REG - Baker Steel Res Tst - Annual Financial Report
24/04/2023 07:00
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RNS Number : 1208X Baker Steel Resources Trust Ltd 24 April 2023
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the provisions of
The Companies (Guernsey) Law, 2008 as amended)
24 April 2023
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
LEI: 213800JUXEVF1QLKCC27
Annual Report and Audited Financial Statements
For the year ended 31 December 2022
The Company has today, in accordance with DTR 6.3.5, released its Annual
Audited Financial Report for the year ended 31 December 2022. 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 (retired 31 December 2022)
John Falla (appointed 13 October 2022)
(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
STOCKBROKERS: 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
Guernsey GY1 3LL
Channel Islands
REGISTRAR: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
UK PAYING AGENT AND TRANSFER AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
RECEIVING 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 2022
2022 was a difficult year for your Company with the NAV per share falling by
19.3% to 79.4 pence, versus a 10.2% rise in the EMIX Global Mining Index in
Sterling terms. This divergence in performance can be explained mainly by the
difficulty experienced in financing new projects for junior mining development
companies and the consequent effect on their valuations, as opposed to the
EMIX Index which is dominated by much larger producers. Following the
invasion of Ukraine by Russia in February 2022, potential investors in mining
companies became increasingly risk averse with regard to committing capital to
the construction of new projects whilst existing producers benefitted from
strong commodity prices largely as a result of supply chain-related disruption
to supply.
One bright point during 2022 was the sale of Bilboes Gold to AIM listed gold
producer Caledonia Mining. The consideration comprised a combination of equity
and a royalty stream, which was signed in July 2022 and completed on 6 January
2023. Caledonia's technical team has demonstrated its ability to operate
successfully in Zimbabwe having recently increased the production capacity at
its Blanket mine from 50,000 ounces to 80,000 ounces gold per annum. The two
teams have already shown their ability to work together with the restart of
oxide heap leach operations at Bilboes whilst Caledonia implements its plan to
bring the larger sulphide ore reserve into production. Caledonia's recent
acquisition of the much earlier stage Motapa exploration project, which is
contiguous to Bilboes, has the potential to double the resources of a combined
project and to create a 300,000 ounce per annum gold operation in due
course. The financial structure of the acquisition by Caledonia has allowed
your Company to maintain its exposure to the Bilboes project through its
shareholding in Caledonia and the royalty, which together with the other
royalties in the portfolio should form the basis of regular income stream in
the future.
Futura Resources received its Mining Licences from the Queensland Government
in November 2022 but the financing of the development has taken longer than
anticipated which is particularly frustrating at a time of high steel-making
coal prices. When operating at full capacity, Futura's two mines are projected
to produce around 2 million tonnes of saleable product after washing and
processing. Given a margin of some US$150 per tonne at current prices, this
would mean the start-up capex of around US$35 million could be repaid in under
a year.
CEMOS achieved its third year of profitable cement making operations in
Morocco since commencing production. It has now acquired a second grinding
line which will enable it to double production with ramp up expected in 2025.
Technical and financial studies were also undertaken with a view to
constructing a clinker making facility sufficient to meet CEMOS's internal
requirements, which it is anticipated could significantly reduce current
clinker costs from third party suppliers and thus enhance margins. A decision
is likely in 2023.
Tungsten West Plc successfully raised £35 million at its IPO in October 2021.
Having signed a term sheet for a royalty sale, which together with the funds
raised from the IPO should have provided it with sufficient capital to
redevelop the Hemerdon tungsten mine in Devon, it nevertheless had to pause
the redevelopment in the face of soaring energy prices. In the circumstances
it therefore reconfigured its ore processing design to consume significantly
less energy and lower both operating and capital requirements. This has
culminated in a revised Feasibility Study the results of which were released
in January 2023. The economics of the new study demonstrated an acceptable
post-tax Net Present Value (NPV5%) of £297 million with an Internal Rate of
Return (IRR) of 25%. However, during the delay, the share price of Tungsten
West fell substantially such that raising finance for the redevelopment of
Hemerdon has become increasingly difficult. The Company is therefore planning
to support an interim financing announced in early April 2023 to provide time
to put together the full financing package
In April 2022, First Tin PLC completed a successful IPO, raising the £20
million needed to undertake feasibility studies on both its two key tin
projects Tellerhäuser in Germany and Taronga in Australia. These studies are
expected to be completed in late 2023/early 2024 at which point we will have a
much better indication of which of the two projects should be prioritised.
Although world tin prices and the performance of First Tin shares have been
disappointing, there is significant optionality built into these projects to
capitalise on an improvement in market sentiment should it occur. We recognise
the commodity's attractions given its critical requirement as solder in the
structural electrification trend.
During 2022, Nussir also sought to raise the finance to develop its fully
electrified copper project in northern Norway. Although good interest was
generated, Nussir ran into the same difficulty in completing the financing
that other single project junior companies have experienced as discussed
above. It has therefore engaged an investment bank to investigate a sale or
merger of the company with an existing producer. We would hope that any
transaction would be similar to that of Bilboes and that we can therefore
retain some exposure to the project.
Although the current risk aversion of banks and other financiers to providing
capital for the development of mining assets is proving challenging in terms
of value realisation for the Company, experience suggests that these periods
are usually transitory. We believe that in due course the global economy will
need these minerals in large quantities and in order to satisfy this demand
new mines will have to be discovered, developed and brought into production.
It is therefore important to adopt a careful and measured approach during
these periods in order to seek to ensure that the latent value in the projects
in which we are invested is maintained.
Outlook
The outlook for 2023 for mining is expected to remain challenging with
uncertainty about the macro-economic and global geopolitical situation
continuing to encourage investors to remain risk averse and thus creating a
difficult environment for raising development capital. However, we are
beginning to see major mining companies building up mergers and acquisition
teams which may lead to increased activity in the junior space. The structural
case for those metals and commodities essential for the electrification and
decarbonisation trends continues to strengthen and was considerably boosted by
the Inflation Reduction Act under the Biden Administration. The longer-term
and geopolitical consequences of the war in Ukraine as yet remain unclear;
however, deglobalisation and security of-supply themes are likely to gain
traction and underpin commodity prices in the longer term.
At the year end, your Company's portfolio consisted of 19.2% (31 December
2021: 18.0%) listed equity, 63.1% (31 December 2021: 65.2%) unlisted equity
and convertible loans and 17.5% (31 December 2021: 15.7%) royalty interests
with 0.2%(31 December 2021: 1.1%) net cash and receivables with no gearing.
The listed equity and royalty interests have since been increased by the
conversion of Bilboes Gold into listed Caledonia Mining and the royalty. On
31st December 2022, the share price traded at a 44% discount to the NAV at
that date and continues to be monitored by the Board. It is hoped that
dividends generated from the regular income to be provided by the royalties
will help to reduce this discount in the future.
On 31st December 2022, David Staples retired as a director and I would like to
reiterate my thanks for his invaluable contribution to the Board. We welcomed
John Falla to the Board as a non-executive director in October 2022. John
qualified as a chartered accountant with Ernst and Young in London, before
transferring to its Corporate Finance Department. His specialist knowledge in
the valuation of unquoted securities will be of particular value as Chairman
of the Audit Committee.
