REG - Baker Steel Res.Tst. - Annual Financial Report
29/04/2024 07:00
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RNS Number : 2997M Baker Steel Resources Trust Ltd 29 April 2024
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the provisions of
The Companies (Guernsey) Law, 2008 as amended)
29 April 2024
BAKER STEEL RESOURCES TRUST LIMITED
(the "Company")
LEI: 213800JUXEVF1QLKCC27
Annual Report and Audited Financial Statements
For the year ended 31 December 2023
The Company has today, in accordance with DTR 6.3.5, released its Annual
Report and Audited Financial Statements for the year ended 31 December 2023.
The Report is available via www.bakersteelcap.com/baker-steel-resources-trust/
(http://www.bakersteelcap.com/baker-steel-resources-trust/) and the National
Storage Mechanism.
Further details of the Company and its investments are available on the
Company's website www.bakersteelcap.com/baker-steel-resources-trust/
(http://www.bakersteelcap.com/baker-steel-resources-trust/)
Enquiries:
Baker Steel Resources Trust Limited +44 20 7389 8237
Francis Johnstone
Trevor Steel
Deutsche Numis
+44 20 7260 1000
David Benda (corporate)
James Glass (sales)
Aztec Financial Services (Guernsey) Limited
Company
Secretary
+44 1481 749771
BAKER STEEL RESOURCES TRUST LIMITED
Annual Report and Audited Financial Statements
For the year ended 31 December 2023
CONTENTS PAGE
Chairman's Statement 1-2
Investment Manager's Report 3-7
Portfolio Statement 8-9
Strategic Report 10-16
Board of Directors 17
Directors' Report 18-25
Report of the Audit Committee 26-28
Independent Auditor's Report 29-34
Statement of Financial Position 35
Statement of Comprehensive Income 36-37
Statement of Changes in Equity 38
Statement of Cash Flows 39
Notes to the Financial Statements 40-59
Appendix - Additional Information (Unaudited) 60
Management and Administration 61-63
Glossary of Terms 64-65
CHAIRMAN'S STATEMENT
AT 31 DECEMBER 2023
After a difficult 2022, this year continued to be challenging for your
Company: NAV per share decreased by 2.8% to 77.2 pence and the share price
fell by 15.1%, albeit after some recovery in the second half of the year. The
environment generally remained difficult for junior development companies
needing finance to put their projects into production whilst sentiment in the
capital markets remained 'risk off'. Producers fared somewhat better with the
MSCI World Metals and Mining Index, comprising mostly mid-cap to large mining
companies, rising 13.8% in Sterling terms. Interest rates have remained higher
for longer due to persistent inflation which has increased the risks of a hard
landing, and investors remain cautious about the global economy and prospects
for industrial production levels which are the key driver of demand for
commodities.
Notwithstanding the tough environment we were particularly pleased that your
Company's largest investment, Futura Resources, secured the A$30m needed to
commence production at the first of its two Queensland based steel making coal
mines in September 2023. Since then, Futura has been able to fast track the
Wilton open pit mine into production and first mined coal was trucked to
nearby Gregory Crinum Coal Handling and Preparation Plant at the beginning of
March 2024. As a result of this, Futura is now in advanced negotiations to
secure a A$30m pre-payment debt offtake and marketing facility with a major
coal trading company to fund its second open pit mine, Fairhill, which is
located immediately to the north of Wilton. This would allow mining to
commence at Fairhill in September 2024.
At full capacity the Wilton and Fairhill mines together are projected to
produce some 1.5 to 2 million tonnes of saleable product for at least the next
15 years, at a current operating cost of around US$85 per tonne. The price of
hard coking coal remained relatively strong during 2023 reaching as much as
US$300 per tonne in the latter half. The outlook for demand continues to look
robust: as coking coal is essential to steel production in conventional blast
furnaces which are likely to be the mainstay for primary steel production for
many years to come, especially in the context of the developing world.
Moreover, coking coal supply is expected to remain constrained due to
increasingly constrained financing and licencing conditions for new coal
mines. This is due to activists and investors failing to draw a distinction
between metallurgical coal for steel making (as is the case for Futura's
mines) or thermal coal used for electricity generation which can have much
more negative environmental implications.
Our second largest investment, CEMOS Group Plc, which produces cement in
Morocco, had a successful 2023 achieving its fourth year of profitable
production since inception. Subdued economic activity in the area served by
CEMOS resulted in sales being 10% down on 2022 at 185,000 tonnes.
Importantly, however, CEMOS has initiated construction of a calcination plant
which will facilitate production of cement with a lower carbon footprint and
which is scheduled to commence operations towards the end of 2024. The
facility plans to produce clinker, which is the main ingredient in producing
cement, as well as Supplementary Cementitious Materials (SCMs) which reduce
the amount of clinker used in the final cement product thereby lowering
associated carbon emissions. By generating its own clinker and SCMs, CEMOS
expects to significantly reduce costs and enhance the operating margin to
around €50 per tonne of cement produced as well as strengthening its green
credentials. Once the clinker plant is operating satisfactorily, CEMOS plans
to construct the second grinding line which it acquired in 2022 and which
should allow it to double production at the new enhanced margins with ramp up
expected in 2025.
Your Company's two largest investments now comprise some 65% of its net assets
which is not ideal from a portfolio concentration standpoint. However, this
situation is largely a measure of their success and has been a price worth
paying. We expect that BSRT can look forward to receiving significant
dividends and royalty payments in the coming years which will support
distributions to our shareholders as well as providing the necessary cash to
diversify the portfolio when attractive opportunities arise. Assuming
conversion of the convertible loans in both companies, we will hold
approximately 31.3% of CEMOS and 24.3% of Futura as well as the 1.5% gross
revenue royalty on coal production from Futura which will start to be received
later this year.
In another development, the sale of Bilboes to Caledonia Mining Plc was closed
at the beginning of 2023. A key component of the transaction for us was the
grant of a 1% net smelter royalty on gold produced from the mine in future in
addition to our shares in Caledonia. In March 2024, Caledonia announced that
it is still considering ways to reduce the initial capital cost of the mine
which the Bilboes Feasibility Study had concluded could produce some 170,000
ounces of gold per annum. It is likely to take at least three years before the
mine can achieve full production at which point the Company expects to receive
some US$3 million per annum from the royalty.
Progress on the smaller investments in the portfolio can be found in the
Investment Managers Report.
Outlook
The outlook for raising mining development finance is expected to remain
challenging in 2024 albeit with some improvement beginning to emerge. Whilst
investors have been firmly in "risk off" mode in recent years, now that
interest rates appear to have
peaked and as monetary policy starts to ease we are hopeful that the picture
will improve in the second half of this year. High real interest rates in the
fight against inflation have been a significant headwind for most if not all
financial assets and the prospect of lower rates ahead is encouraging for our
sector, which as we know tends to be particularly cyclical.
Outlook (continued)
However some risk remains that central bankers may be overly hawkish and that
a soft landing for the world's leading economies is not achieved.
Higher energy costs in Europe following the Ukraine war do seem to be taking
their toll on the German economy in particular, traditionally the powerhouse
of the Eurozone. Nevertheless, the structural case for those metals and
commodities essential for the electrification and decarbonisation transition
continues to strengthen. Heightened geopolitical tensions will likely increase
trends towards de-globalisation and the security of supply of critical
minerals as well as potentially significant re-armament programmes, should
underpin commodity prices in the longer term. The Company will continue to
support its existing investments to unlock value as it did with the Futura
Resources financing in September 2023. It is not intending to make any
significant new investment until it has been able to make a realisation which
would also trigger a distribution to shareholders.
Towards the end of 2023, we welcomed Aztec Financial Services as Administrator
and Company Secretary and Liberum Wealth as Custodian following a thorough
process to replace HSBC who had held these roles since the Company's listing
in 2010. I am pleased to say the transition has gone extremely smoothly.
At the next AGM which is scheduled for 12 September 2024, we will propose a
resolution to discontinue the Company as required by our Articles of
Incorporation every 3 years. Given that our key investments are close to a
point where they should generate significant income for the Company as
outlined above, the Board and Investment Manager very much hope that
shareholders will vote against the discontinuation resolution.
Finally, I will be stepping down from the Board at the end of the year after
14 years as Chairman since the Company's listing. I am pleased that the Board
has decided that Fiona Perrott-Humphrey will take the Chair on my retirement.
With her considerable knowledge of the sector and the participants within it,
she will be well placed to lead the Company into the future. I would like to
thank shareholders and my fellow directors for their support and I wish the
Company all the best for the future.
Howard Myles
Chairman
26 April 2024
INVESTMENT MANAGER'S REPORT
For the year ended 31 December 2023
Financial Performance
The audited Net Asset Value per Ordinary Share ("NAV") as at 31 December 2023
was 77.2 pence, a decrease of 2.8% in the year compared with the increase in
the MSCI World Metals and Mining Index of 13.8% in Sterling terms.
