FINANCING PRODUCTION
OF ESSENTIAL RESOURCES FOR
A MORE SUSTAINABLE WORLD
2020 Annual Report & Accounts
Anglo Pacific Group PLC
APG_AR20_14.04.21_FRONT_ARTWORK OUR STRATEGY IN ACTION
The Voisey’s Bay stream acquisition is our new
cornerstone asset, that repositions our portfolio.
With an improved environmental footprint, and positive
earnings impact, this new acquisition is taking the business
towards 21st century commodities.
We continue to seek and invest in high-quality projects
capable of sustainably delivering resources over the long-
term, that are run by capable and responsible operators
committed to strong ESG standards. We seek out projects
in well established mining jurisdictions, where the political
and social context is stable and a full partnership approach
is achievable.
J.A. Treger
M O R E P 1 2
PERFORMANCE MEASURES
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.
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.
WHAT’S INSIDE...
0 1
02
04
06
08
12
16
18
20
28
37
38
40
42
46
47
62
68
72
72
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99
101
102
102
109
110
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152
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153
S TR ATEGIC REPORT
Our business 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
Driving 21st century commodities
New cornerstone asset
Market overview
Business review
Producing royalties
Development & Early-stage royalties
Financial review
G OVERNANCE
Corporate governance report
The Board
Nomination Committee
Audit Committee
Sustainability 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
Other information
Shareholder statistics
Corporate details
Forward-looking statements
APG_AR20_14.04.21_FRONT_ARTWORK 03
EVOLUTION...
Our royalty portfolio
contribution evolution
2014-2020
38
DRIVING
21STC
COMMODITIES
Marking a fundamental
transformation by repositioning
the business towards 21st
century commodities
THE HIGHLIGHTS...
22
INVESTING
RESPONSIBLY
We believe long-term value can
only be achieved through sustainable
and responsible investment with a
strong focus on ESG standards
12
ON KESTREL
REDUCING THE RELIANCE
The complexion of our portfolio
has decisively pivoted away
from our coal heritage
J.A. Treger
40
NEW
CORNERSTONE
ASSET
The Voisey’s Bay stream acquisition
is our new cornerstone asset that
addresses two of our major strategic
challenges
01
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Our business at a glance
Key highlights
PRIMARY LISTING
SECONDARY LISTING
LSE
London Stock Exchange
(LSE: APF)
TSX
Toronto Stock Exchange
(TSX: APY)
16
ASSETS
16 royalty and streaming
related assets
5
CONTINENTS
Assets across five
continents
INTEGRATED
SUSTAINABILITY
We systematically integrate ESG factors
into our investment decisions
M O R E P 2 0 - 2 7
120
100
80
60
40
20
0
60%
OF THE PORTFOLIO
IS BATTERY RELATED
METALS
77%
OF THE PORTFOLIO
IS NON-COAL
99%
OF THE PORTFOLIO
IN ESTABLISHED
NATURAL RESOURCES
JURISDICTIONS
96%
OF THE PORTFOLIO
IS PRODUCING
Re-positioning APG towards
21st century commodities
Cobalt
Copper
Vanadium
45%
11%
4%
M O R E P 4 0 / 5 2 / 5 5 / 6 3
COMMODITY EXPOSURE
by asset value at
31 December 2020
by asset value
inc. Voisey’s Bay
Coking coal
Iron ore
Copper
Thermal coal
Vanadium
Gold
Uranium
Cobalt
Other
17%
32%
16%
16%
6%
1%
10%
0%
2%
Coking coal
Iron ore
Copper
Thermal coal
Vanadium
Gold
Uranium
Cobalt
Other
12%
9%
11%
11%
4%
1%
7%
45%
1%
GEOGRAPHIC EXPOSURE
by asset value at
31 December 2020
by asset value
inc. Voisey’s Bay
Australia
Canada
Chile
Brazil
Spain
Other
37%
39%
15%
7%
2%
1%
Australia
Canada
Chile
Brazil
Spain
Other
25%
59%
10%
4%
1%
1%
STAGE OF PRODUCTION
by asset value at
31 December 2020
by asset value
inc. Voisey’s Bay
Producing
Development
Early-stage
94%
2%
4%
Producing
Development
Early-stage
96%
1%
3%
Mining Index
Anglo Pacific Group
Re-based to 100
M O R E P 9 7
FTSE350
10 YEARS OF SHAREHOLDER RETURNS, 2011-2021
31.12.10
31.12.11
31.12.12
31.12.13
31.12.14
31.12.15
31.12.16
31.12.17
31.12.18
31.12.19
31.12.20
02
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS COBALT
ACQUISITION
The US$205m acquisition of the
Voisey’s Bay cobalt stream pivots
the business from its coal heritage
towards 21st century commodities
needed for a sustainable future
M O R E P 4 0
Financial highlights 2020
M O R E P 3 7 F O R F I V E -Y E A R T R A C K R E C O R D
55.7
62.6
34.0
£34.0m
£55.7m
ROYALTY RELATED
REVENUE
£7.4m
£62.6m
ROYALTY ASSETS
ACQUIRED
7.4
19
20
19
20
20.41
26.44
12.35
12.35p
20.41p
ADJUSTED EARNINGS
PER SHARE
11.32
11.32p
26.44p
FREE CASH FLOW
PER SHARE
19
20
19
20
9.00
9.00
2.3
9.00p
9.00p
DIVIDEND PER
SHARE
1.4
1.4x
2.3x
DIVIDEND
COVER
19
20
19
20
EVOLUTION...
ROYALTY PORTFOLIO CONTRIBUTION EVOLUTION
Anglo Pacific royalty related portfolio pre-2014¹
Acquisitions 2014 to 2020²
39.5m
34.8m
30.7m
14.9m
3.7m
5.1m
3.8m
5.1m
14.6m
11.9m
20.9m
20.0m
16.1m
2014
2015
2016
2017
2018
2019
Portfolio contribution (£m)
Asset
Commodities
Transaction date
£8.9m
£3.7m
Maracás Menchen Narrabri
£20.0m
Vanadium
June 2014
Thermal & PCI coal
March 2015
Acquisition consideration (£m)
15.6m³
Cumulative income (£m)
12.5m
41.7m
22.9m
£42.6m
McClean Lake
£49.4m
LIORC 4.25%
£59.5m
Mantos Blancos
Uranium
Iron ore
Copper
February 2017
August 2018
August 2020
26.6m
14.2m
50.9m⁴
16.9m⁵
42.3m
3.9m
2020
£37.0m
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. Second US$1.5m deferred payment paid in Q2 2020.
4. Represents the cost of the Group's cumulative investment in LIORC acquired between 2018 and Q1 2020 of £64.4m, less the cost base of the partial disposal in Q4 2020 of £13.5m.
5. Represents the total dividends received since the Group's initial investment in 2018.
03
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
DILIGENT APPROACH TO
A DIVERSIFIED PORTFOLIO
Our disciplined investment approach
Commodity
• Bulk materials
• Base and battery related 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
• Detailed understanding of commodity outlook
S t r a t e g i c r e p o r t
Our approach and investment strategy
WE SEEK
TO CREATE
LONG-TERM VALUE FOR
OUR 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
77%
OF THE PORTFOLIO
IS NON-COAL
Following the acquisition of the Voisey's
Bay cobalt stream, the Group's exposure
to coal has been significantly reduced
M O R E P 4 0
04
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS INVESTMENT APPROACH FOCUSED
ON STRONG ESG PRINCIPLES
An agent for positive change
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
2
3
4
Identify risks in relation to new investments
• ESG due diligence aimed at identifying key
risk areas
• Anglo Pacific primarily targets jurisdictions
where political risk and corruption/bribery
are considered low
Mitigate risks in relation to new investments
• Seek or require counterparty implementation
of ESG practices and standards
Monitor and influence
• Encourage royalty/stream counterparties
to adopt best practices voluntarily
Communicate
• Disclose Anglo Pacific ESG policies and
due diligence processes in relation to new
investments as well as highlight best
performing counterparties
Our sustainability initiatives
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 by:
1
2
3
Focusing on more sustainable commodities
• An increased focus on commodities that
support a more sustainable world
Committing to no further investment in thermal coal
• Consistent with our track record over
the past five years, no further investment
in thermal coal assets
Establishing a Sustainability Committee
• The establishment of a Sustainability
Committee to further strengthen the
Company’s already rigorous ESG due
diligence processes
Key areas of focus in our ESG due diligence
• 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
05
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Our portfolio
FUTURE PERSPECTIVES,
FUTURE BENEFITS
Our ability to adapt
will define our future
M O R E P 2 6
New cornerstone
asset
M O R E P 4 0
Our approach
delivers returns
M O R E P 5 1
06
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS 16 royalty and streaming related assets across five continents.
99% of the portfolio is located in well-established mining jurisdictions,
providing diversified commodity exposure.
Producing
Royalt y
Commodit y
Operator
Location
Royalt y rate and t ype
Kestrel
Coking coal
Kestrel Coal Pty Ltd
Labrador Iron Ore Royalty
Corporation (‘LIORC’)
Iron ore &
iron ore pellets
Iron Ore Company of
Canada (‘IOC’) / Rio Tinto
Mantos Blancos
Maracás Menchen
McClean Lake mill
Narrabri
Four Mile
El Valle-Boinás /
Carlés (‘EVBC’)
Copper
Vanadium
Uranium
Mantos Copper
Largo Resources
Orano
Thermal & PCI coal
Whitehaven Coal
Uranium
Gold, copper
& silver
Quasar Resources
Orvana Minerals
Australia
Canada
Chile
Brazil
Canada
Australia
Australia
Spain
7 – 15% GRR¹
Indirect interest
in 7% GRR
1.525% NSR
2% NSR
Tolling revenue
1% GRR
1% NSR
2.5 – 3% NSR²
Balance sheet
classification
Investment property
Royalty financial
instrument
Royalty intangible
Royalty intangible
Loan & royalty
financial instrument
Royalty intangible
Royalty intangible
Royalty financial
instrument
Our largest and latest transaction repositioning the business towards 21st century commodities...
Voisey’s Bay
Cobalt
Vale
Canada
22.82% attributable
production
Mineral stream
interests (P,P&E)
Development
Royalt y
Commodit y
Operator
Location
Royalt y rate and t ype
Salamanca
Piauí
Uranium
Berkeley Energia
Nickel & cobalt
Brazilian Nickel
Spain
Brazil
Groundhog
Anthracite
Atrum Coal
Canada
1% NSR
1.00% GRR
1% GRR or
US$1.00/t
Early-stage
Royalt y
Commodit y
Operator
Location
Royalt y rate and t ype
Pilbara
Cañariaco
Dugbe 1
Iron ore
Copper, gold
& silver
Gold
BHP
Australia
Candente Copper
Peru
1.5% GRR
0.5% NSR
Hummingbird
Resources
Liberia
2 – 2.5% NSR³
Ring of Fire
Chromite
Noront Resources
Canada
1% NSR
Balance sheet
classification
Royalty intangible
Royalty financial
instrument
Royalty intangible
Balance sheet
classification
Royalty intangible
Royalty intangible
Royalty financial
instrument
Royalty intangible
07
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_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
p46
p55
S t r a t e g i c r e p o r t
Chairman’s statement
p22
WE SEEK TO SIGNIFICANTLY
REDUCE OUR EXPOSURE TO COAL
RELATED REVENUES AS THE
WORLD PROGRESSES TOWARDS
A LOW-CARBON FUTURE
N.P.H. Meier
Chairman
13 April 2021
08
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS We have been looking for opportunities to
increase our exposure to commodities that
will contribute to the reduction of carbon
emissions and the creation of a cleaner
environment.
DIVERSIFY
& GROW
2020 was a most challenging year for Anglo Pacific and its staff.
As I wrote this statement last year, the scale of the COVID-19
pandemic was unfolding, but it was still not clear the extent to
which society, business and markets would be affected.
The human cost has been severe and the disruption to people’s
welfare and health truly disturbing. As a company we prioritised
the safety of our staff and ensured that they were able to continue
working from any location under the best conditions possible.
I am pleased to say that the whole team has managed its way
through in admirable fashion and we are proud of their
commitment, spirit, adaptability and achievements this year.
From a business perspective we saw a sharp downturn followed
by a more stable pattern as the year progressed, combined with
a remarkable recovery in markets fuelled by the extraordinary
stimulus measures introduced around the globe.
In our sector we have seen mixed outcomes for different
commodities, but the overall picture continues to be very positive
as the supply and demand fundamentals remain strong. Current
expectations of a recovery in worldwide economies will further
underpin demand while certain factors, such as the drive for a
cleaner world, provide extra impetus for commodities required for
renewable power generation and electric vehicles in particular.
We also continue to seek to significantly reduce our exposure
to coal related revenues as the world progresses towards a
low-carbon future. Climate change is a huge challenge for the
world, and we have been looking for opportunities to increase our
exposure and contribution to the reduction of carbon emissions
and the creation of a cleaner environment. We have concentrated
for a long time on the need to diversify and grow our portfolio,
particularly to address the overdependence on Kestrel, which
will see declines in volumes from 2023 onwards. This search
has taken time as we apply rigid discipline in terms of financial,
technical, legal, operational and ESG due diligence, which leads
to a number of potential opportunities being discarded.
We are delighted, however, to have recently completed the
acquisition of a stream over cobalt production at the Voisey’s Bay
mine in Canada. We believe that this transaction largely solves
Anglo Pacific's two major strategic challenges: it addresses the
medium-term declining income at Kestrel and significantly
repositions the Company's portfolio away from coal. The
acquisition of this new cornerstone asset will underpin our ability
to deliver further growth and sustainable future returns for our
shareholders, along with a focus on commodities that will
flourish in the 21st century.
We took advantage of the recent strong rebound in the price of
iron ore and sold a large portion of our holding in Labrador Iron
Ore Royalty Corporation (LIORC) to finance the acquisition in part.
This represented a timely realisation of an asset exposed to a
commodity arguably at peak prices and reinvestment in cobalt as
it is poised for considerable growth. The remainder of the financing
was achieved by means of an oversubscribed equity placement
which raised £46.5m (US$66.0m) and support from a new
syndicate of leading Canadian banks.
In order to complete the Voisey’s Bay acquisition we have
assumed a higher debt burden than in the recent past but are
confident that we will be able to reduce our leverage significantly
in the near term from operational cash flows and that we remain
in strong financial health.
The new portfolio provides us with a more stable outlook and
substantial growth potential. In terms of performance in the near
term, most of the underlying operations are performing well and
continue to experience limited disruption from the COVID-19
pandemic. We look forward with confidence to a successful 2021.
Building on the momentum generated by the Voisey’s Bay
acquisition, we continue to actively look for growth opportunities,
particularly in materials supporting a cleaner world. Given the
general enthusiasm in the sector and the risk of inflated pricing,
we will need to continue to apply discipline to our acquisition
process.
09
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
Chairman’s statement
continued
KEY RESULTS IN 2020
(39%)
Royalty related revenue
decreased by 39% from
£55.7m to £34.0m
(51%)
Operating profit decreased
from £44.8m to £37.1m
(10.31p)
Basic loss per share 10.31p
(2019: earnings 16.06p)
12.35p
Adjusted earnings per share
12.35p (2019: 20.41p)
9p
Total proposed dividends of
9p per share (2019: 9p)
1.4x
Dividend cover 1.4x (2019:
2.3x)
2020 performance
The Group’s royalty portfolio generated a total contribution of
£37.0m for the year ended 31 December 2020, which represents a
38% decrease when compared to the £59.5m generated in 2019.
While the operations at the Group’s producing royalties continued
largely unaffected during the COVID-19 pandemic, except for
EVBC and the McClean Lake mill, some underlying commodity
prices have been severely affected on the back of demand
slumping and port closures. The weakness in the commodity
prices most notably impacted the royalties from Kestrel and
Narrabri. Maracás Menchen was also affected by price weakness,
and a one-off adjustment after the operator, Largo Resources,
exited its offtake agreement with Glencore.
Our reported profit after tax has swung from a profit of £29.0m in
2019, to a loss of £18.6m, which includes a downward revaluation
of Kestrel of £44.2m reflecting further depletion and the major
reversal in coal prices. When valuation and other non-cash items
are removed, our underlying adjusted earnings were £22.3m or
12.35p per share down from £36.8m or 20.41p in 2019.
This decline is naturally disappointing, although it would be fair
to observe that our high levels of income in the last two years
benefited from a number of unusual factors, mainly extraordinary
prices for two of our key commodities and a strong rebound in
volumes. The volumes achieved in 2020 look to be sustainable and
our recent acquisition will see underlying volume growth. We will
see how commodity prices develop, but our focus on 21st century
materials should help us benefit from a better commodity mix.
We were pleased to welcome two new Canadian banks, RBC
Capital Markets, and Canadian Imperial Bank of Commerce, to
our lending group alongside Scotiabank, who provided us with a
US$180m facility to facilitate the acquisition of the Voisey’s Bay
stream. We are delighted with their support and we look forward
to a long-term relationship.
Returns to shareholders
We have recommended that the final dividend be 3.75p. Should
this be approved at the 2021 AGM, the total dividends for 2020
would be 9p, in line with last year. Looking ahead, we will be
developing our capital allocation policy to take into account the
balance between attractive shareholder returns, balance sheet
discipline and growth, which is essential for the long-term future
of the business. We will continue to pay interim quarterly dividends
at the rate of 1.75p per quarter, with the final dividend for 2021
to be determined based on results for the year and growth
opportunities executed or being progressed.
In addition to the total dividends of 9p per share, we returned
the cash generated from the sale of non-core mining and
exploration interests directly to shareholders by way of a £5.0m
share buyback between September and November 2020.
The share buyback equates to an additional return to shareholders
of ~2p per share, resulting in total shareholder distributions for
2020 of 11p per share.
Strategy
Last year the Company laid out 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 base metals linked to energy storage or power
transition, specialist alloying materials like niobium, vanadium and
aluminium and battery materials like lithium, cobalt and nickel.
We are delighted to have executed on the Voisey’s Bay transaction
which fits this strategy very neatly.
Anglo Pacific is also highly focused on ESG matters. As we have
previously 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 minimal
in five years’ time. In addition, we continue to apply our disciplined
approach to investing in assets with strong ESG credentials and
are pleased to note that in the case of the Voisey’s Bay acquisition,
the underlying mine ranks amongst the lowest global emitters
of CO2 for nickel producers.
10
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Our employees’ response to the recent
extraordinary challenges has been
exemplary and their loyalty and ability to
adjust to working in these difficult times
has been outstanding.
THE HEALTH AND WELL-BEING
OF ALL OUR EMPLOYEES HAS
BEEN A PRIORITY FOR US
We will continue to focus on financing those commodities which
will be essential in delivering the technology required to reduce
dependence on fossil fuels and ultimately improve the planet.
More information on our approach and investment strategy can
be found on pages 04 to 05, together with our business model
on pages 16 and 17.
Board
The composition of the Board was refreshed in late 2019 with
the appointment of Graeme Dacomb and James Rutherford as
Non-Executive Directors, while the Group’s Chief Financial Officer,
Kevin Flynn, was appointed as an Executive Director with effect
from 1 January 2020. In addition, the chairmanships of the
Board’s Committees were rotated following the retirement of
Mike Blyth after the 2020 AGM.
Succession planning for both the non-executive and executive
directors is a critical and ongoing cycle of work. Following the
2019 renewal, we believe we have an invigorated and diverse
Board with an excellent collection of varied skills and experience,
which is key in determining the strategy for the Company and
providing guidance and oversight to management. Vanessa
Dennett has indicated that she would like to retire from the
Board and it is therefore proposed that she not seek re-election
at the forthcoming AGM. We will be very sorry to lose her as she
has been a very active and constructive member of the Board.
I would like to express my sincere thanks to Vanessa for her
enormous contribution to the Company and wise advice over
the years. We all wish her well.
We will undertake a search for a replacement for Vanessa bearing
in mind our criteria for Director appointments, including diversity,
as laid out in the Corporate Governance report on page 76. Further,
the composition of the Board will be kept under constant review
and further changes will be made as tenures come to an end and
as the business continues to evolve.
In light of the challenges brought about by the COVID-19 pandemic
in 2020, great care was taken to ensure continuity in the Board’s
proceedings. A full schedule of meetings, including those of
the Board’s Committees, was held as planned, albeit in a virtual
environment. The external review of the Board’s effectiveness
also proceeded as planned. More information on the operation
and activities of the Board can be found on pages 74 and 75.
Outlook
2020 threw several challenges at us but our focus has not
changed. 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 as it declines in the next
five years. We believe that we are on track to do so and the recent
acquisition of the cobalt stream is a significant step forward.
We have confidence in the prospects for the business and expect
the sector to enjoy meaningful growth over the next few years.
With our strategy to be part of the climate change solution, we
are confident that our own prospects are particularly positive.
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. We have a first-class
management team in place capable of sourcing and delivering
the growth we are targeting in the coming years.
Our employees’ response to the recent extraordinary challenges
has been exemplary and their loyalty and ability to adjust to
working in these difficult times has been outstanding. 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 2020 Strategic Report from pages 02 to 71 was reviewed and
approved by the Board on 13 April 2021.
N.P.H. Meier
Chairman
13 April 2021
11
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Chief Executive Officer’s statement
p38
THE VOISEY’S BAY TRANSACTION
TRANSFORMS THE COMPLEXION OF
OUR PORTFOLIO DECISIVELY TOWARDS
21ST CENTURY COMMODITIES
J.A. Treger
Chief Executive Officer
13 April 2021
p40
p52
12
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS I am extremely proud of our team and how
quickly they adapted to the new normal
of remote working, whose continued
collaboration and tireless efforts to drive
the business forward for our stakeholders
culminated in the US$205m purchase of
the Voisey’s Bay cobalt stream.
PIVOTING
FROM OUR COAL
HERITAGE
2020 was an unprecedented year with much of the world
grappling with the pandemic. Looking back a year ago, having
just announced record results at a time when COVID-19 was in
its infancy, we were confident that we would weather the storm
well. The completion of the largest acquisition in the history
of our company 12 months later confirms our confidence
was well placed.
I am extremely proud of our team and how quickly they adapted to
the new normal of remote working, whose continued collaboration
and tireless efforts to drive the business forward for our
stakeholders culminated in the US$205m purchase of the Voisey’s
Bay cobalt stream. This transaction transforms the complexion of
our portfolio decisively towards battery materials and away from
our coal heritage, and as a result pivots us to become the royalty
and streaming company for 21st century materials.
In completing this acquisition, we have simultaneously addressed
two of our major strategic challenges: replacing Kestrel’s income,
which begins declining in 2023; and significantly reducing our
exposure to coal. We are also delivering on our stated strategy
to become a leading natural resources company through investing
in high-quality projects in preferred jurisdictions with trusted
counterparties, underpinned by strong ESG principles – the
Voisey’s Bay nickel-cobalt-copper mine is located in Canada,
operated by Vale and ranks amongst the lowest global emitters
of CO2 for nickel producers.
The financing of this transaction by entering a new borrowing
facility with three leading Canadian banks, issuing £46.5m in
equity and monetising the majority of our holding in Labrador Iron
Ore Royalty Corporation has enabled us to retain some US$55m
in liquidity to continue to grow and diversify our portfolio.
Financial performance
While the majority of the mines underlying our portfolio continued
to operate uninterrupted by COVID-19, they were not immune to
some effects from the global pandemic, notably weaker pricing
and reduced production levels. The weakness in coal prices
significantly reduced the royalties generated by Kestrel and
Narrabri, resulting in portfolio contribution decreasing by 38% to
£37m in 2020, and led to a 39% reduction in adjusted earnings
per share to 12.35p. Despite these decreases, we increased the
quarterly dividend payments to 1.75p per share and are proposing
a final dividend of 3.75p per share to maintain total dividends of
9p per share in respect of 2020. We will continue to pay a quarterly
dividend of 1.75p per share which provides shareholders with a
base level of income of 7p.
2020 was a year of very different quarters in terms of commodity
prices. Q1 2020 started well with coking coal prices remaining
at elevated levels as China shut down domestic coal production
and had to import more supplies. Q2 and Q3 saw this process
reverse as the Chinese economy opened up while others like the
Indian economy shut down. The resulting surplus in seaborne coal
led to much lower prices in those months. Finally, Q4 showed a
strong rebound as world economies started to recover and the
prospects of vaccinations created optimism, and our copper and
iron ore interests in particular began to perform well.
Fortunately, the recovery in commodity prices has continued
into 2021 and if maintained, we would expect improved
performances from our Narrabri, Mantos Blancos and Maracás
Menchen royalties this year. In addition, we expect the newly
acquired Voisey’s Bay cobalt stream to make a significant
contribution to our performance in 2021.
We are optimistic about the prospects for cobalt and expect this
commodity to outperform consensus forecasts, as economies
begin to emerge from COVID-19 restrictions as vaccination
programmes are rolled out and governments deploy stimulus
spending focused on infrastructure that supports a low-carbon
future.
13
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
Chief Executive Officer’s statement
continued
Portfolio contribution
Kestrel, LIORC and Mantos Blancos were responsible for
generating 83% of the Group’s portfolio contribution in 2020
(2019: 84%), as summarised below.
Kestrel
Kestrel was our largest royalty related asset by portfolio
contribution, generating 53% of the Group’s total portfolio
contribution in 2020 (2019: 66%). Lower forward-looking coal
prices and depletion in the current year have resulted in Kestrel’s
carrying value, net of tax, on the balance sheet reducing to
£38.4m at year end (2019: £66.9m). Prior to completing the
acquisition of the Voisey’s Bay cobalt stream, Kestrel accounted
for 17% of our portfolio’s value. Following completion, Kestrel
now accounts for just 12% of our portfolio’s value and is expected
to generate 33% of our total portfolio contribution in 2021,
demonstrating how far we have shifted from our coal origins to
become a different business.
Labrador Iron Ore Royalty Corporation
Our holding in LIORC generated 21% of the Group’s total portfolio
contribution in 2020 (2019: 16%), making it the second largest
royalty related asset by contribution. With the increase in iron ore
prices throughout the second half of 2020, the LIORC share price
increased by 32% from the start of the year resulting in a carrying
value, net of tax, of £64.2m to make LIORC the Group’s largest
asset by value at year end.
We made a further investment of £5.7m in LIORC during the first
quarter of 2020, representing the reinvestment of the dividends
expected to be received in first half of 2020. Following the 32%
increase in the underlying share price, as a result of iron ore
trading at around double long-term forecasts and the funding
requirements of the Voisey’s Bay acquisition, we commenced
the disposal of 75% of our holding in late 2020 which concluded
in early 2021.
The partial disposal of our holding in LIORC not only enabled us to
proceed with the acquisition of Voisey’s Bay, but also generated
significant value for our shareholders. We made our initial
investment two years ago when iron ore prices were much lower,
and we successfully rode the rise of high-quality iron, generating
significant income on the way. We retain around a US$30m
position in LIORC, which is a potential source of liquidity for future
transactions but also allows us to add to the holding should iron
ore prices decline as is possible in the years ahead.
Mantos Blancos
Our Mantos Blancos royalty benefited from a higher copper price
towards the end of the year which has continued in 2021 thus far.
Mantos made a full year contribution of £2.9m in 2020 and we
expect this to increase in 2021 with the much higher copper price
environment.
Despite some minor delays in 2020, the expansion project for the
Mantos Blancos mine continues to progress and is expected to
begin production later this year. This bodes well for increased
production and royalty levels in 2022. There are further expansion
opportunities that Mantos intends to slowly progress throughout
the rest of the year which would also benefit our royalty.
With copper prices at US$5,700/t at the time of acquiring the
Mantos Blancos royalty, and currently trading at US$8,785/t,
we entered copper at an opportune time for our shareholders,
particularly as we expect copper to be one of the major
beneficiaries of the global move to a low-carbon future. We
continue to seek more copper royalty and streaming exposure.
The business review on pages 46 to 67 provides further details on
the performance of material assets during 2020.
Other portfolio events
There were a number of other positive developments in the
portfolio during 2020, outlined on pages 06 and 07, which could be
significant in years to come. Potentially the most exciting of these
was the acquisition by Fortescue Metals Group of a stake of just
under 20% in Candente which owns the vast undeveloped
Cañariaco copper deposit in Peru, over which we have a royalty.
Fortescue is a US$80bn business and thus the prospects for this
project being financed and developed appear much improved.
14
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS 59.5
49.4
42.6
20.0
17.4
16.2
14.4
12.6
37.0
10.5
16
17
18
19
20
16
17
18
19
20
Portfolio contribution (£m)
Dividends (£m)
20.41
18.02
16.82
9.76
2.4
2.3
2.3
12.35
1.6
1.4
16
17
18
19
20
16
17
18
19
20
Adjusted earnings per share (p)
Dividend cover (x)
Since joining Anglo Pacific, one of my primary objectives has
been to dramatically reduce the dependence and importance
of Kestrel to the Company, whilst recycling the cash flow it has
generated into new investments or distributions to shareholders
as dividends. The developments during 2020 and 2021 so far
have decisively shifted the composition of our portfolio away from
coal and steelmaking materials towards the more exciting area
of battery metals which is well positioned for the 21st century.
This transformation has been remarkable, with the coal and
steelmaking related assets in our portfolio pivoting from being
66% of its value at the beginning of 2020 to 31% following the
Voisey’s Bay acquisition, while our proportion devoted to 21st
century materials has risen from 20% to 60%, dominating the
portfolio for the first time in our history.
Acquisitions
We made two acquisitions in 2020, the first being the
reinvestment of LIORC dividends referred to above ahead of
the major transformational purchase of the Voisey’s Bay stream
earlier this year. The second was our US$2m participation in an
equity placing by Brazilian Nickel, the operator of the Piauí nickel
project over which we hold a 1.3% NSR.
Our participation in the Brazilian Nickel placing was alongside
TechMet, who were funded by the US government, a sign that
governments are now beginning to invest in supply chains for key
strategic minerals. The placing was negotiated when nickel prices
were much lower and helps accelerate the development of the
mine where we have the option to invest a further $70m over time
and which could, depending on nickel prices, start to generate
over $20m annually for us from the middle of the decade.
In addition to the two acquisitions, we entered into a financing
arrangement led by Orion Mine Finance Partners, which affords
the Company the opportunity to invest US$20m into Incoa, a
calcium carbonate project, at a point when it is in production and
generating a certain level of revenue. This project is progressing
well and we expect to fund this commitment in 2022 after the
initial phase of the project is up and running.
45.6%
KESTREL ACCOUNTED
FOR 45.6% OF TOTAL
ASSETS IN 2016
19.5%
KESTREL ACCOUNTED
FOR 19.5% OF OF TOTAL
ASSETS IN 2020
Share buyback
In addition to the total proposed dividends for 2020 of 9p, we
returned a further 2p to shareholders in the form of a £5.0m
share buyback programme between September and November
2020. The buyback was financed through the partial disposal of
our holding in Berkeley Energia, whose share price had doubled
at the time. Over the course of the programme, we acquired an
aggregate of 4,629,703 shares at a volume weighted average
price of 108p per share. The shares acquired under the
programme have been retained in treasury and provide the
Group with additional liquidity to finance new transactions.
Outlook
As the world slowly emerges from the pandemic and growth
returns, we expect the Group’s portfolio contribution to increase
in 2021, supported by higher base metals prices and income
from our recent Voisey’s Bay acquisition. In relation to the latter, it
is pleasing to note that the price of cobalt is already in excess of
our investment assumption. The new world is much more focused
on green and environmental issues and parts of the mining sector
are now being considered essential to the development of a new
cleaner world. Anglo Pacific with its 60% exposure to battery
metals is thus well positioned to benefit from this trend.
Having retained significant financing flexibility to fund further
acquisitions and having made a pivotal step in our progress to
reduce our reliance on Kestrel and our coal heritage, we are
approaching the remainder of this year with a degree of optimism.
J.A. Treger
Chief Executive Officer
13 April 2021
15
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 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 GENERATING SUPERIOR CASH RETURNS
FROM A DIVERSE AND GROWING PORTFOLIO
OF ROYALTY AND STREAMING INVESTMENTS,
AND OTHER INNOVATIVE STRUCTURES IN
THE NATURAL RESOURCES SECTOR
16
Our purpose
Financing investment in
natural resources to enable
a sustainable future
Strategy
To become a leading natural resources
company through investing in high-quality
projects in preferred jurisdictions with
trusted counterparties, underpinned by
strong ESG principles
Our values
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
Strategic drivers
Achieving our strategy through
acquisitions which satisfy these criteria
1. High-quality and low-cost assets
2. Attractive returns
3. Strong operational management teams
4. Long-life assets
5. Diversification of royalty portfolio
6. Established natural resources jurisdictions
7. Strong ESG credentials
8. Production and exploration upside potential
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS HOW WE
CREATE VALUE
FOR OUR SHAREHOLDERS
HOW WE
CREATE VALUE
FOR OUR COUNTERPARTIES
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.
Generating long-term cash returns
The Group is seeking to grow its portfolio of cash-generative
royalties and streams by investing in producing or near-term
producing assets with long 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.
Lower risk through top-line, revenue participation
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.
Lower volatility through commodity and geographic
diversification
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.
Exposure to increases in mineral reserves
and production
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.
Exposure to commodity prices
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.
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.
We serve as a partner to the operators
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.
An alternative form of financing to conventional
debt and equity
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.
Primary royalties
Alternative form of finance to conventional debt
providing greater flexibility and which does not impact
on credit ratings
Royalties and streams do not typically levy interest, nor do
they typically require principal repayments or have a maturity
date. More importantly, unlike conventional debt arrangements
where interest payments tend to start immediately or are
capitalised until cash payments can be made from a project’s
cash flow, most royalties are payable only once the project
comes into production and is generating sales. In addition,
many forms of debt, such as project finance, include restrictive
covenants and may require commodity price hedges to be
put in place. These are not only typically costly in terms of
fees, but can also limit the operator’s exposure to upside in
the prices of their core commodities.
Secondary royalties
Source of liquidity for holders of existing royalties
The value of a royalty is realised over the duration of the
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.
Innovative structures
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.
17
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 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
How we engage
With only nine employees, the Board is often in direct contact
with the Group’s entire workforce. To further enhance the
Board’s interaction with the Group’s employees, Ms. Dennett
was appointed as the Designated Non-Executive Director
responsible for workforce engagement in 2018. During 2020,
on the recommendation of the Nomination Committee, the
Board agreed to rotate the role of the Designated Non-
Executive Director between the Company’s Non-Executive
Directors to increase the exposure employees have to the
Board. Following this decision, Mr. Stan assumed the role
of Designated Non-Executive Director in November 2020.
The terms of reference for the Group’s Designated Non-
Executive Director for workforce engagement can be found
on our website www.anglopacificgroup.com/our-approach
The Designated Non-Executive Director for workforce
engagement is responsible for meeting with employees
at least twice per year through one-on-one meetings and
town halls. In light of the travel restrictions in response to
COVID-19, virtual meetings were held with the Group’s
employees in 2020.
Significant topics raised
• Engagement and alignment with the Group’s purpose
and values
• Proposed changes to the Group’s workforce related
policies and procedures
• Opportunities for personal development
INVESTORS
How we engage
AGM, investor roadshows, one-on-one meetings,
conferences and results webcasts.
Significant topics raised
• Progress on the diversification of the Group’s royalty
portfolio
• Acquisition of the Voisey’s Bay cobalt stream
• Capital returns to shareholders – dividends and share
buybacks
• Revisions to the Directors’ remuneration policy
Due to the lockdown measures imposed by the UK
government in response to the COVID-19 pandemic, the
Company was unable to host the AGM in its usual format
in 2020. Instead, shareholders were invited to attend a
live webcast during which the Chairman and Chief
Executive Officer provided an overview of the Group’s
performance in 2019 and an outlook for 2020. Following
the presentation, all members of the Board were
available to respond to questions from shareholders.
COUNTERPARTIES & MINE OPERATORS
How we engage
Contract negotiation, site visits and ongoing monitoring
of developments, with a focus on ESG at the operations
generating our royalty related income.
Significant topics raised
• 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
How we engage
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, engages with the mine
operators seeking to influence and encourage compliance
with relevant ESG standards.
Significant topics raised
• Updates on significant environmental or community
• Workforce remuneration policies, particularly focused
related incidents
on long-term retention
DIVERSIT Y
The Group’s employees are instrumental to its success, and it respects
and values the individuality and diversity that every employee brings
to the business. As at 31 December 2020, 55% of the Group’s
employees were female as the Group had 9 employees, 5 of whom
were female. In terms of the Company’s Board of Directors, there were
seven Directors, six of whom were male. The Group recognises that it
has more to do in encouraging and support diversity at both the Board
and Executive Committee level and hopes to be able to identify and
develop talent at all levels in the organisation as the Group continues
to grow. More information on the Nomination Committee’s approach to
diversity can be found on page 79.
• The standards adopted by the Group in relation to ESG
matters and the standards expected of our operators
INDUSTRY PEERS
How we engage
We are currently engaging with other royalty and streaming
companies globally with the intention to establish a Global
Streaming and Royalty Council.
Significant topics raised
• 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
18
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS HAVING REGARD TO
OUR STAKEHOLDERS
IN BOARD DECISION-MAKING
Section 172(1) statement
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 page opposite.
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 the desired outcomes
of all stakeholders.
How does the Board engage
with stakeholders?
Due to the size of the Group’s operations
and the niche position it has as one of
the few natural resources royalty and
streaming companies on the London
Stock Exchange, the Board will
occasionally 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.
Engagement in action
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 stakeholders
set out on page 18 impact the Directors'
decision-making.
Principal decisions
Distributions to shareholders
and capital allocation
It is a continuing policy of Anglo Pacific
to pay a substantial portion of our
royalties and streams to shareholders as
dividends. Despite the wider disruption
to and volatility in the macro-economic
environment, there was limited
disruption to the operations underlying
the Group’s producing assets during the
period from COVID-19, and we believe
this is testament to our strict focus on
well-established mining jurisdictions
where mining industries are prioritised
and protected, given their key economic
contributions. As a result, the Board had
the confidence to approve the payment
of interim dividends totalling 5.25p per
share and is recommending a final
dividend per share of 3.75p for 2020.
In addition to the total proposed dividends
for 2020 of 9p, the Board approved the
return of a further 2p per share to
shareholders in the form of a £5.0m share
buyback programme between September
and November 2020. The buyback was
financed through the partial disposal of
our holding in Berkeley Energia, whose
share price had doubled at the time and
did not impact the Group’s ability to
finance new transactions.
Revised Directors’ remuneration policy
Ahead of the Group’s long-term incentive
plan expiring in June 2021, the
Remuneration Committee has led the
development of the revised remuneration
policy set out on pages 88 to 89, which will
be put to shareholders for a binding vote
at the AGM on 26 May 2021.
The revised remuneration policy has
been designed to further promote the
long-term success of the Group by
aligning reward with the Group’s values
and the successful delivery of the
Group’s strategy. In developing the new
remuneration policy, we have consulted
extensively with our shareholders and
the wider workforce to ascertain their
views and are grateful for the support,
engagement and feedback we received
during the process.
Acquisition of Voisey’s Bay
cobalt stream
In February 2021, the Board approved
the £148.4m (US$205.0m) acquisition
of a stream on cobalt production from
the Voisey’s Bay mine in Canada. 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 pages 40 to 41.
The transaction represents the largest
acquisition in the Group’s history and
simultaneously addressed two of our
major strategic challenges: replacing
Kestrel’s income, which begins declining
in 2023; and significantly reducing our
exposure to coal.
Further supporting the Board’s decision
to approve this acquisition is the Group’s
positive medium to long-term outlook for
cobalt given the limited supply of non-DRC
sourced cobalt and the anticipated
increase in demand underpinned by
growth in the electrical vehicle market,
as the world transitions towards a
low-carbon future. Such outlook provides
a reasonable prospect that cobalt will
outperform consensus prices over time.
In addition, the stream is immediately
cash flow generative, provides a platform
for long-term earnings growth with a mine
life out to 2034 and most importantly
replaces Kestrel’s income, becoming the
Group’s new cornerstone asset. Weighing
up all the above considerations, the Board
concluded that the acquisition of Voisey’s
Bay cobalt stream is an excellent
opportunity to create both short and
long-term value for our stakeholders.
