Full Year Results

RNS Number : 9659S

Anglo Pacific Group PLC

23 March 2016

 

March 23, 2016

Anglo Pacific Group PLC

Results for the year ended December 31, 2015

Anglo Pacific Group PLC ('Anglo Pacific', the 'Company' or the 'Group') (LSE: APF) (TSX: APY) is pleased to announce full year results for the year ended December 31, 2015 and publication of its audited 2015 Annual Report and Accounts. These are available on both the Group's website at www.anglopacificgroup.com and on SEDAR at www.SEDAR.com. 

Financial Highlights

§	Increase in royalty income of 149% to £8.7m (2014: £3.5m), driven largely by strong production performance at Narrabri and an increase in mining within the Group's royalty lands at Kestrel
§	34.5% reduction in overheads (before share-based payments) to £3.2m (2014: £4.9m)
§	Adjusted earnings1, which excludes non-cash revaluations and impairment charges, increased by £6.2m to £4.0m (2014: loss £2.2m) resulting in adjusted earnings per share of 2.47p (2014: loss of 1.97p)
§	Loss after tax of £22.6m (2014: £47.6m), due largely to the Kestrel revaluation charge of £27.2m (2014: £11.8m), resulting in a loss per share of 14.06p (2014: 42.09p)
§	Significant reduction in reported impairment charges to £5.3m (2014: £31.5m)
§	Cash balance of £5.7m at December 31, 2015 (2014: £8.8m) and net debt of £1.8m (2014: nil)
§	Recovery of Laramide Resources C$5.0m (£2.9m) advance in full on December 31, 2015
§	Net assets of £162.0m at December 31, 2015 (2014: £161.3m) resulting in net assets per share of 95p (2014: 138p)
§	Recommended final dividend of 3p per share resulting in a total dividend for 2015 of 7p (2014: 8.45p). Longer-term progressive dividend policy of at least 65% of adjusted earnings. Expectation in the medium-term is a minimum total annual dividend of 6p per share

Operational Highlights

§	Five income generating royalties following the first royalty receipt from Four Mile in Q1 2016
§	All the Group's income generating royalties remained in production throughout 2015, with strong performances at the Group's Kestrel and Narrabri royalties
§	Production at Kestrel within the Group's private royalty land was approximately 49% in 2015. Based on the latest guidance from Rio Tinto, this is expected to increase to 60-65% in 2016 (30-35% in H1 2016 and 85-90% in H2 2016), with the expectation of this increasing to at least 90% in 2017
§	Production at Narrabri was 8.3Mt in the calendar year 2015, well ahead of the original design capacity of 6Mtpa and comfortably in excess of the level which the Group assumed when pricing the royalty at acquisition in March 2015
§	Further production upside expected at Narrabri following the recent announcement by the operator, Whitehaven Coal Limited ("Whitehaven") of approval to increase capacity from 8Mtpa to 11Mtpa and to install a 400 metre wide longwall panel from H2 2017 onwards (projected to increase tonnage by 750Ktpa)
§	Whitehaven also announced plans to extend the Narrabri North longwall into the Narrabri South area, which will increase the existing life of mine. Anglo Pacific only included Narrabri North in its valuation of the royalty at acquisition
§	Positive developments at the Group's Salamanca royalty with the operator, Berkeley Energia Limited ("Berkeley Energia") announcing a near doubling of Indicated Resources along with an increase in grade which will lead to an increase in mine life from 11 to 18 years
§	First royalty receipt from Four Mile received in Q1 2016. The project came into production in 2014 although the operator, Quasar Resources Pty Ltd, had been stockpiling since with a view to obtaining supply contracts

Julian Treger, Chief Executive Officer of Anglo Pacific, commented:

"Anglo Pacific made good progress in 2015, despite this being a very difficult year for the mining sector in general. We were pleased to see our royalty income more than doubling in the period along with a significant reduction in our operating costs. We look well placed to build on this with strong growth expected in 2016. Of particular note was the performance of our Narrabri royalty, which we acquired in March 2015. Production at the mine totalled 8.3Mt in 2015 which was considerably higher than the ROM estimates we had used to price the royalty at the time of acquisition. We expect there to be further production upside in the coming years driven by increased permitting capacity and extended longwall infrastructure. Despite a decline in commodity prices, we believe this royalty is worth more today than we paid for it just over twelve months ago.

Despite the progress we have made in the year, Anglo Pacific has not been immune to the declines which have beset the mining sector over the past year. The indiscriminate selling which has affected commodity stocks has also impacted our share price, to an extent that we trade well below our net asset value per share and at a very high dividend yield. Ordinarily such a yield would suggest to the market a further dividend cut. However, following our announcement on January 28, 2016, in which we outlined a revision to our dividend policy, we have now made the cuts we believe are necessary to protect our balance sheet, subject to ongoing market conditions being relatively stable.

We recognise the attractive opportunities present in the market at this time and are determined not to let these prospects pass without obtaining exposure to some high quality attractive royalties. We are now seeing investment opportunities with well positioned counterparties which have not been as freely available in recent years. We are confident that we can continue to acquire attractive royalties which will enhance the lifespan and diversity of our existing portfolio and which will enable us to continue our policy of paying a substantial portion of royalties to shareholders as dividends."

Kevin Flynn, Chief Financial Officer of Anglo Pacific commented:

"The Group has more than doubled its royalty income during 2015, with strong underlying performance at Narrabri and 49% of Kestrel's production being within our land. Despite challenging market conditions over the past year, all of our income generating royalties remained in production and we expect to see our income continue to grow during 2016, underpinned by Kestrel which is expected to produce 60-65% within our royalty lands. Equally encouraging during the year was a significant reduction in operating expenses and we will continue to target further reductions in the year ahead.

The results for the year would have been considerably stronger but for the further declines in commodity prices throughout 2015 which, in addition to tempering royalty income, resulted in a downward valuation of Kestrel and further impairment charges, although the latter were considerably less than those in 2014. Although we report a headline loss for the year of £22.6m, our adjusted earnings, which exclude non-cash revaluation and impairment charges, were £6.2m higher in the year at £4.0m compared with a loss of £2.2m in 2014.

The organic growth within our portfolio, along with the headroom under our borrowing facility and a continued focus on costs should ensure that Anglo Pacific is well placed to achieve further growth in the year ahead."

1 Adjusted earnings/(loss) represents the Group's underlying operating performance from core activities.  Adjusted earnings/(loss) is the profit/(loss) attributable to equity holders less all valuation movements, non-cash impairments and amortisation charges (which are non-cash IFRS adjustments that arise primarily due to changes in commodity prices), finance costs, any associated deferred tax and any profit or loss on non-core asset disposals as these are not expected to be ongoing.  See note 11 to the financial statements for adjusted earnings/(loss).

Analyst presentation

There will be an analyst presentation via webcast at 09:30 (GMT) on March 23, 2016 at www.anglopacificgroup.com. The presentation will be hosted by Julian Treger (CEO) and Kevin Flynn (CFO). Dial in details for the call, which can be accessed by quoting "Anglo Pacific", are shown below and a replay of the webcast will be available at www.anglopacificgroup.com.

Dial in number:                020 3059 8125	(United Kingdom - local)
+ 44 20 3059 8125	(All other locations)
Participant password:     Anglo Pacific - this must be quoted to the Operator in order for participants to gain access to the conference.

