TIDMAPF
RNS Number : 2642X
Anglo Pacific Group PLC
27 August 2020
News Release
27 August 2020
Anglo Pacific Group PLC
Interim results for the six months ended 30 June 2020
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 30 June 2020 which are available
on both the Group's website at www.anglopacificgroup.com and on
SEDAR at www.SEDAR.com .
The Group's portfolio contribution for H1 2020 of GBP19.1m was
43% lower than H1 2019 as a result of the significant decrease in
coal prices during Q2 2020 caused by the COVID-19 pandemic. The
impact of lower coal prices is compounded in the Group's Kestrel
royalty as they also result in a lower royalty rate. A number of
other one-off events at Maracás Menchen and LIORC also resulted in
the lower portfolio contribution. Despite the Group's performance
in the first half of 2020, as we are anticipating an increase in
portfolio contribution in H2 2020 we are maintaining the Group's
quarterly dividend of 1.75p per share, in line with the Group's
stated objective to return a significant portion of its income to
shareholders as dividends.
Results
H1 2020 H1 2019
GBP'000 % Mvt GBP'000
------------------------------------ -------- ------ --------
Kestrel 11,974 (47%) 22,692
Royalty related dividends (LIORC) 2,296 (33%) 3,420
Narrabri 1,586 (30%) 1,783
Mantos Blancos 1,200 -
Maracás Menchen (304) 2,273
McClean Lake / Denison - interest 888 (9%) 975
Four Mile 133 21% 110
------------------------------------ -------- ------ --------
Royalty related revenue 17,773 (43%) 31,253
------------------------------------ -------- ------ --------
EVBC - royalty receipts 967 (5%) 1,021
McClean Lake / Denison - principal 403 (60%) 1,015
------------------------------------ -------- ------ --------
Total portfolio contribution 19,143 (43%) 33,289
------------------------------------ -------- ------ --------
-- 43% decrease in portfolio contribution(1) in H1 2020 to
GBP19.1m (H1 2019: GBP33.3m) - primarily due to weaker coking coal
prices and an associated reduction in the applicable royalty rate
at Kestrel, together with the one-off charge of GBP1.0m (US$1.2m)
at Maracás Menchen upon the termination of the Glencore offtake
agreement
-- Basic loss per share of 6.22p (H1 2019: earnings of 16.76p)
-- Adjusted earnings(2) per share of 5.85p (H1 2019: 12.13p)
-- No change to quarterly dividend level of 1.75p per share
-- The mines underlying the Group's major producing royalties,
Kestrel, Narrabri, Mantos Blanco and Maracás Menchen, were fully
operational during the period and remain largely unimpacted by
COVID-19
-- During Q3 2020 we expect to see an end to COVID-19 shutdowns
as Cigar Lake (McClean Lake mill) restarts, with EVBC having
restarted already in Q2 2020
-- Volumes from Kestrel from within the Group's private royalty
land in-line with that of H1 2019
-- Record production levels at Maracás Menchen during Q1 2020
following the successful completion of the expansion plan and
triggering the final payment of US$1.5m (GBP1.2m) in deferred
consideration
-- Termination of the Glencore offtake arrangement in April 2020
at Maracás Menchen should see lower deductions applied to the
Group's royalty going forward
-- Net debt of GBP39.8m at 30 June 2020 (31 December 2019:
GBP28.8) with access to US$55m, including the $30m accordion
facility
-- 4% decline in net assets to GBP217m (GBP226m at the beginning
of the year) reflecting lower coal price forecasts
-- GBP5.7m additional investment in LIORC made during Q1 2020
-- Entered agreement enabling the Group to participate in
Tranche II of the Incoa financing agreement up to US$20m
Events since balance sheet date
-- Berkeley Energia announced the granting of one of the two key
permits outstanding before mine construction can commence -
resulting in an 80% increase in their share price (Anglo Pacific
has a 6.8% shareholding)
-- Cameco and Orano have signalled their intention to restart
operations at the Cigar Lake mine and McClean Lake mill
respectively, in September which will result in cashflow resuming
under the Denison financing arrangement
Outlook
-- Stronger results expected in H2 2020 across much of the portfolio:
o Kestrel should benefit from the recent improvement in coking
coal prices and COVID-19 related port restriction impacting the
Indian market being relaxed
o LIORC expected to benefit from iron ore prices currently
trading at twelve-month highs whilst demand fundamentals remain
strong
o Enhanced margins expected at Maracás Menchen following
conclusion of discounts associated with the Glencore offtake
arrangement and transition to an in-house sales function in Q2
2020
o Increased cashflows from the Denison financing agreement with
operations restarting at the McClean Lake mill following COVID-19
related disruptions
-- Substantial undrawn borrowings available to finance further growth in H2 2020
Julian Treger, Chief Executive Officer, commented:
" Our portfolio contribution in H1 2020 reflects the significant
market volatility caused by COVID-19 on coal markets in particular,
resulting in a 43% reduction compared to H1 2019. Not all
commodities have fared badly and we have seen iron ore prices
outperform as well as a significant bounce back in the copper price
(our two most recent portfolio additions) as some stability
returned to the markets following global central bank interventions
and government backed economic stimulus measures. We have seen
immaterial operational disruptions to our key assets, which
highlights the quality of our portfolio and our strategy to invest
in jurisdictions which treat their mining industries as key to
their economic health.
We see a stronger pricing environment already taking place thus
far in H2 2020. With US$55m of undrawn borrowings (including the
US$30m accordion) and what should be healthy demand for alternative
financing, we remain focused on our growth ambitions for the
remainder of the year.
Although we have been successful in diversifying away from coal,
along with our firm commitment not to add any further thermal coal
investments, our revenue will, in the short-term, continue to be
weighted towards coking coal especially as we await revenue from
our development portfolio. We will continue to reinvest the Kestrel
revenue into non-coal royalties in line with our ESG and investment
policy to offer stakeholders exposure to high quality and ethically
operated base and bulk commodities. It was pleasing that, at 30
June, LIORC was the largest asset on the Group's balance sheet, the
first time in recent history that a non-coal asset held this
position.
We have seen strong and growing momentum in our development
assets which could see considerable value accrue to the Group for
assets which are ascribed little balance sheet value, noticeably
the recent permit grant for Berkeley Energia, the cornerstone
position Fortescue have taken in the Canariaco project, the earn-in
agreement we consented to for Dugbe 1 and the efforts being made to
bring Amapá back on line as reported by Cadence Minerals. We
understand that progress is also being made in respect of raising
the necessary finance for Brazilian Nickel which would enable the
unlocking of substantial value for the group when that asset comes
into production.
We continue to be very active and are currently assessing a
number of potential transactions. Anglo Pacific remains firmly open
for business, is well capitalised and remains focused on growth and
diversification for what should be a stronger half to come in H2
2020."
(1) Portfolio contribution represents the funds received or
receivable from the Group's underlying royalty related assets which
is taken into account by the Board when determining dividend
levels. Portfolio contribution is royalty related revenue plus
royalties received or receivable from royalty financial instruments
carried at fair value through profit or loss and principal
repayments received under the Denison financing agreement.
(2) Adjusted earnings represent the Group's underlying operating
performance from core activities. Adjusted earnings is the
profit/loss attributable to equity holders plus royalties received
from royalty financial instruments carried at fair value through
profit or loss, less all valuation movements and impairments (which
are non-cash adjustments that arise primarily due to changes in
commodity prices), amortisation charges, share-based payments,
unrealised foreign exchange gains and losses, and any associated
deferred tax, together with any profit or loss on non-core asset
disposals as such disposals are not expected to be ongoing.
Adjusted earnings divided by the weighted average number of shares
in issue gives adjusted earnings per share. Refer to note 6 to the
financial statements for adjusted earnings per share.
(3) Free cash flow per share is calculated by dividing net cash
generated from operating activities, plus proceeds from the
disposal of non-core assets and any cash considered as the
repayment of principal, less finance costs, by the weighted average
number of shares in issue
Analyst presentation
There will be an analyst presentation webcast at 9:30am (BST) on
27 August 2020. The presentation will be hosted by Julian Treger
(CEO), Kevin Flynn (CFO) and Juan Alvarez (Head of Investments)
Dial in details for the call are as follows:
Number you should dial Participant Access Code
+44 (0)330 336 9411 6012453
------------------------
The webcast cast presentation can be followed at the following
URL:
https://webcasting.brrmedia.co.uk/broadcast/5f3c0d8ab14d8726264391fc
For further information:
Anglo Pacific Group PLC +44 (0) 20 3435 7400
Julian Treger - Chief Executive Officer
Kevin Flynn - Chief Financial Officer
and Company Secretary
Website: www.anglopacificgroup.com
Berenberg +44 (0) 20 3207 7800
Matthew Armitt / Jennifer Wyllie / Detlir
Elezi
Peel Hunt LLP +44 (0) 20 7418 8900
Ross Allister / Alexander Allen / David
McKeown
RBC Capital Markets
Farid Dadashev / Marcus Jackson / Jamil
Miah +44 (0) 20 7653 4000
Camarco +44 (0) 20 3757 4997
Gordon Poole / Owen Roberts / James
Crothers
Notes to editors:
About Anglo Pacific
Anglo Pacific Group PLC is a global natural resources royalty
and streaming company. The Company's strategy is to become a
leading natural resources company through investing in high quality
projects in preferred jurisdictions with trusted counterparties,
underpinned by strong ESG principles. It is a continuing policy of
the Company to pay a substantial portion of these royalties and
streams to shareholders as dividends .
Alternative Performance Measures
Throughout this report a number of alternative financial
measures are used by the Board to assess the Group's performance,
particularly when determining dividend levels. Under IFRS the
contribution from a number of the Group's royalty related assets is
not reflected in the income statement, while fluctuations in
forward looking commodity prices impacting the expected future
cashflows of the Group are reflected in the income statement
through valuation gains/losses, in the current reporting period,
together with a number of other non-cash items. As it remains a
primary objective of the Board to return a significant portion of
the cash generated by the Group's royalty portfolio to shareholders
in the form of dividends, the Board refers to these measures when
assessing the overall contribution made by the Group's royalty
portfolio. These measures are defined as follows:
Portfolio contribution
Portfolio contribution represents the funds received or
receivable from the Group's underlying royalty related assets.
Portfolio contribution is royalty related revenue (refer to note 2)
plus royalties received or receivable from royalty financial
instruments carried at fair value through profit or loss ('FVTPL')
(refer to note 9) and principal repayments received under the
Denison financing agreement (refer to note 12).
Operating profit
Operating profit represents the Group's underlying operating
performance from its royalty interests. Operating profit is royalty
related revenue, less amortisation of royalties and operating
expenses, and excludes impairments, revaluations and gains/(losses)
on disposals. Operating profit reconciles to 'operating profit
before impairments, revaluations and gains/(losses) on disposals'
on the income statement.
Adjusted earnings and adjusted earnings per share
Adjusted earnings represent the Group's underlying operating
performance from core activities. Adjusted earnings is the
profit/loss attributable to equity holders plus royalties received
from financial instruments carried at fair value through profit or
loss, less all valuation movements and impairments (which are
non-cash adjustments that arise primarily due to changes in
commodity prices), amortisation charges, share-based payments,
unrealised foreign exchange gains and losses, and any associated
deferred tax, together with any profit or loss on non-core asset
disposals as such disposals are not expected to be ongoing.
Adjusted earnings divided by the weighted average number of shares
in issue gives adjusted earnings per share. Refer to note 6 to the
financial statements for adjusted earnings per share.
Dividend cover
Dividend cover is calculated as the number of times adjusted
earnings per share exceeds the dividend per share. Refer to note 7
of the financial statements for dividend cover.
Free cash flow and free cash flow per share
The structure of a number of the Group's royalty financing
arrangements, such as the Denison transaction completed in February
2017, result in a significant amount of cash flow being reported as
principal repayments, which are not included in the income
statement. As the Group considers dividend cover by reference to
both adjusted earnings per share and the free cash flow generated
by its assets, management have determined that free cash flow per
share is a key performance indicator.
Free cash flow per share is calculated by dividing net cash
generated from operating activities, plus proceeds from the
disposal of non-core assets and any cash considered as the
repayment of principal, less finance costs, by the weighted average
number of shares in issue. Refer to note 19 to the financial
statements for free cash flow per share.
BUSINESS REVIEW
The impact of COVID-19 on the global economy has been
significant. At this stage, much of the impact has been borne by
governments, who have stepped in with unprecedented fiscal measures
to safeguard their populations, protect their health systems and to
avoid an immediate spike in unemployment levels. In order to
protect their populations, governments have imposed lockdowns and,
in some instances, restrictions on trade, particularly in India.
The immediate response to the pandemic has seen interest rates in
Western economies fall to just above zero as additional liquidity
has been pumped into the financial markets. Expectations of 'back
to normal' economic and everyday life still seem far off and
longer-term fiscal tightening is likely to create downward pressure
on consumer behaviour and investment activity for some time to
come.
Unlike some industries, noticeably retail and leisure, which
were impacted from day one, mining has shown mixed fortunes. The
majority of Anglo Pacific's investments are in jurisdictions which
categorise mining as a key economic activity. As such, if the
pandemic can be managed in country, these jurisdictions are likely
to want mining and export activity to remain at normal levels to
offset the damage being done to the economy by other sectors. We
have seen this in Australia where production and operations at
Kestrel and Narrabri have been uninterrupted.
Mining operations
The impact of the pandemic on mining generally has been less
profound partially due to the often remote location of the mines
and their distance to larger towns and cities where the density of
the population made the spreading of the virus more widespread at
the outset. This is why, for instance, mining activity at the
Group's interests in the Maracás Menchen (Brazil) and Mantos
Blancos (Chile) mines have remained largely intact to date, despite
the escalating impact of the virus in these countries.
COVID-19 has impacted Anglo Pacific's EVBC operation in Spain,
which had a two-week shutdown imposed by the authorities as part of
their initial efforts to curtail the spread of the virus. This has
now passed, and operations are running at normal levels. Cameco
placed the Cigar Lake uranium mine in Canada on care and
maintenance in March, which ceased activity at the McClean Lake
processing mill from which the Group derives a toll milling
revenue. We were pleased to see Cameco's announcement of its
intention to recommence operations next month. Elsewhere in the
portfolio, our assets have thus far weathered the storm.
Commodity prices
Whilst mining activity has generally held up well during H1
2020, the same cannot be said for the demand side of the equation,
and we have seen a noticeably softer commodity price environment
for some commodities, coal in particular. Both coking coal and
thermal coal are trading at close to twelve-month lows whereas iron
ore and gold are close to twelve-month highs. The fortunes of gold
are well documented as the flight to safe assets during the
pandemic at the same time as the yield on safe assets has
collapsed, resulting in significant demand for the metal by those
looking to guard against future inflation risk. Copper, despite a
very weak reaction to COVID-19 has bounced back significantly over
the last two months as economic activity has remained robust in key
markets.
