TIDMAPF
RNS Number : 9659S
Anglo Pacific Group PLC
23 March 2016
March 23, 2016
Anglo Pacific Group PLC
Results for the year ended December 31, 2015
Anglo Pacific Group PLC ('Anglo Pacific', the 'Company' or the
'Group') (LSE: APF) (TSX: APY) is pleased to announce full year
results for the year ended December 31, 2015 and publication of its
audited 2015 Annual Report and Accounts. These are available on
both the Group's website at www.anglopacificgroup.com and on SEDAR
at www.SEDAR.com.
Financial Highlights
-- Increase in royalty income of 149% to GBP8.7m (2014: GBP3.5m),
driven largely by strong production performance at Narrabri
and an increase in mining within the Group's royalty lands
at Kestrel
-- 34.5% reduction in overheads (before share-based payments)
to GBP3.2m (2014: GBP4.9m)
-- Adjusted earnings(1) , which excludes non-cash revaluations
and impairment charges, increased by GBP6.2m to GBP4.0m (2014:
loss GBP2.2m) resulting in adjusted earnings per share of
2.47p (2014: loss of 1.97p)
-- Loss after tax of GBP22.6m (2014: GBP47.6m), due largely
to the Kestrel revaluation charge of GBP27.2m (2014: GBP11.8m),
resulting in a loss per share of 14.06p (2014: 42.09p)
-- Significant reduction in reported impairment charges to GBP5.3m
(2014: GBP31.5m)
-- Cash balance of GBP5.7m at December 31, 2015 (2014: GBP8.8m)
and net debt of GBP1.8m (2014: nil)
-- Recovery of Laramide Resources C$5.0m (GBP2.9m) advance in
full on December 31, 2015
-- Net assets of GBP162.0m at December 31, 2015 (2014: GBP161.3m)
resulting in net assets per share of 95p (2014: 138p)
-- Recommended final dividend of 3p per share resulting in a
total dividend for 2015 of 7p (2014: 8.45p). Longer-term
progressive dividend policy of at least 65% of adjusted earnings.
Expectation in the medium-term is a minimum total annual
dividend of 6p per share
Operational Highlights
-- Five income generating royalties following the first royalty
receipt from Four Mile in Q1 2016
-- All the Group's income generating royalties remained in production
throughout 2015, with strong performances at the Group's
Kestrel and Narrabri royalties
-- Production at Kestrel within the Group's private royalty
land was approximately 49% in 2015. Based on the latest guidance
from Rio Tinto, this is expected to increase to 60-65% in
2016 (30-35% in H1 2016 and 85-90% in H2 2016), with the
expectation of this increasing to at least 90% in 2017
-- Production at Narrabri was 8.3Mt in the calendar year 2015,
well ahead of the original design capacity of 6Mtpa and comfortably
in excess of the level which the Group assumed when pricing
the royalty at acquisition in March 2015
-- Further production upside expected at Narrabri following
the recent announcement by the operator, Whitehaven Coal
Limited ("Whitehaven") of approval to increase capacity from
8Mtpa to 11Mtpa and to install a 400 metre wide longwall
panel from H2 2017 onwards (projected to increase tonnage
by 750Ktpa)
-- Whitehaven also announced plans to extend the Narrabri North
longwall into the Narrabri South area, which will increase
the existing life of mine. Anglo Pacific only included Narrabri
North in its valuation of the royalty at acquisition
-- Positive developments at the Group's Salamanca royalty with
the operator, Berkeley Energia Limited ("Berkeley Energia")
announcing a near doubling of Indicated Resources along with
an increase in grade which will lead to an increase in mine
life from 11 to 18 years
-- First royalty receipt from Four Mile received in Q1 2016.
The project came into production in 2014 although the operator,
Quasar Resources Pty Ltd, had been stockpiling since with
a view to obtaining supply contracts
Julian Treger, Chief Executive Officer of Anglo Pacific,
commented:
"Anglo Pacific made good progress in 2015, despite this being a
very difficult year for the mining sector in general. We were
pleased to see our royalty income more than doubling in the period
along with a significant reduction in our operating costs. We look
well placed to build on this with strong growth expected in 2016.
Of particular note was the performance of our Narrabri royalty,
which we acquired in March 2015. Production at the mine totalled
8.3Mt in 2015 which was considerably higher than the ROM estimates
we had used to price the royalty at the time of acquisition. We
expect there to be further production upside in the coming years
driven by increased permitting capacity and extended longwall
infrastructure. Despite a decline in commodity prices, we believe
this royalty is worth more today than we paid for it just over
twelve months ago.
Despite the progress we have made in the year, Anglo Pacific has
not been immune to the declines which have beset the mining sector
over the past year. The indiscriminate selling which has affected
commodity stocks has also impacted our share price, to an extent
that we trade well below our net asset value per share and at a
very high dividend yield. Ordinarily such a yield would suggest to
the market a further dividend cut. However, following our
announcement on January 28, 2016, in which we outlined a revision
to our dividend policy, we have now made the cuts we believe are
necessary to protect our balance sheet, subject to ongoing market
conditions being relatively stable.
We recognise the attractive opportunities present in the market
at this time and are determined not to let these prospects pass
without obtaining exposure to some high quality attractive
royalties. We are now seeing investment opportunities with well
positioned counterparties which have not been as freely available
in recent years. We are confident that we can continue to acquire
attractive royalties which will enhance the lifespan and diversity
of our existing portfolio and which will enable us to continue our
policy of paying a substantial portion of royalties to shareholders
as dividends."
Kevin Flynn, Chief Financial Officer of Anglo Pacific
commented:
"The Group has more than doubled its royalty income during 2015,
with strong underlying performance at Narrabri and 49% of Kestrel's
production being within our land. Despite challenging market
conditions over the past year, all of our income generating
royalties remained in production and we expect to see our income
continue to grow during 2016, underpinned by Kestrel which is
expected to produce 60-65% within our royalty lands. Equally
encouraging during the year was a significant reduction in
operating expenses and we will continue to target further
reductions in the year ahead.
The results for the year would have been considerably stronger
but for the further declines in commodity prices throughout 2015
which, in addition to tempering royalty income, resulted in a
downward valuation of Kestrel and further impairment charges,
although the latter were considerably less than those in 2014.
Although we report a headline loss for the year of GBP22.6m, our
adjusted earnings, which exclude non-cash revaluation and
impairment charges, were GBP6.2m higher in the year at GBP4.0m
compared with a loss of GBP2.2m in 2014.
The organic growth within our portfolio, along with the headroom
under our borrowing facility and a continued focus on costs should
ensure that Anglo Pacific is well placed to achieve further growth
in the year ahead."
1 Adjusted earnings/(loss) represents the Group's underlying
operating performance from core activities. Adjusted
earnings/(loss) is the profit/(loss) attributable to equity holders
less all valuation movements, non-cash impairments and amortisation
charges (which are non-cash IFRS adjustments that arise primarily
due to changes in commodity prices), finance costs, any associated
deferred tax and any profit or loss on non-core asset disposals as
these are not expected to be ongoing. See note 11 to the financial
statements for adjusted earnings/(loss).
Analyst presentation
There will be an analyst presentation via webcast at 09:30 (GMT)
on March 23, 2016 at www.anglopacificgroup.com. The presentation
will be hosted by Julian Treger (CEO) and Kevin Flynn (CFO). Dial
in details for the call, which can be accessed by quoting "Anglo
Pacific", are shown below and a replay of the webcast will be
available at www.anglopacificgroup.com.
Dial in number: 020 3059 (United Kingdom - local)
8125
+ 44 20 3059 8125 (All other locations)
Participant password: Anglo Pacific - this must be quoted to
the Operator in order for participants to gain access to the
conference.
