REG - Baker Steel Res Tst - Half-year Report
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the provisions of The Companies (Guernsey) Law, 2008 as amended)
16 September 2020
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
Half-Yearly Report and Unaudited Condensed Interim Financial Statements
For the period from 1 January 2020 to 30 June 2020
The Company has today, in accordance with DTR 6.3.5, released its Half-Yearly Report and Unaudited Condensed Interim Financial Statements for the period ended 30 June 2020. The Report is available via www.bakersteelresourcestrust.com and will shortly be submitted to the National Storage Mechanism.
Further details of the Company and its investments are available on the Company's website www.bakersteelresourcestrust.com
Enquiries:
Baker Steel Resources Trust Limited +44 20 7389 8237
Francis Johnstone
Trevor Steel
Numis Securities Limited +44 20 7260 1000
David Benda (corporate)
James Glass (sales)
HSBC Securities Services (Guernsey) Limited + 44 (0)1481 717 852
Company Secretary
DIRECTORS:
Howard Myles (Chairman)
Charles Hansard
Clive Newall (resigned 15 September 2020)
Fiona Perrott-Humphrey (appointed 15 September 2020)
David Staples
(all of whom are non-executive and independent)
REGISTERED OFFICE:
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
MANAGER:
Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
INVESTMENT MANAGER:
Baker Steel Capital Managers LLP*
34 Dover Street
London W1S 4NG
United Kingdom
STOCKBROKERS:
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
SOLICITORS TO THE COMPANY:
Norton Rose Fulbright LLP
(as to English law)
3 More London Riverside
London SE1 2AQ
United Kingdom
ADVOCATES TO THE COMPANY:
Ogier
(as to Guernsey law)
Redwood House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 1WA
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY:
HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
* The Investment Manager was authorised as an Alternative Investment Fund Manager ("AIFM") for the purpose of the Alternative Investment Fund Managers Directive ("AIFMD") on 22 July 2014.
SUB-ADMINISTRATOR TO THE COMPANY:
HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE COMPANY:
HSBC France, Dublin Branch
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
SAFEKEEPING AND MONITORING AGENT:
HSBC France, Dublin Branch
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
AUDITOR:
BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter Port
Guernsey GY1 3LL
Channel Islands
REGISTRAR:
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
UK PAYING AGENT AND TRANSFER AGENT:
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
RECEIVING AGENT:
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
PRINCIPAL BANKER:
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
CHAIRMAN'S STATEMENT
For the period from 1 January 2020 to 30 June 2020
During the first six months of 2020, the unaudited net asset value per share rose 4.5% to 77.2p. The market for mining shares was extremely volatile during the period, falling sharply in March 2020 along with the rest of the markets and then recovering strongly in the second quarter with the EMIX Global Mining Index rising 5.8% in Sterling terms during the half year.
COVID-19
The first half of the year was dominated by the COVID-19 pandemic and commodities and mining both experienced high levels of volatility. After an initial fall, they rebounded strongly as the market reacted to the potential inflationary risks that might arise as a result of high spending and borrowing from governments around the world and the positive effect this would have on real assets such as commodities. The rise has been led by gold which is often a lead indicator but base metals such as copper and tin have also recently participated in this bullish environment recovering strongly ahead of potential government spending on infrastructure in particular where it involves electrification projects.
Generally, producing mines in most parts of the world were not overly impacted by the spread of the disease as most modern mines are highly mechanised and able to continue operations under social distancing rules. The Investment Manager comments in their report on the effects of COVID-19 on individual investee companies' operations, but most of the investments are not yet in operation and so have not been greatly affected. During this period the Company has not made any new investments but sought to ensure that its existing portfolio had sufficient working capital to continue progressing projects.
The Company has been able to operate efficiently during the global lockdown with the full use of video conferencing and other electronic media. The main issue has been the Investment Manager's inability to visit potential and existing operations due to travel restrictions. However, as the Company is currently fully invested there is no urgency to visit new prospects and in the meantime, the Investment Manager has continued to keep in close contact with the management of all the Company's investments.
Liquidity Diversification
During May 2020, the Company decided to diversify the liquid portion (listed securities) of its portfolio in the light of the prevailing volatile markets. The Company's relatively large holdings in Polymetal International Plc and Ivanhoe Mines Ltd were reduced and the cash generated from these sales was reinvested in a spread of listed gold and silver shares utilising the research and expertise of the Investment Manager's highly rated gold and precious metals team. Although the primary aim of this strategy has been to diversify risk whilst maintaining liquidity to provide working capital until the funds are required for reinvestment in the Company's core strategy, it has also proved to be a financially rewarding exercise with the listed precious metals part of the portfolio rising approximately [42%] from 31 May 2020 to 30 August 2020. This has added approximately 2.2.% to the Company's NAV during this period.
Board Succession
As discussed in the Chairman's report within the 31 December 2019 annual audited financial statements, the Board has put in place a succession plan to "refresh" the Board whilst maintaining continuity. We are pleased to announce that Fiona Perrott-Humphrey has now joined the Board. Fiona was formerly Head of Mining Research for Europe and South Africa at Citigroup. She is now a director of AIM Mining Research and founding director of a strategic mining consulting business, and an Adviser on the mining sector to Rothschild and Co. She replaces Clive Newall, and I want to thank Clive for his invaluable contribution to the Company since its formation.
Outlook
The second half of 2020 promises to be eventful with Bilboes Gold and Nussir both seeking finance or a partner to fund the development of their gold and copper projects respectively after completing positive Definitive Feasibility Studies earlier this year. Generally, there remain significant uncertainties as a result of actual and potential measures introduced to combat the Covid pandemic. However, with the gold price having risen to over $2,000 per ounce during late July, exceeding its previous high reached in 2011 and currently still close to that level, and with a recent increase in the copper price, it may be an opportune time to bring these companies to the market. If the recent recovery in commodity prices continues, especially gold and silver, and with long term low or negative real interest rates, a rapid expansion of debt, historically high levels of economic stimulus and the potential for growing inflationary pressures, real assets such as commodities and mining should become increasingly attractive.
Howard Myles
Chairman
15 September 2020
INVESTMENT MANAGER'S REPORT
For the period from 1 January 2020 to 30 June 2020
Financial Performance
The unaudited Net Asset Value per Ordinary Share ("NAV") as at 30 June 2020 was 77.2 pence, an increase of 4.5% in the period but a decrease of 21.1% from the Company's first NAV calculated on 30 April 2010. During the period the EMIX Global Mining Index was up 5.8% (up 5.3% since 30 April 2010) in Sterling terms.
