TIDMAPF
RNS Number : 1815Q
Anglo Pacific Group PLC
28 August 2014
August 28, 2014
Anglo Pacific Group PLC
Interim results for the six months ended June 30, 2014
Anglo Pacific Group PLC ('Anglo Pacific', the 'Company', the
'Group') (LSE: APF) (TSX: APY) is pleased to announce interim
results for the six months ended June 30, 2014 which are available
on both the Group's website at www.anglopacificgroup.com and on
SEDAR at www.SEDAR.com.
Headlines:
-- Interim dividend maintained at 4.45p (2013 interim dividend:
4.45p)
-- Acquisition of Maracás royalty in June 2014 and concurrent
GBP10m equity placing
-- Cash balances at June 30, 2014 of GBP14.4m (December 31,
2013: GBP15.7m) with no borrowings and undrawn facilities of
US$15m
-- GBP7.0m in cash realised from non-core mining and exploration
equity portfolio in the first half of 2014; GBP14.9m residual
portfolio market value at June 30, 2014 (December 31, 2013:
GBP20.1m)
-- Royalty income for the period of GBP2.6m (H1 2013: GBP6.3m,
excluding GBP2.0m EVBC conversion payment (restated))
-- Loss per share of 20.84p for the six months ended June 30,
2014 (June 30, 2013: loss per share of 25.29p (restated)) largely
due to valuation adjustments and the derecognition of deferred tax
assets(1)
-- Adjusted loss per share(1) of 0.77p (June 30, 2013: adjusted
earnings per share of 5.56p (restated))
-- Net assets of GBP191.9m at June 30, 2014 (December 31, 2013:
GBP216.9m)
Post period end:
-- Sale of the Group's Panorama coal licences with the retention
of a royalty
-- Negotiation of information rights in relation to the Group's
Kestrel royalty
(1) - Refer to note 7 of the financial statements for the
calculation of EPS measures
Julian Treger, Chief Executive Officer, commented:
"Commodity prices of our core commodities endured a difficult
year to date, which has impacted on both reported royalty income
and asset valuations. Despite this, your Board is pleased to
announce a maintained interim dividend of 4.45p per share. This
reflects our confidence in a long-term, albeit slower, global
recovery in demand for raw materials coupled with the anticipated
return of mining at Kestrel to the Group's land in the second half
of 2015 and the continuing expansion and diversification of our
royalty portfolio as evidenced by the recent acquisition of the
Maracás royalty.
Despite a further fall in the value of the Kestrel royalty
primarily as a result of softening in consensus coking coal prices,
our balance sheet remains robust with no borrowings and undrawn
facilities of US$15m.
The identification and evaluation of further royalty
opportunities continue to be the Board's main priorities as we seek
to diversify and grow our portfolio of royalties, which in turn
should improve our cash flow generation. Your Board is committed to
maintaining the dividend with a view to increasing this as we
execute our strategy and see a return to favourable market
conditions."
Analyst conference call:
There will be a conference call for analysts at 09:30 (BST) on
August 28, 2014. The call will be hosted by Julian Treger (CEO) and
Kevin Flynn (CFO) and accessed via the following dial in details:
+44 (0)20 3427 1910 and confirmation code of 1756530.
A replay will be available afterwards at
www.anglopacificgroup.com.
For further information:
Anglo Pacific Group PLC +44 (0) 20 3435 7400
Julian Treger Chief Executive Officer
Mark Potter Chief Investment Officer
Kevin Flynn Chief Financial Officer
Barclays Bank PLC +44 (0) 20 7623 2323
Chris Madderson/Matthew Bungey
BMO Capital Markets Limited +44 (0) 20 7664 8020
Jeffrey Couch/Neil Haycock/Tom Rider
Bell Pottinger +44 (0) 20 3722 2500
Nick Lambert/Lorna Cobbett
Notes to editors:
Anglo Pacific is a global mining royalty company. The Company's
vision is to create a leading international diversified royalty
company with a focus on base metals and bulk materials. The
Company's strategy is to build a diversified portfolio of
royalties, focusing on accelerating income growth through acquiring
royalties in cash or near-term cash producing assets. It is an
objective of the Company to pay a substantial portion of these
royalties to shareholders as dividends. Further details can be
found on the Company's website at www.anglopacificgroup.com.
Royalties explained:
A royalty is an entitlement to an agreed percentage of a
project's sales revenue, without any liability for production costs
or capital expenditure. This is the key benefit of owning a
royalty.
In the mining industry, most royalties endure for the life of
the resource and are paid on a regular basis. Historically there
have been different terms for royalties including Gross Revenue or
Net Smelter Return ("GRR" or "NSR") royalties, which are both based
on the sales value of the actual mineral. Our model is based around
GRR or NSR royalties as we believe they provide the best and
clearest returns.
Acquiring existing royalties
In this case we buy existing royalty agreements, such as those
owned by exploration companies who may have retained a residual
royalty in a mine they helped discover. Royalty companies rarely
sell their royalties, once acquired.
Creating new royalties
Our new royalty agreements tend to come from providing financing
for mining operations, usually to help progress a mine into
production.
Business review
Although the prices of some commodities have had a strong year
to date, the core commodities underlying our royalty portfolio,
namely metallurgical coal and iron ore, have been near multi-year
lows. Whilst the mining equity markets have shown some signs of
recovery in the first half, financing remains a challenge for many
mining companies, particularly those in our target investment
sector. This presents opportunities for Anglo Pacific to acquire
additional royalties at prices which we hope will generate strong
and sustainable long-term returns, which in turn should result in
future dividend growth.
The prices of base metals and bulk commodities are indirectly
linked to GDP growth and we take optimism from signs that growth in
the global economy appears to be gradually gaining momentum. The
return to growth appears to be more established in the US and the
UK, whilst we continue to believe in the long-term demand from
China and India for commodities linked to the production of steel.
In the longer-term, we also expect the current limited availability
of finance for mining projects to exacerbate the supply demand
shortfall. The current global glut of supply in iron ore and coal
is expected to remain in the short to medium term, but many expect
even these markets to begin recovering from 2016 as growth stokes
demand.
In the interim and against this background, there are both
positive and negative consequences for Anglo Pacific. One positive
consequence is that the shortage of capital flowing into the mining
sector makes this a good time to acquire new royalties. It also is
a good background to acquire secondary royalties from owners who
have individual reasons to monetise these at this point in the
cycle, as demonstrated with our recent acquisition of the Maracás
royalty announced in June. A negative consequence is that the
current lower commodity prices in this sector translate into lower
royalty income and asset values. However, management believes that
there is strong recovery potential in the Group's fully funded
existing portfolio, exposed mainly to coking coal and iron ore,
should the anticipated global GDP growth correlate into higher
prices for these commodities.
Anglo Pacific's royalty income in the first half of 2014 has
declined from GBP6.3m to GBP2.6m on a like for like basis. This was
the direct result of reduced metallurgical coal prices and Rio
Tinto mining largely outside of our royalty lands. Further, reduced
metallurgical coal price forecasts resulted in a valuation deficit
on the Kestrel royalty. We believe coking coal prices will show
signs of recovery over the medium and long-term, and that continued
improvement in global economic growth and further closures of high
cost mines will support commodity prices in general. With an
expectation of a return to production in our private royalty land
at Kestrel, along with the Group's view that bulk commodity prices
have limited room for further falls, Anglo Pacific can commit to
maintaining its dividend in the short-term with a view to
increasing this when conditions provide.
One of the new management team's priorities upon joining Anglo
Pacific was to improve relations with Rio Tinto, the operator of
the Kestrel mine, and also to obtain greater visibility on the
future development of the Kestrel royalty, which continues to
generate the majority of our income. We are pleased to report we
have recently concluded an agreement with Rio Tinto to provide us
with far greater information rights than previously. This will
assist Anglo Pacific in managing its cash requirements and, where
permitted, provide better forward guidance to shareholders and
potential investors.
The Group was diligent in preserving its cash resources during
the first six months. A successful share issue was undertaken in
June in conjunction with the Maracás royalty acquisition, and over
GBP7.0m was generated from the continued realisation of non-core
mining and exploration interests (share portfolio). Along with some
other one off items discussed in the finance review, the Group
ended June with cash resources of GBP14.4m.
The Group will continue to dispose of non-core assets which will
assist cashflow whilst production at Kestrel remains largely
outside of our private royalty lands. In line with this objective,
we announced today the disposal of our interests in the Panorama
Coal Project to ASX-listed Atrum Coal NL ("Atrum") in exchange for
total consideration of US$2.5m in the form of cash and a 12-month
promissory note, and shares in Atrum, as well as retaining a
royalty interest on future coal sales.
We have made revitalising the royalty pipeline a priority. We
remain keen to seek larger, more transformational deals, which
should accelerate our diversification and reduce dependency on
Kestrel; and, in the meantime, we are also progressing a number of
smaller deals. We continue to be optimistic about our ability to
deliver royalty investments in increasing volumes in the near
term.
Away from the investment portfolio, the Group continues to
strengthen its governance processes and procedures, including
several changes to the composition of the Board. Mike Blyth was
appointed as the Group's first independent non-executive Chairman
in April 2014. He brings a wealth of experience on the finance side
to the Company and is already adding considerable value to the way
in which the Company develops. Furthermore, the Board appointed two
new non-executive directors in the period. Bob Stan was appointed
in February 2014 and has extensive contacts in the Canadian
investment community along with working knowledge of operating coal
projects in North America. Rachel Rhodes, our Audit Committee
Chair, was appointed in May this year and has considerable
financial experience in the mining sector. We welcome both to the
Board.
Several directors have retired from the Board this year, namely
Brian Wides, Mike Atkinson and John Whellock. We thank them for
their significant contribution to the success of the Company. We
particularly wish to note the extraordinary contribution of Brian
Wides, who with Peter Boycott, was largely responsible for the
creation of Anglo Pacific as it is today.
In line with best practice, the Group conducted an audit tender
process in the second quarter, which resulted in the appointment of
Deloitte as the new independent auditor. The Group has strengthened
its advisory team with the appointment of BMO Capital Markets
Limited and Barclays Bank PLC as joint brokers. Both were
instrumental in the successful equity raise in June.