Howard Myles
Chairman
21 April 2023
INVESTMENT MANAGER'S REPORT
For the year ended 31 December 2022
Financial Performance
The audited Net Asset Value per Ordinary Share ("NAV") as at 31 December 2022
was 79.4 pence, a decrease of 19.3% in the year compared with the increase in
the EMIX Global Mining Index of 10.2% in Sterling terms.
For the purpose of calculating the NAV per share, unquoted investments were
carried at fair value as at 31 December 2022 as determined by the Directors
and quoted investments were carried at their quoted prices as that date.
Net assets at 31 December 2022 comprised the following:
£m % net assets
Unquoted Investments 68.1 80.6
Quoted Investments 16.2 19.2
Cash and other net assets 0.2 0.2
84.5 100.0
Investment Update
Largest 10 Holdings - 31 December 2022 % of NAV
Futura Resources Limited 27.7
Cemos Group Plc 22.8
Bilboes Gold Limited 16.2
Kanga Investments Limited 5.7
Tungsten West Plc 5.4
Silver X Mining Corporation 5.4
First Tin Plc 4.8
Nussir ASA 4.1
Metals Exploration plc 1.7
PRISM Diversified Limited 1.5
95.3
Other Investments 4.5
Cash and other net assets 0.2
100.0
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
Review
At the year end, the Company was fully invested, holding 20 investments of
which the top 10 holdings comprised 95% 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
cement, copper, gold, iron, lead, lithium, potash, silver, steel making coal,
tin, tungsten, vanadium, and zinc. Its projects are located in Australia,
Canada, Germany, Indonesia, Madagascar, Morocco, Norway, Peru, the
Philippines, Republic of Congo, Russia, South Africa, the UK and Zimbabwe.
During the year, mining market performance showed significant diversity by
commodity with overall the EMIX Global Mining Index ending the year up 10.2%
in Sterling terms. Precious metals were volatile but were flat over the year
with gold down 0.3% and silver up 2.8% in US Dollars. After a strong 2021,
metals required for the electrification of the world's infrastructure fell
back on global recessionary concerns with copper falling 14.1% during the year
and tin falling 37.1% having almost doubled in 2020 (all in US dollars). Steel
making coal gave back some of its 252% gain in 2021, falling 17.6% with iron
ore also falling some 7.4% during 2022. Likewise, potash fell back 39.8% but
still remained almost double the price at the end of 2020.
The Company's NAV fell 19.3% during the year primarily due to the reduction in
carrying value of Polar Acquisition Limited following the invasion of Ukraine
and falls in the quoted prices of Tungsten West, First Tin and Azarga Metals
Corporation.
The Company's main investments at the year-end:
Futura Resources Ltd ("Futura")
Futura owns the Wilton and Fairhill steel making coal projects in the Bowen
Basin in Queensland, Australia which hold Measured and Indicated resources of
843 million tonnes of coal.
Investment: 11,309,005 ordinary shares (26.9%) valued at
£9.6 million
1.5% Gross
Revenue Royalty valued at £13.7 million
A$300,000
million bridging loan valued at £0.14 million
During the year Futura sought to finance the start-up of its two steel making
coal mines Wilton and Fairhill to take advantage of historically high coal
prices. This was not assisted by the Queensland government unexpectedly
introducing higher royalties at high coal prices. The effect of these
additional royalties is not material to asset valuation at the long-term
consensus pricing used in Futura's economic model but it was a sufficient
shock to the market for potential investors to pause the process. A
pre-condition of all the financing proposals being discussed was receipt of
the mining licences for both projects which were awarded on 23 November 2022.
Financing discussions are continuing, with mining able to commence
approximately three months following closing given the existing agreement in
place for the coal to be processed at the nearby Gregory Crinum wash plant.
Once in full production the mines are scheduled to produce around 2 million
tonnes of coal per year at a cost of around US$70 per tonne. During the year
the Company converted a bridging loan it had extended to Futura, thereby
increasing its gross revenue royalties over both mines from 1% to 1.5% in
addition to its ownership of approximately 27% of Futura.
Cemos Group plc (''Cemos'')
Cemos is a private cement producer at Tarfaya in Morocco.
Investment: 24,004,167 ordinary shares (24.6%) valued at
£9.2 million
1,045
Convertible Loan Units valued at £10.1 million
Percentage of
Company owned at full conversion 31.6%
During 2022, Cemos Group PLC continued profitable operations selling 202,000
tonnes of cement from its cement plant in Morocco. This was approximately 14%
lower than the previous year due to difficulty in sourcing local clinker
earlier in the year together with lower demand in the local market later in
the year. Unaudited EBITDA for 2022 was still estimated at a healthy €8
million albeit around 14% lower than 2021. After successful establishment of
its first cement plant Cemos is planning an expansion and has acquired a
second grinding plant identical to the existing operation which will allow it
to double its production. It is also undertaking a feasibility study into the
production of its own clinker, the main raw material in cement production,
which will not only provide security of supply but has the potential to
further increase margins. Cemos is also testing potential for manufacture of
'green cement' products by replacing some clinker in the production process
with more environmentally friendly supplementary cementitious materials such
as pozzolan which would not only reduce the CO2 footprint of the operation but
may also have a positive impact on costs.
Bilboes Gold Limited ("Bilboes")
The Bilboes' gold project in Zimbabwe has a JORC compliant Proved and Probable
Reserve containing 1.8 million ounces of gold out of a total Mineral Resource
of 3.8 million ounces of gold. Following its acquisition in January 2023,
Bilboes is a subsidiary of Caledonia Mining Corporation Plc.
Investment: 535,943 ordinary shares (24.2%) valued at £13.7
million
In July 2022, the Company announced the sale of Bilboes Gold to Caledonia
Mining Corporation Plc which is a NYSE, AIM and Victoria Falls Exchange listed
gold producer whose primary asset is the Blanket Mine in Zimbabwe currently
producing at the rate of 80,000 ounces of gold per annum. The transaction
closed on 6 January 2023 so the investment is still shown as Bilboes Gold at
the year-end though the Company now holds a 1% Net Smelter Royalty over the
Bilboes properties together with shares in Caledonia. Caledonia has indicated
that it will re-engineer the Bilboes feasibility study which outlined
production of an average of 168,000 ounces per annum over 10 years, to a
phased development approach which would lower up-front capital. It has already
moved forward with recommencing gold production at Bilboes from near surface
oxide ores which should not only generate additional cash but will have the
benefit of pre-stripping for the underlying sulphide project, thus
accelerating its development. The recent acquisition by Caledonia of the
Motapa exploration ground, contiguous to Bilboes's properties, is an important
strategic addition to the project. It had been tracked by the Bilboes
management team for some time as initial exploration on Motapa was undertaken
by Anglo American when it owned Bilboes and additional resources at Motapa
could both expand and extend the life of the Bilboes project.
Kanga Investments Ltd ("Kanga")
Kanga is a private company which holds the Kanga potash project, in the
Republic of the Congo.