For further information:
Anglo Pacific Group PLC
Julian Treger, Chief Executive Officer +44 (0) 20
Kevin Flynn, Chief Financial Officer 3435 7400
BMO Capital Markets Limited +44 (0) 20
Jeffrey Couch / Neil Haycock / Tom Rider 7664 8020
Macquarie Capital (Europe) Limited +44 (0) 20
Raj Khatri / Ariel Tepperman / Nicholas Harland 3037 2000
Peel Hunt LLP +44 (0) 20
Matthew Armitt / Ross Allister 7418 8900
Bell Pottinger +44 (0) 20
Nick Lambert / David Bass / Richard Crowley 3772 2500
Notes to Editors
About Anglo Pacific
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Anglo Pacific Group PLC is a global natural resources royalty
company. The Company's strategy is to develop a leading
international diversified royalty company with a portfolio centred
on base metals and bulk materials, focusing on accelerating income
growth through acquiring royalties on projects that are currently
cash flow generating or are expected to be within the next 24
months. It is a continuing policy of the Company to pay a
substantial portion of these royalties to shareholders as
dividends.
CHAIRMAN'S STATEMENT
2015 has seen the beginnings of a turnaround in the fortunes of
Anglo Pacific. Our royalty income has doubled from GBP3.5m to
GBP8.7m as our Narrabri acquisition contributes for the first time
and mining at Kestrel begins to return to our royalty lands. This,
coupled with a significant reduction in our operating expenses
following a stringent review of our cost base, has led to a return
to profitability at operating level with an operating profit of
GBP2.1m (2014: operating loss GBP2.8m).
Such growth could have been stronger but for the impact of
continuing falls in commodity prices which directly affected our
royalty income and led to certain non-cash impairments and
revaluation adjustments totalling GBP32.5m (2014: GBP43.4m) leading
to an overall loss before tax of GBP30.5m (2014: loss GBP42.4m).
This resulted in a basic and diluted loss per share of 14.06p
(2014: 42.09p). Due to the large number of valuation and non-cash
items included in the Income Statement, we also present an adjusted
earnings measure. This measure more closely reflects the
performance within management's control. Adjusted earnings per
share were 2.47p (2014: loss of 1.97p).
Dividends
Our review of our dividend policy twelve months ago, in
conjunction with the Narrabri acquisition, was underpinned by
financial projections based on consensus forward prices at the
time. The subsequent volatility in commodity prices coupled with a
significant reduction in the forward consensus pricing outlook,
both of which are above and beyond what we had anticipated, have
more than offset the benefits of a significant reduction in costs
along with production outperformance at Narrabri. We stressed last
year that a dividend policy had to be both affordable and
appropriate and in the current circumstances believe an amended
policy is necessary. Consequently, as advised in our trading update
statement of January 28, 2016, we are recommending a final dividend
for the year ended December 31, 2015, of 3p per share. Longer-term,
however, we retain our target of paying dividends of at least 65%
of adjusted earnings (as defined in note 4) with a medium-term
minimum annual dividend 6p per share.
Royalty portfolio
In reviewing our current royalty portfolio, it is particularly
encouraging to note that, despite the ongoing turmoil in the mining
sector in general and commodity prices in particular, all of the
Group's royalties that were in production in 2014 remain in
production and continue to generate royalty income. We are, all the
more determined to ensure that any new royalty or streaming
acquisition meets our exacting investment requirements. This
approach has resulted in no major acquisitions being made following
Narrabri and many of the opportunities presented to us during the
year being discarded. However, we are confident that more
attractive opportunities will arise during 2016 and beyond, as the
cost of capital in the sector continues to increase and the Group
continues to progress a number of potential opportunities.
It is worth highlighting the particular performance of our
Narrabri royalty. When the royalty was purchased, permitted
production levels were 8Mtpa, and Whitehaven, the operator, has now
obtained permission to increase this to 11Mtpa and is ramping up
production towards this higher level.
Lower commodity prices did however reduce the carrying value of
certain of the Group's royalty assets in the period, although
impairment charges of GBP4.4m were considerably lower than the
GBP25.3m recognised in 2014. The largest adjustment was to the
carrying value of Kestrel which showed a valuation deficit of
GBP27.2m as a result of revisions to long term coking coal prices,
although there was a tax shield associated with this deficit of
GBP8.2m.
Board
2015 has seen further changes to the Board. As advised last
year, Anthony Yadgaroff retired from the Board on December 31, 2015
after almost 13 years' service. I should like to thank him again
for his hard work, diligence and sage advice during that
period.
In anticipation of Anthony's retirement, we appointed Patrick
Meier to the Board on April 30, 2015. Patrick has over thirty years
of experience in investment banking, most recently with RBC Capital
Markets, with specialist knowledge of the mining sector. He has
already had a significant impact on the workings of the Board.
Outlook
2016 onwards should be a period of sustained organic growth for
Anglo Pacific as production at Kestrel moves increasingly into our
royalty lands while that at Narrabri continues to ramp up towards
the increased permitted levels. In addition, the continuing
challenges facing the mining sector are bringing and will continue
to bring further opportunities for the Group. We believe that our
ability to be innovative and imaginative in our approach to these
opportunities will bear fruit in the year ahead.
In conclusion, I should like to thank all Directors and staff
for their continued diligence and hard work during what has been
another challenging year.
On behalf of the Board
W.M. Blyth
Chairman
March 22, 2016
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased to report that, following completion of the
Narrabri royalty acquisition in early 2015, the Group has
experienced strong growth in royalty income during 2015 which it
expects to continue during 2016. We believe the Group's strategy is
now beginning to bear fruit.
Challenging environment
The mining sector continues to face difficult times which we
have not been immune to over the previous year. However, Anglo
Pacific remains well placed to acquire attractive new royalties. We
have a good platform of five producing royalties with Kestrel,
Narrabri, Maracás Menchen and EVBC providing improved royalty flows
in 2015, together with Four Mile producing maiden royalty receipts
in February 2016. Our royalty income grew strongly last year and we
expect further significant growth during 2016 and beyond. We have a
strong balance sheet with little debt and we continue to carefully
monitor costs and make reductions wherever possible. We believe
these challenging times for the mining sector will provide
opportunities for the Company to identify attractive new royalties
which will enhance the lifespan and diversity of our existing
portfolio.
The Narrabri mine continues to perform well, with production for
the year ending December 31, 2015 reaching 8.3Mt, well in excess of
the original design capacity of 6Mtpa. We are encouraged that
Whitehaven has recently received approval to increase production to
11Mtpa from 8Mtpa which should lead to increased royalty income
from the mine despite reduced commodity prices. In addition, the
potential to expand operations into Narrabri South provides further
upside to this royalty. Additionally, during the past year
production at Kestrel has increasingly moved into our royalty area
and updated tonnage sales forecasts from Rio Tinto, which we
receive as part of our information rights, confirm previous
guidance that 60-65% of Kestrel coal production will be within the
Group's royalty area during 2016. This should lead us to report a
further increase in royalty income in 2016.
Despite these positive aspects, we have not been immune to the
declines which have beset commodity prices over the past year.
Though our income grew, this growth would have been even more
impressive had the price of thermal and coking coal not declined by
between 15% and 25%. In addition, the indiscriminate selling which
has affected commodity stocks has also impacted our share price
down, to an extent that we trade well below our net asset value per
share, at a very high dividend yield. Ordinarily such a yield would
suggest to the market a further dividend cut. However, we have now
made the cuts we believe are necessary to protect our balance sheet
at this time, subject to ongoing market conditions being relatively
stable.
Dividend levels
Provided prevailing market conditions are maintained and with
further growth in royalty income expected throughout this year, we
believe an annual dividend level of 6p per share going forward
should be close to being covered during 2016 and covered in 2017.
We hope that the market will recognise the 6p level as a base from
which we will grow. It remains a continuing policy of the Company
to pay a substantial proportion of royalties to shareholders as
dividends, and our long-term target dividend continues to be 65% of
adjusted earnings (as defined in note 4 to the financial
statements).
