REG - Baker Steel Res Tst - Half-year Report
15/09/2022 18:00
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RNS Number : 6723Z Baker Steel Resources Trust Ltd 15 September 2022
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the provisions of
The Companies (Guernsey) Law, 2008 as amended)
15 September 2022
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
Half-Yearly Report and Unaudited Condensed Interim Financial Statements
For the period from 1 January 2022 to 30 June 2022
The Company herby submits its Half Year Report for the period ended 30 June
2022 as required by the Uk Listing Authority's Disclosure Guidance and
Transparency Rules 4.2.
The Report is available via www.bakersteelresourcestrust.com
(http://www.bakersteelresourcestrust.com) and will shortly be submitted to
the National Storage Mechanism and be available for inspection at FCA National
Storage Mechanism (https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
Further details of the Company and its investments are available on the
Company's website www.bakersteelresourcestrust.com
(http://www.bakersteelresourcestrust.com)
Enquiries:
Baker Steel Resources Trust Limited
+44 20 7389 8237
Francis Johnstone
Trevor Steel
Numis Securities
Limited
+44 20 7260 1000
David Benda (corporate)
James Glass (sales)
HSBC Securities Services (Guernsey) Limited + 44 (0)1481 717
852
Company Secretary
MANAGEMENT AND ADMINISTRATION
DIRECTORS: Howard Myles (Chairman)
Charles Hansard
Fiona Perrott-Humphrey
David Staples
(all of whom are non-executive and independent)
REGISTERED OFFICE: Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
MANAGER: Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
INVESTMENT MANAGER: Baker Steel Capital Managers LLP*
34 Dover Street
London W1S 4NG
United Kingdom
STOCK BROKERS: Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
SOLICITORS TO THE COMPANY: Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London SE1 2AQ
United Kingdom
ADVOCATES TO THE COMPANY: Mourant Ozanne
(as to Guernsey law) Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY: HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
* The Investment Manager was authorised as an Alternative Investment Fund
Manager ("AIFM") for the purpose of the Alternative Investment Fund
Managers Directive ("AIFMD") on 22 July 2014.
SUB-ADMINISTRATOR TO THE COMPANY: HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE HSBC Continental Europe
COMPANY:
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
HSBC Continental Europe
SAFEKEEPING AND MONITORING AGENT:
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 2022 to 30 June 2022
During the first six months of 2022, the Company's unaudited net asset value
per share fell 18.3% to 80.4 pence per share, and the share price fell 12.67%
to 65.5 pence per share. The first half of the year was a difficult one for
precious metals mining shares which were weaker in line with a decline in the
prices of gold and silver as well as a very bearish sentiment in general
markets. The FT Gold Mines Index was off 11.6%, while the FTSE 250 declined by
20.50%. Other mining sectors were mixed as represented by the EMIX Global
Mining Index which was up 1.2% in Sterling terms.
Commodity prices were particularly volatile during the period, as Covid
continued to affect demand from the key market of China where the draconian
policy of zero-tolerance significantly disrupted industry. Additionally, the
Russian invasion of Ukraine sent oil and energy prices spiralling. Such a
background has left market participants trying to evaluate how long the
current high level of inflation will continue into the future or whether these
economic shocks and rising interest rates will trigger a global recession and
potentially deflation. However, in the short term at least, one result has
been increased wage demands from workers seeking to keep up with the cost of
living.
The markets for metals associated with electric vehicles, such as Copper,
Cobalt, Nickel, Aluminum and Tin, were extremely volatile reaching all-time
highs in some cases by March and then falling back to more normal levels by
the summer. For example, tin, one of the key metals in the move towards
electrification, reached a price of US$58,000 /tonne in March and had fallen
to US$26,774/tonne three months later. Moves in some metal prices such as
copper have been exacerbated by reversals in financial flows into the various
paper instruments available to track the physical metals.
Historically inflation has been positive for precious metals and commodities,
at least in nominal terms since they are real assets, but in the short-term
markets have been more concerned about the implications for demand. Mining
equities have clearly been affected by this background, with lower commodity
prices hitting revenues whilst the increased cost of energy and numerous other
inputs is severely impacting margins. Development companies such as the those
in which your Company principally invests have been particularly impacted by
this as they also have to contend with higher capital costs of construction
and a less conducive environment for raising capital in which investors have
decidedly moved into "risk off" mode.
The increase in energy prices was the main reason given by Tungsten West PLC
when its board decided to delay the redevelopment of its Hemerdon mine in
Devon. It has since announced a revised plan reconfiguring its operations so
that it is much less energy intensive. It also continues to examine options
for adding either solar or wind power which could further lower energy costs.
The market reacted extremely badly to the initial news on the pause in
development, falling by some 66% to almost 20 pence per share from its Initial
Public Offering ("IPO") price of 60 pence per share, before recovering to the
current price of around 30 pence per share on the announcement of the revised
plan. Although this has certainly been disappointing, it should be noted that
your Company's acquisition price is approximately 20 pence per share. The
lock-up on the Company's shares in Tungsten West falls away in October 2022
and although we have no immediate plans to sell as we continue to believe the
mine can be successful, it means the discount which we currently apply to the
market price will also fall away.
In April 2022 First Tin PLC completed a successful IPO, raising £20 million
at a price of 30 pence per share. Importantly, First Tin has raised the
necessary funds it requires to undertake feasibility studies on both its
Tellerhäuser tin project in Germany and the Taronga tin project in Australia
(which it acquired at the same time as the IPO). The two feasibility studies
are targeted to be completed mid-2023, shortly after the one-year lock-up on
the Company's shares will end and the ideal time to evaluate the investment in
First Tin. Post the IPO, First Tin's share price has been hit by the sharp
fall in the tin price, closing at 15.5p at 30 June 2022, However, the IPO
financing significantly de-risks the Company's investment which it acquired at
approximately 8 pence per share on conversion of its convertible loan in 2021.