For the purpose of calculating the NAV per share, unquoted investments were
carried at fair value as at 31 December 2023 as determined by the Directors
and quoted investments were carried at their quoted prices as at that date.
Net assets at 31 December 2023 comprised the following:
£m % net assets
Unquoted Investments 69.5 84.5
Quoted Investments 12.4 15.1
Cash and other net assets 0.3 0.4
82.2 100.0
Investment Update
Largest 10 Holdings - 31 December 2023 % of NAV
Futura Resources Ltd 36.3
CEMOS Group Plc 29.3
Bilboes Gold Royalty 7.2
Caledonia Mining Corporation Plc 5.4
Kanga Investments Ltd 3.6
Silver X Mining Corporation 3.5
Nussir ASA 4.1
Metals Exploration Plc 3.0
First Tin plc 2.1
Tungsten West Plc 1.7
96.2
Other Investments 3.4
Cash and other net assets 0.4
100.0
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
Review
At the year end, the Company was fully invested, holding 16 investments of
which the top 10 holdings comprised 96.2% of the portfolio by value. 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, the UK and
Zimbabwe.
During the year, mining market performance showed diversity by commodity and
particularly with stage of development. Junior companies continued to struggle
to raise funds to continue exploration and those looking to develop new
projects found risk capital difficult to source. Producers fared better
particularly those with exposure to iron ore. The MSCI World Metals and Mining
Index composed of large and mid-cap companies rose 13.8% in Sterling terms.
The Company's NAV which is more exposed to developing companies fell 2.8%
during the year.
All expressed in US dollar terms, gold rose 13.1% and silver was down 0.7%
during 2023. Base metals prices ended the year largely unchanged with copper
up 1.2%, tin up 1.7% and tungsten down 3.1%. The exceptions were the steel
making minerals: iron ore up 25.7% and metallurgical coal up 7.6%. Potash
continued its return towards long term prices, falling 42.0% after peaking in
2022.
The Company's NAV fell 2.8% in Sterling terms during the year with rises in
the carrying values of Futura and CEMOS being outweighed by falls in the
quoted prices of Tungsten West, First Tin and Azarga Metals Corporation and a
reduction in the valuation of Kanga Investments.
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
£11.1 million
1.5% Gross
Revenue Royalty valued at £15.9 million
A$4.7 million
convertible loan valued at £2.8 million
In September 2023, Futura completed a A$30 million financing package to fund
the commencement of production of steel making coals at its Wilton
Mine in Queensland, Australia. The funding package comprised a A$30
million 3-year term unsecured redeemable convertible note issue, accompanied
by in-kind commitments from a number of contractors and suppliers to the
value of c. A$5 million.
Development of Wilton commenced immediately following the financing and first
coal was delivered to the Gregory Crinum wash plant at the beginning of March
2024. Futura is in the final stages of raising prepayment finance to fund the
Fairhill mine, which is expected to be in production during the third quarter
of 2024. Once in full production, Futura anticipates that the two mines will
produce approximately 1.5 to 2 million tonnes in saleable primary and
secondary coking coal products from its two mines at a cost of around US$85
per tonne.
Industry consultants have been increasing longer term price assumptions for
coking coal due to expectations of medium-term supply constraints coupled with
strong demand increases anticipated for seaborne imports, most notably to
India. Once both mines are in full production in 2025, Futura forecasts
generating an EBITDA of A$92m, based on forward coal price expectations.
CEMOS Group Plc (''CEMOS'')
CEMOS is a private cement producer with production operations at Tarfaya in
Morocco.
Investment: 24,004,167 ordinary shares (24.3%) valued at
£11.4 million
1,045
Convertible Loan Units valued at £12.6 million
Percentage of
Company owned at full conversion 31.3%
The cement market in CEMOS's southern area of Morocco was subdued in the first
half of 2023 but recovered in the second half so that sales for the year
totalled 185,000 tonnes, approximately 10% down on the 203,000 tonnes achieved
in 2022. As a result the unaudited EBITDA for the year was estimated at €6
million (2022 €8 million). Major Moroccan Government and
foreign investment initiatives are expected to provide a boost to the southern
Moroccan cement market over the coming years and CEMOS expects performance in
2024 to recover to around 2022 levels.
CEMOS Group plc (''CEMOS'') (continued)
During the second half of 2023, CEMOS commenced the development of a Compact
Calcination Unit (CCU) at the Tarfaya cement plant site to produce its own
clinker and supplementary cementitious materials (SCMs), the principal raw
materials in cement production. This will not only provide security of supply
of clinker but should materially reduce costs as well as lowering the carbon
footprint associated with cement production. Commissioning of the calcination
plant is expected to take place in the second half of 2024 with the full
benefit realised from 2025 onwards.
During 2022 CEMOS acquired a second grinding plant essentially identical to
the existing operation which will allow it to double its production. The
commissioning of this second plant is anticipated to take place after the CCU
plant has been established in order to manage the impacts on both financial
and human resources. CEMOS is also testing potential for manufacture of
'green cement' products by replacing some clinker in the production process
with more environmentally friendly SCM's such as natural and industrial
pozzolans which would not only reduce the CO2 footprint of the operation but
may also have a positive impact on costs.
Bilboes Gold Royalty
The Company holds a 1% Net Smelter Royalty ("NSR") over future production from
the Bilboes' gold project in Zimbabwe owned by Caledonia Mining Corporation
Plc ("Caledonia").
Investment: 1% NSR valued at £5.9 million
The Bilboes properties host 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.
On 28 March 2024, Caledonia announced that it is evaluating the initial
results of the ongoing work on revised feasibility studies for Bilboes with a
specific focus on reducing the initial capital expenditure profile, thereby
enhancing the project economics. They are looking at scenarios including the
development of a mine producing on average 170,000 ounces gold pe annum as
outlined in the 2022 Bilboes Gold feasibility study as well as a phased
approached. A further announcement is expected in the second quarter.
At the year end the Company based its valuation on the expected phased
approach to production and will update this to the revised production rate
when it reviews the valuation at 30 June 2024.
Caledonia Mining Corporation Plc ("Caledonia")
Caledonia is a NYSE, AIM and Victoria Falls Exchange listed gold producer
whose primary assets are the producing Blanket Mine and the Bilboes gold
project (outlined above) both in Zimbabwe
Investment: 455,000 ordinary shares (2.4%) valued at £4.4
million
Caledonia reported annual gold production at its Blanket gold mine in Zimbabwe
of 75,416 oz in 2023, in line with guidance. However increased operating
costs during the year and several significant one-off, non-operating costs in
the final quarter of the year resulted in reduced operating profit for the
full year of US$41.5 million.
A significant proportion of the cost increases in 2023 are not expected to be
carried through into 2024 and Caledonia has provided 2024 gold production
guidance at Blanket of 74,000 to 78,000oz with AISC guidance of
between US$1,370 and US$1,470/oz.
Following positive drilling results at Blanket, Caledonia expect to publish a
revised resource statement in the second quarter of 2024 which should
incorporate an increase in Blanket's life of mine.
Caledonia currently pays a dividend of US$0.14 per quarter. It is expected
that at least this level of dividend will continue until the Bilboes project
can be brought into production.
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
£3.2 million
NOK 2,000,000
Loan Note valued at £0.16 million
In 2023, Nussir completed the update of the DFS on its Nussir copper project
in northern Norway changing the operations from diesel based to one based on a
fully electrified mine producing around 14,000 tonnes of copper per year over
a 14 year mine life. The updated DFS economics gave a NPV8% of US$191 million
with an IRR of 22% based on a copper price of US$8,000 per tonne. Nussir is
currently in a formal process of seeking an industry partner to assist with
financing the development of the mine.
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 £3.0
million
Kanga Potash completed a positive Feasibility Study 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$300 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 Feasibility Study. In the second half of 2022 the government
published a decree awarding the Kanga Exploitation/Mining Licence to Kanga
Potash, a key condition for potential acquirors of the company, and in August
2023 Kanga signed the Mining Convention with the Government which sets out the
fiscal environment for the project for the next 25 years. During 2024 Kanga
plans to update the Feasibility Study prior to sourcing a partner to develop
the project.
Silver X Mining Corporation ("Silver X")
Silver X is a TSX-V listed company whose Recuperada silver/lead/zinc 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 (11.7%) valued at
£2.9 million
During 2023 Silver X continued to ramp up production at its Nueva Recuperada
Silver mine in Peru, producing 918,852 ounces of silver equivalent ("AgEq")
(2022 893,458 AgEq ozs). The mine performed below the level anticipated during
the first half of the year and therefore Silver X decided to pause operations
in July 2023 whilst a new operational plan was implemented. Operations
restarted in September and since that date there appears to be an improvement
in production with 292,390 ounces AqEq produced in the fourth quarter.
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 increase 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.
Metals Exploration plc ("Metals Ex")
Metals Ex is an AIM listed company which owns the Runruno gold mine in the
Philippines.
