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Primary Strategic Investments

Our Primary Strategic Investments are in Mount Gibson which is listed and operating in Australia, and in the year ended 30 June 2018 we also acquired an investment in Tanami Gold NL (“Tanami Gold”). The net attributable profit from our Primary Strategic Investments for FY 2020 was HK$145,377,000 (FY 2019: Net profit of HK$271,659,000). Mount Gibson reported a FY 2020 net profit after tax of A$84 million.

 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 which produces one of the highest grade iron ore products in Australia, and the Extension Hill/Iron Hill operations in the Mount Gibson Range south east of Geraldton. Mining of Direct Shipping Ore from its Mid West mines ended in the year ended 30 June 2019 although sale of low grade material from Extension Hill has continued for longer than forecast, and the latest forecast is for sales to end in calendar year 2020. 

Importantly, ore sales at the Koolan Island Restart Project started in April 2019, achieved commercial production in the June quarter 2019. The restart project had 21 million tonnes of 65.5% Fe reserves, and is partway through a planned elevated waste mining phase, which should then allow for increased production from the year ended 30 June 2022 (“FY 2022”) onwards. 

Mount Gibson reported a net profit after tax of A$84 million for FY 2020 from sales of 4.9 million tonnes. 

Mount Gibson’s operating costs were high in FY 2020 and will remain high until the waste mining phase is complete. In addition, Koolan Island operations were impacted by a conveyor belt tear and replacement, which is now completed. The company reported an all in cash cost of A$72 per tonne for FY 2020 and released guidance for the year ended 30 June 2021 (“FY 2021”) all in cash cost of A$60-65 per tonne. Costs will remain high as Mount Gibson completes the waste mining phase at Koolan Island over the next 18 months. 

Mount Gibson still boasts a robust cash reserve, including term deposits and tradable investments, ending FY 2020 with A$423 million or an equivalent of A$0.36 per share, despite paying a dividend in September 2019. 

Mount Gibson sales guidance for FY 2021 is 2.8 million tonnes to 3.3 million tonnes, at an all-in group cash cost of A$60–65 per wet metric tonne (“wmt”) FOB.

The Platts IODEX 62% CFR China index sold off its highs in early FY 2020, and was range bound around US$80-90 per dry metric tonne (“dmt”) for the majority of the year. In May 2020, the iron ore price started to strengthen as Chinese steel inventories were drawn down from pent-up demand as construction restarted in China. Global iron ore supply is still impacted by lower production from Vale. Iron ore prices have been on an upward trend, and at the time of writing it is above US$120 per dmt. In the medium term we continue to expect average iron ore prices to remain capped given weak non-China steel demand and a continuing recovery in Brazil. 

Tanami Gold

We currently own 46.3% of Tanami Gold. 

Tanami Gold’s principal business activity is gold exploration. It holds 60% of the Central Tanami Project and has a cash balance of A$29 million, after it exercised its first put option in July 2018 to sell 15% of the project to Northern Star Resources Limited (“Northern Star”) for A$20 million cash. The remaining 40% is owned by Northern Star. Under the terms of the joint venture, Northern Star will sole fund all expenditure until commercial production is achieved at the Central Tanami Project. After commercial production is reached, Northern Star can earn an additional 35% of the Central Tanami Project and Tanami Gold has a second put option to sell its remaining 25% of the project to Northern Star for A$32 million. Northern Star continues exploration in the Central Tanami Project, although since March there has been no on-ground exploration due to COVID-19 restrictions. 

Financial Assets at Fair Value through Profit or Loss 

Financial assets at fair value through profit or loss comprise the Group’s investments in Metals X Limited (“Metals X”) and Resource Investment. As at 30 June 2020, none of these investments represents 5% or more of the Group’s total assets. 

Metals X

The carrying values of Metals X as at 30 June 2020 amounted to HK$58,398,000 (As at 30 June 2019: HK$87,748,000) represented approximately 1.7% (As at 30 June 2019: 2.2%) of the total assets of the Group. In FY 2020, our investment in Metals X generated an unrealized loss of approximately HK$95,631,000 (FY 2019: Loss of HK$195,693,000) which was accounted for in profit or loss. 

In June 2020, APAC gave notices to Metals X requesting that the directors of Metals X call a general meeting of Metals X to replace three of its directors given its failure to sell the Nifty asset and subsequent plan to redevelop Nifty as an open pit. Metals X also announced the updated mine plan for Renison mine, with significant capex spend in FY 2021-FY 2022. This caused Metals X to breach covenants in its debt facility with Citibank. 