Investment: 56,042 ordinary shares (6.6%) valued at £4.8
million
Kanga Investments Ltd ("Kanga") completed a positive Definitive Feasibility
Study ("DFS") in 2020 on its Kanga Potash project in the Republic of Congo for
a mine producing 600,000 tonnes per annum of Muriate of Phosphate ("MOP"). The
DFS economic model gave a Net Present Value at a 10% discount rate (NPV10) of
US$511 million with an IRR of 22% based on an MOP price of US$282 per tonne
compared to the current price of around US$500 per tonne. In addition, there
is potential for the mine to be expanded on a modular basis up to 2.4m tonnes
per annum over 30 years as set out in the DFS. Kanga continues to have
advanced discussions regarding the financing or sale of the project. In the
second half of 2022 the government published a decree awarding the Kanga
Exploitation/Mining Licence to Kanga, a key condition of the potential
acquirors.
Silver X Mining Corporation ("Silver X")
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.
Investment: 19,502,695 ordinary shares (12.5%) valued at
£4.5 million
During 2022, the Company's convertible loan to Mines and Metals Trading Peru
PLC was converted into equity of Silver X Mining Corporation, listed on the
TSX-V exchange, and as a result became its largest shareholder. In the second
half of the year Silver X successfully ramped up production to 673,458 ounces
of silver equivalent at its Nueva Recuperada Silver mine in Peru, with the
operation turning cashflow positive. In February 2023 Silver X released the
results of a Preliminary Economic Assessment ("PEA") under Canadian National
Instrument 43-101 Standards for the expansion of the Tangana Mining Unit at
Nueva Recuperada. The PEA outlined the potential to treble annual production
to 4.2 million ounces silver equivalent by constructing an additional recovery
plant at a capital cost of US$61 million to give a post-tax NPV10 of US$175
million.
.
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.
Investment: 28,846,515 ordinary shares (16.1%) valued at
£4.3 million
1,657,195
second options valued at £0.1 million
1,657,195 third
options valued at £0.1 million
On 16 January 2023 Tungsten West announced the results of its updated
feasibility study on the Hemerdon tungsten and tin mine in Devon. The
feasibility study detailed a mine with average annual production of 2,900
tonnes of tungsten (WO(3)) and 310 tonnes of tin in concentrate over 27
years. The economics showed a post-tax NPV5 of £297 million with
an Internal Rate of Return (IRR) of 25%. It also highlighted an Upside Case
post-tax NPV5 of £416 million with an IRR of 32%. Total pre-production
capex, corporate commitments and working capital was estimated at £54.9
million. Key to the improved economics, following a reworking of the
development plan due to higher energy costs, has been a complete redesign of
the front-end crushing circuit which has considerably reduced capex.
Optimisation of ore-sorting parameters has significantly reduced opex by
allowing the re-purposing of the dense media separation circuits and the
removal of the refinery kiln from the circuit reducing diesel consumption by
1.3 million litres per annum. Tungsten West is in the process of raising up
to £8.95 million in convertible debt and equity whilst it finalises the
finance for the redevelopment of Hemerdon.
First Tin PLC ("First Tin")
First Tin is a company listed on the London Stock Exchange which owns 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.
Investment: 37,128,014 ordinary shares (14.0%) valued at
£4.1 million
In April 2022 First Tin PLC completed a successful IPO, raising the £20
million required to undertake feasibility studies on both its two key tin
projects, Tellerhäuser in Germany and Taronga in Australia. Progress at
Taronga is particularly promising with drilling outlining a 350 metre
extension to the current resource area. This will be followed up by First Tin
and has the potential to increase the previously suggested production rate at
Taronga once incorporated in the Feasibility Study on the project. The price
of tin has been extremely volatile over the past 12 months though consensus
analysis suggests strong future demand given that tin will be an important
component of the global trend towards electrification. At the time of listing
the economic models in the pre-feasibility studies, using a US$30,000 per
tonne price assumption for tin on the two projects, together totalled a
pre-tax NPV8 of US$433 million. The price of tin during 2022 was volatile,
ranging between US$18,000/tonne and US$46,000/tonne. The Feasibility Study on
Taronga due to be completed before the end of 2023 and that on Tellerhäuser
in 2024 will provide a more accurate and up to date reflection of value.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the Nussir copper
project in Northern Norway.
Investment: 12,785,361 ordinary shares (12.1%) valued at
£3.5 million
In early 2022 Nussir reconfigured its 2021 DFS on its Nussir copper project in
northern Norway to a fully electrified mine producing around 14,000 tonnes of
copper per year over a 14-year mine life. This has since been reoptimized and
updated and is expected to be completed in the second quarter of 2023.
Following this Nussir will seek to attract an industry partner to assist with
financing the development of the mine.
Metals Exploration plc ("Metals Exploration")
Metals Exploration is an AIM listed company which owns the Runruno gold mine
in the Philippines.
Investment: 112,510,000 ordinary shares (5.4%) valued at
£1.4 million
Metals Exploration plc produced 72,537 ounces of gold in 2022 from its Runruno
gold mine in the Philippines and paid off its senior debt which allowed for
conversion of its remaining high interest mezzanine debt into new lower
interest senior debt.
Polar Acquisition Limited ("PAL")
PAL is a private company which holds a 1.8% to 0.9% (reducing over 10 years)
net smelter royalty over the Prognoz silver project ("Prognoz"), 444km north
of Yakutsk in Russia, owned by Polymetal. Prognoz has a 267-million-ounce
silver equivalent Indicated and Inferred Mineral Resource at a grade of 755
g/t silver equivalent.
Investment: 16,352 ordinary shares (49.99%) valued at £1.1
million
Polymetal International PLC, the owner of the Prognoz silver project net
smelter royalty, advised in January 2023 that the mine development was
progressing on schedule with mining due to commence in late 2023 with ore to
be shipped to Polymetal's Nezhda mine concentrator on the winter road during
the first half of 2024. As a result of the invasion of Ukraine by Russia in
February 2022 the carrying value of PAL has been reduced by 86.2%. Although
none of the parties are presently sanctioned and legal advice is that PAL is
currently able to receive the royalty, the Company is cognisant of the issues
surrounding political sanctions affecting Russian investments and appreciates
that the situation is continually changing. Despite the underlying Russian
operating company acknowledging that it has a contractual obligation to pay
the royalty, the sanctions regime may also change and there is a risk that
financial institutions may not be willing to process bank transfers with
contractual parties. It is therefore possible that the royalty stream might
be delayed, frozen, or never received.
Outlook
The invasion of Ukraine by Russia during 2022 led to higher energy prices,
inflation and the advent of rising interest rates, which have impacted the
mining industry during 2022. The consequent disruption in availability of
financing particularly impacted junior companies with development projects.