Investment review
Producing royalties
Kestrel, Queensland Australia
Royalty income at Kestrel was A$2.8m in the six months to June
30, 2014 (2013: A$6.8m). Rio Tinto Limited ("Rio Tinto") mined
largely outside the Group's private royalty land during the first
half of 2014. The Group was encouraged by Rio Tinto's announcement
on July 16, 2014, which reported strong coal production figures
from Kestrel following the completion of the extension project
which should benefit Anglo Pacific when coal is mined within our
private royalty land. Production from Kestrel was 1.59 Mt of coal
(1.39MT of hard coking coal and 197k thermal coal) in H1 2014
compared to 1.207 Mt (885k of hard coking coal and 322k of thermal
coal) for the corresponding period in 2013.
For further information please see www.riotinto.com.
It is Rio Tinto's view that both coking coal prices and thermal
coal prices have fallen as a result of oversupply, although prices
have shown signs of stabilising. However, high quality coking coal,
such as that produced at Kestrel, should always be in demand.
As announced on August 18, 2014 the Group has entered into an
agreement with Kestrel Coal Pty Ltd, a subsidiary of Rio Tinto Coal
Australia, and its Kestrel joint venture partners, Queensland Coal
Pty Ltd and Mitsui Kestrel Coal Investment Pty Ltd, for the
provision of certain information in respect of the Kestrel mine.
The information to which Anglo Pacific is entitled under the
agreement includes, on a quarterly basis: (i) the invoiced payable
tonnes (including product splits); (ii) the royalty payable; (iii)
the split between the public and private royalty payable; (iv) the
estimated private royalty payable for the next quarter; and (v) the
forecast production tonnages, split on a public and private royalty
basis, for the next four quarters. The forecast information allows
us and our investors more visibility on expected growth in royalty
income from this key asset.
Anglo Pacific now expects approximately 43% of production from
Kestrel to be within our private royalty lands for H2 2014, and we
can confirm our expectation of minimal royalty income from Kestrel
during the period H1 2015. However, Anglo Pacific management
expects a substantial recovery thereafter as Rio Tinto mines more
coal within our royalty lands.
The value of the Group's Kestrel royalty decreased by GBP14.7m
to GBP116.7m as at June 30, 2014, from GBP131.4 million as at
December 31, 2013. The decrease is largely attributable to a
downward revision of expected royalty income in the short-term
following the provision of forecast information as discussed above,
as well as the recent downward movements in the coking and thermal
coal prices and the further strengthening of the pound sterling
against the Australian dollar.
Amapá, Brazil
Royalty receipts amounted to GBP0.2m in the six months to June
30, 2014 (2013: GBP0.7m). Subsequent to an accident at the Santana
port in March 2013, we understand the operator, Zamin, is gradually
resuming shipping of iron ore which we expect to accelerate when
the construction of the new port and loading facilities is
completed later this year.
The recent fall in iron ore prices, coupled with revisions to
the long-term shipping cost forecasts resulted in the expected
discounted future cash flows from the royalty no longer exceeding
amortised cost. As a result, an impairment charge of GBP4.5m was
recognised at June 30, 2014. This is a non-cash provision, and
production and sales continue from the underlying operation.
For further information on the project, please see
www.zamin.com.
Tucano, Brazil
On April 24, 2014, Beadell Resources Ltd ("Beadell") announced
in its March 2014 Quarterly Report that it has continued to build
up its stockpiles of magnetite concentrate at its magnetic
separation plant. Beadell has an off-take agreement in place with
Zamin for 500,000 tonnes of 65% iron concentrate per annum. Beadell
expects first sales of this concentrate in the third quarter of
2014.
For further information on the project, please see
www.beadellresources.com.au.
El Valle-Boinás/Carlés, Spain ("EVBC")
Royalty receipts received in the first six months of 2014 were
GBP0.8m (2013: GBP1.1m) on a like for like basis. Production at
EVBC has remained steady in the year to date. However, on August
13, 2014, the operator, Orvana Minerals Corp ("Orvana"), announced
that it had updated its mineral resources and reserves estimate for
EVBC resulting in a decrease in resources and reserves. This has
had the effect of reducing the mine life to approximately four
years compared to the previously reported nine years. The reduction
was primarily as a result of the application of cut-off grades in
certain zones of the mine and the placing of the Carlés mine into
care and maintenance.
The new mine plan brings forward metal production at the expense
of mine life which we expect to lead through to accelerated royalty
cash flows to the Group in the short-term. We also note that the
inferred mineral resources, which are not included in the mine
plan, are estimated to contain 979,500 gold ounces at a grade of
5.05g/tonne, providing opportunities to extend the mine life with
further reserve definition drilling.
The current reported shortening of the mine life has resulted in
a GBP3.6m reduction in carrying value of the asset at June 30,
2014.
For further information please see www.orvana.com.
Four Mile Uranium, South Australia
On June 26, 2014 Alliance Resources Ltd ("Alliance") announced
that the Four Mile uranium mine was officially opened. Production
commenced on April 14, 2014, and for the period to August 1, 2014
production was 685,501 lb of U(3) O(8) . A further 234,000 lb of
U(3) O(8) is expected to be produced in August. Production rates
appear to be improving as the mine ramps up, with output of
264,668lbs during the month of July exceeding the monthly forecast
by 11%. First sales are expected in September 2014, and the Group
expects to receive its first royalty payments shortly
thereafter.
The project is currently held by Quasar Resources Pty Ltd (75%)
and Alliance (25%).
For further information please see
www.allianceresources.com.au.
Maracás Vanadium, Brazil
On June 2, 2014 the Group announced that it had entered into a
definitive agreement with Cancap Investments Limited ("Cancap") to
acquire its royalty interest in the Maracás ("Maracás") vanadium
project, located in Brazil and operated by TSX Venture Exchange
listed Largo Resources Limited ("Largo"). The royalty interest is a
2% NSR royalty on all mineral products sold from the royalty area.
The total consideration was US$22 million in cash payable on
completion of the sale together with 500,000 warrants, plus a
further US$3.0m cash when the project reaches certain annualised
production milestones.
Largo announced that the Maracás project achieved first
production of vanadium pentoxide on August 2, 2014, with a target
to reach production capacity of 9,600 tonnes of V(2) O(5)
equivalent within 12 months of operations. The project is forecast
to produce approximately 11,400t of V(2) O(5) equivalent annually
over a 29 year mine life.
For further information please see www.largoresources.com.
Development royalties
Salamanca Uranium, Spain
On April 24, 2014, Berkeley Resources Limited ("Berkeley")
announced that it has been granted the mining licence for the
Retortillo deposit in central Spain. Retortillo forms part of
Berkeley's flagship Salamanca uranium project. This is a major
milestone in advancing the project towards first production. In
addition, on August 18, 2014 Berkeley announced it had discovered
high grade uranium mineralisation in a satellite deposit close to
its Retortillo deposit. This demonstrates the excellent potential
upside associated with this project.
For further information on the project please see
www.berkeleyresources.com.
Non-current receivables
Dugbe 1 Gold, Liberia
The Group provided the final US$5m tranche of the US$15m advance
to Hummingbird Resources PLC ("Hummingbird"), following the
satisfaction of the relevant criteria, including the completion of
a scoping study and 25,000 meters of infill drilling on Dugbe 1.
Hummingbird has stated that it is fully funded up to and beyond the
completion of its Detailed Feasibility Study, expected towards the
end of 2014. On March 12, 2014 Hummingbird announced an increased
mineral resource for the Tuzon deposit at Dugbe 1.
For further information please see
www.hummingbirdresources.co.uk.
Listed equity investments
As of June 30, 2014 Anglo Pacific had investments in listed
equities valued at approximately GBP14.9m (December 31, 2013:
GBP20.1m). The Group has continued to realise cash from certain
non-core positions in its equity portfolio and, during the period,
reduced the number of holdings in the equity book by approximately
50%. The cash realised from the portfolio amounted to GBP7.0m to
June 30, 2014, resulting in gains of GBP2.1m since December 31,
2013.
The Group continues to maintain a holding of equity investments
that management expects could increase in value in the short to
medium-term, or lead to possible royalty opportunities. Management
expects to dispose of other non-core equity positions in the
short-term where a royalty is no longer considered likely, which
will realise additional cash proceeds.
Private mining assets
Anglo Pacific announces today the disposal of its Panorama Coal
interests in British Columbia, Canada to Atrum Coal NL (ASX:ATU).
Disposal proceeds were US$0.5m of cash payable on completion, a
US$2.0m promissory note repayable within 12 months, and one million
Atrum Coal shares. The Group has retained a royalty of the higher
of 1% of gross revenues on a "mine gate" basis or US$1/tonne over
any coal mined and sold from the properties as part of the sales
process. The carrying value of the properties sold as of June 30,
2014 was GBP0.9m (US$1.5m). Completion is anticipated to occur by
September 2, 2014.
Finance review
H1 2014 H1 2013 FY 2013
----------------------- --------------------- ------------------ ------------------
AUD $'000 GBP AUD GBP AUD GBP
GBP'000 $'000 GBP'000 $'000 GBP'000
Kestrel 2,844 1,558 6,760 4,438 16,127 9,941
EVBC 791 1,143 2,018
Amapá 232 738 749
----------------------- ---------- --------- ------- --------- ------- ---------
Royalty income 2,581 6,319 12,708
EVBC conversion - 2,023 2,023
----------------------- ---------- --------- ------- --------- ------- ---------
Total royalty related
income 2,581 8,342 14,731
----------------------- ---------- --------- ------- --------- ------- ---------
Royalty income was GBP2.6m in the period, a reduction of GBP3.7m
compared to GBP6.3m in the first half of 2013 (excluding the one
off receipt in relation to the EVBC conversion). This is mainly due
to production at Kestrel being predominantly outside the Group's
private royalty land. This is in line with the Group's previously
published view that production will gradually move fully within the
private royalty land during 2015. The Group was satisfied with
production levels at EVBC although the declining gold price has
resulted in a reported fall of GBP0.4m in the period. Sales at
Amapá have gradually recommenced in the period, but remain below
the level achieved prior to the port incident.
Operating expenses in the period to June 30, 2014 increased by
GBP0.5m, or 32%, when compared to the same period in 2013. This
includes a number of one-off costs associated with creating the
Value Creation Plan and recruitment consultancy costs, and an
increase in investor relation costs and associated travel. Finance
costs include the arrangement fee for the Group's US$15m revolving
credit facility, foreign exchange losses and the costs associated
with equity funding.
