Anglo Pacific Group PLC - Consolidated Financial Statements - Management's Discussion and Analysis

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

LONDON, May 17 /CNW/ - This Management's Discussion and Analysis ("MD&A") of financial position and results of operation of Anglo Pacific Group PLC ("Anglo Pacific Group", "the Group", "we" or "our") has been prepared based upon information available to the company as at May 16, 2011 and should be read in conjunction with the Group's unaudited quarterly consolidated financial statements and related notes as at and for three months ended March 31, 2011.

Readers are cautioned that this MD&A contains forward-looking statements and that actual events may vary from management's expectations.  Readers are encouraged to read the Cautionary statement on forward-looking statements and related information included with this MD&A and to consult the Group's audited financial statements for the year ended December 31, 2010 and the corresponding notes to the financial statements which are available on the Group's website at www.anglopacificgroup.com and on www.sedar.com.

Cautionary statement on forward-looking statements and related information

Certain information contained in this press release, including any information as to future financial or operating performance and other statements that express management's expectation or estimates of future performance, constitute "forward looking statements".  The words "expects", "anticipates", "plans", "believes", "estimates", "seeks", "intends", "targets", "projects", "forecasts", or negative versions thereof and other similar expressions identify forward-looking statements.  Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies.  Further, forward-looking statements are not guarantees of future performance and involve risks and uncertainties which could cause actual results to differ materially from those anticipated, estimated or intended in the forward-looking statements.  The material assumptions and risks relevant to the forward-looking statements in this press release include, but are not limited to: stability of the global economy; stability of local government and legislative background; continuing of ongoing operations of the properties underlying the Group's portfolio of royalties in a manner consistent with past practice; accuracy of public statements and disclosures (including feasibility studies and estimates of reserve, resource, production, grades, mine life, and cash cost) made by the owners or operators of such underlying properties; no material adverse change in the price of the commodities underlying the Group's portfolio of royalties and investments; no material adverse change in foreign exchange exposure; no adverse development in respect of any significant property in which the Group holds a royalty or other interest, including but not limited to unusual or unexpected geological formations and natural disasters; successful completion of new development projects; planned expansions or additional projects being within the timelines anticipated and at anticipated production levels; and maintenance of mining title.  If any such risks actually occur, they could materially adversely affect the Group's business, financial condition or results of operations.  For additional information with respect to such risks and uncertainties, please refer to the "Risk Factors" section of our most recent Annual Information Form available on www.sedar.com and the Group's website www.anglopacificgroup.com.  Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements.  The forward-looking statements contained in this press release are made as of the date of this press release only and the Group undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Who we are

We are a royalty company specialising in royalties derived from the mining of natural resources.  Within this sector we have a diverse portfolio that spans different commodities including coal and a variety of metals.  We also invest internationally from the Americas to Europe and Australasia and our portfolio includes both producing mines and development projects.

Our objective is simple - to build a diverse portfolio of royalties that will generate growing, long-term returns for our shareholders.

Our strategy for growth

We are developing our royalty portfolio through three primary routes:

  1. Acquiring existing royalty agreements
  2. Creating new royalties by financing development
  3. Developing royalty opportunities through equity investments

Royalties explained

A royalty is an entitlement to an agreed percentage of a project's sales revenue, without any liability for production costs or capital expenditure.

In the mining industry, most royalties endure for the life of the resource and are paid on a regular basis.  Historically there have been different terms for royalties including Gross Revenue or Net Smelter Return ("GRR" or "NSR") royalties, which are based on the gross sales value of the actual mineral.  Our model is based around GRR or NSR royalties as they provide the best and clearest return.

Acquiring existing royalties
In this case we buy existing royalty agreements, such as those owned by exploration companies who may have retained an interest in a mine they helped discover.  Once acquired, royalty companies rarely sell their agreements.

Creating new royalties
Our new royalty agreements tend to come from providing financing to mining operations, usually to help them progress a mine into production.  We also make equity investments, which provide opportunities to create new royalty agreements.

Acquisitions

On January 12, 2011 the Group completed the previously announced Royalty Option Agreement with Horizonte Minerals plc ("Horizonte") for the Group to purchase a NSR royalty on all revenues from the advanced exploration stage Araguaia and Lontra Nickel Projects ("Araguaia Project") in Brazil.  The Group paid Horizonte the sum of US$0.5 million in exchange for the six year option to acquire a 1.5% NSR royalty from the Araguaia Project for US$12.5 million.