Inflationary increases in key energy price costs have also meant companies
have had to refresh their feasibility studies as they have quickly become
outdated. Higher interest rates have increased the discount rates that
investors apply when evaluating new mining projects thereby reducing
valuations. Although we expect inflation and interest rates are likely to peak
in 2023, economic and geopolitical uncertainties may well persist and continue
to weigh on investor confidence during the year and possibly beyond. More
optimistically, the hiatus in new mine developments is likely to lead to
sustained higher commodity prices as the world will require the metals to meet
the considerable demands of the global energy transition and potential
rebuilding of Ukraine. This will be against the possible backdrop of some
government stockpiling of strategic metals in a deglobalising world where
security of supply chains has become of national interest.
Baker Steel Capital Managers LLP
Investment Manager
April 2023
PORTFOLIO STATEMENT
AS AT 31 DECEMBER 2022
Investments Fair value % of Net
Shares
/Warrants/ £ equivalent assets
Nominal
Listed equity shares
Australian Dollars
4,091,910 Akora Resources Limited 380,826 0.45
4,170,600 Resolute Mining Limited 470,484 0.56
409,000 St Barbara Limited 178,789 0.21
Australian Dollars Total 1,030,099 1.22
Canadian Dollars
65,193,952 Azarga Metals Corporation 749,655 0.89
19,502,695 Silver X Mining Corporation 4,544,972 5.38
Canadian Dollars Total 5,294,627 6.27
Great Britain Pounds
37,128,014 First Tin Plc 4,054,778 4.80
112,510,000 Metals Exploration plc 1,434,503 1.70
17,000 Polymetal International Plc 41,735 0.05
28,846,515 Tungsten West Plc 4,326,977 5.12
Great Britain Pounds Total 9,857,993 11.67
Total investment in listed equity shares 16,182,719 19.16
Debt instruments
Australian Dollars
300,000 Futura Resources Limited - Bridging Loan 137,764 0.16
Australian Dollars Total 137,764 0.16
Canadian Dollars
305,000 PRISM Diversified Limited Loan Note 1 92,457 0.11
250,500 PRISM Diversified Limited Loan Note 2 294,592 0.35
Canadian Dollars Total 387,049 0.46
Euro
1,045 Cemos Group Plc 10,088,046 11.94
Euros Total 10,088,046 11.94
United States Dollars
26,301 Bilboes Gold Limited 25,090 0.03
7,028,352 Black Pearl Limited Partnership 726,171 0.86
United States Dollars Total 751,261 0.89
Total investments in debt instruments 11,364,120 13.45
Investments Fair value % of Net
Shares
/Warrants/ £ equivalent assets
Nominal
Unlisted equity shares, warrants and royalties
Australian Dollars
10,100,000 Futura Gross Revenue Royalty 13,700,733 16.22
11,309,005 Futura Resources Limited 9,568,238 11.33
Australian Dollars Total 23,268,971 27.55
Canadian Dollars
6,666,666 Azarga Metals Warrants 09/05/2025 12,692 0.02
13,083,936 PRISM Diversified Limited 802,401 0.95
40,000 PRISM Diversified Limited - Royalty 24,531 0.03
1,000,000 PRISM Diversified Limited Warrants 31/12/2023 23,261 0.03
324,000 Unkur Option Warrants 12/31/2023 198,700 0.24
Canadian Dollars Total 1,061,585 1.27
Great Britain Pounds
1,594,646 Celadon Mining Limited 15,945 0.02
24,004,167 Cemos Group Plc 9,201,855 10.89
1,657,195 Tungsten West Plc Second Option Share Warrants 18/10/2026 129,261 0.15
1,657,195 Tungsten West Plc Third Option Share Warrants 18/10/2026 77,557 0.09
Great Britain Pounds Total 9,424,618 11.15
Norwegian Krone
12,785,361 Nussir ASA 3,499,979 4.14
Norwegian Krone Total 3,499,979 4.14
United States Dollars
535,943 Bilboes Gold Limited 13,650,910 16.16
56,042 Kanga Investments Limited 4,775,628 5.65
16,352 Polar Acquisition Limited 1,083,425 1.28
United States Dollars Total 19,509,963 23.09
Total Unlisted equity shares, warrants and royalties 56,765,116 67.20
Financial assets held at fair value through profit or loss 84,311,955 99.81
Other Assets & Liabilities 170,893 0.19
Total Equity 84,482,848 100.00
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 and the next discontinuation vote will be held at
the AGM in 2024 which is expected to be held in the third quarter of that
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 13.
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.
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. At the year-end the Company's Ordinary shares traded at a discount to
NAV of 44%, however the Directors consider that the Company does not currently
have sufficient surplus funds to buy back shares, irrespective of other
considerations such as long term market liquidity and the effect on its
Ongoing Charges Ratio.
The Board continues to review the Company's 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 2022, the Board comprised four Directors (2021: four),
excluding David Staples who retired from the Board on 31 December 2022.
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.
Investment Management (continued)
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
and energy, 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.
Investment Restrictions (continued)
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.
• The Company's investment in Futura Resources Limited ("Futura")
may exceed the limit set out above provided that the Company will not invest
or lend more than 35 per cent in aggregate of the value of its gross assets in
Futura 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 2022.
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 continues to be
climate change. 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 Manager's own
ESG policy. The Company's ESG policy is available on its website.
The Board will continue to monitor the growing risks identified by ESG and the
resulting pressures on its investments.
The invasion of Ukraine 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 of PAL to reflect the risk that Polymetal
may not be able to pay the royalty when due and the question of whether PAL is
able to receive payments owing due to potential sanctions. 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.
There is a growing risk that measures imposed by Governments in response to
cost of living challenges will impact on the Company's investments,
specifically price caps imposed by Governments may have implications on sales
prices that the investee companies can achieve.
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. An analysis of
sensitivity to foreign exchange is presented on pages 54-55.
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 nature of the investment strategy means that portfolio
diversification cannot be rebalanced on a short term basis.
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. 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 a three-year period. 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
traded at sufficient volumes in the context of the 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.
Stakeholder Engagement
During the year-ending 31 December 2022, the Board sought to voluntarily
comply with the requirements of Section 172 of the Companies Act 2006 to
promote the success of the Company for the benefit of its members as a whole,
having regard to the interests of all stakeholders.
Identification of key stakeholders
As an externally managed investment company, the Company has no employees,
operations or premises. The Board has identified its key stakeholders as the
Company's shareholders, the Investment Manager, other service providers and
the Investee Companies,
Engagement with stakeholders
The table below explains how the Board have engaged with all stakeholders.
Stakeholder Engagement
Shareholders The Board seeks an open and constructive engagement with shareholders who have
the opportunity to vote at and to attend the Company's AGM.
The annual and half year results are available on the Company's website with
the results and monthly updates also announced via a regulatory news service.
The Board receives regular updates on the shareholder register and any trading
activity and feedback received from investor meetings and briefings conducted
by the Investment Manager, the Broker and research analysts.
Investment Manager Open and collaborative dialogue is maintained between the Board and the
Investment Manager.
The Investment Manager is invited to all Board and Audit Committee meetings
and provides regular reports on the performance of the investments and any
potential issues the Board needs to be aware of.
Other Service Providers The Board receive reports from all service providers at each meeting
The Administrator attends all Board and Committee meetings
During 2022 the Administrator provided the Board a presentation on the Cyber
controls in place.
