Anglo Pacific Group PLC ('Anglo Pacific' or the 'Company') (LSE:APF)(TSX:APY) is
pleased to announce the interim results for the six months ended June 30, 2011.
Highlights:
-- Record royalty income for the period of GBP 16.4 million compared to GBP
15.7 million in the first half of 2010.
-- Interim dividend increased by 7.6% to 4.25p per share (2010: 3.95p) in
line with progressive dividend policy.
-- Strong cash position at June 30, 2011 of GBP 36.7 million compared to
GBP 28.3 million at December 31, 2010, with no borrowings or hedging.
-- El Valle, the gold-copper mine in Spain, entered production in June,
increasing the number of producing royalties in the portfolio to five.
-- Two recent chrome and iron ore royalty acquisitions made in August 2011.
-- The Group now owns a total of 17 royalty interests.
-- Total assets of GBP 410 million at June 30, 2011 (GBP 416 million at
December 31, 2010).
-- Cash resources increased due to recent sale of First Coal Corporation
shareholding.
John Theobald, CEO of Anglo Pacific, commented:
"The record royalty income that the Company achieved in the period is testament
to the quality and resilience of the royalty portfolio. The adverse weather
conditions in Australia that impacted production levels at our key royalty
project, Kestrel, were offset by higher coking coal prices.
We have expanded our royalty portfolio during the period with the completion of
the Araguaia option and the acquisition of two additional royalties after the
period end. This continues our strategy of adding depth and diversification to
our future royalty income."
Notes to editors:
Anglo Pacific Group PLC is a global natural resources royalties company. The
strategy of the Group is to expand its mineral royalty interests in low-cost,
long-life mining assets. The Group achieves this through both direct acquisition
and investment in projects at the development and production stage. It is a
continuing policy of the Group to pay a substantial proportion of these
royalties to shareholders as dividends.
Royalties explained:
A royalty is an entitlement to an agreed percentage of a project's sales
revenue, without any liability for production costs or capital expenditure. This
is the key benefit of owning a royalty.
In the mining industry, most royalties endure for the life of the resource and
are paid on a regular basis. Historically there have been different terms for
royalties including Gross Revenue or Net Smelter Return ("GRR" or "NSR")
royalties, which are both based on the gross sales value of the actual mineral.
Our model is based around GRR or NSR royalties as they provide the best and
clearest return.
Acquiring existing royalties
In this case we buy existing royalty agreements, such as those owned by
exploration companies who may have retained a residual royalty in a mine they
helped discover. Royalty companies rarely sell their royalties, once acquired.
Creating new royalties
Our new royalty agreements tend to come from providing financing for mining
operations, usually to help progress a mine into production.
This Management's Discussion and Analysis ("MD&A") of financial position and
results of operation of Anglo Pacific Group PLC ("Anglo Pacific Group", "the
Group", "we" or "our") has been prepared based upon information available to the
company as at August 10, 2011 and should be read in conjunction with the Group's
unaudited quarterly consolidated financial statements and related notes as at
and for three and six months ended June 30, 2011 and 2010.
Readers are cautioned that this MD&A contains forward-looking statements and
that actual events may vary from management's expectations. Readers are
encouraged to read the Cautionary statement on forward-looking statements and
related information included with this MD&A and to consult the Group's audited
financial statements for the year ended December 31, 2010 and the corresponding
notes to the financial statements. This information, together with further
information relating to the Group and the Group's Annual Information Form
("AIF") are available on the Group's website at www.anglopacificgroup.com and on
www.sedar.com.
Cautionary statement on forward-looking statements and related information
Certain information contained in this press release, including any information
as to future financial or operating performance and other statements that
express management's expectation or estimates of future performance, constitute
"forward looking statements". The words "expects", "anticipates", "plans",
"believes", "estimates", "seeks", "intends", "targets", "projects", "forecasts",
or negative versions thereof and other similar expressions identify
forward-looking statements. Forward-looking statements are necessarily based
upon a number of estimates and assumptions that, while considered reasonable by
management, are inherently subject to significant business, economic and
competitive uncertainties and contingencies. Further, forward-looking statements
are not guarantees of future performance and involve risks and uncertainties
which could cause actual results to differ materially from those anticipated,
estimated or intended in the forward-looking statements.
The material assumptions and risks relevant to the forward-looking statements in
this press release include, but are not limited to: stability of the global
economy; stability of local government and legislative background; continuing of
ongoing operations of the properties underlying the Group's portfolio of
royalties in a manner consistent with past practice; accuracy of public
statements and disclosures (including feasibility studies and estimates of
reserve, resource, production, grades, mine life, and cash cost) made by the
owners or operators of such underlying properties; no material adverse change in
the price of the commodities underlying the Group's portfolio of royalties and
investments; no material adverse change in foreign exchange exposure; no adverse
development in respect of any 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. If any such risks actually occur, they could materially adversely
affect the Group's business, financial condition or results of operations. For
additional information with respect to such risks and uncertainties, please
refer to the "Risk Factors" section of our most recent Annual Information Form
available on www.sedar.com and the Group's website www.anglopacificgroup.com.
Readers are cautioned to consider these and other factors, uncertainties and
potential events carefully and not to put undue reliance on forward-looking
statements. The forward-looking statements contained in this press release are
made as of the date of this press release only and the Group undertakes no
obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise, after the date on
which the statements are made or to reflect the occurrence of unanticipated
events.
Anglo Pacific Group PLC
Management's Discussion and Analysis
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
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Who we are
We are a royalty company specialising in royalties derived from the mining of
natural resources. Within this sector we have a diverse portfolio that spans
different commodities including coal, iron ore and a variety of metals. We
invest internationally from the Americas to Europe and Australasia and our
interests include both producing mines and development projects.
Our objective is to build a diverse portfolio of royalties that will generate
growing, long-term returns for our shareholders.
Our strategy for growth
We are developing our royalty portfolio through three primary routes:
1. Acquiring existing royalty agreements
2. Creating new royalties by financing development
3. Licensing mineral claims and subsequent disposal for a royalty
Anglo Pacific Group is targeting a diversified portfolio of royalty
investments that are leveraged against three key commodity sectors, that we
believe offer long term prospects for growth:
1. Steel manufacturing
2. Precious metals
3. Energy
Key financial information
Selected unaudited financial information relating to the six months ended June
30, 2011 and June 30, 2010 is set out below. All information is prepared in
accordance with International Financial Reporting Standards ("IFRS") as adopted
by the European Union and should be read in conjunction with the interim
consolidated financial statements on pages 12 to 29.
For the six months ended
---------------------------------
June 30, 2011 June 30, 2010
GBP '000 GBP '000
Statement of Income
Royalty income 16,361 15,679
Operating expenses (1,340) (1,459)
Operating profit 15,003 14,562
Profit after tax 16,413 24,731
Basic earnings per share 15.09p 22.85p
Diluted earnings per share 15.09p 22.85p
Cash flow statement
Net cash flows from operating activities 10,993 3,541
For the six months ended
---------------------------------
June 30, 2011 June 30, 2010
GBP '000 GBP '000
Balance sheet
Non-current assets 366,165 294,952
Cash at bank 36,726 18,846
Trade and other receivables 7,257 11,724
Total assets 410,148 325,522
Total liabilities 78,241 60,185
Total shareholders' equity 331,907 265,337
Debt Nil Nil
Selected quarterly financial information derived from the Group's financial
statements is set out below.