Coking coal is the largest component of the Group's revenue. The
initial slowdown in steel manufacturing in China meant that its
domestic coking coal supply was sufficient to meet demand from
steel mills. As such, China was much less reliant on imports,
leading to a significant decline in coking coal prices from the
seaborne market.
Secondly, India has imposed rigid lockdown measures including
import restrictions. A significant amount of coking coal demand
comes from India and with customers declaring force majeure on
contracts, tonnages were diverted onto the already weakened
seaborne market. This additional supply, coupled with weak economic
activity in Asia generally has created significant downward
pressure on coking coal pricing particularly in the second quarter
of 2020, and those exporting into China became price takers. For
Anglo Pacific, the current weak pricing environment for coking coal
is occurring at a time when output from Kestrel has increased
significantly.
This market change can be seen in the forward pricing of coking
coal for H2 2020 which was indicating prices of around US$155/t at
the beginning of 2020 (pre COVID-19) and is now estimating
US$125/t, although some commentators are revising their forecasts
upwards for the second half of 2020, indicating that some of the
immediate and short-term impact caused by COVID-19 might be
unwinding.
A similar story exists in the thermal coal markets. Consensus
spot prices for Australian thermal coal for H2 2020 was around
US$66/t at the beginning of the year and is now around US$55/t.
Some commodities have bucked the trend. Iron ore has remained
very resilient despite a weakening in global economic activity. It
is noteworthy that the prices for iron ore and coking coal, two
ingredients for steel production, have fared so differently in
2020. Part of the reason for this is that coking coal supply has
largely been unaffected in 2020, whereas the iron ore market
continues to benefit from restrictions in Brazil, with China
continuing to be a significant importer. The immediate outlook for
the metal remains positive as it is likely that infrastructure led
activity will form a key part of government strategies globally to
kick start economic activity post COVID and, unlike historically,
non-Chinese demand is expected to increase significantly.
Copper has rebounded well following a significant dip at the
outset of the pandemic. Fears that the damage to the global economy
and immediate unemployment spikes eased somewhat during the second
quarter, with some supply in Chile being taken offline.
Longer-term, as noted above, infrastructure initiatives should
drive demand for the metal, and we remain positive about the
outlook for prices as spot prices hover around 7% above consensus
for the second half of 2020. Copper remains a tight market for
supply and demand, so a modest economic recovery could see prices
rebound even stronger.
Gold has been the clear winner in 2020. The gold price is now at
around US$2,000oz whereas expectations at the beginning of the year
were around US$1,500oz. The impact of the pandemic has once again
highlighted the defensive nature of gold in times of economic
uncertainty. The collapse of interest rates and yields to zero (or
negative rates in real terms) increases the appeal of gold to
portfolio managers. The impact of the pandemic on the longer-term
economic outlook and country balance sheets would suggest
expectations of interest rate rises are some time off, and
currencies are likely to remain weak as economies begin to repay
the fiscal stimulus put in place to deal with the immediate impact
of lockdowns. This has created a compelling story for holding gold
rather than other comparatively safe assets such as government
paper which now yield the same as the metal. There has been a lot
of activity in the gold space, and for Anglo Pacific the earn-in
agreed between Hummingbird and ARX shows that marginally commercial
projects are now being reconsidered.
Capital markets
The shockwaves of COVID-19 caused a sudden sell off in global
equities as investors rushed towards safe haven assets. In the
mining markets, those with higher leverage were impacted the most
initially. The subsequent actions of central banks and governments
to support the economy and financial markets restored some
stability and confidence to the market. The initial reaction in
board rooms was, in most cases, to preserve and increase access to
capital. Dividends were widely abandoned, borrowing facilities
drawn on and investment activity decisions are likely to take much
longer to initiate.
Once the initial shock was digested by the market, the reality
of a new world of zero returns dawned due to the collapse of global
interest rates and the cancellation of dividends. This created a
fresh wave of enthusiasm by portfolio managers for yields and
equities once again became attractive, especially those offering
liquidity with sustainable and well covered dividends.
On the debt side, banks have become cautious and focused on
their existing books and not looking at new credits, certainly at
the smaller end of the market. Banks are being encouraged to
support businesses in the immediate term as many borrowers face the
prospects of breaching covenants. Banks themselves will face other
challenges as they will likely have to increase their provisions
against existing loans at the same time as their revenue dries up
with interest rates turning negative.
At the beginning of the year, we commented that small and
mid-tier mining companies faced considerable challenges accessing
capital. The impact of COVID-19 is likely to make this even more
difficult.
Our business
The impact of COVID-19 on Anglo Pacific's business has mainly
come through in terms of lower commodity prices. The vast majority
of the Group's investments have remained fully operational. Along
with lower commodity prices, we have also incurred a number of one
offs in the first half of the year such as a charge in relation to
the termination of the Glencore offtake agreement at Maracás
Menchen, planned capex investment at IOC reducing the level of
special dividends from LIORC and the final deferred consideration
payment in relation to the Maracás royalty - all of which is
discussed in more detail in the Finance Review. Consequently, our
portfolio contribution in H1 2020 was GBP19.1m, a decrease of 43%
compared to GBP33.3m in H1 2019.
The level of net debt at 30 June 2020 of GBP39.8m reflected the
impact of the payment of the final 2019 tax balance and the Group's
final dividend for 2019, both of which were paid just before the
end of June along with the final US$1.5m (GBP1.2m) deferred
consideration relating to the Maracás royalty. Borrowings drawn are
GBP45.2m (US$56.7m) meaning the Group has undrawn facilities of
GBP27.8m (US$34.3m), of which we expect US$25m to be available
along with the potential for a further US$30m through the accordion
feature. The Group remains comfortably compliant with its banking
covenants and expects to remain so. As such, the Group retains
sufficient levels of liquidity to support the business and also for
further investment in growth.
At this stage we are not altering our dividend policy and will
continue to pay an interim dividend of 1.75p per share on a
quarterly basis, which sets a base level of 7p on an annualised
basis. We will, as usual, wait until Q1 2021 to determine the level
of the final dividend taking into account market conditions at that
time and the full year outturn for 2020.
These turbulent market conditions should result in opportunities
for Anglo Pacific. Our business model is geared towards
countercyclical investment and being opportunistic when market
conditions present opportunities. We would expect to see further
opportunities present themselves as the impact of COVID-19 endures
and are busy appraising a number of potential and interesting
deals.
Although our focus remains on adding growth, we are also
encouraged to see some interesting developments at some of the
assets already in our portfolio which are often forgotten.
In August 2020, Berkeley Energia announced that it had received
its Urbanism Licence, one of the two remaining licences it requires
to commence the construction of the Salamanca mine, over which the
Group has a 1.0% NSR, and uranium plant. The final required permit
is the Authorisation for Construction for the uranium concentrate
plant as a radioactive facility and this process is underway.
We were very pleased to see Fortescue double their investment in
the owner of the Cañariaco copper project in Peru and allocate
resources to assist developing a plan for the project. This remains
one of the largest undeveloped copper deposits in the world, over
which the Group has a 0.5% NSR royalty, for which it paid US$1m.
The presence of a global operator should significantly enhance the
prospects for the project being developed.
Elsewhere, we consented to Hummingbird Resources entering into
an earn-in agreement with ARX whereby ARX will invest and undertake
the DFS in return for an equity stake of up to 49% in the project.
This, along with a much higher gold price environment should add
some momentum to the project. The Group has a 2% life of mine NSR
royalty and retains its change of control protection which entitles
it to recover its US$15m investment in certain circumstances.
We also note the progress Cadence Minerals is making in trying
to bring the Amapá project back online, following a court
supervised reorganisation paving the way towards the establishment
of a joint venture to inject new capital into the project. The
Group we will be claiming its royalty entitlements over any
stockpile sales.
Finally, in these very difficult times, we would like to thank
our employees who have transitioned to working remotely during
lockdown. We have been able to operate as close to business as
normal as possible and continue to originate and appraise new
business opportunities.
PORTFOLIO REVIEW
The underlying operations from which the Group derives its
portfolio contribution performed impressively in the first six
months of the year and have adapted well to the COVID-19 pandemic.
Although portfolio contribution was down, volumes remained steady
and most operations experienced little disruption despite
implementing social distancing measures to ensure their workforce
remained protected from the risk of the virus.
We did see operational disruptions at EVBC and the McClean Lake
mill, as discussed below, although in the case of the former this
was only a two week shut down at the behest of the authorities and
in the case of the latter we understand that the intention is to
recommence operations next month. These are two of the less
material royalties in our portfolio. The risk posed by the virus to
mining operations has not gone away, and we are monitoring the
situation in Australia in particular which has seen a second wave
of the virus, although at this stage it seems to be mainly confined
to the south of the country and away from the main areas of mining
activity.
We would expect to see another steady performance from our
portfolio in terms of volumes in the second half of the year.
PRODUCING ASSETS
Kestrel
Volumes from Kestrel have been relatively consistent over the
past 18 months at around 3.2Mt per half year, with 97% of the
volumes in H1 2020 being subject to the Group's private royalty.
Although Adaro had expressed a target to increase volumes in FY
2020 by around 6% (pre COVID-19), Adaro revised its production base
case for Kestrel in FY 2020 to 6Mt.
Although volumes have been relatively consistent, revenue was
down 47% due to weaker pricing in H1 2020 compared to the same
period in 2019. This is most likely due to the impact of COVID-19
on the economic activity in key import markets such as Japan,
Brazil and the EU which has resulted in less demand. Meanwhile, the
Chinese domestic production has remained sufficient to meet most of
its needs, reducing demand for imports. Furthermore, the imposition
of port restrictions in India, another significant import market,
led to tonnages being diverted on an already weak seaborne
market.
Adaro's recently announced intention to reduce volumes in H2
2020 is welcomed given the softer pricing expected for coal and the
extension to the time that mining remains in the Group's private
royalty land, this gives.
Some commentators are beginning to forecast a slight recovery in
prices in the second half of the year, with some expecting a
partial lifting of Indian port restrictions and a return to
economic activity in ex-China regions. It would appear that the
risk to pricing in the second half of 2020 could be on the
upside.
LIORC
The Group's second largest royalty related asset by revenue, and
the largest by balance sheet value as at 30 June 2020, is its part
ownership of the IOC royalty, held through a 7% interest in LIORC
which is a pass-through vehicle deriving its revenue from its
equity interest in and royalty over IOC's iron ore operation in
Canada.
Iron ore has been a noticeable success story throughout 2020,
with prices trading at twelve month highs of around US$115/t with
the more premium pellet product trading at around US$145/t. IOC
produces both products, although during the second quarter it
reduced the portion of pellets it was producing to match an
increase in demand for the standard fines product.
The strength of the iron ore price can largely be attributed to
continued supply disruption in Brazil due to the ongoing
restrictions on some operations for health and safety reasons
following the well documented tailings dam tragedy two years ago
but now being compounded by the severity of the COVID-19 outbreak
in the country.
This supply side disruption is coming at a time when the Chinese
appear to see infrastructure led investment as a means to kick
start their economy post-COVID, leading to a sharp demand side
increase.
Despite a buoyant iron ore market, income from LIORC was held
back in the first half by planned capex investment at IOC which
reduced the component of the LIORC income received by way of
dividends. As such, the Group received C$0.80 per share in H1 2020
compared to C$1.95 in H1 2019, although the latter did include the
distribution of surplus funds being held back during H2 2018 and so
does not represent a like for like comparison.
The Group increased its investment in LIORC at the beginning of
2020 by GBP5.7m which represented the income it received during H2
2019. The average buy in price of the Group's 7.01% stake is
C$24.30 compared to the current market price of C$28.00.
It is reasonable to expect a significant uplift in income in H2
2020, especially in light of a robust iron ore price outlook.
Narrabri
Sales volumes from Narrabri remained consistent at 3.1Mt in H1
2020, although revenue was down by 30% due to weak thermal and PCI
markets during the first six months of the year, Q2 2020 in
particular.
Thermal coal markets were weak in H1 20 due to the impact of
COVID-19 on key import markets at a time when the market was
already oversupplied, although there have since been some cuts to
Indonesian production recently.
Whitehaven has been impacted by some customers declaring force
majeure, particularly in relation to PCI sales. As such, they have
been selling a higher portion of thermal coal which reduced the
weighted average sales price achieved in the second quarter.
Although pricing remains weak, it would appear that the
historical production challenges that Whitehaven has faced mining
through a localised fault are behind them and their plans remain
unchanged in terms of expanding production by combining the north
and south licences into one mine plan.
Maracás Menchen
Production of 5.4kt of V2O5 at Largo Resources' Maracas Menchen
mine was in-line with that of H1 2019. Although production was in
line with the comparative period, sales volumes were 12% lower due
to the transition in-house of the sales function following the
termination of the Glencore off-take agreement. As a result, there
is an expected time lag between shipping their product and the
receipt of proceeds which resulted in limited sales in May and
June.
The termination of the Glencore off-take arrangement will
improve the margins going forward as sales are no longer subject to
the discount which applied under the contract, and Largo is now
free to target sales to both steel makers and battery producers,
the latter typically attracting a premium.
The vanadium price has been relatively stable over the past
twelve months at around US$5-6/lbs, ending the significant
volatility witnessed in the preceding twelve months where prices
peaked at US$34/lbs in H2 2018 before progressively falling to
around US$10/lbs by the end of H1 2019 and now levelling off at
around US$5-7/lbs.
The record level of sales achieved in Q1 2020 of 3.2kt of V2O5
triggered the final US$1.5m (GBP1.2m) tranche of the deferred
consideration to be paid to the previous owner and this payment was
made in May 2020. These record numbers were achieved following the
successful investment to increase capacity at the processing plant
such that the nameplate capacity is now around 20% higher at 1kt
per month.
Finally, the termination of the Glencore off-take arrangement
resulted in a balancing payment of US$64m being paid by Largo. This
balance built up due to a repricing mechanism effective three
months after delivery. This amount was capped at a certain
percentage with any amount in excess of this remaining on account.
As the vanadium price fell from US$34/lbs to US$5/lbs the amount in
excess of the cap grew each quarter. As such, Largo has charged
Anglo Pacific with its share of this charge which equates to
US$1.3m (GBP1.0m).
Mantos Blancos
Operations at Mantos Blancos were impacted by two unplanned
stoppages during H1 2020 requiring maintenance and repair remedies
to be carried out. Works have now been completed and production
levels are back to normal levels, although this did result in
volumes being slightly less than what we had forecast at the time
of acquisition.
Sales volumes averaged around 9.5kt per quarter in H1 2020, down
around 15% on the levels achieved in Q4 2019 for the reasons above.
In addition, copper prices were running lower in H1 2020 generally
and Q2 2020 in particular as concerns around the severity of
COVID-19 impacted on the immediate demand outlook.
There has been a noticeable reversal in sentiment thus far in Q3
2020, with prices now approaching the peak of their twelve-month
trading range and some 15% above the level in Q2 2020. This is due
to relatively low inventory levels; some supply being disrupted by
COVID-19 in South America; and a stronger than expected demand
picture emerging. The market remains delicately balanced in terms
of supply and demand, which would imply some upside should post
COVID-19 economic recovery occur quicker with many governments
signalling infrastructure investment will form part of their
economic rehabilitation plans.