The Group are continually evaluating opportunities and during the quarter sent out a number of proposals for the creation and acquisition of royalties which would further diversify the Group's royalty portfolio and grow future revenues.

Financial performance

Royalty revenue of £9.9 million for the quarter compared to £4.6 million in the first quarter of 2010.

Despite the floods in Queensland in January 2011 which caused some short-term disruption to output at both Kestrel and Crinum mines, the Group has received record coal royalties for the three months ended March 31, 2011 of £9.4 million compared to £4.6 million for the three months ended March 31, 2010.

Kestrel coal royalties in the three months ended March 31, 2011 were £5.6 million (A$8.9 million) compared to £3.4 million (A$5.8 million) for the three months ended March 31, 2010.  Production at Kestrel remained entirely in private royalty coal areas during the current quarter. Overall saleable production decreased 12% when compared to the three months ended March 31, 2010 however as a result of the wet weather and overall production problems in coking coal mines of Central Queensland March quarterly price negotiations have resulted in an increase in prices to circa US$328 per tonne, compared to spot prices circa US$220 per tonne at the same time last year. Industry consensus on coking coal prices currently indicate they will remain high for 2011 due to continuing supply difficulties in Queensland.  Recent media reports state that the planned Kestrel expansion is still currently scheduled to come on-stream in early 2013.

Crinum coal royalties in the three months ended March 31, 2011 were £3.8 million (A$6.1 million) compared to £1.2 million (A$3.4 million) for the three months ended March 31, 2010.  Most of the Group's private royalty coal at Crinum has now been extracted, with the exception of some remnant coal, the workability of which would require further evaluation and is currently uncertain.

The Amapá Iron Ore System royalty acquired in November 2010 commenced payment during the three months ended March 31, 2011 and royalties of £0.5 million were received in this period.  This was in line with management expectations.

Group royalty revenue for the three months ended March 31, 2011 was £9.9 million compared to £4.6 million for the three months to March 31, 2010.  When combined with cash flows from royalty debentures during the year of £0.1 million (March 31, 2010: £0.1 million) total royalty cash flow per share for the three months ended March 31, 2011 was 9.21p compared with 4.56p for the three months ended March 31, 2010.

Realised gains on disposal of mining and exploration interests during the quarter were £4.4 million compared with £12.6 million for the three months ended March 31, 2010.  These gains were the result of the disposal in active junior mining markets of some of the Group's successful mining investments where the acquisition of royalties was unlikely.

Overall the Group's profit before tax for the three months ended March 31, 2011 was £13.3 million compared to £17.8 million for the three months ended March 31, 2010 and Group earnings per share for the three months ended March 31, 2011 was 9.72p compared to 15.47p for the first quarter of 2010.

Financial position

Total assets of £426.3 million at March 31, 2011 compared to £415.6 million at December 31, 2010.

At March 31, 2011 the Group's Australian coal royalty interests have been independently valued at £197.4 million compared to £177.1 million at December 31, 2010.  The increase was due to higher forecast prices being incorporated into the independent valuation.  The Group's royalty instruments following fair value adjustments were valued at £27.9 million at March 31, 2011 compared to £28.1 million at December 31, 2010.

The total cost of royalties treated as intangibles was £42.1 million at March 31, 2011, the same as at December 31, 2010.  As part of a bi-annual impairment review at December 31, 2010 a directors' valuation of these royalties was undertaken using a discounted cash flow valuation model which used forecast commodity prices and management's best estimate of an appropriate discount rate taking into account project-specific risk factors.  At this date the directors' valuation of these assets was £54.2 million.

           
    Royalty Royalty Royalty  
  Coal
royalties
Instruments Intangibles Options Total
  £'000 £'000 £'000 £'000 £'000
March 31, 2011          
Number 2 4 6 3 15
Cost 195 12,493 42,130 728 55,546
Valuation 197,395 27,927 54,155 728 280,205
           
December 31, 2010          
Number 2 4 6 2 14
Cost 166 12,493 42,130 406 55,195
Valuation 177,130 28,061 54,155 406 259,752

 

At March 31, 2011, the Group's quoted and unquoted equity investments, including royalty options, were valued at £122.7 million compared with £128.5 million at December 31, 2010.  The private equity interests and royalty options remain accounted for at cost.

