Our Primary Strategic Investments are in Mount Gibson Iron Limited (“Mount Gibson”) (ASX: MGX), Tanami Gold NL (“Tanami Gold”) (ASX: TAM), Metals X Limited (“Metals X”) (ASX: MLX) and Prodigy Gold NL (“Prodigy Gold”) (ASX: PRX) where APAC owns 37.3%, 46.3%, 22.8% and 44.3% respectively. They are listed and operating in Australia.

During the year, APAC increased its shareholding in Metals X to approximately 22.8% as at 30 June 2024, and it remains an associate of APAC for accounting purposes. Notwithstanding APAC’s ownership of Prodigy Gold, a gold exploration company listed on ASX, reducing from 49.8% as at 30 June 2023 to 44.3% as at 30 June 2024, it continues to be deemed a non-wholly owned subsidiary of APAC.

The net attributable profit from our Primary Strategic Investments for FY2024 was HK$28,249,000 (FY2023: Net loss of HK$10,632,000), however, this was offset by impairment losses on interests in associates of HK$80,423,000, driven predominantly by writedowns by Mount Gibson and Tanami Gold.

Mount Gibson

Mount Gibson is an Australian producer of direct shipping grade iron ore products. Mount Gibson owns the Koolan Island mine off the Kimberley coast in the remote north-west of Western Australia. Mount Gibson developed the Shine Iron Ore Project, located 85km north of Extension Hill, but suspended operations in November 2021 due to the widening discount for low grade iron ore and high freight costs.

Ore sales at the Koolan Island Restart Project started in April 2019 and achieved commercial production in the June quarter of 2019. The restart project had 21 million tonnes of 65.5% Fe reserves. Mount Gibson has reached the end of a planned elevated waste mining phase, which has allowed for increased production, and reported sales of 4.1 million wet tonnes in FY2024, a significant increase from 3.0 million wet tonnes in FY2023.

Mount Gibson reported a net profit after tax of A$6 million for FY2024, a small improvement on A$5 million reported in FY2023. Higher sales tonnages and iron ore pricing resulted in iron ore sales increasing from A$450,586,000 in FY2023 to A$667,678,000 in FY2024. However, this was offset by non-cash stockpile costs (which swung from a A$71,331,000 credit in FY2023 to a A$28,539,000 expense in FY2024) as well as a non-cash impairment charge for the carrying value of Koolan Island of A$159,100,000.

Sales guidance for the year ended 30 June 2025 is 2.7 million tonnes to 3.0 million tonnes and the mine is estimated to have 3 years of production remaining.

Given the strong cash generation in FY2024, Mount Gibson’s cash, term deposits and tradable investments and net of debt, was A$441 million or an equivalent of A$0.362 per share as at 30 June 2024.

It was another volatile year for the Platts IODEX 62% CFR China index, trading as high as US$136 per dry metric tonne (“dmt”) in January 2024 before falling to US$95 per dmt in March 2024. Over the course of FY2024, it averaged US$114 per dmt. Iron ore prices have generally fluctuated with sentiment related to China’s economy and underlying Chinese steel demand, which has been softer given the ongoing weakness in the domestic property sector.

Tanami Gold

APAC owns 46.3% of Tanami Gold as at 30 June 2024.

Tanami Gold’s principal business activity is gold exploration. It holds 50% of the Central Tanami Project and has a cash balance of A$25 million as well as ownership of 500,000 shares in Northern Star Resources Limited (“Northern Star”) (ASX: NST) which were worth A$6 million as at 30 June 2024. Tanami Gold spent A$6 million in FY2024, largely on exploration and evaluation as well as care and maintenance.

In May 2021, Tanami Gold entered into a binding agreement with Northern Star to establish a new 50–50 Joint Venture covering the Central Tanami Project. Northern Star agreed to pay A$15 million cash to increase its ownership in the project from 40% to 50%, and going forward both parties will be jointly responsible for funding exploration and development activities. This agreement was completed and Tanami Gold paid A$5 million cash to fund its share of the joint venture activity.