The debottlenecking project, which Anglo Pacific's royalty was
to part fund, is now underway and some works were undertaken in
July, which could impact output in that month. As it is now
reasonable to believe that copper pricing will be higher in H2
2020, the prospects for a stronger second half remain
realistic.
EVBC
EVBC was impacted by an enforced two week operational shut down
in April as part of the Spanish authorities' actions to curtail the
spreading of COVID-19. This was not extended, and operations
resumed as normal following the two-week period, although sales
volumes in Q2 2020 were impacted.
Quarterly production rates have been running around 25% below
targeted annualised gold production of 65koz. This has been
attributed to lower ore grade being processed, although this has
been partially offset by higher throughput following mill expansion
works over the past few years.
Orvana also announced that it has continued to advance its
efforts to extend the life of mine at EVBC through its drilling and
permitting projects, and these remain on track to deliver results.
The prospect of mine life extension has arguably increased due to
the recent and dramatic increase in the gold price, which not only
makes the existing operation more profitable and cash generative
but also has the potential to make some of the lower grade deposits
in the licence area economic.
Denison financing arrangement (McClean Lake mill)
The interest and principal repayments the Group receives from
its financing arrangement with Denison are derived from toll
milling revenues generated from Denison's partial ownership of the
McClean Lake mill. The McClean Lake mill receives all of its
product from the Cigar Lake uranium mine, which it then
processes.
The operator of the Cigar Lake mine, Cameco, placed the mining
operation on care and maintenance in March 2020 in order to protect
its workforce and community from the threat of COVID-19. As such,
there was no throughput at the mill from April 2020 onwards. The
Group usually receives a relatively stable C$450-550k per month
from this financing arrangement.
During periods where there is no income from the underlying
mill, interest continues accrues on the instrument at a default
interest rate and is capitalised. As such, upon resumption of
milling, the initial receipts will go towards the repayment of
interest.
It was pleasing to see that Cameco signalled its intention to
resume operations at Cigar Lake in September 2020 which would mean
a 4-5-month period of shutdown, which equates to C$2.25m in cash
not received by the Group. We would expect cashflows to resume
again in Q4 2020.
Four Mile
We remain in dispute with the operator of Four Mile in relation
to the level of charges which are being applied against the royalty
revenue, resulting in minimal royalty receipts at present. We have
now applied to the courts in Australia and remain committed to
pursuing this matter in full. We are hopeful that there will be
some tangible progress made in relation to this case over the
coming months.
DEVELOPMENT ASSETS
It has been pleasing to see so many positive developments at our
non-income producing assets during the first half of the year. Most
of these assets are carried on the balance sheet at minimal value
providing considerable upside to the Group's balance sheet and
revenue. The following is an update on some of the significant
developments.
Salamanca (Berkeley Energia) - carrying value GBP2.3m
In August 2020, Berkeley Energia announced that it had received
its Urbanism Licence, one of the two remaining licences it requires
to commence the construction of the mine and uranium plant. The
final required permit is the Authorisation for Construction for the
uranium concentrate plant as a radioactive facility and this
process is underway.
In addition to this being a positive development for the Group's
royalty, Anglo Pacific also owns just under 7% of Berkeley Energia,
whose share price has increased from 23p at the end of June 2020 to
just over 40p now, valuing the Group's interest at around
GBP7m.
Uranium has performed well in the year to date, with the spot
price up around 35% at US$32/lbs. This has been influenced by some
noticeable supply side cutbacks by both Kazatomprom and Cameco,
with the potential to remove 20mlbs of supply from the market in
2020. Some of the supply cuts have led to operators purchasing
product on the spot market to satisfy contracts, which has
bolstered the spot price in the short term. Longer term, there
remains the possibility of a tightening in the market with some key
forward contracts still expected to be required in 2023
onwards.
Cañariaco (Candente Copper) - carrying value GBP0.9m
In May 2020, a wholly owned subsidiary of Fortescue Metals
increased its stake in Candente Copper, the owner of the Cañariaco
project in Peru. Fortescue now owns just under 20% of the business
and has allocated two engineers to work on the Candente technical
committee to identify the optimum strategy for the development of
this potentially significant new copper mine.
Anglo Pacific acquired a 0.5% NSR over the project for US$1m in
2018 and is very encouraged by the presence of Fortescue on the
share register of Candente and the technical resources it is
committing, which a signal of its confidence in the long term
potential of the project.
Dugbe 1 (Hummingbird and ARX) - carrying value GBP0.8m
Anglo Pacific recently consented to an earn-in arrangement
between Hummingbird Resources and ARX, a TSX shell company which is
merging with Pasofino Gold in order to outsource the DFS. The
earn-in agreement will see ARX/Pasofino conduct the DFS and in
return receive up to 49% interest in the project.
There are various conditions in relation to this, but
encouragingly it would appear that there is a tight timetable for
the DFS to be completed as part of the agreement which will be a
key milestone for the project.
The Dugbe 1 project is a very large gold project, although
relatively low grade. As such, the project requires a strong gold
price environment to be commercially viable. The recent spike in
gold price provides this and now would appear to be a very optimum
time to conduct the DFS and raise capital. This is a very positive
development for the prospects of bringing forward a path towards
production and is the first significant development for the project
in a number of years.
Anglo Pacific owns a 2% NSR royalty and retains its change of
control rights which provides it with the option to recover its
US$15m investment in the event of a change of control at the
project.
Amapá (Cadence Minerals) - carrying value GBPnil
We have been following the updates provided by Cadence Minerals
with particular interest. Cadence is working with the former Zamin
operating company with the intention to form a joint venture to
bring the mine back into operation. The creation of the joint
venture will require the current senior secured creditors to relax
their security claims over the project at which point Cadence will
release from escrow its initial investment and become a 20% owner
in the project.
Cadence has reported that discussions with the senior secured
creditors are progressing well. In addition, the Brazilian courts
have reaffirmed its decision to allow the shipment of the 3Mt of
iron ore currently sitting as a stockpile in the port
facilities.
Cadence has also reported that the total historical mineral
resource contains an estimated 348Mt of ore at 38.9% iron content
("Fe"). The ore is beneficiated at the mine to 65% Fe Pellet Feed
and 62% Fe Spiral Concentrate. Based on available historic mine
plans and an independent consultant review, it is expected that at
full production the Amapá Project has a mine life of 14 years and
at full capacity is targeting to produce up to 5.3Mt of iron ore
per annum.
FINANCE REVIEW
The first half of 2020 saw the full impact of COVID-19 on
businesses. For Anglo Pacific, the impact was mainly seen in softer
coal prices, which resulted in 43% reduction in portfolio
contribution compared to the same period in 2019. However, the
Group's key sources of royalty related revenue remained in
production ensuring that the Group generated cash flow and
earnings.
The impact of softer coal prices, along with the depletion at
Kestrel in H1 2020, led to a GBP16.4m revaluation movement in the
income statement (net of tax). This resulted in a headline loss of
GBP11.2m compared to a profit of GBP30.3m in H1 2019. However, when
non-cash valuations and charges are removed, underlying adjusted
earnings in the period were GBP10.5m compared to GBP21.9m in H1
2019.
The reduction in the Kestrel valuation, net of deferred tax, has
led to the Group's investment in LIORC being the largest royalty
related asset on our balance sheet as at 30 June 2020 and for the
first time in the Group's history its largest exposure is not coal
related. The valuation of LIORC at the end of June reflects a
strong iron ore pricing environment and immediate outlook which has
seen the share price increase since the balance sheet date
increasing from C$24.27 at the end of June to C$28.00
currently.
The Group ended the period with net debt of GBP39.8m an increase
of GBP11m on the position at the 2019-year end and reflects lower
levels of earnings along with the impact of tax and dividend
payments being largely weighted to the first half. We also invested
GBP5.7m in LIORC in Q1 2020, made the final payment of US$1.5m
(GBP1.2m) in relation to our Maracás Menchen acquisition and were
charged US$1.3m (GBP1.0m) in relation to the termination of the
Glencore off-take arrangement at Maracás Menchen.
We would expect a stronger level of cash generation in H2 2020.
Importantly, we remain well within our banking financial covenants
and at 30 June 2020 we were only just above 1x leveraged with
access to US$55m (including the US$30m accordion) of the undrawn
portion of our borrowing facility to finance growth in the second
half.
Adjusted earnings
The headline loss per share of 6.22p reflects the GBP16.4m
revaluation deficit of the Kestrel royalty, net of deferred tax and
a lower level of earnings due to lower coal prices and other
one-off items as discussed below. This compares to earnings of
16.76p for H1 2019.
Excluding non-cash valuation and charges, adjusted earnings per
share were 5.85p for H1 2020, a 52% reduction on the 12.13p
reported in H1 2019.
H1 2020 H1 2019 H1 2018
Royalty related revenue 17,773 31,253 19,077
EVBC income (included in valuation of financial instruments) 967 1,021 1,003
Operating expenses - excluding share-based payments (3,204) (2,741) (2,452)
Finance costs (1,138) (430) (354)
Finance income 48 14 71
Other (losses)/income (82) 822 -
Tax (3,791) (8,032) (1,964)
Adjusted earnings 10,573 51.7% 21,907 42.4% 15,381
============================================================== ======== ====== ======== ====== ========
Weighted average number of shares ('000) 180,644 180,544 180,006
Adjusted earnings per share 5.85p 51.7% 12.13p 41.7% 8.56p
-------------------------------------------------------------- -------- ------ -------- ------ --------
Earnings were also impacted by a stronger pound during the first
half of 2020, averaging GBP:AUD of 1.92 compared to 1.83 in H1
2019. This rate has since come back down to around 1.82. The
Group's hedging program in H1 2020 was effective, with a
significant portion of Australian dollar denominated income
protected at rates around 1.84.
The Kestrel revenue is sensitive to the AUD:USD rate as the
underlying product is priced in USD but the royalty rate is
determined by reference to the AUD average selling price. In the
past this has been more significant but with a lower coal price
environment the impact on the weighted average royalty rate is less
pronounced. The AUD:USD was on average around 0.66 in H1 2020
compared to 0.71 in H1 2019, which would have produced a greater
benefit in a higher pricing environment. The weighted average
royalty rate at Kestrel was around 9.3% in H1 2020 compared to
around 11.2% in H1 2019.
Portfolio contribution
Total royalty related revenue and total portfolio contribution
were 43% lower in H1 2020 compared to the corresponding period in
2019. The individual constituents of this are discussed below.
H1 2020 H1 2019
GBP'000 % Mvt GBP'000
------------------------------ -------- ------ --------
Kestrel 11,974 (47%) 22,692
Royalty related dividends 2,296 (33%) 3,420
Narrabri 1,586 (30%) 2,273
Mantos Blancos 1,200 -
Maracás Menchen (304) 1,783
Denison - interest 888 (9%) 975
Four Mile 133 21% 110
------------------------------ -------- ------ --------
Royalty related revenue 17,773 (43%) 31,253
------------------------------ -------- ------ --------
EVBC - royalty receipts 967 (5%) 1,021
Denison - principal 403 (60%) 1,015
------------------------------ -------- ------ --------
Total portfolio contribution 19,143 (43%) 33,289
------------------------------ -------- ------ --------
Kestrel
Volumes from Kestrel were in line with H1 2019 at around 3.1Mt
from within the Group's private royalty land. The decrease in
revenue is primarily due to a lower coal price environment.
Headline coking coal prices are down around 20% in the year to
date; however, some producers have been forced into accepting lower
prices in H1 2020 when diverting Indian supply onto the already
oversupplied seaborne market. Lower coal prices are compounded at
Kestrel by the ratcheted nature of the royalty. As noted above, the
weighted average royalty rate was approximately two percentage
points lower than in H1 2019.
LIORC (Dividends)
Income from LIORC was 33% lower than in H1 2019. This is mainly
due to a significant reduction in the special dividend declared
from LIORC due to the planned capital expenditure program at the
underlying operation in H1 2020. In addition, H1 2019 benefitted
from a one-off distribution of surplus cash accumulated during H2
2018 and subsequently paid out in April 2019. Total dividends
received during H1 2020 were C$0.80 per share compared to C$1.95 in
H1 2019. Iron ore is one of the standout non-precious commodities
in 2020 and we would expect a greater level of income to come in H2
2020.
Narrabri
Like Kestrel, Narrabri was impacted by a lower coal price during
H2 2020. Given the deferral of Indian contacts, Whitehaven produced
a lower portion of PCI in the period, reducing the average price
the Group receives. Volume output at 3.1Mt was encouraging, and
relatively consistent over the past eighteen months, suggesting
that the issues which they faced mining through a localised fault
are now largely behind them.
Mantos Blancos
Revenue form Mantos Blancos was impacted in H1 2020 by two
production stoppages along with a weak copper price for most of the
first half of 2020. The production issues faced by the operator
were successfully addressed in a timely manner limiting downtime.
In total the Group received payment on 18.9kt of copper payable,
which was around 16% lower sales volumes on average compared to
that of Q4 2019. The copper price has recovered significantly since
the half year and at US$6,400/t is trading at a twelve-month
high.
Maracás Menchen
The net outgoing at Maracás Menchen of GBP0.3m reflects the
Group being charged with a portion of the balance owing to Glencore
upon the termination by Largo Resources of its off-take
arrangement. Although longer term the termination of the offtake
should produce higher margins for the Group, the payment reflects a
pricing mechanism in the agreement whereby pricing can be rebased
in a three month period following delivery and when the vanadium
price commenced its rapid decline from US$34/lbs in H2 2018 to
US$4/lbs in H2 2019 a significant balance began to build up. The
Group was charged US$1.3m (GBP1.0m).
Underlying performance has, however been very positive with
record levels of sales being achieved in Q1 2020 of 3.2kt.
Following the completion of the expansion plan, the nameplate
capacity now stands at 1kt per month, a 20% increase over previous
levels. This record level of sales resulted in the final US$1.5m
(GBP1.2m) tranche of the deferred consideration being triggered and
this was duly paid in May 2020.
Sales volumes in Q2 2020 were significantly lower than
historical levels as the transition to the inhouse sales operation
took place. This created a one-off time lag between the ending of
the Glencore arrangement and the receipt of cash from the initial
sales under the new arrangements. In the meantime, we would expect
stock levels which accumulated in Q2 2020 to result in higher sales
volumes during H2 2020.
Denison / McClean Lake
Despite not generating any cash in May and June, the Group
continues to accrue interest in relation to its financing
arrangement with Denison, which earns additional penalty interest
where there is no cash being paid. The operator of the Cigar Lake
mine, which provides the throughput for the McClean Lake mill, from
which Denison earns the toll milling revenue it uses to pay its
obligations to the Group, has signalled their intention to resume
operations in September which will have been 4-5 months of
stoppage. We would expect cashflows to resume again in Q4 2020.