At March 31, 2011 the Group had cash of £22.5 million compared to £28.3 million at December 31, 2010, with no borrowings or hedging.  When combined with royalty and trade receivables, total cash and receivables at March 31, 2011 was £33.7 million compared to £37.1 million at December 31, 2010.  The Group has limited capital expenditure requirements other than for the acquisition of additional royalties.  Management believe that the Group's current cash resources and future cash flows will be sufficient to cover the cost of general and administrative expenses, income taxes and dividend payments.  The Group remains debt free and its liquid resources are held in a spread of currencies and financial institutions.  The Group's mining interests and royalty revenues are mainly denominated in Australian and Canadian dollars.

The Group's total assets at March 31, 2011 were £426.3 million compared to £415.6 million at December 31, 2010.  As at the period end this does not include any increase in value over cost that may be attributable to the Group's royalty intangibles or the Panorama and Trefi coal projects.

Dividends

Following approval at the Annual General Meeting, the Board will pay the final dividend for the year ended December 31, 2010 on July 6, 2011 to shareholders on the Group's share register at the close of business on May 6, 2011.  The shares were quoted ex dividend on the London Stock Exchange (LSE) and the TSX on May 4, 2011.  In light of the current share price the Board have decided not to offer shareholders the opportunity to elect to receive new shares instead of cash.

Outlook

The Group continues to identify a range of new royalty opportunities.  Management believes the Group is well placed with its cash resources and strong royalty revenues to continue its growth strategy.

Anglo Pacific Group PLC
Consolidated Financial Statements
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2011

     
    For the period ended
    March 31, 2011   March 31, 2010   December 31, 2010
    £'000   £'000   £'000
             
Royalty income   9,874   4,600   30,133
Gain on sale of mining and exploration interests   4,427   12,601   41,025
Finance income   322   277   1,170
Other operating income   218   10   33
Total income   14,841   17,488   72,361
             
Share of profit of associates   -   -   265
Other (losses)/gains - net   (826)   993   (3,416)
Amortisation   (254)   -   (85)
Administrative expenses   (500)   (691)   (3,276)
Profit before tax   13,261   17,790   65,849
             
Income tax expense   (2,688)   (1,170)   (9,566)
Profit attributable to equity holders   10,573   16,620   56,283
             
Total and continuing earnings per share            
Basic earnings per share   9.72p   15.47p   51.99p
             
Diluted earnings per share   9.72p   15.47p   51.99p

Anglo Pacific Group PLC
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2011

     
    For the period ended
    March 31, 2011   March 31, 2010   December 31, 2010
    £'000   £'000   £'000
             
Profit for the year   10,573   16,620   56,283
Other comprehensive income:            
Net gain on revaluation to coal royalties   23,613   11,430   355
Net gain on revaluation of available for sale investments   (12,247)   18,464   48,227
Net exchange gain on translation of foreign operations   (3,606)   14,224   28,873
Share of other comprehensive income of associates   -   -   (40)
Deferred tax   (6,369)   (6,233)   (14,651)
Net income recognised directly in equity   11,964   54,505   119,047
             
Transferred (from)/to income statement disposal of available for sale investments   (3,680)   (10,691)   (26,651)
Total transferred from equity   (3,680)   (10,691)   (26,651)
             
Total comprehensive income for the year   8,284   43,814   92,396

Anglo Pacific Group PLC
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEET (UNAUDITED) AS AT MARCH 31, 2011

           
        As at  
    March 31,
2011
  March 31,
2010
  December 31,
2010
 
    £'000   £'000   £'000  
               
Non-current assets              
Property plant and equipment   2,167   1,833   2,144  
Coal royalties   197,393   174,405   177,130  
Royalty instruments   27,927   23,873   28,061  
Intangibles   42,480   6,190   42,741  
Mining and exploration interests   122,685   113,490   128,479  
Investments in associates   -   4,173   -  
    392,652   323,964   378,555  
               
Current assets              
Trade and other receivables   11,203   4,954   8,813  
Cash at bank   22,452   31,202   28,258  
    33,655   36,156   37,071  
               