Positioned to take advantage of opportunities
We recognise the attractive opportunities present in the market
at this time and are determined not to let these prospects pass
without obtaining some high quality, attractive royalties. However,
the cost of equity remains too high at our current share price to
access accretive deals funded entirely by equity. In contrast, our
cost of debt remains significantly lower which will enable the
Group to complete smaller acquisitions as they arise.
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We are very mindful of the risks of debt in a highly cyclical
industry; however, at times like this, nearer the bottom of the
commodity price cycle than at the top, sensible use of debt is
appropriate. Accordingly we expect to utilise our borrowing
facilities in the first instance to finance acquisitions and where
the opportunities are larger, we anticipate syndicating these
investments with third parties in return for royalty and fee
related income, or a mixture of both. We have been progressing such
discussions for many months and a number of supportive
institutional investors have expressed interest in funding larger
deals.
We are now seeing investment opportunities with well positioned
counterparties which have not been as freely available in recent
years. The cost of capital in the mining space has risen,
suggesting that counterparties may be more willing to engage with
us at the returns we require, rather than pursuing the traditional
equity and debt options. 2015 has seen several measures being
announced by mining operators to strengthen their balance sheets.
Streaming, in particular, has been a popular source of finance as
conventional capital markets remain subdued. We believe that this
trend is likely to continue in the short term to enable refinancing
and in the longer term to facilitate growth. Alternative financing
has the added benefit of reducing onerous compliance testing and
reporting, which is attractive when attempting to reduce gearing
levels and maintaining credit ratings.
Upside exposure
Though we have had significant write-downs over recent years, we
wish to highlight the important upside contained in the portfolio
that is not reflected in its reported carrying value, as an
increasing portion of our assets are not held at fair value. A key
criteria we look for when acquiring royalties is the upside
potential. This can take the form of accelerated production, as is
occurring at Narrabri, or an increase in reserves and resources, as
has occurred at Salamanca. Both of these events have the potential
to increase the value of the underlying royalty.
Outlook
Coal
A continuing concern for Anglo Pacific over the past year has
been the negative sentiment associated with coal. Despite some
perceptions in the UK, we believe that many countries, particularly
in south-east Asia, will continue to rely on coal to fuel their
growth. It is far more realistic to push for cleaner, high quality,
less-polluting coals than adopting a broadly held negative attitude
towards all coal. I am pleased to report that this is precisely the
area we had targeted for royalty exposure. Narrabri produces some
of the cleanest and lowest polluting coal with low ash content
which attracts a premium compared to the benchmark, precisely for
these virtues. That said, we remain keen to reduce our overall coal
exposure, unless we can generate very high returns, and we have
identified uranium as an alternative commodity to coal on the
energy side. We already have two uranium royalties within our
portfolio and see this as a preferred commodity under our
investment criteria.
Costs
Cost reductions have been a major focus in this new era for the
mining sector and we recognise this new reality. Our central costs
have always been relatively low as the business operates from a
small single office with 11 employees. We are pleased that we have
been able to reduce the Company's year-on-year costs, excluding
provisions for non-cash share based payments, by 34.5% from GBP4.9m
in 2014 to GBP3.2m in 2015. On an inflation adjusted basis, we
believe our costs are roughly unchanged over five years. Anglo
Pacific operates on a very conservative basis and we continue to
have the capacity to run a much larger portfolio with the current
infrastructure.
Currency
As a result of our main sources of royalty income being received
in Australian dollars which require translation to pounds, the
continued weakening of the Australian dollar against the pound over
the past two years has had an unfavourable impact on the Group's
reported income. 2016 has seen a weakening of the pound, which if
sustained should benefit the Group's results in 2016.
Growth
Following payment of the interim dividend in February 2016, the
Group currently has over GBP4.0m in cash and headroom under our
revolving credit facility subject to continued covenant compliance
and our facility terms (as per note 10). Although we do not expect
a rapid turnaround in the sector in the foreseeable future, we are
beginning to see opportunities due to protracted periods of subdued
capital markets in the mining sector. Despite the considerable
capital outflows recently seen from the sector, we are actively
seeking to deploy capital in a countercyclical fashion to take
advantage of the current favourable market conditions.
J.A. Treger
Chief Executive Officer
March 22, 2016
FINANCE REVIEW
2015 saw Anglo Pacific make considerable progress in growing its
royalty income, which should mean that 2014 will, in hindsight,
have been the lowest point for the Group's income both historically
and looking forward. Equally as encouraging was the significant
reduction in overheads reported in the year, resulting in a GBP6.2m
increase in adjusted earnings in the year to GBP4.0m (2014: loss
GBP2.2m). The results for the year would have been even stronger
but for the continued declines in commodity prices experienced in
2015, leading to further revaluation losses and impairment charges,
as described below. The Group is proposing to revise its annual
dividend level from the previous 8p per share to 6p per share. It
is envisaged that this level will be maintained in the immediate
future, subject to commodity prices remaining at their current
level.
Income statement
Royalty income
2015 2014
GBP'000 GBP'000
Kestrel 3,614 1,657
Amapá - 174
El Valle 1,246 1,650
------------------- -------------------
Like-for-like royalty income 4,860 3,481
Narrabri 3,217 -
Maracás Menchen 606 -
------------------- -------------------
Total royalty income 8,683 3,481
=================== ===================
Total royalty income in the year was GBP8.7m, more than double
the GBP3.5m reported in 2014. Royalty income, on a like-for-like
basis, for the period was GBP4.9m, compared with GBP3.5m in 2014.
The increase was driven by a greater proportion of overall
production, 49%, mined from within the Group's royalty land at
Kestrel. This was broadly in line with our expectations. The
proportion should increase to between 60-65% in 2016 based on the
forward-looking information which Rio Tinto provide to us, and the
expectation is for this to increase to 90% during 2017. The full
benefit of this increased production was offset somewhat by further
declines in the price of coking coal throughout the year. At EVBC,
a combination of lower gold prices and production led to income
being 24% lower in the period at GBP1.2m.
The Group earned GBP3.8m of income from its two recent royalty
acquisitions during the year. The majority of this was associated
with the Narrabri royalty which the Group acquired in March 2015,
but was entitled to income from January 1, 2015. The mine operator,
Whitehaven, announced a record level of production for 2015 which
was comfortably in excess of the level of production assumed at the
time of acquisition although, similar to Kestrel, the decline in
the coal price during the year reduced some of the benefit of this
excellent production achievement on the Group's reported
income.
The other source of additional income in 2015 was initial
receipts from the Group's Maracás Menchen royalty, which was
acquired in June 2014. Although the Group is pleased with the
production progress which the operator, Largo, is making, the
vanadium price has fallen by over 70% since the royalty was
acquired which has significantly reduced the royalty income being
reported.
Operating expenses
In addition to reporting a significant increase in royalty
income in the year, the Group is also pleased to report a
considerable reduction in its operating costs in the year.
2015 2014
GBP'000 GBP'000 %
Staff costs (excluding share-based payments) 1,937 3,057
Professional fees 418 834
Other costs 865 1,024
-------- --------
3,220 4,915 (34.5%)
Non-cash share-based payments 840 609
-------- --------
Operating expenses 4,060 5,524 (26.5%)
======== ========
This reduction of 34.5%, excluding non-cash share-based
payments, followed an increased focus on cost control in light of
the impact of falling commodity prices on overall profitability. A
large portion of the reported reduction in costs in 2015 can be
attributed to certain positions being vacated during the year which
were not replaced. Furthermore, there was a significant reduction
in bonus provisions in the current year. Management has identified
other areas where there is the potential to reduce costs further in
the year ahead without impacting on the day-to-day business of the
Group, and intends to implement these.
Taxation
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Current tax in the year amounted to GBP1.0m (2014: GBP1.4m),
largely representing the payment of withholding taxes. No corporate
tax was paid in the current year due to the utilisation of carried
forward tax losses. The Group still has significant carried forward
tax losses which it expects to utilise in the coming years and
which in turn should help to reduce the effective tax rate in the
short-term.