After the disappointment of having to withdraw from the cash sale of Bilboes
Gold Ltd during 2021 owing to unacceptable warranty requirements, we are
pleased to have recently come to an agreement with AIM listed gold producer
Caledonia Mining for the sale of Bilboes for a mixture of equity and a royalty
stream. Bilboes has been in discussions with Caledonia on and off for over
five years. The potential synergies of a combination of the two companies have
always been recognised but it has been a matter of negotiating a transaction
acceptable to both parties. Being part of a larger cash generative group will
make the financing of the Bilboes' gold project more achievable, and
Caledonia's technical team has demonstrated its ability to operate
successfully in Zimbabwe having recently increased the production capacity at
its Blanket mine from 50,000 ounces to 80,000 ounces of gold per annum. The
acquisition of Bilboes will be transformative for Caledonia with a clear path
to becoming a 250,000 ounce per annum gold producer and with the potential for
a significant re-rating of its shares. The transaction is subject to a number
of conditions precedent, in particular Zimbabwean Government approvals, which
are expected to be satisfied before the end of this year.
In a wholly unexpected move, the State government in Queensland, Australia
announced significant increases in the royalties payable on metallurgical coal
by miners in the State at progressively higher price levels. When taken with
the UK government's recent 'superprofit' taxes levied on North Sea oil
production it is a reminder that 'resources nationalism' is a growing risk
around the world, particularly in times of higher commodity prices such as we
have seen recently. The Company's largest investment, Futura Resources, holds
two shovel-ready metallurgical coal projects in Queensland which are seeking
to complete financing to enable them to enter production. The significantly
higher metallurgical coal pricing environment has been supportive of this
process although the Queensland government's increasing taxes has been an
untimely and unwelcome development, adversely impacting investor sentiment, at
least in the short term. Despite the tax increase, the economic models for
Futura's mines are not materially impacted as they are based on long-term
prices, and the higher royalty rates apply only in a higher price environment
than that assumed in the models.
Outlook
The outlook for the remainder of this year is expected to remain uncertain
owing to the macro-economic situation discussed above keeping commodity prices
volatile, but the Company's investments are generally well positioned to
weather a storm in the short-term. Closing of the financing required to see
Futura into production will be an important value driver for the Company,
although the uncertainty around the timing of this has increased somewhat. Two
other holdings, Nussir and Kanga, had planned listings during the year but the
timing of those could be reviewed owing to current market conditions.
The negotiation of a royalty as part of the Bilboes transaction was an
important factor in the deal as it is a further step in the Company's strategy
to achieve a regular cashflow from royalties, adding to those of Futura and
Polar Acquisition Limited. This in turn should be the basis for regular and
sustainable dividends to shareholders in the future.
Assuming the Bilboes transaction closes, a significant portion of the
Company's portfolio will be listed and concentrated in a few major holdings.
Depending on market conditions we will look to diversify the portfolio into
new investments in 2023 as well as considering the potential for another
tender offer in accordance with our returns policy.
Howard Myles
Chairman
15 September 2022
INVESTMENT MANAGER'S REPORT
For the period from 1 January 2022 to 30 June 2022
Financial Performance
The unaudited Net Asset Value per Ordinary Share ("NAV") as at 30 June 2022
was 80.4 pence, a decrease of 18.3% in the period compared with the increase
in the EMIX Global Mining Index of 1.2% in Sterling terms.
For the purpose of calculating the NAV per share, unquoted investments were
carried at fair value as at 30 June 2022 as determined by the Directors and
quoted investments were carried at their quoted prices as at that date.
Net assets at 30 June 2022 comprised the following:
£m % of net assets
Unquoted Investments 69.0 80.6
Quoted Investments 16.6 19.4
Cash and other net assets 0.0 -
85.6 100.0
Investment Update
Largest 10 Holdings - 30 June 2022 % of NAV
Futura Resources Limited 27.2
Cemos Group Plc 20.5
Bilboes Gold Limited 15.3
Tungsten West Plc 7.5
Kanga Potash 5.5
First Tin Plc 5.5
Polar Acquisition Limited 4.4
Nussir ASA 3.5
Silver X Mining Corporation 3.0
Black Pearl Limited Partnership 1.7
94.1
Other Investments 5.9
Cash and other net assets -
100.0
Largest 10 Holdings - 31 December 2021 % of NAV
Cemos Group Plc 18.6
Futura Resources Limited 18.1
Tungsten West Plc 14.7
Bilboes Gold Limited 13.0
First Tin Limited 7.7
Polar Acquisition Limited 7.5
Kanga Potash 4.1
Nussir ASA 3.6
Silver X Mining Corporation 2.8
Azarga Metals Corporation 2.4
92.5
Other Investments 6.4
Cash and other net assets 1.1
100.0
During the first half of 2022, the performance of commodities was volatile
with precious metals weaker (gold down 1.2% and silver down 13%) and base
metal prices mixed with copper down 15.3% on concerns of a global slowdown
whilst nickel and iron ore were both up around 8% on supply issues from Russia
and Ukraine. The price of coking coal from Australia fell 18% albeit from
historically high levels following the 250% increase in 2021.
It was a frustrating period for the Company's largest investment, Futura
Resources. With all planning and environmental permissions in place other than
the final operating licence which is pending the completion of financing,
Futura has been seeking the finance to start production from both its Wilton
and Fairhill mines in Queensland. At current coking coal prices the
approximate A$50 million capital required to bring both mines into production
could be recouped in less than a year but the funding of coal from traditional
providers such as banks or institutional investors has become increasingly
challenging on growing ESG reservations even though coking coal is different
to thermal coal and fundamental to primary steel production. Futura was close
to finalizing a loan via an offtake arrangement to be able to start both mines
when the Queensland government unexpectedly introduced higher royalties at
high coal prices. Although the effect of these additional royalties on
Futura's economic forecast was minimal as the new royalties only apply at
prices above the long-term consensus pricing used in the economic model, it
was an unwelcome measure to the Queensland coal industry and proved untimely
for Futura in closing its financing arrangements. Despite the initial shock of
the introduction of the new royalties and the additional uncertainty on timing
as a result, the higher coal pricing environment is supportive of Futura's
projects, the company remains in discussion with a number of parties to
finance the start of its mines and it is hoped a closing can be achieved in
the next few months.