In line with our accounting policy, the Group assessed the
carrying value of its assets for any potential impairment. As a
result of this review, a GBP4.5m charge was recognised in the
period in relation to the Amapá royalty. This was as a result of
softening in iron ore prices, a revision to future shipping costs
and a reassessment of the discount rate following the port incident
and the impact in the short-term from a change of operator. This is
a non-cash charge and the Group remains confident in the long-term
value of the project.
The deferred tax charge reflects the reversal of the previously
recognised deferred tax asset mainly in relation to the unrealised
losses associated with the Group's mining and exploration interests
(largely equity investments). In light of considerable divestment
of these holdings during 2014, and an expectation of the size of
profits to be made from future similar asset sales, it is no longer
expected that the deferred losses will be utilised in full in the
foreseeable future, an accounting requirement to continue to
recognise the asset on the balance sheet. As such, in accordance
with IFRS, the deferred tax asset has been reversed at the period
end. These losses will remain available should future profits
materialise.
All of the above results in the reporting of a loss for the six
months to June 30, 2014 of GBP23.0m compared with GBP27.5m for the
same period in 2013 (restated). Removing the various non-cash
valuation and impairment charges results in an adjusted loss per
share of 0.77p for the six months to June 30, 2014 compared with
adjusted earnings per share of 5.56p in 2013 (restated).
Pence
Net asset reconciliation GBP'000 per share
----------------------------------------------- ---------- -----------
January 1, 2014 216,851 196
Kestrel
* Foreign exchange 3,323
* Valuation decrease (18,055)
* Deferred tax 5,416
Amapá impairment (net of deferred tax) (3,150)
EVBC valuation movement (net of deferred tax) (2,880)
Adjusted loss after tax (846)
Profit on disposal of equities 2,073
Dividend (11,535)
Equity raise 9,590
Release of deferred tax assets (9,431)
Foreign exchange and other 592
June 30, 2014 191,948 165
----------------------------------------------- ---------- -----------
The Group's net asset value held up reasonably well in the
period despite the impairment of Amapá, the Kestrel and EVBC
valuation adjustments and the release of certain deferred tax
assets. The acquisition of the Maracás royalty contributed to net
asset growth as GBP9.6m of equity was raised to fund this
acquisition. The softening of the coking coal price resulted in the
valuation of the Kestrel royalty decreasing by GBP14.7m. Net assets
reduced by a further GBP11.5m because of the Group's dividends. The
2013 interim dividend was paid in full in February and, following
its approval at the AGM in June, the 2013 final dividend has been
accrued.
Careful cash management continued during the first half of 2014.
The Group realised GBP7.0m in cash from its portfolio of mining and
exploration interests in the period. The Group received GBP0.5m in
relation to its Minera debenture, previously provided for in full.
A tax refund was also received during the first half following
losses crystallised in 2013. Finally, the acquisition of the
Maracás royalty was part funded by way of share issue. This has
resulted in the Group's cash balances only marginally reducing from
GBP15.7m at January 1, 2014 to GBP14.4m at June 30, 2014. Further,
the Group extended the term of its undrawn twelve-month US$15m
revolving credit facility to July 31, 2015 providing additional
flexibility for acquiring new royalties.
Dividend
The Board has declared an interim dividend for 2014 of 4.45p per
share, maintaining the 2013 interim dividend per share. The
dividend will be paid on February 4, 2015 to shareholders on the
register at the close of business on November 28, 2014. The shares
will be quoted ex-dividend in Canada and London on November 27,
2014. The Directors intend to offer a scrip alternative and a
definitive announcement will be made closer to the ex-dividend date
with consideration to the share price at that time.
A payment of GBP4.9m, equivalent to 4.45p per share, is included
in the cash flow statement to June 30, 2014, representing the 2013
interim dividend recognised and paid in February 2014. This
together with the 5.75p per share 2013 final dividend approved at
the AGM in June and paid in August 2014, means total dividend
payments in relation to 2013 were 10.2p per share.
Outlook
We remain confident in the long-term demand fundamentals for
base metals and bulk commodities, which should positively impact on
Anglo Pacific's royalty portfolio. We continue to be confident in
our ability to acquire additional royalties that will generate
strong and sustainable cash flows and allow us not only to improve
our dividend cover, but also to increase our dividends per share in
the longer-term.
In the short term, the outlook for the remainder of 2014 remains
subdued and the Group expects lower adjusted earnings until
production from Kestrel returns to our private royalty lands in the
second half of 2015. The current price environment in our targeted
commodities, coupled with limited financing avenues for operators
in this sector, presents opportunities for the Group to grow our
royalty portfolio. Your Group remains debt free and, along with a
committed dividend policy, remains a lower risk, mining focused
investment for investors who believe in long-term global GDP
growth.
Responsibility statement
The Directors confirm that, to the best of their knowledge,
these condensed consolidated interim financial statements have been
prepared in accordance with IAS 34 'Interim financial reporting',
as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority. The interim management report includes a fair review of
the information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
-- material related-party transactions in the first six months
of the financial year and any material changes in the related-party
transactions described in the last Annual Report.
The Directors are listed in the Annual Report of December 31,
2013 and a list of the current Directors is maintained on the Anglo
Pacific website: www.anglopacificgroup.com. The maintenance and
integrity of this website is the responsibility of the
Directors.
On behalf of the Board
J.A. Treger
Chief Executive Officer
August 28, 2014
Consolidated Financial Statements
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2014
Six months ended
Restated
(see note 1.1)
June 30, 2014 June 30, 2013
Notes GBP'000 GBP'000
Royalty related income 2,581 8,342
Amortisation of royalty intangible assets 11 (380) (455)
Operating expenses (1,928) (1,459)
-------------- ---------------
Operating profit 273 6,428
Gain/Loss on sale of mining and exploration interests 2,073 (4,888)
Impairment of mining and exploration interests 12 (759) (20,812)
Impairment of royalty intangible assets 11 (4,500) -
Revaluation of coal royalties (Kestrel) 9 (18,055) (11,322)
Revaluation of royalty financial instruments 10 - (2,505)
Finance income 4 183 349
Finance costs 5 (1,151) (854)
Other income 6 1,017 761
-------------- ---------------
Loss before tax (20,919) (32,843)
Current income tax charge (838) (859)
Deferred income tax (charge)/credit (1,291) 6,219
-------------- ---------------
Loss attributable to equity holders (23,048) (27,483)
============== ===============
Total and continuing loss per share
Basic and diluted loss per share 7 (20.84p) (25.29p)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2014
Restated
(see note 1.1)
June 30, 2014 June 30, 2013
Notes GBP'000 GBP'000
Loss attributable to equity holders (23,048) (27,483)
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 (4,534) (23,442)
Reclassification to income statement on disposal of available-for-sale
investments (563) 1,055
Reclassification to income statement on impairment 759 20,812
Deferred tax relating to items that will be reclassified 13 583 (293)
Net exchange gain/(loss) on translation of foreign operations 3,600 (10,221)
-------------- ---------------
Other comprehensive loss for the period, net of tax (155) (12,089)
Total comprehensive loss for the period (23,203) (39,572)
============== ===============
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT JUNE 30, 2014
Restated
(see note 1.1)
June 30, June 30, December 31,
2014 2013 2013
Notes GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 1,945 2,116 1,989
Coal royalties (Kestrel) 9 116,702 149,787 131,434
Royalty financial instruments 10 24,643 37,644 27,847
Royalty and exploration intangible assets 11 46,088 50,656 37,288
Mining and exploration interests 12 14,877 26,014 20,072
Other receivables 11,874 9,753 8,775
Deferred tax 13 3,084 10,647 11,013
--------- --------------- -------------
219,213 286,617 238,418
Current assets
Trade and other receivables 1,699 4,978 5,332
Cash and cash equivalents 14,413 16,440 15,706
--------- --------------- -------------
16,112 21,418 21,038
Total assets 235,325 308,035 259,456
========= =============== =============
Non-current liabilities
Deferred tax 13 35,116 50,791 41,378
--------- --------------- -------------
35,116 50,791 41,378
Current liabilities
Income tax liabilities 794 - 465
Trade and other payables 7,467 6,849 762
--------- --------------- -------------
8,261 6,849 1,227
Total liabilities 43,377 57,640 42,605
--------- --------------- -------------
Capital and reserves attributable to shareholders
Share capital 14 2,329 2,192 2,218
Share premium 14 29,328 26,853 29,328
Other reserves 21,989 33,606 12,509
Retained earnings 138,302 187,744 172,796
--------- --------------- -------------
Total equity 191,948 250,395 216,851
--------- --------------- -------------
Total equity and liabilities 235,325 308,035 259,456
========= =============== =============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) FOR THE
SIX MONTHS ENDED JUNE 30, 2014
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, 2013 2,192 26,853 - - 9,771 354 37,673 632 (2,601) 226,090 300,964
Loss for the period
(restated - see
note 1.1) - - - - - - - - - (27,483) (27,483)
Other comprehensive
income:
Available-for-sale
investments
Valuation movement
taken to equity - - - - (23,442) - (665) - - - (24,107)
Transferred to
income statement
on disposal - - - - 1,055 - - - - - 1,055
Transferred to
income
statement on
impairment - - - - 20,812 - - - - - 20,812
Deferred tax - - - - (293) - 152 - - - (141)
Foreign currency
translation - - - - - - (9,708) - - - (9,708)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- ---------
Total comprehensive
loss (restated -
see note 1.1) - - - - (1,868) - (10,221) - - (27,483) (39,572)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Dividends - - - - - - - - - (11,065) (11,065)
Issue of ordinary
shares - - - - - - - - - - -
Issue of share
capital under
share-based
payment - - - - - (134) - - - 202 68
Total transactions
with owners of the
company - - - - - (134) - - - (10,863) (10,997)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Balance at June 30,
2013 (restated -
note 1.1) 2,192 26,853 - - 7,903 220 27,452 632 (2,601) 187,744 250,395
======== ======== ======== ======== ============ ============ ============ ======== =========== ========= =========
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 June 30,
2013 (restated -
see note 1.1) 2,192 26,853 - - 7,903 220 27,452 632 (2,601 ) 187,744 250,395
Loss for the period - - - - - - - - - (15,014) (15,014)
Other comprehensive
income:
Available-for-sale
investments
Valuation movement
taken to equity - - - - (5,967) - - - - - (5,967)
Transferred to
income
statement on
disposal - - - - (1,926) - - - - - (1,926)
Transferred to
income statement
on impairment - - - - 5,509 - - - - - 5,509
Deferred tax - - - - 51 - 33 - - - 84
Foreign currency
translation - - - - - - (18,735) - - - (18,735)