Total assets   426,307   360,120   415,626  
               
               
Non-current liabilities              
Deferred tax   70,666   54,213   63,838  
    70,666   54,213   63,838  
               
Current liabilities              
Taxation   4,429   4,609   5,351  
Trade and other payables   496   355   549  
    4,925   4,964   5,900  
               
Total liabilities   75,591   59,177   69,738  
               
Capital and reserves attributable to shareholders              
Share capital   2,183   2,150   2,175  
Share premium   25,361   20,813   24,207  
Coal royalty revaluation reserve   105,205   96,462   88,883  
Investment revaluation reserve   35,799   45,972   51,780  
Share based payment reserve   65   12   65  
Foreign currency translation reserve   37,056   28,996   39,686  
Special reserve   632   632   632  
Investment in own shares   (2,457)   -   (1,295)  
Retained earnings   146,872   105,906   139,755  
    350,716   300,943   345,888  
               
Total equity and liabilities   426,307   360,120   415,626  

Anglo Pacific Group PLC
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) FOR THE FIFTEEN MONTHS ENDED MARCH 31, 2011

                                         
    Share   Share   Coal   Investment   Share based   Foreign   Special   Investment in   Retained   Total
    capital   premium   royalty   revaluation   payment   currency   reserve   Own Shares   earnings   equity
            revaluation   reserve   reserve   translation                
            reserve           reserve                
    £'000   £'000   £'000   £'000   £'000   £'000   £'000   £'000   £'000   £'000
                                         
Balance at January 1, 2010   2,149   20,718   88,582   36,850   78   18,804   632   -   92,223   260,036
Profit for the year   -   -   -   -   -   -   -   -   16,620   16,620
Other comprehensive income:                                        
Coal Royalties:                                        
     Royalties valuation movement taken to equity   -   -   11,430   -   -   13,079   -   -   -   24,509
     Deferred tax on valuation   -   -   (3,550)   -   -   (3,817)   -   -   -   (7,367)
Available-for-sale investments:                                        
     Valuation movement taken to equity   -   -   -   18,464   -   358   -   -   -   18,822
     Deferred tax on valuation   -   -   -   1,349   -   (215)   -   -   -   1,134
     Transferred to income statement on disposal   -   -   -   (10,691)   -   -   -   -   -   (10,691)
     Reclassification as investment in associate   -   -   -   -   -   -   -   -   -   -
Share of comprehensive income of associates   -   -   -   -   -   -   -   -   -   -
Foreign currency translation   -   -   -   -   -   787   -   -   -   787
Other comprehensive income   -   -   7,880   9,122   -   10,192   -   -   -   27,194
Total comprehensive income   -   -   7,880   9,122   -   10,192   -   -   16,620   43,814
Dividends paid   -   -   -   -   -   -   -   -   (2,937)   (2,937)
Scrip Dividend   -   -   -   -   -   -   -   -   -   -
Issue of share capital under share-based payment   1   95   -   -   (66)   -   -   -   -   30
Transactions with owners   1   95   -   -   (66)   -   -   -   (2,937)   (2,907)
Balance at March 31, 2010   2,150   20,813   96,462   45,972   12   28,996   632   -   105,906   300,943
                                         
Balance at April 1, 2010   2,150   20,813   96,462   45,972   12   28,996   632   -   105,906   300,943
Profit for the period   -   -   -   -   -   -   -   -   39,663   39,663
Other comprehensive income:                                        
Coal royalties:                                        
     Royalties valuation movement taken to equity   -   -   (11,075)   -   -   13,800   -   -   -   2,725
     Deferred tax on valuation   -   -   3,496   -   -   (4,111)   -   -   -   (615)
Available-for-sale investments:                                        
     Valuation movement taken to equity   -   -   -   29,763   -   166   -   -   -   29,929
     Deferred tax on valuation   -   -   -   (7,995)   -   191   -   -   -   (7,804)
     Transferred to income statement on disposal   -   -   -   (15,960)   -   -   -   -   -   (15,960)
     Reclassification as investment in associate   -   -   -   -   -   -   -   -   -   -
Share of comprehensive income of associates   -   -   -   -   -   (40)   -   -   -   (40)
Foreign currency translation   -   -   -   -   -   684   -   -   -   684
Other comprehensive income   -   -   (7,579)   5,808   -   10,690   -   -   -   8,919
Total comprehensive income   -   -   (7,579)   5,808   -   10,690   -   -   39,663   48,582
Dividends paid   -   -   -   -   -   -   -   -   (3,788)   (3,788)
Scrip dividend   14   2,025   -   -   -   -   -   -   (2,039)   -
Issue of share capital under share-based payment   11   1,369   -   -   53   -   -   (1,295)   13   151
Transactions with owners   25   3,394   -   -   53   -   -   (1,295)   (5,814)   (3,637)
Balance at December 31, 2010   2,175   24,207   88,883   51,780   65   39,686   632   (1,295)   139,755   345,888
                                         
