REG - Baker Steel Res Tst - Annual Financial Report
14/04/2022 16:00
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RNS Number : 4710I Baker Steel Resources Trust Ltd 14 April 2022
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the provisions of
The Companies (Guernsey) Law, 2008 as amended)
14 April 2022
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
Annual Report and Audited Financial Statements
For the year ended 31 December 2020
The Company has today, in accordance with DTR 6.3.5, released its Annual
Audited Financial Report for the year ended 31 December 2021. The Report is
available via www.bakersteelresourcestrust.com and will shortly be submitted
to the National Storage Mechanism.
Further details of the Company and its investments are available on the
Company's website www.bakersteelresourcestrust.com
(http://www.bakersteelresourcestrust.com)
Enquiries:
Baker Steel Resources Trust Limited: +44 20 7389 8237
Francis Johnstone
Trevor Steel
Numis Securities Limited: +44 20
7260 1000
David Benda (Corporate)
James Glass (sales)
HSBC Securities Services (Guernsey) Limited
Company
Secretary: +44
1481 717 852
MANAGEMENT AND ADMINISTRATION
DIRECTORS: Howard Myles (Chairman)
Charles Hansard
Fiona Perrott-Humphrey
David Staples
(all of whom are non-executive and independent)
REGISTERED OFFICE: Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
MANAGER: Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
INVESTMENT MANAGER: Baker Steel Capital Managers LLP*
34 Dover Street
London W1S 4NG
United Kingdom
STOCK BROKERS: Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
SOLICITORS TO THE COMPANY: Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London SE1 2AQ
United Kingdom
ADVOCATES TO THE COMPANY: Mourant Ozanne
(as to Guernsey law) Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY: HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
* The Investment Manager was authorised as an Alternative Investment Fund
Manager ("AIFM") for the purpose of the Alternative Investment Fund Managers
Directive ("AIFMD") on 22 July 2014.
SUB-ADMINISTRATOR TO THE COMPANY: HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE COMPANY: HSBC Continental Europe
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
SAFEKEEPING AND MONITORING AGENT: HSBC Continental Europe
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
AUDITOR: BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter Port
GY1 3LL
Guernsey
REGISTRAR: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
UK PAYING AGENT, RECEIVING AGENT AND TRANSFER AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
PRINCIPAL BANKER: HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
CHAIRMAN'S STATEMENT
For the year ended 31 December 2021
2021 was a mixed year for your Company as the global economy started to
recover after the severe shock of the Covid-19 pandemic. The NAV per share
increased by 1.2% to 98.4 pence, compared to a 5.0% rise in the EMIX Global
Mining Index in Sterling terms. The Company's share price on the London Stock
Exchange rose 3.4% during the year. This overall flat performance masks some
significant movements in the underlying portfolio. In particular, the carrying
values of First Tin doubled and Kanga Potash increased 52% on the back of
surging prices of tin and potash, whereas those of Bilboes Gold and Polar
Acquisitions fell on weaker precious metal markets. Whilst the investment
policy of the Company concentrates on the specific characteristics of the
individual projects, this demonstrates the importance of diversification in
terms of commodity, geography and development stage of the projects as well.
Two Listings During 2021
During the year two of the Company's core investments were listed. Tungsten
West PLC completed a successful listing on the AIM market of the London Stock
Exchange in October 2021, raising £39 million. This, together with a US$49
million royalty and loan facility from Orion Resource Partners, was well in
excess of the £45 million capital required to bring Tungsten West's Hemerdon
tungsten mine into production despite the 10% inflation in capex being seen
across the mining industry. The listing price represented approximately three
times the Company's average investment price and although our shares are
locked-up until October this year under AIM rules, we believe there is
significant upside potential for Tungsten West once the mine comes into
production which is targeted for early next year.
The other investment to achieve a listing was Mines & Metals Peru PLC
which merged with Oro X Mining Corp to create Silver X Mining Corporation,
listed on the Toronto Venture Exchange and raising C$14 million.
Unfortunately, since its listing Silver X's share price has fallen, probably
due to a weaker silver price and the election of a left-wing government in
Peru which is targeting the mining industry with increased taxes. Fortunately,
the majority of the Company's investment in Silver X remains via a convertible
debenture, repayable in June 2022, albeit the conversion price is well below
the current share price. We are in negotiation with Silver X either for our
capital to be repaid or for another mutually acceptable solution. This
re-emphasises the benefits of the Company's strategy to make new investments
via convertible loans, maintaining the equity upside whilst providing a
measure of downside risk protection.
The termination of negotiations for the cash offer for Bilboes Gold was a
disappointment during 2021, however the type and length of warranties demanded
by the potential buyer would have tied up too much of our capital for an
unacceptable period of time. Bilboes is currently reviewing its options for
the refinancing of what will be Zimbabwe's largest gold mine but our
preference is one that enables the Company to retain a stake in the future of
the mine
Environment, Social and Governance ("ESG")
The focus on ESG has become increasingly important for all industries but
particularly the mining industry which historically has had a poor reputation,
not always unjustified. It is therefore important for the mining industry to
demonstrate that it can be part of the solution to the environmental issues
facing the world, rather than a problem, whether through metals for
electricity storage such as lithium, nickel and cobalt or through electricity
transmission and connections such as copper and tin. Until scalable and
economically viable alternative can be put in place, however, even coking coal
will have an important role in producing the steel required to create the
infrastructure for a carbon neutral future. Mines themselves can also move to
lower their carbon footprint by installing solar plants or moving to electric
equipment. The Nussir copper project in northern Norway in which the Company
has a 12.1% interest is contender for the world's first truly carbon neutral
mine having recently updated its feasibility study based on a 100% electric
primary mining fleet plus utility vehicles. All of Nussir's electricity needs
will be covered from renewable energy sources.
Social & Governance issues have always been an important part of the
Company's investment criteria as a properly run company which has the right
employee culture and sensitivity to the concerns of local communities should
encounter fewer problems and outperform in the longer term. However, it is
important that we as responsible allocators of capital do our best not to let
the current trends on ESG become a "tick box" exercise where companies make
glib statements on ESG in annual reports whilst not following through with
actions. We expect the debate around what are appropriate and realistic
measures of ESG to continue. Part of the strategy of the Company is to seek
board representation on our investments so that we are in a position to guide
policy on ESG, which is also becoming an increasingly important factor in the
cost of capital for mining companies. Further details on the Company's
investments are given in the Investment Manager's Report.
Outlook
The maturity of the Company's investment portfolio is demonstrated by the
expectation of a further three listings during 2022. First Tin PLC
successfully listed on the main market of the London Stock Exchange raising
£20 million in April 2022 and is planning a secondary listing on the
Australian Stock Exchange later this year. As mentioned above Nussir has
completed the update on its feasibility study and expects to list later this
year to raise the equity for the development of its copper project. Kanga
Potash is likewise planning an IPO in London later this year in order to fund
the final engineering studies following its positive feasibility study on its
world class potash project in the Republic of Congo which is supported by the
recent more than doubling of potash prices.
The Investment Manager continues to evaluate and monitor a number of
interesting potential new projects which could meet our criteria for
investment. Due to the size of the Company's ownership interests in the
companies being listed however, its holdings are likely to be locked up for a
period before potential cash realisations can be made, therefore any new
investments are unlikely until the latter part of the year.
The escalation of tensions between Russia and the West, following Russia's
invasion of Ukraine, presents a range of implications for both precious metals
and broader commodity markets. Gold has moved higher driven by both safe haven
demand, and soaring energy costs suggesting that higher inflation is likely to
last longer than governments are currently forecasting. The war has also
further emphasised the issue of supply chains. The importance of where
commodities are produced and how easily they can reach their end markets had
already been highlighted during the Covid pandemic. Some commentators are now
suggesting an end to the trend of extreme globalisation that has occurred in
recent decades. Should this be the case, the reverse trend could see even more
significant supply chain disruptions leading to higher commodity
inflation.
The other key outcome from the sanctions on Russia and the resulting increases
in oil and gas prices is likely to be an acceleration in the West of the
existing drive towards electrification, renewable energy and greater energy
self-sufficiency over the medium term. Most European countries have announced
major plans for increased renewables. In addition, President Biden's plans to
employ the little-used Defense Production Act to increase American production
of minerals vital for building electric vehicles (EVs) and other forms of
battery storage that are key to weaning the United States from fossil fuels is
further evidence of this trend.
On the downside for mining companies, higher energy prices and wage inflation
will undoubtedly raise operating costs, and supply chain issues could mean a
requirement for greater working capital. This could particularly apply to
development projects such as those in which the Company is investing. However,
we expect this to be more than compensated for by higher commodity prices.
Howard Myles
Chairman
14 April 2022
INVESTMENT MANAGER'S REPORT
For the year ended 31 December 2021
Financial Performance
The audited Net Asset Value per Ordinary Share ("NAV") as at 31 December 2021
was 98.4pence, an increase of 1.20% in the year compared with the increase in
the EMIX Global Mining Index of 5.0% in Sterling terms.
For the purpose of calculating the NAV per share, unquoted investments were
carried at fair value as at 31 December 2021 as determined by the Directors
and quoted investments were carried at their quoted prices as that date.
Net assets at 31 December 2021 comprised the following:
£m % net assets
Unquoted Investments 84.8 80.9
Quoted Investments 18.9 18.0
Cash and other net assets 1.1 1.1
104.8 100.0
Investment Update
Largest 10 Holdings - 31 December 2021 % of NAV
Cemos Group Plc 18.6
Futura Resources Limited 18.1
Tungsten West Plc 14.7
Bilboes Gold Limited 13.0
First Tin Limited (previously Anglo Saxony Mining Limited) 7.7
Polar Acquisition Limited 7.5
Kanga Potash (previously Sarmin Minerals Exploration) 4.1
Nussir ASA 3.6
Silver X Mining Corporation (previously Mines & Metals Trading (Peru) Plc 2.8
Azarga Metals Corporation 2.4
92.5
Other Investments 6.4
Cash and other net assets 1.1
100.0
Largest 10 Holdings - 31 December 2020 % of NAV
Bilboes Gold Limited 19.5
Futura Resources Limited 16.2
Cemos Group Plc 14.5
Tungsten West Limited 13.2
Polar Acquisition Limited 8.9
Mines & Metals Trading (Peru) Plc (now Silver X Mining Corporation) 4.4
Anglo Saxony Mining Limited (now First Tin Limited) 3.9
Nussir ASA 3.4
Azarga Metals Corporation 2.7
Sarmin Minerals Exploration (now Kanga Potash) 2.7
89.4
Other Investments 9.7
Cash and other net assets 0.9
100.0
Review
At the year end, the Company was fully invested, holding 22 investments of
which the top 10 holdings comprised 92.5% of the portfolio by value. The
portfolio is well diversified both in terms of commodity and the geographical
location of the projects. In terms of commodity the portfolio has exposure to
gold, silver, metallurgical coal, cement, tungsten, copper, tin, iron, potash,
lead and zinc. Its projects are located in Australia, Canada, Germany,
Indonesia, Madagascar, Mongolia, Morocco, Norway, Peru, the Philippines,
Republic of Congo, Russia, South Africa, the UK and Zimbabwe.
During the year, the performance of mining markets was variable dependent on
commodity but overall performance was flat with EMIX Global Mining Index
ending the year up 5% in Sterling terms. Following the strong gains in 2020
precious metals fell back with gold down 4% and silver down 12% in US Dollars.
Iron ore likewise fell 24% during 2021 after rising 74% in 2020. Metals
required for the electrification of the world's infrastructure continued to be
strong with copper rising a further 26% during the year having risen 26% in
2020 and, tin more than doubling (all in US dollars). Coking coal more than
reversed its 31% fall in 2020, rising 252% during 2021 and potash was
similarly strong - more than doubling during the year.
Although two of the Company's core investments, Tungsten West and Silver X
listed during the year, it did not monetise either of these investments and
therefore did not have surplus funds to make any significant new investments
during 2021. The Company's shares in Tungsten West are locked-up until October
2022 and the majority of the Company's interest in Silver X is held through a
convertible debenture which matures in June 2022.
During 2021, Cemos Group PLC continued profitable production at its cement
plant in Morocco. 2021 cement sales of approximately €30 million were at a
similar level to 2020 despite the adverse impact of clinker import
restrictions which were brought in by the Moroccan authorities in the second
quarter of the year. This affected the second and third quarters in particular
as Cemos had to source alternative sources of clinker albeit the situation had
improved by the fourth quarter following successful negotiation of supply
arrangements with local clinker producers. Due to the continued steady
performance of Cemos's operations and increased confidence in Cemos's
profitability and forecasting it was decided to reduce the discount applied to
Cemos's valuation compared to the rating of its Moroccan listed peers, which
resulted in a 35% increase in carrying value. Cemos continues to examine the
potential to double its production as well as the possibility of installing
its own clinker plant. This may be financed through a fund raising via listing
on the Moroccan stock exchange which is also being considered.
For most of 2021 progress on financing Futura's Wilton and Fairhill coking
coal projects was stalled as a result of China ceasing to import coking coal
from Australia. This resulted in significant disruption to the international
market with the price of coking coal falling to around US$100 per tonne. The
market has since recovered considerably with coking coal recently trading in
excess of US$500 per tonne. Futura is currently in advanced discussions for
the finance to commence both mines sequentially with the aim of starting
production in the third quarter of 2022. Once in full production the mines are
due to produce around 2 million tonnes of coal per year at a cost of around
US$70 per tonne. The Company owns approximately 27% of Futura as well as a 1%
revenue royalty.
In October 2021, Tungsten West, which owns the Hemerdon Tungsten Mine 7 miles
northeast of Plymouth in Devon, England listed on the AIM market of the London
Stock Exchange raising approximately £35 million after expenses. Together
with the agreement to sell a royalty for US$21 million and a project finance
facility of US$28 million, Tungsten West is well funded to meet the £45
million capital cost outlined in its Bankable Feasibility Study ("BFS") to
bring the Hemerdon Mine back into production. Tungsten prices have been
steadily increasing over the past year with European Ammonium Paratungstate
("APT") prices standing at $335-$345 per MTU compared to US$275 per MTU used
in the BFS. This should more than offset inflation in operating and capital
costs being seen across the mining industry. Tungsten West is well advanced
with its development plans with the appointment of Fairport Engineering as
Engineering Procurement and Construction Management ("EPCM") contractor and
key capital equipment either delivered or on order and key hires for project
delivery made with targeted production in early 2023.
It was disappointing that Bilboes Gold shareholders had to terminate
negotiations for the cash sale of that company in July 2021. Although the
value of the offer had been agreed, the ongoing conditions demanded by the
potential buyer were outside ordinary market practice and would have reduced
the opportunity to reinvest or distribute the proceeds for at least 2 years.
As the initial Definitive Feasibility Study ("DFS") on its
Isabella/McCays/Bubi gold project in Zimbabwe was completed in January 2020
Bilboes decided to update it for current pricing. The updated DFS, completed
in January 2022, defined an open -pit gold mine with an average gold
production of 167,000 ounces of gold per year over a ten-year mine life (2020
DFS 152,000 oz). This would make the mine the largest gold mine in Zimbabwe.
The peak funding requirement rose 9% to US$250million with All-In Sustaining
Costs rising 4.4% to US$826/oz of gold production. Using a gold price of
US$1,650/oz the project economics show an after tax NPV10% of US$323 million
with an internal rate of return of 33% and a payback on investment of one and
a half years. Bilboes shareholders are now considering the best way to finance
the development of the project.
First Tin PLC (formerly Anglo Saxony Mining) completed a Pre-Feasibility Study
("PFS") on its Tellerhauser tin project in Saxony, Germany, in April 2020. The
study base case economics showed that the project required a higher tin price
than the US$20,500/tonne used in the study to be financeable. Since then, the
tin price has more than doubled as markets have come to understand that tin is
one of the principal beneficiaries of the global move towards electrification
due to its use as solder for electrical connections. In November 2021 First
Tin signed an agreement to acquire the Taronga Tin Project in New South Wales
which contains estimated resources containing 57,000 tonnes tin, 28,000 tonnes
copper and 4.4 million ounces' silver. The acquisition was subject to First
Tin undertaking an IPO on the London Stock Exchange raising at least £20
million. The IPO was completed in early April 2022, raising £20 million at a
price of 30 pence per share compared to the Company's acquisition price of
approximately 8 pence per share. As the Company is the largest shareholder in
First Tin, its shares will be locked up for one year. First Tin plans to use
the proceeds of the IPO to undertake bankable feasibility studies on both the
Tellerhauser and Taronga projects and further exploration.
In August 2021 Polymetal International PLC announced that it had approved an
accelerated development of the open-pit mine at the Prognoz silver project in
the Republic of Sakha (Yakutia), Russia over which Polar Acquisition Limited
("PAL") holds a 1.8% to 0.9% net smelter royalty, with ore processing to take
place at Polymetal's Nezhda mine concentrator. First production and therefore
payment of the royalty is now planned for 2024 approximately three years
earlier than previously envisaged. The plan proposes silver equivalent
production of approximately 6.5 million ounces per annum in concentrate over
18 years. This is a lower production rate over a longer period than the
previous guidance, however given the additional resources already identified
which could be mineable using underground methods, as well as the further
exploration potential, there is a reasonable likelihood that the production
rate could be doubled with processing to take place on site at Prognoz, as had
previously been planned in the PFS, once the mine is producing positive
cashflow. At the end of February 2022, the Company reviewed the carrying value
of PAL. Although Polymetal is a Jersey registered company and is listed on the
London Stock Exchange, the majority of its assets are situated in Russia and
Kazakhstan. As at the end of March 2022, Polymetal had not been the subject of
targeted sanctions. To account for the increased risk in relation to
investments in Russia the Company decided to reduce the carrying value of PAL
by 50%. The revaluation is not reflected in the Annual Report as it is
considered a non-adjusting Post Balance Sheet Event.
In September 2020, Kanga Potash (formerly Sarmin Mineral Exploration)
completed a positive DFS on its Kanga Potash project in the Republic of Congo
for a mine producing 600,000 tonnes per annum of Muriate of Phosphate ("MOP").
It also has the potential to be expanded on a modular basis up to 2.4M tonnes
per annum over 30 years. The DFS economic model gave a NPV10% of US$511
million with an IRR of 22% based on an MOP price of US$282 per tonne. Over the
past year the MOP price has risen to over US$800/tonne. Kanga is currently
planning an IPO in the second half of the year.