For the purpose of calculating the NAV per share, unquoted investments were carried at fair value as at 30 June 2020 as determined by the Directors and quoted investments were carried at their quoted prices as at 30 June 2020.
Net assets at 30 June 2020 comprised the following:
£m
% of net assets
Unquoted Investments
75.9
92.4
Quoted Investments
5.0
6.0
Cash and other net assets
1.3
1.6
82.2
100.0
Investment Update
Largest 10 Holdings - 30 June 2020
% of NAV
Bilboes Gold Limited
21.5
Futura Resources Limited
16.2
Polar Acquisition Limited
11.4
Cemos Group Plc
8.9
Tungsten West Limited
8.0
Azarga Metals Corporation
4.9
Anglo Saxony Mining Limited
4.3
Mines & Metals Trading (Peru) Plc
4.1
Nussir ASA
3.9
Black Pearl Limited Partnership
3.4
86.6
Other Investments
11.8
Cash and other net assets
1.6
100.0
Largest 10 Holdings - 31 December 2019
% of NAV
Bilboes Gold Limited
15.9
Futura Resources Limited
15.0
Polar Acquisition Limited
11.3
Cemos Group Plc
10.0
Tungsten West Limited
8.0
Polymetal International Plc
6.1
Anglo Saxony Mining Limited
4.6
Mines & Metals Trading (Peru) Plc
4.4
Nussir ASA
4.1
Sarmin Minerals Exploration
3.7
83.1
Other Investments
14.6
Cash and other net assets
2.3
100.0
Review
At the end of June 2020, Baker Steel Resources Trust Limited (the "Company", "BSRT") was fully invested. During the first half of 2020 the Company did not make any new core investments though it did decide to diversify its holdings of Polymetal and Ivanhoe Mines into a broader base of highly liquid listed precious metals shares. As a result of the significant uncertainty brought about by the COVID-19 pandemic, it was decided to diversify the liquid holdings in the portfolio in order to ensure the availability of funds if necessary to help the Company's existing investments to weather any difficulties suffered as a result of the pandemic and keep their projects moving forward. In accordance with this strategy, the Company made top-up investments in Nussir, Futura, Mines and Metals Trading (Peru), PRISM, Azarga Metals Corp and Anglo Saxony Mining.
During the first half of 2020, commodities were generally volatile initially falling in March 2020 (as the scale of the COVID-19 pandemic became apparent) but then rapidly recovering led by gold (up 17.4%) as the market considered the consequences of global governments' substantial borrowing to alleviate the lockdowns in their economies. The main exception to this recovery was coking coal which fell 23% during the first half of the year. As a result, Futura has delayed the start-up of its Wilton and Fairhill metallurgical coal mines in Queensland until the market for its product stabilises. The price of iron ore, the other main component for producing steel, has remained strong (up 8% during the first 6 months of 2020) which suggests that demand for coking coal will recover later this year.
The Company's largest investment, Bilboes Gold Limited released the results of its Definitive Feasibility Study ("DFS") on its Isabella/McCays/Bubi gold project in Zimbabwe at the end of January 2020. The DFS defined an open pit gold mine with a peak production rate of 203,000 ounces of gold per year averaging 170,000 ounces of gold over a ten year mine life. There remains significant exploration upside potential at the project to extend this life further. The peak funding requirement for the project is US$231 million with cash operating costs of US$691 per ounce of gold and All-in Sustaining Costs of US$790 per ounce of gold. At a gold price of US$1,500 per ounce, the project economics show an after tax NPV (10%) of US$236 million with an internal rate of return of 33% and a payback on investment of just over one year. With the gold price having recently peaked over US$2,000 per ounce, this would add approximately US$85 million of revenue per annum to the project. Bilboes has engaged London based resource specialist investment bank, Hannam & Partners, as its advisor to raise the finance to fund the development of the mine or potentially for its sale. To date there has been significant interest in the project from both financiers and industry and it is hoped that the position will be resolved prior to the year end. The main potential difficulty to this timetable will be the ability of interested parties to visit the mine due to the current requirement for quarantine on visiting Zimbabwe.
The Company continues to hold a royalty interest in the Prognoz silver project in far east Russia, which Polymetal has suggested will produce approximately 20 million ounces of silver per annum over an 18 year period. The results of a pre-feasibility study on the project are due to be released this year. If the recent strong performance of the silver price is maintained this royalty could become an important income stream for the Company.
Despite the COVID-19 pandemic, Cemos Group PLC achieved a new monthly sales record of 22,912 tonnes (t) of cement in June 2020, representing 92% of installed capacity at its Tarfaya plant in Morocco. In addition, June quarter sales of 51,484t of cement beat the previous quarterly record. To date Cemos' operations have been largely unaffected by the COVID-19 pandemic with no cases recorded amongst its staff, subcontractors or clients. However, in the light of recent increases in the reported infection levels in the Saharan regions of Morocco, Cemos has implemented protocols aimed at minimising the COVID-19 risk. Cemos is targeting 200,000t in cement sales and approximately €25 million revenue for 2020, an increase of more than 60% over 2019. It is continuing its investment program with the installation of two additional 150t capacity cement silos in July which will allow it to expand its product range to differing strength cements, as well as preparations for the installation of a second bag-packing unit, and expansion of the cement grinding capacity.
During June 2020, Tungsten West Ltd completed a technical and economic update on its Hemerdon tungsten mine in Devon, UK. The technical update supported a financial model for a mine producing a post-tax NPV (5%) of £306m, based on capital costs to restart the mine of £35m and a project IRR of 111%. The project has a mine life of 23 years with the potential for this to be extended, which produces an estimated EBITDA of £35 million per annum with a project breakeven price of US$135/metric tonne unit APT (ammonium paratungstate) which would position it in the lowest cost quartile of tungsten mines globally. Tungsten West is currently progressing a Definitive Feasibility Study planned for the first half of next year.
The Company's investment most affected by the COVID-19 pandemic was Mines & Metals Trading (Peru) PLC (MMTP), which owns the Recuperada silver/lead/zinc mine in Peru. Initially, the government of Peru closed down all mines and when MMTP was able to restart its operations it was only able to do so on a limited basis, albeit with the rise in the price of silver and the recovery in the prices of lead and zinc, the operations are still able to generate positive cashflow. In March 2020, the Company increased its loans to MMTP by US$1 million to provide it with additional working capital.
