key assumptions by
assessing their consistency with valuation models and budgets
where applicable;
• Reviewed management’s sensitivity analysis, in particular, a
downside scenario with no revenue streams being expected
during the next 12 months;
• Considered financing facilities including nature of facilities,
repayment terms and covenants compliance;
• Assessed the group’s expected covenants compliance under
different scenarios, in particular, the downside scenario of no
revenues being received over the next 12 months, and
management’s actions in case of potential breach; and
• Considered the appropriateness of management’s disclosures
in the financial statements.
As stated in note 3.1.1, these events or conditions, along with the
other matters as set forth in note 3.1.1 to the financial statements,
indicate that a material uncertainty exists that may cast significant
doubt on the group’s and the company’s ability to continue as a
going concern. Our opinion is not modified in respect of this matter.
4. 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 royalty intangibles portfolio;
• Uncertain tax position; and
• Going concern (see material uncertainty relating to going concern section).
Materiality
The materiality that we used for the group financial statements was £4.1m which was determined on the basis
of considering a number of different measures including net assets, total assets, and adjusted profit before tax.
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.
There were no changes to our audit approach when compared to 2018 apart from the fact that due to COVID-19
pandemic, which has severely impacted the global economy, we considered going concern as a key audit matter.
Significant
changes
in our
approach
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKFinancial statements 5. CONCLUSIONS RELATING TO GOING CONCERN, 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 22-28 that describe the principal risks, procedures to identify emerging
risks, and an explanation of how these are being managed or mitigated;
• the directors' confirmation on pages 22-28 that they have carried out a robust assessment of the
principal and emerging risks facing the group, including those that would threaten its business
model, future performance, solvency or liquidity; or
• the directors’ explanation on page 22 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 also report whether the directors’ statement relating to going concern and the prospects of the
group that would be required by Listing Rule 9.8.6R(3) if the group had a premium listing is materially
inconsistent with our knowledge obtained in the audit.
Viability means the ability of
the group to continue over
the time horizon considered
appropriate by the directors.
Aside from the impact of
the matters disclosed in the
material uncertainty relating
to going concern section,
we confirm that we have
nothing material to add or
draw attention to in respect
of these matters.
6. KEY AUDIT MATTERS
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. In addition to the matter described in the material uncertainty relating to going
concern section, we have determined the matters described below to be the key audit matters to be communicated in our report.
6.1. Valuation of the Kestrel royalty
Key audit
matter
description
Royalty arrangements held at fair value have a value of £104.6m as at 31 December 2019 (2018: £117.6m). The Kestrel
royalty comprises £96.5m (2018: £109.8m) of the total and management engaged an independent valuation specialist
to perform an independent valuation of this 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.
Following the acquisition of the Kestrel mine by a new operator in 2018 with announced plans to accelerate production
and subsequent increase in production demonstrated during 2019, management has considered the extent to which
increases in the forecast production are appropriate.
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 15 to the financial statements along with the related
sensitivity analysis. The Group discloses this risk as a critical accounting judgement in note 4 to the financial statements.
Refer to the Audit Committee report where this matter is considered by the Audit Committee as a significant issue,
‘Review of carrying value of the Kestrel coal royalty’ on page 64.
How the
scope of
our audit
responded
to the key
audit matter
We obtained an understanding of the relevant controls over the Kestrel royalty valuation process.
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. We challenged the achievability of the increase in annual production announced by the operator and
incorporated by the independent specialists in its valuation model. To challenge the discount rate we calculated an
independent discount rate and compared this to the rate 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.
Key
observations
We concur that the fair value of the Kestrel royalty is within an acceptable range.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ANGLO PACIFIC GROUP PLC
6.2. Impairment assessment of the royalty intangibles portfolio
Key audit
matter
description
Royalty arrangements held as intangibles have a gross carrying amount of £148.1m at 31 December 2019 (2018: £113.3m)
and a net carrying amount of £102.2m (2018: £71.2m). The assessment of whether impairment/impairment reversal
indicators exist and estimating the recoverable amount of royalty arrangements accounted for as intangible assets where
necessary requires 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 Ring of Fire with carrying amounts of £1.0m (2017: £1.2m) and
£2.3m (2018: £3.6m) respectively.
Following the completion of valuation models for these two assets, an impairment charge of £1.3m was recognised at
Ring of Fire (see note 17 to the financial statements). The Group discloses this risk as a critical accounting judgement in
note 4 to the financial statements.
Refer to the Audit Committee report where this matter is considered by the Audit Committee as part of the significant
issue, ‘Review of carrying values of royalties held at amortised cost and resulting impairment charges’ on page 64.
How the
scope of
our audit
responded
to the key
audit matter
We obtained an understanding of the relevant controls over the process of the royalty intangibles portfolio impairment
assessment.
We challenged management’s assessment as to whether indicators of impairment or impairment reversal exist for
specific royalty arrangements through evaluation of changes in production and pricing forecasts and a review of
publicly 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.
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.
We evaluated whether it was appropriate to reverse previous impairments where there were indicators of impairment
reversal for royalty assets.
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.
6.3. Uncertain tax position
Key audit
matter
description
The preparation and filing of tax returns requires certain judgements and interpretations to be made, in some
circumstances where there is little guidance or precedent.
In 2017 the Group undertook a restructuring of certain loss making entities. 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 were successfully challenged
by the tax authorities, possibly through litigation, this would result in a reduction in the deferred tax asset of £3.3m
(2018: £3.3m) and the recognition of current tax liability of £3.6m (2018:£3.6m) as at 31 December 2019, with a £6.9m
(2018:£6.9m) corresponding income statement tax charge for 2019.
The Group has increased its tax provisions by £0.3m to £2.0m during the year in relation to a separate uncertain tax
position. This represents management’s best estimate as to a settlement value should the judgement be successfully
challenged.
Management disclosed these matters as uncertain tax positions in note 11 to the financial statements. The Group
discloses this risk as a critical accounting judgement in note 4 to the financial statements.
Refer to the Audit Committee report where these matters are considered by the Audit Committee as part of the
significant issue, ‘Group tax exposures’ on page 64.
How the
scope of
our audit
responded
to the key
audit matter
We obtained an understanding of the relevant controls over uncertain tax position valuation process.
We reviewed the papers prepared by management’s independent tax expert in respect of the two uncertain tax
positions.
With the involvement of our tax specialist we performed the following procedures:
• reviewed management’s tax advice and accounting papers;
• evaluated the potential for the Group’s historical treatments to be challenged;
• reviewed the tax legislation, case law and relevant precedents to determine if the tax treatment was reasonable;
• recalculated the potential exposures;
• reviewed management`s communication with relevant taxation authorities; and
• challenged management’s assessment of the probable loss to be provided for and the possible exposures disclosed.
We held a meeting with management to discuss our concern that there is no clear precedence or guidance on these
matters and, as such, these result in uncertain tax positions.
Key
observations
We concur with management’s provisions and disclosure.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKFinancial statements 7. OUR APPLICATION OF MATERIALITY
7.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and
in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Basis for determining
materiality
Rationale for the
benchmark applied
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
£4.1m (2018: £4.4m)
£3.3m (2018: £2.7m)
2% of net assets (2018: 2%)
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 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.
Materiality has been determined on the
basis of considering a number of different
measures including net assets, total
assets, and adjusted profit before tax
(2018: 2% of net assets)
The long-term value for shareholders is in the
asset base as the company generates its
wealth through royalties acquired. Although
royalties are often bought in the development
phase of an asset's life and a portion of the
company’s value is not reflected in the income
statement, following the acquisition of a
royalty in the operating Mantos Blancos mine
and an additional investment into the dividend
generating LIORC during 2019, a significant
part of the group balance is now revenue
generating.
Therefore materiality, representing
approximately 2% of net assets, 1.5% of total
assets and 7.5% of adjusted profit before tax,
was considered the most reasonable as it
allowed us to take into account the value of
the company by considering both its revenue
generating assets and the other assets that
have not yet commenced production as at
31 December 2019.
7.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 70% of group
materiality for the 2019 audit (2018: 70%). In determining performance materiality, we considered our risk assessment, including our
assessment of the group’s overall control environment and our past experience of the audit, which has indicated a low number of
corrected and uncorrected misstatements identified in prior periods.
7.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £205,000 (2018:
£220,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
8. AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level.
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. Audit work to respond to the risks of material misstatement was performed directly by the
engagement team.
9. 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.
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.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ANGLO PACIFIC GROUP PLC
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 that would be required if
the company had a premium listing 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.
We have nothing to report in respect of these matters.
10. RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view, 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.
11. 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.
Details of the extent to which the audit was considered capable
of detecting irregularities, including fraud and non-compliance
with laws and regulations are set out below.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
12. EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE
OF DETECTING IRREGULARITIES, INCLUDING FRAUD
We identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, and then
design and perform audit procedures responsive to those risks,
including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
12.1. Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and
business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration,
bonus levels and performance targets;
• results of our enquiries of management and the audit committee
about their own identification and assessment of the risks of
irregularities;
• any matters we identified having obtained and reviewed the
group’s documentation of their policies and procedures relating
to:
– identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances
of non-compliance;
– detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged
fraud;
– the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
• the matters discussed among the engagement team and
involving relevant internal specialists, including tax specialists,
regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the valuation of Kestrel
royalty. In common with all audits under ISAs (UK), we are also
required to perform specific procedures to respond to the risk
of management override.
We also obtained an understanding of the legal and regulatory
frameworks that the group operates in, focusing on provisions
of those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the UK Companies Act, Listing Rules and tax
legislations.
12.2. Audit response to risks identified
As a result of performing the above, we identified valuation of the
Kestrel royalty as a key audit matter related to the potential risk
of fraud. The key audit matters section of our report explains the
matters in more detail and also describes the specific procedures
we performed in response to that key audit matter.
In addition to the above our procedures to respond to risks
identified included the following:
• reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions
of relevant laws and regulations described as having a direct
effect on the financial statements;
• enquiring of management, the audit committee and external
legal counsel concerning actual and potential litigation and
claims;
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORKFinancial statements • performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance
and reviewing correspondence with Her Majesty's Revenue and
Customs (HMRC) and Australian Taxation Office (ATO); and
• in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
• We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members
including internal specialists, and remained alert to any
indications of fraud or non-compliance with laws and regulations
throughout the audit.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
13. 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
15. OTHER MATTERS
15.1. Auditor tenure
Following the recommendation of the audit committee, we were
appointed by shareholders at the AGM on 11 June 2014 to audit
the financial statements for the year ending 31 December 2014
and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of
the firm is 6 years, covering the years ending 31 December 2014
to 31 December 2019.
15.2. 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).
16. 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.
P A U L B A R N E T T F C A
( S E N I O R S TAT U T O R Y A U D I T O R )
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
• the strategic report and the directors’ report have been prepared
6 April 2020
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.
14. MATTERS ON WHICH WE ARE REQUIRED TO REPORT
BY EXCEPTION
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. 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.
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTSAPG_AR19_07.04.20_MIDDLE_ARTWORK
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2019
Royalty related revenue
Amortisation of royalties
Operating expenses
OPERATING PROFIT BEFORE IMPAIRMENTS, REVALUATIONS AND GAINS ON DISPOSALS
Impairment of royalty intangible assets
Revaluation of royalty financial instruments
Revaluation of coal royalties (Kestrel)
Finance income
Finance costs
Net foreign exchange gains/(losses)
Other net income/(losses)
Notes
5
17
6a
17
16
15
8
9
10
2019
£’000
55,728
(3,777)
(7,132)
2018
£’000
46,104
(2,974)
(6,032)
44,819
37,098
(1,367)
2,478
(9,215)
34
(1,337)
2,703
(480)
(2,234)
(871)
10,061
82
(1,042)
(593)
2,043
PROFIT BEFORE TAX
37,635
44,544
Current income tax charge
Deferred income tax credit/(charge)
11
11, 26
(12,414)
3,774
(8,378)
(7,373)
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS
28,995
28,793
TOTAL AND CONTINUING EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
The notes on pages 96 to 131 are an integral part of these consolidated financial statements.
12
12
16.06p
15.97p
15.97p
15.94p
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ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2019
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS
ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS
Changes in the fair value of equity investments held at fair value through other comprehensive income
Revaluation of royalty financial instruments
Revaluation of mining and exploration interests
Deferred taxes relating to items that will not be reclassified to profit or loss
ITEMS THAT MAY BE SUBSEQUENTLY RECLASSIFIED TO PROFIT OR LOSS
Deferred tax relating to items that have been or may be reclassified
Net exchange loss on translation of foreign operations
Notes
2019
£’000
28,995
2018
£’000
28,793
16
18
(123)
923
(22)
778
–
(8,703)
(8,703)
290
(12,147)
–
(11,857)
(147)
(6,669)
(6,816)
OTHER COMPREHENSIVE (LOSS)/PROFIT FOR THE YEAR, NET OF TAX
(7,925)
(18,673)
TOTAL COMPREHENSIVE PROFIT FOR THE YEAR
21,070
10,120
The notes on pages 96 to 131 are an integral part of these consolidated financial statements.