The Board conducted a market review of the Depositary during 2022.
Investee Companies The Board receives detailed updates on operating performance of material
investee companies provided at each meeting. Additionally, the Board receives
details of projects being undertaken by the investee companies, including
where these may require the Company to consider providing financial support.
Though its investments and board positions on investee companies, the Company
seeks to promote good ESG practise, with particular attention to Health and
Safety of employees at investee companies.
Key Decisions
Key decisions are those that are material or of strategic importance to any of
the Company's key stakeholders as described above. An example of a key
decisions made during the year was the sale of Bilboes as described in more
detail in the Chairman's Report,
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:
John
Falla
21 April 2023
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. 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 abrdn Latin American Income Fund Limited,
and Chelverton UK Dividend Trust plc both 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
NB Global Monthly Income Fund, which is listed on the London Stock Exchange.
He is also chairman of the general partner companies of private equity funds
advised by Apax Partners.
David was the Chairman of the Audit Committee until his retirement from the
Board on 31 December 2022
John Falla: John qualified as a chartered accountant with Ernst and Young in
London, before transferring to its Corporate Finance Department, specialising
in the valuation of unquoted shares and securities. On his return to Guernsey
in 1996 he worked for an international bank before joining The International
Stock Exchange (formerly the Channel Islands Stock Exchange) on its launch in
1998 as a member of the Market Authority. In 2000 Mr Falla joined the Edmond
de Rothschild Group, where he provided corporate finance advice to
international clients including open and closed-ended funds, and institutions
with significant property interests. He was a director of a number of Edmond
de Rothschild operating and investment entities, retiring in 2015.
Mr Falla has been a non-executive director of London listed companies for over
10 years and is an experienced audit committee chair. He is currently a
director and audit committee chair of NB Private Equity Partners Limited and
of Marble Point Loan Financing Limited.
John has been appointed as Chairman of the Audit Committee following the
retirement of David Staples
DIRECTORS' REPORT
For the year ended 31 December 2022
The Directors of the Company present their eleventh annual report and the
audited financial statements (the "Annual Report") for the year ended 31
December 2022.
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 13.
Performance
In the year to 31 December 2022, the Company's NAV per Ordinary Share
decreased by 19.3% (2021: 1.2%). This compares with a rise in the EMIX Global
Mining Index (capital return in Sterling terms) of 10.2% (2021: 5.0%). 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 38 and 39 and the Company's financial position at the end of the year is
shown in the Statement of Financial Position on page 37.
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 significant 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 2022.
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 (retired 31 December 2022)
John Falla (appointed 13 October 2022)
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 10 November 2022, John Falla purchased 60,000 shares in the Company. 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 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 (2021: 106,453,335) Ordinary Shares
outstanding with an additional 700,000 (2021: 700,000) held in treasury. The
Company has 9,167 (2021: 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.
Significant Shareholdings
As at 31 December 2022, 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
The Sonya Trust 12,637,350 11.87
Northcliffe Holdings Pty Limited 12,452,177 11.70
Overseas Asset Management 12,435,915 11.68
Premier Miton Investors 9,250,000 8.69
RIT Capital Partners 7,766,803 7.30
Armstrong Investments 7,600,000 7.14
Baker Steel Capital Managers 4,922,877 4.62
Interactive Investor 4,138,994 3.89
Hargreaves Lansdown Asset Management 4,010,686 3.77
Jarvis Investment Manager 3,208,131 3.01
The Investment Manager, Baker Steel Capital Managers LLP had an interest in
9,167 Management Ordinary Shares at 31 December 2022 (31 December 2021:
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
2022 (2021: 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 Pty 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. To
be passed, the discontinuation vote requires 75% of shareholders to vote to
discontinue. The Directors have received no indication that the resolution
will be passed. The Board are satisfied that the Company has the resources
to continue in business for at least 12 months following the signing of these
financial statements. As at 31 December 2022, approximately 13.8% of the
Company's assets were represented by cash and unrestricted listed and quoted
investments which are readily realisable. Although the continuing Russian
invasion of Ukraine has resulted in a reduction in the carrying value of
investments with a Russian nexus 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 a material 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 is a member of the Association of Investment Companies.
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 on
pages 22 to 24.
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.
There is no formal policy in respect of the tenure of the Chairman. The Board
have initiated a process of refreshing its membership and in recent years thee
directors have retired with new appointments made. It is envisaged the
Chairman will retire as part of this succession programme within the next two
years.
· 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 and independent recruitment consultants may be used where
appropriate as was the case in 2022 when OSA assisted in the recruitment of Mr
Falla. 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. The Board will seek the assistance of
recruitment specialists to identify suitable candidates for the Board to
consider.
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. 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 and facilitated by
the Company Secretary. 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 (retired 31 December 2022) 4 4 4 4
John Falla (appointed 13 October 2022) 1* 1 1* 1
*Held since appointment
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. The engagement with
stakeholders is covered in more detail in the Strategic Report on page 17.
· 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 backgrounds and skills appropriate for the
specifics of the Company. Due to the small size of the Board, there are no
plans to implement targets for diversity metrics however recruitment agencies
who assist with identifying candidates for Board appointments are instructed
to do so with diversity in mind.
Committees
The Audit Committee is the sole committee of the Board. Terms of Reference for the Audit Committee 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 was Chairman of the Audit Committee until 31 December 2022, with
Fiona Perrott-Humphrey, Howard Myles and (effective 13 October 2022) John
Falla 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. Following David Staples retirement from the Board on 31
December 2022 John Falla assumed the role of Chairman of the Audit Committee.
· 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. Effective 1 October 2022 the Board,
recognising the Board remuneration was below market rates having not changed
since the Company's flotation in 2010, resolved to increase their remuneration
to £32,500 per annum for each Director. The Chairman will receive a
supplement of £10,000 per annum and the Chairman of the Audit Committee a
supplement of £5,000 per annum.
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 2022, the total remuneration of the Directors
was £129,489 (2021: £115,000). There were no director fees payable at the
year-end (2021: £28,750).
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 2022 and 31 December 2021 are shown below.
2022 2021
£ £
Howard Myles 36,875 35,000
David Staples 31,875 30,000
Charles Hansard 26,875 25,000
Fiona Perrott-Humphrey 26,875 25,000
John Falla 6,989 -
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:
John Falla
21 April
2023
Report of the Audit CommitteE
For the year ended 31 December 2022
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 was Chairman of the
Audit Committee until 31 December 2022 when he was replaced by John Falla.
Fiona Perrott-Humphrey and Howard Myles are the other members of the Audit
Committee. 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 typically meets four times a year, aligned to Board Meeting
dates, 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 2022, 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 2022 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 14-15.
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:
2022 2021
£ £
Audit fees Audit Fees 70,000 58,500
Non-audit fees Agreed Upon Procedures relating to the review of the Company's half year 9,625 8,750
report
Total Fees 79,625 67,250
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.
