REG - Baker Steel Res Tst - Half-year Report
15/09/2023 07:00
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RNS Number : 5060M Baker Steel Resources Trust Ltd 15 September 2023
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 2023
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
Half-Yearly Report and Unaudited Condensed Interim Financial Statements
For the period from 1 January 2023 to 30 June 2023
The Company herby submits its Half Year Report for the period ended 30 June
2023 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
John Falla
(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
Channel Islands
UK PAYING AGENT AND TRANSFER AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES, Jersey
Channel Islands
RECEIVING AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES, Jersey
Channel Islands
PRINCIPAL BANKER: HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
CHAIRMAN'S STATEMENT
For the period from 1 January 2023 to 30 June 2023
The first half of 2023 remained challenging for your Company after a difficult
2022, with the NAV per share falling by 15.2% to 67.3 pence, versus a 7.1%
fall in the EMIX Global Mining Index in Sterling terms. The EMIX Index was
down mainly due to falls in commodity prices, investor concern that interest
rates are likely to stay higher for longer due to more persistent inflation
and concern that Chinese growth following its belated exit from COVID measures
was less robust than anticipated. Investors remain cautious about the global
economy and prospects for industrial production levels, the key driver of
commodities' demand, whilst support from supply-chain related issues has
largely abated, at least in the short term.
Disappointingly, as at August 31st 2023 shares in the Company were down by
25.5%, year to date, compared to a 16.8% decline in NAV, as the discount to
NAV widened to 47.5%, a level not seen since 2016. Whilst most investment
companies have seen a widening in their discount to NAV due to the general
risk aversion in markets and particularly those with significant holdings in
unlisted assets, it is of note that as recently as June 2021 the Company was
trading at NAV, a reminder of how quickly market perceptions and investor
sentiment can change towards the mining sector.
Financing new projects for junior mining development companies is arguably
tougher than it has been since the period following the global financial
crisis, and this has impacted valuations of these companies adversely,
including several held by the Company. Higher interest rates also feed through
to higher discount rates applied to future cashflows from new projects and
accordingly lower net present values (NPVs) ascribed to them, often with a
knock-on effect on share prices. Although the current environment of risk
aversion is challenging in terms of value realisation for the Company, it is
important to adopt a careful and measured approach during these periods,
seeking to ensure that the latent value in the projects in which we are
invested is recognised and maintained.
Against this backdrop and representing a major milestone, in September 2023
Futura Resources secured the A$25m required to commence production at its two
Queensland steel making coal mines, which at full capacity are projected to
produce around 2 million tonnes of saleable product for at least the next 15
years, at a current mining cost of US$70 per tonne. Despite the significant
fall in hard coking coal prices from early 2022 levels, it is still trading
around the US$250 per tonne level which should produce a strong margin. The
Company is the largest investor in Futura with around 27% of the equity and
has agreed to invest a further A$4.65m, or around its pro-rata entitlement, in
the 3-year high yield convertible note offering that was the primary source of
funding, taking the Futura investment from 25.3% NAV to approximately 28.2% of
pro-forma NAV at August 31st 2023.Shareholders had previously given the
Company the authority to invest further funds in Futura up to a limit of 35%
NAV at the time of investment, to allow additional flexibility so that it may
seek to protect its existing investment and support Futura in realising the
significant inherent value in its assets. Although the financing of the
development has taken somewhat longer and has been achieved at a higher
interest cost than anticipated, reflective of the current environment, Futura
is now expected to produce significant cashflows in the coming years and
implement a robust dividend policy. The development of its mines will also
result in royalty payments being received by the Company, expected from Q2
2024
In another positive development, CEMOS Group plc, which is the Company's
largest holding, in 2022 achieved its third year of profitable cement making
operations in Morocco since commencing production. Importantly, it has just
committed to construct a clinker making facility sufficient to meet CEMOS's
internal requirements, which is anticipated to significantly reduce current
clinker costs from third party suppliers and thus enhance margins. Once the
second grinding line, acquired in 2022, is installed CEMOS should be able to
double production at enhanced margins with ramp up expected in 2025. The
expansion is planned to be financed mainly from internal cashflows supported
by a term loan from a local Moroccan bank.
Tungsten West Plc raised £7.1 million through a convertible loan note which
the Company, as its largest shareholder, supported to maintain its pro rata
position. The funding was required for working capital to allow Tungsten West
to complete submissions and receive the final two key licences to operate.
These are anticipated to be received in the fourth quarter of 2023, at which
time Tungsten West will seek to raise the remaining funding required for the
recommencement of tungsten and tin production at Hemerdon. The updated
feasibility study indicates an IRR of 25% and given the existing
infrastructure, remaining capital requirements are modest relative to the
cashflows that the project is capable of delivering.
In terms of other developments of note, First Tin PLC continued to advance its
two key tin projects, Tellerhäuser in Germany and Taronga in Australia with a
decision expected early next year on which of the two projects should be
prioritised for first production. Nussir ASA, owner of a shovel ready copper
project in Norway, which is set to become the world's first fully electrified
mine, initiated a formal process to investigate a sale or merger of the
company with an existing producer.
Outlook
The outlook for mining is expected to remain challenging for the remainder of
2023, with investors remaining risk averse until such time as visibility on
the timing of peak interest rates becomes clearer. Nevertheless, the
structural case for those metals and commodities essential for the
electrification and decarbonisation transition continues to strengthen, whilst
the growing themes of deglobalisation and security of supply are likely to
underpin commodity prices in the longer term. Inventories remain low by
historic standards when measured in terms of weeks of consumption, which does
suggest that a recovery, when it comes, could be magnified. Any major economic
stimulus package announced by China would provide a boost in sentiment towards
the mining sector. Historically, commodities, particularly precious metals,
tend to outperform other asset classes in time of persistent or rising
inflation or geopolitical uncertainty, such as in the 1970s, and may therefore
represent a hedge for portfolios during current uncertain times.
On 31 August 2023, the share price traded at a 47.5% discount to the NAV and
continues to be closely monitored by the Board. We have again sought authority
to undertake a share buyback if the Board considers it to be in the Company's
best interests. With Futura Resources making the transformative step to become
a producer, this significant de-risking of an important investment for the
Company, coupled with the prospect of dividends generated from the regular
income expected to be provided by royalties, should help to reduce this
discount in the future supported by the Company's policy of distributing to
Shareholders a portion of any realised profits by way of dividend or capital
return.