Metals X

APAC owns 22.8% of Metals X as at 30 June 2024.

Metals X’s operations are focused on tin production from its 50%-owned Renison tin mine, where hard rock mining began in 1965. Recent development into the Area 5 deposit has provided higher grade tonnes to the mill and, during FY2024 and on a 100% basis, Renison produced 10,037 tonnes of tin-in-concentrate at all-in sustaining costs of A$29,141 per tonne against a tin price of A$41,680 per tonne for imputed EBITDA of A$184 million.

The 2023 Life of Mine Plan targets annual production slightly above 10,000 tonnes until 2032 but Metals X will update the plan (as well as reserves) in the near-term. There is medium-term production upside from the Rentails project given an existing above-ground measured resource of 24 million tonnes at 0.44% tin that doesn’t require mining.

After its sharp peak in early 2022, tin prices moderated due to weaker demand as reflected in a drop in semiconductor orders and lower demand for electronic consumer products. However, prices have moved higher again, driven by production issues at major exporters in Indonesia and Myanmar. In FY2024, the average tin price increased to US$27,500 per tonne. We remain constructive on the medium-term outlook for tin due to the lack of significant supply growth and new demand for tin from the growing electrical vehicle and energy storage industries.

For the six months ended 30 June 2024 Metals X generated a net profit after tax of A$15 million and finished with a very strong balance sheet with A$182 million cash against only A$7 million in debt.

Prodigy Gold

APAC owns 44.3% of Prodigy Gold as at 30 June 2024.

Prodigy Gold is a gold exploration company listed on the ASX. It holds a large footprint of exploration tenements in the Tanami region in the Northern Territory, Australia, and a JORC resource of 0.94 million ounces across its Hyperion, Tregony, Buccaneer and Old Pirate projects. Some of its tenements are held in joint venture with partners such as Newmont Corporation and IGO Limited. Prodigy Gold restarted its exploration activities in 2022 after a number of years of restrictions during the COVID-19 pandemic.

Prodigy Gold reported a net loss after tax of A$10 million for FY2024, which was largely driven by A$4 million of exploration expenses and a A$5 million impairment of capitalized exploration and evaluation expenditure. As at 30 June 2024, Prodigy Gold had a cash balance of A$2 million and the near-term focus will be the Tregony and Hyperion projects.

Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss comprise mainly its Resource Investment. As at 30 June 2024, APAC had significant investments representing 5% or more of the Group’s total assets in Shougang Fushan Resources Group Limited (“Shougang Fushan”) (HKEX: 639).

Significant Investment

Our investment in Shougang Fushan generated a fair value gain of HK$166,335,000 during FY2024, with a closing value of HK$431,475,000. Our investment in Shougang Fushan also generated dividend income of HK$37,754,000 during FY2024.

Shougang Fushan is a coking coal producer listed on The Stock Exchange of Hong Kong Limited. Its principal businesses are coking coal mining, production and sales of coking coal products in China. It has 3 mines located in China with recoverable reserves of 59 million tonnes of raw coking coal at 31 December 2023.

During the six months ended 30 June 2024, Shougang Fushan produced 2.25 million tonnes of raw and clean coking coal and sold 1.34 million tonnes of clean coking coal, with raw coking coal production costs increasing year-on-year from RMB236 to RMB267 per tonne given lower production. This generated HK$2,498 million in revenues and HK$837 million in attributable profit. The market capitalisation of Shougang Fushan as at 30 June 2024 was HK$15.7 billion, compared to cash and time deposits of HK$9.2 billion.

The outlook for coking coal demand from Chinese steel mills remains uncertain given the ongoing weakness in the property market, low to negative steel margins and the potential for near-term steel production cuts. Baowu Steel Group Chair, Hu Wangming, recently warned of a “steel winter” for the Chinese steel industry given the challenges posted by economic slowdowns, overcapacity and government policies.