The Audit Committee has reviewed the effectiveness of the auditor including:
· Independence: The auditor discusses with the Audit Committee, at
least annually, the steps it takes to ensure independence and confirms the
same to the Audit Committee. The audit fees paid to BDO are presented on Page
28 of the Annual Report. The only non-audit fees paid to BDO are in relation
to the Agreed Upon Procedures work completed on the Interim Report and
Accounts. The audit director will rotate after 5 years; this is the third year
of the current audit director.
· Quality of Audit Work: The Audit Committee assess the completion
of the audit versus the plan and will seek feedback from the Investment
Manager and the Administrator on any issues experienced through the Audit. The
Chairman of the Audit Committee will separately engage with the audit director
to discuss progress and issues with the audit.
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
12 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 16 and 21 and has
advised the Board accordingly.
John Falla
Audit Committee Chairman
21 April 2023
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 2022 and of its loss 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 2022 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. Our audit opinion is consistent with the additional
report to the audit committee.
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 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;
· Challenging the Directors' cash flow forecasts for the twelve
months from the approval of these financial statements by stress testing
future income and expenditure, the ability to realise the Company's assets and
the impact on the going concern assessment;
· Challenging the key inputs into the cash flow forecasts by
comparing these to historic results of the Company and whether they were
consistent with our understanding of the company;
· Challenging the Directors around the 2024 discontinuation vote
and its possible impact on the going concern status of the company by
considering the related party shareholders; 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
2022 2021
Key audit matters
Valuation of unlisted investments and Yes Yes
listed investments subject to a lock up period
Financial statements as a whole
Materiality
£1.54m (2021: £1.84m) based on 1.75% (2021: 1.75%) of total assets.
Materiality
Financial statements as a whole
£1.54m (2021: £1.84m) based on 1.75% (2021: 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 investment, involvement of the Manager and the Company's
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's Administrator. We
considered the control environment in place at the Manager and the Company's
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 statement.
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.
These matters were 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 these matters.
Key audit matter How the scope of our audit addressed the key audit matter
Valuation of unlisted investments and listed investments subject to a lock up Our procedures included the following:
period.
For all unlisted investments:
Refer to the accounting policies set out in Note 2 and Note 3 to the Financial
Statements.
· We considered the processes, policies and methodologies used by
management for determining the fair value of unlisted investments held by the
The valuations are subjective, with a high level of judgment and estimation Company;
linked to the determination of fair value with limited third-party pricing
information available.
· Agreed the Manager's application of valuation techniques as
appropriate to the circumstances of the investment and the accounting policies
As a result of the subjectivity, there is a risk of an inappropriate valuation applied; and
model being applied, together with the risk of inappropriate inputs to the
model being used which could significantly impact the valuation output.
· Agreed the valuation per the models to the financial statements.
The valuation of these investments is a key driver of the Company's net asset
value and total return. Accordingly, incorrect valuations of these investments
could have a significant impact on the net asset value of the Company and In respect of the investments using a valuation model, we: -
therefore the return generated for shareholders. We therefore consider this to
be a key audit matter.
· 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 largest 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.
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
2022 2021
Materiality £1.48m £1.84m
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 £0.97m £1.19m
Basis for determining performance materiality 65% of materiality
This was determined using our professional judgement and considered the
complexity and our knowledge of the engagement, together with history of
minimal historical errors and adjustments.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £44,000 (2021: £55,140). 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 Statement 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 or our knowledge obtained during the
audit.
Going concern and longer-term viability · The Directors' statement with regards 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 its assessment of the entity's
prospects, the period this assessment covers and why the period is appropriate
set out on page 16.
Other Code provisions · 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 pages 14-15 and 24;
· 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 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 who were all deemed to have appropriate
competence and capabilities 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;
· 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
21 April 2023
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022 2021
Notes £ £
Assets
Cash and cash equivalents 9 254,140 1,077,482
Interest receivable 2(c)(i) 57,917 249,445
Other receivables 17,899 22,132
Financial assets held at fair value through profit or loss 3 84,311,955 103,685,593
Total assets 84,641,911 105,034,652
Equity and Liabilities
Liabilities
Directors' fees payable 11 - 28,750
Management fees payable 7,11 69,854 122,894
Administration fees payable 6 9,659 10,638
Audit fees payable 70,000 58,500
Custodian fees payable 7,158 8,443
Other payables 2,392 6,471
Total liabilities 159,063 235,696
Equity
Management Ordinary Shares 10 9,167 9,167
Ordinary Shares 10 75,972,688 75,972,688
Revenue Reserves 8,771,186 10,047,160
Capital Reserves (270,193) 18,769,941
Total equity 84,482,848 104,798,956
Total equity and liabilities 84,641,911 105,034,652
Net Asset Value per Ordinary Share (in Pence) - Basic and Diluted 12 79.4 98.4
The financial statements on pages 37 to 63 were approved and authorised for
issue by the Board of Directors on
21 April 2023 and signed on its behalf by:
John Falla
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
Year ended 2022 Year ended 2022 Year ended 2022
Revenue Capital Total
Notes £ £ £
Income
Interest income 2(i) 549,607 - 549,607
Dividend income 2(j) 9,356 - 9,356
Net loss on financial assets at fair value through profit or loss 3 - (19,038,918) (19,038,918)
Net foreign exchange loss - (1,216) (1,216)
Net income / (loss) 558,963 (19,040,134) (18,481,171)
Expenses
Management fees 7,11 1,160,507 - 1,160,507
Directors' fees 11 129,489 - 129,489
Administration fees 6 118,002 - 118,002
Other expenses 8 130,321 - 130,321
Depositary fees 36,942 - 36,942
Custody fees 58,918 - 58,918
Broker fees 35,000 - 35,000
Audit fees 79,625 - 79,625
Directors' insurance 6,000 - 6,000
Directors' expenses 3,344 - 3,344
Legal fees 76,789 - 76,789
Total expenses 1,834,937 1,834,937
Net loss for the year (1,275,974) (19,040,134) (20,316,108)
Net loss for the year per Ordinary Share:
Basic and Diluted (in pence) 12 (1.20) (17.88) (19.08)
In the year ended 31 December 2022 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 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 CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Management
Ordinary Ordinary Treasury Revenue reserves Capital Total
Shares Shares Shares reserves equity
£ £ £ £ £ £
Balance as at 1 January 2021 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
Net loss for the year - - - (1,275,974) (19,040,134) (20,316,108)
Balance as at 31 December 2022 9,167 76,113,180 (140,492) 8,771,186 (270,193) 84,482,848
Note 10 10 10
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
Year ended 2022 Year ended 2021
Notes £ £
Cash flows from operating activities
Net (loss)/gain for the year (20,316,108) 1,307,557
Adjustments to reconcile net (loss) /gain for the year to net cash used in
operating activities:
Interest income (549,607) (1,228,691)
Dividend income (9,356) (45,880)
Net loss/(gain) on financial assets at fair value through profit or loss 3 19,038,918 (2,254,094)
Net decrease/(increase) in receivables 4,233 (2,504)
Net decrease in payables (76,633) (8,804)
(1,908,553) (2,232,416)
Interest received 741,135 903,607
Dividend received 9,356 45,880
Net cash used in operating activities (1,158,062) (1,282,929)
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss (1,882,060) (1,776,426)
Sale of financial assets at fair value through profit or loss 2,216,780 3,712,697
Net cash provided by investing activities 334,720 1,936,271
Net (decrease)/increase in cash and cash equivalents (823,342) 653,342
Cash and cash equivalents at the beginning of the year 1,077,482 424,140
Cash and cash equivalents at the end of the year 9 254,140 1,077,482
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
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.