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O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
91
APG_AR19_07.04.20_ARTWORK
CONSOLIDATED BALANCE SHEET AND COMPANY BALANCE SHEET
as at 31 December 2019
Notes
2019
£’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
Trade and other receivables
Deferred tax
CURRENT ASSETS
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
TOTAL ASSETS
NON-CURRENT LIABILITIES
Borrowings
Trade and other payables
Deferred tax
CURRENT LIABILITIES
Income tax liabilities
Derivative financial instruments
Trade and other payables
TOTAL LIABILITIES
NET ASSETS
CAPITAL AND RESERVES ATTRIBUTABLE TO SHAREHOLDERS
Share capital
Share premium
Other reserves
Retained earnings
TOTAL EQUITY
14
15
16
17
18
19
20
21
26
21
22
23
25
27
26
22
27
28
28
Group
2018
£’000
22
109,778
46,205
71,194
2,848
926
–
19,335
3,261
2019
£’000
955
–
3,760
2,349
3,395
458
155,896
60,299
–
Company
2018
£’000
22
–
3,929
2,349
2,559
584
99,439
56,532
–
955
96,419
65,801
102,201
3,642
682
–
17,919
3,185
290,804
253,569
227,112
165,414
9,546
10,267
–
7,597
17,143
188
5,223
15,678
1,030
–
1,420
2,450
764
–
1,024
1,788
307,947
269,247
229,562
167,202
36,401
1,659
30,172
68,232
9,821
480
3,700
14,001
8,300
575
35,156
44,031
4,085
–
3,023
7,108
36,401
1,659
639
38,699
411
–
25,937
26,348
8,300
575
668
9,543
111
–
20,736
20,847
82,223
51,139
65,047
30,390
225,714
218,108
164,515
136,812
3,629
62,779
40, 352
3,629
62,779
47,285
118,954
104,415
3,629
62,779
35,422
62,685
3,629
62,779
33,576
36,828
225,714
218,108
164,515
136,812
The notes on pages 96 to 131 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 £40,254,000 (2018: £22,791,000).
The financial statements of Anglo Pacific Group PLC (registered number: 897608) on pages 90 to 131 were approved by the Board and
authorised for issue on 06 April 2020 and are signed on its behalf by:
N.P.H. MEIER
Chairman
J.A. TREGER
Chief Executive Officer
92
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
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
Investment
in own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
Balance at 1 January 2018
3,618 61,966 29,134
143
11,727 3,032
22,685
632
(2,601)
88,601 218,937
Adjustment for transition to
new accounting standards
–
–
–
–
477
–
–
–
–
(527)
(50)
Restated opening balance
3,618 61,966 29,134
143
12,204 3,032
22,685
632
(2,601)
88,074 218,887
Profit for the year
Other comprehensive income:
Changes in fair value of
equity investments held
at fair value through other
comprehensive income
Valuation movement
taken to equity
Deferred tax
Foreign currency translation
TOTAL COMPREHENSIVE PROFIT
Transferred to retained
earnings on disposal
Dividends
Issue of ordinary shares
Value of employee services
TOTAL TRANSACTIONS WITH
OWNERS OF THE COMPANY
–
–
–
–
–
–
–
–
–
28,793
28,793
26
13
28
29
–
–
–
–
–
–
–
–
–
–
–
–
11
–
813
–
11
813
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11,857)
(147)
–
(12,004)
(398)
–
–
–
–
–
–
–
–
–
–
1,127
(398)
1,127
(65)
155
(6,759)
(6,669)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11,922)
8
(6,759)
28,793
10,120
398
–
(12,889)
(12,889)
–
39
824
1,166
(12,452)
(10,899)
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
BALANCE AT 31 DECEMBER 2018
3,629 62,779 29,134
Balance at 1 January 2019
3,629 62,779 29,134
–
–
–
143
143
–
(198)
4,159
16,016
(198) 4,159
16,016
–
–
–
632
632
–
(2,601) 104,415
218,108
(2,601) 104,415 218,108
–
28,995
28,995
Profit for the year
Other comprehensive income:
Changes in fair value of
equity investments held
at fair value through other
comprehensive income
Valuation movement
taken to equity
Deferred tax
Foreign currency translation
TOTAL COMPREHENSIVE PROFIT
Transferred to retained
earnings on disposal
Dividends
Value of employee services
TOTAL TRANSACTIONS WITH
OWNERS OF THE COMPANY
26
13
29
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
800
(22)
–
778
12
–
–
–
–
–
–
–
–
980
12
980
–
–
(8,703)
(8, 703)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
800
(22)
(8, 703)
28,995
21,070
(12)
–
(14,444)
(14,444)
–
980
(14,456)
(13,464)
BALANCE AT 31 DECEMBER 2019
3,629 62,779 29,134
143
592
5,139
7, 313
632
(2,601) 118,954
225,714
The notes on pages 96 to 131 are an integral part of these consolidated financial statements.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
93
APG_AR19_07.04.20_ARTWORK
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
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
3,618
61,966
29,134
143
9,472
3,032
–
–
–
–
477
–
3,618
61,966
29,134
143
9,949
3,032
–
–
–
–
–
–
–
–
–
–
–
–
11
–
813
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10,154)
(10,154)
–
(10,154)
(369)
–
–
–
–
–
–
–
–
–
–
1,127
13
28
29
82
–
82
–
–
–
–
–
–
–
–
Special
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
632
27,045 135,124
–
(527)
(50)
632
26,518 135,074
–
–
–
–
–
–
–
–
–
–
(10,154)
(10,154)
22,791
22,791
22,791
12,637
369
–
(12,889)
(12,889)
–
39
824
1,166
Balance At 1 January 2018
Adjustment for transition to
new accounting standards
Restated opening balance
Changes in equity for 2018
Changes in fair value of
equity investments held
at fair value through other
comprehensive income
Valuation movement
taken to equity
Net income recognised
direct into equity
Profit for the period
Total recognised income
and expenses
Transferred to retained
earnings on disposal
Dividends
Issue of ordinary shares
Value of employee services
BALANCE AT 31 DECEMBER 2018
3,629
62,779
29,134
3,629
62,779
29,134
143
143
(574)
4,159
(574)
4,159
82
82
632
632
36,828
136,812
36,828 136,812
Balance at 1 January 2019
Changes in equity for 2019
Changes in fair value of
equity investments held
at fair value through other
comprehensive income
Valuation movement
taken to equity
Net income recognised
direct into equity
Profit for the period
Total recognised income
and expenses
Transferred to retained
earnings on disposal
Dividends
Value of employee services
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
913
913
–
913
(47)
–
–
–
–
–
–
–
–
980
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
913
913
40,254
40,254
40,254
41,167
47
–
(14,444)
(14,444)
–
980
13
29
BALANCE AT 31 DECEMBER 2019
3,629
62,779
29,134
143
292
5,139
82
632
62,685
164,515
The notes on pages 96 to 131 are an integral part of these consolidated financial statements.
94
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
CONSOLIDATED STATEMENT OF CASH FLOWS AND COMPANY STATEMENT OF CASH FLOWS
for the year ended 31 December 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Finance income
Finance costs
Net foreign exchange (gains)/losses
Other losses/(income)
Impairment of royalty and exploration intangible assets
Revaluation of royalty financial instruments
Royalties due or received from royalty financial instruments
Revaluation of coal royalties (Kestrel)
Depreciation of property, plant and equipment
Amortisation of royalty intangible assets
Amortisation of deferred acquisition costs
Impairment of investment in subsidiaries
Forgiveness of loan to subsidiary undertaking
Intercompany dividends
Share-based payment
Decrease/(Increase) in trade and other receivables
Increase/(Decrease) in trade and other payables
Cash generated from operations
Income taxes paid
NET CASH GENERATED FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on disposal of mining and exploration interests
Proceeds on return of capital from mining and exploration interests
Purchase of property, plant and equipment
Purchase of royalty and exploration intangibles
Proceeds from royalty financial instruments
Purchases of royalty financial instruments
Repayments under commodity related financing agreements
Prepaid acquisition costs
Finance income
Investment in subsidiaries
Return of capital from subsidiaries
Intercompany dividends
Loans granted to subsidiary undertakings
Loan repayments from subsidiary undertakings
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of revolving credit facility
Repayment of revolving credit facility
Loans from subsidiary undertakings
Proceeds from issue of share capital
Dividends paid
Lease payments
Finance costs
NET CASH FROM/(USED IN) FINANCING ACTIVITIES
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
Effect of foreign exchange rates
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Notes
2019
£’000
Group
2018
£’000
2019
£’000
Company
2018
£’000
37,635
44,544
41,062
23,261
8
9
10
17
16
16
15
14
17
20
7a
11
18
18
14
17
16
16
21
8
20
20
27
27
(34)
1,337
(2,703)
480
1,367
(2,478)
2,166
9,215
224
3,777
13
–
–
–
1,114
52,113
2,106
718
54, 937
(7,851)
47,086
321
–
(9)
(42,284)
(82)
1,042
593
(2,043)
2,234
871
1,975
(10,061)
26
2,974
202
–
–
–
1,323
43,598
(1,554)
(650)
41,394
(4,482)
36,912
612
827
(4)
–
–
1,720
(20,287)
(38,408)
1,577
1,276
–
34
–
–
–
–
–
(34)
82
–
–
–
–
–
(234)
1,012
(3,550)
165
–
(1,997)
2,166
–
224
–
13
–
244
(216)
524
612
(1,657)
–
(1,925)
1,975
–
26
–
202
5,325
284
(38,998)
(27,794)
1,114
1,221
(266)
681
1, 636
(536)
1,100
117
–
(9)
–
–
–
1,577
–
234
1,323
1,940
(337)
(534)
1,069
(369)
700
562
–
(4)
–
1,720
–
1,276
(34)
216
(56,457)
(39,346)
–
31,124
(3,590)
5,813
4,789
27,794
(2,080)
866
(4,241)
17,300
(9,000)
8,552
75
(60,648)
(33,929)
(21,191)
24, 25
24, 25
44,951
(14,225)
–
–
17,300
(9,000)
–
75
44,951
(14,225)
4,521
–
13
9
(14,444)
(12,889)
(14,444)
(12,889)
(199)
(1,074)
15,009
1,447
5,223
927
7,597
–
(1,264)
(5,778)
(2,795)
8,099
(81)
5,223
(199)
(891)
19,713
(378)
1,024
774
1,420
–
(813)
3,225
(316)
1,349
(9)
1,024
The notes on pages 96 to 131 are an integral part of these consolidated financial statements.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
95
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
1 GENERAL INFORMATION
Anglo Pacific Group PLC (the ‘Company’) and its subsidiaries (together, the ‘Group’) secure natural resources royalties and streams by
creating new royalties directly with operators or by acquiring existing royalties. The Group has royalties and investments in mining and
exploration interests primarily in Australia, North and South America and Europe, with a diversified exposure to commodities represented
by coal, iron ore, copper, vanadium, uranium, and gold.
The Company is a public limited company, which is listed on the London Stock Exchange and Toronto Stock Exchange and incorporated
and domiciled in the United Kingdom. The address of its registered office is 1 Savile Row, London, W1S 3JR, United Kingdom (registered
number: 897608).
2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
(a) New and amended IFRS Standards that are effective for the current year
IFRS 16 Leases
In the current year, the Group has applied IFRS 16 (as issued by the IASB in January 2016) that is effective for annual periods that begin
on or after 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee
accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and
a lease liability at commencement for all leases, except for short-term leases and leases of low-value assets. In contrast to lessee
accounting, the requirements for lessor accounting have remained largely unchanged. Details of these new requirements are described
in note 3. The impact of the adoption of IFRS 16 on the Group’s consolidated financial statements is described below.
The date of initial application of IFRS 16 for the Group is 1 January 2019.
As the Group’s leases relate primarily to office space, it has not applied IFRS 16 using the full retrospective approach and has not restated
comparative information. As the Group’s lease over its office space had a break clause effective in 2019, the cumulative effect of initially
applying IFRS 16 was immaterial and has not resulted in an adjustment to retained earnings.
Impact of the new definition of a lease
The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a
lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those contracts entered
or modified before 1 January 2019.
The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on
the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration.
This is in contrast to the focus on ‘risks and rewards’ in IAS 17 and IFRIC 4.
The Group applies the definition of a lease and related guidance set out in IFRS 16 to all contracts entered into or changed on or after
1 January 2019.
Impact on lessee accounting
(i) Former operating leases
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance sheet.
Applying IFRS 16, for all leases (except as noted below), the Group:
• Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present
value of the future lease payments;
• Recognises depreciation of right-of-use assets and interest on lease liabilities in profit or loss;
• Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within
financing activities) in the consolidated statement of cash flows.
Lease incentives (e.g. rent-free period) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas
under IAS 17 they resulted in the recognition of a lease incentive, amortised as a reduction of rental expenses generally on a straight-line
basis.
Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as office equipment and telephones), the
Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within ‘other
operating expenses’ in profit or loss.
(ii) Former finance leases
The main differences between IFRS 16 and IAS 17 with respect to contracts formerly classified as finance leases is the measurement of
the residual value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Group recognises as part of its lease liability
only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by
IAS 17. This change did not have a material effect on the Group’s consolidated financial statements.
96
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
Financial impact of initial application of IFRS 16
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use
assets of £1.1m (refer to note 14) which reduced during the year as a result of depreciation totalling £0.2m resulting in right-of-use assets
totalling £0.9m as at 31 December 2019. A corresponding lease liability totalling £0.9m is included in non-current other payables as
at 31 December 2019 (refer to note 27) which represents the present value of the future cash flows associated with the Group’s office
space lease.
A reconciliation of the operating lease commitment at 31 December 2018 to the opening IFRS 16 lease liability is as follows.
Operating lease commitment at 31 December 2018: £1.3m
Finance lease liabilities at 31 December 2018:
Effect of discounting
IFRS 16 lease liability at 1 January 2019:
£nil
(£0.2m)
£1.1m
The incremental borrowing rate used by the Group for IFRS 16 is 3.9%.
The Group continues to include depreciation within operating expenses, as such there has been no change to the income statement
or the Group’s cash flows.
