REG-BlackRock World Mng: Final Results
27/02/2020 17:30
BlackRock World Mining Trust plc LEI - LNFFPBEUZJBOSR6PW155
Annual Results Announcement (Article 4 Transparency Directive, DTR 4.1)
for the year ended 31 December 2019
PERFORMANCE RECORD
31 December 2019 31 December 2018
Net assets (£’000)¹ 757,110 685,595
Net asset value per ordinary share (NAV) (pence) 433.17 388.81
Ordinary share price (mid-market) (pence) 383.00 340.50
Discount to net asset value (2,3) 11.6% 12.4%
Performance
Net asset value per share (total return) (3) +17.2% -11.5%
Ordinary share price (total return) (3) +19.4% -10.7%
============ ============
1 The change in net assets reflects market movements, dividends paid and
the buyback of ordinary shares into treasury during the year.
2 This is the difference between the share price and NAV per share with
debt at par. Further details of the calculation of the discount are given in
the Glossary in the Annual Report and Financial Statements.
3 Alternative Performance Measures, see Glossary in the Annual Report
and Financial Statements. Total return performance figures are calculated in
sterling terms with dividends reinvested.
Year ended 31 December 2019 Year ended 31 December 2018 Change %
Revenue
Net revenue profit after taxation (£’000) 39,561 32,013 +23.6
Revenue return per ordinary share (pence) 22.46 18.15 +23.7
Dividend per ordinary share (pence)
– 1st interim 4.00 3.00 +33.3
– 2nd interim 4.00 3.00 +33.3
– 3rd interim 4.00 3.00 +33.3
– Final 10.00 9.00 +11.1
Total dividends paid and payable 22.00 18.00 +22.2
============ ============ ============
CHAIRMAN’S STATEMENT
I am pleased to report that 2019 was a record year for the Company in terms of
revenue earnings per share and income available for distribution to
shareholders. As a result, the Directors have recommended an annual dividend
which is up 22.2% on last year.
PERFORMANCE
Over the twelve months to 31 December 2019, the Company’s net asset value
per share (NAV) returned 17.2%(1) and the share price 19.4%(1) (both
percentages calculated in sterling terms with dividends reinvested). By way of
reference, over the same period the EMIX Global Mining Index (net return)
increased by 22.1%, a ‘UCITS capped’ version of the MSCI ACWI Metals &
Mining 30% Buffer 10/40 Index (net return) returned 15.3%, the FTSE All-Share
Total Return Index returned 19.2% and the UK Consumer Price Index (CPI)
increased by 1.3%. A discussion on which indices might be considered useful as
references in future is set out later in this statement.
As mentioned in the interim report, the mining sector started the year
strongly as mined commodity prices recovered after a challenging end to 2018.
However, towards the end of the summer, the sector fell on the back of
deteriorating global economic activity. In the last couple of months of the
year, sentiment began to turn on a perceived easing of geopolitical tensions
and confidence increased as the US and China agreed more positive terms for a
trade deal.
A detailed commentary on the portfolio’s performance, its positioning and
the investment outlook for the forthcoming year can be found in the Investment
Manager’s Report. Since the year end and up until the close of business on
25 February 2020, the Company’s NAV has decreased by 6.9%.
¹Alternative Performance Measures. Further details of the calculation of
performance with dividends reinvested are given in the Glossary in the Annual
Report and Financial Statements.
REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the year amounted to 22.46p
compared with 18.15p for the previous year, representing an increase of 23.7%,
a record high for the Company. This was due to increased dividend payments
from portfolio companies, including additional special dividends, supplemented
by option writing income and a 104.2% increase in returns from royalty related
instruments.
During the year, three quarterly interim dividends each of 4.00p per share
were paid on 28 June 2019, 1 October 2019 and 20 December 2019. The Board is
proposing a final dividend payment of 10.00p per share for the year ended 31
December 2019. This, together with the quarterly interim dividends, makes a
total of 22.00p per share (2018: 18.00p per share) representing an increase of
22.2% on payments made in the previous financial year and, as in past years,
all dividends are fully covered by income. This level of dividend makes a new
high in annual payments with the previous high being 21.00p per share.
Shareholders should be aware that the Company has a policy of maximising total
return through the cycle and 2019 presented an opportunity to do so in
relation to the income component of returns. While the Company seeks to
diversify sources of revenue, it will continue to receive the majority of its
income from dividends on its investments. Decisions on whether to invest in
higher yielding investments or those expected to provide higher capital growth
(and produce a higher total return) will affect the Company’s income. In
particular, dividend income may be affected by special dividends which in the
year amounted to 3.8p per share. As a result, shareholders should appreciate
that in future years there is no certainty that the current level of income
will be maintained and the Board does not have a progressive dividend policy.
Subject to approval at the Annual General Meeting, the final dividend will be
paid on 7 May 2020 to shareholders on the Company’s register on 20 March
2020, the ex-dividend date being 19 March 2020. It remains the Board’s
intention to seek to distribute substantially all of the Company’s available
income.
DISCOUNT
The Directors recognise the importance to investors that the market price of
the Company’s shares should not trade at a significant discount to the
underlying NAV and therefore, in normal market conditions, will consider the
repurchase of shares when it believes it is in shareholders’ interests. The
second half of 2019 presented an opportunity to take advantage of a widened
discount. Share repurchases were therefore commenced to capitalise on the
situation. During the year, a total of 1,545,515 shares were purchased at an
average price of 356.08p per share for a total gross consideration of
£5,546,000. Subsequent to the year end, a further 979,707 shares have been
purchased for a total consideration of £3,673,000. All shares have been
placed in treasury. The average discount for the year to 31 December 2019 was
13.9% and the discount at the year end was 11.6%. At 25 February 2020 the
discount was 11.9%.
The Company currently has authority to buy back up to 14.99% of the issued
share capital, excluding treasury shares, and the Board is proposing that the
existing authority be renewed at the forthcoming Annual General Meeting. No
shares were issued or sold from treasury during the year ended 31 December
2019 or up to the date of this report.
REFERENCE INDICES
My interim statement discussed the drawbacks of comparing the Company’s
performance over the short term with an ‘all-equity’ reference index. Our
Portfolio Managers’ approach to investing in the sector will encompass a
range of different mining securities, including fixed income investments,
royalties and traded options. As a consequence, we already provide a number of
indices as potential yardsticks for comparison, including the all-equity EMIX
Global Mining Index (which was previously the Euromoney Global Mining Index).
After examining the range of possible ‘all-equity’ reference indices which
are based on the mining sector, the Board believes that an index which
restricts the size of any one position in line with the UCITS diversification
rules would be better aligned to the Portfolio Managers’ belief in the
benefits of stock level diversification and the Company’s investment policy.
The Board has concluded that the MSCI ACWI Metals & Mining 30% Buffer 10/40
Index (MSCI ACWI) would provide a better future reference tool for
shareholders. This index is designed to be less concentrated and more
diversified than other indices by constraining the exposure to
any single issuer to 10% of the index value and the sum of the weights of
all securities with weights at more than 5% of the index at 40%. The index
also has what is referred to as a ‘buffer’ at 30%. The buffer operates to
ensure that the index does not have to be rebalanced constantly to retain its
diversification characteristics due to the market movement of the index
securities. The buffer is applied at the quarterly rebalancing of the index,
further limiting the maximum weight of any index security and the sum of
weights of larger securities. A more detailed explanation of the methodology
is explained in the Glossary in the Annual Report and Financial Statements.
The Board also believes the MSCI ACWI is a better-known family of indices, as
well as being a broader index than the EMIX, as it includes steel companies.
The steel and diversified miners provide investors with exposure to the same
end markets and make up the same supply chain. However, as global metals
supply moves towards recycling, where the steel sector plays a key role, there
is merit in considering these opportunities for investors.
For the time being the performance of both indices (as two of the range of
reference indices provided) will be shown so that shareholders can make a fair
comparison of the Company’s performance over time. However, for the
forthcoming year the principal reference index will be the MSCI ACWI Metals &
Mining 30% Buffer 10/40 Index. In due course the Directors will consider
dropping the EMIX Index.
BOARD OF DIRECTORS
As mentioned at the interim stage, the Board commenced a search to identify a
new Director assisted by a third-party recruitment firm. Having carefully
considered the Board’s composition and the need to ensure a suitable balance
of skills, knowledge and experience, I am delighted to welcome Ollie Oliveira
who was appointed to the Board with effect from 3 February 2020. Ollie
has over 35 years of strategic and operating experience in the mining
industry and corporate finance, complementing and enhancing the skills and
experience of the existing Board. Further details of Ollie’s background can
be found in his biography in the Annual Report and Financial Statements. Ollie
will be subject to election by shareholders at the forthcoming Annual General
Meeting, at which time shareholders will have an opportunity to meet him.
At the date of this report the Board consists of six non-executive Directors.
Having served on the Board since July 2001, Colin Buchan has announced that he
will not be seeking re-election at the Company’s next Annual General
Meeting. On behalf of my fellow Directors, I would like to thank Colin for his
tremendous contribution to the Company during his time as a Director,
including serving as both Senior Independent Director and Chairman of the
Audit & Management Engagement Committee. Following Colin’s retirement,
Russell Edey will succeed him as Chair of the Audit & Management Engagement
Committee and will also become Senior Independent Director.
SUSTAINABLE INVESTMENT
Since inception of the Company, and given the nature of mining as an industry,
your Board has always had a strong focus on sustainable investment and the
environmental and social impact of portfolio investments.
We have therefore been encouraged by the even greater emphasis placed on these
factors by your Investment Manager, BlackRock, and the systematic integration
of Environmental, Social and Governance (ESG) factors into the investment
decision-making and monitoring process.
BlackRock have asserted their belief that climate change is now a defining
factor in companies’ long-term prospects, and that it will have a
significant and lasting impact on economic growth and prosperity. In their
view, which is shared by your Board, climate risk now equates to investment
risk and this will drive a profound reassessment of risk and asset values as
investors seek to react to the impact of climate policy changes. This in turn
will drive a significant reallocation of capital away from traditional carbon
intensive industries over the next decade. The Company has had minimal
exposure to companies whose principal activity is the extraction of thermal
coal and, going forward, the Portfolio Managers will no longer invest in
businesses which generate more than 25% of their revenues from thermal coal
production.
In January 2020, with this transition in mind, BlackRock announced that it
would accelerate its efforts with regard to sustainable investing, making a
number of enhancements to its investment management and risk processes,
including the following:
· heightening scrutiny on sectors with a high ESG risk, such as
thermal coal producers, due to the investment risk they present to client
portfolios;
· putting ESG analysis at the heart of Aladdin (BlackRock’s
proprietary investment management system) and using proprietary tools to help
analyse ESG risk; and
· placing oversight of ESG risk with BlackRock’s Risk and
Quantitative Analysis group (RQA), to ensure that ESG risk is given increased
weighting as a risk factor and is analysed with the same weight given to
traditional measures such as credit or liquidity risk.
Your Board fully supports and applauds this approach, which is set out in
greater detail in the Strategic Report within the Annual Report and Financial
Statements.
TAILINGS FACILITY MANAGEMENT
In 2019 the investment team undertook a comprehensive review of all
investments in regard to tailings facility management, following the tragic
Vale tailings dam failure. While the review was, on the whole, relatively
satisfactory, it highlighted the complexity of tailings management and an area
of weakness in company disclosure and global industry reporting standards. The
review helped spur the investment community into action, which led to the
formation of an Investor Mining & Tailings Safety Initiative. This review is
an evolving process, but the investment team is working closely with the
BlackRock Investment Stewardship and Sustainable Investment teams to engage
with companies and the review panels on an ongoing basis to ensure standards
and reporting are improved across the industry.
CORPORATE GOVERNANCE
Earlier this year, the Association of Investment Companies (AIC) published the
2019 Code of Corporate Governance (the AIC Code) which was endorsed by the
Financial Reporting Council (FRC) as being appropriate for investment
companies. The AIC Code applies to accounting periods beginning on or after 1
January 2019.
The Board has determined that the Company has complied with the
recommendations of the AIC Code and the provisions contained within the UK
Corporate Governance Code issued by the FRC in July 2018 (the UK Code) that
are relevant to the Company for the accounting period which commenced on 1
January 2019. The AIC Code is, in most material respects, the same as the UK
Code, save that there is greater flexibility regarding the tenure of the
office of the Chairman and membership of the Audit Committee.
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting will be held at the offices of
BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Thursday, 30 April 2020
at 11.30 a.m. Details of the business of the meeting are set out in the Notice
of Meeting in the Annual Report and Financial Statements. The Portfolio
Managers will make a presentation to shareholders on the Company’s progress
and the outlook for the mining sector in the year ahead.
OUTLOOK
Mining is a cyclical sector, highly exposed to global trade and overall levels
of economic activity. A preliminary agreement with China to halt the trade war
should prove positive for markets and, in Europe, the outcome of the UK
election has removed some degree of the uncertainty surrounding Brexit,
improving sentiment. Global growth is therefore likely to stabilise and could
gradually pick up over the next six to twelve months, helped in part by the
easier financial conditions introduced in 2019 by the US Federal Reserve and
European Central Bank. However, the recent escalation in US-Iran tensions and
the virus outbreak in China is a reminder of the potential for unforeseen
risks that can easily destabilise the rather encouraging outlook.
Your Portfolio Managers believe that the mining sector currently offers good
risk adjusted value compared to other sectors and as such they feel there is
the opportunity to generate competitive returns over the medium term. The
focus will be on quality companies with the right ESG credentials that can
deliver acceptable total return through the cycle.
DAVID CHEYNE
Chairman
27 February 2020
INVESTMENT MANAGER’S REPORT
PORTFOLIO PERFORMANCE
Despite the numerous macro risks 2019 was a strong year for shareholders, with
the Company delivering a NAV total return of 17.2% and share price total
return of 19.4% as mining companies continued down the path of disciplined
capital allocation and a focus on shareholder returns. As can be seen in the
table below, this return is in line with the broader mix of comparators that
the Board uses to assess performance and was only marginally behind the EMIX
Global Mining reference index, which, unlike the Company, is only exposed to
equity securities. It is also important to note the significant contribution
from income in 2019, with a record level of revenue earnings per share for the
Company at 22.46p, up by 23.7% on the prior year. The strategy of allocating
capital to enhance income whilst also diversifying the sources of income
generation leaves the Company well positioned to benefit from any further
growth in distributions and with lower overall income volatility.
2019 Price Change % 2019 Total Return % 3 Year Total Return % 5 Year Total Return %
BRWM share price 12.5% 19.4% 32.4% 67.4%
BRWM NAV 11.4% 17.2% 28.7% 60.6%
EMIX Global Mining Index (net total return) 18.4% 22.1% 37.8% 67.0%
FTSE 100 Index 12.1% 17.3% 19.9% 40.8%
FTSE All Share Index 14.2% 19.2% 22.0% 43.8%
UK CPI 1.3% 1.3% 6.5% 8.4%
=========== =========== =========== ===========
All performance figures in GBP.
2019 was a year of valuation recovery after the disappointing sell-off during
the fourth quarter of 2018. Fears of recession and tighter monetary policy in
the fourth quarter of 2018 caused a sudden drop in share prices which left the
sector trading on valuations not seen for several years. Given the successful
deleveraging that had taken place post the 2015 collapse, the market was
discounting higher financial risk than was reality, leaving large amounts of
value available for investors. Despite this, it seemed that the memory of pain
from prior years was still too fresh and, with concerns on global trade,
recession and elections, caused the recovery to be more gradual than expected.
As the year unfolded, confidence peaked and troughed many times causing
multiple rallies and declines but left the sector strongly up for the year as
a whole.
2019 returns are explained by a small number of factors such as the rally in
iron ore following the tragic tailings dam collapse in Brazil, the return of
quantitative easing (QE) and the corresponding rally in gold companies, lower
than expected commodity demand (especially for copper) and finally the
increasing focus on Environmental, Social and Governance (ESG) issues by
investors. The Company was positioned for better than expected iron ore prices
with holdings in large diversified producers and the iron ore royalty
exposure, but not the extreme price moves seen during the year. In addition, a
positive view on copper, based around supply issues, did not play out due to
the depressed demand which left this part of the portfolio lagging behind.
