APF.L Regulatory News (APF)

Risk description

Mitigation

Corporate

Overweight exposure to coking coal, a key input in steel production, increasing dependence on future demand for steel

The Group's strategy is to diversify more broadly within the base metals and bulk materials sector, increasing exposure to copper, zinc and other metals not directly linked to steel production, in line with our objective of specialising in the non-precious metals sector

Highly dependent on a single cash-generative royalty

The Group's current strategy is to accelerate the process of acquiring cash generative royalties to reduce the current reliance on Kestrel, our principal cash-generative royalty.

Limited access to information from the operators

Management is looking to improve relationships with the operators of the Group's existing royalties and to try to obtain better information rights for both existing and new royalties.

Inability to pay the dividend

A renewed focus on acquiring income generating royalties along with liquidity in its mining and exploration interests should allow the Group to seek to maintain and grow its dividend. In addition, the Company has considerable accumulated distributable reserves.

Retention of key executives

The Group understands the importance of and is committed to attracting, retaining and incentivising key executives. For more information on the Group's remuneration policies, please refer to the Directors' Remuneration Report on pages 43 to 45.

Inability to acquire

royalties due to

pricing or competition

The Group has an experienced management team with an extensive network of contacts and a strong track record of investing in the mining industry. The new management team bring with them alternative avenues in exploring for and creating new royalty opportunities. The Group believes it can lead the development of royalty financing in the base metals and bulk materials sector, given the predominant focus of its peers on precious metals.

Inability to acquire new royalties due to lack of financing

The Group is cash generative and has liquidity in its mining and exploration portfolio. In addition, the potential to access capital markets and the entering into by the Group of a twelve-month unsecured revolving credit facility provide additional resources to acquire new royalties.

Royalty

acquisitions may

not produce

anticipated revenues

The Directors have significant experience of investing in the mining industry and have considerable expertise in assessing the forward demand for commodities. The Group uses consensus or lower forecasts when valuing all royalty investments, which reduces the risk of underperformance and a site visit is undertaken to assess the viability of the underlying project.

Corporate

Dependence on the operator to deliver a commercially efficient mining operation.

The Group has limited control over the operation of the mine it has invested in. The Group conducts detailed due diligence on all investments, which will often include a site visit by suitably qualified personnel that will highlight any economic, operational or environmental concerns. Further, newly created royalties can be tailored to allow for performance milestones to try to ensure that the operator performs as intended.

Potential misalignment of interests between the Group and operators

 Newly created royalties can be tailored to allow for performance milestones to try to ensure that the operator performs as intended.

Legal

Enforceability of

royalty rights

The Group seeks to invest in countries with well established legal jurisdictions which will provide a means of recourse for breach of contract. In addition, the Group will seek to register its royalty interest where possible to try to ensure the royalty survives both bankruptcy and change of control.

Jurisdiction risk

(i) Resource

nationalism

(ii) Labour

relations

(iii) Tax

(i) The Group seeks to focus its investments on those countries with established legal jurisdictions, low geopolitical risk and an established mining industry. Having a diversified portfolio has allowed the Group to de-risk small investments in operations in developing countries.

(ii) The Group does not operate the mines which it invests in and bears no liability for any adverse event or disaster at site level.

(iii) As part of the due diligence process the Group considers applicable withholding taxes and any existing state royalties. A material alteration of a tax regime could impact the economic viability of a project, and ultimately royalty income. As the royalty rate for the Kestrel royalty is set by the state, a change in the tax regime could have a direct effect on royalty income. The Group's assets are generally located in developed economies which encourage mining activity through a fair and consistent tax system.

Financial (including financial instruments)

Commodity price

The Group's strategy is to diversify away from its dependence on coking coal through acquiring royalties in the base metals and bulk materials sector. The Group uses consensus or lower forecasts when valuing all royalty investments which reduce the risk of overpayment. A fall in commodity price is mitigated by virtue of the relatively low fixed cost base of the Group as it is not an operator nor has it any hedging contracts to fulfil.

Liquidity

The Group seeks to ensure that it can meet all of its obligations as they fall due by preparing regular cash flow projections, highlighting any currency requirements well in advance of settlement. The Group has a strong balance sheet, an undrawn US$15mtwelve-month revolving credit facility and potential access to the capital markets to provide additional funding to meet its obligations as well as its investment objectives.

Credit

The Group operates controlled treasury policies which spreads the concentration of the Group's cash balances amongst separate financial institutions with high credit ratings. The Group's credit risk on monies advanced to explorers and operators is taken into account when assessing the fair value of these assets at each reporting date. For receivables, the Group presents these on the balance sheet net of any amount for doubtful debt. As these primarily relate to the Kestrel royalty, the credit risk is minimal due to the world class nature of the operator.

Foreign exchange

The Group's exposure to foreign currency arises from different currencies associated with income (mainly Australian dollars), expenditure including dividend (mainly in pounds sterling) and investment (usually in US dollars). As there are so few transactions, the risk is managed by the Board using detailed cash flow projections prepared regularly. At present the Board has determined that a hedging policy is unnecessary.

Interest rates

The Group has limited exposure to interest rate risk, and its twelve-month revolving credit facility is unhedged.

Other pricing

The value of the Group's royalties is underpinned by commodity prices which may affect the future expected cash flows. This is taken into account at each reporting date in assessing for impairment. The Group has a portfolio of junior mining equity investments which fluctuate in value based on the active quoted share price. The reduction in value of the portfolio over the last few years has resulted in a full impairment of unrealised losses such that any further pricing risk should be much less material to the Group."