In early 2022 Nussir completed the update of its 2022 DFS on its
Nussir/Ulveryggen copper project in northern Norway on the basis of a fully
electrified mine producing around 13,000 tonnes of copper per year over a
14-year mine life. The revised DFS economics gave a NPV6% US$148 million with
an IRR of 17% based on a copper price of US$7,500 per tonne, well below the
current market price of approximately US$10,000 per tonne. Nussir is currently
in discussions with potential financiers for the development of the mine.
In the first half of 2021, Mines & Metals Trading Peru PLC completed a
business combination with TSX-V listed mineral exploration company Oro X
Mining Corp together with a C$14.2 million equity raising with the resultant
merged company called Silver X Mining Corporation. Silver X's Recuperada
project in Peru has secured the environmental permitting approval required to
increase production capacity to 720 tonnes per day and installation of a new
crushing circuit and flotation cells has commenced. Silver X's exploration
focus is on expanding and improving its understanding of its central Tangana
mining unit. A 10,000 metres drilling campaign is underway to evaluate these
structures for delivery of an upgraded resource statement in 2022.
Amongst the smaller investments in the portfolio Azarga Metals Corp. released
the results of its updated Preliminary Economic Assessment on its Unkur
copper/silver project in far eastern Russia. Although the project economics
looked attractive, countries around the world have imposed a number of
sanctions on Russia in response to the Russian invasion of Ukraine. These
sanctions include, but are not limited to, removing certain Russian banks from
the Society for Worldwide Interbank Financial Telecommunication ("SWIFT")
messaging system, which will likely affect Azarga's ability to fund the Unkur
project and could jeopardize the viability of the Company's business
operations in Russia. Azarga is therefore concentrating on its second project:
The Marg Volcanic Massive Sulphide ("VMS") exploration project in the Yukon.
At the end of February 2022, the Company reviewed the carrying value of its
convertible loan to Azarga. To account for the increased risk in relation to
investments in Russia the Company decided to reduce the carrying value of the
loan by 50%. Metals Exploration plc continued to improve the production rate
from its Runruno gold mine in the Philippines and is steadily reducing its
debt burden, Black Pearl continued discussions with Chinese partners regarding
the use of its mine as the basis for a new steel plant in Indonesia, and Prism
Diversified is currently discussing a re-organisation and financing to further
its iron ore and lithium projects in Alberta Canada.
Outlook
The invasion of Ukraine by Russia is expected to have a profound effect on the
mining industry during 2022 and possibly beyond. Although commodity prices are
expected to be strong due to supply disruptions there will also be
inflationary pressures on capital and operating costs and this may in turn
reduce investors' appetite for risk in financing new projects through IPO's or
otherwise. Increased safe haven demand, and inflation concerns, have sent
the gold price to a 17-month high, while the imposition of sanctions will
likely exacerbate existing supply issues, particularly for those commodities
where a significant portion of production is from Russia or Belarus, and where
markets are very tight already as discussed in the Chairman's Statement.
Further details of each of these investments are provided below.
Cemos Group plc (''Cemos'')
Cemos is a private cement producer at Tarfaya in Morocco. Cemos produced
235,000 tonnes of cement in 2021.
Futura Resources Ltd ("Futura")
Futura owns the Wilton and Fairhill coking coal projects in the Bowen Basin in
Queensland, Australia which hold Measured and Indicated resources of 843
million tonnes of coal. Production is targeted to commence during H2 2022, for
a targeted combined sustainable level of approximately 2 million tonnes per
annum of saleable processed coal for at least 25 years once in full
production.
Tungsten West PLC (''Tungsten West'')
Tungsten West owns the Hemerdon Mine in Devon, United Kingdom and is quoted on
the AIM market of the London Stock Exchange. Construction of the mine is
underway for a mine producing approximately 350,000 mtu tungsten per annum
over 25 years and is due start production in early 2023.
Bilboes Gold Limited ("Bilboes")
Bilboes is a private Zimbabwean based gold mining company which has a JORC
compliant Proved and Probable Reserves containing 1.8 million ounces of gold
out of a total Mineral Resource of 3.8 million ounces of gold. An updated
definitive feasibility study into a mine producing an average of 170,000
ounces of gold per annum was completed in January 2022.
First Tin PLC ("First Tin") (formerly Anglo Saxony)
First Tin is a company listed on the London Stock Exchange which holds the
Tellerhäuser and Gottesburg tin projects in Germany and the Taronga tin
project in Australia. Combined contained tin for the three projects totals
143,000 tonnes.
Polar Acquisition Limited ("PAL")
PAL is a private company which holds a 0.9% to 1.8% royalty over the Prognoz
silver project ("Prognoz"), 444km north of Yakutsk in Russia, owned by
Polymetal. Prognoz has a 7.9Mt ore reserve with an average silver grade of 560
g/t containing 142 million ounces of silver
Kanga Potash (previously Sarmin Minerals Exploration)
Kanga Potash is private company which holds the Kanga potash project, in the
Republic of the Congo. A feasibility study producing 600,000 tonnes per annum
of Muriate of Phosphate was completed in September 2020.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the Nussir/Ulveryggen
copper project in Northern Norway. An updated definitive feasibility study for
a fully electric mine producing approximately 14,000 tonnes of copper per
annum was completed in January 2022.
Silver X Mining Corp ("Silver X") formerly Mines & Metals Trading Peru PLC
Silver X is a TSX-V listed company whose Recuperada project in Peru comprises
11,261 Ha of mining concessions centred around a 600 tonne per day processing
plant. In October 2021 Silver X secured the environmental permitting approval
required to increase production capacity to 720 tonnes per day.
Azarga Metals Corp. ("Azarga")
Azarga is a TSX-V listed company which holds the Unkur copper/silver project
in far eastern Russia and the Marg Copper rich VMS project, located in Central
Yukon, Canada.
Metals Exploration plc ("Metals Exploration")
Metals Exploration is an AIM listed company which owns the Runruno gold mine
in the Philippines. The Runruno mine produced 72,447 ounces of gold in 2021.
PRISM Diversified Limited ("PRISM")
PRISM is a private Canadian company which owns the Clear Hills Iron
Ore/Vanadium Project ("Clear Hills") in Alberta, Canada. Clear Hills currently
has Indicated Resources of 557.7 million tonnes at 33.3% iron and 0.2%
vanadium.
Black Pearl Limited Partnership ("Black Pearl")
Black Pearl is a special purpose vehicle formed to invest in the Black Pearl
beach placer iron sands project in West Java, Indonesia. Negotiations are
ongoing for the Black Pearl project to form the base production for an
integrated steel production facility.
Akora Resources Ltd ("Akora")
Akora is an Australian Stock Exchange Listed mineral exploration company with
three prospective exploration target areas comprising some 308 km2 of iron ore
tenements in Madagascar.
Baker Steel Capital Managers LLP
Investment Manager
14 April 2022
PORTFOLIO STATEMENT
AS AT 31 DECEMBER 2021
Investments Fair value % of Net
Shares
/Warrants/ £ equivalent assets
Nominal
Listed equity shares
Australian Dollars
5,091,910 Akora Resources Limited 642,664 0.61
283,000 Regis Resources Limited 296,385 0.28
1,570,000 Resolute Mining Limited 328,851 0.32
270,000 St Barbara Limited 212,440 0.20
Australian Dollars Total 1,480,340 1.41
Canadian Dollars
11,601,786 Azarga Metals Corporation 338,570 0.32
57,000 Kinross Gold Corporation 244,188 0.23
2,104,744 Silver X Mining Corporation 411,526 0.39
Canadian Dollars Total 994,284 0.94
Great Britain Pounds
31,000 Fresnillo Plc 276,768 0.27
122,760,000 Metals Exploration Plc 1,718,640 1.64
28,846,515 Tungsten West Plc 14,064,224 13.42
Great Britain Pounds Total 16,059,632 15.33
United States Dollars
110,000 Coeur Mining Inc 409,454 0.39
United States Dollars Total 409,454 0.39
Total investment in listed equity shares 18,943,710 18.07
Debt instruments
Australian Dollars
2,000,000 Futura Resources Limited 1,235,273 1.18
Australian Dollars Total 1,235,273 1.18
Canadian Dollars
305,000 PRISM Diversified Limited Loan Note 1 87,992 0.08
250,500 PRISM Diversified Limited Loan Note 2 280,363 0.27
Canadian Dollars Total 368.355 0.35
Euro
1,045 Cemos Group Plc Convertible Unsecured Loan Security 10,186,419 9.72
Euro Total 10,186,419 9.72
Investments Fair value % of Net
Shares
/Warrants/ £ equivalent assets
Nominal
Debt instruments (Continued)
United States Dollars
3,500,000 Azarga Metals Secured Convertible Loan Note 2,206,301 2.11
440,000 Bilboes Holdings Loan Note 1 1,807,495 1.72
220,000 Bilboes Holdings Loan Note 2 350,162 0.33
7,028,352 Black Pearl Limited Partnership 1,292,467 1.23
4,000,000 Silver X Mining Corporation Convertible Debenture 2,481,030 2.37
United States Dollars Total 8,137,455 7.76
Total investments in debt instruments 19,927,502 19.01
Unlisted equity shares, warrants and royalties
Australian Dollars
7,800,000 Futura Gross Revenue Royalty 8,625,430 8.23
11,309,005 Futura Resources Limited 9,110,681 8.69
Australian Dollars Total 17,736,111 16.92
Canadian Dollars
13,490,414 Azarga Metals Warrants 31/12/2022 33,744 0.03
13,083,936 PRISM Diversified Limited 809,465 0.77
1,000,000 PRISM Diversified Limited Warrants 31/12/2023 17,920 0.02
40,000 PRISM Diversified Limited Convertible Royalty 23,346 0.02
Canadian Dollars Total 884.475 0.84
Great Britain Pounds
35,788,014 First Tin Limited (previously Anglo Saxony Mining Limited) 8,052,303 7.69
1,594,646 Celadon Mining Limited 15,946 0.02
24,004,167 Cemos Group plc 9,306,914 8.88
1,657,195 Tungsten West plc Second Option Share Warrants 18/10/2026 676,066 0.65
1,657,195 Tungsten West plc Third Option Share Warrants 18/10/2026 636,363 0.61
Great Britain Pounds Total 18,687,592 17.85
Norwegian Krone
12,785,361 Nussir ASA 3,751,021 3.58
Norwegian Krone Total 3,751,021 3.58
Shares Investments Fair value % of Net
/Warrants/ £ equivalent assets
Nominal
Unlisted equity shares, warrants and royalties (Continued)
United States Dollars
451,445 Bilboes Gold Limited 11,527,651 11.00
4,244,550 Gobi Coal & Energy Limited 147,337 0.14
56,042 Kanga Potash (formerly Sarmin Minerals Exploration) 4,249,921 4.06
16,352 Polar Acquisition Limited 7,830,273 7.47
United States Dollars Total 23,755,182 22.67
Total unlisted equity shares, warrants and royalties 64,814,381 61.86
Financial assets held at fair value through profit or loss 103,685,593 98.94
Other Assets & Liabilities 1,113,363 1.06
Total Equity 104,798,956 100.00
STRATEGIC REPORT
Company Structure
The Company is a registered closed-ended investment scheme registered pursuant
to the Protection of Investors (Bailiwick of Guernsey) Law, 2020 ("POI Law")
and the Registered Collective Investment Scheme Rules and Guidance, 2021
issued by the Guernsey Financial Services Commission ("GFSC"). The Company is
not authorised or regulated as a collective investment scheme by the Financial
Conduct Authority. The Company is subject to the Listing Rules and the
Disclosure and Transparency Rules of the UK Listing Authority.
The Articles of the Company contain provisions as to the life of the Company.
At the Annual General Meeting ("AGM") falling in 2018 and at each third AGM
convened by the Board thereafter, the Board will propose a special resolution
to discontinue (the Company) which if passed will require the Directors,
within 6 months of the passing of the special resolution, to submit proposals
to shareholders that will provide shareholders with an opportunity to realise
the value of their Ordinary Shares. Shareholders voted against discontinuing
the Company at the 2021 AGM, the next discontinuation vote will be held at the
AGM in 2024 which is expected to be held in the third quarter of the year.
Company Purpose and Values
The purpose of the Company is to carry out business as an investment company
and to provide returns to shareholders through achieving its investment
objective as described on page 14.
The values of the Company are discussed and agreed upon by the Board. The
Board seeks to run the Company with a culture of openness, high integrity and
accountability. It aims to demonstrate these values through its behaviour both
within itself and its dealings with its stakeholders. It seeks to act in the
spirit of mutual respect, trust and fairness. The Board is robust in its
challenge of the Investment Manager and other service providers but tries
always to be constructive and collegiate. The Board expects its members to
exhibit an independence of mind and not to be wary of asking difficult
questions. Moreover, it expects and encourages its key service providers to
exhibit similar values.
Role and Composition of the Board
The Board is the Company's governing body; it sets the Company's strategy and
is collectively responsible for its long-term performance. The Board, which is
comprised entirely of independent Non-Executive Directors, is responsible for
appointing and subsequently monitoring the activities of the Manager and other
service providers to ensure that the investment objectives of the Company
continue to be met. The Board also ensures that the Manager adheres to the
investment restrictions described in the Company's Prospectus and acts within
the parameters set by it in any other respect. It also identifies and monitors
the key risks facing the Company.
Investment activities are predominantly monitored through quarterly Board
meetings at which the Board receives detailed reports and updates from the
Investment Manager, who attends each Board meeting. Services from other key
service providers are reviewed as appropriate. As government responses to
Covid-19 continued to make travel for physical meetings impractical, the Board
has made use of video conference facilities to maintain engagement with
service providers.
Subject to meeting solvency requirements, if the Ordinary Shares trade at a
discount in excess of 15 per cent to their NAV, the Board will consider
whether the Company should buy back its own Ordinary Shares, taking into
account the Company's liquidity, conditions in the stock market and mining
markets. Since the year-end the Company's shares have fallen to a 26% discount
at 31 March 2022. In any event, however, the Directors consider that the
Company does not currently have sufficient surplus funds to buy back shares,
irrespective of other considerations.
The Board continues to review the Company's ongoing expenditure to ensure that
the total costs incurred in the running of the Company remain competitive. An
analysis of the Company's costs, including management fees (which are based on
the market capitalisation of the Company), Directors' fees and general
expenses, is submitted to each Board meeting.
As at 31 December 2021, the Board comprised four Directors (2020: four).
Investment Management
The Manager was appointed pursuant to a management agreement with the Company
dated 31 March 2010 (the Management Agreement). Under the Management
Agreement, the Manager acts as manager of the Company, subject to the overall
control and supervision of the Directors and was authorised to appoint the
Investment Manager to manage and invest the assets of the Company. The Manager
is responsible for the payment of the fees of the Investment Manager. The
Manager is a company incorporated in the Cayman Islands on 10 April 2002 with
registration number 117030 and is an affiliate of the Investment Manager.
Baker Steel Capital Managers LLP acts as Investment Manager of the Company and
was constituted in England and Wales on 19 December 2001. It is authorised and
regulated by the Financial Conduct Authority in the United Kingdom. The
Investment Manager is a limited liability partnership with registration number
OC301191 and is an affiliate of the Manager. The Investment Manager has been
appointed by the Company to act as its Alternative Investment Fund Manager
("AIFM") and is responsible for the portfolio management and investment risk
management of the Company. The Investment Manager manages the Company in
accordance with the Alternative Investment Fund Managers Directives ("AIFMD").
The Investment Manager is a specialist natural resources asset management and
advisory firm operating from its head office in London and its branch office
in Sydney.
It has an experienced team of fund managers covering the precious metals, base
metals and minerals sectors worldwide, both in relation to commodity equities
and the commodities themselves.
The Directors formally review the performance of the Investment Manager on an
annual basis and remain satisfied that the Investment Manager has the
appropriate resources and expertise to manage the portfolio of the Company in
the best interests of the Company and its shareholders.
Investment Objective
The Company's investment objective is to seek capital growth over the
long-term through a focused, global portfolio consisting principally of the
equities, loans or related instruments of natural resources companies. The
Company invests predominantly in unlisted companies (i.e. those companies that
have not yet made an initial public offering ("IPO") but also in listed
securities (including special situations opportunities and less liquid
securities) with a view to making attractive investment returns through the
uplift in value resulting from the development progression of the investee
companies' projects and through exploiting value inherent in market
inefficiencies and pricing anomalies.
Investment Policy
The core of the Company's strategy is to invest in natural resources
companies, predominantly unlisted, that the Investment Manager considers to be
undervalued and that have strong fundamentals and attractive growth prospects.
Natural resources companies, for the purposes of the investment policy, are
those involved in the exploration for and production of base metals, precious
metals, bulk commodities, thermal and metallurgical coals, industrial
minerals, energy and uranium, and include single-asset as well as diversified
natural resources companies.
It is intended that unlisted investments be realised through an IPO, trade
sale, management repurchase or other methods.
The Company focuses primarily on making investments in companies with
producing and/or tangible assets such as resources and reserves that have been
verified under internationally recognised standards for reporting, such as
those of the Australasian Joint Ore Reserves Committee ("JORC"). The Company
may also invest from time to time in exploration companies whose activities
are speculative by nature.
The Company has flexibility to invest in a wide range of investments in
addition to unlisted and listed equities and equity-related securities,
including but not limited to commodities, convertible bonds, debt securities,
royalties, options, warrants and futures. Derivatives may be used for
efficient portfolio management, hedging and for the purposes of obtaining
investment exposure. The Company may also have exposure from time to time to
other companies within the wider resources and materials sector, including
services companies, transport and infrastructure companies, utilities and
downstream processing companies.
The Company may take legal or management control of a company from time to
time. The Company may invest in other investment funds or vehicles, including
any managed by the Manager or Investment Manager, where such investment would
be complementary to the Company's investment objective and policy.
Borrowing and Leverage
The Company may, at the discretion of the Investment Manager, and within
limits set by the Board, incur leverage for liquidity purposes by borrowing
funds from banks, broker-dealers or other financial institutions or entities.
The costs and impact of leverage, positive and negative will affect the
operating results of the Company.
During the current and prior year, no leverage was used by the Company.