However, copper holdings should catch up if the strong rally in price that we
saw in December holds into the year ahead. Finally, the solid rally in gold
prices was captured in the portfolio, but only in line with the sector as a
whole due to our goal within the portfolio of always being diversified by
commodity. The combination of the above, left the Company’s NAV behind the
reference index due to not having enough exposure to lower quality iron ore
producers and the underperformance of our copper holdings. In addition, the
very highly concentrated exposure to the large diversified mining companies in
the reference index, which performed strongly, also impacted the Company’s
returns on a relative basis.
As mentioned earlier, revenue generated during the year was up strongly
leading to a record level of revenue earnings per share, up by 23.7% on last
year. The main drivers were increased ordinary dividends, a raft of special
dividends, another year of solid returns from option premiums and a doubling
of royalty related payments on the back of the Vale Debenture acquisition. The
final dividend for the year is 10.00p, giving a total payment for the year as
a whole of 22.00p which is a new high and up 22.2% on the prior year. The
dividend is fully covered and again has delivered a superior yield to that
available in the broader sector.
MINING SECTOR OVERVIEW
After the declines in the last few months of 2018, the year started from a low
point on valuations. Investor sentiment for miners remained weak due to fears
on global growth and the seemingly perpetual debate on a global recession.
This was part of the two-speed economic system where services, which make up
the majority of the developed markets economies, were held up on the back of
modest global growth and technology names moved from strength to strength.
Blame for the manufacturing recession has fallen at the feet of the ‘trade
war’; Donald Trump’s broad campaign is to level the playing field with
China and reduce the US/China trade deficit, as well as to protect American
Intellectual Property and restrict Chinese players in critical industries like
defence and 5G. This created uncertainty in China and delayed investment
decisions and spending, slowing growth. The manufacturing industry globally
was also negatively impacted by tightening credit conditions, caused by the
Federal Reserve raising interest rates in the fourth quarter of 2018. This all
contributed to the economic slowdown, which in turn was negative for mined
metals as they are used in physical manufacturing, as well as construction.
However, as the year unfolded, governments around the world took action with
many cutting rates, injecting liquidity back into the economy and stimulating
growth through fiscal spending. This sudden shift from quantitative tightening
(QT) back to QE took investors by surprise and perpetuated the strong returns
to growth away from value.
Given the above, expectations for commodity prices at the start of the year
were low, especially for iron ore, and consensus positioning was for prices to
fade as the year progressed. Soon into the year, the tragic collapse of the
Brumadinho tailings facility in Brazil happened and, with it, huge amounts of
iron ore supply were removed from the seaborne market. This disruption caused
a rally in price but also the closing of the price differential between low
and high grade ore. This led to a rally in the valuations of iron ore
producers, especially those with balance sheet leverage, and not owning the
likes of Fortescue Mining resulted in significant lost relative return.
The base metals suite suffered during the year with average prices for 2019
lower than those of the prior year. Nickel was the only exception to this as
prices were supported by the Indonesian government ban on exports of nickel
ore. As a result, base metal equities were generally laggards compared to the
diversified names as the latter’s exposure to iron ore meant cash generation
significantly exceeded expectations.
The precious metal suite was a standout performer within the whole commodity
space. Prices of gold, platinum and especially palladium soared on the back of
the move to more accommodative and stimulative government policies. Gold had
its best year in the last decade with prices rising 18.7% over the year, as
demand from investors increased significantly on the back of the move back to
QE. In addition, Central Banks were also large buyers of gold in 2019.
Purchases were up 2.5% over the prior year and this now marks the eleventh
year in a row of buying by Central Banks after over 30 years of selling prior
to this. The move in gold was substantial but this was pedestrian compared
with the 52.0% rise in the price of palladium. Shortages of supply and
continued growth in demand meant prices moved to reflect the tightness in the
market and platinum group metal equities soared higher.
In the interim report we emphasised the underlying themes that the Company
invests in, with portfolio returns largely driven by those themes as opposed
to just commodity beta. These themes evolve as the fundamentals of the
companies and markets change. For example, from 2016 to 2018 the Company had
significant exposure to deleveraging. This theme has largely played out and
the companies have moved from deleveraging to rewarding shareholders. Resource
replenishment, capital discipline, asset quality and growth remain key drivers
of portfolio selection and we expect these to continue to support positive
performance of the portfolio over the longer term. The reform agenda in China
continues to play a key role in commodity markets especially with the
increased global focus on the environment. A new area for the Company has been
to review opportunities in recycling and reuse of materials. We expect this
area to be a core part of global materials’ production in years to come but
at present the opportunity to invest in this area remains challenging due to a
lack of choice. We actively consider investment opportunities within this
thematic area.
SHAREHOLDER RETURNS
2019 was an echo of the previous 12 months, as the large diversified miners
who deleveraged post the crash of 2015 continued to return cash to
shareholders. During the year the Company received numerous special dividends
on top of large increases in the ordinary dividends from a whole range of
companies, with the biggest contributions coming from BHP and Rio Tinto. In
addition, some of the mid-sized and junior mining companies either initiated
dividends or announced significant increases to their payout ratios. The
Company was a beneficiary of this due to holdings in companies like Lundin
Mining and Teck Resources in the base metals space and Agnico Eagle Mines,
B2Gold and Alamos Gold in the gold sector. Outside of dividends, share buyback
plans continued and the equity base of the sector is now steadily shrinking
which is compounding the small rates of volume growth on a per share basis. It
was interesting to note that Newmont Mining has become the first gold miner to
start buying back its shares.
GROWTH AND RESOURCE REPLENISHMENT
Despite the more positive tone to the sector during the year, growth in supply
remains muted which is supportive for commodity prices. We continue to look
for, and invest in, quality growth companies where we see that growth
translating into growth on a value per share basis. For the last couple of
years, the portfolio has focused on growth related to copper producers given
the need for further supply to be added in that market longer term. Key copper
growth investments in the portfolio include Ero Copper, First Quantum
Minerals, OZ Minerals, Nevada Copper, SolGold and Lundin Mining (following
their recent acquisition of the Chapada copper/gold mine from Yamana). Copper
growth is also part of the reason for the ongoing exposure to Teck Resources
whose expansion of the Quebrada project will diversify the company from the
current high exposure to coal and oil.
A select few gold companies also fall into the growth basket. Most of this has
come from acquisitions as mid-sized companies have been able to purchase
non-core assets from the ‘super majors’ in a wave of activity not seen
since the gold boom of the last decade. The Company has helped to finance many
of these deals by either adding to existing holdings or initiating new
positions in companies that should re-rate post deal. An example of this is
Northern Star Resources which has added the Pogo project in Alaska and more
recently purchased half of the famous Super Pit in Australia from Newmont.
Another example is Teranga Gold which has utilised its existing plant
facilities to extract synergies from the Massawa project it purchased from
Barrick Gold in the latter part of 2019.
Outside of gold, the Company had a basket of growth-related equity exposure
with the majority of holdings likely to be longer term in nature. An
example would be exposure to Ivanhoe Mines which is developing huge new
copper mines in the Democratic Republic of Congo (DRC) with Chinese backing
and a new platinum mine in South Africa with Japanese partners. These projects
will take several years before they generate their first cash flow, but the
potential is vast. Nearer-term growth has come from Nickel Mines in Indonesia.
This group has been able to unlock huge value from working closely with a
large Chinese industrial group to fast track themselves into nickel
production.
In the resource replenishment theme the driver is always exploration drilling.
The ability for the Company to be patient and wait for discoveries has
generated a lot of value over the life of the Company. Recent success in this
area has mostly come from the gold space with Pretium Resources and B2Gold
delivering significant life extension at their mines. Life extension can also
come from strategic mergers and acquisitions (M&A) where new owners unlock
additional life by changing operating practices that result in lower costs.
The Company has exposure to this via groups like Northern Star who have been
extremely active over the last five years buying non-core gold assets from
major producers.
SUSTAINABLE MATERIALS
The rise of the electrified vehicle (EV) has continued this year, led by
growth in sales of EVs in China which grew 1.3% year-on-year (Source: Autocar,
January 2020). Sales have been incentivised by significant subsidies in China.
However, the subsidies were so successful they are now no longer required to
meet government targets. As such these subsidies were halved in July 2019 and
will likely be reduced again in 2020. This was a headwind to EV sales in China
in the second half of the year. Nevertheless, despite the recent hit to
sentiment, China again committed to EVs and increased targets. In December,
China released the latest draft of its New Energy Vehicle 2035 plan and
increased the 2025 target from 20% of automotive sales to 25%. China appears
to be driven to lead in the auto industry, reduce pollution and secure energy
independence.
The main raw materials that go into batteries, cobalt and lithium, were hit by
the tempering of expectations after strong price increases in 2017 and 2018.
However, it is important to note that the absolute tonnage demand continues to
grow strongly. For cobalt prices it was a year of two halves, with prices down
in the first half before Glencore acted to balance the cobalt market in August
with a decision to suspend the Mutanda project in the DRC for two years,
impacting 20% of global supply. A key driver here has been production from the
DRC where both Chinese and artisanal producers responded with surprising speed
to the very high cobalt price in the first half of 2018. We also saw ESG
concerns come to the fore in 2019 with Apple, Alphabet, Microsoft, Dell and
Tesla facing a lawsuit by a human rights group over alleged child-labour
abuses in the supply chain for cobalt used in their products. Both higher
prices and supply chain concerns have resulted in increased thrifting of
cobalt enabled by technological advances.
Prices for lithium moved lower throughout the year and ended down by 31.5%. As
well as the tempered growth outlook, prices have been hit by bottlenecks in
the battery supply chain with some Australian miners being unable to sell
their lithium spodumene concentrate due to processing capacity projects being
delayed. The holding in Albemarle was hit by negative sentiment around lithium
prices and fell 5.2% during the year. Albemarle’s key advantage, a portfolio
of long-term contracts which secure pricing in exchange for quality supply,
enabled Albemarle to mitigate losses in such weak markets. Currently we see
signs of stabilisation in the price decline going into 2020. Prices are now
sufficiently low in lithium for supply to be exiting the market, particularly
at the junior end where we saw two bankruptcies of lithium project developers,
Nemaska Lithium and Alita Resources. Albemarle also remains well placed to
benefit from volume growth, with a number of key expansion projects such as
Atacama and Greenbushes. Albemarle further added to its project pipeline by
acquiring 50% of the Wodgina deposit from Mineral Resources. Immediately after
acquiring the stake, Albemarle paused operations in an effort to deliver more
value in the long term and we expect it to remain disciplined in their supply
of material into the market.
Another major battery metal is nickel, where demand is likely to stand to
benefit from the increased penetration of EVs and thus demand for lithium
batteries which contain nickel in the cathode of the battery. However, today
the number one use of nickel driving near-term demand is stainless steel
production. Not all nickel production is created equal when it comes to
suitability for different end-uses and for battery cathodes the most efficient
raw nickel units are nickel sulphide tonnes, whilst for stainless steel
ferronickel is very cost effective.
BASE METALS
Base metals were the weakest part of the commodity mix during the year with
nickel being the only base metal to record a high average price year-on-year.
A combination of generally weak industrial activity and resulting low demand
growth left the complex under pressure from financial investors who chose to
use the forward markets to express a negative view on the global economy.
Large short positions in copper were a feature of the year and it was only
towards the year end that these started to close. On the supply side, 2019 was
a year of low growth and disruptions but the scale was not enough to move
prices higher. With the general macro risk for the global economy now
improving it is hoped that base metal demand should recover during 2020 and,
with limited supply growth, prices should put in a better performance over the
near term.
Within the copper space the Company has a large exposure to more growth
orientated producers and it is hoped that when the metal price starts to
improve these names should deliver strong performance due to a mix of balance
sheet leverage, production growth and exploration potential. Key holdings are
Freeport-McMoRan Copper & Gold, First Quantum Minerals, Ero Copper, OZ
Minerals, Lundin Mining and Ivanhoe Mines. The Company also has holdings in
debt securities issued by copper producers and these should also perform well
with better metal prices.
During the year, the price of nickel went through a major cycle as depressed
demand left the price languishing at the start of the year after a rapid
sell-off in the second half of 2018. No sooner had the year begun prices
started to rally and early price hikes were compounded by the announcement of
export bans from Indonesia. The price soared and touched an intra year high of
almost US$8.50/lb before giving up some of the gains during the final quarter
of the year. The Company has two main exposures to nickel via a holding in
Norilsk Nickel, which is a diversified base metal and Platinum Group Metals
(PGM) producer in Russia, and Nickel Mines. The latter is a high growth
company with exposure to domestic production of nickel in Indonesia which is
integrated directly into a stainless-steel production facility. During the
year the shares were up 137% despite having issued new equity to fund the
ongoing production growth. The miner is now very well positioned to harvest
returns from its existing assets, whilst also having further growth options it
could develop.
The rest of the base metals complex was very weak, especially by comparison to
precious metals and iron ore. The Company had minimal exposure to this area
but, given the price falls to levels below long-term averages and improving
macro outlook, it is an area we plan to monitor closely during the coming year
as commodity prices have a long record of mean reversion.
BULK COMMODITIES
The iron ore price was up 28.1% in 2019 with the market significantly impacted
by the tragic Brumadinho tailings dam incident which occurred at the beginning
of the year. The tailings dam at the Feijão iron ore mine which is owned by
Vale suffered a catastrophic failure collapsing and killing 272 people. The
Feijão tailings dam was constructed using the ‘Upstream’ method, which
meant that the dam’s stability relied on the tailings material and this is
seen as a key weakness of the Upstream construction method. Following the
disaster, Vale announced that it would decommission nine Upstream iron ore
dams in Brazil and suspended around 60mt of production. This, in addition to
the direct production impact, resulted in Vale’s iron ore production falling
by around 80mt in 2019 compared with 2018, equivalent to 6% of global seaborne
demand. Vale has guided for the 60mt of production to recommence once the dams
are de-characterised over 2020 and 2021 (Source: Vale Quarterly results).
This was a significant shock to the market and resulted in sharply higher
prices versus expectations. Although these high prices have incentivised an
increase in supply at smaller mines, it has not been enough to stop global
seaborne supply shrinking year-on-year. Notably the other big three suppliers
outside Vale - Rio Tinto, BHP and Fortescue Metals - have not increased
production. Supply in iron ore remains highly concentrated with the ‘Big
4’ supplying over 60% of the seaborne iron ore market. These major producers
have evidenced they are pursuing a value over volume strategy limiting growth
to maintain price and preserve margins. It is likely that the iron ore price
will need to continue to incentivise new production, as well as draw down on
inventory to balance the market in 2020. The ongoing resumption of suspended
Vale production in 2021, as well as the ramp-up of Vale’s Northern System
production which was unaffected by the disaster, should balance the market in
2021.
Selected commodity price changes during 2019
Price 31/12/2019 % Change 12 month % Change Avg 2019 vs. 2018
Precious Metals US$/oz
Silver 17.92 15.5 3.2
Gold 1,520.50 18.7 9.7
Platinum 971 22.3 -1.8
Palladium 1,920 52.0 49.2
Base Metals US$/lb
Tin 7.79 -12.0 -7.4
Zinc 1.03 -9.5 -12.8
Lead 0.87 -4.7 -10.9
Aluminium 0.81 -4.4 -14.9
Copper 2.79 3.4 -8.0
Nickel 6.33 31.5 6.1
Industrial Commodities
Coking Coal Future US$/t 136.0 -37.6 -6.7
Thermal Coal US$/t Newcastle 64.9 -36.0 -27.1
Iron Ore - fines 62% Fe China Import US$/t 93.0 28.1 34.6
Uranium US$/lb 25.0 -12.3 5.5
Lithium Carbonate CIF to China spot 99% US$/t 9,250 -31.5 -21.4
=========== =========== ===========
Sources: Datastream and Bloomberg.
