the global natural resources royalty company

124 Pages·2017·5.88 MB·English

A RECORD YEAR
ANGLO PACIFIC GROUP PLC
2021 ANNUAL REPORT & ACCOUNTS
NEW APG WEBSITE...
www.anglopacificgroup.com
WHAT’S INSIDE...
01 STRATEGIC REPORT 74 GOVERNANCE
02 Our business at a glance 74 Task Force on Climate-Related
04 Our business model Financial Disclosures
06 Our approach and investment strategy 78 Corporate governance
08 Our portfolio 80 The Board
10 Chairman’s statement 85 Nomination Committee
14 Chief Executive Officer’s statement 87 Audit Committee
18 Market overview 91 Sustainability Committee
24 Business review 92 Remuneration Committee
54 Financial review 93 Directors’ remuneration report
57 Key performance indicators 105 Directors’ report
58 Engaging with our stakeholders 107 Statement of Directors’ responsibilities
60 Risk management
62 Principal risks 108 FINANCIAL STATEMENTS
66 SUSTAINABILITY PROGRESS REPORT 108 Independent auditor’s report
115 Consolidated income statement
68 2021 sustainability highlights 116 Consolidated statement of comprehensive income
70 Our approach to sustainability 117 Consolidated and Company balance sheets
118 Consolidated statement of changes in equity
119 Company statement of changes in equity
120 Consolidated statement of cash flows
and Company statement of cash flows
121 Notes to the consolidated financial statements
164 OTHER INFORMATION
164 Shareholder statistics
164 Corporate details
165 Forward-looking statements
PERFORMANCE MEASURES Adjusted earnings per share
Adjusted earnings represents the Group’s underlying operating
Throughout this report a number of financial performance from core activities. Adjusted earnings is the profit/
measures are used to assess the Group’s (loss) attributable to equity holders, plus royalties received from
performance. The measures are defined as follows: royalty financial instruments carried at fair value through profit
or loss, less all valuation movements and impairments (which
Portfolio contribution are non-cash adjustments that arise primarily due to changes in
Portfolio contribution represents the funds received or receivable commodity prices), together with amortisation charges, foreign
from the Group’s underlying royalty related assets which is taken exchange gains/(losses), any associated deferred tax and any
into account by the Board when determining dividend levels. profit or loss on non-core asset disposals. 
Portfolio contribution is royalty and stream related revenue Adjusted earnings divided by the weighted average number of
(refer to note 5) plus royalties received or receivable from royalty shares in issue gives adjusted earnings per share. Refer to note 12
financial instruments carried at fair value through profit or loss to the financial statements for adjusted earnings/(loss) per share.
(‘FVTPL’) and principal repayment received under the Denison
Dividend cover
financing agreement (refer to note 21). Refer to note 35 to the
Dividend cover is calculated as the number of times
financial statements for portfolio contribution.
adjusted earnings per share exceeds the dividend per share.
Operating profit/(loss) Refer to note 13 to the financial statements for dividend cover.
Operating profit/(loss) represents the Group’s underlying
Free cash flow per share
operating performance from its royalty and stream interests.
Free cash flow per share is calculated by dividing net cash
Operating profit/(loss) is royalty income, less amortisation of
generated from operating activities, plus proceeds from the
royalties and operating expenses, and excludes impairments,
disposal of non-core assets and any cash considered as
revaluations and gain/(loss) on disposals. Operating profit/(loss)
repayment of principal, less finance costs, by the weighted
reconciles to ‘operating profit/(loss) before impairments,
revaluations and gain/(losses) on disposals’ on the income average number of shares in issue. Refer to note 34 to the
financial statements for free cash flow per share.
statement.
Strategic report Governance Financial statements Anglo Pacific Group PLC 2021 Annual Report & Accounts 01
WE ARE THE LEADING LONDON LISTED ROYALTY
AND STREAMING BUSINESS FOCUSED ON
INVESTING IN THE COMMODITIES REQUIRED TO
PROVIDE FOR A MORE SUSTAINABLE WORLD
03 A RECORD AND TRANSFORMATIONAL
16
YEAR FOR ANGLO PACIFIC
66
As the world moves towards a low-carbon economy, Anglo Pacific has also
undergone its own transformation during 2021.