Howard Myles
Chairman
14 September 2023
INVESTMENT MANAGER'S REPORT
For the period from 1 January 2023 to 30 June 2023
Financial Performance
The unaudited Net Asset Value per Ordinary Share ("NAV") as at 30 June 2023
was 67.3 pence (31 December 2022:79.4 pence), a decrease of 15.20% in the
period compared with the decrease in the EMIX Global Mining Index of 7.1% in
Sterling terms.
For the purpose of calculating the NAV per share, unquoted investments were
carried at fair value as at 30 June 2023 as determined by the Directors, based
on reports received from the Investment Manager following a process detailed
in the Annual Report and Account. Quoted investments were carried at their
quoted prices as at that date.
Net assets at 30 June 2023 comprised the following:
£m % of net assets
Unquoted Investments 54.8 76.3
Quoted Investments 16.7 23.4
Cash and other net assets 0.2 0.3
71.7 100.0
Investment Update
Largest 10 Holdings - 30 June 2023 % of NAV
Cemos Group Plc 29.2
Futura Resources Limited 25.4
Caledonia Mining Corporation Plc 10.3
Bilboes Royalty 7.9
Kanga Investments Limited 5.1
Silver X Mining Corporation 4.5
First Tin Plc 3.8
Nussir ASA 3.7
Metals Exploration Plc 2.6
Tungsten West Plc 2.2
94.7
Other Investments 5.0
Cash and other net assets 0.3
100.0
Largest 10 Holdings - 31 December 2022 % of NAV
Futura Resources Limited 27.7
Cemos Group Plc 22.8
Bilboes Gold Limited 16.2
Kanga Investments Limited 5.7
Tungsten West Plc 5.4
Silver X Mining 5.4
First Tin Plc 4.8
Nussir ASA 4.1
Metals Exploration plc 1.7
PRISM Diversified Limited 1.5
95.3
Other Investments 4.5
Cash and other net assets 0.2
100.0
Review
At 30 June 2023, the Company was fully invested, holding 16 investments of
which the top 10 holdings comprised 95% of the portfolio by value. The
portfolio is diversified both in terms of commodity and the geographical
location of the projects. In terms of commodity the portfolio has exposure to
cement, copper, gold, iron, lead, lithium, potash, silver, steel making coal,
tin, tungsten, vanadium, and zinc. Its projects are located in Australia,
Canada, Germany, Indonesia, Madagascar, Morocco, Norway, Peru, the
Philippines, Republic of Congo, Russia, the UK and Zimbabwe.
During the first half of 2023, the market for commodities and mining shares
was generally weak with the EMIX Global Mining Index ending the period down
7.1% in Sterling terms over concerns for global and Chinese growth. In
precious metals, gold rose 5.2% but silver was down 4.9% over the period.
The copper price was unchanged after its fall in 2022 though tin recovered
10.9% after falling 37.1% in 2022 (all in US dollars). Steel making coal
continued its retreat from its all-time highs as a result of the war in
Ukraine, falling a further 12% in the first half of 2023 following the 17.6%
fall in 2022 after its 252% gain in 2021. Likewise, potash fell back a further
36% to around US$320 per tonne following its peaks in excess of US$1,000 per
tonne in 2021.
The Company's main investments at the period end:
Cemos Group plc (''Cemos'')
Cemos is a private cement producer at Tarfaya in Morocco.
Investment: 24,004,167 ordinary shares (24.6%) valued at
£10.0 million
1,045
Convertible Loan Units (31.6% fully diluted incl existing holding) valued at
£10.9 million
In the first half of 2023 the demand for cement in Morocco continued to be
subdued due to inflationary pressures in the economy although the sales for
the year remained at around 200,000 tonnes, similar to 2022, and efforts are
underway to grow and diversify the client portfolio to mitigate the effects of
lower overall demand. At the end of June, the Board of Cemos gave the go ahead
to construct a compact calcination unit (CCU) to enable it to produce its own
clinker the main consumable for Cemos' operation, subject to the requisite
permits which are expected in the second half of 2023. The CCU plant will cost
around €10 million to install, and is budgeted to increase the overall
margin by around 50% or €5 million a year and also provide better security
of supply. Cemos continues to investigate the potential for manufacture of
'green cement' products by replacing some clinker in the production process
with more environmentally friendly supplementary cementitious materials such
as pozzolan which would not only reduce the CO2 footprint of the operation but
may also have a positive impact on costs.
Futura Resources Ltd ("Futura")
Futura owns the Wilton and Fairhill steel making coal projects in the Bowen
Basin in Queensland, Australia which hold Measured and Indicated coal
resources of 843 million tonnes.
Investment: 11,309,005 ordinary shares (26.9%) valued at
£6.7 million
1.5% Gross
Revenue Royalty valued at £11.2 million
A$600,000
million bridging loan valued at £0.27 million
On 23 November 2022, Futura was awarded the mining licences for its projects
and during the first half of 2023, it focused on raising the necessary finance
to commence production at Wilton. On 11 September 2023, Futura announced that
it had completed an A$26.2 million financing which will be sufficient to
commence production at Wilton as well pay the landowner compensation due for
Wilton and Fairhill. Pre-production works are relatively simple consisting of
pre-stripping of overburden and upgrading of roads given the existing
agreement in place for the coal to be processed at the nearby Gregory Crinum
wash plant. As a result, Wilton is expected to commence in production at the
beginning of 2024. The expectation is to develop Fairhill utilising cash flow
generated from Wilton, though that could be accelerated with offtake finance
once the coal quality from Wilton is proven. At full operating capacity the
two mines will produce around 2 million tonnes of coal per annum at a cost of
circa US$70 per tonne compared to the current spot price for coking coal in
excess of US$200 per tonne.
Caledonia Mining Corporation Plc ("Caledonia")
Investment: 800,000 ordinary shares (4.2%) valued at £7.4
million
On 6 January 2023 the shareholders of Bilboes Gold Ltd completed its sale to
Caledonia Mining Corporation Plc. Caledonia is a NYSE, AIM and Victoria Falls
Exchange listed gold producer whose primary asset is the Blanket Mine in
Zimbabwe. Part of the Company's consideration for its 22% interest in Bilboes
was in the form of 800,000 shares in Caledonia.
In the first half of 2023, Caledonia reported production of 33,472 ounces of
gold which was down 13% on the previous year due to a number of technical
problems in the first half. These problems have since been addressed and
Caledonia was sufficiently confident to maintain its production guidance at
75,000 to 80,000 of gold from Blanket for 2023. Caledonia currently pays a
dividend of US$0.14 per quarter.