Against this supply backdrop we have seen global demand growth this year,
despite higher prices. This demand growth could only be met with a drawdown in
global inventories. Iron ore is mainly used in steel production and Chinese
steel production grew by 8.3% in 2019 as steel mill profitability remained
strong, particularly for construction materials. As the Chinese economy has
matured and generated more scrap steel, the mix of steel raw material has
moved towards scrap steel, away from iron ore, and we saw this continue in
2019 with scrap accounting for 18% of Fe units from 17% in 2018 (Source:
Citi).
The Company has benefited from the high iron ore prices through positions in
Rio Tinto and BHP which returned 36% and 20% respectively. The Company’s
position in Vale has hurt performance with a sterling total return of -1%
(Source: Bloomberg).
Coking coal is another key steel raw material, but unlike iron ore the price
was down 37.6% in 2019. China introduced a quota system for coal imports in
2019 with the aim to prevent imports rising on 2018 levels and protect
domestic thermal coal producers. As part of this, coking coal imports were
also blocked. In addition, European coking coal demand was weak, partly due to
falling demand for auto steel. Indian demand has increased, mitigating some of
the impact of the Chinese quota, with India now the biggest seaborne coking
coal market. The thermal coal price fell 36.0% through the year; as well as
the Chinese import restriction, low Asian LNG prices and coal-gas switching in
Europe, has weighed on demand.
The Company’s coking coal holdings include Teck Resources and Coronado
Global Resources which have both negatively impacted the Company’s
performance in 2019. However, both companies remain on attractive valuations
and Coronado in particular has a track record of returning excess capital to
shareholders, having returned 50% of its year end share price in dividends
during 2019. Likewise, Teck Resources has paid special dividends during the
last two years and is now regularly buying back its shares.
PRECIOUS METALS
2019 was a stellar year for precious metals as a group. Gold and silver prices
were up by 18.7% and 15.5% respectively and this is the first year in nine
that we have seen such significant moves. Key within this move for the
companies is that the price increase has come about when the companies were
already generating decent returns and, as such, this extra margin should flow
through to the bottom line given the absence of growth in capex and debt to
repay. It will still take some time for shareholders to receive the full
benefit given that the price increase was mostly second half weighted, but it
is very encouraging to see the first signs of this coming through. During 2019
several gold miners raised dividends; for example, Agnico Eagle Mines raised
its dividend by 40%, Barrick Gold by 66% and Alamos Gold by 100%, but the most
impressive has been Newmont Mining. Following the purchase of Goldcorp in the
early part of the year, Newmont paid out a special dividend which is reflected
in the income of the Company this year. In addition, in December Newmont
announced a US$1 billion share buyback, the first for a gold producer for many
years. Then, in January 2020, Newmont announced a 79% increase in its annual
dividend and that they had already completed half of the buyback. Newmont has
raised the bar for shareholder returns in the gold sector and we look forward
to other companies following suit.
The last two years have been a busy period for M&A teams in the gold sector.
The end of 2018 saw the merger of Barrick Gold and Randgold Resources,
followed quickly by the takeover of Goldcorp by Newmont. This was then
followed by the merger of Barrick and Newmont’s Nevada gold assets to create
a massive market-leading US gold business with huge synergies to come. Others
have also been busy as the big players divested non-core assets. The famous
Australian Super Pit was sold by Newmont and Barrick to Northern Star and
Saracen Mineral. In Africa, Barrick sold the Massawa project to Teranga Gold
and completed the buyout of the minorities in Acacia Mining, whilst in Canada
Newmont sold Red Lake to Evolution Mining. We expect this period of gold
company consolidation to continue as the mid cap producers look to gain
relevance in global financial markets by increasing the size of their
businesses. The Company has been very active during the year by helping to
finance some of these deals and harvesting returns in the process.
The PGMs were the leaders within the precious metals area. The long bull run
in these metal prices, especially palladium, continued in 2019 and with it the
turnaround in the profitability of the producers. The Company bought a
position in Impala Platinum during the third quarter of 2018 and it has been
one of the best performers within the Company. The shares were up 312% in
sterling terms during 2019 and the company has used the improving margins to
strengthen the balance sheet and diversify its production away from South
Africa into Canada. The other holding in the Company is Northam Platinum
which, like Impala, saw a huge 207% increase in share price during the year.
Outside of these producers the Company has exposure to PGMs via a holding in
Norilsk Nickel and through Anglo American. Profit margins and free cash flow
are expected to remain elevated for the near term and, should South African
producers start to pay decent dividends, then this could turn into a driver of
income for the Company as a whole.
ROYALTIES AND ILLIQUID INVESTMENTS
The Company currently has one unquoted investment, the OZ Minerals Brazil
Royalty representing 1.9% of the portfolio (£15.8 million) as at the end of
December 2019. The Company has an additional royalty investment in Vale
Shareholder Debentures, representing 3.4% of the portfolio. The latter is
technically listed in Brazil but due to limited liquidity it is covered in
this section. Together, the two royalty investments make up 5.3% of the
portfolio. These, and any future investments, will be managed in line with the
guidelines set by the Board as outlined to shareholders in the Strategic
Report*.
*Liquidity refers to the ease of buying and selling a particular investment.
Illiquid investments, such as unquoted investments, or thinly traded
investments, may not be easily sold without a loss in value and may also be
hard to sell quickly, however there is often additional return available on
illiquid investments which bear illiquidity risk.
OZ MINERALS BRAZIL ROYALTY CONTRACT (1.9%)
In July 2014 the Company signed a binding royalty agreement with Avanco
Minerals. The Company provided US$12 million in return for a Net Smelter
Return (net revenue after deductions for freight, smelter and refining
charges) royalty payments comprising 2% on copper, 25% on gold and 2% on all
other metals produced from mines built on two licenses containing Avanco’s
Antas North and Pedra Branca projects. In addition, there is a flat 2% royalty
over all metals produced from any other discoveries within Avanco’s license
area as at the time of the agreement.
Last year we reported that the royalty has now been assumed by OZ Minerals, an
Australian based copper and gold producer, after Avanco was successfully
acquired by OZ Minerals. Since our initial US$12 million investment was made,
we have received US$12.3 million in royalty payments with the royalty
achieving full payback on the initial investment. As at the end of December
2019, the royalty was valued at £15.8 million (2.1% of NAV) which equates to
a 176.5% total return since our investment.
In November 2019, OZ Minerals approved the development of the Pedra Branca
underground mine and released a feasibility study and mine plan detailing an
8-year life of mine. This mine will provide ore which will be trucked to the
existing processing facilities at the Antas license site from mid-2021, as
part of the Carajas Antas Hub strategy which OZ Minerals outlined in July 2019
– a low risk, modest capital, hub strategy, with processing infrastructure
on the Antas license serving multiple small to mid-scale mines. OZ Minerals
has guided for mining on the Antas license to cease in 2021 but processing is
expected to continue for at least the life of the Pedra Branca mine.
Exploration activities also continue in the Carajas region with OZ Minerals
detailing an exploration target of 2.0 to 4.0 million tonnes at a grade of
3.1% to 5.0% copper at their Clovis prospect, which is around 2km from Antas,
following encouraging initial drill results.
From a valuation perspective, the positive decision to mine the Pedra Branca
deposit results in a lower discount rate applied on the cash flow from this
mine. However, the life of mine, at eight years, is shorter than originally
expected from the Mineral Reserve released in July. An independent valuation
of the royalty was completed giving a range of valuations under different
scenarios. The current valuation sits both within the range of values given by
the independent valuation and BlackRock’s own internal valuation range. As
such, the Directors have chosen to keep the value unchanged.
VALE SHAREHOLDER DEBENTURES
In early 2019 the Company completed a transaction to increase its existing
holding in Vale Shareholder Debentures. The primary benefits of owning these
securities are an entitlement to a 1.8% net revenue royalty over Vale’s
Northern System and Southeastern System iron ore assets in Brazil, as well as
a 1.25% royalty over the Sossego copper mine. The iron ore assets are world
class given their grade, cost position, infrastructure and resource life which
is well in excess of 50 years. Prior to this transaction, the Company had a
0.5% position in these securities versus the current level of 3.4%. Vale has
indicated that they are studying increasing production at the Northern System
to further increase dry-processing operations and reduce its usage of tailings
dams, which provides additional upside to our original expectations.
The chart on page 18 of the Annual Report and Financial Statements shows the
historic distributions paid by Vale to the owners of the Debentures and in
2019 this amounted to R775 million. The payments are expected to grow further
once royalty payments commence on the Southeastern System in 2023 and volumes
from the newly commissioned iron ore project S11D continue to ramp-up.
Vale’s Northern System is currently producing at 195Mt and forecast to grow
to 230Mt once S11D ramps-up, while the Southeastern System is currently
operating at circa 75Mt and is expected to remain around this level.
Whilst the Vale Debentures are a royalty, they are also a listed security on
the Brazilian National Debentures System. However, shareholders should be
aware that historically there has been a low level of liquidity in the
Debentures and price volatility is to be expected. Since the acquisition of a
significant number of additional Debentures in February 2019, the Debentures
have paid out a total of R2/Debenture versus the R23 paid for each one giving
a yield on the acquisition cost of 9.0%.
We continue to actively look for opportunities to grow royalty exposure given
it is a key differentiator of the Company and an effective mechanism to
lock-in long-term income which further diversifies the Company’s revenues.
FIXED INCOME SECURITIES
The Company continues to have a meaningful part of the portfolio allocated to
fixed income securities. These were 8.1% of the portfolio as at the end of
2019. This year saw market conditions continue to improve and allowed
companies to strengthen balance sheets by paying down debt. This was
highlighted as a risk to an important source of income for the Company,
especially when combined with potential rising interest rates which eat away
at the arbitrage between the Company’s cost of debt versus the underlying
mining companies’ costs. During the year a number of bonds were either
repaid or positions were sold as the running yields reduced, which cut the
overall amount invested in this part of the portfolio. One new holding was
added which met the value and income goals and we continue to look for new
deals but with a very strict focus on return versus quality.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts, mostly
involving the sale of ‘puts’ and ‘calls’. These are taken to revenue
and are subject to strict Board guidelines which limit their magnitude to an
aggregate 10% of the portfolio. During 2019 income generated from options was
£6.0 million net of contracts repurchased. In common with last year most of
the premium was generated from writing a mixture of puts and calls due to the
swings in valuation over the year as a whole. The majority of options expired
out of the money as options were written with short lives and share prices
generally remained in narrow ranges during these periods. For the year as
whole, option premium was in line with the prior year and at the end of 2019
the Company had 2.1% of net assets exposed to derivatives.
GEARING
Debt, which can be drawn down or repaid at any time, is used in the portfolio
to take tactical advantage of market volatility and opportunities, as well as
enhance overall returns during the medium to long term. At 31 December 2019,
the Company had debt net of group cash amounting to £88.5 million
representing gearing of 11.7%. Over the last few years the amount of gearing
allocated against higher yielding mining company corporate bonds has declined
due to increased returns available in the equities and also reduced
availability of bonds that meet the valuation criteria. Therefore, for 2019,
the majority of the Company’s debt was drawn against the equity portfolio
and royalty positions.
ESG
The importance of sustainability to society is unquestionable and its
consequent higher profile in the financial markets, particularly during the
course of 2019, was marked. Campaigns to reduce single-use plastic, change
food culture and reduce carbon emissions have played a part in the rapid
increase in focus on this area during the year. We have also seen much greater
interest in corporate sustainability, defined as creating long-term value for
all stakeholders, from employees, to local communities, the environment and
government.
The Company, like many in the industry, has historically analysed its
investments looking at environmental, social and governance risks, and
considered not just the legal right to operate a mine but the company’s
social license to operate. This has been an area of focus for the Company over
many years and it has been core to the investment process run by the
management team. Given the rapid increase in attention now focused on this
area, we see potential risks and outcomes becoming broader and more impactful
than ever before.
The majority of the Company’s holdings are publicly traded securities and,
as risks rise for certain securities, so will demanded returns. For example,
this is seen in the coal sector where regulation has increased the cost of
coal electricity, particularly in Europe, and has reduced European demand in
favour of renewable power. Crucially, coal companies now trade at a major
valuation discount to other miners on the back of a whole range of fears from
the risk of further societal driven demand destruction, or regulatory supply
constraints. This regulation does not actually have to occur; the increased
investor perception of the risk is enough to drive negative returns. In
addition, the reduced availability of capital to thermal coal producers from
banks and investors means that the cost of capital has risen significantly and
thus the equity risk premium for securities in this area is set to remain high
for the foreseeable future. It is also interesting to note that, in the case
of single use plastic, this was not driven by regulation but instead was in
response to a grass roots movement fostered by social media.
In metals and mining, investors are becoming more demanding with higher
expectations of how metals are produced, now and in the future. 2019 saw
significant focus in three areas:
· Safety, particularly around tailings dams – The tragic Vale
disaster highlighted the importance of employee safety and prompted the
International Council on Mining and Metals to work with the United Nations
Environment Programme (UNEP) and the Principles for Responsible Investment
(PRI) to co-convene an inclusive global tailings review for the purpose of
establishing an international standard for tailings storage facilities.
· Society’s desire to reduce its carbon impact – A key route to
carbon reduction is renewable power. The mining sector is impacted broadly by
power costs and we recently saw BHP move to take its Chilean operations away
from coal power, breaking early from coal power contracts causing a US$700
million impairment. However, even including this impairment, BHP disclosed
that renewable power has reduced spot power prices in Chile to such an extent
that this move was net positive for value creation. We also saw investment
decisions around reducing the carbon intensity of both steel and aluminium -
for example the joint venture between Rio Tinto and Alcoa, ELYSIS, supported
by Apple and the governments of Canada and Quebec, which is developing
aluminium smelting technology with no direct greenhouse gas emissions.
· Recycling and the circular economy – There may be opportunities
for miners who position themselves to benefit from the circular economy: metal
production from recycling is expected to grow as a percentage of supply over
the coming years. 2019 saw a number of investment decisions in recycled steel
demand in the USA from BlueScope, Nucor and Steel Dynamics. This steel
production will likely replace imports and domestic blast furnace production.
The announcement of growth capital going into expanding recycling facilities
in Europe and China was a regular occurrence and we expect the pace and scale
of these investments to continue to increase going forward.
The whole subject of ESG is very broad and rapidly evolving. The Company has
always taken into account these elements in its investment process to analyse
risk to an operation but during the last few years opportunities have arisen
for the Company to deploy capital in growth investments that should benefit
from the demand for ‘green’ materials. It is likely that this area will
become a more significant part of the portfolio, especially when this
subsector of the materials space looks for fresh capital.
OUTLOOK AND STRATEGY FOR 2020
After the strong returns generated during the year it might seem foolish to
expect another year of competitive total returns for the mining sector in 2020
but, with macro risks seemingly on the turn for the better, the outlook is
relatively favourable. The US and China have recently agreed a ‘Phase
One’ deal on new trade terms and this might mark a reversal in trade fears
that have been a burden on commodities demand ever since the last US
Presidential election. In addition, the return to accommodative monetary
policies in 2019 has left the global economy poised for an increased level of
economic activity especially in China and the US. During the last few months
of 2019 data was very supportive of this view, with strong US labour markets
and a recovery in the Chinese Manufacturing Purchasing Managers’ Index to a
7-month high supported by rallying retail and industrial sales in China. In
Europe, the data is less supportive but still not negative and with increased
clarity on Brexit following the UK election this risk should start to fade.
Offsetting the positives is the ongoing threat to growth from the recent virus
outbreak. This looks potentially set to cause downgrades to economic growth
given the likely disruption to trade via travel restrictions and consumer
confidence. At the time of writing concerns are rising and we will watch out
for signs of it being under control before deploying additional risk in the
portfolio.