In March 2020, Nussir completed a positive definitive feasibility study into its Nussir/Ulveryggen in northern Norway. The DFS was based on a mine producing approximately 15,000 tonnes of copper per annum with a pre-production capital cost of US$76.1 million. At a long term copper price of US$6,500 per tonne the economic model gave an NPV (6%) of US$132.6 million with an IRR of 23%. Nussir is fully licenced and is currently examining its options as to the best way to fund the mine development and realise the value of the project as well as investigating the potential for developing the mine on a fully electric basis.
Elsewhere in the Company's portfolio, TSXV listed Azarga Metals reported positive results of the 2019-2020 Phase 2 drilling program on its Unkur Copper-Silver Project in Eastern Russia which demonstrated that the copper-silver mineralization is confirmed over a strike length of 5.5 kilometres - an extension of 2.1 kilometres over the previous strike. A revised mineral resource statement is expected in the second half of this year. Anglo Saxony Mining completed a pre-feasibility study on its Tellerhauser tin project in Saxony, Germany in April 2020. The study provided a Base Case that suggests a positive pre-tax cash flow of €93 million over a 12-year mine life with a NPV (5%) of €35 million and an IRR of 10.8% using a US$20,500/t tin price. The project is very sensitive to the tin price but with tin forecast to be one of the main beneficiaries of the electrification process, a significant tin mine in Europe is likely to be of strategic importance. The COVID-19 pandemic has resulted in a two months delay in Sarmin's feasibility study for its Kanga Potash Project in the Republic of Congo, which is now due for completion in September 2020.
During May 2020, the Company decided to diversify the liquid portion of its portfolio which it considered to be prudent particularly in the light of current volatile markets. Accordingly, the majority of the Company's holdings in Polymetal International Plc and Ivanhoe Mines Ltd were sold and the cash generated from these sales was reinvested in a spread of listed precious metal shares. The timing of this has been opportune with the listed precious metal portfolio rising approximately 42% between 31 May 2020 and the end of August adding approximately 2.2% to the Company's NAV over this period.
At 30 June 2020
Price / Index Level
% Change in Six Months
% Change from Inception
Net Asset Value (pence/share)
77.2
+4.5%
-21.1%*
Ordinary Share Price (pence/share)
55.0
+0.9%
-45.0%**
EMIX Global Mining Index (£)
907.43
+5.8%
+5.3%†
Chinese Import Iron Ore Fines 62% Fe spot (US$)
98.45
+8.3%
-44.3%†
Copper (US$/t)
6,004
-2.3%
-19.4%†
Gold (US$/oz)
1,781
+17.4%
+52.5%†
Silver (US$/oz)
18.21
+2.0%
+0.2%†
Source: Bloomberg † closing 27/4/10, **Issue price 28/4/10, * NAV 30/4/10
It is not expected that there will be any significant effect on the operations of the Company should there be a disorderly departure by the UK from the European Union with service providers expecting to able to continue providing the same level of service post Brexit. In the event of a fall in the value of Sterling against other major currencies, this would be expected to result in an increase in the net asset value of the Company in Sterling terms as the majority of the Company's investments are denominated in currencies other than Sterling and the underlying commodities of the projects in which the Company is invested are generally traded in US Dollars. Conversely a rise in the value of Sterling would have a negative effect. Other than Tungsten West Ltd almost all the operations of the Company's investments are outside the UK and therefore would not be directly affected.
Baker Steel Capital Managers LLP
Investment Manager
September 2020
DIRECTORS' REPORT
For the period from 1 January 2020 to 30 June 2020
The Directors of the Company present the Half-Yearly Report and Unaudited Condensed Interim Financial Statements for the six months ended 30 June 2020.
The Directors' Report contains information that covers this period and the period up to the date of publication of this Report. Please note that more up to date information is available on the Company's website www.bakersteelresourcestrust.com.
Principal activity and business review
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, 1987, as amended ("POI Law") and the Registered Collective Investment Scheme Rules 2015 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
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.
Performance
During the period ended 30 June 2020, the Company's NAV per Ordinary Share increased by 4.5% and the share price increased 0.5p on the London Stock Exchange. This compares with a rise in the EMIX Global Mining Index (capital return in Sterling terms) of 5.8%%. A more detailed explanation of the performance of the Company is provided within the Investment Manager's Report on pages 4 to 6.
The results for the period are shown in the Statement of Comprehensive Income on pages 14 and 15 and the Company's financial position at the end of the period is shown in the Statement of Financial Position on page 13.
Dividend 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.
Directors and their interests
The Directors of the Company who served during the period and up until the date of signing of the financial statements are:
Howard Myles (Chairman)
Charles Hansard
Clive Newall (resigned 15 September 2020)
Fiona Perrott-Humphrey (appointed 15 September 2020)
David Staples
Biographical details of each of the Directors who were on the Board of the Company at the time of signing the annual report and financial statements for the year ended 31 December 2019 ("the Annual Report") are presented on page 17 of that report.
Fiona Perrot-Humphrey was formerly Head of Mining Research for Europe and South Africa at Citigroup. She is now a director of AIM Mining Research and founding director of a mining strategic consulting business, and an Adviser on the mining sector to Rothschild and Co.
Each of the Directors is considered to be independent in character and judgement.
The Directors' interests in the share capital of the Company were:
Number of
Ordinary Shares
30 June 2020
Number of
Ordinary Shares
31 December 2019
Clive Newall
25,000
25,000
Attendance at the Board and Audit Committee meetings during the period was as follows:
Board Meetings
Audit Committee
Meetings
He Held
Attended
Held
Attended
Howard Myles
2
2
2
2
Clive Newall
2
2
2
2
Charles Hansard
2
2
2
N/A
David Staples
2
2
2
2
In addition to the quarterly meetings, ad hoc Board and committee meetings are convened as required. All Directors contribute to a significant ad hoc exchange of views between the Directors and the Investment Manager on specific matters, in particular in relation to valuation and developments in the portfolio.
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 period ended 30 June 2020 the total remuneration of the Directors was £57,500 (30 June 2019: £57,500), with £28,750 payable at 30 June 2020 (31 December 2019: £28,750).
Authorised share capital
The share capital of the Company on incorporation was represented by an unlimited number of Ordinary Shares of no par value. The Company may issue an unlimited number of shares of a nominal or par value and/or of no par value or a combination of both.