------------ ------------
Total comprehensive
loss - - - - (2,333) - (18,702) - - (15,014) (36,049)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Dividends - - - - - - - - - - -
Issue of ordinary
shares 26 2,475 - - - - - - - - 2,501
Value of employee
services - - - - - (62) - - - 66 4
Total transactions
with owners of the
company 26 2,475 - - (62) - - - 66 2,505
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Balance at December
31, 2013 2,218 29,328 - - 5,570 158 8,750 632 (2,601) 172,796 216,851
======== ======== ======== ======== ============ ============ ============ ======== =========== ========= =========
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 - - - - - - - - (23,048) (23,048)
Other comprehensive
income:
Available-for-sale
investments
Valuation
movement taken
to equity - - - - (4,534) - 545 - - - (3,989)
Transferred to
income
statement on
disposal - - - - (563) - - - - - (563)
Transferred to
income
statement on
impairment - - - - 759 - - - - - 759
Deferred tax - - - - 583 - 14 - - - 597
Foreign currency
translation - - - - - - 3,041 - - - 3,041
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- ---------
Total comprehensive
loss - - - - (3,755) - 3,600 - - (23,048) (23,203)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Dividends - - - - - - - - - (11,535) (11,535)
Issue of ordinary
shares and
warrants on
acquisitions (note
14) 111 - 9,479 143 - - - - - - 9,733
Value of employee
services - - - - - 13 - - - 89 102
Total transactions
with owners of the
company 111 - 9,479 143 - 13 - - - (11,446) (1,700)
-------- -------- -------- -------- ------------ ------------ ------------ -------- ----------- --------- ---------
Balance at June 30,
2014 2,329 29,328 9,479 143 1,815 171 12,350 632 (2,601) 138,302 191,948
======== ======== ======== ======== ============ ============ ============ ======== =========== ========= =========
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2014
Restated
(see note 1.1)
June 30, 2014 June 30, 2013
Notes GBP'000 GBP'000
Cash flows from operating activities
Loss before taxation (20,919) (32,843)
Adjustments for:
Interest on bank deposits (69) (439)
Shares in-lieu of interest on mining and exploration interests 6,12 (330) -
Depreciation of property, plant and equipment 8 10
Amortisation of royalty intangible assets 11 380 455
(Gain)/Loss on disposal of mining and exploration interests (2,073) 4,888
Impairment of royalty intangible assets 11 4,500 -
Impairment of mining and exploration interests 12 759 20,812
Revaluation of coal royalties (Kestrel) 9 18,055 11,322
Revaluation of royalty financial instruments 10 - 2,505
Share-based payment 102 82
-------------- ---------------
413 6,792
Decrease/(Increase) in trade and other receivables 534 (6,726)
Increase/(Decrease) in trade and other payables 63 (1,586)
-------------- ---------------
Cash generated from operations 1,010 (1,520)
Income taxes paid (305) (4,434)
Net cash generated from/(used in) operating activities 705 (5,954)
-------------- ---------------
Cash flows from investing activities
Proceeds from mining and exploration interests 12 7,047 3,021
Purchases of mining and exploration interests 12 (391) (971)
Purchases of royalty interests 11 (13,094) -
Purchases of property, plant and equipment - (14)
Exploration and evaluation expenditure 11 (57) (66)
Interest on bank deposits 69 439
Net cash (used in)/generated from investing activities (6,426) 2,409
-------------- ---------------
Cash flows from financing activities
Proceeds from issue of share capital 14 9,590 -
Dividends paid (4,893) (4,816)
Net cash generated/(used in) from financing activities 4,697 (4,816)
-------------- ---------------
Net decrease in cash and cash equivalents (1,024) (8,361)
Cash and cash equivalents at beginning of period 15,706 24,036
-------------- ---------------
Unrealised foreign currency (loss)/gain (269) 765
Cash and cash equivalents at end of period 14,413 16,440
============== ===============
NOTES TO THE ACCOUNTS
1. Basis of preparation
These condensed consolidated interim financial statements of
Anglo Pacific Group PLC are for the six months ended June 30, 2014.
They have been prepared in accordance with IAS 34 'Interim
Financial Reporting', as adopted by the European Union. They do not
include all of the information required for full annual financial
statements, and should be read in conjunction with the consolidated
financial statements of the Group for the year ended December 31,
2013.
The condensed consolidated interim financial statements have
been prepared in accordance with the accounting policies adopted in
the last annual financial statements for the year to December 31,
2013, which were prepared in accordance with IFRS, as adopted by
the European Union.
This condensed consolidated financial information does not
comprise statutory accounts within the meaning of Section 434 of
the Companies Act 2006. Statutory accounts for the year ended
December 31, 2013 were approved on March 31, 2014. Those accounts,
which contained an unqualified audit report under Section 495 of
the Companies Act 2006 and which did not make any statements under
Section 498 of the Companies Act 2006, have been delivered to the
Registrar of Companies in accordance with Section 441 of the
Companies Act 2006.
1.1 FRC review update
The Group has continued its dialogue with the FRC's Financial
Reporting Review Panel ('FRC') during the year in relation to the
two open items reported in the 2013 annual report: accounting
classification of royalties and the impairment of its IAS 39 equity
instruments; and is pleased that correspondence with the FRC
regarding our accounting policies has now been concluded with no
further adjustments required.
With respect to the two open items, the FRC requested the Group
provide further insight into how its accounting policy for royalty
interests as intangibles complied with IFRS and to clarify its
disclosure of the judgement whether a royalty contract is an
intangible or financial asset upon initial recognition.
The FRC also requested the Group clarify the accounting policy
for recognising impairments of equity AFS assets, in particular by
disclosing the "significant or prolonged" criteria applied in the
2013 annual financial statements.
The Group provides additional information below.
-- Classification of royalties
Additional disclosure was provided in the Group's 2013 Annual
Report and Accounts in relation to the judgements exercised by the
Directors in determining whether its royalties should be classified
as:
-- Intangible Assets in accordance with IAS 38;
-- Financial Assets in accordance with IAS 32 and 39; or
-- Investment properties in accordance with IAS 40.
The Group considers that the application of the above accounting
standards, and the resulting accounting classification and
financial impact of each in the financial statements, most
appropriately reflects the substance of the underlying commercial
terms of each royalty arrangement. The application of each standard
to the underlying royalty arrangement, rather than electing to
apply IAS 32 and 39 to all royalties is consistent currently with
the Group's international peer group and as such enables its
stakeholders to make informed investment decisions.
The following additional information seeks to clarify the
decision making process further:
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 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 necessarily being
treated as financial assets in accordance with IAS 32 and 39.
Type 3 - Investment property: Royalties which are derived from
the ownership of sub-stratum land are accounted for as investment
properties under IAS 40, even though the substance of their
commercial terms is identical to vanilla royalties. The Group does
not expect to obtain royalties in this manner going forward, as it
is unusual for sub-stratum minerals not to be the property of the
state.
A summary of the Group's accounting approach is set out
below:
Accounting Substance of contractual Accounting implications Examples
classification terms
------------------- ---------------------------------------------------------- ------------------------------------------------------------ -------------
Investment Kestrel
property * Direct ownership of sub-stratum land * Land is carried at fair value on the balance sheet
* Returns based on royalty related production * Movements in fair value recognised in income
statement
* Royalty income is recognised as revenue in the income
statement
------------------- ---------------------------------------------------------- ------------------------------------------------------------ -------------
Intangible Amapá
assets * Simple royalty with no right to receive cash other * Investment is carried at amortised cost as an Tucano
than through a royalty related to production intangible asset on the balance sheet Four Mile
Salamanca
Pilbara
* Royalty income is recognised as revenue in the income Ring of
statement Fire
Bulqiza
Mount
* Intangible asset is amortised on a systematic basis Ida
Maracás
* Intangible asset is assessed for indicators of
impairment at each period end
------------------- ---------------------------------------------------------- ------------------------------------------------------------ -------------
Available Isua
for sale * Royalty arrangement with a contractual right to * Financial asset is recognised at fair value on the Jogjakarta
debt financial receive cash (e.g. through a mandated interest rate balance sheet;
asset or milestones which if not met trigger repayment)
* Changes in fair value due to changes in expected
future cash flows are recognised within the income
statement with other valuation changes taken to
reserves
* Fixed effective interest income recognised in the
income statement
* Royalty receipts reduce the asset's carrying value
------------------- ---------------------------------------------------------- ------------------------------------------------------------ -------------
Available-for-sale EVBC
equity financial * Similar in contractual terms to an intangible asset * Financial asset is carried at fair value with fair
asset value movements recognised in reserves
* However, includes a right to convert into equity
(noting that for EVBC this right was subsequently * Royalty income is recognised as revenue in the income
extinguished) statement
* Asset is assessed for impairment at each reporting
period end (see section below)
------------------- ---------------------------------------------------------- ------------------------------------------------------------ -------------
The FRC has observed that the alternative would be to account
for "type 1" or "vanilla" royalty contracts as financial assets. It
notes that, as this treatment would be permitted by IFRS, it would
allow the Group to account for its royalty contracts more
consistently and reduce the complexity of the Group's current
accounting model. The FRC has confirmed that, in view of the
additional disclosures made by the Group, it does not intend to
pursue its consideration of this accounting policy further.
-- Impairment of mining and exploration interests
Where the Group's mining and exploration interests are
classified as available-for-sale equity investments under IAS 39,
they are held at fair value at each reporting date, with movements
in fair value recognised in other comprehensive income. When an
equity investment is considered "impaired", because the fair value
loss is considered either 'significant' relative to the cost at
acquisition or the fair value has been below cost for a 'prolonged'
period, the interest is considered impaired and the loss is
reclassified from other comprehensive income to the income
statement. Numerical limits for the thresholds for "significant" or
"prolonged" are not provided in International Financial Reporting
Standards.