Four Mile
Revenue from Four Mile continues to be impacted by the disputed
charges being applied by the operator to the Group's royalty. This
dispute is now scheduled to be heard by the court in Australia in
the coming months.
EVBC
Royalties from EVBC were impacted by a two-week enforced shut
down imposed by the Spanish authorities as part of their efforts to
curtail the spread of COVID-19. Production in H1 2020 was also
lower due to lower grade oxides being fed through the processing
plant, offset somewhat by a higher gold price in Q2 2020, which has
since appreciated even higher suggesting that revenue from EVBC in
H2 2020 could be very strong.
Operating expenses
Overall, operating expenses were in-line with that of H1 2019 at
GBP3.4m. Excluding share based payments, cash operating expenses
were GBP0.5m higher than H1 2019, which largely relates to costs
being incurred in relation to the Four Mile legal process as we
finalise our case to be brought before the Australian courts. We
would expect this run rate to reduce in the second half of the year
and continue to keep a close eye on our cost base as we look to
grow our business.
Finance costs
The increase in finance costs is explained by the higher level
of borrowings in place during H1 2020. There were very little
borrowings in the Group in H1 2019. Average borrowings in H1 2019
were GBP2.8m (US$3.6m) compared to GBP40.9m (US$51.6m) in H1 2020
as discussed in the cash and borrowings section.
Foreign exchange
The FX loss reported represents the exchange translation on the
Group's outstanding borrowings. The majority of the Group's
borrowings are in USD. The average GBP:USD rate fell from 1.33 to
1.24 in the first half of 2020, resulting in a loss being reported.
This rate has since reversed into Q3 2020 to around 1.30.
Tax
The current tax charge has declined in the current period in
line with the level of adjusted earnings and represents an
effective tax rate of 27%. Most of the Group's profit is Australian
based and attracts tax at 30%. With a recovery expected from LIORC
in the second half of 2020 we would expect to see the Group's
effective tax rate lower.
(Loss) / profit after tax
The other items not included in adjusted earnings are the
Kestrel valuation decrease of GBP24.0m, the associated deferred tax
credit of GBP7.6m, and the royalty financial instrument revaluation
surplus of GBP0.1m. All of this combines to produce a loss after
tax of GBP11.2m in H1 2020 compared to a profit of GBP30.3m in H1
2019.
Balance sheet
Net assets decreased from GBP225.7m at the beginning of the year
to GBP217.0m at the end June, a resilient performance in light of
declining commodity prices and the limited impact which COVID-19
has had on the Group's assets.
The decrease is largely due to the reduction in the valuation of
the Kestrel royalty of GBP14.3m net of tax and foreign exchange,
offset by adjusted earnings in the period.
http://www.rns-pdf.londonstockexchange.com/rns/2642X_2-2020-8-26.pdf
The Kestrel deficit reflects depletion for the tonnages mined in
H1 2020 along with revisions to pricing estimates based on weaker
coal price expectations going forward.
Cashflow and borrowings
The lower level of income has resulted in lower cash flow being
generated by the Group in H1 2020, which in turn has led to a
slower deleveraging profile and higher borrowing levels.
http://www.rns-pdf.londonstockexchange.com/rns/2642X_1-2020-8-26.pdf
In addition to lower borrowings, cashflow is usually lower in
the first half of the year. This is due to the payment of the
Group's final dividend, which is higher than the level of the
quarterly interim dividends. In addition, the balancing payment of
taxes owing upon the filing of tax returns is paid in the first
half.
In addition, the Group paid the final US$1.5m (GBP1.2m) in
deferred consideration on the Maracás Menchen royalty in May, along
with making a GBP5.7m additional investment in LIORC during Q1
2020.
With a lower level of income and a number of outflows front
loaded into the first half, net debt increased from GBP28.8m at the
beginning of the year to GBP39.8m at the end of June 2020.
In USD terms, total borrowings drawn at the end of June 2020
were US$56.7m, leaving undrawn facilities of US$34.3m (before the
US$30m accordion). Of this amount, the Group projects that it has
ready access to US$25m to draw on to finance investments in H2
2020. Although borrowings have increased, the Group still operates
with low leverage ratios. At 30 June 2020, the Group's leverage was
just over 1x and comfortably within its 2x covenant.
There is the potential for a higher contribution to come from
the portfolio in H2 2020 as prices for coal have increased
somewhat, along with the potential for greater sales volumes at
Maracás Menchen and higher special dividends from LIORC to reflect
the considerable increase in iron ore prices thus far in 2020. With
US$25m of available liquidity, along with the US$30m accordion
option as part of the Group's credit facility, Anglo Pacific
remains in a strong position to weather the challenges being
presented by COVID-19 and to grow and diversify its business
further.
Principal risks and uncertainties
Whilst the nature of the Group's principal risks and
uncertainties are unchanged from those set out on pages 24 to 28 of
the 2019 Annual Report and Accounts, the Group has actively
monitored and responded to those risks heightened by COVID-19.
The Group's top three principal risks continue to be significant
operational disruptions at the mines underlying the Group's
producing royalties, demand for royalties, and ongoing stakeholder
support, all of which have been amplified by COVID-19. The impact
COVID-19 has had on commodity prices have also heightened the
Group's risks associated with financing capabilities, however, the
Group remains well within its banking financial covenants and
maintains access to US$55m (including the US$30m accordion) to
finance growth opportunities.
The Group is exposed to changes in the economic environment, as
with any other business. Details of any key risks and uncertainties
specific to the period are covered in the Portfolio Review and
Finance Review sections.
The 2019 Annual Report and Accounts is available on the Group's
website www.anglopacificgroup.com
Responsibility statement
The Directors are responsible for preparing the Interim Results
for the six months ended 30 June 2020 in accordance with applicable
law, regulations and accounting standards. In preparing the
condensed interim Financial Statements, the Directors are
responsible for ensuring that they give a true and fair view of the
state of affairs of the Group at the end of the period and the
profit or loss of the Group for that period, as required by DTR
4.2.4.
The Directors confirm that the condensed interim Financial
Statements have been prepared in accordance with IAS 34 'Interim
Financial Reporting', as adopted by the European Union and that the
Interim Results includes a fair review of the information required
by DTR 4.2.7R and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed interim
Financial Statements, and a description of principal risks and
uncertainties for the remaining six months of the financial year;
and
-- Material related part transactions for the first six months
of the year and any material changes in the related party
transactions described in the last annual report.
The Directors are listed in the Group's 2019 Annual Report and
Accounts. 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
26 August 2020
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHSED 30 JUNE 2020
Six months ended
30 June 30 June
2020 2019
Notes GBP'000 GBP'000
Royalty related revenue 2 17,773 31,253
Amortisation of royalties 10 (2,732) (1,450)
Operating expenses (3,373) (3,390)
--------- --------
Operating profit before impairments, revaluations and gains on disposals 11,668 26,413
Revaluation of royalty financial instruments 9 100 360
Revaluation of coal royalties (Kestrel) 8 (23,956) 13,996
Finance income 3 48 14
Finance costs 4 (1,138) (430)
Net foreign exchange (losses)/gains (3,018) 951
Other income/(losses) 5 833 (108)
--------- --------
(Loss)/Profit before tax (15,463) 41,196
Current income tax charge (3,194) (7,597)
Deferred income tax credit/(charge) 14 7,424 (3,334)
--------- --------
(Loss)/Profit attributable to equity holders (11,233) 30,265
========= ========
Total and continuing (loss)/earnings per share
Basic (loss)/earnings per share 6 (6.22p) 16.76p
Diluted (loss)/earnings per share 6 (6.22p) 16.70p
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
FOR THE SIX MONTHSED 30 JUNE 2020
Six months ended
30 June 30 June
2020 2019
Notes GBP'000 GBP'000
(Loss)/Profit attributable to equity holders (11,233) 30,265
Items that will not be reclassified to profit or loss
Changes in the fair value of equity investments held at fair value through other
comprehensive
income
Revaluation of royalty financial instruments 9 (241) 18,381
Revaluation of mining and exploration interests 11 1,907 1,854
Deferred tax relating to items that will not be reclassified to profit or loss 14 29 (2,427)
--------- --------
1,695 17,808
Items that have been or may be subsequently reclassified to profit or loss
Net exchange gain on translation of foreign operations 10,432 1,925
--------- --------
10,432 1,925
Other comprehensive income for the period, net of tax 12,127 19,733
Total comprehensive income for the period 894 49,998
========= ========
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 30 JUNE 2020
Audited
30 June 31 December 30 June
2020 2019 2019
Notes GBP'000 GBP'000 GBP'000
Non-current assets
Property, plant and equipment 957 955 19
Coal royalties (Kestrel) 8 75,479 96,419 123,790
Royalty financial instruments 9 72,070 65,801 66,696
Royalty and exploration intangible assets 10 105,004 102,201 69,837
Mining and exploration interests 11 5,529 3,642 4,772
Deferred costs 1,291 682 1,045
Other receivables 12 17,894 17,919 19,136
Deferred tax 14 3,243 3,185 3,402
-------- ------------ --------
281,467 290,804 288,697
Current assets
Trade and other receivables 5,838 9,546 7,205
Cash and cash equivalents 5,369 7,597 14,512
-------- ------------ --------
11,207 17,143 21,717
Total assets 292,674 307,947 310,414
-------- ------------ --------
Non-current liabilities
Borrowings 13 45,208 36,401 -
Other payables 1,774 1,659 653
Deferred tax 14 23,535 30,172 41,054
-------- ------------ --------
70,517 68,232 41,707
Current liabilities
Income tax liabilities 2,241 9,821 5,387
Derivative financial instruments 133 480 8
Trade and other payables 2,757 3,700 3,211
-------- ------------ --------
5,131 14,001 8,606
Total liabilities 75,648 82,233 50,313
-------- ------------ --------
Net assets 217,026 225,714 260,101
======== ============ ========
Capital and reserves attributable to shareholders
Share capital 15 3,635 3,629 3,629
Share premium 15 63,137 62,779 62,779
Other reserves 53,774 40,352 67,619
Retained earnings 96,480 118,954 126,074
-------- ------------ --------
Total equity 217,026 225,714 260,101
======== ============ ========
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED) FOR THE SIX MONTHSED 30 JUNE 2019
Other reserves
Foreign
Share
Investment 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
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ------- -------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- --------
Balance at 1
January
2019 3,629 62,779 29,134 143 (198) 4,159 16,016 632 (2,601) 104,415 218,108
Profit for the
period - - - - - - - - - 30,265 30,265
Other
comprehensive
income:
Changes in
fair
value of
equity
investments
held
at fair value
through
other
comprehensive
income
Valuation
movement
taken to
equity - - - - 20,235 - - - - - 20,235
Deferred
tax 14 - - - - (2,427) - - - - - (2,427)
Foreign
currency
translation - - - - - - 1,925 - - - 1,925
------------
Total
comprehensive
income - - - - 17,808 - 1,925 - - 30,265 49,998
-------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- --------
Transferred to
retained
earnings
on disposal - - - - 30 - - - - (30) -
Dividends 7 - - - - - - - - - (8,576) (8,576)
Value of
employee
services - - - - - 571 - - - - 571
Total
transactions
with owners
of
the company - - - - 30 571 - - - (8,606) (8,005)
-------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- --------
Balance at 30
June
2019 3,629 62,779 29,134 143 17,640 4,730 17,941 632 (2,601) 126,074 260,101
======== ======== ======== ======== ============ ========= ============ ======== =========== ========= ========
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED) FOR THE SIX MONTHSED 31 DECEMBER 2019
Other reserves
Foreign
Share
Investment 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
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ------- -------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- ---------
Balance at 1
July 2019 3,629 62,779 29,134 143 17,640 4,730 17,941 632 (2,601) 126,074 260,101
Profit for the
period - - - - - - - - - (1,270) (1,270)
Other
comprehensive
income:
Changes in
fair value
of equity
investments
held at fair
value through
other
comprehensive
income
Valuation
movement
taken
to equity - - - - (19,435) - - - - - (19,435)
Deferred tax 14 - - - - 2,405 - - - - - 2,405
Foreign
currency
translation - - - - - - (10,628) - - - (10,628)
------------
Total
comprehensive
expense - - - - (17,030) - (10,628) - - (1,270) (28,928)
-------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- ---------
Transferred to
retained
earnings on
disposal - - - - (18) - - - - 18 -
Dividends 7 - - - - - - - - - (5,868) (5,868)
Value of
employee
services - - - - - 409 - - - - 409
Total
transactions
with
owners of the
company - - - - (18) 409 - - - (5,850) (5,459)
-------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- ---------
Balance at 31
December
2019 3,629 62,779 29,134 143 592 5,139 7,313 632 (2,601) 118,954 225,714
======== ======== ======== ======== ============ ========= ============ ======== =========== ========= =========
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED) FOR THE SIX MONTHSED 30 JUNE 2020
Other reserves
Foreign
Share
Investment 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
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------ -------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- ---------
Balance at 1
January
2020 3,629 62,779 29,134 143 592 5,139 7,313 632 (2,601) 118,954 225,714
Loss for the
period - - - - - - - - - (11,233) (11,233)
Other
comprehensive
income:
Changes in fair
value
of equity
investments
held at fair
value through
other
comprehensive
income
Valuation
movement
taken to
equity - - - - 1,666 - - - - - 1,666
Deferred tax 14 - - - - 29 - - - - - 29
Foreign currency
translation - - - - - - 10,432 - - - 10,432
------------
Total
comprehensive
income/(expense) - - - - 1,695 - 10,432 - - (11,233) 894
-------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- ---------
Transferred to
retained
earnings on
disposal - - - - - - - - - - -
Dividends 7 - - - - - - - - - (10,368) (10,368)
Issue of ordinary
shares 15 6 358 - - - - - - - - 364
Value of employee
services 21 - - - - - (140) - - 1,435 (873) 422
Total
transactions
with
owners of the
company 6 358 - - - (140) - - 1,435 (11,241) (9,582)
-------- -------- -------- -------- ------------ --------- ------------ -------- ----------- --------- ---------
Balance at 30
June 2020 3,635 63,137 29,134 143 2,287 4,999 17,745 632 (1,166) 96,480 217,026
======== ======== ======== ======== ============ ========= ============ ======== =========== ========= =========
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHSED 30 JUNE 2020
Six months ended
30 June 2020 30 June 2019
Notes GBP'000 GBP'000
Cash flows from operating activities
(Loss)/Profit before taxation (15,463) 41,196
Adjustments for:
Finance income (48) (14)
Finance costs 1,138 430
Net foreign exchange losses/(gains) 3,018 (951)
Other (income)/losses 5 (833) 108
Revaluation of royalty financial instruments 9 (100) (360)
Royalties due or received from royalty financial instruments 9 967 1,021
Revaluation of coal royalties (Kestrel) 8 23,956 (13,996)
Depreciation of property, plant and equipment 4 11
Amortisation of royalty intangible assets 10 2,732 1,450
Amortisation of deferred acquisition costs 6 6
Provision of non-recoverable other receivables - 103
Share based payment 169 649
------------- -------------
15,546 29,653
Decrease in trade and other receivables 2,840 3,061
Increase in trade and other payables 196 87
------------- -------------
Cash generated from operations 18,582 32,801
Income taxes paid (10,095) (6,250)
Net cash generated from operating activities 8,487 26,551
------------- -------------
Cash flows from investing activities
Proceeds on disposal of mining and exploration interests - 95
Purchase of royalty intangibles 10 (1,216) -
Purchases of royalty financial instruments 9 (5,684) (1,049)
Repayments under commodity related financing agreements 12 403 1,015
Advances under royalty financing agreements (201) -
Prepaid acquisition costs (322) (387)
Finance income 48 14
Net cash used in investing activities (6,972) (312)
------------- -------------
Cash flows from financing activities
Drawdown of revolving credit facility 13 15,800 -
Repayment of revolving credit facility 13 (9,160) (8,300)
Proceeds from issue of share capital 15 364 -
Dividends paid 7 (10,368) (8,576)
Finance costs - excluding foreign exchange gains/losses (934) (291)
Net cash used in financing activities (4,298) (17,167)
------------- -------------
Net (decrease)/increase in cash and cash equivalents (2,783) 9,072
Cash and cash equivalents at beginning of period 7,597 5,223
------------- -------------
Effect of foreign exchange rates 555 217
Cash and cash equivalents at end of period 5,369 14,512
============= =============
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 30 June 2020.