06 EXECUTING 08 INVESTING
OUR STRATEGY IN ESSENTIAL
Anglo Pacific has successfully RESOURCES
executed on its strategy to build a
diversified royalty and streaming A royalty and streaming company
portfolio with a focus on giving investors exposure to 21st
commodities which encompass century commodities such as
environmental benefits and cobalt, copper, nickel, vanadium
support a more sustainable world. and uranium.
10 A RECORD YEAR 14 EVOLUTION
IN THE GROUP’S 2016-2022
HISTORY
RECORD ROYALTY PORTFOLIO
CONTRIBUTIONS
18 SPOTLIGHT 24 OUR PORTFOLIO
ON COBALT READY FOR A LOW
CARBON FUTURE
HOW DO WE CREATE SUSTAINABILITY
58 66
LONG-TERM VALUE FOR PROGRESS REPORT
OUR STAKEHOLDERS?
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02 Anglo Pacific Group PLC 2021 Annual Report & Accounts Strategic report Governance Financial statements
OUR BUSINESS AT A GLANCE
ROYALTIES AND STREAMS PROVIDE INVESTORS WITH ‘TOP LINE’
EXPOSURE TO A BASKET OF COMMODITIES WITHOUT OPERATIONAL
OR INFLATIONARY RISK
PRIMARY LISTING SECONDARY LISTING OVER THE PAST EIGHT
24
YEARS ANGLO PACIFIC HAS
LSE TSX
TRANSFORMED ITS
COMMODITY EXPOSURE
London Stock Exchange Toronto Stock Exchange
Towards 21st century commodities
(LSE: APF) (TSX: APY)
and driving global decarbonisation.
Our 15 principal royalty and streaming
related assets across 10 commodities.
Read more in our business review.
DISCIPLINED INVESTMENT
06
APPROACH
Long-term value for all of our
stakeholders can only be achieved
by sustainable and responsible
investment.
08 15 ROYALTY AND STREAMING
RELATED ASSETS ACROSS 5
CONTINENTS AND 10 COMMODITIES
ROYALTIES AND GRR: GROSS REVENUE ROYALTY METAL STREAMS
STREAMS EXPLAINED A GRR entitles the royalty holder to a fixed portion A metal stream is an agreement that provides,
of the gross revenues generated from the sales of in exchange for an upfront payment, the right to
A natural resources royalty is a non-operating mineral production from a property. In calculating purchase all or a portion of one or more metals
interest in a project that provides the royalty a GRR payment, deductions, if any, applied by the produced from a mine, at a price determined for
holder with the right to a proportion of revenue, property owner to reduce the royalty payment are the life of the stream. Streams, whilst providing
profit or production. usually minimal, and GRRs are therefore the similar outcomes for Anglo Pacific, are not royalties
simplest form of royalty to account for and because they do not constitute an interest in land
Historically, royalties originated as a result of the implement. and there is an ongoing cash payment required to
sale of a mineral property, allowing the seller to NSR: NET SMELTER RETURN ROYALTY purchase the physical metal. However, a stream
retain some ongoing economic participation in NSR royalties entitle the holder to a fixed portion holder is not ordinarily required to contribute
the property. However, an increasing number of of the net revenues received from a smelter or towards operating or capital costs, nor
royalties are now created directly by operators refinery from the sales of mineral production from environmental or reclamation liabilities.
and developers as a source of finance. A royalty a property, after the deduction of certain offsite
holder is not generally obligated to contribute realisation costs. Typical realisation costs include INNOVATIVE STRUCTURES
towards operating or capital costs, nor those related to transportation, insurance, smelting Our primary focus is on royalty and streaming
environmental or reclamation liabilities. and refining. These deductions are generally higher transactions, however, we will also review
in base metals mines due to the semi-finished alternative structures that deliver superior
TYPES OF NATURAL RESOURCES ROYALTIES
product, such as concentrate, often being long-term cash flows. An example would be the
AND STREAMS
produced at the mine site, when compared to Denison financing arrangement executed in 2017
The Group’s royalties are mostly revenue or precious metals mines, which produce a nearly- which was structured as a long-term loan with a
production-based royalties. Typically, these finished product on site separate stream element, deriving income from a
royalties are either Gross Revenue or Net tolling agreement on the McClean Lake uranium
Smelter Return royalties, each of which can PRIMARY VERSUS SECONDARY ROYALTIES mill, which processes ore from the world class Cigar
be described in more detail opposite. Primary royalties are entered into between a royalty Lake uranium operation in Canada. We will always
company and the property owner directly, where look for ways of gaining exposure to tier one natural
the property owner grants a royalty to the royalty resource projects and sometimes this will involve
company in return for one or more up-front cash creative thinking and structuring to support our
payments from the royalty company. In contrast, main objective of acquiring royalties and streams.