Annual Improvements to IFRS Standards 2015–2017 Cycle Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements,
IAS 12 Income Taxes and IAS 23 Borrowing Costs
The Group has adopted the amendments included in the Annual Improvements to IFRS Standards 2015–2017 Cycle for the first time
in the current year. The Annual Improvements include amendments to the following Standards which may impact the Group:
IAS 12 Income Taxes
The amendments clarify that the Group should recognise the income tax consequences of dividends in profit or loss, other comprehensive
income or equity according to where the Group originally recognised the transactions that generated the distributable profits. This is the
case irrespective of whether different tax rates apply to distributed and undistributed profits.
IAS 23 Borrowing Costs
The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale,
that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings.
IFRS 3 Business Combinations
The amendments clarify that when the Group obtains control of a business that is a joint operation, the Group applies the requirements
for a business combination achieved in stages, including remeasuring its previously held interest (PHI) in the joint operation at fair value.
The PHI to be remeasured includes any unrecognised assets, liabilities and goodwill relating to the joint operation.
IFRIC 23 Uncertainty over Income Tax Treatments
The Group has adopted IFRIC 23 for the first time in the current year. IFRIC 23 sets out how to determine the accounting tax position when
there is uncertainty over income tax treatments. The Interpretation requires the Group to:
• determine whether uncertain tax positions are assessed separately or as a group; and
• assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity
in its income tax filings:
– If yes, the Group should determine its accounting tax position consistently with the tax treatment used or planned to be used
in its income tax filings.
– If no, the Group should reflect the effect of uncertainty in determining its accounting tax position using either the most likely
amount or the expected value method.
The Standards listed above have not had a material impact on the financial statements of the Group.
(b) New and revised IFRS Standards 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 IFRS Standards
that have been issued but are effective from 1 January 2020:
• Amendments to IFRS 3 – definitions of a business
• Amendments to IAS 1 and IAS 8 – definition of material
• Conceptual Framework – amendments to references to the Conceptual Framework in IFRS standards
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements
of the Group in future periods.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 (IFRS Standards). The
financial statements have also been prepared in accordance with IFRS Standards 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 4.
3.1.1 Going concern
The financial position of the Group and its cash flows are set out on pages 92 and 95. The Directors have considered the principal risks of
the Group which are set out on pages 22 to 28, and considered key sensitivities which could impact on the level of available borrowings.
As at 31 December 2019 the Group had cash and cash equivalents of £7.6m as set out in note 23 and borrowings under its revolving
credit facility of £36.4m (U$48.0m) as set out in note 25. Subsequent to year end, the Group amended its existing revolving credit facility,
increasing the committed facility to U$90.0m (£68.3m) and extending the term by twelve months to September 2022. Following this
amendment and extension, subject to continued covenant compliance, the Group has access to a further £31.9m (U$42.0m) through
its enlarged facility.
Absent the extraordinary circumstances brought about by the COVID-19 pandemic, we would be satisfied that the Group’s forecasts and
projections, taking into account reasonable 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 would be able to operate within its current facilities
for at least 12 months from the date of approval of the financial statements. Even assuming a 20% downturn in commodity prices, sales
volumes and foreign exchange, the Group would still operate comfortably within its banking covenant limits with no debt redemption or
amortisation commitments.
However, given the recent COVID-19 pandemic, which has seen widespread humanitarian and economic disruption across the globe,
the possibility of operational disruption has heightened and we have already seen some instances of mines being placed on care and
maintenance, including the Cigar Lake uranium mine in Canada from which the Group receives income through a toll financing
arrangement and the EVBC gold mine in Spain.
COVID-19 will cause widespread economic disruption but its impact will hopefully be temporary. Although the Group has reasonable
geographical diversity within its royalty portfolio, we have materially increased our stress testing to assess the impact of up to a
twelve-month operational shutdown across the portfolio, which we believe is an extreme downside scenario. In this circumstance, the
Group would breach certain borrowing covenants and would require either waivers from its lending banks or to liquidate certain assets
to repay borrowings.
It is the expectation of management, however, that in this downside scenario the banks will waive the covenants for a short period due to
the nature of any covenant breaches being solely as a result of COVID-19 imposed restrictions and being of a temporary nature and upon
resumption of mining activities management would expect the Group to become compliant and begin to repay borrowings. For Anglo
Pacific, with a low and flexible cost base, COVID-19 should result in the deferral rather than the loss of revenue and should not impact on
the Group’s longer-term prospects once business returns to normal. For this reason, the Directors have concluded that it is appropriate
to prepare the financial statements on a going concern basis. However, as the waiver of covenant in the event of a breach under this
downside case is not wholly within management’s control, this represents a material uncertainty which could cast significant doubt upon
the Group’s and the Company’s continued ability to operate as a going concern, such that it may be unable to realise its assets and
discharge its liabilities in the normal course of business.
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.
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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.
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
Other assets:
Producing assets
4 to 10 years
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.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
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.
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 and Canadian dollar denominated royalty income, when considered necessary. Further details of derivative financial
instruments are disclosed in note 22.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a
financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is
more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets
or current liabilities.
(d) Mining and exploration interests
Mining and exploration interests are recognised and derecognised on a trade date where a purchase or sale of an investment is under
a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially
measured at fair value, including transaction costs.
On initial recognition, the Group may make an irrevocable election to designate investments in mining and exploration equity instruments
as FVTOCI. Designation as FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration
recognised by an acquirer in a business combination.
A financial asset is held for trading if:
• it has been acquired principally for the purpose of selling in the near term; or
• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence
of a recent actual pattern of short-term profit-taking; or
• it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).
Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured
at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the
investment revaluation reserve, within ‘Other reserves’. The cumulative gain or loss is not reclassified to profit or loss on disposal of the
equity investments, instead, it is transferred to retained earnings.
Dividends on these investments in equity instruments are recognised in profit or loss in accordance with IFRS 9, unless the dividends
clearly represent a recovery of part of the cost of the investment.
The Group has designated all investments in equity instruments that are not held for trading as at FVTOCI on initial application of IFRS 9
(see notes 16 and 18).
(e) Royalty financial instruments
Royalty financial 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.
All of the Group’s royalty financial instruments have been designated as at FVTPL, with the exception of the investment in Labrador Iron
Ore Corporation for which the Group has made an irrevocable election to designate as at FVTOCI.
The royalty financial instruments at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or
losses recognised in the ‘revaluation of royalty financial instruments’ line item of the income statement. Fair value is determined in the
manner described in note 16 and 34.
The Group’s investment in the equity instruments of Labrador Iron Ore Corporation is classified as a royalty financial instrument as its
primary asset is a royalty income stream. On initial recognition the Group made the irrevocable election to designated this investment
as FVTOCI. The dividends received from this investment are recognised in profit or loss, and are included in the ‘royalty related revenue’
line (note 5).
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(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
The Group recognises a loss allowance for expected credit losses (‘ECL’) on investments in debt instruments that are measured at
amortised cost or at FVTOCI and trade receivables. The amount of expected credit losses is updated at each reporting date to reflect
changes in credit risk since initial recognition of the respective financial instrument. The Group’s primary asset held at amortised cost
is the interest-bearing loan to Denison Mines (note 21).
The Group always recognises lifetime ECL for trade receivables. The expected credit losses on these financial assets are estimated using
a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general
economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including
time value of money where appropriate. Due to trade receivables ultimately representing a royalty related income and being repaid within
a month after the reporting date, the amount of expected credit losses is immaterial.
For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial
recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group
measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial
instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial
instrument that are possible within 12 months after the reporting date.
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 relate 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.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
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’ 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 designated as fair value through other comprehensive income, 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 30 June 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
Group’s various share-based payment plans (note 28 and note 29).
• ‘Retained earnings’ represents retained profits.
Of these reserves £119,756,000 are considered distributable as at 31 December 2019 (31 December 2018: £104,415,000).
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
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and
a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as
leases with a lease term of 12 months or less) and leases of low-value assets (such as small items of office equipment and telephones).
For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease
unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are
consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
• Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
• Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
• The amount expected to be payable by the lessee under residual value guarantees;
• The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
• Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
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The lease liability is including within non-current trade and other payables (refer to note 27) in the consolidated statement of financial
position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of
exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised
discount rate.
• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value,
in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless
the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate
at the effective date of the modification.
The Group did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or
restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured
under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers
ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the
related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date
of the lease.
The right-of-use assets are included within property, plant and equipment (refer to note 14) line in the consolidated statement of financial
position.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as
described in the ‘Impairment of property, plant and equipment and intangible assets’ policy (refer to note 3.7).
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 29, and
are reconciled to GAAP measures in the notes 12, 13 and 35 respectively.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
4
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 Group’s classification of royalty arrangements and uncertain tax positions. The key sources of
estimation uncertainty relate to the determination of uncertain tax provisions and the calculation of the fair value of certain royalty
arrangements and the key assumptions used when assessing impairment of 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 IFRS 9 Financial Instruments; 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.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
103
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 accounted for as financial assets under IFRS 9.
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.
A summary of the Group’s accounting approach is set out below:
Accounting classification
Substance of contractual terms
Accounting treatment
Examples
Royalty intangible assets
• Simple royalty with
no right to receive
cash other than
through a royalty
related to production
• Investment is presented as an intangible
• Mantos Blancos
asset and carried at cost less accumulated
amortisation and any impairment provision
• Royalty income is recognised as revenue
in the income statement
• Intangible asset is amortised on a
systematic basis
• Intangible asset is assessed for indicators
of impairment at each period end
• Narrabri
• Maracás Menchen
• Four Mile
• Salamanca
• Pilbara
• Ring of Fire
• Canariaco
• Ground Hog
Royalty financial instruments
• Royalty arrangement
with a contractual
right to receive cash
(e.g. through a
mandated interest
rate or milestones
which, if not met,
trigger repayment)
• Financial asset is recognised at fair value
• EVBC
on the balance sheet
• Fair value movements taken through the
income statement (FVTPL), with the
exception of the LIORC investment where
fair value movements are taken through
other comprehensive income (FVOCI)
• Dugbe 1
• McClean Lake
• Piauí
• LIORC
• Royalty income is not recognised as revenue
in the income statement and instead
reduces the fair value of the asset
Investment property
• Direct ownership
• Investment property is carried at fair value
• Kestrel
of sub-stratum land
on the balance sheet
• Crinum
• Returns based
• Movements in fair value recognised in
on royalty related
production
income statement
• Royalty income is recognised as revenue
in the income statement
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 15. The key assumptions relating to the Group’s royalty financial instruments classified as fair value through profit or loss
are set out in notes 16 and 34.
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 7.00% and
13.50% 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, country risk premiums and the expected mine life.
104
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
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 operates across many tax jurisdictions. Application of tax law can be complex and requires judgement to assess risk and
estimate outcomes, particularly in relation to the Group’s cross-border operations and transactions. The evaluation of tax risks considers
both amended assessments received and potential sources of challenge from tax authorities. In some cases, it may not be possible to
determine a range of possible outcomes or a reliable estimate of the potential exposure.
Tax matters with uncertain outcomes arise in the normal course of business and occur due to changes in tax law, changes in
interpretation of tax law, periodic challenges and disagreements with tax authorities. Tax obligations assessed as having probable future
economic outflows capable of reliable measurement are provided for at 31 December 2018 and 31 December 2019 (refer to note 11).
Matters with a possible economic outflow and/or presently incapable of being measured reliably are contingent liabilities and disclosed
in note 36.
5 ROYALTY RELATED REVENUE
GROUP
Royalty income
Interest from royalty related financial assets
Dividends from royalty financial instruments
6A EXPENSE BY NATURE
GROUP
Employee benefit expense (note 7a)
Professional fees
Listing fees
Depreciation of right-of-use assets
Other expenses
6B 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
– Other assurance services pursuant to legislation
– Other services
TOTAL NON-AUDIT FEES
2019
£’000
2018
£’000
45,064
42,067
1,926
8,738
2,088
1,949
55,728
46,104
2019
£’000
4,399
1,477
93
199
964
7,132
2019
£’000
171
18
189
59
5
64
2018
£’000
3,866
1,173
97
–
896
6,032
2018
£’000
147
26
173
56
7
63
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 66.
No services were provided pursuant to contingent fee arrangements.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
105
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
7A EMPLOYEE COSTS
Wages and salaries
Share-based awards to Directors and employees
Social security costs
Other pension costs (note 7b)
2019
£’000
2,856
1,114
317
112
Group
2018
£’000
2,174
1,323
276
93
2019
£’000
2,826
1,114
314
112
Company
2018
£’000
2,143
1,323
273
93
4,399
3,866
4,366
3,832
7B 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 £112,000 (2018: £93,000) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 31 December 2019, contributions of £14,000 (2018: £11,600) due in respect of the current
reporting period had not been paid over to the schemes.
7C AVERAGE NUMBER OF PEOPLE EMPLOYED
GROUP
Number of employees
GROUP
Average number of people (including Executive Directors) employed:
Executive Directors
Administration
2019
2018
11
2019
1
10
11
10
2018
1
9
10
Company
The average number of administration staff employed by the Company during the year including Executive Directors was 11 (2018: 10).
Directors’ salaries are shown in the Directors’ Remuneration Report on pages 75 to 79, including the highest paid Director.