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 31 December
2019.
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 31
December 2019 were approved on 6 April 2020. 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 Going concern
The financial position of the Group and its cash flows are set
out on pages 21 and 25. The Directors have considered the principal
risks of the Group which are set out on pages 24 to 28 of the 2019
Annual Report, and considered key sensitivities which could impact
on the level of available borrowings. As at 30 June 2020 the Group
had cash and cash equivalents of GBP5.4m and borrowings under its
revolving credit facility of GBP45.2m (U$$55.7m) leaving GBP27.8m
(US$34.3m) undrawn as set out in note 13.
Despite the COVID-19 pandemic not having a material impact on
the underlying operations of the Group's portfolio, with the
exception of EVBC which was subject to a two week shut down and the
McClean Lake mill being placed on care and maintenance since March
2020, it has contributed to lower coal prices in the period to 30
June 2020.
The Group's forecast reflects the latest consensus pricing. Even
assuming a further 20% downturn in revenue from 30 June 2020, the
Group would still operate comfortably within its banking covenant
limits with no debt redemption or amortisation commitments within
the 12 month period from the date of approval of these interim
condensed consolidated financial statements.
In light of the limited impact that COVID-19 has had on the
underlying operations of the Group's producing royalties as
detailed above, the Directors no longer consider the scenario of a
twelve-month operational shutdown across the portfolio as relevant
for assessing going concern. Having reviewed the Group's forecasts
under the downturn scenario described above, the Directors have a
reasonable expectation, without material uncertainty, that the
Group has adequate resources to continue to operate within the
level of its current facilities for the foreseeable future. The
Group therefore continues to adopt the going concern basis in
preparing its condensed interim financial statements.
1.2 Alternative Performance Measurers
When assessing and discussing the Group's reported financial
performance, financial position and cash flows, management makes
reference to Alternative Performance Measures (APMs) of historical
or future financial performance, financial position or cash flows
that are not defined or specified under IFRS. APMs should be
considered in addition to, and not as a substitute for or as
superior to, measures of financial performance, financial position
or cash flows reported in accordance with IFRS. Further information
on APMs is provided on page 4 and 5 of these condensed consolidated
interim financial statements.
1.3 Changes in accounting policies
The accounting policies applied in these condensed interim
financial statements are consistent with those of the Group's
consolidated financial statements for the year ended 31 December
2019, as described in those annual financial statements, except for
changes arising from the adoption of the following significant new
accounting pronouncements which became effective in the current
reporting period.
(a) New accounting policies, standards, amendments and
interpretations effective or adopted in 2020
From 1 January 2020, the following standards and amendments are
effective in the Group's financial statements:
-- Amendments to IFRS 3: 'Business combinations';
-- Amendments to IAS 1: 'Presentation of financial statements'
and IAS 8: 'Accounting policies, changes in accounting estimates
and errors'; and
-- Amendments to the Conceptual Framework for Financial Reporting.
The amendments to IFRS 3 modify the definition of a business in
order to assist entities in determining whether an acquisition
falls within the scope of the standard.
The amendments to IAS 1 and IAS 8 clarify the definition and
application of the materiality concept in financial reporting.
The amendments to the Conceptual Framework make a number of
clarifications and modifications to the concepts underpinning
IFRS.
None of the changes to IFRS described above have a material
impact on the Group's consolidated financial statements.
As a result of the economic impacts of the COVID-19 pandemic, a
number of government programmes have been put into place to support
businesses and consumers, such as the UK Government's Coronavirus
Job Retention Scheme. The Group has not applied for nor received
any form government assistance during the six months to 30 June
2020, and the Directors do not expect to make any future
applications.
(b) Standards, amendments and interpretations that are issued but not yet applied by the Group
Amendments to IAS 37: 'Provisions, contingent assets and
contingent liabilities' are effective from 1 January 2022, subject
to EU endorsement. The amendments specify which costs an entity
should include when assessing whether a contract is onerous and
therefore requires a provision.
Amendments to IAS 1 relating to the classification of financial
liabilities are effective from 1 January 2023, subject to EU
endorsement. The amendments clarify the meaning of settlement in
the context of liabilities, and the circumstances in which
liabilities are classified as current or non-current.
The Group is assessing the impact these changes will have on its
consolidated financial statements.
Other issued amendments or interpretations that have not yet
been applied by the Group are not expected to have a material
impact on the Group's accounting policies.
1.4 Key sources of estimation uncertainty and critical
accounting judgements
With the exception of the items noted below, key areas of
critical accounting judgement and estimation uncertainty that have
the most significant effect on the Group's consolidated financial
statements remain as disclosed in note 4 of the consolidated
financial statements of the Group for the year ended 31 December
2019.
COVID-19
The COVID-19 pandemic has had a profoundly negative impact on
the global economy, and there is significant uncertainty around the
timing and form of any economic recovery. This has given rise to an
increase in estimation uncertainty for the Group, particularly
regarding the matters noted below.
Valuation of Coal royalties (Kestrel)
Forward prices for metallurgical coal are a key assumption in
the independent valuation of the Group's coal royalties (Kestrel).
In preparing the valuation at 30 June 2020, the Group's independent
coal industry adviser noted the significant uncertainty associated
with metallurgical coal price forecasts as a result of the ongoing
economic uncertainty caused by the COVID-19 pandemic. An analysis
of the impact of metallurgical coal prices varying from those
assumed in the valuation at 30 June 2020 is provided in note 8.
Impairment of royalty intangible assets
While there have been no operational issues experienced by the
mines underlying the Group's producing royalties, the first half of
2020 saw significant falls in commodity prices both in terms of
observable market prices and forecast forward prices, as a result
of the COVID-19 pandemic.
The forward prices for the commodities underlying the Group's
royalty intangible assets are a key input in the assessment for
indicators of impairment. Utilising the latest consensus pricing at
30 June 2020, there were no indicators of impairment (refer to note
10); if, however, these prices decreased by a further 10% the Group
would record an impairment charge of GBP3.4m in relation to its
royalty intangible assets.
Going Concern
In the context of the economic uncertainty caused by COVID-19
and commodity price falls, the Directors have updated their going
concern assessment to factor in the Group's updated forecasts,
together with modelling revised downside sensitivities to those
assumed at 31 December 2019. The going concern assessment no longer
considers a twelve-month operational shutdown across the portfolio
in light of limited impact COVID-19 has had on the operations
underlying the Group's production royalty assets, although it does
continue to assume a 20% downturn in commodity prices across the
portfolio. Under this scenario, the Group's forecasts show that the
Group would still operate comfortably within its banking covenant
limits with no debt redemptions or amortisation commitments for at
least 12 months from the date of approval of these financial
statements.
2 Royalty related revenue
Six months ended
30 June 2020 30 June 2019
GBP'000 GBP'000
Royalty income 14,589 26,858
Interest from royalty related financial assets 888 975
Dividends from royalty financial instruments 2,296 3,420
------------- -------------
17,773 31,253
============= =============
Interest from royalty related financial assets for the six
months ended 30 June 2020 of GBP0.9m (30 June 2019: GBP1.0m)
relates to interest earned on the Group's 13 year amortising loan
of C$40.8m with an interest rate of 10% per annum, to Denison Mines
Inc ("Denison"), which is classified as non-current other
receivables (note 12).
Dividends from royalty financial instruments for the six months
ended 30 June 2020 of GBP2.3m (30 June 2019: GBP3.4m) relates to
the dividends received from the Group's investments in Labrador
Iron Ore Company (2020: GBP2.1m; 2019: GBP3.2m) as described in
note 9, together with the dividends received from the Group's
investment in Flowstream Vintage (2020: GBP0.2m; 2019: GBP0.2m), an
unquoted oil and gas streaming company.
3 Finance income
Six months ended
30 June 2020 30 June 2019
GBP'000 GBP'000
Interest on bank deposits 48 14
------------- -------------
48 14
============= =============
4 Finance costs
Six months ended
30 June 2020 30 June 2019
GBP'000 GBP'000
Professional fees (242) (139)
Revolving credit facility fees and interest (896) (291)
------------- -------------
(1,138) (430)
============= =============
5 Other income/(losses)
Six months ended
30 June 2020 30 June 2019
GBP'000 GBP'000
Revaluation of foreign exchange instruments 915 21
Other losses (82) (129)
------------- -------------
833 (108)
============= =============
6 (Loss)/Earnings per share
Loss per ordinary share is calculated on the Group's loss after
tax of GBP11.2m for the six months ended 30 June 2020 (30 June
2019: profit GBP30.3m) and the weighted average number of shares in
issue during the period of 180,644,312 (2019: 180,544,459).
30 June 2020 30 June 2019
GBP'000 GBP'000
Net (loss)/profit attributable to shareholders
(Loss)/Earnings - basic (11,233) 30,265
(Loss)/Earnings - diluted (11,233) 30,265
30 June 2020 30 June 2019
Weighted average number of shares in issue
Basic number of shares outstanding 180,644,312 180,544,459
Dilutive effect of Employee Share Option Scheme - 654,201
------------- -------------
Diluted number of shares outstanding 180,644,312 181,198,660
============= =============
(Loss)/Earnings per share - basic (6.22p) 16.76p
(Loss)/Earnings per share - diluted (6.22p) 16.70p
The weighted average number of shares in issue 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 366,667 ordinary 2p shares it holds as at 30 June
2020 (30 June 2019: 925,933).
For the six months ended 30 June 2020, the Group is loss making,
therefore the outstanding options under the Group's employee share
option schemes are considered anti-dilutive as including them in
the diluted number of shares outstanding would decrease the loss
per share.
Adjusted earnings per share
Adjusted earnings represent the Group's underlying operating
performance from core activities. Adjusted earnings is the
profit/loss attributable to equity holders plus the royalty
receipts from the EVBC royalty, less all valuation movements and
impairments (which are non-cash adjustments that arise primarily
due to changes in commodity prices), amortisation charges,
share-based payments, unrealised foreign exchange gains and losses,
and any associated deferred tax, together with any profit or loss
on non-core asset disposals as such disposals are not expected to
be ongoing.
Valuation and other non-cash movements such as these are not
considered by management in assessing the level of profit and cash
generation available for distribution to shareholders. As such, an
adjusted earnings measure is used which reflects the underlying
contribution from the Group's royalties during the period.
Diluted
Earnings earnings
Earnings per share per share
GBP'000 p p
Net profit attributable to shareholders
Loss - basic and diluted for the six months ended 30 June 2020 (11,233) (6.22p) (6.22p)
Adjustment for:
Amortisation of royalty intangible assets 2,732
Receipts from royalty financial instruments 967
Revaluation of royalty financial instruments (100)
Revaluation of coal royalties (Kestrel) 23,956
Revaluation of foreign currency instruments (915)
Share-based payments and associated national insurance 169
Foreign exchange (gains)/losses 3,018
Tax effect of the adjustments above (8,021)
---------
Adjusted earnings - basic and diluted for the six months ended 30 June 2020 10,573 5.85p 5.83p
========= ========== ==========
Diluted
Earnings earnings
Earnings per share per share
GBP'000 p p
Net profit attributable to shareholders
Earnings - basic and diluted for the six months ended 30 June 2019 30,265 16.76p 16.70p
Adjustment for:
Amortisation of royalty intangible assets 1,450
Receipts from royalty financial instruments 1,021
Revaluation of royalty financial instruments (360)
Revaluation of coal royalties (Kestrel) (13,996)
Revaluation of foreign currency instruments (21)
Share-based payments and associated national insurance 649
Tax effect of the adjustments above 2,899
---------
Adjusted earnings - basic and diluted for the six months ended 30 June 2019 21,907 12.13p 12.09p
========= ========== ==========
In calculating the adjusted earnings per share, the weighted
average number of shares in issue takes into account the dilutive
effect of the Group's employee share option schemes in those
periods where the Group has adjusted earnings. In periods where the
Group has an adjusted loss, the employee share option schemes are
considered anti-dilutive as including them in the diluted number of
shares outstanding would decrease the loss per share, as such they
are excluded.
The weighted average number of shares in issue for the purpose
of calculated basic and diluted adjusted earnings per share are as
follows:
30 June 2020 30 June 2019
Weighted average number of shares in issue
Basic number of shares outstanding 180,644,312 180,544,459
Dilutive effect of Employee Share Option Scheme 586,425 654,201
------------- -------------
Diluted number of shares outstanding 181,230,737 181,198,660
============= =============
7 Dividends and dividend cover
A second interim dividend of 1.75p per share has been declared
for year-ending 31 December 2020, and will be paid on 13 November
2020.
On 14 August 2020, the first interim dividend in respect of the
year ending 31 December 2020 of 1.75p per share was paid to
shareholders (GBP3.2m). This dividend has not been included as a
liability in these financial statements.
On 18 June 2020, a final dividend in respect of the year ended
31 December 2019 of 4.125p per share was paid to shareholders
(GBP7.5m).
On 13 February 2020, an interim dividend of 1.625p per share was
paid to shareholders (GBP2.9m) in respect of the year ended 31
December 2019.
Dividend cover
Dividend cover is calculated as the number of times adjusted
earnings per share exceeds the dividend per share. The Group's
adjusted earnings per share for the six months ended 30 June 2020,
is 5.82p per share (note 6) with interim dividends totalling 3.5p,
resulting in dividend cover of 1.66x (30 June 2019: adjusted
earnings per share 12.13p, interim dividend 3.25p, dividend cover
of 3.73x).