Investment Restrictions
There are no fixed limits on the allocation between unlisted and listed
equities or equity-related securities and cash although, as a guideline,
typically the Investment Manager will aim for the Company to be invested over
the long-term as follows:
• between 40 and 100 per cent of the value of its gross assets in
unlisted equities or equity-related securities;
• up to 50 per cent of the value of its gross assets in listed
equities or equity-related securities;
• up to 10 per cent of the value of its gross assets in cash or
cash-like holdings; and
• in 10 to 20 core positions to provide adequate diversification
whilst retaining a focused core approach. Core positions will be between 5 per
cent and 15 per cent of NAV as at the date of acquisition.
The actual percentage of the Company's gross assets invested in listed and
unlisted equities and equity-related securities and cash and cash-like
holdings and the number of positions held may fall outside these ranges from
time to time. The portfolio may become focussed on fewer holdings as certain
investments mature and increase in value. Once such investments are realised
it is intended that the consideration will be reinvested in several new
investments thereby diversifying the portfolio.
Listed securities might exceed the above guideline following a significant
number of IPOs or in certain market conditions and likewise cash balances may
exceed the above guideline following the realisation of one or more
investments or following the issue of new equity in the Company, pending
investment or distribution of the proceeds.
The investment policy has the following limits:
• Save in respect of cash and cash-like holdings awaiting
investment, and except as set out below, the Company will invest or lend no
more than 20 per cent in aggregate of the value of its gross assets in or to
any one particular company or group of companies, as at the date of the
relevant transaction.
• No more than 10 per cent in aggregate of the value of the gross
assets of the Company may be invested in other listed closed-ended investment
funds, except for those which themselves have stated investment strategies to
invest no more than 15 per cent of their gross assets in other listed
closed-ended investment funds.
Where derivatives are used for investment exposure, these limits will be
applied in respect of the investment exposures so obtained.
The Company will avoid (a) cross-financing between the businesses forming part
of its investment portfolio and (b) the operation of common treasury functions
between it and the investee companies. When deemed appropriate, the Company
may borrow up to 10 per cent of NAV for temporary purposes such as settlement
of mis-matches. Borrowings will not however be incurred for the purposes of
any Share repurchases. Any material change in the investment objective,
investment policy or borrowing policy will only be made with the prior
approval of holders of Ordinary Shares by Ordinary Resolution. In the event of
any breach of the investment restrictions the Investment Manager would report
the breach to the Board and shareholders would be informed of any corrective
action required.
No breaches of investment restrictions occurred during the year ended 31
December 2021.
Hedging
The Investment Manager will not normally hedge the exposure of the Company to
currency fluctuations.
Performance
The Company monitors NAV against the EMIX Global Mining Index as a key
performance indicator. An outline of performance, market background,
investment activity and portfolio strategy during the year under review, as
well as outlook, is provided in the Chairman's Statement on page 3 to 4 and
the Investment Manager's Report on pages 5 to 9.
Principal risk and uncertainties
The Board is responsible for the Company's system of risk management and
internal control and for reviewing its effectiveness.
The Board has adopted a detailed matrix of principal risks affecting the
Company's business as an investment company and has established associated
policies and processes designed to manage and, where possible, mitigate those
risks, which are monitored by the Audit Committee on an ongoing basis. This
system assists the board in determining the nature and extent of the risks it
is willing to take in achieving the Company's strategic objectives.
Although the Board believes that it has a robust framework of internal
controls in place this can provide only reasonable, and not absolute,
assurance against material financial misstatement or loss and is designed to
manage, not eliminate, risk. Actions taken by the Board and, where
appropriate, its committees, to manage and mitigate the Company's principal
risks and uncertainties are discussed in more detail below.
Emerging Risks and Uncertainties
During the year, the Board also discussed and monitored a number of risks that
could potentially impact the Company's ability
to meet its strategic objectives. The principal emerging risk was agreed to be
climate change risk. Climate change risk includes how climate change could
affect the Company's investments, and potentially shareholder returns. The
Board has implemented an ESG policy which has been developed from the Managers
own ESG policy. The Company's ESG policy is available on its website.
The Board will continue to monitor the implications of growing ESG pressures
as an emerging risk.
Since year-end, the invasion of Ukraine by Russia and resulting sanctions on
Russia has increased the risk of investing in companies with interests in
Russia. It has also increased the uncertainty around previous projections made
by those companies, in the face of growing financial and operational
constraints. As a result, the Company reduced its carrying values for Polar
Acquisition Limited and Azarga Metals Corporation by 50% at the end of
February 2022. There is also a growing risk that rising energy prices and
disrupted supply chains could further fuel inflationary pressures. This, plus
more aggressive monetary tightening that might be undertaken by central banks
to curb inflation, raises the risk of a global recession.
Market and financial risks
Market risk arises from volatility in the prices of the Company's underlying
investments which, in view of the Company's investment policy, are in turn
particularly sensitive to commodity prices. Market risk represents the
potential loss the Company might suffer through holding investments in the
face of negative market movements. The Board has set investment restrictions
and guidelines to help mitigate this risk. These are monitored and reported on
by the Investment Manager on a regular basis. Further details are disclosed in
note 4 on pages 54 to 59.
The Company's investment activities also expose it to a variety of financial
risks including in particular foreign currency risk. A sensitivity to foreign
exchange is presented on pages 54 and 55.
Portfolio management and Performance risks
The Board is responsible for determining the investment strategy to allow the
Company to fulfil its objectives and also for monitoring the performance of
the Investment Manager to which has been delegated day to day discretionary
management of the Company's portfolio. An inappropriate strategy may lead to
poor performance. The investment policy of the Company allows for a highly
focused portfolio which can lead to a concentration of risk. To manage this
risk, the Investment Manager provides to the Board, on an ongoing basis, an
explanation of the significant stock selection recommendations and the
rationale for the composition of the investment portfolio. The Board mandates
and monitors an adequate diversification of investments, both geographically
and by commodity, in order to reduce the risks associated with particular
sectors, based on the diversification requirements inherent in the Company's
investment policy.
The Company invests in certain companies whose projects are located in
emerging markets. In such countries governments can exercise substantial
influence over the private sector and political risk can be a significant
factor. In adverse social and political circumstances, governments have been
involved in policies of expropriation, confiscatory taxation, nationalisation,
intervention in the securities markets and imposition of foreign exchange
controls and investment restrictions. The Investment Manager and the Board
take into account specific political and other such risks through its approach
to pricing when entering into an investment, and seek to mitigate them by
diversifying geographically.
The Company's ability to implement its investment policy depends on the
Investment Manager's ability to identify, analyse and invest in investments
that meet the Company's investment criteria. Failure by the Investment Manager
to find additional investment opportunities meeting the Company's investment
objectives and to manage investments effectively could have a material adverse
effect on the Company's business, financial condition, and results of
operations. The Company has no employees and, subject to oversight by the
Board, is reliant on the Investment Manager, which has significant discretion
as to the implementation of the Company's operating policies and strategies.
The Company is subject to the risk that the Investment Manager or its key
investment professionals will cease to be involved in the management of any
part of the Company's assets and that no suitable replacement will be found.
The Board regularly monitors the performance and capabilities of the
Investment Manager and its key man risk plans.
There is the risk that the market capitalisation of the Company (on which the
Investment Manager's fee is calculated) falls to such an extent that it will
no longer be viable for the Investment Manager to provide the services that it
currently provides. The Board monitors this possibility and, should it start
to become an issue, would review it with the Investment Manager.
Risk of a vote to wind-up the Company
The Articles contain provisions for a special resolution of shareholders at
the AGM in 2018 and every three years thereafter on whether to discontinue the
Company. Should there be a catastrophic loss of value in the Company's assets,
possibly as a result of the risks above, or merely a change in sentiment
towards the mining sector generally by a sufficient proportion of investors,
there is the risk of shareholders voting to wind-up the Company at that time.
Because the Company's investments are largely unlisted it could then take a
protracted amount of time to realise them or they may need to be sold at a
discount to Fair Value if an accelerated timetable is required.
To be passed the discontinuation vote would require a majority of 75% of those
shareholders voting. To understand the requirements of the Company's major
shareholders, the Investment Manager regularly liaises with the Company's
broker and meets major shareholders. The Chairman is also available to meet
with shareholders as required.
In the event of a winding up of the Company, Shareholders will rank behind any
creditors of the Company.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance Code, published
by the Financial Reporting Council ("FRC") in July 2018 (the "UK Code"), the
Directors, as advised by the Audit Committee, have assessed the prospects of
the Company over 3 years, being the period one year after the next
discontinuation vote at the AGM in 2024. The Board considers that this is an
appropriate timeframe to assess the viability of the Company as, in relation
to the types of investments the Company makes, three years generally provides
sufficient time for major milestones to be reached on mining projects together
with some realisations and new investments to be made by the Company. Beyond
three years, the Board considers the mining and minerals markets to be too
difficult to predict to be sufficiently helpful.
The Company has previously seen pressures from falls in commodity prices and a
move by its share price to an increased discount to its NAV. The mining market
is inherently cyclical and dependent on world economic output. Notwithstanding
this, it is a feature of closed-ended investment companies such as BSRT that
the greatest risk to viability is that the investments lose value to an extent
where the expense ratio becomes excessive such that the Company becomes an
unattractive investment proposition. In such conditions, it may also be a risk
that liquidity (i.e. the ability to sell or realise cash from the portfolio,
or raise borrowings should that be necessary) is insufficiently available to
meet liabilities.
In the case of the Company, which has no gearing, the Investment Manager has
conducted stress and sensitivity tests of future income and expenditure and
the ability to realise assets, and it and the Board have concluded that, even
in circumstances representing a deterioration in value of 50% of net assets
and a complete inability to sell any of the unlisted assets in the portfolio,
the Company should remain viable over the period one year following the 2024
AGM. The key factor in this assessment is that currently the Company's
greatest expense is the management fee which is calculated on the market
capitalisation of the Company. Should net assets fall, market capitalisation
would be expected to fall in line or at a higher rate, such that the costs of
the Company would also fall. It is also assumed that the liquidity required
over the three-year period and under the highly stressed conditions modelled,
is largely provided by regular realisations of the Company's listed equities.
The Directors believe this to be reasonable given that the majority of these
equities are regularly traded at sufficient volumes in the context of the very
minor positions the Company's holdings represent.
As a result, the Board has a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall due over
the period of their assessment.
Environmental, Social and Governance
The Company believes that monitoring environmental, social and governance
("ESG") factors is important not only to support sustainable and ethical
investment but because ESG considerations are key for creating and maintaining
shareholder value. The Company has developed an ESG Investment Policy which
draws from international best practice and builds upon the principles and
processes outlined in the United Nations Principles for Responsible
Investment, of which the Investment Manager is a signatory. A copy of the
Company's ESG policy is available on the Company's website.
ESG considerations are considered as an enhanced risk management tool and, as
such, are incorporated into the Investment Manager's investment decision
process at multiple levels during stock screening and company analysis, as
well as being directly addressed with company management during meetings and
on-site visits. The Company is an active investor and will use its voting
rights to influence company direction in a sustainable way where deemed
appropriate. The Company considers that social and environmental
responsibility, along with good governance, are an integral element of running
a successful mining company. For example, the Nussir copper project in Norway
aims to become the first zero carbon mine globally through being fully
electric with the electricity generated from entirely renewable sources. The
Company has used its representation on the Board of Nussir to actively promote
this evolution to electrification.
Non-Mainstream Pooled Investment
The Directors intend to operate the Company in such a manner that its shares
are not categorised as non-mainstream pooled investments.
Future Developments
The future performance of the Company depends upon the success of the
Company's investment strategy and, as to its share price and market rating,
partly on investors' view of mining related investments as an asset class.
Further comments on the outlook for the Company can be found in the Chairman's
Statement on pages 3 and 4 and the Investment Manager's Report on pages 5 to
9.
Signed on behalf of the Board of Directors by:
David
Staples
14 April 2022
BOARD OF DIRECTORS
The Board of Directors is listed below. In 2018 the Board put in place a
succession plan to refresh its membership while maintaining a degree of
continuity. David Staples was appointed on 29 May 2019 and Fiona
Perrott-Humphrey on 15 September 2020 through the succession planning. No
limit on the overall length of service of any of the Company's Directors,
including the Chairman, has been imposed, as the Board believes that any
decisions regarding tenure should consider the balance between the need for
continuity of knowledge and experience, and the need periodically to refresh
the Board's composition in terms of skills, diversity and length of service.
Howard Myles: Howard Myles currently acts as a non-executive director of a
number of investment companies. Howard was a partner in Ernst & Young from
2001 until 2007 and was responsible for the Investment Funds Corporate
Advisory team. He was previously with UBS Warburg from 1987 to 2001. Howard
began his career in stockbroking in 1971 as an equity salesman and joined
Touche Ross in 1975 where he qualified as a chartered accountant. In 1978 he
joined W. Greenwell & Co. in the corporate broking team and in 1987 moved
to SG Warburg Securities where he was involved in a wide range of commercial
and industrial transactions in addition to leading UBS Warburg's corporate
finance function for investment funds. He is a Fellow of the Institute of
Chartered Accountants and of The Chartered Institute for Securities and
Investments. Howard is a director of Aberdeen Latin American Income Fund
Limited, Chelverton UK Dividend Trust plc and BBGI Global Infrastructure S.A.
all of which are listed on the London Stock Exchange.
Howard is a member of the Company's Audit Committee. Notwithstanding that
Howard's tenure extends beyond eleven years, the Board is satisfied that he
continues to demonstrate independence of the Investment Manager.
Charles Hansard: Charles Hansard has over 40 years' experience in the
investment industry as a professional and in a non-executive capacity. He
currently serves as a non-executive director on a number of boards which
include JJJ Moore part of the Moore Capital group of funds of which he was a
director for 25 years. He is a director of NYSE listed Los Gatos Silver Inc
and Electrum Ltd., a privately owned US gold exploration company. He formerly
served as a director of Apex Silver Mines Ltd., where he chaired the finance
committee during its capital raising phase and as chairman of the board of
African Platinum Plc, which he led through reorganisation and feasibility
prior to its sale to Impala Platinum. He commenced his career in South Africa
with Anglo American Corporation and Fleming Martin as a mining analyst. He
subsequently worked in New York as an investment banker for Hambros before
returning to the UK to co-found IFM Ltd., one of the earliest European hedge
fund managers. Charles holds a B.B.S. from Trinity College Dublin.
Notwithstanding that Charles's tenure extends beyond eleven years, the Board
is satisfied that he continues to demonstrate independence of the Investment
Manager.
Fiona Perrott-Humphrey: Fiona Perrott-Humphrey has over 30 years' experience
in the mining finance industry in London. She moved to the UK in 1987 after a
period in academia in South Africa, and over the next 15 years, was a rated
mining analyst for a number of stockbroking firms including James Capel,
Cazenove and Citigroup (the latter as head of European Mining Research).
After leaving full time broking, Fiona has had a portfolio of roles drawing on
her experience of covering the global mining sector. She is a founder of a
mining strategic consulting business, and director of AIM Mining Research and
in 2007 published a book entitled Understanding Junior Miners. In 2004, she
was appointed Adviser to the Mining team at Rothschild and Co. Fiona was a
non-executive director of Dominion Diamonds, located in northern Canada, for
two years from 2014. She is invited to present regularly at global mining
conferences.
Fiona is a member of the Company's audit committee.
David Staples: David Staples worked for PWC in London for 25 years, including
13 years as Partner. He has many years' experience serving on boards of listed
and private companies as a non-executive director, including as chairman of
listed investment companies. David has a BSc in Economics and Accounting, is a
Fellow Chartered Accountant, a Chartered Tax Adviser and a holder of the
Institute of Directors' Certificate in Company Direction. He is a Director of
Ruffer Investment Company Limited and NB Global Monthly Income Fund, both of
which are listed on the London Stock Exchange. He is also chairman of the
general partner companies of private equity funds advised by Apax Partners.
David is the Chairman of the Audit Committee.
DIRECTORS' REPORT
For the year ended 31 December 2021
The Directors of the Company present their eleventh annual report and the
audited financial statements (the "Annual Report") for the year ended 31
December 2021.
The Directors' Report contains information that covers this period and the
period up to the date of publication of this Report. Please note that more up
to date information is available on the Company's website
www.bakersteelresourcestrust.com (http://www.bakersteelresourcestrust.com) .
Status
Baker Steel Resources Trust Limited (the "Company") is a closed-ended
investment company with limited liability incorporated on 9 March 2010 in
Guernsey under the Companies (Guernsey) Law, 2008 with registration number
51576. The Company is a registered closed-ended investment scheme registered
pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 2020,
("POI Law") and the Registered Collective Investment Scheme Rules and
Guidance, 2021 issued by the Guernsey Financial Services Commission ("GFSC").
On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company
were admitted to the Official List of the UK Listing Authority and to trading
on the Main Market of the London Stock Exchange, Premium Segment.
Investment Objective
Details of the Company's investment objectives and policies are described in
the Strategic Report on page 14.
Performance
In the year to 31 December 2021, the Company's NAV per Ordinary Share
increased by 1.20% (2020: 31.5%). This compares with a rise in the EMIX Global
Mining Index (capital return in Sterling terms) of 5.0% (2020: 22.2%). A more
detailed explanation of the performance of the Company is provided within the
Investment Manager's Report on pages 5 to 9.
The results for the year are shown in the Statement of Comprehensive Income on
pages 39 and 40 and the Company's financial position at the end of the year is
shown in the Statement of Financial Position on page 38.
Dividends and distribution policy
During the year ended 31 December 2015 the Board introduced a capital returns
policy whereby, subject to applicable laws and regulations, it will allocate
cash for distributions to shareholders. The amount to be distributed will be
calculated and paid following publication of the Company's audited financial
statements for each year and will be no less than 15% of the aggregate net
realised cash gains (after deducting losses) in that financial year. The Board
will retain discretion for determining the most appropriate manner to make
such distribution which may include share buybacks, tender offers and dividend
payments. In the longer term the Board intends to formulate a more regular
dividend policy once it starts to receive income from its royalty interests.
As there was no net realised cash gain during the year, the Board has
determined that there will not be any distribution in respect of the year
ended 31 December 2021.
Directors and their interests
The Directors of the Company who served during the year and up until the date
of signing of the financial statements are:
Howard Myles (Chairman)
Charles Hansard
Fiona Perrott-Humphrey
David Staples
Biographical details of each of the Directors who were on the Board of the
Company at the time of signing The Annual Report are presented on page 18 of
the Annual Report.
Each of the Directors is considered to be independent in character and
judgement.
Each Director is asked to declare his interests at each Board Meeting. No
Director has any material interest in any other contract which is significant
to the Company's business.