8
FINANCE INCOME
GROUP
Interest on bank deposits
9
FINANCE COSTS
GROUP
Professional fees
Revolving credit facility fees and interest
10 OTHER NET (LOSSES)/INCOME
GROUP
Revaluation of foreign exchange instruments
Gain on disposal of royalty financial instrument
Other losses
106
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
2019
£’000
34
34
2019
£’000
2018
£’000
82
82
2018
£’000
(263)
(1,074)
(1,337)
(574)
(468)
(1,042)
2019
£’000
(315)
–
(165)
(480)
2018
£’000
387
1,720
(64)
2,043
Financial statementsAPG_AR19_07.04.20_ARTWORK 11 INCOME TAX EXPENSE
ANALYSIS OF CHARGE FOR THE YEAR
United Kingdom corporation tax
Overseas tax
Adjustments in respect of prior years
Current tax
Deferred tax (credit)/charge in current year
Deferred tax
INCOME TAX EXPENSE
Factors affecting tax charge for the year:
PROFIT BEFORE TAX
Tax on loss calculated at United Kingdom corporation tax rate of 19.00% (2018: 19.00%)
TAX EFFECTS OF:
Items non-taxable/deductible for tax purposes:
Non-deductible expenses
Non-taxable income
Temporary difference adjustments
Utilisation of losses not previously recognised
Current year losses not recognised
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
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
2019
£’000
2018
£’000
142
12,140
132
12,414
(3,774)
(3,774)
8,640
2019
£’000
14
6,615
1,749
8,378
7,373
7,373
15,751
2018
£’000
37,635
7,151
44,544
8,463
207
(1,641)
1,393
(2,307)
(1,459)
(32)
3
–
1,584
2,430
201
196
(826)
(1,873)
1,841
369
2,851
4,732
1,108
–
INCOME TAX EXPENSE
8,640
15,751
The Group’s effective tax rate for the year ended 31 December 2019 of 23.2% (2018: 35.4%) is higher (2018: higher) than the applicable
weighted average statutory rate of corporation tax in the United Kingdom of 19.00% (2018: 19.00%). The higher effective tax rate in 2019
compared to the headline tax rate is mainly due to the majority of the Group’s revenue producing assets being held in Australian
subsidiaries and as such are subject to higher corporation tax rate.
In future periods, it is expected that the Group’s effective tax rate will mainly be driven by the prevailing Australian tax corporation tax rates.
Refer to note 27 for information regarding the Group’s deferred tax assets and liabilities.
Uncertain tax provisions
As outlined in note 4, tax matters with uncertain outcomes arise in the normal course of business and occur due to changes in tax law,
changes in interpretation of tax law, periodic challenges and disagreement with tax authorities. Where such matters are assessed as
having probable future economic outflows capable of reliable measurement they are provided for. During the year, the Group increased
its provision for uncertain tax positions by £0.3m to £2.0m as at 31 December 2019 (2018: £1.7m). Matters with possible economic
outflow and/or presently incapable of being measured reliably are contingent liabilities and are disclosed in note 36.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
107
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
The Group continues to monitor developments in relation to EU State Aid investigations including the EU Commission’s State Aid
investigation into the UK’s Controlled Foreign Company (CFC) tax regime. On 25 April 2019, the European Commission released its
decision in relation to the group company finance exemption in the UK’s CFC rules, finding that the exemption constitutes unlawful state
aid if the exempted profits arise in connection with UK activity. The UK Government disagrees with the findings and has appealed against
the decision to the European Court. Having analysed the latest decision, the Group does not currently consider that any provision is
required in relation to EU State Aid.
The Group does not currently have any material unresolved tax matters or disputes with tax authorities. Recent changes to and the
interpretation of tax legislation in certain jurisdictions where the Group has established structures may, however, be a potential source
of challenge from tax authorities. Due to the complexity of changes in international tax legislation, the Group has taken local advice and
has recognised provisions where necessary. None of these provisions are material in relation to the Group’s assets or liabilities.
12 EARNINGS PER SHARE
Earnings per ordinary share is calculated on the Group’s profit after tax of £28,995,000 (2018: £28,793,000) and the weighted average
number of shares in issue during the year of 180,544,459 (2018: 180,277,848).
NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
Earnings – basic
Earnings – diluted
2019
£’000
2018
£’000
28,995
28,995
28,793
28,793
The weighted average number of shares in issue for the purpose of calculating basic and diluted earnings per share and basic and diluted
adjusted earnings per share are as follows:
WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE
Basic number of shares outstanding
Dilutive effect of Employee Share Option Scheme
DILUTED NUMBER OF SHARES OUTSTANDING
Earnings per share – basic
Earnings per share – diluted
2019
2018
180,544,459 180,277,848
1,026,706
353,179
181,571,165 180,631,027
16.06 p
15.97p p
15.97p
15.94p
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 31 December 2019 (31 December 2018: 925,933).
Adjusted earnings per share
Adjusted earnings represent the Group’s underlying operating performance from core activities. Adjusted earnings is the profit
attributable to equity holders plus the royalty receipts from the EVBC royalty, less all valuation movements and impairments (which
are non-cash adjustment that arise primarily due to changes in commodity prices), together with amortisation charges, share-based
payments, unrealised foreign exchange gains and losses, 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 31 December 2019
28,995
16.06p
15.97p
Earnings
£’000
Earnings
per share
p
Diluted
earnings
per share
p
Adjustment for:
Amortisation of royalty intangible assets
Impairment of royalty and exploration intangible assets
Receipts from royalty financial instruments
Revaluation of royalty financial instruments
Revaluation of coal royalties (Kestrel)
Revaluation of foreign currency instruments
Share-based payments and associated national insurance
Foreign exchange (gains)/losses
Tax effect of the adjustments above
3,777
1,367
2,166
(2,478)
9,215
315
1,101
(2,703)
(4,907)
Adjusted earnings – basic and diluted for the year ended 31 December 2019
36,848
20.41p
20.29p
108
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
Earnings – basic and diluted for the year ended 31 December 2018
28,793
15.97p
15.94p
Earnings
£’000
Earnings
per share
p
Diluted
earnings
per share
p
Adjustment for:
Amortisation of royalty intangible assets
Gain on sale of royalty financial instruments
Impairment of royalty and exploration intangible assets
Receipts from royalty financial instruments
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
2,974
(1,720)
2,234
1,975
871
(10,061)
(387)
1,323
6,481
Adjusted earnings – basic and diluted for the year ended 31 December 2018
32,483
18.02p
17.98p
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.
13 DIVIDENDS AND ADJUSTED DIVIDEND COVER
On 14 February 2019 an interim dividend of 1.625p per share was paid to shareholders in respect of the year ended 31 December 2018.
On 30 May 2019 a final dividend of 3.125p per share was paid to shareholders to make a total dividend for the year ended
31 December 2018 of 8.00p per share. The first quarterly dividend of 1.625p for the year ended 31 December 2019 was paid to
shareholders on 15 August 2019. On 14 November 2019 the second quarterly dividend of 1.625p was paid to shareholders. Total
dividends paid during the year were £14.4m (2018: £12.9m).
On 13 February 2020 a further quarterly dividend of 1.625p per share was paid to shareholders in respect of the year ended 31 December
2019. This dividend has not been included as a liability in these financial statements. The Directors propose that a final dividend of 4.125p
per share be paid to shareholders following the 2020 AGM, to make a total dividend for the year of 9.00p 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.
In light of the disruption caused by COVID-19, the Board will announce revised record and payment date for the proposed final dividend
for 2019, once the timing of the 2020 AGM has been confirmed. The total estimated dividend to be paid is £7.4m. At the present time the
Board has resolved not to offer a scrip dividend alternative.
Adjusted dividend cover
Adjusted 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 31 December 2019 is 20.41p per share (note 12) with dividends for the year totalling
9.00p, resulting in dividend cover of 2.3x (2018: adjusted earnings per share 18.02p, dividends totalling 8.00p, dividend cover 2.3x).
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
109
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
14 PROPERTY, PLANT AND EQUIPMENT
Group
GROSS CARRYING AMOUNT
At 1 January 2019
Additions
At 31 December 2019
DEPRECIATION AND IMPAIRMENT
At 1 January 2019
Depreciation
At 31 December 2019
CARRYING AMOUNT 31 DECEMBER 2019
Group
GROSS CARRYING AMOUNT
At 1 January 2018
Additions
At 31 December 2018
DEPRECIATION AND IMPAIRMENT
At 1 January 2018
Depreciation
At 31 December 2018
CARRYING AMOUNT 31 DECEMBER 2018
Other
assets
£’000
Right-of-use
assets
£’000
Equipment
and
fixtures
£’000
1,356
–
1,356
(1,356)
–
(1,356)
–
1,148
–
1,148
–
(199)
(199)
949
280
9
289
(258)
(25)
(283)
6
Other
assets
£’000
Right-of-use
assets
£’000
Equipment
and
fixtures
£’000
1,356
–
1,356
(1,356)
–
(1,356)
–
–
–
–
–
–
–
–
276
4
280
(232)
(26)
(258)
22
Total
£’000
2,784
9
2,793
(1,614)
(224)
(1,838)
955
Total
£’000
1,632
4
1,636
(1,588)
(26)
(1,614)
22
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. Right-of-use assets relate to the Group’s office premises, recognised upon the application of IFRS 16 – ‘Leases’ on
1 January 2019.
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 2018 or 2019.
Company
GROSS CARRYING AMOUNT
At 1 January 2019
Additions
At 31 December 2019
DEPRECIATION AND IMPAIRMENT
At 1 January 2019
Depreciation
At 31 December 2019
CARRYING AMOUNT 31 DECEMBER 2019
Other
assets
£’000
Right-of-use
assets
£’000
Equipment
and
fixtures
£’000
821
–
821
(821)
–
(821)
–
1,148
–
1,148
–
(199)
(199)
949
280
9
289
(258)
(25)
(283)
6
Total
£’000
2,249
9
2,258
(1,079)
(224)
(1,303)
955
110
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK Other
assets
£’000
Right-of-use
assets
£’000
Equipment
and
fixtures
£’000
821
–
821
(821)
–
(821)
–
–
–
–
–
–
–
–
276
4
280
(232)
(26)
(258)
22
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
Total
£’000
1,097
4
1,101
(1,053)
(26)
(1,079)
22
Group
£’000
104,266
(4,549)
10,061
109,778
(4,144)
(9,215)
96,419
Company
GROSS CARRYING AMOUNT
At 1 January 2018
Additions
At 31 December 2018
DEPRECIATION AND IMPAIRMENT
At 1 January 2018
Depreciation
At 31 December 2018
CARRYING AMOUNT 31 DECEMBER 2018
15 COAL ROYALTIES (KESTREL)
At 1 January 2018
Foreign currency translation
Gain on revaluation of coal royalties
At 31 December 2018
Foreign currency translation
Loss on revaluation of coal royalties
At 31 December 2019
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 of £96.4m (A$181.3m) (2018: £109.8m and A$198.2m) is based on a valuation completed during December 2019 by an
independent coal industry advisor, on a net present value of the pre-tax cash flow discounted at a nominal rate of 6.00% (2018: 7.50%).
The key assumptions in the independent valuation relate to price, foreign exchange and discount rate.
The price assumptions used in the 2019 valuation decrease from US$155/t in the short-term to a long-term flat nominal price of
US$138/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$153.9m (£81.9m) and an £14.9m increase
to the revaluation loss in the income statement, resulting in a revaluation loss of £24.1m; and
• a 10% increase in the coal price would have resulted in the coal royalties being valued at A$208.7m (£111.0m) and an £14.9m reversal
of the revaluation loss in the income statement, resulting in a revaluation gain of £5.7m.
The AUD:USD exchange rate assumptions used in the 2019 valuation assume a strengthening in the Australia dollar from a short-term rate
of 0.695 to a long-term rate of 0.75 against the US dollar. If the Australian dollar were to strengthen or weaken by 10% against the US
dollar over the life of the mine that valuation effect would be:
• a 10% strengthening of the Australian dollar against the US dollar would have resulted in the coal royalties being valued at A$155.7m
(£82.8m) and an £13.9m increase to the revaluation loss in the income statement, resulting in a revaluation loss of £23.1m; and
• a 10% weakening of the Australian dollar against the US dollar would have resulted in the coal royalties being valued at A$212.6m
(£113.1m) and an £17.0m reversal of the revaluation loss in the income statement, resulting in a revaluation gain of £7.8m.
The pre-tax nominal discount rate used for the asset is 6.00%. If the discount rate used were to increase or decrease by 1% the valuation
effect would be:
• a 1% reduction in the nominal discount rate would have resulted in the coal royalties being valued at A$185.5m (£98.7m) and a £2.3m
reduction in the revaluation loss in the income statement to £6.9m; and
• a 1% increase in the nominal discount rate would have resulted in the coal royalties being valued at A$177.2m (£94.3m) and a £2.2m
increase in the revaluation loss in the income statement to £11.4m.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
111
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
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 to 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$9.9m) 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 26). Were the coal royalty to be carried at cost the carrying value would be £0.2m (2018: £0.2m). The
Directors do not presently have any intention to dispose of the coal royalty.
Refer to note 34 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 25).
16 R OYALTY FINANCIAL INSTRUMENTS
The details of the Group’s royalty financial instruments, which are held at fair value, are summarised below:
Original cost
’000
Royalty
rate
Escalation
Classification
31 December 2019
Carrying value
£’000
31 December 2018
Carrying value
£’000
Commodity
Gold, Silver,
Copper
EVBC
C$7,500
2.50%
3% gold >US$1,100/oz
Dugbe 1
Gold
US$15,000
2.00%
McLean Lake
Uranium
C$2,700
–
2.5% >US$1,800/oz & production
<50,000oz/qrt
22.5% of tolling milling receipt on
production >215Mlbs
Piauí
Nickel-Cobalt
US$2,000
Labrador Iron Ore Iron Ore
C$66,105
1.00%
7.00%
–
–
FVTPL
FVTPL
FVTPL
FVTPL
FVOCI
3,760
3,929
679
1,226
2,399
1,227
57,736
65,801
1,671
1,011
38,368
46,205
The Group’s royalty instruments are represented by four royalty agreements, EVBC, Dugbe 1, McClean Lake, and Piauí which entitle the
Group to either the repayment of principal and a net smelter return (‘NSR’) royalty for the life of the mine or a gross revenue royalty (‘GRR’)
where the project commences commercial production or the repayment of principal where it does not. All four royalty agreements are
classified as fair value through profit or loss (‘FVTPL’).