For further information:

Anglo Pacific Group PLC Julian Treger, Chief Executive Officer Kevin Flynn, Chief Financial Officer	[phone]
BMO Capital Markets Limited Jeffrey Couch / Neil Haycock / Tom Rider	[phone]
Macquarie Capital (Europe) Limited Raj Khatri / Ariel Tepperman / Nicholas Harland	[phone]
Peel Hunt LLP Matthew Armitt / Ross Allister	[phone]
Bell Pottinger Nick Lambert / David Bass / Richard Crowley	[phone]

Notes to Editors

About Anglo Pacific

Anglo Pacific Group PLC is a global natural resources royalty company. The Company's strategy is to develop a leading international diversified royalty company with a portfolio centred on base metals and bulk materials, focusing on accelerating income growth through acquiring royalties on projects that are currently cash flow generating or are expected to be within the next 24 months. It is a continuing policy of the Company to pay a substantial portion of these royalties to shareholders as dividends.

CHAIRMAN'S STATEMENT

2015 has seen the beginnings of a turnaround in the fortunes of Anglo Pacific. Our royalty income has doubled from £3.5m to £8.7m as our Narrabri acquisition contributes for the first time and mining at Kestrel begins to return to our royalty lands. This, coupled with a significant reduction in our operating expenses following a stringent review of our cost base, has led to a return to profitability at operating level with an operating profit of £2.1m (2014: operating loss £2.8m).

Such growth could have been stronger but for the impact of continuing falls in commodity prices which directly affected our royalty income and led to certain non-cash impairments and revaluation adjustments totalling £32.5m (2014: £43.4m) leading to an overall loss before tax of £30.5m (2014: loss £42.4m). This resulted in a basic and diluted loss per share of 14.06p (2014: 42.09p). Due to the large number of valuation and non-cash items included in the Income Statement, we also present an adjusted earnings measure. This measure more closely reflects the performance within management's control. Adjusted earnings per share were 2.47p (2014: loss of 1.97p).

Dividends

Our review of our dividend policy twelve months ago, in conjunction with the Narrabri acquisition, was underpinned by financial projections based on consensus forward prices at the time.  The subsequent volatility in commodity prices coupled with a significant reduction in the forward consensus pricing outlook, both of which are above and beyond what we had anticipated, have more than offset the benefits of a significant reduction in costs along with production outperformance at Narrabri. We stressed last year that a dividend policy had to be both affordable and appropriate and in the current circumstances believe an amended policy is necessary. Consequently, as advised in our trading update statement of January 28, 2016, we are recommending a final dividend for the year ended December 31, 2015, of 3p per share. Longer-term, however, we retain our target of paying dividends of at least 65% of adjusted earnings (as defined in note 4) with a medium-term minimum annual dividend 6p per share.

Royalty portfolio

In reviewing our current royalty portfolio, it is particularly encouraging to note that, despite the ongoing turmoil in the mining sector in general and commodity prices in particular, all of the Group's royalties that were in production in 2014 remain in production and continue to generate royalty income. We are, all the more determined to ensure that any new royalty or streaming acquisition meets our exacting investment requirements. This approach has resulted in no major acquisitions being made following Narrabri and many of the opportunities presented to us during the year being discarded.  However, we are confident that more attractive opportunities will arise during 2016 and beyond, as the cost of capital in the sector continues to increase and the Group continues to progress a number of potential opportunities.

It is worth highlighting the particular performance of our Narrabri royalty. When the royalty was purchased, permitted production levels were 8Mtpa, and Whitehaven, the operator, has now obtained permission to increase this to 11Mtpa and is ramping up production towards this higher level.

Lower commodity prices did however reduce the carrying value of certain of the Group's royalty assets in the period, although impairment charges of £4.4m were considerably lower than the £25.3m recognised in 2014. The largest adjustment was to the carrying value of Kestrel which showed a valuation deficit of £27.2m as a result of revisions to long term coking coal prices, although there was a tax shield associated with this deficit of £8.2m.

Board

2015 has seen further changes to the Board. As advised last year, Anthony Yadgaroff retired from the Board on December 31, 2015 after almost 13 years' service. I should like to thank him again for his hard work, diligence and sage advice during that period.

In anticipation of Anthony's retirement, we appointed Patrick Meier to the Board on April 30, 2015.  Patrick has over thirty years of experience in investment banking, most recently with RBC Capital Markets, with specialist knowledge of the mining sector. He has already had a significant impact on the workings of the Board.

Outlook

2016 onwards should be a period of sustained organic growth for Anglo Pacific as production at Kestrel moves increasingly into our royalty lands while that at Narrabri continues to ramp up towards the increased permitted levels. In addition, the continuing challenges facing the mining sector are bringing and will continue to bring further opportunities for the Group. We believe that our ability to be innovative and imaginative in our approach to these opportunities will bear fruit in the year ahead.

In conclusion, I should like to thank all Directors and staff for their continued diligence and hard work during what has been another challenging year.

On behalf of the Board

W.M. Blyth

Chairman
March 22, 2016

CHIEF EXECUTIVE OFFICER'S STATEMENT

I am pleased to report that, following completion of the Narrabri royalty acquisition in early 2015, the Group has experienced strong growth in royalty income during 2015 which it expects to continue during 2016. We believe the Group's strategy is now beginning to bear fruit.

Challenging environment

The mining sector continues to face difficult times which we have not been immune to over the previous year. However, Anglo Pacific remains well placed to acquire attractive new royalties. We have a good platform of five producing royalties with Kestrel, Narrabri, Maracás Menchen and EVBC providing improved royalty flows in 2015, together with Four Mile producing maiden royalty receipts in February 2016. Our royalty income grew strongly last year and we expect further significant growth during 2016 and beyond. We have a strong balance sheet with little debt and we continue to carefully monitor costs and make reductions wherever possible. We believe these challenging times for the mining sector will provide opportunities for the Company to identify attractive new royalties which will enhance the lifespan and diversity of our existing portfolio.

The Narrabri mine continues to perform well, with production for the year ending December 31, 2015 reaching 8.3Mt, well in excess of the original design capacity of 6Mtpa. We are encouraged that Whitehaven has recently received approval to increase production to 11Mtpa from 8Mtpa which should lead to increased royalty income from the mine despite reduced commodity prices. In addition, the potential to expand operations into Narrabri South provides further upside to this royalty. Additionally, during the past year production at Kestrel has increasingly moved into our royalty area and updated tonnage sales forecasts from Rio Tinto, which we receive as part of our information rights, confirm previous guidance that 60-65% of Kestrel coal production will be within the Group's royalty area during 2016.  This should lead us to report a further increase in royalty income in 2016.

Despite these positive aspects, we have not been immune to the declines which have beset commodity prices over the past year. Though our income grew, this growth would have been even more impressive had the price of thermal and coking coal not declined by between 15% and 25%. In addition, the indiscriminate selling which has affected commodity stocks has also impacted our share price down, to an extent that we trade well below our net asset value per share, at a very high dividend yield. Ordinarily such a yield would suggest to the market a further dividend cut. However, we have now made the cuts we believe are necessary to protect our balance sheet at this time, subject to ongoing market conditions being relatively stable.

Dividend levels

Provided prevailing market conditions are maintained and with further growth in royalty income expected throughout this year, we believe an annual dividend level of 6p per share going forward should be close to being covered during 2016 and covered in 2017. We hope that the market will recognise the 6p level as a base from which we will grow. It remains a continuing policy of the Company to pay a substantial proportion of royalties to shareholders as dividends, and our long-term target dividend continues to be 65% of adjusted earnings (as defined in note 4 to the financial statements).

Positioned to take advantage of opportunities

We recognise the attractive opportunities present in the market at this time and are determined not to let these prospects pass without obtaining some high quality, attractive royalties. However, the cost of equity remains too high at our current share price to access accretive deals funded entirely by equity. In contrast, our cost of debt remains significantly lower which will enable the Group to complete smaller acquisitions as they arise.

We are very mindful of the risks of debt in a highly cyclical industry; however, at times like this, nearer the bottom of the commodity price cycle than at the top, sensible use of debt is appropriate. Accordingly we expect to utilise our borrowing facilities in the first instance to finance acquisitions and where the opportunities are larger, we anticipate syndicating these investments with third parties in return for royalty and fee related income, or a mixture of both. We have been progressing such discussions for many months and a number of supportive institutional investors have expressed interest in funding larger deals.