At the company level capital discipline has kept growth investments on hold,
which means any increase in demand should result in better prices given the
generally low level of metal inventories. Operating cost inflation looks to be
under control and companies seem to be achieving productivity gains, with an
increased use of big data analytics and automation. Finally, mining companies
look set to continue returning surplus capital to shareholders, although the
level of special dividends is likely to be lower year-on-year. With this in
mind, we will seek to optimise the income element of the portfolio once again
so as to maximise the total return should share prices not reflect the growth
tailwinds in the global economy.
Shareholders should also be aware of the currency risk to income given the
possibility of a recovery in sterling relative to the US dollar. At current
levels the drag should not be material, but if the pound was to rally further,
then this would reduce revenues in sterling terms.
In summary, we remain confident on the value available in the sector,
especially when looked at relative to the low level of mining company
indebtedness. It is our expectation that this will allow the Company to
deliver a superior total return for its shareholders through the cycle, from a
combination of capital growth and a premium yield to that generally available
from the mining sector, and to continue to generate competitive returns
compared to world markets.
EVY HAMBRO AND OLIVIA MARKHAM
BlackRock Investment Management (UK) Limited
27 February 2020
TEN LARGEST INVESTMENTS
1 = BHP (2018: 1st)
Diversified mining company
Market value: £82,204,000
Share of investments: 9.7%
The world’s largest diversified mining company by market capitalisation. The
company is an important global player in a number of commodities including
iron ore, copper, thermal and metallurgical coal, manganese, nickel, silver
and diamonds. The company also has significant interests in oil, gas and
liquefied natural gas.
2 = Rio Tinto (2018: 2nd)
Diversified mining company
Market value: £78,662,000
Share of investments: 9.3%
One of the world’s leading mining companies. The company’s primary product
is iron ore, but it also produces aluminium, copper, diamonds, gold,
industrial minerals and energy products.
3 = Vale(1,2) (2018: 3rd)
Diversified mining company
Market value: £73,107,000
Share of investments: 8.6%
One of the largest mining companies in the world, with operations in 30
countries. Vale is the world’s largest producer of iron ore and iron ore
pellets and a leading producer of nickel. The company also produces manganese
ore, ferroalloys, metallurgical and thermal coal, copper, platinum group
metals, gold, silver and cobalt.
4 + Anglo American (2018: n/a)
Diversified mining company
Market value: £51,863,000
Share of investments: 6.1%
A global mining company. The company’s mining portfolio includes bulk
commodities including iron ore, manganese and metallurgical coal, base metals
including copper and nickel and precious metals and minerals including
platinum and diamonds. Anglo American has mining operations globally, with
significant assets in Africa and South America.
5 + Barrick Gold (2018: n/a)(4)
Gold producer
Market value: £37,617,000
Share of investments: 4.4%
Following the merger with Randgold Resources in 2018, Barrick Gold is the
second largest gold company by market capitalisation and has operations and
projects in fifteen countries across the world. In 2019 the company
successfully established a joint venture with Newmont Mining across their
Nevada assets to maximize the synergies across both sets of assets.
6 + Newmont Mining (2018: 9th)
Gold producer
Market value: £37,382,000
Share of investments: 4.4%
Following the acquisition of Goldcorp in the first half of 2019, Newmont is
the world’s largest gold producer by market capitalisation. The company has
gold and copper operations on five continents, with active gold mines in
Nevada, Australia, Ghana, Peru and Suriname.
7 - First Quantum Minerals(1) (2018: 5th)
Copper producer
Market value: £35,581,000
Share of investments: 4.2%
An established growing copper mining company operating seven mines including
their newest mine, Cobre Panama, which declared commercial production in
September 2019. The company is a significant copper producer and also produces
nickel, gold and zinc.
8 + Agnico Eagle Mines (2018: 21st)
Gold producer
Market value: £31,504,000
Share of investments: 3.7%
A Canadian based gold company with mines in Canada, Finland and Mexico, with
exploration activities in each of these countries as well as in the United
States and Sweden. Agnico Eagle has a strong operational track-record and has
declared a cash dividend every year since 1983.
9 + Wheaton Precious Metals (2018: 17th)
Silver and Diamond producer
Market value: £31,036,000
Share of investments: 3.7%
A precious metals streaming company that purchases silver and gold production
from mines that it does not own and operate. The company has streaming
agreements with 22 operating mines worldwide including Newmont’s Penasquito,
HudBay’s Constancia and Vale’s Salobo and Sudbury mines.
10 = OZ Minerals(2,3) (2018: 10th)
Copper producer
Market value: £27,233,000
Share of investments: 3.3%
An Australian based copper producer which operates Prominent Hill, a
copper-gold mine in South Australia and is currently developing Carrapateena
one of Australia’s largest copper-gold resources. OZ Minerals is a
well-capitalised company with strong cash generation, no debt and cash of
A$505 million as at 31 December 2019. In 2018 the company successfully
acquired Avanco Resources for A$418 million in a 50/50 cash/scrip deal. Along
with its existing asset base, this transaction provides OZ Minerals with a
strong copper growth pipeline with options in both Australia and Brazil.
1 Includes fixed income securities.
2 Includes investments held at Directors’ valuation.
3 Includes mining royalty contract.
4 Excludes a 2.3% holding in Randgold Resources as at 31 December 2018.
Randgold Resources and Barrick Gold merged in early 2019.
All percentages reflect the value of the holding as a percentage of total
investments. Together, the ten largest investments represent 57.4% of total
investments (ten largest investments as at 31 December 2018: 61.0%). Amounts
in the table above are shown in pounds sterling.
INVESTMENTS AS AT 31 DECEMBER 2019
Main Market % of
geographical value investments
exposure £’000
Diversified
BHP Global 82,204 9.7
Rio Tinto Global 78,662 9.3
Vale Global 44,405 5.2
Vale 0% Debentures#* Latin America 28,702 3.4
Anglo American Global 51,863 6.1
Glencore Global 21,363 2.5
Teck Resources Global 20,474 2.4
Teck Resources Put Option 17/01/20 CA$28 Global (66) –
Lundin Mining Global 14,418 1.7
Boliden Sweden 7,028 0.8
Boliden Put Option 17/01/20 SEK245 Sweden (58) –
South32 Global 6,447 0.8
---------------------- ----------------------
355,442 41.9
============ ============
Gold
Barrick Gold Global 37,617 4.4
Newmont Mining Global 37,382 4.4
Agnico Eagle Mines Canada 31,504 3.7
Franco-Nevada Global 23,377 2.8
Northern Star Resources Australasia 18,837 2.2
Newcrest Mining Australasia 17,657 2.1
B2Gold Canada 7,567 0.9
Polyus Russia 5,683 0.7
Teranga Gold Other Africa 4,766 0.6
Pretium Resources Canada 3,637 0.4
Alamos Gold Latin America 3,582 0.4
Polymetal International Russia 2,390 0.3
Shanta Gold Convertible* Other Africa 1,397 0.2
TMAC Resources Canada 1,199 0.1
Carawine Resources+ Australasia 5 –
---------------------- ----------------------
196,600 23.2
============ ============
Copper
First Quantum Minerals* Global 35,581 4.2
OZ Minerals Brazil Royalty#~ Latin America 15,790 1.9
OZ Minerals Global 11,443 1.4
Sociedad Minera Cerro Verde Latin America 22,337 2.6
Freeport-McMoRan Copper & Gold Global 18,219 2.2
Freeport-McMoRan Copper & Gold Call Option 17/01/20 US$13 Global (131) –
Ero Copper Latin America 16,502 2.0
Antofagasta Latin America 10,543 1.2
Antofagasta Call Option 17/01/20 £9.60 Latin America (20) –
Antofagasta Call Option 17/01/20 £9.20 Latin America (39) –
Ivanhoe Mines Other Africa 7,578 0.9
Nevada Copper USA 6,621 0.8
SolGold Latin America 2,911 0.3
Sierra Metals Latin America 2,066 0.2
KAZ Minerals Kazakhstan 797 0.1
Katanga Mining Other Africa 728 0.1
---------------------- ----------------------
150,926 17.9
============ ============
Silver & Diamonds
Wheaton Precious Metals Global 31,036 3.7
Mountain Province Diamonds* Canada 8,145 1.0
Fresnillo Latin America 4,496 0.5
Industrias Penoles Latin America 3,360 0.4
Petra Diamonds* South Africa 1,723 0.2
---------------------- ----------------------
48,760 5.8
============ ============
Industrial Minerals
Iluka Resources Global 9,870 1.2
Umicore Global 8,616 1.0
Pilgangoora* Australasia 8,036 1.0
Albemarle Global 7,165 0.8
Sheffield Resources Australasia 4,034 0.5
Neo Lithium Latin America 559 0.1
---------------------- ----------------------
38,280 4.6
============ ============
Nickel
Norilsk Nickel Russia 14,169 1.7
Nickel Mines Indonesia 7,473 0.9
Bindura Nickel Other Africa 23 –
---------------------- ----------------------
21,665 2.6
============ ============
Iron ore
Labrador Iron Canada 10,024 1.2
Equatorial Resources Other Africa 390 –
---------------------- ----------------------
10,414 1.2
============ ============
Coal
Coronado Global Resources Australasia 3,870 0.5
---------------------- ----------------------
3,870 0.5
============ ============
Aluminium
Metro Mining Australasia 1,441 0.2
---------------------- ----------------------
1,441 0.2
============ ============
Zinc
Titan Mining USA 974 0.1
Osisko Metals Canada 96 –
---------------------- ----------------------
1,070 0.1
============ ============
Other
Impala Platinum South Africa 12,584 1.5
Northam Platinum South Africa 4,411 0.5
---------------------- ----------------------
16,995 2.0
============ ============
Portfolio 845,463 100.0
============ ============
Comprising
– Investments 845,777 100.0
– Written options (314) –
---------------------- ----------------------
845,463 100.0
============ ============
* Includes fixed income securities.
# Includes investments held at Directors’ valuation.
~ Mining royalty contract.
+ Includes warrant investments.
All investments are in equity shares unless otherwise stated.
The total number of investments as at 31 December 2019 (including options
classified as liabilities on the balance sheet) was 65 (31 December 2018: 65).
As at 31 December 2019 the Company held equity interests in three companies
comprising more than 3% of a company’s share capital as follows: Nevada
Copper, Sheffield Resources and Titan Mining.
PORTFOLIO ANALYSIS AS AT 31 DECEMBER 2019
COMMODITY EXPOSURE(1)
2019 Company portfolio 2018 (#) Company portfolio 2019 EMIX Global Mining Index
Other 2.0% 0.8% 2.4%
Molybdenum 0.0% 0.0% 0.2%
Zinc 0.1% 0.9% 0.0%
Aluminium 0.2% 0.9% 2.8%
Coal 0.5% 0.7% 3.6%
Iron Ore 1.2% 0.1% 2.1%
Nickel 2.6% 0.4% 2.7%
Industrial Minerals 4.6% 6.6% 1.4%
Silver & Diamonds 5.8% 6.4% 2.7%
Copper 17.9% 18.9% 7.6%
Gold 23.2% 15.5% 30.1%
Diversified 41.9% 48.8% 44.4%
# Represents exposure at 31 December 2018.
GEOGRAPHIC EXPOSURE(2)
2019 2018
Global 63.8% 60.0%
Latin America 13.0% 12.4%
Canada 7.3% 7.4%
Australasia 6.5% 10.9%
Other (3,4) 5.4% 3.3%
South Africa 2.2% 1.5%
Other Africa (ex SA) 1.8% 4.5%
1 Based on index classifications.
2 Based on the principal commodity exposure and place of operation of
each investment.
3 Consists of Indonesia, Kazakhstan, Russia, Sweden, United Kingdom and
USA.
4 Consists of Indonesia, Kazakhstan, Russia, Turkey and USA.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended
31 December 2019. The aim of the Strategic Report is to provide shareholders
with the information to assess how the Directors have performed their duty to
promote the success of the Company during the year under review.
PRINCIPAL ACTIVITY
The Company carries on business as an investment trust and has a premium
listing on the London Stock Exchange. Its principal activity is portfolio
investment and that of its subsidiary, BlackRock World Mining Investment
Company Limited (together the Group), is investment dealing. Investment trusts
are pooled investment vehicles which allow exposure to a diversified range of
assets through a single investment, thus spreading investment risk.
OBJECTIVE
The Company’s objective is to maximise total returns to shareholders through
a worldwide portfolio of mining and metal securities. The Board recognises the
importance of dividends to shareholders in achieving that objective, in
addition to capital returns.
STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Strategy
The Company invests in accordance with the objective given above. The Board is
collectively responsible to shareholders for the long-term success of the
Company and is its governing body. There is a clear division of responsibility
between the Board and BlackRock Fund Managers Limited (the Manager). Matters
reserved for the Board include setting the Company’s strategy, including its
investment objective and policy, setting limits on gearing (both bank
borrowings and the effect of derivatives), capital structure, governance and
appointing and monitoring of the performance of service providers, including
the Manager.
Business model
The Company’s business model follows that of an externally managed
investment trust. Therefore, the Company does not have any employees and
outsources its activities to third party service providers including the
Manager who is the principal service provider. In accordance with the
Alternative Investment Fund Managers’ Directive (AIFMD) the Company is an
Alternative Investment Fund (AIF). BlackRock Fund Managers Limited is the
Company’s Alternative Investment Fund Manager.
The management of the investment portfolio and the administration of the
Company have been contractually delegated to the Manager who in turn (with the
permission of the Company) has delegated certain investment management and
other ancillary services to BlackRock Investment Management (UK) Limited (the
Investment Manager). The Manager, operating under guidelines determined by the
Board, has direct responsibility for the decisions relating to the day-to-day
running of the Company and is accountable to the Board for the investment,
financial and operating performance of the Company.
The Manager delegates fund accounting services to the Investment Manager,
which in turn sub-delegates these services to The Bank of New York Mellon
(International) Limited. The Company sub-delegates registration services to
the Registrar, Computershare Investor Services PLC. Other service providers
include the Depositary, The Bank of New York Mellon (International) Limited.
Details of the contractual terms with these service providers are set out in
the Directors’ Report in the Annual Report and Financial Statements.
Investment policy
The Company’s investment policy is to provide a diversified investment in
mining and metal securities worldwide. While the policy is to invest
principally in quoted securities, the Company’s investment policy includes
investing in royalties derived from the production of metals and minerals as
well as physical metals. Up to 10% of gross assets may be held in physical
metals.
In order to achieve its objective, it is intended that the Group will normally
be fully invested, which means at least 90% of the gross assets of the Company
and its subsidiary will be invested in stocks, shares, royalties and physical
metals. However, if such investments are deemed to be overvalued, or if the
Manager finds it difficult to identify attractively priced opportunities for
investment, then up to 25% of the Group’s assets may be held in cash or cash
equivalents. Risk is spread by investing in a number of holdings, many of
which themselves are diversified businesses.
The Group may occasionally utilise derivative instruments such as options,
futures and contracts for difference, if it is deemed that these will, at a
particular time or for a particular period, enhance the performance of the
Group in the pursuit of its objectives. The Company is also permitted to enter
into stock lending arrangements.
As approved by shareholders in August 2013, the Group may invest in any single
holding of quoted or unquoted investments that would represent up to 20% of
gross assets at the time of acquisition. Although investments are principally
in companies listed on recognised stock exchanges, the Company may invest up
to 20% of the Group’s gross assets in investments other than quoted
securities. Such investments include unquoted royalties, equities or bonds. In
order to afford the Company the flexibility of obtaining exposure to metal and
mining related royalties, it is possible that, in order to diversify risk, all
or part of such exposure may be obtained directly or indirectly through a
holding company, a fund or another investment or special purpose vehicle,
which may be quoted or unquoted. The Board will seek the prior approval of
shareholders to any unquoted investment in a single company, fund or special
purpose vehicle or any single royalty which represents more than 10% of the
Group’s assets at the time of acquisition.