Cemos Group has continued to perform well and expects to produce a similar
amount of cement from its Tarfaya plant in Morocco this year as it did in 2021
despite periodic difficulties experienced in sourcing clinker, the main
ingredient for the production process. It is sufficiently confident of its
market in Morocco that it has decided to acquire a second grinding line which
can double production from 2023 and it is investigating the potential for
installing its own clinker production which would secure reliable supplies and
significantly increase margins with a decision expected early in 2023.
In July 2022, the Company announced the sale of Bilboes Gold to Caledonia
Mining a NYSE, AIM and Victoria Falls Exchange listed gold producer whose
primary asset is the Blanket Mine in Zimbabwe. Earlier this year Bilboes
completed a feasibility study on its project in Matabeleland, Zimbabwe
indicating the potential for an open pit gold mine with average annual
production of approximately 168,000 ounces per annum of gold. However,
Caledonia has indicated that it will re-engineer the feasibility study to a
phased development approach which would entail lower up-front capital and
initial production costs. Not only will financing the development of the
Bilboes mine, comprising the Isabella, McCays, and Bubi open pittable
deposits, be easier in a larger cash generative group but also Caledonia's
technical team has demonstrated its ability to operate successfully in
Zimbabwe having recently increased the production capacity at its Blanket mine
from 50,000 ounces to 80,000 ounces of gold per annum. With the acquisition of
Bilboes, there is now a clear path for Caledonia to move to become a 250,000
ounce per annum gold producer with the potential for a significant re-rating
of its shares. The transaction is subject to number of conditions precedent
including Zimbabwe government approvals which are expected to be satisfied
before year end.
The Company's consideration for its 24.2% shareholding in Bilboes will be
800,000 shares in Caledonia and a 1% net smelter royalty ("NSR"), which it was
able to negotiate as a condition of the transaction. Should the full
production rate of 168,000 ounces per annum be achieved the NSR would generate
around US$2.6 million per annum for the Company at current gold prices. This
is in line with the Company's strategy to generate a series of royalties in
the portfolio which can become the basis for regular cashflow to the Company
which in turn can be passed on as dividends to shareholders.
Following the invasion of Ukraine by Russian forces in February and the
imposition of sanctions on certain Russian individuals and institutions, the
Company reviewed the carrying value of Polar Acquisition Limited ("PAL")
which holds a royalty over the Prognoz silver project in far eastern Russia,
owned by Polymetal International PLC (Polymetal). Polymetal is a Jersey
registered company which continues to be listed on the London Stock Exchange,
has not been the subject of targeted sanctions and continues to operate its
mines in Russia and Kazakhstan. Polymetal has stated that the development of
Prognoz remains on track for commissioning in the first quarter of 2024. As
result of potential uncertainty in the ability of Polymetal to pay the royalty
when due, the Company imposed an additional 50% discount to its development
risk adjusted valuation of PAL albeit it is hoped that there can be some
resolution in the two years until a first royalty payment would be due.
.
Tungsten West PLC has been the investment most severely affected by the
increase in energy prices following the invasion of Ukraine. In April 2022,
Tungsten West announced that it was pausing the redevelopment of its Hemerdon
tungsten project in Devon, to evaluate alternative lower cost approaches. In
July 2022 it announced it had concluded its re-evaluation and was progressing
with a re-configured development plan the most important aspects of which are
a lower capex requirement and much lower diesel and power consumption whilst
still delivering profitable operating margins. Tungsten West is now proceeding
with detailed engineering design and has recommenced construction of the
Hemerdon Project with the target of restarting production during H1 2023.
In April 2022 First Tin PLC completed an IPO on the London Stock Exchange
raising £20 million. Concurrently with the IPO it acquired the Taronga open
pit tin project in Australia, giving it three advanced tin projects in stable
jurisdictions. The proceeds of the IPO will be used to complete feasibility
studies on Taronga and its existing Tellerhauser tin mine in Saxony, Germany
as well as further exploration on the Gottesburg tin project close to
Tellerhauser.
Elsewhere in the portfolio, Kanga Potash and Nussir are both making good
progress towards financing their respect potash and copper projects following
positive feasibility studies however it is likely that the current market
uncertainty will need to improve before they can be finalised.
Silver X Mining Corporation recently reported that its Nuevo Recuperada
silver/lead/zinc mine in Peru had processed 124,000 silver equivalent ounces
through its plant in July 2022, an increase of 58% over the previous month as
production ramps up following a plant upgrade earlier in the year.
During the first half of 2022 the Company did not make any new core
investments as it remained fully invested. A number of new projects were
reviewed and opportunities will continue to be monitored pending receipt of
funds from any disposals.
At 30 June 2022 Price / Index Level % Change in 6 Months % Change in 3 years
Net Asset Value (pence/share) 80.4 -18.3% +20.3%
Ordinary Share Price (pence/share) 65.5 -12.7% +3.4%
EMIX Global Mining Index (£) 981.60 +1.2% +42.9%
SBB Premium Hard Coking Coal Australia Export (US$/t) 294.00 17.7% +67.2%
Gold (US$/oz) 1,807 -1.2% +28.2%
Silver (US$/oz) 20.28 -13.0% +32.4%
Brazil Potash CFR Granular Spot (US$/t) 1,100 +32.5% +218.8%
Copper (US$/t) 8,254 -15.3% +38.0%
Chinese Import Iron Ore Fines 62% Fe spot (US$) 130.00 +8.2% +15.1%
European Tungsten APT 88.5% w/h Rotterdam (US$/MTU) 330.00 +4.1% +35.8%
Tin (US$/t) 26,689 -32.2% +41.7%
Baker Steel Capital Managers LLP
Source:
Bloomberg
Investment Manager
September 2022
DIRECTORS' REPORT
For the period from 1 January 2022 to 30 June 2022
The Directors of the Company present the Half-Yearly Report and Unaudited
Condensed Interim Financial Statements for the six months ended 30 June 2022.