Earnings per share
All of the above results in an increase to adjusted earnings for
the year ended December 31, 2015 of GBP6.2m to GBP4.0m (2014:
adjusted loss of GBP2.2m) which results in an adjusted earnings per
share of 2.47p (2014: loss of 1.97p). See note 4 for a detailed
calculation of adjusted earnings per share.
The income statement also includes non-cash charges relating to
amortisation, impairment and fair value adjustments, along with a
corresponding deferred tax credit.
The amortisation charge in 2015 relates to the Group's Narrabri,
Maracás Menchen and Four Mile royalties, which are accounted for as
intangible assets, all of which came into production during the
year. The amortisation charge in 2014 related to the Amapá royalty.
As there has been no production from this mine since mid-2013,
amortisation was suspended in 2015 until such time as production
recommences.
Other fair value adjustments reflected in the income statement
include the revaluation of the Kestrel royalty and impairment
charges relating to both mining and exploration interests and
royalty intangibles net of the corresponding deferred tax
allowance. These items are discussed in more detail in the balance
sheet section below.
Allowing for these charges, the Group reported a loss after tax
of GBP22.6m (2014: GBP47.6m) which equates to a loss per share of
14.06p (2014: 42.09p).
Balance sheet
The Group's reported net assets increased from GBP161.3m at the
beginning of the year to GBP162.0m at December 31, 2015. Although a
small increase, there were some large movements during the year
which largely netted off, as illustrated in the table below.
Net asset value GBP'000 Pence per share (p)
At January 1, 2015 161,250 138p
Narrabri acquisition 44,971
Royalty impairments (4,414)
Amortisation (2,573)
Kestrel valuation (net of deferred tax) (24,114)
Dividends (11,901)
Other (1,236)
At December 31, 2015 161,983 95p
========= ====================
The addition of the Narrabri royalty in March 2015 for GBP45.0m,
including acquisition costs, was the Group's largest ever royalty
acquisition. This was funded by way of share issue. Although this
increased net assets considerably, the benefit of this was largely
offset in 2015 by the impact of falling commodity prices on the
carrying value of the Group's other assets.
Kestrel is included on the balance sheet at fair value and
remeasured at each report date. There is also a corresponding
deferred tax liability recognised on this revalued amount. The net
reduction on the balance sheet in the period relating to Kestrel
was GBP24.1m. This comprised a decrease in its fair value of
GBP34.5m, largely due to a revision to the long term coal price,
partially offset by a decrease in the associated deferred tax
liability of GBP10.3m.
2015 2014
Impairment GBP'000 GBP'000
Amapá 2,793 8,414
Ring of Fire 1,621 -
Isua - 15,288
Bulqiza - 700
Creso - 222
-------- --------
Total royalty related impairments 4,414 24,624
Impairment of mining and exploration interests 930 4,873
Other - 1,352
Total impairments 5,344 30,849
======== ========
The Group's royalty intangibles decreased by GBP10.6m in the
period. Of this amount, GBP4.4m related to impairment provisions
made in accordance with our accounting policy, caused by further
falls in commodity prices and revising estimated production
commencement dates, both of which impact on the expected future
discounted cash flows. GBP2.8m of the provision related to the
Amapá royalty whereby further falls in the iron ore price along
with continued delays in rebuilding the port infrastructure have
resulted in a further delay to the expected restart date. Pricing
revisions also led to a further provision of GBP1.6m in relation to
the Ring of Fire royalty.
The Group's intangible royalties, as described above, are
amortised upon the commencement of production. The amortisation
charge of GBP2.6m in the period included Narrabri, Maracás Menchen
and Four Mile. Furthermore, as a considerable portion of the
Group's assets are held in an Australian structure, there was a
GBP3.6m translation loss at the reporting date.
The Group's net asset value per share was 95p at December 31,
2015 (2014: 138p). Even allowing for the 2015 interim dividend paid
in February 2016 of 4p per share, the net asset value is at a
considerable premium to the share price of 58p at December 31,
2015.
It is worth highlighting that positive developments at certain
of the Group's royalties during the period have, we believe,
increased the value of these assets to the Group, although this is
not reflected on the balance sheet.
The following are some examples of this:
-- Narrabri: the exceptional operating performance at Narrabri
in the period, along with Whitehaven's announcement that they had
received a permit to increase production to 11Mtpa from 8Mtpa has
the effect of accelerating production, therefore increasing
revenue, beyond the level which the Group had factored into the
acquisition price. This acceleration and enhancement of production
brings forward income which increases the present value of the
royalty.
-- Berkeley Energia: have made considerable progress advancing
their uranium project in Spain. Recent drilling has produced some
very encouraging results suggesting a near doubling of the
resource. As the Group had only priced the royalty based on the
original Zona 7 deposit, the additional reserves which were unknown
at the time, represent additional value.
Under IFRS these royalties are accounted for as intangible
assets which requires them to be carried at cost and amortised over
the life of mine once production commences.
Cash flow and borrowings
Cash flows generated from operations in the period were GBP1.5m
compared to GBP3.0m in 2014. Although this seems at odds with the
increase in royalty income reported in the period, this is largely
due to timing differences. Royalty income for Q4 in any one year is
not received until the following month. As such, the income is
recognised in the income statement but not in the cash flow
statement. Income in Q4 2014 (GBP0.1m) is included in the 2015 cash
flow whereas the income for Q4 2015 (GBP2.9m) is not.
As part of the Narrabri royalty acquisition the Group entered
into a US$30.0m three year secured revolving credit facility for
working capital purposes. At December 31, 2015 the Group had net
debt of GBP1.8m. The Group's cash position was enhanced by the
recovery in full, upon maturity in December 2015, of the C$5.0m
loan which it had provided to Laramide Resources Limited.
The Group retains its 16.67% equity holding in Berkeley Energia
which increased in value considerably in the second half of 2015.
This holding was included on the balance sheet at December 31, 2015
at GBP7.2m, being the market value at that point in time. Although
the preference is to retain this stake, it does provide a further
source of liquidity.
The single largest outgoing which the Group has is its dividend.
This was uncovered in terms of free cash flow in 2015. Due to a
lower commodity price outlook, which is outside the control of
management, the Directors are proposing a slight reduction in the
final dividend from 4p in the prior year to 3p, making a full year
payment of 7p per share for 2015. The 3p half yearly payment is
intended to remain unchanged in the short term, subject to any
deterioration in the Group's financial prospects. At 6p per share,
the annual dividend should be much closer to being covered in 2016
with full cover achieved from 2017 onwards.
Financial prospects for the year ahead
Although further declines in commodity prices reduced the
overall level of income being reported in the year, the Group was
very pleased with the underlying production performance achieved by
the royalty operators. In spite of a difficult year for the mining
sector, all of the Group's income generating royalties remained in
production. With the proportion of production from Kestrel expected
to increase to 60-65% in 2016, along with the Narrabri ramp up and
initial royalty receipts from Four Mile, the Group expects to
report a higher level of royalty income over the next twelve
months, subject to commodity price stabilisation.
Foreign exchange also has the potential to increase reported
revenue in 2016. The pound has weakened somewhat against the US and
Australian dollar in the first few months of 2016. Should this
trend continue, the Group's results would benefit from foreign
exchange as most of its income is received in Australian dollars
with the underlying pricing in US dollars.
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The organic growth within the portfolio, along with plenty of
financial headroom under the Group's revolving credit facility and
a continued focus on costs, mean that the Group remains in a strong
financial position for the year ahead.
PRINCIPAL RISKS AND UNCERTAINTIES
Anglo Pacific is exposed to a variety of risks and uncertainties
which may have a financial, operational or reputational impact on
the Group.
The principal risks and uncertainties facing the Group at the
year-end are set out in detail in the Strategic Report section of
the Annual Report and Account 2015. The principal risks relate to
the following:
1. The current portfolio not generating sufficient cash
2. Dependence on operators
3. The Group failing to meet its obligations under its secured
borrowing facility and is unable to refinance
4. That royalty financing continues to be in demand
5. That the Group cannot finance royalty and streaming opportunities
6. That the reputation of coal will deteriorate and impact on
its appeal as an investment proposition
The Group is exposed to changes in the economic environment, as
with any other business. Details of any key risks and uncertainties
specific to the period are covered in the Strategic Report section
of the Annual Report 2015 which is available on the Group's
website.