Resource Investment

The investments in this division comprise mostly minor and liquid holdings in various natural resource companies listed on major stock exchanges including Australia, Canada, Hong Kong, the United Kingdom and the United States. Our investments focus on select commodities within several commodity segments, namely energy, bulk commodities, base metals and precious metals.

Resource Investment posted a fair value gain of HK$364,260,000 in FY2024 (FY2023: HK$16,813,000), which after accounting for segment related dividend and other investment income and expenses, resulted in a segment profit of HK$403,722,000 in FY2024 (FY2023: HK$92,801,000).

Our Resource Investment division includes, among other investing strategies, the two resource portfolios announced in August 2016, with additional natural resource focused strategies subsequently established and focused on large caps and specialist opportunities. The aim of the portfolios is to produce a positive return using the Company’s funds as well as to create a track record to attract potential third-party investments in the future. These various portfolios are managed under the Resource Investment segment of the Company, which is separate to the Company’s larger strategic stakes. Our portfolios have a global long-only mandate (cannot short stocks) and strict parameters on market capitalisation, liquidity, development stage (exploration through to production) and jurisdiction to manage risk.

Small and Mid-Cap Mining Portfolio

One of the mining portfolios focuses on investments in Small and Mid-Cap companies involved in battery metals, base metals, precious metals, uranium, bulks and other hard rock commodities. Since its inception on 1 October 2016, the Mining Portfolio has delivered a return on investment of 558.6% to 30 June 2024, which is an outperformance of 557.6% against its benchmark (currency adjusted equal weighting of ASX 200 Smallcap Resources, FTSE AIM All Share Basic Resources and TSX Venture Composite) return of -1.0%.

A full breakdown of the Small and Midcap Mining Portfolio’s annual performance against its benchmark is presented in the table below.

For the year ended 30 June 2024, this strategy generated a return of 17.4%, which was 20.3% above the benchmark return of -2.9%. Portfolio alpha was generated by a large gold sector weighting, which was driven by our view that gold prices would be propelled higher by ongoing central bank buying plus investment inflows ahead of a Federal Reserve rate cutting cycle. The largest individual stock contributions to performance was Galiano Gold Inc (“Galiano Gold”) (TSX: GAU), which executed a clever, value-accretive deal to consolidate the Asanko Gold Mine and restarted mining operations, as well as Westgold Resources Ltd (“Westgold”) (ASX: WGX) and Resolute Mining Ltd (“Resolute Mining”) (ASX: RSG), which both benefitted from higher gold prices as well as self-help turnarounds.

The portfolio also has substantial wins in the uranium sector, with large gains from investments in KazAtomProm GDRs, Paladin Energy Ltd and Peninsula Energy Ltd, however, this sector has turned more bearish recently.

The largest detractor to performance was maintaining a cash position that averaged 44% over the year, given the portfolio manager’s ongoing bearish macro outlook with the Chinese economy continuing to struggle with weak demand, while western economies are slowing, which creates a potentially negative setup for industrial commodities.

Energy Portfolio

The Energy Portfolio is primarily focused on the oil, gas and renewables sectors. At the end of 2019, the mandate for this portfolio was expanded to include investments in renewables, and with a broadened sector of investments, in the last 3.5 years from February 2020 (before the full impact of the COVID-19 Pandemic) to June 2024, the Energy Portfolio has generated a return on investment of 22%.

The investment choices in the Energy Portfolio are selected through a combination of fundamental bottom-up valuation and analysis of the prospects for different sectors. For instance, during the early days of the COVID-19 pandemic, the investments were focused in companies in the green energy sector given that the low interest rate environment was supportive of stocks with significant growth potential. More recently investments have focused on energy companies given the impact of high interest rates on the green energy sector, plus robust oil prices supported by OPEC+ production cuts.