The Directors' Report contains information that covers this period and the
period up to the date of publication of this Report. Please note that more up
to date information is available on the Company's website
www.bakersteelresourcestrust.com (http://www.bakersteelresourcestrust.com) .
Status
Baker Steel Resources Trust Limited (the "Company") is a closed-ended
investment company with limited liability incorporated on 9 March 2010 in
Guernsey under the Companies (Guernsey) Law, 2008 with registration number
51576. The Company is a registered closed-ended investment scheme registered
pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 2020,
("POI Law") and the Registered Collective Investment Scheme Rules and
Guidance, 2021 issued by the Guernsey Financial Services Commission ("GFSC").
On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company
were admitted to the Official List of the UK Listing Authority and to trading
on the Main Market of the London Stock Exchange, Premium Segment.
Investment Objective
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 2022, the Company's unaudited NAV per Ordinary
Share decreased by 18.3% and the share price decreased by 12.67% on the London
Stock Exchange. This compares with a rise in the EMIX Global Mining Index
(capital return in Sterling terms) of 1.2%. A more detailed explanation of the
performance of the Company is provided within the Investment Manager's Report
on pages 5 to 7.
The results for the period are shown in the Statement of Comprehensive Income
on pages 15 and 16 and the Company's financial position at the end of the
period is shown in the Statement of Financial Position on page 14.
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
part of the cash realised from disposals for distribution 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 not less
than 15% of the aggregate net realised cash gains (after deducting losses) in
that financial year. The Board will retain discretion for determining the most
appropriate manner to make such distribution which may include share buybacks,
tender offers and dividend payments. In the longer term the Board intends to
announce a more formal dividend policy once it starts to receive a regular
stream of income from its royalty interests.
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
Fiona Perrott-Humphrey
David Staples
Biographical details of each of the Directors who were on the Board of the
Company at the time of signing the annual report and financial statements for
the year ended 31 December 2021 ("the Annual Report") are presented on page 18
of that report.
Each of the Directors is considered to be independent in character and
judgement.
Each Director is asked to declare his interests at each Board Meeting. No
Director has any material interest in any other contract which is significant
to the Company's business.
David Staples holds 35,000 shares in the Company. No other director has a
beneficial interest in the Company.
Attendance at the Board and Audit Committee meetings during the period was as
follows:
Board Meetings Audit Committee
Meetings
Held Attended Held Attended
Howard Myles 2 2 2 2
Charles Hansard 2 2 n/a n/a
Fiona Perrott-Humphrey 2 2 2 2
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 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 2022 the total remuneration of the Directors was
£57,500 (30 June 2021: £57,500), with £28,750 payable at 30 June 2022 (31
December 2021: £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 107,153,335 Ordinary and 9,167 Management Ordinary
Shares totalling 107,162,502 Ordinary Shares in issue as at 30 June 2022, of
which 700,000 Ordinary Shares were held in Treasury.
Going concern
Having reassessed the principal and emerging risks described on pages 15 and
16 of the 31 December 2021 Annual Report, and the other matters discussed in
connection with the viability statement as set out on pages 17 of the said
report, the Directors consider it is appropriate to adopt the going concern
basis in preparing these interim Financial Statements. The discontinuation
vote in 2021 was not passed and the next vote is in 2024. As at 30 June 2022,
approximately 5.85% of the Company's assets were represented by cash and
unrestricted listed and quoted investments which are readily realisable. 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 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 detail, on pages 15 and 16 of the 31 December 2021 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 2022 and do not expect any changes in the second half of
2022.
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"). Pages 21 and 22 of the 31 December 2021 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:
David Staples
Audit Committee Chairman
15 September 2022
UNAUDITED PORTFOLIO STATEMENT
AS AT 30 JUNE 2022
Shares Investments Fair value % of Net
/Warrants/ £ equivalent assets
Nominal
Listed equity shares
Australian Dollars
4,091,910 Akora Resources Limited 417,596 0.49
367,000 Regis Resources Limited 270,500 0.32
2,103,000 Resolute Mining Limited 268,275 0.31
388,000 St Barbara Limited 164,987 0.19
Australian Dollars Total 1,121,358 1.31
Canadian Dollars
58,527,286 Azarga Metals Corporation 560,902 0.65
19,502,695 Silver X Mining Corporation 2,554,382 2.98
Canadian Dollars Total 3,115,284 3.63
Great Britain Pounds
37,128,014 First Tin Plc 4,714,040 5.51
42,000 Fresnillo Plc 322,056 0.38
112,510,000 Metals Exploration Plc 1,040,718 1.22
17,000 Polymetal International Plc 30,770 0.04
28,846,515 Tungsten West plc 6,049,456 7.07
Great Britain Pounds Total 12,157,040 14.22
United States Dollars
89,000 Coeur Mining Inc 222,656 0.26
United States Dollars Total 222,656 0.26
Total investment in listed equity shares 16,616,338 19.42
Debt instruments
Canadian Dollars
305,000 PRISM Diversified Limited Loan Note 1 96,322 0.11
250,500 PRISM Diversified Limited Loan Note 2 306,906 0.36
Canadian Dollars Total 403,228 0.47
Euro
1,045 Cemos Group Plc Convertible Unsecured Loan Security 9,193,506 10.74
Euro Total 9,193,506 10.74
Shares Investments Fair value % of Net
/Warrants/ £ equivalent assets
Nominal
Debt instruments (Continued)
United States Dollars
7,028,352 Black Pearl Limited Partnership 1,440,152 1.68
26,301 Bilboes Gold Limited 22,275 0.03
United States Dollars Total 1,462,427 1.71
Total investments in debt instruments 11,059,161 12.92
Unlisted equity shares, warrants and royalties
Australian Dollars
10,100,000 Futura Gross Revenue Royalty 13,658,236 15.96
11,309,005 Futura Resources Limited 9,617,750 11.24
Australian Dollars Total 23,275,986 27.20
Canadian Dollars
13,490,414 Azarga Metals Warrants 31/12/2022 2 -
13,083,936 PRISM Diversified Limited 835,941 0.98
40,000 PRISM Diversified Limited Royalty 25,556 0.03
1,000,000 PRISM Diversified Limited Warrants 31/12/2023 4,682 0.00