secondary royalties are existing royalties that are
acquired from a third party with no payment made
to the owner of the underlying property.
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Strategic report Governance Financial statements Anglo Pacific Group PLC 2021 Annual Report & Accounts 03
OUR RECORD RESULTS ARE ALLOWING US TO REPAY BORROWINGS
AND RECYCLE CAPITAL INTO GROWTH OPPORTUNITIES WHILST
ALSO MAINTAINING A SECTOR LEADING DIVIDEND
RE-POSITIONED TOWARDS
24
21ST CENTURY COMMODITIES 40 EXIT FROM THERMAL COAL
66
Narrabri sale completed in November 2021,
21st century
commodities consistent with our stated strategy of moving
Cobalt 47% away from carbon-based energy exposure.
75% Vanadium 10%
Copper 10%
Uranium 6%
of the portfolio is battery Other 2%
related metals Coking coal 13%
Iron ore 8%
Gold 4%
16 SEAMLESS
TRANSITION
COMMODITY EXPOSURE
24
Pleased to announce the
by asset value at 31.12.21
66 appointment of Mr. Marc Bishop
Coking coal 13% Lafleche as Chief Executive
Iron ore 8% Officer, with effect from 1 April
Copper 10% 2022. Mr. Bishop Lafleche
Vanadium 10%
87% Gold 4% succeeds Mr. Julian Treger.
Uranium 6%
Cobalt 47%
of the portfolio is non-coal Other 2%
57
85.3 207.7
GEOGRAPHIC EXPOSURE
08 $85.3m $207.7m
by asset value at 31.12.21
24
Australia 14% $43.7m $9.8m
Canada 60%
Chile 10% ROYALTY RELATED 43.7 ROYALTY ASSETS
99% BSpraazinil 121%% REVENUE ACQUIRED
Other 2%
of the portfolio in established
natural resources
jurisdictions
9.8
20 21 20 21
STAGE OF PRODUCTION
26
by asset value at 31.12.21 25.18c 23.28c
46 33.77
25.18
Producing 95%
51 Development 1% 15.69c 33.77c
Early-stage 4%
23.28
95% ADJUSTED EARNINGS 15.69 FREE CASH FLOW
PER SHARE PER SHARE
of the portfolio
is producing
20 21 20 21
EMIX GLOBAL MINING INDEX
102
2012-2022
excl. gold & energy MAPinGi n-g T ISnRd ex 7.00p 2.6x 2.6
9.00
150 Re-based to 100
125 9.00p 7.00 1.4x
100 DIVIDEND PER SHARE DIVIDEND COVER 1.4
75
50
25
20 21 20 21
DEC 11 DEC 12 DEC 13 DEC 14 DEC 15 DEC 16 DEC 17 DEC 18 DEC 19 DEC 20 DEC 21
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04 Anglo Pacific Group PLC 2021 Annual Report & Accounts Strategic report Governance Financial statements
OUR BUSINESS MODEL
PROVIDING INVESTORS WITH UNIQUE EXPOSURE
TO FUTURE FACING COMMODITIES THROUGH A
BUSINESS MODEL SHELTERED FROM INFLATION
1 OUR PURPOSE 2 STRATEGY
Financing investment in natural resources To grow our portfolio of royalties and
to enable a sustainable future streams in relation to the commodities
required to achieve global sustainability
objectives
3 OUR VALUES 4 STRATEGIC DRIVERS
Sustainability Achieving our strategy through acquisitions
We believe long-term value can only be achieved which satisfy these criteria
through sustainable and responsible investment
• High-quality and low-cost assets
Integrity and respect
• Attractive returns
We are committed to the highest ethical standards
• Strong operational management teams
of conduct and best practices
• Long-life assets
Diversity
• Diversification of royalty portfolio
We seek to achieve diversity in our investments and
our team • Established natural resources jurisdictions
Collaboration • Strong ESG credentials
We believe teamwork is essential to achieving our • Production and exploration upside potential
purpose and delivering value to our stakeholders
WE BELIEVE TEAMWORK IS ESSENTIAL TO OUR ACHIEVEMENTS ARE STRENGTHENED
ACHIEVING OUR PURPOSE AND DELIVERING THROUGH THE DIVERSIFICATION OF OUR
VALUE TO OUR STAKEHOLDERS ROYALTY PORTFOLIO
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Strategic report Governance Financial statements Anglo Pacific Group PLC 2021 Annual Report & Accounts 05
OUR TRACK RECORD DEMONSTRATES HOW