We are now seeing investment opportunities with well positioned counterparties which have not been as freely available in recent years. The cost of capital in the mining space has risen, suggesting that counterparties may be more willing to engage with us at the returns we require, rather than pursuing the traditional equity and debt options. 2015 has seen several measures being announced by mining operators to strengthen their balance sheets. Streaming, in particular, has been a popular source of finance as conventional capital markets remain subdued. We believe that this trend is likely to continue in the short term to enable refinancing and in the longer term to facilitate growth. Alternative financing has the added benefit of reducing onerous compliance testing and reporting, which is attractive when attempting to reduce gearing levels and maintaining credit ratings.

Upside exposure

Though we have had significant write-downs over recent years, we wish to highlight the important upside contained in the portfolio that is not reflected in its reported carrying value, as an increasing portion of our assets are not held at fair value. A key criteria we look for when acquiring royalties is the upside potential. This can take the form of accelerated production, as is occurring at Narrabri, or an increase in reserves and resources, as has occurred at Salamanca. Both of these events have the potential to increase the value of the underlying royalty.

Outlook

Coal

A continuing concern for Anglo Pacific over the past year has been the negative sentiment associated with coal. Despite some perceptions in the UK, we believe that many countries, particularly in south-east Asia, will continue to rely on coal to fuel their growth. It is far more realistic to push for cleaner, high quality, less-polluting coals than adopting a broadly held negative attitude towards all coal. I am pleased to report that this is precisely the area we had targeted for royalty exposure. Narrabri produces some of the cleanest and lowest polluting coal with low ash content which attracts a premium compared to the benchmark, precisely for these virtues. That said, we remain keen to reduce our overall coal exposure, unless we can generate very high returns, and we have identified uranium as an alternative commodity to coal on the energy side. We already have two uranium royalties within our portfolio and see this as a preferred commodity under our investment criteria.

Costs

Cost reductions have been a major focus in this new era for the mining sector and we recognise this new reality. Our central costs have always been relatively low as the business operates from a small single office with 11 employees.  We are pleased that we have been able to reduce the Company's year-on-year costs, excluding provisions for non-cash share based payments, by 34.5% from £4.9m in 2014 to £3.2m in 2015. On an inflation adjusted basis, we believe our costs are roughly unchanged over five years. Anglo Pacific operates on a very conservative basis and we continue to have the capacity to run a much larger portfolio with the current infrastructure.

Currency

As a result of our main sources of royalty income being received in Australian dollars which require translation to pounds, the continued weakening of the Australian dollar against the pound over the past two years has had an unfavourable impact on the Group's reported income. 2016 has seen a weakening of the pound, which if sustained should benefit the Group's results in 2016.

Growth

Following payment of the interim dividend in February 2016, the Group currently has over £4.0m in cash and headroom under our revolving credit facility subject to continued covenant compliance and our facility terms (as per note 10). Although we do not expect a rapid turnaround in the sector in the foreseeable future, we are beginning to see opportunities due to protracted periods of subdued capital markets in the mining sector. Despite the considerable capital outflows recently seen from the sector, we are actively seeking to deploy capital in a countercyclical fashion to take advantage of the current favourable market conditions.

J.A. Treger

Chief Executive Officer

March 22, 2016

FINANCE REVIEW

2015 saw Anglo Pacific make considerable progress in growing its royalty income, which should mean that 2014 will, in hindsight, have been the lowest point for the Group's income both historically and looking forward. Equally as encouraging was the significant reduction in overheads reported in the year, resulting in a £6.2m increase in adjusted earnings in the year to £4.0m (2014: loss £2.2m). The results for the year would have been even stronger but for the continued declines in commodity prices experienced in 2015, leading to further revaluation losses and impairment charges, as described below. The Group is proposing to revise its annual dividend level from the previous 8p per share to 6p per share. It is envisaged that this level will be maintained in the immediate future, subject to commodity prices remaining at their current level. 

Income statement

Royalty income

	2015		2014
	£'000		£'000
Kestrel	3,614		1,657
Amapá	-		174
El Valle	1,246		1,650
Like-for-like royalty income	4,860		3,481
Narrabri	3,217		-
Maracás Menchen	606		-
Total royalty income	8,683		3,481

Total royalty income in the year was £8.7m, more than double the £3.5m reported in 2014. Royalty income, on a like-for-like basis, for the period was £4.9m, compared with £3.5m in 2014. The increase was driven by a greater proportion of overall production, 49%, mined from within the Group's royalty land at Kestrel. This was broadly in line with our expectations. The proportion should increase to between 60-65% in 2016 based on the forward-looking information which Rio Tinto provide to us, and the expectation is for this to increase to 90% during 2017. The full benefit of this increased production was offset somewhat by further declines in the price of coking coal throughout the year. At EVBC, a combination of lower gold prices and production led to income being 24% lower in the period at £1.2m. 

The Group earned £3.8m of income from its two recent royalty acquisitions during the year. The majority of this was associated with the Narrabri royalty which the Group acquired in March 2015, but was entitled to income from January 1, 2015. The mine operator, Whitehaven, announced a record level of production for 2015 which was comfortably in excess of the level of production assumed at the time of acquisition although, similar to Kestrel, the decline in the coal price during the year reduced some of the benefit of this excellent production achievement on the Group's reported income.  

The other source of additional income in 2015 was initial receipts from the Group's Maracás Menchen royalty, which was acquired in June 2014. Although the Group is pleased with the production progress which the operator, Largo, is making, the vanadium price has fallen by over 70% since the royalty was acquired which has significantly reduced the royalty income being reported.

 

Operating expenses

In addition to reporting a significant increase in royalty income in the year, the Group is also pleased to report a considerable reduction in its operating costs in the year.

	2015	2014
	£'000	£'000	%
Staff costs (excluding share-based payments)	1,937	3,057
Professional fees	418	834
Other costs	865	1,024
	3,220	4,915	(34.5%)
Non-cash share-based payments	840	609
Operating expenses	4,060	5,524	(26.5%)

This reduction of 34.5%, excluding non-cash share-based payments, followed an increased focus on cost control in light of the impact of falling commodity prices on overall profitability. A large portion of the reported reduction in costs in 2015 can be attributed to certain positions being vacated during the year which were not replaced. Furthermore, there was a significant reduction in bonus provisions in the current year. Management has identified other areas where there is the potential to reduce costs further in the year ahead without impacting on the day-to-day business of the Group, and intends to implement these. 

Taxation

Current tax in the year amounted to £1.0m (2014: £1.4m), largely representing the payment of withholding taxes. No corporate tax was paid in the current year due to the utilisation of carried forward tax losses. The Group still has significant carried forward tax losses which it expects to utilise in the coming years and which in turn should help to reduce the effective tax rate in the short-term.

Earnings per share

All of the above results in an increase to adjusted earnings for the year ended December 31, 2015 of £6.2m to £4.0m (2014: adjusted loss of £2.2m) which results in an adjusted earnings per share of 2.47p (2014: loss of 1.97p). See note 4 for a detailed calculation of adjusted earnings per share.

The income statement also includes non-cash charges relating to amortisation, impairment and fair value adjustments, along with a corresponding deferred tax credit. 

The amortisation charge in 2015 relates to the Group's Narrabri, Maracás Menchen and Four Mile royalties, which are accounted for as intangible assets, all of which came into production during the year. The amortisation charge in 2014 related to the Amapá royalty. As there has been no production from this mine since mid-2013, amortisation was suspended in 2015 until such time as production recommences.

Other fair value adjustments reflected in the income statement include the revaluation of the Kestrel royalty and impairment charges relating to both mining and exploration interests and royalty intangibles net of the corresponding deferred tax allowance. These items are discussed in more detail in the balance sheet section below.