Bilboes Royalty ("Bilboes")
Investment: 1% net smelter royalty valued at £5.7 million
The other part of the Company's consideration for the sale of Bilboes Gold Ltd
was a 1% net smelter royalty (NSR) over the Bilboes properties. The Bilboes'
gold project in Zimbabwe has a JORC compliant Proved and Probable Reserve
containing 1.8 million ounces of gold out of a total Mineral Resource of 3.8
million ounces of gold.
Caledonia has indicated that it will re-engineer the original Bilboes
feasibility study which outlined production of an average of 168,000 ounces
per annum over 10 years, to a phased development approach which would lower
up-front capital. During the first half of 2023, Caledonia recommenced gold
production at Bilboes from near surface oxide ores with the aim of generating
additional cash and with the benefit of pre-stripping for the underlying
sulphide project thus accelerating its development. However due to variations
in anticipated grades which had been extrapolated from the drilling for the
underlying sulphide resources in the feasibility study, Caledonia has decided
to cease mining and metallurgical processing of the Bilboes Oxides at the end
of September 2023. Thereafter leaching of material that has already been
deposited on the leach pad will continue. Oxide mining and processing will
resume when the stripping of the waste for the sulphide project commences.
At the average production rate of 168,000 ounces per annum in the Bilboes
feasibility study, the NSR would generate some US$2.5 million per annum after
tax, although the expected production profile will become clearer once
Caledonia publishes its revised plans for Bilboes,
Kanga Potash Investments Ltd
Kanga Potash is a private company which holds the Kanga potash project, in the
Republic of the Congo.
Investment: 56,042 ordinary shares (6.6%) valued at £3.7
million
Kanga Potash completed a positive Definitive Feasibility Study ("DFS") in 2020
on its Kanga Potash project in the Republic of Congo for a mine producing
600,000 tonnes per annum of Muriate of Phosphate ("MOP"). The DFS economic
model gave a Net Present Value at a 10% discount rate of US$511 million with
an IRR of 22% based on an MOP price of US$282 per tonne compared to the
current price of around US$350 per tonne. In addition, there is potential for
the mine to be expanded on a modular basis up to 2.4M tonnes per annum over 30
years as set out in the DFS. Kanga Potash continues to have discussions
regarding the financing or sale of the project. In the second half of 2022 the
government of Congo published a decree awarding the Kanga Exploitation/Mining
Licence to Kanga Potash, a key condition of potential acquirors.
Silver X Mining Corporation ("Silver X")
Silver X is a TSX-V listed company whose Recuperada project in Peru comprises
11,261 Ha of mining concessions centred around a 600 tonne per day processing
plant.
Investment: 19,502,695 ordinary shares (11.7%) valued at
£3.2 million
In the first half of 2023 Silver X produced 531,099 ounces of silver
equivalent at its Nueva Recuperada Silver mine in Peru. The mine performed
below the level anticipated though no guidance had been announced nor has any
full year production guidance been announced. As a result, in June 2023, the
company announced the appointment of a new Chief Operating Officer to
reorganize operations in order to bring them back on track. In July 2023 the
new CEO ordered a 30-45-day cessation of operations whilst a new operational
plan is implemented. In February 2023 Silver X released the results of a
Preliminary Economic Assessment ("PEA") under Canadian National Instrument
43-101 Standards for the expansion of the Tangana Mining Unit at Nueva
Recuperada. The PEA outlined the potential to treble annual production to 4.2
million ounces silver equivalent by constructing an additional recovery plant
at a capital cost of US$61 million to give a post-tax NPV10 of US$175 million.
A more detailed feasibility study will be undertaken before a decision is made
to move forward with this expansion.
First Tin PLC ("First Tin")
First Tin is a company listed on the London Stock Exchange which holds the
Tellerhäuser and Gottesburg tin projects in Germany and the Taronga tin
project in Australia. Combined contained tin for the three projects totals
143,000 tonnes.
Investment: 37,128,014 ordinary shares (14.0%) valued at
£2,7 million
During the first half of 2023 First Tin completed the infill and extension
drilling required for the feasibility study for Taronga open pit tin project
in Australia. This successfully outlined a 400-metre extension to the
current resource area which should be reflected in an updated mineral resource
statement expected to be released in Q3 2023. Once this has been completed
First Tin can optimize the scale of future operations which will be reflected
in a definitive feasibility study ("DFS") expected to be completed in early
2024. In June 2023, First Tin submitted the complete documentation for its
mine permit application to the Saxonian Mining Authority for the
Tellerhäuser underground tin project. A decision is expected prior to the end
of Q3 2024. In the meantime, First Tin plans to publish an updated JORC
compliant Resource on Tellerhäuser, with the DFS scheduled for completion in
early 2024.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the Nussir copper
project in Northern Norway.
Investment: 12,785,361 ordinary shares (12.1%) valued at
£2.7 million
In early April 2023 Nussir completed the update of the DFS on its Nussir
copper project in northern Norway changing the operations from diesel based to
a fully electrified mine producing around 14,000 tonnes of copper per year
over a 14 year mine life. The updated DFS economics gave a NPV(8%) of US$191
million with an IRR of 22% based on a copper price of US$8,000 per tonne (Spot
US$8,327 at June 2023). Nussir is currently in a formal process of seeking an
industry partner to assist with financing the development of the mine.
Metals Exploration plc ("Metals Exploration")
Metals Exploration is an AIM listed company which owns the Runruno gold mine
in the Philippines.
Investment: 103,860,000 ordinary shares (5.4%) valued at
£1.9 million
In the first half of 2023 Metals Exploration plc sold a record 46,186 ounces
of gold from its Runruno gold mine in the Philippines, an approximate 50%
increase on the 30,676 ounces sold in the first half of 2022. This resulted in
record half-year gold revenue of US$89.6 million (H1 2022: US$57.6 million)
and record half-year positive free cash flow of US$41.9 million (H1 2022:
US$13.6 million). This strong performance enabled Metals Exploration to
accelerate debt repayments to US$35.05 million during the half year, leaving
net debt at US$48.3 million at 30 June 2023.
Tungsten West Plc (''Tungsten West'')
Tungsten West owns the Hemerdon Mine in Devon, United Kingdom and is quoted on
the AIM market of the London Stock Exchange.