On 26 April 2021, David Staples purchased 35,000 shares in the Company. Mr
Staples also holds 30,000 shares in Tungsten West PLC, one of the Company's
core assets. No other Director has a beneficial interest in the Company or any
of its investee companies.
Authorised Share Capital
The share capital of the Company on incorporation was represented by an
unlimited number of Ordinary Shares of no par value. The Company may issue an
unlimited number of shares of a nominal or par value and/or of no par value or
a combination of both.
Shares in issue
The Company was admitted to trading on the London Stock Exchange on 28 April
2010. On that date, 30,468,865 Ordinary Shares and 6,093,772 Subscription
Shares were issued pursuant to a placing and offer for subscription and
35,554,224 Ordinary Shares and 7,110,822 Subscription Shares were issued
pursuant to a Scheme of Reorganisation of Genus Capital Fund.
In addition, 10,000 Management Ordinary Shares were issued.
In May 2019, the Company enacted a tender offer for 9,677,478 Ordinary Shares
at 51 pence per share. The repurchased shares were cancelled.
The Company had a total of 106,453,335 Ordinary and 9,167 Management Ordinary
Shares in issue as at 31 December 2021, of which 700,000 Ordinary Shares were
held in Treasury.
Significant Shareholdings
As at 31 December 2021, the Company had received notifications in accordance
with the FCA's Disclosure and Transparency Rule 5.1.2 R of the following
interests in 3% or more of the voting rights attaching to the Company's issued
share capital.
Ordinary Shareholder Number of % of Total
Ordinary Shares Shares in issue
000's
The Sonya Trust 12,722 11.95
Northcliffe Holdings Pty Limited 12,452 11.70
Overseas Asset Management 12,436 11.68
Premier Miton Investors 9,100 8.55
RIT Capital Partners 7,767 7.30
Armstrong Investments 6,300 5.92
Baker Steel Capital Managers 4,923 4.62
Hargreaves Lansdown Asset Management 3,964 3.72
Interactive Investor 3,946 3.71
Charles Stanley 3,197 3.00
The Investment Manager, Baker Steel Capital Managers LLP had an interest in
9,167 Management Ordinary Shares at 31 December 2021 (31 December 2020:
9,167).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious Metals Fund")
had an interest in 4,922,877 Ordinary Shares in the Company at 31 December
2021 (2020: 4,922,877). Precious Metals Fund has the same Investment Manager
as the Company.
David Baker and Trevor Steel, Directors of the Manager, are interested in the
shares held by Northcliffe Holdings Limited and The Sonya Trust respectively.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report and financial
statements in accordance with applicable Guernsey law, Listing Rules,
Disclosures and Transparency Rules, UK Corporate Governance Code and generally
accepted accounting principles.
Guernsey company law requires the Directors to prepare financial statements
for each financial year which give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that year.
In preparing these financial statements the Directors should:
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
- prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and which enable the Directors to ensure that the financial statements
comply with the Companies (Guernsey) Law, 2008. The Directors are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors confirm that to the best of their knowledge:
- the financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as
adopted by the European Union ("EU") and give a true and fair view of the
assets, liabilities and financial position and profit or loss of the Company;
- the Annual Report includes a fair review of the position
and performance of the business of the Company together with the description
of the principal risks and uncertainties that the Company faces, as required
by the Disclosure and Transparency Rules of the UK Listing Authority;
- the Annual Report and Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance, business model
and strategy; and
- they have carried out a robust assessment of the
emerging and principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity.
Auditor Information
The Directors at the date of approval of this Report confirm that, so far as
each of the Directors is aware, there is no relevant audit information of
which the Company's auditor is unaware and each Director has taken all the
reasonable steps he ought to have taken as a director to make himself aware of
any relevant audit information and to establish that the Company's auditor is
aware of that information.
Going Concern
The Directors, as advised by the Audit Committee, have made an assessment of
the Company's ability to continue as a going concern and consider it
appropriate to adopt the going concern basis of accounting. The
discontinuation vote in 2021 was not passed and the next vote is in 2024. The
Board are satisfied that it has the resources to continue in business for at
least 12 months following the signing of these financial statements. As at 31
December 2021, approximately 5.7% of the Company's assets were represented by
cash and unrestricted listed and quoted investments which are readily
realisable. Although the Russian Invasion of Ukraine has resulted in a
reduction in the carrying value of investments with a Russian nexus after the
year end it is not expected that it will affect the Company's ability to
operate on a normal basis. Neither of the two affected investments PAL and
Azarga were expected to be realised or be a source of revenue in the next two
years. The Directors are not aware of any material uncertainties that may cast
significant doubt upon the Company's ability to continue as a going concern.
Related party transactions
Transactions with related parties are based on terms equivalent to those that
prevail in an arm's length transaction and are disclosed in Note 11.
Corporate Governance Compliance
The Company re-joined the Association of Investment Companies during 2021.
The Board has therefore considered the Principles and Provisions of the AIC
Code of Corporate Governance (AIC Code). The AIC Code addresses the Principles
and Provisions set out in the UK Corporate Governance Code (the UK Code), as
well as setting out additional Provisions on issues that are of specific
relevance to the Company.
The Board considers that reporting against the Principles and Provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council and
the Guernsey Financial Services Commission, provides more relevant information
to shareholders.
The Company has complied with the Principles and Provisions of the AIC Code
and therefore the UK Code except as where explained in the Annual Report.
The AIC Code is available on the AIC website ( (http://www.theaic.co.uk/)
www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the
Principles and Provisions set out in the UK Code to make them relevant for
investment companies.
The Code includes provisions relating to:
· The role of the Chief Executive
· Executive Directors' remuneration
· The requirement for a senior Independent Director
· Nomination and Remuneration Committees
· The requirement for an internal audit function
The Board considers these provisions are not relevant for the Company as it is
an externally managed investment entity. The Company has therefore not
reported further in respect of these provisions. The Directors are all
independent and non-executive and the Company does not have employees, hence
no Chief Executive is required for the Company. The Board is satisfied that
any relevant issues can be properly considered by the Board as explained
further on the following pages.
There have been no other instances of non-compliance, other than those noted
above.
Operation and composition of the Board
· Composition and Independence
The Board has no executive directors and has contractually delegated
responsibility to service providers for the management of the Company's
investment portfolio, the arrangement of custodial and cash flow monitoring
and oversight services and the provision of accounting and company secretarial
services. The Company has no employees.
The Board consists entirely of independent non-executive Directors, of whom
Howard Myles is the Chairman. Each of the Directors confirms that they have no
other significant commitments that adversely impact on their ability to act
for the Company and its shareholders, and that they have sufficient time to
fulfil their obligations to the Company.
· Senior Independent Director
In view of its non-executive nature and small size, the Board considers that
it is not necessary for a Senior Independent Director to be appointed.
· Appointment and re-election
The Company has a transparent procedure for the appointment and re-election of
the Directors. There are no service contracts in place for the Directors.
The Directors are not required to retire by rotation. Instead each director
puts himself forward for re-election on an annual basis at the AGM. The AGM
also includes a resolution whereby shareholders are able to approve the
maximum cumulative remuneration for the Board.
All the Directors are responsible for reviewing the size, structure and skills
of the Board and considering whether any changes are required or new
appointments are necessary to meet the requirements of the Company's business
or to maintain a balanced Board.
Howard Myles and Charles Hansard have served as Directors for more than 9
years. The Board believes that both these directors continue to demonstrate
independence of the Manager and to make a valuable contribution to the
Company, and therefore recommends that shareholders vote in favour of their
reappointment. The Board has a succession plan under which its membership
will be refreshed over time and which has seen the retirement of Clive Newall
and the appointment of David Staples in 2019 and Fiona Perrott-Humphrey in
2020. It is intended that further new appointments will be made in the course
of the next two years. Specialists will be engaged as the Board consider
necessary to assist with future appointments.
· Information
The Board receives full details of the Company's performance, assets,
liabilities and other relevant information in advance of Board meetings,
including information on regulatory and accounting developments.
· Performance appraisal
The performance of the Board and the Audit Committee is evaluated through a
formal and rigorous assessment process led by the Chairman. The performance of
the Chairman is evaluated by the other Directors.
· Investment Manager assessment
The Investment Manager was appointed pursuant to an investment management
agreement with the Manager dated 31 March 2010 and which was amended and
restated, with the Company joining as a party, on 14 November 2014 (the
Investment Management Agreement). The Investment Manager is paid by the
Manager and is not separately remunerated by the Company. The Investment
Management Agreement pursuant to which the Company and the Manager have
appointed the Investment Manager is terminable by any party giving the other
parties not less than 12 months' written notice.
The Investment Manager prepares regular reports to the Board to allow it to
review and assess the Company's activities and performance on an ongoing
basis. The Board and the Investment Manager have agreed clearly defined
investment criteria, exposure limits and specified levels of authority. The
Board completes a formal assessment of the Investment Manager on an annual
basis. The assessment covers such matters as the performance of the Company
relative to its peers and sector, the management of investor relations and the
reasonableness of fee arrangements. Based on its assessment it is the opinion
of the Board that the continuation of the appointment of the Investment
Manager is in the best interests of shareholders of the Company.
· Board meetings
The Board generally meets at least four times a year, at which time the
Directors review the management and performance of the Company's assets and
all other significant matters so as to ensure that the Directors maintain
overall control and supervision of the Company's affairs. The Board is
responsible for the appointment and monitoring of all service providers to the
Company. Between these quarterly meetings there is regular contact with the
Investment Manager and Company Secretary. The Directors are kept fully
informed of investment and financial controls and other matters which are
relevant to the business of the Company and which should be brought to the
attention of the Directors. The Directors also have direct access to the
Company Secretary (through its appointed representatives who are responsible
for ensuring that Board procedures are followed and that applicable rules and
regulations are complied with) and, where necessary in the furtherance of
their duties, to independent professional advice at the expense of the
Company.
Attendance at the quarterly Board and Audit Committee meetings during the year
was as follows:
Board Meetings Audit Committee
Meetings
Held Attended Held Attended
Howard Myles 4 4 4 4
Charles Hansard 4 4 n/a n/a
Fiona Perrott-Humphrey 4 4 4 4
David Staples 4 4 4 4
In addition to the quarterly meetings, adhoc Board and committee meetings are
convened as required. All Directors contribute to a significant exchange of
views with the Investment Manager on specific matters, in particular in
relation to developments in the portfolio.
· Relations with Shareholders
The Board believes that the maintenance of good relations with shareholders is
vital for the long-term prospects of the Company. The Company's stockbrokers,
Numis Securities Limited, and the Investment Manager are responsible for
managing relationships with shareholders and each provides the Board with
feedback on a regular basis that includes a shareholder contact report and any
concerns the shareholder has raised. The Chairman and the Board are also
available to meet with shareholders at the Company's Annual General Meeting or
otherwise.
· Engagement with key Stakeholders
The Board considers its key stakeholders, along with its shareholders, to be
the Company's Investment Manager, Administrator, Company Secretary and
Stockbroker. Engagement with each Stakeholder is formalised by quarterly
reporting at the Board Meetings but outside of the formal meetings, is
continuous as required by the operations of the Company. The Board is very
aware of the importance to the success of the Company of these key
stakeholders and encourages open and frequent dialogue to facilitate
improvements to the way that the Company functions.
· Principal and Emerging Risks
The Board has delegated responsibility for the assessment of its key risks to
the Audit Committee. The Audit Committee has documented the key risks and
controls in a detailed risk matrix and meets on a quarterly basis to update it
and to assesses the adequacy and completeness of the controls. As the Audit
Committee identifies changes that affect the risk profile of the Company it
will recommend to the Board any actions required to effectively manage risk.
More details on the Principal and Emerging Risks are presented in the
Strategic Report.
· Diversity
The Board has no formal policy on diversity but is cognizant of the need to
maintain a Board with a spectrum of skills appropriate for the specifics of
the Company.
Committees
The Committees of the Board have formal Terms of Reference which are available on the Company's webpage
http://bakersteelresourcestrust.com/corporate-governance/ (http://bakersteelresourcestrust.com/corporate-governance/)
.
· Audit Committee
The Board has established an Audit Committee. The Audit Committee meets at
least three times a year and is responsible for ensuring that the financial
performance of the Company is properly reported on and monitored and provides
a forum through which the Company's external auditor may report to the Board.
The Audit Committee operates within established terms of reference. The
Directors consider there is no need for an internal audit function because the
Company operates through service providers and the Directors receive control
reports on its key service providers.
David Staples is Chairman of the Audit Committee with Fiona Perrott-Humphrey
and Howard Myles as the other members. As Chairman of the Board, Howard Myles
will not Chair the Audit Committee but is considered independent and therefore
sits as a committee member.
· Nomination, Remuneration and Management Engagement Committees
Given the size and nature of the Company and the fact that all the Directors
are independent and non-executive it is not deemed necessary to form separate
Nomination, Remuneration, and Management Engagement Committees. The Board
itself considers new Board appointments, remuneration and the engagement of
service providers.
Internal Controls
The Board has delegated to service providers the day to day responsibilities
for the management of the Company's investment portfolio, the provision of
depositary services and administration, registrar and corporate secretarial
functions including the independent calculation of the Company's NAV and the
production of the Annual Report and Financial Statements which are
independently audited.
Formal contractual agreements have been put in place between the Company and
providers of these services.
Even though the Board has delegated responsibility for these functions, it
retains accountability for them and is responsible for the systems of internal
control. However, it has delegated the regular review and oversight of the
systems of internal control to the Audit Committee which reports back to the
Board following each Audit Committee meeting. At each quarterly Board meeting,
compliance reports are provided by the Administrator and Investment Manager.
The Company's risk matrix continues to be the core element of the Company's
risk management process in establishing the Company's system of internal
financial and reporting control. The risk matrix is prepared and maintained by
the Investment Manager and reviewed regularly by the Audit Committee which
initially identifies the risks facing the Company and then collectively
assesses the likelihood of each risk, the impact of those risks and the
strength of the controls mitigating each risk. The system of internal
financial and operating control is designed to manage rather than to eliminate
the risk of failure to achieve business objectives and by its nature can only
provide reasonable and not absolute assurance against misstatement and loss.
These controls aim to ensure that assets of the Company are safeguarded,
proper accounting records are maintained and the financial information for
publication is reliable. The Audit Committee confirms to the Board that there
is an ongoing process for identifying, evaluating and managing the significant
risks faced by the Company.
This process has been in place for the year under review and up to the date of
approval of this Annual Report and Audited Financial Statements and is
reviewed by the Board by way of reporting from the Audit Committee.
The Board therefore believes that the Company has adequate and effective
systems in place to identify, mitigate and manage the risks to which it is
exposed.
Director's Remuneration Policy
All Directors are non-executive and in view of the relatively small size of
the Board a Remuneration Committee has not been established. The Board as a
whole considers matters relating to the Directors' remuneration. No advice or
services were provided by any external person in respect of its consideration
of the Directors' remuneration.
The Company's policy is that the fees payable to the Directors should reflect
the time spent by the Directors on the Company's affairs and the
responsibilities borne by the Directors and be sufficient to attract, retain
and motivate directors who have the experience and qualities required to run
the Company successfully. The Chairs of the Board and the Audit Committee are
paid a higher fee in recognition of their additional responsibilities. The fee
levels are reviewed annually, no changes to the fees were proposed at the last
review.
There are no long term incentive schemes provided by the Company and no
performance fees are paid to Directors. No Director has a service contract
with the Company but each of the Directors is appointed by a letter of
appointment which sets out the main terms of their appointment. Directors hold
office until they retire or cease to be a director in accordance with the
Articles of Incorporation or by operation of law.
The Directors recognise the benefits of diversity in terms of gender and
ethnicity and will take these into account when considering future
appointments to the Board. However, their principal criteria will remain the
skills and experience of new directors and the Board will select the
candidates whom it believes will add most value.
The Directors are remunerated for their services at such rate as the Directors
determine provided that the aggregate amount of such fees may not exceed
£200,000 per annum (or such sum as the Company in general meeting shall from
time to time determine).
For the year ended 31 December 2021, the total remuneration of the Directors
was £115,000 (2020: £115,136), with £28,750 (2020: £28,750) payable at the
year end.
Directors are remunerated in the form of fees, payable quarterly in arrears,
to the Director personally. The fees paid to each Director in respect of the
years ended 31 December 2021 and 31 December 2020 are shown below.
2021 2020
£ £
Howard Myles 35,000 35,000
David Staples 30,000 30,000
Charles Hansard 25,000 25,000
Clive Newall (resigned 15 September 2020) - 17,731
Fiona Perrott-Humphrey (appointed 15 September 2020) 25,000 7,405
Independent Auditors
The auditors, BDO Limited, have indicated their willingness to continue in
office and a resolution for their re-appointment will be proposed at the
Annual General Meeting.
Subsequent Events
Please refer to Note 14 of the financial statements on page 63.
Signed on behalf of the Board of Directors by:
David Staples
14 April
2022
Report of the Audit CommitteE
For the year ended 31 December 2021
The function of the Audit Committee as described in its Terms of Reference is
to ensure that the Company maintains high standards of integrity in its
financial reporting and internal controls. David Staples is Chairman of the
Audit Committee with Fiona Perrott-Humphrey and Howard Myles as the other
members. As Chairman of the Board, Howard Myles will not Chair the Audit
Committee but is considered independent and therefore sits as a committee
member
The Audit Committee is appointed by the Board and all members are considered
to be independent both of the Investment Manager and the external auditor. The
Audit Committee meets a minimum of three times a year to discuss the Interim
and Annual Report and Audited Financial Statements, the audit plan and
engagement letter, and the Company's risks and controls, via discussion of its
risk matrix. The Board is satisfied that the Audit Committee is properly
constituted with members having recent and relevant financial experience,
including two members who are chartered accountants.
The Board, advised by the Audit Committee considers the nature and extent of
the Company's risk management framework and the risk profile that is
acceptable in order to achieve the Company's strategic objectives. As a
result, it is considered that the Board has fulfilled its obligations under
the AIC Code and the UK Code.
The Audit Committee continues to be responsible for reviewing the adequacy and
effectiveness of the Company's on-going risk management systems and processes.
The Company's system of internal controls, along with its design and operating
effectiveness, is subject to review by the Audit Committee through reports
received from all key service providers.