Allowing for these charges, the Group reported a loss after tax of £22.6m (2014: £47.6m) which equates to a loss per share of 14.06p (2014: 42.09p).

Balance sheet

The Group's reported net assets increased from £161.3m at the beginning of the year to £162.0m at December 31, 2015. Although a small increase, there were some large movements during the year which largely netted off, as illustrated in the table below.

Net asset value		£'000		Pence per share (p)
At January 1, 2015		161,250		138p
Narrabri acquisition		44,971
Royalty impairments		(4,414)
Amortisation		(2,573)
Kestrel valuation (net of deferred tax)		(24,114)
Dividends		(11,901)
Other		(1,236)
At December 31, 2015		161,983		95p

The addition of the Narrabri royalty in March 2015 for £45.0m, including acquisition costs, was the Group's largest ever royalty acquisition. This was funded by way of share issue. Although this increased net assets considerably, the benefit of this was largely offset in 2015 by the impact of falling commodity prices on the carrying value of the Group's other assets.

Kestrel is included on the balance sheet at fair value and remeasured at each report date.  There is also a corresponding deferred tax liability recognised on this revalued amount.  The net reduction on the balance sheet in the period relating to Kestrel was £24.1m.  This comprised a decrease in its fair value of £34.5m, largely due to a revision to the long term coal price, partially offset by a decrease in the associated deferred tax liability of £10.3m.

		2015		2014
Impairment		£'000		£'000
Amapá		2,793		8,414
Ring of Fire		1,621		-
Isua		-		15,288
Bulqiza		-		700
Creso		-		222
Total royalty related impairments		4,414		24,624
Impairment of mining and exploration interests		930		4,873
Other		-		1,352
Total impairments		5,344		30,849

The Group's royalty intangibles decreased by £10.6m in the period. Of this amount, £4.4m related to impairment provisions made in accordance with our accounting policy, caused by further falls in commodity prices and revising estimated production commencement dates, both of which impact on the expected future discounted cash flows. £2.8m of the provision related to the Amapá royalty whereby further falls in the iron ore price along with continued delays in rebuilding the port infrastructure have resulted in a further delay to the expected restart date. Pricing revisions also led to a further provision of £1.6m in relation to the Ring of Fire royalty.

The Group's intangible royalties, as described above, are amortised upon the commencement of production. The amortisation charge of £2.6m in the period included Narrabri, Maracás Menchen and Four Mile. Furthermore, as a considerable portion of the Group's assets are held in an Australian structure, there was a £3.6m translation loss at the reporting date.

The Group's net asset value per share was 95p at December 31, 2015 (2014: 138p). Even allowing for the 2015 interim dividend paid in February 2016 of 4p per share, the net asset value is at a considerable premium to the share price of 58p at December 31, 2015.

It is worth highlighting that positive developments at certain of the Group's royalties during the period have, we believe, increased the value of these assets to the Group, although this is not reflected on the balance sheet.

The following are some examples of this:

·     Narrabri: the exceptional operating performance at Narrabri in the period, along with Whitehaven's announcement that they had received a permit to increase production to 11Mtpa from 8Mtpa has the effect of accelerating production, therefore increasing revenue, beyond the level which the Group had factored into the acquisition price. This acceleration and enhancement of production brings forward income which increases the present value of the royalty.  

·     Berkeley Energia: have made considerable progress advancing their uranium project in Spain. Recent drilling has produced some very encouraging results suggesting a near doubling of the resource. As the Group had only priced the royalty based on the original Zona 7 deposit, the additional reserves which were unknown at the time, represent additional value.

Under IFRS these royalties are accounted for as intangible assets which requires them to be carried at cost and amortised over the life of mine once production commences.

 

Cash flow and borrowings

Cash flows generated from operations in the period were £1.5m compared to £3.0m in 2014. Although this seems at odds with the increase in royalty income reported in the period, this is largely due to timing differences. Royalty income for Q4 in any one year is not received until the following month. As such, the income is recognised in the income statement but not in the cash flow statement. Income in Q4 2014 (£0.1m) is included in the 2015 cash flow whereas the income for Q4 2015 (£2.9m) is not. 

As part of the Narrabri royalty acquisition the Group entered into a US$30.0m three year secured revolving credit facility for working capital purposes.‎ At December 31, 2015 the Group had net debt of £1.8m. The Group's cash position was enhanced by the recovery in full, upon maturity in December 2015, of the C$5.0m loan which it had provided to Laramide Resources Limited. 

The Group retains its 16.67% equity holding in Berkeley Energia which increased in value considerably in the second half of 2015. This holding was included on the balance sheet at December 31, 2015 at £7.2m, being the market value at that point in time. Although the preference is to retain this stake, it does provide a further source of liquidity.

The single largest outgoing which the Group has is its dividend. This was uncovered in terms of free cash flow in 2015. Due to a lower commodity price outlook, which is outside the control of management, the Directors are proposing a slight reduction in the final dividend from 4p in the prior year to 3p, making a full year payment of 7p per share for 2015. The 3p half yearly payment is intended to remain unchanged in the short term, subject to any deterioration in the Group's financial prospects. At 6p per share, the annual dividend should be much closer to being covered in 2016 with full cover achieved from 2017 onwards. 

Financial prospects for the year ahead

Although further declines in commodity prices reduced the overall level of income being reported in the year, the Group was very pleased with the underlying production performance achieved by the royalty operators. In spite of a difficult year for the mining sector, all of the Group's income generating royalties remained in production. With the proportion of production from Kestrel expected to increase to 60-65% in 2016, along with the Narrabri ramp up and initial royalty receipts from Four Mile, the Group expects to report a higher level of royalty income over the next twelve months, subject to commodity price stabilisation.

Foreign exchange also has the potential to increase reported revenue in 2016. The pound has weakened somewhat against the US and Australian dollar in the first few months of 2016. Should this trend continue, the Group's results would benefit from foreign exchange as most of its income is received in Australian dollars with the underlying pricing in US dollars.

The organic growth within the portfolio, along with plenty of financial headroom under the Group's revolving credit facility and a continued focus on costs, mean that the Group remains in a strong financial position for the year ahead.

PRINCIPAL RISKS AND UNCERTAINTIES

Anglo Pacific is exposed to a variety of risks and uncertainties which may have a financial, operational or reputational impact on the Group.

The principal risks and uncertainties facing the Group at the year-end are set out in detail in the Strategic Report section of the Annual Report and Account 2015.  The principal risks relate to the following:

1.     The current portfolio not generating sufficient cash

2.     Dependence on operators

3.     The Group failing to meet its obligations under its secured borrowing facility and is unable to refinance

4.     That royalty financing continues to be in demand

5.     That the Group cannot finance royalty and streaming opportunities

6.     That the reputation of coal will deteriorate and impact on its appeal as an investment proposition

The Group is exposed to changes in the economic environment, as with any other business.  Details of any key risks and uncertainties specific to the period are covered in the Strategic Report section of the Annual Report 2015 which is available on the Group's website.

Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2015

			2015		2014
			£'000		£'000
Royalty related income			8,683		3,481
Amortisation of royalties			(2,573)		(759)
Operating expenses			(4,060)		(5,524)
Operating profit/(loss) before impairments, revaluations and gain/(losses) on disposals			2,050		(2,802)
(Loss)/Gain on sale of mining and exploration interests			(484)		1,350
Gain on disposal of coal tenures			-		1,409
Impairment of mining and exploration interests			(930)		(4,873)
Impairment of royalty and exploration intangible assets			(4,414)		(10,033)
Impairment of royalty financial instruments			-		(15,288)
Impairment of property, plant and equipment			-		(1,352)
Revaluation of coal royalties (Kestrel)			(27,201)		(11,822)
Finance income			301		439
Finance costs			(218)		(1,408)
Other income			416		1,981
Loss before tax			(30,480)		(42,399)
Current income tax charge			(1,009)		(1,386)
Deferred income tax credit/(charge)			8,913		(3,804)
Loss attributable to equity holders			(22,576)		(47,589)
Total and continuing loss per share
Basic and diluted loss per share			(14.06p)		(42.09p)

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2015

			2015		2014
			£'000		£'000
Loss attributable to equity holders			(22,576)		(47,589)
Items that will not be reclassified to profit or loss			-		-
Items that have been or may be subsequently reclassified to profit or loss
Available-for-sale investments
Revaluation of available-for-sale investments			857		(8,640)
Reclassification to income statement on disposal of available-for-sale investments			484		(1,350)
Reclassification to income statement on impairment			930		4,873
Deferred tax relating to items that have been or may be reclassified			159		1,034
Net exchange loss on translation of foreign operations			(8,597)		(2,710)
Other comprehensive loss for the year, net of tax			(6,167)		(6,793)
Total comprehensive loss for the year			(28,743)		(54,382)

CONDENSED CONSOLIDATED BALANCE SHEET

AS AT DECEMBER 31, 2015

			2015		2014
			£'000		£'000
Non-current assets
Property, plant and equipment			113		153
Coal royalties (Kestrel)			82,649		117,097
Royalty financial instruments			6,534		8,142
Royalty and exploration intangible assets			71,491		37,110
Mining and exploration interests			10,898		9,896
Deferred costs			1,013		1,462
Other receivables			10,132		9,657
Deferred tax			3,094		2,307
			185,924		185,824
Current assets
Trade and other receivables			5,106		5,272
Cash and cash equivalents			5,708		8,769
			10,814		14,041
Total assets			196,738		199,865
Non-current liabilities
Borrowings			7,272		-
Other payables			1,193		83
Deferred tax			24,546		34,908
			33,011		34,991
Current liabilities
Income tax liabilities			574		687
Trade and other payables			1,170		2,937
			1,744		3,624
Total liabilities			34,755		38,615
Net assets			161,983		161,250
Capital and reserves attributable to shareholders
Share capital			3,399		2,329
Share premium			49,211		29,328
Other reserves			29,976		15,832
Retained earnings			79,397		113,761
Total equity			161,983		161,250

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE TWO YEARS ENDED DECEMBER 31, 2015

				Other reserves
								Foreign
						Investment	Share-based	currency
		Share	Share	Merger	Warrant	revaluation	payment	translation	Special	Investment in	Retained	Total
		capital	premium	reserve	reserve	reserve	reserve	reserve	reserve	own shares	earnings	equity
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at January 1, 2014		2,218	29,328	-	-	5,570	158	8,750	632	(2,601 )	172,796	216,851
Loss for the year		-	-	-	-	-	-	-	-	-	(47,589)	(47,589)
Other comprehensive income:
Available-for-sale investments
Valuation movement taken to equity		-	-	-	-	(8,640)	-	302	-	-	-	(8,338)
Transferred to income statement on disposal		-	-	-	-	(1,350)	-	-	-	-	-	(1,350)
Transferred to income statement on impairment		-	-	-	-	4,873	-	-	-	-	-	4,873
Deferred tax		-	-	-	-	1,034	-	(19)	-	-	-	1,015
Foreign currency translation		-	-	-	-	-	-	(2,993)	-	-	-	(2,993)
Total comprehensive loss		-	-	-	-	(4,083)	-	(2,710)	-	-	(47,589)	(54,382)
Dividends		-	-	-	-	-	-	-	-	-	(11,535)	(11,535)
Issue of ordinary shares		111	-	9,453	143	-	-	-	-	-	-	9,707
Value of employee services		-	-	-	-	-	520	-	-	-	89	609
Total transactions with owners of the company		111	-	9,453	143	-	520	-	-	-	(11,446)	(1,219)
Balance at December 31, 2014		2,329	29,328	9,453	143	1,487	678	6,040	632	(2,601)	113,761	161,250
Balance at January 1, 2015		2,329	29,328	9,453	143	1,487	678	6,040	632	(2,601)	113,761	161,250
Loss for the year		-	-	-	-	-	-	-	-	-	(22,576)	(22,576)
Other comprehensive income:
Available-for-sale investments
Valuation movement taken to equity		-	-	-	-	857	-	51	-	-	-	908
Transferred to income statement on disposal		-	-	-	-	484	-	-	-	-	-	484
Transferred to income statement on impairment		-	-	-	-	930	-	-	-	-	-	930
Deferred tax		-	-	-	-	159	-	1	-	-	-	160
Foreign currency translation		-	-	-	-	-	-	(8,649)	-	-	-	(8,649)
Total comprehensive loss		-	-	-	-	2,430	-	(8,597)	-	-	(22,576)	(28,743)
Dividends		-	-	-	-	-	-	-	-	-	(11,901)	(11,901)
Issue of ordinary shares		1,070	19,883	19,681	-	-	-	-	-	-	-	40,634
Value of employee services		-	-	-	-	-	630	-	-	-	113	743
Total transactions with owners of the company		1,070	19,883	19,681	-	-	630	-	-	-	(11,788)	29,476
Balance at December 31, 2015		3,399	49,211	29,134	143	3,917	1,308	(2,557)	632	(2,601)	79,397	161,983

CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS

FOR THE YEAR ENDED DECEMBER 31, 2015

			2015		2014
			£'000		£'000
Cash flows from operating activities
Loss before taxation			(30,480)		(42,399)
Adjustments for:
Finance income			(301)		(439)
Finance costs - excluding foreign exchange gains/losses			629		1,042
Other income			(416)		(1,981)
Loss/(Gain) on disposal of mining and exploration interests			484		(1,350)
Gain on disposal of coal tenures			-		(1,409)
Impairment of mining and exploration interests			930		4,873
Impairment of royalty and exploration intangible assets			4,414		10,033
Impairment of royalty financial instruments			-		15,288
Impairment of property, plant and equipment			-		1,352
Revaluation of coal royalties (Kestrel)			27,201		11,822
Depreciation of property, plant and equipment			40		23
Amortisation of royalty intangible assets			2,573		759
Share-based payment			840		609
			5,914		(1,777)
(Increase)/Decrease in trade and other receivables			(2,653)		2,588
(Decrease)/Increase in trade and other payables			(1,767)		2,175
Cash generated from/(used in) operations			1,494		2,986
Income taxes paid			(1,466)		(27)
Net cash generated from/(used in) operating activities			28		2,959
Cash flows from investing activities
Proceeds on disposal of mining and exploration interests			1,722		9,549
Purchases of mining and exploration interests			-		(1,161)
Purchases of royalty and exploration intangible assets			(41,587)		(13,213)
Proceeds from royalty financial instruments			213		826
Other royalty related repayments/(advances)			2,868		(3,002)
Prepaid acquisition costs			-		(359)
Proceeds on disposal of coal tenures			-		302
Purchases of property, plant and equipment			-		(188)
Dividend and fixed income received from mining and exploration interests			-		169
Sundry income			203		475
Finance income			301		439
Net cash used in investing activities			(36,280)		(6,163)
Cash flows from financing activities
Drawdown of revolving credit facility			10,853		-
Repayment of revolving credit facility			(3,326)		-
Proceeds from issue of share capital			37,326		9,980
Transaction costs of share issue			-		(416)
Dividends paid			(11,901)		(11,535)
Prepaid fundraising costs			-		(320)
Finance costs - excluding foreign exchange gains/losses			(629)		(1,042)
Net cash generated from/(used in) financing activities			32,323		(3,333)
Net decrease in cash and cash equivalents			(3,929)		(6,537)
Cash and cash equivalents at beginning of period			8,769		15,706
Unrealised foreign currency gain/(loss)			868		(400)
Cash and cash equivalents at end of period			5,708		8,769

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2015

1                    Basis of preparation

The financial information for the year ended December 31, 2015, does not constitute statutory accounts as defined in section 435 (1) and (2) of the Companies Act 2006.  Statutory accounts for the year ended December 31, 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's Annual General Meeting convened for May 10, 2016.  The auditors have reported on these accounts; their reports were unqualified, did not include a reference to any matter to which the auditors drew attention by way of emphasis of matter and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Whilst the preliminary announcement (the Condensed financial statements) has been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations adopted for use by the European Union, with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and with the requirements of the United Kingdom Listing Authority (UKLA) Listing Rules, these Condensed financial statements do not contain sufficient information to comply with IFRS.  The Group has published full financial statements that comply with IFRS on March 23, 2016, and this set of Condensed financial statements should be read in conjunction with these.