Shares in issue
The Company was admitted to trading on the London Stock Exchange on 28 April 2010. The Company had a total of 106,453,335 Ordinary and 9,167 Management Ordinary Shares totalling 106,462,502 Ordinary Shares in issue as at 30 June 2020, of which 700,000 Ordinary Shares were held in Treasury.
Going concern
Having reassessed the principal and emerging risks described on pages 14 and 15 of the 31 December 2019 Annual Report, and the other matters discussed in connection with the viability statement as set out on pages 15 and 16 of the said report, the Directors consider it is appropriate to adopt the going concern basis in preparing these interim Financial Statements. As at 30 June 2020, approximately 7.6% of the Company's assets were represented by cash and unrestricted listed and quoted investments which are readily realisable. This is well over three times the Company's annual total expense ratio.
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 9.
Principal and emerging risks
The principal and emerging risks facing the Company, which include market and financial risk and portfolio management and performance risk, are considered in details, on pages 14 and 15 of the 31 December 2019 Annual Report which is available on the Company's website www.bakersteelresourcestrust.com. The Directors do not consider that these risks have materially changed during the period ended 30 June 2020 and do not expect any changes in the second half of 2020.
Directors' responsibility statement
The Directors confirm that to the best of their knowledge:
- the condensed set of 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; and
- the Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules.
Corporate governance compliance
As described in the Company's Annual Report, the Board has considered the principles and recommendations set out in UK Corporate Governance Code that was revised in 2018 and is effective for periods commencing on or after 1 January 2019 (the "UK Code") issued by the Financial Reporting Council (the "FRC"). Page 21 of the 31 December 2019 Annual Report presents and explains those matters where the Company has not complied with the UK Code. There is no change in compliance since the Annual Report.
Signed for and on behalf of the Directors:
Howard Myles
Chairman
15 September 2020
UNAUDITED PORTFOLIO STATEMENT
AS AT 30 JUNE 2020
Shares
Investments
Fair value
% of Net
/Warrants/
£ equivalent
assets
Nominal
Listed equity shares
Australian Dollars
199,000
Regis Resources Limited
579,254
0.70
1,440,000
Resolute Mining Limited
911,388
1.11
Australian Dollars Total
1,490,642
1.81
Canadian Dollars
3,604,726
Azarga Metals Corporation
203,339
0.25
30,000
Endeavour Mining Corporation
585,170
0.71
Canadian Dollars Total
788,509
0.96
Great Britain Pounds
46,000
Fresnillo Plc
387,044
0.47
32,000
Polymetal International Plc
516,000
0.63
Great Britain Pounds Total
903,044
1.10
United States Dollars
345,000
Harmony Gold Mining Company Limited
1,161,982
1.41
197,000
Iamgold Corporation
628,503
0.77
United States Dollars Total
1,790,485
2.18
Total investment in listed equity shares
4,972,680
6.05
Debt instruments
Australian Dollars
200
Futura Resources Limited
7,360,698
8.96
Australian Dollars Total
7,360,698
8.96
Canadian Dollars
305,000
PRISM Diversified Limited Loan Note 1
134,278
0.16
250,500
PRISM Diversified Limited Loan Note 2
427,843
0.52
Canadian Dollars Total
562,121
0.68
Euro
987
Cemos Group
4,228,984
5.15
Euro Total
4,228,984
5.15
Shares
Investments
Fair value
% of Net
/Warrants/
£ equivalent
assets
Nominal
Debt instruments (Continued)
Great Britain Pounds
2,000,000
Anglo Saxony Mining Limited
2,996,124
3.65
16,666,667
Tungsten West Limited Convertible Loan Note
5,134,844
6.25
Great Britain Pounds Total
8,130,968
9.90
United States Dollars
3,500,000
Azarga Metals Secured Convertible Loan Note
3,541,554
4.31
440,000
Bilboes Holdings Convertible Loan Note
2,204,656
2.68
220,000
Bilboes Holdings Loan Note
193,252
0.24
7,009,332
Black Pearl Limited Partnership
2,826,912
3.44
5,000,000
Mines & Metals Trading (Peru) Plc
3,231,520
3.93
United States Dollars Total
11,997,894
14.60
Total investments in debt instruments
32,280,665
39.29
Unlisted equity shares, warrants and royalties
Australian Dollars
7,800,000
Futura Gross Revenue Royalty
5,180,370
6.31
1,018,030
Futura Resources Limited
749,341
0.91
56,011,015
Indian Pacific Resources Limited
331,073
0.40
Australian Dollars Total
6,260,784
7.62
Canadian Dollars
13,490,414
Azarga Metals Convertible Loan Note Warrants 12/04/2021
292,842
0.36
13,083,936
PRISM Diversified Ltd
1,033,119
1.26
1,000,000
PRISM Diversified Limited Warrants 31/12/2023
33,518
0.04
Canadian Dollars Total
1,359,479
1.66
Great Britain Pounds
6,425,001
Anglo Saxony Mining Limited
514,000
0.63
1,594,646
Celadon Mining Limited
15,946
0.02
24,004,167
Cemos Group plc
3,068,237
3.73
122,760,000
Metals Exploration Plc (suspended)
613,800
0.75
7,869,319
Tungsten West Limited
1,514,844
1.84
Great Britain Pounds Total
5,726,827
6.97
Shares
Investments
Fair value
% of Net
/Warrants/
£ equivalent
assets
Nominal
Unlisted equity shares, warrants and royalties (continued)
Norwegian Krone
12,785,361
Nussir ASA
3,208,313
3.91
Norwegian Krone Total
3,208,313
3.91
United States Dollars
451,445
Bilboes Gold Limited
15,240,096
18.55
4,244,550
Gobi Coal & Energy Limited
161,129
0.20
15,349
Mines & Metals Trading (Peru) Plc
117,843
0.14
16,352
Polar Acquisition Limited
9,360,454
11.39
56,042
Sarmin Minerals Exploration
2,179,034
2.65
United States Dollars Total
27,058,556
32.93
Total Unlisted equity shares and warrants
43,613,959
53.09
Financial assets held at fair value through profit or loss
80,867,304
98.43
Other Assets & Liabilities
1,288,508
1.57
Total Equity
82,155,812
100.00
UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Unaudited
30 June
2020
Audited
31 December
2019
Notes
£
£
Assets
Cash and cash equivalents
493,274
659,757
Interest receivables
988,449
1,266,886