Prior to the announcement of the
acquisition of the Voisey’s Bay cobalt
stream, the directors engaged with
significant shareholders to ascertain their
views on the transaction and the
associated placing, with the feedback
being overwhelmingly positive.
In determining how to raise the financing
required for the Voisey’s Bay cobalt
stream acquisition, the directors took
account of previous feedback from retail
investors and offered retail shareholders
the opportunity to participate in the
placing through the use of PrimaryBid.
19
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Environmental, social & governance
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.
ASSETS WE INVEST
IN MUST DELIVER ON
ESG STANDARDS
20
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.
More sustainable commodities
An increased focus on
commodities that support a
more sustainable world
No further investment in thermal coal
Consistent with our track
record over the past five years,
no further investment in thermal
coal assets
Establishing Sustainability Committee
The establishment of a
Sustainability Committee to
further strengthen the
Company’s already rigorous
ESG due diligence processes
We are committed to
INTEGRATING ESG CONSIDERATIONS
into our strategic decision-
making and capital allocation
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS COUNTERPARTIES
COMMITTED TO STRONG
ESG PRINCIPLES
Vale
Vale has committed to investing at least
US$2bn to reduce by 33% the company’s
carbon emissions by 2030 and 15%
the emissions of its supply chain by 2035.
This is the largest investment ever
undertaken by the mining industry to
tackle climate change and is part of
Vale’s commitment to becoming carbon-
neutral by 2050.
Mantos Blancos
At least 50% of power provided to Mantos
Copper S.A will be from renewable energy
sources from 2025.
Maracás Menchen
Between 91% and 96% of the water drawn
at Maracás is reused.
Focus on local employment: 99%+ Brazilian
employees, 79% from Bahia state.
McClean Lake
Ore mined at Cigar Lake is milled at
McClean Lake. There is no tailings
management facility and the jet boring
mining method employed generates
less waste rock than other methods.
Labrador Iron Ore
Pellet products typically result in lower
Scope 3 carbon emission in steel
production relative to sinter feed products.
21
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Environmental, social & governance
continued
Sustainability progress – Our approach
WE BELIEVE THAT A STRONG FOCUS
ON SUSTAINABLE AND RESPONSIBLE
INVESTMENTS IS VITAL
FOR THE LONG-TERM SUCCESS OF OUR UNDERLYING ASSETS AND
THE MAXIMISATION OF SHAREHOLDER VALUE, WITH A STRONG FOCUS
ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) FACTORS.
As a result, we are committed to integrating ESG considerations
into our strategic decision-making and capital allocation.
We operate solely within office environments with a small workforce
and whilst 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 risk through our investment decisions, due
diligence, contractual agreements and ongoing engagement with
our operating partners.
22
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS WELL-BEING OF OUR EMPLOYEES
The health, well-being and safety of our employees
is of upmost importance at Anglo Pacific and such
focus of the Group is even more paramount in light
of the current pandemic.
We recognise the significant impacts that the pandemic has had
on the lives of many of Anglo Pacific’s employees and stakeholders.
We have set out below some of the key measures and actions
that Anglo Pacific has taken to try to combat the virus and to
preserve the health, well-being and safety of our employees:
• We took the decision and steps in March 2020 to ensure all employees
work from home until further notice
• We have maintained proactive engagement with our counterparties
during this difficult time and made efforts to keep informed of their
response to the pandemic
Here are some examples of the approach taken by
some of our counterparties to prevent the spread
of COVID-19:
• Cameco, operator of the Cigar Lake Mine, put the health and safety
of its people and communities ahead of profits and made the
decision to put the mine on care and maintenance for a period of
time during 2020 to prevent the spread of COVID-19
• To help enhance workplace safety, Vale has deployed an on-site
COVID-19 testing lab at the Voisey’s Bay mine and implemented
a radio frequency track and trace programme
OUR GREENHOUSE GAS EMISSIONS
Anglo Pacific is a small organisation, with nine employees and
two Executive Directors, which means that any emission sources
within its operational and financial control, such as business
travel, purchase of electricity, heat or cooling by the Group, are
limited. Management of the operations underlying the Group’s
royalty and stream portfolio is outside its control. During the year
ended 31 December 2020, the Group consumed less than
40,000Kwh of energy (2019: <40,000Kwh) and is therefore
exempt from reporting under the UK Government’s Streamlined
Energy and Reporting Statutory Instrument: 2018/1155.
COMMITMENT TO CONTINUOUS IMPROVEMENT
Anglo Pacific recognises the role that everyone has to
play in reducing their environmental and carbon impact and,
even though the Group itself has only a small footprint with
one office and nine employees, it is looking at ways to do
what it can on energy efficiency and carbon reduction.
As part of this we continue to seek to significantly reduce our
exposure to coal related revenues. Climate change is a huge
challenge for the world, and we have been looking for
opportunities to increase our exposure and contribution to the
reduction of carbon emissions and the creation of a cleaner
environment.
Last year we introduced three new strategic initiatives
that form a critical part of our approach to sustainable
and responsible investment:
1
A focus on more sustainable commodities
Increased focus on seeking opportunities for investment in
commodities that support a more sustainable world. We achieved
this with the acquisition of the Voisey’s Bay cobalt stream in
Canada. Not only does the investment provide exposure to one of
the largest sources of cobalt outside of the Democratic Republic
of the Congo (‘DRC’), Skarns Associates estimates Voisey’s Bay
to be amongst the lowest emitters of carbon per unit of nickel
production compared to all global nickel mining operations.
2
No further investment in thermal coal
Consistent with our strategy over the past five years, we continue
our commitment to no further investment in thermal coal assets.
3
Further enhancing our governance approach
The Sustainability Committee will be undertaking further work
in 2021, with the support of a third party adviser, to refresh its
due diligence processes and monitoring tools to ensure that its
approach and tools evolve at the same pace as the rapidly evolving
external ESG frameworks. We are committed to doing business
with integrity and aim to ensure that all of our counterparties
have strong ethics and compliance programmes in place.
23
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Environmental, social & governance
continued
INVESTING RESPONSIBLY
FOR A MORE SUSTAINABLE FUTURE
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. Over the past 12 months, Anglo Pacific has continued to progress work on
further strengthening its approach to sustainability. We have used an enhanced set of
ESG due diligence tools across various investment opportunities that we have considered.
We have also continued to monitor the ESG performance of our portfolio companies.
ESG-FOCUSED INVESTMENT
DECISIONS
Our robust due diligence
process enables us to select
projects and operators facing
low levels of ESG risk and
which have strong ESG
management processes
in place.
PORTFOLIO WITH A STRONG
ESG PERFORMANCE
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.
HOW WE DO IT
Our investment decision-
making process involves the
following steps:
• We employ a rigorous 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
• We actively chose not to
pursue a number of investment
opportunities in 2020 as a result
of ESG risks identified during
our due diligence process
• Our screening and due diligence
tools are periodically reviewed
and updated to ensure that they
continue to reflect the most
up-to-date developments and
good practice in the ESG space.
HOW WE DO IT
In our due diligence process
and our ongoing monitoring
of the portfolio, we look for
counterparties that:
• Take adequate measures to
avoid adverse impacts on
stakeholders and the
environment
• Effectively mitigate climate risks
and seek to play a positive role in
the energy transition
• Implement international best
practice on water and waste
management, including tailings
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, and
demonstrate high levels of
shared value for stakeholders
• Maintain high integrity standards
in all areas of their business
ENGAGEMENT WITH
OPERATING PARTNERS
We aim to positively
influence our operating
partners and ensure their
continued strong ESG
performance.
TAKING A
LEADERSHIP ROLE
We work with our peers
to encourage and promote
best practice in the mining
industry.
HOW WE DO IT
To the maximum extent
achievable, we aim to:
• Incorporate ESG-related audit
and inspection rights into our
agreements
• Conduct regular site visits
subject to COVID-19 restrictions
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, the Voluntary
Principles on Security and
Human Rights and the Global
Industry Standard on Tailings
Management among others
HOW WE DO IT
• We participate in roundtable
discussions with sector
participants, our peers and
our investee companies
• We have been instrumental in
setting up a streaming and
royalty council (whose members
constitute several of the global
major streaming and royalty
companies). The council’s main
purpose is to promote and
develop streaming and royalties
as an alternative form of
financing for the mining sector
and to encourage and prioritise
best practice in the industry
• We regularly review our
approach to sustainability and
develop our ESG systems and
processes to ensure that these
meet the evolving stakeholder
expectations, including providing
ESG training sessions to our
employees and the Board
• We ongoingly monitor industry
developments to ensure that we
are continuously improving our
ESG performance
24
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 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.
Sustainability progress of our operators include:
Water management
• Largo Resources, the operator
of the Maracás Menchen asset,
reused between 91% and 96%
of the water drawn at Maracás
Menchen.
Climate resilience
testing
• Whitehaven Coal, the operator
of the Narrabri asset, mitigates
climate risk by testing the
resilience of its portfolio under
the International Energy Agency
climate scenarios. Whitehaven
Coal also aligns its climate
reporting with the guidelines set
by the Task Force for Climate-
related Financial Disclosures
(TCFD) and is a member of the
COAL21. The objective of this
fund is to:
− Build community confidence
in Carbon Capture Utilisation
and Storage (CCUS) technology
for safe, long-term CO2 storage
− Demonstrate safe abatement
of fugitive emissions from
coal mines
− Assist in making the case
for coal to remain a key part
of Australia’s future energy
supply.
E
ENVIRONMENTAL
Reducing carbon
emissions
• Vale, the operator of the Voisey’s
Bay mine, has committed to
investing at least US$2bn to reduce
by 33% the company's carbon
emissions by 2030 by 15% the
emissions of its supply chain
by 2035. This is the largest
investment ever undertaken by
the mining industry to tackle
climate change and is part of
Vale's commitment to becoming
carbon-neutral by 2050.
Clean energy
• In 2020, Largo Resources
launched Largo Clean Energy,
creating an industry-leading,
vertically integrated VRFB
business to provide clean
energy storage systems to the
fast-growing, long-duration
renewable energy storage
market.
Environmental
protection
• At Mantos Blancos, over 50%
of power provided to Mantos
Copper S.A. will be from renewable
energy sources from 2025.
• Environmental protection at
Cigar Lake operation is assured
through an ISO 14001-certified
environmental management
system. The programme ensures
that the environmental aspects
associated with the facilities are
systematically identified,
controlled and monitored. Ore
mined at Cigar Lake is milled at
McClean Lake. The jet boring
mining method used generates
less waste rock than other
methods. There is also no tailings
management facility. 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.
S
SOCIAL
Partnership with
aboriginal people
• Voisey's Bay is located in an area
subject to land claims by both the
Innu Nation and the Nunatsiavut
Government. Impacts and Benefits
Agreements (IBA) have been
agreed with each aboriginal group.
Vale encourages the establishment
of capacity building aboriginal joint
ventures to meet the supply and
service needs for its Labrador
operations. Approximately 80% of
the operations support contracts
at the Voisey's Bay mine and
concentrator were with aboriginal
businesses.
Community initiatives/
programmes
• Vale regularly supports cultural
and community events through
sponsorships and donations, and
provides financial support to many
organisations in the province in
2020, including food banks, the
Canadian Red Cross, the Canadian
Cancer Society’s Air Labrador
Program, and the Gathering Place
community initiative.
• Whitehaven Coal, the operator
of the Narrabri asset, supports
local communities through strong
social investment practices.
Over the last three years, they
have contributed nearly A$1.0m
to local groups, and since 2012
have contributed more than
A$1.5bn to the local economy in
north-west New South Wales.
Local support
• Largo Resources, the operator
of the Maracás Menchen asset,
actively pursues the hiring of local
people and puts a strong focus
on fostering local economic
development. Last year, 79% of
the workforce was local to the
Bahia state.
G
GOVERNANCE
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.
• Incoa Performance Minerals LLC is
committed to ESG practices and to
adopt IFC Performance Standards
for its non-US operations.
• Brazilian Nickel has committed
to adopting ESG best practices
at its operations, including a
commitment to comply with DFC’s
environmental and social policies
and procedures as well as IFC
Performance Standards and IFC
EHS Guidelines for Mining.
Health & safety
• In June 2020, Cigar Lake Mine
celebrated its third consecutive
win of the John T. Ryan Regional
Safety Trophy.
• The Voisey’s Bay Mine has an
outstanding safety record and has
been awarded the national John T.
Ryan Trophy in the Select Mines
category for six consecutive years.
In each category, the award is
given to the mine that experiences
the lowest injury frequency in a
given year in all of Canada.
• Mantos Copper has integrated
safety, occupational health,
environmental management and
quality policies which are in line
with Anglo Pacific’s ESG policies
and procedures and demonstrates
a very good safety record. These
are applied consistently across the
organisation under an integrated
management system in
compliance with the ISO 9001
certification.
Reporting standards
• Largo Resources, the operator
of our Maracás Menchen asset
is guided by the Sustainability
Accounting Standards Board
(SASB), Metals & Mining Industry
Standard, and the Global
Reporting Initiative's (GRI).
25
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Environmental, social & governance
continued
40%
2013
In 2013, 40% of the Group’s
portfolio was non-coal
We have pivoted from our coal heritage by focusing on opportunities
to increase our exposure to commodities that will contribute to the
reduction of carbon emissions and enable a sustainable future.
OUR ABILITY TO ADAPT
WILL DEFINE OUR FUTURE
26
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS 77%
2020
In 2020, 77% of the Group’s
portfolio was non-coal
27
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Principal risks and uncertainties
FOCUSED
APPROACH
TO IDENTIFY AND MANAGE
OUR RISKS
Overview and response to COVID-19
Managing risks appropriately is always at the forefront of the
Board’s priorities. The COVID-19 pandemic presented major
economic and social risks to many businesses, including
Anglo Pacific, in 2020 at both a micro and macro level.
At a micro level, Anglo Pacific closely monitored risks of its
underlying assets in our portfolio being placed on care and
maintenance, given the potential impact a temporary break in
revenue might have on the Group’s borrowing covenants.
Fortunately, instances of assets being placed on care and
maintenance were low and did not materially impact the Group’s
overall performance. This was primarily due to the Group’s
strategic investments in jurisdictions that view the mining
industry as a key contributor to economic growth. In line with UK
government guidelines, Anglo Pacific also encouraged its staff
to work remotely, where possible. Anglo Pacific proactively dealt
with the challenges of working from home and promoting staff
well-being. The team took advantage of the technology available
to connect more regularly on team and Board calls and establish
new ways of collaborating, including adopting flexible working
hours that meet childcare and other personal needs. Anglo
Pacific was able to ensure that the business was and can
continue to operate as close to normal as possible. Finally, travel
restrictions impacted Anglo Pacific’s ability to conduct on-site
inspections of existing portfolio assets and potential
investments. We worked with our local consultants to address
this gap, putting in place a fulsome consultation process to
ensure that all aspects of technical risk were addressed.
On a macro level, the pandemic certainly disrupted the coking
coal market. Import restrictions in India resulted in large
quantities of product being diverted onto the seaborne market,
impacting pricing and, consequently, the Group’s revenue.
COVID-19 has undoubtably been an unprecedented event
impacting almost every region on the planet. Never have
lockdowns and travel restrictions been imposed for such a
long time. There was little precedent as to how to respond to
the threat posed by the virus and as such governments and
businesses were learning as they went along. This created a
period of enormous uncertainty.
The uncertainty caused by the COVID-19 pandemic tested
many businesses’ risk frameworks. Anglo Pacific responded by
effectively increasing communication internally and externally,
closely monitoring portfolio operations, and regularly engaging
with the Board to monitor the ever-changing risk landscape
in light of the pandemic.
28
2020 approach to risk
Despite COVID-19 presenting significant potential risks to our
business, there has been limited impact on the Group’s business
model other than our exposure to changing commodity prices
and currencies. Consequently, our overall focus on risk in
2020 was firmly on the Group’s main strategic challenges: the
replacement of Kestrel; and reducing the Group’s coal exposure
and carbon footprint.
The two challenges coincide to the extent that a large acquisition
linked to the Group’s target commodities would naturally reduce
the coal component in the Company’s portfolio. The strategic
imperative of replacing Kestrel was the clear focus of the Board
during the year (and indeed in previous years).
Climate change, ESG and investing for the future
Climate change is undoubtedly a significant threat given the
Group’s portfolio has historically been weighted towards coal.
As the world progresses towards a low carbon future, if the
Group’s portfolio had not diversified and adapted there was the
risk of eroding stakeholder support and market value, both key
to sustaining and growing the business for the benefit of all our
stakeholders. Climate change also presents an opportunity as
it drives innovation, developing technologies that aim to reduce
carbon usage and substitute fossil fuel consumption. Anglo
Pacific’s focus remains on contributing to a more sustainable
future and, as a result, the Group has proactively responded
to the risk and the opportunity posed by climate change.
The Group has strategically aligned its portfolio towards those
commodities which will form a key part of the technological
innovation required to significantly de-carbonise energy
consumption. This movement has firmly embedded itself in
the electric vehicle and battery storage revolutions. Advances
in battery chemistry and trends towards hydrogen power are
seen as more sustainable potential alternatives.
To date, Anglo Pacific has successfully financed vanadium,
copper and nickel supplies and, most recently, completed the
acquisition of a cobalt stream. As a result, the majority of the
Group’s revenues and asset value are derived from non-coal
assets – a first in the Group’s history.
Anglo Pacific continues to embed a strong ESG framework that
is strictly applied to all potential new investments to ensure that
the underlying operations are conducted to high ESG standards
and have a clear social licence to operate.
This was at the forefront of our attention when we acquired the
Voisey’s Bay cobalt stream. We conducted thorough diligence
around all aspects of ESG and were particularly encouraged to
see that Voisey’s Bay is amongst the lowest carbon intensive
producers of cobalt globally. Further, much of the global supply
of cobalt originates from the Democratic Republic of the Congo
(DRC) and, whilst certain operators apply strict ethical standards
in the DRC, some investors may have concerns regarding the
DRC’s human rights indicators. As such, we believe that Anglo
Pacific is strategically placed as a supplier of cobalt originating
from a Canadian mine with strong ESG credentials.
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS As a Group, we do not envisage investing in the DRC and have a
strong preference for investing in OECD jurisdictions. We believe
the rarer, ‘conflict-free’ commodities originating from operators
with strong ESG credentials, such as cobalt from Voisey’s Bay,
create a premium market which will continue to attract demand.
Kestrel replacement and Voisey’s Bay transaction
In recent years, Anglo Pacific’s primary challenge has been to
replace revenue from our Kestrel asset, which has a relatively
short remaining life, and diversify our portfolio further towards
21st century commodities. Being the primary challenge, it also
presented risks and uncertainty regarding the Group’s revenue
profile and stakeholder support.
Anglo Pacific have always maintained a disciplined and patient
approach to potential investments, with shareholder value at the
core of our approach.
During the first half of 2020, the Board continued to consider
replacement opportunities for Kestrel and evaluated the
effectiveness of the Group’s investment criteria and its impact
on deal flow. The conclusion of these strategic sessions was
that there is a tolerance to take slightly more risk for certain
acquisitions, specifically those that had a good track record
of production, in OECD jurisdictions and provided exposure to
commodities required for a more sustainable future.
The Group worked extensively on the Voisey’s Bay opportunity
during 2020. The deal represents the single largest acquisition
in the Group’s history and the Group’s first significant stream
transaction. Given the profile of the transaction, the Group
undertook extensive diligence, which included considering
industry reports on cobalt, detailed studies into the chemistry
behind battery technology, risk analysis associated with the
transition to underground mining and an assessment of any
potential threat to the operation posed by COVID-19.
The Board was involved at all stages of the transaction and
met on a regular basis to ensure that key risks were addressed
appropriately by management and with the assistance of
external advisers and specialists. The Board unanimously
approved the transaction.
Focus for 2021 and emerging risks
Although Voisey’s Bay is a significant transaction and materially
deals with the risk posed by a shortened Kestrel mine life,
Anglo Pacific continues to explore new investment opportunities
to further build our portfolio.
Deal flow
We consider there to be a unique opportunity to build on the
momentum of the Voisey’s Bay transaction and become a
leading royalty and streaming company focused on 21st century
commodities. As such, there is a risk associated to losing this
momentum, and if further deals do not come to fruition in the
near-term, the Board would look to re-assess its risk appetite
and pipeline strategy to ensure these elements are not
hindering deal-flow.
INVESTING FOR THE FUTURE
THE BIGGEST STRATEGIC CHALLENGE, AND THEREFORE RISK,
FACING THE GROUP OVER THE PAST FEW YEARS HAS BEEN
THE IMPERATIVE TO MEANINGFULLY ACQUIRE ROYALTIES
AND STREAMS TO REPLACE THE KESTREL REVENUE WHICH
HAS A RELATIVELY SHORT REMAINING LIFE.
Threat of substitution
The risk of longer-term substitution and technological
advancement will need close supervision and attention, given
that the Group’s value is now predominantly derived from base
metals rather than bulk materials. It is possible that some
commodities and technologies will become obsolete, impacting
the demand, and therefore, price, for certain commodities.
This also presents an opportunity to be at the forefront of
anticipating demand for future strategic minerals.
Increased competition
Royalty and streaming is becoming more of an accepted feature
of the capital structure within the mining industry. As such, we
are seeing a more competitive landscape emerging, although the
majority of start-ups appear to be focusing on precious metals.
Commodity prices
The underinvestment in new supply over the past number of years
is creating a real possibility that the demand forecast for some
commodities linked to EV and batteries could result in prices
increasing significantly, impacting on the demand for alternative
finance or making the return on investments prohibitively low.
COVID-19
COVID-19 remains at the forefront of our minds, in terms of
ensuring that our operations remain unaffected but also that our
employees remain supported both in terms of their well-being
and their ability to work remotely.
29
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Principal risks and uncertainties
continued
Principal risks summary table
2020
Rank
Risk
1
CATASTROPHIC
EVENT
Risk
category
Market
2
GLOBAL
PANDEMIC
Market
Examples
ESG interaction
2019
Rank
Comments
• Environmental or natural
1
• The Group now derives its revenue
disaster could result in loss of
ability or social licence to operate.
from two main operations. It is key that
these operations, along with their
ability to ship, remain undisrupted.
• Extreme weather /
natural disasters
impacting on both mining
operations and supply
channels
• Serious event at mine
site which results in the
loss or destruction of
reserves and resources
• Extended periods of
care and maintenance
due to COVID-19
• Lower demand for
commodities and so
lower pricing which
could result in lower
revenue for the Group
• Widespread consequences
include the health and well-being
of our personnel, operator
personnel and local communities,
social unrest and potential for
increased resource nationalism.
• 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
SUPPLY &
DEMAND FOR
ROYALTIES
Market
• Availability of
conventional capital
• General level of M&A
• Cyclicality of the
commodity / mining
industry
4
FINANCING
CAPABILITY
Financial
• Accessing capital for
• Increasing levels of ESG
4
acquisitions
• Complying with financial
covenants
compliance within borrowing
terms (aligned with Anglo
Pacific’s investment criteria).
5
TRADE
DISPUTES AND
COMMODITY
TARIFFS
Market
• Trade tensions between
commodity importing
countries and Western
countries resulting in
imposition of tariffs,
import bans or retaliation
measures
• Some institutions are withdrawing
entirely or from parts of the
sector (e.g., fossil fuels) in line
with stakeholder demand.
• Import bans from jurisdictions
such as Australia could result
in the incentivisation for lower
quality domestic production of
commodities which apply less
rigorous ESG policies.
• The Group now derives revenue from
two main operations. It is key that these
operations remain undisrupted by
COVID-19.
2
• Although the Group has progressed
replacing its Kestrel revenue, it
continues to develop its growth
strategy.
• The Group still needs to add growth in
order to execute on its strategy and to
achieve meaningful scale compared
to peers in North America.
• Many commentators are predicting
the beginning of a new cycle for
commodities which could see prices
increase and the requirement for
alternative financing reducing.
• The Group successfully raised
the finance for its Voisey’s Bay
acquisition, which has, however, seen
the Group’s borrowings increase.
• Financing future growth will
need active capital markets and
favourable market conditions.
• While the risk of global trade tensions
has somewhat reduced since President
Biden took office, trade tensions have
been ongoing between China and
Australia over the last 12 months which
has seen restrictions and limits being
placed on Australian commodity
imports. With supply needing to find an
end market, the seaborne market faces
the risk of being swamped which can
adversely impact on pricing.
6
INCREASED
COMPETITION
Strategic
• Some precious metal
• Competitive bidding processes
5
• New start-up ventures, though
royalty companies and
private equity houses
are considering
branching out into other
commodities
• Several start-up
ventures have launched
over the last 12 months,
gaining some traction
at the smaller end of
the market
• Changing perception
of the mining industry
among some stakeholder
groups
• Continuing trend of
passive investment
indexation jeopardises
liquidity for small /
medium cap companies
or limited deal flow could
challenge ESG objectives in favour
of growth or financial returns.
• Co-investors might have less
stringent ESG criteria.
predominantly focused on precious
metals, are now diversifying across
commodities, including those which
the Group is targeting.
• Although we have not encountered
direct competition as yet, we are not
being complacent in monitoring the
industry.
• We will continue to ensure we are
competitive in processes and that
we are pro-active in seeking out
new opportunities.
• Ever increasing numbers of
institutions 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.
3
• This risk has reduced for Anglo Pacific
somewhat as we have materially
repositioned our business away from
coal and firmly towards base metals.
This delivery on our strategy was
evidenced in our recent equity raise
associated with Voisey’s Bay where we
had widespread stakeholder support.
• However, for some investors, any level
of coal exposure is a barrier to
investment for some institutions.
7
STAKEHOLDER
SUPPORT
Operating
30
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Examples
ESG interaction
2019
Rank
Comments
Principal risks summary table continued
2020
Rank
Risk
Risk
category
8
OPERATOR
DEPENDENCE
Financial /
Strategic
9
INVESTMENT
APPROVAL
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
• Incorrect judgement
on ESG / jurisdiction /
commodity / price /
counterparty / tax
10
OPERATIONAL
MANAGEMENT
Operational
• Monitoring performance
of portfolio
• Internal controls/cost
control/FX
• Focused and motivated
to deliver strategy
• 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.
• 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.
• Compensation packages for
the executive team include
ESG targets to ensure alignment
with stakeholder criteria.
5
• We continue to seek to work with
counterparties that are committed to
operating with strong ESG principles.
• Our operators have all navigated their
way through the COVID-19 pandemic,
in large without any operational
disruption, a testament to strength
of management.
7
• Investment criteria effectively
applied to date. This was tested
further in the year with the Voisey’s
Bay transaction.
8
• Investment criteria effectively
applied to date.
The Group's approach to recording its principal risks focuses on a
‘prediction vs control’ concept, as illustrated in the diagram opposite.
This approach acknowledges that the impact of market events on the
Group's prospects, 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 harder to control, such as stakeholder support and financing
capability.
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.
l
o
r
t
n
o
c
o
t
d
r
a
H
l
o
r
t
n
o
c
o
t
y
s
a
E
Easy to predict
Hard to predict
1
2
3
5
4
8
6
8
9
7
10
MARKET
AND EVENT
FINANCIAL
STRATEGIC
Characteristics
Management / mitigation
2021 Action points
• Difficult to predict outside
• Limited ability to manage or mitigate other than through
• Continue being
of the short-term
• Tend to be driven by market
forces or extreme localised
events
on-going monitoring
• The Group modified its strategy during 2020 as it saw
pressure from the market in relation to coal / fossil fuel
exposure
proactive in anticipating
industry trends
• 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
• Regular forecasting
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
to ensure full visibility
on covenant compliance
post the Voisey’s Bay
acquisition
• 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)
• Build on the momentum
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
of the Voisey’s Bay
acquisition to continue
growing the business
in the year ahead
OPERATIONAL
• 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’
31
1Catastrophic event3Royalty demand10Operational management6Increased competition5Trade disputes & commodity tariff9Investment approval7Stakeholder support8Operator dependence4Financing capability2Global pandemicAPG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
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
• Mine collapse
• Impact of environmental
disasters and climate
change (extreme weather,
increasing sea levels etc.)
• Natural disaster
• Destruction of
infrastructure
• Resource nationalisation
• Resource contamination
Mitigation
MONITOR
Management comment and actions
LIKELIHOOD : MEDIUM
• 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 may reduce the likelihood of the
occurrence of this risk.
• These risks, by their nature, are
difficult to predict or influence.
The Group 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.
COVID-19
• Significant/ operational
MONITOR
LIKELIHOOD : MEDIUM
IMPACT : MEDIUM/ LOW
Enforced care and
maintenance due to COVID-19
which causes the revenue to
halt from one of the Group’s
key income producing royalties
would have a large impact on
the Group’s prospects
disruption/ enforced care
and maintenance due to
COVID-19
• Lower demand for
commodities could lead to
lower pricing and
subsequently a possible
decrease in the Group’s
revenue
• The global pandemic risk is
difficult to predict or influence.
The Group monitors its royalty
portfolio and underlying
performance regularly.
• COVID-19 has been a unique challenge for the
mining industry, particularly given the risk of
COVID outbreaks in often isolated regions.
However, the impact on the Group has been
minimal to date and we hope that this risk is
now starting to subside. We were pleased that
other than a minor disruption at EVBC and some
disruption at McClean Lake due to COVID-19,
our royalties remained in production during
the year.
• Recovery in market
MONITOR
LIKELIHOOD : MEDIUM
conditions for conventional
sources of capital
• M&A activity
• Demand for commodities
• Global GDP growth
• Maintaining Anglo Pacific’s
brand and reputation in
being able to identify and
execute successful royalty
transactions
• Having financial credibility
in bidding processes
• 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.
• Anglo Pacific 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.
• The recent Voisey’s Bay transaction has raised
the Group’s profile and should hopefully provide
a platform for further growth as it has
demonstrated the Group’s ability to identify,
execute and finance significant transactions.
• The Group believes it is generally aware of all
significant royalty transactions that take place,
we receive regular inbound calls for financing
and we participate in most of the material
opportunities.
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
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
Misjudging:
THOROUGH DUE DILIGENCE
LIKELIHOOD : MEDIUM / LOW
• Anglo Pacific has well defined investment and
ESG criteria that it carefully applies and avoids
overly competitive bidding processes where
these could result in sub-optimal outcomes or
compromising on fundamental strategic
principles.
IMPACT : MEDIUM
Anglo Pacific’s success will
depend on the performance
of the royalties acquired
matching or exceeding
expectations at the point
of acquisition
• 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); and
• Tax regime
• The importance of ESG
when appraising
investments, alongside
more value and operating
based criteria, is
increasingly important as
underperformance in this
area post-acquisition
threatens the Group’s
reputation and jeopardises
stakeholder support
• 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
throughout the year and has
developed 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.
• The governance and due
diligence process adopted by
the Group when considering
each unique investment is key
to reduce the risk of making a
bad investment.
32
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS STRATEGIC
Risk
Possible cause
Mitigation
Management comment and actions
INCREASED COMPETITION
• Recovery in the mining
CONTINUE TO SCALE
LIKELIHOOD : MEDIUM / LOW
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
sector
• Inflows into private
equity funds
• Low bond yields entice
life assurance / pension
funds
• Change of focus from
precious metal peers
• Anglo Pacific has an advantage
in a capital-intensive business
model, with a 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.
• Some direct competition exists but this
has not had a material impact on our ability
to identify and execute transactions, as
demonstrated by our recent US$205m
Voisey’s Bay transaction.
• The Voisey’s Bay transaction should give the
Group significant profile and credibility in the
market and help de-risk transactions from a
financing risk perspective vis a vis smaller
start-ups.
• Increased competition can also result in
opportunities and we have enjoyed working
with other capital providers recently (such
as Orion Resources in the Incoa transaction)
such that the risk of financing projects can
be spread amongst several counterparties,
helping in reducing the risk.
OPERATIONAL
OPERATIONAL MANAGEMENT
• Monitoring accuracy of
MAINTAINING HIGH STANDARDS
LIKELIHOOD : LOW
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
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
• The Group undertakes a
thorough budgeting process
each year which highlights the
reasons for variances.
• Management is committed to the highest
standards of internal control in running the
Company as would be expected of a FTSE
listed organisation.
• Management performance is
• Despite our considerable growth over the
monitored by the Board and the
Remuneration Committee.
• Compensation is aligned to
strategic objectives of the
Company.
past five years, our cost base has remained
largely unchanged over the same period.
• Any underperformance should be readily
evident and dealt with by the CEO and
Board promptly.
STAKEHOLDER SUPPORT
• Reputational
IMPACT : MEDIUM / LOW
Anglo Pacific needs to be well
supported by all stakeholders
including:
• Royalty counterparties
• Employees
• Shareholders
• Lending banks
• Brokers
• Analysts
• Media
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
CLOSE DIALOGUE WITH
STAKEHOLDERS
• Anglo Pacific keeps in close
contact with all stakeholders
and this has shaped the current
strategy to pivot towards an
EV and battery metals business.
• 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.
LIKELIHOOD : MEDIUM
• Anglo Pacific, like many other businesses,
was not able to meet with stakeholders
in person during 2020. Instead, meetings
were held online. This was very effective.
Nonetheless, we look forward to meeting
with all stakeholders again in person when
travel restrictions are lifted.
• The response of stakeholders to our Voisey’s
Bay acquisition was encouraging and was
in-line with what the market was expecting
from management in terms of accelerating
the diversification away from coal and
creating the market leading royalty and
streaming EV and battery metals business.
• We took onboard our previous retail
shareholder feedback and offered retail
investors direct participation in our recent
equity raise through the PrimaryBid online
platform.
33
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Principal risks and uncertainties
continued
FINANCIAL
Risk
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
FINANCING CAPABILITY
IMPACT : MEDIUM / HIGH
The Group is dependent on
access to capital in order to
finance its growth ambitions
Possible cause
Mitigation
Management comment and actions
• Substandard CSR/
environmental record
• Overleveraging
• Inaccurate royalty
calculation
• Non-payment/disputes
DIVERSIFY DEPENDENCE
LIKELIHOOD : MEDIUM
• The Group has a good relationship with
most of the underlying operators.
• Our over-reliance on one operator has
changed significantly in light of the Voisey’s
Bay transaction.
• Our operators put in place procedures to
safeguard their workforce and ensure
operations remained undisturbed throughout
the COVID-19 pandemic. Other than a minor
disruption at EVBC and some disruption at
McClean Lake, our royalties remained in
production during the year. This is testament
to our strategy of investing in jurisdictions
which define their mining industry as key
economic activity. It is also testament to the
quality of the management teams which
underline the Group’s revenue.
• 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 COVID-19
and its potential to disrupt
mining operations.
• The Group 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 Group’s
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.
• Coal exposure limiting
the universe of potential
investors
• Sudden adverse change
in equity market
conditions
• Production issues or
significant price volatility
could adversely impact
the Group’s borrowing
capacity
• Execution risk through
inadequate immediate
access to finance
HIGH-QUALITY DEAL-FLOW
LIKELIHOOD : MEDIUM
• We regularly meet with
advisers, shareholders and
lenders to discuss the types
of deals we are considering to
gauge their support.
• We have invested time in
building global relations in the
industry both from a lender,
coverage and potential
shareholder perspective.
We actively market our story
in Europe, North America and
Australia and will continue work
on increasing our corporate
profile especially in light of the
Voisey’s Bay acquisition.
• To finance the Voisey’s Bay acquisition, we
successfully raised equity and also took the
opportunity to refinance our borrowing facility
with new lenders who are market leaders in the
North American royalty and streaming sector.
• It is clear that the markets support the Group’s
strategy to position itself in the EV and battery
metals sector with leading ESG credentials and
a clear path towards <10% coal exposure.
• Although internal resources are limited for the
next transaction, we believe that our track
record, the recent Voisey’s Bay transaction and
our blue-chip lending syndicate should provide
finance for the next acquisitions in our journey
to becoming the leading EV and battery metals
royalty and streaming company.
CREDIT RISK
IMPACT : LOW
• Royalty payment default
• Bank collapse
There is a risk of default
by those owing the Group
money or those institutions
holding the Group’s cash
reserves
• Our due diligence process
LIKELIHOOD : LOW
focuses on the creditworthiness
of counterparties with whom
we transact and ensure
ongoing monitoring.
• The Group operates controlled
treasury policies which spread
the concentration of the
Group’s cash balances amongst
separate financial institutions
with sufficiently high credit
ratings.
• 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, 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.
34
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS FINANCIAL
Risk
FOREIGN EXCHANGE RISK
IMPACT : MEDIUM
That foreign exchange
movements adversely
impact on the Group’s
cash flow projections
Possible cause
Mitigation
Management comment and actions
• Cash flow risk associated
with dollar derived income
and costs (including
dividend) largely payable
in GBP
• 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
• 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.
INTEREST RATE RISK
IMPACT : LOW
That an increase in interest
rates could adversely impact
on the Group’s prospects
• The Group is exposed to
the US and UK LIBOR rate
as part of its bank facility
• Interest rates are not
expected to increase
significantly in the short-term,
and remain at historically
low levels.
• The Group uses independent
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.
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’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 there is a
residual US$30m
investment
• Lower commodity prices
could result in less
revenue
LIKELIHOOD : MEDIUM
• Commodity price risk represents the primary
risk and the objective is to keep foreign
exchange as a secondary risk.
• Currency has been very volatile over the past
year and the outlook for currencies remains
difficult to anticipate given varying economic
responses to the COVID-19 pandemic.
• Following the Voisey’s Bay acquisition, the
majority of our income is now expected from
USD, for the first time in the Company’s history.
We will modify our hedging strategy given
that revenue from our latest acquisition will
be more regular than the other assets, which
pay once a quarter.
• We have no requirements to hedge under
our borrowing facility.
IMPACT : LOW
• Given the universal responses to COVID-19,
we would expect interest rates to remain at
relatively low levels for a period of time as
government debt has increased significantly.
We will monitor inflation levels closely to
determine whether there is a risk of interest
rate increases.
• We have no obligations to hedge under our
borrowing facility, but retain the flexibility
to do so.
IMPACT : HIGH
• 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.
• Conversely, when commodity prices
increase, demand for royalties can
decrease or making investment decisions
can be much more difficult.
• The Group does not hedge against specific
commodity risk, as de-risked 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.
35
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Principal risks and uncertainties
continued
VIABILITY STATEMENT
OUR FOCUS 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.
On this basis, it would be expected that absent corrective
action, there would be a number of covenant breaches and
dividend restrictions and the refinancing ratio would not be met.
The Group retains certain flexibility to address this, including
suspending its dividend and would work with the banks to agree
to the sale of the residual ~£22m (~US$30m) position in LIORC
and the shares which are held in treasury such that no default
would exist under the borrowing facility.
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 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 recent successful Voisey’s Bay
transaction, 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.
Risk appetite
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 negotiate covenant waivers and refinance the Group’s
facility at maturity or take other corrective action which would
remedy any defaults.
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.
Context
Viability for Anglo Pacific is to have a long-term diversified
stream of income producing royalty assets aligned to the
EV and battery storage technologies, which creates a
sustainable business that can grow and provide investors
with a compelling investment story with ESG at its core.
The acquisition of the Voisey’s Bay stream should materially
address our key strategic challenge of replacing the Kestrel
revenue when it begins to move outside of our private royalty
land. However, the Group’s ambition is to build on the platform
it has created in the EV and battery metals space to continue
to add commodities such as copper, zinc, lithium, cobalt, nickel
and similar strategic minerals to our portfolio, which is now
over 50% weighted towards these commodities.
The Board regularly receives cash flow projections which show
the Group’s expected net debt position. Upon completion of the
Voisey’s Bay transaction, the Group had US$123.5m drawn
under its new borrowing facility which has a three-year maturity
As such, the Group must be sure that it will either generate
enough cash flow to repay its borrowings in full by that time
or be sufficiently confident that any refinancing risk is low.
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 remain
firmly covenant compliant throughout the tenure of the facility
with a manageable refinance ratio at maturity. There is also
the opportunity to request a one-year extension.