Investment: 96,610,000 ordinary shares (4.6%) valued at £2.5
million
During 2023 Metals Ex produced record annual gold sales of 85,744 ounces from
its Runruno gold mine in the Philippines generating record annual positive
free cash flow of US$72.3 million, more than double the previous year. This
strong performance allowed it to pay down the majority of its debt such that
net debt at 31 December 2023 stood at US$19.9 million.
Metals Ex also forecast production for 2024 of 74,000 - 80,000 ounces of gold
at an AISC of between US$1,175 and US$1,275 per ounce of gold. This should
allow Metals Ex to retire the remainder of its outstanding debt during the
first half of 2024.
During January 2024 Metals Ex also announced the first step of its strategy to
continue life of the company within the Philippines, once the Runruno Mine is
exhausted in two to three years' time, through the conditional acquisition of
the Abra Tenement. The Abra Tenement is an extensive exploration tenement
covering some 16,200 hectares with multiple prospective targets in both gold
and copper.
First Tin PLC ("First Tin")
First Tin is a company listed on the London Stock Exchange which owns the
Taronga tin project in Australia and the Tellerhäuser and Gottesburg tin
projects in Germany.
Investment: 37,128,014 ordinary shares (14.0%) valued at
£1.7 million
During the first half of 2023 First Tin completed the infill and extension
drilling required for the feasibility study for Taronga open pit tin project
in Australia. This successfully outlined a 400 metre extension to the
resource area which, together with the use of a lower grade cut-off based on
the results of a breakthrough in its mineral process test work, resulted in a
240% increase to 138,000 tonnes of contained tin in resource. The
breakthrough allowed First Tin to simplify the mineral processing flowsheet by
rejecting waste material at an earlier stage so that the proposed plant can
handle a greater throughput which should significantly reduce the capital and
operating costs of the mine. The lower operating and capital costs per tonne
of ore mined, together with the increase in the resource at Taronga, have
allowed First Tin to double the proposed throughput of the operation to 5
million tonnes of ore per annum producing around 3,500 tonnes of tin per
annum. This will form part of a definitive feasibility study ("DFS") expected
to be completed in the first half of 2024.
During the year First Tin submitted the complete documentation for its mine
permit application to the Saxonian Mining Authority for the Tellerhäuser
underground tin project. In the meantime, First Tin plans to publish an
updated JORC compliant Resource on Tellerhäuser, expected in the first half
of 2024.
Tungsten West Plc (''Tungsten West'')
Tungsten West owns the Hemerdon Tungsten Mine in Devon, United Kingdom and is
quoted on the AIM market of the London Stock Exchange.
Investment: 28,846,515 ordinary shares (15.4%) valued at
£0.36 million
£1,200,000
convertible loan valued at £1.05 million
1,657,195
second options valued at £0.001 million
1,657,195 third
options valued at £0.001 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 (WO3) 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
economics of the project is the production of secondary aggregates, a
by-product from mining which, once sold, will provide an early revenue stream
and reduce the storage of barren rock and associated operating expenditure at
site. To enable the delivery of the aggregates business, and to optimise the
core tungsten and tin business, in December 2023 Tungsten West's Section 73
application, to vary the tonnage cap associated with the existing permission
for 50 truck movements per day from the site, was approved by Devon County
Council. In February 2024 Tungsten West received a draft permit from the
Environment Agency for the operation of the Mineral Processing Facility
("MPF") at Hemerdon. With the permitting process almost finalised, Tungsten
West will update the feasibility study with a view to raising the capital for
redevelopment in the second half of 2024.
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, from Polymetal International. 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 £0.8
million
In February 2024 Polymetal International, announced the sale of its Russia
business which included the Prognoz silver project. However, the liability to
pay the net smelter royalty to PAL remains with Polymetal (which is now
domiciled in Kazakstan) and the royalty contract has no Russian entities as
parties to the Agreement. Ore is being transported to the Nezhda mine
concentrator (part of the business being sold) with first production expected
in the second quarter 2024.
Baker Steel Capital Managers LLP
Investment Manager
26 April 2024
PORTFOLIO STATEMENT
AT 31 DECEMBER 2023
Investments Fair value % of Net
Shares
/Warrants/ £ equivalent assets
Nominal
Listed equity shares
Australian Dollars
4,091,910 Akora Resources Limited 306,520 0.37
Australian Dollars Total 306,520 0.37
Canadian Dollars
19,502,695 Silver X Mining Corporation 2,891,516 3.52
6,519,395 Azarga Metals Corp 188,483 0.23
Canadian Dollars Total 3,079,999 3.75
Great Britain Pounds
37,128,014 First Tin Plc 1,704,176 2.07
96,610,000 Metals Exploration plc 2,492,538 3.03
340,000 Caledonia Mining Corp Plc 3,315,000 4.04
28,846,515 Tungsten West Plc 359,139 0.44
Great Britain Pounds Total 7,870,853 9.58
United States Dollars
115,000 Caledonia Mining Corp Plc 1,102,042 1.34
United States Dollars Total 1,102,042 1.34
Total investment in listed equity shares 12,359,414 15.04
Debt instruments
Australian Dollars
94 Futura Resources Limited Convertible Loan 2,812,916 3.42
Australian Dollars Total 2,812,916 3.42
Canadian Dollars
305,000 PRISM Diversified Limited Loan Note 1 89,409 0.11
250,500 PRISM Diversified Limited Loan Note 2 284,877 0.35
Canadian Dollars Total 374,286 0.46
Euro
1,045 CEMOS Group Plc 12,616,713 15.36
Euros Total 12,616,713 15.36
Great Britain Pounds
1,200,000 Tungsten West Convertible Loan 1,048,680 1.28
1,048,680 1.28
United States Dollars
7,028,352 Black Pearl Limited Partnership 343,388 0.42
United States Dollars Total 343,388 0.42
Norwegian Krone
2,000,000 Nussir ASA Loan Note 163,712 0.20
Norwegian Krone Total 163,712 0.20
Total investments in debt instruments 17,359,695 21.14
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 15,907,605 19.36
11,309,005 Futura Resources Limited 11,073,378 13.48
Australian Dollars Total 26,980,983 32.84
Canadian Dollars
666,667 Azarga Metals Warrants 09/15/2025 79 0.00
13,083,936 PRISM Diversified Limited 775,942 0.94
40,000 PRISM Diversified Limited - Royalty 23,723 0.03
324,000 Unkur Contingent Interest 48,037 0.06
Canadian Dollars Total 847,781 1.03
Great Britain Pounds
24,004,167 CEMOS Group Plc 11,425,983 13.91
1,657,195 Tungsten West Plc Second Option Share Warrants 18/10/2026 663 0.00
1,657,195 Tungsten West Plc Third Option Share Warrants 18/10/2026 994 0.00
Great Britain Pounds Total 11,427,640 13.91
Norwegian Krone
12,785,361 Nussir ASA 3,206,973 3.90
Norwegian Krone Total 3,206,973 3.90
United States Dollars
100 Bilboes Holdings (Private) Limited - Royalty 5,901,805 7.18
56,042 Kanga Investments Limited 2,997,791 3.65
16,352 Polar Acquisition Limited 787,934 0.95
United States Dollars Total 9,687,530 11.78
Total Unlisted equity shares, warrants and royalties 52,150,907 63.46
Financial assets held at fair value through profit or loss 81,870,016 99.64
Other Assets & Liabilities 289,563 0.36
Total Equity 82,159,579 100.00
STRATEGIC REPORT
AT 31 DECEMBER 2023
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 scheduled for 12 September 2024.
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 11.
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 49%, 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 2023, the Board comprised four Directors (2022: four).
Investment Management
The Manager was appointed pursuant to a management agreement with the Company
dated 31 March 2010 (the Management Agreement). Under the Management
Agreement, the Manager acts as manager of the Company, subject to the overall
control and supervision of the Directors and was authorised to appoint the
Investment Manager to manage and invest the assets of the Company. The Manager
is responsible for the payment of the fees of the Investment Manager. The
Manager is a company incorporated in the Cayman Islands on 10 April 2002 with
registration number 117030 and is an affiliate of the Investment Manager.
Baker Steel Capital Managers LLP acts as Investment Manager of the Company and
was constituted in England and Wales on 19 December 2001. It is authorised and
regulated by the Financial Conduct Authority in the United Kingdom. The
Investment Manager is a limited liability partnership with registration number
OC301191 and is an affiliate of the Manager. The Investment Manager has been
appointed by the Company to act as its Alternative Investment Fund Manager
("AIFM") and is responsible for the portfolio management and investment risk
management of the Company.
Investment Management (continued)
The Investment Manager manages the Company in accordance with the Alternative
Investment Fund Managers Directives ("AIFMD"). The Investment Manager is a
specialist natural resources asset management and advisory firm operating from
its head office in London and its branch office in Sydney.
It has an experienced team of fund managers covering the precious metals, base
metals and minerals sectors worldwide, both in relation to commodity equities
and the commodities themselves.