Investment: 28,846,515 ordinary shares (15.4%) valued at
£0.9 million
£600,000
convertible loan valued at £612,057
1,657,195 second options valued at £0.02 million
1,657,195 third
options valued at £0.01 million
On 16 January 2023 Tungsten West announced the results of its updated
feasibility study on the Hemerdon tungsten and tin mine in Devon. The
feasibility study detailed a mine with average annual production of 2,900
tonnes of tungsten (WO(3)) and 310 tonnes of tin in concentrate over 27
years. The economics showed a post-tax NPV(5) of £297 million with
an Internal Rate of Return (IRR) of 25%. It also highlighted an Upside Case
post-tax NPV(5% )of £416 million with an IRR of 32%. Total pre-production
capex, corporate commitments and working capital was estimated at £54.9
million. In June 2023, Tungsten West raised £7.1 million through a
convertible loan note issuance payable in two tranches. As Tungsten West's
largest shareholder, the Company supported this issue to maintain its pro rata
position. In August 2023. Tungsten West announced completion of a low
frequency noise trial, which enabled it to make a formal submission to the
Environment Agency to secure the Mineral Processing Facility permit. Tungsten
West also submitted a section 73 (variation of a condition of existing
permission) application to vary the tonnage cap on truck movements from site.
It is anticipated that these two key licenses could be received in the fourth
quarter of 2023, at which time Tungsten West will seek to raise the remaining
funding required for the recommencement of tungsten and tin production at
Hemerdon.
Outlook
The disruption in availability of financing for junior companies with
development projects continued during the first half of 2023 and it is unclear
when this position will change. Inflation fears combined with sluggish global
growth have led to investors generally adopting a "risk off" position, whilst
seeking to preserve capital. Commentators expect inflation and interest rates
to remain high into 2024. An eventual change in the trend in interest rates
could be the trigger for a return to a healthier market. However there remain
concerns that the Chinese economy in particular has not bounced back post
covid lockdowns, and that their government is no longer capable of stimulating
the economy in the face of a deteriorating housing market. Against this, there
remains the medium term demand profile for many minerals to underpin the
energy transition plus the growing interest by governments to secure supply
chains for essential minerals. Attempting to call the exact timing on the
potential recovery in the markets for both commodity prices and shares would
be unrealistic. But shareholders should draw comfort from the mature nature of
many of the projects in which the Company holds positions. This should mean
that the portfolio is well placed to benefit when momentum changes.
Baker Steel Capital Managers LLP
Investment Manager
September 2023
DIRECTORS' REPORT
For the period from 1 January 2023 to 30 June 2023
The Directors of the Company present the Half-Yearly Report and Unaudited
Condensed Interim Financial Statements for the six months ended 30 June 2023.
The Directors' Report contains information that covers this period and the
period up to the date of publication of this Report. Please note that more up
to date information is available on the Company's website
www.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 2023, the Company's unaudited NAV per Ordinary
Share decreased by 15.20% and the share price decreased by 4.4 % on the London
Stock Exchange. This compares with a fall in the EMIX Global Mining Index
(capital return in Sterling terms) of 7.1%. A more detailed explanation of the
performance of the Company is provided within the Investment Manager's Report
on pages 5 to 9.
The results for the period are shown in the Statement of Comprehensive Income
on pages 17 and 18 and the Company's financial position at the end of the
period is shown in the Statement of Financial Position on page 16.
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. In the longer term the Board intends to formulate a more regular
dividend policy once it starts to receive income from its royalty interests.
As it is not expected that there will be net realised cash gain during the
year, it is unlikely that there will be any distribution in respect of the
year ended 31 December 2023.
Directors and their interests
The Directors of the Company who served during the period and up until the
date of signing of the financial statements are:
Howard Myles (Chairman)
Charles Hansard
Fiona Perrott-Humphrey
John Falla
Biographical details of each of the Directors who were on the Board of the
Company at the time of signing the annual report and financial statements for
the year ended 31 December 2022 ("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.
John Falla holds 60,000 shares in the Company (31 December 2022: 60,000). No
other director has a beneficial interest in the Company.
Attendance at the quarterly 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
John Falla 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 a general meeting shall
from time to time determine). Effective 1 October 2022 the Board, recognising
that Board remuneration was below market rates having not changed since the
Company's flotation in 2010, resolved to increase their remuneration to
£32,500 per annum for each Director. The Chairman receives a supplement of
£10,000 per annum and the Chairman of the Audit Committee a supplement of
£5,000 per annum.
For the period ended 30 June 2023 the total remuneration of the Directors was
£72,500 (30 June 2022: £57,500). There were no Director's fees outstanding
as at 30 June 2023 (31 December 2022: £Nil).
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 has a total of 106,453,335 (31 December 2022: 106,453,335)
ordinary shares outstanding with an additional 700,000 (31 December 2022:
700,000) held in treasury. The Company has 9,167 (31 December 2022: 9,167)
Management Ordinary shares in issue, which are held by the Investment Manager.
Going concern
Having reassessed the principal and emerging risks described on pages 14 and
15 of the 31 December 2022 Annual Report, and the other matters discussed in
connection with the viability statement as set out on page 16 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. The Board have no
reason to believe that investors will vote in favour of discontinuation. As at
30 June 2023, approximately 23.3% of the Company's assets were represented by
cash and unrestricted listed and quoted investments which are readily
realisable. Although the continuing Russian invasion of Ukraine has resulted
in a reduction in the carrying value of investments with a Russian nexus it is
not expected that it will affect the Company's ability to operate on a normal
basis. Neither of the two affected investments, PAL and Azarga were expected
to be a material source of revenue in the next two years. The Directors are
not aware of any material uncertainties that may cast significant doubt upon
the Company's ability to continue as a going concern.
Related party transactions
Transactions with related parties are based on terms equivalent to those that
prevail in an arm's length transaction and are disclosed in Note 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 14 and 15 of the 31 December 2022 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 2023 and do not expect any changes in the second half of
2023.
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 Report and Accounts 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
The Company is a member of the Association of Investment Companies.
The Board has therefore considered the Principles and Provisions of the AIC
Code of Corporate Governance (AIC Code). The AIC Code addresses the Principles
and Provisions set out in the UK Corporate Governance Code (the UK Code), as
well as setting out additional Provisions on issues that are of specific
relevance to the Company.
The Board considers that reporting against the Principles and Provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council and
the Guernsey Financial Services Commission, provides more relevant information
to shareholders.
The Company has complied with the Principles and Provisions of the AIC Code
and therefore the UK Code except as where explained in the Annual Report on
pages 22 to 24.
There is no change in compliance since the Annual Report.