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:
• 15% reduction in volumes (this does not impact on LIORC
which is not volume based)
• 15% reduction in consensus commodity price assumptions
(Denison is not impacted by this as it is a toll)
• 10% weakening in the pound from its current level
36
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Key performance indicators
£34.0m
Royalty related
revenue (£m)
55.7
46.1
39.6
34.0
19.7
16
17
18
19
20
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).
12.35p
Adjusted earnings
per share (p)
9.76
20.41
18.02
16.82
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.
12.35
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.
16
17
18
19
20
Adjusted earnings divided by the weighted average number of shares in issue gives
adjusted earnings per share (refer to note 12 for further details).
1.4x
Dividend
cover (x)
2.4
2.3
2.3
1.6
1.4
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).
In any period where there is an adjusted loss, the dividend cover will be reported as nil.
16
17
18
19
20
11.32p
Free cash flow
per share (p)
26.44
23.62
22.28
7.93
11.32
16
17
18
19
20
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).
£7.4m
Royalty assets
acquired (£m)
62.6
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.
39.3
29.4
7.4
0.0
16
17
18
19
20
37
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Re-positioning towards 21st century commodities
38
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS 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
22%
OF THE PORTFOLIO
WAS BATTERY
RELATED METALS
2020
Commodity exposure by asset
value at 31 December 2020
Copper
Vanadium
16%
6%
17%
Coking coal
Iron ore
32%
Thermal coal 16%
1%
Gold
10%
Uranium
2%
Other
60%
OF THE PORTFOLIO
IS BATTERY
RELATED METALS
2020
inc Voisey's Bay
Repositioned towards 21st
century commodities
Cobalt
Copper
Vanadium
45%
11%
4%
Coking coal
12%
Iron ore
9%
Thermal coal 11%
1%
Gold
7%
Uranium
1%
Other
DRIVING 21STC
COMMODITIES
Voisey’s Bay, the largest transaction in the
Company’s history, marks a fundamental
transformation, repositioning the business
towards 21st century commodities.
Patrick Meier, Chairman
Cobalt is used in electronic devices and batteries that
power our digital world, forming part of the circuitry and
the semi-conductors that make computers work.
In the form of cobalt sulphate, it is particularly important
in lithium batteries, where it acts as a cathode stabiliser.
These lithium-ion batteries are increasingly in demand
for electric cars, laptops and mobile phones.
As we move towards a zero-emissions future, cobalt-based
batteries will become increasingly in-demand to help
decarbonise travel and help integrate renewable energy
into national electricity grids.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
39
APG_AR20_13.04.21_FRONT_PROOF 5
S t r a t e g i c r e p o r t
VOISEY’S BAY
An operating nickel-cobalt-copper mine, located in the Province of Labrador
and Newfoundland, Canada, operated by Vale Canada, a subsidiary
of Vale S.A., one of the world’s largest mining companies
Voisey’s Bay
NEW
CORNERSTONE
ASSET
The Voisey’s Bay stream acquisition is our new
cornerstone asset, that repositions our portfolio.
With an improved environmental footprint, and
positive earnings impact, this new acquisition
is taking the business towards 21st century
commodities.
Stage
Producing
Commodit y
Cobalt
Operator
Vale
Location
Canada
Royalt y rate and t ype
22.82% attributable
production
Production payment –
18% of spot price
Balance sheet classification
Mineral stream
interests (P,P&E)
ELECTRIC VEHICLES
EXPECTED TO UNDERPIN
COBALT DEMAND
GROWTH AND DRIVE
COBALT SUPPLY DEFICIT
1.3
1.0
0.8
0.5
0.3
0.0
Total demand forecast
Total supply
2015
2020
2025
2030
2035
2040
Forecast cobalt supply and demand
in millions of tonnes
40
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
WORLD
CLASS
STRATEGIC
RATIONALE
IMPROVED
ENVIRONMENTAL
FOOTPRINT
$6
$4
$2
$0
Voisey’s Bay
First quartile
Second quartile
Third quartile
Fourth quartile
Industry leading global nickel
mine cost curve position
Ranked by cash cost. Total cash costs in US$/lb, on co-product
basis. Cumulative paid nickel production in 000’s of tonnes.
270
225
180
135
90
45
0
Voisey’s Bay
First quartile
Second quartile
Third quartile
Fourth quartile
With leading carbon footprint
and ESG credentials
Ranked by CO2 intensity. In tonnes of CO2 eq. per tonne
of saleable nickel. Cumulative nickel production in 000’s of tonnes.
A new cornerstone asset
• An established world-class,
low-cost operation
• One of the largest non-DRC
sources of cobalt
Repositions the portfolio
• Rebalances towards 21st
century commodities
• Addresses Kestrel medium-
term royalty run-off
Improved environmental
footprint
• Exposure to the fast-growing
EV market
• Voisey’s Bay is one of the
lowest CO2 emitters
Positive earnings impact
• Expected to be immediately
earnings accretive
• Creates a platform for
long-term earnings growth
A TIER 1 MINE LOCATED IN CANADA
AND OPERATED BY VALE
16-year production track record
• Nickel mine with copper and cobalt by-products
• Produces premium alloy grade cobalt metal products
• Current open pit operations expected to deplete
in 2022
Mine life extension project underway
• Transition to underground mining expected to start
in 2021
• Projected mine life to 2034, based on current reserves,
with potential for further mine life extensions
• Production costs in 2nd lowest quartile of global nickel
mine cost curve
TRANSACTION OVERVIEW
Voisey’s Bay
• An operating nickel-cobalt-copper mine, located in
Canada, a well-established mining jurisdiction
• Operated by Vale Canada Ltd, a subsidiary of Vale S.A.,
one of the world’s largest mining companies
• Projected mine life to 2034, based on current reserves,
with potential for further mine life extensions
Stream mechanics
• APG is entitled to 22.82% of total cobalt produced,
with a step down to 11.41% once certain delivery
thresholds reached
• Ongoing payment of 18% of the cobalt reference price,
increasing to 22% when the original upfront amount
is reduced to nil
• Downside protection if mill throughput does not reach
85% of targeted levels by Dec 2025
• Expected annual run-rate portfolio contribution of
approximately $23m (2021E $13-16m)
Transaction terms
• Total upfront cash consideration of US$205m
• Potential additional payments of up to $27m over a
period to June 2025, subject to higher cobalt prices
and minimum production volumes
41
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
Market overview
Demand for industrial commodities should
be well supported by economic stimulus
packages and infrastructure spending,
the first time in decades that there could be
a coordinated infrastructure investment
policy across the US, Europe and China.
2017–2021
COMMODITY PRICES
high
50
40
30
20
10
latest
01.17
07.17
01.18
07.18
01.19
07.19
01.20
07.20
01.21
low
Cobalt (US$/lbs)
high
35
30
25
20
15
10
5
0
latest
low
01.17
07.17
01.18
07.18
01.19
07.19
01.20
07.20
01.21
Vanadium (US$/kg)
high
300
250
200
150
100
50
0
latest
low
01.17
07.17
01.18
07.18
01.19
07.19
01.20
07.20
01.21
Coking coal (US$/t)
9.43
low
45.55
high
22.88
at 30 March 2021
2.35
low
33.9
high
7.10
at 30 March 2021
75
low
300
high
117
at 30 March 2021
42
4.50
4.00
3.50
3.00
2.50
2.00
high
latest
01.17
07.17
01.18
07.18
01.19
07.19
low
01.20
07.20
01.21
Copper (US$/lbs)
200
150
100
50
0
low
high
latest
01.17
07.17
01.18
07.18
01.19
07.19
01.20
07.20
01.21
Iron ore (US$/t)
140
120
100
80
60
40
20
0
high
latest
low
01.17
07.17
01.18
07.18
01.19
07.19
01.20
07.20
01.21
1.96
low
4.29
high
4.02
at 30 March 2021
41
low
169
high
156
at 30 March 2021
47
low
122
high
98
Thermal coal (US$/t)
at 30 March 2021
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
GROWTH
AMBITIONS
21STC COMMODITIES ARE
THE FOCUS OF OUR
INVESTMENT STRATEGY
The impact of COVID-19 on the mining sector
saw an initial rally in gold markets as money
was diverted to safe havens. This position
unwound in the second half of the year and
most commodities, other than coal, then
experienced a surge in pricing.
This was largely down to two factors: it became apparent that
there is to be a period of coordinated global infrastructure
investment as part of an economic stimulus to get economies
back on their feet; and the increasing movement towards
investing in green projects such as renewable energy and the
electrification of automobiles looks set to stay.
Added to this, the sector is now starting to feel the pinch from
years of underinvestment by the mining majors to meet the
demand likely to materialise in the coming years. We are now
starting to see some activity by governments in order to protect
the supply of certain strategic minerals, which could compensate
for the lack of investment from the traditional mining companies
and form part of the capital pool available to certain mining
projects.
All of the above is leading many commentators to revise their
commodity price forecasts upwards for certain strategic
commodities aligned to green energy, the electric vehicle and
battery storage.
By far the most defining theme of 2020 was the COVID-19
pandemic and its impact on the global economy.
The first half of the year saw a significant reduction in economic
activity as lock downs were imposed and travel restrictions
enforced. This led to global GDP falling by ~10%, primarily
due to reduced activity in the retail and leisure sectors, and a
reduction in M&A activity for a period of time. Capital markets
activity, both in the form of new equity and debt issuances,
stalled for a period whilst the markets digested the likely
impact and long-term consequences of the pandemic.
Importantly for the mining industry, despite a slow period
around the Chinese New Year, manufacturing activity in China
rebounded strongly. Furthermore, major supply regions classified
mining as a key economic activity and most operations remained
unimpacted by COVID-19. Economies stabilised somewhat in
the second half of the year as industrial activity gathered pace,
aided by economic stimulus in response to the pandemic.
The year was, therefore, characterised by significant uncertainty
and volatility in commodity prices and equity valuations.
This presented opportunities for the alternative finance sector
either as a result of an increased need for financing, or due to a
reduced availability of traditional debt and equity funding to the
non-precious metals subsector in particular.
With the vaccination rollout now underway, recovery is expected
to continue in 2021, putting downward pressure on gold prices
in favour of cyclical and strategic commodities.
Demand for industrial commodities should be well supported by
economic stimulus packages targeting infrastructure spending
and the transition to green energy, in addition, for the first time in
decades there could be a coordinated infrastructure investment
policy across the US, Europe and China. A considerable part of
this stimulus is expected to be directed towards initiatives
focused on de-carbonisation and should see continued strong
growth in demand for commodities such as copper.
Market balances could tighten as the delayed impact of
reduced exploration budgets, delays to expansion projects and
maintenance activities, as well as supply chain disruptions
caused by the pandemic feed into the availability of raw materials
supply. This bodes particularly well for 21st century commodities
that support a more sustainable world, such as battery metals,
which remain the focus of our investment strategy.
43
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
Market overview
continued
MINING FINANCE REVIEW
Market financing activity was heavily weighted towards the
second half of the year and was dominated by precious metals
and battery material plays.
Funds raised by junior and intermediate mining companies
increased 35% year over year, mainly weighted towards the
second half of 2020, with gold representing over half of these
funds as the combination of economic uncertainty, low yields,
and loose monetary policy attracted asset allocation towards
precious metals. This was followed by funds raised for copper,
nickel and lithium projects, all benefitting from strengthening
battery demand. Financing of rare earth element projects also
recorded a steep increase from last year with Lynas Rare Earths
Ltd. raising US$270m in equity for the development of a new
rare earths processing facility in Australia.
M&A activity was also dominated by gold transactions, however,
the total deal value in the broader mining sector declined by
almost a third year on year and the number of base metals deals
hit a 17-year low. The drop was due to the disruption caused by
the pandemic in the first half of the year but also due to the lack
of large deals seen in previous years with the Barrick-Randgold
and Newmont-Goldcorp mergers resulting in subsequent asset
divestitures.
In addition to regular financing activity, the operational
impact of COVID-19 coupled with commodity price volatility
brought about new financing and refinancing needs across
the mining industry.
Projects that suffered from disruption to their operations due
to lockdowns or social distancing measures, or those whose
profitability was severely eroded by low commodity prices in
the first half of the year, had to seek additional financing to fund
their working capital needs or to refinance their existing capital
structure. On the other hand, elevated gold prices and the
remarkable rise in commodity prices towards the end of the
year have moved certain projects into the development
pipeline or have otherwise been the catalyst for operation
restarts or expansions.
44
$4.5bn
IN TRANSACTIONS
ACROSS SECTOR
MARKET CONDITIONS IN 2020
WERE GENERALLY FAVOURABLE
FOR THE ROYALTY AND STREAMING
SECTOR LEADING TO $4.5BN IN
TRANSACTIONS, THE HIGHEST
LEVEL SEEN IN A DECADE
ROYALTY AND STREAMING REVIEW
Market conditions in 2020 were generally favourable for the
royalty and streaming sector leading to $4.5bn in transactions,
the highest level seen in a decade.
The market experienced a return of large-scale deals which
complemented the recent trend of small-scale transactions,
although a number of these were sales of secondary royalties
and streams by operators or private equity firms rather than new
financing. The largest transaction was the acquisition of Trona
land grant assets in the US by Orion Mine Finance for US$1.33bn,
followed by four precious metals royalty and stream transactions
of similar combined value. Although announced and completed
in the first quarter of 2021, Anglo Pacific’s acquisition of the
Voisey’s Bay cobalt stream for US$205m stands out both in terms
of size and commodity in the context of the limited number of
battery metals transactions closed in 2020 (refer to case study
on page 40).
The sector remained a key source of financing for the mining
industry as the royalty and stream model continued to become
better understood and more widely accepted, not least amid an
uncertain and low commodity price environment experienced in
the first half of the year, making equity and debt financing for
non-precious metals companies more difficult to access. Much
of the financing from the sector was directed towards balance
sheet strengthening or the development of near-construction
assets as part of wider project financing. In line with last year,
most development opportunities were brownfield-focused rather
than greenfield, with the only exception being gold, yet still
limited to well-established mining jurisdictions. In the second half
of the year, the number of small-scale royalty transactions used
to fund early-stage development projects reduced as equity
markets returned on the back of economic stimulus campaigns.
The trend of increasing competition in the alternative finance
sector saw new entrants added to the growing list of royalty and
streaming companies including non-precious metals focused
Deterra Royalties and Nomad Royalty. The number of listed royalty
and streaming companies has almost tripled over the last five
years with almost 70% of the 2020 transaction value attributable
to deals closed by new entrants. Whilst the majority of these
companies remain focused on precious metals and some invest
primarily in early-stage opportunities due to limited balance sheet
capacity, competition is also starting to increase in the base
metals remit and transactions financed through a combination
of cash and shares have become more commonplace.
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
52
IPOs IN MINING SECTOR
THE NUMBER OF IPOs IN THE
MINING SECTOR INCREASED TO
52 IN 2020 WITH MORE THAN
HALF REPRESENTED BY GOLD
COMPANIES
OUTLOOK AND OPPORTUNITIES
A significant degree of uncertainty remains around the speed
of global economic recovery which is likely to vary from region to
region based on the roll out of vaccination programmes and the
effect of individual stimulus packages. The combination of
recovering demand, COVID-related supply issues and quantitative
easing has the potential to create an environment supportive of
strong commodity prices, as has been the case thus far in 2021.
A strong commodity cycle and a risk-on sentiment could help
miners access traditional forms of capital and lead to
opportunities for the alternative finance industry, such as
royalties and stream, to form a part of the full financing solution.
We expect to see more development opportunities being brought
to market although there is a risk of valuations being elevated by
high commodity prices, improved availability of capital, and
increased competition, particularly around projects with strong
ESG credentials.
The recent shift towards accelerating the global energy
transition bodes well for commodities that are at the centre
of Anglo Pacific’s investment strategy. Green energy and
electrification are metal-intensive and the ability of the mining
industry to meet the estimated growth in demand for these
metals hinges on new, capital-intensive projects being developed
and brought online. We expect the number of transactions in
this space to increase in years to come, supporting our growth
ambitions and transition into an increasingly battery metals
focused royalty and streaming company.
45
EQUITY MINING MARKETS REVIEW
The number of IPOs in the mining sector increased to 52 in
2020 with more than half represented by gold companies
capitalising on record high gold prices, followed by base metals.
Most of the IPOs were completed in the final quarter of the year
with the ASX accounting for the largest volume; predominantly
raising funds for gold and copper exploration.
By the end of the year, market capitalisation of the mining
industry reached the highest level in over a decade. High equity
valuation levels have been supported by the stimulus measures
employed towards economic recovery including low interest rates
which have led to the allocation of new money into asset classes
offering higher yields. We expect this trend to continue in 2021
although with sentiment around the global economy improving
and green spending at the fore, momentum has started to shift
away from gold and into other sectors including battery metals.
Despite the record market capitalisation milestone, indexation
capital continued to divert funding away from miners as
investors opted for exposure to gold and silver through exchange
traded funds rather than direct equity holdings, and record
ETF flows were observed in the first nine months of 2020.
Cryptocurrencies attracted significant investment as an
alternative to gold in terms of store of value, and an alternative
to the dollar in terms of medium of exchange. Other emerging
sectors such as cannabis also garnered interest from
speculative capital flows.
A boost to equity capital raised by non-precious metals mining
companies may come from special purpose acquisition
companies (SPACs), an alternative to the traditional IPO market,
which is becoming increasingly popular. The first quarter of 2021
saw a record number of SPAC IPOs with significant fund volumes
earmarked for investment in the natural resources sector by
ESG and green metals focused SPACs. Recognising the historic
underinvestment in the industry and the need for incremental
mining projects to support the green revolution, this new route to
financing could prove particularly effective for small to medium-
sized mining companies looking for development capital.
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
Business review
46
WE ARE TAKING
A DIFFERENT VIEW
During the year, the Group took the opportunity
to evaluate and refine its strategy with respect
to future investments, especially in view of our
increased focus on environmental, social and
governance best practices.
The Group’s investment strategy now reflects
an increased focus on commodities that support
a more sustainable world and no further
investment in thermal coal assets.
There was limited disruption to the operations underlying the Group’s producing
assets during the period from COVID-19, and we believe this is testament to our
strict focus on well-established mining jurisdictions where mining industries are
prioritised and protected, given their key economic contributions.
While the majority of our assets remained relatively unimpacted from an operational
perspective, we did see two instances of temporary shutdowns: EVBC was placed on
care and maintenance for a period of two weeks at the beginning of the pandemic; and
the Cigar Lake uranium mine, which provides the throughput to the McClean Lake mill from
which the Group derives a toll revenue, was placed on care and maintenance for a period
of six months between April and September 2020, and again at the start of January 2021.
In total, these operations represented approximately 13% of the Group’s 2020 portfolio
contribution (2019: 10%).
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS The world is moving in a new direction and we are moving with
it, making sure we finance the right kind of commodities, the
right kind of operations and the right kind of partners: cleaner
commodities that the world needs, delivered by responsible
operations, led by trustworthy, responsible management.
PRODUCING
ROYALTIES
47
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Business review
continued
KESTREL
An underground coal mine located in the
Bowen Basin at Crinum, 51km north-east of Emerald
in Central Queensland, Australia
Coal royalty related revenue
£18.1m
Coal royalty valuation
£55.9m
32.6
28.7
37.0
116.9
109.8
104.3
96.4
13.1
18.1
55.9
16
17
18
19
20
16
17
18
19
20
Stage
Producing
Commodit y
Coking coal
Operator
Kestrel Coal Pty Ltd
Location
Australia
Royalt y rate and t ype
7 – 15% GRR
Balance sheet classification
Investment property
Kestrel mine plan
Showing area being mined compared
to private land boundar y
What we own
Kestrel is an underground, predominantly metallurgical coal mine
located in the Bowen Basin of Queensland, Australia. The Group
owns 50% of certain sub-stratum lands which, under Queensland
law, entitle it to coal royalty receipts from the mine. The majority
of coal sales from the operation are on a contract basis and are
delivered to India, Japan and South Korea.
The royalty rate to which the Group is presently entitled is that
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
7.0%
7.0%
12.5%
7.0%
12.5%
15.0%
First A$100
Balance
First A$100
Next A$50
Balance
The Kestrel 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.
Performance
Although COVID-19 did not result in any operational disruption at
Kestrel, its impact was more keenly felt through lower coal prices
particularly in Q2 and Q3 of 2020. This occurred largely due to
Indian port closures as the country imposed severe restrictions in
an attempt to manage the pandemic. With the disruption to this
key market, tonnages were diverted onto an already imbalanced
seaborne market which pushed prices down considerably.
Consequently, there was a ~35% reduction in the prices realised
by Kestrel in 2020, which not only reduced the sales revenue to
which the Group’s royalty is applied but also the applicable royalty
rate, leading to a 51% decrease in the royalties earned from
£37.0m in 2019 to £18.1m in 2020.
The Group’s royalty income from Kestrel was also impacted by
slightly lower volumes, with sales from the Group’s private royalty
lands decreasing from 6.2Mt in 2019 to 5.6Mt in 2020. Overall
sales volumes from Kestrel have fluctuated over the past 12
months with 3.1Mt sold in H1 2020 and 2.5Mt in H2 2020. The
relatively subdued saleable coal volumes in H2 were due to a
longwall changeover from LW408 to LW409 in Q3 as well as the
presence of expected difficult geological conditions which
affected the productivity of the longwall.
Although Adaro had expressed a target to increase volumes in FY
2020 by around 6% (pre-COVID-19), in August 2020, Adaro revised
its production base case for Kestrel to 6Mt for 2020. Of saleable
production, 95% of this was subject to the Group’s private royalty.
48
1234kmRoyalty areaArea currently being mined500 series panels400 series panels300 series panels200 series panelsAPG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
REDUCING
OUR RELIANCE
ON KESTREL
2016
2020
45.6%
KESTREL ACCOUNTED
FOR 45.6% OF TOTAL
ASSETS
19.5%
KESTREL ACCOUNTED
FOR 19.5% OF OF TOTAL
ASSETS
Commodity exposure
by asset value at 31 December 2020
Commodity exposure
by asset value including Voisey’s Bay
2020
Coking coal
Iron ore
Copper
Thermal coal
Vanadium
Gold
Uranium
Cobalt
Other
17%
32%
16%
16%
6%
1%
10%
0%
2%
2020 inc Voisey’s Bay
Coking coal
Iron ore
Copper
Thermal coal
Vanadium
Gold
Uranium
Cobalt
Other
12%
9%
11%
11%
4%
1%
7%
45%
1%
67%
OF THE PORTFOLIO
IS NON-COAL
77%
OF THE PORTFOLIO
IS NON-COAL
Outlook
The outlook for sales volumes for 2021 looks to be slightly below
the levels achieved in 2020, with Adaro releasing sales production
guidance of 5.7Mt of saleable coal production in CY 2021. We
expect that the level of production within the Group’s private
royalty lands will continue to be in excess of 90% of total saleable
production for the entirety of 2021.
Coking coal prices recovered somewhat in early 2021, reaching
a high of ~US$150/t on the back of increased demand ex China,
weather events such as Cyclone Kimi off the coast of Australia,
and news of a potential unloading of stranded cargoes into China.
The prices have since retreated to their current level of US$145/t.
The outlook for coking coal prices remains robust, with the
nominal, long-term Australian coking coal contract price mean
forecast sitting at US$161/t. This is mainly as a result of expected
recovery of ex China steel demand, particularly from India and
Europe.
Valuation
The Kestrel royalty was independently valued at £55.9m
(A$98.9m) as at 31 December 2020 and accounts for 20% of
the Group’s total assets (2019: £96.4m; A$181.3m; 31%).
The decrease in the Kestrel valuation is primarily attributable
to depletion, with overall impact on valuation being a A$52.2m
(£28.0m) reduction to the carrying value of Kestrel. The valuation
was also impacted by reductions in the underlying coal price
assumptions which further reduced the valuation by A$25.3m
(£13.6m).
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 £38.4m (2019: £66.9m).
49
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Business review
continued
IOC produces a high-quality iron ore pellet which is highly
sought after, 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 in the steel sector.
SIGNIFICANT
RETURN ON
INVESTMENT
26
Fe
Iron
THE BENEFITS OF IRON ORE
We use 20 times more iron, in the form of steel,
than all other metals put together
98% of iron ore is converted into pig iron
for steel-making
Steel is used in energy infrastructure such as
wind turbines and electricity pylons
Steel is used in the construction of buildings,
bridges and other infrastructure, in the manufacture
of cars, trucks, trains, ships and planes
50
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS LABRADOR
Iron Ore Royalty Corporation (LIORC)
Mined and produced in Newfoundland and Labrador, Canada, the
pellets are transported 418km by rail to the port at Sept-Îles, Quebec,
where they are shipped to various markets throughout the world
TOTAL RETURNS
~60% total return realised on the Labrador Iron Ore Royalty Corp. monetisation
250
200
150
100
50
LIORC share price
Iron ore price
161
-54%
1-month average
vs. LT forecast
2.2x
74
01.18
07.18
01.19
07.19
01.20
07.20
01.21
Average in 01.21
Consensus long-term
forecast (real)
Iron ore price and Labrador Iron Ore Royalty
Corp. share price performance1
Re-based to 100
Proactive capital reallocation following
strong outperformance of iron ore
Iron ore price2 (US$/tonne)
1. Bloomberg
2. Consensus Economics, March 2021
Stage
Producing
Commodit y
Iron ore & iron ore pellets
Operator
Iron Ore Company of
Canada (‘IOC’) / Rio Tinto
Location
Canada
Royalt y rate and t ype
Indirect interest
in 7% GRR
Balance sheet classification
Royalty financial
instrument
What we own
Anglo Pacific acquired a 7.01% equity stake in Labrador Iron Ore
Royalty Corporation (LIORC) between May 2018 and February
2020, investing a total C$109m (£64.4m). 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. 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.
Underlying operation
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.
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.
Performance
The Group earned income of £7.0m (C$12.0m) in 2020 from
its investment in LIORC, compared to £8.0m (C$13.5m) in 2019.
The decrease due to the total dividends declared by LIORC
reducing to C$3.05/share in 2020 from C$4.00/share in 2019.
In addition to the decrease in the dividends declared by LIORC,
the Group had sold 21% of its holding prior to the record date to
receive the final dividend, as it prepared to fund the Voisey’s Bay
acquisition. Subsequent to year end, the Group disposed of a
further 55% of its holding to retain an interest of 1.6% in LIORC.
Total proceeds generated by the Group’s disposal were C$108.6m
(£62.6m) and resulted in the Group realising a gain of C$24.7m
(£14.3m) which when combined with the dividends received
represents a total return on the Group’s investment of ~60%.
Outlook
Iron ore prices remain well above those that existed at the time
the Group made its initial investment and 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.
LIORC declared a Q1 2021 dividend of C$1.00/share and the full
year consensus is for dividends to total C$4.10/share.
Valuation
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’.
51
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Business review
continued
MANTOS BLANCOS
Mantos Blancos is located 45km from the port city of
Antofagasta in Chile’s north and is 800m above sea level
Mantos Blancos
Stage
Producing
Commodit y
Copper
Operator
Mantos Copper
Location
Chile
Royalt y rate and t ype
1.525% NSR
Balance sheet classification
Royalty intangible
WE ENTERED COPPER AT AN
OPPORTUNE TIME FOR OUR
SHAREHOLDERS, WITH COPPER
PRICES INCREASING ~54%
SINCE ACQUIRING THE MANTOS
BLANCOS ROYALTY
J.A. Treger
U
S
$
5
,
7
0
0
/
t
o
n
a
c
q
u
i
s
i
t
i
o
n
high
latest
4.50
4.00
3.50
3.00
2.50
2.00
Copper
US$/lbs
01.17
07.17
01.18
07.18
01.19
07.19
01.20
07.20
01.21
low
COMMANDING
PREMIUMS
The copper concentrate produced at
Mantos Blancos is very high-quality,
with low levels of impurities and should
remain in high demand by consumers.
52
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
EVER
EFFICIENT
THE BENEFITS
OF COPPER
• Copper is recyclable without any loss
of quality, both from raw state and
from manufactured products
• An estimated 80% of all copper ever
mined is still in use today
• Copper is an efficient conductor of
energy therefore is used in electrical
equipment as well as uses in
construction and industrial machinery
• It would be difficult to imagine a
successful transition to green energy
production and consumption, smart
electricity grids and electric vehicles
without copper
What we own
The Group acquired a 1.525% royalty over the Mantos Blancos
copper mine in Chile for US$50.3m in 2019. 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 mine. The operation is owned by
Mantos Copper, which in turn is majority owned by Orion Mine
Finance LLP, who acquired the asset from Anglo American plc.
Performance
As the Group acquired the Mantos Blancos royalty in Q3 2019,
2020 represents the first full year of ownership for Anglo Pacific.
Income from the royalty totalled £2.9m in 2020, compared to
£1.0m in 2019.
In total the Group received royalty payments on 41.3Kt of payable
copper in 2020. Operations at the mine were impacted by two
unplanned stoppages during H1 2020, requiring maintenance
and repair remedies to be carried out. Works have now been
completed and production levels are back to normal levels.
There was strong upward momentum in copper prices
throughout 2020, starting the year at ~US$6,165/t and finishing
the year at ~US$7,741/t. Prices have continued their strong run
into 2021, hitting a peak of US$9,615/t in late February, and
are at US$8,866/t at the time of writing. The key reason for the
substantial increase in price during 2020 was due mainly to
expectations of a global economic recovery tied to a US fiscal
stimulus programme coupled with a vaccine-driven demand
recovery. This is bolstered by growing expectation of copper-
intensive green stimulus across the globe.
Outlook
Mantos Blancos has a current capacity to produce around
40-45Kt of copper per annum. The debottlenecking project,
which was in part funded by Anglo Pacific’s royalty, is now well
underway and commissioning of the new ball mill and associated
processing infrastructure is anticipated in late Q4 2021.
Following the Phase 1 debottlenecking programme through
2021, Mantos is expected to produce at a nameplate production
rate of ~52Kt of copper per annum over the next 10 years. Anglo
Pacific expects that the commissioning of the debottlenecking
project will happen at the end of 2021 with ramp up to the full
production levels in Q1 of 2022.
Mantos Copper could also potentially build a Phase 2
debottlenecking plant. This could see average mine output
as high as 59Kt per annum through 2030, and a life of mine
extension beyond 2035.
Valuation
The Mantos Blancos royalty is classified as a royalty intangible
asset on the balance sheet. As such, this asset is carried at cost
less amortisation and impairments. Royalty intangible assets are
amortised when commercial production commences, on a
straight-line basis over the expected life of the mine.
53
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
Business review
continued
MARACÁS MENCHEN
The mine is located in the eastern Bahia State of Brazil,
250km south-west of Salvador, the capital of Bahia, and 800km
north-east of Brasilia, the capital of Brazil
Maracás royalty related revenue
£0.5m
Vanadium
US$/kg
5.9
2.0
0.8
2.7
0.5
35
30
25
20
15
10
5
0
16
17
18
19
20
01.17
07.17
01.18
07.18
01.19
07.19
01.20
07.20
01.21
What we own
The Group has a 2% NSR royalty on all mineral products sold
from the area of the Maracás Menchen mine 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’).
Performance
Royalties from the Maracás Menchen mine totalled £0.5m
for the year ended 31 December 2020, compared to £2.7m in
2019, a fall of 78%, despite Largo reporting slightly higher sales
of 10.3Kt compared to 10.2Kt in 2019. The reduction in the
Group’s royalties from the Maracás Menchen mine is primarily
attributable to the one-off pricing adjustment of US$1.3m which
arose on the termination of the offtake agreement between
Largo and Glencore.
The level of royalty income payable to Anglo Pacific in 2020
compared to 2019 was also impacted by the sustained
weakness in the underlying vanadium price during 2020,
which reduced from an average price in 2019 of U$20.35/Kg
to U$12.27/Kg in 2020.
Stage
Producing
Commodit y
Vanadium
Operator
Largo
Location
Brazil
Royalt y rate and t ype
2% NSR
Balance sheet classification
Royalty intangible
The production level in 2020 from the Maracás Menchen mine
represents a new annual record of 11.8Kt, and was within
Largo’s announced production guidance for 2020 of 11.8-12.3Kt.
Largo also achieved a record production quarter in Q4 2020 of
3.3Kt following the successful completion of its expansion and
optimisation of the processing plant, which has increased the
nameplate capacity of the plant to ~1Kt V2O5 per month, an
increase of 20%. Largo continues to optimise the plant in 2021
and has flagged further growth this year from the commissioning
of a V2O3 plant, as described in more detail below.
The stark difference between production and sales levels is due
to the building of V2O5 stockpiles in Q2 and Q3 2020 as Largo
transitioned to an in-house sales and marketing function following
the expiry and termination of the Glencore offtake arrangement
in April 2020. As a result, there was an expected time lag between
shipping product and the receipt of proceeds which resulted in
limited sales in May and June.
Following the payment to Anglo Pacific of royalty related to sales
of 3.2Kt of V2O5 in Q1 2020, the Group triggered the second and
final of two deferred US$1.5m (£1.2m) payment instalments to the
previous owner of the royalty as agreed at the time of the original
royalty acquisition. This consideration was paid in May 2020.
54
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS An industry preferred, vertically integrated
vanadium company, realising a lower carbon
future with Largo’s high-quality vanadium
products. Vertically integrated VRFB systems
to meet the world’s fast-growing energy
storage needs.
POWERING UP
In 2020, Largo Resources launched Largo Clean Energy, creating an
industry-leading, vertically integrated VRFB business to provide clean
energy storage systems to the fast-growing, long-duration renewable
energy storage market.
Largo Clean Energy combines access to high purity vanadium products
with one of the most advanced VRFB technologies on the market. We believe
this can address some of the key disadvantages of first-generation VRFB
technology such as lack of high purity vanadium supply, large footprint and
relatively low energy density.
The VRFB is a type of rechargeable flow battery that employs vanadium
ions in different oxidation states to store chemical potential energy.
The VRFB contains a reusable electrolyte and has an infinite number of
cycling capabilities, allowing the battery to last more than 20 years.
M O R E L A R G O C L E A N E N E R G Y. C O M
Recently, Largo announced the first sale of 14,000 tonnes of iron
ore derived from our royalty area, which was sold to a leading steel
producer. This iron ore is part of a ~2Mt stockpile held on site.
Largo also announced in March 2021, that it had approved the
construction of a new ilmenite extraction plant, which is expected
to cost approximately US$25m and commence commercial
production in early 2023. Anglo Pacific is very supportive of these
initiatives by Largo which adds to its sources of revenue and
extracts additional value from the resources subject to our royalty.
Valuation
The Maracás Menchen royalty is classified as a royalty intangible
asset on the balance sheet. As such, this asset is carried at cost
less amortisation and impairments. Royalty intangible assets are
amortised when commercial production commences, on a
straight-line basis over the expected life of the mine.
55
Outlook
Largo has provided production guidance for 2021 of between
12.0-12.5Kt V2O5 equivalent, and sales guidance of 12.3-12.8Kt
of V2O5 equivalent. Cash operating cost excluding royalties are
expected to be US$3.10-3.30/lbs V2O5 sold.
Following conclusion of discounts associated with the Glencore
offtake arrangement and the transition to an in-house sales
function in 2020, the Group expects to see increased volumes sold
into high purity, premium quality end user markets, with newly
developed vanadium product brands such as VPURE and VPURE+.
This should result in enhanced margins from vanadium products
sold by Largo, which should in turn translate to higher royalty
revenue on a like-for-like volume sales basis.
Largo planned further improvements to the process plant,
including replacing the kiln and cooler refractories in January
2021, which will allow for feed rate improvements on the kiln
and an expected increase in the nameplate production capacity
to 1.1Kt of V2O5 per month from 1.0Kt per month.
Largo also expects to complete the construction, ramp up and
commissioning of its V2O3 plant in Q3 2021. Total capital
expenditures are expected to be in the range of approximately
US$10.0-11.0m. One of the main applications of V2O3 is vanadium
electrolyte, which is required in the manufacturing of VRFB
systems. Largo expects its V2O3 nameplate production capacity
will be 14 tonnes per day, an increase of 100% from the 7 tonnes
per day as originally planned.
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Business review
continued
NARRABRI
Located 17km south-east of Narrabri, 70km north-west
of Gunnedah, New South Wales, Australia
Narrabri royalty related revenue
£3.1m
4.9
4.2
4.0
3.4
3.1
16
17
18
19
20
Narrabri mine plan
Showing South potential expansion area
Stage
Producing
Commodit y
Thermal & PCI coal
Operator
Whitehaven Coal
Location
Australia
Royalt y rate and t ype
1% GRR
Balance sheet classification
Royalty intangible
Narrabri South Potential
expansion area
What we own
In March 2015, the Group acquired a royalty interest in the
Narrabri coal project, a thermal and pulverised coal injection
(‘PCI’) 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.
Performance
Total royalties from Narrabri decreased by 23% in the year to
£3.1m (2019: £4.0m), despite sales volumes increasing slightly
to 6.4Mt (2019: 6.2Mt). The decrease in royalties was the result
of sustained lower thermal coal prices throughout 2020,
exacerbated by the COVID-19 pandemic.
The price for Australian 6000kcal thermal coal FOB Newcastle
reached a multi-year low of under US$49/t in August 2020, before
recovering to its present level of ~US$98/t. Narrabri achieved an
average realised sale price of U$62/t in 2020. Following the
closure of a number of Indian ports and the deferral of shipments
by customers as a result of the COVID-19 pandemic, Whitehaven
sold into a weakened spot market, replacing its high value PCI
sales with lower value thermal coal sales.
The Narrabri mine was not impacted by the COVID-19 pandemic
during 2020 however, a weighting event occurred in March 2020
resulting in 20 days of lost production, equivalent to 500-600Kt
of production. Production was also affected in the December
quarter by a mid-face 3 metre upthrow fault that resulted in
reduced productivity and increased out of seam dilution. Higher
ash coals resulting from mining through this fault has led to lower
than expected realised pricing for the Narrabri product.
Despite these challenges, Narrabri achieved full year ROM
production of 6.1Mt, which was in line with their guidance of
6.0-6.5Mt for Whitehaven’s year ended 30 June 2020.
Outlook
Due to the geological conditions encountered through the mid
face fault between September 2020 and March 2021, Whitehaven
have issued revised production guidance for Narrabri for the
financial year ended 30 June 2021, reducing production to
5.3-5.5Mt from the previously announced 5.4-6.0Mt.
At the time of writing the impact of the severe flooding in New
South Wales which has resulted in disruption to both the rail and
port infrastructure used by Narrabri, was being assessed, with
Whitehaven expected to release further guidance in April 2021.
For the longer-term future of the mine, Whitehaven is seeking
to convert Narrabri’s existing Exploration Licence into a Mining
Lease using the existing infrastructure. The project involves
extending the longwall panels planned for the mining lease
south of the current mine plan into the Narrabri South area,
which would extend the life of the mine out to 2045.
Whitehaven submitted the Stage 3 Extension Project
Environmental Impact Statement (EIS) to the NSW Department
of Planning, Industry and Environment (DPIE) and at the time
of writing the permitting process is ongoing.
Valuation
The Narrabri royalty is classified as a royalty intangible asset
on the balance sheet. As such, this asset is carried at cost less
amortisation and impairments. Royalty intangible assets are
amortised when commercial production commences, on a
straight-line basis over the expected life of the mine.
While Whitehaven remains committed to the Narrabri South
expansion, with the ever-increasing focus on climate change,
for the purposes of undertaking the Group’s assessment for
indicators of impairment, it is assumed that the expansion does
not proceed. Further details of Group’s consideration of the
impact of climate change in its impairment review are provided
in note 17 to the financial statements.
56
Area already minedArea currently being minedNarrabri North longwallsAPG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS All sources of energy – fossil fuels, nuclear,
renewables – have environmental impacts,
therefore it is essential that clean coal
technologies are more widely deployed and
included as a key part of our clean energy
transition.
ON POINT
6
C
Carbon
LOWER CO2 EMISSIONS
An important first step in reducing CO2 emissions from coal is improving
the thermal efficiencies of coal fired power stations.
The higher the pressure and temperature of steam used, the higher the efficiency
and the lower the CO2 emissions. Higher efficiencies allow a greater amount of
energy to be produced from a single unit of coal.