In March 2015 the Board refined the guidelines associated with the Company’s
royalty strategy and proposed to maintain the 20% maximum exposure to
royalties but the royalty/unquoted portfolio should itself deliver
diversification across operator, country and commodity. To this end, new
investments into individual royalties/unquoted investments should not exceed
circa 3% of gross assets at the time of investment. Total exposure to any
single operator, including other issued securities such as debt and/or equity,
where greater than 30% of that operator’s revenues come from the mine over
which the royalty lies, must also not be greater than 3% at the time of
investment. In addition, the guidelines require that the Investment Manager
must, at the time of investment, manage total exposure to a single operator,
via reducing exposure to listed securities if they are also held in the
portfolio, in a timely manner where royalties/unquoted investments are
revalued upwards. In the jurisdictions where statutory royalties are possible
(in countries where mineral rights are privately owned) these will be
preferred and in respect of contractual royalties (a contractual obligation
entered into by the operator and typically unsecured) the valuation must take
into account the higher credit risk involved. Board approval will continue to
be required for all royalty/unquoted investments.
While the Company may hold shares in other listed investment companies
(including investment trusts), the Company will not invest more than 15% of
the Group’s gross assets in other UK listed investment companies.
The Group’s financial statements are maintained in sterling. Although many
investments are denominated and quoted in currencies other than sterling, the
Board does not intend to employ a hedging strategy against fluctuations in
exchange rates.
No material change will be made to the investment policy without shareholder
approval.
Gearing
The Investment Manager believes that tactical use of gearing can add value
from time to time. This gearing is typically in the form of an overdraft or
short-term loan facility, which can be repaid at any time or matched by cash.
The level and benefit of gearing is discussed and agreed with the Board
regularly. The Company may borrow up to 25% of the Group’s net assets. The
maximum level of gearing used during the year was 14.2% and, at the financial
reporting date, net gearing (calculated as borrowings less cash and cash
equivalents as a percentage of net assets) stood at 11.7% of shareholders’
funds (2018: 13.5%). For further details on borrowings refer to note 14 and
the Alternative Performance Measure in the Glossary in the Annual Report and
Financial Statements.
Portfolio analysis
As at 31 December 2019, the investment in the OZ Minerals Brazil Royalty was
held at Directors’ valuation, representing a total of £15,790,000
(US$20,918,000) (2018: £18,513,000 (US$23,578,000)). Unquoted investments can
prove to be more risky than listed investments.
Information regarding the Company’s investment exposures is contained within
the ten largest investments, the investment listing and the portfolio
analysis. Further information regarding investment risk and activity
throughout the year can be found in the Investment Manager’s Report.
Continuation vote
As agreed by shareholders in 1998, an ordinary resolution for the continuation
of the Company is proposed at each Annual General Meeting. 2019 was a strong
year, with mining companies continuing down the path of disciplined capital
allocation and focusing on returning surplus capital to shareholders. The
Directors remain confident on the value available in the sector and therefore
recommend that shareholders vote in support of the Company’s continuation.
Performance
Details of the Company’s performance for the year are given in the
Chairman’s Statement. The Investment Manager’s Report includes a review of
the main developments during the year, together with information on investment
activity within the Company’s portfolio.
Results and dividends
The results for the Company are set out in the Consolidated Statement of
Comprehensive Income. The total profit for the year, after taxation, was
£114,066,000 (2018: loss of £91,087,000) of which £39,561,000 (2018:
£32,013,000) is revenue profit.
It is the Board’s intention to distribute substantially all of the
Company’s available income. The Directors recommend the payment of a final
dividend as set out in the Chairman’s Statement. Dividend payments/payable
for the year ended 31 December 2019 amounted to £38,515,000
(2018: £31,747,000).
Promoting the success of the Company
Directors of large companies now have to explain more fully how they have
discharged their duties under section 172(1) of the Companies Act 2006 in
promoting the success of their companies for the benefit of members as a
whole. This includes the likely consequences of their decisions in the longer
term and how they have taken wider stakeholders’ needs into account.
The enhanced disclosure that follows covers how the Board has engaged with and
understands the views of stakeholders and how stakeholders’ needs have been
taken into account, the outcome of this engagement and the impact that it has
had on the Board’s decisions. The Board considers the main stakeholders in
the Company to be the Manager, Investment Manager and the shareholders. The
Board’s main working relationship is with the Investment Manager, who is
responsible for the Company’s assets, asset allocation, stock and sector
selection and risk management, as well as ancillary functions such as
administration, secretarial, accounting and marketing services. In addition to
this, the Board considers investee companies and key service providers of the
Company to be stakeholders; the latter comprise the Company’s Custodian,
Depositary, Registrar and Broker.
A summary of the key areas of engagement undertaken by the Board with its key
stakeholders in the year under review and how Directors have acted upon this
to promote the long-term success of the Company are set out in the table
below.
Areas of engagement Issue Engagement Impact
Investment mandate and objective Our main working relationship is with the management company that we hold to account in managing shareholders’ assets. The Board has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns. We continued to work very closely with the Investment Manager throughout the year in further developing our investment strategy The portfolio activities undertaken by the Investment Manager can be found in their report. The Company has been building exposure to longer dated growth opportunities that have significant potential, as well as quality growth companies where that growth translates into growth on a value per share basis.
and underlying policies, not simply for the purpose of achieving the Company’s investment objective but in the interests of
shareholders and future investors.
Responsible ownership The mining industries in which the Company’s investment universe operate are facing ethical and sustainability issues that cannot be ignored by asset managers and investment companies alike. More than ever before the importance of good governance and sustainability practices are key factors in making investment decisions. The Board believes that responsible investment and sustainability are integral to the longer-term delivery of the Company’s The Board and the Investment Manager believe there is a positive correlation between strong ESG practices and investment performance. It is especially vital in mining given the long investment cycle and its ability to impact a company maintaining its social license to operate. ESG is one of the many factors that we look at and site visits to companies’ mines provide valuable insights into their ESG practices. BlackRock has stated that, as part of its commitment to sustainability, it will divest any investment in companies that derive more than 25% of revenues from thermal coal production from all discretionary active investment portfolios. During the year under review, the Company has had minimal exposure to companies whose principal activity is the extraction of thermal coal. Within the parameters of the Company’s existing investment policy, the Investment Manager is continuing to look for opportunities to deploy capital in growth investments that should benefit from the demand for ‘green’ materials. It is likely that this area will become a more significant part of the portfolio.
success. The Board works closely with the Investment Manager to regularly review the Company’s performance, investment strategy
and underlying policies to ensure that the Company’s investment objective continues to be met in an effective, responsible and
sustainable way in the interests of shareholders and future investors. The Investment Manager’s approach to the consideration
of ESG factors in respect of the Company’s portfolio, as well as the Investment Manager’s engagement with investee companies to
encourage the adoption of sustainable business practices which support long-term value creation, are kept under review by the
Board. The Board also expects to be informed by the Investment Manager of any sensitive voting issues involving the Company’s
investments. Environmental issues were prominent in the engagement, as was executive pay and the re-election of directors. The
Investment Manager reports to the Board in respect of its ESG policies and how these are integrated into the investment process;
a summary of BlackRock’s approach to ESG and sustainability is set out in the Annual Report and Financial Statements. The
Investment Manager’s engagement and voting policy is detailed in the Annual Report and Financial Statements and on the BlackRock
website.
Shareholders Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is committed to maintaining open channels of communication and to engage with shareholders. The Company welcomes and The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the Company evolve its reporting, aiming to make reports more transparent and understandable. Feedback from all substantive meetings between the Investment Manager and shareholders will be shared with the Board. The Directors will also receive updates from the Company’s broker on any feedback from shareholders, as well as share trading activity, share price performance and an update from the Investment Manager.
encourages attendance and participation from shareholders at its Annual General Meetings. Shareholders will have the opportunity
to meet the Directors and Investment Manager and to address questions to them directly. The Investment Manager will also provide
a presentation on the Company’s performance and the outlook for the mining sector. The Annual Report and Half Yearly Financial
Report are available on the BlackRock website and are also circulated to shareholders either in printed copy or via electronic
communications. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are also
published on the website at blackrock.co.uk/brwm. Unlike trading companies, one-to-one shareholder meetings normally take the
form of a meeting with the Investment Manager as opposed to members of the Board. The Company’s willingness to enter into
discussions with institutional shareholders is also demonstrated by the programmes of institutional presentations by the
Investment Manager. If shareholders wish to raise issues or concerns with the Board, they are welcome to do so at any time. The
Chairman is available to meet directly with shareholders periodically to understand their views on governance and the Company’s
performance where they wish to do so. He may be contacted via the Company Secretary whose details are given in the Annual Report
and Financial Statements.
Discount management One of the Board’s long-term strategic aspirations is that the Company’s shares should trade consistently at a price close to the NAV per share. The Board monitors the Company’s discount on an ongoing basis and has met with the Investment Manager and the Company’s Broker During the financial year the Company bought back 1,545,515 shares at a cost of £5,546,000. Since the year end and up to the date of this report, the Company has bought back a further 979,707 shares at a cost of £3,673,000. The Company participates in a focused investment trust sales and marketing initiative operated by the Manager on behalf of the investment trusts under its management. Further details are set out in the Annual Report and Financial Statements. The Board also took the opportunity in the 25th anniversary to promote the Company through marketing and public relation initiatives and, at a wider social level, by supporting scholarships for talented, but financially disadvantaged students to continue their studies to pursue a career in the mining industry. The Company’s average discount for the year to 31 December 2019 was 13.9% and the discount at 25 February 2020 stands at 11.9%.
on a regular basis to discuss methods to manage the discount. A range of discount control mechanisms have been reviewed and the
benefits and disadvantages of these have been discussed at length. In addition, the Board has worked closely with the
Investment Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with existing
shareholders and to attract new shareholders to the Company in order to improve liquidity in the Company’s shares and to sustain
the share rating of the Company.
Service levels of third party providers The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service, including the Investment Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries; and the Company’s Brokers in respect of the provision of advice and acting as a market maker for the Company’s shares. The Investment Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust All performance evaluations were performed on a timely basis and the Board concluded that all third party service providers, including the Manager and Investment Manager, were operating effectively and providing a good level of service. The level of fees paid to the Depositary was reviewed and reduced from 1.15 basis points per annum of net assets to a rate of 0.95 basis points per annum with effect from 1 January 2019. The interest rate on the Company’s overdraft facility with The Bank of New York Mellon (International) Limited and the revolving credit facility with The Bank of New York Mellon was also reduced during the year by 10 basis points.
annual evaluation of the Investment Manager’s performance, their commitment and available resources. The Board performs an
annual review of the service levels of all third-party service providers and concludes on their suitability to continue in their
role. The Board receives regular updates from the AIFM, Depositary, Registrar and Brokers on an ongoing basis.
Board composition The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the UK Code, including guidance on tenure and the composition of the Board’s committees. The Board undertook a review of succession planning arrangements in the year and identified the need for a new Director. The The Board appointed Ollie Oliveira as a Director of the Company with effect from 3 February 2020. His biography is set out in the Annual Report and Financial Statements. Details of each Directors’ contribution to the success and promotion of the Company are set out in the Directors’ Report in the Annual Report and Financial Statements. Colin Buchan will retire at the forthcoming Annual General Meeting.
Nomination Committee agreed the selection criteria and the method of selection, recruitment and appointment, Board diversity,
including gender, were carefully considered when establishing the criteria. The services of an external search consultant,
Norman Broadbent Group PLC, as well as the Directors’ range of contacts, were used to identify potential candidates.
SUSTAINABILITY AND OUR ESG POLICIES
The Board’s approach
Environmental, social and governance (ESG) issues can present both
opportunities and threats to long-term investment performance. The Company’s
investment universe comprises sectors that are likely to be highly impacted by
increasing regulation as a result of climate change and other social and
governance factors. Your Board is committed to ensuring that we have appointed
a Manager that applies the highest standards of ESG practice. The Board
believes that BlackRock is well placed as Manager to fulfil these requirements
due to the integration of ESG into its investment processes, the emphasis it
places on sustainability in its investment stewardship activities and its
position in the industry as the largest supplier of sustainable investment
products in the global market. More information on BlackRock’s approach to
sustainability is set out below.
Responsible ownership – BlackRock’s approach
As a fiduciary to its clients, BlackRock has built its business to protect and
grow the value of clients’ assets. From BlackRock’s perspective,
business-relevant sustainability issues can contribute to a company’s
long-term financial performance and thus further incorporating these
considerations into the investment research, portfolio construction and
stewardship process can enhance long-term risk adjusted returns. By expanding
access to data, insights and learning on material ESG risks and opportunities
in investment processes across BlackRock’s diverse platform, BlackRock
believes that the investment process is greatly enhanced. ESG factors have
been a key consideration of the BlackRock Natural Resources team’s
investment process since the team was formed in 2001 and the Company’s
portfolio managers work closely with BlackRock’s Investment Stewardship team
to assess the governance quality of companies and investigate any potential
issues, risks or opportunities. The Portfolio Managers use ESG information
when conducting research and due diligence on new investments and again when
monitoring investments in the portfolio.
BlackRock’s approach to sustainable investing
Considerations about sustainability have been at the centre of BlackRock’s
investment approach for many years and the firm offers more than 100
sustainable products and solutions. BlackRock believes that climate change is
now a defining factor in companies’ long-term prospects and that will have a
significant and lasting impact on economic growth and prosperity. It is
BlackRock’s belief that climate risk now equates to investment risk and this
will drive a profound reassessment of risk and asset values as investors seek
to react to the impact of climate policy changes. This in turn is likely to
drive a significant reallocation of capital away from traditional carbon
intensive industries over the next decade.
In January 2020, with this transition in mind, BlackRock announced that it
would accelerate its sustainable investing efforts and make a number of
enhancements to its investment management and risk processes, including the
following:
· heightening scrutiny on sectors with a high ESG risk, such as
thermal coal producers, due to the investment risk they present to client
portfolios;
· putting ESG analysis at the heart of Aladdin (BlackRock’s
proprietary trading platform) and using proprietary tools to help analyse ESG
risk; and
· placing oversight of ESG risk with BlackRock’s Risk and
Quantitative Analysis group (RQA), to ensure that ESG risk is given increased
weighting as a risk factor and is analysed with the same weight given to
traditional measures such as credit or liquidity risk.
The importance of considering ESG when investing in the Natural Resources Sector
Environmental Social Corporate governance
Mines will inevitably have an impact on the local environment. Key is how companies manage this process ensuring the benefits are appropriately shared amongst all BlackRock believes it is vital that natural resources companies maintain their social license to operate. By this, BlackRock means that companies maintain broad acceptance from their employees, stakeholders, local communities and the national government. The portfolio management team’s site visits to companies’ assets provide them with valuable insight into these issues which often cannot be properly understood from company reports. As with all companies, good corporate governance is critical for natural resources companies. In conjunction with the BlackRock Investment Stewardship team, the portfolio management team actively engages with companies on a wide range of governance issues including board independence, executive compensation, shareholder protection and timely disclosure.
stakeholders. The negative impact on the market capitalisation of companies such as BHP and Vale, after the Samarco and Brumadinho tailings dam failures, highlights the
key role that ESG has on share price performance. As set out in more detail in the Annual Report and Financial Statements, BlackRock will be aligning its engagement and
stewardship priorities to UN Sustainable Development Goals and is committed to voting against management to the extent that they have not demonstrated sufficient progress
in how they manage these environmental impacts and operating events.
Investment stewardship
BlackRock also places a strong emphasis on sustainability in its stewardship
activities. BlackRock has engaged with companies on sustainability-related
questions for a number of years, urging management teams to make progress
while also deliberately giving companies time to enhance disclosure consistent
with the Sustainability Accounting Standards Board (SASB) and the Task Force
on Climate-related Financial Disclosures (TCFD). This includes each
company’s plan for operating under a scenario where the Paris Agreement’s
goal of limiting global warming to less than two degrees is fully realised, as
expressed by the TCFD guidelines. To this end, BlackRock is now a member of
Climate Action 100+, a group of investors that engages with companies to
improve climate disclosure and align business strategy with the goals of the
Paris Agreement. BlackRock will be aligning its engagement and stewardship
priorities to UN Sustainable Development Goals (including Gender Equality and
Affordable and Clean Energy). BlackRock is committed to voting against
management to the extent that they have not demonstrated sufficient progress
on sustainability issues.