The Directors formally review the performance of the Investment Manager on an
annual basis and remain satisfied that the Investment Manager has the
appropriate resources and expertise to manage the portfolio of the Company in
the best interests of the Company and its shareholders.
Investment Objective
The Company's investment objective is to seek capital growth over the
long-term through a focused, global portfolio consisting principally of the
equities, loans or related instruments of natural resources companies. The
Company invests predominantly in unlisted companies (i.e. those companies that
have not yet made an initial public offering ("IPO") but also in listed
securities (including special situations opportunities and less liquid
securities) with a view to making attractive investment returns through the
uplift in value resulting from the development progression of the investee
companies' projects and through exploiting value inherent in market
inefficiencies and pricing anomalies.
Investment Policy
The core of the Company's strategy is to invest in natural resources
companies, predominantly unlisted, that the Investment Manager considers to be
undervalued and that have strong fundamentals and attractive growth prospects.
Natural resources companies, for the purposes of the investment policy, are
those involved in the exploration for and production of base metals, precious
metals, bulk commodities, thermal and metallurgical coals, industrial minerals
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 focusses 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.
Investment Restrictions (continued)
The actual percentage of the Company's gross assets invested in listed and
unlisted equities and equity-related securities and cash and cash-like
holdings and the number of positions held may fall outside these ranges from
time to time. The portfolio may become focussed on fewer holdings as certain
investments mature and increase in value. Once such investments are realised
it is intended that the consideration will be reinvested in several new
investments thereby diversifying the portfolio.
Listed securities might exceed the above guideline following a significant
number of IPOs or in certain market conditions and likewise cash balances may
exceed the above guideline following the realisation of one or more
investments or following the issue of new equity in the Company, pending
investment or distribution of the proceeds.
The investment policy has the following limits:
• Save in respect of cash and cash-like holdings awaiting
investment, and except as set out below, the Company will invest or lend no
more than 20 per cent in aggregate of the value of its gross assets in or to
any one particular company or group of companies, as at the date of the
relevant transaction.
• 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 2023.
Hedging
The Investment Manager will not normally hedge the exposure of the Company to
currency fluctuations.
Performance
The Company monitors NAV against the MSCI World Metals and 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 pages 1 to 2 and
the Investment Manager's Report on pages 3 to 7.
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.
Principal risk and uncertainties (continued)
Emerging Risks and Uncertainties (continued)
The Board has implemented an environmental, social and governance ("ESG")
policy which has been developed from the Investment Manager's own ESG policy.
The Company's ESG policy is available on its website. Despite the need for
many metals to enable the global move away from fossil fuels, mining is
perceived to be harmful to the environment which can result in delays to
licences being awarded by government bodies.
The Board will continue to monitor the growing risks identified by ESG and the
resulting pressures on its investments.
Fund Concentration Risk
As at reporting date, two largest investments now comprise some 65% of the
Company's net assets are CEMOS and Futura. The Investment Manager reviews top
holdings on an ongoing basis and the Board reviews concentration risk at each
Board meeting. The Board has reasonable expectation of some significant
dividends and royalty payments in the coming years which will support both
distributions to our shareholders as well as enabling the Company to diversify
its portfolio when attractive opportunities arise.
Russia Risk
The invasion of Ukraine and resulting sanctions on Russia, 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 in 2022, 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 either due to the risk of potential sanctions, or the
lack of willingness of participants in the banking system to deal with
relevant counterparties. As at year end, because of higher discount rate and
higher deductions assumed brought by this risk, the valuation of PAL is
reduced by 18.2% when compared to last year.
Inflation Risk
Notwithstanding the improved inflationary position, there remains a risk that
geopolitical tensions may again cause rising energy prices and disrupt supply
chains causing further inflationary pressures. This, plus monetary tightening
undertaken by central banks to curb inflation, raises the risk of a global
recession which would be negative for commodity prices.
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 increased taxes or royalties imposed by Governments may have
implications on net sales prices received by investee companies.
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 50 to 54.
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 50 to 51.
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.
Principal risk and uncertainties (continued)
Portfolio management and Performance risks (continued)
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. The next vote is scheduled for 12 September 2024. 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.
Following consultation with major shareholders by the Investment Manager, the
Directors consider it likely that the discontinuation vote will not be passed.
The Board tabled such resolutions in previous AGM in 2018 and 2021 and each
occasion the resolution was not passed.
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 expected income from interest, royalties
and dividends is projected to cover budgeted expenses over the three-year
period. In addition over the three-year period and under the highly stressed
conditions modelled, regular realisations of the Company's listed equities
could replace expected income if required. 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. CEMOS, with the support of the Company as its largest
shareholder, is constructing a calcination unit at its Morocco operations
which it is aimed will allow production of cement with an associated lower
carbon footprint and the offer of 'greener' cement products to customers.
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 2023, 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 2023, the Company changed Administrator, Custodian and Depository.
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 practice, with particular attention to Health and
Safety of employees at investee companies.
Stakeholder Engagement (continued)
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 subscription into the Futura
convertible loan to enable that company to move into production. The Company's
subscription on Futura alongside the other investors, has enabled its
operation to further advance to its production stage. Once in full production,
the Company can look forward to receiving royalty payments in the coming years
which will support distributions to shareholders as well as providing the
necessary cash to diversify the Company's portfolio.
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 1 and 2 and the Investment Manager's Report on pages 3 to
7.
Signed on behalf of the Board of Directors by:
John Falla
26 April 2024
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 Chelverton UK Dividend Trust plc which is
listed on the London Stock Exchange.
Howard is a member of the Company's Audit Committee.
Howard will be stepping down from the Board at the end of the year after 14
years as Chairman as part of the Company's policy of refreshing the Board.
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 14 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 was appointed in 2020 as a non-executive director and is a member of the
Company's audit committee.
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 was appointed as a non-executive director in 2022 and has been the
Chairman of the Audit Committee since 31 December 2022.
DIRECTORS' REPORT
For the year ended 31 December 2023
The Directors of the Company present their fourteenth annual report and the
audited financial statements (the "Annual Report") for the year ended 31
December 2023.
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.bakersteelcap.com/baker-steel-resources-trust/
(http://www.bakersteelcap.com/baker-steel-resources-trust/) .
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 11.
Performance
In the year to 31 December 2023, the Company's NAV per Ordinary Share
decreased by 2.8% (2022: 19.3%). This compares with a rise in the MSCI World
Metals and Mining Index (capital return in Sterling terms) of 13.8% (2022:
10.2%). A more detailed explanation of the performance of the Company is
provided within the Investment Manager's Report on pages 3 to 7.
The results for the year are shown in the Statement of Comprehensive Income on
pages 36 and 37 and the Company's financial position at the end of the year is
shown in the Statement of Financial Position on page 35.
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. The Board also intends to formulate a more regular dividend policy
once it starts to receive significant income from its by way of dividends and
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 2023.
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
John Falla
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 17 of
the Annual Report.
Directors and their interests (continued)
Each of the Directors is considered to be independent in character and
judgement.
Each Director is asked to declare his or her interests at each Board Meeting.
No Director has any material interest in any other contract which is
significant to the Company's business.
As of 31 December 2023, John Falla held 100,000 (2022: 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 (2022: 106,453,335) Ordinary Shares
outstanding with an additional 700,000 (2022: 700,000) held in treasury. The
Company has 9,167 (2022: 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 2023, 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 12,460,677 11.71
Overseas Asset Management 12,265,915 11.52
Asset Value Investors 9,050,000 8.50
First Equity 9,000,000 8.45
RIT Capital Partners 7,766,803 7.30
Hargreaves Lansdown Asset Management 4,273,650 4.01
Jarvis Investment Management 3,426,512 3.22
The Investment Manager, Baker Steel Capital Managers LLP had an interest in
9,167 Management Ordinary Shares at 31 December 2023 (31 December 2022:
9,167).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious Metals Fund")
no longer had an interest in Ordinary Shares in the Company at 31 December
2023 (2022: 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 position and performance,
business 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 or she ought to have taken as a director to make himself
or herself 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 to satisfy themselves that it is reasonable to assume that the Company is a going concern and considered it appropriate to adopt the going concern basis of accounting. The Directors have considered carefully the liquidity of the Company's investments and the level of cash. As at 31 December 2023, approximately 12% of the Company's assets were represented by cash and unrestricted listed and quoted investments which are readily realisable. 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.
An additional factor which the Directors have considered is the discontinuation vote which will be put to shareholders at the upcoming AGM which is scheduled for 12 September 2024. To be passed, the discontinuation vote requires a majority of 75% of those shareholders voting. If the resolution were to be passed, the Directors will be required to formulate proposals to be put to shareholders to reorganise, unitise or reconstruct the Company or for the Company to be wound up. Following consolation with major shareholders, the Directors consider it likely that the discontinuation vote will not be passed. The Board tabled such resolutions in previous AGM in 2018 and 2021 and each occasion the resolution was not passed.
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 10.