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2015
2015 2014
GBP'000 GBP'000
Royalty related income 8,683 3,481
Amortisation of royalties (2,573) (759)
Operating expenses (4,060) (5,524)
--------- ---------
Operating profit/(loss) before impairments, revaluations and gain/(losses) on disposals 2,050 (2,802)
(Loss)/Gain on sale of mining and exploration interests (484) 1,350
Gain on disposal of coal tenures - 1,409
Impairment of mining and exploration interests (930) (4,873)
Impairment of royalty and exploration intangible assets (4,414) (10,033)
Impairment of royalty financial instruments - (15,288)
Impairment of property, plant and equipment - (1,352)
Revaluation of coal royalties (Kestrel) (27,201) (11,822)
Finance income 301 439
Finance costs (218) (1,408)
Other income 416 1,981
--------- ---------
Loss before tax (30,480) (42,399)
Current income tax charge (1,009) (1,386)
Deferred income tax credit/(charge) 8,913 (3,804)
--------- ---------
Loss attributable to equity holders (22,576) (47,589)
========= =========
Total and continuing loss per share
Basic and diluted loss per share (14.06p) (42.09p)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2015
2015 2014
GBP'000 GBP'000
Loss attributable to equity holders (22,576) (47,589)
Items that will not be reclassified to profit or loss - -
Items that have been or may be subsequently reclassified to profit or loss
Available-for-sale investments
Revaluation of available-for-sale investments 857 (8,640)
Reclassification to income statement on disposal of available-for-sale investments 484 (1,350)
Reclassification to income statement on impairment 930 4,873
Deferred tax relating to items that have been or may be reclassified 159 1,034
Net exchange loss on translation of foreign operations (8,597) (2,710)
--------- ---------
Other comprehensive loss for the year, net of tax (6,167) (6,793)
Total comprehensive loss for the year (28,743) (54,382)
========= =========
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2015
2015 2014
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 113 153
Coal royalties (Kestrel) 82,649 117,097
Royalty financial instruments 6,534 8,142
Royalty and exploration intangible assets 71,491 37,110
Mining and exploration interests 10,898 9,896
Deferred costs 1,013 1,462
Other receivables 10,132 9,657
Deferred tax 3,094 2,307
-------- --------
185,924 185,824
Current assets
Trade and other receivables 5,106 5,272
Cash and cash equivalents 5,708 8,769
-------- --------
10,814 14,041
Total assets 196,738 199,865
-------- --------
Non-current liabilities
Borrowings 7,272 -
Other payables 1,193 83
Deferred tax 24,546 34,908
-------- --------
33,011 34,991
Current liabilities
Income tax liabilities 574 687
Trade and other payables 1,170 2,937
-------- --------
1,744 3,624
Total liabilities 34,755 38,615
-------- --------
Net assets 161,983 161,250
======== ========
Capital and reserves attributable to shareholders
Share capital 3,399 2,329
Share premium 49,211 29,328
Other reserves 29,976 15,832
Retained earnings 79,397 113,761
-------- --------
Total equity 161,983 161,250
======== ========
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
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FOR THE TWO YEARS ENDED DECEMBER 31, 2015
Other reserves
Foreign
Investment Share-based currency
Investment
Share Share Merger Warrant revaluation payment translation Special in Retained Total
capital premium reserve reserve reserve reserve reserve reserve own shares earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Balance at January
1, 2014 2,218 29,328 - - 5,570 158 8,750 632 (2,601 ) 172,796 216,851
Loss for the year - - - - - - - - - (47,589) (47,589)
Other comprehensive
income:
Available-for-sale
investments
Valuation
movement taken
to equity - - - - (8,640) - 302 - - - (8,338)
Transferred to
income
statement on
disposal - - - - (1,350) - - - - - (1,350)
Transferred to
income
statement on
impairment - - - - 4,873 - - - - - 4,873
Deferred tax - - - - 1,034 - (19) - - - 1,015
Foreign currency
translation - - - - - - (2,993) - - - (2,993)
Total comprehensive
loss - - - - (4,083) - (2,710) - - (47,589) (54,382)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Dividends - - - - - - - - - (11,535) (11,535)
Issue of ordinary
shares 111 - 9,453 143 - - - - - - 9,707
Value of employee
services - - - - - 520 - - - 89 609
Total transactions
with owners of the
company 111 - 9,453 143 - 520 - - - (11,446) (1,219)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Balance at December
31, 2014 2,329 29,328 9,453 143 1,487 678 6,040 632 (2,601) 113,761 161,250
======== ======== ======== ======== ============ ============ ============ ======== =========== ========= =========
Balance at January
1, 2015 2,329 29,328 9,453 143 1,487 678 6,040 632 (2,601) 113,761 161,250
Loss for the year - - - - - - - - - (22,576) (22,576)
Other comprehensive
income:
Available-for-sale
investments
Valuation
movement taken
to equity - - - - 857 - 51 - - - 908
Transferred to
income
statement on
disposal - - - - 484 - - - - - 484
Transferred to
income
statement on
impairment - - - - 930 - - - - - 930
Deferred tax - - - - 159 - 1 - - - 160
Foreign currency
translation - - - - - - (8,649) - - - (8,649)
------------
Total comprehensive
loss - - - - 2,430 - (8,597) - - (22,576) (28,743)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Dividends - - - - - - - - - (11,901) (11,901)
Issue of ordinary
shares 1,070 19,883 19,681 - - - - - - - 40,634
Value of employee
services - - - - - 630 - - - 113 743
Total transactions
with owners of the
company 1,070 19,883 19,681 - - 630 - - - (11,788) 29,476
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Balance at December
31, 2015 3,399 49,211 29,134 143 3,917 1,308 (2,557) 632 (2,601) 79,397 161,983
======== ======== ======== ======== ============ ============ ============ ======== =========== ========= =========
CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED DECEMBER 31, 2015
2015 2014
GBP'000 GBP'000
Cash flows from operating activities
Loss before taxation (30,480) (42,399)
Adjustments for:
Finance income (301) (439)
Finance costs - excluding foreign exchange gains/losses 629 1,042
Other income (416) (1,981)
Loss/(Gain) on disposal of mining and exploration interests 484 (1,350)
Gain on disposal of coal tenures - (1,409)
Impairment of mining and exploration interests 930 4,873
Impairment of royalty and exploration intangible assets 4,414 10,033
Impairment of royalty financial instruments - 15,288
Impairment of property, plant and equipment - 1,352
Revaluation of coal royalties (Kestrel) 27,201 11,822
Depreciation of property, plant and equipment 40 23
Amortisation of royalty intangible assets 2,573 759
Share-based payment 840 609
5,914 (1,777)
(Increase)/Decrease in trade and other receivables (2,653) 2,588
(Decrease)/Increase in trade and other payables (1,767) 2,175
--------- ---------
Cash generated from/(used in) operations 1,494 2,986
Income taxes paid (1,466) (27)
Net cash generated from/(used in) operating activities 28 2,959
--------- ---------
Cash flows from investing activities
Proceeds on disposal of mining and exploration interests 1,722 9,549
Purchases of mining and exploration interests - (1,161)
Purchases of royalty and exploration intangible assets (41,587) (13,213)
Proceeds from royalty financial instruments 213 826
Other royalty related repayments/(advances) 2,868 (3,002)
Prepaid acquisition costs - (359)
Proceeds on disposal of coal tenures - 302
Purchases of property, plant and equipment - (188)
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Dividend and fixed income received from mining and exploration interests - 169
Sundry income 203 475
Finance income 301 439
Net cash used in investing activities (36,280) (6,163)
--------- ---------
Cash flows from financing activities
Drawdown of revolving credit facility 10,853 -
Repayment of revolving credit facility (3,326) -
Proceeds from issue of share capital 37,326 9,980
Transaction costs of share issue - (416)
Dividends paid (11,901) (11,535)
Prepaid fundraising costs - (320)
Finance costs - excluding foreign exchange gains/losses (629) (1,042)
Net cash generated from/(used in) financing activities 32,323 (3,333)
--------- ---------
Net decrease in cash and cash equivalents (3,929) (6,537)
Cash and cash equivalents at beginning of period 8,769 15,706
--------- ---------
Unrealised foreign currency gain/(loss) 868 (400)
Cash and cash equivalents at end of period 5,708 8,769
========= =========
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2015
1 Basis of preparation
The financial information for the year ended December 31, 2015,
does not constitute statutory accounts as defined in section 435
(1) and (2) of the Companies Act 2006. Statutory accounts for the
year ended December 31, 2014 have been delivered to the Registrar
of Companies and those for 2015 will be delivered following the
Company's Annual General Meeting convened for May 10, 2016. The
auditors have reported on these accounts; their reports were
unqualified, did not include a reference to any matter to which the
auditors drew attention by way of emphasis of matter and did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
Whilst the preliminary announcement (the Condensed financial
statements) has been prepared in accordance with International
Financial Reporting Standards (IFRS) and IFRS Interpretations
Committee (IFRIC) interpretations adopted for use by the European
Union, with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS and with the requirements of the
United Kingdom Listing Authority (UKLA) Listing Rules, these
Condensed financial statements do not contain sufficient
information to comply with IFRS. The Group has published full
financial statements that comply with IFRS on March 23, 2016, and
this set of Condensed financial statements should be read in
conjunction with these.