Precious

Precious metals (majority gold exposure) generated a net fair value gain of HK$109,677,000 in FY2024 and, as at 30 June 2024, the carrying value of the Precious Metals segment was HK$686,052,000 (30 June 2023: HK$267,232,000).

Our largest gold investments in the Resource Investment division were Northern Star, which generated a fair value gain of HK$4,686,000 with a carrying value as at 30 June 2024 of HK$87,421,000, and Newmont Corp (NYSE: NEM) with a fair value loss of HK$1,854,000 with a carrying value as at 30 June 2024 of HK$65,377,000. Our largest fair value gains within the gold sector were HK$25,547,000 from Galiano Gold, HK$19,560,000 from Westgold, and HK$12,217,000 from Resolute Mining.

Northern Star is the second largest gold company in Australia and owns high grade underground mines in Western Australian and Alaska. In FY2024, its production was 1.62 million ounces of gold at an all-in sustaining cost of A$1,853 per ounce for A$4.9 billion in revenues and A$462 million in underlying free cash flow. For FY2025, its production target is 1.65 million to 1.8 million ounces of gold at an all-in sustaining cost of A$1,850 to A$2,100 per ounce.

Gold prices have performed extremely well year-to-date, increasing from US$2,063 per ounce at the end of 2023 to US$2,503 per ounce at the end of August 2024. Supportive factors have included central bank buying continuing at near- record levels, the Federal Reserve’s dovish stance and expected interest rate cuts later this year, and ongoing geopolitical tensions.

Bulk

Bulk commodities segment generated a fair value gain of HK$163,679,000 in FY2024. As at 30 June 2024, the carrying value was HK$584,717,000 (30 June 2023: HK$324,588,000). Our largest investment in this segment during FY2024 was Shougang Fushan (HKEX: 639), which generated a fair value gain of HK$166,335,000 plus HK$37,754,000 dividend income during FY2024. It had a closing value of HK$431,475,000.

Base Metals

The Base Metals segment (which can include a mix of copper, nickel, zinc, aluminium, tin and cobalt companies) delivered a fair value gain of HK$21,683,000 in FY2024. During FY2024, base metal prices were mixed, with copper up 12.3%, aluminium up 14.2%, zinc up 16.0% but nickel down 18.8%. The Base Metals segment includes our investment in China Hongqiao Group Limited (HKEX: 1378) which had a carrying value as at 30 June 2024 of HK$8,274,000.

Energy

The Energy segment (mix of oil and gas, uranium and renewables) had a fair value gain of HK$67,040,000 in FY2024 and a carrying value of HK$232,734,000 as at 30 June 2024. Our significant Energy investments include National Atomic Company Kazatomprom JSC (LSE: KAP), which generated a fair value gain of HK$16,650,000 and had a carrying value as at 30 June 2024 of HK$31,228,000.

Others

We also had a fair value gain of HK$16,108,000 from the remaining commodity investments (diamonds, manganese, rare earths, lithium and mineral sands among others) in FY2024 and had a carrying value as at 30 June 2024 of HK$132,289,000 (30 June 2023: HK$15,629,000).

Commodity Business

Our iron ore offtake at Koolan Island recommenced as the mine restarted operations, and we continue to look for new offtake opportunities across a range of commodities. For FY2024, our Commodity Business generated a segment profit of HK$84,031,000 (FY2023: Profit of HK$3,470,000).

Principal Investment and Financial Services

The Principal Investment and Financial Services segment, which covers the income generated from loan receivables, loan notes and other financial assets. For FY2024, this segment recognized a profit of HK$38,531,000 (FY2023: Loss of HK$17,635,000).

Money Lending

Business Model and Customer Profile

The Group provides both secured and unsecured term loans to its customers under its principal investment and financial services segment. Money lending activities diversifies the income stream and business risks of the Group, and generates a stable return with the Group’s available financial resources on hand from time to time. The Group mainly financed its money lending business by its internal resources.