BlackRock is committed to transparency in terms of disclosure on its
engagement with companies and voting rationales. Last year BlackRock voted
against or withheld votes from 4,800 directors at 2,700 different companies.
More details about BlackRock’s investment stewardship process can be found
on BlackRock’s website at
https://www.blackrock.com/uk/individual/about-us/investment-stewardship.
In terms of its own reporting, BlackRock believes that the SASB provides a
clear set of standards for reporting sustainability information across a wide
range of issues, from labour practices to data privacy to business ethics. For
evaluating and reporting climate-related risks, as well as the related
governance issues that are essential to managing them, the TCFD provides a
valuable framework. BlackRock recognise that reporting to these standards
requires significant time, analysis and effort. BlackRock’s own SASB-aligned
disclosure is available on its website at
https://www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/blackrock2018sasbdisclosure.pdf,
and BlackRock is working towards a TCFD-aligned disclosure by the end of 2020.
BlackRock is also a founding member of the TCFD and a signatory to the UN’s
Principles for Responsible Investment. BlackRock also signed the Vatican’s
2019 statement advocating carbon pricing regimes, which it believes are
essential to combating climate change. BlackRock has also joined with France,
Germany and global foundations to establish the Climate Finance Partnership,
which is one of several public-private efforts to improve financing mechanisms
for infrastructure investment. More information on BlackRock’s policies on
Corporate Sustainability can be found on BlackRock’s website at
https://www.blackrock.com/uk/individual/about-us/corporate-sustainability.
KEY PERFORMANCE INDICATORS
A number of key performance indicators (KPIs) are used to monitor and assess
the Company’s success in achieving its objectives and to measure its
progress and performance. The principal KPIs are described below.
Performance
At each meeting, the Board reviews the performance of the portfolio, as well
as the net asset value and share price for the Company and compares this
against various companies and indices. The Company does not have a benchmark;
however, the Board reviews performance in the context of a number of indices
as set out in the Financial Highlights in the Annual Report and Financial
Statements.
Share price discount to net asset value per share (NAV)
The Company publishes a NAV per share figure on a daily basis through the
official newswire of the London Stock Exchange. This figure is calculated in
accordance with the Association of Investment Companies (AIC) formula. At each
Board meeting, the Board monitors the level of the Company’s discount to NAV
and reviews the average discount/premium for the Company’s relevant sector.
In the year to 31 December 2019, the discount fell from 12.4% on a cum income
basis to 11.6% and the average discount for the year was 13.9%. During the
year, the Company bought back 1,545,515 ordinary shares and a further 979,707
have been repurchased since the financial year end and up to the date of this
report. More details are given in the Directors’ Report in the Annual Report
and Financial Statements. The Board considers the use of share buy backs to
enhance shareholder value. At its regular meetings, it also undertakes reviews
of marketing/investor relations and sales reports from the Manager and
considers their effectiveness, as well as measures of investor sentiment.
Further details, setting out how the discount or premium at which the
Company’s shares trade is calculated, are included in the Glossary in the
Annual Report and Financial Statements.
Ongoing charges
The ongoing charges are based on actual costs incurred in the year as being
the best estimate of future costs.
The Board reviews the Company’s ongoing charges and monitors expenses to
ensure that the total costs incurred by shareholders in the running of the
Company remain competitive when measured against peer group funds.
An analysis of the Company’s costs, including the management fee,
Directors’ fees and general expenses, is submitted at each Board meeting. A
definition setting out in detail how the ongoing charges ratio is calculated
is included in the Glossary in the Annual Report and Financial Statements.
The table that follows sets out the key KPIs for the Company. These KPIs fall
within the definition of ‘Alternative Performance Measures’ under guidance
issued by the European Securities and Markets Authority (ESMA) and additional
information explaining how these are calculated is set out in the Glossary
in the Annual Report and Financial Statements.
Year ended 31 December 2019 Year ended 31 December 2018
Net asset value total return (1,2 ) 17.2% -11.5%
Share price total return (1,2 ) 19.4% -10.7%
Discount to net asset value (2 ) 11.6% 12.4%
Revenue earnings per share 22.46p 18.15p
Total dividends per share 22.00p 18.00p
Ongoing charges (2,3 ) 1.02% 0.93%
Ongoing charges on gross assets (2,4 ) 0.89% 0.82%
============= =============
1 This measures the Company’s NAV and share price total return, which
assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary in the Annual Report
and Financial Statements.
3 Ongoing charges represent the management fee and all other recurring
operating expenses, excluding finance costs, direct transaction costs, custody
transaction charges and taxation, as a % of average shareholders’ funds.
4 Ongoing charges based on gross assets represent the management fee and
all other recurring operating expenses, excluding finance costs, direct
transaction costs, custody transaction charges and taxation, as a % of average
gross assets. Gross assets are calculated based on net assets during the year
before the deduction of the bank overdraft and loans. Ongoing charges based on
gross assets are considered to be an appropriate performance measure as
management fees are payable on gross assets only in the event of an increase
in NAV on a quarter-on-quarter basis.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. The Board has
put in place a robust process to identify, assess and monitor the principal
risks and emerging risks. A core element of this process is the Company’s
risk register which identifies the risks facing the Company and assesses the
likelihood and potential impact of each risk and the controls established for
mitigation. A residual risk rating is then calculated for each risk based on
the outcome of the assessment.
The risk register is regularly reviewed and the risks reassessed. The risk
environment in which the Company operates is also monitored and regularly
appraised. New risks are also added to the register as they are identified
which ensures that the document continues to be an effective risk management
tool.
The risk register, its method of preparation and the operation of key controls
in the Manager’s and other third party service providers’ systems of
internal control are reviewed on a regular basis by the Audit & Management
Engagement Committee. In order to gain a more comprehensive understanding of
the Manager’s and other third party service providers’ risk management
processes and how these apply to the Company’s business, BlackRock’s
internal audit department provides an annual presentation to the Audit
Committee chairmen of the BlackRock investment trusts setting out the results
of testing performed in relation to BlackRock’s internal control processes.
The Audit & Management Engagement Committee periodically receives and reviews
internal control reports from BlackRock and the Company’s Custodian (The
Bank of New York Mellon (International) Limited). The Custodian is appointed
by the Company’s Depositary and does not have a direct contractual
relationship with the Company.
The Board has undertaken a robust assessment of both the principal and
emerging risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. Those principal
risks have been described in the table that follows, together with an
explanation of how they are managed and mitigated.
Emerging risks are considered by the Board as they come into view and are
incorporated into the existing review of the Company’s risk register. They
were also considered as part of the annual evaluation process. Additionally,
the Manager considers emerging risks in numerous forums and the Risk and
Quantitative Analysis team produces an annual risk survey. Any material risks
of relevance to the Company through the annual risk survey will be
communicated to the Board.
The Board will continue to assess these risks on an ongoing basis. In relation
to the 2018 UK Corporate Governance Code, the Board is confident that the
procedures that the Company has put in place are sufficient to ensure that the
necessary monitoring of risks and controls has been carried out throughout the
reporting period.
The principal risks and uncertainties faced by the Company during the
financial year, together with the potential effects, controls and mitigating
factors, are set out in the following table.
Principal Risk Mitigation/Control
Counterparty The potential loss that the Company could incur if a counterparty is unable (or unwilling) to perform on its commitments. Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties. The Depositary is liable for restitution for the loss of financial instruments held in custody unless able to demonstrate the
loss was a result of an event beyond its reasonable control.
Investment performance The returns achieved are reliant primarily upon the performance of the portfolio. The Board is responsible for: · setting the investment strategy to fulfil the Company’s objective; and · monitoring the performance of the Investment Manager and the implementation of the investment strategy. An inappropriate investment policy may lead to: · underperformance compared to the reference indices; · a reduction or permanent loss of capital; and · dissatisfied shareholders and reputational damage. To manage this risk the Board: · regularly reviews the Company’s investment mandate and long-term strategy; · has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on; · receives from the Investment
Manager a regular explanation of stock selection decisions, portfolio exposure, gearing, and any changes in gearing, and the rationale for the composition of the investment portfolio; · monitors and maintains an adequate spread of investments in order to
minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the investment policy; · receives and reviews regular reports showing an analysis of the Company’s
performance against other indices, including the performance of major companies in the sector; and · has been assured that the Investment Manager has training and development programmes in place for its employees and its recruitment and remuneration
packages are developed in order to retain key staff.
Legal and regulatory compliance The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions, and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings, or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst other relevant laws, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the UK Listing Rules, Disclosure Guidance and Transparency Rules, the Market Abuse Regulation, the Bribery Act 2010, Criminal Finances Act 2017 and General Data Protection Regulation 2018. The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The
results are reported to the Board at each meeting. Compliance with the accounting rules affecting investment trusts are also carefully and regularly monitored. The Company Secretary, the Manager and the Company’s professional advisers provide regular
reports to the Board in respect of compliance with all applicable rules and regulations. The Board and the Manager also monitor changes in government policy and legislation which may have an impact on the Company. Following authorisation under the
Alternative Investment Fund Managers’ Directive (AIFMD), the Company and its Alternative Investment Fund Manager (AIFM) are subject to the risks that the requirements of the Directive are not correctly complied with. The Board and the AIFM monitor changes
in government policy and legislation which may have an impact on the Company. The Market Abuse Regulation came into force across the European Union on 3 July 2016. The Board has taken steps to ensure that individual Directors (and their Persons Closely
Associated) are aware of their obligations under the regulation and has updated internal processes, where necessary, to ensure the risk of non-compliance is effectively mitigated.
Market Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements. Changes in general economic and market conditions, such as currency exchange rates, interest rates, rates of inflation, industry conditions, tax laws, political events and trends, including the impact of the UK leaving the EU, can also substantially and adversely affect the securities and, as a consequence, the Company’s prospects and share price. The Board considers the diversification of the portfolio, asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The
Board monitors the implementation and results of the investment process with the Investment Manager. While it is not possible to predict fully the impact Brexit will have on the Company and our markets, the Board and Manager continue to monitor external
events to ensure that we are prepared for any short-term risks.
Operational The Company relies on the services provided by third parties and is dependent on the control systems of the Manager and The Bank of New York Mellon (International) Limited (which acts as both Depositary, Custodian and Fund Accountant and maintains the Company’s assets, settlement and accounting records). The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of these third party service providers. Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records (including cyber security risk) could prevent the accurate reporting and monitoring of the Company’s financial position. Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board. Third party service providers, BlackRock and The Bank of
New York Mellon (International) Limited, produce internal control reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountant. These reports are provided to the Audit & Management
Engagement Committee. The Company’s financial assets are subject to a strict liability regime and, in the event of a loss of assets, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss
was a result of an event beyond its reasonable control. The Board reviews the overall performance of the Manager, Investment Manager and all other third party service providers on a regular basis and compliance with the management contract annually. The
Board also considers the business continuity arrangements of the Company’s key service providers.
Financial The Company’s investment activities expose it to a variety of financial risks which include market risk, counterparty credit risk, liquidity risk and the valuation of financial instruments. Details of these risks are disclosed in note 18 of the Annual Report and Financial Statements, together with a summary of the policies for managing these risks.
Marketing Marketing efforts are inadequate or do not comply with relevant regulatory requirements. There is a failure to communicate adequately with shareholders or identify potential new shareholders resulting in reduced demand for the Company’s shares and a widening of the discount. The Board reviews marketing strategy and initiatives and the Manager is required to provide regular updates on progress. BlackRock has a dedicated investment trust sales team visiting both existing and potential clients on a regular basis. Data on client
meetings and issues raised are provided to the Board on a regular basis. All investment trust marketing documents are subject to appropriate review and authorisation.
Securities lending The Company may engage in securities lending. Engaging in securities lending will have a credit risk exposure to the counterparties to any securities lending contract. The Company’s investments can be lent to counterparties over a period of time. A default by the counterparty, combined with a fall in the value of the collateral below that of the value of the securities lent, may result in a reduction in the value of the Company. The Company intends to ensure that all securities lending is fully collateralised but, to the extent that any securities lending is not fully collateralised (for example due to timing issues arising from payment lags), the Company will have a credit risk
exposure to the counterparties to the securities lending contracts. Further details on securities lending are disclosed in the Annual Report and Financial Statements.
VIABILITY STATEMENT
In accordance with Provision 31 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Company for a period of three
years. This is generally the investment holding period investors consider
while investing in the natural resources companies sector. In its assessment
of the viability of the Company the Directors have noted that:
· the Company invests predominantly in highly liquid, large listed
companies so its assets are readily realisable and provide a level of cash
receipts in the form of interest and dividends;
· the Company invests in mining companies with long life assets;
· the Company’s forecasts for revenues, expenses and liabilities
are relatively stable and it has largely fixed overheads which comprise a very
small percentage of net assets (1.02%); and
· the business model should remain attractive for much longer than
three years, unless there is a significant deterioration in commodity markets
or further regulatory change.
The Company will undertake its annual continuation vote at the forthcoming
Annual General Meeting and the Board has reviewed the potential impact that
this may have on the Company’s viability. The Board is confident that the
continuation vote will be passed and have prepared the viability statement
under this assumption.
The Directors have also reviewed:
· the Company’s principal risks and uncertainties as set out
above;
· the potential impact of a fall in commodity equity markets on the
value of the Company’s investment portfolio and underlying dividend income;
· the ongoing relevance of the Company’s investment objective,
business model and investment policy; and
· the level of demand for the Company’s shares.
The Directors reviewed the assumptions and considerations underpinning the
Company’s existing going concern assertion which are based on:
· processes for monitoring costs;
· key financial ratios;
· evaluation of risk management controls;
· compliance with the investment objective;
· portfolio risk profile;
· share price discount to NAV;
· gearing; and
· counterparty exposure and liquidity risk.
Based on the results of their analysis, the Directors have concluded that
there is a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period of their
assessment.
FUTURE PROSPECTS
The Board’s main focus is to maximise total returns over the longer term
through investment in mining and metal assets. The outlook for the Company is
discussed in both the Chairman’s Statement and the Investment Manager’s
Report.
EMPLOYEES, SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust with no employees, the Company has no direct social or
community responsibilities or impact on the environment. However, the Company
believes that it is in shareholders’ interests to consider human rights
issues and environmental, social and governance factors when selecting and
retaining investments. Details of the Company’s policy on socially
responsible investment are set out in the Annual Report and Financial
Statements.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the
normal course of business and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015. In any event,
the Board considers the Company’s supply chains, dealing predominantly with
professional advisers and service providers in the financial services
industry, to be low risk in relation to this matter.
DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 31 December 2019 are set out in the
Directors’ Biographies in the Annual Report and Financial Statements. The
Board consists of four male Directors and two female Directors. The Company
does not have any employees; therefore there are no disclosures to be made in
that respect.
The Strategic Report was approved by the Board at its meeting on 27 February
2020.
By order of the Board
CAROLINE DRISCOLL
For and on behalf of
BlackRock Investment Management (UK) Limited
Company Secretary
27 February 2020
TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months’
notice. BFM has (with the Company’s consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock
Investment Management (UK) Limited (BIM (UK)). Further details of the
investment management contract are disclosed in the Directors’ Report in the
Annual Report and Financial Statements.
The investment management fee due for the year ended 31 December 2019 amounted
to £6,480,000 (2018: £6,041,000). At the year end, £1,714,000 (2018:
£1,359,000) was outstanding in respect of the management fee.
In addition to the above services, BlackRock has provided the Group with
marketing services. The total fees paid or payable for these services for the
year ended 31 December 2019 amounted to £159,000 excluding VAT (2018:
£139,000 excluding VAT). Marketing fees of £50,000 were outstanding as at 31
December 2019 (2018: £69,000).