MANAGEMENT HAS CREATED VALUE TO DATE BY
ADHERING TO EXACTING INVESTMENT CRITERIA
AND CONDUCTING RIGOROUS DUE DILIGENCE
HOW WE CREATE VALUE HOW WE CREATE VALUE
FOR OUR SHAREHOLDERS FOR OUR COUNTERPARTIES
Our track record demonstrates how management has created value An investment by Anglo Pacific, after conducting thorough due
to date by adhering to exacting investment criteria and conducting diligence, can be seen as an endorsement of the project, which can
rigorous due diligence. We adopt a strong focus on operations provide other stakeholders with greater confidence and possibly
producing high-quality, lower-polluting products which are result in a re-rating for the operator.
operated ethically and responsibly. We will look to leverage this
experience and our reputation in the market to execute our strategy We serve as a partner to the operators
Royalties and streams reduce the upfront capital financing required to
over the coming years.
fund the development of a project. These are generally structured as
Generating long-term cash returns asset (or even by-product) specific, often leaving the remaining assets
The Group is seeking to grow its portfolio of cash-generative royalties of the operator unencumbered for raising additional finance.
and streams by investing in producing or near-term producing assets An alternative form of financing to conventional debt and equity
with long time horizons. Given the relatively low overhead requirements Compared to the issuance of new equity, royalties and streams do not
of the business, the Group believes cash flow to shareholders can be depend on the prevailing state of the capital markets but are rather the
maximised through economies of scale, which would allow for growth result of bilateral negotiations. Royalties and streams are not dilutive,
in the portfolio without significantly increasing our cost base. unlike the issuance of new equity. In addition, royalties and streams
Lower risk through top-line, revenue participation are not regarded as debt nor do they encumber assets.
Revenue-based royalties limit the Group’s direct exposure to operating or Primary royalties
capital cost inflation of the underlying operations, as there is no ongoing ALTERNATIVE FORM OF FINANCE TO CONVENTIONAL DEBT PROVIDING GREATER FLEXIBILITY
requirement for the Group to contribute to capital, exploration, AND WHICH DOES NOT IMPACT ON CREDIT RATINGS
environmental or other operating costs post investment. Royalties and streams do not typically levy interest, nor do they typically
Lower volatility through commodity and geographic diversification require principal repayments or have a maturity date. More importantly,
The Group is building a diversified portfolio of royalties and streams unlike conventional debt arrangements where interest payments tend
across a variety of different commodities and geographic locations. to start immediately or are capitalised until cash payments can be made
This diversification reduces the dependency on any one asset or location from a project’s cash flow, most royalties are payable only once the
and any corresponding cyclicality. A fully diversified portfolio can help project comes into production and is generating sales. In addition, many
to reduce the level of income volatility, stabilising cash flows which forms of debt, such as project finance, include restrictive covenants and
contribute towards investment returns and dividend payments. may require commodity price hedges to be put in place. These are not
only typically costly in terms of fees, but can also limit the operator’s
Exposure to increases in mineral reserves and production
exposure to upside in the prices of their core commodities.