In the event of any deficiencies or breaches being reported, the Board would
consider the actions required to remedy and prevent significant failings or
weaknesses. During the year ended 31 December 2021, no significant weaknesses
or failings were identified.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery and corruption
policies of the Company. The Board receives a confirmation from all service
providers that they are not aware of any instances of fraud or bribery.
The Audit Committee considers the adequacy and security of the arrangements
for the employees of its service providers to raise concerns, in confidence,
about possible wrongdoing in financial reporting or other matters. The Audit
Committee is satisfied it has the ability and resources to investigate any
matters that are brought to its attention and to follow up on any conclusion
reached by such investigation.
Primary Areas of Judgement
As part of its review of the Company's financial statements, the Audit
Committee takes account of the most significant issues and risks, both
operational and financial, likely to impact on the financial statements and
the mitigating controls to address these risks. The Audit Committee has
determined that the key risk of misstatement is the valuation of investments
for which there is no readily observable market price. Such investments are
recorded at fair value which is the price that would be expected to be
received to sell an asset in an orderly transaction between market
participants at the measurement date. Significant judgements are required in
respect of the valuation of the Company's investments for which there is no
observable market price. Further information on the Company's methodologies is
provided in Note 3 to the financial statements.
The risk is mitigated through the review by the Audit Committee and Board of
detailed reports prepared by the Investment Manager on portfolio valuation
including valuation methodology, the underlying assumptions and the valuation
process.
The Investment Manager also provides information to the Audit Committee and
Board on relevant market indices, recent transactions in similar assets and
other relevant information to allow an assessment of appropriate carrying
value having regard to the relevant factors.
The ultimate responsibility for ensuring that investments are carried at fair
value lies with the Board.
Through its meetings during the year ended 31 December 2021 and its review of
the Company's Annual Report and Audited Financial Statements, the Audit
Committee considered the following significant risks as well as the principal
risks and uncertainties described on pages 15 and 16.
Risk Considered How addressed
The accuracy of the Company's Annual Report and Financial Statements Review of the Annual Report and Audited Financial Statements, discussions with
the external auditor and meetings with the auditor to understand the audit
approach and findings having regard to the level of materiality agreed with
it.
Adequacy of the Company's accounting and internal controls systems Consideration of the Company's risk matrix, taking account of the relevant
risks, the potential impact to the Company and the mitigating controls in
place. The Committee also reviews control and compliance reports in this
respect and receives explanations of any breaches and how any control
weaknesses have been addressed.
Valuation of the Company's investments, in particular the valuation of Reports received from and discussed in depth with the Investment Manager
unquoted investments providing support for the investment valuations. The Investment Manager
reporting is then challenged and reconciled to the independent auditor's
review of the investment valuations.
The effectiveness and independence of the external audit process The Audit Committee has regular dialogue with the external auditor both before
and during the audit process. The auditor presents to the Audit Committee at
both the planning and audit review stage, and confirms its independence at
each stage. The Audit Committee receives feedback from the Investment Manager
on the audit process and any concerns or challenges faced.
Emerging risks The Audit Committee discusses the Company's risk matrix each time it meets.
Through these discussions emerging risks such as those caused by the Russian
invasion of Ukraine are assessed. The matrix also documents long term
implications for the sector from secular trends such as climate change.
The Audit Committee also provides a forum through which the Company's auditor
reports to the Board. The Board, advised by the Audit Committee, approves all
non-audit work carried out by the auditor in advance and the fees paid to the
auditor in this respect.
External Audit
The Company's external auditor is BDO Limited ("BDO").
The fees due to the auditor during the year were as follows:
2021 2020
£ £
Audit fees Audit Fees 58,500 54,000
Non-audit fees Agreed Upon Procedures relating to the review of the Company's half year 8,750 8,000
report
Total Fees 67,250 62,000
The external auditor provides an audit planning report in advance of the
annual audit. The Audit Committee has the opportunity to question and
challenge the auditor in respect of their work. Based on levels of interaction
with the auditor, and the assessment of auditor reporting, the audit planning,
adherence to audit standards, competence of the audit team and feedback from
the Investment Manager, the Audit Committee and the Board are satisfied that
the reappointment of the external auditor should be proposed at the Annual
General Meeting of the Company.
Internal Audit
The Audit Committee believes that the Company does not require an internal
audit function because it delegates its day to day functions to market leading
third party service providers, although the Audit Committee oversees these
operations and receives regular control reports in this respect.
Risk Management and Internal Controls
The Board is responsible for the Company's system of internal controls and
risk management. The Audit Committee has been delegated the responsibility for
reviewing the ongoing effectiveness of the Company's internal controls and it
discharges its duties in this area by assessing the nature and extent of the
significant risks the Company is willing to accept in achieving the Company's
objectives, and ensuring that effective systems of risk identification,
assessment and mitigation have been implemented. The Strategic Report on pages
13 to 17 outlines the principal risks and uncertainties affecting the Company
and the section on Internal Controls in the Directors Report on pages 19 to 26
gives details of the work performed by the Audit Committee in this area.
By their nature, the control mechanisms can only provide reasonable rather
than absolute assurance against misstatement or loss. The Audit Committee
seeks continual improvement in the Company's internal control mechanisms. The
Audit Committee is not aware of any significant failings or weaknesses in the
Company's internal controls in the year under review nor up to the date of
this report.
Financial Reporting
The primary role of the Audit Committee in relation to financial reporting is
to review the Annual Report and Financial Statements and the Half Year Report
with the Administrator and the Investment Manager and assess their
appropriateness. It focuses in this respect, amongst other matters, on:
· the clarity of the disclosures in the financial reporting and
compliance with statutory, regulatory and other financial reporting
requirements;
· the quality and acceptability of accounting policies and
practices;
· material areas where significant judgements and estimates have
been applied or where there has been discussion with the auditor; and
· taken as a whole, whether the financial statements are fair,
balanced and understandable and provide shareholders with the necessary
information to assess the Company's performance and strategy, reporting to the
Board in this respect.
Going Concern and Viability
The Audit Committee has made an assessment of the Company's ability to
continue as a going concern and of its viability, see pages 17 and 21 and has
advised the Board accordingly.
David Staples
Audit Committee Chairman
14 April 2022
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED
Opinion on the financial statements
In our opinion, the financial statements of Baker Steel Resources Trust
Limited ("the Company"):
· give a true and fair view of the state of the Company's affairs
as at 31 December 2021 and of its profit for the year then ended;
· have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union; and
· have been properly prepared in accordance with the requirements
of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of the Company for the year ended 31
December 2021 which comprise the Statement of Financial Position, the
Statement of Comprehensive Income, the Statement of Changes in Equity, the
Statement of Cash Flows and notes to the financial statements, including a
summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation
is applicable law and International Financial Reporting Standards as adopted
by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs(UK)) and applicable law. Our responsibilities under those standards
are further described in the Auditor's responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remain independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the Directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting included:
· Obtaining the paper prepared by those charged with governance and
management in respect of going concern and discussing this with both the
Directors and management;
· Examining management's cash flow forecasts for the twelve months
from the approval of these financial statements and their stress tests of
future income and expenditure and the ability to realise the Company's assets;
· Reviewing the key inputs into the cash flow forecasts to ensure
that these were consistent with our understanding and the historic results of
the company; and
· Reviewing the minutes of the Directors, the RNS announcements and
the compliance reports for any indicators of concerns in respect of going
concern.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In relation to the Company's reporting on how it has applied the UK Corporate
Governance Code, we have nothing material to add, or draw attention to, in
relation to the Directors' statement in the financial statements about whether
the Directors considered it appropriate to adopt the going concern basis of
accounting.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
2021 2020
Key audit matters Investment valuation and ownership
Materiality Financial statements as a whole
£1.84m (2020: £1.815m) based on 1.75% (2020: 1.75%) of total assets.
Materiality
Financial statements as a whole
£1.84m (2020: £1.815m) based on 1.75% (2020: 1.75%) of total assets.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Company and its
environment, including the Company's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
We tailored the scope of our audit taking into account the nature of the
Company's investments, involvement of the Manager and the company
Administrator, the accounting and reporting environment and the industry in
which the Company operates.
This assessment took into account the likelihood, nature and potential
magnitude of any misstatement. As part of this risk assessment, we considered
the Company's interaction with the Manager and the company Administrator. We
considered the control environment in place at the Manager and the company
Administrator to the extent that it was relevant to our audit. Following
this assessment, we applied professional judgement to determine the extent of
testing required over each balance in the financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
This matter was addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on this matter.
Key audit matter How the scope of our audit addressed the key audit matter
Valuation of and ownership of unlisted investments and listed investments Our procedures included the following:
subject to a lock up period, including unrealised gains/(losses).
For the listed investments we agreed the number of shares to the custodian.
Refer to the accounting policies on pages 43 to 46 and Note 3 to the Financial
Statements.
For all unlisted investments we agreed the
95.29% (2020: 92.06%) of the carrying value of the investments relates to the number of warrants to the warrant instrument and obtained direct confirmation
Company's holdings in unlisted investments or listed investments subject to a from the underlying investee for the holdings of other unlisted investments.
lock up period, which are valued using different valuation techniques as
explained in Note 3.
For all unlisted investments:
The valuations are subjective, with a high level of judgment and estimation
linked to the determination of fair value with limited third party pricing
information available. · We considered the processes, policies and methodologies used by
management for determining the fair value of unlisted investments held by the
Company;
As a result of the subjectivity, there is a risk of an inappropriate valuation
model being applied, together with the risk of inappropriate inputs to the
model being used. · Agreed the Manager's application of valuation techniques as
appropriate to the circumstances of the investment and the accounting policies
applied; and
The valuation of these investments is a key driver of the Company's net asset
value and total return. Incorrect valuations could have a significant impact
on the net asset value of the Company and therefore the return generated for · Agreed the valuation per the models to the financial statements.
shareholders.
In respect of the investments using a valuation model, we: -
· Obtained and challenged, through discussion and corroboration to
external sources, the inputs and assumptions used in management's model based
on our understanding of the investment.
· Agreed the inputs, for example volatility, resource prices, and
tax rates, into the models to independent sources;
· Evaluated whether all key terms of the underlying agreements had
been considered within the models;
· Performed an independent sensitivity analysis of certain inputs
to identify and challenge, through discussion and corroboration to third party
sources, in more detail, those which have the large impact on the valuation;
and
· Tested the mathematical accuracy of the models.
For investments valued on an index valuation, we recalculated, using
independently obtained information, management's applied basket of indices for
each investment.
For those investments which used recent Investment as a basis, we considered
if there were any material changes in the market or changes in the performance
of the investee company affecting the fair value of the investment at year
end.
For listed investments subject to a lock up period we: -
· Obtained management's calculation of the appropriate discount to
apply to the market price and the underlying model prepared to support this;
· Challenged the appropriateness of the model, based on standard
practice valuation methods for investments subject to a lockup;
· Calculated our own discount, utilising an appropriate valuation
model and external data sources obtained independently and compared with that
of management; and
· Agreed the listed price to a third-party data source and
reperformed the discount adjustment.
Key observation:
Based on the procedures performed, we are satisfied that judgements applied in
valuing the unlisted investments and listed investments subject to a lock up
period are appropriate and the Company has valid ownership of these
investments.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
Company financial statements
2021 2020
£m £m
Materiality 1,838,000 1,815,000
Basis for determining materiality 1.75% of total assets
Rationale for the benchmark applied Due to it being an investment fund with the objective of long-term capital
growth, with investment values being a key focus of users of the financial
statements.
Performance materiality 1,194,000 1,179,000
Basis for determining performance materiality 65% of materiality
This was determined using our professional judgement and took into account the
complexity and our knowledge of the engagement, together with history of
minimal historical errors and adjustments
Specific materiality
We also determined that for investment income and sensitive fees, which
include management fees, administration fees Directors' fees and custodian
fees, a misstatement of less than materiality for the financial statements as
a whole, specific materiality, could influence the economic decisions of
users. As a result, we determined materiality for these items based on 10% of
materiality being £183,800 (2020: £181,500). We further applied a
performance materiality level of 65% of specific materiality to ensure that
the risk of errors exceeding specific materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £55,140 (2020: £54,000) and, for items
audited to specific materiality, differences above £5,514 (2020: £5,400).
We also agreed to report differences below this threshold that, in our view,
warranted reporting on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information
comprises the information included in the Annual Report and Audited Financial
Statements, other than the financial statements and our auditor's report
thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Company's compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements and our knowledge obtained during the
audit.
Going concern and longer-term viability · The Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material uncertainties
identified set out on page 21; and
· The Directors' explanation as to their assessment of the
Company's prospects, the period this assessment covers and why this period is
appropriate set out on page 17.
Other Code provisions · The Directors' statement on fair, balanced and understandable set
out on page 21;
· Board's confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 21;
· The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems set out on page
29; and
· The section of the Annual Report describing the work of the audit
committee set out on page 24 and pages 27 to 29.
Other Companies (Guernsey) Law, 2008 reporting
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· proper accounting records have not been kept by the Company; or
· the financial statements are not in agreement with the accounting
records; or
· we have failed to obtain all the information and explanations
which, to the best of our knowledge and belief, are necessary for the purposes
of our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors' Responsibilities within
the Directors' Report, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and
fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
We obtained an understanding of the legal and regulatory frameworks that are
applicable to the Company and have a direct impact on the preparation of the
financial statements. We determined that the most significant frameworks which
are directly relevant to specific assertions in the financial statements are
those that relate to the reporting framework such as IFRSs and the Companies
(Guernsey) Law, 2008. We evaluated management's incentives and opportunities
for fraudulent manipulation of the financial statements (including the risk of
management override of controls) and determined that the principal risks were
related to revenue recognition on the Company's investments and the management
bias and judgement involved in accounting estimates, specifically in relation
to the valuation of investments (the response to which is detailed in our key
audit matter above).
We communicated relevant identified laws and regulations and potential fraud
risks to all engagement team members and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the audit.
Audit procedures performed by the engagement team to respond to the risks
identified included:
· Discussion with and enquiry of management and those charged with
governance concerning known or suspected instances of non-compliance with laws
and regulations or fraud;
· Reading minutes of meetings of those charged with governance,
correspondence with the Guernsey Financial Services Commission, internal
compliance reports, complaint registers and breach registers to identify and
consider any known or suspected instances of non-compliance with laws and
regulations or fraud;
· For listed investments, recalculating investment income and
realised and unrealised gains and losses in full based on external source
information;
· For unquoted investments, recalculating realised and unrealised
gains and losses in full. For investment income, the amounts were recalculated
where based on an agreement. Where not agreement based, we obtained direct
confirmation from the underlying unquoted investee companies in relation to
investment income; and
· Performing analytical procedures of the mid-year net asset
valuations, with a focus on reviewing and corroborating movements over a set
threshold.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council's website at:
https://www.frc.org.uk/auditorsresponsibilities
(https://www.frc.org.uk/auditorsresponsibilities) . This description forms
part of our auditor's report.
The engagement Director on the audit resulting in this independent auditor's
opinion is Justin Hallett.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
Date
14 April 2022
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021
2021 2020
Notes £ £
Assets
Cash and cash equivalents 9 1,077,482 424,140
Interest receivable 2(i) 249,445 684,184
Other receivables 22,132 19,628
Financial assets held at fair value through profit or loss 3 103,685,593 102,607,947
Total assets 105,034,652 103,735,899
Equity and Liabilities
Liabilities
Directors' fees payable 11 28,750 28,750
Management fees payable 7,11 122,894 110,825
Administration fees payable 6 10,638 35,000
Audit fees payable 58,500 54,000
Custodian fees payable 8,443 7,587
Other payables 6,471 8,338
Total liabilities 235,696 244,500
Equity
Management Ordinary Shares 10 9,167 9,167
Ordinary Shares 10 75,972,688 75,972,688
Revenue Reserves 10,047,160 10,971,969
Capital Reserves 18,769,941 16,537,575
Total equity 104,798,956 103,491, 399
Total equity and liabilities 105,034,652 103,735,899
Net Asset Value per Ordinary Share (in Pence) - Basic and Diluted 12 98.4 97.2
The financial statements on pages 38 to 63 were approved and authorised for
issue by the Board of Directors on
14 April 2022 and signed on its behalf by:
David Staples
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
Year ended 2021 Year ended 2021 Year ended 2021
Revenue Capital Total
Notes £ £ £
Income
Interest income 2(i) 1,228,691 - 1,228,691
Dividend income 2(j) 45,880 - 45,880
Net gain on financial assets at fair value through profit or loss 3 - 2,254,094 2,254,094
Net foreign exchange loss - (21,728) (21,728)
Net income 1,274,571 2,232,366 3,506,937
Expenses
Management fees 7,11 1,587,121 - 1,587,121
Directors' fees 11 115,000 - 115,000
Administration fees 6 126,876 - 126,876
Other expenses 8 103,389 - 103,389
Depositary fees 41,336 41,336
Custody fees 62,628 - 62,628
Broker fees 35,000 - 35,000
Audit fees 67,250 - 67,250
Directors' Insurance 15,750 - 15,750
Directors' expenses 515 515
Legal fees 44,515 - 44,515
Total expenses 2,199,380 - 2,199,380
Net (loss)/gain for the year (924,809) 2,232,366 1,307,557
Net (loss)/gain for the year per Ordinary Share:
Basic and Diluted (in pence) 12 (0.87) 2.10 1.23
In the year ended 31 December 2021 there were no gains or losses other than
those recognised above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the
recommendations of the AIC Statement of Recommended Practice and is provided
for information purposes.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
Year ended 2020 Year ended 2020 Year ended 2020
Revenue Capital Total
Notes £ £ £
Income
Interest income 2(i) 1,703,620 - 1,703,620
Dividend income 2(j) 138,129 - 138,129
Net gain on financial assets at fair value through profit or loss 3 - 24,674,768 24,674,768
Net foreign exchange loss - (10,012) (10,012)
Net income 1,841,749 24,664,756 26,506,505
Expenses
Management fees 7,11 1,104,344 - 1,104,344
Directors' fees 11 115,136 - 115,136
Administration fees 6 114,250 - 114,250
Other expenses 8 123,918 - 123,918
Depositary fees 31,262 31,262
Custody fees 53,330 - 53,330
Broker fees 35,000 - 35,000
Audit fees 62,000 - 62,000
Directors' insurance and expenses 12,670 - 12,670
Legal fees 26,506 - 26,506
Total expenses 1,678,416 - 1,678,416
Net gain for the year 163,333 24,664,756 24,828,089
Net gain for the year per Ordinary Share:
Basic and Diluted (in pence) 12 0.15 23.17 23.32
In the year ended 31 December 2020 there were no gains or losses other than
those recognised above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the
recommendations of the AIC Statement of Recommended Practice and is provided
for information purposes.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021
Management
Ordinary Ordinary Treasury Revenue reserves Capital Total
Shares Shares Shares reserves equity
£ £ £ £ £ £
Balance as at 1 January 2020 9,167 76,113,180 (140,492) 10,808,636 (8,127,181) 78,663,310
Net gain for the year - - - 163,333 24,664,756 24,828,089
Balance as at 31 December 2020 9,167 76,113,180 (140,492) 10,971,969 16,537,575 103,491,399
Net loss/gain for the year - - - (924,809) 2,232,366 1,307,557
Balance as at 31 December 2021 9,167 76,113,180 (140,492) 10,047,160 18,769,941 104,798,956
Note 10 10 10
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021
Year ended 2021 Year ended 2020
Notes £ £
Cash flows from operating activities
Net gain for the year 1,307,557 24,828,089
Adjustments to reconcile gain for the year to net cash used in operating
activities:
Interest income (1,228,691) (1,703,620)
Dividend income (45,880) (138,129)
Net gain on financial assets at fair value through profit or loss 3 (2,254,094) (24,674,768)
Net increase in receivables (2,504) (2,344)
Net (decrease)/increase in payables (8,804) 31,766
(2,186,169) (1,659,006)
Interest received 903,607 615,510
Dividend received 45,880 138,129
Net cash used in operating activities (1,282,929) (905,367)
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss (1,776,426) (11,200,266)
Sale of financial assets at fair value through profit or loss 3,712,697 11,870,016
Net cash provided by investing activities 1,936,271 669,750
Net increase/(decrease) in cash and cash equivalents 653,342 (235,617)
Cash and cash equivalents at the beginning of the year 424,140 659,757
Cash and cash equivalents at the end of the year 9 1,077,482 424,140
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a closed-ended
investment company with limited liability incorporated and domiciled on 9
March 2010 in Guernsey under the Companies (Guernsey) Law, 2008 with
registration number 51576. The Company is a registered closed-ended investment
scheme registered pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law, 2020 and the Registered Collective Investment Scheme Rules and
Guidance, 2021 issued by the Guernsey Financial Services Commission ("GFSC").