In July 2020, the three directors of Metals X stepped down from the board while Mr. Brett Robert Smith, who is the deputy chairman and an executive director of the Company, was appointed to the board initially as a non-executive director and subsequently as an executive director of Metals X, and Metals X reiterated its commitment to sell the copper asset portfolio. APAC provided a A$26 million loan facility to repay the Citibank loan. Metals X is now focused on implementing its life of mine plan at Renison mine. 

During FY 2020, the Renison mine produced 3,591 tonnes of tin (net 50% basis) up 1% year-on-year (“YoY”), however the average realised tin price of A$21,466 per tonne was down 13% YoY. Metals X expects to access higher grade Area 5 in the second half of calendar year 2020. 

Tin prices weakened early in FY 2020 due to the weakness in the semiconductor sector, and fell below US$14,000 per tonne due to concerns about the COVID-19 outbreak. Since then, tin prices have recovered to as high as US$18,000 per tonne. We remain bullish 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. 

Resources Investment

The investments in this division comprise mostly minor holdings in various natural resource companies listed on major stock exchanges including Australia, Canada, Hong Kong, the United Kingdom and the US. Our investments focus on select commodities within several commodity segments, namely energy, bulk commodities, base metals and precious metals. Some of our positions are exploration or development stage companies and this section of the market is particularly sensitive to risk aversion, lower commodity prices, and the difficult financing markets. 

Resource Investment posted a fair value gain of HK$42,317,000 in FY 2020 (FY 2019: Loss of HK$89,953,000), which after accounting for segment related dividend and other investment income and expenses, resulted in a segment profit of HK$63,356,000 (FY 2019: Loss of HK$86,646,000). 

Our Resource Investment division includes the results of the two resource portfolios which were announced in August 2016. While the resources sector was already subdued in the six months ended 31 December 2019 (“1H FY 2020”) due to concerns relating to the trade war, the spread of COVID-19 in February and March 2020 caused the vast majority of commodity prices to drop significantly, although most metal prices have recovered to its pre-COVID-19 levels and in the case of iron ore and gold, have outperformed. During FY 2020 the average performance from a number of small cap resources indices averaged 6% (includes the FTSE AIM Basic Resources Index, ASX Small Resources Index, the TSX Venture Composite Index among others). Brent oil prices traded in a range of US$55 per barrel to US$65 per barrel during 1H FY 2020, but sold off heavily when Russia and Saudi Arabia walked away from OPEC+ production cuts at the time when COVID-19 was spreading beyond China. Although it has recovered from its March lows, it is still trading well below its pre-COVID-19 levels. The average performance of several small-mid cap oil and gas indices averaged –51% in FY 2020 (includes the S&P TSX Small Cap Energy Index and S&P 500 Energy Sector among others). 


Precious metals (majority gold exposure) generated a net fair value gain of HK$92,981,000 in FY 2020 while the gold price was up 28%. As at 30 June 2020, the carrying value of the Precious segment was HK$314,449,000 (As at 30 June 2019: HK$80,468,000). Our largest gold investment in the Resource Investment division is in Northern Star (ASX: NST) which generated a fair value gain of HK$14,326,000 with carrying value as at 30 June 2020 of HK$104,165,000. We also own Westgold Resources (ASX: WGX) which generated a fair value gain of HK$18,332,000 with carrying value as at 30 June 2020 of HK$68,444,000. Other notable fair value gains include HK$12,618,000 generated from our investment in Skeena Resources (TSX: SKE).

Northern Star owns high grade underground mines in Western Australian and Alaska. In FY 2020 its production was 905,000 ounces of gold, and it generated underlying free cash flow of A$423 million. In FY 2021 its production target is 1,000,000 ounces of gold, equating to 10% YoY growth. 

Westgold Resources produced 235,150 ounces of gold in FY 2020 down 8% YoY and missed its target of 275,000 to 300,000 ounces. Westgold Resources now target 270,000 to 300,000 ounces in FY 2021 at an AISC of A$1,460–1,560 per ounce as it expects Big Bell production to ramp up over the year. 

The gold price started to strengthen after the Fed cut its benchmark rate by 25 basis points in July 2019. Since then, gold has continue its upward trajectory, except for a brief drop in March 2020 as the market sold down en masse as the pandemic spread. Gold price continues to be supported by central governments’ stimulus plans, including the US Federal Reserve’s ongoing commitment to purchase government securities. By the end of FY 2020 it was trading at US$1,770 per ounce, and at the time of writing it is trading around US$1,950 per ounce. More recently, the US Federal Reserve announced a new inflation target of an average of 2%, implying that there are periods where inflation can be above these levels and interest rates are now expected to stay lower for longer, which is also supportive for gold prices. 