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 21 to 24 relating to:
· The requirement for a Senior Independent Director
· Nomination and Remuneration Committees
· The requirement for an internal audit function
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 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
three directors have retired with new appointments made. The Chairman will be
stepping down from the Board at the end of the year after 14 years as part of
this succession programme.
· 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 or herself 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.
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
· Appointment and re-election (continued)
Howard Myles and Charles Hansard have served as Directors for 14 years. The
Board believes that both these directors continue to demonstrate independence
of the Manager and to make a valuable contribution to the Company. Mr Myles
has already indicated his intention to step down at the end of the year and
therefore the Board recommends that shareholders vote in favour of the
reappointment of all directors. 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 annual 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
John Falla 4 4 4 4
In addition to the quarterly meetings, adhoc Board and committee meetings are
convened as required. All Directors contribute to a significant exchange of
views with the Investment Manager on specific matters, in particular in
relation to developments in the portfolio.
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
· 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,
Deutsche Numis, 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,
Stockbroker and Investee Companies. 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 pages 15 to
16.
· 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 importance
of diversity and the need to maintain a Board with a spectrum of backgrounds
and skills appropriate for the specifics of the Company which helps create an
environment for successful and effective decision-making. Due to the small
size of the Board, specific targets on diversity are currently not met and the
plans to address these targets for diversity metrics are currently under
regular review and will be taken into account when appointing further board
members in the future. Recruitment agencies who assist with identifying
candidates for Board appointments are also 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
www.bakersteelcap.com/baker-steel-resources-trust/ (http://www.bakersteelcap.com/baker-steel-resources-trust/)
.
· 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.
John Falla is the Chairman of the Audit Committee with Fiona Perrott-Humphrey
and, Howard Myles as the other members. As Chairman of the Board, Howard Myles
will not Chair the Audit Committee but is considered independent and therefore
sits as a committee member.
· Nomination, Remuneration and Management Engagement Committees
Given the size and nature of the Company and the fact that all the Directors
are independent and non-executive it is not deemed necessary to form separate
Nomination, Remuneration, and Management Engagement Committees. The Board
itself considers new Board appointments, remuneration and the engagement of
service providers.
Internal Controls
The Board has delegated to service providers the day to day responsibilities
for the management of the Company's investment portfolio, the provision of
depositary services and administration, registrar and corporate secretarial
functions including the independent calculation of the Company's NAV and the
production of the Annual Report and Financial Statements which are
independently audited.
Formal contractual agreements have been put in place between the Company and
providers of these services.
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
Internal Controls (continued)
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 receives 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 2023, the total remuneration of the Directors
was £145,000 (2022: £129,489). There were £36,250 of director fees payable
at the year-end (2022: £Nil).
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
Director's Remuneration Policy (continued)
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 2023 and 31 December 2022 are shown below.
2023 2022
£ £
Howard Myles 42,500 36,875
David Staples (retired 31 December 2022) - 31,875
Charles Hansard 32,500 26,875
Fiona Perrott-Humphrey 32,500 26,875
John Falla 37,500 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 13 of the financial statements on page 59.
Signed on behalf of the Board of Directors by:
John Falla
26 April
2024
Report of the Audit CommitteE
For the year ended 31 December 2023
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. John Falla is the Chairman of the
Audit Committee. 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 2023, 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 2023 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 12-14 which were its primary area
of focus.
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 the discontinuation vote in
the upcoming AGM scheduled for 12 September 2024 are considered. 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 external
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.
Particular area of focus in the current year
The Audit Committee was closely involved in assisting the Board in the
selection of the new Administrator, seeking assurance as to its credentials to
maintain the books and records of the Company and its ability to prepare the
Company's financial statements. The Audit Committee liaised with the Auditors
to ensure that the handover process would provide the Auditors with sufficient
information to conduct their work, and assurance was obtained that the
transfer of the assets and records of the Company was successful.
External Audit
The Company's external auditor is BDO Limited ("BDO").
The fees due to the auditor during the year were as follows:
2023 2022
£ £
Audit fees Audit Fees 75,000 70,000
Non-audit fees Agreed Upon Procedures relating to the review of the Company's half year 10,359 9,625
report
Total Fees 85,359 79,625
External Audit (Continued)
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
27 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 fourth
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
10 to 16 outlines the principal risks and uncertainties affecting the Company
and the section on Internal Controls in the Directors Report on pages 18 to 25
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 position and performance, business 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 14 and 20, and has
advised the Board accordingly.
John Falla
Audit Committee Chairman
26 April 2024
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 2023 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 2023 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 material accounting policy information.
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 ("IFRSs").
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 the Company's ability to
continue to adopt the going concern basis of accounting included:
· Obtaining the paper prepared by those charged with governance and
management in respect of going concern and discussing this with both the
Directors and management;
· Challenging the Directors' cash flow forecasts for the twelve
months from the authorisation 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 with 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; 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.
Conclusions relating to going concern (continued)
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
2023 2022
Key audit matters
Valuation of unlisted investments Yes Yes
Financial statements as a whole
Materiality
£1.44m (2022: £1.48m) based on 1.75% (2022: 1.75%) of total assets
Materiality
Financial statements as a whole
£1.44m (2022: £1.48m) based on 1.75% (2022: 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 portfolio, involvement of the Investment Manager and the
Company's Administrators, 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 Investment Manager and the Company's
Administrators. We considered the control environment in place at the
Investment Manager and the Company Administrators to the extent that it was
relevant to our audit. Following this assessment, we applied professional
judgement to determine the extent of testing required over each balance in the
financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
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 Refer to the accounting policy information set out in Note 2 and also Note 3 Our procedures included the following:
to the Financial Statements.
For all unlisted investments:
The valuations are subjective, with a high level of judgment and estimation
linked to the determination of fair value, with limited third-party pricing
information available.
· We considered the processes, policies and methodologies used by
management for determining the fair value of unlisted investments held by the
Company;
· Agreed the Investment Manager's application of valuation
techniques as appropriate to the circumstances of the investment and the
accounting policies applied; and
· Agreed the valuation per the models to the financial statements.
Key audit matter (continued) How the scope of our audit addressed the key audit matter (continued)
As a result of the subjectivity, there is a risk of an inappropriate valuation In respect of the investments using a valuation model, we: -
model being applied, together with the risk of inappropriate inputs to the
model being used, which could significantly impact the valuation output.
· Obtained and challenged, through discussion and corroboration to
external sources, the inputs and assumptions used in management's model based
The valuation of these investments is a key driver of the Company's net asset on our understanding of the investment;
value and total return. Accordingly, incorrect valuations of these investments
could have a significant impact on the net asset value of the Company and
therefore the return generated for shareholders.
· Agreed the inputs, for example volatility, resource prices, and
tax rates, into the models to independent sources;
We therefore consider this to be a key audit matter.
· 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.
Key observation:
Based on the procedures performed, we are satisfied that judgements applied in
valuing the unlisted investments 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
2023 2022
£m £m
Materiality 1.44m 1.48m
Basis for determining materiality
1.75% of total assets
Rationale for the benchmark applied Due to the Company being an investment fund with the objective of long-term
capital growth, with investment values being a key focus of users of the
financial statements.
Performance materiality 1.08m 0.97m
Basis for determining performance materiality 75% of materiality 65% of materiality
This was determined using our professional judgement and This was determined using our professional judgement and
considered the complexity and our knowledge of the considered the complexity and our knowledge of the
engagement, together with history of minimal historical errors engagement, together with history of minimal historical errors
and adjustments. There is also a willingness to rectify through adjustments and adjustments.
when needed.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £43,000 (2022: £44,000). 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 20; and
· The Directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why this period is
appropriate set out on page 14.
Other Code provisions · Directors' statement on fair, balanced and understandable set out
on page 20;
· Board's confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 12 - 14 and 23;
· The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set out on page
28; and
· The section describing the work of the Audit Committee set out on
page 23 and pages 26 to 28.
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 management bias and judgement involved in accounting estimates,
specifically in relation to the valuation of unlisted 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.