Other receivables
24,788
17,284
Financial assets held at fair value through profit or loss
3
80,867,304
76,932,117
Total assets
82,373,815
78,876,044
Equity and Liabilities
Liabilities
Directors' fees payable
9
28,750
28,750
Management fees payable
7,9
85,215
85,447
Administration fees payable
67,676
42,447
Audit fees payable
24,500
49,000
Custodian fees payable
6,583
6,338
Other payables
5,279
752
Total liabilities
218,003
212,734
Equity
Management Ordinary Shares
8
9,167
9,167
Ordinary Shares
8
75,972,688
75,972,688
Retained reserves
6,173,957
2,681,455
Total equity
82,155,812
78,663,310
Total equity and liabilities
82,373,815
78,876,044
Net Asset Value per Ordinary Share (in Pence) - Basic and Diluted
5
77.2
73.9
These unaudited condensed financial statements on pages 13 to 29 were approved by the Board of Directors on 15 September 2020 and signed on its behalf by:
Howard Myles
UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
Unaudited period ended 30 June
2020
Unaudited period ended 30 June
2020
Unaudited period ended 30 June
2020
Revenue
Capital
Total
Notes
£
£
£
Income
Loan guarantee income
2(e)
-
-
-
Interest Income
684,545
-
684,545
Dividend Income
2(g)
117,212
-
117,212
Net gain on financial assets at fair value through profit or loss
3
-
3,420,604
3,420,604
Net foreign exchange gain
-
33,349
33,349
Net income
801,757
3,453,953
4,255,710
Expenses
Management fees
7,9
494,503
-
494,503
Directors' fees
9
57,500
-
57,500
Administration fees
53,960
-
53,960
Other expenses
50,474
-
50,474
Custody fees
40,276
-
40,276
Audit fees
28,450
-
28,450
Broker fees
26,003
-
26,003
Directors' expenses
7,511
-
7,511
Legal fees
4,531
-
4,531
Total expenses
763,208
-
763,208
Net gain for the period
38,549
3,453,953
3,492,502
Net gain for the period per Ordinary Share:
Basic and Diluted (in pence)
5
0.04
3.24
3.28
In the period ended 30 June 2020 there were no other gains or losses 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.
UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2019 TO 30 JUNE 2019
Unaudited period ended 30 June
2019
Unaudited period ended 30 June
2019
Unaudited period ended 30 June
2019
Revenue
Capital
Total
Notes
£
£
£
Income
Loan guarantee income
2(e)
193,577
-
193,577
Interest Income
917,890
-
917,890
Dividend Income
2(g)
392,902
-
392,902
Net gain on financial assets at fair value through profit or loss
3
-
9,375,615
9,375,615
Net foreign exchange loss
-
(40,385)
(40,385)
Net income
1,504,369
9,335,230
10,839,599
Expenses
Management fees
7,9
463,784
-
463,784
Directors' fees
9
52,021
-
52,021
Administration fees
57,500
-
57,500
Other expenses
50,636
-
50,636
Custody fees
36,901
-
36,901
Audit fees
22,500
-
22,500
Broker fees
19,688
-
19,688
Directors' expenses
11,620
-
11,620
Legal fees
9,388
-
9,388
Total expenses
724,038
-
724,038
Net gain for the period
780,331
9,335,230
10,115,561
Net gain for the period per Ordinary Share:
Basic and Diluted (in pence)
5
0.70
8.20
8.90
In the period ended 30 June 2019 there were no other gains or losses than those recognised above.
The Directors consider all results to derive from continuing activities.
The format of the Income Statement follows the recommendations of the AIC Statement of Recommended Practice.
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
Management
Ordinary
Shares
Ordinary
Shares
Treasury
Shares
Retained
revenue
reserve
Profit and loss account (Capital)
Period
end
£
£
£
£
£
£
Balance as at 1 January 2020
9,167
76,113,180
(140,492)
10,808,636
(8,127,181)
78,663,310
Net gain for the period
-
-
-
38,549
3,453,953
3,492,502
Balance as at 30 June 2020
9,167
76,113,180
(140,492)
10,847,185
(4,673,228)
82,155,812
Note: 8 8
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2019 TO 30 JUNE 2019
Management
Ordinary
Shares
Ordinary
Shares
Treasury
Shares
Profit and loss account (Revenue)
Profit and loss account (Capital)
Period
end
£
£
£
£
£
£
Balance as at 1 January 2019
10,000
81,165,017
(140,492)
10,104,409
(25,111,150)
66,027,784
Redemption of Ordinary Shares
(833)
(4,934,681)
-
-
-
(4,935,514)
Expenses related to Tender offer
-
(90,688)
-
-
-
(90,688)
Net gain for the period
-
-
-
780,331
9,335,230
10,115,561
Balance as at 30 June 2019
9,167
76,139,648
(140,492)
10,884,740
(15,775,920)
71,117,143
UNAUDITED CONDENSED INTERIM STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
Unaudited Period ended
30 June
2020
Unaudited Period ended
30 June
2019
£
£
Cash flows from operating activities
Net gain for the period
3,492,502
10,115,561
Adjustments to reconcile net gain for the period to net cash used in operating activities:
Interest income
(684,545)
(917,890)
Dividend income
(117,212)
(392,902)
Net gain on financial assets at fair value through profit or loss
3
(3,420,604)
(9,375,615)
Net (increase)/decrease in other receivables
(7,504)
10,160
Net increase/(decrease) in payables
5,269
(19,850)
(732,094)
(580,536)
Interest received
962,982
158,077
Dividend received
117,212
392,902
Net cash provided by/(used in) operating activities
348,100
(29,557)
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss
(7,462,339)
(9,132,502)
Sale of financial assets at fair value through profit or loss
6,947,756
10,873,333
Net cash (used in)/provided by investing activities
(514,583)
1,740,831
Cash flows from financing activities
Expenses related to the tender offer
-
(90,688)
Payments for redemption of shares
-
(4,935,514)
Net cash used in financing activities
-
(5,026,202)
Net decrease in cash and cash equivalents
(166,483)
(3,314,928)
Cash and cash equivalents at the beginning of the period
659,757
3,811,921
Cash and cash equivalents at the end of the period
493,274
496,993
NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
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 Law and the Registered Collective Investment Scheme Rules 2018 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. The AIFMD focuses on regulating the AIFM rather than the AIFs themselves, so the impact on the Company is limited.