Q2 2011 Q1 2011 Q4 2010 Q3 2010 Q2 2010 Q1 2010
GBP GBP GBP GBP GBP GBP
'000 '000 '000 '000 '000 '000
Royalty income 6,486 9,875 7,840 6,614 11,079 4,600
Operating expenses (835) (505) (1,354) (928) (790) (669)
Operating profit 5,640 9,363 6,581 5,848 10,426 4,136
Other income 379 297 229 93 140 56
Other gains / (losses) 423 (825) (2,719) 433 (1,658) 994
Profit before tax 9,479 13,262 25,941 8,181 13,940 17,786
Income tax expense (3,637) (2,691) (534) (2,037) (5,825) (1,170)
Profit after tax 5,842 10,571 25,408 6,144 8,115 16,616
Basic earnings per
share (GBP) 5.37p 9.72p 23.47p 5.68p 7.50p 15.35p
Diluted earnings per
share (GBP) 5.37p 9.72p 23.47p 5.68p 7.50p 15.35p
Royalty cash flow per
share (GBP) (1) 6.15p 9.21p 7.24p 6.11p 10.42p 4.53p
Diluted royalty cash
flow per share (GBP)
(1) 6.15p 9.21p 7.24p 6.11p 10.42p 4.53p
Total assets 410,148 426,346 415,626 362,131 325,522 360,169
Total liabilities 78,241 75,592 69,738 63,632 60,185 59,230
Shareholder equity 331,907 350,755 345,888 298,499 265,337 300,939
(1) See note 7 in the attached financial statements for an explanation and
calculation methodology for royalty cash flow per share and diluted royalty
cash flow per share.
Acquisitions
On January 12, 2011 the Group completed the previously announced Royalty Option
Agreement with Horizonte Minerals PLC ("Horizonte") for the Group to purchase a
NSR royalty on all revenues from the advanced exploration stage Araguaia and
Lontra Nickel Projects ("Araguaia Project") in Brazil. The Group paid Horizonte
the sum of US$0.5 million in exchange for the six year option to acquire a 1.5%
NSR royalty from the Araguaia Project for US$12.5 million.
On August 2, 2011, the Group announced the purchase of an existing 1% NSR
royalty over the Black Label, Black Thor and Big Daddy chromite deposits in
Ontario, Canada, from KWG Resources Inc ("KWG"). These projects are operated by
Cliffs Natural Resources ("Cliffs") and form part of Cliffs organic growth plans
in the "Ring of Fire" area in northern Ontario. The consideration for the
acquisition was US$18 million.
On August 3, 2011 the Group announced its agreement to advance US$30 million to
London Mining PLC ("London Mining") in exchange for a 1.0% GRR royalty over the
Isua iron ore project in Greenland. The agreement contains a number of
benchmarks. In the event of these not being met the Group retains the right to
be repaid in cash or, at London Mining's option, in shares at the market price
at the time.
The Group continues to evaluate a number of opportunities to acquire or create
more royalties in order to further diversify and increase the Group's revenue
stream.
Royalty portfolio: Producing royalties
Kestrel
During the second quarter a scheduled longwall changeover resulted in coking
coal production at Kestrel decreasing by 59% compared to the first quarter and
by 66% when compared to the comparable quarter in 2010. Combined with reduced
first quarter production due to the Queensland floods in January 2011, coking
coal production volumes for the six months to June 30, 2011 were 39% lower than
for the same period in 2010.
These widespread production disruptions produced continuing supply pressures and
caused average coking coal contract prices in the first six months of 2011 to
exceed US$310 per tonne compared to spot prices of circa US$220 per tonne during
the same period last year.
These higher prices have offset reduced production levels resulting in Kestrel
coal royalties for the six months ended June 30, 2011 of GBP 10.0 million
(A$15.7 million) compared to GBP 10.3 million (A$17.6 million) for the
comparable period in 2010. Royalties for the second quarter of 2011 were GBP 4.4
million (A$6.7 million) compared to GBP 6.9 million (A$11.7 million) during the
second quarter of 2010.
Crinum
Crinum also benefited from higher prices in the six months ended June 30, 2011,
contributing coal royalties of GBP 5.4 million (A$8.4 million) compared to GBP
5.4 million (A$9.3 million) for the six months ended June 30, 2010. Crinum
royalties for the quarter ended June 30, 2011 were GBP 1.6 million (A$2.3
million) compared to GBP 4.2 million (A$7.1 million) for the same quarter of
2010. In the Group's coal royalty valuation at the period end no value has been
attributed to any future production from Crinum due to uncertainties about the
workability of the remaining private coal. The Group does not have any
expectations in relation to future production from this mine.
Amapa
The Amapa Iron Ore System royalty commenced payment during the first quarter of
2011. Royalty receipts for the quarter ended June 30, 2011 were GBP 0.5 million,
bringing the total Amapa royalties for the six months to June 30, 2011 to GBP
1.0 million. The current pricing environment for iron ore should enable this new
royalty to make a meaningful contribution to the Group's royalty cash flows.
El Valle
The El Valle project commenced commissioning during the three months ended June
30, 2011, and first royalty payments from this gold and copper mine are expected
during the second half of the year.
Engenho
The Group received royalty payments from the Engenho gold project in Brazil
totalling GBP 0.3 million during the six months to June 30, 2011, compared to
GBP 0.5 million for the same period in 2010. Royalty payments during the three
months to June 30, 2011 were GBP 0.2 million compared to GBP 0.2 million in the
second quarter of 2010. Royalty payments under this repayable debenture are
classified as repayments of principal and interest until the debenture is
repaid.
Financial performance
Royalty revenue of GBP 16.4 million for the six months ended June 30, 2011
compared to GBP 15.7 million in the first half of 2010.
Group royalty revenue for the six months ended June 30, 2011 was GBP 16.4
million compared to GBP 15.7 million for the six months to June 30, 2010, and
GBP 6.5 million for the three months ended June 30, 2011 compared to GBP 11.1
million for the three months to June 30, 2010. When combined with cash flows
from royalty debentures during the first half of 2011, royalty cash flow per
share for the six months ended June 30, 2011 was 15.36p per share compared with
14.95p per share for the six months ended June 30, 2010. Royalty cash flow per
share for the second quarter was 6.15p per share compared to 10.42p per share
for the comparable period in 2010.
The Group's operating expenses, including salaries and wages, share-based
compensation, audit, tax, legal advisory fees, listing costs and general office
expenses, decreased from GBP 1.5 million in the first half of 2010 to GBP 1.3
million in the first half of 2011. Within these costs salaries and wages
increased by approximately GBP 0.2 million while legal costs decreased by GBP
0.2 million compared to the same period in 2010. The operating expenses in
quarter ended June 30, 2011 were GBP 0.8 million compared to GBP 0.8 million in
the comparable quarter in 2010.
As a royalty company with no liability for the operating costs of the mines it
receives royalties from, the Group has limited exposure to cost inflation. This
is reflected in the fact that Group's operating expenses represented less than
10% of total royalty revenue for both the first halves of 2011 and 2010.
Realised gains on disposal of mining and exploration interests during the first
half of 2011 were GBP 7.5 million compared with GBP 17.4 million for the six
months ended June 30, 2010. Gains on disposal during the quarter to June 30,
2011 were GBP 3.0 million, compared with GBP 4.8 million realised during the
second quarter of 2010. These gains were the result of the disposal in active
junior mining markets of some of the Group's successful mining investments where
the acquisition of royalties was considered unlikely.
The Group realised a net foreign exchange loss in the six months to June 30,
2011 of GBP 0.3 million, compared to a net foreign exchange gain of GBP 0.1
million in the comparable period of 2010. The net foreign exchange gain for the
quarter ended June 30, 2011 was GBP 0.4 million, against a net foreign exchange
loss of GBP 0.8 million in the second quarter of 2010. The Group both receives
and acquires royalties in foreign currencies and is therefore subject to foreign
exchange risk, particularly in relation to its Australian and Canadian
activities. The Group has benefited from the continued strength in the
Australian and Canadian currencies relative to sterling. However there is no
assurance that this will continue, or that the steps taken by management to
reduce potential foreign exchange risks will eliminate future fluctuations in
the Group's financial performance and position.
Income tax expense for the six months ended June 30, 2011 was GBP 6.3 million,
compared to GBP 7.0 million for the six months ended June 30, 2010. This
difference related primarily to a lower level of realised gains. Income tax
expense for the three months ended June 30, 2011 was GBP 3.6 million, compared
to GBP 5.8 million for the comparable period in 2010.