Auditor's responsibilities for the audit of the financial statements (continued)
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
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2023
2023 2022
Notes £ £
Assets
Cash and cash equivalents 277,694 254,140
Interest receivable 190,249 57,917
Other receivables 30,355 17,899
Financial assets held at fair value through profit or loss 3 81,870,016 84,311,955
Total assets 82,368,314 84,641,911
Equity and Liabilities
Liabilities
Directors' fees payable 10 36,250 -
Management fees payable 7,10 57,735 69,854
Administration fees payable 6 37,083 9,659
Audit fees payable 75,000 70,000
Custodian fees payable - 7,158
Other payables 2,667 2,392
Total liabilities 208,735 159,063
Equity
Management Ordinary Shares 9 9,167 9,167
Ordinary Shares 9 75,972,688 75,972,688
Revenue Reserves 8,235,802 8,771,186
Capital Reserves (2,058,078) (270,193)
Total equity 82,159,579 84,482,848
Total equity and liabilities 82,368,314 84,641,911
Net Asset Value per Ordinary Share (in Pence) 11 77.2 79.4
The financial statements on pages 35 to 59 were approved and authorised for
issue by the Board of Directors on 26 April 2024 and signed on its behalf by:
John Falla
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
Year ended 2023 Year ended 2023 Year ended 2023
Revenue Capital Total
Notes £ £ £
Income
Interest income 2(e) 599,973 - 599,973
Dividend income 2(f) 315,211 - 315,211
Net loss on financial assets at fair value through profit or loss 3 - (1,786,066) (1,786,066)
Net foreign exchange loss - (1,819) (1,819)
Net income / (loss) 915,184 (1,787,885) (872,701)
Expenses
Management fees 7,10 795,890 - 795,890
Directors' fees 10 145,000 - 145,000
Administration fees 6 108,190 - 108,190
Other expenses 8 205,377 - 205,377
Depositary fees 31,679 - 31,679
Custody fees 52,765 - 52,765
Broker fees 36,667 - 36,667
Audit fees 75,000 - 75,000
Total expenses 1,450,568 - 1,450,568
Net loss for the year (535,384) (1,787,885) (2,323,269)
Net loss for the year per Ordinary Share:
Basic and Diluted (in pence) 11 (0.50) (1.68) (2.18)
In the year ended 31 December 2023 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 2022
Year ended 2022 Year ended 2022 Year ended 2022
Revenue Capital Total
Notes £ £ £
Income
Interest income 2(e) 549,607 - 549,607
Dividend income 2(f) 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 7,10 1,160,507 - 1,160,507
Directors' fees 10 129,489 - 129,489
Administration fees 6 118,002 - 118,002
Other expenses 8 216,454 - 216,454
Depositary fees 36,942 - 36,942
Custody fees 58,918 - 58,918
Broker fees 35,000 - 35,000
Audit fees 79,625 - 79,625
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) 11 (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 CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
Management
Ordinary Ordinary Treasury Revenue reserves Capital Total
Shares Shares Shares reserves equity
£ £ £ £ £ £
Balance as at 1 January 2022 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
Net loss for the year - - - (535,384) (1,787,885) (2,323,269)
Balance as at 31 December 2023 9,167 76,113,180 (140,492) 8,235,802 (2,058,078) 82,159,579
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2023
Year ended 2023 Year ended 2022
Notes £ £
Cash flows from operating activities
Net loss for the year (2,323,269) (20,316,108)
Adjustments to reconcile net (loss) /gain for the year to net cash used in
operating activities:
Interest income (599,973) (549,607)
Dividend income (315,211) (9,356)
Net loss on financial assets at fair value through profit or loss 3 1,786,066 19,038,918
Net (increase)/decrease in receivables (12,456) 4,233
Net increase/(decrease) in payables 49,672 (76,633)
(1,415,171) (1,908,553)
Interest received 467,641 741,135
Dividend received 315,211 9,356
Net cash used in operating activities (632,319) (1,158,062)
Cash flows from investing activities*
Purchase of financial assets at fair value through profit or loss (7,871,359) (1,882,060)
Sale of financial assets at fair value through profit or loss 8,527,232 2,216,780
Net cash provided by investing activities 655,873 334,720
Net increase/(decrease) in cash and cash equivalents 23,554 (823,342)
Cash and cash equivalents at the beginning of the year 254,140 1,077,482
Cash and cash equivalents at the end of the year 277,694 254,140
* As permitted under IFRS, purchases and sales of financial assets at fair
value through profit or loss are classified as investing activities due the
nature and intention to generate future income and cash flows from these
investments.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
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. MATERIAL ACCOUNTING POLICY INFORMATION
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).
2. MATERIAL ACCOUNTING POLICY INFORMATION (CONTINUED)
a) Basis of preparation (continued)
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 2024 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:
- Amendments to IAS 1 Presentation of Financial Statements: Classification
of Liabilities as Current or Non-current and Non-current Liabilities with
Covenants (applicable for annual periods beginning on or after 1 January
2024).
- Amendments to IFRS 16 Leases: Lease Liability in a Sale and
Leaseback (applicable for annual periods beginning on or after 1 January
2024).
- Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial
Instruments: Disclosures: Supplier Finance Arrangements (applicable for
annual periods beginning on or after 1 January 2024, but not yet endorsed in
the EU).
- Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates:
Lack of Exchangeability (applicable for annual periods beginning on or after
1 January 2025, but not yet endorsed in the EU).
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 the annual period beginning on or after
1 January 2023 and were adopted from their effective date.
The below new standards, amendments to standards and interpretations were
effective for the current period, and with the exception of the Disclosure of
Accounting Policies (Amendment to IAS 1) has not had a significant impact on
the financial statements. The Disclosure of Accounting Policies amendment
generated a review of and reduction in the accounting policy disclosures so
that only the material accounting policy information is now provided.
Accounting policy information is material if, when considered together with
other information included in an entity's financial statements, it can
reasonably be expected to influence decisions that the primary users of the
financial statements make on the basis of those financial statements.
- IFRS 17 Insurance Contracts.
- Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17
and IFRS 9 - Comparative Information.
- Amendments to IAS 1 Presentation of Financial Statements and IFRS
Practice Statement 2: Disclosure of Accounting Policies.
- Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates
and Errors: Definition of Accounting Estimates.
- Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and
Liabilities arising from a Single Transaction.
- Amendments to IAS 12 Income taxes: International Tax Reform - Pillar Two
Model Rules (effective immediately - disclosures are required for annual
periods beginning on or after 1 January 2023).
b) SIGNIFICANT ACCOUNTING JUDGMENTS 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.
2. MATERIAL ACCOUNTING POLICY INFORMATION (CONTINUED)
b) SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (CONTINUED)
(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 to
satisfy themselves that it is reasonable to assume that the Company is a going
concern and considered it appropriate to adopt the going concern basis of
accounting. The Directors have considered carefully the liquidity of the
Company's investments and the level of cash. As at 31 December 2023,
approximately 12% of the Company's assets were represented by cash and
unrestricted listed and quoted investments which are readily realisable. 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.
An additional factor which the Directors have considered is the
discontinuation vote which will be put to shareholders at the upcoming AGM
which is scheduled for 12 September 2024. To be passed, the discontinuation
vote requires a majority of 75% of those shareholders voting. If the
resolution were to be passed, the Directors will be required to formulate
proposals to be put to shareholders to reorganise, unitise or reconstruct the
Company or for the Company to be wound up. Following consolation with major
shareholders, the Directors consider it likely that the discontinuation vote
will not be passed. The Board tabled such resolutions in previous AGM in 2018
and 2021 and each occasion the resolution was not passed.
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.
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.
c) 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.
d) Segment information
The chief operating decision maker, who is responsible for allocating
resources and assessing performance of the operating segments, has been
identified as the Board of Directors as a whole. The key measure of
performance used by the Directors to assess the Company's performance and to
allocate resources is the Company's NAV, as calculated under IFRS, and
therefore no reconciliation is required between the measure of profit or loss
used by the Board and that contained in the Annual Report.
The Directors are of the opinion that the Company is engaged in a single
segment of business: investing in natural resources companies and therefore no
aggregation of segments.
2. MATERIAL ACCOUNTING POLICY INFORMATION (CONTINUED)
e) 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.
f) 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 (2022:
£Nil).
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended 2023 Year ended 2022
Investment Summary:
£ £
Opening book cost 75,709,282 82,910,887
Purchases at cost 7,871,359 1,882,060
Proceeds on sale of investments (8,527,232) (2,216,780)
Net realised gains/(losses) 5,785,970 (6,866,885)
Closing cost 80,839,379 75,709,282
Net unrealised (loss)/gains 1,030,637 8,602,673
Financial assets held at fair value through profit or loss 81,870,016 84,311,955
The following table analyses net losses on financial assets at fair value
through profit or loss for the years ended
31 December 2023 and 31 December 2022.
Year ended 2023 Year ended 2022
£ £
Financial assets at fair value through profit or loss
Realised gains/ (losses) on:
- Listed equity shares (1,338,513) (1,438,318)
- Unlisted equity shares 7,123,472 (5,118,472)
- Debt instruments 1,011 (296,970)
- Warrants - (13,125)
5,785,970 (6,866,885)
Movement in unrealised losses on:
- Listed equity shares (5,927,825) (13,716,492)
- Unlisted equity shares (5,665,664) 7,893,046
- Royalties 2,028,559 (2,763,850)
- Debt instruments 2,384,592 (2,675,240)
- Warrants (391,698) (909,497)
(7,572,036) (12,172,033)
Net losses on financial assets at fair value through profit or loss (1,786,066) (19,038,918)
The following table analyses investments by type and by level within the fair
valuation hierarchy at 31 December 2023.