Balance at January 1, 2011   2,175   24,207   88,883   51,780   65   39,686   632   (1,295)   139,755   345,888
Profit for the period   -   -   -   -   -   -   -   -   10,573   10,573
Other comprehensive income:                                        
Coal Royalties:                                        
     Royalties valuation movement taken to equity   -   -   23,613   -   -   (3,349)   -   -   -   20,264
     Deferred tax on valuation   -   -   (7,291)   -   -   987   -   -   -   (6,304)
Available-for-sale investments:                                        
     Valuation movement taken to equity   -   -   -   (12,247)   -   (408)   -   -   -   (12,655)
     Deferred tax on valuation   -   -   -   (54)   -   (11)   -   -   -   (65)
     Transferred to income statement on disposal   -   -   -   (3,680)   -   -   -   -   -   (3,680)
     Reclassification as investment in associate   -   -   -   -   -   -   -   -   -   -
Share of comprehensive income of associates   -   -   -   -   -   -   -   -   -   -
Foreign currency translation   -   -   -   -   -   151   -   -   -   151
Other comprehensive income   -   -   16,322   (15,981)   -   (2,630)   -   -   -   (2,289)
Total comprehensive income   -   -   16,322   (15,981)   -   (2,630)   -   -   10,573   8,284
Dividends paid   -   -   -   -   -   -   -   -   (3,456)   (3,456)
Scrip Dividend   -   -   -   -   -   -   -   -   -   -
Issue of share capital under share-based payment   8   1,154   -   -   -   -   -   (1,162)   -   -
Transactions with owners   8   1,154   -   -   -   -   -   (1,162)   (3,456)   (3,456)
Balance at March 31, 2011   2,183   25,361   105,205   35,799   65   37,056   632   (2,457)   146,872   350,716

Anglo Pacific Group PLC
Consolidated Financial Statements
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2011

     
    For the period ended
    March 31, 2011   March 31, 2010   December 31, 2010
    £'000   £'000   £'000
             
Cash flows from operating activities            
Profit before taxation   13,261   17,790   65,849
Adjustments for:            
Interest received   (322)   (277)   (1,170)
Unrealised foreign currency loss   1,095   876   980
Depreciation of property, plant and equipment   5   5   19
Amortisation of intangibles - royalties   254   -   85
Gain on disposal of mining and exploration interests   (4,427)   (12,601)   (41,025)
Loss / (Gain) on revaluation of assets held as fair value through profit or loss   -   -   810
Royalty instrument provision   -   -   4,194
Loss on writedown of assets   147   -   -
Share of associates profit   -   -   (265)
Gain on derecognition of associate   -   -   (539)
Share based payments   -   -   185
    10,013   5,793   29,123
(Increase) / Decrease in trade and other receivables   (2,390)   128   (3,731)
Increase / (Decrease) in trade and other payables   (53)   (35)   159
Receipts from royalty instruments   143   302   881
Cash generated from operations   7,713   6,188   26,432
Income taxes paid   (4,070)   (1,036)   (7,058)
Net cash from operating activities   3,643   5,152   19,374
             
Cash flows from investing activities            
Proceeds on disposal of mining and exploration interests   8,016   21,250   85,664
Purchase of mining and exploration interests   (14,207)   (6,243)   (47,665)
Purchases of royalty interests   -   -   (36,804)
Purchases of property, plant and equipment   (28)   (96)   (329)
Exploration and evaluation expenditure   -   (94)   (19)
Interest received   220   14   525
Acquisition of associates   -   (70)   -
Net cash generated / (used) in investing activities   (5,999)   14,761   1,372
             
Cash flows from financing activities            
Proceeds from issue of share capital   -   30   -
Dividends paid   (3,450)   (2,937)   (6,683)
Net cash used in financing activities   (3,450)   (2,907)   (6,683)
             
