HispanicBusiness

The Group's strategy remains focused on acquiring new royalties by providing mining finance and through its associated strategic mining investments. The Group is fully committed to generating consistent cash flows and dividends for shareholders.

Outlook

The outlook for the world economy appears to have improved since the year end with an increase in Chinese output and infrastructure spending and continuing signs of recovery in the US economy. Japan, India and South Korea appear similarly committed to a growth strategy. This confidence has produced better mining markets and a more optimistic outlook for metal prices and in particular iron ore.

As Rio Tinto continue to progress with the Kestrel expansion project, we remain confident of a recovery in production from Kestrel in 2013. This together with, the substantial increase in royalty rates announced by the Queensland Government in September last year from 10% to 12.5% above A$100 and 10% to 15% for coal prices realised above A$150 dollars per tonne should impact positively on royalty receipts from Kestrel in 2013.

The progress made during the year at a number of the Group's development royalties has been positive and should bring forward future royalty cash flows. The Group's revenue is directly linked to the top line of its royalty mining operations, whilst avoiding exposure to the current inflationary escalation in mining costs. The Group itself has no operating mines of its own.

The Group will continue to make the acquisition of new royalties its principal strategic focus, as it maintains its belief that the long term urbanisation of the developing world should still drive demand for those commodities covered by its royalties.

Royalty review

Producing royalties

Kestrel Coking Coal, Queensland, Australia

In Australia, coking coal receipts from the Kestrel mine operated by Rio Tinto Limited were GBP 10.9 million (2011: GBP 26.1 million (restated)) on approximately 2.7million tonnes of hard coking and thermal coal (2011: 3.8 million tonnes). Royalty income was impacted in the first half of 2012 by a longwall changeover and lower productivity during the ramp up and in the second half of 2012 by a major coal preparation plant shutdown as part of Kestrel's mine expansion project. Benchmark hard coking coal quarterly contract prices fell from $235 fob in Q1 2012 to $170 fob in Q4 2012.

During the second quarter of 2012 the Group was informed by Rio Tinto that an audit by the Queensland Office of State Revenue had identified a misallocation of royalty revenue relating to areas reserved by the State of Queensland for roads. This resulted in an overpayment of royalties to the Group of GBP 4.6 million (A$7.1 million) for the period September 2006 to December 2011, together with an associated interest charge of GBP 1.4 million (A$2.2 million). The misallocation of royalty revenues and associated interest charge has been reflected in the restated balance sheet at December 31, 2011, the impact of which is described in note 1.

In the 2012-2013 Queensland State Budget, the Queensland Government announced an increase in the royalty rates for coal sold, disposed of or used on or after October 1, 2012, which will also apply to the Group's Kestrel royalty. The effective royalty rate for a particular period depends on the average price per tonne of coal for the return period and is calculated on a tiered system. Where the average price per tonne is over A$100 and up to and including A$150, the royalty rate has risen from 10% to 12.5%, with an additional band of 15% where the average price is over A$150 per tonne. The first A$100 will continue to attract a royalty rate of 7%.