Signed for and on behalf of the Directors:
Howard Myles John Falla
Director Director
14 September 2023
UNAUDITED PORTFOLIO STATEMENT
AS AT 30 JUNE 2023
Shares Investments Fair value % of Net
/Warrants/ £ equivalent assets
Nominal
Listed equity shares
Australian Dollars
4,091,910 Akora Resources Limited 364,426 0.51
Australian Dollars Total 364,426 0.51
Canadian Dollars
6,519,395 Azarga Metals Corporation 290,561 0.41
19,502,695 Silver X Mining Corporation 3,245,053 4.53
Canadian Dollars Total 3,535,614 4.94
Great Britain Pounds
800,000 Caledonia Mining Corporation Plc 7,392,204 10.31
37,128,014 First Tin Plc 2,691,781 3.75
103,860,000 Metals Exploration Plc 1,869,480 2.61
28,846,515 Tungsten West Plc 901,454 1.26
Great Britain Pounds Total 12,854,919 17.93
Total investment in listed equity shares 16,754,959 23.38
Debt instruments
Australian Dollars
600,000 Futura Resources Limited - Bridging Loan 270,427 0.38
Australian Dollars Total 270,427 0.38
Canadian Dollars
305,000 PRISM Diversified Limited Loan Note 1 89,589 0.12
250,500 PRISM Diversified Limited Loan Note 2 285,454 0.40
Canadian Dollars Total 375,043 0.52
Shares Investments Fair value % of Net
/Warrants/ £ equivalent assets
Nominal
Great Britain Pounds
1,045 Cemos Group Convertible Loan 10,936,853 15.25
600,000 Tungsten West Convertible Loan 612,057 0.85
Great Britain Pounds Total 11,548,910 16.10
United States Dollars
7,028,352 Black Pearl Limited Partnership 688,543 0.96
United States Dollars Total 688,543 0.96
Total investments in debt instruments 12,882,923 17.96
Unlisted equity shares, warrants and royalties
Australian Dollars
10,100,000 Futura Gross Revenue Royalty 11,179,654 15.59
11,309,005 Futura Resources Limited 6,754,034 9.42
Australian Dollars Total 17,933,688 25.01
Canadian Dollars
666,667 Azarga Metals Warrants 09/05/2025 923 0.00
13,083,936 PRISM Diversified Limited 777,513 1.08
40,000 PRISM Diversified Limited Royalty 23,770 0.03
1,000,000 PRISM Diversified Limited Warrants 31/12/2023 16,520 0.02
324,000 Unkur On-sale Entitlement 48,134 0.07
Canadian Dollars Total 866,860 1.20
Great Britain Pounds
1,594,646 Celadon Mining Limited 15,946 0.02
24,004,167 Cemos Group Plc 10,009,738 13.96
1,657,195 Tungsten West Plc Second Option Share Warrants 18/10/2026 19,887 0.03
1,657,195 Tungsten West Plc Third Option Share Warrants 18/10/2026 11,932 0.02
Great Britain Pounds Total 10,057,503 14.03
Norwegian Krone
12,785,361 Nussir ASA 2,656,393 3.70
Norwegian Krone Total 2,656,393 3.70
Shares Investments Fair value % of Net
/Warrants/ £ equivalent assets
Nominal
United States Dollars
- Bilboes Net Smelter Royalty 5,671,027 7.91
56,042 Kanga Investments Limited 3,684,536 5.14
16,352 Polar Acquisition Limited 999,290 1.39
United States Dollars Total 10,354,853 14.44
Total Unlisted equity shares, warrants and royalties 41,869,297 58.38
Financial Assets held at fair Value through profit or loss 71,507,179 99.72
Other Assets & Liabilities 191,488 0.28
Total Equity 71,698,667 100.00
UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2023
Unaudited Audited
30 June 31 December
2023 2022
Notes £ £
Assets
Cash and cash equivalents 260,862 254,140
Interest receivable 56,092 57,917
Other receivables 24,717 17,899
Financial assets held at fair value through profit or loss 3 71,507,179 84,311,955
Total assets 71,848,850 84,641,911
Equity and Liabilities
Liabilities
Management fees payable 7,9 70,339 69,854
Administration fees payable 33,711 9,659
Audit fees payable 35,000 70,000
Custodian fees payable 6,166 7,158
Other payables 4,967 2,392
Total liabilities 150,183 159,063
Equity
Management Ordinary Shares 8 9,167 9,167
Ordinary Shares 8 75,972,688 75,972,688
Revenue Reserves 8,421,427 8,771,186
Capital Reserves (12,704,615) (270,193)
Total equity 71,698,667 84,482,848
Total equity and liabilities 71,848,850 84,641,911
Net Asset Value per Ordinary Share (in Pence) - Basic and Diluted 5 67.3 79.4
These unaudited condensed financial statements on pages 16 to 30 were approved
by the Board of Directors on 14 September 2023 and signed on its behalf by:
Howard Myles John Falla
Director Director
UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE 2023
Unaudited period ended 30 June Unaudited period ended 30 June Unaudited period ended 30 June
2023 2023 2023
Revenue Capital Total
Notes £ £ £
Income
Interest income 229,828 - 229,828
Dividend income 176,396 - 176,396
Other income 1,618 - 1,618
Net loss on financial assets at fair value through profit or loss 3 - (12,429,311) (12,429,311)
Net foreign exchange loss - (5,111) (5,111)
Net income/(loss) 407,842 (12,434,422) (12,026,580)
Expenses
Management fees 7,9 453,417 - 453,417
Administration fees 55,298 - 55,298
Directors' fees 9 72,500 - 72,500
Legal fees 10,226 - 10,226
Other expenses 48,753 - 48,753
Custody fees 43,724 - 43,724
Audit fees 35,000 - 35,000
Broker fees 17,500 - 17,500
Directors' insurance 18,414 - 18,414
Directors' expenses 2,769 - 2,769
Total expenses 757,601 - 757,601
Net loss for the period (349,759) (12,434,422) (12,784,181)
Net loss for the period per Ordinary Share:
Basic and Diluted (in pence) 5 (0.33) (11.68) (12.01)
In the period ended 30 June 2023, 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 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 - 8,879
Directors' insurance 6,000 - 6,000
Directors' expenses 151 - 151
Total expenses 979,016 - 979,016
Net loss for the period (650,960) (18,564,850) (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 CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE 2023
Capital reserves
Management Revenue Period
Ordinary Ordinary Treasury reserves end
Shares Shares Shares
£ £ £ £ £ £
Balance as at 1 January 2023 9,167 76,113,180 (140,492) 8,771,186 (270,193) 84,482,848
Net loss for the period - - - (349,759) (12,434,422) (12,784,181)
Balance as at 30 June 2023 9,167 76,113,180 (140,492) 8,421,427 (12,704,615) 71,698,667
Note: 8 8
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2022 TO 30 JUNE 2022
Capital reserves
Management Revenue Period
Ordinary Ordinary Treasury reserves end
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 gain 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 CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE 2023
Unaudited Period ended Unaudited Period ended
30 June 30 June
2023 2022
£ £
Cash flows from operating activities
Net loss for the period (12,784,181) (19,215,810)
Adjustments to reconcile net gain for the period to net cash used in operating
activities:
Interest income (229,828) (320,808)
Dividend income (176,396) (7,249)
Net loss on financial assets at fair value through profit or loss 3 12,429,311 18,569,776
Net (increase)/decrease in other receivables (6,818) 567
Net decrease in payables (8,880) (54,524)
(776,792) (1,028,048)
Interest received 231,653 514,027
Dividend received 176,396 7,249
Net cash used in operating activities (368,743) (506,772)
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss (772,888) (1,209,441)
Sale of financial assets at fair value through profit or loss 1,148,353 768,643
Net cash generated from/ (used in) investing activities 375,465 (440,798)
Net increase/(decrease) in cash and cash equivalents 6,722 (947,570)
Cash and cash equivalents at the beginning of the period 254,140 1,077,482
Cash and cash equivalents at the end of the period 260,862 129,912
NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2023 TO 30 JUNE 2023
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a closed-ended
investment company with limited liability incorporated and domiciled on 9
March 2010 in Guernsey under the Companies (Guernsey) Law, 2008 with
registration number 51576. The Company is a registered closed-ended investment
scheme registered pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law, 2020 and the Registered Collective Investment Scheme Rules and
Guidance, 2021 issued by the Guernsey Financial Services Commission ("GFSC").