324,000 Unkur Option 12/31/2023 207,006 0.24
Canadian Dollars Total 1,073,187 1.25
Great Britain Pounds
1,594,646 Celadon Mining Limited 15,946 0.02
24,004,167 Cemos Group plc 8,370,684 9.78
1,657,195 Tungsten West plc Second Option Share Warrants 18/10/2026 212,536 0.25
1,657,195 Tungsten West plc Third Option Share Warrants 18/10/2026 143,182 0.17
Great Britain Pounds Total 8,742,348 10.22
Norwegian Krone
12,785,361 Nussir ASA 3,013,711 3.52
Norwegian Krone Total 3,013,711 3.52
Shares Investments Fair value % of Net
/Warrants/ £ equivalent assets
Nominal
Unlisted equity shares and warrants and royalties (Continued)
United States Dollars
535,943 Bilboes Gold Limited 13,112,443 15.32
4,244,550 Gobi Coal & Energy Limited 164,172 0.19
56,042 Kanga Potash 4,735,541 5.53
16,352 Polar Acquisition Limited 3,763,727 4.40
United States Dollars Total 21,775,883 25.44
Total unlisted equity shares, warrants and royalties 57,881,115 67.63
Financial assets held at fair value through profit or loss 85,556,614 99.97
Other Assets & Liabilities 26,532 0.03
Total Equity 85,583,146 100.00
UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2022
Unaudited Audited
30 June 31 December
2022 2021
Notes £ £
Assets
Cash and cash equivalents 129,912 1,077,482
Interest receivable 56,227 249,445
Other receivables 21,565 22,132
Financial assets held at fair value through profit or loss 3 85,556,614 103,685,593
Total assets 85,764,318 105,034,652
Equity and Liabilities
Liabilities
Directors' fees payable 9 28,750 28,750
Management fees payable 7,9 95,289 122,894
Administration fees payable 17,857 10,638
Audit fees payable 29,250 58,500
Custodian fees payable 7,459 8,443
Other payables 2,567 6,471
Total liabilities 181,172 235,696
Equity
Management Ordinary Shares 8 9,167 9,167
Ordinary Shares 8 75,972,688 75,972,688
Revenue Reserves 9,396,201 10,047,160
Capital Reserves 205,090 18,769,941
Total equity 85,583,146 104,798,956
Total equity and liabilities 85,764,318 105,034,652
Net Asset Value per Ordinary Share (in Pence) - Basic and Diluted 5 80.4 98.4
These unaudited condensed financial statements on pages 14 to 29 were approved
by the Board of Directors on 15 September 2022 and signed on its behalf by:
David Staples
Director
UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
Unaudited period ended 30 June Unaudited period ended 30 June Unaudited period ended 30 June
2022 2022 2022
Revenue Capital Total
Notes £ £ £
Income
Interest income 320,808 - 320,808
Dividend income 7,249 - 7,249
Net loss on financial assets at fair value through profit or loss 3 - (18,569,776) (18,569,776)
Net foreign exchange gain - 4,925 4,925
Net income 328,057 (18,564,851) (18,236,794)
Expenses
Management fees 7,9 649,850 - 649,850
Administration fees 60,897 - 60,897
Directors' fees 9 57,500 - 57,500
Legal fees 55,112 - 55,112
Other expenses 51,932 - 51,932
Custody fees 30,787 - 30,787
Audit fees 29,250 - 29,250
Depositary fees 20,037 - 20,037
Broker fees 17,500 - 17,500
Directors' insurance 6,000 - 6,000
Directors' expenses 151 - 151
Total expenses 979,016 - 979,016
Net loss for the period (650,959) (18,564,851) (19,215,810)
Net loss for the period per Ordinary Share:
Basic and Diluted (in pence) 5 (0.61) (17.44) (18.05)
In the period ended 30 June 2022 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 2021 TO 30 JUNE 2021
Unaudited period ended 30 June Unaudited period ended 30 June Unaudited period ended 30 June
2021 2021 2021
Revenue Capital Total
Notes £ £ £
Income
Interest Income 778,743 - 778,743
Dividend Income 39,189 - 39,189
Loan guarantee income 46,247 - 46,247
Net gain on financial assets at fair value through profit or loss 3 - 2,994,059 2,994,059
Net foreign exchange loss - (12,098) (12,098)
Net income 864,179 2,981,961 3,846,140
Expenses
Management fees 7,9 816,287 - 816,287
Directors' fees 9 57,500 - 57,500
Administration fees 63,393 - 63,393
Other expenses 53,900 - 53,900
Custody fees 51,725 - 51,725
Audit fees 27,000 - 27,000
Broker fees 17,500 - 17,500
Directors' insurance and expenses 3,750 - 3,750
Legal fees 17,740 - 17,740
Total expenses 1,108,795 - 1,108,795
Net gain / (loss) for the period (244,616) 2,981,961 2,737,345
Net gain / (loss) for the period per Ordinary Share:
Basic and Diluted (in pence) 5 (0.23) 2.80 2.57
In the period ended 30 June 2021 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 CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
Capital reserves
Management Revenue Total Equity
Ordinary Ordinary Treasury reserves
Shares Shares Shares
£ £ £ £ £ £
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 period - - - (650,959) (18,564,851) (19,215,810)
Balance as at 30 June 2022 9,167 76,113,180 (140,492) 9,396,201 205,090 85,583,146
Note: 8 8
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2021 TO 30 JUNE 2021
Capital reserves
Management Revenue Total Equity
Ordinary Ordinary Treasury reserves
Shares Shares Shares
£ £ £ £ £ £
Balance as at 1 January 2021 9,167 76,113,180 (140,492) 10,971,969 16,537,575 103,491,399
Net (loss) / gain for the period - - - (244,616) 2,981,961 2,737,345
Balance as at 30 June 2021 9,167 76,113,180 (140,492) 10,727,353 19,519,536 106,228,744
Note: 8 8
UNAUDITED CONDENSED INTERIM STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
Unaudited Period ended Unaudited Period ended
30 June 30 June
2022 2021
Note £ £
Cash flows from operating activities
Net (loss)/gain for the period (19,215,810) 2,737,345
Adjustments to reconcile net gain for the period to net cash used in operating
activities:
Interest income (320,808) (778,743)
Dividend income (7,249) (39,189)
Net loss/ (gain) on financial assets at fair value through profit or loss 3 18,569,776 (2,994,059)
Net increase/(decrease) in other receivables 567 (593)
Net decrease in payables (54,524) (4,980)
(1,028,048) (1,080,219)
Interest received 514,027 837,191
Dividend received 7,249 39,189
Net cash used in operating activities (506,772) (203,839)
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss (1,209,441) (12,665,636)
Sale of financial assets at fair value through profit or loss 768,643 12,781,961
Net cash (used in)/provided by investing activities (440,798) 116,325
Net decrease in cash and cash equivalents (947,570) (87,514)
Cash and cash equivalents at the beginning of the period 1,077,482 424,140
Cash and cash equivalents at the end of the period 129,912 336,626
NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a closed-ended
investment company with limited liability incorporated and domiciled on 9
March 2010 in Guernsey under the Companies (Guernsey) Law, 2008 with
registration number 51576. The Company is a registered closed-ended investment
scheme registered pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law, 2020 and the Registered Collective Investment Scheme Rules and
Guidance, 2021 issued by the Guernsey Financial Services Commission ("GFSC").