Overall the Group's profit before tax for the six months ended June 30, 2011 was
GBP 22.7 million compared to GBP 31.7 million for the six months ended June 30,
2010. Group earnings per share for the six months ended June 30, 2011 were
15.09p compared to 22.85p for the first half of 2010. For the quarter ended June
30, 2011 the Group's profit before tax was GBP 9.5 million compared to GBP 13.9
million for the comparable quarter in 2010. The Group's earnings per share for
the three months ended June 30, 2011 were 5.37p compared to 7.50p for the second
quarter of 2010.
Financial position
Total assets of GBP 410.1 million at June 30, 2011 compared to GBP 415.6 million
at December 31, 2010.
At June 30, 2011 the Group's Australian coal royalty interests have been
independently valued at GBP 199.7 million compared to GBP 177.1 million at
December 31, 2010. The increase was primarily due to the improved long term
outlook for coking coal prices. The Group's royalty instruments following fair
value adjustments were valued at GBP 21.9 million at June 30, 2011 compared to
GBP 28.1 million at December 31, 2010. This decrease is due to delayed
production expectations and adjustments to future foreign exchange and commodity
price assumptions.
The total cost of royalties treated as intangibles was GBP 42.1 million at June
30, 2011, the same as at December 31, 2010. As part of a bi-annual impairment
review at June 30, 2011 a directors' valuation of these royalties was undertaken
using a discounted cash flow valuation model which used forecast commodity
prices and management's best estimate of an appropriate discount rate taking
into account project-specific risk factors. As at June 30, 2011 the directors'
valuation of these assets was GBP 50.6 million compared to GBP 54.2 million at
December 31, 2010.
Royalty Royalty Royalty
Coal
royalties Instruments Intangibles Options Total
GBP '000 GBP '000 GBP '000 GBP '000 GBP '000
June 30, 2011
Number 2 4 6 3 15
Cost 195 12,493 42,130 728 55,546
Valuation 199,719 21,943 50,597 728 272,987
December 31, 2010
Number 2 4 6 2 14
Cost 166 12,493 42,130 406 55,195
Valuation 177,130 28,061 54,155 406 259,752
At June 30, 2011, the Group's quoted and unquoted equity investments, including
royalty options, were valued at GBP 100.1 million. These were valued at GBP
128.5 million at December 31, 2010. The private equity interests and royalty
options remain accounted for at cost.
At June 30, 2011 the Group had cash of GBP 36.7 million compared to GBP 28.3
million at December 31, 2010, with no borrowings or hedging. When combined with
royalty and trade receivables, total cash and receivables at June 30, 2011 was
GBP 44.0 million compared to GBP 37.1 million at December 31, 2010. The Group
has limited capital expenditure requirements other than for the acquisition of
additional royalties. Management believe that the Group's current cash resources
and future cash flows will be sufficient to cover the cost of general and
administrative expenses, income taxes and dividend payments. The Group remains
debt free and its liquid resources are held in a spread of currencies and
financial institutions. The Group's mining interests and royalty revenues are
mainly denominated in Australian and Canadian dollars.
The post balance date acquisitions announced on August 2, 2011 and on August 3,
2011 will result in the reduction of the Group's capital resources by the
consideration paid. The Group has, subsequent to period end, received payment of
the royalties due at June 30, 2011, as well as the proceeds of a number of
investment disposals. The Group will also receive CAD$20.2 million in respect of
the sale of 11,542,857 shares of First Coal Corporation pursuant to a takeover
by Xstrata Coal Canada Limited. In view of this, management believe that the
Group has sufficient capital and working capital resources to continue to
deliver its strategy.
The Group's total assets at June 30, 2011 were GBP 410.1 million compared to GBP
415.6 million at December 31, 2010. As at the period end this does not include
any increase in value over cost that may be attributable to the Group's royalty
intangibles or the Panorama and Trefi coal projects.
Dividends
On July 6, 2011 a final dividend of 5.10p per share for the year ended December
31, 2010 was paid. In light of the share price at the time the Board decided not
to offer shareholders the opportunity to elect to receive new shares instead of
cash.
The Board has declared an interim dividend of 4.25p per share for the year
ending December 31, 2011, representing an increase of 7.6% from the interim
dividend for the previous year of 3.95p per share. This dividend will be paid on
January 11, 2012 to shareholders on the register at the close of business on
November 11, 2011. The shares will be quoted ex dividend in Canada and London on
November 9, 2011. Subject to market conditions, a scrip dividend alternative
will be available to eligible shareholders.
Outlook
The Group's royalty cash flows continue to benefit from the sustained growth in
the world's developing economies. The Group's existing royalty exposure to
steel-related commodities in the form of coking coal, iron ore, chromite and
nickel provide it with a number of high quality, long life assets with the
potential for significant returns.
A combination of sovereign debt concerns and volatile mining equity markets has
currently created an environment where the Group is able to target and evaluate
a number of new royalty opportunities. Management believes the Group is well
placed with its strong balance sheet and royalty revenues to continue its growth
strategy for the benefit of its shareholders.
DISCLOSURE UNDER DISCLOSURE AND TRANSPARENCY RULES
In accordance with Disclosure and Transparency Rules (DTRs), Periodic Financial
Reporting DTR 4.2.7R, the Group confirms that the principal risks and
uncertainties that could affect the Group's performance have not changed. These
are: a prolonged, world-wide economic recession; sustained low commodity prices;
a fall in precious metal prices; and currency volatility. For more information
regarding these risks and uncertainties please refer to page 12 of the 2010
Annual Report.
In accordance with DTR 4.2.8R related party transactions which occurred in the
first six months of the year are disclosed in note 11 to these interim financial
statements.
We confirm to the best of our knowledge:
i. The condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' and give a true
and fair view of assets and liabilities, financial position and profit
and loss;
ii. the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first
six months and description of principal risks and uncertainties for the
remaining six months of the year); and
iii. the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties transactions and
changes therein).
By order of the Board
M. J. Tack, Finance Director
August 11, 2011
Risk factors
The following discussion pertains to the outlook and conditions currently known
to management which could have a material impact on the financial position and
results of the Group. The following information is a summary only and should be
read in conjunction with the "Risk Factors" section of the Group's most recently
filed Annual Information Form filed on www.sedar.com.
Current Global Financial Condition
In recent years, global financial conditions and market events have increased
volatility and resulted in tightening of credit that has reduced available
liquidity and overall economic activity. There can be no assurance that debt or
equity financing will be available on acceptable terms if internally-generated
funds are not sufficient to meet or satisfy the Group's or its investees'
objectives or requirements. The inability to access sufficient capital on
acceptable terms could have a material adverse effect on the Group's or its
investees' business, prospects, dividend paying capability and financial
condition and further enhancement opportunities or acquisitions.
The market price for the Group's and its investees' securities may be volatile
and subject to wide fluctuations in response to numerous factors, many of which
are beyond the Group's and its investees' control. Economic conditions may
adversely affect the Group or its investees, including fluctuations in foreign
exchange, inflation and interest rates, as well as monetary policies, business
investment and the health of global capital markets. In recent years, financial
markets have experienced significant price and volume fluctuations that have
affected the market prices of equity securities held by the Group and that have
often been unrelated to the operating performance, underlying asset values or
prospects of such companies. Additionally, these factors, as well as other
related factors, may cause decreases in asset values that are deemed to be other
than temporary, which may result in impairment losses. If such increased levels
of volatility and related market turmoil continue, the Group's or its investees'
operations could be adversely impacted and the trading price of the Group's and
its investees' securities may be adversely affected.
Commodity Hedging
The Group currently does not have a policy to hedge against variations in
commodity prices. Accordingly, the Group is exposed to adverse changes in market
prices for certain commodities underlying its royalties and other economic
interests. Certain of such commodities are subject to significant volatility and
these changes, to the extent that the Group is unhedged, could significantly
affect the Group's profitability and cash flow. In certain circumstances the
Group may desire to hedge commodity price risks by using forward sales contracts
or other hedging strategies and, while hedging of commodity prices is possible,
there is no guarantee that appropriate hedging will be available at an
acceptable cost should the Group choose or need to enter into these types of
transactions. There is no assurance that any such commodity hedging program will
be successful in reducing the risk associated with fluctuations in commodity
prices and hedging may also prevent the Group from benefiting fully from
commodity price increases. In addition, the Group may experience losses if a
counterparty fails to purchase under a contract when the contract price exceeds
the spot price for the commodity.