Going concern
As at December 31, 2015, the Group had net debt of GBP1.8m and
access to a further GBP12.8m that was undrawn from its US$30.0m
secured revolving credit facility.
The Directors have considered the Group's cash flow forecasts
for the period to the end of March 2017. The Board is satisfied
that the Group's forecasts and projections, taking into account
reasonably possible changes in trading performance and other
uncertainties, together with the Group's net debt position and
access to the undrawn facilities, show that the Group will be able
to operate within the level of its current facilities for the
foreseeable future. For this reason the Group continues to adopt
the going concern basis in preparing its financial statements.
2 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, the
Directors are required to make judgements and estimates that can
have a significant impact on the financial statements. The most
critical accounting judgement relates to the classification of
royalty arrangements and the key sources of estimation uncertainty
relate to the calculation of certain royalty arrangement's fair
value and the key assumption used when assessing impairment of
property, plant and equipment and intangible assets. The use of
inaccurate assumptions in assessments made for any of these
estimates could result in a significant impact on financial
results. The critical accounting judgements and key sources of
estimations uncertainty are substantially the same as those
disclosed in the Group's consolidated financial statements for the
year ended December 31, 2015, which were published on March 23,
2016.
3 Changes in accounting policies and disclosures
The Condensed financial statements have been prepared under the
historical cost basis, as modified by the revaluation of coal
royalties (investment property) and certain financial
instruments.
The accounting policies applied are consistent with those
adopted and disclosed in the Group's financial statements for the
year ended December 31, 2014, except for changes arising from the
adoption of the following new accounting pronouncements which
became effective in the current reporting period:
-- Annual Improvements to IFRSs 2010 - 2012 cycle
-- Annual Improvements to IFRSs 2011 - 2013 cycle
The adoption of these new accounting pronouncements has not had
a significant impact on the accounting policies, methods of
computation or presentation applied by the Group.
The Group has not early adopted any other amendment, standard or
interpretation that has been issued but is not yet effective. It is
expected that where applicable, these standards and amendments will
be adopted on each respective effective date.
4 (Loss)/Earnings per share
Loss per ordinary share is calculated on the Group's loss after
tax of GBP22,576,000 (2014: GBP47,589,000) and the weighted average
number of shares in issue during the year of 160,512,425 (2014:
113,075,454).
Loss per ordinary share excludes the issue of shares under the
Group's JSOP, as the Employee Benefit Trust has waived its right to
receive dividends on the 925,933 ordinary 2p shares it holds as at
December 31, 2015 (December 31, 2014: 925,933).
2015 2014
GBP'000 GBP'000
Net loss attributable to shareholders
Earnings - basic (22,576) (47,589)
Earnings - diluted (22,576) (47,589)
========= =========
2015 2014
Weighted average number of shares in issue
Basic number of shares outstanding 160,512,425 113,075,454
Dilutive effect of Employee Share Option Scheme - -
------------ ------------
Diluted number of shares outstanding 160,512,425 113,075,454
============ ============
In 2015 and 2014, the Group is loss making, therefore the
Employee Share Option Scheme is considered anti-dilutive as
including them in the diluted number of shares outstanding would
decrease the loss per share.
Adjusted earnings per share
Due to the growing number of valuation and other non-cash
movements being recognised in the income statement, the Group
presents an adjusted earnings per share metric to better reflect
the underlying performance of the Group during the year.
Adjusted earnings/(loss) represents the Group's underlying
operating performance from core activities. Adjusted
earnings/(loss) is the profit/(loss) attributable to equity holders
less all valuation movements, non-cash impairments and amortisation
charges (which are non-cash IFRS adjustments that arise primarily
due to changes in commodity prices), finance costs, any associated
deferred tax and any profit or loss on non-core asset disposals as
these are not expected to be ongoing.
Diluted
Earnings earnings
Earnings per share per share
GBP'000 p p
Net loss attributable to shareholders
Loss - basic and diluted for the year ended December 31, 2015 (22,576) (14.06p) (14.06p)
Adjustment for:
Amortisation of royalty intangible assets 2,573
Loss on sale of mining and exploration interests 484
Impairment of mining and exploration interests 930
Impairment of royalty and exploration intangible assets 4,414
Revaluation of coal royalties (Kestrel) 27,201
Effective interest income on royalty financial instruments (213)
Share-based payments and associated national insurance 840
Tax effect of the adjustments above (9,685)
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---------
Adjusted earnings - basic and diluted for the year ended December 31, 2015 3,968 2.47p 2.47p
========= ========== ==========
Diluted
Earnings earnings
Earnings per share per share
GBP'000 p p
Net loss attributable to shareholders
Loss - basic and diluted for the year ended December 31, 2014 (47,589) (42.09p) (42.09p)
Adjustment for:
Amortisation of royalty intangible assets 759
Gain on sale of mining and exploration interests (1,350)
Gain on disposal of coal tenures (1,409)
Impairment of mining and exploration interests 4,873
Impairment of royalty and exploration intangible assets 10,033
Impairment of royalty financial instruments 15,288
Impairment of property, plant and equipment 1,352
Revaluation of coal royalties (Kestrel) 11,822
Effective interest income on royalty financial instruments (194)
Share-based payments and associated national insurance 609
Tax effect of the adjustments above 3,577
---------
Adjusted loss - basic and diluted for the year ended December 31, 2014 (2,229) (1.97p) (1.97p)
========= ========== ==========
In calculating the adjusted earnings per share, the weighted
average number of shares in issue takes into account the dilutive
effect of the Employee Share Option Scheme in those years where the
Group has adjusted earnings. In years where the Group has an
adjusted loss, the Employee Share Option Scheme is considered
anti-dilutive as including them in the diluted number of shares
outstanding would decrease the loss per share, as such they are
excluded.
The weighted average number of shares in issue for the purpose
of calculated basic and diluted adjusted earnings per share are as
follows:
2015 2014
Weighted average number of shares in issue
Basic number of shares outstanding 160,512,425 113,075,454
Dilutive effect of Employee Share Option Scheme 2,267 -
------------ ------------
Diluted number of shares outstanding 160,514,692 113,075,454
============ ============
5 Dividends
On February 4, 2015 an interim dividend of 4.45p per share was
paid to shareholders in respect of the year ended December 31,
2014. On August 7, 2015 a final dividend of 4.00p per share was
paid to shareholders to make a total dividend for the year of 8.45p
per share. Total dividends, paid during the year were GBP11.9m
(2014: GBP11.5m).