Net increase / (decrease) in cash and cash equivalents   (5,806)   17,006   14,063
             
Cash and cash equivalents at beginning of period   28,258   14,195   14,195
             
Cash and cash equivalents at end of period   22,452   31,201   28,258

Anglo Pacific Group PLC
Consolidated Financial Statements
NOTES (UNAUDITED)

1   Summary of significant accounting policies

1.1   Basis of preparation

These interim, condensed consolidated financial statements of Anglo Pacific Group PLC are for the three months ended March 31, 2011.  They have been prepared in accordance with IAS 34 'Interim Financial Reporting'.  They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31, 2010.

These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to December 31, 2010.

This condensed consolidated quarterly financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006.  Statutory accounts for the year ended December 31, 2010 were approved on March 8, 2011.  These accounts which contained an  unqualified audit report under Section 495 of the Companies Act 2006 and which did not make any statements under Section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

2  Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

2.1 Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future.  The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

      (a)      Review of asset carrying values and impairment charges and reversals.
      (b)      Recoverability of deferred tax assets.

2.2 Critical judgements in applying the Group's accounting policies

Areas of judgement that have the most significant effect on the amounts recognised in the financial statements are:

      (a)      Classification of mining and exploration interests;
      (b)      Classification of royalty instruments and royalty interests.
        The Directors review the nature of those royalty agreements to determine which class of asset they fall under.  For those royalties acquired which give the Group a straight royalty with no conversion rights to shares for example, these are classified as a royalty interest within intangibles.
        Where an agreement has a convertible option within it, the contracts are reviewed to determine whether the option is closely related or not to the host contract.  This will determine whether the assets should be classified as a derivative at fair value through profit and loss or an available for sale financial asset with an embedded derivative.
      (c)      Review of assumptions underlying the independent coal industry advisors' valuation of the Kestrel and Crinum coal royalty.
      (d)      Review of assumptions underlying the valuation of royalty instruments and their associated embedded derivative.
        The Directors review the latest available mine plans and obtain independent foreign exchange and commodity price forecasts to determine each of the royalty instruments carrying value at reporting date.
      (e)      Review of asset carrying values and impairment charges and reversals.
      (f)      Recognition of deferred tax liabilities and the continued application of relevant exemptions.

3 Non-current assets

(a)  Coal Royalties

The Group's coal royalties comprise the Kestrel and Crinum coal royalties in Queensland, Australia.

The Group commissioned a valuation of the coal royalties as at March 31, 2011, based on a net present value of the pre-tax cash flow discounted at a rate of 7%, which produced a valuation of A$307.0 million (£197.4 million).  At present the net royalty income is taxed in Australia at a rate of 30%.  Were the coal royalties to be realised at the revalued amount there are £2.4 million (A$3.7 million) of capital losses potentially available to offset against taxable gains.  These losses have been included in the deferred tax computation.

(b) Royalty Instruments

Royalty instruments represent the Group's interests in four mineral properties which, through the issue of convertible debentures, the Group has acquired GRR or NSR royalties.  These are the Engenho property in Brazil, the El Valle property in Spain, the Jogjakarta Iron Sands Project in Indonesia and the Midway-McKenzie Break properties in Canada.  In the Group's latest annual financial statements for the year ended December 31, 2010, these interests were described as "Royalty Instruments".  No change has been made to the accounting treatment of these interests.

(c)  Intangibles

Intangible royalty interests represent the GRR and NSR royalties acquired on the Four Mile Project in South Australia, the Salamanca Uranium Project in Spain, the Railway Deposit in Western Australia and the Amapá Iron Ore System in Brazil.

Acquisition costs of royalty interests on feasibility stage mineral properties are not amortised.  At such time as the associated mineral interests are placed into production, the cost basis is amortised over the expected life of mine.  Amortisation rates are adjusted on a prospective basis for all changes to estimates of the life of mine.

Also included within intangibles are the deferred exploration costs of £688,000 (March 31, 2010: £864,000) associated with the Group's Panorama and Trefi Projects in British Columbia, Canada.