On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company
were admitted to the Official List of the UK Listing Authority and to trading
on the Main Market of the London Stock Exchange, Premium Segment.
On 16 July 2021 the Company re-joined the Association of Investment Companies
("AIC").
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.
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 unaudited condensed interim financial statements in the half year report
for the six months ended 30 June 2022 have been prepared in accordance with
International Accounting Standard (IAS) 34, 'Interim Financial Reporting' as
adopted by the European Union. This half year report and condensed financial
statements should be read in conjunction with the Company's annual report and
financial statements for the year ended 31 December 2021, which have been
prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and are available at the Company's website
(www.bakersteelresourcestrust.com).
The accounting policies adopted and methods of computation followed in the
condensed interim financial statements are consistent with those applied in
the preparation of the Company's annual financial statements for the year
ended 31 December 2021 and are expected to be applied to the Company's annual
financial statements for the year ending 31 December 2022.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Period ended 30 June Year ended 31 December 2021
Investment Summary: 2022
£ £
Opening book cost 82,910,887 81,003,041
Purchases at cost 1,209,440 2,536,249
Proceeds on sale of investments (768,643) (3,712,697)
Net realised (losses)/gains (2,507,991) 3,084,294
Closing cost 80,843,963 82,910,887
Net unrealised gains 4,712,921 20,774,706
Financial assets held at fair value through profit or loss 85,556,614 103,685,593
The following table analyses net gains on financial assets at fair value
through profit or loss for the period/year ended 30 June 2022, 31 December
2021 and 30 June 2021.
Period ended 30 June Year ended Period ended 30 June
2022 31 December 2021 2021
£ £ £
Financial assets at fair value through profit or loss
Realised (losses)/gains on:
- Listed equity shares (1,117,529) (792,604) (273,452)
- Debt instruments (1,390,462) 3,893,470 3,933,880
- Warrants - (16,572) -
(2,507,991) 3,084,294 3,660,428
Movement in unrealised (losses)/gains on:
- Listed equity shares (14,370,970) 4,589,432 (399,854)
- Unlisted equity shares 947,253 1,571,711 3,438,849
- Royalties 968,471 1,943,286 (445,518)
- Debt instruments (2,809,854) (10,157,233) (3,355,920)
- Warrants (796,685) 1,222,604 96,074
(16,061,785) (830,200) (666,369)
Net gain on financial assets at fair value through profit or loss (18,569,776) 2,254,094 2,994,059
The following table analyses investments by type and by level within the fair
valuation hierarchy at 30 June 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 5,852,841 10,763,497 - 16,616,338
Unlisted equity shares - - 39,866,188 39,866,188
Royalties - - 17,447,519 17,447,519
Warrants - - 567,408 567,408
Debt instruments - - 11,059,161 11,059,161
5,852,841 10,763,497 68,940,276 85,556,614
The following table analyses investments by type and by level within the fair
valuation hierarchy at 31 December 2021.
Quoted prices in active markets Quoted market based observables Unobservable
inputs
Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Listed equity shares 4,879,486 14,064,224 - 18,943,710
Unlisted equity shares - - 46,971,239 46,971,239
Royalties - - 16,479,049 16,479,049
Warrants - - 1,364,093 1,364,093
Debt instruments - - 19,927,502 19,927,502
4,879,486 14,064,224 84,741,883 103,685,593
The table below shows a reconciliation of beginning to ending fair value
balances for Level 3 investments and the amount of total gains or losses for
the period included in net gain on financial assets and liabilities at fair
value through profit or loss held at 30 June 2022.
30 June 2022 Unlisted Equities Royalties Debt 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 - - 19,305 - 19,305
Sales of investments - - - - -
Transfer from level 3 (8,052,304) - (4,687,331) - (12,739,635)
Change in net unrealised gains/(losses) 947,253 968,471 (2,809,854) (796,685) (1,690,815)
Realised loss - - (1,390,462) - (1,390,462)
Closing balance 30 June 2022 39,866,188 17,447,519 11,059,161 567,408 68,940,276
Unrealised gains on investments still held at 30 June 2022 3,603,818 5,657,542 1,541,103 554,283 11,357,746
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 2021.