Royalty Portfolio and Associated Risk
The revenue derived from the Group's royalty portfolio is based on production by
third party property owners and operators. Although the Group may in certain
circumstances have a limited ability to participate in the decision-making
process, the owners and operators will generally have the power to determine the
manner in which the relevant properties subject to the royalty portfolio are
exploited, including decisions to expand, continue or reduce production from a
property, decisions about the marketing of products extracted from the property
and decisions to advance exploration efforts and conduct development of
non-producing properties.
The interests of third party owners and operators and those of the Group on the
relevant properties may not always be aligned. As an example, it will usually be
in the interest of the Group to advance development and production on properties
as rapidly as possible in order to maximize near-term cash flow, while third
party owners and operators may take a more cautious approach to development as
they are at risk on the cost of development and operations. The inability of the
Group to control the operations of the properties in which it has a royalty or
working interest may have a material adverse effect on the Group's
profitability, results of operation and financial condition.
Foreign Exchange Risk
The Group's transactional foreign exchange exposure arises from income,
expenditure and purchase and sale of assets denominated in foreign currencies.
As each material commitment is made, the risk in relation to currency
fluctuations is assessed and regularly reviewed. The Group does not have a
hedging program in place at this time.
Internal control
The directors are responsible for the Group's system of internal control and
reviewing its effectiveness.
The Board has designed the Group's system of internal control in order to
provide the directors with reasonable assurance that its assets are safeguarded,
that transactions are authorised, properly recorded and reported and that
material errors and irregularities are either prevented or would be detected
within a timely period. However, no system of internal control can eliminate the
risk of failure to achieve business objectives or provide absolute assurance
against material misstatement or loss.
The Finance Director is required annually to undertake a full assessment process
to identify and quantify the risks that face the Group's businesses and
functions, and assess the adequacy of the prevention, monitoring and mitigation
practices in place for those risks. In addition, regular reports about
significant risks and associated control and monitoring procedures are made to
the Audit Committee. They are responsible for reviewing the risk assessment for
completeness and accuracy. The consolidated results of these reviews are
reported to the Board to enable the directors to review the effectiveness of the
system of internal control. The process adopted by the Group accords with the
guidance contained in the document "Internal Control Guidance for Directors on
the Combined Code" issued by the Institute of Chartered Accountants in England
and Wales.
The Audit Committee receives reports from external auditors on a regular basis
and from the executive directors of the Group. During the period, the Audit
Committee has reviewed the effectiveness of the system of internal control as
described above. The Board receives periodic reports from all committees.
There were no significant changes to controls during the six months to June 30,
2011 that have materially affected, or are reasonably likely to materially
affect, its internal controls. The directors confirm that the Board has reviewed
the effectiveness of the system of internal control as described during the
period and concluded that the controls and procedures are adequate.
Anglo Pacific Group PLC
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
----------------------------------------------------------------------------
Three months ended Six months ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
GBP '000 GBP '000 GBP '000 GBP '000
Royalty income 6,486 11,079 16,361 15,679
Finance income 244 137 491 342
Amortisation of royalties (255) - (509) -
Operating expenses (835) (790) (1,340) (1,459)
---------- ---------- ---------- ----------
Operating profit 5,640 10,426 15,003 14,562
Share of profits of associates - 262 - 262
Gain on sale of mining and
exploration interests 3,037 4,770 7,464 17,372
Other income 379 140 676 196
Other gains/(losses) 423 (1,658) (402) (666)
---------- ---------- ---------- ----------
Profit before tax 9,479 13,940 22,741 31,726
Income tax expense (3,637) (5,825) (6,328) (6,995)
---------- ---------- ---------- ----------
Profit attributable to equity
holders 5,842 8,115 16,413 24,731
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total and continuing earnings
per share
Basic earnings per share 5.37p 7.50p 15.09p 22.85p
Diluted earnings per share 5.37p 7.50p 15.09p 22.85p
Results for the three months ended June 30, 2011 and 2010 are for
comparative purposes and have neither been audited nor reviewed by the
Group's auditors.
Anglo Pacific Group PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
----------------------------------------------------------------------------
Three months ended Six months ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
GBP '000 GBP '000 GBP '000 GBP '000
Profit for the financial period 5,842 8,115 16,413 24,731
Other comprehensive income
Net (loss)/gain on revaluation
of coal royalties (4,431) (5,068) 19,182 6,362
Net (loss) on revaluation of
available for sale investments (22,987) (21,410) (35,234) (2,946)
Net exchange gain/(loss) on
translation of foreign
operations 8,048 (12,573) 4,442 1,651
Share of other comprehensive
income of associates - 103 - 103
Deferred tax 2,472 4,598 (3,897) (1,635)
---------- ---------- ---------- ----------
Net (expense)/income recognised
directly in equity (11,056) (26,235) 906 28,266
---------- ---------- ---------- ----------
Transferred to income statement
disposal of available for sale
investments (2,340) (5,551) (6,021) (16,238)
---------- ---------- ---------- ----------
Total transferred from equity (2,340) (5,551) (6,021) (16,238)
---------- ---------- ---------- ----------
Total comprehensive
(expense)/income for the
financial period (13,396) (31,786) (5,115) 12,028
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Results for the three months ended June 30, 2011 and 2010 are for
comparative purposes and have neither been audited nor reviewed by the
Group's auditors.
Anglo Pacific Group PLC
CONSOLIDATED BALANCE SHEET (UNAUDITED) AS AT JUNE 30, 2011
Unaudited Unaudited Audited
June 30, June 30, December 31,
2011 2010 2010
GBP '000 GBP '000 GBP '000
------------- ------------- -------------
Non-current assets
Property, plant and equipment 2,182 2,077 2,144
Coal royalties 199,719 157,977 177,130
Royalty instruments 21,943 28,159 28,061
Intangibles 42,253 23,274 42,741
Mining and exploration interests 100,068 80,141 128,479
Investments in associates - 3,324 -
------------- ------------- -------------
366,165 294,952 378,555
Current assets
Trade and other receivables 7,257 11,724 8,813
Cash and cash equivalents 36,726 18,846 28,258
------------- ------------- -------------
43,983 30,570 37,071
------------- ------------- -------------
Total assets 410,148 325,522 415,626
------------- ------------- -------------
------------- ------------- -------------
Non-current liabilities
Deferred tax 67,127 51,594 63,838
------------- ------------- -------------
67,127 51,594 63,838
Current liabilities
Current income tax liabilities 5,133 4,296 4,987
Trade and other payables 5,981 4,295 913
------------- ------------- -------------
11,114 8,591 5,900
------------- ------------- -------------
Total liabilities 78,241 60,185 69,738
------------- ------------- -------------
------------- ------------- -------------
Capital and reserves attributable
to shareholders
Share capital 2,183 2,171 2,175
Share premium 25,361 23,262 24,207
Coal royalty revaluation reserve 102,154 92,929 88,883
Investment revaluation reserve 13,442 18,566 51,780
Share based payment reserve 140 2 65
Foreign currency translation
reserve 43,225 20,038 39,686
Special reserve 632 632 632
Investment in own shares (2,421) (1,295) (1,295)
Retained earnings 147,191 109,032 139,755
------------- ------------- -------------
Total equity 331,907 265,337 345,888
------------- ------------- -------------
Total equity and liabilities 410,148 325,522 415,626
------------- ------------- -------------
------------- ------------- -------------
Anglo Pacific Group PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) FOR THE EIGHTEEN
MONTHS ENDED JUNE 30, 2011
Coal Share
royalty Investment based
Share Share revaluation revaluation payment
capital premium reserve reserve reserve
GBP GBP
'000 '000 GBP '000 GBP '000 GBP '000
--------------------------------------------------------------------------
Balance at January 1,
2010 2,149 20,718 88,582 36,850 78
Profit for the period - - - - -
Other comprehensive
income:
Coal royalties:
Royalties valuation
movement taken to
equity - - 6,362 - -
Deferred tax on
valuation - - (2,015) - -
Available-for-sale
investments:
Valuation movement
taken to equity - - - (2,946) -
Deferred tax on
valuation - - - 900 -
Transferred to income
statement on
disposal - - - (16,238) -
Share of comprehensive
income of associates - - - - -
Foreign currency
translation - - - - -
---------------------------------------------------
Total comprehensive
income - - 4,347 (18,284) -
---------------------------------------------------
Dividends paid - - - - -
Scrip dividend 11 1,199 - - -
Issue of share capital
under share-based
payment 11 1,345 - - (76)
---------------------------------------------------
22 2,544 - - (76)
---------------------------------------------------
Balance at June 30,
2010 2,171 23,262 92,929 18,566 2
---------------------------------------------------
Balance at July 1,
2010 2,171 23,262 92,929 18,566 2
Profit for the period - - - - -
Other comprehensive
income:
Coal royalties:
Royalties valuation
movement taken to
equity - - (6,007) - -
Deferred tax on
valuation - - 1,961 - -
Available-for-sale
investments:
Valuation movement
taken to equity - - - 51,173 -
Deferred tax on
valuation - - - (7,546) -
Transferred to income
statement on
disposal - - - (10,413) -
Share of comprehensive
income of associates - - - - -
Foreign currency
translation - - - - -
---------------------------------------------------
Total comprehensive
income - - (4,046) 33,214 -
---------------------------------------------------
Dividends paid - - - - -
Scrip dividend 3 826 - - -
Issue of share capital
under share-based
payment 1 119 - - 63
---------------------------------------------------
4 945 - - 63
---------------------------------------------------
Balance at December
31, 2010 2,175 24,207 88,883 51,780 65
---------------------------------------------------
Balance at January 1,
2011 2,175 24,207 88,883 51,780 65
Profit for the period - - - - -
Other comprehensive
income:
Coal royalties:
Royalties valuation
movement taken to
equity - - 19,182 - -
Deferred tax on
valuation - - (5,911) - -
Available-for-sale
investments:
Valuation movement
taken to equity - - - (35,234) -
Deferred tax on
valuation - - - 2,917 -
Transferred to income
statement on
disposal - - - (6,021) -
Share of comprehensive
income of associates - - - - -
Foreign currency
translation - - - - -
---------------------------------------------------
Total comprehensive
income - - 13,271 (38,338) -
---------------------------------------------------
Dividends paid - - - - -
Scrip dividend - - - - -
Issue of share capital
under share-based
payment 8 1,154 - - 75
---------------------------------------------------
8 1,154 - - 75
---------------------------------------------------
Balance at June 30,
2011 2,183 25,361 102,154 13,442 140
---------------------------------------------------
Foreign
currency Investment
translation Special in Own Retained Total
reserve reserve Shares earnings equity
GBP GBP
GBP '000 '000 GBP '000 GBP '000 '000
---------------------------------------------------------------------------
Balance at January 1,
2010 18,804 632 - 92,223 260,036
Profit for the period - - - 24,731 24,731
Other comprehensive
income:
Coal royalties:
Royalties valuation
movement taken to
equity 1,719 - - - 8,081
Deferred tax on
valuation (507) - - - (2,522)
Available-for-sale
investments:
Valuation movement
taken to equity (53) - - - (2,999)
Deferred tax on
valuation (13) - - - 887
Transferred to income
statement on
disposal - - - - (16,238)
Share of comprehensive
income of associates 103 - - - 103
Foreign currency
translation (15) - - - (15)
-----------------------------------------------------
Total comprehensive
income 1,234 - - 24,731 12,028
-----------------------------------------------------
Dividends paid - - (6,725) (6,725)
Scrip dividend - - (1,210) -
Issue of share capital
under share-based
payment - - (1,295) 13 (2)
-----------------------------------------------------
- - (1,295) (7,922) (6,727)
-----------------------------------------------------
Balance at June 30,
2010 20,038 632 (1,295) 109,032 265,337
-----------------------------------------------------
Balance at July 1,
2010 20,038 632 (1,295) 109,032 265,337
Profit for the period - - - 31,552 31,552
Other comprehensive
income:
Coal royalties:
Royalties valuation
movement taken to
equity 25,160 - - - 19,153
Deferred tax on
valuation (7,421) - - - (5,460)
Available-for-sale
investments:
Valuation movement
taken to equity 577 - - - 51,750
Deferred tax on
valuation (11) - - - (7,557)
Transferred to income
statement on
disposal - - - - (10,413)
Share of comprehensive
income of associates (143) - - - (143)
Foreign currency
translation 1,486 - - - 1,486
-----------------------------------------------------
Total comprehensive
income 19,648 - - 31,552 80,368
-----------------------------------------------------
Dividends paid - - - - -
Scrip dividend - - - (829) -
Issue of share capital
under share-based
payment - - - - 183
-----------------------------------------------------
- - - (829) 183
-----------------------------------------------------
Balance at December
31, 2010 39,686 632 (1,295) 139,755 345,888
-----------------------------------------------------
Balance at January 1,
2011 39,686 632 (1,295) 139,755 345,888
Profit for the period - - - 16,413 16,413
Other comprehensive
income:
Coal royalties:
Royalties valuation
movement taken to
equity 3,408 - - - 22,590
Deferred tax on
valuation (1,004) - - - (6,915)
Available-for-sale
investments:
Valuation movement
taken to equity 230 - - - (35,004)
Deferred tax on
valuation 101 - - - 3,018
Transferred to income
statement on
disposal - - - - (6,021)
Share of comprehensive
income of associates - - - - -
Foreign currency
translation 804 - - - 804
-----------------------------------------------------
Total comprehensive
income 3,539 - - 16,413 (5,115)
-----------------------------------------------------
Dividends paid - - - (8,977) (8,977)
Scrip dividend - - - - -
Issue of share capital
under share-based
payment - - (1,126) - 111
-----------------------------------------------------
- - (1,126) (8,977) (8,866)
-----------------------------------------------------
Balance at June 30,
2011 43,225 632 (2,421) 147,191 331,907
-----------------------------------------------------
Anglo Pacific Group PLC
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
----------------------------------------------------------------------------
Three months ended Six months ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
GBP '000 GBP '000 GBP '000 GBP '000
Cashflows from operating activities
Profit before taxation 9,479 13,940 22,741 31,726
Adjustments for:
Interest received (436) (293) (758) (570)
Unrealised foreign currency loss /
(gain) 259 (881) 1,357 (4)
Depreciation of property, plant and
equipment 5 4 10 9
Amortisation of Intangibles -
royalties 255 - 509 -
(Gain) on disposal of mining and
exploration interests (3,037) (4,770) (7,464) (17,372)
Loss on revaluation of assets held
as fair value through profit or
loss - 810 - 810
Loss on write down of assets - - 147 -
Share of associates (profit) - (262) - (262)
Share based payments 75 12 75 12
--------- --------- --------- ---------
6,600 8,560 16,617 14,349
Decrease / (Increase) in trade and
other receivables 3,946 (6,725) 1,556 (6,597)
(Decrease) / Increase in trade and
other payables (400) 65 (453) 30
Receipt from royalty instruments 204 196 347 498
--------- --------- --------- ---------
Cash generated from operations 10,350 2,096 18,067 8,280
Income taxes paid (3,005) (3,707) (7,074) (4,739)
--------- --------- --------- ---------
Net cash from operating activities 7,345 (1,611) 10,993 3,541
--------- --------- --------- ---------
Cash flows from investing activities
Proceeds on disposal of mining and
exploration interests 15,911 8,042 23,927 29,292
Purchase of mining and exploration
interests (8,991) (7,282) (23,197) (13,525)
Purchases of royalty interests - (13,001) - (13,001)
Purchases of property, plant and
equipment (20) (239) (48) (335)
Exploration and evaluation
expenditure (18) 270 (18) 176
Interest received 47 556 267 570
Acquisition of associates - (39) - (109)
Return of capital from associates - 949 - 949
--------- --------- --------- ---------
Net cash generated / (used) in
investing activities 6,929 (10,744) 931 4,017
--------- --------- --------- ---------
Cash flows from financing activities
Proceeds from issue of share capital - - - 30
Dividends paid - - (3,456) (2,937)
--------- --------- --------- ---------
Net cash used in financing
activities - - (3,456) (2,907)
--------- --------- --------- ---------
Net increase /(decrease) in cash and
cash equivalents 14,274 (12,355) 8,468 4,651
Cash and cash equivalents at
beginning of period 22,452 31,201 28,258 14,195
--------- --------- --------- ---------
Cash and cash equivalents at end of
period 36,726 18,846 36,726 18,846
--------- --------- --------- ---------
--------- --------- --------- ---------
Results for the three months ended June 30, 2011 and 2010 are for
comparative purposes and have neither been audited nor reviewed by the
Group's auditors.