The Group’s entitlements to cash by way of the repayment of the principal and the NSR royalty or the GRR have been classified as fair
value through profit or loss in accordance with IFRS 9 and are carried at fair value in accordance with the Group’s classification of royalty
arrangements criteria set out in note 4.
The Group’s fifth royalty financial instrument is its equity investment in Labrador Iron Ore Corporation (‘LIORC’), which entitles the Group to
a share of the 7% GRR LIORC receives from the Iron Ore Company of Canada (‘IOC’) mine and distributes to its shareholders via dividends.
As LIORC is a single asset company, being GRR over the IOC mine, the Group has classified its investment in LIORC as a royalty financial
instrument and made an irrevocable election to designate it as FVTOCI.
The movement in the Group’s royalty financial instruments is summarised in the table below.
FAIR VALUE
At 1 January 2018
Additions
Royalties due or received from royalty financial instruments
Revaluation of royalty financial instruments recognised in profit or loss
Revaluation of royalty financial instruments recognised in equity
Foreign currency translation
At 31 December 2018
Additions
Royalties due or received from royalty financial instruments
Revaluation of royalty financial instruments recognised in profit or loss
Revaluation of royalty financial instruments recognised in equity
Foreign currency translation
At 31 December 2019
Group
£’000
Company
£’000
10,867
38,408
(1,975)
(871)
290
(514)
46,205
20,287
(2,166)
2,478
(123)
(880)
3,979
–
(1,975)
1,925
–
–
3,929
–
(2,166)
1,997
–
–
65,801
3,760
112
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
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R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
EVBC
The Group’s EVBC royalty acquired in 2008 was initially accounted for as an available-for-sale equity financial asset, carried at fair value
with all movements in fair value recognised in the investment revaluation reserve in equity. Following the adoption of IFRS 9, EVBC was
classified as FVTPL resulting in movements in the fair value being recognised directly in the income statement. In addition, the royalties
received from EVBC following the adoption of IFRS 9 are no longer recognised in the income statement but instead reduce the fair value.
The Group received royalties from EVBC totalling £2.2m during the year ended 31 December 2019 (2018: £2.0m), which initially reduced
the carrying value. As at 31 December 2019 the Group determined the fair value of EVBC by calculating the discounted future flows of the
royalty with an 7.00% (2018: 8.75%) pre-tax nominal discount rate, resulting in a valuation of £3.8m (2018: £3.9m). The net effect of the
£0.1m decrease in the fair value year on year and the royalties received is a valuation gain of £2.0m recognised in the income statement.
Dugbe 1
In 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 classified as FVTPL as outlined in note 4. As at 31 December 2019 the Group
assessed the likely start date of commercial production at Dugbe 1 to be 2030 (2018: 2030), and have applied a 75% (2018: 75%)
probability factor to the project reaching commercial production to the discounted future flows of the royalty with an 30.00% (2018:
22.00%) pre-tax nominal discount rate, resulting in a valuation of £0.7m (2018: £1.2m). The £0.5m decrease (2018: £2.1m decrease)
in carrying value has been recognised as a royalty financial instrument valuation charge to the income statement for the year.
McClean Lake
The Group completed a C$43.5m (£26.6m) financing and streaming agreement with Denison Mines Inc (‘Denison’) in 2017. The financing
agreement comprises two separate transactions: a 13-year amortising secured loan of C$40.8m with an interest rate of 10% per annum
payable to the Group and is classified as non-current other receivables (note 21); 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 1 July 2016, was
acquired for C$2.7m and is classified as FVTPL in accordance with note 4.
As at 31 December 2018, the Group assessed the probability of the McClean Lake Mill achieving throughput in excess of 215Mlbs at 50%
(2018: 50%), and applied this to the discounted future cash flows of the stream with a 5.50% (2018: 7.50%) pre-tax nominal discount rate,
resulting in a valuation of £2.4m (2018: £1.7m). The £0.7m increase (2018: £0.2m increase) in the carrying value of the stream has been
recognised in the income statement for the year.
Piauí
The Group acquired a 1% gross revenue royalty over the Piauí nickel-cobalt project in Brazil for US$2.0m (£1.6m) in 2017. 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. On initial recognition the Group decided to invoke 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. Following the
adoption of IFRS 9 the Group continues to classify the Piauí royalty as FVTPL.
As at 31 December 2019 the Group assessed the probability of the Piauí project reaching commercial production at 25% (2018: 25%) and
applied this to the discounted future cash flows of the royalty with a 13.50% (2018: 13.50%) pre-tax nominal discount rate, resulting in a
valuation of £1.2m (2018: £1.0m). The £0.2m increase in carrying value has been recognised as a royalty financial instrument valuation
gain to the income statement for the year.
Labrador Iron Ore
During the year ended 31 December 2019, the Group made a further investment of C$33.1m (£20.3m) in Labrador Iron Ore Corporation,
increasing its shareholding to 4,040,790 shares (2018: 2,747,890 shares). As Labrador Iron Ore Corporation is a single asset company,
being the 7% gross revenue royalty over IOC mine which is majority owned and operated by Rio Tinto, the Group classifies its investment
in Labrador Iron Ore as a royalty financial instrument. On initial recognition the Group made the irrevocable election to designate this
investment as FVTOCI.
As at 31 December 2019, the Group’s investment in Labrador was valued at C$99.5m (£57.7m) (2018: C$66.6m (£38.4m)). The resulting
dividends from the Group’s investment in Labrador Iron Ore have been classified as royalty related revenue, as described in note 3.13.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
113
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
17 ROYALTY AND EXPLORATION INTANGIBLE ASSETS
The Group’s intangibles comprise capitalised exploration and evaluation costs and royalty interests.
Group
GROSS CARRYING AMOUNT
At 1 January 2019
Additions
Foreign currency translation
At 31 December 2019
AMORTISATION AND IMPAIRMENT
At 1 January 2019
Amortisation charge
Impairment charge
Foreign currency translation
At 31 December 2019
CARRYING AMOUNT 31 DECEMBER 2019
Group
GROSS CARRYING AMOUNT
At 1 January 2018
Additions
Foreign currency translation
At 31 December 2018
AMORTISATION AND IMPAIRMENT
At 1 January 2018
Amortisation charge
Impairment charge
Foreign currency translation
At 31 December 2018
CARRYING AMOUNT 31 DECEMBER 2018
Company
Royalty interests
At 1 January and 31 December
Exploration and
evaluation costs
£’000
Royalty
interests
£’000
Total
£’000
697
112,626
113,323
–
–
42,284
(7,478)
42,284
(7,478)
697
147,432
148,129
(697)
(41,432)
(42,129)
–
–
–
(3,777)
(1,367)
1,345
(3,777)
(1,367)
1,345
(697)
(45,231)
(45,928)
–
102,201
102,201
Exploration and
evaluation costs
£’000
Royalty
interests
£’000
Total
£’000
697
115,069
115,766
–
–
2,098
(4,541)
2,098
(4,541)
697
112,626
113,323
(697)
(37,648)
(38,345)
–
–
–
(2,974)
(2,234)
1,424
(2,974)
(2,234)
1,424
(697)
(41,432)
(42,129)
–
71,194
71,194
2019
£’000
2018
£’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.
2019 Acquisition of royalty interests
On 3 September 2019, the Group completed its acquisition of the 1.525% NSR over all copper produced at the Mantos Blancos copper
mine from Mantos Copper in exchange for cash consideration of U$50.25m (£41.7m) and capitalised transaction costs of £0.6m resulting
in total additions for the year of £42.3m.
2018 Acquisition of royalty interests
On 11 June 2018, the Group completed its acquisition of the 0.5% NSR over the Canariaco copper royalty from Entrée Resources Limited
in exchange for 478,951 new ordinary shares of 2p each, issued at 156.6p per share resulting total consideration for the royalty £0.8m
(US$1.0m).
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 2017, resulting in the Group paying the first tranche of deferred consideration of US$1.5m (£1.1m) in the
same year.
In 2018, the Group has recognised the second tranche of deferred consideration of U$1.5m (£1.2m) due under the royalty agreement to
acquire the Maracás Menchen royalty. This followed the record production achieved by Largo throughout 2018, and Group’s expectation
that Largo would achieve, in a quarter, an annualised rate of production of 12,000t in the next 12 to 18 months. A corresponding liability
was included in trade and other payables on the balance sheet as at 31 December 2018 (refer to note 27). Despite not having achieved
this second production milestone during 2019, the Group continues to expect it will be achieved in the next 12 to 18 months, as such it
continues to recognise the liability in trade and other payables on the balance sheet as at 31 December 2019.
114
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
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R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
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.
Four of the underlying mining operations of the Group’s royalty intangibles assets were in production during 2019, and were amortised
on the following basis:
Royalty interest
Mantos Blancos
Narrabri
Maracás Menchen
Four Mile
Currency
USD
AUD
AUD
AUD
Carrying value
31 December 2019
’000
Carrying value
31 December 2018
’000
Estimated
life of mine
Remaining
life of mine
49,687
68,636
23,790
1,855
–
72,675
24,680
2,226
15 years
22 years
29 years
10 years
15 years
17 years
24 years
5 years
The amortisation charge for the period of £3.8m (31 December 2018: £3.0m) relates to the Group’s producing royalties, Mantos Blancos,
Narrabri, Maracás Menchen and Four Mile. Amortisation of the remaining interests will commence once they begin commercial
production.
At 31 December 2019, the shares over the entities which are the beneficial owners of the Mantos Blancos and Narrabri royalties have
been guaranteed as security in connection with the Group’s borrowing facility (note 25).
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 4 outlines the impairment methodology
applied.
Ring of Fire royalty
Despite recent announcements by Noront Resources in relation to the development of their Ring of Fire chromite deposits, and in
particular its Eagle’s Nest deposit, limited information is publicly available for the Group to assess the likely timing of the development of
deposits covered by the Group’s royalty, including the Black Thor and Big Daddy deposits which are adjacent to the Eagle’s Nest deposit.
In the absence of any publicly available information, the Group has estimated the likely start date for production from the deposits
covered by the Group’s royalty to be 2034 (2018: start date 2030). Applying this start date to the Group’s valuation model, together with a
pre-tax nominal discount rate of 10.00% and a long-term chromite price of U$175/t resulted in a net present value of the discount future
royalty cash flows of C$3.9m, compared to the carrying value of C$6.2m. As a result of the net present value being lower than the carrying
value, the Group recognised an impairment charge of C$2.3m (£1.4m) for the year ended 31 December 2019.
During the year ended 31 December 2018, the Group recognised an impairment charge of A$4.0m (£2.2m) in relation to its Pilbara iron
ore royalty. No further indicators of impairment or impairment reversals were identified in relation to this asset during 2019.
18 MINING AND EXPLORATION INTERESTS
Fair value through other comprehensive income
At 1 January 2018
Return of capital
Disposals
Revaluation adjustment
Foreign currency translation
At 31 December 2018
Additions
Disposals
Revaluation adjustment
Foreign currency translation
At 31 December 2019
Group
£’000
Company
£’000
16,431
13,273
(827)
(612)
–
(562)
(12,147)
(10,154)
3
2,848
40
(321)
923
152
2
2,559
40
(117)
913
–
3,642
3,395
The fair values of listed securities are based on quoted market prices. Unquoted investments and royalty options 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.
Mining and exploration interests are held at fair value through other comprehensive income, with the effect that the gains and losses
on disposal and impairment losses are transferred directly to retained earnings.
For the year ended 31 December 2019 the Group realised £0.3m in cash (2018: £0.6m) through its disposal of a number of its mining
and exploration interests from which management no longer considered royalty opportunities to exist. These disposals resulted in a loss
of £12K for the year ended 31 December 2019 (2018: gain £398K) which was transferred to directly to retained earnings.
In addition to the 2018 disposals outlined above, the Group received £0.8m in cash from one of its unquoted investments following
a capital reduction. No further capital reductions were received during 2019.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
115
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
Total mining and exploration interests at 31 December are represented by:
Quoted investments
Unquoted investments
Number of investments
19 DEFERRED COSTS
Group
CARRYING AMOUNT
At 1 January 2019
Additions
Released to income during the year
Foreign currency translation
CARRYING AMOUNT AT 31 DECEMBER 2019
Group
CARRYING AMOUNT
At 1 January 2018
Additions
Released to income during the year
Foreign currency translation
CARRYING AMOUNT AT 31 DECEMBER 2018
Company
CARRYING AMOUNT
At 1 January 2019
Additions
Released to income during the year
CARRYING AMOUNT AT 31 DECEMBER 2019
Company
CARRYING AMOUNT
At 1 January 2018
Additions
Released to income during the year
CARRYING AMOUNT AT 31 DECEMBER 2018
Group
£’000
3,362
280
3,642
2019
Company
£’000
3,339
56
3,395
Group
£’000
2,443
405
2,848
2018
Company
£’000
2,386
173
2,559
8
6
9
7
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
219
215
(219)
–
215
707
30
(263)
(7)
467
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
202
219
(202)
–
219
487
796
(574)
(2)
707
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
219
215
(219)
215
365
–
(122)
243
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
202
219
(202)
219
247
398
(280)
365
Total
£’000
926
245
(482)
(7)
682
Total
£’000
689
1,015
(776)
(2)
926
Total
£’000
584
215
(341)
458
Total
£’000
449
617
(482)
584
Deferred acquisition costs
As at 31 December 2019 deferred acquisition costs of £0.2m (2018: £0.2m) represent those costs associated with royalty acquisitions
that the Group are actively pursuing and expect to complete in 2020.