8 Coal royalties (Kestrel)
GBP'000
At 1 January 2019 109,778
Foreign currency translation 16
Gain on revaluation of coal
royalties 13,996
---------
At 30 June 2019 123,790
Foreign currency translation (4,160)
Loss on revaluation of coal
royalties (23,211)
---------
At 31 December 2019 96,419
Foreign currency translation 3,016
Loss on revaluation of coal
royalties (23,956)
---------
At 30 June 2020 75,479
=========
The coal royalty was valued during June 2020 at GBP75.5m
(A$135.3m) by an independent coal industry adviser, on a net
present value of the pre-tax cash flow discounted at a nominal rate
of 6.5% (30 June 2019: 6.0% and 31 December 2019: 6.0%). The key
assumptions in the independent valuation relate to price, foreign
exchange rates and discount rate.
The price assumptions used in the 30 June 2020 valuation
increase from US$140/t in the short term to a long-term flat
nominal price of US$142/t. If the price were to increase or
decrease 10 per cent over the life of the mine the valuation effect
would be:
-- a 10% reduction in the coal price would have resulted in the
coal royalties being valued at A$114.0m (GBP63.6m) and an GBP11.1m
increase to the revaluation loss in the income statement, resulting
in a revaluation loss of GBP35.1m; and
-- a 10% increase in the coal price would have resulted in the
coal royalties being valued at A$157.1m (GBP87.6m) and an GBP11.4m
reduction in the revaluation loss in the income statement,
resulting in a revaluation loss of GBP12.6m.
The AUD:USD exchange rate assumptions used in the 30 June 2020
valuation assume a strengthening in the Australia dollar from a
short-term rate of 0.69 to a long term rate of 0.75 against the US
dollar. If the Australian dollar were to strengthen or weaken by
10% against the US dollar over the life of the mine that valuation
effect would be:
-- a 10% strengthening of the Australian dollar against the US
dollar would have resulted in the coal royalties being valued at
A$115.9m (GBP64.7m) and an GBP10.1m increase to the revaluation
loss in the income statement, resulting in a revaluation loss of
GBP34.1m; and
-- a 10% weakening of the Australian dollar against the US
dollar would have resulted in the coal royalties being valued at
A$159.5m (GBP89.0m) and a GBP12.6m reversal decrease to the
revaluation loss in the income statement, resulting in a
revaluation loss of GBP11.4m.
The pre-tax nominal discount rate used for the asset is 6.5%, if
the discount rate used were to increase or decrease by 1% the
valuation effect would be:
-- a 1% reduction in the nominal discount rate would have
resulted in the coal royalties being valued at A$138.7m (GBP77.4m)
and a GBP1.8m decrease in the revaluation loss in the income
statement to GBP22.2m; and
-- a 1% increase in the nominal discount rate would have
resulted in the coal royalties being valued at A$132.1m (GBP73.7m)
and a GBP1.7m increase in the revaluation loss in the income
statement to GBP25.7m.
The net royalty income from this investment is currently taxed
in Australia at a rate of 30%. The revaluation of the underlying
Australian dollar asset is recognised in the Income Statement with
the retranslation to the Group's sterling presentation currency
recognised in the foreign currency translation reserve.
Were the coal royalty to be realised at the revalued amount,
there are GBP5.5m (A$9.9m) of capital losses potentially available
to offset against taxable gains. As the Directors do not presently
have any intention to dispose of the coal royalty, these losses
have not been included in the deferred tax calculation (note 14).
Were the coal royalty to be carried at cost the carrying value
would be GBP0.2m (2019: GBP0.2m).
Refer to note 17 for additional fair value disclosures relating
to Kestrel.
9 Royalty financial instruments
GBP'000
Fair value
At 1 January 2019 46,205
Additions 1,049
Royalties due or received from royalty financial instruments (1,021)
Revaluation of royalty financial instruments recognised in profit or loss 360
Revaluation of royalty financial instruments recognised in equity 18,381
Foreign currency translation 1,722
At 30 June 2019 66,696
Additions 19,238
Royalties due or received from royalty financial instruments (1,145)
Revaluation of royalty financial instruments recognised in profit or loss 2,118
Revaluation of royalty financial instruments recognised in equity (18,504)
Foreign currency translation (2,602)
---------
At 31 December 2019 65,801
Additions 5,684
Royalties due or received from royalty financial instruments (967)
Revaluation of royalty financial instruments recognised in profit or loss 100
Revaluation of royalty financial instruments recognised in equity (241)
Foreign currency translation 1,693
---------
At 30 June 2020 72,070
=========
The details of the Group's royalty financial instruments, which
are held at fair value are summarised below:
Royalty
Valuation
Original Cost Royalty 30 June 2020
Project Commodity '000 Rate Escalation Classification GBP'000
Gold, Silver, 3% gold
EVBC Copper C$7,500 2.50% >US$1,100/oz FVTPL 3,460
2.5% gold
>U$1,800/oz &
production
Dugbe 1 Gold US$15,000 2.00% <50,000oz/qrt FVTPL 789
22.5% of
tolling
milling
proceeds on
all
throughput
McClean Lake Uranium C$2,700 - >215Mlbs FVTPL 1,450
Piauí Nickel-Cobalt US$2,000 1.25% - FVTPL 1,618
Labrador Iron
Ore Iron Ore C$108,985 7.00% - FVTOCI 64,753
-------------
72,070
=============
The Group's royalty instruments are represented by four royalty
agreements, EVBC, Dugbe 1, McClean Lake and Piauí which entitle the
Group to either the repayment of principal and a net smelter return
("NSR") royalty for the life of the mine or a gross revenue royalty
("GRR") where the project commences commercial production or the
repayment of principal where it does not. All four royalty
agreements are classified as fair value through profit or loss
('FVTPL').
The Group's entitlements to cash by way of the repayment of the
principal and the NSR royalty or the GRR have been classified as
fair value through profit or loss in accordance with IFRS 9 and are
carried at fair value in accordance with the Group's classification
of royalty arrangements criteria adopted in the last annual
financial statements for the year to 31 December 2019.
The Group's fifth royalty financial instrument, is its equity
investment in Labrador Iron Ore Company ('LIORC'), which entitles
the Group to a share of the 7% GRR LIORC receives from the Iron Ore
Company of Canada ('IOC') mine and distributes to its shareholders
via dividends. As LIORC is a single asset company, being the GRR
over the IOC mine which is owned and operated by Rio Tinto, the
Group has classified its investment in LIORC as a royalty financial
instrument and made an irrevocable election to designate it as
FVTOCI.
During the six months ended 30 June 2020 the Group made a
further investment of C$9.8m (GBP5.7m) in Labrador Iron Ore
Company, increasing its shareholding to 4,486,890 shares (31
December 2019: 4,040,790 shares).
The resulting dividends from the Group's investment in LIORC
have been classified as royalty related revenue (refer to note 2)
as a result of LIORC's primary source of income being the 7% GRR
described above.
10 Royalty and exploration intangible assets
Exploration and Royalty
Evaluation Costs Interests Total
Group GBP'000 GBP'000 GBP'000
Gross carrying amount
At 1 January 2020 697 147,432 148,129
Foreign currency translation - 7,536 7,536
----------------- ---------- ---------
At 30 June 2020 697 154,968 155,665
Amortisation and impairment
At 1 January 2020 (697) (45,231) (45,928)
Amortisation charge - (2,732) (2,732)
Foreign currency translation - (2,001) (2,001)
At 30 June 2020 (697) (49,964) (50,661)
----------------- ---------- ---------
Carrying amount 30 June 2020 - 105,004 105,004
================= ========== =========
Exploration and Royalty
Evaluation Costs Interests Total
Group GBP'000 GBP'000 GBP'000
Gross carrying amount
At 1 January 2019 697 112,626 113,323
Foreign currency translation - 334 334
----------------- ---------- ---------
At 30 June 2019 697 112,960 113,657
Amortisation and impairment
At 1 January 2019 (697) (41,432) (42,129)
Amortisation charge - (1,450) (1,450)
Foreign currency translation - (241) (241)
----------------- ---------- ---------
At 30 June 2019 (697) (43,123) (43,820)
----------------- ---------- ---------
Carrying amount 30 June 2019 - 69,837 69,837
================= ========== =========
Exploration and Royalty
Evaluation Costs Interests Total
Group GBP'000 GBP'000 GBP'000
Gross carrying amount
At 1 January 2019 697 112,626 113,323
Additions - 42,284 42,284
Foreign currency translation - (7,478) (7,478)
----------------- ---------- ---------
At 31 December 2019 697 147,432 148,129
Amortisation and impairment
At 1 January 2019 (697) (41,432) (42,129)
Amortisation charge - (3,777) (3,777)
Impairment charge - (1,367) (1,367)
Foreign currency translation - 1,345 1,345
----------------- ---------- ---------
At 31 December 2019 (697) (45,231) (45,928)
----------------- ---------- ---------
Carrying amount 31 December 2019 - 102,201 102,201
================= ========== =========
Royalty interests
During the first quarter of 2020, Largo Resources generated
sales, which on an annualised basis exceeded 12,000t, triggering
the second tranche of deferred consideration of U$1.5m in relation
to the Maracás Menchen royalty to become payable. On 29 May 2020,
the Group paid the U$1.5m (GBP1.2m) of deferred consideration that
had been accrued since 30 June 2018 and included in the carrying
value of Maracás Menchen royalty.
The amortisation charge for the period, of GBP2.7m (30 June
2019: GBP1.5m) relates to the Group's producing royalties, Mantos
Blancos, Narrabri, Maracás Menchen and Four Mile. Amortisation of
the remaining interests will commence once they begin commercial
production.
All intangible assets are assessed for indicators of impairment
at each reporting date. The key sources of estimation uncertainty
impacting the assessment for indicators of impairment as at 30 June
2020 are detailed in note 1.5. As at 30 June 2020 no further
impairment charges were recognised (31 December 2019: GBP1.4m). The
Group's intangible assets will be assessed for indicators of
impairment again at 31 December 2020.
11 Mining and exploration interests
GBP'000
Fair value
At 1 January 2019 2,848
Disposals (95)
Revaluation adjustment 1,854
Foreign currency translation 165
--------
At 30 June 2019 4,772
Additions 40
Disposals (226)
Revaluation adjustment (931)
Foreign currency translation (13)
--------
At 31 December 2019 3,642
Revaluation adjustment 1,907
Foreign currency translation (20)
At 30 June 2020 5,529
========
The fair values of listed securities are based on quoted market
prices. Unquoted investments and royalty options are initially
recognised using cost where fair value cannot be reliably
determined. In the absence of an active market for these
securities, the Group considers each unquoted security to ensure
there has been no material change in the fair value since initial
recognition.
Mining and exploration interests are held at fair value through
other comprehensive income, with the effect that the gains and
losses on disposal and impairment losses are transferred directly
to retained earnings.
Total mining and exploration interests are represented by:
30 June 2020 31 December 2019 30 June 2019
GBP'000 GBP'000 GBP'000
Quoted investments 5,232 3,362 4,358
Unquoted investments 297 280 414
------------- ----------------- -------------
5,529 3,642 4,772
============= ================= =============
Number of investments 8 8 10
12 Non-current other receivables
GBP'000
At 1 January 2019 19,335
Interest 975
Repayments of principal and interest (1,990)
Amortisation of deferred acquisition costs (6)
Expected credit losses (16)
Foreign currency translation 838
--------
At 30 June 2019 19,136
Interest 951
Repayments of principal and interest (1,513)
Amortisation of deferred acquisition costs (7)
Expected credit losses (46)
Foreign currency translation (602)
--------
At 31 December 2019 17,919
Interest 888
Repayments of principal and interest (1,177)
Amortisation of deferred acquisition costs (6)
Expected credit losses (82)
Foreign currency translation 352
At 30 June 2020 17,894
========
In 2017, the Group completed a C$43.5m (GBP26.6m) financing and
streaming agreement with Denison. The streaming agreement is
classified as a royalty financial instrument (note 9), with an
initial value of C$2.7m (GBP1.7m).
The financing agreement is structured as a 13-year secured loan
of C$40.8m (GBP24.9m) with an interest rate of 10% per annum
payable to the Group. The loan contains mandatory repayment
provisions in any period where the equivalent toll revenues exceed
the interest liability. Conversely, in any period when toll
revenues are less than the interest payment, the shortfall is
capitalised and carried forward to the next period. The loan
principal, along with any capitalised interest, is repayable in
full at maturity.
Following the suspension of operations at the Cigar Lake uranium
mine in response to the COVID-19 pandemic, the McClean Lake Mill
was placed on care and maintenance in March 2020. During the six
months ended 30 June 2020, the Group earned GBP0.9m in interest
revenue (2019: GBP1.0m) and received principal repayments of
GBP0.4m (2019: GBP1.0m).
On 29 July 2020, Cameco and Orano announced plans to restart
operations at the Cigar Lake uranium mine and the McClean Lake Mill
from which the Group receives a share tolling milling receipts, in
September 2020. This announcement follows both operations being
placed on care and maintenance in March 2020 due to the COVID-19
pandemic.
The Group assesses the carrying value of the Denison financing
agreement for expected credit losses over the next 12 months by
making reference to the security held by the Group and the
financial position of Denison at each reporting date. As at 30 June
2020, the implied probability of default has been assessed at 1.49%
(2019: 0.98%) resulting in the Group recognising expected credit
losses of GBP0.3m (30 June 2019: GBP0.1m).
13 Borrowings
30 June 2020 31 December 2019 30 June 2019
Group Group Group
GBP'000 GBP'000 GBP'000
Secured borrowing at amortised cost
Revolving credit facility 45,208 36,401 -
45,208 36,401 -
============= ================= =============
In September 2018, the Group refinanced the facility agreed in
2017 with a three-year revolving credit facility of US$60.0m with a
US$30.0m accordion, maturing in September 2021, which was available
at LIBOR plus 300bps.
In January 2020, the Group amended and extended the 2018
facility, increasing the revolving credit facility to US$90.0m and
retaining the US$30.0m accordion. The amended and extended facility
matures in September 2022 and is available at LIBOR plus
175bps.
The Group's revolving credit facility is secured by way of a
floating charge over the Group's assets and is subject to a number
of financial covenants, all of which have been met during the
period ended 30 June 2020.
During the six months ended 30 June 2020, the Group repaid
GBP9.2m and drew down a further GBP15.8m to have total borrowings
as at 30 June 2020 of GBP45.2m, leaving GBP27.8m (US$34.3m) undrawn
on its secured US$90.0m revolving credit facility.
The Directors consider that the carrying amount of the Group's
borrowings approximates their fair value.