A one percentage point improvement in the efficiency of a conventional
pulverised coal combustion plant results in a 2-3% reduction in CO2 emissions.
These technologies are in existence, widely available and financially viable.
HELE technologies have been developed to increase the efficiency of coal fired
plants, therefore reducing CO2 and other greenhouse gas emissions and
pollutants. Efficiency in electricity generation means that less fuel is used to
produce the same amount of electricity.
57
APG_AR20_14.04.21_FRONT_ARTWORKSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS S t r a t e g i c r e p o r t
Business review
continued
McCLEAN LAKE MILL
A world-class mine located in the Athabasca Basin, Saskatchewan,
Canada, approximately 660km north of Saskatoon. The McClean Lake
mill is located 69km north-east of the mine site by road
Stage
Producing
Commodit y
Uranium
Operator
Orano
Location
Canada
Royalt y rate and t ype
Tolling revenue
Balance sheet classification
Loan & royalty
financial instrument
What we own
In 2017, Anglo Pacific provided Denison Mines Inc (‘Denison’)
with a C$40.8m, 13-year loan bearing interest at a rate of 10% per
annum. The interest payments are payable from the cash flows
received by Denison from the toll revenue generated from its
22.5% interest in the McClean Lake mill, located in Canada and
operated by Orano Group (previously Areva). The mill processes all
ore produced from the nearby 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.
As the income from the toll revenue is based on a $/lb of
throughput, it is not sensitive to movements in the uranium price.
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 is
from any shut down of the mine or the mill.
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 a
potential mine life extension at Cigar Lake.
Performance
The McClean Lake mill was placed on care and maintenance
between March 2020 and mid-September 2020 following the
Cigar Lake uranium mine also being placed on care and
maintenance by the operator, Cameco, in response to the risks
posed by COVID-19.
Despite not receiving toll milling receipts during the shutdown,
the interest on the Denison loan continued to accrue. The Group
received £1.9m in capital and interest payments during the year
(2019: £3.5m) from tolling receipts on throughput of 10.0Mlbs
(2019: 17.8Mlbs). Total interest earned under the loan for the
year was £1.8m (2019: £1.9m).
Outlook
Operations at the Cigar Lake uranium mine were placed back on
care and maintenance in December 2020. As a result, the McClean
Lake mill was again placed on care and maintenance in January
2021 after processing the final shipments from Cigar Lake.
On 9 April 2021, Cameco announced their intention to restart
production at Cigar Lake during April 2021. Once production
ramps up at the mine, we would expect operations to resume at
the McClean Lake mill.
Valuation
The loan instrument is accounted for as a receivable and carried
at amortised cost. The stream is considered a financial instrument
in accordance with the Group’s accounting policies and is
therefore carried at fair value. All valuation movements are
recognised directly in the income statement.
58
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Cameco’s close engagement with indigenous people
helped to ensure the socio-economic benefits of its Cigar
Lake Mine reached aboriginal communities.
Clearly defined contributions are enshrined in collaboration
agreements and memorandums of understanding.
Many aboriginal people are employed at the uranium mine.
Across its four mines Cameco is the largest industrial employer
of aboriginal people in the region. The company also contributes
to community investment initiatives and spends millions of
dollars with aboriginal owned businesses and organisations.
COMMUNITY
MATTERS
59
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Business review
continued
EL VALLE-BOINÁS /CARLÉS (EVBC)
The El Valle-Boinás/Carlés project is located in the Rio Narcea
Gold Belt in Northern Spain, near the port city of Avilés
EVBC royalty receipts
£2.3m
2.3
2.2
2.0
1.7
1.2
Gold price
US$/oz
2,000
1,750
1,500
1,250
1,000
low
1,148
low
2,064
high
1,685
at 30 March
2021
high
latest
16
17
18
19
20
01.17
07.17
01.18 07.18 01.19 07.19 01.20 07.20 01.21
What we own
The Group has a 2.5% life of mine NSR royalty on the EVBC gold,
copper and silver mine owned by TSX-listed Orvana Minerals Corp
(‘Orvana’). EVBC is located in the Rio Narcea Gold Belt of northern
Spain and was previously mined from 1997 to 2006 by Rio Narcea
Gold Mines. The royalty rate increases to 3% when the gold price
is over US$1,100 per ounce.
Performance
Income from the EVBC royalty totalled £2.3m, a 5% increase on
the £2.2m of royalty income received in 2019. This is based on
sales of 51.5koz of gold and 6.76Mlbs of copper. This compares
to sales of 61.5koz of gold and 4.53Mlbs of copper reported
to Anglo Pacific in 2019.
COVID-19 impacted the EVBC operation which suffered a 10-day
shutdown in March 2020 imposed by the Spanish authorities as
part of their efforts to curtail the spread of the virus. Production at
the mine restarted in early April and the mine is currently running
at normal levels.
Quarterly production rates during 2020 ran below targeted
guidance levels of 15.0kt to 16.5kt of gold production per quarter.
This has been attributed to lower grade oxide ore being mined
and fed through the process plant, although this has been partially
offset by higher throughput following mill expansion works over
the past few years.
Orvana also reported in December 2020 that it had completed
an updated Mineral Resource and Mineral Reserve estimate
(‘MRMR’) and life-of-mine plan (‘LOMP’) on the EVBC operation
in accordance with National Instrument 43-101. The independent
NI 43-101 Technical Report was completed by Roscoe Postle
Associates, (now part of SLR Consulting). The key highlights
of the MRMR and LOMP are:
• The LOMP includes oxide and skarn ore from the El Valle
Boinás and Carlés mines at an average annual rate of 686,000
tonnes, for an extended mine life of five years
Stage
Producing
Commodit y
Gold, copper & silver
Operator
Orvana Minerals
Location
Spain
Royalt y rate and t ype
2.5 – 3% NSR
Balance sheet classification
Royalty financial
instrument
• The total production schedule estimates 3.4Mt of ore,
containing an estimated 307koz of gold, 756koz of silver, and
27.6Mlbs of copper
• Proven and Probable Reserves total 3.4Mt containing 307koz
of gold, 27.6Mlbs of copper and 756koz of silver
• Inferred Mineral Resources total approximately 3.4Mt containing
410koz of gold, 24.8Mlbs of copper and 934koz of silver,
providing potential opportunities to further extend mine life
Outlook
Orvana announced production guidance for FY 2021 for the
EVBC operation of 50koz to 55koz of gold, and 7.0-8.5Mlbs of
copper. This is an especially strong copper forecast compared
to the 2020 guidance of 5.5-6.0Mlbs and actual production of
5.61Mlbs during the fiscal year.
Orvana’s FY Q1 2021(CY Q4 2020) showed very strong production
results, especially for copper, reflecting the increased guidance.
Quarterly gold production totalled 14.1koz, 5% higher than
previous quarter due to 9% higher throughput, partially off-set
by 4% lower grade. Copper production was 2.0Mlbs, 15% higher
than previous quarter, due to higher throughput and grade.
Orvana continues its near mine exploration programme with
7.2km drilled at the El Valle deposit in the first quarter of fiscal
2021, pointing to the potential to extend mine life even further
than the current five-year plan.
The Group earns a royalty over all throughput from the EVBC
process plant and is not restricted to licence geographic
boundaries.
Valuation
The EVBC royalty is classified as 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.
60
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS FOUR MILE
Located in the Frome Basin in far north of the state of South
Australia, 600km north of the state capital, Adelaide
Stage
Producing
Commodit y
Uranium
Operator
Quasar Resources
Location
Australia
Royalt y rate and t ype
1% NSR
Balance sheet classification
Royalty intangible
What we own
The Group has a 1% life of mine NSR royalty on the Four Mile
uranium mine in South Australia. Four Mile is operated by Quasar
Resources Pty Ltd (‘Quasar’).
Anglo Pacific has applied to the courts in Australia and remains
committed to pursuing this matter in full. We are hopeful that
there will be some tangible progress made in relation to this case
over the coming months.
Performance
The Group received £0.5m in royalty income from Four Mile in
2020, compared to £0.3m in 2019, although we remain in dispute
with Quasar in relation to the level of charges which are being
applied against the royalty revenue. Anglo Pacific remains of the
view that this amount should be considerably higher as Quasar, in
our view, treats the contract 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 allowable deductions.
Valuation
The Four Mile royalty is classified as a royalty intangible asset
on the balance sheet. As such, this asset is carried at cost less
amortisation and impairments. Royalty intangible assets are
amortised when commercial production commences, on a
straight-line basis over the expected life of the mine.
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Business review
continued
The progress made by a number of the Group’s development
royalties during the year was encouraging, given these
royalties represent considerable upside to the Group’s future
portfolio contribution. In addition, the Group was pleased to
enter a financing agreement, giving it the option to acquire a
~1.23% gross revenue royalty over Incoa, a calcium carbonate
mine in Brazil, further diversifying its commodity exposure.
DEVELOPMENT
& EARLY-STAGE ROYALTIES
62
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS PIAUÍ
The project is an open-pit nickel-cobalt mining operation
located in the state of Piauí, in north-eastern Brazil
PURE PRODUCTS
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.
Stage
Development
Commodit y
Nickel & cobalt
Operator
Brazilian Nickel
Location
Brazil
Royalt y rate and t ype
1.00% GRR
Balance sheet classification
Royalty financial
instrument
What we own
The Group has a royalty over the Piauí nickel project in Brazil
owned by Brazilian Nickel PLC (‘BRN’), a privately held UK
company. Anglo Pacific contributed an initial investment of
US$2.0m for a 1.25% GRR on the project in 2017 and has, at its
election, the right to increase this investment by a further
US$70.0m for a total gross royalty of 4.25% 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.
Performance
The highlight of the year for BRN was the completion of an
equity investment funding totalling US$27.5m in December
2020, including a US$25.0m investment from BRN’s funding
partner TechMet Limited, which in turn was funded by the U.S.
International Development Finance Corporation (‘DFC’), and a
US$2.0m (£1.8m) share subscription into BRN from Anglo Pacific.
BRN has allocated the funds towards accelerating the project’s
development through the completion of a definitive feasibility
study (‘DFS’) for the full-scale project, as well as expanding its
existing demonstration plant to provide early, small scale
production from the PNP1000 project, which is BRN’s initial,
small scale commercial production project.
The involvement of the DFC is a strong validation of the Piauí
project and its technology, and a recognition of the robustness
of Anglo Pacific’s original royalty investment thesis. Anglo
Pacific’s further equity investment also underlines our
confidence in the growth potential of the project.
Outlook
BRN expects the DFS engineering work to take approximately
12 months and is aiming to publish the final study in Q1 2022.
In addition, BRN is targeting operational start-up of the PNP1000
in Q1 2022 with first nickel and cobalt hydroxide products
produced in Q2 next year.
Under Anglo Pacific’s existing 1.25% GRR, the US$2m investment
is expected to contribute US$4.3m per annum once fully ramped
up, and US$67.2m over the life of mine assuming a long-term
nickel price of 17,848 per tonne.
If Anglo Pacific decides to exercise its upsize option by investing
a further US$70.0m, the royalty on the project is expected to
contribute US$14.5m per annum once fully ramped up, and
US$228.0m over the life of mine assuming a long-term nickel
price of 17,848 per tonne.
Valuation
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.
63
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Business review
continued
SALAMANCA
The world-class uranium project is being developed in an
historic mining area located in Salamanca Province in western
Spain, 250km west of Madrid
Stage
Development
Commodit y
Uranium
Operator
Berkeley Energia
Location
Spain
Royalt y rate and t ype
1% NSR
Balance sheet classification
Royalty intangible
What we own
The Group has a 1% life of mine NSR royalty on the Salamanca
uranium project located in Spain and operated by ASX-listed
Berkeley Energia Limited (‘Berkeley’). The project consists of
four main deposits (Retortillo, Alameda, Zona 7 and Gambuta)
and is located in the Salamanca Province, Spain, approximately
250km west of Madrid.
In August 2020, the key Urbanism License (‘UL’) was granted by
the Municipality of Retortillo. The UL is a land use permit needed
for construction works at the Salamanca mine. Following the grant
of the UL, the Authorisation for Construction for the uranium
concentrate plant as a radioactive facility (‘NSC II’) is now the only
pending approval required to commence full construction of the
Salamanca mine.
Performance
Permitting of the Salamanca project continues albeit slowly.
In July 2020, the Nuclear Safety Council (‘NSC’) issued a
favourable report for the extension of the validity of the Initial
Authorisation for the uranium concentrate plant as a radioactive
facility (‘NSC I’). The NSC I was originally granted in September
2015, with a five-year validity period.
Valuation
The Salamanca royalty is classified as a royalty intangible asset
on the balance sheet. As such, this asset is carried at cost less
amortisation and impairments. Royalty intangible assets are
amortised when commercial production commences, on a
straight-line basis over the expected life of the mine.
64
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS CAÑARIACO
The Cañariaco Sur deposit and Quebrada Verde prospect is
located 3.5km south of Cañariaco Norte and immediately
south-southwest of Cañariaco Sur
Stage
Development
Commodit y
Copper, gold & silver
Operator
Candente Copper
Location
Peru
Royalt y rate and t ype
0.5% NSR
Balance sheet classification
Royalty intangible
What we own
The Group has a 0.5% life of mine NSR royalty over the
Cañariaco copper project (‘Cañariaco’) located in Northern Peru
and owned by TSX-listed Candente Copper Corp. (‘Candente’).
Cañariaco is a large-scale copper project which includes the
Cañariaco Norte deposit, the Cañariaco Sur deposit and Quebrada
Verde prospect located 3.5km south of Cañariaco Norte and
immediately south-southwest of Cañariaco Sur. Cañariaco Norte
has a delineated Resource estimate totalling 7.5bn pounds of
contained copper in the Measured and Indicated category, plus
1.4bn pounds of contained copper in the Inferred category.
Under the royalty acquisition agreement, Anglo Pacific agreed
to additional contingent consideration as follows:
• 20% of royalty payments received up to 31 December 2029;
• 15% of royalty payments received between 1 January 2030
and 31 December 2034; and
• 10% of royalty payments received between 1 January 2035
and 31 December 2039.
Performance
In May 2020 Candente announced that Nascent Exploration
Pty Ltd, a wholly owned subsidiary of Fortescue Metals Group
Ltd had increased its holding in Candente Copper to 19.92%.
Additionally, Fortescue allocated two engineers at its cost to
work on a part time joint technical committee with Candente,
with the goal of identifying the optimum strategy for the
development of the project.
Valuation
The Cañariaco 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.
65
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Business review
continued
DUGBE 1
PILBARA
The Dugbe Shear Zone is located
in south-eastern Liberia, located 64km
by road from the deep water port
of Greenville, the capital city of
County Sinoe
An integrated system of four processing
hubs and five mines connected by more
than 1,000km of rail infrastructure
and port facilities in the Pilbara region
of northern Western Australia
Stage
Early-stage
Commodit y
Gold
Operator
Hummingbird Resources
Location
Liberia
Royalt y rate and t ype
2 – 2.5% NSR
Balance sheet classification
Royalty financial
instrument
Stage
Early-stage
Commodit y
Iron ore
Operator
BHP
Location
Australia
Royalt y rate and t ype
1.5% GRR
Balance sheet classification
Royalty intangible
What we own
The Group entered into a royalty financing agreement with
AIM-listed Hummingbird Resources PLC (‘Hummingbird’) in
December 2012 in relation to its Dugbe 1 gold project in Liberia.
In exchange for US$15m, paid 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.
Performance
2020 saw renewed interest from third parties for the Dugbe 1
project. In June 2020, Hummingbird announced that it had
entered into a conditional earn-in agreement with ARX Resources
Limited (‘ARX’) in respect of the project, which required ARX to
pay Hummingbird US$2m in cash, complete a DFS, and cover all
project costs over the two-year earn-in period in exchange for
up to 49% of the project.
In September 2020, ARX was acquired by Pasofino Gold Limited
(‘Pasofino’), who also raised C$10m in new equity for exploration
and development work at Dugbe 1.
Results have been received for the first drill holes of the planned
5,500 metres drill programme with best results so far of 26.7
metres at 1.44 g/t gold from 86.9 metres. These are the first
holes drilled at Dugbe 1 since 2014.
Our royalty would survive any change of control, and depending
on how this is structured, could result in Anglo Pacific electing to
terminate its royalty in return for the US$15m invested.
Valuation
The Dugbe 1 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.
What we own
The Group has a 1.5% life of mine GRR over three exploration
tenements in the central Pilbara region of Western Australia,
owned by a wholly-owned subsidiary of BHP Group Limited
(‘BHP’), 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’s rail line serving its current operations at Mining Area C,
which lie immediately to the east of the Railway deposit.
Performance
Although no tangible progress on the royalty tenements was
seen in 2020, 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.
Valuation
The Pilbara royalty is classified as a royalty intangible asset
on the balance sheet. As such, this asset is carried at cost less
amortisation and impairments. Royalty intangible assets are
amortised when commercial production commences, on a
straight-line basis over the expected life of the mine.
In the absence of any publicly available information, the Group
has revised its estimate of the likely start date for production
from the tenements covered by the Group’s royalty, delaying the
start date by 10 years to 2040 (2019: 2030). Applying this start
date to the Group’s valuation model, together with a pre-tax
nominal discount rate of 7.50% and a long-term iron ore price of
US$136/t for lump and US$108/t resulted in a net present value
of the discounted future royalty cash flows of A$12.5m
compared to the carrying value of A$17.5m.
As a result of the net present value being lower than the carrying
value, the Group recognised an impairment charge of A$5.0m
(£2.7m) for the year ended 31 December 2020.
66
APG_AR20_14.04.21_FRONT_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS INCOA
The project consists of a calcium carbonate mine and
associated infrastructure in the Dominican Republic and a
processing facility located in Mobile, Alabama, USA
Stage
Development
Commodit y
Calcium carbonate
Operator
Incoa Performance
Minerals LLC
Location
Dominican Republic / USA
Royalt y rate and t ype
~1.23% GRR
The opportunity
The Group, together with Orion Mineral Royalty Fund (‘Orion’),
entered into a financing agreement with Incoa Performance
Minerals LLC (‘Incoa’) in 2020, whereby Anglo Pacific will contribute
US$20m to Incoa’s calcium carbonate mine in the Dominican
Republic and processing facility in Alabama, USA, following
construction completion, in exchange for ~1.23% of gross revenue
from the project.
Anglo Pacific’s participation provides us with our first exposure
to industrial mineral products and fits into our strategy of investing
in high-quality products with reduced environmental footprints.
Development progress
Anglo Pacific’s US$20m commitment follows construction
completion when the operation is in production and generating
cash flow, and will provide Incoa with additional capital to bring
its calcium carbonate products to market. The commitment is
subject to a number of conditions, including Incoa’s successful
construction and operation of the project.
To date, construction activities at the mine and processing
facilities have been progressing well and Anglo Pacific's
commitment is expected to be funded in late 2021 or early 2022.
After funding, the Group anticipates receiving average annual
cash flow of approximately US$1.75 to 2.0m over the first 10
years, and approximately US$2.75 to 3.0m per annum longer-term
over the life of the project (in real terms).
Incoa is expected to produce high-quality ground calcium
carbonate to be marketed principally to the domestic US calcium
carbonate market. High-quality ground calcium carbonate is used
as a functional filler agent in a variety of end-products, including
sealants and caulks, adhesives, rubber and as an active ingredient
in food and pharmaceutical products which primarily serve to
supplement dietary calcium consumption products.
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Financial review
ENSURING LONG-
TERM STABILITY
ANGLO PACIFIC EMERGED FROM
A YEAR OF SIGNIFICANT UNCERTAINTY
WELL PLACED TO COMPLETE THE
US$205M VOISEY’S BAY COBALT
STREAM ACQUISITION
K . F LY N N
Chief Financial Officer
Introduction and impact of COVID-19
2020 was a most uncertain year for many businesses including
Anglo Pacific with COVID-19 presenting unique challenges.
For Anglo Pacific, it was vital that COVID-19 did not halt the
underlying mining activity from which we derive our income.
This risk included not just the potential outbreak of COVID-19
at a mine site, but also stoppages throughout the entire supply
chain, including transportation and manufacturing activity at
end users.
It was reassuring that mining in countries such as Australia and
Canada, where the Group derives the majority of its revenue,
was categorised as a key economic activity and governments
determined that lockdown and other restrictions should not apply
to such operations provided they could be undertaken in a
COVID-secure manner. As a result, there was limited disruption
to the operations underlying the Group’s producing assets during
the period from COVID-19, and we believe this is testament to our
strict focus on well-established mining jurisdictions where mining
industries are prioritised and protected, given their key economic
contributions.
Whilst the majority of our assets remained relatively unimpacted
from an operational perspective, we did see two instances of
temporary shutdowns: EVBC was placed on care and maintenance
for a period of two weeks at the beginning of the pandemic; and
the Cigar Lake uranium mine, which provides the throughput to
the McClean Lake mill from which the Group derives a toll revenue,
was placed on care and maintenance for a period of six months
between April and September 2020, and again at the start of
January 2021 and remains on care and maintenance at the date
of this report. In total, these operations represented approximately
13% of the Group’s 2020 portfolio contribution (2019: 10%).
Although COVID-19 has not created widespread operational
disruption, its impact was more keenly felt through lower coal
prices particularly in Q2 and Q3 of 2020. This occurred largely due
to Indian port closures as the country imposed severe restrictions
in an attempt to manage the pandemic. With disruption to this
key market, tonnages were diverted onto an already imbalanced
seaborne market which pushed prices down considerably.
Consequently, the Group witnessed ~35% lower pricing from the
Kestrel royalty (inclusive of the impact of a lower royalty ratchet)
and ~25% lower pricing from Narrabri in 2020.
As a result, and as described in further detail in this section, total
portfolio contribution decreased by 38% to £37.0m in 2020. This
led to adjusted earnings of 12.39p for 2020, a 39% reduction on
20.41p in 2019.
68
The Group ended the year in a net debt position of £24.3m, but this
largely reflected the sale of £15.2m of its previous 7.1% stake in
LIORC as it prepared itself to finance the Voisey’s Bay transaction
which was completed in March 2021.
Voisey’s Bay acquisition and financing
The acquisition of the Voisey’s Bay cobalt stream in March 2021
was a significant transaction in the history of Anglo Pacific,
representing the Group’s largest ever acquisition at a day one
consideration of US$205m. Our hitherto cornerstone asset,
Kestrel, had a net value of £38.4m at the end of 2020, with the
majority of this expected to be earned over the next three to four
years. Replacing Kestrel has always been a critical strategic
challenge both in terms of creating earnings stability over the
longer-term and also to reduce the Group’s coal exposure
significantly. The Voisey’s Bay transaction has achieved both
objectives.
The transaction was financed through a combination of equity,
asset sales and a new borrowing facility, designed to minimise the
quantum of equity needed to be raised, and was undertaken in a
manner to reflect the need to demonstrate financing certainty to
the vendor.
Equity raise
The equity raise saw the Company issue just under 20% of its
shares by way of placing to institutional investors with retail
participation through the PrimaryBid online platform – the latter to
specifically recognise the feedback we received at AGMs over the
years in relation to retail holders being unable to participate in new
equity raises. We were pleased to see high demand through the
placing, with strong support from our existing shareholders. The
placing ultimately raised £46.5m (~US$66.0m), representing a
modest discount of 6% to the share price prior to the placing.
US$80m part disposal of LIORC
The Group’s 7.1% stake in LIORC was a well-timed investment, just
before the iron ore price began its run to a nine-year high recently.
Although this represented the part ownership of a royalty, one key
feature of this investment was its liquidity compared to the Group’s
other assets, capable of being recycled into other investments at
relatively short notice. As the Voisey’s Bay transaction became
more certain, the Group commenced a programme to realise
US$80.0m from its holding in LIORC with the majority of sales
being made after the year end in order to capture the Q4 20
dividend.
APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS The part disposal of LIORC was an opportune time to decrease the
Group’s exposure to iron ore given that the Group had earned a
~60% return on the investment over a two-year period and the
commodity was trading at a nine-year high with the longer-term
price forecast significantly lower than the near-term forecast.
The opportunity to recycle capital was very compelling given
what appears to be an attractive entry point for cobalt. Since
we disposed of our holding, iron ore prices have declined by
around 10%.
At today’s price levels, the Group retains around US$30m (~£22m)
exposure to LIORC. This represents part of our profit on the
investment, which not only provides a healthy yield based on
broker consensus dividend expectations, but also the flexibility
to finance future acquisitions, as demonstrated through the
Voisey’s Bay transaction.
New borrowing facility
Given the transformative nature of the Voisey’s Bay transaction,
the Group decided to increase its borrowing ratios to make the
acquisition. This required a new borrowing facility with new
lenders to allow higher operational leverage in the business than
the Group previously had, which was capped at 2x adjusted
EBITDA. For this reason, the Group put together a new banking
syndicate comprising Scotia, CIBC and RBC. These blue-chip
Canadian banks are market leaders in financing the North
American royalty and streaming sector and their familiarity with
the market greatly assisted in putting together a facility
appropriate for the structure of the business post-acquisition.
The key features of the facility include: US$150m commitment
(day one step down from US$180m upon completion of the equity
raise); step down to US$125m after 18 months; operating leverage
of up to 3.5x; dividend restrictions if leverage exceeds 2.5x for the
Q1 2021 dividend and onwards (not expected to be triggered);
security against the Group’s assets; and the option to extend
the three-year term by one year subject to lender consent.
The facility has a cost of LIBOR plus 2.75-4.5% depending on
leverage ratios but we expect the cost to normalise at LIBOR
plus 2.75-3.50%. The day one borrowings of US$123.5m implied
leverage of just over 3x at closing, with leverage declining to
below 2.5x by the end of Q2 21 and reducing thereafter. We
have US$26.5m undrawn and available on the facility currently.
2020 RESULTS
As mentioned at the outset, the impact COVID-19 had on the
Group during 2020 was largely in the form of lower coal prices as
India imposed import restrictions during Q2 2020 which led to a
shutdown of a key export market for a period of time during the
middle of 2020. This contributed to a 39% decrease in royalty
related revenue to £34.0m.
2019 has come to represent somewhat of an outlier year for Anglo
Pacific as this was the year when the operator of Kestrel increased
production levels by 40%. This was also a year when prices were
51% higher than those realised in 2020. It appeared that this was
going to represent a new normal production level for the operation,
however, they have now slowed down their rates of production
and we do not expect this level of production again. This should
however result in a more gradual decline in revenue from Kestrel
than previously expected.
The weaker outlook for coking coal, together with depletion
through mining, resulted in a £44.2m reduction in the Kestrel
valuation (2019: £9.2m) which contributed to an overall loss after
tax of £18.6m (2019: profit of £29.0m), and a loss per share of
10.31p (2019: earnings of 16.06p).
Adjusting for non-cash valuation and impairment charges,
the underlying performance of the business remained highly
profitable, with adjusted earnings per share of 12.35p, a decrease
of 39% on 2019 earnings of 20.41p, largely mirroring the 39% fall
in royalty related revenue.
Royalty related revenue
34,009
(39%)
55,728
2020
£'000
%
2019
£'000
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)
2,308
7%
2,166
(6,109)
(2,324)
116
881
(521)
(6,082)
22,279
2%
74%
238%
216%
(55%)
(39%)
(6,018)
(1,337)
34
–
(165)
(13,560)
36,848
180,374
12.35p
(39%)
180,544
20.41p
ROYALTY RELATED REVENUE
Total royalty related revenue for the year was £34.0m, a decrease
of 39% compared to the £55.7m earned in 2019. Combining the
EVBC royalties of £2.3m (2019: £2.2m) and the £0.7m (2019:
£1.6m) repayment of principal from McClean Lake which are not
reflected in the income statement, with royalty related revenue
results in the Group’s portfolio contribution of £37.0m (2019:
£59.5m).
Kestrel is still the biggest single contributor towards royalty related
revenue at 53% in 2020, but this is a noticeable reduction on the
66% equivalent in 2019. We expect Kestrel’s overall contribution
to royalty related revenue to continue to decline as mining moves
outside the Group’s private royalty lands in the coming years,
combined with the impact of new sources of royalty income such
as the recent Voisey’s Bay cobalt acquisition.
Kestrel
Narrabri
Maracás Menchen
Mantos Blancos
Four Mile
Royalty income
2020
£'000
18,141
3,052
526
2,851
454
2019
£'000
37,015
4,008
2,746
1,022
273
25,023
45,064
Denison Interest
1,782
1,926
Labrador Iron Ore & Flowstream –
Dividends
7,204
8,738
Royalty related revenue
34,009
55,728
S
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69
APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
S t r a t e g i c r e p o r t
Financial review
continued
The Group’s tax cost decreased to £4.6m from £12.4m previously,
reflecting the reduction in revenue from Kestrel in 2020, which
attracts the highest level of corporate tax. The deferred tax credit
is a non-cash item primarily reflecting the tax associated with the
valuation movement at Kestrel.
The small impairment charge of £3.4m in the year reflects pushing
out the anticipated start date of the Pilbara royalty (£2.7m) along
with the full impairment of the Groundhog royalty (£0.7m). The
revaluation of royalty instruments of £0.9m includes the EVBC
receipts of £2.3m. Excluding this would show a fair value loss on
the valuation of the EVBC royalty of £1.5m given that it is now one
year closer to the end of its mine life.
Taking all of the above into account resulted in a loss after tax
for the year of £18.6m (10.31p per share) compared to a profit
of £29.0m (16.06p) in 2019. Excluding non-cash valuation and
impairment charges (including depreciation, amortisation and
share-based payments), adjusted earnings were £22.3m (12.35p
per share) compared to £36.8m (20.41p per share) in 2019.
DIVIDENDS AND CAPITAL ALLOCATION
The Board is recommending a final dividend per share of 3.75p for
2020 which when added to the 5.25p already paid, will result in
total dividends for 2020 of 9p per share matching that of 2019.
This was 1.4x covered based on adjusted earnings (2019: 2.3x
covered).
In addition to this, the Board undertook a modest £5.0m share
buyback programme during 2020, which equated to ~2p per
share. As such, total distributions to shareholders in 2020
were 11p.
Following the acquisition of the Voisey’s Bay stream in Q1 2021,
and the associated financing package, the Board is proposing to
implement a formal capital allocation policy. While this is still being
developed in full, it is intended to include the following principles:
Balance sheet
strength
Need to ensure a reasonable level of de-leveraging
over time post the Voisey’s Bay transaction
Funding for
further
acquisitions
The Company needs to continue the diversification of
its portfolio, capitalise on the momentum provided by
Voisey’s Bay and consolidate its position as a leading
21st century minerals royalty and streaming company
Quarterly
dividends
The policy remains unchanged for 2021 with a
quarterly dividend of 1.75p
Other
shareholder
returns
This will depend on the outturn for the year along with
how successful the Company has been in adding
further growth
The individual asset performance is discussed in greater detail in
the business review section, but the following are some high-level
observations explaining the variances in 2020:
Kestrel
10% decrease in volumes as the rate of mining slowed,
along with a 34% price reduction
Narrabri
4% increase in volumes, 25% decrease in price
LIORC
24% decrease in dividends due to planned capex
impacting on special dividend despite record
iron ore prices
Maracás
Menchen
7.5% decrease in sales, 65% reduction in vanadium
price
Income impacted by a US$1.3m one-off adjustment
upon the termination of the Glencore offtake
agreement
Mantos
Full year impact of royalty (income only commenced
late in Q3 19)
3% increase in price compared to H2 19 but 10%
increase when comparing pricing levels between
H2 20 and H1 20
Volumes increased by 15% in Q4 20 compared to
Q4 19
16% reduction in volumes, offset slightly by higher
gold prices
Record copper production in period also bolstered
revenue
EVBC
McClean Lake
Six-month shut down during the year as a precaution
due to COVID-19
Operations recommenced in September 2020 but
were shut down again in January 2021
Four Mile
We hope to see tangible progress on our legal dispute
over the coming months
The outlook for 2021 is mixed in light of the ongoing presence
of COVID-19. While the pricing for commodities such as copper,
nickel and cobalt appears promising, coking coal on the other
hand remains subdued, with spot prices currently below
consensus estimates in the near term. Overall, the Group should
generate considerable cash during 2021 through its existing
portfolio and the addition of the Voisey’s Bay cobalt stream.
Outgoings
Total operating expenses for the year were down 10%. Excluding
non-cash share-based payment charges, overheads were broadly
in line with 2019 at just over £6.1m. A reduction in staff costs
during the year reflected lower bonus levels given the Group’s
performance. Increased costs associated with the Four Mile legal
dispute were offset slightly by a reduction in aborted deal costs.
Overall, the run rate of £6m was maintained, although costs for
2021 are expected to increase modestly as the Group will continue
to invest in growth and will look to resource itself appropriately.
Finance costs for the year increased to £2.3m from £1.4m in
2019. This is largely the result of a higher level of borrowings on
average over the course of the year along with the release of
capitalised costs upon the amendment of the borrowing facility
in January 2020.
70
APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS BALANCE SHEET
Net assets decreased to £215.0m at the end of 2020 compared to
£225.7m a year earlier. The main reason for the decrease was the
additional year of depletion from Kestrel along with lower coking
coal price inputs. The carrying value on the balance sheet (net of
tax) of Kestrel fell from £66.9m in 2019 to £38.4m at the end
of 2020.
CASH AND BORROWINGS
The Group generated free cash flow in 2020 of £20.4m before
acquisitions and dividends. This compares to £47.7m from 2019,
although this number is distorted due to the exceptional and
non-recurring levels of production from Kestrel. 2020 includes
£4.2m of non-core disposals of part of the Group’s stake in
Berkeley Energia and Horizonte Mineral.
Net assets reconciliation £m
2020 cash flow sources and usage £m
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The increase in royalty financial instruments of £7.4m largely
reflected the increase in the market price of LIORC, given the
strength of the iron ore price in 2020. This would have been even
larger but for the Group disposing of £15.2m of this position in the
run up to year end for the purposes of financing Voisey’s Bay. The
reduction in royalty intangibles reflects the amortisation charges
in the period. These assets are carried at amortised cost, unlike
Kestrel and LIORC, and due to their depleting nature will always
show a decrease in the year.
The non-current receivables relate to the Group’s loan to Denison
Mines, which is repaid through the toll milling receipts from
McClean Lake mill. Trade receivables of £10.8m relate to royalty
receivables at the end of the year and were received in full during
Q1 21.
Net assets of £215m at the end of 2020 equated to 122p per
share having taken account of the dividends paid and share
buyback which total £22.0m, compared to 127p at the end of
2019.
Combining the dividends paid in 2020, together with the share
buyback, total shareholder distributions were £21.7m for the year.
Only £8.7m was invested during the year, which includes the
Maracás deferred consideration of £1.2m. This dynamic has
changed significantly thus far in 2021 with the US$205m Voisey’s
Bay acquisition.
Ahead of financing the Voisey’s Bay acquisition, the Group
commenced the partial disposal of its LIORC investment and
at the end of 2020 had realised £15.2m from this sale. These
funds were held in restricted accounts under the Group’s existing
revolving credit facility and resulted in net debt of £24.3m at
the end of 2020 compared to £28.8m at the end of 2019.
As the Group’s borrowings increased to US$123.5m on closing
the Voisey’s Bay acquisition, a priority for 2021 will be to reduce
our levels of borrowing whilst seeking to add further assets to our
growing portfolio. In addition to the US$26.5m currently undrawn
under the Group’s new facility, we retain around US$30m of
liquidity through our residual stake in LIORC which can also
finance further growth (subject to lender consent).
With the Voisey’s Bay acquisition providing long-term earnings
stability, some US$55m of liquidity available to us and the support
of a syndicate of leading Canadian banks in the royalty and
streaming sector, the Group is in a good position to continue to
add to its diversified portfolio and become a significant 21st
century minerals royalty and streaming company.
K . F LY N N
Chief Financial Officer
13 April 2021
71
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
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 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.
COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
The Board supports the principles and provisions of the UK
Corporate Governance Code (the Code) issued by the Financial
Report Council (FRC), which is available on the FRC’s website
(www.frc.org.uk). Although the Company is not subject to 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.
It is the Board’s view that the Company has complied throughout
the year with the Code, with the exception of Provision 38 which
relates to pension contribution rates. The Group’s position in
respect of this matter is detailed in the Directors’ Remuneration
Report on page 86.
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 LEADERSHIP AND COMPANY PURPOSE
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
Company’s purpose and values are detailed on page 18. 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 the Designated Non-Executive
Director responsible for workforce engagement, as described
below in ‘Stakeholder engagement’ and on page 18.
Company performance and risk management
The Board oversees the Company’s performance and reviews
material investments 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 78 and 83.
The way in which the Company assesses and manages risk is
set out in the Principal risks and uncertainties section on pages 23
and 38.
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.
72
APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Annual General Meeting (AGM)
The Company’s AGM is typically the highlight of the year for
the Board, as it provides an excellent opportunity for active
engagement with investors and to further the investors’
understanding of the current business activity of the Group. Due
to the lockdown measures imposed by the UK government in
response to the COVID-19 pandemic, the Company was unable
to host the AGM in its usual format in 2020.
The Board values the AGM as an opportunity for its retail
shareholders to raise questions and comments to the Board and
instead shareholders were invited to attend a live webcast during
which the Chairman and Chief Executive Officer provided an
overview of the Group’s performance in 2019 and an outlook
for 2020. Following the presentation, all members of the Board
were available to respond to questions from shareholders.
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 the General Counsel
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.
Stakeholder engagement
The Group 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
with our current and prospective stakeholders, as further
explained in our section 172 (1) statement, set out on pages 18 to 19.
All investor engagements were conducted through virtual
platforms from mid-March 2020, allowing the Group to continue
with its scheduled programme of roadshow meetings and
presentations, including at the time of publishing the 2019 Annual
Report and Accounts and the interim results for the year ended
31 December 2020. The Chairman, Senior Independent Director
and Chief Executive Officer also continued to meet with
stakeholders on a regular basis, albeit virtually.
The Company has three joint brokers, RBC Capital Markets,
Berenberg and Peel Hunt, and the Board remains satisfied that
the United Kingdom, 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 Committee chairs also engage with their relevant stakeholders
and details of this engagement are provided in each of the
Committee reports on pages 79 to 85. During 2020, the chair
of the Remuneration Committee engaged extensively with the
Company’s shareholders and took on board their feedback in
the development of a revised remuneration policy, including the
replacement of the long-term incentive plan which expires in
June 2021, as detailed on pages 85 to 87.
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. During 2020, on the
recommendation of the Nomination Committee, the Board agreed
to rotate the role of the Designated Non-Executive Director
between the Company’s Non-Executive Directors to increase the
exposure employees have to the Board. Following this decision,
Mr. Stan assumed the role of Designated Non-Executive Director
in November 2020 and held a virtual townhall with all employees,
with feedback from the meeting and action items arising placed
on the Board’s agenda. The terms of reference for the Designated
Non-Executive Director are available on the Group’s website:
www.anglopacificgroup.com/governance.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Corporate governance report
continued
THE BOARD
CHAIRMAN
N . P. H . M E I E R
71, 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 chairman 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
NON-EXECUTIVE DIRECTORS
R.G. DACOMB
65, 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 Chair: Audit Committee
Committee Member: Remuneration Committee, Nomination Committee
V.A. DENNETT
56, was appointed Non-Executive Director in November 2018. She
spent her executive career as a corporate lawyer and has extensive
global expertise in mergers, acquisitions and disposals, business
transformations, strategy, crisis management and business operations
in multiple geographies and multiple commodities. Before joining the
board, she was Senior Legal Counsel at international FTSE 100 mining
company Anglo American PLC and prior to that, a consultant in London
at international law firm Hogan Lovells (then Lovells) and a Partner at
Webber Wentzel, a leading South African law firm with a long history of
acting for mining clients. Ms. Dennett is admitted as a solicitor in England
and Wales (non-practising) and as an attorney, notary and conveyancer
(non- practising) in South Africa.
Committee Chair: Remuneration Committee
Committee Member: Audit Committee, Nomination Committee,
Sustainability Committee
R.H. STAN
67, was appointed Non-Executive Director in February 2014. He has a
B.Comm from the University of Saskatchewan and has over 45 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, CanWhite Sands Corp. and
Spruce Bluff Resources Ltd.
