Anglo Pacific prospers

Mining royalties remain a little used model in the UK and are better understood by US investors. But, essentially, Anglo establishes royalty agreements in return for financing mining operations - generally to help progress mines into production. In rarer instances, the group also buys existing royalties. It will soon have 20 royalties, of which four are in production.

The core asset remains the royalty arising from Rio Tinto's Australian Kestrel coal mine. Output volumes there suffered in the year due to flooding in Queensland - although higher resultant prices limited the royalty impact - but planned expansion at Kestrel highlights the attractions of the royalty model. Indeed, Liberum Capital estimates that Anglo will receive a 24 per cent year-on-year boost to 2013's royalty income reflecting Rio's $2bn (£1.3bn) expansion of Kestrel. However, while Rio's capital costs have almost doubled from the original budget, Anglo's royalty is based on turnover and is insulated from the high cost inflation that has hit the mining sector generally.