Going concern

As at December 31, 2015, the Group had net debt of £1.8m and access to a further £12.8m that was undrawn from its US$30.0m secured revolving credit facility.

The Directors have considered the Group's cash flow forecasts for the period to the end of March 2017. The Board is satisfied that the Group's forecasts and projections, taking into account reasonably possible changes in trading performance and other uncertainties, together with the Group's net debt position and access to the undrawn facilities, show that the Group will be able to operate within the level of its current facilities for the foreseeable future. For this reason the Group continues to adopt the going concern basis in preparing its financial statements.

2              Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, the Directors are required to make judgements and estimates that can have a significant impact on the financial statements.  The most critical accounting judgement relates to the classification of royalty arrangements and the key sources of estimation uncertainty relate to the calculation of certain royalty arrangement's fair value and the key assumption used when assessing impairment of property, plant and equipment and intangible assets. The use of inaccurate assumptions in assessments made for any of these estimates could result in a significant impact on financial results.  The critical accounting judgements and key sources of estimations uncertainty are substantially the same as those disclosed in the Group's consolidated financial statements for the year ended December 31, 2015, which were published on March 23, 2016.

3              Changes in accounting policies and disclosures

The Condensed financial statements have been prepared under the historical cost basis, as modified by the revaluation of coal royalties (investment property) and certain financial instruments.

The accounting policies applied are consistent with those adopted and disclosed in the Group's financial statements for the year ended December 31, 2014, except for changes arising from the adoption of the following new accounting pronouncements which became effective in the current reporting period:

·      Annual Improvements to IFRSs 2010 - 2012 cycle

·      Annual Improvements to IFRSs 2011 - 2013 cycle

The adoption of these new accounting pronouncements has not had a significant impact on the accounting policies, methods of computation or presentation applied by the Group.

The Group has not early adopted any other amendment, standard or interpretation that has been issued but is not yet effective.  It is expected that where applicable, these standards and amendments will be adopted on each respective effective date.

4                    (Loss)/Earnings per share

Loss per ordinary share is calculated on the Group's loss after tax of £22,576,000 (2014: £47,589,000) and the weighted average number of shares in issue during the year of 160,512,425 (2014: 113,075,454).

Loss per ordinary share excludes the issue of shares under the Group's JSOP, as the Employee Benefit Trust has waived its right to receive dividends on the 925,933 ordinary 2p shares it holds as at December 31, 2015 (December 31, 2014: 925,933).

	2015		2014
	£'000		£'000
Net loss attributable to shareholders
Earnings - basic	(22,576)		(47,589)
Earnings - diluted	(22,576)		(47,589)

	2015		2014
Weighted average number of shares in issue
Basic number of shares outstanding	160,512,425		113,075,454
Dilutive effect of Employee Share Option Scheme	-		-
Diluted number of shares outstanding	160,512,425		113,075,454

In 2015 and 2014, the Group is loss making, therefore the Employee Share Option Scheme is considered anti-dilutive as including them in the diluted number of shares outstanding would decrease the loss per share.

Adjusted earnings per share

Due to the growing number of valuation and other non-cash movements being recognised in the income statement, the Group presents an adjusted earnings per share metric to better reflect the underlying performance of the Group during the year.

Adjusted earnings/(loss) represents the Group's underlying operating performance from core activities.  Adjusted earnings/(loss) is the profit/(loss) attributable to equity holders less all valuation movements, non-cash impairments and amortisation charges (which are non-cash IFRS adjustments that arise primarily due to changes in commodity prices), finance costs, any associated deferred tax and any profit or loss on non-core asset disposals as these are not expected to be ongoing.

					Diluted
			Earnings		earnings
	Earnings		per share		per share
	£'000		p		p
Net loss attributable to shareholders
Loss - basic and diluted for the year ended December 31, 2015	(22,576)		(14.06p)		(14.06p)
Adjustment for:
Amortisation of royalty intangible assets	2,573
Loss on sale of mining and exploration interests	484
Impairment of mining and exploration interests	930
Impairment of royalty and exploration intangible assets	4,414
Revaluation of coal royalties (Kestrel)	27,201
Effective interest income on royalty financial instruments	(213)
Share-based payments and associated national insurance	840
Tax effect of the adjustments above	(9,685)
Adjusted earnings - basic and diluted for the year ended December 31, 2015	3,968		2.47p		2.47p

					Diluted
			Earnings		earnings
	Earnings		per share		per share
	£'000		p		p
Net loss attributable to shareholders
Loss - basic and diluted for the year ended December 31, 2014	(47,589)		(42.09p)		(42.09p)
Adjustment for:
Amortisation of royalty intangible assets	759
Gain on sale of mining and exploration interests	(1,350)
Gain on disposal of coal tenures	(1,409)
Impairment of mining and exploration interests	4,873
Impairment of royalty and exploration intangible assets	10,033
Impairment of royalty financial instruments	15,288
Impairment of property, plant and equipment	1,352
Revaluation of coal royalties (Kestrel)	11,822
Effective interest income on royalty financial instruments	(194)
Share-based payments and associated national insurance	609
Tax effect of the adjustments above	3,577
Adjusted loss - basic and diluted for the year ended December 31, 2014	(2,229)		(1.97p)		(1.97p)

In calculating the adjusted earnings per share, the weighted average number of shares in issue takes into account the dilutive effect of the Employee Share Option Scheme in those years where the Group has adjusted earnings.  In years where the Group has an adjusted loss, the Employee Share Option Scheme is considered anti-dilutive as including them in the diluted number of shares outstanding would decrease the loss per share, as such they are excluded.

The weighted average number of shares in issue for the purpose of calculated basic and diluted adjusted earnings per share are as follows:

	2015		2014
Weighted average number of shares in issue
Basic number of shares outstanding	160,512,425		113,075,454
Dilutive effect of Employee Share Option Scheme	2,267		-
Diluted number of shares outstanding	160,514,692		113,075,454

5              Dividends

On February 4, 2015 an interim dividend of 4.45p per share was paid to shareholders in respect of the year ended December 31, 2014.  On August 7, 2015 a final dividend of 4.00p per share was paid to shareholders to make a total dividend for the year of 8.45p per share.  Total dividends, paid during the year were £11.9m (2014: £11.5m).

On February 4, 2016 an interim dividend of 4.00p per share was paid to shareholders in respect of the year ended December 31, 2015.  This dividend has not been included as a liability in these financial statements.  The Directors propose that a final dividend of 3.00p per share be paid to shareholders on August 5, 2016, to make a total dividend for the year of 7.00p per share.  This dividend is subject to approval by shareholders at the AGM and has not been included as a liability in these financial statements.

The proposed final dividend for 2015 is payable to all shareholders on the Register of Members on June 24, 2016.  The total estimated dividend to be paid is £5.1m.  At the present time the Board has resolved not to offer a scrip dividend alternative.