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.
Assets and liabilities are presented in order of liquidity. Their maturities
are disclosed in Note 4(b).
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 2023 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
material impact on the Company's financial statements:
- 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 2022 and were adopted from their effective date. These amendments did
not have a material 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).
b) 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.
c) 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
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. To
be passed, the discontinuation vote requires 75% of shareholders to vote to
discontinue. The Directors have received no indication that the resolution
will be passed. The Board are satisfied that the Company has the resources
to continue in business for at least 12 months following the signing of these
financial statements. As at 31 December 2022, approximately 13.8% of the
Company's assets were represented by cash and unrestricted listed and quoted
investments which are readily realisable. Although the continuing Russian
invasion of Ukraine has resulted in a reduction in the carrying value of
investments with a Russian nexus 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 a material 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. Please refer to Note 3 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 (2021: £Nil).
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended 2022 Year ended 2021
Investment Summary:
£ £
Opening book cost 82,910,887 81,003,041
Purchases at cost 1,882,060 2,536,249
Proceeds on sale of investments (2,216,780) (3,712,697)
Net realised (losses)/gains (6,866,885) 3,084,294
Closing cost 75,709,282 82,910,887
Net unrealised gains 8,602,673 20,774,706
Financial assets held at fair value through profit or loss 84,311,955 103,685,593
The following table analyses net gains on financial assets at fair value
through profit or loss for the years ended
31 December 2022 and 31 December 2021.
Year ended 2022 Year ended 2021
£ £
Financial assets at fair value through profit or loss
Realised (losses)/gains on:
- Listed equity shares (1,438,318) (792,604)
- Unlisted equity shares (5,118,472) -
- Debt instruments (296,970) 3,893,470
- Warrants (13,125) (16,572)
(6,866,885) 3,084,294
Movement in unrealised (losses)/gains on:
- Listed equity shares (13,716,492) 4,589,432
- Unlisted equity shares 7,893,046 1,571,711
- Royalties (2,763,850) 1,943,286
- Debt instruments (2,675,240) (10,157,233)
- Warrants (909,497) 1,222,604
(12,172,033) (830,200)
Net (loss)/gain on financial assets at fair value through profit or loss (19,038,918) 2,254,094
The following table analyses investments by type and by level within the fair
valuation hierarchy at 31 December 2022.
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 11,378,285 4,804,434 - 16,182,719
Unlisted equity shares - - 41,514,956 41,514,956
Royalties - - 14,808.689 14,808,689
Warrants - - 441,471 441,471
Debt instruments - - 11,364,120 11,364,120
11,378,285 4,804,434 68,129,236 84,311,955
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 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 2022.
Unlisted Debt
31 December 2022 Equities Royalties instruments Warrants Total
£ £ £ £ £
Opening balance 1 January 2022 46,971,239 16,479,048 19,927,503 1,364,093 84,741,883
Purchases of investments - - 189,649 - 189,649
Conversion - 1,093,491 (1,093,491) - -
Sales of investments (178,554) - - - (178,554)
Transfer out of Level 3 (8,052,304) - (4,687,331) - (12,739,635)
Change in net unrealised gains/(losses) 7,893,046 (2,763,850) (2,675,240) (909,497) 1,544,459
Realised losses (5,118,471) - (296,970) (13,125) (5,428,566)
Closing balance 31 December 2022 41,514,956 14,808,689 11,364,120 441,471 68,129,236
Unrealised gains on investments still held at 31 December 2022 10,549,611 1,905,220 1,675,718 441,471 14,592,020
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
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.
The following transfers from Level 3 have taken place during the year ended 31
December 2022:
On 8 April 2022 First Tin listed on the London Stock Exchange. The shares held
by the Company are locked up until 8 April 2023 and are therefore held at a
discount to the market price and accordingly the investment has been
transferred from Level 3 to Level 2 in these financial statements.
On 15 June 2022 the Company converted its convertible loan to Azarga into
Equity. The Company holds over 30% of Azarga and the investment is therefore
carried at a discount to the market prices as it is considered unlikely the
quoted price could be achieved if the Company decided to sell its investment.
Accordingly, the investment has been transferred from Level 3 to Level 2 in
these financial statements.
On 8 June 2022 the Company converted its US$4m convertible debenture into
Silver X shares. This resulted in a transfer from level 3 to level 1 of the
investment.
The following transfer from Level 2 has taken place during the year ended 31
December 2022:
On 21 October 2022, the lock-up relating to the shares held in Tungsten West
Plc expired and accordingly the investment has been transferred from Level 2
to Level 1.
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 two Level 2 investments at 31 December
2022 (31 December 2021: one).
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. If it is
assessed that a recent transaction is not at an arm's length or there are
other indicators that it has not been executed at a price that is
representative of fair value then the transaction value will not be used as
the carrying value of the investment. 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 2022 Valuation technique Unobservable input Range of unobservable input
£ (weighted average)
Unlisted Equity 28,797,176 Transactions Private transactions n/a
Unlisted Equity 3,499,979 IndexVal Change in index n/a
Unlisted Equity 9,201,855 EBITDA Multiple EBITDA Multiple n/a
Royalties 14,808,689 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 726,171 Valued at mean estimated recovery Estimated recovery range +/-50%
Other Convertible Debentures/Loans 10,637,949 Valued at fair value with reference to credit risk Rate of Credit Risk 20%-40%
Warrants 242,771 Simplified Black Scholes Model Volatilities 50%
Warrants 198,700 External valuation
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%
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 2022 are as shown below:
Description Input Sensitivity used Effect on Fair Value (£)
Unlisted Equity Transactions & Expected Transactions +/- 20% +/-5,759,434
Unlisted Equity Change in IndexVal +44%/-79%* +1,539,991/-2,764,984
Unlisted Equity EBITDA Multiple +/- 20% +/-1,840,371
Royalties Commodity Price +/-20% +/-2,956,853
Royalties Discount Rate +/-20% -1,597,086/+1,939,463
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/- 239,627
Others/Loans Risk discount rate +/-20% -1,160,677/+227,963
Convertibles /Loans Volatility of Index Basket +/-40% +206,177/-1,656
Warrants Volatility of Index Basket +/-40% +21,662/-18,733
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value. The +44%/-79%
sensitivity was used as this was the range of movements of the constituents in
the IndexVal baskets for Nussir
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
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 2022, the largest non-Sterling portion of the Company's
financial assets and liabilities was denominated in Australian 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 2022 and 31 December 2021.