On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company
were admitted to the Official List of the UK Listing Authority and to trading
on the Main Market of the London Stock Exchange. The Company's Ordinary and
Subscription Shares were admitted to the Premium Listing Segment of the
Official List on 28 April 2010.
The final exercise date for the Subscription Shares was 2 April 2013. No
Subscription Shares were exercised at this time and all residual/unexercised
Subscription Shares were subsequently cancelled.
The Company's portfolio is managed by Baker Steel Capital Managers (Cayman)
Limited (the "Manager"). The Manager has appointed Baker Steel Capital
Managers LLP (the "Investment Manager") as the Investment Manager to carry out
certain duties. The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting principally
of the equities, or related instruments, of natural resources companies. The
Company invests predominantly in unlisted companies (i.e. those companies
which have not yet made an Initial Public Offering ("IPO")) and also in listed
securities (including special situations opportunities and less liquid
securities) with a view to exploiting value inherent in market inefficiencies
and pricing anomalies.
Baker Steel Capital Managers LLP was authorised to act as an Alternative
Investment Fund Manager ("AIFM") of Alternative Investment Funds ("AIFs") on
22 July 2014. On 14 November 2014, the Investment Manager signed an amended
Investment Management Agreement with the Company, to take into account AIFM
regulations. AIFMD focuses on regulating the AIFM rather than the AIFs
themselves, so the impact on the Company is limited.
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 2023 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 2022, 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 2022 and are expected to be applied to the Company's annual
financial statements for the year ending 31 December 2023.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Period ended 30 June Year ended 31 December 2022
Investment Summary: 2023
£ £
Opening book cost 75,709,282 82,910,887
Purchases at cost 14,257,610 1,882,060
Proceeds on sale of investments (14,633,075) (2,216,780)
Net realised gains/(losses) 9,119,889 (6,886,885)
Closing cost 84,453,706 75,709,282
Net unrealised (losses)/gains (12,946,527) 8,602,673
Financial assets held at fair value through profit or loss 71,507,179 84,311,955
The following table analyses net gains on financial assets at fair value
through profit or loss for the period/year ended 30 June 2023, 31 December
2022 and 30 June 2022.
Period ended 30 June Year ended Period ended 30 June
2023 31 December 2022 2022
£ £ £
Financial assets at fair value through profit or loss
Realised (losses)/gains on:
- Listed equity shares (608,024) (1,438,318) (1,117,529)
- Unlisted equity shares 9,727,913 (5,118,472) -
- Debt instruments - (296,970) (1,390,462)
- Warrants - (13,125) -
9,119,989 (6,866,885) (2,507,991)
Movement in unrealised gains/(losses) on:
- Listed equity shares (5,391,591) (13,716,492) (14,370,970)
- Unlisted equity shares (13,859,987) 7,893,046 947,253
- Royalties (2,718,767) (2,763,850) 968,471
- Debt instruments 765,220 (2,675,240) (2,809,854)
- Warrants (344,075) (909,497) (796,685)
(21,549,200) (12,172,033) (16,061,785)
Net loss on financial assets at fair value through profit or loss (12,429,311) (19,038,918) (18,569,776)
The following table analyses investments by type and by level within the fair
valuation hierarchy at 30 June 2023.
Quoted prices in active markets Quoted market based observables Unobservable
inputs
Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Listed equity shares 16,464,398 290,561 - 16,754,959
Unlisted equity shares - - 23,898,160 23,898,160
Royalties - - 17,873,741 17,873,741
Warrants - - 97,396 97,396
Debt instruments - - 12,882,923 12,882,923
16,464,398 290,561 54,752,220 71,507,179
The following table analyses investments by type and by level within the fair
valuation hierarchy at 31 December 2022.
Quoted prices in active markets Quoted market based observables Unobservable
inputs
Level 1 Level 2 Level 3 Total
£ £ £ £
Financial assets at fair value through profit or loss
Listed equity shares 11,378,285 4,804,434 - 16,182,719
Unlisted equity shares - - 41,514,956 41,514,956
Royalties - - 14,808,689 14,808,689
Warrants - - 441,471 441,471
Debt instruments - - 11,364,120 11,364,120
11,378,285 4,804,434 68,129,236 84,311,955
The table below shows a reconciliation of beginning to ending fair value
balances for Level 3 investments and the amount of total gains or losses for
the period included in net gain on financial assets and liabilities at fair
value through profit or loss held at 30 June 2023.