Royalty holders generally benefit from improvements made to the scale
of a project. Exploration success, or lower cut-off grades as a result of Secondary royalties
rising commodity prices, can serve to increase economic reserves and SOURCE OF LIQUIDITY FOR HOLDERS OF EXISTING ROYALTIES
resources. Increased reserves will extend a project’s life, or facilitate The value of a royalty is realised over the duration of the project’s life.
an expansion of the existing operations. Any subsequent increases in Often royalty owners may have a need to free up cash in order to recycle
production will generally result in higher royalty payments, without the capital. There is a limited secondary market for royalties and Anglo
requirement of the royalty holder to contribute to the cost of expanding Pacific can be a source of valuable liquidity for private royalty holders.
or optimising the operation.
Exposure to commodity prices
Royalties and streams provide exposure to underlying commodity prices.
Anglo Pacific offers the opportunity for investors to gain exposure to
commodities which do not have a liquid Exchange Traded Fund (ETF)
without having to invest in the underlying operation.
Innovative structures
Our primary focus is on royalty and streaming transactions, however, we will also review alternative structures that deliver superior long-term cash flows.
An example would be the Denison financing arrangement executed in 2017 which was structured as a long-term loan with a separate stream element,
deriving income from a tolling agreement on the McClean Lake uranium mill, which processes ore from the world class Cigar Lake uranium operation in
Canada. We will always look for ways of gaining exposure to tier one natural resource projects and sometimes this will involve creative thinking and
structuring to support our main objective of acquiring royalties and streams.
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06 Anglo Pacific Group PLC 2021 Annual Report & Accounts Strategic report Governance Financial statements
OUR APPROACH AND INVESTMENT STRATEGY
WE SEEK TO CREATE OUR DISCIPLINED INVESTMENT
APPROACH
LONG-TERM VALUE FOR
OUR STAKEHOLDERS COMMODITY
• Base and battery related metals
by generating superior cash returns from a diverse • Bulk materials
and growing portfolio of royalty and streaming
• Industrial minerals
investments, and other innovative structures in
the natural resources sector. • Opportunistically considering other commodities
that support a more sustainable world
ASSET SPECIFIC CONSIDERATIONS
• Jurisdictional risk
• Compliance with ESG criteria
• Profit margin & position on the industry cost curve
• Counterparty risk
• Management’s operating track record
VALUATION CONSIDERATIONS
• Detailed due diligence on mine production profile
• Site visits by technical team and independent technical
advisers
• Production assumptions based on existing mineable
reserves, resource conversion assumptions evaluated
on case-by-case basis
• Consider other factors such as geology, infrastructure
and permitting, which could impact production
volumes or mine life
• Detailed understanding of commodity outlook
PORTFOLIO GROWTH POTENTIAL
46 Piaui
49 Incoa
OUR APPROACH IN ACTION
18 The critical importance of cobalt
26 Voisey's Bay
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Strategic report Governance Financial statements Anglo Pacific Group PLC 2021 Annual Report & Accounts 07
AN AGENT FOR POSITIVE 2021 SUSTAINABILITY
CHANGE HIGHLIGHTS
We look to be an influencer to our royalty and stream We believe that a strong focus on sustainable and
66
counterparties and seek to be an agent for positive change responsible investments is vital for the long-term
in the mining sector. success of our underlying assets and the maximisation
of shareholder value. As a result, we are committed to
IDENTIFY RISKS IN RELATION TO NEW INVESTMENTS integrating ESG considerations into all our strategic
decision-making and capital allocation. Here are some
• ESG due diligence aimed at identifying key risk areas.
of the 2021 highlights.
• Anglo Pacific primarily targets jurisdictions where
political risk and corruption/bribery are considered
EXIT FROM THERMAL COAL
low.
In 2020, we made a strategic decision to make no
MITIGATE RISKS IN RELATION TO NEW INVESTMENTS further investment in thermal coal, and in 2021, we went a
step further and made the decision to sell the only thermal coal
• Seek or require counterparty implementation
royalty in our portfolio to the operator Whitehaven Coal Limited,
of ESG practices and standards.
marking the Group’s exit from thermal coal.