Anglo Pacific Group PLC
NOTES TO THE ACCOUNTS
----------------------------------------------------------------------------
1 Summary of significant accounting policies
1.1 Basis of preparation
These interim, condensed consolidated financial statements of Anglo Pacific
Group PLC are for the three and six months ended June 30, 2011. They have been
prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by
the European Union. They do not include all of the information required for full
annual financial statements, and should be read in conjunction with the
consolidated financial statements of the Group for the year ended December 31,
2010.
These condensed consolidated interim financial statements have been prepared in
accordance with the accounting policies adopted in the last annual financial
statements for the year to December 31, 2010, which were prepared in accordance
with IFRS, as adopted by the European Union.
This condensed consolidated quarterly and half yearly financial information does
not comprise statutory accounts within the meaning of Section 434 of the
Companies Act 2006. Statutory accounts for the year ended December 31, 2010 were
approved on March 8, 2011. These 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.
Financial results presented for the three months ended June 30, 2011 and 2010,
together with all other quarterly results have been presented for comparative
purposes only. These results have neither been audited nor reviewed by the
Group's auditors.
2 Financial risk management
The Group's principal treasury objective is to provide sufficient liquidity to
meet operational cash flow requirements and to allow the Group to take advantage
of new growth opportunities whilst maximising shareholder value. The Group's
activities expose it to a variety of financial risks including liquidity risk,
credit risk, foreign exchange risk, price risk and interest rate risk. The Group
manages these risks as follows:
Liquidity and funding risk
The objective of the Group in managing funding risk is to ensure that it can
meet its financial obligations as and when they fall due. At June 30, 2011 there
was no debt outstanding. The Group has a strong credit rating and has good
access to capital markets, if required.
Credit risk
The Group's principal financial assets are bank balances and cash, trade and
other receivables and investments, which represent the Group's maximum exposure
to credit risk in relation to financial assets. The Group undertakes detailed
analysis of factors which mitigate the risk of default to the Group.
Foreign exchange risk
The Group's transactional foreign exchange exposure arises from income,
expenditure and purchase and sale of assets denominated in foreign currencies.
As each material commitment is made, the risk in relation to currency
fluctuations is assessed by the Board and regularly reviewed. The Group does not
have a hedging programme in place at this time.
Other price risk
The Group is exposed to other price risk in respect of its mining and
exploration interests which include listed and unlisted equity securities and
any convertible instruments. Interests are continually monitored for indicators
that may suggest problems for these companies raising capital or continuing
their day-to-day business activities to ensure remedial action can be taken if
necessary. No specific hedging activities are undertaken in relation to these
interests and the voting rights arising from these equity instruments are
utilised in the Group's favour.
(a) Financial Assets
The Group held the following investments in financial assets:
June 30, June 30, December 31,
2011 2010 2010
GBP '000 GBP '000 GBP '000
Available-for-sale
Other royalties 21,943 28,159 28,061
Mining and exploration interests 99,820 79,131 128,231
Fair value through profit or loss
Other royalties - - -
Mining and exploration interests 248 1,010 248
Loans and receivables
Trade and other receivables 6,491 10,614 8,425
Cash at bank and in hand 36,726 18,846 28,258
(b) Fair value hierarchy
The following table presents financial assets and liabilities measured at fair
value in the statement of financial position in accordance with the fair value
hierarchy: This hierarchy groups financial assets and liabilities into three
levels based on the significance of inputs used in measuring the fair value of
the financial assets and liabilities. The fair value hierarchy has the following
levels:
-- Level 1: quoted prices (unadjusted) in active markets for identical
assets and liabilities;
-- Level 2: inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (ie. as
prices) or indirectly (ie. derived from prices); and
-- Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is
determined based on the lowest level of significant input to the fair value
measurement.
The following tables present the Group's assets and liabilities that are
measured at fair value at June 30, 2011, June 30, 2010 and December 31, 2010:
June 30, 2011
Level 1 Level 2 Level 3 Total
GBP '000 GBP '000 GBP '000 GBP '000
Assets
Royalty instruments - - 21,943 21,943
Mining and exploration interests -
quoted 91,392 - - 91,392
Mining and exploration interests -
unquoted - 7,948 - 7,948
Royalty options - 728 - 728
---------------------------------------
Net fair value 91,392 8,676 21,943 122,011
---------------------------------------
---------------------------------------
June 30, 2010
Level 1 Level 2 Level 3 Total
GBP '000 GBP '000 GBP '000 GBP '000
Assets
Royalty instruments - - 28,159 28,159
Mining and exploration interests -
quoted 74,144 - - 74,144
Mining and exploration interests -
unquoted - 4,829 - 4,829
Royalty options - 1,168 - 1,168
---------------------------------------
Net fair value 74,144 5,997 28,159 108,300
---------------------------------------
---------------------------------------
December 31, 2010
Level 1 Level 2 Level 3 Total
GBP '000 GBP '000 GBP '000 GBP '000
Assets
Royalty instruments - - 28,061 28,061
Mining and exploration interests -
quoted 121,863 - - 121,863
Mining and exploration interests -
unquoted - 6,210 - 6,210
Royalty options - 406 - 406
---------------------------------------
Net fair value 121,863 6,616 28,061 156,540
---------------------------------------
---------------------------------------
3 Non-current assets
(a) Coal royalties
The Group's coal royalties comprise the Kestrel and Crinum coal royalties in
Queensland, Australia.
The Group commissioned a valuation of the coal royalties as at June 30, 2011,
based on a net present value of the pre-tax cash flow discounted at a rate of
7%, which produced a valuation of A$299.0 million (GBP 199.7 million). At
present the net royalty income is taxed in Australia at a rate of 30%. Were the
coal royalties to be realised at the revalued amount there are GBP 2.7 million
(A$4.0 million) of capital losses potentially available to offset against
taxable gains. These losses have been included in the deferred tax computation.
(b) Royalty instruments
Royalty instruments represent the Group's interests in four mineral properties
which, through the issue of convertible debentures, the Group has acquired GRR
or NSR royalties. These are the Engenho property in Brazil, the El Valle
property in Spain, the Jogjakarta Iron Sands Project in Indonesia and the
Midway-McKenzie Break properties in Canada. In the Group's latest annual
financial statements for the year ended December 31, 2010, these interests were
described as "Royalty Instruments". No change has been made to the accounting
treatment of these interests.
(c) Intangibles
Intangible royalty interests represent the GRR and NSR royalties acquired on the
Four Mile Project in South Australia, the Salamanca Uranium Project in Spain,
the Railway Deposit in Western Australia and the Amapa Iron Ore System in
Brazil.
Acquisition costs of royalty interests on feasibility stage mineral properties
are not amortised. At such time as the associated mineral interests are placed
into production, the cost base is amortised over the expected life of mine.
Amortisation rates are adjusted on a prospective basis for all changes to
estimates of the life of mine.
Also included within intangibles are the deferred exploration costs of GBP
714,000 (June 30, 2010: GBP 594,000) associated with the Group's Panorama and
Trefi Projects in British Columbia, Canada.
(d) Mining and exploration Interests
The investments in mining and exploration interests represent investments in
listed and unlisted equity securities which are acquired as part of the Group
strategy to acquire new royalties. Gains may be realised where it is deemed
appropriate by the Investment Committee. The fair values of these securities are
based on quoted market prices for listed securities and cost for unlisted
securities based on the variability of cash flows being so significant that an
alternative valuation technique would not provide a useful value. The fair
values are reviewed for impairment biannually. In the statement of changes in
equity these interests are classified as "available- for- sale investments". For
a full explanation of the Group's accounting policies in relation to the mining
and exploration interests please see the 2010 Annual Report.