The Group's net debt position after offsetting interest bearing
liabilities against cash and cash equivalents is as follows:
30 June 2020 31 December 2019 30 June 2019
GBP'000 GBP'000 GBP'000
Revolving credit facility (45,208) (36,401) -
Cash and cash equivalents 5,369 7,597 14,512
Net (debt)/cash and cash equivalents (39,839) (28,804) 14,512
============= ================= =============
14 Deferred tax
The following are the major deferred tax liabilities/(assets)
recognised by the Group and the movements thereon during the
period:
Coal royalties
Revaluation Revaluation Accrual of
of coal of royalty royalty Other tax
royalty instruments receivable losses Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 32,932 (2,568) 1,555 (24) 31,895
Charge/(credit) to profit or loss 4,200 (261) (616) 11 3,334
Charge/(credit) to other comprehensive income - 2,427 - - 2,427
Exchange differences 5 1 (10) - (4)
--------------- ------------ ----------- ---------- --------
At 30 June 2019 37,137 (401) 929 (13) 37,652
Charge/(credit) to profit or loss (6,964) 160 (313) 9 (7,108)
Charge/(credit) to other comprehensive income - (2,405) - - (2,405)
Exchange differences (1,248) 126 (30) - (1,152)
--------------- ------------ ----------- ---------- --------
At 31 December 2019 28,925 (2,520) 586 (4) 26,987
Charge/(credit) to profit or loss (7,182) 60 (380) 3 (7,499)
Charge/(credit) to other comprehensive income - (29) - - (29)
Exchange differences 905 (150) 2 1 758
Effect of change in tax rate:
- income statement - 75 - - 75
At 30 June 2020 22,648 (2,564) 208 - 20,292
=============== ============ =========== ========== ========
Deferred tax assets and liabilities are offset where the Group
has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances (after offset) for financial
reporting purposes:
30 June 2020 31 December 2019 30 June 2019
GBP'000 GBP'000 GBP'000
Deferred tax liabilities (23,535) (30,172) (41,054)
Deferred tax assets 3,243 3,185 3,402
(20,292) (26,987) (37,652)
============= ================= =============
Uncertain tax positions
The Group operates across many tax jurisdictions. Application of
tax law can be complex and requires judgement to assess risk and
estimate outcomes, particularly in relation to the Group's
cross-border operations and transactions. The evaluation of tax
risks considers both amended assessments received and potential
sources of challenge from tax authorities. In some cases, it may
not be possible to determine a range of possible outcomes or a
reliable estimate of the potential exposure.
Tax matters with uncertain outcomes arise in the normal course
of business and occur due to changes in tax law, changes in
interpretation of tax law, periodic challenges and disagreement
with tax authorities. Tax obligations assessed as having probable
future economic outflows capable of reliable measurement are
provided for. As at 31 December 2019 the Group recognised a
provision for uncertain tax positions of GBP2.0m (30 June 2019:
GBP1.7m); this provision was increased by GBP0.2m to GBP2.2m as at
30 June 2020
The Group continues to monitor developments in relation to EU
State Aid investigations including the EU Commission's State Aid
investigation into the UK's Controlled Foreign Company (CFC) tax
regime. On 25 April 2019, the European Commission released its
decision in relation to the group company finance exemption in the
UK's CFC rules finding that the exemption constitutes unlawful
state aid if the exempted profits arise in connection with UK
activity. The UK Government disagrees with the findings and has
appealed against the decision to the European Court. Having
analysed the latest decision, the Group does not currently consider
that any provision is required in relation to EU State Aid.
During 2017 on advice from professional advisors, the Group
undertook the capital restructuring of a number of subsidiaries
with significant historical losses and impairment charges. This
advice involved the interpretation of certain tax legislation for
which there is no clear precedent or guidance. Absent clear
guidance from relevant tax authorities there is the possibility
that those tax authorities could interpret the legislation in a
different way from the Group, which could result in a material
reduction in the deferred tax asset and the recognition of a
material current tax provision at 30 June 2020. These amounts were
originally estimated at GBP3.3m and GBP3.6m. With the utilisation
of certain tax losses during the year ended 31 December 2018, the
current tax provision required, increased to GBP5.9m as at 30 June
2019. There was no change in this position as at 31 December 2019
or 30 June 2020.
The Group does not currently have any material unresolved tax
matters or disputes with tax authorities. Recent changes to and the
interpretation of tax legislation in certain jurisdictions where
the Group has established structures may however, be a potential
source of challenge from tax authorities. Due to the complexity of
changes in international tax legislation, the Group has taken local
advice and has recognised provisions where necessary. None of these
provisions are material in relation to the Group's assets or
liabilities.
15 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
Ordinary shares of 2p each at 1 January 2019, 30 June
2019 and 31 December 2019 181,470,392 3,629 62,779 29,134 95,542
Issue of share capital on exercise of employee options
(a) 288,327 6 358 - 364
Ordinary shares of 2p at 30 June 2020 181,758,719 3,635 63,137 29,134 95,906
============ ======== ======== ======== ========
(a) On 18 May 2020, the Group issued 288,327 new ordinary shares
of 2p each following the exercise of options awarded to employees
under the Company's Unapproved Share Option Plan. The shares were
issued at the exercise price of 126.07p per share.
16 Segment information
The Group's chief operating decision maker is considered to be
the Executive Committee. The Executive Committee evaluates the
financial performance of the Group based on a portfolio view of its
individual royalty arrangements. Royalty income and its associated
impact on operating profit is the key focus of the Executive
Committee. The income from royalties is presented based on the
jurisdiction in which the income is deemed to be sourced as
follows:
Australia: Kestrel, Narrabri, Four Mile, Pilbara
Americas: McLean Lake, Mantos Blancos, Maracás Menchen, LIORC,
Ring of Fire, Piauí, Canariaco, Ground Hog, Flowstream
Europe: EVBC, Salamanca
Other: Dugbe I, and includes the Group's mining and exploration interests
The following is an analysis of the Group's results by
reportable segment. The key segment result presented to the
Executive Committee for making strategic decisions and allocation
of resources is operating profit as analysed below.
The segment information provided to the Executive Committee for
the reportable segments for the six months ended 30 June 2020 is as
follows (noting that total segment operating profit corresponds to
operating profit before impairments, revaluations and gains/losses
on disposals which is reconciled to Loss before tax on the face of
the consolidated income statement):
Australia Americas Europe All other
Royalties Royalties Royalties segments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Royalty related revenue 13,694 4,079 - - 17,773
Amortisation of royalties (1,149) (1,583) - - (2,732)
Operating expenses (2,081) - - (1,292) (3,373)
Total segment operating profit/(loss) 10,464 2,496 - (1,292) 11,668
---------- ---------- ---------- ---------- --------
Total segment assets 124,868 143,935 6,506 17,365 292,674
---------- ---------- ---------- ---------- --------
Total assets include:
Additions to non-current assets (other than
financial instruments and deferred tax assets) - - - - -
Total segment liabilities 25,608 34,848 657 14,535 75,648
---------- ---------- ---------- ---------- --------
The segment information for the six months ended 30 June 2019 is
as follows:
Australia Americas Europe All other
Royalty Royalty Royalty segments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Royalty related revenue 25,075 6,178 - - 31,253
Amortisation of royalties (1,204) (246) - - (1,450)
Operating expenses (1,270) - - (2,120) (3,390)
Total segment operating profit/(loss) 22,601 5,932 - (2,120) 26,413
---------- --------- -------- ---------- --------
Total segment assets 184,519 104,751 6,047 15,097 310,414
---------- --------- -------- ---------- --------
Total assets include:
Additions to non-current assets (other than financial
instruments and deferred tax assets - - - - -
Total segment liabilities 43,537 3,608 561 2,607 50,313
---------- --------- -------- ---------- --------
The segment information for the twelve months ended 31 December
2019 is as follows:
Australia Americas Europe All other
Royalty Royalty Royalty segments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Royalty related revenue 41,296 14,432 - - 55,728
Amortisation of royalties (2,402) (1,375) - - (3,777)
Operating expenses (3,088) - - (4,044) (7,132)
Total segment operating profit/(loss) 35,806 13,057 - (4,044) 44,819
---------- --------- -------- ---------- --------
Total segment assets 148,847 137,990 6,848 14,262 307,947
---------- --------- -------- ---------- --------
Total assets include:
Additions to non-current assets (other than financial
instruments and deferred tax assets - 42,284 - 9 42,293
Total segment liabilities 38,989 37,808 639 4,797 82,233
---------- --------- -------- ---------- --------
The amounts provided to the Executive Committee with respect to
total segment assets are measured in a manner consistent with that
of the financial statements. These assets are allocated based on
the operations of the segment and the physical location of the
asset.
The amounts provided to the Executive Committee with respect to
total segment liabilities are measured in a manner consistent with
that of the financial statements. These liabilities are allocated
based on the operations of the segment.
The royalty related income in Australia of GBP13.7m (2019:
GBP25.1m) is substantially derived from the Kestrel royalty, which
generated GBP12.0m for the six months ended 30 June 2020 (2019:
GBP22.7m). The royalty related income derived from the Kestrel
royalty represent greater than 10% of the Group's revenue for the
six months ended 30 June 2020 and 30 June 2019.
The royalty related income from the Americas of GBP4.1m (2019:
GBP6.2m) is substantially derived from the dividends received from
the Group's investment in LIORC of GBP2.1m for the six months ended
30 June 2020 (2019: GBP3.2m). The royalty related income derived
from the Group's investment in LIORC also represents greater than
10% of the Group's revenue for the six months ended 30 June 2020
and 30 June 2019.
17 Financial risk management
The Group's principal treasury objective is to provide
sufficient liquidity to meet operational cash flow and dividend
requirements and to allow the Group to take advantage of new growth
opportunities whilst maximising shareholder value. The Group's
activities expose it to a variety of financial risks including
liquidity risk, credit risk, foreign exchange risk and price risk.
The Group operates controlled treasury policies which are monitored
by management to ensure that the needs of the Group are met while
minimising potential adverse effects of unpredictability of
financial markets on the Group's financial performance.
Financial instruments
The Group held the following investments in financial
instruments (this includes investment properties):
30 June 2020 31 December 2019 30 June 2019
GBP'000 GBP'000 GBP'000
Investment property (held at fair value)
Coal royalties (Kestrel) 75,479 96,419 123,790
Fair value through other comprehensive income
Royalty financial instruments 64,753 57,736 59,531
Mining and exploration interests 5,529 3,642 4,772
Fair value through profit or loss
Royalty financial instruments 7,317 8,065 7,165
Cash at bank and on hand 5,369 7,597 14,512
Financial assets at amortised cost
Trade and other receivables 22,779 25,605 25,843
Financial liabilities at amortised cost
Trade and other payables 252 102 35
Borrowings 45,208 36,401 -
Deferred consideration - 1,138 1,181
Financial liabilities at fair value through profit or loss
Derivative financial instruments 133 480 8
Cash and cash equivalents comprise cash and short-term deposits
held by the Group treasury function. The carrying amount of these
assets approximates their fair value.
The Directors consider that the carrying amount of trade and
other receivables and trade and other payables approximates their
fair value.
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. As at 30 June 2020, the Group had borrowings of GBP45.2m (31
December 2019: GBP36.4m; 30 June 2019: GBPnil) cash and cash
equivalents of GBP5.4m (31 December 2019: GBP7.6m; 30 June 2019:
GBP14.5m). Subject to continued covenant compliance, the Group
continued to have access to a further GBP27.8m (US$34.3m) through
its secured US$90.0m revolving credit facility.
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. With royalty income from Kestrel and Narrabri
accounting for over 76% of the Group's income (30 June 2019 80%),
the Group's primary foreign exchange exposure is to the Australian
dollar, which these royalties are denominated in. In 2016, the
Group implemented a hedging policy whereby foreign exchange forward
contracts can be entered into with a maximum exposure of 70% of
forecast Australian dollar denominated royalty revenue expected to
be received during a period not exceeding 12 months from contract
date to settlement. As at 30 June 2020 the fair value of the
outstanding forward contracts was a loss of GBP133,000 (31 December
2019: loss GBP480,000; 30 June 2019: GBP8,000).
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.
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 (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The level within which the financial asset or liability is
classified is determined based on the lowest level of significant
input to the fair value measurement.
The following tables present the Group's assets and liabilities
that are measured at fair value at 30 June 2020:
Level 1 Level 2 Level 3 Total
Notes GBP'000 GBP'000 GBP'000 GBP'000
Assets
Coal royalties (Kestrel) (a) - - 75,479 75,479
Royalty financial instruments (b) 64,753 - 7,317 72,070
Mining and exploration interests - quoted (c) 5,232 - - 5,232
Mining and exploration interests - unquoted (d) - 297 - 297
Liabilities
Derivative financial instruments (e) - (133) - (133)
Net fair value 69,985 164 82,796 152,945
======== ======== ======== ========
The following tables present the Group's assets and liabilities
that are measured at fair value at 30 June 2019:
Level 1 Level 2 Level 3 Total
Notes GBP'000 GBP'000 GBP'000 GBP'000
Assets
Coal royalties (Kestrel) (a) - - 123,790 123,790
Royalty financial instruments (b) 59,531 - 7,165 66,696
Mining and exploration interests - quoted (c) 4,358 - - 4,358
Mining and exploration interests - unquoted (d) - 414 - 414
Liabilities
Derivative financial instruments (e) - (8) - (8)
Net fair value 63,889 406 130,955 195,250
======== ======== ======== ========
The following tables present the Group's assets and liabilities
that are measured at fair value at 31 December 2019:
Level 1 Level 2 Level 3 Total
Notes GBP'000 GBP'000 GBP'000 GBP'000
Assets
Coal royalties (Kestrel) (a) - - 96,419 96,419
Royalty financial instruments (b) 57,736 - 8,065 65,801
Mining and exploration interests - quoted (c) 3,362 - - 3,362
Mining and exploration interests - unquoted (d) - 280 - 280
Liabilities
Derivative financial instruments (e) - (480) - (480)
Net fair value 61,098 (200) 104,484 165,382
======== ======== ======== ========
There have been no significant transfers between Levels 1 and 2
in the reporting period.
The methods and valuation techniques used for the purposes of
measuring fair value of royalty financial instruments gives more
prominence to the probability of production by applying a risk
weighting to the discounted net present value outcome in order to
fully reflect the risk that the operation never comes into
production, rather than factoring this risk into the discount rate
applied to the future cash flow.
(a) Coal royalties (investment property)
The Group's coal royalties derive from its ownership of certain
sub-stratum land in Queensland, Australia. In accordance with IAS
40, this land is revalued at each reporting date on the basis of
future expected income discounted at 6.5% (30 June 2019: 6.0% and
31 December 2019: 6.0%) by an independent valuation consultant. See
note 8 for further details. All unobservable inputs are obtained
from third parties.
(b) Royalty financial instruments
At the reporting date, the royalty financial instruments are
valued based on the net present value of pre-tax cash flows
discounted at a rate between 5.5% and 30%. The discount rate of
each royalty arrangement is derived using a capital asset pricing
model specific to the underlying project, making reference to the
risk-free rate of return expected on an investment with the same
time horizon as the expected mine life, together with the country
risk associated with the location of the operation.
For those royalty financial instrument not in production, the
outcome of this net present value calculation is then risk weighted
to reflect management's current assessment of the overall
likelihood and timing of each project coming into production and
royalty income arising. This assessment is impacted by news flow
relating to the underlying operation in the period, in conjunction
with management's assessment of the economic viability of the
project based on commodity price projections.