On February 4, 2016 an interim dividend of 4.00p per share was
paid to shareholders in respect of the year ended December 31,
2015. This dividend has not been included as a liability in these
financial statements. The Directors propose that a final dividend
of 3.00p per share be paid to shareholders on August 5, 2016, to
make a total dividend for the year of 7.00p per share. This
dividend is subject to approval by shareholders at the AGM and has
not been included as a liability in these financial statements.
The proposed final dividend for 2015 is payable to all
shareholders on the Register of Members on June 24, 2016. The total
estimated dividend to be paid is GBP5.1m. At the present time the
Board has resolved not to offer a scrip dividend alternative.
6 Coal royalties (Kestrel)
GBP'000
At January 1, 2014 131,434
Foreign currency translation (2,515)
Loss on revaluation of coal royalties (11,822)
---------
At December 31, 2014 117,097
Foreign currency translation (7,247)
Loss on revaluation of coal royalties (27,201)
---------
At December 31, 2015 82,649
=========
The Group's coal royalty entitlements comprise the Kestrel and
Crinum coal royalties, and derive from mining activity carried out
within the Group's private land area in Queensland, Australia.
Rather uniquely to this royalty, the sub-stratum land is the
property of the freeholder, including the minerals contained
within. The ownership of the land therefore entitles the Group to a
royalty, equivalent to what the State receives on areas outside the
Group's private land. This royalty is accounted for as Investment
Property in accordance with IAS 40.
The coal royalty was valued during December 2015 at GBP82.6m
(A$167.6m) (2014: GBP117.1m and A$223.0m) by an independent coal
industry advisor, on a net present value of the pre-tax cash flow
discounted at a nominal rate of 7%. The net royalty income from
this investment is currently taxed in Australia at a rate of 30%.
This valuation is incorporated in the accounts and the above
revaluation adjustment represents the difference between the
opening carrying value and the external valuation, excluding the
effects of foreign currency changes.
Were the coal royalty to be realised at the revalued amount
there are GBP3.7m (A$7.5m) of capital losses potentially available
to offset against taxable gains. These losses have been included in
the deferred tax calculation (note 9). Were the coal royalty to be
carried at cost the carrying value would be GBP0.2m (2014:
GBP0.2m). The Directors do not presently have any intention to
dispose of the coal royalty.
The shares over the entity which is the beneficial owner of the
Kestrel royalty have been guaranteed as security in connection with
the Group's three year secured revolving credit facility entered
into in February 2015. The shares over the entity which is the
beneficial owner of the Kestrel royalty have been guaranteed as
security in connection with the three year secured revolving credit
facility in February 2015.
7 Royalty financial instruments
The Group's royalty instruments are represented by three royalty
agreements which entitle the Group to either the repayment of
principal and a net smelter return ("NSR") royalty for the life of
the mine or a gross revenue royalty ("GRR") where the project
commences commercial production or the repayment of principal where
it does not. Details of the Group's royalty financial instruments,
which are held at fair value are summarised below:
December December
31, 2015 31, 2014
Original Carrying Carrying
Cost Royalty value value
Project Commodity '000 Rate Escalation Classification GBP'000 GBP'000
Gold,
Silver, 3% gold Available-for-sale
EVBC Copper C$7,500 2.50% >US$1,100/oz equity 3,832 5,742
Available-for-sale
Jogjakarta Iron Sands U$4,000 2.00% - debt 2,702 2,400
Available-for-sale
Isua Iron Ore A$28,000 1.00% - debt - -
---------- ----------
6,534 8,142
========== ==========
The Group's entitlements to cash by way of the repayment of the
principal and the NSR royalty or the GRR have been classified as
available-for-sale financial assets in accordance with IAS 39 and
are carried at fair value.
GBP'000
Fair value
At January 1, 2014 27,847
Impairment of royalty financial instruments (15,288)
Revaluation of royalty financial instruments recognised in equity (4,697)
Foreign currency translation 280
At December 31, 2014 8,142
Revaluation of royalty financial instruments recognised in equity (1,909)
Foreign currency translation 301
---------
At December 31, 2015 6,534
=========
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Effective interest of GBP0.2m was recognised in other income
(see note 9) for the year ended December 31, 2015 (2014: GBP0.2m).
This was directly offset by cash received in the period of the same
amount.
On October 16, 2014 London Mining PLC, the operator of the Isua
project over which the Group holds a royalty, announced that it has
appointed administrators. In January 2015, the Isua project was
sold to General Nice Limited, with the Group's royalty interest
being transferred concurrently. Given the inherent uncertainty of
this project reaching commercial production, the Group's royalty
financial instrument arising from its interest in the Isua royalty
was fully impaired in 2014 and continues to have a carrying value
of GBPnil as at December 31, 2015.
8 Royalty and exploration intangible assets
The Group's intangibles comprise capitalised exploration and
evaluation costs and royalty interests.
Exploration and Royalty
Evaluation Costs Interests Total
GBP'000 GBP'000 GBP'000
Gross carrying amount
At January 1, 2015 697 59,705 60,402
Additions - 44,971 44,971
Foreign currency translation - (7,831) (7,831)
----------------- ---------- ---------
At December 31, 2015 697 96,845 97,542
Amortisation and impairment
At January 1, 2015 (697) (22,595) (23,292)
Amortisation charge - (2,573) (2,573)
Impairment charge - (4,414) (4,414)
Foreign currency translation - 4,228 4,228
At December 31, 2015 (697) (25,354) (26,051)
----------------- ---------- ---------
Carrying amount December 31, 2015 - 71,491 71,491
================= ========== =========
Exploration and Royalty
Evaluation Costs Interests Total
GBP'000 GBP'000 GBP'000
Gross carrying amount
At January 1, 2014 951 48,713 49,664
Additions 47 13,166 13,213
Disposals (275) - (275)
Foreign currency translation (26) (2,174) (2,200)
----------------- ---------- ---------
At December 31, 2014 697 59,705 60,402
Amortisation and impairment
At January 1, 2014 - (12,376) (12,376)
Amortisation charge - (759) (759)
Impairment charge (697) (9,336) (10,033)
Foreign currency translation - (124) (124)
----------------- ---------- ---------
At December 31, 2014 (697) (22,595) (23,292)
----------------- ---------- ---------
Carrying amount December 31, 2014 - 37,110 37,110
================= ========== =========
Exploration and evaluation costs
The exploration and evaluation costs comprise expenditure that
was directly attributable to the Panorama and Trefi coal projects
in British Columbia, Canada. The Group disposed of its interest in
the Panorama coal project and fully impaired its interests in the
Trefi coal project in 2014.
Acquisition of royalty interests
On March 11, 2015, the Group completed its acquisition of the
Narrabri royalty for GBP45.0m. The Narrabri royalty is a 1% gross
revenue royalty over all coal produced from the Narrabri mine
located in New South Wales, Australia, owned and operated by
Whitehaven Coal Limited. The total cost of the Narrabri acquisition
was total consideration of US$65.0m, US$60.0m (GBP40.0m) was paid
in cash and US$5.0m (GBP3.3m) was satisfied by the issue of
4,135,238 ordinary shares (refer to note 26) and GBP1.7m in
capitalised acquisition costs.
Under the terms of the Maracás Menchen royalty sale agreement, a
further US$3.0m (GBP1.9m) of cash is payable when the project
reaches certain annualised production milestones. As set out in
notes 18 and 25, the Directors consider it highly probable that the
first of these milestones will be achieved in the next eighteen to
twenty-four months which would require the Group to pay US$1.5m. As
a result the Directors have recognised a non-current liability for
the deferred consideration, together with an asset under deferred
acquisition costs.