4 Segment information
Management has determined the operating segments based on the reports reviewed
by the Executive and Investment committees that are used to make strategic
decisions. The committees consider the Group's undertakings from a business
perspective. This has resulted in the Group being organised into two operating
segments - royalties and mining and exploration interests.
The royalties segment encompasses all Group activities relating directly to the
royalties received from mining operations. The mining and exploration interests
segment encompasses all Group activities relating directly to the acquisition,
disposal and continued monitoring of the Group's investments in listed and
unlisted entities operating in mining and mineral exploration. The segment
information provided to the Executive and Investment committees for the
reportable segments for the three and six months ended June 30, 2011 and 2010
are as follows:
Australia Americas
Mining Mining
Royalty interests Royalty interests
GBP '000 GBP '000 GBP '000 GBP '000
Three months ended June 30,
2011
----------- ----------- ----------- -----------
Total segment income 6,014 1,687 472 1,350
----------- ----------- ----------- -----------
Profit before tax 6,014 1,687 472 1,350
Amortisation - - (255) -
Income tax expense (1,676) - - -
Three months ended June 30,
2010
----------- ----------- ----------- -----------
Total segment income 11,079 4,113 - 752
----------- ----------- ----------- -----------
Profit before tax 11,079 4,375 - 752
Amortisation - - - -
Income tax expense (3,377) - - -
Six months ended June 30,
2011
----------- ----------- ----------- -----------
Total segment income 15,361 4,841 1,000 1,721
----------- ----------- ----------- -----------
Profit before tax 15,361 4,841 1,000 1,721
Amortisation - - (509) -
Income tax expense (4,481) - - -
Six months ended June 30,
2010
----------- ----------- ----------- -----------
Total segment income 15,679 6,925 - 10,453
----------- ----------- ----------- -----------
Profit before tax 15,679 7,187 - 10,453
Amortisation - - - -
Income tax expense (4,529) - - -
Europe
Mining All other
Royalty interests segments Total
GBP '000 GBP '000 GBP '000 GBP '000
Three months ended June 30,
2011
---------- ----------- ----------- -----------
Total segment income - - 623 10,146
---------- ----------- ----------- -----------
Profit before tax - - (44) 9,479
Amortisation - - - (255)
Income tax expense - - (1,961) (3,637)
Three months ended June 30,
2010
---------- ----------- ----------- -----------
Total segment income - (46) 228 16,126
---------- ----------- ----------- -----------
Profit before tax - (46) (2,220) 13,940
Amortisation - - - -
Income tax expense - - (2,448) (5,825)
Six months ended June 30,
2011
---------- ----------- ----------- -----------
Total segment income - 926 1,143 24,992
---------- ----------- ----------- -----------
Profit before tax - 926 (1,108) 22,741
Amortisation - - - (509)
Income tax expense - - (1,847) (6,328)
Six months ended June 30,
2010
---------- ----------- ----------- -----------
Total segment income - (46) 578 33,589
---------- ----------- ----------- -----------
Profit before tax - (46) (1,547) 31,726
Amortisation - - - -
Income tax expense - - (2,466) (6,995)
The amounts provided to the Executive and Investment committees with respect
to total assets are measured in a manner consistent with that of the
financial statements. These assets are allocated based on the operations of
the segment and the physical location of the asset.
Australia Americas
Mining Mining
Royalty interests Royalty interests
GBP '000 GBP '000 GBP '000 GBP '000
As at June 30, 2011
----------- ----------- ----------- -----------
Total assets 222,424 50,910 25,526 34,123
----------- ----------- ----------- -----------
Total assets include:
Investments in associates - - - -
Additions to non-current
assets (other than financial
instruments and deferred tax
assets) - - - -
----------- ----------- ----------- -----------
Total liabilities 63,908 - 639 -
----------- ----------- ----------- -----------
As at June 30, 2010
----------- ----------- ----------- -----------
Total assets 184,569 47,991 17,521 29,876
----------- ----------- ----------- -----------
Total assets include:
Investments in associates - 3,324 - -
Additions to non-current
assets (other than financial
instruments and deferred tax
assets) - - - -
----------- ----------- ----------- -----------
Total liabilities 51,107 - 1,648 -
----------- ----------- ----------- -----------
As at December 31, 2010
----------- ----------- ----------- -----------
Total assets 201,890 75,280 27,650 35,122
----------- ----------- ----------- -----------
Total assets include:
Investments in associates - - - -
Additions to non-current
assets (other than financial
instruments and deferred tax
assets) 13,664 - 20,351 -
----------- ----------- ----------- -----------
Total liabilities 56,669 - 855 -
----------- ----------- ----------- -----------
Europe
Mining All other
Royalty interests segments Total
GBP '000 GBP '000 GBP '000 GBP '000
As at June 30, 2011
---------- ----------- ----------- -----------
Total assets 17,216 15,021 44,928 410,148
---------- ----------- ----------- -----------
Total assets include:
Investments in associates - - - -
Additions to non-current
assets (other than financial
instruments and deferred tax
assets) - - - -
---------- ----------- ----------- -----------
Total liabilities 2,587 - 11,107 78,241
---------- ----------- ----------- -----------
As at June 30, 2010
---------- ----------- ----------- -----------
Total assets 14,019 5,024 26,522 325,522
---------- ----------- ----------- -----------
Total assets include:
Investments in associates - - - 3,324
Additions to non-current
assets (other than financial
instruments and deferred tax
assets) - - - -
---------- ----------- ----------- -----------
Total liabilities 1,702 - 5,728 60,185
---------- ----------- ----------- -----------
As at December 31, 2010
---------- ----------- ----------- -----------
Total assets 19,590 17,671 38,423 415,626
---------- ----------- ----------- -----------
Total assets include:
Investments in associates - - - -
Additions to non-current
assets (other than financial
instruments and deferred tax
assets) 3,997 - - 38,012
---------- ----------- ----------- -----------
Total liabilities 2,716 - 9,498 69,738
---------- ----------- ----------- -----------
Investments in mining and exploration interests (classified as
available-for-sale financial assets or financial assets at fair value through
profit or loss) held by the Group are classified by geographic segment by
reference to the country of the investee's primary listing for quoted
investments or the country of operations for unquoted investments.
The amounts provided to the Executive and Investment committees with respect to
total liabilities are measured in a manner consistent with that of the financial
statements. These liabilities are allocated based on the operations of the
segment.
Of the total royalty income, GBP 10.0 million received during the six months to
June 30, 2011 is derived from a single royalty (June 30, 2010: GBP 10.3
million). This income is attributable to the Australian royalty segment.
5 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
5.1 Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates and assumptions will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are:
(a) Review of asset carrying values and impairment charges and reversals;
and
(b) Recoverability of deferred tax assets.
Review of asset carrying values and impairment charges and reversals
The Group makes a number of estimates and assumptions to determine the
appropriateness of asset carrying values and any impairment charges as
necessary. The Group utilise forecast commodity prices and foreign exchange
rates provided by independent consultants and rely upon the production guidance
provided by third party operators of the Group's royalty properties. These
estimates and assumptions are subject to change and will seldom equal the actual
results. The Group also use discount rates to determine discounted cash flow
valuations of certain assets. These discount rates are determined by reference
to risk free rates of return adjusted for a variety of factors including, inter
alia, project risk, operator risk, geopolitical risk and commodity risk. These
risks are continually re-evaluated and as a result the discount rates utilised
can change between periods.
Recoverability of deferred tax assets
Deferred tax is calculated at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled. The Group makes
assumptions regarding these future rates of tax, in addition to assuming that
various criteria for the recoverability of deferred tax assets will be met.