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 12,170,931 188,483 - 12,359,414
Unlisted equity shares - - 29,480,067 29,480,067
Royalties - - 22,621,067 22,621,067
Warrants - - 49,773 49,773
Debt instruments - - 17,359,695 17,359,695
12,170,931 188,483 69,510,602 81,870,016
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
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 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 2023.
Unlisted Debt
31 December 2023 Equities Royalties instruments Warrants Total
£ £ £ £ £
Opening balance 1 January 2023 41,514,956 14,808,689 11,364,120 441,471 68,129,236
Purchases of investments - 5,783,819 3,973,519 - 9,757,338
Sales of investments (13,492,696) - (363,548) - (13,856,244)
Movement in net unrealised (losses)/gains (5,665,664) 2,028,559 2,384,592 (391,698) (1,644,211)
Realised gains 7,123,472 - 1,011 - 7,124,483
Closing balance 31 December 2023 29,480,068 22,621,067 17,723,242 49,773 69,510,602
Unrealised gains on investments still held at 31 December 2023 4,883,945 3,953,779 4,060,311 49,773 12,947,808
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
Sales of investments - 1,093,491 (1,093,491) - -
Conversion* (178,554) - - - (178,554)
Transfer out of Level 3 (8,052,304) - (4,687,331) - (12,739,635)
Movement 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 14,572,020
*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.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The following activities have taken place during the year ended 31 December
2023:
On 9 January 2023 the Company sold its investment in Bilboes Gold Limited to
Caledonia Mining Corporation plc ("Caledonia"), the sale was settled by
receipt of shares in Caledonia and the Bilboes Gold Royalty. The Bilboes Gold
Royalty was presented as a Level 3 investment at the year end. Caledonia is
NYSE, AIM and Victoria Exchange listed, and therefore considered Level 1 in
the fair value hierarchy. The transaction resulted in the realisation of
US$9.7million previously unrealised gains in Bilboes.
Prior year end, the Company's investment in First Tin Plc was presented as
Level 2 on the hierarchy, this was because although the shares were listed on
the LSE, they were locked up. The lock-up expired on 8 April 2023 and the
shares are now included within 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
currently hold a sufficiently large position in any listed company that it
could impact the quoted price via a sale of its investment.
As at 31 December 2023, the Investment Manager prepared the valuations and
considered whether there were any changes to performance or the circumstances
of the underlying investments which would affect the fair values. Methods,
assumptions, and data were consistently applied year on year except for
certain private equity investments where a change in assumption is deemed
appropriate to reflect the change in the market conditions or
investment-specific factors. The Investment Manager then made recommendations
to the Board of the fair values as at 31 December 2023.
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 illiquidity 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 held one Level 2 investment at 31 December
2023 (31 December 2022: two).
Investments classified within Level 3 have significant unobservable inputs.
They include unlisted debt instruments, royalty rights, 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.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Valuation methodology of Level 3 investments (continued)
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 seven
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. Market Comparison
In the case of Futura Resources Ltd which moved into production in early 2024,
it was valued with reference to comparable listed coal producers both in terms
of EBITDA multiple and Net Present Value duly discounted for its stage of
development.
vi. 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.
vii. Convertible loans
Convertible loans are valued taking into account the value of the conversion
option based on a binomial model along with the associated credit risk of the
instrument.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Quantitative information of significant unobservable inputs - Level 3
Description 2023 Valuation technique Unobservable input Range of unobservable input
£ (weighted average)
Unlisted Equity 3,773,733 Transactions Private transactions n/a
Unlisted Equity 3,206,973 IndexVal Change in index +38%/-53%
Unlisted Equity 22,499,362 EBITDA Multiple EBITDA Multiple 4x - 14x
Royalties 22,621,067 Royalty Valuation model Commodity price and discount rate risk 10% - 70%
Unlisted Equity - Other Exploration results, study results, financing n/a
Debt Instruments
Black Pearl Limited Partnership 343,388 Valued at mean estimated recovery Estimated recovery range +/-50%
Other Convertible Debentures/Loans 17,016,306 Valued at fair value with reference to credit risk Rate of Credit Risk 20%-40%
Warrants 1,736 Simplified Black Scholes Model Volatilities 50%
Contingent Interest 48,037 Discounted External valuation Discount +/-40%
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
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.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
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 2023 are as shown below:
Description Input Sensitivity used Effect on Fair Value (£)
Unlisted Equity Transactions & Expected Transactions +/- 20% +/-754,747
Unlisted Equity Change in IndexVal +38%/-53%* + 1,218,650 /-1,699,695
Unlisted Equity EBITDA Multiple +/- 20% +/- 4,499,872
Royalties Commodity Price +/-20% +/- 4,524,213
Royalties Discount Rate +/-20% -2,708,225/+3,299,807
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-50% +/- 171,825
Others/Loans Risk discount rate +/-20% -1,890,967 /+ 700,781
Convertibles /Loans Volatility of Index Basket +/-40% + 549,500 /-492,756
Warrants Volatility of Index Basket +/-40% + 1,326 /-79
+/-20% +795/-662
Risk of milestones being achieved
Contingent Interest Risk discount rate +/-20% +/-19,215
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value. The +38%/-53%
sensitivity was used as this was the range of movements of the constituents in
the IndexVal baskets for Nussir
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
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
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 or future cash flows 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 pages 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 2023, 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 2023 and 31 December 2022.
31 December 2023
Currency Amount in Conversion rate Value % of net assets
local currency (based on £) £
AUD 56,505,616 0.5351 30,234,045 36.80%
CAD 7,254,141 0.5930 4,302,065 5.24%
EUR 14,618,301 0.8670 12,673,336 15.42%
GBP 20,451,487 1.0000 20,446,487 24.89%
NOK 43,673,623 0.0772 3,370,685 4.10%
USD 14,173,268 0.7855 11,132,961 13.55%
82,159,579 100%
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%
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
a) Market risk (continued)
ii. Currency risk (continued)
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 2023 and 2022 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.
2023 2022 2023 2022
Reasonably Reasonably
Currency possible possible Value Value
move move £ £
AUD 13% 10% 3,930,426 2,443,683
CAD 7% 11% 301,145 741,759
EUR 4% 13% 506,933 1,317,696
NOK 12% 20% 404,482 699,996
USD 10% 16% 1,113,296 3,241,347
6,256,282 8,444,481
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 2023 Less than More than Non-interest
6 months 6 months bearing Total
Assets £ £ £ £
Cash and cash equivalents 277,694 - - 277,694
Financial assets held at fair value through profit or loss* 3,187,203 14,172,493 64,510,320 81,870,016
Other receivables - - 30,355 30,355
Interest receivable* 190,249 - - 190,249
Total Assets 3,655,146 14,172,493 64,540,675 82,368,314
Liabilities
Other liabilities - - 208,735 208,735
Total Liabilities - - 208,735 208,735
Interest rate sensitivity gap 3,655,146 14,172,493
*The interest rate risks on these items are considered as part of
overall price risk in valuing the convertibles.
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
a) Market Risk (continued)
iii. Interest rate risk (continued)
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.
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 2023 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets £ £ £ £ £ £
Cash and cash equivalents 277,694 - - - - 277,694
Financial assets held at fair value through profit - 3,235,240 12,616,713 7,483,043 58,535,020 81,870,016
or loss
Receivables 2,700 16,540 201,364 - - 220,604
Total Assets 280,394 3,251,780 12,818,077 7,483,043 58,535,020 82,368,314
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities £ £ £ £ £ £
Other payables 36,250 127,485 45,000 - - 208,735
and accrued expenses
Total Liabilities 36,250 127,485 45,000 - - 208,735
Net assets attributable to shareholders 82,159,579
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
b) Liquidity risk (continued)
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 value of the cash and level 1 listed equity positions held by the Company
at the year-end was £12,448,625 (2022: £11,632,425 ) with the total
liabilities at the year-end at £203,735 (2022: £159,063 ).
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 £40,030,535 (2022: £26,614,280).
The Company's financial assets are exposed to credit risk, which amounted to
the following at the Statement of Financial Position date:
2023 2022
£ £
Assets
Cash and cash equivalents 277,694 254,140
Interest receivable 190,249 57,917
Other receivables 30,355 17,899
Financial assets held at fair value through profit or loss 40,030,535 26,614,280
Total assets 40,528,833 6,944,236
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
c) Credit risk (continued)
As at 31 December 2023, the Company's non-equity financial assets exposed to
credit risk were held with the following ratings:
Financial Assets Counterparty **Credit 2023
Rating % of net assets
-Loan Note Tungsten West NR* 1.28
-Convertible Loan Note Black Pearl Limited Partnership NR* 0.42
-Convertible Loan Note Futura Resources Limited NR* 3.42
-Loan Note CEMOS Group Plc NR* 15.36
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.11
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.35
-Loan Note Nussir ASA NR* 0.20
Cash and cash equivalents HSBC Bank plc A+ 0.34
Total 21.48
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
* 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.