The table below outlines the discount rate and risk weighting
applied in the valuation of the Group's royalty financial
instruments:
30 June 2020 31 December 2019 30 June 2019
Discount Risk Discount Risk Discount Risk
Classification Rate Weighting Rate Weighting Rate Weighting
Fair Value
through Profit
EVBC or Loss 7.0% 100% 7.0% 100% 8.5% 100%
Fair Value
through Profit
Dugbe 1 or Loss 30% 75% 30% 75% 30% 75%
Fair Value
through Profit
McLean Lake or Loss 5.5% 50% 5.5% 50% 6.25% 50%
Fair Value
through Profit
Piaui or Loss 13.5% 25% 13.5% 25% 15% 25%
The Group has reviewed the impact on the carrying value of its
royalty financial instruments, and does not consider a +/- 1%
change in the discount rate or a +/- 10% change in the underlying
commodity prices to have a material impact.
(c) Mining and exploration interests - quoted
All the quoted mining and exploration interests have been issued
by publicly traded companies in well-established security markets.
Fair values for these securities have been determined by reference
to their quoted bid prices at the reporting date.
(d) Mining and exploration interests - unquoted
All the unquoted mining and exploration interests are initially
recognised using cost as the best approximation of fair value. The
Group notes any trading activity in the unquoted instruments and
will value its holding accordingly. At present, the Group holds
these investments with a view to generating future royalties and
there is no present intention to sell. The vast majority of these
are investments which the Group anticipates a realistic possibility
of a future listing.
(e) Derivative financial instruments
The derivative financial instruments consist of foreign exchange
forward contracts entered into to hedge the Group's Australian and
Canadian dollar royalty related income. At reporting date the
foreign exchange forward contracts are valued based on the net
present value of the discounted future cash flows estimated based
on forward exchange rates and contract forward rates, discounted at
rates that reflect the credit risk of various counterparties.
Fair value measurements in Level 3
The Group's financial assets classified in Level 3 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 30 June 2020.
Royalty financial instruments Coal royalties (Kestrel) Total
GBP'000 GBP'000 GBP'000
At 1 January 2020 8,065 96,419 104,484
Revaluation gains or losses
recognised in:
Income statement 100 (23,956) (23,856)
Royalties due or received from royalty
financial instruments (967) - (967)
Foreign currency translation 119 3,016 3,135
At 30 June 2020 7,317 75,479 82,796
============================== ========================= =========
The following table presents the changes in Level 3 instruments
for the six months ended 30 June 2019.
Royalty financial instruments Coal royalties (Kestrel) Total
GBP'000 GBP'000 GBP'000
At 1 January 2019 7,837 109,778 117,615
Revaluation gains or losses recognised
in:
Income statement 360 13,996 14,356
Royalties due or received from royalty
financial instruments (1,021) - (1,021)
Foreign currency translation (11) 16 5
At 30 June 2019 7,165 123,790 130,955
============================== ========================= ========
The following table presents the changes in Level 3 instruments
for the year ended 31 December 2019.
Royalty financial instruments Coal royalties (Kestrel) Total
GBP'000 GBP'000 GBP'000
At 1 January 2019 7,837 109,778 117,615
Revaluation gains or losses recognised
in:
Income statement 2,478 (9,215) (6,737)
Royalties due or received from royalty
financial instruments (2,166) - (2,166)
Foreign currency translation (84) (4,144) (4,228)
At 31 December 2019 8,065 96,419 104,484
============================== ========================= ========
There have been no transfers into or out of Level 3 in any of
the reporting periods.
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.
18 Related party transactions
The Group received GBP19,041 from Audley Capital Advisors LLP, a
company of which Mr J.A. Treger, Chief Executive Officer, is both a
director and shareholder, for the subletting of office space during
the period ended 30 June 2020 (2019: GBP39,747). As at 30 June
2020, Audley Capital Advisors LLP, had no amounts outstanding to
the Group (31 December 2019: GBP4,001 and 30 June 2019:
GBP19,079).
During the six months ended 30 June 2020, the Group paid Audley
Capital Advisors LLP, GBP1,913 for the reimbursement of travel
expenses (30 June 2019: GBPnil). No amounts were owing to Audley
Capital Advisors LLP as at 30 June 2020 (31 December 2019: GBPnil;
30 June 2019: GBPnil).
19 Free cash flow
The structure of a number of the Group's royalty financing
arrangement, such as the Denison transaction completed in February
2017, result in a significant amount of cash flow being reported as
principal repayments, which are not included in the income
statement. As the Group considers dividend cover by reference to
both adjusted earnings per share and the free cash flow generated
by its assets, management have determined that free cash flow per
share is a key performance indicator, going forward.
Free cash flow per share is calculated by dividing net cash
generated from operating activities, proceeds from the disposal of
non-core assets, less finance costs divided by the weighted average
number of shares in issue.
Free cash flow
2020 per share
GBP'000 p
Net cash generated from operating activities
Net cash generated from operating activities for the period ended 30 June 2020 8,487
Adjustment for:
Finance income 48
Finance costs (934)
Repayments under commodity related financing agreements 403
--------
Free cash flow for the period ended 8,004 4.43p
======== ===============
Free cash flow
2019 per share
GBP'000 p
Net cash generated from operating activities
Net cash generated from operating activities for the period ended 30 June 2019 26,551
Adjustment for:
Proceeds on disposal of mining and exploration interests 95
Finance income 14
Finance costs (291)
Repayments under commodity related financing agreements 1,015
--------
Free cash flow for the period ended 27,384 15.17p
======== ===============
The weighted average number of shares in issue for the purpose
of calculating the free cash flow per share is as follows:
30 June 2020 30 June 2019
Weighted average number of shares in issue 180,644,312 180,544,459
============= =============
20 Portfolio contribution
Portfolio contribution represents the funds received or
receivable from the Group's underlying royalty related assets. A
number of the Group's royalty financing arrangements result in a
significant amount of cash flow being reported as principal
repayments, which are not included in the income statement. In
addition, following the adoption of IFRS 9, royalty receipts from
those royalty financial instruments classified as FVTPL such as
EVBC, are no longer recognised in the income statement. The Group
considers total portfolio contribution as a means of assessing the
overall performance of the Group's underlying royalty related
assets.
Portfolio contribution is royalty related revenue (note 2) plus
royalties received or receivable from royalty financial instruments
carried at FVTPL (note 9) and principal repayment received under
the Denison financing agreement (note 12) as follows:
Six months ended
30 June 30 June
2020 2019
GBP'000 GBP'000
Royalty related revenue (note 2) 17,773 31,253
Royalties due or received from royalty
financial instruments (note 9) 967 1,021
Repayments under commodity related financing
agreements (note 12) 403 1,015
--------- --------
19,143 33,289
========= ========
21 Share-based payments
On 18 May 2020, certain employees exercised 847,593 options
under the Company's Unapproved Share Option plan. The exercise of
these option was settled through the issuance of 288,327 new
ordinary shares of 2p each (refer to note 15) and the use 559,266
ordinary shares of 2p each held by the Company's Employee Benefit
Trust.
Upon the exercise of the options, GBP0.9m (net) was recycled
from the Group's share-based payment reserve and investment in own
shares to retained earnings.
22 Events occurring after period end
On 29 July 2020, Cameco and Orano announced plans to restart
operations at the Cigar Lake uranium mine and the McClean Lake Mill
from which the Group receives a share tolling milling receipts, in
September 2020. This announcement follows both operations being
placed on care and maintenance in March 2020 due to the COVID-19
pandemic.
On 11 August 2020, Berkeley Energia announced that it had
received its Urbanism Licence, one of the two remaining licences it
requires to commence the construction of the Salamanca mine over
which the Group has a 1% NSR royalty, and the uranium plant. The
final required permit is the Authorisation for Construction for the
uranium concentrate plant as a radioactive facility and this
process is underway.
In addition to this being a positive development for the Group's
royalty, Anglo Pacific also owns just under 7% of Berkeley Energia,
whose share price has increased from 23p at the end of June 2020 to
just over 40p now, valuing the Group's interest at around
GBP7m.
23 Availability of financial statements
This statement will be sent to shareholders and will be
available at the Group's registered office at 1 Savile Row, London
W1S 3JR.
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 30 June 2020 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated balance sheet,
the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and related notes 1
to 23. 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.
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 Guidance 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 has 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 Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, 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 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 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
26 August 2020
Cautionary statement on forward-looking statements and related
information
Certain statements in this announcement, other than statements
of historical fact, are forward-looking statements based on certain
assumptions and reflect the Group's expectations and views of
future events. Forward-looking statements (which include the phrase
'forward-looking information' within the meaning of Canadian
securities legislation) are provided for the purposes of assisting
readers in understanding the Group's financial position and results
of operations as at and for the periods ended on certain dates, and
of presenting information about management's current expectations
and plans relating to the future. Readers are cautioned that such
forward-looking statements may not be appropriate other than for
purposes outlined in this announcement. These statements may
include, without limitation, statements regarding the operations,
business, financial condition, expected financial results, cash
flow, requirement for and terms of additional financing,
performance, prospects, opportunities, priorities, targets, goals,
objectives, strategies, growth and outlook of the Group including
the outlook for the markets and economies in which the Group
operates, costs and timing of acquiring new royalties and making
new investments, mineral reserve and resources estimates, estimates
of future production, production costs and revenue, future demand
for and prices of precious and base metals and other commodities,
for the current fiscal year and subsequent periods.
Forward-looking statements include statements that are
predictive in nature, depend upon or refer to future events or
conditions, or include words such as 'expects', 'anticipates',
'plans', 'believes', 'estimates', 'seeks', 'intends', 'targets',
'projects', 'forecasts', or negative versions thereof and other
similar expressions, or future or conditional verbs such as 'may',
'will', 'should', 'would' and 'could'. Forward-looking statements
are based upon certain material factors that were applied in
drawing a conclusion or making a forecast or projection, including
assumptions and analyses made by the Group in light of its
experience and perception of historical trends, current conditions
and expected future developments, as well as other factors that are
believed to be appropriate in the circumstances. The material
factors and assumptions upon which such forward-looking statements
are based include: the stability of the global economy; the
stability of local governments and legislative background; the
relative stability of interest rates; the equity and debt markets
continuing to provide access to capital; the continuing of ongoing
operations of the properties underlying the Group's portfolio of
royalties, streams and investments by the owners or operators of
such properties in a manner consistent with past practice; no
material adverse impact on the underlying operations of the Group's
portfolio of royalties, steams and investments from a global
pandemic; the accuracy of public statements and disclosures
(including feasibility studies, estimates of reserve, resource,
production, grades, mine life and cash cost) made by the owners or
operators of such underlying properties; the accuracy of the
information provided to the Group by the owners and operators of
such underlying properties; no material adverse change in the price
of the commodities produced from the properties underlying the
Group's portfolio of royalties, streams and investments; no
material adverse change in foreign exchange exposure; no adverse
development in respect of any significant property in which the
Group holds a royalty or other interest, including but not limited
to unusual or unexpected geological formations and natural
disasters; successful completion of new development projects;
planned expansions or additional projects being within the
timelines anticipated and at anticipated production levels; and
maintenance of mining title.
Forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and assumptions, which
could cause actual results to differ materially from those
anticipated, estimated or intended in the forward-looking
statements. Past performance is no guide to future performance and
persons needing advice should consult an independent financial
adviser. No statement in this communication is intended to be, nor
should it be construed as, a profit forecast or a profit
estimate.
By its nature, this information is subject to inherent risks and
uncertainties that may be general or specific and which give rise
to the possibility that expectations, forecasts, predictions,
projections or conclusions will not prove to be accurate; that
assumptions may not be correct and that objectives, strategic goals
and priorities will not be achieved.
A variety of material factors, many of which are beyond the
Group's control, affect the operations, performance and results of
the Group, its businesses and investments, and could cause actual
results to differ materially from those suggested by any
forward-looking information. Such risks and uncertainties include,
but are not limited to current global financial conditions,
royalty, stream and investment portfolio and associated risk,
adverse development risk, financial viability and operational
effectiveness of owners and operators of the relevant properties
underlying the Group's portfolio of royalties, streams and
investments; royalties, steams and investments subject to other
rights, and contractual terms not being honoured, together with
those risks identified in the 'Principal Risks and Uncertainties'
section of our most recent Annual Report, which is available on our
website. If any such risks actually occur, they could materially
adversely affect the Group's business, financial condition or
results of operations. Readers are cautioned that the list of
factors noted in the section herein entitled 'Risk' is not
exhaustive of the factors that may affect the Group's
forward-looking statements. Readers are also cautioned to consider
these and other factors, uncertainties and potential events
carefully and not to put undue reliance on forward-looking
statements.
This announcement also contains forward-looking information
contained and derived from publicly available information regarding
properties and mining operations owned by third parties. This
announcement contains information and statements relating to the
Kestrel mine that are based on certain estimates and forecasts that
have been provided to the Group by Kestrel Coal Pty Ltd ("KCPL"),
the accuracy of which KCPL does not warrant and on which readers
may not rely.
The Group's management relies upon this forward-looking
information in its estimates, projections, plans and analysis.
Although the forward-looking statements contained in this
announcement are based upon what the Group believes are reasonable
assumptions, there can be no assurance that actual results will be
consistent with these forward-looking statements. The
forward-looking statements made in this announcement relate only to
events or information as of the date on which the statements are
made and, except as specifically required by applicable laws,
listing rules and other regulations, the Group undertakes no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise, after the date on which the statements are made or to
reflect the occurrence of unanticipated events.
US Employment Retirement Income Security Act
Fiduciaries of (i) US employee benefit plans that are subject to
Title I of the US Employment Retirement Income Security Act of 1974
(ERISA), (ii) individual retirement accounts, Keogh and other plans
that are subject to Section 4975 of the US Internal Revenue Code of
1986, as amended (the Internal Revenue Code), and (iii) entities
whose underlying assets are deemed to be ERISA 'plan assets' by
reason of investments made in such entities by such employee
benefit plans, individual retirement accounts, Keogh and other
plans (collectively referred to as Benefit Plan Investors) should
consider whether holding the Company's ordinary shares will
constitute a violation of their fiduciary obligations under ERISA
or a prohibited transaction under ERISA or the Internal Revenue
Code. Shareholders should be aware that the assets of the Company
may be or become treated as 'plan assets' that are subject to ERISA
fiduciary requirements and/or the prohibited transaction rules of
ERISA and the Internal Revenue Code. The Company's ordinary shares
are subject to transfer restrictions and provisions that are
intended to mitigate the risk of, among other things, the assets of
the Company being deemed to be 'plan assets' under ERISA.
Shareholders who believe these provisions may be applicable to them
should review these restrictions which are set forth in the
Company's Articles of Association and should consult their own
counsel regarding the potential implications of ERISA, the
prohibited transaction provisions of the Internal Revenue Code or
any similar law in the context of an investment in the Company and
the investment of the Company's assets.
This information is provided by RNS, the news service of the
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