Unlisted Debt
31 December 2021 Equities Royalties instruments Warrants Total
£ £ £ £ £
Opening balance 1 January 2021 36,987,733 14,512,762 43,780,112 141,489 95,422,096
Purchases of investments 300,143 23,000 541,140 - 864,283
Sales of investments - - (399,576) 16,572 (383,004)
Conversion* 11,987,827 - (12,730,410) - (742,583)
Transfer out of Level 3 (3,876,175) - (5,000,000) - (8,876,175)
Change in net unrealised gains/losses 1,571,711 1,943,286 (10,157,233) 1,222,604 (5,419,632)
Realised gains - - 3,893,470 (16,572) 3,876,898
Closing balance 31 December 2021 46,971,239 16,479,048 19,927,503 1,364,093 84,741,883
Unrealised gains on investments still held at 31 December 2021 7,686,978 4,689,071 2,948,246 1,350,968 16,675,263
*Conversion of Futura and Anglo Saxony debt into Level 3 equity positions and
Mines & Metal Trading into Silver X, 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.
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 holds a 35.8%
interest in Azarga Metals which could impact the quoted price if it decided to
sell the investment.
Investments that trade in markets that are not considered to be active but are
valued based on quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs, are classified within Level 2. These
include certain less-liquid listed equities. Level 2 investments are valued
with reference to the listed price of the shares should they be freely
tradable after applying a discount for 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 two Level 2 investments at 30 June 2022
(31 December 2021: one).
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. Where
there has been no Latest Recent Transaction the primary valuation driver is
IndexVal. For each core unlisted investment, the Company maintains a weighted
average basket of listed companies which are comparable to the investment in
terms of commodity, stage of development and location ("IndexVal"). IndexVal
is used as an indication of how an investment's share price might have moved
had it been listed. Movements in commodity prices are deemed to have been
taken into account by the movement of IndexVal.
A secondary tool used by Management to evaluate potential investments as well
as to provide underlying valuation references for the Fair Value already
established is Development Risk Adjusted Value ("DRAV"). DRAVs are not a
primary determinant of Fair Value. The Investment Manager prepares discounted
cash flow models for the Company's core investments annually taking into
account significant new information, and for decision making purposes when
required. From these, DRAVs are derived. The computations are based on
consensus forecasts for long term commodity prices and investee company
management estimates of operating and capital costs. 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 six
groups:
i. Transactions & Offers
Where there have been transactions within the past 6 months either through a
capital raising by the investee company or known secondary market
transactions, representative in volume and nature and conducted on an arm's
length basis, this is taken as the primary driver for valuing Level 3
investments, having taken into account of any change in market conditions and
the performance of the investee company between the transaction date and the
valuation date. This includes offers, binding or otherwise from third parties
around the year end which may not have completed prior to the period end but
have a high chance of success and are considered to represent the situation at
period 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 cash flows 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, it is a cement plant with no defined
life like a mining project and therefore has been valued on the basis of a
multiple of historical and forecast earnings before interest, tax,
depreciation and amortisation when compared to listed comparable cement
producers.
v. Warrants
Warrants are valued using a simplified Black Scholes model taking into account
time to expiry, exercise price and volatility. Where there is no established
market for the underlying shares the average volatility of the companies in
that investment's basket of IndexVal comparables is utilised in the Black
Scholes model.
vi. Convertible loans
Convertible loans are valued taking into account credit risk and the value of
the conversion aspect.
Quantitative information on significant unobservable inputs - Level 3
Description 30 June Valuation technique Unobservable input Range of unobservable input
2022 (weighted average)
£
Unlisted Equity 15,189,232 Transactions Private transactions n/a
Unlisted Equity 16,126,154 IndexVal Change in index n/a
Unlisted Equity 8,370,684 EBITDA Multiple EBITDA Multiple n/a
Unlisted Equity 180,118 Other Exploration results, study results, financing n/a
Unlisted Equity 17,447,519 Royalty Valuation Model Commodity price and discount risk n/a
Debt Instruments
Black Pearl Limited Partnership 1,440,151 Valued at mean estimated recovery Estimated recovery range +/-50%
Other Convertible Debentures/Loans 9,596,733 Valued at fair value with reference to credit risk Rate of Credit Risk 0%-60%
Warrants 360,402 Simplified Black & Scholes Model Volatilities 50%
Unkur Option 207,006 Valued at fair value Political risk discount 40%-80%
Description 31 December 2021 Valuation technique Unobservable input Range of unobservable input
£ (weighted average)
Unlisted Equity 20,914,006 Transactions Private transactions n/a
Unlisted Equity 16,587,037 IndexVal Change in index n/a
Unlisted Equity 9,306,914 EBITDA Multiple EBITDA Multiple n/a
Royalties 16,479,048 Royalty Valuation model Commodity price and discount rate risk n/a
Unlisted Equity 163,284 Other Exploration results, study results, financing n/a
Debt Instruments
Black Pearl Limited Partnership 1,292,467 Valued at mean estimated recovery Estimated recovery range +/-50%
Other Convertible Debentures/Loans 2,157,657 IndexVal Change in Index n/a
Other Convertible Debentures/Loans 16,477,378 Valued at fair value with reference to credit risk Rate of Credit Risk 20%-40%
Warrants 1,364,093 Simplified Black Scholes Model Volatilities 50%
Information on third party transactions in unlisted equities is derived from
the Investment Manager's market contacts. The change in IndexVal for each
particular unlisted equity is derived from the weighted average movements of
the individual baskets for that equity so it is not possible to quantify the
range of such inputs.
Sensitivity analysis to significant changes in unobservable inputs within
Level 3 investments
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy together with a
quantitative sensitivity analysis as at 30 June 2022 are as shown below:
Description Input Sensitivity used* Effect on Fair Value (£)
Unlisted Equity Transactions & Expected Transactions +/-10% +/- 1,518,923
Unlisted Equity Change in IndexVal +135%/-80% +21,770,308/-12,900,923
Unlisted Equity EBITDA Multiple +/-20% +/-1,674,137
Royalties Commodity Price +/-20% +/- 3,484,392
Royalties Discount Rate +/-20% -1,326,703/+1,547,820
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/-480,050
Others/Loans Risk discount rate +/-20% -2,044,238/+201,614
Others/Loans Volatility +/-40% +57,342/-517
Unkor Option Transactions and expected +/-20% -/+ 162,000
transactions
Warrants Volatility of index basket +/-40% -15,938/+18,353
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value. The +135%/-80%
sensitivity was used as this was the range of movements of the constituents in
the IndexVal basket for Nussir and Futura..