5.2 Critical judgements in applying the Group's accounting policies
Areas of judgement that have the most significant effect on the amounts
recognised in the financial statements are:
(a) Classification of mining and exploration interests;
(b) Classification of royalty instruments and royalty interests;
The Directors review the nature of those royalty agreements to
determine which class of asset they fall under. For those royalties
acquired which give the Group a straight royalty with no conversion
rights to shares for example, these are classified as a royalty
interest within intangibles;
Where an agreement has a convertible option within it, the contracts
are reviewed to determine whether the option is closely related or not
to the host contract. This will determine whether the assets should be
classified as a derivative at fair value through profit and loss or an
available for sale financial asset with an embedded derivative.
(c) Review of assumptions underlying the independent coal industry
advisors' valuation of the Kestrel and Crinum coal royalties;
(d) Review of assumptions underlying the valuation of royalty instruments
and their associated embedded derivatives;
The Directors review the latest available mine plans and obtain
independent foreign exchange and commodity price forecasts to
determine each of the royalty instruments carrying value at reporting
date.
(e) Review of asset carrying values and impairment charges and reversals;
and
(f) Recognition of deferred tax liabilities and the continued application
of relevant exemptions.
6 Earnings per ordinary share
For the three months For the six months
ended ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
Basic earnings per share 5.37p 7.50p 15.09p 22.85p
Diluted earnings per share 5.37p 7.50p 15.09p 22.85p
Earnings per ordinary share excludes the issue of shares under the Group's
Joint Share Ownership Plan, as the Employee Benefit Trust has waived its
right to receive dividends on the 864,258 ordinary 2p shares it holds as at
June 30, 2011.
The numbers used in calculating basic and diluted earnings per share are
stated below:
For the three months For the six months
ended ended
--------------------- ---------------------
Net profit attributable to June 30, June 30, June 30, June 30,
shareholders 2011 2010 2011 2010
GBP '000 GBP '000 GBP '000 GBP '000
Earnings-basic 5,842 8,115 16,413 24,731
Earnings-diluted 5,842 8,115 16,413 24,731
For the three months For the six months
ended ended
----------------------- -----------------------
Weighted average number of June 30, June 30, June 30, June 30,
shares in issue 2011 2010 2011 2010
Ordinary shares in issue 108,771,332 108,224,582 108,771,332 108,233,742
Employee Share Option Scheme 16,335 - 16,335 -
----------- ----------- ----------- -----------
108,787,667 108,224,582 108,787,667 108,233,742
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
7 Royalty cash flow per share
For the three months For the six months
ended ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
Total royalty cash flow per share 2011 2010 2011 2010
Basic royalty cash flow per share 6.15p 10.42p 15.36p 14.95p
Diluted royalty cash flow per
share 6.15p 10.42p 15.36p 14.95p
The Group's management considers royalty cash flow per share to be a useful
measure of the performance of the Group's assets. Changes in equity market
conditions lead to annual fluctuations in gains on sale of mining and
exploration interests, and while these gains can be significantly value
accretive for shareholders, the Group's management focus remains on increasing
the Group's cash flows from royalties. In addition, the classification of the
Group's royalty instruments as repayable debentures results in cash flows which
are classified as repayments of principal and interest until repaid. As a
result, the combination of royalty income and cash received from the debenture
repayments during the year form the numerator for this metric. Both of these
components are calculated before tax.
The numbers used in calculating the basic and diluted royalty cash flow per
share are stated below:
For the three months For the six months
ended ended
----------------------- -------------------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
Royalty cash flow GBP '000 GBP '000 GBP '000 GBP '000
Royalty income 6,486 11,079 16,361 15,679
Receipts from royalty
instruments 204 196 347 498
----------- ----------- ------------- -----------
Total royalty cash flow 6,690 11,275 16,708 16,177
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
For the three months For the six months
ended ended
----------------------- -------------------------
Weighted average number of June 30, June 30, June 30, June 30,
shares in issue 2011 2010 2011 2010
Ordinary shares in issue 108,771,332 108,224,582 108,771,332 108,233,742
Employee Share Option
Scheme 16,335 - 16,335 -
----------- ----------- ------------- -----------
108,787,667 108,224,582 108,787,667 108,233,742
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
8 Outstanding share data
As at August 10, 2011 there were 109,127,540 ordinary 2p shares outstanding.
Anglo Pacific Group PLC has no other class of shares in issue. All shares have
the same voting rights.
The Group operates two equity-settled share-based compensation plans as follows:
-- The HMRC approved Company Share Ownership Plan (the "CSOP"); and
-- The Joint Share Ownership Plan (the "JSOP") operated through the Anglo
Pacific Group Employee Benefit Trust (see note 9).
There are currently 69,330 share options outstanding under the CSOP, with
exercise prices ranging from GBP 2.50 to GBP 3.26.
9 Own shares held
Following approval at the 2010 Annual General Meeting the Group established the
Anglo Pacific Group PLC Employee Benefit Trust (the "Trust") to be used as part
of the remuneration arrangement for employees. The purpose of the Trust is to
facilitate and encourage the ownership of shares by or for the benefit of
employees by the acquisition and distribution of shares in the Group.
The Group issued 356,208 ordinary 2p shares on March 28, 2011 to satisfy its
obligations under its Joint Share Ownership Plan.
At June 30, 2011 the Trust held 864,258 (June 30, 2010: 508,050) ordinary 2p
shares in Anglo Pacific Group PLC.
10 Financial commitments
Operating leases
At the balance sheet date, the Group had outstanding commitments under
non-cancellable operating leases. These relate to leased office space, certain
office equipment, and leased property in relation to Shetland Talc Limited. The
total commitments due under these leases are shown as follows:
GBP '000
to June 30, 2012 168
to June 30, 2013 168
to June 30, 2014 168
to June 30, 2015 109
to June 30, 2016 and thereafter 50
11 Related party transactions
The remuneration of the key management personnel of the Group is set out below
in aggregate for each of the categories specified in IAS 24 Related Party
Disclosures.
For the three months For the six months
ended ended
------------------------- -----------------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
GBP '000 GBP '000 GBP '000 GBP '000
Short-term employee
benefits 301 282 493 462
Post-employment benefits 10 4 22 9
Share-based payment 75 12 75 12
------------ ------------ ----------- -----------
386 298 590 483
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
The Group entered into the following related party transactions during the
period:
For the three months For the six months
ended ended
------------------------- -----------------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
GBP GBP GBP GBP
Anthony Yadgaroff - 2,250 2,489 3,750
John Whellock - - 1,130 -
------------ ------------ ----------- -----------
- 2,250 3,619 3,750
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
12 Events occurring after period end
On August 2, 2011, the Group announced the purchase of an existing 1.0% NSR
royalty over the Black Label, Black Thor and Big Daddy chromite deposits in
Ontario, Canada, from KWG Resources Inc ("KWG"). The consideration for the
acquisition was US$18 million.
On August 3, 2011 the Group advanced US$30 million to London Mining PLC ("London
Mining") in exchange for a 1.0% GRR royalty over London Mining's Isua iron ore
project in Greenland.
On July 8, 2011 Xstrata Coal Canada Limited ("Xstrata") made an offer to acquire
all of the outstanding common shares of First Coal Corporation at a price of
C$1.75 per share. As at June 30, 2011 the Group held 11,542,857 First Coal
Corporation shares which are recorded in the balance sheet at cost. The Xstrata
transaction completed on August 4, 2011.
13 Availability of financial statements
This statement will be sent to shareholders and will be available at the Group's
registered office at 17 Hill Street, London, W1J 5LJ.
Anglo Pacific Group PLC
INDEPENDENT REVIEW REPORT TO ANGLO PACIFIC GROUP PLC
----------------------------------------------------------------------------
Introduction
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
2011 which comprises the consolidated income statement, consolidated statement
of comprehensive income, consolidated balance sheet, consolidated statement of
changes in equity, consolidated cash flow statement and the related notes. We
have read the other information contained in the half yearly financial report
which comprises only the Management's Discussion and Analysis and considered
whether it contains any apparent misstatements or material inconsistencies with
the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained
in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information
performed by the Independent Auditor of the Entity'. Our review work has been
undertaken so that we might state to the company those matters we are required
to state to them in a review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for the
conclusion we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services 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 Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2011 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
GRANT THORNTON UK LLP, AUDITOR
London
August 10, 2011
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