30 June 2023 Unlisted Equities Royalties Debt instruments Warrants Total
£ £ £ £ £
Opening balance 1 January 2023 41,514,956 14,808,689 11,364,120 441,471 68,129,236
Purchases of investments - 5,783,819 772,888 - 6,556,707
Sales of investments (13,484,722) - (19,304) - (13,504,026)
Change in net unrealised gains/(losses) (13,859,987) (2,718,767) 765,219 (344,075) (16,157,610)
Realised gain 9,727,913 - - - 9,729,913
Closing balance 30 June 2023 23,898,160 17,873,741 12,882,923 97,396 54,752,220
Unrealised (losses)/gains on investments still held at 30 June 2023 (3,310,376) (793,547) 2,440,938 97,396 (1,565,589)
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 2022.
Unlisted Debt
31 December 2022 Equities Royalties instruments Warrants Total
£ £ £ £ £
Opening balance 1 January 2022 46,971,239 16,479,048 19,927,503 1,364,093 84,741,883
Purchases of investments - - 189,649 - 189,649
Conversion - 1,093,491 (1,093,491) - -
Sales of investments (178,554) - - - (178,554)
Transfer out of Level 3 (8,052,304) - (4,687,331) - (12,739,635)
Change in net unrealised gains/losses 7,893,046 (2,763,850) (2,675,240) (909,497) 1,544,459
Realised gains (5,118,471) - (296,970) (13,125) (5,428,566)
Closing balance 31 December 2022 41,514,956 14,808,689 11,364,120 441,471 68,129,236
Unrealised gains on investments still held at 31 December 2022 10,549,611 1,905,220 1,675,718 441,471 14,592,020
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.
On 9 January 2023 the Company sold its investment in Bilboes Gold Limited to
Caledonia Mining Corporation plc ("Caledonia"), the sale was partially settled
by receipt of shares in Caledonia. Bilboes was presented as a Level 3
investment at the year end. Caledonia is NYSE, AIM and Victoria Exchange
listed, and therefore considered Level 1 in the fair value hierarchy. The
transaction resulted in the realisation of US$9.7million previously unrealised
gains in Bilboes.
At the year-end, First Tin was presented as Level 2 on the hierarchy, this was
because although the shares were listed on the LSE, they were locked up. The
lock-up expired on 8 April 2023 and the shares are now included within Level
1.
In determining an investment's position within the fair value hierarchy, the
Directors take into consideration the following factors:
Investments whose values are based on quoted market prices in active markets
are classified within Level 1. These include listed equities with observable
market prices. The Directors do not adjust the quoted price for such
instruments, even in situations where the Company holds a large position, and
a sale could reasonably impact the quoted price. The Company does not
currently hold a sufficiently large position in any listed company that it
could impact the quoted price via a sale of its investment.
Investments that trade in markets that are not considered to be active but are
valued based on quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs, are classified within Level 2. These
include certain less-liquid listed equities. Level 2 investments are valued
with reference to the listed price of the shares should they be freely
tradable after applying a discount for illiquidity if relevant. As Level 2
investments include positions that are not traded in active markets and/or are
subject to transfer restrictions, valuations may be adjusted to reflect
illiquidity and/or non-transferability, which are generally based on available
market information. The Company held one Level 2 investment at 30 June 2023
(31 December 2022: two).
Investments classified within Level 3 have significant unobservable inputs.
They include unlisted debt instruments, royalty rights, unlisted equity shares
and warrants. Level 3 investments are valued using valuation techniques
explained below. The inputs used by the Directors in estimating the value of
Level 3 investments include the original transaction price, recent
transactions in the same or similar instruments if representative in volume
and nature, completed or pending third-party transactions in the underlying
investment of comparable issuers, subsequent rounds of financing,
recapitalisations and other transactions across the capital structure,
offerings in the equity or debt capital markets, and changes in financial
ratios or cash flows. Level 3 investments may also be adjusted with a discount
to reflect illiquidity and/or non-transferability in the absence of market
information.
Valuation methodology of Level 3 investments
The primary valuation technique is of "Latest Recent Transaction" being either
recent external fund raises or transactions. In all cases the valuation
considers whether there has been any change since the transaction that would
indicate the price is no longer fair value. Where an unquoted investment has
been acquired or where there has been a material arm's length transaction
during the past six months it will be carried at transaction value, having
taken into account any change in market conditions and the performance of the
investee company between the transaction date and the valuation date. If it is
assessed that a recent transaction is not at an arm's length or there are
other indicators that it has not been executed at a price that is indicative
of fair value, then the transaction value will not be used as the carrying
value of the investment. Where there has been no Latest Recent Transaction the
primary valuation driver is IndexVal. For each core unlisted investment, the
Company maintains a weighted average basket of listed companies which are
comparable to the investment in terms of commodity, stage of development and
location ("IndexVal"). IndexVal is used as an indication of how an
investment's share price might have moved had it been listed. Movements in
commodity prices are deemed to have been taken into account by the movement of
IndexVal.
A secondary tool used by Management to evaluate potential investments as well
as to provide underlying valuation references for the Fair Value already
established is Development Risk Adjusted Value ("DRAV"). DRAVs are not a
primary determinant of Fair Value. The Investment Manager prepares discounted
cash flow models for the Company's core investments annually taking into
account significant new information, and for decision making purposes when
required. From these, DRAVs are derived. The computations are based on
consensus forecasts for long term commodity prices and investee company
management estimates of operating and capital costs. 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, unlike 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
2023 (weighted average)
£
Unlisted Equity 777,513 Transactions Private transactions n/a
Unlisted Equity 13,094,653 IndexVal Change in IndexVal n/a
Unlisted Equity 10,009,738 EBITDA Multiple EBITDA Multiple n/a
Unlisted Equity 15,946 other Exploration results, study results, financing n/a
Royalties 17,849,971 Royalty Valuation model Commodity price and discount risk n/a
Royalties 23,770 other n/a n/a
Debt Instruments
Other Convertible Debentures/Loans 12,194,380 Valued at fair value with reference to credit risk Rate of Credit Risk 20%-40%
Black Pearl Limited Partnership 688,543 Valued at mean estimated recovery Estimated recovery range +/-50%
Warrants 17,443 Simplified Black & Scholes Model Volatilities 70%-125%
Warrants 31,819 Discount for project milestones Discount 40%-64%
On-sale entitlement 48,134 Discount to external valuation Risk Discount +/-75%
Description 31 December 2022 Valuation technique Unobservable input Range of unobservable input
£ (weighted average)
Unlisted Equity 28,797,176 Transactions Private transactions n/a
Unlisted Equity 3,499,979 IndexVal Change in index n/a
Unlisted Equity 9,201,855 EBITDA Multiple EBITDA Multiple n/a
Royalties 14,808,689 Royalty Valuation model Commodity price and discount rate risk n/a
Unlisted Equity 15,946 Other Exploration results, study results, financing n/a
Debt Instruments
Black Pearl Limited Partnership 726,171 Valued at mean estimated recovery Estimated recovery range +/-50%
Other Convertible Debentures/Loans 10,637,949 Valued at fair value with reference to credit risk Rate of Credit Risk 20%-40%
Warrants 242,771 Simplified Black Scholes Model Volatilities 50%
Warrants 198,700 External valuation
Information on third party transactions in unlisted equities is derived from
the Investment Manager's market contacts. The change in IndexVal for each
particular unlisted equity is derived from the weighted average movements of
the individual baskets for that equity so it is not possible to quantify the
range of such inputs.