Designated Non-Executive Director – workforce engagement
Committee Member: Audit Committee, Nomination Committee,
Remuneration Committee
CHIEF EXECUTIVE OFFICER
J . A . T R E G E R
58, 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
40, 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 almost 20 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.
SENIOR INDEPENDENT DIRECTOR
J . E . R U T H E R F O R D
61, 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 management and investment banking, specialising in
the global mining and metals sector. Mr. Rutherford brings to the
Board considerable financial and capital markets insight and a deep
understanding of the mining industry. He has held senior appointments
with various companies including senior vice president with Capital
International Investors (a division of Capital Group) and vice president
of Equity Research at investment bank HSBC James Capel in New York.
Mr. Rutherford has also held investment analyst roles with Credit Lyonnais,
covering diversified industrials, and with CRU International, covering
the copper industry. James was a non-executive director of Anglo
American plc from 2013 to 2020. In addition to his role with Anglo Pacific,
Mr. Rutherford acts as non-executive chairman of Centamin plc and as
a non-executive director of GT Gold Corp.
Committee Chair: Sustainability Committee
Committee Member: Remuneration Committee, Nomination Committee,
Audit Committee
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS P AT R I C K M E I E R
THE BOARD IS COMMITTED TO
CHAMPIONING AND EMBEDDING
THE COMPANY’S PURPOSE AND
VALUES WITHIN THE ORGANISATION
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
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Corporate governance report
continued
2. DIVISIONS 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,
the Chief Investment Officer and Head of Technical and Portfolio,
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 in the respective Committee reports
on pages 79 and 85. 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. 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 the General Counsel maintain a
record of each Director’s commitments. For the year ended
31 December 2020 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.
Directors’ attendance at Board and Committee meetings which
they were eligible to attend during 2020 was as follows:
Full Board
Audit
Nomination Remuneration Sustainability
Total meetings
held
Attendance:
W.M. Blyth1
R.G. Dacomb
V.A. Dennett
K. Flynn
N.P.H. Meier
J.E. Rutherford
R.H. Stan
J.A. Treger
12
8
12
12
12
12
12
11
12
5
2
5
5
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–
5
5
–
2
2
2
2
–
2
2
2
–
8
3
8
8
–
–
8
8
–
2
–
–
2
–
–
2
–
2
1 W.M. Blyth retired from the Board on 27 May 2020.
3. COMPOSITION, 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 79 sets
out the Board’s approach to succession planning and how this
supports the development of a diverse pipeline, at all levels.
With the exception of Mr. Blyth’s retirement following the 2020
AGM, the composition of the Board remained largely unchanged.
The Board was refreshed in late 2019 with the appointment of
Mr. Dacomb and Mr. Rutherford as Non-Executive Directors, while
the Group’s Chief Financial Officer, Mr. Flynn, was appointed as an
Executive Director with effect from 1 January 2020. In addition,
the chairmanships of the Board’s Committees were rotated
following Mr. Blyth’s retirement.
Ms. Dennett has informed the Board of her decision to retire as
a Non-Executive Director and will not be seeking re-election at
the 2021 AGM. Ms. Dennett has most recently served as chair
of the Remuneration Committee overseeing a full review of our
compensation structure and the design of the new long-term
incentive plan, which will be put to the 2021 AGM for approval.
We will be initiating a search for a replacement for Ms. Dennett
on her retirement.
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
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.
In anticipation of the eventual retirement of Mr. Blyth, the
Nomination Committee considered the capabilities and attributes
that would be lost and identified the need to recruit a Non-
Executive Director with recent and relevant financial experience
in accordance with the Code. This led to the appointment of
Mr. Dacomb in 2019, and allowed the Board to maintain the right
balance of skills and experience following Mr. Blyth’s retirement
in 2020. The composition of the Board will be kept under constant
review and further changes will be made as tenures come to an
end and as the business continues to evolve.
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. In addition, 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.
Independence of the Non-Executive Directors
At the date of this report, just under two-thirds of the Board are
independent Non-Executive Directors. The Board determines all
of the Non-Executive Directors (other than the Chairman) to be
independent of management and free from any business or other
relationship which could materially interfere with the ability to
exercise independent judgement. The Code does not consider a
chairman to be independent due to the unique position the role
holds in corporate governance. Mr. Meier met the independence
criteria contained in the Code when he was appointed as the
Group’s Chairman in 2017.
The Chairman and the Non-Executive Directors regularly meet
without the Executive Directors present. On an annual basis,
the Senior Independent Director leads the other Non-Executive
Directors in the appraisal of the Chairman’s performance.
Board effectiveness
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. In 2020, an external evaluation exercise was
undertaken. The process for how the review was conducted
and its findings are detailed below.
The 2020 Board evaluation was externally facilitated by Clare
Chalmers Limited, a consultancy with no other connection to the
Company or any of the Directors, and conducted in accordance
with guidance contained in the Code.
Process
In July 2020, the evaluation team met with the Chairman
to agree a comprehensive brief and agenda for the review.
Detailed interviews were held with each Director, according to a
set agenda tailored to the Company. In addition, the evaluation
team interviewed the acting Company Secretary.
In August 2020, the evaluation team observed Board and
Committee meetings. Supporting materials for briefing purposes
were provided by the Company. Following completion of the
exercise, the evaluation team collated the results and draft
conclusions were discussed with the Chairman, prior to presenting
the results at a meeting of the full Board in November.
Key highlights
The review confirmed that the Board is believed to be effective
and well-functioning, and that the leadership provided by
Mr. Meier, as Chairman, is having a positive impact on the
organisational culture of the Company as a whole.
The most positive feedback was about Board composition,
noting that the 2019 Board refresh has significantly enhanced
the skills, experience and knowledge of the Board. Some scope
for improvement was identified in the areas of strategic direction,
Board diversity and Director development.
Following the 2020 evaluation, the Board identified the effectiveness priority areas below for 2021:
Areas identified for action
Planned actions for 2021
Topic
Strategy
Definition of roles
and accountability
Enhanced focus on potential acquisitions to
further the Group’s strategy.
Increased discussion of impact of the Board’s
risk appetite on delivering strategic objectives.
Enhance support provided to the Executive
Directors and the Board by human resources
and the company secretarial function, to clarify
roles and accountability.
Succession planning
Aim to improve the Board’s gender diversity.
The Board’s forward-looking agenda, together with the two designated
strategy meetings, to prioritise the review of the pipeline, how to increase
successful transaction outcomes and include ongoing discussion and
debate as to the Board’s risk appetite.
Increase the human resources support in line with the growth and needs
of the Group.
Separate the role of Company Secretary from the Chief Financial Officer.
Further improve communication between the Board and management.
The Nomination Committee will review the succession plan for both the
Board and senior management annually. In doing so a longer-term view
of succession will be taken to enable diversity as well as considering
skills mix.
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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 28 to 38.
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 2020
benefitted from the input from our new Directors for the first time
and it was pleasing that there were no significant gaps identified.
5. REMUNERATION
The Remuneration Committee is responsible for establishing and
developing the Group’s general policy on executive and senior
management remuneration, together with determining the specific
remuneration packages for the Chairman, Executive Directors and
members of the Group’s Executive Committee. In determining the
executive remuneration, the level of pay and conditions throughout
the Group are taken into consideration.
In addition to the consideration given to the remuneration of the
wider workforce, the Remuneration Committee consults with
the Company’s shareholders to obtain feedback on the existing
remuneration policy and any revisions. During 2020, the
Remuneration Committee engaged extensively with the
Company’s shareholders in the development of the revised
remuneration policy, including the replacement of the long-term
incentive plan which expires in June 2021. Further details on the
Remuneration Committee’s work in 2020, together with the
revised remuneration policy are set out on pages 85 to 87.
Corporate governance report
continued
4. AUDIT, RISK AND INTERNAL CONTROL
Internal and external audit
The Audit Committee monitors the independence and
effectiveness of the external auditors, 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 are 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 auditors.
• The Audit Committee reports regularly to the Board on these
matters, so as to enable the Directors to review the
effectiveness of the system of internal control. The Board also
receives regular reports or updates from its other Committees
and directly from management in addition to carefully
considering the Group’s risk register at regular intervals.
• The Group’s internal control 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 2020 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 2021.
For further detail, please refer to the Audit Committee report
on page 82.
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Nomination Committee
COMMITTEE MEMBERS
N.P.H. Meier – Chairman
R.G. Dacomb
V.A. Dennett
J.E. Rutherford
R.H. Stan
W.M. Blyth – retired 27 May 2020
The Chief Executive Officer and the Company Secretary also
attend meetings of the Committee.
For more on biographies and Board experience details refer
to pages 74 to 78.
ROLE AND RESPONSIBILITIES
The role of the Nomination Committee is to review the composition
of the Board and of its Committees. The Committee leads the
process for appointments, making recommendations to the
Board as part of succession planning for both Non-Executive
and Executive Directors. It also monitors the succession planning
and development of senior management.
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
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 attributes of the 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. Through such selection criteria, we have
achieved gender equality amongst the Group’s employees, and
hope to increase female representation on the Board as vacancies
arise using the same selection criteria.
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. Further details of the process followed for
the Board appointments are included in the Corporate Governance
report on pages 72 to 78.
With the exception of Mr. Blyth’s retirement following the 2020
AGM, the composition of the Board remained unchanged.
Following the appointment of Mr. Dacomb and Mr. Rutherford as
Non-Executive Directors in late 2019 and Mr. Flynn’s appointment
as an Executive Director effective from 1 January 2020, the
Committee considered and concluded that the Board maintained
the right balance of skills and experience despite Mr. Blyth’s
retirement.
Ms. Dennett has informed the Board of her decision to retire as a
Non-Executive Director and will not be seeking re-election at the
2021 AGM. A search will be initiated for a suitable successor for
Ms. Dennett during the next few months. In addition to the search
for Ms. Dennett’s successor, succession planning for both the
non-executive and executive directors is a critical and ongoing
cycle of work, which the Committee will continue to prioritise
in 2021.
COMMITTEE FOCUS IN 2020
The Committee met twice during 2020. 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 2020:
• The composition, structure and size of the Board and its
committees.
• Recommending the establishment of the Sustainability
Committee and its membership to the Board.
• Recommending the appointment of Mr. Dacomb as Chair of the
Audit Committee and Ms. Dennett as Chair of the Remuneration
Committee to the Board, following the retirement of Mr. Blyth.
• Recommending the appointment of Mr. Rutherford as the
Group’s Senior Independent Director to the Board.
• Recommending the rotation of the Group’s Designated
Non-Executive Director for workforce representation from
Ms. Dennett to Mr. Stan to the Board.
• The time commitment expected from each of the Non-Executive
Directors to meet the expectations of their role.
• Recommending that the Board support the election or re-
election of each of the Directors standing at the 2020 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.
• Succession planning for both the Non-Executive and Executive
Directors.
• The results of the external Board effectiveness review, further
details of which are on page 77.
• Reviewing the Committee’s terms of reference.
N . P. H . M E I E R
Chairman
13 April 2021
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Audit Committee
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
auditors. 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.
FAIR, BALANCED AND UNDERSTANDABLE
A key requirement of the Group’s 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 2020 Annual
Report and Accounts meet this requirement and that 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 processes which operate in producing the 2020 Annual
Report and Accounts, including:
• Early engagement with the external auditor on significant
accounting matters by the finance team in advance of the year
end reporting process.
• The thorough process of review, evaluation and verification by
senior management to ensure the accuracy and consistency of
information presented in the 2020 Annual Report and Accounts.
• The provision of advice by external advisers to management
and the Board on best practice regarding the preparation of the
2020 Annual Report and Accounts.
• A meeting of the Audit Committee held specifically to review and
consider the draft 2020 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.
• 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.
COMMITTEE MEMBERS
R.G. Dacomb* – Chairman
V. Dennett
J.E. Rutherford
R.H. Stan
W.M. Blyth – retired 27 May 2020
*The Chairman of the Audit Committee is deemed to have recent and relevant financial
experience in accordance with the UK Corporate Governance Code. The Committee as
a whole has competence relevant to the sector.
For more on biographies and Board experience details refer to
pages 74 to 78.
The Chairman, the Chief Executive Officer, the Chief Financial
Officer, the General Counsel, the Group Financial Controller and
Company Secretary and the external auditors also participate in
meetings of the Committee, as required.
ROLE AND RESPONSIBILITIES
The Committee’s objectives and responsibilities are set out in its
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.
• Advising the Board on the external auditor’s remuneration for
both audit and any non-audit work.
• Reviewing the reports from management on the principal risks
of the Group outlined on pages 28 to 38 and monitoring the
management of those risks.
• Monitoring and reviewing the adequacy and effectiveness
of the Group’s internal 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.
• Overseeing completion of the viability statement.
• 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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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS COMMITTEE FOCUS IN 2020
Throughout 2020, the Audit Committee 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 reviewed the system of internal control and risk management.
The Audit Committee held five meetings in 2020 and has met twice to date in 2021, 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
Review of carrying value of
royalty financial instruments
Review of carrying values of
royalties held at amortised
cost and resulting impairment
charges
Group tax exposures
Going concern basis of
accounting in preparing
the financial statements
Response of the Audit Committee
The Committee 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 2020.
The Committee reviewed the disclosures related to the revaluation charge of £44.2m in relation
to Kestrel coal royalty described in note 15, for the year ended 31 December 2020.
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 2020 and is adequately disclosed.
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 £0.8m in relation to royalty
financial instruments, described in note 16 for the year ended 31 December 2020.
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 2020 and is adequately disclosed.
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 £3.4m described in note 17 for the year ended 31 December 2020.
The Committee concluded that the impairment charges recognised during the year ended
31 December 2019 were appropriate and have been adequately disclosed.
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 and
concluded that the disclosures contained in notes 4, 11 and 36 are sufficient and that no additional
provision is appropriate.
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 30 April 2022 and considered a
range of downside sensitivities, including a possible reduction in commodity prices and production
volumes as a result of the ongoing COVID-19 pandemic. The Committee concluded it was appropriate
to adopt the going concern basis.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Audit Committee
continued
Other issues considered
by the Audit Committee
Application of the policy
for calculating adjusted
earnings
Risk management
Viability Statement
FRC engagement
Internal audit
Ethical business conduct
External audit
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.
The Committee review and monitor the mitigation plans in place and the appropriate senior
management responsibilities to address the principal risks (refer to pages 28 to 38) identified and ranked
by the Board.
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 considered the findings from the FRC’s thematic review of climate disclosures in the
Group’s 2019 Annual Report and Accounts, together with management’s response to the FRC’s
enquiries.
The Committee has reviewed and is satisfied that, the additional disclosures outlining the consideration
given to the impact of climate change in undertaking the annual assessment for indicators of
impairment of its royalty intangibles (note 17) and on the aggregation of its royalty related assets into
operating segments (note 32), address the findings of the FRC’s review.
The FRC review was based solely on the published annual report and accounts and provides no
assurance that the Annual Report and Accounts were correct in all material respects, The FRC’s role
is not to verify the information provided but to consider compliance with reporting requirements. Its
letters are written on the basis that the FRC (which includes the FRC’s officers, employees and agents)
accepts no liability for reliance on them by the Company or any third party, including but not limited to
investors and shareholders.
The Committee considers on an annual basis whether an internal audit function is required. The
Committee’s present view is that one is not currently 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 reviewed the ongoing work to enhance ethical business conduct including updates
and refinements to various policies including the conflicts of interest and related party transactions
policies, together with updating the terms of reference of the Disclosure Committee.
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, along with all other Board members, senior management and staff completed the
annual certification of compliance with the Group’s anti-bribery, corruption and money laundering
policy.
The Committee reviewed and approved the planning report from the Group’s external auditor, Deloitte,
outlining the final audit plan and fee, in December 2020, having given due consideration to the audit
approach, materiality levels and audit risks. In April 2021, 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.
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AUDITOR TENURE
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. Chris Jones of Deloitte is the Senior
Statutory Auditor and was appointed to this role with effect from
the year ended 31 December 2020.
ENSURING INDEPENDENCE OF THE EXTERNAL AUDITOR
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, which
incorporates the requirements of the FRC’s revised Ethical
Standard published in 2019, 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 2020 by the Group’s external auditor.
Other safeguards include:
• The external auditor is required to adhere to a rotation policy
based on best practice and professional standards in the UK.
The standard period for rotation of the audit engagement
partner is five years. The audit engagement partner, Chris Jones,
was appointed in 2020.
• The external auditor is required to assess periodically whether, in
their professional judgement, they are independent of the Group.
• The Audit Committee ensures that the scope of the auditor’s
work is sufficient and that the auditor is fairly remunerated.
The Committee reviewed and discussed the 2020 fee proposal,
concluding that the proposed fees were appropriate for the
scope of work required. Details of the external auditor’s
remuneration are disclosed in note 6b.
• An annual assessment is undertaken of the auditor’s
effectiveness through joint discussions between the Committee,
the Chief Financial Officer and the Group Financial Controller.
The assessment conducted in 2020 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 2021 with key themes incorporated
into the 2021 audit planning cycle.
Conclusion of the Audit Committee for 2020
The Committee has satisfied itself that the external auditor’s
independence was not impaired.
The Committee held meetings with the external auditors without
the presence of management on four occasions and the Chairman
of the Committee held regular meetings with the 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 auditors until the conclusion of the AGM in 2022.
Resolutions to authorise the Board to re-appoint and determine
the remuneration of Deloitte LLP will be proposed at the AGM on
26 May 2021.
RISK MANAGEMENT AND INTERNAL CONTROL
Risk management is the responsibility of the Board and is integral
to the achievement of the Group’s objectives. The Board
establishes the system of risk management, setting risk appetite
and maintaining the system of internal control to manage risk
within the Group. A robust process for identifying and evaluating
the principal and emerging risks, detailed on pages 28 to 38, was in
place during 2020 and up to the date of this report. The Group’s
system of risk management and internal control is monitored by
the Audit Committee under delegation from the Board.
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 28
to 38. The Audit Committee is responsible for reviewing the risk
assessment process for completeness and accuracy.
• In addition to its work on the above, the Audit Committee also
receives regular reports about significant risks and associated
control and monitoring procedures. The Group’s risk register and
internal controls and procedures documentation are regular
agenda items for the Committee. The Committee also receives
regular reports from the external auditors.
• The Audit Committee reports to the Board on these matters,
so as to enable the Directors to review the effectiveness of the
system of internal control. The Board also receives reports from
its other Committees and directly from management.
• The system accords with the Financial Reporting Council’s
Internal Control: Revised Guidance for Directors on the Combined
Code.
In carrying out its role and determining in its opinion that the
system of risk management and internal controls was effective
during 2020, the Committee reviewed and considered the
following:
• Regular updates of key internal control matters in respect of the
Group financial reporting processes, such as financial reporting
systems and controls.
• The key risk areas of judgement and estimation uncertainty
within financial reporting and mitigating actions taken by
management.
• 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.
• The output of external audit work.
• Policies and procedures in place to detect, monitor and
investigate activity in respect of anti-fraud, bribery and
corruption, including the Group’s whistle blowing facilities.
There are no significant issues disclosed in the report and financial
statements for the year ended 31 December 2020 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.
R . G . D A C O M B
Chairman of the Audit Committee
13 April 2021
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Sustainability Committee
The Sustainability Committee has authority to investigate all
matters falling within its remit. It has the power to obtain, at the
Group’s expense, any external independent professional or expert
advice, where it deems necessary and has direct access to the
Group’s resources as it may reasonably require, including access
to management. The Sustainability Committee Chair reports to the
Board after each meeting on the matters discussed.
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
OUR APPROACH TO SUSTAINABILITY
We believe sustainability is vital for the long-term success of our
underlying assets and the maximisation of shareholder value.
While Anglo Pacific does not control or directly operate any of the
assets from which our portfolio contribution is derived, we aim
to positively influence our existing operating partners to ensure
their continued strong ESG performance and to engage with
new partners who share our principles and values.
More details on our approach to sustainability can be found on
pages 20 to 27.
COMMITTEE FOCUS IN 2020
The Committee was established in March 2020, and met twice
during the year. Discussions at the meetings covered the
responsibilities outlined above, with a particular focus on setting
the Group’s ESG objectives and refining its investment criteria.
The following matters were considered during 2020:
• The Group’s ESG due diligence and screening tools used in the
investment decision-making process
• The approach to monitoring the Group’s existing portfolio for
ESG incidents and best practice in the absence of site visits
due to COVID-19 related travel restrictions
• The Group’s compliance with anti-corruption, bribery, fraud,
political donations and expenditure laws and regulations
• Climate change
• Sustainability rating trends and developments
• Reviewing the Committee’s terms of reference
J . E . R U T H E R F O R D
Chairman of the Sustainability Committee
13 April 2021
COMMITTEE MEMBERS
J.E. Rutherford – Chairman
V.A. Dennett
J.A. Treger
The Chief Investment Officer, Head of Investor Relations, the
General Counsel and the Company Secretary also attend meetings
of the Committee.
For more on biographies and Board experience details refer to
pages 74 to 78.
ROLE AND RESPONSIBILITIES
The role of the Sustainability Committee is to oversee the Group’s
policies, processes and strategies designed to achieve long-term
value for its stakeholders through sustainable and responsible
investment, with a strong focus on environmental, social and
governance (ESG) factors.
The Sustainability Committee’s main responsibilities are:
• Overseeing compliance with the Group’s Environmental, Social
and Governance (ESG) policy.
• Monitoring the appropriateness of the Group’s strategy against
its ESG policy.
• Developing, implementing and monitoring the Group’s processes
supporting sustainable and responsible investment, including
developing and refreshing appropriate tools to ensure adherence
with ESG principles, in line with best practice.
• Collaborating and liaising with the other Committees, including
the Audit Committee, to monitor the Group’s procedures and
systems to identify, assess, monitor and manage risk.
• Making recommendations to the Board on the adequacy of the
reporting on sustainability opportunities, risks and issues in the
annual report and other relevant public documents.
• Overseeing the process for selection and engagement, and
where applicable, dismissal, of external consultants engaged to
assess the ESG performance of potential investments together
with the ongoing monitoring of assets acquired.
• Reviewing the findings of the Group’s external consultants
engaged in the assessment of potential investments.
• Meeting with the General Counsel and Company Secretary to
review the effectiveness of the Group’s ESG programme,
including:
– standards of business conduct as embodied in the Group’s
Code of Conduct, the Anti-Bribery, Corruption and Money
Laundering Policy and the Whistleblowing Policy;
– management’s assessment of material compliance risks,
mitigation strategies to address them and ongoing
monitoring; and
– the framework developed by management in relation to data
privacy matters.
• Reviewing reports on the Group’s compliance with material
compliance obligations, including in relation to anti-corruption,
bribery, fraud, political donations and privacy, and monitoring
reports of any improper acts.
• Evaluating the effectiveness of the reporting procedures and
systems put in place by management to deal with inappropriate
business conduct and integrity.
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Remuneration Committee
COMMITTEE MEMBERS
V.A. Dennett – Chair
R.G. Dacomb
J.E. Rutherford
R.H. Stan
W.M. Blyth – retired 27 May 2020
The Chairman, the Chief Executive Officer, the Chief Financial
Officer, the General Counsel and the Company Secretary also
attend meetings of the Committee by invitation.
For more on biographies and Board experience details refer
to pages 74 to 78.
COMMITTEE FOCUS IN 2020
• Confirmation of incentive results for the 2019 annual bonus,
including awards under the deferred share bonus plan;
• Setting of incentive targets for 2020 including the 2020 annual
bonus;
• Development of the new Directors’ remuneration policy: to align
executive remuneration with our purpose and values and
promote the long-term success and strategy of the Company;
• Providing guidance to the CEO on salaries, bonuses and
long-term incentives to be awarded to the wider workforce; and
• Appointment of Korn Ferry as the new external adviser to the
Remuneration Committee.
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
COMMITTEE FOCUS IN 2021
• Implementation of the newly developed remuneration policy;
• Assessment of 2020 incentive outcomes;
• Continued review of the impact of COVID-19 on all stakeholders;
The Committee’s main responsibilities are:
and
• Review of corporate governance and remuneration trends and
implications for the Group.
In 2020, the Committee developed a new directors’ remuneration
policy, the details of which can be found on pages 85 to 87. We
consulted with shareholders regarding the changes, and the
Committee is regularly updated on the corporate governance
environment affecting executive and wider employee pay.
• 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 and operating 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.
The Remuneration Committee held eight meetings in 2020 and
has met four times to date in 2021, to fulfil its responsibilities as
set out in the Committee’s terms of reference.
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Directors’ remuneration report
INTRODUCTORY LETTER
Business context
I assumed the Chair of the Remuneration Committee after the
conclusion of last year’s AGM following the retirement of Mike
Blyth.
COVID-19 had, and continues to have, a profound impact on
humanity and businesses around the world. As a consequence,
2020 was a challenging year for Anglo Pacific and its employees.
I am extremely proud of how our employees responded to the
crisis, with the move to remote working quickly implemented
allowing the Company to continue, largely as normal. The response
of our employees was nothing short of exceptional, their loyalty
and commitment outstanding and we thank them for that.
As has been outlined in the Chairman’s statement, Anglo Pacific
was significantly impacted in that revenue from its portfolio fell
from a record contribution last year, to £37.0m, a 38% decrease.
That said, no employees were furloughed, no one was made
redundant and the Company received no government support.
In making our decisions on remuneration outcomes for the
Executive Directors for 2020, we had regard to the overall
shareholder and stakeholder experience and as a Committee
sought to make decisions that struck an appropriate balance
between rewarding and continuing to incentivise management
and the broader stakeholder experience.
FOCUS OF THE COMMITTEE IN 2020
The main focus for the Committee was the appointment of a
new firm of remuneration advisers Korn Ferry, the design of a
replacement for the Value Creation Plan which expires in June
2021, consideration of wider workforce pay below Director level
and the development of an updated Directors’ remuneration
policy, which will be put to a vote at the upcoming AGM.
In designing a plan to replace the VCP and looking at remuneration
more generally we wanted to:
• ensure simplicity and clarity;
• promote alignment with the Company’s purpose and values;
• promote the long-term success and strategy of the Company;
• provide meaningful incentives for our employees; and
• implement best practice.
We believe the proposed remuneration policy does this.
2020 OUTCOMES
Annual bonus
The employees, including the CEO, CFO and members of the
Executive Committee, each had individual bonus objectives for
2020. The bonus award criteria relate to a series of agreed
corporate and personal performance targets which are scored out
of a total of 100 points. This score is then applied to a maximum
bonus calculated as a percentage of total salary as outlined on
page 94.
The CEO was awarded a bonus of £141,400 under the bonus
criteria (35% of the total potential award) and the CFO was
awarded a bonus of £78,750 (31.5% of the total potential award).
This represents a reduction of 52% for the CEO from 2019. The
Committee did not exercise any discretion in relation to these
rewards but believes that the bonuses are both appropriate based
on the Company’s performance during the year and proportionate
having had regard to experience of the Company’s broad range of
stakeholders.
Long-term incentives – Value Creation Plan
The Value Creation Plan ('VCP') is a long-term incentive plan
previously 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, and performance will be assessed in June 2021.
Further details can be found in the Remuneration Policy part
of this report. No further awards will be made under the VCP.
CHANGES FOR THE YEAR AHEAD
Salaries
In light of the performance of the Company, the Committee
decided to leave the salaries of the CEO and CFO unchanged for
2021, subject to potentially re-visiting this after the half year,
depending on performance. The rest of the Group’s UK-based
employees received an increase of 1%.
The Company contributes to money purchase pension
arrangements on behalf of employees on a matched basis subject
to an overall cap, or, in limited circumstances, allows the company
contribution to be received as a cash allowance. The cap was
increased by 1.5 % to 8.5% of salary for all employees (including
the CFO) in 2021. The CEO currently receives a pension benefit
of 11% of salary and that will be aligned with the rest of the
UK-based employees by the end of 2022.
It was determined that the fees for the Chairman and the
Non-Executive Directors should similarly remain unchanged for the
first half of 2021. As with the CEO and CFO, this may be re-visited
at the half year.
Annual Bonus
The 2021 bonus objectives for the CEO and CFO have been more
closely aligned. They include the same measures for Growth,
Financial Performance and ESG although with slightly different
weightings (CEO Growth 50% and Financial Performance 20%, CFO
Growth 40% and Financial Performance 30%) reflecting the focus
the Company would like each of them to maintain. They each then
have individually crafted personal/strategic performance targets
(weighting of 20%) and ESG targets (weighting of 10%).
Changes to the remuneration policy
As noted above, the VCP established in 2014 expires in June
2021. It has been used to incentivise the most senior employees
(including the 2 Executive Directors). The Company also had in
place a more traditional market price share option plan which
was used to incentivise UK-based employees.
The Committee sought views within the Company, from our newly
appointed advisers, Korn Ferry, reflected on changes to the UK
Corporate Governance Code and considered what would best align
with business strategy.
The Committee felt that a less leveraged and more balanced
approach would be more suitable in the future as it would deliver
simplicity, clarity and provide a more meaningful incentive.
Long-term Incentives
We have concluded that regular annual grants of Performance
Shares at the most senior level of the Company and Restricted
Shares at other levels would provide better alignment with
shareholders and our strategy. They would also remove much of
the uncertainty of outcome due to share price volatility that market
price share options and the current VCP create for our employees.
The Committee is therefore proposing to establish a new
long-term incentive plan (the ‘PSP’) in the new Directors’
remuneration policy.
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Consultation with Shareholders
In developing the revised remuneration policy referred to above,
we sought the views of shareholders from an early stage. During
September 2020 we wrote to our largest shareholders seeking
their early thoughts on our proposals regarding the replacement
policy. We had discussions with a number of them and carefully
considered any views put to us. In November 2020, we reached
out to all shareholders holding an interest of 1% or more in the
Company not contacted in the first round, to ascertain their views.
We are grateful for the support, engagement and feedback we
received during the process.
LOOKING AHEAD
Anglo Pacific is committed to progressing its ambition to focus on
21st century commodities that support a more sustainable world.
ESG metrics supporting this are now clearly reflected in our bonus
plans for all employees. We will continue to review the structure
of incentives to ensure close alignment between pay, strategy
and business delivery. We will also continue, particularly as the
challenges from COVID-19 continue, to look closely at incentives to
ensure they afford a fair refection of Company performance and
management delivery.
Yours sincerely
V. A . D E N N E T T
Chair, Remuneration Committee
13 April 2021
The LTIP will include the ability for the Committee to grant
Performance Share Awards to the Executive Directors (and other
senior members of the Company) at the level of up to 150% of
salary per annum. This is in addition to the annual bonus plan that
continues to provide a maximum limit of 100% of salary under the
Policy.
The Performance Share Awards would vest after three years
conditional on meeting a sliding scale of, initially at least, three
equally weighted measures. The Committee has identified these
measures as the most important for the successful development
of the Company for at least the next three years:
i. Total shareholder return compared to a global mining index
(currently EMIX Global Mining Ex Gold and Energy Index) with
threshold vesting of a quarter for meeting the index rising to
full vesting for exceeding it after three years by 7% per annum.
ii. Portfolio Contribution (as defined in note 35 to the financial
statements), with threshold vesting of a quarter for meeting
the minimum target three years later rising to full vesting for
exceeding a stretch target.
iii. Adjusted Earnings Per Share (based on the definition in note 12
to the financial statements), with threshold vesting of a quarter
for meeting the minimum target three years later rising to full
vesting for exceeding a stretch target.
The targets will be developed by the Committee before each
annual grant is made having regard to a combination of internal
plans and forecasts and market expectations. The maximum
vesting level will be 100% of the initial grant made (there will be
no retesting) and when awards vest, Executive Directors will be
required to retain all of the shares for three years (after the sale
of those needed to meet income tax due at the time).
Restricted Shares will be awarded on an annual basis to other
UK-based employees who are not awarded Performance Shares.
These are similarly subject to a limit of 150% of salary per annum,
will vest on such dates as the Committee determines on or before
the grant of the awards. It is currently intended that all Restricted
Share Awards will vest on the third anniversary of grant.
Annual bonus
We are simplifying the operation of the annual bonus plan for
Executives.
Instead of reserving a portion of the bonus (30% for any bonus for
FY 2020 and 40% thereafter) to grant deferred shares which are
then held by an employee benefit trust as part of the bonus plan
for two years, Executives will be required to use the part of their
cash bonus that exceeds 50% of salary to purchase and hold
Company shares (deferral) for three years.
Other changes
Shareholding guidelines for the Executive Directors will require
200% of their salary to be retained in shares, continuing for the
2-year period after they have left the Board.
The clawback/malus provisions already in place for the Deferred
Share Bonus Scheme will be extended to any Executive Directors’
cash bonus and share deferral and the new long-term incentive
arrangements (both Performance Share Plans and Restricted
Shares).
We will align the Directors’ pension benefit with that of the
workforce by the end of 2022.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Directors’ remuneration report
continued
The remuneration report is in three parts.
REMUNERATION POLICY REPORT
A. Strategic overview and policy drivers
The foundations for our remuneration strategy were first
enumerated in the 2013 Annual Report and Accounts, and
elements continue to apply today. Our strategy includes the
following Company specific elements, which continue to form
the backdrop to the overall remuneration strategy:
• Business development is focused on royalty acquisitions to grow
and sustain the business, and so incentives including growth
related criteria are important to align with Company strategy.
These are captured in both the short-term and long-term
incentive criteria.
• Realigning the revenues towards lighter, greener materials,
which encompass environmental benefits and not making any
additional investments in thermal coal. This increases our focus
on investing in assets with strong ESG credentials.
• Limited comparable peer group of royalty companies, in the UK,
for the purposes of benchmarking Director performance. As a
result, our incentive plans continue to have a focus on absolute
performance rather than performance relative to other
companies. However, in developing the Performance Share Plan,
which will replace the Value Creation Plan, the Committee was
clear that a relative measure was needed. This was agreed as
total shareholder return compared to a suitable global mining
index. The Committee reviewed the indices available and having
considered the Group’s royalty and stream portfolio and the
underlying commodities it is exposed to, concluded that the
EMIX Global Mining Ex Gold and Energy Index is the most
appropriate measure to assess the Group’s share price (and
dividend) performance in determining total shareholder returns.
• A small number of employees (11, as at 31 December 2020,
of whom two are Executive Directors) all based in the UK.
Employee retention is an important objective of our
remuneration strategy and so having a less leveraged and more
balanced incentive plan delivering simplicity, clarity and more
meaningful incentives, which align with our stakeholders’
interests is a key focus.
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. In developing the
revised remuneration policy being put to shareholders at the 2021
AGM, we sought the views of shareholders from an early stage.
During September 2020, we wrote to our largest shareholders
seeking their early thoughts on our proposals regarding the
replacement policy. We had discussions with a number of them
and carefully considered any views put to us. In November 2020
we reached out to all shareholders holding an interest of 1% or
more in the Company not contacted in the first round, to ascertain
their views.
Executive Directors were consulted on the revised remuneration
policy and non-Board employees were consulted individually on
the executive remuneration policy to the extent that it impacts
upon the structure and level of their own pay and bonuses.
The first part constitutes the ‘Remuneration Policy Report’ which
will be subject to a binding vote at the forthcoming AGM. The main
changes to the policy are: the introduction of a new long-term
incentive plan; the simplification of the annual bonus plan; the
introduction of post-employment shareholding requirements; the
extension of clawback/malus provisions; and the alignment of
pension benefits by 2022. A summary of remuneration policy
changes is provided on page 86. If approved, the revised policy
will apply until the Company’s 2024 AGM.
The Remuneration Policy Report is structured in the following
sections:
A. Strategic overview and policy drivers;
B How the views of shareholders and employees have been
taken into account;
C. The remuneration policy for Executive Directors;
D. Annual bonus – Choice of performance measures and
approach to target-setting;
E. Reward scenarios;
F. Determinations to be made by and discretions available
to the Committee;
G. Differences in remuneration policy for Executive Directors
compared to other employees;
H. Approach towards appointment of new Executive Directors;
I. Service contracts and payments for loss of office;
J. Directors’ shareholding guidelines;
K. Non-Executive Directors; and
L. Legacy arrangements
The second part, the Implementation Report for 2021, details
the remuneration to be paid to Directors during 2021 should
shareholders approve the new long-term incentive plan (‘LTIP’
or ‘PSP’) at the 2021 AGM. It is structured as follows:
A. Salary;
B. Pension and benefits;
C. Annual bonus; and
D. Long-term incentives – Performance Share Awards.
The third part, the Annual Remuneration Report for 2020, details
the remuneration paid to Directors during 2020 with a comparison
to the previous year. In combination with the second part above
and the Chair’s introductory letter it will be put to an advisory
shareholder vote at the 2021 AGM. It is structured as follows:
A. Single figure total remuneration;
B. Annual bonus for the year ended 31 December 2020;
C. Vesting of long-term incentive awards;
D. Directors’ shareholding and share interests;
E. Total pension entitlements;
F. Loss of office payments;
G. Percentage change in the remuneration of the CEO;
H. Total shareholder return;
I. Total remuneration for the CEO over time;
J. Distribution statement for 2020;
K. External directorships;
L. Fees for the Chairman and Non-Executive Directors;
M. Compliance with the 2018 UK Corporate Governance Code;
N. Statement of shareholder voting; and
O. External advisors.
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS C. The remuneration policy for Executive Directors
The Directors’ remuneration policy sets out the Company’s
remuneration policy for its Executive and Non-Executive Directors
and will be put to shareholders for a binding vote at the AGM on
26 May 2021. The intention is that the revised policy, if approved,
will apply until the Company’s 2024 AGM.
The table below sets out the key elements of the Executive
Directors’ remuneration, including how each element operates,
as well as the maximum opportunity and our policy in relation
to the performance linkage of each element:
Operation
Opportunity/performance measures
Element, purpose
and link to strategy
Salary
To recruit, retain and
reward Executives of a
suitable calibre for the
roles and duties
required
Pension and benefits
To provide market
competitive benefits
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.
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 employees.
Annual bonus
To encourage and
reward delivery of the
Company’s operational
objectives for the
relevant year.
To ensure through the
required holding of
shares, that longer-term
focus is encouraged
and in line with
shareholder interests.
Long-term incentives
– PSP
To encourage and
reward the achievement
of long-term sustainable
shareholder returns and
delivery of the
Company’s strategic
objectives.
To align Executive
Director and senior
management interests
to shareholder interests.
For annual bonuses in respect of FY2021 and onwards,
Executive Directors will be required to use that part of their cash
bonus that exceeds 50% of their salary to purchase and hold
shares for a three-year period.
Bonus outturns are determined based on the achievement of a
combination of corporate, financial and personal performance
targets. Corporate and financial 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.
Malus and clawback provisions apply as described below.
If shareholders approve the PSP at the 2021 AGM then
conditional awards of shares or nil-cost options will be capable
of being granted annually, with a performance period and
vesting period of at least three years.
Any awards that vest are subject to a holding period so that the
overall PSP time horizon is at least five years.
Vested awards may not generally be sold during the holding
period, other than to cover tax liabilities arising on vesting.
Dividend equivalents (normally satisfied in shares) accrue over
the vesting/holding period and are payable in respect of awards
that vest.
Malus and clawback provisions apply as described below.
There is no prescribed maximum annual increase.
Pension: New Executive Director appointments will receive
the same Company contribution as the wider workforce.
The CEO will receive a rate of Company contribution of
11% (2019: 11%) of salary. This will be reduced on 1
January 2023 to 10% of salary when it will be aligned with
the rate for the wider workforce.
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 bonus earned at threshold performance is up to 25%
of the maximum. Performance below threshold results in
zero bonus.
The annual bonus is based on a mix of financial, strategic
and personal conditions and is measured over one
financial year
The maximum annual PSP opportunity is 150% of salary.
The Committee will review the Executive Directors’ PSP
award sizes annually, prior to grant, to ensure they are
appropriate.
For each performance element, threshold performance
warrants no more than 25% vesting of the element, rising
on a straight-line basis to 100% for achieving stretch
targets.
Performance below threshold results in zero vesting.