(d)  Mining and Exploration Interests

The investments in securities included above represent investments in listed and unlisted equity securities which are acquired as part of the Group strategy to acquire new royalties.  Gains may be realised where it is deemed appropriate by the Investment Committee.  The fair values of these securities are based on quoted market prices for listed securities and cost for unlisted securities based on the variability of cash flows being so significant that an alternative valuation technique would not provide a useful value.  The fair values are reviewed for impairment biannually.  In the statement of changes in equity these interests are classified as "available-for-sale investments".  For a full explanation of the Group's accounting policies in relation to the Mining and Exploration interests please see the 2010 Annual Report.

4 Earnings per ordinary share

The earnings per ordinary share is calculated on the Group's profit after tax of £10,573,000 (March 31, 2010: £16,620,000) and the weighted average number of shares in issue during the quarter of 108,771,332 shares (March 31, 2010: 107,469,580).  Diluted earnings per ordinary share is calculated on a profit after tax of £10,573,000 (March 31, 2010: £16,620,000) and 108,789,179 shares (March 31, 2010: 107,469,580).

Earnings per ordinary share excludes the issue of shares under the Company's Joint Share Ownership Plan, as the Employee Benefit Trust has waived its right to receive dividends on the 864,258 ordinary 2p shares it holds as at March 31, 2011.

The numbers used in calculating basic and diluted earnings per share are restated below:

    For the three months ended
Net profit attributable to shareholders   March 31, 2011   March 31, 2010
    £'000   £'000
         
Earnings—basic   10,573   16,620
Earnings—diluted   10,573   16,620
         
    For the three months ended
Weighted average number of shares in issue   March 31, 2011   March 31, 2010
         
Ordinary shares in issue   108,771,332   107,469,580
Employee Share Option Scheme   17,847   -
    108,789,179   107,469,580

5  Royalty cash flow per share

  For the three months ended
  March 31, 2011   March 31, 2010
       
Basic royalty cash flow per share 9.21p   4.56p
       
Diluted royalty cash flow per share 9.21p   4.56p

The Group's management considers royalty cash flow per share to be a useful measure of the performance of the Group's assets.  Changes in equity market conditions lead to annual fluctuations in gains on sale of mining and exploration interests, and while these gains can be significantly value accretive for shareholders, the Group's management focus remains on increasing the Group's cash flows from royalties.  In addition, the classification of the Group's royalty instruments as repayable debentures results in cash flows which are classified as repayments until the principal and interest are repaid.  As a result, the combination of royalty income and cash received from the debenture repayments during the year form the numerator for this metric.  Both of these components are calculated before tax.

The numbers used in calculating the basic and diluted royalty cash flow per share are stated below:

  For the three months ended
  March 31, 2011   March 31, 2010
  £'000   £'000
       
Royalty income 9,874   4,600
Receipts from royalty instruments 143   302
Total Royalty cash flow 10,017   4,902

         
    For the three months ended
Weighted average number of shares in issue   March 31, 2011   March 31, 2010
         
Ordinary shares in issue   108,771,332   107,469,580
Employee Share Option Scheme   17,847   -
    108,789,179   107,469,580

6 Segment information

Management has determined the operating segments based on the reports reviewed by the Executive and Investment committees that are used to make strategic decisions.  The committees consider the Group's undertakings from a business perspective.  This has resulted in the Group being organised into two operating segments - royalties and mining and exploration interests.

The royalties segment encompasses all Group activities relating directly to the royalties received from mining operations.  The mining and exploration interests segment encompasses all Group activities relating directly to the acquisition, disposal and continued monitoring of the Group's investments in listed and unlisted entities operating in mining and mineral exploration.   The segment information provided to the Executive and Investment committees for the reportable segments for the three months ended March 31, 2011 is as follows:

  Australia   Americas   Europe        
      Mining       Mining       Mining   All other    
  Royalty   interests   Royalty   interests   Royalty   interests   segments   Total
  £'000   £'000   £'000   £'000   £'000   £'000   £'000   £'000
                               
Total segment income 9,347   3,154   527   371   -   926   516   14,841
Profit before tax 9,347   3,154   273   371   -   926   (810)   13,261
                               
Amortisation -   -   (254)   -   -   -   -   (254)
Income tax expense (2,804)   -   -   -   -   -   116   (2,688)
                               