In the June 2013 interim statements, the Group considered a
range of qualitative and quantitative factors before concluding
that an impairment charge should be recognised. These included
assessing "significance" by comparing the relative decline in the
value of its equity portfolio compared to relevant industry
indices. The Directors believed that a period of three to five
years was "prolonged". At December 31, 2013 the Group reassessed
the point at which it considered an unrealised mark to market loss
should be recognised as an impairment charge. Following a series of
correspondence with the FRC, which indicated that the Group's
policy for setting thresholds should be closer aligned to standard
practice, the Group agreed to reduce its thresholds such that
'significant' was defined as a decline in fair value of greater
than 25% relative to an individual asset's original acquisition
cost and 'prolonged' was defined as a period of greater than 18
months that the interest's fair value is below cost. The Group
reflected this reduction in thresholds in its 2013 accounts by
restating the 2012 comparative amounts. The FRC noted that the
restatement of comparatives is consistent with the correction of
the previous accounting.
Applying these new thresholds resulted in an impairment of
GBP20.8m being booked in the income statement at June 30, 2013.
Restating the 2013 comparative financial information results in a
reduction of GBP13.5m from the charge of GBP34.3m previously
reported, because some of the impairment charges should have been
recognised in an earlier period. This is consistent with the
adjustments made to the 2013 Annual Report. There was a reduction
in the previously reported retained earnings of GBP29.1m at January
1, 2013 in relation to these new impairment thresholds.
The financial information for the six month period ended June
30, 2014 includes comparative information for June 30, 2013, which
has been restated to be prepared in accordance with the Group's
modified thresholds for impairment as set out above, as well as the
other accounting changes made at December 31, 2013 that were
described in full on pages 71-73 of the 2013 Annual Report. The
effects of this are set out in the table below. There is no change
to the balance sheet reported previously.
Six months ended June 30, 2013
-------------------------------------------------- ------- --------------------------------------------
GBP'000 Ref Restated Previously reported Adjustment
-------------------------------------------------- ------- --------- -------------------- -----------
Royalty related income (a) 8,342 6,319 2,023
Amortisation of royalties (455) (455) -
Operating expenses (b) (1,459) (1,565) 106
-------------------------------------------------- ------- --------- -------------------- -----------
Operating profit 6,428 4,299 2,129
Loss on sale of mining and exploration interests (4,888) (4,888) -
Impairment of mining and exploration interests (c) (20,812) (34,266) 13,454
Revaluation of coal royalties (Kestrel) (d) (11,322) - (11,322)
Revaluation of royalty financial instruments (e) (2,505) - (2,505)
Finance income (g) 349 453 (104)
Finance costs (f) (854) - (854)
Other income (g) 761 657 104
Other losses (f) - (749) 749
-------------------------------------------------- ------- --------- -------------------- -----------
Loss before tax (32,843) (34,494) 1,651
Current income tax charge (859) (961) 102
Deferred income tax credit/(charge) (h) 6,219 5,489 730
-------------------------------------------------- ------- --------- -------------------- -----------
Loss attributable to equity holders (27,483) (29,966) 2,482
----------------------------------------------------------- --------- -------------------- -----------
(a) Following the restatement of the EVBC accounting treatment
at December 31, 2013, EVBC is now considered an IAS 39 equity
financial asset and, as such, cash receipts are now reflected in
the income statement.
(b)&(f) Finance costs, previously included within operating
expenses are now reclassified to finance costs and include foreign
exchange losses previously included within other losses.
(c) At December 31, 2013 the Group reassessed the point at which
it considered an equity investment to be impaired. 'Significant'
was defined as a decline in fair value of greater than 25% relative
to an individual asset's original acquisition cost and 'prolonged'
was defined as a period of greater than 18 months that the
interest's fair value is below cost with impairment charges booked
on this basis. As set out in the 2013 Annual Report, the 2012
comparative financial information was restated and the June 30,
2013 comparatives have now also been restated.
(d) The Kestrel royalty was restated at December 31, 2013 as
investment property. Consequently, the June 30, 2013 valuation
movement is recognised in the income statement as opposed to the
revaluation reserve. See note 9.
(e)&(g) This represents the valuation movement due to the
recognition of effective interest income or a change in valuation
due to changes in expected cash flows in relation to IAS 39 debt
financial assets now being recognised in the Income Statement.
Again, this is as a result of a restatement at December 31, 2013.
Previously, the valuation movement went fully through the
revaluation reserve.
(h) Represents the deferred tax impact of (a) to (g).
In addition to the restatements outlined above, the Group has
presented finance income, which principally represents interest on
bank deposits and long-term receivables below operating profit in
the current period and the comparative presentation has also been
aligned to be on a consistent basis.
1.2 Going concern
After making enquiries and reviewing the Group's forecasts and
projections, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. The Group therefore continues to adopt
the going concern basis in preparing its consolidated financial
statements.
1.3 Changes in accounting policies
The accounting policies used by the Group in these condensed
financial statements are consistent with those applied by the Group
in its financial statements for the year to 31 December 2013, as
amended to reflect the adoption of new standards, amendments and
interpretations which became effective in the period as shown
below.
New standards adopted during the period
The following standards, amendments and interpretations endorsed
by the EU are effective for the Group's half year to June 30, 2014,
and had no material impact on the financial statements:
-- IAS 27 (revised) - Separate Financial Statements;
-- IAS 28 (revised) - Investments in Associates and Joint Ventures;
-- IAS 32 (amended) - Offsetting Financial Assets and Financial Liabilities;
-- IAS 36 (amended) - Recoverable Amounts Disclosures for Non-Financial Assets;
-- IAS 39 (amended) - Novation of Derivatives and Continuation of Hedge Accounting;
-- IFRS 10 Consolidated Financial Statements;
-- IFRS 11 Joint Arrangements; and
-- IFRS 12 Disclosure of Interests in Other Entities.
Standards in issue but not yet effective
The following standards, amendments and interpretations were in
issue at the date of approval of the condensed consolidated
financial statements but were not yet effective for the current
accounting period and have not been adopted early. The Directors do
not anticipate that their adoption in future periods will have a
material impact on the financial statements of the Group.
-- IAS 16 (amended) - Clarification of acceptable methods of
depreciation and amortisation; IAS 38 (amended) - Clarification of
acceptable methods of depreciation and amortisation;
-- IAS 19 (amended) - Defined Benefit Plans - Employee Contributions;
-- IFRS 9 Financial Instruments;
-- IFRS 11 (amended) - Acquisition of interests in joint operations;
-- IFRS 14 - Regulatory deferral accounts;
-- IFRS 15 - Revenue from contracts with customers;
-- IFRIC 21 - Levies;
-- Annual Improvements to IFRSs (2010 - 2012 Cycle); and
-- Annual Improvements to IFRSs (2011 - 2013 Cycle).
2 Financial risk management
The Group's principal treasury objective is to provide
sufficient liquidity to meet operational cash flow 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, price risk and interest rate risk. The
Group manages these risks as follows:
Liquidity and funding risk
The objective of the Group in managing funding risk is to ensure
that it can meet its financial obligations as and when they fall
due. At June 30, 2014 there was no debt outstanding. The Group has
a strong credit rating and has good access to capital markets, if
required.
Credit risk
The Group's principal financial assets are bank balances and
cash, trade and other receivables and investments, which represent
the Group's maximum exposure to credit risk in relation to
financial assets. The Group undertakes detailed analysis of factors
which mitigate the risk of default to the Group.
Foreign exchange risk
The Group's transactional foreign exchange exposure arises from
income, expenditure and purchase and sale of assets denominated in
foreign currencies. As each material commitment is made, the risk
in relation to currency fluctuations is assessed by the Board and
regularly reviewed. The Group does not consider it necessary to
have a hedging programme in place at this time.
Other price risk
The Group is exposed to other price risk in respect of its
mining and exploration interests which include listed and unlisted
equity securities and any convertible instruments. 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. 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.
(a) Financial assets and liabilities
The Group held the following financial assets and financial
liabilities:
June 30, 2014 June 30, 2013 December 31, 2013
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------------
Available-for-sale (held at fair value)
Royalty financial instruments 24,643 37,644 27,847
Mining and exploration interests 14,877 26,014 20,072
Loans and receivables
Trade and other receivables 12,065 11,661 11,599
Cash at bank and in hand 14,413 16,440 15,706
Financial liabilities
Trade and other payables 481 133 189
The Directors consider that the carrying amount of trade and
other receivables and trade and other payables is approximately
their fair value.
(b) Fair value hierarchy
The following table presents financial assets and liabilities
measured at fair value in the statement of financial position in
accordance with the fair value hierarchy. This hierarchy groups
financial assets and liabilities into three levels based on the
significance of 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 (ie. as prices) or indirectly (ie. derived from prices);
and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The level within which the financial asset or liability is
classified is determined based on the lowest level of significant
input to the fair value measurement.
The following tables present the Group's assets and liabilities
that are measured at fair value at June 30, 2014, June 30, 2013 and
December 31, 2013:
June 30, 2014
Level 1 Level 2 Level 3 Total
Notes GBP'000 GBP'000 GBP'000 GBP'000
Assets
Coal royalties (Kestrel) (a) - - 116,702 116,702
Royalty financial instruments (b) - - 24,643 24,643
Mining and exploration interests - quoted (c) 14,415 - - 14,415
Mining and exploration interests - unquoted (d) - 304 - 304
Mining and exploration interests - royalty options (e) - 158 - 158
-------- -------- -------- --------
Total 14,415 462 141,345 156,222
Net fair value 14,415 462 141,345 156,222
======== ======== ======== ========
June 30, 2013
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Assets
Coal royalties (Kestrel) (a) - - 149,787 149,787
Royalty financial instruments (b) - - 37,644 37,644
Mining and exploration interests - quoted (c) 23,396 - - 23,396
Mining and exploration interests - unquoted (d) - 2,138 - 2,138
Mining and exploration interests - royalty options (e) - 480 - 480
-------- -------- -------- --------
Total 23,396 2,618 187,431 213,445
Net fair value 23,396 2,618 187,431 213,445
======== ======== ======== ========
December 31, 2013
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Assets
Coal royalties (Kestrel) (a) - - 131,434 131,434
Royalty financial instruments (b) - - 27,847 27,847
Mining and exploration interests - quoted (c) 16,018 - - 16,018
Mining and exploration interests - unquoted (d) - 3,896 - 3,896
Mining and exploration interests - royalty options (e) - 158 - 158
-------- -------- -------- --------
Total 16,018 4,054 159,281 179,353
Net fair value 16,018 4,054 159,281 179,353
======== ======== ======== ========
There have been no significant transfers between Levels 1 and 2
in the reporting period.