Performance measures attached to each award should be
linked to the Group’s strategy and may include, but are not
limited to, TSR, Portfolio Contribution, adjusted earnings
per share, free cash flow and other strategic objectives.
Malus and clawback
Awards under the annual bonus (including both cash and deferred
share bonus awards) and the LTIP are subject to malus provisions
and clawback provisions, which may be applied during the period
of two years after the date of vesting. Malus refers to the
reduction, including to nil, of unvested or unpaid awards or the
requirement for additional performance measures to be met for
vesting of the award. Clawback refers to the recovery of paid or
vested amounts.
Malus and clawback may be applied in the circumstances below,
as well as in other exceptional circumstances, at the Committee’s
discretion.
• Material misstatement in results
• Gross misconduct
• Material failing of management resulting in material
downturn in financial or operational performance or serious
reputational damage
• Error in calculation
• Corporate failure
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Assumptions:
• Minimum = fixed pay only (salary + benefits + pension);
• On-target = fixed pay, 50% vesting of the annual bonus and
25% of the PSP awards (i.e. the value that accrues for threshold
PSP performance);
• Maximum = fixed pay and 100% vesting of the annual bonus
and PSP awards;
• Maximum plus 50% share price growth = fixed pay and 100%
vesting of the annual bonus and PSP awards with 50% share
price growth applied to the PSP awards; and
• Salary levels (on which other elements of the package are
calculated) are based on those which apply from 1 January
2021. Salary for the CEO is 90% of his full-time equivalent salary.
F. 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 and PSP
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.
Directors’ remuneration report
continued
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
(including financial goals) and personal objectives.
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
growth, business performance, finance, and 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 Executive Directors’ 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 Executive Directors to
the achievement of the Company’s objectives for the year and on
important but less measurable aspects such as leadership,
building personal and team relationships.
The Executive Directors’ 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. Reward scenarios
The Company’s policy results in a significant portion of
remuneration received by the CEO and CFO being dependent on
Company performance. The chart below illustrates how the total
pay opportunity for the CEO and CFO varies under four different
performance scenarios: minimum (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.
The minimum scenario does not include any bonus or PSP vesting
and simply allows for salary, benefits and pension while a bonus
award and partial PSP vesting is included in the on-target scenario.
The maximum scenario includes the full vesting of the PSP and a
full bonus.
2.0
1.8
1.6
1.4
1.2
m
£
1.0
0.8
0.6
0.4
0.2
0
£1,766,440
£1,463,440
17%
41%
34%
£806,940
19%
25%
£453,440
28%
23%
100%
56%
31%
26%
£477,375
16%
£274,250
100%
26%
58%
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£836,750
£993,000
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Chief Executive Officer
Chief Financial Officer
Fixed pay
Annual bonus
LTIP
LTIP with 50% share price growth
90
APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
G. 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 the non-Board employees was
reviewed during 2020 in conjunction with the development of the
revised remuneration policy 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 8.5%. It has been agreed that all pension
contributions will be aligned by the start of 2023 at a rate of 10%.
The main differences between the remuneration framework for
the Executive Directors and other employees under the revised
policy are:
• the Committee will reserve access to the Performance Share
Plan to the most senior executives who have the greatest
potential to influence the Company’s long-term performance;
and
• the Executive Directors will receive any annual bonus in cash and
use that part of their bonus exceeding 50% of their salary to
purchase and hold shares in the Company for three years, while
other employees will receive their annual bonus partly in cash
and also receive awards under the Restricted Share Plan that
vest after three years.
H. 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% of salary. The proposed remuneration
policy includes a potential annual bonus of no more than 100% of
salary and an annual award under the Performance Share Plan of
no more than 150% of salary.
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, to replace remuneration relinquished when leaving
the former employer. These awards 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.
I. 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 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
Detailed terms
Notice period
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.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Directors’ remuneration report
continued
Any share-based entitlements granted to an Executive Director
under the VCP and the Performance Share Plan 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.
The Committee’s specific policy is as follows:
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 share bonus plan,
VCP and the Performance Share Plan will lapse whether vested
or unvested.
J. Directors’ shareholding guidelines
Executive Directors are required to build and retain a shareholding
in the Company of at least 200% of their salary. In compliance with
the UK Corporate Governance Code there is also a requirement
that they retain shares after they have ceased to be an Executive
Director. The details of these requirements are determined from
time-to-time by the Committee, with the current requirements set
out on page 96.
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.
Element, purpose
and link to strategy
Board fees
Attract, retain and fairly
reward high-calibre
individuals
Operation
Maximum
Fees are currently paid in cash. Non-Executive Directors are not eligible to participate in the
Company’s annual performance related incentive schemes, share incentive schemes or
pension scheme.
Current fee levels are set
out in the Annual Report on
Remuneration.
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 Chairs 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.
Overall fee limit will be
within the £600,000 limit
set out in the Company’s
Articles of Association.
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.
Mr. Meier, 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
R.G. Dacomb
V.A. Dennett
J.E. Rutherford
R.H. Stan
Date of appointment
30 April 2015
1 November 2019
1 November 2018
1 November 2019
19 February 2014
Notice period
One month
One month
One month
One month
One month
L. Legacy arrangements
In approving this Policy Report, authority is given to the Company to honour any commitments entered into with current or former
Directors (such as the payment of a pension or vesting of awards under legacy share schemes including the VCP) that have been
disclosed to shareholders in this and previous remuneration reports. Details of any payments to former Directors will be set out in the
Annual Remuneration Report as they arise.
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS IMPLEMENTATION REPORT FOR 2021
This part of the report details the remuneration to be paid to
Directors during 2021 should the Performance Share Plan be
approved at the 2021 AGM.
A. Salary
The salaries for Executive Directors are unchanged for 2021,
subject to potential review following the release of the interim
financial statement. The Company’s UK employees received a 1%
increase in salary for 2021.
With effect from 1 January 2021, the salaries for the Executive
Directors remain:
• Mr. Treger – £448,888
• Mr. Flynn – £250,000
B. Pension and benefits
The pension contributions for the CEO and CFO for 2021 will
be 11% and 8.5% of base salary respectively, with the CFO’s
contribution aligned with the wider workforce.
No changes to the other benefits operated for 2021.
C. Annual bonus
The maximum annual bonus opportunity for each of the Executive
Directors remains at 100% of salary.
The performance measures for the 2021 award will be as follows:
• Growth (50% CEO/40% CFO weighting) – diversification of the
Group’s royalty portfolio, growth and replacing the Kestrel
income source
• ESG measures (10% weighting) – transition from reliance on
coal and continue application of stringent ESG due diligence
on acquisitions
• Financial measures (20% CEO/30% CFO weighting) –
performance against budget for portfolio contribution,
adjusted earnings per share and free cash flow
• Personal measures (20% weighting) – individually tailored
objectives to motivate the execution of the Group’s strategy.
D. Long-term incentives – Performance Share Plan (PSP)
Grant to the CEO of 150% of salary and to the CFO of 125%
of salary.
The performance measures for the 2021 PSP awards which
will be equally weighted are as follows:
• TSR vs EMIX Global Mining Ex Gold and Energy Index
– 25% vesting for TSR equal to index; 100% for index
performance + 7% per annum
• Portfolio Contribution – 25% vesting for achieving threshold;
100% for achieving stretch
• Adjusted earnings per share – 25% vesting for achieving
threshold; 100% for achieving stretch
The targets that the Committee intends to set for awards to
be granted in 2021 are:
• Portfolio Contribution: US$53.2m to US$80.9m
• Adjusted earnings per share: 11p to 15p
ANNUAL REMUNERATION REPORT FOR 2020
This part of the report details the remuneration paid to Directors during 2020 with a comparison to the previous year.
Audited information
Elements of this section of the report have been audited. The areas of the report subject to audit are indicated in the headings.
A. Single figure for total remuneration (audited)
Salary/fees
£’000
Benefits
£’000
Total bonus
£’000
Pension
£’000
Other
£’000
Total
remuneration
£’000
Total fixed
remuneration
£’000
Total variable
remuneration
£’000
Executive Directors
J.A. Treger1
K. Flynn2
Non-Executive Directors
N.P.H. Meier
W.M. Blyth3
R.G. Dacomb4
V.A. Dennett
J.E. Rutherford5
R.H. Stan
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
404
396
250
–
125
125
25
62
52
8
52
48
63
8
48
48
5
5
3
–
–
–
–
–
–
–
–
–
–
–
–
–
141
293
79
–
–
–
–
–
–
–
–
–
–
–
–
–
44
43
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
996
–
–
–
–
–
–
–
–
–
–
–
–
–
594
737
448
–
125
125
25
62
52
8
52
48
63
8
48
48
453
444
270
141
293
178
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 J.A. Treger agreed to receive 90% of his contractual salary for both 2019 and 2020 as outlined in section K below.
2 K. Flynn was appointed to the Board on 1 January 2020.
3 W.M. Blyth retired from the Board on 27 May 2020.
4 R.G. Dacomb was appointed to the Board on 1 November 2019.
5 J.E. Rutherford was appointed to the Board on 1 November 2019.
6 Other remuneration for K. Flynn consists of £5k paid under the Company’s annual leave buyback programme which is available to all employees,
and £94K in unrealised gains on the vesting of awards under the Company’s USOP. The USOP options had no performance target and were granted
on 12 April 2017, before Mr. Flynn became an Executive Director, with an exercise price of 88.01p on 12 April 2017 and vested on 13 April 2020 when
the share price was 135p. The unrealised gain of £94K on vesting was all the result of share price appreciation from the date of grant. The vested options
remain unexercised.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Directors’ remuneration report
continued
B. Annual bonus for the year ending 31 December 2020 (audited)
A set of individually crafted corporate and personal bonus criteria were agreed with the Executive Directors for the 2020 financial year
which took into account the evolving corporate and financial priorities of the Group. 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.
Discretion
Incentives are designed to ensure they drive appropriate short and long term behaviours and it is the Committee’s general preference to
avoid making any adjustments. The Committee did not make any discretionary adjustments to the 2020 bonus outcomes.
The bonus matrices for the Executives Directors for 2020 are detailed below.
2020 CEO Scorecard
Corporate
performance
criteria
Personal
performance
criteria
Total
Criteria
A. Growth
Maximum award (%)
Actual outcome (%)
45
10
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. ESG
Measures for assessment include:
• Implementation of ESG policy and enhanced due diligence process for new investments.
• Enhancing visibility of ESG matters relating to the existing portfolio
• Continuous improvement to the Company’s ESG position
C. Financial Performance
Measures for assessment included:
• Meet and exceed budget for net income, AEPS and FCF
D. Management and Control
Measures for assessment included:
• Superior performance by whole team
• Risk management and financial control
E. Professionalism and holistic contribution
• Leadership and direction
• Team development and succession planning
• Setting culture
• Personal contribution
15
15
13
12
6
–
10
9
100
35
Growth: The Group made a further investment into LIORC during
the first quarter which made it, at that stage, the second largest
royalty related asset by contribution and also participated in the
Brazilian Nickel equity placing to fund the further development of
the Piauí nickel project over which the Group holds a 1.3% NSR.
It also entered into a conditional financing arrangement with
Incoa Performance Minerals LLC, providing the Group with the
opportunity to invest U$20.0m into a calcium carbonate project.
A significant focus of the Group in the later part of 2020 was the
acquisition of the Voisey’s Bay cobalt stream which completed
after the year end, and therefore did not contribute to the 2020
bonus scorecard. The activities resulted in a total overall score
of growth of 10%.
ESG: The Group has further defined and refined its approach to
ESG issues, resulting in increased engagement with our existing
operators and a comprehensive assessment of the ESG profile
of potential counterparties. The CEO oversaw the adherence
to the Group’s strict ESG criteria when assessing investment
opportunities throughout the year, which led to some opportunities
being dismissed. The Company also committed to no further
thermal coal investments. Total overall score of 6%.
Financial Performance: These targets were not met and as a result,
there was no bonus award for financial performance.
Management and Control: The CEO led the Group’s response to
the challenges of remote working as a result of COVID-19. Through
his leadership, the entire team adapted quickly to this new normal
and continued to collaborate successfully to manage the business
effectively and continue to assess, pursue and complete
opportunities throughout the year. The CEO also maintained focus
on the Group’s risk profile, ensuring the emerging risks as a result
of COVID-19 were identified and, where possible effectively
managed. Cost control was also a particular focus, given the
decline in the Group’s revenue. Total overall score of 10%.
Professionalism and holistic contribution: The CEO played a key
role in determining the strategy to take advantage of the strong
rebound in the price of iron ore to sell LIORC (which started in 2020)
and in selling part of the Group’s interest in Berkeley Energia,
the proceeds from which were used to fund the share buyback.
He continued to progress the Group’s strategy, by identifying
investment opportunities such as Voisey’s Bay and Incoa which
will help replace the Group’s Kestrel royalty income and reduce
the exposure to coal. The CEO led the Group’s engagement with
stakeholders, including with peers through the development of a
royalty and streaming council. The development and retention of
the Group’s talent continues to be a priority of the CEO, with certain
members of Executive Committee undertaking 360-degree
reviews and executive development coaching. Overall score of 9%.
Bonus outturn: The overall bonus score was agreed at 35% under
the bonus scoring matrix for a total award of £141,400 (35% x
£448,888 x 90%). The overall aggregate bonus of £141,000 bonus
falls within the 100% bonus limit set out in the policy table. Of this
bonus, 30% (£42,420) has been deferred under the Deferred Share
Bonus Plan with the balance of £98,980 being paid in cash. The
Committee assessed that the level of bonus was reflective of the
performance in the year and the more than halving from the prior
year was also appropriate.
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS 2020 CFO Scorecard
Corporate
performance
criteria
Criteria
A. Growth
Maximum award (%)
Actual outcome (%)
30
6.5
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
• Securing funding solutions for acquisitions
C. Financial Control
Measures for assessment included:
• Effective management of foreign exchange exposure
• Effective management of overheads
D. Management and Control
Measures for assessment included:
• Superior performance by whole team
• Risk management and financial control
E. Professionalism and holistic contribution
• Leadership and direction
• Team development and succession planning
• Setting culture
• Personal contribution
35
15
10
10
5
8
4
8
Personal
performance
criteria
Total
Growth: The CFO was assessed on the same basis as the CEO
above for an overall bonus score of 6.5%.
Financial Performance: The financial targets were not met so
there was no bonus award for these measures. The CFO however
secured further financing flexibility through the successful
negotiation of the US$30m upsize of the Group’s committed
borrowing facility and the retention of a US$30m accordion in the
early part of the year. Total overall score of 5%.
Financial Control: The CFO actively managed the Group’s overheads
throughout 2020, resulting in overheads for the year being below
budget. A bonus score of 4% was awarded for cost control. The
Group’s foreign exchange exposure was effectively managed
throughout the year, with forward exchange contracts generating
a gain. In addition, a number of the Group’s legacy mining and
exploration interests were successfully monetised, resulting in
an overall bonus score for financial control of 8%.
Management and Control: The finance team continued to develop
under the leadership of the CFO, with a number of internal
promotions, in line with the Group’s succession planning. In
addition, the CFO led a review of the Group’s internal processes
following the move to remote working due to COVID-19, ensuring
the Group’s risk management and control environment remained
robust. An overall bonus score of 4%.
Professionalism and holistic contribution: The CFO oversaw the
formalisation of the Group’s human resources function, together
with the development of the new employee compensation plan.
The CFO has engaged extensively with all of the Group’s
stakeholders throughout the pandemic, in particular the Group’s
lenders and external auditors. An overall bonus score of 8%.
Bonus outturn: The overall bonus score was agreed at 31.5% under
the bonus scoring matrix for a total award of £78,750 (31.5% x
£250,000). The overall aggregate bonus of £78,750 bonus falls
within the 100% bonus limit set out in the policy table. Of this
bonus, 30% (£23,625) has been deferred under the Deferred
Share Bonus Plan with the balance of £55,125 being paid in cash.
100
31.5
C. Vesting of long-term incentive awards (audited)
In May 2020, options granted over 300,000 shares awarded to
the CFO in May 2017 under the USOP with a weighted average
exercise price of 84.05p vested. These awards remain unexercised
at the date of this report.
Long-term incentive awards made during the year
There were no awards granted to Executive Directors under any
of the Company’s share plans in 2020.
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 (2019: 76,000 units). The allocation of
units to the CFO has also remained constant at 6,000 units or 6%
of the total number of units (2019: 6,000 units). As at the date of
this report there are a total of 86,867 units issued out of a total
pool of 100,000 units, including the awards for non-Board senior
managers (2019: 86,867 units).
Full details of the VCP’s operation are contained in last year’s
Directors’ Remuneration Report. If the end of the performance
period were to be the date of the signing of this report then there
would be zero value in the VCP awards.
Unvested share options
The CFO has an option granted over 3,054 shares outstanding
under the Group’s CSOP. This option was granted in May 2018
and has an exercise price of 163.7p, together with a performance
condition of TSR having to exceed the percentage increase in
RPI + 9%. The performance period for these options ends on
13 May 2021. If the end of the performance period were to be
the date of the signing of this report, then there would be zero
value in the CSOP option as the performance condition would
not be satisfied.
There are currently no other awards to Executive Directors
outstanding under the CSOP or the USOP.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Directors’ remuneration report
continued
D. Directors’ shareholding and share interests (audited)
Within five years of appointment, Executive Directors are expected
to hold shares in the Company with a value of two times basic
salary. The Committee will take into consideration these in-post
guidelines when making grants under the Company’s various
incentive plans.
In order to provide further long-term alignment with shareholders,
and in line with the UK Corporate Governance Code, Executive
Directors will normally be expected to maintain a holding of
Company shares for a period after their employment. Executive
Directors will normally be required to continue to hold the lower
of the in-post requirement at the time of cessation and the actual
shareholding at cessation. The requirement applies for a two-year
period post-termination, and applies to all share awards under the
Deferred Share Bonus Plan, VCP and the proposed Performance
Share Plan.
The Chairman and Non-Executive Directors are also encouraged
to hold shares in the Company although the Chairman and
independent Non-Executive Directors are expected to ensure that
the level of their individual shareholdings is not significant and
thereby call into question their continuing independence.
Details of the Directors’ interests in shares are shown in the table below.
Executive Directors
J.A. Treger
K. Flynn
Non-Executive Directors
N.P.H. Meier
R.G. Dacomb
V.A. Dennett
J.E. Rutherford
R.H. Stan
Beneficially owned
at 31 March 2021
Beneficially owned
at 31 December 2020
Not subject to performance conditions
Subject to performance conditions
Share options
Deferred bonus shares
Share options
Deferred bonus shares
4,739,951
4,609,607
–
79,306
62,406
300,0001
33,976
16,835
–
3,0542
337,006
94,063
18,400
118,593
318,531
280,839
55,000
10,000
50,000
298,531
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 The exercise price of the vested share options is 84.05p per share.
2 The exercise price of the unvested share options which are subject to a performance condition is 167.37p per share.
None of the Directors hold their shares in hedging arrangements or as collateral for loans. Such an arrangement would require the express
permission of the Board.
E. Total pension entitlements (audited)
The Company makes contributions to employees’ pensions and has designated the National Employment Savings Trust (NEST) as its
stakeholder pension provider. The Committee may pay a cash allowance in lieu of part or all of a Director’s pension contribution.
F. Loss of office payments (audited)
There were no loss of office payments made to Directors in 2020 (2019: nil).
G. Change in the CEO’s remuneration in 2020 relative to UK employees
CEO £’000
Salary (full time equivalent basis)
Benefits
Bonus
Average per employee £’000
Salary
Benefits
Bonus
2020
449
44
141
112
7
36
2019
% change
440
43
293
114
9
65
2%
2%
(52%)
(2%)
(22%)
(45%)
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. For the benefits and bonus
per employee, this is based on those employees eligible to participate in such schemes.
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
H. Total shareholder return
FTSE 350 Mining Index vs. Anglo Pacific Group 2011-2021
120
100
80
60
40
20
0
31.12.10
31.12.11
31.12.12
31.12.13
31.12.14
31.12.15
31.12.16
31.12.17
31.12.18
31.12.19
31.12.20
Anglo Pacific Group
FTSE 350 Mining Index
(Re-based to 100)
The performance of the Company’s ordinary shares compared with the FTSE 350 Mining Index for the ten-year period ended on
31 December 2020 is shown in the graph opposite. The Committee believes that this index is the most appropriate over this period as
it is included as part of the VCP performance targets. Both have been re-based at the start of the period in order to provide a graphical
measure of comparative performance.
The middle-market price of an ordinary share on 31 December 2020 was 127.8p. During the year the share price ranged from a low of
99.6p to a high of 191p.
I. Total remuneration for the CEO over time
2011
2012
2013
2013
2014
2015
2016
2017
2018
2019
2020
Total remuneration (£’000)
Bonus outturn (%)
Bonus (£’000)
LTIP vesting (%)
253
37%
84
–
1 J.A. Treger was appointed CEO on 21 October 2013.
J. Theobald
209
1932
–
–
–
–
–
–
39
–
–
–
432
64%
160
–
374
–
–
–
563
47%
167
–
655
71%
257
–
696
72%
274
–
J.A. Treger1
594
35%
141
–
737
74%
293
–
2 J. Theobald also received £63,333 as payment in lieu of notice, £95,000 termination payment (paid in January 2014) and £2,400 for legal advice.
The table above shows the total remuneration for the CEO during each of the financial years. The total remuneration figure includes the
annual bonus. No LTIP awards vested. The bonus outturn percentage is expressed as a percentage of the cap, where applicable, for the
period in question.
J. Distribution statement for 2020
The table below sets out the total expenditure on employee reward over 2020, compared to
Employee benefit expense1
Dividends
Acquisition of royalty related assets2
Income taxes paid3
2020
£m
3.44
16.71
7.44
11.00
2019
£m
4.40
14.44
62.57
7.85
% (decrease)/
increase
(21.8%)
15.7%
(88.1%)
40.1%
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 mining and exploration interests and the purchase of
royalty financial instruments per the Group’s statement of cash flows. In 2019, it also included the cash flows for the purchase of royalty and exploration intangibles.
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 £448,888.
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APG_AR20_ARTWORK_UPDATE_19.04.21_ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Directors’ remuneration report
continued
L. Fees for the Chairman and Non-Executive Directors (audited)
As detailed in the remuneration policy, the Company’s approach to setting Non-Executive Directors’ remuneration is with reference to
market levels in similar companies, levels of responsibility and time commitments. A summary of current fees is as follows:
Chairman
Committee member
Base fee
Increment
Senior Independent Director
Committee Chairmanship
Committee membership
2021
125,000
48,000
42,000
10,000
7,000
6,000
2020
% Increase
125,000
48,000
42,000
10,000
7,000
6,000
–
–
–
–
–
–
The fees for the Chairman and Non-Executive Directors were last reviewed and set with effect from 1 January 2019. The fees for 2021
are subject to potential review following the release of the interim financial statement.
M. Compliance with the 2018 UK Corporate Governance Code
As described in the Corporate Governance Report on page 72, 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 proposed remuneration policy, to be approved at the 2021 AGM, complies with provisions 32 to 40 of the Code relating
to remuneration.
N. Statement of shareholder voting
At last year’s AGM held on 27 May 2020, the resolution relating to the Directors’ remuneration report was approved by shareholders on
a show of hands. Details of the valid proxy votes received for resolution are shown below:
Resolution
Approval of Directors’ remuneration report
93,298,271
93,273,541
99.97%
24,730
0.03%
69,096
Total votes cast
Votes for
Votes against
Votes withheld1
The Directors’ remuneration policy was last put to shareholders at the AGM held on 13 May 2019, where it was approved by shareholders
on a show of hands. Details of the valid proxy votes received for resolution are detailed below:
Total votes cast
Votes for
Votes against
Votes withheld(a)
Resolution
Approval of the Directors’ remuneration policy
92,341,747
85,237,760
7,103,987
1,025,620
92.31%
7.69%
1 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.
O. External advisors
The Remuneration Committee has access to the advice of independent remuneration consultants when required. In February 2020,
Korn Ferry were appointed as external advisors to the Committee. Korn Ferry provided support and advice on the development of the
new remuneration policy, as well as information on market trends and developments. In addition, Korn Ferry provided specialist valuation
services. Korn Ferry 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 Korn Ferry is objective and
independent. Total fees paid to Korn Ferry in respect of its services were £45,096.
Prior to the appointment of Korn Ferry, Aon plc were external advisors to the Committee, and were paid fees in respect of their services
in 2020 of £12,390 (2019: £25,412).
Approval
This report was approved by the Board on 13 April 2021 and signed on its behalf by
V. A. Dennett
Chair of the Remuneration Committee
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APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Directors’ report
The Directors present their report and audited consolidated
financial statements for the year ended 31 December 2020.
A table of Directors’ attendance at Board and Committee meetings
during 2020 is on page 76.
PRINCIPAL ACTIVITIES
The Group’s principal royalty activities are set out in the Strategic
Report on pages 2 to 71.
GOING CONCERN
The financial position of the Group and its cash flows are set out
on pages 68 to 71. The Directors have considered the principal risks
of the Group which are set out on pages 28 to 38, and the key
sensitivities which could impact the level of available borrowings.
As at 31 December 2020, the Group had cash and cash
equivalents of £20.2m, as set out in note 23, and borrowings
under its revolving credit facility of £44.5m, as set out in note 25.
Subsequent to year end, the Group repaid and cancelled its
existing facility before entering into a new US$180.0m revolving
credit facility in conjunction with the acquisition of the Voisey’s Bay
cobalt stream. The new facility stepped down to US$150.0m
following a successful equity placing and retail offer (note 37). On
completion of the acquisition, the Group had drawn US$123.5m
(£89.4m) of the facility and retained access to a further U$26.5m
(£19.2m) subject to continued covenant compliance.
The Directors considered the Group’s cash flow forecasts for
the period to the end of April 2022 under base and downside
scenarios, with consideration given to the uncertainty of the
impact of the COVID-19 pandemic on both the wider macro-
economic environment, including the demand for the commodities
produced and the prices realised by the underlying operations
of the Group’s royalty and stream portfolio, and the ongoing
operations themselves, including production levels. In all of the
scenarios modelled, the Group continues to operate comfortably
within its banking covenant limits with no debt redemption or
amortisation commitments within the 12-month period from
the date of approval of these consolidated financial statements.
The Board is satisfied that the Group’s forecasts and projections,
taking account of reasonably possible changes in trading
performance and other uncertainties, together with the Group’s
cash position and access to the revolving credit facility, show that
the Group will be able to operate within the level of its current
facilities for the period assessed. For this reason, the Group
continues to adopt the going concern basis in preparing its
financial statements.
RESULTS AND DIVIDENDS
The consolidated income statement is set out on page 109 of the
financial statements.
The Group reported a loss after tax of £18.6m (2019: profit £29.0m).
Total dividends for 2020 will amount to 9.00p per share (2019:
9.00p per share), combining the recommended final dividend of
3.75p per share for the year ended 31 December 2020 with the
interim dividends of 1.75p per share paid on 14 August 2020,
13 November 2020 and 17 February 2021. The final dividend for
the year ended 31 December 2020 is subject to shareholder
approval at the 2021 AGM. The Board proposes to pay the final
dividend on 18 August 2021 to shareholders on the Company’s
share register at the close of business on 9 July 2021. The shares
will be quoted ex-dividend on the London and Toronto Stock
Exchanges on 8 July 2021.
OUTLOOK
The outlook for and likely future developments of the Group
are described within the Chairman’s Statement on pages 8 to 11,
together with the Chief Executive Officer’s Statement on pages 12
to 15, and the Group’s Strategic Report on pages 18 to 71.
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 72 to 78.
All Directors will stand for election or re-election at the 2021 AGM.
DIRECTORS’ DISCLOSURES
With regard to the appointment and replacement of Directors, the
Company is governed by its Articles of Association, the Companies
Act 2006 and related legislation. At the next AGM, all of the
Company’s Directors will be offering themselves for election or
re-election.
The Directors may exercise all the powers of the Company, subject
to applicable legislation and regulation and the Company’s Articles
of Association. The Company’s Articles of Association may be
amended by special resolution of the shareholders. At the 2020
AGM, held on 27 May 2020, 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 2021 AGM or 30 June 2021. 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 2021 AGM or 30 June 2021.
At the AGM held on 27 May 2020, 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 issue or other similar issue) and will expire
at the earlier of the conclusion of the 2021 AGM or 30 June 2021.
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.
POLITICAL DONATIONS
No political donations were made during 2020. Anglo Pacific Group
has an established policy of not making donations to, or incurring
expenses for the benefit of, any political party in any part of the
world, including any political party or political organisation as defined
in the Political Parties, Elections and Referendums Act 2000.
OUR GREENHOUSE GAS EMISSIONS
Anglo Pacific is a small organisation, with nine employees and
two Executive Directors, which means that any emission sources
within its operational and financial control, such as business travel,
purchase of electricity, heat or cooling by the Group, are limited.
Management of the operations underlying the Group’s royalty and
stream portfolio is outside its control. During the year ended
31 December 2020, the Group consumed less than 40,000Kwh
of energy (2019: <40,000Kwh) and is therefore exempt from
reporting under the UK Government’s Streamlined Energy and
Reporting Statutory Instrument: 2018/1155.
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
213,672,200
0.02
4,273,444
100%
CHANGE OF CONTROL
A number of agreements 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.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Directors’ report
continued
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 Company’s Articles of Association and
prevailing legislation. There are no known agreements between
any of the Company’s shareholders 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 89 and
in note 29 to the financial statements.
Treasury
The Company holds 444,726 £0.02 ordinary shares in its employee
benefit trust for the purposes of settling the Group’s share-based
compensation plans, as described in note 28. In addition, the
Company holds a further 4,329,703 £0.02 ordinary shares in
treasury following the share buyback in 2020, as described in
note 29.
Allotment of ordinary shares
On 18 May 2020, the Company issued 288,327 new ordinary
shares at a price of 126p per share amounting to an aggregate
nominal value of £5,767 and aggregate consideration of £363,494
following the exercise of options awarded to employees under the
USOP. Further details are set out in notes 28 and 29 to the financial
statements.
On 24 February 2021, the Company issued 33,664,371 new
ordinary shares at a price of 128p per share amounting to an
aggregate nominal value of £673,287 and aggregate
consideration of £43,090,395 as part of a placing announced on
24 February 2021. In addition, the Company issued 2,687,372
new ordinary shares at a price of 128p per share amounting to an
aggregated nominal value of £53,747 and aggregate consideration
of £3,439,836 as part of a retail offer made on the PrimaryBid
platform announced on 24 February 2021. The issue price for
both the place and retail offer was fixed on 24 February 2021 and
represented a discount of approximately 6% to the closing middle
market price on the London Stock Exchange of 136p per share
on 23 February 2021. The net proceeds were used as part of the
funding solution for the acquisition of the Voisey’s Bay cobalt
stream which completed on 12 March 2021, further details of
which are set out in note 37.
There were no allotments of ordinary shares during the year ended
31 December 2019.
As a result of the preceding issuances, the Company has issued
36,351,743 new ordinary shares (other than as part of a pre-
emptive offer) in the 12 months preceding the date of this Annual
Report, representing approximately 17% of the Company’s share
capital as at the date of this Annual Report and Accounts.
Purchase of own shares
At the AGM held on 27 May 2020, authority was given for the
Company to purchase, in the market, up to 18,147,039 ordinary
shares. This authority will expire at the 2021 AGM and, in
accordance with usual practice, a resolution to renew it for
another year will be proposed.
On 25 September 2020, the Company announced its intention
to return up to £5.0m to shareholders through an on-market
irrevocable and non-discretionary share buyback programme.
Between 25 September 2020 and 6 November 2020, the
Company completed the share buyback programme and
repurchased in aggregate 4,629,703 ordinary shares for
a total consideration of £5.0m, at a volume weighted average price
of 107.97p per share. This additional return to shareholders was
funded through the monetisation of the Company’s non-core
mining and exploration interests. The repurchased shares are held
in treasury.
SUBSTANTIAL SHAREHOLDINGS
The Company has been notified of the following interests of 3%
or more in the share capital of the Company as at 13 April 2021.
Schroder Investment Management
Aberforth Partners
Ordinary shares
of 2p each
15,974,959
Representing
7.48%
22,068,452
10.34%
Canaccord Genuity Wealth Management
11,077,308
AXA Investment Managers
Ransome’s Dock Limited
12,406,615
7,489,360
6.12%
5.81%
3.51%
See page 96 for a list of Directors’ interests in shares.
Internal controls
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.
Statement as to disclosure of information to auditors
The Directors who were in office on the date of approval of these
financial statements have confirmed that, as far as they are aware,
there is no relevant audit information of which the auditors are
unaware. Each of the Directors has confirmed that they have taken
all the steps that they ought to have taken as Directors to make
themselves aware of any relevant audit information and to
establish that such audit information has been communicated
to the auditors.
Other statutory and regulatory information
Information in relation to the Group’s payment policy can be found
in note 27 and a statement on going concern is provided in note 3.1.1.
Auditors
Deloitte LLP have expressed willingness to continue in office. In
accordance with section 489(4) of the Companies Act 2006 a
resolution to appoint auditors will be proposed at the 2021 AGM.
Designated Foreign Issuer status
The Company continues to be listed on the TSX and to be a
‘reporting issuer’ in the Province of Ontario, Canada. The Company
also continues to be a ‘designated foreign issuer’, as defined in
National Instrument 71-102 – Continuous Disclosure and Other
Exemptions Relating to Foreign Issuers of the Canadian Securities
Administrators. As such, the Company is not subject to the same
ongoing reporting requirements as most other reporting issuers
in Canada. Generally, the Company will be in compliance with
Canadian ongoing reporting requirements if it complies with the
UK Financial Conduct Authority in its capacity as the competent
authority for the purposes of Part VI of the Financial Services and
Markets Act 2000 (United Kingdom), as amended from time to
time, and the applicable laws of England and Wales (the ‘UK Rules’)
and files on its SEDAR profile at www.sedar.com any documents
required to be filed or furnished pursuant to the UK Rules.
By Order of the Board
J. Gray
Company Secretary
13 April 2021
R E G I S T E R E D O F F I C E
1 Savile Row
London W1S 3JR
100
APG_AR20_14.04.21_MIDDLE_ARTWORKGovernanceANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report, the
Remuneration Report and the Group and parent company 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 pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole;
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
• the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Group’s website, www.anglopacificgroup.com. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
By Order of the Board
N.P.H. Meier
Chairman
13 April 2021
UK company law requires the Directors to prepare financial
statements for each financial year. The Directors have elected to
prepare the Group and parent company financial statements in
accordance with International Financial Reporting Standards
(IFRS), as adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union. 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 its profit or loss for that period. In preparing
these financial statements, International Accounting Standard 1
required 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 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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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
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 2020 and of the group’s loss for the
year then ended;
• the group financial statements have been properly prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
• the parent company financial statements have been properly
prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006;
and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
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 38.
The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law,
international accounting standards in conformity with the
requirements of the Companies Act 2006 and IFRSs as adopted
by the European Union. The financial reporting framework that
has been applied in the preparation of the parent company
financial statements is applicable law and international accounting
standards in conformity with the requirements 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. 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 positions; and
• Going concern.
Materiality
Scoping
Significant
changes
in our
approach
The materiality that we used for the group financial statements was £3.3m, which was determined on the basis
of considering a number of different measures including net assets, total assets, and adjusted profit before tax.
Consistent with the way the group is centrally managed from the UK office, we consider the group to be one
component. Consequently, all assets, liabilities, income and expenses are subject to a full scope audit.
Due to COVID-19 having less impact on the group’s operations in 2020 than was potentially anticipated at the
conclusion of the 2019 audit, we did not consider there to be a material uncertainty relating to going concern
in the current year. The going concern assumption remains a key audit matter in the current year.
There were no other changes to our audit approach when compared with 2019.
4. CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of
accounting is discussed in section 5.4.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
102
Financial statementsAPG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS 5. 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.
5.1. Valuation of the Kestrel royalty
Key audit
matter
description
Total royalty arrangements held at fair value, have a value of £62.7m as at 31 December 2020 (2019: £104.6m). The
Kestrel royalty comprises £55.9m (2019: £96.4m) of the total and management engaged an independent valuation
specialist to perform a 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 in 2018 by a new operator, which announced plans to accelerate
production and based on actual production during 2019 and 2020, 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 commodity price, discount rate and exchange 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 key source of estimation uncertainty
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’ consider this matter on page 81.
How the
scope of
our audit
responded
to the key
audit matter
We understood the methodology applied by management’s expert in performing its valuation and walked through the
controls over the 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 accuracy of the future annual production announced by the operator and incorporated by the
independent specialists in its valuation model. To challenge the discount rate we involved internal valuation specialists
to prepare an independent range of discount rates and compared that to the rate adopted by management.
We evaluated the capability, 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.
We assessed the appropriateness of management’s disclosure in the financial statements, including sensitivity analysis
based on reasonably possible changes in key assumptions.
Key
observations
We concur that the fair value of the Kestrel royalty is within an acceptable range.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Independent auditor’s report to the members of Anglo Pacific Group PLC
continued
5.2. Impairment assessment of the royalty intangibles portfolio
Key audit
matter
description
How the
scope of
our audit
responded
to the key
audit matter
Royalty arrangements held as intangibles have a gross carrying amount of £152.5m at 31 December 2020 (2019: £148.1m)
and a net carrying amount of £95.6m (2019: £102.2m). 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 Pilbara, Four Mile and Groundhog with carrying amounts before impairment being
£8.6m (2019: £8.1m), £0.8m (2019: £1.0m) and £0.7m (2019: £0.7m) respectively.
Following the completion of valuation models for these three assets, an impairment charge was recognised at Pilbara and
Groundhog in amount of £2.7m and £0.7m respectively (see note 17 to the financial statements). The group discloses this
risk as a key source of estimation uncertainty 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 81.
We understood the methodology applied by management in performing its impairment test for each of the relevant
CGUs and walked through the controls over the process.
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 involved our internal valuation specialists to prepare an independent range of discount rates and compared those
to the rates adopted by management.
We assessed and challenged management’s assessment, including climate change factors, 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 assessed the appropriateness of management’s disclosure in the financial statements including sensitivity analysis
based on reasonably possible changes in key assumptions.
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.
5.3. Uncertain tax position
Key audit
matter
description
The international nature of the group’s operations can result in complexities in the payment of and accounting for tax
considering the requirements of IFRIC 23. Management applies judgement in assessing tax exposures in each
jurisdiction, which require interpretation of local tax laws.
In 2017, the group undertook a restructuring of certain loss making entities. The group obtained advice from
professional advisers in respect of these transactions. The tax treatment in relation to the restructure is uncertain given
the lack of precedent and guidance from the tax authorities. In the event this aspect were to be successfully challenged
by the tax authorities, possibly through litigation, this would result in a current tax liability and corresponding income
statement tax charge of £6.3m as at 31 December 2020 (2019:£6.3m).
The group has increased its tax provision, in relation to a separate uncertain tax position, by £0.3m to £2.3m 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 key source of estimation uncertainty 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 81.
How the
scope of
our audit
responded
to the key
audit matter
We understood the methodology applied by management in performing its assessment of each potential uncertain tax
position, including the approach to the calculation of the tax charge and the analysis of the impact of the IFRIC 23
requirements. We walked through the controls over the process.
We reviewed the papers prepared by management’s independent tax expert in respect of the two uncertain tax positions.
We utilised additional support from country tax specialists in jurisdictions where the group had more significant tax exposures.
With the involvement of our tax specialist we performed the following procedures:
With the involvement of our tax specialist we performed the following procedures:
• evaluated the capability, objectivity and competence of management’s independent specialist;
• 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
through a benchmarking analysis and consideration of any changes in relevant laws and regulations.
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Financial statementsAPG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS 5.3. Uncertain tax position continued
Key
observations
We concur with management’s provisions and disclosure.
5.4. Going concern
Key audit matter
description
During 2020, the group received revenue of £34m and generated operating cash inflow of £17.5m. There is also a net
current asset position in amount of £26m as of 31 December 2020.
As disclosed in note 37, in March 2021 the group acquired a stream of cobalt production for cash consideration of
US$205 million (£158 million) at closing and further contingent consideration of up to US$27 million (£21 million), which
was partially funded through a new revolving credit facility of $150 million from a syndicate of banks, with a three year
term with the option to request a one-year extension within the first year.