Deferred financing costs
As at 1 January 2018 deferred financing costs represent the costs incurred during 2017 to enter into the US$30.0m, three-year secured
revolving credit facility with a US$10.0m accordion that have been deferred and were to be amortised over the term of the facility.
During the year ended 31 December 2018 all costs associated with the 2017 refinancing were amortised in full following a further
refinancing of the Group’s revolving credit facility in September 2018. As at 31 December 2018 deferred financing costs of £0.7m
represent the arrangement fees and legal costs associated with the US$60.0m revolving credit facility with a US$30.0m accordion
financed in September 2018. This facility has been provided by a syndicate of three banks with a three-year term, together with an
option to extend the facility by 12 months (refer to note 25). The deferred costs will be amortised over the term of facility.
As at 31 December 2019 deferred financing costs of £0.5m represent the unamortised costs associated with the 2018 refinancing
of the Group’s facility described above.
116
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Financial statementsAPG_AR19_07.04.20_ARTWORK S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
20 INVESTMENTS IN SUBSIDIARIES
The Group’s full listing of subsidiaries is provided in note 38. The Company’s investment in subsidiaries as 31 December 2019 and
31 December 2018 is as follows:
Company
COST
At 1 January 2019
Capital injection into subsidiaries
At 31 December 2019
IMPAIRMENT OF INVESTMENT IN SUBSIDIARY
At 1 January 2019
At 31 December 2019
Carrying amount 31 December 2019
COST
At 1 January 2018
Capital injection into subsidiaries
Return of capital from subsidiaries
At 31 December 2018
IMPAIRMENT OF INVESTMENT IN SUBSIDIARY
At 1 January 2018
Impairment of investment in subsidiaries
At 31 December 2018
Carrying amount 31 December 2018
21 TRADE AND OTHER RECEIVABLES
CURRENT
Income tax receivable
Prepayments
Royalty related receivables
Other receivables
NON-CURRENT
Other receivables
Amounts due from subsidiaries
£’000
120,422
56,457
176,879
(20,983)
(20,983)
155,896
£’000
85,865
39,346
(4,789)
120,422
(15,658)
(5,325)
(20,983)
99,439
2018
Company
£’000
–
127
424
213
764
2018
Group
£’000
398
141
9,464
264
10,267
Group
£’000
Company
£’000
19,335
–
19,335
19,335
37,197
56,532
Group
£’000
1,784
76
7,307
379
9,546
Group
£’000
17,919
–
17,919
2019
Company
£’000
–
76
739
215
1,030
2019
Company
£’000
17,919
42,380
60,299
Current trade and other receivables
Trade and other receivables principally comprise amounts relating to royalties receivable from Kestrel, Mantos Blancos, Narrabri, Maracás
Menchen, Four Mile and EVBC for the final quarter in each year, together with dividends declared but not yet received from Labrador Iron
Ore Corporation.
The Directors consider that the carrying amount of trade and other receivables is approximately their fair value.
Non-current other receivables
In 2017, the Group completed a C$43.5m (£26.6m) financing and streaming agreement with Denison. The streaming agreement is
classified as a royalty financial instrument (note 16), 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.
During 2019, the Group has earned £1.9m in interest revenue (2018: £2.0m) and received principal repayments of £1.6m (2018: £1.3m).
The Group assesses the carrying value of the Denison financing agreement for expected credit losses over the next 12 months by making
reference to the security held by the Group and the financial position of Denison at each reporting date. As at 31 December 2019, the
implied probability of default has been assessed at 0.98% (2018: 0.98%) resulting in the Group recognising expected credit losses of
£0.1m (2018: £0.1m).
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
117
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
The movement in non-current other receivables is summarised as follows:
Group and Company
At 1 January 2018
Provision for expected credit losses on transition to IFRS 9
Interest
Repayments of principal and interest
Amortisation of deferred costs
Expected credit losses
Foreign currency translation
At 31 December 2018
Interest
Repayments of principal and interest
Amortisation of deferred costs
Expected credit losses
Foreign currency translation
At 31 December 2019
£’000
21,259
(50)
2,011
(3,286)
(14)
(64)
(521)
19,335
1,926
(3,503)
(13)
(62)
236
17,919
Non-current amounts due from subsidiaries
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.
22 D ERIVATIVE 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 related income (note 34), with the policy being expanded to
include Canadian dollar denominated royalty related income in the current year. 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 31 December is as follows:
Group
£’000
2019
Company
£’000
Group
£’000
2018
Company
£’000
FINANCIAL ASSETS CARRIED AT FAIR VALUE THROUGH PROFIT OR LOSS
Fair value as at 31 December
(480)
–
188
–
As at 31 December 2019 the Group had outstanding forward contracts totalling A$37.5m (2018: A$12.7m) to receive £20.2m (2018: £7.2m) and C$9.2m
(2018: nil) to receive £5.4m (2018: nil).
23 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
7,410
187
7,597
2019
Company
£’000
1,327
93
1,420
Group
£’000
4,240
983
5,223
2018
Company
£’000
1,024
–
1,024
24 NET DEBT
See note 3.8(a) and note 3.8(h) 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
2019
Company
£’000
(36,401)
(36,401)
7,597
1,420
(28,804)
(34,981)
Group
£’000
(8,300)
5,223
(3,077)
2018
Company
£’000
(8,300)
1,024
(7,276)
118
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
Movement in net debt
At 1 January 2018
Cash flow
Currency movements
At 31 December 2018
Cash flow
Currency movements
At 31 December 2019
Cash and cash
equivalents
£’000
8,099
(2,795)
(81)
5,223
1,447
927
7,597
Medium and
long-term
borrowings
£’000
–
Net debt
£’000
8,099
8,300
(11,095)
–
8,300
30,726
(2,625)
36,401
(81)
(3,077)
(29,279)
3,552
(28,804)
During the year ended 31 December 2019, the Group drew £44.9m (2018: £17.3m) on its revolving credit facility (refer to note 25)
and repaid £14.2m (2018: £9.0m).
25 BORROWINGS
SECURED BORROWING AT AMORTISED COST
Revolving credit facility
Group
£’000
36,401
36,401
2019
Company
£’000
36,401
36,401
Group
£’000
8,300
8,300
2018
Company
£’000
8,300
8,300
Amount due for settlement within 12 months
–
–
–
–
Amount due for settlement after 12 months
36,401
36,401
8,300
8,300
In September 2018, the Group refinanced the facility agreed in 2017 with a three-year revolving credit facility of US$60.0m with
a US$30.0m accordion, maturing in September 2021, which was available at LIBOR plus 300bps.
Subsequent to the year end, the Group amended and extended the 2018 facility, increasing the revolving credit facility to US$90.0m and
retaining a US$30.0m accordion. The amended and extended facility matures in September 2022 and is available at LIBOR plus 175bps.
Deferred borrowing costs detailed in note 19 relate to the establishment fees and legal fees associated with the 2018 facility and are being
amortised over its three-year term.
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 31 December 2019.
26 DEFERRED TAX
The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during the period:
Group
At 1 January 2018
Charge/(credit) to profit or loss
Charge/(credit) to other comprehensive income
Exchange differences
Effect of change in tax rate:
– income statement
– equity
At 31 December 2018
Charge/(credit) to profit or loss
Charge/(credit) to other comprehensive income
Exchange differences
Effect of change in tax rate:
– income statement
– equity
At 31 December 2019
Available-for sale investments
Revaluation
of coal
royalties
£’000
29,125
2,232
–
(1,331)
2,906
–
32,932
(2,764)
–
(1,243)
–
–
Revaluation
of royalty
instruments
£’000
(1,472)
(1,618)
–
92
430
–
(2,568)
(101)
22
127
–
–
28,925
(2,520)
Revaluation
of mining
interests
£’000
8
–
(8)
–
–
–
–
–
–
–
–
–
–
Accrual of
royalty
receivable
£’000
1,706
(79)
–
(72)
–
–
1,555
(929)
–
(40)
–
–
586
Other tax
losses
£’000
(3,344)
3,502
–
Total
£’000
26,023
4,037
(8)
(182)
(1,493)
–
–
(24)
20
–
–
–
–
3,336
–
31,895
(3,774)
22
(1,156)
–
–
(4)
26,987
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
119
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
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
2019
£’000
2018
£’000
(30,172)
(35,156)
3,185
3,261
(26,987)
(31,895)
As at 31 December 2019, the Group has no unused tax losses (2018: £nil) available for offset against future profits.
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
–
–
–
–
–
–
–
–
–
2019
Total
£’000
–
–
–
Tax losses –
trading
£’000
Tax losses –
capital
£’000
Other
temporary
differences
–
–
–
–
–
–
–
–
–
2018
Total
£’000
–
–
–
3,857
3,857
45,309
45,309
3,084
3,084
52,250
52,250
12,499
12,499
43,058
43,058
5,991
5,991
61,548
61,548
Temporary differences associated with investments in subsidiaries, joint ventures and associates are insignificant.
The following are the major deferred tax liabilities recognised by the Company and the movements thereon during the period:
Company
At 1 January 2018
Released to income for the year
At 31 December 2018
Released to income for the year
At 31 December 2019
Revaluation
of royalty
instruments
£’000
676
(8)
668
(29)
639
Total
£’000
676
(8)
668
(29)
639
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
27 TRADE AND OTHER PAYABLES
CURRENT
Other taxation and social security payables
Trade payables
Borrowings from subsidiaries
Accruals and other payables
Deferred consideration
2019
£’000
639
639
Group
£’000
74
34
–
1,737
1,178
3,023
2018
£’000
668
668
2018
Company
£’000
72
28
19,278
1,358
–
20,736
Group
£’000
97
102
–
2,363
1,138
3,700
2019
Company
£’000
94
80
23,799
1,964
–
25,937
Deferred consideration of £1.1m as at 31 December 2019 (2018: £1.2m) relates to the second tranche of deferred consideration of
US$1.5m due under the royalty agreement to acquire the Maracás Menchen royalty. Following record production achieved in 2018, the
Group expected Largo to achieve, in a quarter, an annualised rate of production of 12,000t during the 2019. Despite Largo not achieving
this production milestone in 2019, the Group continues to expect it will be achieved in the next 12 months.
The average credit period taken for trade purchases is 26 days (2018: 26 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.
120
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A
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E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
NON-CURRENT
Lease liability
Other taxation and social security payables
Group
£’000
950
709
2019
Company
£’000
950
709
1,659
1,659
Group
£’000
–
575
575
2018
Company
£’000
–
575
575
Non-current lease liability relates to the Group’s office premises in London, which comprises annual payments of £199K and expires
in 2024.
Non-current other taxation and social security payables relates to employer national insurance due on vesting of the certain share-based
payments.
28 S HARE CAPITAL AND SHARE PREMIUM
Issued share capital
Group and Company
ORDINARY SHARES OF 2P EACH AT 1 JANUARY 2018
Issue of share capital on exercise of employee options (a)
Issue of share capital on completion of royalty acquisition (b)
Number of
shares
180,902,034
89,407
478,951
Share
capital
£’000
3,618
2
9
Share
premium
£’000
61,966
73
740
Merger
reserve
£’000
Total
£’000
29,134
94,718
–
–
75
749
ORDINARY SHARES OF 2P AT 31 DECEMBER 2018 AND 2019
181,470,392
3,629
62,779
29,134
95,542
(a) On 16 May 2018, the Group issued 37,954 new ordinary shares of 2p each following the exercise of options awarded to employees
under the Company Share Option Plan (‘CSOP’). The shares were issued at the exercise price of 99.21p per share. On 10 October
2018, the Group issued 51,453 new ordinary shares of 2p each following the exercise of options awarded to employees under the
CSOP. The shares were issued at the exercise price of 77p per share.
(b) On 11 June 2018, the Group issued 478,951 new ordinary shares of 2p each to Entrée Resources Limited as consideration for
acquiring the Canariaco copper royalty (note 16). The shares were issued at 156.6p per share with the total consideration for the
Canariaco copper royalty being £0.8m (US$1.0m).
There was no issuance of share capital during 2019.
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
925,933
925,933
2019
£’000
Number of
shares
2018
£’000
(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 12.
29 SHARE-BASED PAYMENTS
The Group operates four equity-settled share-based compensation plans as follows:
• The HMRC approved Company Share Ownership Plan
• The JSOP operated through the Anglo Pacific Group
(the ‘CSOP’);
Employee Benefit Trust; and
• The Unapproved Share Ownership Plan (the ‘USOP’);
• 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 1 January
Granted during the year
Exercised during the year
Surrendered during the year
Outstanding at 31 December
2019
Weighted average
exercise price (£)
1.2884
Options
47,502
–
–
–
–
–
–
2018
Options
Weighted average
exercise price (£)
133,981
21,378
(89,407)
(18,450)
0.9764
1.6367
0.8346
1.6258
1.2884
47,502
1.2884
47,502
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
121
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
Out of the 47,502 outstanding options (2018: 47,502), 19,974 options (2018: 19,947) were exercisable.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry date
2024
2025
2025
2028
Weighted average remaining contractual life
No awards were made under the CSOP during 2019.
Exercise price in
£ per share
1.6258
0.9221
0.7700
1.6367
2019
6,150
–
19,974
21,378
47,502
Options
2018
6,150
–
19,974
21,378
47,502
7.00
8.00
The weighted average fair value of options granted during 2018 determined using a Black-Scholes valuation model was £0.82 per option
granted in May 2018. The significant inputs into the model were the weighted average share price of £1.637 at the grant date, exercise
price of £1.637, volatility of 40%, expected option life of three years and an annual risk-free rate of 1.16%.
(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.