RELATED PARTY TRANSACTIONS
The Board consists of six non-executive Directors all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. The Chairman receives an annual fee of £45,000, the
Chairman of the Audit & Management Engagement Committee/Senior Independent
Director receives an annual fee of £37,500, and each other Director receives
an annual fee of £30,000. Five members of the Board hold shares in the
Company. Mr Buchan holds 29,000 ordinary shares, Mr Cheyne 24,000 ordinary
shares, Mr Edey 20,000 ordinary shares, Ms Mosely 7,400 ordinary shares and Ms
Lewis 5,362 ordinary shares. The amount of Directors’ fees outstanding at 31
December 2019 was £14,375 (2018: £16,875).
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial
year. Under that law, the Directors are required to prepare the financial
statements under IFRS as adopted by the European Union.
Under Company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the Group for
that period. In preparing those financial statements, the Directors are
required to:
· present fairly the financial position, financial performance and
cash flows of the Group and Company;
· select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and then apply
them consistently;
· present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· state whether the financial statements have been prepared in
accordance with IFRS as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
· provide additional disclosures when compliance with the specific
requirements in IFRS as adopted by the European Union is insufficient to
enable users to understand the impact of particular transactions, other events
and conditions on the Group’s and Company’s financial position and
financial performance; and
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company will continue
in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group’s and Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report,
Directors’ Report, the Directors’ Remuneration Report, the Corporate
Governance Statement and the Report of the Audit & Management Engagement
Committee in accordance with the Companies Act 2006 and applicable
regulations, including the requirements of the Listing Rules and the
Disclosure Guidance and Transparency Rules. The Directors have delegated
responsibility to the Manager for the maintenance and integrity of the
Company’s corporate and financial information included on the BlackRock
website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Each of the Directors, whose names are listed in the Annual Report and
Financial Statements, confirm to the best of their knowledge that:
· the financial statements, which have been prepared in accordance
with IFRS as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and net return of the Group and
Company; and
· the Strategic Report contained in the Annual Report and Financial
Statements includes a fair review of the development and performance of the
business and the position of the Group and Company, together with a
description of the principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter, the Board has
requested that the Audit & Management Engagement Committee advise on whether
it considers that the Annual Report and Financial Statements fulfil these
requirements. The process by which the Committee has reached these conclusions
is set out in the Audit & Management Engagement Committee’s Report in the
Annual Report and Financial Statements. As a result, the Board has concluded
that the Annual Report and Financial Statements for the year ended 31 December
2019, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Group’s and Company’s
position, performance, business model and strategy.
For and on behalf of the Board
DAVID CHEYNE
Chairman
27 February 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER
2019
Notes Revenue 2019 £’000 Revenue 2018 £’000 Capital 2019 £’000 Capital 2018 £’000 Total 2019 £’000 Total 2018 £’000
Income from investments held at fair value through profit or loss 3 40,880 32,049 – – 40,880 32,049
Other income 3 5,634 6,145 – – 5,634 6,145
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total revenue 46,514 38,194 – – 46,514 38,194
========== ========== ========== ========== ========== ==========
Net profit/(loss) on investments held at fair value through profit or loss – – 77,517 (112,935) 77,517 (112,935)
Net profit/(loss) on foreign exchange – – 3,230 (4,754) 3,230 (4,754)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total 46,514 38,194 80,747 (117,689) 127,261 (79,495)
========== ========== ========== ========== ========== ==========
Expenses
Investment management fee 4 (1,564) (1,454) (4,916) (4,587) (6,480) (6,041)
Other operating expenses 5 (1,030) (1,025) (20) (14) (1,050) (1,039)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total operating expenses (2,594) (2,479) (4,936) (4,601) (7,530) (7,080)
========== ========== ========== ========== ========== ==========
Net profit/(loss) on ordinary activities before finance costs and taxation 43,920 35,715 75,811 (122,290) 119,731 (86,575)
Finance costs 6 (896) (798) (2,683) (2,369) (3,579) (3,167)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Net profit/(loss) on ordinary activities before taxation 43,024 34,917 73,128 (124,659) 116,152 (89,742)
========== ========== ========== ========== ========== ==========
Taxation (3,463) (2,904) 1,377 1,559 (2,086) (1,345)
Profit/(loss) for the year 39,561 32,013 74,505 (123,100) 114,066 (91,087)
========== ========== ========== ========== ========== ==========
Earnings/(loss) per ordinary share (pence) 8 22.46 18.15 42.30 (69.78) 64.76 (51.63)
========== ========== ========== ========== ========== ==========
The total column of this statement represents the Group’s Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU). The
supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies (AIC). All items in the
above statement derive from continuing operations. No operations were acquired
or discontinued during the year. All income is attributable to the equity
holders of the Group.
The Group does not have any other comprehensive income/(loss). The net
profit/(loss) for the year disclosed above represents the Group’s total
comprehensive income/(loss).
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR
ENDED 31 DECEMBER 2019
Group Notes Called up share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserves £’000 Revenue reserve £’000 Total £’000
For the year ended 31 December 2019
At 31 December 2018 9,651 127,155 22,779 114,147 373,301 38,562 685,595
Total comprehensive income:
Net profit for the year – – – – 74,505 39,561 114,066
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury 9, 10 – – – (5,512) – – (5,512)
Share purchase costs 10 – – – (34) – – (34)
Dividends paid (1 ) 7 – – – – – (37,005) (37,005)
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 December 2019 9,651 127,155 22,779 108,601 447,806 41,118 757,110
========== ========== ========== ========== ========== ========== ==========
For the year ended 31 December 2018
At 31 December 2017 9,651 127,155 22,779 114,589 496,401 34,072 804,647
Total comprehensive (loss)/income:
Net (loss)/profit for the year – – – – (123,100) 32,013 (91,087)
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury 9 – – – (439) – – (439)
Share purchase costs 9 – – – (3) – – (3)
Dividends paid (2 ) 7 – – – – – (27,523) (27,523)
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 December 2018 9,651 127,155 22,779 114,147 373,301 38,562 685,595
========== ========== ========== ========== ========== ========== ==========
1 The final dividend of 9.00p per share for the year ended 31 December
2018, declared on 28 February 2019 and paid on 10 May 2019; 1st interim
dividend of 4.00p per share for the year ended 31 December 2019, declared on 2
May 2019 and paid on 28 June 2019; 2nd interim dividend of 4.00p per share for
the year ended 31 December 2019, declared on 20 August 2019 and paid on 1
October 2019; and 3rd interim dividend of 4.00p per share for the year ended
31 December 2019, declared on 14 November 2019 and paid on 20 December 2019.
2 The final dividend of 6.60p per share for the year ended 31 December
2017, declared on 26 February 2018 and paid on 10 May 2018; 1st interim
dividend of 3.00p per share for the year ended 31 December 2018, declared on
25 April 2018 and paid on 29 June 2018; 2nd interim dividend of 3.00p per
share for the year ended 31 December 2018, declared on 17 August 2018 and paid
on 21 September 2018; and 3rd interim dividend of 3.00p per share for the year
ended 31 December 2018, declared on 8 November 2018 and paid on 21 December
2018.
Company Notes Called up share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserves £’000 Revenue reserve £’000 Total £’000
For the year ended 31 December 2019
At 31 December 2018 9,651 127,155 22,779 114,147 380,486 31,377 685,595
Total comprehensive income:
Net profit for the year – – – – 74,127 39,939 114,066
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury 9, 10 – – – (5,512) – – (5,512)
Share purchase costs 10 – – – (34) – – (34)
Dividends paid (1 ) 7 – – – – – (37,005) (37,005)
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 December 2019 9,651 127,155 22,779 108,601 454,613 34,311 757,110
========== ========== ========== ========== ========== ========== ==========
For the year ended 31 December 2018
At 31 December 2017 9,651 127,155 22,779 114,589 503,885 26,588 804,647
Total comprehensive (loss)/income:
Net (loss)/profit for the year – – – – (123,399) 32,312 (91,087)
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury 9 – – – (439) – – (439)
Share purchase costs 9 – – – (3) – – (3)
Dividends paid (2 ) 7 – – – – – (27,523) (27,523)
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 December 2018 9,651 127,155 22,779 114,147 380,486 31,377 685,595
========== ========== ========== ========== ========== ========== ==========
1 The final dividend of 9.00p per share for the year ended 31 December
2018, declared on 28 February 2019 and paid on 10 May 2019; 1st interim
dividend of 4.00p per share for the year ended 31 December 2019, declared on 2
May 2019 and paid on 28 June 2019; 2nd interim dividend of 4.00p per share for
the year ended 31 December 2019, declared on 20 August 2019 and paid on 1
October 2019; and 3rd interim dividend of 4.00p per share for the year ended
31 December 2019, declared on 14 November 2019 and paid on 20 December 2019.
2 The final dividend of 6.60p per share for the year ended 31 December
2017, declared on 26 February 2018 and paid on 10 May 2018; 1st interim
dividend of 3.00p per share for the year ended 31 December 2018, declared on
25 April 2018 and paid on 29 June 2018; 2nd interim dividend of 3.00p per
share for the year ended 31 December 2018, declared on 17 August 2018 and paid
on 21 September 2018; and 3rd interim dividend of 3.00p per share for the year
ended 31 December 2018, declared on 8 November 2018 and paid on 21 December
2018.
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION AS AT 31
DECEMBER 2019
31 December 2019 31 December 2018
Notes Group £’000 Company £’000 Group £’000 Company £’000
Non current assets
Investments held at fair value through profit or loss 845,777 851,732 778,526 784,300
----------------- ----------------- ----------------- -----------------
Current assets
Other receivables 4,626 4,626 2,326 2,326
Cash collateral held with brokers 431 431 650 650
Cash and cash equivalents 1,399 39 35,501 30,793
----------------- ----------------- ----------------- -----------------
6,456 5,096 38,477 33,769
----------------- ----------------- ----------------- -----------------
Total assets 852,233 856,828 817,003 818,069
========== ========== ========== ==========
Current liabilities
Other payables (4,003) (5,071) (16,725) (17,791)
Derivative financial liabilities held at fair value through profit or loss (314) (314) (312) (312)
Bank overdraft (99) (3,626) – –
Bank loans (90,583) (90,583) (114,221) (114,221)
----------------- ----------------- ----------------- -----------------
(94,999) (99,594) (131,258) (132,324)
----------------- ----------------- ----------------- -----------------
Total assets less current liabilities 757,234 757,234 685,745 685,745
========== ========== ========== ==========
Non current liabilities
Deferred taxation liability (124) (124) (150) (150)
Net assets 757,110 757,110 685,595 685,595
========== ========== ========== ==========
Equity attributable to equity holders
Called up share capital 9 9,651 9,651 9,651 9,651
Share premium account 10 127,155 127,155 127,155 127,155
Capital redemption reserve 10 22,779 22,779 22,779 22,779
Special reserve 10 108,601 108,601 114,147 114,147
Capital reserves
At 1 January 373,301 380,486 496,401 503,885
Net profit/(loss) for the year 74,505 74,127 (123,100) (123,399)
----------------- ----------------- ----------------- -----------------
10 447,806 454,613 373,301 380,486
----------------- ----------------- ----------------- -----------------
Revenue reserve
At 1 January 38,562 31,377 34,072 26,588
Net profit for the year 39,561 39,939 32,013 32,312
Dividends paid (37,005) (37,005) (27,523) (27,523)
----------------- ----------------- ----------------- -----------------
10 41,118 34,311 38,562 31,377
----------------- ----------------- ----------------- -----------------
Total equity 757,110 757,110 685,595 685,595
========== ========== ========== ==========
Net asset value per ordinary share (pence) 8 433.17 433.17 388.81 388.81
========== ========== ========== ==========
CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2019
31 December 2019 31 December 2018
Notes Group £’000 Company £’000 Group £’000 Company £’000
Operating activities
Net profit/(loss) before taxation 116,152 116,152 (89,742) (89,742)
Add back finance costs 3,579 3,579 3,167 3,167
Net (profit)/loss on investments held at fair value through profit or loss (including transaction costs) (76,960) (77,141) 113,315 113,234
Net (profit)/loss on foreign exchange (3,230) (3,230) 4,754 4,754
Sales of investments held at fair value through profit or loss 377,210 377,210 235,980 235,980
Purchases of investments held at fair value through profit or loss (367,499) (367,499) (221,634) (218,342)
Increase in other receivables (2,058) (2,058) (119) (119)
Increase/(decrease) in other payables 268 270 (1,889) (1,889)
(Increase)/decrease in amounts due from brokers (118) (118) 360 360
(Decrease)/increase in amounts due to brokers (13,713) (13,713) 13,639 13,639
Net movement in cash collateral held with brokers 219 219 1,333 1,333
----------------- ----------------- ----------------- -----------------
Net cash inflow from operating activities before taxation 33,850 33,671 59,164 62,375
========== ========== ========== ==========
Taxation paid (2,035) (2,035) (969) (969)
Taxation on investment income included within gross income (124) (124) (765) (765)
----------------- ----------------- ----------------- -----------------
Net cash inflow from operating activities 31,691 31,512 57,430 60,641
========== ========== ========== ==========
Financing activities
(Repayment)/drawdown of loans (20,000) (20,000) 20,000 20,000
Interest paid (3,815) (3,815) (3,167) (3,167)
Payments for ordinary shares purchased into treasury (4,632) (4,632) (439) (439)
Share purchase costs paid (32) (32) (3) (3)
Dividends paid 7 (37,005) (37,005) (27,523) (27,523)
----------------- ----------------- ----------------- -----------------
Net cash outflow from financing activities (65,484) (65,484) (11,132) (11,132)
========== ========== ========== ==========
(Decrease)/increase in cash and cash equivalents (33,793) (33,972) 46,298 49,509
Cash and cash equivalents at start of the year 35,501 30,793 (11,556) (19,475)
Effect of foreign exchange rate changes (408) (408) 759 759
----------------- ----------------- ----------------- -----------------
Cash and cash equivalents at end of year 1,300 (3,587) 35,501 30,793
========== ========== ========== ==========
Comprised of:
Cash and cash equivalents 1,399 39 35,501 30,793
Bank overdraft (99) (3,626) – –
----------------- ----------------- ----------------- -----------------
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010. The
Company was incorporated on 28 October 1993 and this is the 26th Annual
Report.
The principal activity of the subsidiary, BlackRock World Mining Investment
Company Limited, is investment dealing.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Group and Company have been
applied consistently, other than where new policies have been adopted and are
set out below.
(a) Basis of preparation
The Group and Parent Company financial statements have been prepared under the
historic cost convention modified by the revaluation of certain financial
assets and financial liabilities held at fair value through profit or loss and
in accordance with International Financial Reporting Standards (IFRS) as
adopted by the European Union and as applied in accordance with the provisions
of the Companies Act 2006. The Company has taken advantage of the exemption
provided under section 408 of the Companies Act 2006 not to publish its
individual Statement of Comprehensive Income and related notes. All of the
Group’s operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts issued by the Association of Investment
Companies (AIC), revised in November 2014 and updated in October 2019, is
compatible with IFRS, the financial statements have been prepared in
accordance with guidance set out in the SORP.
The revised SORP issued in October 2019 is applicable for accounting periods
beginning on or after 1 January 2019. As a result, the gains on disposals of
investments of £31,498,000 (2018: loss of £60,679,000) and gains on
revaluation of investments of £45,462,000 (2018: loss of £52,636,000) have
now been combined, as shown in note 10 in the Annual Report and Financial
Statements. The result of this change has no impact on the net asset value or
total return for both the current year and prior year. No other accounting
policies or disclosures have changed as a result of the revised SORP.
Substantially, all of the assets of the Group consist of securities that are
readily realisable and, accordingly, the Directors believe that the Group has
adequate resources to continue in operational existence for the foreseeable
future. Consequently, the Directors have determined that it is appropriate for
the financial statements to be prepared on a going concern basis.