Increased gearing level gives rise to an elevated risk of potential deterioration of the liquidity position and breach of the
covenants under the new loan agreement during 12 months following approval of the 2020 annual report, especially
considering potential operational and economic challenges, including those posed by COVID-19.
The directors have considered a going concern period through to the end of April 2022. In conducting their assessment,
the directors have concluded that there are no material uncertainties that may cast significant doubt over the group’s
ability to continue as a going concern. A further description of this assessment is included in note 3 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, ‘Going concern basis of accounting in preparing the financial statements’ on page 81.
How the scope
of our audit
responded to
the key audit
matter
We understood the process undertaken by management to: assess the appropriateness of the going concern
assumption; to evaluate the operational and economic impacts of COVID-19 on the group; and to reflect these in the
group’s forecasts. We walked through the controls over the process.
We reviewed the paper prepared by management and evaluated the directors’ plans for future actions in relation
to the going concern assessment.
We also performed the following procedures:
• assessed the cash flow forecasts produced by management and challenge of the underlying data and key
assumptions, such as forecast commodity prices and expected production volumes, by assessing their consistency
with valuation models, budgets and actual performance where applicable;
• tested the clerical accuracy of the model used to prepare the group’s going concern assessment;
• assessed evidence supporting the changes in the group’s financing arrangements in the period, including the addition
of the new group facility;
• analysed the financing facilities including nature of facilities, repayment terms and covenants compliance;
• challenged management’s downside scenario by considering external information on actual and forecast commodity
prices;
• assessed, based on our own independent analysis, what reverse stress testing scenarios could lead either to a loss
of liquidity or a covenant breach and whether these scenarios were plausible; and
• assessed the appropriateness of management’s disclosures in the financial statements.
Key
observations
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as
a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Independent auditor’s report to the members of Anglo Pacific Group PLC
continued
6. OUR APPLICATION OF MATERIALITY
6.1. 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:
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
Materiality
£3.3m (2019: £4.1m)
£3.3m (2019: £3.3m)
Basis for
determining
materiality
Rationale for
the benchmark
applied
Materiality has been determined on the basis of
considering a number of different measures including
net assets, total assets, and adjusted profit before tax.
The long-term value for shareholders is in the asset base
as the company generates its wealth through royalties
acquired. Although some royalties are 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 prior years, 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, consistent to prior year, was considered
the most reasonable as it allowed 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 2020.
Parent company materiality equates to 2% (2019: 2%)
of net assets.
Net assets was considered a more stable base than profits
due to the effect of unrealised fair value gains/losses in
each financial year.
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.
6.2. 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 FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
70% (2019: 70%) of group materiality
70% (2019: 70%) of parent company materiality
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.
Performance
materiality
Basis and
rationale for
determining
performance
materiality
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £165,000 (2019:
£205,000), 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.
7. 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.
Audit work to respond to the risks of material misstatement was
performed directly by the engagement team.
Consistent with the way the group is centrally managed from
the UK office, we consider the group to be one component.
Consequently, all assets, liabilities, income and expenses are
subject to full scope audit.
8. OTHER INFORMATION
The other information comprises the information included in
the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the
other information contained within the annual report.
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.
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
course of 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 this gives
rise to a material misstatement in the financial statements
themselves. 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.
We have nothing to report in this regard.
106
Financial statementsAPG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS 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
legislation.
In addition, we considered provisions of other laws and regulations
that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the group’s ability
to operate or to avoid a material penalty.
11.2. 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
matter 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;
• 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,
reviewing internal audit reports and reviewing correspondence
with 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.
9. 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.
10. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
11. EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE
OF DETECTING IRREGULARITIES, INCLUDING FRAUD
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud
is detailed below.
11.1. 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 audit engagement team
and relevant internal specialists, including tax and valuations
specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
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APG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Independent auditor’s report to the members of Anglo Pacific Group PLC
continued
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
15. OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS
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 7 years, covering the years ending 31 December 2014
to 31 December 2020.
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.
C H R I S T O P H E R J O N E S M A 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
13 April 2021
12. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES
ACT 2006
In our opinion the part of the directors’ remuneration report to be
audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the
audit:
• the information given in the strategic report and the directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared
in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and
the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in
the strategic report or the directors’ report.
13. CORPORATE GOVERNANCE STATEMENT
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 99;
• the directors’ explanation as to its assessment of the group’s
prospects, the period this assessment covers and why the
period is appropriate set out on page 36;
• the directors' statement on fair, balanced and understandable
set out on page 101;
• the board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 83;
• the section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on page 83; and
• the section describing the work of the audit committee set
out on page 80.
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.
108
Financial statementsAPG_AR20_14.04.21_MIDDLE_ARTWORKANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS Consolidated income statement
for the year ended 31 December 2020
Royalty related revenue
Amortisation of royalties
Operating expenses
OPERATING PROFIT BEFORE IMPAIRMENTS AND REVALUATIONS
Impairment of royalty intangible assets
Revaluation of royalty financial instruments
Revaluation of coal royalties (Kestrel)
Finance income
Finance costs
Net foreign exchange (losses)/gains
Other (losses)/income
(LOSS)/PROFIT BEFORE TAX
Current income tax charge
Deferred income tax credit
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Notes
5
17
6a
17
16
15
8
9
10
2020
£’000
34,009
(5,522)
(6,402)
2019
£’000
55,728
(3,777)
(7,132)
22,085
44,819
(3,352)
883
(44,204)
116
(2,324)
(381)
(28)
(1,367)
2,478
(9,215)
34
(1,337)
2,703
(480)
(27,205)
37,635
11
11, 26
(4,643)
13,249
(12,414)
3,774
(LOSS)/PROFIT ATTRIBUTABLE TO EQUITY HOLDERS
(18,599)
28,995
TOTAL AND CONTINUING (LOSS)/EARNINGS PER SHARE
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
The notes on pages 115 to 151 are an integral part of these consolidated financial statements.
12
12
(10.31p)
16.06p
(10.31p)
15.97p
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
109
APG_AR20_14.04.21_BACK_ARTWORK
Consolidated statement of comprehensive income
for the year ended 31 December 2020
(LOSS)/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 HAVE BEEN OR MAY BE SUBSEQUENTLY RECLASSIFIED TO PROFIT OR LOSS
Net exchange loss on translation of foreign operations
Notes
2020
£’000
(18,599)
2019
£’000
28,995
16
18
26
18,637
6,851
(2,182)
23,306
(123)
923
(22)
778
5,396
5,396
(8,703)
(8,703)
OTHER COMPREHENSIVE PROFIT/(LOSS) FOR THE YEAR, NET OF TAX
28,702
(7,925)
TOTAL COMPREHENSIVE PROFIT FOR THE YEAR
10,103
21,070
The notes on pages 115 to 151 are an integral part of these consolidated financial statements.
110
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK Consolidated balance sheet and Company balance sheet
as at 31 December 2020
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
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14
15
16
17
18
19
20
21
26
21
22
23
25
27
26
22
27
28
28
2020
£’000
759
55,874
73,203
95,613
8,019
1,514
–
17,010
3,266
Group
2019
£’000
955
96,419
65,801
102,201
3,642
682
–
17,919
3,185
2020
£’000
759
–
2,332
2,349
6,025
1,219
Company
2019
£’000
955
–
3,760
2,349
3,395
458
165,978
155,896
57,737
60,299
–
–
255,258
290,804
236,399
227,112
10,778
10
20,156
30,944
9,546
–
7,597
17,143
1,344
–
17,675
19,019
1,030
–
1,420
2,450
286,202
307,947
255,418
229,562
44,518
1,599
20,127
66,244
2,867
–
2,085
4,952
36,401
1,659
30,172
68,232
9,821
480
3,700
14,001
44,518
36,401
1,599
443
1,659
639
46,560
38,699
348
–
40,370
40,718
411
–
25,937
26,348
71,196
82,233
87,278
65,047
215,006
225,714
168,140
164,515
3,542
63,137
65,553
82,774
3,629
62,779
40,352
118,954
3,542
63,137
39,206
62,255
3,629
62,779
35,422
62,685
215,006
225,714
168,140
164,515
The notes on pages 115 to 151 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 £17,827,000 (2019: £40,254,000).
The financial statements of Anglo Pacific Group PLC (registered number: 897608) on pages 105 to 147 were approved by the Board and
authorised for issue on 13 April 2021 and are signed on its behalf by:
N . P. H . M E I E R
Chairman
J . A . T R E G E R
Chief Executive Officer
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
111
APG_AR20_14.04.21_BACK_ARTWORK
Consolidated statement of changes in equity
for the year ended 31 December 2020
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Warrant
reserve
£’000
Notes
Other reserves
Share-
based
payment
reserve
£’000
Foreign
currency
translation
reserve
£’000
Investment
revaluation
reserve
£’000
Special
reserve
£’000
Treasury
shares
£’000
Investment
in own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
Balance at
1 January 2019
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
BALANCE AT
31 DECEMBER 2019
Balance at
1 January 2020
Loss 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
Shares held in treasury
Value of employee
services
TOTAL TRANSACTIONS
WITH OWNERS
OF THE COMPANY
BALANCE AT
31 DECEMBER 2020
16, 18
26
13
29
16, 18
26
13
28
28
29
3,629 62,779 29,134
143
(198) 4,159
16,016
632
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
800
(22)
–
778
12
–
–
–
–
–
–
–
–
980
12
980
–
–
(8,703)
(8,703)
–
–
–
–
–
–
–
–
–
–
–
–
3,629 62,779 29,134
143
592
5,139
7,313
632
3,629 62,779 29,134
143
592
5,139
7,313
632
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
(93)
–
–
–
–
–
–
–
358
–
–
(87)
358
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,488
(2,182)
–
23,306
(4,998)
–
–
–
–
–
–
–
–
–
–
–
–
(31)
(4,998)
(31)
–
–
5,396
5,396
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
93
(2,601) 104,415 218,108
–
28,995
28,995
–
–
–
–
–
–
–
–
–
–
800
(22)
(8,703)
28,995
21,070
(12)
–
(14,444)
(14,444)
–
980
–
(14,456)
(13,464)
(2,601) 118,954
225,714
(2,601) 118,954 225,714
–
(18,599)
(18,599)
–
–
–
–
–
–
–
–
–
–
–
25,488
(2,182)
5,396
(18,599)
10,103
4,998
–
(16,707)
(16,707)
–
364
(4,999)
(4,999)
–
1,435
(873)
531
93
1,435
(17,581)
(20,811)
3,542 63,137 29,134
143
18,900
5,108
12,709
632
93
(1,166)
82,774
215,006
The notes on pages 115 to 151 are an integral part of these consolidated financial statements
112
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK
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
Balance at 1 January 2020
Changes in equity for 2020
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
Shares held in treasury
Value of employee services
Company statement of changes in equity
for the year ended 31 December 2020
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
3,629 62,779 29,134
143
(574)
4,159
82
Special
reserve
£’000
632
Treasury
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
– 36,828 136,812
18
13
29
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,629 62,779 29,134
–
–
–
–
–
–
–
143
143
913
913
–
913
(47)
–
–
292
292
–
–
–
–
–
–
980
5,139
5,139
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
913
913
40,254 40,254
40,254
41,167
47
–
(14,444) (14,444)
–
980
82
82
632
632
–
62,685 164,515
– 62,685 164,515
BALANCE AT 31 DECEMBER 2019
3,629
62,779
29,134
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
18
13
28
28
29
–
–
–
–
–
–
6
(93)
–
–
–
–
–
–
–
358
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,842
6,842
–
6,842
(3,120)
–
–
–
–
–
–
–
–
–
–
–
–
(31)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,842
6,842
17,827
17,827
17,827 24,669
3,120
–
– (16,707) (16,707)
–
–
364
93
(4,999)
(4,999)
–
329
298
BALANCE AT 31 DECEMBER 2020
3,542
63,137
29,134
143
4,014
5,108
82
632
93
62,255 168,140
The notes on pages 115 to 151 are an integral part of these consolidated financial statements.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
113
APG_AR20_ARTWORK_UPDATE_19.04.21_
Consolidated statement of cash flows and Company statement of cash flows
for the year ended 31 December 2020
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/Profit before taxation
Adjustments for:
Finance income
Finance costs
Net foreign exchange losses/(gains)
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
Forgiveness of loan to subsidiary undertaking
Intercompany dividends
Share based payment
OPERATING CASH FLOWS BEFORE MOVEMENT IN WORKING CAPITAL
(Increase)/Decrease in trade and other receivables
(Decrease)/Increase 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
Purchase of mining and exploration interests
Purchase of property, plant and equipment
Purchase of royalty and exploration intangibles
Purchases of royalty financial instruments
Proceed on disposal of royalty financial instruments
Repayments under commodity related financing agreements
Prepaid acquisition costs
Finance income
Investment in subsidiaries
Intercompany dividends
Loans granted to subsidiary undertakings
Loan repayments from subsidiary undertakings
Notes
2020
£’000
Group
2019
£’000
2020
£’000
Company
2019
£’000
(27,205)
37,635
18,468
41,062
8
9
10
17
16
16
15
14
17
7a
18
18
14
17
16
16
21
8
20
(116)
2,324
381
28
3,352
(883)
2,308
44,204
204
5,522
13
–
–
293
30,425
(1,444)
(478)
28,503
(10,996)
17,507
4,212
(1,759)
(8)
(1,216)
(5,679)
15,170
688
(847)
116
–
–
–
–
(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)
(20,287)
–
1,577
–
34
–
–
–
–
(317)
2,586
(373)
521
–
(880)
2,308
–
204
–
13
(115)
(234)
1,012
(3,550)
165
–
(1,997)
2,166
–
224
–
13
244
(21,009)
(38,998)
293
1,699
(314)
(574)
811
(1,288)
(477)
4,212
–
(8)
–
–
–
688
(847)
317
1,114
1,221
(266)
681
1,636
(536)
1,100
117
–
(9)
–
–
–
1,577
–
234
(10,082)
(56,457)
20,516
(4,708)
5,130
15,218
18,300
(9,160)
16,095
364
(4,999)
(16,707)
(196)
(1,753)
1,944
16,685
1,420
(430)
17,675
31,124
(3,590)
5,813
(21,191)
44,951
(14,225)
4,521
–
–
(14,444)
(199)
(891)
19,713
(378)
1,024
774
1,420
NET CASH GENERATED FROM/(USED IN) INVESTING ACTIVITIES
10,677
(60,648)
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
Share buyback payments
Dividends paid
Lease payments
Finance costs
NET CASH (USED IN)/FROM 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
24, 25
24, 25
28
28
13
14
9
18,300
(9,160)
–
364
(4,999)
(16,707)
(196)
(1,900)
(14,298)
13,886
7,597
(1,327)
20,156
44,951
(14,225)
–
–
–
(14,444)
(199)
(1,074)
15,009
1,447
5,223
927
7,597
The notes on pages 115 to 151 are an integral part of these consolidated financial statements
114
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Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK S
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Notes to the consolidated financial statements
for the year ended 31 December 2020
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 and streams. 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 cobalt, 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. The Company
was incorporated and is domiciled in the United Kingdom, and registered in England and Wales. 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
The following new accounting pronouncements became effective in the current reporting period:
• Definition of Material – Amendments to IAS 1 and IAS 8
• Amendments to References to the Conceptual Framework in IFRS Standards
• Amendments to IFRS 3 Business Combinations
The adoption of these new accounting pronouncements has not had a significant impact on the accounting policies, methods
computation or presentation applied by the Group.
(b) New and revised IFRS standards in issue but not yet effective
The Group has not early adopted any other amendment, standard or interpretation that has been issued but is not yet effective. It is
expected that where applicable, these standards and amendments will be adopted on each respective effective date. The following new
or amended IFRS accounting standards, amendments and interpretations not yet adopted but effective from 1 January 2022, are not
expected to have a significant impact on the Group:
• Amendments to IAS 1 Presentation of financial statements: classification of liabilities as current or non-current
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – Phase 2
• Amendments to IAS 37 Provisions, contingent liabilities and continent assets: onerous contracts
• Amendments to IFRS 3 Business combinations: updating a reference to the conceptual framework
• Annual improvements to IFRS Standards 2018–2020
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 Accounting Standards in conformity with the requirements
of the Companies Act 2006, International Financial Reporting Standards (IFRS) adopted pursuant to Regulations (EC) No 1606/2002 as
it applied in the European Union, IFRS Interpretations Committee (IFRS IC) interpretations and those parts of the Companies Act 2006
applicable to companies reporting under IFRS and the requirements of the Disclosure and Transparency rules of the Financial Conduct
Authority in the United Kingdom as applicable to periodic financial reporting.
The financial statements have been prepared under the historical cost convention, as modified by the revaluation of coal royalties
(investment property) and certain financial instruments. A summary of the principal Group accounting policies is set out below.
The preparation of financial statements in conformity with generally accepted accounting principles 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 68 and 71. The Directors have considered the principal risks of
the Group which are set out on pages 28 to 38, and considered key sensitivities which could impact the level of available borrowings. As at
31 December 2020, the Group had cash and cash equivalents of £20.2m, as set out in note 23, and borrowings under its revolving credit
facility of £44.5m, as set out in note 25.
Subsequent to year end, the Group repaid and cancelled its existing facility before entering into a new US$180m revolving credit facility
in conjunction with the acquisition of the Voisey’s Bay cobalt stream (note 37). Following the completion of a successful equity placing and
retail offer, the Group’s facility stepped down to US$150m, of which U$123.5m (£89.4m) was drawn. The Group retained access to a
further U$26.5m (£19.2m) subject to continued covenant compliance.
Despite the COVID-19 pandemic not having a material impact on the underlying operations of the Group’s portfolio, with the exception of
EVBC which was subject to a two-week shut down and the McClean Lake mill being placed on care and maintenance between March and
September and again in January 2021, it has contributed to lower coal prices throughout 2020 and continues to impact commodity
prices as at the date of this report.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
115
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
The Directors considered the Group’s cash flow forecasts for the period to the end of April 2022 under base and downside scenarios, with
consideration given to the uncertainty of the impact of the COVID-19 pandemic on both the wider macro-economic environment, including
the demand for the commodities produced and the prices realised by the underlying operations of the Group’s royalty and stream
portfolio, and the ongoing operations themselves, including production levels. In all of the scenarios modelled, the Group continues to
operate within its banking covenant limits with no debt redemption or amortisation commitments within the 12-month period from the
date of approval of these consolidated financial statements.
The Board is satisfied that the Group’s forecasts and projections, taking account of reasonably possible changes in trading performance
and other uncertainties, together with the Group’s cash position and access to the revolving credit facility, show that the Group will be
able to operate within the level of its current facilities for the period assessed. For this reason, the Group continues to adopt the going
concern basis in preparing its financial statements.
3.2 Consolidation
The financial statements incorporate a consolidation of the financial statements of the Company and entities controlled by the Company,
its subsidiaries. Control is achieved when the Company has the power over the investee, is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its power over the investee.
The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether
the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
de-consolidated from the date that control ceases.
Investments in subsidiaries are accounted for in the parent company at cost less impairment. Cost is adjusted to reflect changes in
consideration arising from contingent consideration amendments.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency
with the policies adopted by the Group.
3.3 Foreign currencies
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in pounds
sterling, which is the Company’s functional and the Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates
prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the income statement. Non-monetary assets and liabilities measured at historical cost are translated
using the exchange rates at the date of the transaction (and not retranslated). Non-monetary assets and liabilities measured at fair value
are translated using the exchange rates at the date when fair value was determined.
(c) Group companies
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates; and
(iii) all resulting exchange differences are charged/credited to other comprehensive income and recognised in the currency translation
reserve in equity.
Exchange differences on foreign currency balances with foreign operations for which settlement is neither planned nor likely to occur
in the foreseeable future, and therefore form part of the Group’s net investment in these foreign operations, are recognised in other
comprehensive income and accumulated in the foreign currency translation reserve in equity. If a foreign operation is partially disposed
of or sold, exchange differences that were recorded in equity are reclassified in the income statement as part of the gain or loss on sale.
116
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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.
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.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
117
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Notes to the consolidated financial statements
for the year ended 31 December 2020
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 notes 16 and 33.
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 designate 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
item (note 5).
(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.
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(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 related to items that are recognised in other comprehensive
income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in
equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is
included in the accounting for the business combination.
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Notes to the consolidated financial statements
for the year ended 31 December 2020
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.
• ‘Treasury shares’ represents the shares acquired by the Group under the share buyback programme in 2020 (note 28)
• ‘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 £82,774,000 are considered distributable as at 31 December 2020 (31 December 2019: £118,954,000).
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
Group as lessee
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.
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 lease liability is including within non-
current trade and other payables (refer to note 27) in the consolidated balance sheet.
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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 the 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 37, and
are reconciled to GAAP measures in the notes 12, 13, 34 and 35 respectively.
4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, the Directors are required to make judgements and estimates that can have a
significant impact on the financial statements. Estimates and judgements are regularly evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The most critical
accounting judgement relates to the 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.
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.
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Notes to the consolidated financial statements
for the year ended 31 December 2020
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
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)
• Investment is presented as an
• Mantos Blancos
intangible asset and carried at cost
less accumulated amortisation and
any impairment provision
• Narrabri
• Maracás Menchen
• 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
• Four Mile
• Salamanca
• Pilbara
• Ring of Fire
• Cañariaco
• Ground Hog
• 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, with the
exception of the dividends received from the
LIORC investment which are included in
royalty related revenue on the income
statement.
Investment property
• Direct ownership of
sub-stratum land
• Returns based on
royalty related
production
• Investment property is carried at fair value
• Kestrel
on the balance sheet
• Crinum
• Movements in fair value recognised in
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 33.
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 future cash flows expected from the
royalty arrangement should the project continue/come into production. A pre-tax nominal discount rate of between 6.00% and 10.50%
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.
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.
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Uncertain tax positions
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 disagreement with tax authorities. Tax obligations assessed as having probable future
economic outflows capable of reliable measurement are provided for at 31 December 2019 and 31 December 2020 (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 (note 21)
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
2020
£’000
2019
£’000
25,023
45,064
1,782
7,204
1,926
8,738
34,009
55,728
2020
£’000
3,444
1,792
130
196
840
2019
£’000
4,399
1,477
93
199
964
6,402
7,132
2020
£’000
189
19
208
73
-
73
2019
£’000
176
18
194
59
-
559
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 80.
No services were provided pursuant to contingent fee arrangements.
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Notes to the consolidated financial statements
for the year ended 31 December 2020
7A EMPLOYEE COSTS
Wages and salaries
Share-based awards to Directors and employees
Social security costs
Other pension costs
2020
£’000
2,592
293
437
122
Group
2019
£’000
2,856
1,114
317
112
2020
£’000
2,561
293
434
122
Company
2019
£’000
2,826
1,114
314
112
3,444
4,399
3,410
4,366
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 £122,000 (2019: £112,000) represents contributions payable to these schemes by the Group at rates
specified in the rules of the schemes. As at 31 December 2020, contributions of £19,000 (2019: £14,000) 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
2020
2019
11
2020
2
9
11
11
2019
1
10
11
Company
The average number of administration staff employed by the Company during the year, including Executive Directors was 10 (2019: 10).
Directors’ salaries are shown in the Directors’ Remuneration Report on pages 86 to 98, including the highest paid Director.
2020
£’000
2
114
116
2020
£’000
2019
£’000
34
–
34
2019
£’000
(592)
(1,732)
(2,324)
(263)
(1,074)
(1,337)
8
FINANCE INCOME
GROUP
Interest on bank deposits
Other interest
9
FINANCE COSTS
GROUP
Professional fees
Revolving credit facility fees and interest
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Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK 10 OTHER (LOSSES)/INCOME
GROUP
Revaluation of foreign exchange instruments
Other losses
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
Adjustments in respect of prior years
Deferred tax
INCOME TAX EXPENSE
Factors affecting tax charge for the year:
(LOSS)/PROFIT BEFORE TAX
Tax (credit)/charge on (loss)/profit calculated at United Kingdom corporation tax rate of 19.00% (2019: 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
2020
£’000
493
(521)
(28)
2019
£’000
(315)
(165)
(480)
2020
£’000
2019
£’000
1
4,834
(192)
4,643
142
12,140
132
12,414
(13,249)
(3,774)
–
(13,249)
(8,606)
2020
£’000
–
(3,774)
8,640
2019
£’000
(27,205)
(5,169)
37,635
7,151
580
207
(1,354)
(1,641)
(1,397)
(1,459)
330
75
–
1,755
(3,876)
(192)
642
(32)
3
–
1,584
2,430
132
265
INCOME TAX EXPENSE
(8,606)
8,640
The Group’s effective tax rate for the year ended 31 December 2020 of 31.6% (2019: 23.0%) is higher (2019: higher) than the applicable
weighted average statutory rate of corporation tax in the United Kingdom of 19.00% (2019: 19.00%). The higher effective tax rate in 2020
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 a 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 corporation tax rates.
Refer to note 26 for information regarding the Group’s deferred tax assets and liabilities.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
125
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
Uncertain tax positions
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 £2.3m as at 31 December 2020 (2019: £2.0m). Matters with possible economic outflow
and/or presently incapable of being measured reliably are contingent liabilities and are disclosed in note 36.
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 LOSS/EARNINGS PER SHARE
Loss per ordinary share is calculated on the Group’s loss after tax of £18,599,000 (2019: profit £28,995,000) and the weighted average
number of shares in issue during the year of 180,373,966 (2019: 180,544,459).
NET (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS
Earnings – basic
Earnings – diluted
2020
£’000
2019
£’000
(18,599)
(18,599)
28,995
28,995
The weighted average number of shares in issue for the purpose of calculating basic and diluted 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
(Loss)/Earnings per share – basic
(Loss)/Earnings per share – diluted
2020
2019
180,373,966 180,544,459
–
1,026,706
180,373,966 181,571,165
(10.31p)
(10.31p)
16.06p
15.97p
Earnings per ordinary share excludes shares held by the Company’s Employee Benefit Trust as it has waived its right to receive dividends
on the 444,726 ordinary 2p shares it holds as at 31 December 2020 (31 December 2019: 925,933).
As the Group is loss making in 2020, the employee share option schemes are considered anti-dilutive because including them in the
diluted number of shares outstanding would decrease the loss per share, as such they are excluded.
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 adjustments that arise primarily due to changes in commodity prices), together with amortisation charges, share-based
payments, unrealised foreign exchange gains and loss, 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.
126
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_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
NET LOSS ATTRIBUTABLE TO SHAREHOLDERS
Loss – basic and diluted for the year ended 31 December 2020
(18,599)
(10.31p)
(10.31p)
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
Unrealised foreign exchange (gains)/losses
Tax effect of the adjustments above
Adjusted earnings – basic and diluted for the year ended 31 December 2020
5,522
3,352
2,308
(883)
44,204
(493)
293
881
(14,306)
22,279
12.35p
12.31p
Earnings
£’000
Earnings
per share
p
Diluted
earnings
per share
p
NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
Earnings – basic and diluted for the year ended 31 December 2019
28,995
16.06p
15.97p
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
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 schemes in those years where the Group has adjusted earnings. In years where the Group has an adjusted
loss, the employee share option schemes are considered anti-dilutive as including them in the diluted number of shares outstanding
would decrease the loss per share, as such they are excluded.
The weighted average number of shares in issue for the purpose of calculating basic and diluted adjusted 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
2020
2019
180,373,966 180,544,459
572,384
1,026,706
180,946,350 181,571,165
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
127
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
13 DIVIDENDS AND ADJUSTED DIVIDEND COVER
On 13 February 2020 an interim dividend of 1.625p per share was paid to shareholders in respect of the year ended 31 December 2019.
On 18 June 2020 a final dividend of 4.125p per share was paid to shareholders to make a total dividend for the year ended
31 December 2019 of 9.00p per share. The first quarterly dividend of 1.75p for the year ended 31 December 2020 was paid to
shareholders on 14 August 2020. On 13 November 2020 the second quarterly dividend of 1.75p was paid to shareholders. Total dividends
paid during the year were £16.7m (2019: £14.4m).
On 17 February 2021 a further quarterly dividend of 1.75p per share was paid to shareholders in respect of the year ended
31 December 2020. This dividend has not been included as a liability in these financial statements. The Directors propose that a final
dividend of 3.75p per share be paid to shareholders on 18 August 2021, 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.
The proposed final dividend for 2020 will be payable to all shareholders on the Register of Members on 9 July 2021. The total estimated
dividend to be paid is £8.0m. At the present time the Board has resolved not to offer a script 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 2020 is 12.35p per share (note 12) with dividends for the year totalling 9.00p,
resulting in dividend cover of 1.4x (2019: adjusted earnings per share 20.41p, dividends totalling 9.00p, dividend cover 2.3x).
14 PROPERTY, PLANT AND EQUIPMENT
Group
GROSS CARRYING AMOUNT
At 1 January 2020
Additions
At 31 December 2020
DEPRECIATION AND IMPAIRMENT
At 1 January 2020
Depreciation
At 31 December 2020
CARRYING AMOUNT 31 DECEMBER 2020
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
Other
assets
£’000
1,356
–
1,356
(1,356)
–
(1,356)
–
Other
assets
£’000
1,356
–
1,356
(1,356)
–
(1,356)
–
Right of
use
assets
£’000
1,148
–
1,148
(199)
(196)
(395)
753
Right of
use
assets
£’000
1,148
–
1,148
–
(199)
(199)
949
Equipment
and
fixtures
£’000
289
8
297
(283)
(8)
(291)
6
Equipment
and
fixtures
£’000
280
9
289
(258)
(25)
(283)
6
Total
£’000
2,793
8
2,801
(1,838)
(204)
(2,042)
759
Total
£’000
2,784
9
2,793
(1,614)
(224)
(1,838)
955
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.
128
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_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
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 2019 or 2020.
Company
GROSS CARRYING AMOUNT
At 1 January 2020
Additions
At 31 December 2020
DEPRECIATION AND IMPAIRMENT
At 1 January 2020
Depreciation
At 31 December 2020
CARRYING AMOUNT 31 DECEMBER 2020
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
15 COAL ROYALTIES (KESTREL)
At 1 January 2019
Foreign currency translation
Gain on revaluation of coal royalties
At 31 December 2019
Foreign currency translation
Loss on revaluation of coal royalties
At 31 December 2020
Other
assets
£’000
821
–
821
(821)
–
(821)
–
Other
assets
£’000
821
–
821
(821)
–
(821)
–
Right of
use
assets
£’000
1,148
–
1,148
(199)
(196)
(395)
753
Right of
use
assets
£’000
1,148
–
1,148
–
(199)
(199)
949
Equipment
and
fixtures
£’000
289
8
297
(283)
(8)
(291)
6
Equipment
and
fixtures
£’000
280
9
289
(258)
(25)
(283)
6
Total
£’000
2,258
8
2,266
(1,303)
(204)
(1,507)
759
Total
£’000
2,249
9
2,258
(1,079)
(224)
(1,303)
955
Group
£’000
109,778
(4,144)
(9,215)
96,419
3,659
(44,204)
55,874
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 £55.9m (A$98.9m) (2019: £96.4m and A$181.3m) is based on a valuation completed during December 2020 by an
independent coal industry advisor, on a net present value of the pre-tax cash flow discounted at a nominal rate of 6.50% (2019: 6.00%).
The key assumptions in the independent valuation relate to price, foreign exchange and discount rate.
The price assumptions used in the 2020 valuation increase from US$140/t in the short-term to a long-term flat nominal price of
US$143/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 £47.1m (A$83.4m) and an £8.8m increase
to the revaluation loss in the income statement to £53.0m; and
• a 10% increase in the coal price would have resulted in the coal royalties being valued at £65.3m (A$115.6m) and a £9.4m reduction
in the revaluation loss in the income statement to £34.8m.
The AUD:USD exchange rate assumptions used in the 2020 valuation assume a strengthening in the Australia dollar from a short-term rate
of 0.705 to a long-term rate of 0.74 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 £47.8m
(A$84.7m) and a £8.1m increase to the revaluation loss in the income statement to £52.3m; and
• a 10% weakening of the Australian dollar against the US dollar would have resulted in the coal royalties being valued at £66.4m
(A$117.5m) and a £10.5m reduction in the revaluation loss in the income statement to £33.7m.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
129
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
The pre-tax nominal discount rate used for the asset is 6.50%, if the discount rate used were to increase or decrease by 1% the valuation
effect would be:
• a 1% reduction in the nominal discount rate would have resulted in the coal royalties being valued at £57.2m (A$101.3m) and a
£1.3m reduction in the revaluation loss in the income statement to £42.9m; and
• a 1% increase in the nominal discount rate would have resulted in the coal royalties being valued at £54.6m (A$96.7m) and a
£1.3m increase in the revaluation loss in the income statement to £45.5m.
The net royalty income from this investment is currently taxed in Australia at a rate of 30%. The revaluation of the underlying Australian
dollar asset is recognised in the Income Statement with the retranslation 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 £5.6m (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 (2019: £0.2m).
The Directors do not presently have any intention to dispose of the coal royalty.
Refer to note 33 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 ROYALTY 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 2020
Carrying value
£’000
31 December 2019
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
Piaui
Nickel-Cobalt
US$2,000
1.250%
Labrador Iron Ore Iron Ore
C$66,105
7.00%
–
–
FVTPL
FVTPL
FVTPL
FVTPL
FVOCI
2,332
3,760
841
679
2,049
1,555
66,426
73,203
2,399
1,227
57,736
65,801
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 Company (‘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 2019
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
Additions
Disposals
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 2020
130
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Group
£’000
Company
£’000
46,205
20,287
(2,166)
2,478
(123)
(880)
65,801
5,679
(15,170)
(2,308)
883
18,637
(319)
73,203
3,929
–
(2,166)
1,997
–
–
3,760
–
–
(2,308)
880
–
–
2,332
Financial statementsAPG_AR20_14.04.21_BACK_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
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 £2.3m during the year ended 31 December 2020 (2019: £2.2m), which initially reduced
the carrying value. As at 31 December 2020 the Group determined the fair value of EVBC by calculating the discounted future flows of the
royalty with an 6.50% (2019: 7.00%) pre-tax nominal discount rate, resulting in a valuation of £2.3m (2019: £3.8m). The net effect of the
£1.5m decrease in the fair value year on year and the royalties received, is a valuation gain of £0.8m 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 2020 the Group
assessed the likely start date of commercial production at Dugbe 1 to be 2030 (2019: 2030), and has applied a 75% (2019: 75%)
probability factor to the project reaching commercial production to the discounted future flows of the royalty with an 30.00% (2019:
30.00%) pre-tax nominal discount rate, resulting in a valuation of £0.8m (2019: £0.7m). The £0.1m increase (2019: £0.5m decrease)
in carrying value has been recognised as a royalty financial instrument valuation gain 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: (i) a 13-year amortising secured loan of C$40.8m with an interest rate of 10% per
annum payable to the Group which is classified as non-current other receivables (note 21); and (ii) 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, which was acquired for C$2.7m and is classified as FVTPL in accordance with note 4.
As at 31 December 2020, the Group assessed the probability of the McClean Lake mill achieving throughput in excess of 215Mlbs at 50%
(2019: 50%), and applied this to the discounted future cash flows of the stream with a 6.50% (2019: 5.50%) pre-tax nominal discount
rate, resulting in a valuation of £2.0m (2019: £2.4m). The £0.4m decrease (2019: £0.7m increase) in the carrying value of the stream has
been recognised in the income statement for the year.
Piaui
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 classify the Piauí royalty as FVTPL.
As at 31 December 2020 the Group assessed the probability of the Piauí project reaching commercial production at 25% (2019: 25%) and
applied this to the discounted future cash flows of the royalty with a 13.50% (2019: 13.50%) pre-tax nominal discount rate, resulting in a
valuation of £1.6m (2019: £1.2m). The £0.4m increase in carrying value has been recognised as a royalty financial instrument valuation
gain in the income statement for the year.
Labrador Iron Ore
LIORC is a single asset company, being the 7% gross revenue royalty over the IOC mine which is majority owned and operated Rio Tinto; as
a result, the Group classifies its investment in LIORC as a royalty financial instrument. On initial recognition the Group made the irrevocable
election to designate this investment as FVTOCI. The resulting dividends from the Group’s investment in LIORC have been classified as
royalty related revenue, as described in note 3.13.
During the first quarter of 2020, the Group made a further investment of C$9.8m (£5.7m) in LIORC, increasing its shareholding to
4,486,890 shares. The Group undertook a partial sale of its holding to fund the acquisition of the Voisey’s Bay cobalt stream that was
completed in March 2021 (refer to note 37), selling 944,000 shares by 31 December 2020 generating C$26.2m (£15.2m) in proceeds. The
Group’s partial sale of its holding in LIORC resulted in a capital gain of C$3.3m (£1.9m) which was transferred directly to retained earnings.
As at 31 December 2020, the Group’s investment in Labrador was valued at C$115.5m (£66.4m) (2019: C$99.5m (£57.7m)). As detailed
in note 37, the Group sold a further 2,510,700 shares in the first quarter of 2021 generating a further C$82.4m (£47.4m) in proceeds to fund
the Voisey’s Bay acquisition and retained 1,032,190 shares.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
131
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
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 2020
Foreign currency translation
At 31 December 2020
AMORTISATION AND IMPAIRMENT
At 1 January 2020
Amortisation charge
Impairment charge
Foreign currency translation
At 31 December 2020
CARRYING AMOUNT 31 DECEMBER 2020
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
Company
Royalty interests
At 1 January and 31 December
Exploration and
evaluation costs
£’000
Royalty
interests
£’000
Total
£’000
697
–
697
147,432
148,129
4,378
4,378
151,810
152,507
(697)
(45,231)
(45,928)
–
–
–
(5,522)
(3,352)
(2,092)
(5,522)
(3,352)
(2,092)
(697)
(56,197)
(56,894)
–
95,613
95,613
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
2020
£’000
2019
£’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 would be developed, the Group fully impaired it in 2014.
2020 Acquisition of royalty intangible assets
There were no acquisitions of new royalty intangible assets during 2020.
The previously accrued deferred consideration of US$1.5m (£1.2m) due under the royalty agreement to acquire the Maracás Menchen
royalty was paid in May 2020, following the operator, Largo Resources Limited, achieving an annualised rate of production of 12,000t
during the first quarter of 2020.
2019 Acquisition of royalty intangible assets
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 US$50.25m (£41.7m) and capitalised transaction costs of £0.6m
resulting in total additions for the year of £42.3m.
Amortisation of royalty intangible assets
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.
132
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_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
Four of the underlying mining operations of the Group’s royalty intangible assets were in production during 2020, 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 2020
’000
Carrying value
31 December 2019
’000
Estimated
life of mine
Remaining
life of mine
46,299
64,596
22,949
1,484
49,687
68,636
23,790
1,855
15 years
22 years
29 years
10 years
14 years
16 years
23 years
4 years
The amortisation charge for the period of £5.5m (31 December 2019: £3.8m) 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 2020, the shares of 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). The security in connection with the Group’s new
borrowing facility entered into in March 2021 is detailed in note 37.
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.
Climate change considerations in assessing for indicators of impairment
In addition to the impairment methodology detailed in note 4, the impact of the climate transition has been considered in assessing
whether any indicators of impairment exist, specifically for those royalty intangible assets in the portfolio associated with thermal coal
projects.
Demand and pricing assumptions under the sustainable development scenario published in the IEA 2020 World Energy Outlook have
been applied to the Group’s valuation model for the Narrabri royalty. In addition, it has been assumed that the planned development of
the Narrabri South mine, over which the Group’s royalty also applies, does not proceed. The resulting net present value of the discounted
future royalty cash flow derived from applying these assumptions comfortably exceeds the carrying value of the Narrabri royalty to
conclude that there are no indicators of impairment as at 31 December 2020.