The methods and valuation techniques used for the purposes of
measuring fair value altered slightly compared to the previous
reporting period. The Group gives more prominence to the
probability of production by applying a risk weighting to the
discounted net present value outcome in order to fully reflect the
risk that the operation never comes into production. Previously,
this risk was factored into the discount rate applied to the future
cash flow.
(a) Coal royalties (Kestrel)
The Group's coal royalties derive from its ownership of certain
sub-stratum land in Queensland, Australia. In accordance with IAS
40, this land is revalued at each reporting date on the basis of
future expected income discounted at 7% by an independent valuation
consultant. See note 9 for further details. All unobservable inputs
are obtained from third parties.
(b) Royalty financial instruments
The Group's royalty instruments have been classified as
available-for-sale, with value on initial recognition being
calculated as the total cost of the agreement less the valuation of
the option to convert to shares. At the reporting date the royalty
streams have been valued on the net present value of the pre-tax
cash flows discounted at a rate management considers reflects the
risk associated with each of the underlying projects. The outcome
is then risk weighted to reflect the likelihood of the project
achieving production based on any published updates in the year.
Note 10 details the discount rates used. This is the only
unobservable input determined by management. All other unobservable
inputs are obtained from third parties.
The option to convert to shares has been treated as fair value
through profit or loss as designated on initial recognition at the
date of acquisition and has been valued at June 30, 2014 utilising
an option model. The key assumptions, in addition to those utilised
in the royalty stream valuations such as mine life and expected
cash flows, include the price, volatility of the project's listed
equity and where applicable the conversion price and redemption
value of redeemable shares.
(c) Mining and exploration interests - quoted
All the quoted mining and exploration interests have been issued
by publicly traded companies in Australia, Canada, the UK and
Norway. 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 where fair value cannot be reliably
determined. The Group notes any trading activity in the unquoted
instruments and will value its holding accordingly.
(e) Mining and exploration interests - royalty options
All the royalty options are initially recognised using cost
where fair value cannot be reliably determined. The Group considers
the progress of the projects related to each of the royalty options
to ensure there has been no material change in the fair value since
initial recognition.
Fair value measurements in Level 3
The Group's financial assets classified in Level 3 uses
valuation techniques based on significant inputs that are not based
on observable market data.
The following table presents the changes in Level 3 instruments
for the six months ended June 30, 2014.
Royalty financial instruments Coal royalties (Kestrel) Total
GBP'000 GBP'000 GBP'000
At January 1, 2014 27,847 131,434 159,281
Revaluation gains or losses recognised in:
Other comprehensive income (3,597) - (3,597)
Income statement - (18,055) (18,055)
Foreign currency translation 393 3,323 3,716
At June 30, 2014 24,643 116,702 141,345
============================== ========================= =========
The following table presents the changes in Level 3 instruments
for the six months ended June 30, 2013.
Royalty financial instruments Coal royalties (Kestrel) Total
GBP'000 GBP'000 GBP'000
At January 1, 2013 41,945 170,995 212,940
Revaluation gains or losses recognised in:
Other comprehensive income (658) - (658)
Income statement (2,505) (11,322) (13,827)
Foreign currency translation (1,138) (9,886) (11,024)
At June 30, 2013 (restated) 37,644 149,787 187,431
============================== ========================= =========
The following table presents the changes in Level 3 instruments
for the year ended December 31, 2013.
Royalty financial instruments Coal royalties (Kestrel) Total
GBP'000 GBP'000 GBP'000
At January 1, 2013 41,945 170,995 212,940
Revaluation gains or losses recognised in:
Other comprehensive income (2,458) - (2,458)
Income statement (8,689) (13,568) (22,257)
Impairment of royalty instruments (46) - (46)
Foreign currency translation (2,905) (25,993) (28,898)
At December 31, 2013 27,847 131,434 159,281
============================== ========================= =========
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.
Management has not undertaken detailed analysis of the impact of
using alternative discount rates on the fair value of the royalty
streams or the optionality embedded in the royalty instruments, as
the risk weighting applied to the discounted present value of
expected future cashflows more than offsets any valuation downside
by applying higher discount rates.
3 Segment information
Management has determined the operating segments based on the
reports reviewed by the Executive Committee that are used to make
strategic decisions. The Committee considers the Group's
undertakings from a business perspective on a geographic basis.
This has resulted in the Group being organised into two operating
segments - royalties and mining & exploration interests.
The royalties segment encompasses all Group activities relating
directly to the royalties received from mining operations. The
mining and exploration interests segment encompasses all Group
activities relating directly to the acquisition, disposal and
continued monitoring of the Group's investments in listed and
unlisted entities operating in mining and mineral exploration.
The segment information provided to the Executive Committee for
the reportable segments for the six months ended June 30, 2014 is
as follows:
Australia Americas Europe
Mining Mining Mining All other
Royalty interests Royalty interests Royalty interests segments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Royalty related income 1,558 - 232 - 791 - - 2,581
Finance income - - - - - - 183 183
Gain on sale of mining and
exploration interests - 1,829 - 244 - - - 2,073
Other income - 84 502 - - 330 101 1,017
Total segment income 1,558 1,913 734 244 791 330 284 5,854
--------- ---------- -------- ---------- -------- ---------- ---------- ---------
(Loss)/Profit before tax (16,497) 1,585 (4,145) 120 791 23 (2,796) (20,919)
Amortisation - - (380) - - - - (380)
Impairment of non-financial
assets - (328) (4,500) (124) - (307) - (5,259)
Income tax credit/(charge) 3,000 - 1,341 - - - (6,470) (2,129)
Total assets 132,325 9,818 32,589 4,335 25,633 3,374 27,251 235,325
--------- ---------- -------- ---------- -------- ---------- ---------- ---------
Total assets include:
Additions to non-current
assets (other than
financial instruments and
deferred tax assets) - - 13,237 57 - - - 13,294
Total liabilities 33,679 - - - 1,437 - 8,261 43,377
--------- ---------- -------- ---------- -------- ---------- ---------- ---------
The restated segment information for the six months ended June
30, 2013 is as follows:
Australia Americas Europe
Mining Mining Mining All other
Royalty interests Royalty interests Royalty interests segments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Royalty related income 4,438 - 738 - 3,166 - - 8,342
Finance income - - - - - - 349 349
Gain/(Loss) on sale of
mining and exploration
interests - 27 - (292) - (4,623) - (4,888)
Other income - 360 - - - 284 117 761
Total segment income 4,438 387 738 (292) 3,166 (4,339) 466 4,564
-------- ---------- -------- ---------- -------- ---------- ---------- ---------
(Loss)/Profit before tax (6,884) (8,072) 283 (2,279) 3,166 (14,705) (4,352) (32,843)
Amortisation - - (455) - - - - (455)
Impairment of non-financial
assets - (8,459) - (1,987) - (10,366) - (20,812)
Income tax (charge)/credit (612) - - - - - 5,972 5,360
Total assets 172,371 14,319 31,040 9,282 34,562 4,825 41,636 308,035
-------- ---------- -------- ---------- -------- ---------- ---------- ---------
Total assets include:
Additions to non-current
assets (other than
financial instruments and
deferred tax assets) - - 66 - - - 66
Total liabilities 44,885 - - - 5,082 - 7,673 57,640
-------- ---------- -------- ---------- -------- ---------- ---------- ---------
The segment information for the twelve months ended December 31,
2013 is as follows:
Australia Americas Europe
Mining Mining Mining All other
Royalty interests Royalty interests Royalty interests segments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Royalty related income 9,941 - 749 - 4,041 - - 14,731
Finance income - - - - - - 789 789
(Loss) on sale of mining and
exploration interests - (337) - (1,424) - (4,637) - (6,398)
Other income - 441 - - - 267 1,304 2,012
Total segment income 9,941 104 749 (1,424) 4,041 (4,370) 2,093 11,134
-------- ---------- -------- ---------- -------- ---------- ---------- ---------
(Loss)/Profit before tax (6,766) (10,469) (3,478) (5,832) 3,094 (15,710) (13,735) (52,896)
Amortisation - - (854) - - - - (854)
Impairment of non-financial
assets (3,139) (10,573) (4,227) (4,408) (947) (11,340) - (34,634)
Income tax expense 5,995 - (133) - - - 4,537 10,399
Total assets 147,577 10,227 22,827 5,025 28,692 3,498 41,610 259,456
-------- ---------- -------- ---------- -------- ---------- ---------- ---------
Total assets include:
Additions to non-current
assets (other than financial
instruments and deferred tax
assets - - - - - - - -
Total liabilities 35,676 - - - 2,244 - 4,685 42,605
-------- ---------- -------- ---------- -------- ---------- ---------- ---------
The amounts provided to the Executive Committee with respect to
total 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.
Investments in mining and exploration interests (classified as
available-for-sale financial assets or financial assets at fair
value through profit or loss) held by the Group are classified by
geographic segment by reference to the country of the investee's
primary listing for quoted investments or the country of operations
for unquoted investments.
The amounts provided to the Executive Committee with respect to
total liabilities are measured in a manner consistent with that of
the financial statements. These liabilities are allocated based on
the operations of the segment.
Of the total royalty income, GBP1.6 million received during the
six months to June 30, 2014 is derived from a single royalty (June
30, 2013: GBP2.6 million). This income is attributable to the
Australian royalty segment.
4 Finance income
Six months ended
Restated (see note 1.1)
June 30, 2014 June 30, 2013
GBP'000 GBP'000
Interest on bank deposits 69 42
Interest on royalty financial instruments 20 194
Interest on long-term receivables 94 113
-------------- ------------------------
183 349
============== ========================
5 Finance costs
Six months ended
Restated (see note 1.1)
June 30, 2014 June 30, 2013
GBP'000 GBP'000
Legal fees (339) (105)
Revolving credit facility fees (120) -
Net foreign exchange loss (692) (749)
-------------- ------------------------
(1,151) (854)
============== ========================
6 Other income
Six months ended
Restated (see note 1.1)
June 30, 2014 June 30, 2013
GBP'000 GBP'000
Dividends received from mining and exploration interests 84 360
Fixed income from mining and exploration interests 330 284
Effective interest income on royalty financial instruments 95 104
Recovery of impaired royalty financial instruments 502 -
Other income 6 13
-------------- ------------------------
1,017 761
============== ========================
The recovery of royalty instruments previously provided for in
full is in relation to monies received from Minera Gold following
the signing of the latest standstill agreement in March 2014.