6                    Coal royalties (Kestrel)

	£'000
At January 1, 2014	131,434
Foreign currency translation	(2,515)
Loss on revaluation of coal royalties	(11,822)
At December 31, 2014	117,097
Foreign currency translation	(7,247)
Loss on revaluation of coal royalties	(27,201)
At December 31, 2015	82,649

The Group's coal royalty entitlements comprise the Kestrel and Crinum coal royalties, and derive from mining activity carried out within the Group's private land area in Queensland, Australia. Rather uniquely to this royalty, the sub-stratum land is the property of the freeholder, including the minerals contained within. The ownership of the land therefore entitles the Group to a royalty, equivalent to what the State receives on areas outside the Group's private land. This royalty is accounted for as Investment Property in accordance with IAS 40.

The coal royalty was valued during December 2015 at £82.6m (A$167.6m) (2014: £117.1m and A$223.0m) by an independent coal industry advisor, on a net present value of the pre-tax cash flow discounted at a nominal rate of 7%.  The net royalty income from this investment is currently taxed in Australia at a rate of 30%.  This valuation is incorporated in the accounts and the above revaluation adjustment represents the difference between the opening carrying value and the external valuation, excluding the effects of foreign currency changes.

Were the coal royalty to be realised at the revalued amount there are £3.7m (A$7.5m) of capital losses potentially available to offset against taxable gains.  These losses have been included in the deferred tax calculation (note 9).  Were the coal royalty to be carried at cost the carrying value would be £0.2m (2014: £0.2m).  The Directors do not presently have any intention to dispose of the coal royalty.

The shares over the entity which is the beneficial owner of the Kestrel royalty have been guaranteed as security in connection with the Group's three year secured revolving credit facility entered into in February 2015. The shares over the entity which is the beneficial owner of the Kestrel royalty have been guaranteed as security in connection with the three year secured revolving credit facility in February 2015.

7                    Royalty financial instruments

The Group's royalty instruments are represented by three royalty agreements which entitle the Group to either the repayment of principal and a net smelter return ("NSR") royalty for the life of the mine or a gross revenue royalty ("GRR") where the project commences commercial production or the repayment of principal where it does not.   Details of the Group's royalty financial instruments, which are held at fair value are summarised below:

			Original Cost		Royalty					December 31, 2015 Carrying value	December 31, 2014 Carrying value
Project	Commodity		'000		Rate		Escalation		Classification	£'000	£'000
EVBC	Gold, Silver, Copper		C$7,500		2.50%		3% gold >US$1,100/oz		Available-for-sale equity	3,832	5,742
Jogjakarta	Iron Sands		U$4,000		2.00%		-		Available-for-sale debt	2,702	2,400
Isua	Iron Ore		A$28,000		1.00%		-		Available-for-sale debt	-	-
										6,534	8,142

The Group's entitlements to cash by way of the repayment of the principal and the NSR royalty or the GRR have been classified as available-for-sale financial assets in accordance with IAS 39 and are carried at fair value.

	£'000
Fair value
At January 1, 2014	27,847
Impairment of royalty financial instruments	(15,288)
Revaluation of royalty financial instruments recognised in equity	(4,697)
Foreign currency translation	280
At December 31, 2014	8,142
Revaluation of royalty financial instruments recognised in equity	(1,909)
Foreign currency translation	301
At December 31, 2015	6,534

Effective interest of £0.2m was recognised in other income (see note 9) for the year ended December 31, 2015 (2014: £0.2m).  This was directly offset by cash received in the period of the same amount.

On October 16, 2014 London Mining PLC, the operator of the Isua project over which the Group holds a royalty, announced that it has appointed administrators.  In January 2015, the Isua project was sold to General Nice Limited, with the Group's royalty interest being transferred concurrently.  Given the inherent uncertainty of this project reaching commercial production, the Group's royalty financial instrument arising from its interest in the Isua royalty was fully impaired in 2014 and continues to have a carrying value of £nil as at December 31, 2015.

8                    Royalty and exploration intangible assets

The Group's intangibles comprise capitalised exploration and evaluation costs and royalty interests.

	Exploration and		Royalty
	Evaluation Costs		Interests		Total
	£'000		£'000		£'000
Gross carrying amount
At January 1, 2015	697		59,705		60,402
Additions	-		44,971		44,971
Foreign currency translation	-		(7,831)		(7,831)
At December 31, 2015	697		96,845		97,542
Amortisation and impairment
At January 1, 2015	(697)		(22,595)		(23,292)
Amortisation charge	-		(2,573)		(2,573)
Impairment charge	-		(4,414)		(4,414)
Foreign currency translation	-		4,228		4,228
At December 31, 2015	(697)		(25,354)		(26,051)
Carrying amount December 31, 2015	-		71,491		71,491

	Exploration and		Royalty
	Evaluation Costs		Interests		Total
	£'000		£'000		£'000
Gross carrying amount
At January 1, 2014	951		48,713		49,664
Additions	47		13,166		13,213
Disposals	(275)		-		(275)
Foreign currency translation	(26)		(2,174)		(2,200)
At December 31, 2014	697		59,705		60,402
Amortisation and impairment
At January 1, 2014	-		(12,376)		(12,376)
Amortisation charge	-		(759)		(759)
Impairment charge	(697)		(9,336)		(10,033)
Foreign currency translation	-		(124)		(124)
At December 31, 2014	(697)		(22,595)		(23,292)
Carrying amount December 31, 2014	-		37,110		37,110

Exploration and evaluation costs

The exploration and evaluation costs comprise expenditure that was directly attributable to the Panorama and Trefi coal projects in British Columbia, Canada.  The Group disposed of its interest in the Panorama coal project and fully impaired its interests in the Trefi coal project in 2014.

Acquisition of royalty interests

On March 11, 2015, the Group completed its acquisition of the Narrabri royalty for £45.0m.  The Narrabri royalty is a 1% gross revenue royalty over all coal produced from the Narrabri mine located in New South Wales, Australia, owned and operated by Whitehaven Coal Limited. The total cost of the Narrabri acquisition was total consideration of US$65.0m, US$60.0m (£40.0m) was paid in cash and US$5.0m (£3.3m) was satisfied by the issue of 4,135,238 ordinary shares (refer to note 26) and £1.7m in capitalised acquisition costs.

Under the terms of the Maracás Menchen royalty sale agreement, a further US$3.0m (£1.9m) of cash is payable when the project reaches certain annualised production milestones.  As set out in notes 18 and 25, the Directors consider it highly probable that the first of these milestones will be achieved in the next eighteen to twenty-four months which would require the Group to pay US$1.5m.  As a result the Directors have recognised a non-current liability for the deferred consideration, together with an asset under deferred acquisition costs.

Amortisation of royalty interests

The Group's royalty intangible assets are amortised on a straight-line basis, upon the commencement of production at the underlying mining operation, over the life of mine.

Three of the underlying mining operations of the Group's royalty intangibles assets were in production during 2015, and were amortised on the following basis:

Royalty interest	Estimated life of mine		Remaining life of mine
Narrabri	22 years		21 years
Maracás Menchen	29 years		28 years
Four Mile	10 years		9 years

Under the terms of the Narrabri royalty sale agreement, the Group was entitled to royalty receipts from January 1, 2015 and has recognised royalty income of £3.2m for the year ended December 31, 2015.  In accordance with the Group's amortisation accounting policy, the Narrabri royalty has been amortised from January 1, 2015 resulting in an amortisation charge of £2.0m for the year ended December 31, 2015.

The Group recognised maiden royalty receipts from its Maracás Menchen royalty of £0.6m for the year ended December 31, 2015. The Maracás Menchen royalty is a 2% net smelter return royalty interest on all mineral products sold from the area of the Maracás Menchen project that the Group acquired on June 10, 2014. The Group commenced amortising the Maracás Menchen royalty following its entry into commercial production and recognised an amortisation charge of £0.4m for the year ended December 31, 2015.