The Half-Yearly financial report has not been audited or reviewed by the auditors pursuant to the Auditing Practices Board
Guidance on review of Interim Financial Information. However, the Board did procure the independent external auditor to undertake certain agreed upon procedures to assist the Audit Committee and Board with its review of this report.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of these unaudited condensed interim financial statements have been consistently applied during the period, unless otherwise stated.
a) Statement of compliance
The unaudited condensed interim financial statements of the Company for the period 1 January 2020 to 30 June 2020 have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted in the EU, together with applicable legal and regulatory requirements of The Companies (Guernsey) Law, 2008 and the Listing Rules of the London Stock Exchange's Main Market. The unaudited condensed interim financial statements do not include all the information and disclosure required in the annual financial statements and should be read in conjunction with the annual report and audited financial statements for the year ended 31 December 2019.
b) Basis of preparation
The unaudited condensed interim financial statements have been prepared under the historical cost basis, modified by the revaluation of certain financial instruments designated at Fair value through Profit or Loss ("FVTPL"). The accounting policies adopted in the preparation of these unaudited condensed interim financial statements have been consistent with the accounting policies stated in Note 2 of the annual financial statements for the year ended 31 December 2019. The preparation of unaudited condensed interim financial statements in conformity with IAS 34, "Interim Financial Reporting", requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company's functional currency is 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 and debt are denominated in various currencies.
c) Significant accounting judgements and estimates
The preparation of the Company's financial statements requires the Directors to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities.
However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability in future periods.
(i) Judgements
In the process of applying the Company's accounting policies, the Directors have made the following judgements, which have had the most significant effect on the amounts recognised in the financial statements:
Assessment as Investment Entity
As per IFRS 10, an entity shall determine whether it is an investment entity. An investment entity is an entity that fulfils the following criteria:
Ø It obtains funds from one or more investors for the purpose of providing those investors with investment services.
Ø It commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both.
Ø It measures and evaluates the performance of substantially all of its investments on a fair value basis.
The Company meets the above criteria and is therefore considered to be an investment entity and therefore does not
consolidate its subsidiaries.
Associates
The Directors consider that entities over which the Company exercises significant influence, including where it holds between 20% and 50% of the voting rights, or where there is a shareholders agreement giving the Company the right to appoint a director and the right to veto significant financial decisions, should be considered as associates of the Company. These are disclosed in Note 14 of the Annual Report. This also includes entities where the Company has representation on the board and such representation is considered to have significant influence over the major decisions of such entity.
Going Concern
As stated in the Directors' Report the Directors have assessed the principal risks and uncertainties (as described in pages 14
and 15 of the 31 December 2019 Annual Report) and the other matters discussed in connection with the viability statement as set out on pages 15 and 16 of the said report. The Directors consider it is appropriate to adopt the going concern basis in preparing these interim financial statements.
(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 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.
c) Significant accounting judgements and estimates
(iii) Fair value of financial instruments
When the fair values of financial assets and financial liabilities recorded in the Statement of Financial Position cannot be derived from active markets, their fair value is determined using a variety of valuation techniques that include the use of valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. The estimates include considerations of liquidity and model inputs related to items such as credit risk, correlation and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments in the Statement of Financial Position and the level where the instruments are disclosed in the fair value hierarchy. The models are tested for validity by calibrating to prices from any observable current market transactions in the same instrument (without modification or repackaging) when available. To assess the significance of a particular input to the entire measurement, the Company performs sensitivity analysis or stress testing techniques.
(d) IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.
Classification and measurement of financial assets and financial liabilities
A financial asset or liability is measured at amortised cost if it meets both of the following conditions and are not designated
as at FVTPL:
Ø it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
Ø its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
All financial assets of the Company are measured at FVTPL, except for cash and cash equivalents which are measured at amortised cost.
All financial liabilities of the Company are measured at amortised cost.
Impairment of financial assets
Under IFRS 9 for trade receivables the Company has applied the simplified model. Under the simplified approach the requirement is to always recognise lifetime expected credit loss ("ECL"). Under the simplified approach there is no need to monitor significant increases in credit risk and measure lifetime ECLs at all times. The interest receivable is in respect of the Convertible loan notes and no provision has been made for credit losses. This is on the basis that the fair value of the underlying asset supports the convertible receivable.
For other receivables, the Directors have concluded that any ECL on these receivables would be highly immaterial.
(e) Loan guarantee income
These are guarantee fees receivable in respect of shareholder guarantees given over certain facilities of Cemos Group plc which are accounted for on an accruals basis.
(f) Interest on investments
These comprise of interest accrued and interest received from convertible loans which are accounted for on an accruals basis and recognised in the Statement of Comprehensive Income.
(g) Dividend Income
Dividend income is accrued on an ex-dividend basis and recognised in the Statement of Comprehensive Income.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Investment Summary:
Period ended 30 June
2020
Year ended 31 December 2019
£
£
Opening book cost
74,539,152
70,753,693
Purchases at cost
7,462,339
16,601,793
Proceeds on sale of investments
(6,947,756)
(18,777,778)
Realised gains
4,117,283
5,961,444
Closing cost
79,171,018
74,539,152
Unrealised gains
1,696,286
2,392,965
Financial assets held at fair value through profit or loss
80,867,304
76,932,117
The following table analyses net gains on financial assets at fair value through profit or loss for the period/year ended 30 June 2020 and 31 December 2019.
Period ended 30 June
2020
Year ended
31 December 2019
£
£
Financial assets at fair value through profit or loss
Realised gains on:
- Listed equity shares
4,117,283
6,135,349
- Debt instruments
-
(173,905)
- Warrants
-
-
4,117,283
5,961,444
Movement in unrealised (losses)/gains on:
- Listed equity shares
(3,510,145)
250,838
- Unlisted equity shares
1,349,473
5,134,808
- Royalties
(400,286)
4,373,836
- Debt instruments
1,667,381
1,280,943
- Warrants
196,898
86,293
(696,679)
11,126,718
Net gain on financial assets at fair value through profit or loss
3,420,604
17,088,162
The following table analyses investments by type and by level within the fair valuation hierarchy at 30 June 2020.