Bulk commodities generated a fair value gain of HK$9,519,000, as iron ore was one of the best performing commodities in FY 2020. As at 30 June 2020, the carrying value of the segment was HK$189,224,000 (As at 30 June 2019: HK$72,784,000). Our largest investment in this segment is Shougang Fushan (HKEX: 639), which generated a fair value gain of HK$1,395,000 with carrying value as at 30 June 2020 of HK$174,487,000. 

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 79Mt of raw coking coal at 31 December 2019 and during six months ended 30 June 2020 Shougang Fushan produced 2.3Mt raw coking coal. The market cap of Shougang Fushan in early September 2020 is around HK$9.4 billion, while its working capital reported at 30 June 2020 is HK$4.8 billion and it generated EBITDA of HK$1 billion in six months ended 30 June 2020. 2020 guidance is for 4.8 million tonnes of raw coking coal, and implies an increase from the first half of 2020 which was impacted by temporary mine suspensions due to COVID-19. It declared an interim dividend of HK7.5 cents per share. In the near term, China’s fiscal stimulus supports growth in infrastructure spending which encourages steel and therefore coking coal demand while restrictions on seaborne imports are expected to remain in place for now. 

Base Metals

Base Metals segment (a mix of copper, nickel and zinc companies) delivered a fair value loss of HK$26,923,000 in FY 2020, the copper and nickel prices increased by 1% and 4% respectively while the zinc price fell 19%. The Base Metals segment includes our investment in China Molybdenum (HKEX: 3993) which generated a fair value gain of HK$540,000 and dividend income of HK$424,000 in FY 2020 and had a carrying value as at 30 June 2020 of HK$22,761,000 (As at 30 June 2019: HK$22,221,000). 


The Energy segment (mainly oil and uranium exposure) had a fair value loss of HK$20,835,000 in FY 2020. Our significant Energy investments include Woodside Petroleum (ASX: WPL), which generated a fair value gain of HK$1,165,000 and had a carrying value as at 30 June 2020 of HK$11,522,000 (As at 30 June 2019: Nil) and Kazatomprom (LSE: KAP), which generated a fair value loss of HK$18,000 and had a carrying value as at 30 June 2020 of HK$7,514,000 (As at 30 June 2019: Nil). 


We also have a fair value loss of HK$12,425,000 from the remaining commodity (diamonds, manganese and mineral sands among others) and non-commodity investments in FY 2020 and had a carrying value as at 30 June 2020 of HK$21,921,000 (As at 30 June 2019: HK$28,556,000). 

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 FY 2020, our Commodity Business, which engaged in trading of iron ore, generated a loss of HK$5,912,000 (FY 2019: Loss of HK$3,808,000). 

Principal Investment and Financial Services

The Principal Investment and Financial Services segment, which covers the income generated from loan receivables, loan notes, convertible notes and other financial assets. For FY 2020, this segment generated a profit of HK$57,851,000 (FY 2019: Profit of HK$47,371,000). 

Money Lending

The Group engaged in money lending activities under the Money Lenders Ordinance of Hong Kong. For FY 2020, the revenue and profits generated from money lending formed part of results of the Principal Investment and Financial Services segment.

Forward Looking Observations

In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organisation. The Group has implemented, since January 2020, the following protocols to protect the health and safety of our workforce, their families, local suppliers and neighbouring communities while ensuring a safe environment for operations to continue as usual: 

• implement measures to maximize social distancing and staff protection within the offices;

• required meetings are held off-site or by conference calls as far as possible;

• cancellation of all non-essential travel;

• flexible and remote working plans for employees;

• access to office restrictions and temperature screening;

• self-isolation  following  outbound travel, development of symptoms, or  interaction  with  a  confirmed  case of  COVID-19 and do
   coronavirus test as and when necessary on Company’s cost;

• increased inventory of face mask, hand sanitiser and hygiene supplies; and

• increased focus on cleaning and sanitation. 

The outlook for the global economy in the short term will largely depend on the pandemic. At the time of writing, the effects of the pandemic are ongoing, although social distancing measures have provided a way for infection rates to remain somewhat contained, which has allowed for a soft reopening trajectory. Several countries and companies are focused on developing a vaccine, which would lead to a broader reopening and would support a further improvement in global growth and the broader commodity complex. We expect central banks and governments to continue to support businesses and households with fiscal and monetary measures. 

Against this difficult backdrop, we remain defensive and selective 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 which is underpinned by a large cash reserve, and its Koolan Island mine is currently undergoing a large waste stripping program, which will position it for strong free cash flow generation once it is completed.


(update as of 25 September 2020)
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