31 December 2022
Currency Amount in Conversion rate Value % of net assets
local currency (based on £) £
AUD 43,324,009 0.5640 24,436,834 28.93%
CAD 10,995,550 0.6133 6,743,260 7.98%
EUR 11,430,526 0.8868 10,136,120 12.00%
GBP 19,408,238 1.0000 19,408,238 22.97%
NOK 41,552,423 0.0842 3,499,979 4.14%
USD 24,410,380 0.8299 20,258,417 23.98%
84,482,848 100.00%
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%
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 2022 and 2021 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 2022 2021
Currency possible Value Value
move £ £
AUD 10% 2,443,683 2,045,172
CAD 11% 741,759 247,183
EUR 13% 1,317,696 1,329,878
NOK 20% 699,996 750,204
USD 16% 3,241,347 5,198,913
8,444,481 9,571,350
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 2022 Less than More than Non-interest
6 months 6 months bearing Total
Assets £ £ £ £
Cash and cash equivalents 254,140 - - 254,140
Financial assets held at fair value through profit or loss* 524,813 10,839,306 72,947,836 84,311,955
Other receivables - - 17,899 17,899
Interest receivable* 57,917 - - 57,917
Total Assets 836,870 10,839,306 72,965,735 84,641,911
Liabilities
Other liabilities - - 159,063 159,063
Total Liabilities - - 159,063 159,063
Interest rate sensitivity gap 836,870 10,839,306
*The interest rate risks on these items are considered as part of
overall price risk in valuing the convertibles.
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.
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 2022 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets £ £ £ £ £ £
Cash and cash equivalents 254,140 - - - - 254,140
Financial assets held at fair value through profit - 524,813 10,088,045 491,092 73,208,005 84,311,955
or loss
Receivables 64,364 11,452 - 75,816
Total Assets 318,504 536,265 10,088,045 491,092 73,208,005 84,641,911
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities £ £ £ £ £ £
Other payables 84,896 - 74,167 - - 159,063
and accrued expenses
Total Liabilities 84,896 - 74,167 - - 159,063
Net assets attributable to shareholders 84,482,848
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 value of the cash and level 1 listed equity positions held by the Company
at the year-end was £11,632,425 (2021: £5,956,968 ) with the total
liabilities at the year-end at £159,063 (2021: £235,696).
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 £11,364,120 (2021: £19,950,848).
The Company's financial assets are exposed to credit risk, which amounted to
the following at the Statement of Financial Position date:
2022 2021
£ £
Assets
Cash and cash equivalents 254,140 1,077,482
Interest receivable 57,917 249,445
Other receivables 17,899 22,132
Financial assets held at fair value through profit or loss 84,311,955 103,685,593
Total assets 84,641,911 105,034,652
As at 31 December 2022, the Company's non-equity financial assets exposed to
credit risk were held with the following ratings:
Financial Assets Counterparty **Credit 2022
Rating % of net assets
-Convertible Loan Note Bilboes Gold Limited NR* 0.03
-Convertible Loan Note Black Pearl Limited Partnership NR* 0.86
-Convertible Loan Note Futura Resources Limited NR* 0.16
-Loan Note Cemos Group Plc NR* 11.94
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.11
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.35
Cash and cash equivalents HSBC Bank plc A+ 0.30
Total 13.75
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
* 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 (2021: £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 2022 were
£118,002 (2021: £126,876) of which £9,659 (2021: £10,638) was payable at
31 December 2022. 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 2022 was £1,160,507 (2021:
£1,587,121) of which £69,854 (2021: £122,894) 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
2022, the Highwater Mark was the equivalent of approximately 94 pence per
share with the relevant Hurdle being the equivalent of approximately 163 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
2022 2021
£ £
Research fees 35,356 33,910
Regulatory fees 31,286 30,970
Investor services fees 30,781 24,031
Public relation fees 11,520 10,080
Miscellaneous expenses 21,378 4,398
130,321 103,389
9. CASH AND CASH EQUIVALENTS
2022 2021
£ £
Cash at HSBC Bank plc 254,140 1,077,482
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 (2021: 106,453,335) Ordinary Shares
outstanding with an additional 700,000 (2021: 700,000) held in treasury. The
Company has 9,167 (2021: 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.
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. 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:
2022 2021
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 75,981,855 106,462,502 75,981,855 106,462,502
The outstanding Ordinary Shares as at the year ended 31 December 2022 are as
follows:
Ordinary Shares Treasury Shares
Amount No. of shares* Amount No. of shares
£ £
Balance at 1 January 2022 & 31 December 2022 76,122,347 106,462,502 140,492 700,000
The outstanding Ordinary Shares as at the year ended 31 December 2021 were as
follows:
Ordinary Shares Treasury Shares
Amount No. of shares* Amount No. of shares
£ £
Balance at 31 December 2021 76,122,347 106,462,502 140,492 700,000
* Includes 9,167 (2021: 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 £8,771,186 (2021:
£10,047,160) and Capital Reserves of
£(270,193) (2021: £18,769,941).
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 2022 (31 December 2021:
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
2022 (2021: 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 Pty
Limited holds 12,452,177 shares (2021: 12,452,177) and The Sonya Trust holds
12,637,350 shares (2021: 12,722,129).
John Falla purchased 60,000 shares in the Company on 10 November 2022.
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:
2022 2021
£ £
Management fees 1,160,507 1,587,121
Directors' fees 129,489 115,000
The Management fees and Directors' fees outstanding at the year-end were:
2022 2021
£ £
Management fees 69,854 122,894
Directors' fees - 28,750
12. NET ASSET VALUE PER SHARE AND GAIN PER SHARE
Net asset value per share is based on the net assets of £84,482,848 (31
December 2021: £104,798,956) and 106,462,502 (31 December 2021: 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 2022 31 December 2021
Ordinary Shares Ordinary Shares
Net assets at the year-end (£) 84,482,848 104,798,956
Number of shares 106,462,502 106,462,502
Net asset value per share (in pence) basic and diluted 79.4 98.4
Weighted average number of shares 106,462,502 106,462,502
The basic and diluted loss per share for 2022 is based on the net loss for the
year of the Company of £20,316,108 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 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.
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 24.59% Yes
Bilboes Gold Limited Mauritius 24.16% No*
Nussir ASA Norway 12.12% Yes
Futura Resources Australia 26.94% Yes
Tungsten West Plc England and Wales 16.10% No**
Silver X Mining Corporation Canada 12.46% Yes
Polar Acquisition Limited British Virgin Islands 49.99% Yes
Azarga Canada 31.33% No
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.
*Retired from the board on 6 January 2023
**Retired from the board on 13 March 2023
14. SUBSEQUENT EVENTS
On 6(th) January 2023, Caledonia Mining Corporation Plc acquired all the
shares of Bilboes Gold Limited. The Company received a 1% net smelter royalty
over future production from Bilboes' project area and shares in Caledonia. The
expected transaction was taken into account in the valuation of Bilboes at 31
December 2022.
There were no further 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 2022 were approved by the Board of Directors on 21 April 2023.
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 2022 the LLP as Investment Manager paid fixed
remuneration to members and those identified as AIF code staff of £437,346.
Variable remuneration amounted to £2,225,935. 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 2022. 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 £2,662,740.
The total AIFM remuneration attributable to senior management was £2,662,740.
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
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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