Amortisation of royalty interests
The Group's royalty intangible assets are amortised on a
straight-line basis, upon the commencement of production at the
underlying mining operation, over the life of mine.
Three of the underlying mining operations of the Group's royalty
intangibles assets were in production during 2015, and were
amortised on the following basis:
Royalty interest Estimated life of mine Remaining life of mine
Narrabri 22 years 21 years
Maracás Menchen 29 years 28 years
Four Mile 10 years 9 years
Under the terms of the Narrabri royalty sale agreement, the
Group was entitled to royalty receipts from January 1, 2015 and has
recognised royalty income of GBP3.2m for the year ended December
31, 2015. In accordance with the Group's amortisation accounting
policy, the Narrabri royalty has been amortised from January 1,
2015 resulting in an amortisation charge of GBP2.0m for the year
ended December 31, 2015.
The Group recognised maiden royalty receipts from its Maracás
Menchen royalty of GBP0.6m for the year ended December 31, 2015.
The Maracás Menchen royalty is a 2% net smelter return royalty
interest on all mineral products sold from the area of the Maracás
Menchen project that the Group acquired on June 10, 2014. The Group
commenced amortising the Maracás Menchen royalty following its
entry into commercial production and recognised an amortisation
charge of GBP0.4m for the year ended December 31, 2015.
As noted in the Group's business review, the Four Mile uranium
mine, over which the Group holds a 1% net smelter return royalty,
continues to produce and stockpile uranium ore concentrate. The
Group considers the production and stockpiling of the concentrate
to constitute commercial production and commenced amortising the
Group Mile royalty from January 1, 2015, recognising an
amortisation charge of GBP0.2m for the year ended December 31,
2015.
Amortisation of the remaining interests will commence once they
begin commercial production. No intangible assets have been pledged
as security for liabilities.
Impairments of royalty interests
An annual impairment review is carried out to determine whether
the future expected cash flows (calculated on a value-in use basis)
exceed cost. This has resulted in the Directors determining that
two of the Group's intangible royalties were impaired at December
31, 2015 as outlined below. See note 2 for the impairment
methodology applied.
Amapá
Production at Amapá remained suspended for the year ended
December 31, 2015, whilst the operator, Zamin Ferrous Limited,
commenced the restructuring of its finances in order to fund the
rebuilding of the port facilities. Taking into account the
Directors assessment as to when production will restart, the
discounted cash flow model, using a discount rate of 10%, required
an impairment charge of GBP2.8m to the year ended December 31, 2015
to be recognised (2014: GBP8.4m). Following the impairment charges
recognised during the year, the residual carrying value of the
Amapá royalty was GBP1.8m as at December 31, 2015 (2014:
GBP4.9m).
Ring of Fire
Following the sale of the Ring of Fire chromite assets by Cliffs
Natural Resources Inc to Noront Resources Ltd in April 2015, the
Directors have reassessed the timeline to production in light of
the new operator needing to complete a comprehensive preliminary
economic analysis for development options for the project. The
revision to the anticipated date of the mine entering commercial
production has resulted in the Group recognising an impairment
charge of GBP1.6m during the year ended December 31, 2015 (2014:
GBPnil). Following the impairment charge recognised during the
year, the residual carrying value of the Ring of Fire royalty was
GBP3.1m as at December 31, 2015 (2014: GBP5.2m).
9 Deferred tax
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The following are the major deferred tax liabilities and assets
recognised by the Group and the movements thereon during the
period:
Available-for
Coal royalties sale-investments
Revaluation Effects Impairment Accrual of
of Revaluation Revaluation of
of coal Tax of royalty of mining Intangible royalty Other
losses tax
royalty instruments interests royalties receivable losses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At January 1,
2014 38,463 (516) 3,116 (9,099) (2,330) 731 - 30,365
Charge/(credit)
to profit or
loss (3,858) (460) - 7,682 2,330 (714) (1,176) 3,804
Reclassification
from current to
deferred tax
asset - - - - - - (650) (650)
Charge/(credit)
to other
comprehensive
income - - (1,629) 877 - - - (752)
Exchange
differences 10 33 - 19 - 13 41 116
Effect of change
in tax rate:
- income
statement - - - - - - - -
- equity - - (281) (1) - - - (282)
------------ ---------- ------------ --------------- ----------- ----------- -------- --------
At December 31,
2014 34,615 (943) 1,206 (522) - 30 (1,785) 32,601
Charge/(credit)
to profit or
loss (8,190) (469) - 350 - 537 (1,141) (8,913)
Reclassification
from current to
deferred tax
asset - - - - - - - -
Charge/(credit)
to other
comprehensive
income - - (382) 276 - - - (106)
Exchange
differences (2,146) 56 - (1) - - 14 (2,077)
Effect of change
in tax rate: - - - - - - -
- income
statement - - - - - - - -
- equity - - (57) 4 - - - (53)
--------
At December 31,
2015 24,279 (1,356) 767 107 - 567 (2,912) 21,452
============ ========== ============ =============== =========== =========== ======== ========
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:
2015 2014
GBP'000 GBP'000
Deferred tax liabilities 24,546 34,908
Deferred tax assets (3,094) (2,307)
21,452 32,601
======== ========
As at December 31, 2015, the Group has unused tax losses of
GBP13.5m (2014: GBP8.5m) available for offset against future
profits. A deferred tax asset has been recognised in respect of
these losses which may be carried forward indefinitely.
The Group has the following balances in respect of which no
deferred tax asset has been recognised:
2015 2014
Tax Tax Other Tax Tax Other
losses - losses - temporary losses - losses - temporary
trading capital differences Total trading capital differences Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Expiry
date
Within
one year - - - - - - - -
Greater
than one
year,
less
than
five
years - - - - - - - -
Greater
than
five
years - - - - - - - -
No expiry
date 24,539 37,230 6,547 68,316 4,843 4,879 22,828 32,550
24,539 37,230 6,547 68,316 4,843 4,879 22,828 32,550
========= ========= ============ ======== ========= ========= ============ ========
Timing 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:
Available-for sale-investments
Revaluation Revaluation
of royalty of mining
instruments interests Total
GBP'000 GBP'000 GBP'000
At January 1, 2014 2,244 (8,016) (5,772)
Released to income for the year - 8,013 8,013
Charge to equity for the year (1,038) (2) (1,040)
---------------- --------------- --------
At December 31, 2014 1,206 (5) 1,201
Released to income for the year - - -
Charge to equity for the year (440) 5 (435)
At December 31, 2015 766 - 766
================ =============== ========
Deferred tax assets and liabilities are offset where the Company
has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances (after offset) for financial
reporting purposes:
2015 2014
GBP'000 GBP'000
Deferred tax liabilities 766 1,206
Deferred tax assets - 5
766 1,201
======== ========
10 Borrowings
2015 2014
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Secured borrowing at amortised
cost
Revolving credit facility 7,527 - - -
Deferred borrowing costs (255) - - -
7,272 - - -
======== ======== ======== ========
Amount due for settlement
within 12 months - - - -
======== ======== ======== ========
Amount due for settlement
after 12 months 7,527 - - -
======== ======== ======== ========
The Group's borrowings relate to the partial draw-down of the
three-year revolving credit facility, which is available at LIBOR
plus 250bps. Deferred borrowing costs relate to the establishment
fees associated with the facility and will be amortised over its
three year term. As at December 31, 2015, the Group had utilised
US$11.1m (GBP7.5m) of the US$30.0m (GBP20.3m) available under the
facility.
The Group's revolving credit facility is secured by way of a
floating charge over the Group's assets and is subject to a number
of financial covenants, all of which have been met during the year
ended December 31, 2015.
11 Related party transactions
During the year, Group companies entered into the following
transactions with subsidiaries:
2015 2014
GBP'000 GBP'000
Net financing of related entities 6,552 5,625
Management fee 1,825 3,251
Amounts owed by related parties at year end 47,381 37,671
======== ========
All transactions were made in the course of funding the Group's
continuing activities.
Remuneration of key management personnel
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