7 Loss per share
Loss per ordinary share is calculated on the Group's loss after
tax of GBP23,048,000 for the six months ended June 30, 2014 (June
30, 2013: loss GBP27,483,000 (restated)) and the weighted average
number of shares in issue during the period of 110,604,762 (2013:
108,679,443).
Loss per ordinary share excludes the issue of shares under the
Group's Joint Share Ownership Plan, as the Employee Benefit Trust
has waived its right to receive dividends on the 925,933 ordinary
2p shares it holds as at June 30, 2014.
Restated
(see note 1.1)
June 30, 2014 June 30, 2013
GBP'000 GBP'000
Net loss attributable to shareholders
Loss - basic (23,048) (27,483)
Loss - diluted (23,048) (27,483)
============== ===============
June 30, 2014 June 30, 2013
Weighted average number of shares in issue
Ordinary shares in issue 110,604,762 108,679,443
Employee Share Option Scheme - -
-------------- --------------
110,604,762 108,679,443
============== ==============
(Loss)/Earnings per share - basic (20.84p) (25.29p)
(Loss)/Earnings per share - diluted (20.84p) (25.29p)
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, which the directors
consider to be a useful additional measure of the Group's
performance. In calculating the adjusted earnings per share, the
weighted average number of shares in issue remains consistent with
those used in the earnings per share calculation.
Diluted
Earnings earnings
Earnings per share per share
GBP'000 p p
Net loss attributable to shareholders
Loss - basic and diluted for the six months ended June 30, 2014 (23,048) (20.84p) (20.84p)
Adjustment for:
Impairment of mining and exploration interests 759
Profit on sale of mining and exploration interests (2,073)
Revaluation of coal royalties (Kestrel) 18,055
Impairment of royalty intangible assets 4,500
Amortisation of royalty intangible assets 380
Revaluation of royalty financial instruments -
Effective interest income on royalty financial instruments (95)
Recovery of impaired royalty financial instruments (502)
Tax effect of the adjustments above 1,178
---------
Adjusted loss - basic and diluted for the six months ended June 30, 2014 (846) (0.77p) (0.77p)
========= ========== ==========
Diluted
Earnings earnings
Earnings per share per share
GBP'000 p p
Net loss attributable to shareholders
Loss - basic and diluted for the six months ended June 30, 2013 (restated) (27,483) (25.29p) (25.29p)
Adjustment for:
Impairment of mining and exploration interests 20,812
Loss on sale of mining and exploration interests 4,888
Revaluation of coal royalties (Kestrel) 11,322
Amortisation of royalty intangible assets 455
Revaluation of royalty financial instruments 2,505
Effective interest income on royalty financial instruments (104)
Tax effect of the adjustments above (6,356)
---------
Adjusted earnings - basic and diluted for the six months ended June 30, 2013
(restated) 6,039 5.56p 5.56p
========= ========== ==========
Earnings per ordinary share excludes the issue of shares under
the Group's Joint Share Ownership Plan, as the Employee Benefit
Trust has waived its right to receive dividends on the 925,933
ordinary 2p shares it holds as at June 30, 2013.
8 Dividends
On February 4, 2014 an interim dividend of 4.45p per share was
paid to shareholders in respect of the year ended December 31,
2013. On August 7, 2014 a final dividend in respect of the year
ended December 31, 2013 of 5.75p per share was paid to
shareholders. As the final dividend was approved by shareholders at
the AGM on June 11, 2014 it has been included as a current
liability in 'Trade and other payables' as at June 30, 2014. An
interim dividend of 4.45p for the period ended June 30, 2014 has
been declared.
9 Coal royalties (Kestrel)
GBP'000
At January 1, 2013 170,995
Foreign currency translation (9,886)
Loss on revaluation of coal
royalties (11,322)
---------
At June 30, 2013 149,787
Foreign currency translation (16,107)
Loss on revaluation of coal
royalties (2,246)
---------
At December 31, 2013 131,434
Foreign currency translation 3,323
Loss on revaluation of coal
royalties (18,055)
---------
At June 30, 2014 116,702
=========
The coal royalty was valued during June 2014 at GBP116.7m
(A$211.6m) by Geos Mining, independent coal industry advisors, on a
net present value of the pre-tax cash flow discounted at a rate of
7%. The net royalty income from this investment is currently taxed
in Australia at a rate of 28.5%. 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 carried at cost the carrying value would be
GBP0.2 million (2013: GBP0.2 million). The Directors do not
presently have any intention to dispose of the coal royalty.
10 Royalty financial instruments
GBP'000
Held at fair value
At January 1, 2013 41,945
Foreign currency translation (1,138)
Revaluation of royalty instruments recognised in the income statement (2,505)
Revaluation of royalty instruments recognised in equity (658)
--------
At June 30, 2013 37,644
Foreign currency translation (1,767)
Impairment of royalty instruments (46)
Revaluation of royalty instruments recognised in the income statement (6,184)
Revaluation of royalty instruments recognised in equity (1,800)
At December 31, 2013 27,847
Foreign currency translation 393
Revaluation of royalty instruments recognised in equity (3,597)
--------
At June 30, 2014 24,643
========
In the period effective interest of GBP0.1m was recognised in
other income (see note 6). This was directly offset by cash
received in the period of the same amount.
The Group's royalty financial instruments are represented by
four 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 are summarised below:
Royalty Option
Cost Royalty Option Discount Valuation Valuation
Project Commodity '000 Rate Escalation Price Rate GBP'000 GBP'000
Engenho(1) Gold A$4,000 2.5% - A$0.35 - - -
EVBC Gold C$7,500 2.5% 3% >US$1,100/oz C$0.958 9% 6,842 -
Isua Iron ore A$28,000 1% - - 10% 15,401 -
A$0.10 -
Jogjakarta Iron sands A$5,000 2 % - A$0.50 10% 2,400 -
24,643 -
=========== ============
(1) Engenho royalty instrument was fully provided for as at
December 31, 2011.
11 Royalty and exploration intangibles assets
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 57 13,237 13,294
Foreign currency translation (36) 422 386
----------------- ---------- ---------
At June 30, 2014 972 62,372 63,344
Amortisation and impairment
At January 1, 2014 - (12,376) (12,376)
Amortisation charge - (380) (380)
Impairment charge - (4,500) (4,500)
----------------- ---------- ---------
At June 30, 2014 - (17,256) (17,256)
----------------- ---------- ---------
Carrying amount June 30, 2014 972 45,116 46,088
================= ========== =========
Exploration and Royalty
Evaluation Costs Interests Total
GBP'000 GBP'000 GBP'000
Gross carrying amount
At January 1, 2013 931 55,773 56,704
Additions 66 - 66
Conversion of royalty option - 248 248
Foreign currency translation - (2,698) (2,698)
----------------- ---------- --------
At June 30, 2013 997 53,323 54,320
Amortisation and impairment
At January 1, 2013 - (3,209) (3,209)
Amortisation charge - (455) (455)
----------------- ----------
At June 30, 2013 - (3,664) (3,664)
----------------- ---------- --------
Carrying amount June 30, 2013 997 49,659 50,656
================= ========== ========
Exploration and Royalty
Evaluation Costs Interests Total
GBP'000 GBP'000 GBP'000
Gross carrying amount
At January 1, 2013 931 55,773 56,704
Additions 101 - 101
Conversion of royalty option - 248 248
Foreign currency translation (81) (7,308) (7,389)
----------------- ---------- ---------
At December 31, 2013 951 48,713 49,664
Amortisation and impairment
At January 1, 2013 - (3,209) (3,209)
Amortisation charge - (854) (854)
Impairment charge - (8,313) (8,313)
----------------- ----------
At December 31, 2013 - (12,376) (12,376)
----------------- ---------- ---------
Carrying amount December 31, 2013 951 36,337 37,288
================= ========== =========
The exploration and evaluation costs comprise expenditure that
is directly attributable to the Trefi and Panorama coal projects in
British Columbia, Canada.
On June 10, 2014, the Group acquired a 2% net smelter return
royalty interest on all mineral products sold from the area of the
Maracás Project to which the royalty interest relates in exchange
for US$22 million and 500,000 warrants which entitle the holder to
acquire one Anglo Pacific ordinary share at a strike price of
GBP2.50 and will be exercisable for five years.
The Maracás Project is due to commence production in the near
term and is forecast to produce an average annual production of
approximately 25.1 Mlbs (11,400t) V(2) O(5) equivalent over a 29
year mine life (in respect of the mine area to which the Royalty
relates). Largo has also entered into an off-take agreement with
Glencore International AG for all vanadium products produced at the
Maracás Project for the first six years of commercial
production.
The Amapá royalty interest is the only producing interest and
therefore subject to amortisation. Amortisation of the remaining
interests will commence once they begin commercial production.
All intangible assets are assessed for indicators of impairment
at each reporting date. This lead to a provision of GBP4.5m at June
30, 2014 in relation to the Group's Amapá royalty as a fall in the
long term iron ore price, coupled with an increase in the long term
shipping costs, has led to the expected discounted future cash
flows no longer exceeding amortised cost.
No intangible assets have been pledged as security for
liabilities.
12 Mining and exploration interests
GBP'000
Fair value
At January 1, 2013 55,545
Additions 971
Disposals (6,979)
Impairment taken directly to the
income statement (20,812)
Revaluation adjustment (2,233)
Foreign currency translation (478)
---------
At June 30, 2013 26,014
Additions 2,147
Disposals (1,473)
Impairment taken directly to the
income statement (5,509)
Revaluation adjustment (874)
Foreign currency translation (233)
---------
At December 31, 2013 20,072
Additions 391
Disposals (3,157)
Shares in-lieu of interest 330
Return of equity (1,974)
Impairment taken directly to the
income statement (759)
Revaluation adjustment (178)
Foreign currency translation 152
At June 30, 2014 14,877
=========
The fair values of listed securities are based on quoted market
prices. Unquoted investments and royalty options are initially
recognised using cost where fair value cannot be reliably
determined. In the absence of an active market for these
securities, the Group considers each unquoted security to ensure
there has been no material change in the fair value since initial
recognition.