MONITOR AND INFLUENCE
CARBON NEUTRAL
• Encourage royalty/stream counterparties to adopt
We are pleased to report that we are a
best practices voluntarily. carbon neutral company at the corporate level. Going forward
we are committed to maintaining carbon neutrality for our
COMMUNICATE corporate operations alongside continuing efforts to reduce
• Disclose Anglo Pacific ESG policies and due diligence our operational footprint.
processes in relation to new investments as well as
highlight best performing counterparties. COMMITTED TO ALIGN WITH TCFD FRAMEWORK
Our focus on sustainability has led to our voluntary
commitment to implement the recommendations
of the Task Force on Climate-related Financial Disclosures
(‘TCFD’), building on our existing ESG activity.
PARTICIPANT IN THE UNITED NATIONS
GLOBAL COMPACT
As a participant, we have committed to voluntarily
aligning our operations and strategy with the ten universally
accepted principles in the areas of human rights, labour,
environment and anti-corruption.
COMMUNITY AND CHARITY INITIATIVES
We have expanded our social commitments
to include community initiatives in London
FOCUS ON SUSTAINABILITY
70 At the core of Anglo Pacific's business is our belief that
long-term value for all our stakeholders can only be
achieved through sustainable and responsible investment.
71 More information on the Group's investment due diligence
framework can be found on page 71.
In addition to shaping our investment due diligence
74
framework, our focus on sustainable investment has
led to our voluntary commitment to implement the
recommendations of the Task Force on Climate-related
Financial Disclosure ('TCFD').
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08 Anglo Pacific Group PLC 2021 Annual Report & Accounts Strategic report Governance Financial statements
OUR PORTFOLIO
READY FOR A LOW-
CARBON FUTURE
99% of the portfolio is located in well-
established mining jurisdictions providing
diversified commodity exposure
McCLEAN LAKE MILL
VOISEY’S BAY
COBALT LIORC
26
Voisey's Bay
Cobalt is a metal used in numerous diverse commercial, INCOA
Co
industrial, and military applications, many of which are
Cobalt
strategic and critical. On a global basis, Cobalt is primarily
used in lithium-ion batteries, and in the manufacture of magnetic,
wear-resistant and high-strength alloys. These super-alloys are
used to make parts for gas turbine engines. Cobalt is also used to
make airbags in automobiles; catalysts for the petroleum and
chemical industries; cemented carbides (also called hard-metals);
INCOA
and diamond tools and much more.
CAÑARIACO PIAUÍ
COPPER
36
Mantos Blancos
MARACÁS MENCHEN
Copper is used for its superior properties, such as
Cu
having the best electrical and thermal conductivity
Copper
of any commonly used metal, as well as its durability
MANTOS BLANCOS
and hygienic properties, copper is a key material for innovation in a
number of sectors including renewable energy supplies, energy
efficiency, sustainable buildings, transport systems and
healthcare and much more.
PRODUCING
26
Asset Commodity Operator Location Rate and type Balance sheet classification
Voisey’s Bay Cobalt Vale Canada 22.82% attributable Mineral stream 26
production interests (P,P&E)
Kestrel Coking coal Kestrel Coal Pty Ltd Australia 7.0 – 15.0% GRR¹ Investment property 30
Labrador Iron Ore Royalty Iron ore & Iron Ore Company of Canada Indirect interest Royalty financial 32
Corporation (‘LIORC’) iron ore pellets Canada (‘IOC’) / Rio Tinto in 7.0% GRR instrument
Mantos Blancos Copper Mantos Copper Chile 1.525% NSR Royalty intangible 36
/Capstone
Maracás Menchen Vanadium Largo Resources Brazil 2.0% NSR Royalty intangible 38
McClean Lake mill Uranium Orano Canada Tolling revenue Loan & royalty 42
financial instrument
El Valle-Boinás / Gold, copper Orvana Minerals Spain 2.5 – 3.0% NSR² Royalty financial 44
Carlés (‘EVBC’) & silver instrument
Four Mile Uranium Quasar Resources Australia 1.0% NSR Royalty intangible 45
1. Kestrel: 7% of the value up to A$100/tonne, 12.5% of the value over A$100/tonne and up to A$150/tonne, 15% thereafter.
2. EVBC: 2.5% escalates to 3% when the gold price is over US$1,100 per ounce.
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