Primary Strategic Investments
Our Primary Strategic Investments are in Mount Gibson (ASX: MGX)
and Tanami Gold NL (“Tanami Gold”) (ASX: TAM), both are listed
and operating in Australia. During the year, APAC has increased
its shareholding in Metals X Limited (“Metals X”) (ASX: MLX) to
approximately 21.2% as at 30 June 2023, which is also listed on
the Australian Securities Exchange (“ASX”), turning it to become
an associate. The net attributable loss from our Primary
Strategic Investments for FY2023 was HK$10,632,000 (FY2022: Net
loss of HK$340,418,000).
In October 2022, our shareholding in Prodigy Gold NL (“Prodigy
Gold”), a gold exploration company listed on ASX increased to
49.9%. In accordance with Hong Kong Financial Reporting
Standards, APAC is deemed to have control over it and commence
accounting for it as a subsidiary. In FY2023, the
post-acquisition attributable loss from Prodigy Gold amounted to
HK$9,721,000.
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 the high freight costs.
Ore sales at the Koolan Island Restart Project started in April
2019, and achieved commercial production in the June quarter
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 will enable increased production from
the year ending 30 June 2023 onwards.
Mount Gibson reported a net profit after tax of A$5 million for
FY2023 from sales of 3 million tonnes of iron ore. Operating
costs improved in FY2023 as the company completed its elevated
stripping phase at Koolan Island and repairs were completed at
the crushing plant. Mount Gibson financials were impacted by a
non-cash impairment for the carrying value of both Koolan Island
and its Mid West assets, for a combined impact of A$75 million.
Sales guidance for the year ending 30 June 2024 (“FY2024”) is
3.8 million tonnes to 4.2 million tonnes.
Mount Gibson cash reserve, including term deposits and tradable
investments and net of debt, was A$139 million or an equivalent
of A$0.115 per share at the end of FY2023.The Platts IODEX 62% CFR China index has been volatile in
FY2023, it averaged US$103 per dry metric tonne (“dmt”) but
bottomed in late October 2022 at US$73 before trading up to
US$127 per dmt in February 2023 and by late August 2023, traded
back to US$115 per dmt. Iron ore prices have generally
fluctuated with sentiment related to China’s economy. It saw a
sharp rebound after the end of its zero covid policy, then
weakened on concerns of weak property sales and construction
activity.
Tanami Gold
We currently own 46.3%
of Tanami Gold.
Tanami Gold’s principal
business activity is gold exploration. It holds 50% of the
Central Tanami Project and has a cash balance of A$31 million.
In May 2021, Tanami Gold entered into a binding agreement with
Northern Star Resources Limited (“Northern Star”) (ASX: NST) 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 21.2% of Metals X as at 30 June 2023.
Metals X is focused on implementing its life of mine plan at
Renison mine, including development of the high grade Area 5
deposit. During FY2023, the Renison mine produced 4,023 tonnes
of tin (net 50% basis) down 15% year-on-year (“YoY”), and the
average realised tin price of A$36,429 per tonne was down 24%
YoY.
After its sharp peak in early 2022, tin prices have
moderated due to weaker demand as reflected in a drop in
semiconductor orders and lower demand for electronic consumer
products in the face of a weakening global economy. In FY2023
the tin price averaged US$24,420 per tonne. More recently,
concerns about supply issues, including weaker production from
Indonesia and potential ban on mining activity in Myanmar has
provided some support for prices, and at the time of writing the
tin price is around US$25,000 per tonne. We remain comfortable
with 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 2023, Metals X generated a net
profit after tax of A$12.1 million with net assets of
approximately A$331.7 million at 30 June 2023.
Prodigy Gold
APAC owns 49.8% of Prodigy Gold.
Prodigy
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. 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 several
years of restrictions related to the COVID-19 pandemic. Prodigy
Gold reported a net loss after tax of A$5.2 million for FY2023.
At the end of June 2023, Prodigy Gold has a cash balance of
A$6.1 million. The focus of Prodigy Gold for 2023 will be
exploration on the Northern Tanami project area and continue
with its strategy to divest non-core assets.
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 2023, APAC had significant investment representing 5% or
more of the Group’s total assets in Shougang Fushan Resources
Group Limited
(“Shougang Fushan”)
(HKEX: 639).
Significant Investments

Our investment in
Shougang Fushan generated a fair value loss of HK$156,316,000
with carrying value as at 30 June 2023 of HK$265,375,000.
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 reserves of 64 million
tonnes of raw coking coal at 31 December 2022 and during six
months ended 30 June 2023 Shougang Fushan produced 2.7 million
tonnes raw coking coal which is consistent with its 2023
guidance of 5.25 million tonnes of raw coking coal.
For the six months ended
30 June 2023, Shougang Fushan generated EBITDA of
HK$2,373,000,000 and net profit after tax of HK$1,519,000,000.
The market capitalisation of Shougang Fushan in September 2023
is around HK$11.4 billion, while its working capital reported at
30 June 2023 is HK$7.4 billion. In July 2023 Shougang Fushan
announced it plans to buyback 125 million shares at HK$2.40 per
share as a means to provide liquidity given that the company is
trading at a discount to its net asset value. Since the
announcement Shougang Fushan’s share price has traded
consistently below this buyback level.
The average benchmark
market selling prices of its clean coking coal products in the
first half of 2023 was down 30% YoY and Shougang Fushan’s
realized price was down 22%. The outlook for Chinese steel
demand remains uncertain given the weakness seen in the housing
market and speculation that there will be steel production cuts.