The weighted average fair value of options granted during 2019 determined using a Black-Scholes valuation model was £0.36 per option
granted in September 2019. The significant inputs into the model were the share price of £1.895 at the grant date, exercise price of
£1.862, volatility of 34.88%, expected dividend yield of 4.22%, expected option life of four years and an annual risk-free rate of 0.28%.
No awards were made under the USOP during 2018.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Outstanding at 1 January
Granted during the year
Outstanding at 31 December
2019
Weighted
average exercise
price (£)
2018
Weighted
average exercise
price (£)
Options
0.8801
1.8735
0.8801
2,097,593
0.8801
–
–
2,097,593
0.8801
Options
2,097,593
375,000
2,472,593
Out of the 2,472,593 outstanding options (2018: 2,097,593), nil options (2018: nil) were exercisable.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry date
2022
2022
2024
2024
Exercise price in
£ per share
2019
2018
Options
–
633,334
633,334
1.2607
1,464,259
1,464,259
1.8617
1.9208
300,000
75,000
–
–
2,472,593
2,097,593
Weighted average remaining contractual life
2.65
3.28
(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 2018 or 2019, as a result there are no outstanding awards under this plan.
122
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T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
(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.
VCP awards outstanding at 31 December 2019 and 31 December 2018 are as follows:
Expiry date
Outstanding at 1 January
Awarded in May 2017
Forfeited during the year
Outstanding at 31 December
Weighted average remaining contractual life
Options
2019
86,867
–
–
Options
2018
86,867
–
–
86,867
86,867
1.50
2.50
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.
Refer to note 7a for the total expense recognised in the income statement for awards under the Group’s CSOP, USOP, JSOP and VCP granted
to Directors and employees.
30 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 30 June 2002. At 31 December 2018, this reserve remains unavailable for distribution.
At 1 January 2019 and 31 December 2019
31 R ELATED PARTY TRANSACTIONS
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
Group
£’000
632
Company
£’000
632
2019
£’000
(325)
2,658
42,380
2018
£’000
(728)
1,907
37,197
All transactions were made in the course of funding the Group’s continuing activities.
Remuneration of key management personnel
The remuneration of the key management personnel including Directors of the Group is set out below in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in
the audited part of the Directors’ Remuneration Report on pages 75 to 79.
Short-term employee benefits
Post-employment benefits
Share-based payment
2019
£’000
1,437
58
623
2,118
2018
£’000
1,566
65
985
2,547
Directors’ transactions
The Group received £54,411.36 from Audley Capital Advisors LLP, a company which Mr. J.A. Treger, Chief Executive Officer, is both
a director and shareholder, for the reimbursement of travel costs and the subletting of office space during the year ended
31 December 2019 (2018: £100,114.31). At 31 December 2018 there was £4,000.54 owing from Audley Capital Advisors LLP
(2017: £2,411.94).
There were no amounts paid by the Group to Audley Capital Advisors LLP, a company which Mr. J.A. Treger, Chief Executive Officer, is both
a director and shareholder during the year ended 31 December 2019. During the year ended 31 December 2018, the Group paid Audley
Capital Advisors LLP, £14,137.45 for office expenses and subscriptions. No amounts were owing to Audley Capital Advisors LLP as at
31 December 2019 or 2018.
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
123
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
32 SEGMENT INFORMATION
The Group’s chief operating decision maker is considered to be the Executive Committee. The Executive Committee evaluates the
financial performance of the Group based on a portfolio view of its individual royalty arrangements. Royalty income and its associated
impact on operating profit is the key focus of the Executive Committee. The income from royalties is presented based on the jurisdiction
in which the income is deemed to be sourced as follows:
Australia: Kestrel, Narrabri, Four Mile, Pilbara
Americas: McLean Lake, Mantos Blancos, Maracás Menchen, LIORC, Ring of Fire, Piauí, Canariaco, Ground Hog, Flowstream
Europe: EVBC, Salamanca
Other: Dugbe I, and includes the Group’s mining and exploration interests
The following is an analysis of the Group’s results by reportable segment. The key segment result presented to the Executive Committee
for making strategic decisions and allocation of resources is operating profit as analysed below.
The segment information for the year ended 31 December 2019 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 revenue
Amortisation of royalties
Operating expenses
TOTAL SEGMENT OPERATING PROFIT/(LOSS)
TOTAL SEGMENT ASSETS
Total assets include:
Australia
Royalties
£’000
41,295
(2,402)
(3,088)
35,805
Americas
Royalties
£’000
14,432
(1,375)
–
13,057
Europe
Royalties
£’000
All other
segments
£’000
–
–
–
–
–
–
(4,044)
(4,044)
Total
£’000
55,728
(3,777)
(7,132)
44,819
148,847
137,990
6,848
14,262
307,947
Additions to non-current assets (other than financial instruments and
deferred tax assets)
–
42,284
–
9
42,293
TOTAL SEGMENT LIABILITIES
38,989
37,808
639
4,797
82,233
The segment information for the year ended 31 December 2018 is as follows:
Royalty related revenue
Amortisation of royalties
Operating expenses
TOTAL SEGMENT OPERATING PROFIT/(LOSS)
TOTAL SEGMENT ASSETS
Total assets include:
Australia
Royalty
£’000
36,189
(2,469)
(2,380)
31,340
Americas
Royalty
£’000
9,838
(505)
–
9,333
Europe
Royalty
£’000
–
–
–
–
All other
segments
£’000
77
–
(3,652)
(3,575)
Total
£’000
46,104
(2,974)
(6,032)
37,098
169,051
82,914
6,702
10,580
269,247
Additions to non-current assets (other than financial instruments and
deferred tax assets
–
2,098
–
4
2,102
TOTAL SEGMENT LIABILITIES
38,738
1,178
668
10,555
51,139
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 revenue in Australia of £41,295,000 (2018: £36,189,000) includes the Kestrel royalty which generated £37,014,000
(2018: £32,648,000). Individually the revenue generated by Kestrel represented greater than 10% of the Group’s revenue in both 2018
and 2019.
The royalty related revenue in the Americas of £14,432,000 (2018: £9,838,000) includes the dividends received from the Group’s
shareholding in Labrador Iron Ore Corporation of £7,977,000 (£1,960,000). Individually the dividends received from Labrador Iron Ore
Corporation represent more than 10% of the Group’s revenue in 2019. In 2018 the revenue generated by Maracás Menchen of £5,877,000
represented greater than 10% of the Group’s revenue.
The royalty related revenue from Narrabri of £4.0m (2018: £3.4m), together with £2.7m from Maracás Menchen (2018: £5.9m), the
£1.0m from Mantos Blancos (2018: nil) and the £0.3m from Four Mile (2018: £0.1m) represent revenue recognised from contracts with
customers as defined by IFRS 15.
Impairments
The Group recognised an impairment charge of £1.4m (C$2.3m) in relation to the Ring of Fire royalty, which is within the ‘Americas
royalties’ segment during the year ended 31 December 2019. During the year ended 31 December 2018, the Group recognised an
impairment charge of £2.2m (A$4.0m) in relation to the Pilbara royalty, which is within the ‘Australia royalties’ segment. Refer to note 18
for further details on the Group’s impairments.
124
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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T
H
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R
I
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F
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R
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A
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I
O
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33 F INANCIAL 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 22 to 28 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)
Fair value through other comprehensive income
Royalty financial instruments
Mining and exploration interests
Fair value through profit of loss
Royalty financial instruments
Derivative financial instruments1
Cash at bank and in hand
Financial assets at amortised cost
Trade and other receivables2
Financial liabilities at amortised cost
Trade and other payables3
Borrowings4
Deferred consideration5
Financial liabilities at fair value through profit or loss
Derivative financial instruments1
Group
£’000
96,419
57,736
3,642
8,065
–
7,597
2019
Company
£’000
–
–
3,395
3,760
–
1,420
Group
£’000
109,778
38,368
2,848
7,837
188
5,223
2018
Company
£’000
–
–
2,559
3,929
–
1,024
25,605
61,253
29,063
57,169
102
36,401
1,138
480
23,879
36,401
–
–
34
8,300
1,178
–
19,306
8,300
–
–
1 Derivative financial instruments include the Group’s foreign exchange forward contracts, as set out in note 22.
2 Trade and other receivables include royalty receivables, other receivables and other non-current receivables only, as set out in note 21.
3 Trade and other payables include trade payables only, as set out in note 27.
4 Borrowings include the revolving credit facility only, as set out in note 25.
5 Deferred consideration as set out in note 27 relates to the Maracás Menchen royalty deferred consideration of £1.1m (U$1.5m).
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
31 December 2019 the Group had borrowings of £36.4m (2018: £8.3m) and following the amendment to and extension of its revolving
credit facility subsequent to year end, the Group continued to have access to a further £31.9m (U$42.0m) through its secured U$90.0m
revolving credit facility.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment
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.
31 DECEMBER 2019
Interest bearing revolving credit facility
31 DECEMBER 2018
Interest bearing revolving credit facility
Weighted average
effective interest
rate
%
4.64
3.69
1-5 years
£’000
Total
£’000
36,401
36,401
36,401
36,401
8,300
8,300
8,300
8,300
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
125
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
Credit risk
The Group’s principal financial assets are bank balances, royalty financial instruments (excluding the investment in LIORC), trade and
other receivables. These represent the Group’s maximum exposure to credit risk in relation to financial assets and total £44.9m at
31 December 2019 (£45.1m at 31 December 2018).
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 16 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 £0.4m at 31 December 2019 (£0.3m at
31 December 2018).
Similarly, had there been a 10% increase or decrease in the underlying share price of the Group’s investment in LIORC, the Group’s royalty
financial instrument designated as FVTOCI (and the investment revaluation reserve in equity) would have increased/decreased by £5.8m
as at 31 December 2019 (£3.8m at 31 December 2018).
The Group’s mining and exploration interests are held for the purposes of generating additional royalties and are considered long-term,
strategic investments. This strategy is unaffected by recent fluctuations in prices for mining and exploration equities; however, interests
are continually monitored for indicators that may suggest problems for these companies raising capital or continuing their day-to-day
business activities to ensure remedial action can be taken if necessary. This is expected to be a less significant part of the Group’s
strategy going forward.
No specific hedging activities are undertaken in relation to these interests and the voting rights arising from these equity instruments are
utilised in the Group’s favour.
Other price risk
The royalty portfolio exposes the Group to other price risk through fluctuations in commodity prices, particularly the prices of coking coal,
vanadium, 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 15 and note 16.
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 related income from Kestrel and Narrabri accounting for over 70% of the Group’s income (2018: 70%),
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 23 for further details on the fair value of the foreign exchange forward contracts outstanding at
31 December 2018. 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
7,797
108,180
79,847
2,749
1,730
1
3,092
32,805
6,067
108,179
76,755
(30,055)
2019
EUR
£’000
11
13
(2)
GBP
£’000
AUD
£’000
CAD
£’000
6,524
123,140
61,060
8,329
–
5
(1,805) 123,140
61,055
USD
£’000
2,561
1,178
1,383
2018
EUR
£’000
19
–
19
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 £563k (2018: £3k);
• A +/- 10% change in the GBP:CAD rate would increase/decrease profit after tax and equity by £157k (2018: £207k);
• A +/- 10% change in the GBP: USD rate would increase/decrease profit after tax and equity by £6k (2018: £12k).
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.
126
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK 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.
The following table presents the Group’s assets that are measured at fair value at 31 December 2019:
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
Group
ASSETS
Coal royalties (Kestrel)
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
NET FAIR VALUE
Notes
Level 1
£’000
Level 2
£’000
Level 3
£’000
(a)
(b)
(c)
(d)
–
57,736
3,362
–
61,098
–
–
–
280
280
96,419
8,065
–
–
104,485
165,862
2019
Total
£’000
96,419
65,801
3,362
280
The following table presents the Group’s assets that are measured at fair value at 31 December 2018:
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
2018
Total
£’000
(a)
(b)
(c)
(d)
(e)
–
38,368
2,443
–
–
40,811
–
–
–
405
188
593
109,778
109,778
7,837
–
–
–
46,205
2,443
405
188
117,615
159,019
The following table presents the Company’s assets that are measured at fair value at 31 December 2019:
Company
ASSETS
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
NET FAIR VALUE
Notes
(a)
(b)
(c)
Level 1
£’000
–
3,339
–
3,339
Level 2
£’000
–
–
56
56
The following table presents the Company’s assets that are measured at fair value at 31 December 2018:
Company
ASSETS
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
NET FAIR VALUE
Notes
(a)
(b)
(c)
Level 1
£’000
–
2,386
–
2,386
Level 2
£’000
–
–
173
173
Level 3
£’000
3,760
–
–
3,760
Level 3
£’000
3,929
–
–
3,929
2019
Total
£’000
3,760
3,339
56
7,155
2018
Total
£’000
3,929
2,386
173
6,488
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
127
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
There have been no significant transfers between Levels 1 and 2 in the reporting period.
The methods and valuation techniques used for the purposes of measuring fair value of royalty financial instruments gives more
prominence to the probability of production by applying a risk weighting to the discounted net present value outcome in order to fully
reflect the risk that the operation never comes into production rather than factoring this risk into the discount rate applied to the future
cash flow.
(a) Coal royalties (investment property)
The Group’s coal royalties derive from its ownership of certain sub-stratum land in Queensland, Australia. In accordance with IAS 40, this
land is revalued at each reporting date on the basis of future expected income discounted at 6.00% (2018: 7.50%) by an independent
valuation consultant. Refer to note 15 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 financial instruments
The Group’s royalty financial instruments comprise the investment in LIORC and the McLean Lake streaming agreement, together with
the NSR and GRR royalties over EVBC, Dugbe 1 and Paiuí as detailed in note 16.
At the reporting date, the fair value of the Group’s investment in LIORC has been determined by reference to the quoted bid price of the
instrument. As LIORC has a quoted share price in an active market, it has been categorised as Level 1 in the fair value hierarchy.