Quoted prices in active markets
Quoted market based observables
Unobservable
inputs
Level 1
Level 2
Level 3
Total
£
£
£
£
Financial assets at fair value through profit or loss
Listed equity shares
4,972,680
-
-
4,972,680
Unlisted equity shares
-
-
28,746,775
28,746,775
Royalties
-
-
14,540,824
14,540,824
Warrants
-
-
326,360
326,360
Debt instruments
-
-
32,280,665
32,280,665
4,972,680
-
75,894,624
80,867,304
The following table analyses investments by type and by level within the fair valuation hierarchy at 31 December 2019.
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
8,722,030
-
-
8,722,030
Unlisted equity shares
-
-
24,780,551
24,780,551
Royalties
-
-
14,019,975
14,019,975
Warrants
-
-
116,337
116,337
Debt instruments
-
-
29,293,224
29,293,224
8,722,030
-
68,210,087
76,932,117
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 period included in net gain on financial assets and liabilities at fair value through profit or loss held at 30 June 2020.
30 June 2020
Unlisted Equities
Royalties
Debt instruments
Warrants
Total
£
£
£
£
£
Opening balance 1 January 2020
24,780,551
14,019,975
29,293,224
116,337
68,210,087
Purchases of investments
1,205,011
921,135
1,320,060
13,125
3,459,331
Change in net unrealised gains
1,349,473
(400,286)
1,667,381
196,898
2,813,466
Transfer in
1,411,740
-
-
-
1,411,740
Closing balance 30 June 2020
28,746,775
14,540,824
32,280,665
326,360
75,894,624
Unrealised (losses)/gains on investments still held at 30 June 2020
(5,192,461)
2,773,846
3,041,594
313,235
936,214
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 loss on financial assets and liabilities at fair value through profit or loss held at 31 December 2019.
31 December 2019
Unlisted Equities
Royalties
Debt instruments
Warrants
Total
£
£
£
£
£
Opening balance 1 January 2019
18,894,281
6,163,793
15,818,201
30,044
40,906,319
Purchases of investments
751,462
3,482,346
12,367,985
-
16,601,793
Change in net unrealised gains
5,134,808
4,373,836
1,280,943
86,293
10,875,880
Realised losses
-
-
(173,905)
-
(173,905)
Closing balance 31 December 2019
24,780,551
14,019,975
29,293,224
116,337
68,210,087
Unrealised (losses)/gains on investments still held at 31 December 2019
(1,455,715)
3,174,130
1,421,092
116,337
3,255,844
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 at the carrying value of the investment at the beginning of the financial year. Metal Exploration Plc was transferred from Level 1 to Level 3 due to the investment being suspended from trading. Metal Exploration Plc remained at Level 3 as at 30 June 2020.
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.
Investments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within Level 2. These include certain less-liquid listed equities. Level 2 investments are valued with reference to the listed price of the shares should they be freely tradable after applying a discount for liquidity if relevant. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. The Company held no Level 2 investments at 30 June 2020 (31 December 2019: none).
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 default valuation technique is of "Latest Recent Transaction". Where an unquoted investment has been acquired or where there has been a material arm's length transaction during the past six months it will be carried at transaction value, having taken into account any change in market conditions and the performance of the investee company between the transaction date and the valuation date. Where there has been no Latest Recent Transaction the primary valuation driver is IndexVal. For each core unlisted investment, the Company maintains a weighted average basket of listed companies which are comparable to the investment in terms of commodity, stage of development and location ("IndexVal"). IndexVal is used as an indication of how an investment's share price might have moved had it been listed. Movements in commodity prices are deemed to have been taken into account by the movement of IndexVal.
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 also prepares discounted cash flow models for the Company's core investments annually and also for significant new information and 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. Some market analysts incorporate development risk into the discount rate in arriving at a net present value ("NPV"). Instead, the Investment Manager establishes an NPV discounted purely for cost of capital and country risk and then applies a further overall discount to the project economics dependent on where such project sits on the development curve per the DRAV calculations.
The valuation technique for Level 3 investments can be divided into five groups:
i. Transactions
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.
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
Royalties are valued on discounted projected cashflows taking into account expected time to production and development risk and adjusted for movement in commodity prices.
iv. 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 comparables as utilised in the IndexVal.
v. Convertible loans
Convertible loans are valued at fair value through profit and loss, taking into account credit risk and the value of the conversion aspect.
Quantitative information on significant unobservable inputs - Level 3
Description
30 June 2020
£
Valuation technique
Unobservable input
Range
(weighted average)
Unlisted Equity
4,218,355
Transactions
Private transactions
n/a
Unlisted Equity
23,898,674
IndexVal
Change in IndexVal
n/a
Royalties
14,540,824
Royalty Valuation model
Production profile & development risk adjustment
n/a
Unlisted Equity
629,746
Other
Exploration results, study results, financing
n/a
Description
30 June 2020
£
Valuation technique
Unobservable input
Range
(weighted average)
Debt Instruments
Black Pearl Limited Partnership
2,826,912
Valued at mean estimated recovery
Estimated recovery range
+/-50%
Other Convertible Debentures/Loans
29,453,753
Valued at fair value with reference to credit risk and value of embedded derivative
Rate of Credit Risk
20% - 40%
Warrants
326,360
Simplified Black Scholes Model
Volatilities
81% -116%
Description
31 December
2019
£
Valuation technique
Unobservable input
Range
(weighted average)
Unlisted Equity
5,661,710
Transaction
Private transactions
n/a
Unlisted Equity
19,102,895
IndexVal
Change in IndexVal
n/a
Royalties
14,019,975
Royalty Valuation model
Production profile & development risk adjustment
n/a
Unlisted Equity
15,946
Other
Exploration results, study results, financings
n/a
Debt Instruments
Black Pearl Limited Partnership
2,643,205
Valued at mean estimated recovery
Estimated recovery range
+/- 50%
Other Convertible Debentures/Loans
26,650,019
Valued at fair value with reference to credit risk and value of embedded derivative
Rate of Credit Risk
20% - 40%
Warrants
116,337
Simplified Black Scholes Model
Volatilities
50%
Information on third party transactions in unlisted equities is derived from the Investment Manager's market contacts. The change in IndexVal for each particular unlisted equity is derived from the weighted average movements of the individual baskets for that equity so it is not possible to quantify the range of such inputs.