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 2023 are as shown below:
Description Input Sensitivity used* Effect on Fair Value £)
Unlisted Equity Transactions & Expected Transactions +/- 20% +/-155,503
Unlisted Equity Change in IndexVal +45%/-68%* +5,892,733/-8,904,575
Unlisted Equity EBITDA Multiple +/- 20% +/-2,001,947
On-sale entitlement Discount to valuation +/-50% +/-24,046
Royalties Commodity Price +/-20% +/-3,569,994
Royalties Discount Rate +/-20% -2,216,154/+2,574,473
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/- 227,219
Others/Loans Risk discount rate +/-20% -1,273,725/+376.246
Convertibles /Loans Volatility +/-40% +93,461/-89,817
Warrants Volatility +/-40% +4,658/-4,958
Warrants Risk Discount Rate +/-40% +34,470/-23,863
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value. The +45%/-68%
sensitivity was used as this was the range of movements of the constituents in
the IndexVal basket for Futura and Kanga..
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy together with a
quantitative sensitivity analysis as at 31 December 2022 are as shown below:
Description Input Sensitivity used Effect on Fair Value (£)
Unlisted Equity Transactions & Expected Transactions +/- 20% +/-5,759,434
Unlisted Equity Change in IndexVal +144%/-79%* +1,539,991/-2,764,984
Unlisted Equity EBITDA Multiple +/- 20% +/-1,840,371
Royalties Commodity Price +/-20% +/-2,956,853
Royalties Discount Rate +/-20% +-1,597,086/+1,939,463
Debt Instruments
Black Pearl Limited Partnership Probability weighting +/-33% +/- 239,627
Others/Loans Risk discount rate +/-20% -1,160,677/+227,963
Convertibles /Loans Volatility of Index Basket +/-40% +206.177/-1,656
Warrants Volatility of Index Basket +/-40% +21,662/-18,733
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value. The +44%/-79%
sensitivity was used as this was the range of movements of the constituents in
the IndexVal baskets for Nussir
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. Any 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 / (LOSS) PER SHARE
Net asset value per share is based on the net assets of £71,698,667 (31
December 2022: £84,482,848) and 106,462,502 (31 December 2022: 106,462,502)
Ordinary Shares, being the number of shares in issue at 30 June 2023, 31
December 2022 and 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 2023 31 December 2022
Net assets at the period end (£) 71,698,667 84,482,848
Number of shares 106,462,502 106,462,502
Net asset value per share (in pence) basic and diluted 67.3 79.4
30 June 2023 30 June 2022
Net loss for the period (£) (12,784,181) (19,215,810)
Number of shares 106,462,502 106,462,502
Net loss per share (in pence) basic and diluted (12.01) (18.05)
There are no outstanding instruments which could result in the issue of new
shares or dilute the issued share capital.
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 (2022: £1,200)
has been paid. The Company may, however, be exposed to taxes in certain other
territories in which it invests such as withholding taxes on interest payments
and dividends and 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 2023 was £453,417 (30 June 2022: £649,850) of which £70,339 (31 December 2022: £ 69,854) 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 adjusted 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 2023, the Highwater Mark was the
equivalent of approximately 94 pence per share with the relevant Hurdle being
the equivalent of approximately 170 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 2022: 106,453,335)
Ordinary Shares in issue with an additional 700,000 (31 December 2022:
700,000) held in treasury. In addition, the Company has 9,167 (31 December
2022: 9,167) Management Ordinary Shares in issue, which are held by the
Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment of the
Official List of the London Stock Exchange. Holders of Ordinary Shares have
the right to receive notice of and to attend and vote at general meetings of
the Company.
Each holder of Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll each such
holder of Ordinary Shares present in person or by proxy will have one vote for
each Ordinary Share held by him.
The details of issued share capital of the Company are as follows:
30 June 2023 31 December 2022
Amount* No. of shares* Amount* No. of shares*
£ £
Issued and fully paid share capital
Ordinary Shares of no par value** 76,122,347 107,162,502 76,122,347 107,162,502
(including Management Ordinary Shares)
Treasury Shares (140,492) (700,000) (140,492) (700,000)
Total Share Capital 75,981,855 106,462,502 75,981,855 106,462,502
The outstanding Ordinary Shares as at the period ended 30 June 2023 are as
follows:
Ordinary Shares Treasury Shares
Amount* No. of shares* Amount No. of shares
£ £
Balance at 1 January 2023 & 30 June 2023 76,122,347 106,462,502 140,492 700,000
* Includes 9,167 (31 December 2022: 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 2022 are as
follows:
Ordinary Shares Treasury Shares
Amount* No. of shares* Amount No. of shares
£ £
Balance at 1 January 2022 & 31 December 2022 76,122,347 106,462,502 140,492 700,000
* Includes 9,167 (31 December 2022: 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 2023 (31 December 2022: 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 4,922,877 Ordinary Shares in the Company at 30 June 2023
(31 December 2022: 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 2022; 12,452,177) and The Sonya Trust holds
12,637,350 shares (31 December 2022: 12,637,350).
John Falla holds 60,000 shares in the Company (31 December 2022: 60,000).
Management fees and Directors' fees paid and accrued during the periods to 30
June were:
2023 2022
£ £
Management fees 453,417 649,850
Directors' fees 72,500 57,500
The Management fees and Directors' fees outstanding at the period-end were:
30 June 2023 31 December 2022
£ £
Management fees 70,339 69,854
Directors' fees - -
10. SUBSEQUENT EVENTS
On 11 September 2023, Futura announced that it had completed an A$26.2 million
financing which will be sufficient to commence production at Wilton as well
pay the landowner compensation due for Wilton and Fairhill
There were no other events subsequent to the period end that materially
impacted on the Company.
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