On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company
were admitted to the Official List of the UK Listing Authority and to trading
on the Main Market of the London Stock Exchange. The Company's Ordinary and
Subscription Shares were admitted to the Premium Listing Segment of the
Official List on 28 April 2010.
The final exercise date for the Subscription Shares was 2 April 2013. No
Subscription Shares were exercised at this time and all residual/unexercised
Subscription Shares were subsequently cancelled.
The Company's portfolio is managed by Baker Steel Capital Managers (Cayman)
Limited (the "Manager"). The Manager has appointed Baker Steel Capital
Managers LLP (the "Investment Manager") as the Investment Manager to carry out
certain duties. The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting principally
of the equities, or related instruments, of natural resources companies. The
Company invests predominantly in unlisted companies (i.e. those companies
which have not yet made an Initial Public Offering ("IPO")) and also in listed
securities (including special situations opportunities and less liquid
securities) with a view to exploiting value inherent in market inefficiencies
and pricing anomalies.
Baker Steel Capital Managers LLP was authorised to act as an Alternative
Investment Fund Manager ("AIFM") of Alternative Investment Funds ("AIFs") on
22 July 2014. On 14 November 2014, the Investment Manager signed an amended
Investment Management Agreement with the Company, to take into account AIFM
regulations. AIFMD focuses on regulating the AIFM rather than the AIFs
themselves, so the impact on the Company is limited.
On 16 July 2021 the Company re-joined the Association of Investment Companies
("AIC").
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a historical cost basis except
for Financial Instruments at Fair Value Through Profit or Loss ("FVTPL") in
accordance with International Financial Reporting Standards ("IFRS") as
adopted by the European Union. The financial statements have been prepared on
a going concern basis.
The Company's functional currency is the Great Britain pound Sterling ("£"),
being the currency in which its Ordinary Shares are issued and in which
returns are made to shareholders. The presentation currency is the same as the
functional currency. The financial statements have been rounded to the nearest
£. The Company invests in companies around the world whose shares are
denominated in various currencies.
Income encompasses both revenue and capital gains/losses. For a listed
investment company, it is best practice to distinguish revenue from capital.
Revenue includes items such as dividends, interest, fees and other equivalent
items. Capital is the return, positive or negative, from holding investments
other than that part of the return that is revenue. The format of the
Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice and is provided for information purposes.
Assets and liabilities are presented in order of liquidity. Their maturities
are disclosed in Note 4(c).
New standards, amendments and interpretations to existing standards which are
not yet effective for the current year
A number of new standards are effective for annual periods beginning after 1
January 2022 and earlier application is permitted, however the Company has not
early adopted the new or amended standards in preparing these financial
statements.
The following amended standards and interpretations are not expected to have a
significant impact on the Company's financial statements:
- Property, Plant and Equipment: Proceeds before Intended Use - Amendments to
IAS 16 (effective for periods starting on or after 1 January 2022).
- Reference to the Conceptual Framework - Amendments to IFRS 3 (effective for
periods starting on or after 1 January 2022).
- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
(effective for periods starting on or after 1 January 2022).
- IFRS 9 Financial Instruments - Fees in the '10 per cent' test for
derecognition of financial liabilities (effective for periods starting on or
after 1 January 2022).
- Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2 (effective for periods starting on or after 1 January 2023).
- Definition of Accounting Estimates - Amendments to IAS 8 (effective for
periods starting on or after 1 January 2023).
- Deferred Tax related to Assets and Liabilities arising from a Single
Transaction - Amendments to IAS 12 (effective for periods starting on or after
1 January 2023).
- IFRS 17 Insurance Contracts (effective for periods starting on or after 1
January 2023).
- Classification of Liabilities as Current or Non-current - Amendments to IAS
1 (effective for periods starting on or after 1 January 2023).
New standards, amendments and interpretations to existing standards which are
effective for the current year
There are a number of new standards, amendments to standards and
interpretations that are effective for annual periods beginning after 1
January 2021 and were adopted from their effective date. These amendments did
not have a significant impact on the Company's financial statements.
IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising and measuring financial
assets, financial liabilities and some contracts to buy or sell non-financial
items.
Classification and measurement of financial assets and financial liabilities
A financial asset or liability is measured at amortised cost if it meets both
of the following conditions and are not designated
as at FVTPL:
Ø it is held within a business model whose objective is to hold assets to
collect contractual cash flows; and
Ø its contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
All financial assets of the Company are measured at FVTPL, except for cash and
cash equivalents which are measured at amortised cost.
All financial liabilities of the Company are measured at amortised cost.
Impairment of financial assets
Under IFRS 9 for trade receivables the Company has applied the simplified
model. Under the simplified approach the requirement is to always recognise
lifetime expected credit loss ("ECL"). Under the simplified approach there is
no need to monitor significant increases in credit risk and measure lifetime
ECLs at all times. The interest receivable is in respect of the Convertible
loan notes, a list of which is presented in Note 4(c) on Page 58 of the Annual
Report, and no provision has been made for credit losses. This is on the basis
that the fair value of the underlying asset supports the convertible
receivable.
For other receivables, the Directors have concluded that any ECL on these
receivables would be highly immaterial.
b) Significant accounting judgements and estimates
The preparation of the Company's financial statements requires the Directors
to make judgements, estimates and assumptions that affect the reported amounts
recognised in the financial statements and disclosure of contingent
liabilities. However, uncertainty about these assumptions and estimates could
result in outcomes that could require a material adjustment to the carrying
amount of the asset or liability in future periods.
(i) Judgements
In the process of applying the Company's accounting policies, the Directors
have made the following judgements, which have had the most significant effect
on the amounts recognised in the financial statements:
Going Concern
As described in the Directors' Report, the Directors have made an assessment
of the Company's ability to continue as a going concern and considered it
appropriate to adopt the going concern basis of accounting. There was a
discontinuation vote in 2021 which was not passed. The next discontinuation
vote will be at the AGM in 2024. Particular regard has been given to the fact
that the Company holds listed securities that can if necessary be realised to
meet liabilities as they become due. As at 31 December 2021, approximately
5.7% of the Company's assets were represented by cash and unrestricted quoted
investments. Although the Russian Invasion of Ukraine has resulted in a
reduction in the carrying value of investments with a Russian nexus after the
year end it is not expected that it will affect the Company's ability to
operate on a normal basis. Neither of the two affected investments PAL and
Azarga were expected to be realised or be a source of revenue in the next two
years. The Directors are not aware of any material uncertainties that may cast
significant doubt upon the Company's ability to continue as a going concern.
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources of uncertainty
at the reporting date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year, are discussed below. The Company based its assumptions and
estimates on parameters available when the financial statements were prepared.
However, existing circumstances and assumptions about future developments may
change due to market changes or circumstances arising beyond the control of
the Company. Such changes are reflected in the assumptions when they occur.
Please refer to Note 3 for further information.
(iii) Fair value of financial instruments
When the fair values of financial assets and financial liabilities recorded in
the Statement of Financial Position cannot be derived from active markets,
their fair value is determined using a variety of valuation techniques that
include the use of valuation models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, estimation
is required in establishing fair values. The estimates include considerations
of liquidity and model inputs related to items such as credit risk,
correlation and volatility. Changes in assumptions about these factors could
affect the reported fair value of financial instruments in the Statement of
Financial Position and the level where the instruments are disclosed in the
fair value hierarchy. To assess the significance of a particular input to the
entire measurement, the Company performs sensitivity analysis or stress
testing techniques. The Russian invasion of Ukraine may have an impact on
future valuations, however this is a non-adjusting Post Balance Sheet Event
and therefore no impact has been taken into account in the valuations as at 31
December 2021. Please refer to Note 14 for further information. Investments
in associates are carried at fair value as they are held as part of the
investment portfolio which is valued on a fair value basis.
d) Interest income and expense
Bank interest income and interest expense are recognised on an accruals basis
using the effective interest method.
e) Expenses
All expenses are recognised on an accruals basis.
f) Translation of foreign currencies
Foreign currency transactions during the year are translated into Sterling at
the rate of exchange ruling at the date of the transaction. Assets and
liabilities denominated in foreign currencies are translated into Sterling at
the rate of exchange ruling at the Statement of Financial Position date.
Exchange differences including those arising from adjustment to fair value of
financial instruments during the year, are included in the Statement of
Comprehensive Income. The foreign exchange movements relating to financial
assets form part of the fair value movement in the Statement of Comprehensive
Income.
g) Segment information
The Directors are of the opinion that the Company is engaged in a single
segment of business: investing in natural resources companies.
h) Net asset value per share
Net Asset Value per Ordinary Share disclosed on the face of the Statement of
Financial Position is calculated in accordance with the Company's Prospectus
by dividing the net assets of the Company on the Statement of Financial
Position date by the number of Ordinary Shares (including the Management
Ordinary Shares) outstanding at that date. Treasury Shares are excluded from
the Net Asset Value per Ordinary Share calculation.
i) Interest on investments
These comprise of interest accrued and interest received from convertible
loans where interest is payable throughout the life of the instrument which
are accounted for on an accruals basis and recognised in the Statement of
Comprehensive Income.
j) Dividend income
Dividend income is accrued on an ex-dividend basis and recognised in the
Statement of Comprehensive Income and is presented net of withholding tax. No
withholding taxes were suffered during the year (2020: £Nil).
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended 2021 Year ended 2020
Investment Summary:
£ £
Opening book cost 81,003,041 74,539,152
Purchases at cost 2,536,249 12,871,078
Proceeds on sale of investments (3,712,697) (11,870,016)
Net realised gains 3,084,294 5,462,827
Closing cost 82,910,887 81,003,041
Net unrealised gains 20,774,706 21,604,906
Financial assets held at fair value through profit or loss 103,685,593 102,607,947
The following table analyses net gains on financial assets at fair value
through profit or loss for the years ended
31 December 2021 and 31 December 2020.
Year ended 2021 Year ended 2020
£ £
Financial assets at fair value through profit or loss
Realised (losses)/gains on:
- Listed equity shares (792,604) 5,462,245
- Debt instruments 3,893,470 582
- Warrants (16,572) -
3,084,294 5,462,827
Movement in unrealised gains/(losses) on:
- Listed equity shares 4,589,432 (2,924,836)
- Unlisted equity shares 1,571,711 10,821,831
- Royalties 1,943,286 (428,348)
- Debt instruments (10,157,233) 11,731,267
- Warrants 1,222,604 12,027
(830,200) 19,211,941
Net gain on financial assets at fair value through profit or loss 2,254,094 24,674,768
The following table analyses investments by type and by level within the fair
valuation hierarchy at 31 December 2021.
Quoted prices in active markets Quoted market based observables Unobservable
inputs
Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Listed equity shares 4,879,486 14,064,224 - 18,943,710
Unlisted equity shares - - 46,971,239 46,971,239
Royalties - - 16,479,049 16,479,049
Warrants - - 1,364,093 1,364,093
Debt instruments - - 19,927,502 19,927,502
4,879,486 14,064,224 84,741,883 103,685,593
The following table analyses investments by type and by level within the fair
valuation hierarchy at 31 December 2020.
Quoted prices in active markets Quoted market based observables Unobservable
inputs
Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Listed equity shares 7,185,851 - - 7,185,851
Unlisted equity shares - - 36,987,733 36,987,733
Royalties - - 14,512,762 14,512,762
Warrants - - 141,489 141,489
Debt instruments - - 43,780,112 43,780,112
7,185,851 - 95,422,096 102,607,947
The table below shows a reconciliation of beginning to ending fair value
balances for Level 3 investments and the amount of total gains or losses for
the year included in net gain on financial assets and liabilities at fair
value through profit or loss held at 31 December 2021.
Unlisted Debt
31 December 2021 Equities Royalties instruments Warrants Total
£ £ £ £ £
Opening balance 1 January 2021 36,987,733 14,512,762 43,780,112 141,489 95,422,096
Purchases of investments 300,143 23,000 541,140 - 864,283
Sales of investments - - (399,576) 16,572 (383,004)
Conversion* 11,987,827 - (12,730,410) - (742,583)
Transfer out of Level 3 (3,876,175) - (5,000,000) - (8,876,175)
Change in net unrealised gains/losses 1,571,711 1,943,286 (10,157,233) 1,222,604 (5,419,632)
Realised gains - - 3,893,470 (16,572) 3,876,898
Closing balance 31 December 2021 46,971,239 16,479,048 19,927,503 1,364,093 84,741,883
Unrealised gains on investments still held at 31 December 2021 7,686,978 4,689,071 2,948,246 1,350,968 16,675,263
*Conversion of Futura and Anglo Saxony debt into Level 3 equity positions and
Mines & Metal Trading into Silver X and therefore a Level 1 investment.
The table below shows a reconciliation of beginning to ending fair value
balances for Level 3 investments and the amount of total gains or losses for
the year included in net gain on financial assets and liabilities at fair
value through profit or loss held at 31 December 2020.
Unlisted Debt
31 December 2020 Equities Royalties instruments Warrants Total
£ £ £ £ £
Opening balance 1 January 2020 24,780,551 14,019,975 29,293,224 116,337 68,210,087
Purchases of investments 1,519,012 921,135 2,818,227 13,125 5,271,499
Sales of investments - - (63,188) - (63,188)
Transfer to Level 1 (133,661) - - - (133,661)
Change in net unrealised gains 10,821,831 (428,348) 11,731,267 12,027 22,136,777
Realised gains - - 582 - 582
Closing balance 31 December 2020 36,987,733 14,512,762 43,780,112 141,489 95,422,096
Unrealised gains on investments still held at 31 December 2020 9,366,113 2,745,785 13,105,480 128,364 25,345,742
It is the Company's policy to recognise a change in hierarchy level when there
is a change in the status of the investment, for example when a listed company
delists or vice versa, or when shares previously subject to a restriction have
that restriction released. The transfers between levels are recorded either on
the value of the investment immediately after the event or the carrying value
of the investment at the beginning of the financial year. Mines & Metals
Trading (Peru) Plc merged with Silver X Mining Corp (Silver X) on 23 June
2021. The shares of Silver X are traded on the Toronto Stock Exchange and
accordingly the investment has been transferred from Level 3 to Level 1 in
these financial statements. Tungsten West listed on the AIM Market in the UK
on 21 October 2021, however as the Company's investment is locked up for 12
months from the time of listing, the shares are carried at a discount to the
market price and a Level 2 classification has therefore been applied to the
shares.
In determining an investment's position within the fair value hierarchy, the
Directors take into consideration the following factors:
Investments whose values are based on quoted market prices in active markets
are classified within Level 1. These include listed equities with observable
market prices. The Directors do not adjust the quoted price for such
instruments, even in situations where the Company holds a large position and a
sale could reasonably impact the quoted price. The Company does not and
neither did it during the year hold a sufficiently large position in any
listed company classified as Level 1 that it could impact the quoted price via
a sale of its investment.
Investments that trade in markets that are not considered to be active but are
valued based on quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs, are classified within Level 2. These
include certain less-liquid listed equities. Level 2 investments are valued
with reference to the listed price of the shares should they be freely
tradable after applying a discount for liquidity if relevant. As Level 2
investments include positions that are not traded in active markets and/or are
subject to transfer restrictions, valuations may be adjusted to reflect
illiquidity and/or non-transferability, which are generally based on available
market information. The Company had one Level 2 investments at 31 December
2021 (31 December 2020: none).
Investments classified within Level 3 have significant unobservable inputs.
They include unlisted debt instruments, unlisted equity shares and warrants.
Level 3 investments are valued using valuation techniques explained below. The
inputs used by the Directors in estimating the value of Level 3 investments
include the original transaction price, recent transactions in the same or
similar instruments if representative in volume and nature, completed or
pending third-party transactions in the underlying investment of comparable
issuers, subsequent rounds of financing, recapitalisations and other
transactions across the capital structure, offerings in the equity or debt
capital markets, and changes in financial ratios or cash flows. Level 3
investments may also be adjusted with a discount to reflect illiquidity and/or
non-transferability in the absence of market information.