Total mining and exploration interests are represented by:
June 30, 2014 June 30, 2013 December 31, 2013
GBP'000 GBP'000 GBP'000
Quoted investments 14,415 23,396 16,018
Unquoted investments 304 2,138 3,896
Royalty Options 158 480 158
-------------- -------------- ------------------
14,877 26,014 20,072
============== ============== ==================
13 Deferred tax
The following are the major deferred tax liabilities/(assets)
recognised by the Group and the movements thereon during the
period:
Coal royalties Available-for
(Kestrel) sale-investments
Revaluation Impairment
Revaluation of Revaluation of Accrual of
Effects royalty Other
of coal of financial of mining intangible royalty tax
royalty tax royalty
(Kestrel) losses instruments interests assets receivable losses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At January 1,
2013 50,781 (604) 3,958 (5,812) - 209 - 48,532
Released to
income for the
period (3,397) 619 934 (4,304) - 295 - (5,853)
Charge/(Credit)
to equity for
the period - - 1,015 (722) - - - 293
Foreign currency
translation (2,966) (15) 191 - (38) - (2,828)
------------ ---------- ------------ ------------ ----------- ----------- --------- --------
At June 30, 2013 44,418 - 5,907 (10,647) - 466 - 40,144
Released to
income for the
period (674) (627) (3,154) 1,459 (2,249) 346 - (4,899)
(Credit)/Charge
to equity for
the period - - (644) 593 - - - (51)
Foreign currency
translation (4,832) 114 - (33) - (78) - (4,829)
------------ ---------- ------------ ------------ ----------- ----------- --------- --------
At December 31,
2013 38,912 (513) 2,109 (8,628) (2,249) 734 - 30,365
Released to
income for the
period (5,416) (289) 136 7,708 610 (745) (713) 1,291
(Credit)/Charge
to equity for
the period - - (807) 224 - - - (583)
Foreign currency
translation 997 (13) - (36) - 11 - 959
------------ ---------- ------------ ------------ ----------- ----------- --------- --------
At June 30, 2014 34,493 (815) 1,438 (732) (1,639) - (713) 32,032
============ ========== ============ ============ =========== =========== ========= ========
14 Share capital, share premium and merger reserve
Share Share Merger
Number of capital premium reserve Total
shares GBP'000 GBP'000 GBP'000 GBP'000
At January 1, 2013 and June 30, 2013 109,605,376 2,192 26,853 - 29,045
Issue of share capital under private placing 1,282,049 26 2,475 - 2,501
At December 31, 2013 110,887,425 2,218 29,328 - 31,546
Issue of ordinary shares on acquisitions (note 11) 5,544,371 111 - 9,479 9,590
------------ -------- -------- --------
At June 30, 2013 116,431,796 2,329 29,328 9,479 41,136
============ ======== ======== ======== ========
On June 2, 2014 the Group completed the placing of 5,544,371 new
ordinary shares of 2 pence each at a price of 180 pence per share.
The proceeds of this placing were used in the acquisition of the 2%
net smelter return royalty over the Maracás Project described in
note 11. As the shares were placed in return for acquiring 100% of
the share capital of a related entity, the proceeds raised in
excess of the nominal value issued is recorded in the merger
reserve.
15 Retained earnings
GBP'000
Balance at January 1, 2013 226,090
Forfeiture of options from share-based
payments 202
Dividends (11,065)
Loss for the period (restated) (27,483)
---------
Balance at June 30, 2013 (restated) 187,744
Forfeiture of options from share-based
payments 66
Dividends -
Loss for the financial period (15,014)
---------
Balance at December 31, 2013 172,796
Forfeiture of options from share-based
payments 89
Dividends (11,535)
Loss for the period (23,048)
---------
Balance at June 30, 2014 138,302
=========
16 Related party transactions
Related party transactions during the six months ended June 30,
2014 were payments of GBP18,184.94 to 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 related
expenditure (2013: GBPnil). At June 30, 2014 a total of GBPnil was
owing to Audley Capital Advisors LLP (2013: GBPnil).
17 Events occurring after period end
The Group has entered into a definitive agreement to dispose of
its interest in the Panorama Coal Project with Atrum Coal NL. Under
the terms of the agreement, the Group will receive US$500,000 in
cash on completion, together with 1,000,000 Atrum shares and
deferred consideration of US$2.0m in the form of a 12-month
promissory note with an interest coupon of 8% per annum. As part of
the sales process, the Group will also retain a royalty equivalent
to the higher of 1% of gross revenue on a "mine gate" basis or
US$1/tonne.
With the exception of the above and the declaration of the 2014
interim dividend, there are no events occurring after the period
end, which require disclosure.
18 Principal risks and uncertainties
The Group's normal business risks and the strategic risks are
set out in the Strategic Report section on pages 17 to 19 of the
Annual Report for the year ended December 31, 2013. In addition to
these risks, the Board has identified, inter alia, four main
macro-economic risks that could affect the Group's
performance:-
(i) A prolonged, world-wide economic recession
(ii) Sustained low commodity prices
(iii) A fall in precious metal prices
(iv) Currency volatility
Measures taken by the Board to manage these risks include:-
-- regular meetings of the Group's senior management;
-- regular discussions between the Chief Executive Officer and
non-executive Chairman;
-- appointment of a strong support network of advisors during
the period;
-- careful and disciplined cash management and reporting;
-- a diversified portfolio of projects covering a number of
commodities and geographical areas;
-- regular review of sovereign risk; and
-- cash being held at a number of banks and stockbrokers in a
variety of currencies and short-term financial instruments.
In addition, recent strengthening of the Board has brought a
wealth of industry specific operating and financial experience,
which will assist the Group in mitigating and managing the
principal risks and uncertainties associated with the Group
achieving its strategy.
19 Availability of financial statements
This statement will be sent to shareholders and will be
available at the Group's registered office at 17 Hill Street,
London, W1J 5LJ.
INDEPENDENT REVIEW REPORT TO ANGLO PACIFIC GROUP PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended June 30, 2014 which comprises the consolidated
income statement, consolidated statement of comprehensive income,
consolidated balance sheet, consolidated statement of changes in
equity, consolidated cash flow statement and related notes 1 to 19.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review 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, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report have been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting, " as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended June
30, 2014 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
August 27, 2014
Third party information
As a royalty holder, the Group often has limited, if any, access
to non-public scientific and technical information in respect of
the properties underlying its portfolio of royalties, or such
information is subject to confidentiality provisions. As such, in
preparing this announcement, the Group has largely relied upon the
public disclosures of the owners and operators of the properties
underlying its portfolio of royalties, as available at the date of
this announcement.
Rio Tinto Limited, Beadell Resources Limited, Alliance Resources
Limited and Berkeley Resources Limited are all listed on the
Australian Securities Exchange and report in accordance with the
JORC Code. Orvana Minerals Corp is listed on the Toronto Stock
Exchange and Largo Resources Limited is listed on the TSX Venture
Exchange, and both report in accordance with NI 43-101. Zamin is an
independent mining group. Hummingbird Resources PLC is listed on
AIM.
Further, this announcement contains information and statements
that are based on certain estimates and forecasts that have been
provided to the Group by Kestrel Coal Pty Ltd ("KCPL"), the
accuracy of which KCPL does not warrant and on which readers may
not rely.
References in this announcement to websites are made as inactive
textual references and for informational purposes only. Information
found at the relevant websites is not incorporated by reference
into this announcement. The Group makes no representation as to the
accuracy of any such information.
Cautionary note to U.S. investors concerning estimates of
inferred resources
Certain technical disclosure in this press release has been
prepared in accordance with the requirements of Canadian securities
laws, including NI 43-101, which differ from the requirements of
U.S. securities laws. This press release uses the term "inferred
mineral resources". U.S. investors are advised that while this term
is recognised and required by Canadian securities laws, the U.S.
Securities and Exchange Commission does not recognise it. Under
U.S. standards, mineralisation may not be classified as a "reserve"
unless the determination has been made that the mineralisation
could be economically and legally produced or extracted at the time
the reserve determination is made. "Inferred mineral resources"
have a great amount of uncertainty as to their existence and as to
their economic and legal feasibility. It cannot be assumed that all
or any part of an inferred mineral resource will be upgraded to a
higher category. Under Canadian securities laws, estimates of
inferred mineral resources may not form the basis of feasibility or
other economic studies. U.S. investors are cautioned not to assume
that all or any part of an inferred mineral resource will ever be
converted into reserves. U.S. investors are also cautioned not to
assume that all or any part of an inferred mineral resource exists,
or is economically or legally mineable. Accordingly, information
contained in this announcement containing descriptions of the
Company's asset base may not be comparable to similar information
made public by other companies subject to the reporting and
disclosure requirements under U.S. securities laws.
Cautionary statement on forward-looking statements and related
information
Certain information contained in this announcement, including
any information as to future financial or operating performance and
other statements that express management's expectation or estimates
of future performance, constitute "forward looking statements". The
words "expects", "anticipates", "plans", "believes", "estimates",
"seeks", "intends", "targets", "projects", "forecasts", or negative
versions thereof and other similar expressions identify
forward-looking statements. Forward-looking statements are
necessarily based upon a number of estimates and assumptions that,
while considered reasonable by management, are inherently subject
to significant business, economic and competitive uncertainties and
contingencies. Further, forward-looking statements are not
guarantees of future performance and involve risks and
uncertainties which could cause actual results to differ materially
from those anticipated, estimated or intended in the
forward-looking statements. The material assumptions and risks
relevant to the forward-looking statements in this announcement
include, but are not limited to: stability of the global economy;
stability of local government and legislative background;
continuing of ongoing operations at the properties underlying the
Group's portfolio of royalties in a manner consistent with past
practice; accuracy of public statements and disclosures (including
feasibility studies and estimates of reserves, resources,
production, grades, mine life, and cash cost) made by the owners
and operators of such underlying properties; accuracy of the
information provided to the Group by KCPL; no material adverse
change in the price of the commodities underlying the Group's
portfolio of royalties and investments; no material adverse change
in foreign exchange exposure; no adverse development in respect of
any 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. If any such
risks actually occur, they could materially adversely affect the
Group's business, financial condition or results of operations. For
additional information with respect to such risks and
uncertainties, please refer to the "Principal Risks and
Uncertainties" section of our most recent Annual Report and to the
"Risk Factors" section of our most recent Annual Information Form
available on www.sedar.com and the Group's website
www.anglopacificgroup.com. Readers are cautioned to consider these
and other factors, uncertainties and potential events carefully and
not to put undue reliance on forward-looking statements. The
forward-looking statements contained in this announcement are made
as of the date of this announcement only and 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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