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$16,813,000 in FY2023 (FY2022:
HK$169,137,000), which after accounting for segment related
dividend and other investment income and expenses, resulted in a
segment profit of HK$92,801,000 in FY2023 (FY2022:
HK$171,572,000).
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 large 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.
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 461.2% to 30 June 2023, which is an
outperformance of 459.2% against its benchmark (currency
adjusted equal weighting of ASX 200 Smallcap Resources, FTSE AIM
All Share Basic Resources and
TSX Venture Composite) return of 2.0%.
A full breakdown of the
Small and Midcap Mining Portfolio’s (P1) annual performance
against its benchmark is presented in the table below.

For the year ended 30 June 2023, this strategy generated a
return of 16.3%, which was 19.5% above the benchmark return of
–3.2%. Alpha was generated by a) larger positions in lithium and
thermal names in the first half of the year, before pivoting to
more gold and uranium exposure in the second half of the year,
b) reweighting the portfolio towards cashflow generating
production and cutting more early stage and speculative
positions (total holdings reduced from 46 to 38 stocks), and c)
early investments into Meteoric Resources NL and Azure Minerals
Limited. The largest detractor to performance was maintaining a
cash position that averaged 30% over the year. This cash
position is currently higher given the portfolio manager’s
near-term bearish macro outlook.
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 August 2023, the Energy Portfolio has generated a
return on investment of 103%.
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$98,194,000 in
FY2023. As at 30 June 2023, the carrying value of the Precious
segment was HK$267,232,000 (As at 30 June 2022: HK$319,354,000).Our largest
gold investment in the
Resource Investment division is in Northern Star (ASX: NST)
which generated a fair value gain of HK$45,544,000 with carrying
value as at 30 June 2023 of HK$76,837,000. We also own Westgold
Resources Limited (ASX: WGX) which generated a fair value gain
of HK$9,703,000 with carrying value as at 30 June 2023 of
HK$44,114,000. Other notable fair value gains include
HK$7,387,000 generated from our investment in Centerra Gold Inc.
(CSE: CG).
Northern Star is the
second largest gold company in Australia and owns high grade
underground mines in Western Australian and Alaska. In FY2023
its production was 1,563,000 ounces of gold, and it generated
free cash flow of A$359 million. In FY2024 its production target
is 1,600,000 – 1,750,000 ounces of gold.
Gold price generally
strengthened in 2H FY2023 and traded above US$2,000 per ounce in
April and May but have since traded back down as expectations
for the timing of US Federal Reserve interest rate cuts were
pushed out. It has recently traded in a range of approximately
US$1,900 per ounce to US$1,950 per ounce.
Bulk
Bulk commodities segment generated a net fair value loss of
HK$129,409,000 in FY2023. As at 30 June 2023, the carrying value
was HK$324,588,000 (As at 30 June 2022: HK$552,081,000). Our
largest investment in this segment during FY2023 is in Shougang
Fushan (HKEX: 639), which generated a fair value loss of
HK$156,316,000 and had a carrying value as at 30 June 2023 of
HK$265,375,000.
Base Metals
Base Metals segment (a
mix of copper, nickel and zinc companies) delivered a net fair
value loss of HK$742,000 in FY2023. The copper price fell by
0.4%, nickel by 13% and zinc by 27%. The Base Metals segment
includes our investment in China Hongqiao Group Limited (HKEX:
1378) which had a carrying value as at 30 June 2023 of
HK$10,812,000.
Energy
The Energy segment (mix
of oil and gas, uranium and renewables) had a net fair value
gain of HK$8,206,000 in FY2023. Our significant Energy
investments include National Atomic Company Kazatomprom JSC
(LSE: KAP), which generated a fair value gain of HK$1,062,000
and had a carrying value as at 30 June 2023 of HK$33,622,000 .
Others
We also have a net fair
value gain of HK$5,335,000 from the remaining commodity
(diamonds, manganese, rare earths, lithium and mineral sands
among others) and non-commodity investments in FY2023 and had a
carrying value as at 30 June 2023 of HK$113,025,000 (As at 30
June 2022: HK$177,578,000). This includes our investment in
Azure Minerals Limited (ASX: AZS), which generated a fair value
gain of HK$6,018,000 and had a carrying value as at 30 June 2023
of 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 FY2023, our Commodity Business generated a
segment profit of HK$3,470,000 (FY2022: profit of HK$53,649,000 .
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 FY2023, this segment recognized a loss of
HK$17,635,000 (FY2022: Profit of HK$32,466,000).
Money Lending
The Group engaged in money lending activities under the Money
Lenders Ordinance of Hong Kong. For FY2023, the revenue and
profits generated from money lending formed part of results of
the Principal Investment and Financial Services segment.
Outstanding loan receivables net of loss allowances as at
30 June 2023 amounted to approximately HK$346,074,000 (As at 30
June 2022: HK$362,698,000). During the year, the Group has
provided for impairment losses on its loan receivables of
approximately HK$11,715,000 (FY2022: Impairment losses written
back of HK$1,613,000).
Forward Looking Observations
We are concerned about
the near term outlook for the global economy and therefore the
impact of slower growth on commodities and equities. While
equity markets focus on when the US Federal Reserve will reduce
interest rates, we expect this to only occur once we see
weakness in economic conditions. While China’s economy is
impacted by a lack of consumer confidence and concerns about the
housing sector, we cannot rule out a large stimulus package
which would be a positive for most commodities. We see
opportunities in select commodities and aim to be nimble with
our investments in the near term, and continue to look for high
quality opportunities which will 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 has successfully ramped up
production at the Koolan Island mine after completing its large
waste stripping program, and is now in a position to generate
free cash flow in the coming years.
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