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy together with a
quantitative sensitivity analysis as at 31 December 2021 are as shown below:
Description Input Sensitivity used Effect on Fair Value (£)
Unlisted Equity Transactions & Expected Transactions +/- 10% +/- 2,091,401
Unlisted Equity Change in IndexVal +101%/-57%* + 16,752,907/-9,454,611
Unlisted Equity EBITDA Multiple +/- 20% +/-1,861,383
Royalties Commodity Price +/-20% +/- 3,291,141
Royalties Discount Rate +/-20% +/-4,788,365
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/-426,514
Others/Loans Risk discount rate +/-20% -2,417,009/+1,292,006
Convertibles/Loans Volatility +/-40% +704,696/-262,075
Warrants Volatility +/-40% -36,769/+56,488
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value. The +101%/-57%
sensitivity was used as this was the range of movements of the constituents in
the IndexVal basket for Bilboes Gold, Kanga Potash and Prism.
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 £ 85,583,146 (31
December 2021: £ 104,798,956) and 106,462,502 (31 December 2021: 106,462,502)
Ordinary Shares, being the number of shares in issue at 30 June 2022 excluding
700,000 shares which are held in treasury. The calculation for basic and
diluted NAV per share is as below:
30 June 2022 31 December 2021
Ordinary Shares Ordinary Shares
Net assets at the period end (£) 85,583,146 104,798,956
Number of shares 106,462,502 106,462,502
Net asset value per share (in pence) basic and diluted 80.4 98.4
Weighted average number of shares 106,462,502 106,462,502
The basic and diluted loss per share for the period ended 30 June 2022, of
18.05 pence per share (30 June 2021 gain of 2.57 pence per share), is based on
the net loss for the period of the Company of £19,215,810 (30 June 2021:
£2,737,345) and on 106,462,502 shares (30 June 2021: 106,462,502) 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 (2021: £1,200)
has been paid. The Company may, however, be exposed to taxes in certain other
territories in which it invests such as withholding taxes on interest payments
and dividends and taxes on realisations of investments.
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 2022 was £649,850 (30 June 2021: £816,287) of which £95,289 (31 December 2021: £ 122,894) 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"). 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 have been sufficient net realised gains. As at 30 June 2022,
the Highwater Mark was the equivalent of approximately 93.9 pence per share
with the relevant Hurdle being the equivalent of approximately 157 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 2021: 106,453,335)
Ordinary Shares in issue with an additional 700,000 (31 December 2021:
700,000) held in treasury. In addition, the Company has 9,167 (31 December
2021: 9,167) Management Ordinary Shares in issue, which are held by the
Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment of the
Official List of the London Stock Exchange. Holders of Ordinary Shares have
the right to receive notice of and to attend and vote at general meetings of
the Company.
Each holder of Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll each such
holder of Ordinary Shares present in person or by proxy will have one vote for
each Ordinary Share held by him.
The details of issued share capital of the Company are as follows:
30 June 2022 31 December 2021
Amount No. of shares* Amount No. of shares*
£ £
Issued and fully paid share capital
Ordinary Shares of no par value** 76,122,347 107,162,502 76,122,347 107,162,502
(including Management Ordinary Shares)
Treasury Shares (140,492) (700,000) (140,492) (700,000)
Total Share Capital 75,981,855 75,981,855
The outstanding Ordinary Shares as at the period ended 30 June 2022 are as
follows:
Ordinary Shares Treasury Shares
Amount No. of shares* Amount No. of shares
£ £
Balance at 1 January 2022 & 30 June 2022 76,122,347 106,462,502 140,492 700,000
* Includes 9,167 (31 December 2021: 9,167) Management Ordinary Shares.
** The value reported for the Ordinary Shares represents the net of
subscriptions and redemptions (including any associated expenses).
The outstanding Ordinary Shares as at the year ended 31 December 2021 are as
follows:
Ordinary Shares Treasury Shares
Amount No. of shares* Amount No. of shares
£ £
Balance at 1 January 2021 & 31 December 2021 76,122,347 106,462,502 140,492 700,000
* Includes 9,167 (31 December 2021: 9,167) Management Ordinary Shares.
9. RELATED PARTY TRANSACTIONS
The Investment Manager, Baker Steel Capital Managers LLP, had an interest in
9,167 Management Ordinary Shares at 30 June 2022 (31 December 2021: 9,167).
The Management fees paid and accrued for the period are disclosed under Note
7.
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious Metals Fund")
had an interest of 4,922,877 Ordinary Shares in the Company at 30 June 2022
(31 December 2021: 4,922,877). Precious Metals Fund shares a common Investment
Manager with the Company.
David Baker and Trevor Steel, Directors of the Manager, are interested in the
shares held by Northcliffe Holdings Limited
and The Sonya Trust respectively, which are therefore considered to be Related
Parties. Northcliffe Holdings Limited holds
12,452,177 shares (31 December 2021; 12,452,177) and The Sonya Trust holds
12,722,129 shares (31 December 2021: 12,722,129).
David Staples, a Director of the Company holds 35,000 shares in the Company.
Management fees and Directors' fees paid and accrued during the periods to 30
June were:
2022 2021
£ £
Management fees 649,850 816,287
Directors' fees 57,500 57,500
The Management fees and Directors' fees outstanding at the period-end were:
30 June 2022 31 December 2021
£ £
Management fees 95,289 122,894
Directors' fees 28,750 28,750
10. SUBSEQUENT EVENTS
On 21 July 2022, the Company and the other shareholders of Bilboes signed an
agreement to sell Bilboes to Caledonia Mining Corporation Plc. The Company's
share of the consideration for its 24.2% shareholding in Bilboes will be
800,000 shares in Caledonia together with a 1% net smelter royalty ("NSR")
over the future gold production from the Bilboes properties. Completion of the
transaction is subject to a number of conditions precedent, which are expected
to be satisfied before the end of 2022.
There were no other events subsequent to the period end that had a material
impact on the Company.
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