The Group’s remaining royalty financial instruments are valued based on the net present value of pre-tax cash flows discounted at a rate
between 5.50% and 30.00% at reporting date. 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
31 December 2019
31 December 2018
EVBC
Dugbe 1
McLean Lake
Piauí
FVTPL
FVTPL
FVTPL
FVTPL
7.00%
30.00%
5.50%
13.50%
100%
75%
50%
25%
8.75%
22.00%
7.50%
13.50%
100%
75%
50%
25%
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.
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 31 December 2019.
At 1 January 2019
Revaluation gains or losses recognised in:
Income statement
Royalties due or received from royalty financial instruments
Foreign currency translation
At 31 December 2019
Royalty financial
instruments
£’000
Coal royalties
(Kestrel)
£’000
Total
£’000
7,837
109,778
117,615
2,478
(2,166)
(83)
8,065
(9,215)
–
(4,144)
(6,737)
(2,166)
(4,227)
96,419
104,485
128
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
I
O
N
The following table presents the changes in Level 3 instruments for the year ended 31 December 2018.
At 1 January 2018
Revaluation gains or losses recognised in:
Income statement
Royalties due or received from royalty financial instruments
Foreign currency translation
At 31 December 2018
Royalty financial
instruments
£’000
Coal royalties
(Kestrel)
£’000
Total
£’000
10,867
104,266
115,133
(871)
(1,975)
(184)
7,837
10,061
–
(4,549)
9,190
(1,975)
(4,733)
109,778
117,615
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.
34 FREE CASH FLOW
The structure of a number of the Group’s royalty financing arrangements, such as the Denison transaction completed in 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 31 December 2019
Adjustment for:
Proceeds on disposal of mining and exploration interests
Finance income
Finance costs
Lease payments
Repayments under commodity related financing agreements
Free cash flow for the year ended 31 December 2019
NET CASH GENERATED FROM OPERATING ACTIVITIES
Net cash generated from operating activities for the year ended 31 December 2018
Adjustment for:
Proceeds on disposal of mining and exploration interests
Proceeds on return of capital from mining and exploration interests
Finance income
Finance costs
Proceeds from royalty financial instruments
Repayments under commodity related financing agreements
2019
£’000
Free cash flow
per share
p
47,086
321
34
(1,074)
(199)
1,577
47,745
26.44p
2018
£’000
Free cash flow
per share
p
36,912
612
827
82
(1,264)
1,720
1,276
Free cash flow for the year ended 31 December 2018
40,165
22.28p
The weighted average number of shares in issue for the purpose of calculating the free cash flow per share is as follows:
Weighted average number of shares in issue
2019
2018
180,544,459 180,277,848
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
129
APG_AR19_07.04.20_ARTWORK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
35 P ORTFOLIO CONTRIBUTION
Portfolio contribution represents the funds received or receivable from the Group’s underlying royalty related assets. A number of the
Group’s royalty financing arrangements result in a significant amount of cash flow being reported as principal repayments, which are not
included in the income statement. In addition, following the adoption of IFRS 9, royalty receipts from those royalty financial instruments
classified as FVTPL such as EVBC, are no longer recognised in the income statement. The Group considers total portfolio contribution as
a means of assessing the overall performance of the Group’s underlying royalty related assets.
Portfolio contribution is royalty related revenue (note 5) plus royalties received or receivable from royalty financial instruments carried at
FVTPL (note 16) and principal repayment received under the Denison financing agreement (note 21) as follows:
Group
Royalty related revenue (note 5)
Royalties due or received from royalty financial instruments (note 16)
Repayments under commodity related financing agreements (note 21)
2019
£’000
2018
£’000
55,728
46,104
2,166
1,577
1,975
1,276
59,471
49,355
36 C ONTINGENT LIABILITIES
During 2017 on advice from professional advisors, the Group undertook the capital restructuring of a number of subsidiaries with
significant historical losses and impairment charges. 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 31 December 2017. These amounts were estimated at £3.3m and £3.6m respectively.
With the utilisation of certain tax losses during the year ended 31 December 2018, the current tax provision required increased to £5.9m.
There was no change in this position as at 31 December 2019.
37 EVENTS OCCURRING AFTER YEAR END
On 29 January 2020, the Group’s existing U$60m revolving credit facility (refer to note 25) was increased by U$30m, bringing the total
committed facility to U$90m. The Group retained the U$30m accordion, which if exercised could increase the facility to U$120m. In
addition to increasing the size of the committed facility, the Group extended the facility’s term by 12 months to September 2022.
On 2 March 2020, the Group announced it had entered into a royalty financing agreement with Incoa Performance Minerals LLC to
partially fund the construction of Incoa’s calcium carbonate mine and associated infrastructure in the Dominican Republic as well as a
processing facility located in Mobile, Alabama, in the United States of America. Under the terms of the agreement, the Group will provide
funds totalling U$20m following construction completion when the operation is in production and generating cash flow, in return for a
quarterly payment of approximately 1.23% of Incoa’s gross revenue. The funds are expected to be payable in 2021.
During the period 23 January 2020 to 06 February 2020, the Group acquired an additional 446,100 shares in LIORC at an average price
of C$21.94/share on the market for total consideration of C$9.8m (£5.7m). The acquisition increased the Group’s investment from 6.3%
(4,040,790 shares) as at 31 December 2019 to 7.0% (4,486,890 shares) as at the date of this report.
The global outbreak of COVID-19 subsequent to year end is having a significant impact on many countries and businesses. As at the
date of this report, the Group is aware of operations at the McClean Lake Mill in Canada, from which it receives toll milling payments have
been placed on care and maintenance following Cameco’s decision to place the Cigar Lake uranium mine, which provides the materials
processed by the McClean Lake Mill, on care and maintenance. In addition, Orvana Minerals Corp, the operator of the EVBC mine in Spain
from which the Group receives royalties, announced a ten day suspension of operations in response to COVID-19.
While we understand that there has not been any other significant disruption reported by the operators of the mines from which we
generate our royalty income, the significant level of uncertainty regarding the duration of the pandemic and its impact on commodity
prices in the year ahead prevents the Group from quantifying the potential impact on our 2020 results. The Group remains in strong
financial health and the impact of the potential reduced operating cash flow generation has been considered as part of our going concern
assessment discussed on page 81. The Board will continue to monitor our financial position carefully over the coming weeks and months
as a better understanding of the impact of COVID-19 is developed.
130
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR19_07.04.20_ARTWORK S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
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I
A
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N
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S
O
T
H
E
R
I
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38 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.
Proportion
of class held at
31 December
2019
Proportion
of class held at
31 December
2018
Company and country of incorporation/operation
Principal activities
Class of shares held
%
%
AUSTRALIA1
Alkormy Pty Ltd
APG Aus No 1 Pty Ltd
APG Aus No 2 Pty Ltd
APG Aus No 3 Pty Ltd
APG Aus No 4 Pty Ltd
APG Aus No 5 Pty Ltd
APG Aus No 6 Pty Ltd
APG Aus No 7 Pty Ltd
APG Aus No 8 Pty Ltd
APG Aus No 9 Pty Ltd
APG Aus No 10 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 royalties
Investments
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
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$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
1 The registered office of all of the entities listed above is 6 Price Street, Subiaco, Western Australia 6008
BARBADOS2
Entrée International Holdings Inc
Intermediate holding company
Entrée Peru Holdings Inc
Intermediate holding company
Ordinary U$1.00
Ordinary U$1.00
2 The registered office of all of the entities listed above is Suite 208, Building No 8, Harbour Road, Bridgetown, St Michaels, Barbados
CANADA3
Advance Royalty Corporation
Owner of uranium royalties
Albany River Royalty Corporation
Owner of chromite royalties
Panorama Coal Corporation
Owner of coal royalties
Polaris Royalty Corporation
Intermediate holding company
Trefi Coal Corporation
Owner of coal tenures
Ordinary C$0.01
Ordinary C$1.00
Ordinary C$1.00
Ordinary C$1.00
Ordinary C$0.01
3 The registered office of all of the entities listed above is 1720 Queens Avenue, West Vancouver, British Columbia, Canada V7V 2X7
ENGLAND4
Anglo Pacific Cygnus Ltd
Centaurus Royalties Ltd
Southern Cross Royalties Ltd
Investments
Investments
Investments
4 The registered office of all of the entities listed above is 1 Savile Row, London, England W1S 3JR
GUERNSEY5
Ordinary £1.00
Ordinary £1.00
Ordinary £1.00
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
N/A
N/A
100%
100%
100%
100%
100%
100%
100%
100%
Anglo Pacific Group Employee Benefit Trust Administering Group incentive plans
100%
100%
5 The registered office of the entity listed above is, Frances House, Sir William Place, St Peter Port GY1 4HQ
IRELAND6
Anglo Pacific Finance Ltd
Treasury
Ordinary £1.00
100%
100%
6 The registered office of the entity listed above is Atlantic Avenue, Westpark Business Campus, Shannon, Co Clare
PERU7
Exploraciones Apolo Resources SAC
Owner of copper royalties
Ordinary S/1.00
100%
N/A
7 The registered office of the entity listed above is Av. Ricardo Angulo No 776, Office 301, District of San Isidro, Lima, Peru
SCOTLAND8
Shetland Talc Ltd
Mineral exploration
Ordinary £1.00
100%
100%
8 The registered office of the entity listed above is Grant Thornton, 95 Bothwell Street, Glasgow, Scotland G2 7JZ
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
131
APG_AR19_07.04.20_ARTWORK
O t h e r i n f o r m a t i o n
SHAREHOLDER STATISTICS
(a) Size of Holding (as at 31 March 2020)
Category
UK AND CANADA
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – and over
Number of
shareholders
%
Number
of shares
555
567
144
342
34.32%
35.62%
8.90%
280,774
1,358,936
1,072,132
21.15%
178,758,550
98.51%
%
0.15%
0.75%
0.59%
(b) The percentage of total shares held by or on behalf of the twenty largest shareholders as at 31 March 2020 was 72.92%.
1,617
100%
181,470,392
100%
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: anglopacificgroup.com
SHAREHOLDERS
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
STOCKBROKERS
BERENBERG
60 Threadneedle Street
London EC2R 8HP
PEEL HUNT
120 London Way
London EC2Y 5ET
RBC Capital Markets
Thames Court
One Queenhithe
London EC4V 3DQ
132
ANGLO PACIFIC GROUP PLC 2019 ANNUAL REPORT & ACCOUNTS
APG_AR19_07.04.20_ARTWORK FORWARD-LOOKING STATEMENTS
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’ within the
meaning of Canadian securities legislation) 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 and
making new investments, 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, streams and investments
by the owners or operators of such properties in a
manner consistent with past practice; no material
adverse impact on the underlying operations of the
Group’s portfolio of royalties, steams and investments
from a global pandemic; 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; the accuracy of the
information provided to the Group by the owners and
operators of such underlying properties; no material
adverse change in the price of the commodities
produced from the properties underlying the Group’s
portfolio of royalties, streams 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. Past
performance is no guide to future performance and
persons needing advice should consult an
independent financial adviser. No statement in this
communication is intended to be, nor should it be
construed as, a profit forecast or a profit estimate.
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, stream and investment 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, streams
and investments; royalties, steams and investments
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. This Annual Report
contains information and statements relating to the
Kestrel mine that are based on certain estimates and
forecasts that have been provided to the Group by
Kestrel Coal Pty Ltd (‘KCPL’), the accuracy of which
KCPL does not warrant and on which readers may
not rely.
The Group’s management relies upon this forward-
looking information in its estimates, projections,
plans and analysis. Although the forward-looking
statements contained in this Annual Report are
based upon what the Group believes are reasonable
assumptions, there can be no assurance that actual
results will be consistent with these forward-looking
statements. The forward-looking statements made in
this Annual Report relate only to events or information
as of the date on which the statements are made
and, except as specifically required by applicable
laws, listing rules and other regulations, the Group
undertakes no obligation to update or revise publicly
any forward-looking statements, whether as a result
of new information, future events or otherwise, after
the date on which the statements are made or to
reflect the occurrence of unanticipated events.
US Employment Retirement Income
Security Act
Fiduciaries of (i) US employee benefit plans that are
subject to Title I of the US Employment Retirement
Income Security Act of 1974 (ERISA), (ii) individual
retirement accounts, Keogh and other plans that are
subject to Section 4975 of the US Internal Revenue
Code of 1986, as amended (the Internal Revenue
Code), and (iii) entities whose underlying assets
are deemed to be ERISA ‘plan assets’ by reason of
investments made in such entities by such employee
benefit plans, individual retirement accounts, Keogh
and other plans (collectively referred to as Benefit
Plan Investors) should consider whether holding the
Company’s ordinary shares will constitute a violation
of their fiduciary obligations under ERISA or a
prohibited transaction under ERISA or the Internal
Revenue Code. Shareholders should be aware that
the assets of the Company may be or become treated
as ‘plan assets’ that are subject to ERISA fiduciary
requirements and/or the prohibited transaction rules
of ERISA and the Internal Revenue Code. The
Company’s ordinary shares are subject to transfer
restrictions and provisions that are intended to
mitigate the risk of, among other things, the assets of
the Company being deemed to be ‘plan assets’ under
ERISA. Shareholders who believe these provisions may
be applicable to them should review these restrictions
which are set forth in the Company’s Articles of
Association and should consult their own counsel
regarding the potential implications of ERISA, the
prohibited transaction provisions of the Internal
Revenue Code or any similar law in the context of an
investment in the Company and the investment of
the Company’s assets.
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ANGLO PACIFIC GROUP PLC
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
APG_AR19_07.04.20_FRONT_ARTWORK