As at reporting date, two largest investments now comprise some 65% of the
Company's net assets are CEMOS and Futura. The Board has reasonable
expectation of some significant dividends and royalty payments in the coming
years which will support both distributions to our shareholders as well as
enabling the Company to diversify its portfolio when attractive opportunities
arise.
5. 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 (2022: £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.
6. ADMINISTRATION FEES
The previous Administrator, HSBC Securities Services (Guernsey) Limited
("HSBC"), was paid 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 reduced to 5
basis points of gross asset value above US$250 million. HSBC was also
reimbursed by the Company for reasonable out-of-pocket expenses. These fees
were calculated and accrued as at the last business day of each month and paid
monthly in arrears.
HSBC was 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 was also responsible for any
sub-administration fees as agreed in writing from time to time, and reasonable
out-of-pocket expenses. HSBC was also entitled to fees of €5,000 for
preparation of the financial statements of the Company.
The Board appointed Aztec Financial Services (Guernsey) Limited ("Aztec
Group") as the new Administrator of the Company on 1 December 2023 and Liberum
Wealth Limited ("Liberum Wealth") to provide custody and depositary services
on 1 November 2023.
Aztec Group is entitled to a fixed fee of £205,000 for the provision of
accounting, administration and company secretarial services and Liberum Wealth
is entitled to custody fees which are calculated on a daily basis on the last
published or available price of assets held in custody and are charged
quarterly in arears. A minimum charge of £2,500 per quarter for each account
applies. An introductory discounted custody fee of 0.065% applies during the
first year of the account. Liberum Wealth is also entitled to depositary fees
which are payable quarterly in advance and are subject to a time cap of 35
hours per quarter. Additional time spent is chargeable at their usual hourly
rates. An introductory discount of 10% applies to their depository fee during
the first year.
The administration fees charged for the year ended 31 December 2023 were
£108,190 (2022: £118,002) of which £37,083 (2022: £9,659) was payable at
31 December 2023. HSBC Securities Services (Ireland) DAC, the previous
sub-Administrator, was paid a portion of these fees by HSBC.
7. 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 2023 was £795,890 (2022:
£1,160,507) of which £57,735 (2022: £69,854) 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
2023, the Highwater Mark was the equivalent of approximately 94 pence per
share with the relevant Hurdle being the equivalent of approximately 177 pence
per share.
There were no earned performance fees payable for the current or prior year.
7. MANAGEMENT AND PERFORMANCE FEES (CONTINUED)
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
2023 2022
£ £
Research fees 41,844 35,356
Regulatory fees 20,405 31,286
Investor services fees 46,224 30,781
Public relation fees 26,190 11,520
Directors' insurance 27,314 6,000
Directors' expenses 1,813 3,344
Legal fees 13,639 76,789
Miscellaneous expenses 27,948 21,378
205,377 216,454
9. 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 (2022: 106,453,335) Ordinary Shares
outstanding with an additional 700,000 (2022: 700,000) held in treasury. The
Company has 9,167 (2022: 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.
9. SHARE CAPITAL (CONTINUED)
The details of issued share capital of the Company are as follows:
2023 2022
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 2023 are as
follows:
Ordinary Shares Treasury Shares
Amount* No. of shares* Amount No. of shares
£ £
Balance at 31 December 2023 76,122,347 106,462,502 140,492 700,000
The outstanding Ordinary Shares as at the year ended 31 December 2022 were as
follows:
Ordinary Shares Treasury Shares
Amount* No. of shares* Amount No. of shares
£ £
Balance at 31 December 2022 76,122,347 106,462,502 140,492 700,000
* Includes 9,167 (2022: 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.
9. SHARE CAPITAL (CONTINUED)
Capital Management (continued)
As described in the Directors' Report on page 18, 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 £8,235,802 (2022:
£8,771,186) and Capital Reserves of
£(2,058,078) (2022: £(270,193) ).
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.
10. RELATED PARTY AND INVESTMENT MANAGER TRANSACTIONS
The Investment Manager, Baker Steel Capital Managers LLP, had an interest in
9,167 Management Ordinary Shares at 31 December 2023 (31 December 2022:
9,167).
During 2023 Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") disposed of its entire interest in the Company at 31 December
2023 (2022: 4,922,877 Ordinary Shares). 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. As at 31 December 2023,
Northcliffe Holdings Pty Limited holds 12,460,677 shares (2022: 12,452,177)
and The Sonya Trust holds 12,637,350 shares (2022: 12,637,350).
John Falla holds 100,000 shares in the Company at 31 December 2023 (2022:
60,000).
The Company's associates are described in Note 12 to these financial
statements.
The Management fees and Directors' fees paid and accrued for the year were:
2023 2022
£ £
Management fees 795,890 1,160,507
Directors' fees 145,000 129,489
The Management fees and Directors' fees outstanding at the year-end were:
2023 2022
£ £
Management fees 57,735 69,854
Directors' fees 36,250 -
11. NET ASSET VALUE PER SHARE AND LOSS PER SHARE
Net asset value per share is based on the net assets of £82,159,579 (31
December 2022: £84,482,848) and 106,462,502 (31 December 2022: 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 2023 31 December 2022
Ordinary Shares Ordinary Shares
Net assets at the year-end (£) 82,159,579 84,482,848
Number of shares 106,462,502 106,462,502
Net asset value per share (in pence) basic and diluted 77.2 79.4
Weighted average number of shares 106,462,502 106,462,502
The basic and diluted loss per share for 2023 is based on the net loss for the
year of the Company of £2,323,269 and on 106,462,502 Ordinary Shares, being
the weighted average number of Ordinary Shares in issue during the year.
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.
There are no outstanding instruments which could result in the issue of new
shares or dilute the issued share capital.
12. 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 but less than 50%. 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
Nussir ASA Norway 12.12% Yes
Futura Resources Australia 26.94% Yes
Silver X Mining Corporation Canada 11.73% Yes
Polar Acquisition Limited British Virgin Islands 49.99% Yes
Various Baker Steel representatives and their associates received fees and
incentives for their role as directors to these companies. These fees are
received in addition to the management fees charged.
13. SUBSEQUENT EVENTS
There were no events subsequent to the period end, not already disclosed in
the Annual Report and Accounts, that materially impacted on the Company that
require disclosure or adjustment to these financial statements.
14. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
The Annual Report and Audited Financial Statements for the year-ended 31
December 2023 were approved by the Board of Directors on 26 April 2024.
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 2023 the LLP as Investment Manager paid fixed
remuneration to members and those identified as AIF code staff of £466,708.
Variable remuneration amounted to £1,163,311. 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 2023. 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 £1,630,020.
The total AIFM remuneration attributable to senior management was £1,630,020.
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.
MANAGEMENT AND ADMINISTRATION
DIRECTORS: Howard Myles (Chairman)
Charles Hansard
Fiona Perrott-Humphrey
John Falla
(all of whom are non-executive and independent)
REGISTERED OFFICE: East Wing, Trafalgar Court
Les Banques
St. Peter Port
Guernsey, GY1 3PP
Channel Islands
(Appointed 1 December 2023)
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
(Retired 30 November 2023)
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: Deutsche Numis
45 Gresham Street
London, EC2V 7BF
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: Aztec Financial Services (Guernsey) Limited
East Wing, Trafalgar Court
Les Banques
St. Peter Port
Guernsey, GY1 3PP
Channel Islands
(Appointed 1 December 2023)
MANAGEMENT AND ADMINISTRATION
ADMINISTRATOR & COMPANY SECRETARY (continued): HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
(Retired 30 November 2023)
SUB-ADMINISTRATOR TO THE COMPANY: HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
(Retired 30 November 2023)
CUSTODIAN TO THE COMPANY: Liberum Wealth Limited
1st Floor, Royal Chambers
St Julian's Avenue
St. Peter Port
Guernsey, GY1 2HH
Channel Islands
(Appointed 1 November 2023)
HSBC Continental Europe
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
(Retired 31 October 2023)
SAFEKEEPING AND MONITORING AGENT: Liberum Wealth Limited
1st Floor, Royal Chambers
St Julian's Avenue
St. Peter Port
Guernsey, GY1 2HH
Channel Islands
(Appointed 1 November 2023)
HSBC Continental Europe
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
(Retired 31 October 2023)
INDEPENDENT AUDITOR: BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter Port
Guernsey, GY1 3LL
Channel Islands
MANAGEMENT AND ADMINISTRATION
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
Arnold House
St Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
GLOSSARY OF TERMS
AIF - Alternative Investment Fund
AIFM - Alternative Investment Fund Manager
AIFMD - Alternative Investment Fund Managers Directive
Aztec Financial Services (Guernsey) Limited - (the "Aztec Group")
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
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
HSBC Securities Services (Guernsey) Limited - HSBC
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)
Liberum Wealth Limited - Liberum Wealth
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'.
GLOSSARY OF TERMS (CONTINUED)
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 July 2022
UK Code - UK Corporate Governance Code published by the Financial Reporting
Council in July 2018.
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. END FR SEMFIAELSEELRecent news on Baker Steel Resources Trust
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