Valuation methodology of Level 3 investments
The primary valuation technique is of "Latest Recent Transaction" being either
recent external fund raises or transactions. In all cases the valuation
considers whether there has been any change since the transaction that would
indicate the price is no longer fair value. Where an unquoted investment has
been acquired or where there has been a material arm's length transaction
during the past six months it will be carried at transaction value, having
taken into account any change in market conditions and the performance of the
investee company between the transaction date and the valuation date. Where
there has been no Latest Recent Transaction the primary valuation driver is
IndexVal. For each core unlisted investment, the Company maintains a weighted
average basket of listed companies which are comparable to the investment in
terms of commodity, stage of development and location ("IndexVal"). IndexVal
is used as an indication of how an investment's share price might have moved
had it been listed. Movements in commodity prices are deemed to have been
taken into account by the movement of IndexVal.
A secondary tool used by Management to evaluate potential investments as well
as to provide underlying valuation references for the Fair Value already
established is Development Risk Adjusted Value ("DRAV"). DRAVs are not a
primary determinant of Fair Value. The Investment Manager prepares discounted
cash flow models for the Company's core investments annually taking into
account significant new information, and for decision making purposes when
required. From these, DRAVs are derived. The computations are based on
consensus forecasts for long term commodity prices and investee company
management estimates of operating and capital costs. The Investment Manager
takes account of market, country and development risks in its discount
factors. Some market analysts incorporate development risk into the discount
rate in arriving at a net present value ("NPV") rather than establishing an
NPV discounted purely for cost of capital and country risk and then applying a
further overall discount to the project economics dependent on where such
project sits on the development curve per the DRAV calculations.
The valuation techniques for Level 3 investments can be divided into six
groups:
i. Transactions & Offers
Where there have been transactions within the past 6 months either through a
capital raising by the investee company or known secondary market
transactions, representative in volume and nature and conducted on an arm's
length basis, this is taken as the primary driver for valuing Level 3
investments, having taken into account of any change in market conditions and
the performance of the investee company between the transaction date and the
valuation date. This includes offers, binding or otherwise from third parties
around the year end which may not have completed prior to the year-end but
have a high chance of success and are considered to represent the situation at
year end.
ii. IndexVal
Where there have been no known transactions for 6 months, at the Company's
half year and year end, movements in IndexVal will generally be taken into
account in assessing Fair Value where there has been at least a 10% movement
in IndexVal over at least a six-month period. The IndexVal results are used as
an indication of trend and are viewed in the context of investee company
progress and any requirement for finance in the short term for further
progression.
iii. Royalty Valuation Model
The rights to receive royalties are valued on projected cashflows taking into
account expected time to production and development risk and adjusted for
movement in commodity prices.
iv. EBITDA Multiple
In the case of Cemos Group plc, which moved to full production during 2020 and
so could reflect maintainable earnings, its main asset is a cement plant with
no defined life like a mining project and therefore has been valued on the
basis of a multiple of a blend of historical and forecast earnings before
interest, tax, depreciation and amortisation ("EBITDA") when compared to
listed comparable cement producers.
v. Warrants
Warrants are valued using a simplified Black Scholes model taking into account
time to expiry, exercise price and volatility. Where there is no established
market for the underlying shares the average volatility of the companies in
that investment's basket of IndexVal comparables is utilised in the Black
Scholes model.
vi. Convertible loans
Convertible loans are valued at fair value through profit or loss, taking into
account credit risk and the value of the conversion aspect.
Quantitative information of significant unobservable inputs - Level 3
Description 2021 Valuation technique Unobservable input Range of unobservable input
£ (weighted average)
Unlisted Equity 20,914,006 Transactions Private transactions n/a
Unlisted Equity 16,587,037 IndexVal Change in index n/a
Unlisted Equity 9,306,914 EBITDA Multiple EBITDA Multiple n/a
Royalties 16,479,048 Royalty Valuation model Commodity price and discount rate risk n/a
Unlisted Equity 163,284 Other Exploration results, study results, financing n/a
Debt Instruments
Black Pearl Limited Partnership 1,292,467 Valued at mean estimated recovery Estimated recovery range +/-50%
Other Convertible Debentures/Loans 2,157,657 IndexVal Change in Index n/a
Other Convertible Debentures/Loans 16,477,378 Valued at fair value with reference to credit risk Rate of Credit Risk 20%-40%
Warrants 1,364,093 Simplified Black Scholes Model Volatilities 50%
Description 2020 Valuation technique Unobservable input Range of unobservable input
£ (weighted average)
Unlisted Equity 27,236,964 Transactions Private transactions n/a
Unlisted Equity 2,790,916 IndexVal Change in index n/a
Unlisted Equity 6,943,907 EBITDA Multiple EBITDA Multiple n/a
Royalties 14,512,762 Royalty Valuation model Commodity price and discount rate risk n/a
Unlisted Equity 15,946 Other Exploration results, study results, financing n/a
Debt Instruments
Black Pearl Limited Partnership 1,281,629 Valued at mean estimated recovery Estimated recovery range +/-50%
Other Convertible Debentures/Loans 13,070,904 Transactions Private transactions n/a
Other Convertible Debentures/Loans 29,427,579 Valued at fair value with reference to credit risk Rate of Credit Risk 20%-40%
Warrants 141,489 Simplified Black Scholes Model Volatilities 50%
Information on third party transactions in unlisted equities is derived from
the Investment Manager's market contacts. The change in IndexVal for each
particular unlisted equity is derived from the weighted average movements of
the individual baskets for that equity so it is not possible to quantify the
range of such inputs.
Sensitivity analysis to significant changes in unobservable inputs within
Level 3 investments
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy together with a
quantitative sensitivity analysis as at 31 December 2021 are as shown below:
Description Input Sensitivity used Effect on Fair Value (£)
Unlisted Equity Transactions & Expected Transactions +/- 10% +/- 2,091,401
Unlisted Equity Change in IndexVal +101%/-57%* + 16,752,907/-9,454,611
Unlisted Equity EBITDA Multiple +/- 20% +/-1,861,383
Royalties Commodity Price +/-20% +/- 3,291,141
Royalties Discount Rate +/-20% +/- 4,788,365
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/- 426,514
Others/Loans Risk discount rate +/-20% -2,417,009/+1,292,006
Convertibles /Loans Volatility +/-40% +704,696/-262,075
Warrants Volatility +/-40% -36,769,+56,488
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value. The +101%/-57%
sensitivity was used as this was the range of movements of the constituents in
the IndexVal baskets for Bilboes Gold, Kanga Potash and Prism
Sensitivity analysis to significant changes in unobservable inputs within
Level 3 investments
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy together with a
quantitative sensitivity analysis as at 31 December 2020 are as shown below:
Description Input Sensitivity used Effect on Fair Value (£)
Unlisted Equity Transactions & Expected Transactions +/- 10% +/-2,723,696
Unlisted Equity Change in IndexVal +82/-42%* +2,288,551/-1,172,185
Unlisted Equity EBITDA Multiple +/- 20% +/-1,388,781
Royalties Commodity Price +/-20% +/-2,862,119
Royalties Discount Rate +/-20% -2,732,511/+2,223,695
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/-422,938
Others/Loans Risk discount rate +/-20% -4,272,633/+1,996,328
Others/ Loans Volatility of Index Basket +/-40% +2,109,175/-2,346,725
Others/ Loans +/-10% +/-1,307,090
Transactions and expected transactions
Warrants Volatility of Index Basket +/-40% +87,968/-92,079
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value. The +82%/-42%
sensitivity was used as this was the range of movements of the constituents in
the IndexVal basket for Sarmin, the only investment valued on the basis of
IndexVal in the year (2020:+82%/-42%).
The Company has not disclosed the fair value for financial assets such as cash
and cash equivalents and short-term receivables and payables, because their
carrying amounts are a reasonable approximation of fair values.
4. RISK MANAGEMENT POLICIES AND DISCLOSURES
The Company's principal financial instruments comprise financial assets,
primarily unlisted equity investments and loans in natural resources
companies. The portfolio is concentrated on projects on the large liquid
commodity markets and diversified in terms of geography. These investments
reflect the core of the Company's investment strategy.
The Company manages its exposure to key financial risks primarily through
diversification of geography and commodity, and through technical and legal
due diligence. The objective of the policy is to support the delivery of the
Company's core investment objective whilst maintaining future financial
security. The main risks that could adversely affect the Company's financial
assets or future cash flows are market risk (comprising market price risk,
currency risk and interest rate risk), commodity price risk, liquidity risk,
concentration risk and credit risk.
The Company's financial liabilities principally comprise fees payable to
various parties and arise directly from its operations.
Risk exposures and responses
The Company's Board of Directors oversees the management of financial risks,
each of which is summarised below.
a) Market risk
Market risk is the risk that the fair value of a financial instrument will
fluctuate because of changes in market prices. Market risk comprises three
types of risk: market price risk, currency risk and interest rate risk.
i. Market price risk
Market price risk is the risk that the fair value of future cash flows will
fluctuate because of changes in the market prices of the Company's investment
portfolio.
The sensitivity analysis on the previous page illustrates the sensitivity of
the key inputs into the market valuation and the resulting impact of the fair
values. The level of change is considered to be reasonably possible. The
sensitivity analysis assumes all other variables are held constant.
ii. Currency risk
At 31 December 2021, the largest non-Sterling portion of the Company's
financial assets and liabilities was denominated in US Dollars. The functional
currency of the Company is Sterling. Currency risk is the risk that the value
of non-Sterling denominated financial instruments will fluctuate due to
changes in foreign exchange rates. The tables below show the currencies and
amounts the Company was exposed to at 31 December 2021 and 31 December 2020.
31 December 2021
Currency Amount in Conversion rate Value % of net assets
local currency (based on £) £
AUD 38,079,806 0.5371 20,451,724 19.52%
CAD 3,850,097 0.5837 2,247,114 2.14%
EUR 12,176,338 0.8401 10,229,833 9.76%
GBP 35,626,057 1.0000 35,626,057 33.99%
NOK 44,748,764 0.0838 3,751,021 3.58%
USD 43,995,802 0.7386 32,493,207 31.01%
104,798,956 100.00%
31 December 2020
Currency Amount in Conversion rate Value % of net assets
local currency (based on £) £
AUD 33,258,402 0.5650 18,790,284 18.16%
CAD 3,906,292 0.5748 2,245,181 2.17%
EUR 9,115,280 0.8956 8,163,664 7.89%
GBP 27,672,415 1.0000 27,672,415 26.74%
NOK 41,552,423 0.0854 3,550,538 3.43%
USD 58,809,001 0.7324 43,069,317 41.61%
103,491,399 100.00%
Analysis has been completed to assess what movements in currency rates are
reasonably possible. This analysis has considered the variance between the
highest and lowest conversion rates in 2021 and 2020 for each of the
currencies in the table below. The table shows the potential movements in the
Company's net assets as a result of such foreign exchange movements.
Reasonably 2021 2020
Currency possible Value Value
move £ £
AUD 10% 2,045,172 1,879,028
CAD 11% 247,183 246,970
EUR 13% 1,329,878 1,061,276
NOK 20% 750,204 710,108
USD 16% 5,198,913 6,891,091
9,571,350 10,788,473
The estimated movement is based on management's determination of a reasonably
possible change in foreign exchange rates. In practice, the actual results may
differ from the sensitivity analysis above and the difference could be
material.
iii. Interest rate risk
Although the Company's financial assets and liabilities expose it indirectly
to risks associated with the effects of fluctuations in the prevailing levels
of market interest rates on its financial position and fair value, it is
subject to little direct exposure to interest rate fluctuations as the
majority of the financial assets are equity investments or similar investments
which do not pay interest. For valuation purposes convertible loans all have
fixed interest rates and are treated more like quasi equity albeit with higher
ranking than equity. As such they are not directly exposed to interest rates
from a cash flow perspective. Any excess cash and cash equivalents are
invested at short-term market interest rates which expose the Company, to a
limited extent, to interest rate risk and corresponding gains/losses from a
change in the fair value of these financial instruments.
The table below summarises the Company's exposure to interest rate risk. It
includes the Company's assets and liabilities at fair values, categorised by
the earlier of contractual re-pricing or maturity dates.
At 31 December 2021 Less than More than Non-interest
6 months 6 months bearing Total
Assets £ £ £ £
Cash and cash equivalents 1,077,482 - - 1,077,482
Financial assets held at fair value through profit or loss* 1,235,273 16,237,843 86,212,477 103,685,593
Other receivables - - 22,132 22,132
Interest receivable* 249,445 - - 249,445
Total Assets 2,562,200 16,237,843 86,234,609 105,034,652
Liabilities
Other liabilities - - 235,696 235,696
Total Liabilities - - 235,696 235,696
Interest rate sensitivity gap 2,562,200 16,237,843
*The interest rate risks on these items are considered as part of
overall price risk in valuing the convertibles.
The table below summarises the Company's exposure to interest rate risk. It
includes the Company's assets and liabilities at fair values, categorised by
the earlier of contractual re-pricing or maturity dates.
At 31 December 2020 Less than More than Non-interest
6 months 6 months bearing Total
Assets £ £ £ £
Cash and cash equivalents 424,140 - - 424,140
Financial assets held at fair value through profit or loss* 585,887 28,983,181 73,038,879 102,607,947
Other receivables - - 19,628 19,628
Interest receivable* 684,184 - - 684,184
Total Assets 1,694,211 28,983,181 73,058,607 103,735,899
Liabilities
Other liabilities - - 244,500 244,500
Total Liabilities - - 244,500 244,500
Interest rate sensitivity gap 1,694,211 28,983,181
*The interest rate risks on these items are considered as part of overall
price risk in valuing the convertibles.
Interest rate sensitivity
It is the opinion of the Directors that the Company is not materially exposed
to interest rate risk and accordingly no interest rate sensitivity calculation
has been provided in these financial statements.
b) Liquidity risk
Liquidity risk is defined as the risk that the Company may not be able to
settle or meet its obligations as they fall due. The Company invests in
unlisted equities for which there may not be an immediate market. The Company
seeks to mitigate this risk by maintaining cash and readily realisable listed
equity positions which will cover its ongoing operational expenses.
The Company has the ability to incur borrowings of up to 10% of its NAV but
the Company's policy is to restrict any such borrowings to temporary purposes
only, such as settlement mis-matches.
The table below analyses the Company's financial assets and liabilities into
relevant maturity groupings based on the remaining period at the Statement of
Financial Position date to the contractual maturity date. The amounts in the
table are the contractual cash flows.
At 31 December 2021 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets £ £ £ £ £ £
Cash and cash equivalents 1,077,482 - - - - 1,077,482
Financial assets held at fair value through profit - 1,235,273 4,721,075 11,516,768 86,212,477 103,685,593
or loss
Receivables 249,445 16,132 6,000 - - 271,577
Total Assets 1,326,927 1,251,405 4,727,075 11,516,768 86,212,477 105,034,652
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities £ £ £ £ £ £
Other payables 28,750 144,279 62,667 - - 235,696
and accrued expenses
Total Liabilities 28,750 144,279 62,667 - - 235,696
Net assets attributable to shareholders 104,798,956
The table below analyses the Company's financial assets and liabilities into
relevant maturity groupings based on the remaining period at the Statement of
Financial Position date to the contractual maturity date. The amounts in the
table are the contractual cash flows.
At 31 December 2020 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets £ £ £ £ £ £
Cash and cash equivalents 424,140 - - - - 424,140
Financial assets held at fair value through profit - - 9,759,932 19,809,136 73,038,879 102,607,947
or loss
Receivables 684,184 15,878 3,750 - - 703,812
Total Assets 1,108,324 15,878 9,763,682 19,809,136 73,038,979 103,735,899
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities £ £ £ £ £ £
Other payables 149,575 15,925 79,000 - - 244,500
and accrued expenses
Total Liabilities 149,575 15,925 79,000 - - 244,500
Net assets attributable to shareholders 103,491,399
The value of the cash and level 1 listed equity positions held by the Company
at the year-end was £5,956,968 (2020: £5,645,831) with the total liabilities
at the year-end at £235,696 (2020: £244,500).
c) Credit risk
Credit risk is the risk that a counterparty will be unable to pay amounts in
full as they fall due. The Company has exposure to credit risk in relation to
its cash balances, debt instruments, loan and loan notes as stated in the
Statement of Financial Position.
The Company seeks to mitigate this risk by lending to companies with projects
which have significant value over and above the value of the debt in such
company so that there is a significant equity "buffer". The maximum credit
risk on debt instruments for the Company is £19,950,848 (2020: £43,018,741).
The Company's financial assets are exposed to credit risk, which amounted to
the following at the Statement of Financial Position date:
2021 2020
£ £
Assets
Cash and cash equivalents 1,077,482 424,140
Interest receivable 249,445 684,184
Other receivables 22,132 19,628
Financial assets held at fair value through profit or loss 103,685,593 102,607,947
Total assets 105,034,652 103,735,899
c) Credit risk
As at 31 December 2021, the Company's non-equity financial assets exposed to
credit risk were held with the following ratings:
Financial Assets Counterparty **Credit 2021
Rating % of net assets
-Convertible Loan & Loan Note Azarga Metals NR* 2.11
-Convertible Loan & Loan Note Bilboes Holdings Loan Note 1 NR* 1.72
-Convertible Loan & Loan Note Bilboes Holdings Loan Note 2 NR* 0.33
-Convertible Loan & Loan Note Silver X Mining Corporation (Previously known as Mines & Metals Trading NR* 2.37
(Peru) Plc)
-Convertible Loan Note Black Pearl Limited Partnership NR* 1.23
-Convertible Unsecured Loan Security Futura Resources Limited NR* 1.18
-Loan Note Cemos Group Plc NR* 9.72
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.08
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.27
Cash and cash equivalents HSBC Bank plc AA- 1.03
Total 20.04
As at 31 December 2020, the Company's non-equity financial assets exposed to
credit risk were held with the following ratings:
Financial Assets Counterparty **Credit 2020
Rating % of net assets
-Convertible Loan & Loan Note Anglo Saxony Mining Limited NR* 3.29
-Convertible Loan & Loan Note Azarga Metals NR* 2.42
-Convertible Loan & Loan Note Bilboes Holdings Loan Note 1 NR* 2.58
-Convertible Loan & Loan Note Bilboes Holdings Loan Note 2 NR* 0.50
-Convertible Loan & Loan Note Mines & Metals Trading (Peru) Plc NR* 4.12
-Convertible Loan & Loan Note Tungsten West Limited NR* 9.73
-Convertible Loan Note Black Pearl Limited Partnership NR* 1.24
-Convertible Loan Note Futura Resources Limited NR* 10.05
-Convertible Unsecured Loan Cemos Group Plc NR* 7.44
-Loan Note Cemos Group Plc Loan Note NR* 0.40
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.13
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.40
Cash and cash equivalents HSBC Bank plc AA- 0.41
Total 42.71
* No rating available
**As per S&P
d) Concentration risk
The Company's investment policy is to invest in natural resources companies,
both listed and unlisted, that the Investment Manager considers to be
undervalued and that have strong fundamentals and attractive growth prospects
which means that the Company has significant concentration risk relating to
natural resources companies.