Total assets 223,673   63,854   28,318   39,244   19,590   19,547   32,081   426,307
Total assets include:                              
Investments in associates -   -   -   -   -   -   -   -
Additions to non-current assets (other than financial instruments and deferred tax assets) -   -   -   -   -   -   -   -
                               
Total liabilities 65,274   -   839   -   2,716   -   6,762   75,591

The segment information for the three months ended March 31, 2010 is as follows:

  Australia   Americas   Europe        
      Mining       Mining       Mining   All other    
  Royalty   interests   Royalty   interests   Royalty   interests   segments   Total
  £'000   £'000   £'000   £'000   £'000   £'000   £'000   £'000
                               
Total segment income 4,600   2,812   -   9,701   -   -   375   17,488
Profit before tax 4,600   2,812   -   9,701   -   -   677   17,790
                               
Amortisation -   -   -   -   -   -   -   -
Income tax expense (1,152)   -   -   -   -   -   (18)   (1,170)
                               
Total assets 182,248   69,655   16,842   39,588   10,952   3,763   37,072   360,120
Total assets include:                              
Investments in associates -   4,173   -   -   -   -   -   4,173
Additions to non-current assets (other than financial instruments and deferred tax assets) -   -   -   -   -   -   -   -
                               
Total liabilities 57,155   -   833   -   984   -   205   59,177

The segment information for the year ended December 31, 2010 is as follows:

  Australia   Americas   Europe        
      Mining       Mining       Mining   All other    
  Royalty   interests   Royalty   interests   Royalty   interests   segments   Total
  £'000   £'000   £'000   £'000   £'000   £'000   £'000   £'000
                               
Total segment income 29,930   31,581   203   12,255   -   (2,811)   1,203   72,361
Profit before tax 29,930   32,385   (4,686)   12,255   -   (2,811)   (1,224)   65,849
                               
Amortisation -   -   (85)   -   -   -   -   (85)
Income tax expense (7,803)   -   -   -   -   -   (1,763)   (9,566)
                               
Total assets 201,890   75,280   27,650   35,122   19,590   17,671   38,423   415,626
Total assets include:                              
Investments in associates -   -   -   -   -   -   -   -
Additions to non-current assets (other than financial instruments and deferred tax assets) 13,664   -   20,351   -   3,997   -   -   38,012
                               
Total liabilities 56,669   -   855   -   2,716   -   9,498   69,738

The amounts provided to the Executive and Investment committees with respect to total assets are measured in a manner consistent with that of the financial statements.  These assets are allocated based on the operations of the segment and the physical location of the asset.

Investments in mining and exploration interests (classified as available-for-sale financial assets or financial assets at fair value through profit or loss) held by the Group are classified by geographic segment by reference to the country of the investee's primary listing for quoted investments or the country of operations for unquoted investments.

The amounts provided to the Executive and Investment committees with respect to total liabilities are measured in a manner consistent with that of the financial statements.  These liabilities are allocated based on the operations of the segment.

Royalty income during the quarter of £9.4 million (March 31, 2010: £4.6 million) is derived from a single royalty.  This income is attributable to the Australian royalty segment.

7 Own shares held

Following approval at the 2010 Annual General Meeting the Company established the Anglo Pacific Group plc Employee Benefit Trust (the "Trust") to be used as part of the remuneration arrangement for employees.  The purpose of the Trust is to facilitate and encourage the ownership of shares by or for the benefit of employees by the acquisition and distribution of shares in the Company.

The Company issued 356,208 ordinary 2p shares during the period, to satisfy its obligations under its Joint Share Ownership Plan.

At March 31, 2011 the Trust held 864,258 (March 31, 2010: nil) ordinary 2p shares in Anglo Pacific Group PLC.

8 Availability of financial statements

This statement will be sent to shareholders and will be available at the Company's registered office at 17 Hill Street, London, W1J 5LJ.


 

SOURCE Anglo Pacific Group PLC

For further information:

Anglo Pacific Group PLC                                     +44 (0) 20 7318 6360
           
Peter Boycott, Chairman
Matthew Tack, Finance Director
         
           
Liberum Capital                                             +44 (0) 20 3100 2000
           
Chris Bowman
Christopher Kololian
         
           
Scott Harris                                               +44 (0) 20 7653 0030
           
Stephen Scott
James O'Shaughnessy
       
           
Website:                                              www.anglopacificgroup.com

 

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Anglo Pacific Group PLC

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