As noted in the Group's business review, the Four Mile uranium mine, over which the Group holds a 1% net smelter return royalty, continues to produce and stockpile uranium ore concentrate.  The Group considers the production and stockpiling of the concentrate to constitute commercial production and commenced amortising the Group Mile royalty from January 1, 2015, recognising an amortisation charge of £0.2m for the year ended December 31, 2015.

Amortisation of the remaining interests will commence once they begin commercial production.  No intangible assets have been pledged as security for liabilities.

Impairments of royalty interests

An annual impairment review is carried out to determine whether the future expected cash flows (calculated on a value-in use basis) exceed cost. This has resulted in the Directors determining that two of the Group's intangible royalties were impaired at December 31, 2015 as outlined below. See note 2 for the impairment methodology applied.

Amapá

Production at Amapá remained suspended for the year ended December 31, 2015, whilst the operator, Zamin Ferrous Limited, commenced the restructuring of its finances in order to fund the rebuilding of the port facilities.  Taking into account the Directors assessment as to when production will restart, the discounted cash flow model, using a discount rate of 10%, required an impairment charge of £2.8m to the year ended December 31, 2015 to be recognised (2014: £8.4m).  Following the impairment charges recognised during the year, the residual carrying value of the Amapá royalty was £1.8m as at December 31, 2015 (2014: £4.9m).

Ring of Fire

Following the sale of the Ring of Fire chromite assets by Cliffs Natural Resources Inc to Noront Resources Ltd in April 2015, the Directors have reassessed the timeline to production in light of the new operator needing to complete a comprehensive preliminary economic analysis for development options for the project.  The revision to the anticipated date of the mine entering commercial production has resulted in the Group recognising an impairment charge of £1.6m during the year ended December 31, 2015 (2014: £nil).  Following the impairment charge recognised during the year, the residual carrying value of the Ring of Fire royalty was £3.1m as at December 31, 2015 (2014: £5.2m).

9                    Deferred tax

The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during the period:

	Coal royalties			Available-for sale-investments
	Revaluation	Effects of		Revaluation	Revaluation		Impairment of	Accrual of
	of coal	Tax losses		of royalty	of mining		Intangible	royalty	Other tax
	royalty			instruments	interests		royalties	receivable	losses	Total
	£'000	£'000		£'000	£'000		£'000	£'000	£'000	£'000
At January 1, 2014	38,463	(516)		3,116	(9,099)		(2,330)	731	-	30,365
Charge/(credit) to profit or loss	(3,858)	(460)		-	7,682		2,330	(714)	(1,176)	3,804
Reclassification from current to deferred tax asset	-	-		-	-		-	-	(650)	(650)
Charge/(credit) to other comprehensive income	-	-		(1,629)	877		-	-	-	(752)
Exchange differences	10	33		-	19		-	13	41	116
Effect of change in tax rate:
- income statement	-	-		-	-		-	-	-	-
- equity	-	-		(281)	(1)		-	-	-	(282)
At December 31, 2014	34,615	(943)		1,206	(522)		-	30	(1,785)	32,601
Charge/(credit) to profit or loss	(8,190)	(469)		-	350		-	537	(1,141)	(8,913)
Reclassification from current to deferred tax asset	-	-		-	-		-	-	-	-
Charge/(credit) to other comprehensive income	-	-		(382)	276		-	-	-	(106)
Exchange differences	(2,146)	56		-	(1)		-	-	14	(2,077)
Effect of change in tax rate:	-	-		-	-		-	-	-
- income statement	-	-		-	-		-	-	-	-
- equity	-	-		(57)	4		-	-	-	(53)
At December 31, 2015	24,279	(1,356)		767	107		-	567	(2,912)	21,452

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.  The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

		2015		2014
		£'000		£'000
Deferred tax liabilities		24,546		34,908
Deferred tax assets		(3,094)		(2,307)
		21,452		32,601

As at December 31, 2015, the Group has unused tax losses of £13.5m (2014: £8.5m) available for offset against future profits.  A deferred tax asset has been recognised in respect of these losses which may be carried forward indefinitely.

The Group has the following balances in respect of which no deferred tax asset has been recognised:

								2015								2014
		Tax losses - trading		Tax losses - capital		Other temporary differences		Total		Tax losses - trading		Tax losses - capital		Other temporary differences		Total
		£'000		£'000				£'000		£'000		£'000				£'000
Expiry date
Within one year		-		-		-		-		-		-		-		-
Greater than one year, less than five years		-		-		-		-		-		-		-		-
Greater than five years		-		-		-		-		-		-		-		-
No expiry date		24,539		37,230		6,547		68,316		4,843		4,879		22,828		32,550
		24,539		37,230		6,547		68,316		4,843		4,879		22,828		32,550

Timing differences associated with investments in subsidiaries, joint ventures and associates are insignificant.

The following are the major deferred tax liabilities recognised by the Company and the movements thereon during the period:

	Available-for sale-investments
	Revaluation		Revaluation
	of royalty		of mining
	instruments		interests		Total
	£'000		£'000		£'000
At January 1, 2014	2,244		(8,016)		(5,772)
Released to income for the year	-		8,013		8,013
Charge to equity for the year	(1,038)		(2)		(1,040)
At December 31, 2014	1,206		(5)		1,201
Released to income for the year	-		-		-
Charge to equity for the year	(440)		5		(435)
At December 31, 2015	766		-		766

Deferred tax assets and liabilities are offset where the Company has a legally enforceable right to do so.  The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

	2015		2014
	£'000		£'000
Deferred tax liabilities	766		1,206
Deferred tax assets	-		5
	766		1,201

10                  Borrowings

	2015				2014
	Group		Company		Group		Company
	£'000		£'000		£'000		£'000
Secured borrowing at amortised cost
Revolving credit facility	7,527		-		-		-
Deferred borrowing costs	(255)		-		-		-
	7,272		-		-		-
Amount due for settlement within 12 months	-		-		-		-
Amount due for settlement after 12 months	7,527		-		-		-

The Group's borrowings relate to the partial draw-down of the three-year revolving credit facility, which is available at LIBOR plus 250bps.  Deferred borrowing costs relate to the establishment fees associated with the facility and will be amortised over its three year term.  As at December 31, 2015, the Group had utilised US$11.1m (£7.5m) of the US$30.0m (£20.3m) available under the facility.

The Group's revolving credit facility is secured by way of a floating charge over the Group's assets and is subject to a number of financial covenants, all of which have been met during the year ended December 31, 2015.

11                  Related party transactions

During the year, Group companies entered into the following transactions with subsidiaries:

	2015		2014
	£'000		£'000
Net financing of related entities	6,552		5,625
Management fee	1,825		3,251
Amounts owed by related parties at year end	47,381		37,671

All transactions were made in the course of funding the Group's continuing activities.

Remuneration of key management personnel

The remuneration of the key management personnel including Directors of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.  Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report in the 2015 Annual Report and Accounts.

	2015		2014
	£'000		£'000
Short-term employee benefits	1,487		1,973
Post-employment benefits	50		42
Share-based payment	734		563
	2,271		2,578

Directors' transactions                       

The Group made payments of £5,590.87 to Audley Capital Advisors LLP, a company which Mr J.A. Treger, Chief Executive Officer, is both a director and shareholder, for the reimbursement of travel related expenditure and IT recharges during the year ended December 31, 2015 (2014: £21,842.77).  During the same period, the Group received £47,654.51 from Audley Capital Advisors LLP for the subletting of office space (2014: £nil). In 2014, the Group received £48,201.60 for the reimbursement of office relocation expenditure. At December 31, 2015 a total of £nil was owing to or from Audley Capital Advisors LLP (2014: £nil).

11                  Events occurring after year end

No events have occurred subsequent to year end that require additional disclosure.

 

END

 

 

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