The impact of the climate transition was also considered when assessing whether any indicators of impairment exist in relation to
the Group’s royalty over the development stage Groundhog project in British Columbia, Canada. As detailed below, it was concluded
that the probability of this project reaching commercial production is remote, resulting in the full impairment of this royalty as at
31 December 2020.
2020 Impairment of royalty intangible assets
Pilbara iron ore royalty
Despite the ongoing expansion of BHP’s mining operations in the Pilbara, limited information is publicly available for the Group to assess
the likely timing of the development of tenements covered by the Group’s royalty, the largest of which covers the Railway Deposit which
is located to the north of BHP’s South Flank development.
In the absence of any publicly available information, the Group has estimated that the likely start date for production from tenements
covered by the Group’s royalty to be 2040 (2019: start date 2030). Applying this start date to the Group’s valuation model, together with
a pre-tax nominal discount rate of 7.50% (2019: 7.00%) and a long-term iron ore price of US$136/dmtu for lump and US$108/dmtu for
fines resulted in a net present value of the discounted future royalty cash flow of A$12.5m, compared to the carrying value of A$17.5m.
As a result of the net present value being lower than the carrying value, the Group recognised an impairment charge of A$5.0m (£2.7m)
for the year ended 31 December 2020.
Groundhog royalty
The Groundhog anthracite project, over which the Group holds a 1% GRR, is a development stage project located in north-west British
Columbia, Canada. Limited progress has been made by the operator, Atrum Coal Limited, in developing these tenements since acquiring
them in 2016 and in light of the climate transition, there is no real prospect of their commercial development. As a result, the Group fully
impaired the Groundhog royalty as at 31 December 2020, recognising an impairment charge of C$1.1m (£0.7m).
2019 Impairment of royalty intangible assets
During the year ended 31 December 2019, the Group recognised an impairment charge of C$2.3m (£1.4m) in relation to its Ring of Fire
royalty.
Impairment sensitivity
The Group has reviewed the sensitivity of its assessment for indicators of impairment to an increase in the discount rates applied to the
expected future cash flows and a decrease in the underlying commodity prices of each royalty, concluding the following:
• A 1% increase in the discount rate applied to expected future cash flow of the royalties, would not result in any additional impairments,
but would result in the impairment charge recognised in relation to the Pilbara royalty increasing by £1.3m, increasing the impairment
charge in income statement to £4.7m.
• A 10% decrease in the underlying commodity prices would result in impairment charges being recognised for the Narrabri and Mantos
Blancos royalties of £1.5m and £0.5m respectively, as well as increasing the impairment of the Pilbara royalty by a further £0.7m,
increasing the impairment charge in the income statement to £6.1m.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
133
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
18 MINING AND EXPLORATION INTERESTS
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
At 1 January 2019
Additions
Disposals
Revaluation adjustment
Foreign currency translation
At 31 December 2019
Additions
Disposals
Revaluation adjustment
Foreign currency translation
At 31 December 2020
Group
£’000
Company
£’000
2,848
2,559
40
(321)
923
152
3,642
1,759
(4,212)
6,851
(21)
8,019
40
(117)
913
–
3,395
–
(4,212)
6,842
–
6,025
The fair values of listed securities are based on quoted market prices. Unquoted investments are initially recognised using cost where fair
value cannot be reliably determined. In the absence of an active market for these securities, the Group considers each unquoted security
to ensure there has been no material change in the fair value since initial recognition.
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.
During 2020, the Group participated in the unlisted equity placing undertaken by Brazilian Nickel, the operator of the Piauí nickel cobalt
project in Brazil over which the Group holds a 1.30% GRR, investing US$2.0m (£1.8m).
For the year ended 31 December 2020 the Group realised £4.2m in cash (2019: £0.3m) through its disposal of a number of its mining
and exploration interests from which management no longer considered royalty opportunities to exist. These disposals resulted in a gain
of £3.1m for the year ended 31 December 2020 (2019: loss £12K) which was transferred to directly to retained earnings.
Total mining and exploration interests at 31 December are represented by:
2020
£’000
5,987
2,032
8,019
Group
2019
£’000
3,362
280
3,642
2020
£’000
5,969
56
6,025
Company
2019
£’000
3,339
56
3,395
9
8
6
6
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
215
847
(175)
–
887
467
558
(424)
26
627
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
219
215
(219)
–
215
707
30
(263)
(7)
467
Total
£’000
682
1,405
(599)
26
1,514
Total
£’000
926
245
(482)
(7)
682
Quoted investments
Unquoted investments
Number of investments
19 DEFERRED COSTS
Group
CARRYING AMOUNT
At 1 January 2020
Additions
Released to income during the year
Foreign currency translation
CARRYING AMOUNT AT 31 DECEMBER 2020
Group
CARRYING AMOUNT
At 1 January 2019
Additions
Released to income during the year
Foreign currency translation
CARRYING AMOUNT AT 31 DECEMBER 2019
134
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK Company
CARRYING AMOUNT
At 1 January 2020
Additions
Released to income during the year
CARRYING AMOUNT AT 31 DECEMBER 2020
Company
CARRYING AMOUNT
At 1 January 2019
Additions
Released to income during the year
CARRYING AMOUNT 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
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
215
847
(175)
887
243
273
(184)
332
Deferred
acquisition costs
£’000
Deferred
financing costs
£’000
219
215
(219)
215
365
–
(122)
243
Total
£’000
458
1,120
(359)
1,219
Total
£’000
584
215
(341)
458
Deferred acquisition costs
As at 31 December 2020 deferred acquisition costs of £0.9m (2019: £0.2m) represent those costs associated with royalty and stream
acquisitions that the Group is actively pursuing and expect to complete in 2021 and primarily relate to the Voisey’s Bay cobalt stream
acquisition completed in March 2021 (note 37).
Deferred financing costs
As at 31 December 2019 deferred financing costs of £0.5m represent the unamortised costs associated with the 2018 refinancing of
the Group’s revolving credit facility.
In January 2020, the Group amended and extended the 2018 facility, increasing the revolving credit facility to US$90.0m and retaining
the US$30.0m accordion. The previously deferred financing costs associated with the original 2018 facility were released to the income
statement upon the financing. As at 31 December 2020 deferred financing costs of £0.6m represent the arrangement fees and legal
costs associated with the amended and extended facility.
These deferred financing costs were expected to be amortised over the three-year term of the facility, however, subsequent to year end
the existing facility was repaid in full and cancelled, with the deferred costs being immediately released to the income statement (note 37).
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 2020 and
31 December 2019 is as follows:
Company
COST
At 1 January 2020
Capital injection into subsidiaries
At 31 December 2020
IMPAIRMENT OF INVESTMENT IN SUBSIDIARY
At 1 January 2020
Impairment
At 31 December 2020
Carrying amount 31 December 2020
COST
At 1 January 2019
Capital injection into subsidiaries
At 31 December 2019
IMPAIRMENT OF INVESTMENT IN SUBSIDIARY
At 1 January 2019
Impairment
At 31 December 2019
Carrying amount 31 December 2019
£’000
176,879
10,082
186,961
(20,983)
–
(20,983)
165,978
£’000
120,422
56,457
176,879
(20,983)
–
(20,983)
155,896
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
135
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
21 TRADE AND OTHER RECEIVABLES
CURRENT
Income tax receivable
Prepayments
Royalty receivables
Other receivables
NON-CURRENT
Other receivables
Amounts due from subsidiaries
2020
£’000
1,572
151
8,596
459
10,778
2020
£’000
Group
2019
£’000
1,784
76
7,307
379
9,546
Group
2019
£’000
17,010
17,919
–
–
17,010
17,919
2020
£’000
–
151
780
413
Company
2019
£’000
–
76
739
215
1,344
1,030
2020
£’000
17,010
40,727
57,737
Company
2019
£’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 Company.
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.
Operations at the McClean Lake mill from which the toll revenue is generated were suspended from March 2020 to September 2020 in
response to the COVID-19 pandemic, resulting in the principal repayments under the loan reducing to £0.7m (2019: £1.6m). The Group
earned £1.8m in interest revenue (2019: £1.9m), with £0.6m (2019: £nil) of the interest earned being capitalised as described above.
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 2020, the
implied probability of default has been assessed at 4.30% (2020: 0.98%) resulting in the Group recognising expected credit losses of
£0.5m (2019: £0.1m).
While operations resumed in September 2020, they were once again suspended in January 2021 due to the COVID-19 pandemic and
remain suspended as at the date of this report. As operations are expected to resume at some point in 2021, the Directors do not
consider the current suspension significantly increases default risk and therefore continue to recognise 12-month ECL rather than
lifetime ECL.
The movement in non-current other receivables is summarised as follows:
Group and Company
At 1 January 2019
Interest
Repayments of principal and interest
Amortisation of deferred costs
Expected credit losses
Foreign currency translation
At 31 December 2019
Interest
Repayments of principal and interest
Amortisation of deferred costs
Expected credit losses
Foreign currency translation
At 31 December 2020
£’000
19,335
1,926
(3,503)
(13)
(62)
236
17,919
1,782
(1,906)
(13)
(521)
(251)
17,010
Non-current amounts due from subsidiaries
Amounts due from subsidiaries are considered long-term loans. The Directors consider that the carrying value of amounts due from
subsidiaries is approximately their fair value.
136
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_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
22 DERIVATIVE FINANCIAL INSTRUMENTS
The Group’s hedging policy allows foreign exchange forward contracts to be entered into to manage its exposure to foreign exchange
risk associated with its Australian and Canadian dollar royalty related income (note 33). 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:
2020
£’000
Group
2019
£’000
2020
£’000
Company
2019
£’000
FINANCIAL ASSETS CARRIED AT FAIR VALUE THROUGH PROFIT OR LOSS
Fair value as at 31 December
10
(480)
–
–
As at 31 December 2020 the Group had outstanding forward contracts totalling A$7.2m (2019: A$37.5m) to receive £3.9m (2019:
£20.2m) and C$0.7m (2019: C$9.2m) to receive £0.4m (2019: £5.4m).
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
2020
£’000
20,053
103
20,156
Group
2019
£’000
7,410
187
7,597
2020
£’000
17,594
81
17,675
Company
2019
£’000
1,327
93
1,420
Of the Group’s £20.1m cash at bank and on hand as at 31 December 2020, £15.2m related to proceeds from the partial sale of the
Group’s investment in LIORC. These funds were held in restricted accounts as security under the Group’s existing revolving credit facility.
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)
Movement in net debt
At 1 January 2019
Cash flow
Currency movements
At 31 December 2019
Cash flow
Currency movements
At 31 December 2020
2020
£’000
Group
2019
£’000
2020
£’000
Company
2019
£’000
(44,518)
(36,401)
(44,518)
(36,401)
20,156
7,597
17,675
1,420
(24,362)
(28,804)
(26,843)
(34,981)
Cash and cash
equivalents
£’000
5,223
1,447
927
7,597
13,886
(1,327)
20,156
Medium and
long-term
borrowings
£’000
8,300
30,726
(2,625)
36,401
9,140
(1,023)
Net debt
£’000
(3,077)
(29,279)
3,552
(28,804)
4,746
(304)
44,518
(24,362)
During the year ended 31 December 2020, the Group drew £18.3m (2019: £45.0m) on its revolving credit facility (refer to note 25) and
repaid £9.2m (2019: £14.2m).
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
137
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
25 BORROWINGS
SECURED BORROWING AT AMORTISED COST
Revolving credit facility
2020
£’000
Group
2019
£’000
44,518
44,518
36,401
36,401
2020
£’000
44,518
44,518
Company
2019
£’000
36,401
36,401
Amount due for settlement within 12 months
–
–
–
–
Amount due for settlement after 12 months
44,518
36,401
44,518
36,401
The Group’s revolving credit facility in place during 2019, was the three-year revolving credit facility of US$60.0m with a US$30.0m
accordion, established in 2018 and maturing in September 2021, which was available at LIBOR plus 300bps.
In January 2020, the Group amended and extended the 2018 facility, increasing the revolving credit facility to US$90.0m and retaining the
US$30.0m accordion. The amended and extended facility was expected to mature in September 2022 and was available at LIBOR plus
175bps.
During the year ended 31 December 2020, the Group drew £18.3m (2019: £45.0m) on its revolving credit facility (refer to note 25) and
repaid £9.2m (2019: £14.2m).
In conjunction with the Voisey’s Bay cobalt stream acquisition, the Group repaid its borrowings in full and cancelled the existing facility in
March 2021, before entering a new US$180.0m revolving credit facility which was reduced to US$150.0m following the completion of the
equity placing detailed in note 37. The new facility has a three-year term with the option to extend to request a one-year extension within
the first year and is available at LIBOR plus 2.75% to 5.00% depending on leverage ratios.
Deferred borrowing costs, detailed in note 19, relate to the establishment fees and legal fees associated with the existing facility as at
31 December 2020 and were being amortised over its three-year term.
The Group’s revolving credit facility as at 31 December 2020 was 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 2020.
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 2019
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
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 2020
Revaluation
of coal
royalties
£’000
Revaluation
of royalty
instruments
£’000
32,932
(2,764)
–
(1,243)
–
–
28,925
(13,261)
–
1,097
–
–
(2,568)
(101)
22
127
–
–
(2,520)
(160)
2,182
(197)
75
–
Accrual of
royalty
receivable
£’000
1,555
(929)
–
(40)
–
–
586
93
–
41
–
–
16,761
(620)
720
Other tax
losses
£’000
(24)
20
–
–
–
–
Total
£’000
31,895
(3,774)
22
(1,156)
–
–
(4)
26,987
4
–
–
–
–
–
(13,324)
2,182
941
75
–
16,861
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
2020
£’000
2019
£’000
(20,127)
(30,172)
3,266
3,185
(16,861)
(26,987)
In the March 2021 Budget, it was announced that legislation will be introduced in Finance Bill 2021 to increase the main rate of UK
corporation tax from 19% to 25%, effective 1 April 2023. As substantive enactment is after the balance sheet date, deferred tax balances
as at 31 December 2020 continue to be measured at a rate of 19%.
138
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK The Group has the following balances in respect of which no deferred tax asset has been recognised:
Tax losses –
trading
£’000
Tax losses –
capital
£’000
Other
temporary
differences
–
–
–
–
–
–
2020
Total
£’000
–
–
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
–
–
–
–
–
3,084
3,084
7,911
7,911
46,659
46,659
3,139
3,139
57,635
57,635
3,857
3,857
45,309
45,309
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 2019
Released to income for the year
At 31 December 2019
Released to income for the year
At 31 December 2020
Revaluation
of royalty
instruments
£’000
668
(29)
639
(196)
443
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
2019
Total
£’000
–
–
52,250
52,250
Total
£’000
668
(29)
639
(196)
443
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
2020
£’000
443
443
2020
£’000
108
39
38,806
1,417
–
2019
£’000
639
639
Company
2019
£’000
94
80
23,799
1,964
–
40,370
25,937
2020
£’000
111
46
–
1,928
–
2,085
Group
2019
£’000
97
102
–
2,363
1,138
3,700
During the first quarter of 2020, Largo Resources generated sales, which on an annualised basis exceeded 12,000t, triggering the
second tranche of deferred consideration of US$1.5m in relation to the Maracás Menchen royalty to become payable. On 29 May 2020,
the Group paid the US$1.5m (£1.2m) of deferred consideration that had been accrued since 30 June 2018 and included in the carrying
value of the Maracás Menchen royalty.
The average credit period taken for trade purchases is 18 days (2019: 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.
NON-CURRENT
Lease liability
Other taxation and social security payables
2020
£’000
760
839
Group
2019
£’000
950
709
2020
£’000
760
839
Company
2019
£’000
950
709
1,599
1,659
1,599
1,659
Non-current lease liability relates to the Group’s office premises in London, which comprises annual payments of £0.2m and expires
in 2024.
Non-current other taxation and social security payables relates to employer national insurance due on vesting of certain
share-based payments.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
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APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
28 SHARE CAPITAL AND SHARE PREMIUM
Issued share capital
Group and Company
Number of
shares
ORDINARY SHARES OF 2P EACH AT 1 JANUARY 2019 AND 31 DECEMBER 2019
181,470,392
Issue of share capital on exercise of employee options (a)
Share buyback (b)
288,327
(4,629,703)
Share
capital
£’000
3,629
6
(93)
Share
premium
£’000
62,779
358
–
Merger
reserve
£’000
Total
£’000
29,134
95,542
–
–
364
(93)
ORDINARY SHARES OF 2P AT 31 DECEMBER 2020
177,129,016
3,542
63,137
29,134
95,813
(a) On 18 May 2020, the Group issued 288,327 new ordinary shares of 2p each following the exercise of options awarded to employees
under the Company’s Unapproved Share Option Plan. The shares were issued at the exercise price of 126.07p per share.
(b) Between 25 September 2020 and 6 November 2020, the Company completed a share buyback programme and repurchased in
aggregate 4,629,703 ordinary shares of 2p each in the Company for a total consideration of £5.0m, at a volume weighted average
price of 107.97p per share. The repurchased shares are held in treasury.
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
At 1 January
Transferred to employees in settlement of share awards
Shares acquired to settle future share awards
AT 31 DECEMBER
Number of
shares
925,933
(559,266)
78,059
444,726
2020
£’000
(2,601)
1,571
(136)
(1,166)
Number of
shares
2019
£’000
925,933
(2,601)
–
–
–
–
925,933
(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.
Treasury shares
Treasury shares
At 1 January
Share buyback
At 31 December
Number of
shares
–
4,629,703
4,629,703
2020
£’000
–
93
93
Number of
shares
–
–
–
2019
£’000
–
–
–
Shares held in treasury do not receive dividends, as such they 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 three equity-settled share-based compensation plans as follows:
• The HMRC approved Company Share Ownership Plan (the ‘CSOP’);
• The Unapproved Share Ownership Plan (the ‘USOP’); and
• The Value Creation Plan (the ‘VCP’).
(a) Company Share Ownership Plan
Under the CSOP, share options are granted to Executive Directors and to selected employees. The exercise price of the granted options
is equal to the average mid-market closing price of an ordinary share for the three days before the grant. The options are conditional on
the employee completing three years’ service (the vesting period). The options are exercisable starting three years from the grant date,
subject to the Group achieving its target growth in absolute TSR over the period of 3% per annum (not compounded) in excess of the UK
Retail Price Index; the options have a contractual option term of ten years. The Group has no legal or constructive obligation to repurchase
or settle the options in cash.
140
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK S
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G
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F
I
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A
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Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Outstanding at 1 January
Outstanding at 31 December
2020
Weighted
average
exercise
price (£)
1.2884
1.2884
Options
47,502
47,502
Out of the 47,502 outstanding options (2019: 47,502), 19,974 options (2019: 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
2028
Exercise price in
£ per share
1.6258
0.7700
1.6367
2019
Weighted
average
exercise
price (£)
1.2884
1.2884
Options
2019
6,150
19,974
21,378
47,502
Options
47,502
47,502
2020
6,150
19,974
21,378
47,502
Weighted average remaining contractual life
6.00
7.00
No awards were made under the CSOP during 2020 or 2019.
(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.
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 January 2020 determined using a Black-Scholes valuation model was £0.30
per option. The significant inputs into the model were the share price of £1.760 at the grant date, exercise price of £1.788, volatility of
34.00%, expected dividend yield of 4.55%, expected option life of four years and an annual risk-free rate of 0.39%.
The weighted average fair value of options granted during November 2019 determined using a Black-Scholes valuation model was £0.36
per option. The significant inputs into the model were the share price of £1.910 at the grant date, exercise price of £1.921, volatility of
35.00%, expected dividend yield of 4.19%, expected option life of four years and an annual risk-free rate of 0.51%.
The weighted average fair value of options granted during September 2019 determined using a Black-Scholes valuation model was £0.36
per option. 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%.
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
Outstanding at 31 December
2020
Weighted
average
exercise
price (£)
1.0307
1.7883
0.8801
1.1487
2019
Weighted
average
exercise
price (£)
0.8801
1.8735
–
Options
2,097,593
375,000
–
2,472,593
1.0307
Options
2,472,593
100,000
(847,593)
1,725,000
Out of the 1,725,000 outstanding options (2019: 2,472,593), 1,250,000 options (2019: 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
2025
Options
Exercise price in
£ per share
2020
2019
–
366,667
633,334
1.2607
1.8617
1.9208
1.7883
883,333
1,464,259
300,000
300,000
75,000
100,000
75,000
–
1,725,000
2,472,593
Weighted average remaining contractual life
1.97
2.65
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
141
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
(c) 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 2020 and 31 December 2019 are as follows:
Expiry date
Outstanding at 1 January
Outstanding at 31 December
Exercise price
in £ per unit
_
_
Options
2020
86,867
86,867
Options
2019
86,867
86,867
Weighted average remaining contractual life
0.50
1.50
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 7(a) for the total expense recognised in the income statement for awards under the Group’s CSOP, USOP 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 2020, this reserve remains unavailable for distribution.
At 1 January 2020 and 31 December 2020
31 RELATED 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
Amounts owed to related parties at year end
Group
£’000
632
Company
£’000
632
2020
£’000
(422)
2,303
40,727
2019
£’000
(2,223)
2,658
42,380
(38,806)
(23,799)
All transactions were made in the course of funding the Group’s continuing activities.
Amounts owed by related parties are non-interest bearing and are not due to be received in the next twelve months. Amounts owed
to related parties comprise both interest and non-interest-bearing borrowings that are repayable on demand.
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 86 to 98.
Short-term employee benefits
Post-employment benefits
Share-based payment
2020
£’000
1,369
61
194
1,624
2019
£’000
1,437
58
623
2,118
Directors’ transactions
The Group received £51,225.85 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 2020
(2019: £55,999.96). At 31 December 2020 there was £20,476.86 owing from Audley Capital Advisors LLP (2019: £4,000.54).
During the year ended 31 December 2020, the Group paid Audley Capital Advisors LLP £1,913.16 for the reimbursement of travel costs.
There were no amounts paid by the Group to Audley Capital Advisors LLP during the year ended 31 December 2019. No amounts were
owing to Audley Capital Advisors LLP as at 31 December 2020 or 2019.
142
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK S
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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, Cañariaco, Ground Hog, Flowstream
Europe:
EVBC, Salamanca
Other:
Dugbe I, and includes the Group’s mining and exploration interests
Despite the Group’s royalty arrangements being exposed to different commodities, the Executive Committee having considered the impact
of climate change on the demand for and pricing of the commodities underlying the Group’s portfolio by applying the assumptions under
the sustainable development scenario published in the IEA 2020 World Energy Outlook, concluded the arrangements in each jurisdiction
to have similar economic characteristics which should result in similar long-term performance over the commodity cycle.
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 allocating resources is operating profit as analysed below.
The segment information for the year ended 31 December 2020 is as follows (noting that total segment operating profit corresponds
to operating profit before impairments, revaluations and gains/losses on disposals 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:
Additions to non-current assets (other than
financial instruments and deferred tax assets)
Australia
royalties
£’000
21,647
(2,368)
(3,350)
15,929
Americas
royalties
£’000
12,362
(3,154)
–
9,208
Europe
royalties
£’000
All other
segments
£’000
–
–
–
–
–
–
(3,052)
(3,052)
Total
£’000
34,009
(5,522)
(6,402)
22,085
105,123
141,755
5,461
33,863
286,202
–
–
–
8
8
TOTAL SEGMENT LIABILITIES
20,226
47,268
443
3,259
71,196
The segment information for the year ended 31 December 2019 is as follows:
Royalty related revenue
Amortisation of royalties
Operating expenses
Australia
royalties
£’000
41,295
(2,402)
(3,088)
Americas
royalties
£’000
14,433
(1,375)
–
TOTAL SEGMENT OPERATING PROFIT/(LOSS)
35,805
13,058
Europe
royalties
£’000
All other
segments
£’000
–
–
–
–
–
–
(4,044)
(4,044)
Total
£’000
55,728
(3,777)
(7,132)
44,819
TOTAL SEGMENT ASSETS
Total assets include:
Additions to non-current assets (other than
financial instruments and deferred tax assets)
148,847
137,990
6,848
14,262
307,947
–
42,284
–
9
42,293
TOTAL SEGMENT LIABILITIES
38,989
37,808
639
4,797
82,233
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 £21.6m (2019: £41.3m) includes the Kestrel royalty which generated £18.1m (2019: £37.0m).
Individually the revenue generated by Kestrel represented greater than 10% of the Group’s revenue in both 2019 and 2020.
The royalty related revenue in the Americas of £12.4m (2019: £14.4m) includes the dividends received from the Group’s shareholding in
Labrador Iron Ore Company of £7.0m (2019: £8.0). Individually the dividends received from Labrador Iron Ore Company represents more
than 10% of the Group’s revenue in 2019 and 2020.
The royalty related revenue from Narrabri of £3.1m (2019: £4.0m), together with £0.5m from Maracás Menchen (2019: £2.7m), £2.9m
from Mantos Blancos (2019: £1.0m) and £0.5m from Four Mile (2019: £0.3m) represents revenue recognised from contracts with
customers as defined by IFRS 15.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
143
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
Impairments
During the year ended 31 December 2020, the Group recognised an impairment charge of £2.7m (A$5.0m) in relation to the Pilbara
royalty, which is within the ‘Australia royalties’ segment. In addition, the Group recognised an impairment charge of £0.7m (C$1.1m)
in relation to the Groundhog royalty, which is within the ‘Americas royalties’ segment. 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. Refer to note 18 for further details on the Group’s impairments.
33 FINANCIAL RISK MANAGEMENT
The Group’s principal treasury objective is to provide sufficient liquidity to meet operational cash flow and dividend requirements and to
allow the Group to take advantage of new growth opportunities whilst maximising shareholder value. The Group’s activities expose it to
a variety of financial risks including liquidity risk, credit risk, foreign exchange risk and price risk. The Group operates controlled treasury
policies which are monitored by management to ensure that the needs of the Group are met while minimising potential adverse effects
of unpredictability of financial markets on the Group’s financial performance. The Group’s financial risk management should be read in
conjunction with the principal risks outlined on pages 28 to 38 of the Strategic Report.
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 2020 the Group had borrowings of £44.5m (2019: £36.4m) through its secured US$90.0m revolving credit facility. In
conjunction with the acquisition of the Voisey’s Bay cobalt stream completed in March 2021, the Group repaid these borrowings in full
and cancelled the existing facility, before entering a new US$180.0m revolving credit facility which was reduced to US$150.0m following
the completion of the equity placing detailed in note 37. Upon completion of the acquisition the Group had borrowings of US$123.5m and
access to a further US$26.5m subject to ongoing compliance with the facilities covenants.
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayments
periods as at 31 December 2020. 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 2020
Interest bearing revolving credit facility
31 DECEMBER 2019
Interest bearing revolving credit facility
Weighted average
effective interest
rate
%
3.46
4.64
1–5 years
£’000
Total
£’000
44,518
44,518
44,518
44,518
36,401
36,401
36,401
36,401
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 £53.0m at
31 December 2020 (£41.3m at 31 December 2019).
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 (note 18) which include listed and unlisted equity
securities, together with its investment in LIORC which is classified as a royalty financial instruments (note 16).
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 £0.8m at 31 December 2020 (£0.4m at
31 December 2019).
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 £6.6m
as at 31 December 2020 (£5.8m at 31 December 2019).
144
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I
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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 no longer a significant part of the Group’s strategy,
however, additional investment in mining and exploration interest may occur.
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 revenue from Kestrel and Narrabri accounting for over 60% of the Group’s income (2019: 70%),
the Group’s primary foreign exchange exposure is to the Australian dollar, in which these royalties are denominated. In addition to the
Group’s exposure to the Australian dollar, it is also exposed to the Canadian dollar through the royalty related revenue from LIORC and
McClean Lake which is denominated in Canadian dollars and accounted for over 25% of the Group’s income in 2020 (2019: 19%).
The Group’s hedging policy allows foreign exchange forward contracts to be entered into with a maximum exposure of 70% of forecast
Australian and Canadian dollar denominated royalty revenue expected to be received during a period not exceeding 12 months from
contract date to settlement. Refer to note 22 for further details on the fair value of the foreign exchange forward contracts outstanding
at 31 December 2020. 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
10,145
67,222
88,794
17,093
13,539
–
1,904
29,121
(3,394)
67,222
86,890
(12,028)
2020
EUR
’000
73
–
73
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
(30,056)
2019
EUR
’000
11
13
(2)
Foreign exchange sensitivities
With the exception of the cash balances, non-current other receivables and borrowings, 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 £140k (2019: £563k);
• A +/- 10% change in the GBP:CAD rate would increase/decrease profit after tax and equity by £141k (2019: £157k);
• A +/- 10% change in the GBP:USD rate would increase/decrease profit after tax and equity by £1.5m (2019: £6k).
In terms of the non-current other receivable balance, which relates to the Canadian dollar denominated loan to Denison (note 21), a +/- 10%
change in the GBP:CAD rate would increase/decrease profit after tax and equity by £1.7m (2019: £1.8m).
In terms of borrowings, the Group had drawings under the revolving credit facility denominated in GBP, USD and CAD as at 31 December
2020. The significant sensitivities for the borrowings are as follows:
• A +/- 10% change in the GBP:CAD rate would increase/decrease profit after tax and equity by £190k (2019: £309k);
• A +/- 10% change in the GBP:USD rate would increase/decrease profit after tax and equity by £2.9m (2019: £3.2m).
Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis
above is considered to be representative of the Group’s exposure to currency risk.
Capital risk management
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 adjusted EBITDA, although a higher ratio can be tolerated for shorter periods when there is a
reasonable expectation of a recovery in free cash flow.
Following the completion of the Voisey’s Bay cobalt stream acquisition and the associated debt refinancing and equity placing
subsequent to year end, as detailed in note 37, the Group’s targeted debit capacity has increased to 2–2.5 times adjusted EBITDA.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
145
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
Financial instruments
The Group and Company held the following investments in financial instruments and other items held at fair value:
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
2020
£’000
Group
2019
£’000
2020
£’000
Company
2019
£’000
55,874
96,419
66,426
8,019
57,736
3,642
–
–
–
–
6,025
3,395
6,777
10
20,156
8,065
–
7,597
2,332
–
17,675
3,760
–
1,420
26,065
25,605
58,930
61,253
46
44,518
–
–
102
36,401
1,138
480
38,845
44,518
23,879
36,401
–
–
–
–
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 relates to the Maracás Menchen royalty deferred consideration of £1.1m (US$1.5m) paid in May 2020, as set out in note 27.
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.
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
146
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_ARTWORK The following table presents the Group’s assets that are measured at fair value at 31 December 2020:
The following table presents the Group’s assets that are measured at fair value at 31 December 2019:
Group
ASSETS
Coal royalties (Kestrel)
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
Financial derivative instruments
NET FAIR VALUE
Group
ASSETS
Coal royalties (Kestrel)
Royalty financial instruments
Mining and exploration interests – quoted
Mining and exploration interests – unquoted
NET FAIR VALUE
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
2020
Total
£’000
55,874
73,203
5,987
2,032
10
Notes
Level 1
£’000
Level 2
£’000
Level 3
£’000
(a)
(b)
(c)
(d)
(e)
–
66,426
5,987
–
–
72,413
–
–
–
2,032
10
2,042
55,874
6,777
–
–
–
62,651
137,106
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
–
–
2019
Total
£’000
96,419
65,801
3,362
280
The following table presents the Company’s assets that are measured at fair value at 31 December 2020:
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
–
5,969
–
5,969
Level 2
£’000
–
–
56
56
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
There have been no significant transfers between Levels 1 and 2 in the reporting period.
104,484
165,862
Level 3
£’000
2,332
–
–
2,332
Level 3
£’000
3,760
–
–
3,760
2020
Total
£’000
2,332
5,969
56
8,357
2019
Total
£’000
3,760
3,339
56
7,155
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
147
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
The methods and valuation techniques used for the purposes of measuring fair value of royalty financial instruments give 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 6.50% (2019: 6.00%) 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 6.50% 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 2020
31 December 2019
EVBC
Dugbe 1
McLean Lake
Piaui
FVTPL
FVTPL
FVTPL
FVTPL
6.50%
30.00%
6.50%
13.50%
100%
75%
50%
25%
7.00%
30.00%
5.50%
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 2020.
At 1 January 2020
Revaluation gains or losses recognised in:
Income statement
Royalties due or received from royalty financial instruments
Foreign currency translation
At 31 December 2020
Royalty financial
instruments
£’000
Coal royalties
(Kestrel)
£’000
Total
£’000
8,065
96,419
104,484
883
(44,204)
(43,321)
(2,308)
137
6,777
–
3,659
55,874
(2,308)
3,796
62,651
148
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_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
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)
(84)
8,065
(9,215)
–
(4,144)
(6,737)
(2,166)
(4,228)
96,419
104,484
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 and classification of a number of the Group’s royalty arrangements result in a significant amount of cash flow not being
included in the income statement. As the Group considers dividend cover based on the free cash flow generated by its assets,
management have determined that free cash flow per share is a key performance indicator, going forward.
Free cash flow per share is calculated by dividing net cash generated from operating activities, proceeds from the disposal of non-core
assets, less finance costs, 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 2020
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 2020
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
2020
£’000
Free cash flow
per share
p
17,507
4,212
116
(1,900)
(196)
688
20,427
11.32p
2019
£’000
Free cash flow
per share
p
47,086
321
34
(1,074)
(199)
1,577
Free cash flow for the year ended 31 December 2019
47,745
26.44p
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
2020
2019
180,373,966 180,544,459
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
149
APG_AR20_14.04.21_BACK_ARTWORK
Notes to the consolidated financial statements
for the year ended 31 December 2020
35 PORTFOLIO 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)
2020
£’000
34,009
2,308
688
37,005
2019
£’000
55,728
2,166
1,577
59,471
36 CONTINGENT 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. With the utilisation of certain other tax losses since the capital restructure was
undertaken, should the relevant tax authorities interpret the legislation in a different way from the Group, this could result in an income tax
charge of £6.3m (2019: £6.3m).
37 EVENTS OCCURRING AFTER YEAR END
On 14 December 2020, Orano Canada Inc, the operator of the McClean Lake mill from which the Group receives 22.5% of the toll revenue
via the Denison financing arrangement (note 21), announced operations would be suspended at the mill in early 2021 following the Cigar
Lake uranium mine being placed on care and maintenance due to COVID-19. At the date of this report, operations at both Cigar Lake and
the McClean Lake mill remain suspended.
On 24 February 2021, the Group announced it had agreed to acquire a holding company that, in turn, holds a 70% net interest in a stream
on cobalt production from the Voisey’s Bay mine in Canada for cash consideration of US$205m at closing and further potential contingent
consideration of up to US$27m, subject to cobalt prices over the next five years. The acquisition was completed on 12 March 2021 and
was financed through a combination of an equity placing and retail offer of less than 20% of the Company’s issued share capital, the
monetisation of a portion of the Group’s LIORC investment, and a new U$180m credit facility from a syndicate of leading Canadian banks,
comprising Scotiabank, RBC Capital Markets, and Canadian Imperial Bank of Commerce as detailed below.
The Group undertook an equity placing and retail offer, successfully placing 33,664,371 new ordinary shares of 2p each with institutional
investors, while retail investors subscribed for 2,687,372 new ordinary shares of 2p each to raise total gross proceeds of £46.5m
(US$66.5m).
Between January 2021 and February 2021, the Group sold a further 2,510,700 LIORC shares generating C$82.4m (£47.4m), which when
combined with the C$26.2m (£15.2m) generated from the 944,000 shares sold in 2020, provided the Group with total proceeds of
C$108.6 (£62.6m; US$100m) to partially fund the acquisition.
Partially utilising the funds raised from the equity placing and retail offer, the Group repaid the £44.5m drawn on the existing revolving
credit facility as at 31 December 2020 (note 25), before cancelling the facility. A new US$180m revolving credit facility was entered into,
which stepped down to US$150m following the completion of the equity placing and retail offer, with the following key terms:
• Three-year term with the option to request a one-year extension within the first year (subject to certain exceptions);
• Cost is LIBOR + 2.75% to 5% depending on leverage ratios;
• Leverage permitted to 4.5x (Net Debt to EBITDA) for a six-month period for certain acquisitions, otherwise 3.5x;
• No dividend restrictions when the facility is at US$150m and leverage is below 2.5x (which the Group expects will be the case going
forward) – provisions have been included to ensure no restrictions on 2020 final dividend in the event leverage exceeds 2.5x; and
• Senior secured structure with other terms in line with the existing Revolving Credit Facility.
On completion of the acquisition, the Group had drawn US$123.5m (£89.4m) leaving US$26.5m (£19.2m) available, subject to ongoing
covenant compliance.
150
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Financial statementsAPG_AR20_14.04.21_BACK_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
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
2020
Proportion
of class held at
31 December
2019
Company and country of incorporation/operation
Principal activities
Class of shares held
%
%
Investments
Ordinary A$1.00
100%+
100%+
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
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
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
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 US$1.00
Ordinary US$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%+
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 DAC
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.
+ denotes interest is held indirectly.
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
151
APG_AR20_14.04.21_BACK_ARTWORK
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
556
570
138
334
34.79%
35.67%
8.64%
280,527
1,345,802
1,051,174
20.90%
215,432,959
98.77%
%
0.13%
0.62%
0.48%
(b) The percentage of total shares held by or on behalf of the twenty largest shareholders as at 31 March 2021 was 73.04%.
1,598
100%
218,110,462
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.
STOCKBROKERS
BERENBERG
60 Threadneedle Street
London EC2R 8HP
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
PEEL HUNT
120 London Way
London EC2Y 5ET
RBC CAPITAL MARKETS
Thames Court
One Queenhithe
London EC4V 3DQ
152
ANGLO PACIFIC GROUP PLC 2020 ANNUAL REPORT & ACCOUNTS
Other informationAPG_AR20_14.04.21_BACK_ARTWORK Forward-looking statements
Cautionary statement on forward-looking
statements and related information
Certain statements in this Annual Report are
forward-looking statements based on certain
assumptions and reflect the Group’s expectations and
views of future events. Forward-looking statements
(which includes any statement which constitutes
‘forward-looking information’ for the purposes of
Canadian securities legislation) 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 and future demand for
products which include 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,
amongst others, ‘expects’, ‘anticipates’, ‘plans’,
‘believes’, ‘estimates’, ‘seeks’, ‘intends’, ‘targets’,
‘projects’, ‘forecasts’, ‘potential’, ‘positioned’,
‘strategy’, ‘outlook’, ‘predict’ or negative versions
thereof and other similar expressions, or future or
conditional verbs such as ‘may’, ‘will’, ‘should’, ‘would’
and ‘could’. These include statements regarding our
intentions, beliefs or current expectations concerning,
amongst other things, our results of operations,
financial condition, liquidity, prospects, growth,
strategies and the economic and business
circumstances occurring from time to time in the
countries and markets in which the Group operates.
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 and/or with
production projections, including the on-going
financial viability of such operators and operations; no
material adverse impact on the underlying operations
of the Group’s portfolio of royalties, streams and
investments from the 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; contractual terms honoured of the Group’s
royalty and stream investments, together with those
of the owners and operators of the 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 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. It is
believed that the expectations reflected in this Annual
Report are reasonable but they may be affected by a
wide range of variables that could cause actual results
to differ materially from those currently anticipated.
Readers are cautioned that such forward-looking
statements may not be appropriate other than for
purposes outlined in this Annual Report. Forward-
looking statements are not guarantees of future
performance and involve risks, uncertainties and
assumptions, that may be general or specific, which
could cause actual results to differ materially from
those forecast, 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. 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.
No statement in this communication is intended to
be, nor should it be construed as, a profit forecast
or a profit estimate and no statement in this
communication should be interpreted to mean that
earnings per share for the current or any future
financial periods would necessarily match, exceed
or be lower than the historical published earnings
per share.
Forward-looking statements involve estimates and
assumptions that are subject to risks, uncertainties
and other factors that could cause actual future
financial condition, performance and results to differ
materially from the plans, goals, expectations and
results expressed in the forward-looking statements
and other financial and/or statistical data within this
communication. Such risks and uncertainties include,
but are not limited to: the failure to realise
contemplated benefits from acquisitions and other
royalty and stream investments; the effect of any
mergers, acquisitions and divestitures on the Group’s
operating results and businesses generally; 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, streams 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 the other factors, uncertainties and
potential events carefully and not to put undue
reliance on forward-looking statements.
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_AR20_13.04.21_FRONT_PROOF 5