Sensitivity analysis to significant changes in unobservable inputs within Level 3 investments
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis as at 30 June 2020 are as shown below:
Description
Input
Sensitivity used*
Effect on Fair Value (£)
Unlisted Equity
Change in IndexVal
+/-43.5%
+/-10,395,923
Royalties
Royalty Valuation models
development risk discounts+/-20%
+/-6,238,848
Debt Instruments
Black Pearl Limited Partnership
Probability weighting
+/-33%
+/-932,881
Others/Loans
Risk discount rate
+/-20%
+/-4,118,888
Warrants
Volatility of Index Basket
+/-40%
+122,519/-150,475
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 2019 are as shown below:
Description
Input
Sensitivity used*
Effect on Fair Value (£)
Unlisted Equity
Change in IndexVal
+/-43.5%*
+/-8,309,760
Royalties
Royalty valuation models
+/-20%
+/-2,803,995
Debt Instruments
Black Pearl Limited Partnership
Probability weighting
+/-33%
+/-872,258
Others/Loans
Risk discount rate
+/-20%
+/-4,747,375
Warrants
Volatility of Index Basket
+/-40%
+100,833/-61,601
*The sensitivity analysis refers to a percentage amount added or deducted from the input and the effect this has on the fair value. The 43.5% sensitivity was used as this was the highest movement observed for IndexVal for any investment during 2019.
4. OTHER FINANCIAL INSTRUMENTS
The directors consider the carrying amount for financial instruments such as cash and cash equivalents and short-term receivables and payables, are a reasonable approximation of fair values.
Cash and cash equivalents include cash in hand, deposits held with banks and other short-term investments in an active market.
Other assets include the contractual amounts for settlement of the trades and other obligations due to the Company. Investment management fees payable, directors' fees payable, audit fees payable, administration fees payable and other payables represent the contractual amounts and obligations due by the Company for settlement for trades and expenses.
5. NET ASSET VALUE PER SHARE AND GAIN PER SHARE
Net asset value per share is based on the net assets of £82,155,812 (31 December 2019: £78,663,310) and 106,462,502 (31 December 2019: 106,462,502) Ordinary Shares, being the number of shares in issue at 30 June 2020. The calculation for basic and diluted NAV per share is as below:
30 June 2020
31 December 2019
Ordinary Shares
Ordinary Shares
Net assets at the period end (£)
82,155,812
78,663,310
Number of shares
106,462,502
106,462,502
Net asset value per share (in pence) basic and diluted
77.2
73.9
Weighted average number of shares
106,462,502
109,688,328
The basic and diluted gain per share for the period ended 30 June 2020 is based on the net gain for the period of the Company of £3,492,502 and on 106,462,502 being the weighted average number of Ordinary Shares in issue during the period.
The basic and diluted gain per share for the period ended 30 June 2019 is based on the net gain for the period of the Company of £10,115,561 and on 112,914,154 Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the period.
6. 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 (2019: £1,200) has been paid. However, the Company may be subject to foreign taxes, such as withholding and capital taxes, on certain of its income and gains.
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 period ended 30 June 2020 was £494,503 (30 June 2019: £463,784) of which £85,215 (31 December 2019: £85,447) was outstanding at the period 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"). In addition, the performance fee will only become payable if there has been sufficient net realised gains. As at 30 June 2020, the Highwater Mark was the equivalent of approximately 94 pence per share with the relevant Hurdle being the equivalent of approximately 135 pence per share.
There were no earned performance fees for the current or prior period.
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. 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 (31 December 2019: 106,453,335) Ordinary Shares in issue with an additional 700,000 (31 December 2019: 700,000) held in treasury. In addition, the Company has 9,167 (31 December 2019: 9,167) Management Ordinary Shares in issue, which are held by the Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment of the Official List of the London Stock Exchange. Holders of Ordinary Shares have the right to receive notice of and to attend and vote at general meetings of the Company.
Each holder of Ordinary Shares being present in person or by proxy at a meeting will, upon a show of hands, have one vote and upon a poll each such holder of Ordinary Shares present in person or by proxy will have one vote for each Ordinary Share held by him.
The details of issued share capital of the Company are as follows:
30 June 2020
31 December 2019
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)
* During 2019, 9,677,478 shares were repurchased and cancelled following a tender offer totalling £4,935,514 excluding expenses.
** Includes 9,167 (31 December 2019: 9,167) Management Ordinary Shares.
*** The value reported for the ordinary shares represents the net of subscriptions and redemptions (including any associated expenses).
9. RELATED PARTY TRANSACTIONS
The Directors' interests in the share capital of the Company were:
Number of
Ordinary Shares
30 June 2020
Number of
Ordinary Shares
31 December 2019
Clive Newall
25,000
25,000
The Directors' fees accrued for the period ended 30 June 2020 were £57,500 (30 June 2019: £57,500), of which £28,750 at 30 June 2020 (31 December 2019: £28,750) were payable at the period end.
The Investment Manager, Baker Steel Capital Managers LLP, had an interest in 9,167 Management Ordinary Shares at 30 June 2020 (31 December 2019: 9,167).
The Management fees paid and accrued for the year are disclosed under Note 7.
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious Metals Fund") had an interest of 5,622,877 Ordinary Shares in the Company at 30 June 2020 (31 December 2019: 5,622,877). Precious Metals Fund shares a common Investment Manager with the Company.
10. SIGNIFICANT EVENTS
COVID-19 continues to impact global economic activity and contributed to significant volatility in financial markets. Depending on the severity and length of the outbreak, COVID-19 could present material uncertainty and risk with respect to the operational performance and financial results of the entities in which the Company invests, which may in turn impact the valuation of the investments.
Generally, producing mines in most parts of the world were not overly impacted by the spread of the disease as most modern mines are highly mechanised and able to continue operations under social distancing rules. The Investment Manager comments in their report on the effects of COVID-19 on individual investee companies' operations, but most of the investments are not yet in operation and so have not been greatly affected.
In February 2020, the Company exercised its option to acquire a further 0.25% gross royalty interest in Futura Resources' Wilton and Fairhill metallurgical coal mines for A$1.8 million.
During the period ended 30 June 2020, the Company made purchases of listed equities for £4,003,006 and sales of listed equities for £6,947,756 as part of the Board's decision to diversify the liquid part of the portfolio.
In March 2020, the Company entered into a further US$1 million loan with Mines and Metals Trading (Peru) Limited. The Company committed to a further US$500,000 loan to Azarga and renegotiated the terms of its convertible loan.
11. SUBSEQUENT EVENTS
There were no events subsequent to the period end that materially impacted on the Company
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