Concentration risks include, but are not limited to natural resources asset
category (such as gold) and geography. The Company may at certain times hold
relatively few investments. The Company could be subject to significant losses
if it holds a large position in a particular investment that declines in value
or is otherwise adversely affected, including by the default of the issuer.
Such risks potentially could have a material adverse effect on the Company's
financial position, results of operations, business prospects and returns to
investors. The Company's investments are geographically diverse reducing this
aspect of concentration risk. In terms of commodity, the portfolio is likewise
diversified in the large liquid markets of silver, gold, iron ore, coal and
copper to mitigate this aspect of concentration risk.
4. TAXATION
The Company is a Guernsey Exempt Company and is therefore not subject to
taxation in Guernsey on its income under the Income Tax (Exempt Bodies)
(Guernsey) Ordinance, 1989. An annual exemption fee of £1,200 (2020: £1,200)
has been paid. The Company may, however, be exposed to taxes in certain other
territories in which it invests such as withholding taxes on interest payments
and dividends and on realisations of investments.
5. ADMINISTRATION FEES
The Administrator, HSBC Securities Services (Guernsey) Limited, is paid fees
for acting as administrator of the Company at the rate of 7 basis points of
gross asset value up to US$250 million; the rate reduces to 5 basis points of
gross asset value above US$250 million. The Administrator is also reimbursed
by the Company for reasonable out-of-pocket expenses. These fees are
calculated and accrued as at the last business day of each month and paid
monthly in arrears.
The Administrator is also entitled to a fee for its provision of corporate
secretarial services provided to the Company on a time spent basis and subject
to a minimum annual fee of £40,000. The Company is also responsible for any
sub-administration fees as agreed in writing from time to time, and reasonable
out-of-pocket expenses. The Administrator is also entitled to fees of €5,000
for preparation of the financial statements of the Company.
The administration fees payable for the year ended 31 December 2021 were
£126,876 (2020: £114,250) of which £10,638 (2020: £35,000) was payable at
31 December 2021. HSBC Securities Services (Ireland) DAC, the
sub-Administrator, is paid a portion of these fees by the Administrator.
6. MANAGEMENT AND PERFORMANCE FEES
The Manager was appointed pursuant to a management agreement with the Company
dated 31 March 2010 (the "Management Agreement"). The Company pays to the
Manager a management fee which is equal to 1/12th of 1.75 per cent of the
total average market capitalisation of the Company during each month. The
management fee is calculated and accrued as at the last business day of each
month and is paid monthly in arrears. The Investment Manager's fees are paid
by the Manager.
The management fee for the year ended 31 December 2021 was £1,587,121 (2020:
£1,104,344) of which £122,894 (2020: £110,825) was outstanding at the year
end.
The Manager is also entitled to a performance fee. The Performance Period is
each 12-month period ending on 31 December (the "Performance Period"). The
amount of the performance fee is 15 per cent of the total increase in the NAV,
if the Hurdle has been met, at the end of the relevant Performance Period,
over the highest previously recorded NAV as at the end of a Performance Period
in respect of which a performance fee was last accrued, having made
adjustments for numbers of Ordinary Shares issued and/or repurchased
("Highwater Mark"). The Hurdle is the Issue Price multiplied by the shares in
issue, increased at a rate of 8% per annum compounded to the end of the
relevant Performance Period. In addition, the performance fee will only become
payable if there has been sufficient net realised gains. As at 31 December
2021, the Highwater Mark was the equivalent of approximately 94 pence per
share with the relevant Hurdle being the equivalent of approximately 151 pence
per share.
There were no earned performance fees payable for the current or prior year.
If the Company wishes to terminate the Management Agreement without cause it
is required to give the Manager 12 months prior notice or pay to the Manager
an amount equal to: (a) the aggregate investment management fee which would
otherwise have been payable during the 12 months following the date of such
notice (such amount to be calculated for the whole of such period by reference
to the Market Capitalisation prevailing on the Valuation Day on or immediately
prior to the date of such notice); and (b) any performance fee accrued at the
end of any Performance Period which ended on or prior to termination and which
remains unpaid at the date of termination which shall be payable as soon as,
and to the extent that, sufficient cash or other liquid assets are available
to the Company (as determined in good faith by the Directors), provided that
such accrued performance fee shall be paid prior to the Company making any new
investment or settling any other liabilities; and (c) where termination does
not occur at 31 December in any year, any performance fee accrued at the date
of termination shall be payable as soon as and to the extent that sufficient
cash or other liquid assets are available to the Company (as determined in
good faith by the Directors), provided that such accrued performance fee shall
be paid prior to the Company making any new investment or settling any other
liabilities.
8. OTHER EXPENSES
2021 2020
TOTAL TOTAL
£ £
Research fees 33,910 31,199
Regulatory fees 30,970 25,316
Investor services fees 24,031 23,138
Public relation fees 10,080 7,500
FATCA review - 13,500
Board recruitment fees - 10,000
Miscellaneous expenses 4,398 13,265
103,389 123,918
9. CASH AND CASH EQUIVALENTS
2021 2020
£ £
Cash at HSBC Bank plc 1,077,482 424,140
10. SHARE CAPITAL
The share capital of the Company on incorporation was represented by an
unlimited number of Ordinary Shares of no par value. The Company may issue an
unlimited number of shares of a nominal or par value and/or of no par value or
a combination of both.
The Company has a total of 106,453,335 (2020: 106,453,335) Ordinary Shares in
issue with an additional 700,000 (2020: 700,000) held in treasury. The Company
has 9,167 (2020: 9,167) Management Ordinary Shares in issue, which are held by
the Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment of the
Official List of the London Stock Exchange. Holders of Ordinary Shares have
the right to receive notice of and to attend and vote at general meetings of
the Company.
Each holder of Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll each such
holder of Ordinary Shares present in person or by proxy will have one vote for
each Ordinary Share held by him.
Holders of Management Ordinary Shares have the right to receive notice of and
to attend and vote at general meetings of the Company, except that the holders
of Management Ordinary Shares are not entitled to vote on any resolution
relating to certain specific matters, including a material change to the
Company's investment objective, investment policy or borrowing policy. Each
holder of Management Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll each such
holder of Management Ordinary Shares present in person or by proxy will have
one vote for each Management Ordinary Share held by him. Holders of Ordinary
Shares and Management Ordinary Shares are entitled to receive, and participate
in, any dividends or other distributions out of the profits of the Company
available for dividend and resolved to be distributed in respect of any
accounting period or other income or right to participate therein.
The details of issued share capital of the Company are as follows:
2021 2020
Amount No. of shares* Amount No. of shares*
£ £
Issued and fully paid share capital
Ordinary Shares of no par value** 76,122,347 107,162,502 76,122,347 107,162,502
(including Management Ordinary Shares)
Treasury Shares (140,492) (700,000) (140,492) (700,000)
Total Share Capital 75,981,855 75,981,855
The outstanding Ordinary Shares as at the year ended 31 December 2021 are as
follows:
Ordinary Shares Treasury Shares
Amount No. of shares* Amount No. of shares
£ £
Balance at 1 January 2021 & 31 December 2021 76,122,347 106,462,502 140,492 700,000
The outstanding Ordinary Shares as at the year ended 31 December 2020 were as
follows:
Ordinary Shares Treasury Shares
Amount No. of shares* Amount No. of shares
£ £
Balance at 31 December 2020 76,122,347 106,462,502 140,492 700,000
* Includes 9,167 (2020: 9,167) Management Ordinary Shares.
** The value reported for the ordinary shares represents the
net of subscriptions and redemptions (including any associated expenses)
Capital Management
The Company regards capital as comprising its issued Ordinary Shares. The
Company does not have any debt that might be regarded as capital. The
Company's objectives in managing capital are:
· To safeguard its ability to continue as a going concern and provide
returns to shareholders in the form of capital growth over the long-term
through a focused, global portfolio consisting principally of the equities or
related instruments of natural resources companies;
· To allocate capital to those assets that the Directors consider are
most likely to provide the above returns;
· To manage, so far as is reasonably possible and when desirable, any
discount or premium between the Company's share price and its NAV per Ordinary
Share; and
· To make distributions to shareholders when circumstances permit in
accordance with the Company's distribution policy.
The Company has continued to hold sufficient cash and liquid listed assets to
enable it to meet its obligations as they arise and the Investment Manager
provides the Directors with reporting on the activities of the investments of
the Company such that they can be satisfied with the allocation of capital.
As discussed in the Strategic Report, in August 2015, the Company introduced a
share buyback programme with the objective of managing the discount the
Company's shares trade at compared with its NAV. The Company has repurchased
700,000 shares at an average price of 20 pence per share through this
programme and the repurchased shares are held in Treasury.
The Company has authority to make market purchases of up to 14.99 Per Cent of
its own Ordinary Shares in issue. A renewal of such authority is sought from
Shareholders at each Annual General Meeting of the Company or at a General
Meeting of the Company, if required. Any purchases of Ordinary Shares will be
made within internal guidelines established from time to time by the Board and
within applicable regulations.
As described in the Directors' Report on page 19, the Company has a policy to
distribute at least 15 per cent of net realised cash gains after deducting
losses during the financial year through dividends, tender offers or
otherwise.
The Company is not subject to any externally imposed capital requirements.
Reserves
As at the year- end the Company had Revenue Reserves of £10,047,160 (2020:
£10,971,969) and Capital Reserves of
£18,769,941 (2020: £16,537,575).
Under the Companies (Guernsey) Law 2008, the Company may buy back its own
shares, or pay dividends, out of any reserves, subject to passing a solvency
test. This test considers whether, immediately after the payment, the
Company's assets exceed its liabilities and whether it will be able to pay its
debts when they fall due.
11. RELATED PARTY TRANSACTIONS
The Investment Manager, Baker Steel Capital Managers LLP, had an interest in
9,167 Management Ordinary Shares at 31 December 2021 (31 December 2020:
9,167).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious Metals Fund")
had an interest in 4,922,877 Ordinary Shares in the Company at 31 December
2021 (2020: 4,922,877). These shares are held in a custodian account with
Citibank N.A. London. Precious Metals Fund shares a common Investment Manager
with the Company.
David Baker and Trevor Steel, Directors of the Manager, are interested in the
shares held by Northcliffe Holdings Limited and The Sonya Trust respectively,
which are therefore considered to be Related Parties. Northcliffe Holdings
Limited holds 12,452,177 shares (2020: 12,452,177) and The Sonya Trust holds
12,722,129 shares (2020: 12,722,129).
David Staples, a Director of the Company purchased 35,000 shares in the
Company on 26 April 2021.
The Company's Associates are described in Note 13 to these financial
statements.
The Management fees and Directors' fees paid and accrued for the year were:
2021 2020
£ £
Management fees 1,587,121 1,104,344
Directors' fees 115,000 115,136
The Management fees and Directors' fees outstanding at the year-end were:
2021 2020
£ £
Management fees 122,894 110,825
Directors' fees 28,750 28,750
12. NET ASSET VALUE PER SHARE AND GAIN PER SHARE
Net asset value per share is based on the net assets of £104,798,956 (31
December 2020: £103,491,399) and 106,462,502 (31 December 2020: 106,462,502)
Ordinary Shares, being the number of shares in issue at the year-end excluding
700,000 shares which are held in treasury. The calculation for basic and
diluted NAV per share is as below:
31 December 2021 31 December 2020
Ordinary Shares Ordinary Shares
Net assets at the year-end (£) 104,798,956 103,491,399
Number of shares 106,462,502 106,462,502
Net asset value per share (in pence) basic and diluted 98.4 97.2
Weighted average number of shares 106,462,502 106,462,502
The basic and diluted gain per share for 2021 is based on the net gain for the
year of the Company of £1,307,557 and on 106,462,502 Ordinary Shares, being
the weighted average number of Ordinary Shares in issue during the year.
The basic and diluted gain per share for 2020 is based on the net gain for the
year of the Company of £24,828,089 and on 106,462,502 Ordinary Shares, being
the weighted average number of Ordinary Shares in issue during the year.
There are no outstanding instruments which could result in the issue of new
shares or dilute the issued share capital.
13. INVESTMENT IN ASSOCIATES
The interests in the below companies are for investment purposes and they are
deemed associates by virtue of the Company having appointed a non-executive
director ("NED") and/or holding in excess of 20% of the voting rights of the
relevant company. Investments in associates are carried at fair value as they
are held as part of the investment portfolio which is valued on a fair value
basis.
Investment Country of Incorporation Voting Rights held NED Appointed
Cemos Group Limited Jersey 32.50% Yes
Bilboes Gold Limited Mauritius 24.2% Yes
Nussir ASA Norway 12.10% Yes
Futura Resources Australia 26.90% Yes
Tungsten West Plc England and Wales 22.40% Yes
First Tin Limited England and Wales 26.00% Yes
Polar Acquisition Limited British Virgin Islands 49.99% Yes
Azarga Canada Convertible Loan Yes
Various Baker Steel representatives and their associates received fees and
incentives for their role as directors to these companies. These fees are
received in addition to the management fees charged.
14. SUBSEQUENT EVENTS
The potential impact of the Russian invasion of Ukraine to the mining sector
is discussed in the Chairman's Statement. The valuations of the two
investments with a direct interest in Russia, PAL and Azarga Metals were
reduced by 50% at the end of February 2022.
There were no events subsequent to the period end, not already disclosed in
the Annual Report and Accounts, that materially impacted on the Company that
require disclosure or adjustment to these financial statements.
15. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
The Annual Report and Audited Financial Statements for the year-ended 31
December 2021 were approved by the Board of Directors on 14 April 2022.
Appendix - additional information (UnAUDITED)
REMUNERATION DETAILS FOR INVESTMENT MANAGER'S STAFF
As noted earlier, under AIFMD, the Investment Manager received approval to act
as a full scope UK AIFM to the Company as of 22 July 2014. Pursuant to Article
22(2)9e) and (f) of AIFMD, an AIFM must, where appropriate for each AIF it
manages, make an annual report available to the AIF investors. The annual
report must contain, amongst other items, the total amount of remuneration
paid by the AIFM to its staff for the financial year, split into fixed and
variable remuneration including, where relevant, any carried interest paid by
the AIF, along with the aggregate remuneration awarded to senior management
and members of staff whose actions have a material impact on the risk profile
of the AIF.
For the year ended 31 December 2021 the LLP as Investment Manager paid fixed
remuneration to members and those identified as AIF code staff of £244,769.
Variable remuneration amounted to £2,699,589. No carried interest was paid by
the Company. These figures represent the aggregate remuneration paid to
members and those identified as AIF code staff of the LLP as Investment
Manager for the year ended 31 December 2021. The total remuneration of the
individuals whose actions have a material impact upon the risk profile of the
AIF managed by the AIFM amounted to £2,944,538.
The total AIFM remuneration attributable to senior management was £2,955,538.
No other staff were identified as material risk takers in the year. The
remuneration figures reflect an approximation of the portion of AIFM
remuneration reasonably attributable to the AIF.
GLOSSARY OF TERMS
AIF - Alternative Investment Fund
AIFM - Alternative Investment Fund Manager
AIFMD - Alternative Investment Fund Managers Directive
BSRT - Baker Steel Resources Trust Limited
Commission - Guernsey Financial Services Commission
DRAVs - Development Risk Adjusted Values
DFS - A Definitive Feasibility Study is an evaluation of a proposed mining
project to determine whether the mineral resource can be mined economically. A
DFS is the basis for detailed design and construction of a project and
determines definitively whether to proceed with the project. Detailed
feasibility studies require a significant amount of formal engineering work,
with costings accurate to within 10-15%. The definitive feasibility study will
be based on indicated and measured mineral resources.
EU - European Union
EGM - Extraordinary General Meeting
FCA - Financial Conduct Authority
FRC - Financial Reporting Council
FVO - Fair value option
FVOCI- Fair value through other comprehensive income
FVTPL - Fair value through profit or loss
GFSC - Guernsey Financial Services Commission
GFSC Code - Guernsey Financial Services Commission Code of Corporate
Governance
g/t - Grams per tonne
IAS - International Accounting Standards
ITG - IFRS Transition Resource Group of Impairment of Financial Instruments
IFRS - International Financial Reporting Standards as adopted by the European
Union
IndexVal - Where there have been no known transactions for 6 months, at the
Company's half year and year-end, movements in IndexVal will generally be
taken into account in assessing Fair Value where there has been at least a 10%
movement in IndexVal over at least a six month period. The IndexVal results
are used as an indication of trend and are viewed in the context of investee
company progress.
IPO - Initial Public Offering (stock market launch)
JORC - AUSTRALASIAN JOINT ORE RESERVES COMMITTEE
The Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code)
of the Australasian Joint Ore Reserves Committee (JORC) is widely accepted as
a standard for professional reporting of mineral resources and ore reserves.
Mineral resources are classified as 'Inferred', 'Indicated' or 'Measured',
while ore reserves are either 'Probable' or 'Proven'.
Mt - million tonnes
NAV - Net Asset Value
GLOSSARY OF TERMS (CONTINUED)
NI 43-101 - CANADIAN NATIONAL INSTRUMENT 43-101
Canadian National Instrument 43-101 is a mineral resource classification
instrument which dictates reporting and public disclosure of information in
Canada relating to mineral properties.
NAV Discount - NAV to market price discount The Net Asset Value ("NAV") per
share is the value of all the investment company's assets, less any
liabilities it has, divided by the number of shares. However, because the
Company's Ordinary Shares are traded on the London Stock Exchange's Main
Market, the share price may be higher or lower than the NAV. The difference is
known as a discount or premium.
OCI - Other comprehensive income
PEA - Preliminary Economic Assessment
SORP - Statement of Recommended Practice issued by The Association of
Investment Companies dated November 2021
UK Code - UK Corporate Governance Code published by the Financial Reporting
Council in July 2018.
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