The Group does not set a specific target for the industry, business or level of annual revenue to corporate borrowers. The customers of the Group’s lending business were referred to the Group through its corporate or business networks. For FY2024, customers of the Group’s lending business include subsidiaries of Hong Kong listed companies for unsecured loans, and private companies for secured loans.

Outstanding loan receivables net of loss allowances as at 30 June 2024 amounted to approximately HK$88,563,000 (As at 30 June 2023: HK$346,074,000). During the year, the Group has written back impairment losses on its loan receivables of approximately HK$24,086,000 (FY2023: Impairment losses of HK$11,715,000). Details of each of the loans outstanding as at 30 June 2024 are disclosed in note 20 to the consolidated financial statements.

Risk Management Policies

The Group adopts a thorough credit assessment and approval process, and will assess and approve each loan transaction on a case-by-case basis. The finance department of the Group (the “Finance Department”) is responsible for conducting a background check on the prospective borrower in compliance with the applicable laws and regulations, reviewing the background and financial strength of such borrower and where applicable, the guarantor, and enquiring the prospective borrower about the purpose of the loan and the expected source of funds for loan repayment. To support its analysis, the Group will obtain corporate documents, financial statements and search reports of the borrower and/or the guarantor, and thereafter, assess the credit risk of the loan and negotiate the terms thereof after considering (i) the background and financial position of the borrower or the guarantor (if applicable), including net asset value and gearing ratio; and (ii) the value of the securities, if any.

Each loan transaction will be approved by either the Board, or if the loan principal does not exceed the threshold set by the Board, by the executive committee of the Board.

The Finance Department monitors the loan and interest repayment regularly and reviews the annual financial statements of the borrowers and guarantors (if applicable). It would promptly report to the chief executive or chief financial officer of the Group for any delay or default in repayment upon maturity, who would then formulate plans for loan collection, including but not limited to requesting for additional securities or initiating legal actions.

Loan Impairment Policies

The Company adopts expected credit loss allowances (“ECLs”) according to the requirements of Hong Kong Financial Reporting Standard 9 issued by the Hong Kong Institute of Certified Public Accountants. Accordingly, it shall review the recoverable amount of each loan at the end of each reporting period to ensure that adequate impairment losses are made. The Group applies a general approach on loan receivables to assess for the ECLs.

Assessment are done based on the Group’s historical credit loss experience, adjusted for factors that are specific to the borrower. In order to measure the ECLs of loan receivables, the Group will apply a credit rating for each of its borrowers by reference to each borrower’s past default records, current past due exposure, an analysis of its current financial position, likelihood or risk of a default, an assessment on any significant increase in credit risk, and fair value of collaterals (if any), and adjust for forward looking information that is available without undue cost or effort, such as the current and forecasted global economy and the general economic conditions of the industry in which the borrower operates.

The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying any significant increase in credit risk before the loan amount becomes past due.

Forward Looking Observations

The global economic outlook in 2024 presents a complex picture with increasing concerns over global demand and rising inventories. The U.S. economy is expected to face significant headwinds, with fears of a recession looming as consumer spending slows and interest rates remain elevated. This environment is likely to dampen industrial activity, leading to reduced demand for key commodities such as copper and iron ore. Analysts predict a widening surplus in iron ore and a marginal surplus in refined copper, suggesting that supply will outpace demand in the near term, which could pressure prices downward. In China, despite some recovery signals, the economy is grappling with structural issues, particularly in the property sector, which continues to weigh on overall growth. This uncertainty has led to cautious sentiment among investors, as reflected in the lowest commodity market positioning since early 2019.

While cash weightings in our various investment portfolios remain somewhat elevated, we continue to hunt for high quality companies in select commodities which can generate attractive returns over the long run. Our mining and energy investment portfolios are the platform for future mining and energy investments. Our largest investment is in Mount Gibson, which has successfully ramped up production at the Koolan Island mine and is now generating significant free cash flow, subject to iron ore prices, over the remaining three years of life.