The Group’s financial statements are presented in sterling, which is the
functional currency of the Group and the currency of the primary economic
environment in which the Group operates. All values are rounded to the nearest
thousand pounds sterling (£’000) except where otherwise indicated.
IFRS standards that have been recently adopted:
IFRS 16 – Leases (effective 1 January 2019) specifies accounting for leases
and removes the distinction between operating and finance leases. This
standard is not applicable to the Group as it has no leases.
IFRIC 23 – Uncertainty over Income Tax Treatments seeks to provide clarity
on how to account for uncertainty over income tax treatments and specifies
that an entity must consider whether it is probable that the relevant tax
authority will accept each tax treatment, or group of tax treatments, that it
plans to use in its income tax filing. The interpretation also requires
companies to reassess the judgements and estimates applied if facts and
circumstances change. The interpretation is effective for annual reporting
periods beginning on or after 1 January 2019. The interpretation would require
the Group to recognise uncertain tax positions which are more than probable
within its financial statements and could potentially require the Group to
recognise tax reclaims filed with HMRC if their recoverability becomes more
than probable. The adoption of this interpretation has had no impact on the
financial statements of the Group.
IFRS standards that have yet to be adopted:
A number of new standards, amendments to standards and interpretations are
effective for the annual periods beginning on or after 1 January 2020 and have
not been adopted early in preparing these financial statements (major changes
and new standards issued are detailed below), as these are not expected to
have any effect on the measurement of the amounts recognised in the financial
statements of the Group.
Amendments to IFRS 3 – definition of a business (effective 1 January 2020).
This amendment revises the definition of a business. According to feedback
received by the International Accounting Standards Board, application of the
current guidance is commonly thought to be too complex and it results in too
many transactions qualifying as business combinations. The standard has not
been endorsed by the EU. This standard is unlikely to have any impact on the
Group.
Amendments to IAS 1 and IAS 8 on the definition of material (effective 1
January 2020). The amendments to IAS 1, ‘Presentation of financial
statements’, and IAS 8, ‘Accounting policies, changes in accounting
estimates and errors’, and consequential amendments to other IFRSs require
companies to:
(i) use a consistent definition of materiality throughout IFRSs and the
Conceptual Framework for Financial Reporting;
(ii) clarify the explanation of the definition of material; and
(iii) incorporate some of the guidance in IAS 1 about immaterial
information.
The standard has not been endorsed by the EU. This standard is unlikely to
have any impact on the Group.
Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform
(effective 1 January 2020). These amendments provide certain reliefs in
connection with the interest rate benchmark reform. The reliefs relate to
hedge accounting and have the effect that the Inter Bank Offer Rate (IBOR)
reform should not generally cause hedge accounting to terminate. However, any
hedge ineffectiveness should continue to be recorded in the income statement.
Given the pervasive nature of hedges involving IBOR based contracts, the
reliefs will affect companies in all industries.
The standard has been endorsed by the EU. This standard is unlikely to have
any significant impact on the Group as it does not hedge.
IFRS 17 – ‘Insurance contracts’ (effective 1 January 2021). This
standard replaces IFRS 4, which currently permits a wide variety of practices
in accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features. The standard has not been
endorsed by the EU. This standard is unlikely to have any impact on the Group
as it has no insurance contracts.
(b) Basis of consolidation
The Group’s financial statements are made up to 31 December each year and
consolidate the financial statements of the Company and its wholly owned
subsidiary, which is registered and operates in England and Wales, BlackRock
World Mining Investment Company Limited (together ‘the Group’). The
subsidiary company is not considered an investment entity.
Subsidiaries are consolidated from the date of their acquisition, being the
date on which the Company obtains control, and continue to be consolidated
until the date that such control ceases. The financial statements of
subsidiaries used in the preparation of the consolidated financial statements
are based on consistent accounting policies. All intra-group balances and
transactions, including unrealised profits arising therefrom, are eliminated.
(c) Presentation of the consolidated statement of comprehensive income
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Consolidated Statement of Comprehensive Income between items of a
revenue and a capital nature has been presented alongside the Consolidated
Statement of Comprehensive Income.
(d) Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business being investment business.
(e) Income
Dividends receivable on equity shares are recognised as revenue for the year
on an ex-dividend basis. Where no ex-dividend date is available, dividends
receivable on or before the year end are treated as revenue for the year.
Provision is made for any dividends not expected to be received. Special
dividends, if any, are treated as a capital or a revenue receipt depending on
the facts or circumstances of each particular case. The return on a debt
security is recognised on a time apportionment basis so as to reflect the
effective yield on the debt security. Interest income and deposit interest is
accounted for on an accruals basis.
Options may be purchased or written over securities held in the portfolio for
generating or protecting capital returns, or for generating or maintaining
revenue returns. Where the purpose of the option is the generation of income,
the premium is treated as a revenue item. Where the purpose of the option is
the maintenance of capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the life of the
option contract and included in the revenue column of the Consolidated
Statement of Comprehensive Income unless the option has been written for the
maintenance and enhancement of the Group’s investment portfolio and
represents an incidental part of a larger capital transaction, in which case
any premia arising are allocated to the capital column of the Consolidated
Statement of Comprehensive Income.
Royalty income from contractual rights is measured at the fair value of the
consideration received or receivable where the Investment Manager can reliably
estimate the amount, pursuant to the terms of the agreement. Royalty income
from contractual rights received comprise of a return of income and a return
of capital based on the underlying cost of the contract and, accordingly, the
return of income element is taken to the revenue account and the return of
capital element is taken to the capital account. These amounts are disclosed
in the Consolidated Statement of Comprehensive Income within income from
investments and gains/losses on investments held at fair value through profit
or loss, respectively.
The useful life of the contractual rights will be determined by reference to
the contractual arrangements, the planned mine life on commencement of mining
and the underlying cost of the contractual rights will be revalued on a
systematic basis using the units of production method over the life of the
contractual rights which is estimated using available estimated proved and
probable reserves specifically associated with the mine. The Investment
Manager relies on public disclosures for information on proven and probable
reserves from the operators of the mine. Amortisation rates are adjusted on a
prospective basis for all changes to estimates of the life of contractual
rights and iron ore reserves. These are disclosed in the Consolidated
Statement of Comprehensive Income within gains/losses on investments held at
fair value through profit or loss.
Where the Group has elected to receive its dividends in the form of additional
shares rather than in cash, the cash equivalent of the dividend is recognised
as income. Any excess in the value of the shares received over the amount of
the cash dividend is recognised in capital.
Underwriting commission receivable is taken into account on an accruals basis.
(f) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue column of the Consolidated
Statement of Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an
investment are charged to the capital column of the Consolidated Statement of
Comprehensive Income. Details of transaction costs on the purchases and sales
of investments are disclosed within note 10 to the financial statements in the
Annual Report and Financial Statements;
· expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated;
· the investment management fee and finance costs have been
allocated 75% to the capital column and 25% to the revenue column of the
Consolidated Statement of Comprehensive Income in line with the Board’s
expectations of the long-term split of returns, in the form of capital gains
and income, respectively, from the investment portfolio.
(g) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Consolidated
Statement of Comprehensive Income because it excludes items of income or
expenses that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Group’s liability for
current tax is calculated using tax rates that were applicable at the balance
sheet date.
Where expenses are allocated between capital and revenue, any tax relief in
respect of the expenses is allocated between capital and revenue returns on
the marginal basis using the Company’s effective rate of corporation tax for
the accounting period.
Deferred taxation is recognised in respect of all temporary differences that
have originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the financial
reporting date. This is subject to deferred taxation assets only being
recognised if it is considered more likely than not that there will be
suitable profits from which the future reversal of the temporary differences
can be deducted. Deferred taxation assets and liabilities are measured at the
rates applicable to the legal jurisdictions in which they arise.
(h) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Group classifies its investments at initial
recognition as held at fair value through profit or loss and are managed and
evaluated on a fair value basis in accordance with its investment strategy and
business model.
All investments, including contractual rights, are initially and subsequently
measured at fair value through profit or loss. Purchases of investments are
recognised on a trade date basis. Contractual rights are recognised on the
completion date, where a purchase of the rights is under a contract and are
initially measured at fair value excluding transaction costs. Sales of
investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price
at the financial reporting date, without deduction for the estimated future
selling costs. This policy applies to all current and non-current asset
investments held by the Group.
The gains and losses from changes in fair value of contractual rights are
taken to the Consolidated Statement of Comprehensive Income and arise as a
result of the revaluation of the underlying cost of the contractual rights,
changes in commodity prices and changes in estimates of proven and probable
reserves specifically associated with the mine.
Under IFRS, the investment in the subsidiary in the Company’s Statement of
Financial Position is fair valued which is deemed to be the net asset value of
the subsidiary. Changes in the value of investments held at fair value through
profit or loss and gains and losses on disposal are recognised in the
Consolidated Statement of Comprehensive Income as net profits or losses on
investments held at fair value through profit or loss. Also included within
the heading are transaction costs in relation to the purchase or sale of
investments.
For all financial instruments not traded in an active market, the fair value
is determined by using various valuation techniques. Valuation techniques
include market approach (i.e., using recent arm’s length market transactions
adjusted as necessary and reference to the current market value of another
instrument that is substantially the same) and the income approach (i.e.,
discounted cash flow analysis and option pricing models making as much use of
available and supportable market data as possible). Where no reliable fair
value can be estimated for such instruments, they are carried at cost subject
to any provision for impairment. See note 2(q) below.
(i) Options
Options are held at fair value based on the bid/offer prices of the options
written to which the Group is exposed. The value of the option is subsequently
marked-to-market to reflect the fair value of the option based on traded
prices. Where the premium is taken to revenue, an appropriate amount is shown
as capital return such that the total return reflects the overall change in
the fair value of the option. When an option is exercised the gain or loss is
accounted for as a capital gain or loss. Any cost on closing out an option is
transferred to revenue along with any remaining unamortised premium.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest and are
short-term in nature and are accordingly stated on an amortised cost basis.
(k) Dividends payable
Under IFRS, final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the financial reporting
date. Interim dividends should not be accrued in the financial statements
unless they have been paid.
Dividends payable to equity shareholders are recognised in the Consolidated
and Parent Company Statements of Changes in Equity.
(l) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at
the date of the transaction. Foreign currency monetary assets and liabilities
and non-monetary assets held at fair value are translated into sterling at the
rate ruling on the financial reporting date. Foreign exchange differences
arising on translation are recognised in the Consolidated Statement of
Comprehensive Income as a revenue or capital item depending on the income or
expense to which they relate. For investment transactions and investments held
at the year end, denominated in a foreign currency, the resulting gains or
losses are included in the profit/(loss) on investments held at fair value
through profit or loss in the Consolidated Statement of Comprehensive Income.
(m) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand deposits. Cash
equivalents are short term, highly liquid investments that are readily
convertible to known amounts of cash and that are subject to an insignificant
risk of changes in value. Bank overdrafts are shown separately on the
Consolidated and Parent Company Statements of Financial Position.
(n) Bank borrowings
Bank overdrafts and loans are recorded as the proceeds received. Finance
charges, including any premium payable on settlement or redemption and direct
issue costs, are accounted for on an accruals basis in the Consolidated
Statement of Comprehensive Income using the effective interest rate method and
are added to the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
(o) Offsetting
Financial assets and financial liabilities are offset and the net amount
reported in the Consolidated and Parent Company Statements of Financial
Position if there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
(p) Share repurchases
Shares repurchased and subsequently cancelled – share capital is reduced by
the nominal value of the shares repurchased and the capital redemption reserve
is correspondingly increased in accordance with section 733 of the Companies
Act 2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is
charged to the special reserve.
(q) Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates and assumptions will, by definition, seldom equal the
related actual results.
Estimates and judgements are regularly evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. The estimates and
assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are addressed below.
Fair value of unquoted financial instruments
When the fair values of financial assets and financial liabilities recorded in
the Consolidated and Parent Company Statements of Financial Position cannot be
derived from active markets, their fair value is determined using a variety of
valuation techniques that include the use of valuation models.
(a) The fair value of the OZ Minerals contractual rights was assessed by
an independent valuer with a recognised and relevant professional
qualification. The inputs to these models are taken from observable markets
where possible, but where this is not feasible, estimation is required in
establishing fair values. The estimates include considerations of production
profiles, commodity prices, cash flows and discount rates. Changes in
assumptions about these factors could affect the reported fair value of
financial instruments in the Consolidated and Parent Company Statements of
Financial Position and the level where the instruments are disclosed in the
fair value hierarchy. To assess the significance of a particular input to the
entire measurement, the external valuer performs a sensitivity analysis.
(b) The investment in the subsidiary company was valued based on the net
assets of the subsidiary company, which is considered appropriate based on the
nature and volume of transactions in the subsidiary company.
The key assumptions used to determine the fair value of the unquoted financial
instruments and sensitivity analyses are provided in note 18(d) of the Annual
Report and Financial Statements.
3. INCOME
2019 £’000 2018 £’000
Income from investments held at fair value through profit or loss:
UK dividends 11,817 10,806
UK special dividends 4,402 –
Overseas dividends 11,394 12,245
Overseas special dividends 2,249 396
Income from contractual rights (OZ Minerals Royalty) 1,541 2,294
Income from debentures (Vale) 3,708 277
Fixed income 5,769 6,031
----------------- -----------------
40,880 32,049
========== ==========
Other income:
Option premium income 6,008 6,129
Deposit interest 106 36
Underwriting commission – 188
Stock lending income 77 172
Losses on investment dealing in the subsidiary (557) (380)
---------------- 5,634 ---------------- 6,145
----------------- -----------------
Total income 46,514 38,194
========== ==========
During the year, the Group received option premiums totalling £5,986,000
(2018: £5,874,000) for writing options for the purposes of revenue
generation. Option premiums of £6,008,000 (2018: £6,129,000) were amortised
to revenue; see accounting policy note 2(e). At 31 December 2019, there were
five (2018: two) open positions with an associated liability of £314,000
(2018: £312,000).
Dividends and interest received in cash during the year amounted to
£27,581,000 and £8,252,000 respectively (2018: £23,675,000 and
£6,060,000).
Special dividends amounting to £5,229,000 (2018: £nil) have been recognised
in capital during the year and included within investment gains.
4. INVESTMENT MANAGEMENT FEE
2019 2018
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Investment management fee 1,564 4,916 6,480 1,454 4,587 6,041
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total 1,564 4,916 6,480 1,454 4,587 6,041
========== ========== ========== ========== ========== ==========
The investment management fee (which includes all services provided by
BlackRock) is 0.8% of the Company’s net assets. However, in the event that
the NAV per share increases on a quarter–on–quarter basis, the fee will
then be paid on gross assets for the quarter. During the year £5,888,000
(2018: £5,830,000) of the investment management fee was generated from net
assets and £592,000 (2018: £211,000) from the gearing effect on gross assets
due to the quarter–on–quarter increase in the NAV per share during the
year as set out below:
Quarter end Cum income NAV per share (pence) Quarterly increase/ (decrease) % Gearing effect on management fees (£’000)
31 December 2018 388.81 – –
31 March 2019 422.80 +8.7 188
30 June 2019 440.97 +4.3 148
30 September 2019 414.80 (5.9) –
31 December 2019 433.17 +4.4 256
========== ========== ==========
The daily average of the net assets under management during the year ended 31
December 2019 was £733,356,000 (2018: £755,993,000). The fee is allocated
25% to the revenue column and 75% to the capital column of the Consolidated
Statement of Comprehensive Income.
5. OTHER OPERATING EXPENSES
2019 £’000 2018 £’000
Allocated to revenue
Custody fee 114 127
Auditors’ remuneration:
– audit services 36 33
– non-audit services (1 ) 7 7
Registrar’s fee 88 87
Directors’ emoluments (2 ) 190 221
AIC Fees 22 20
Broker fees 24 25
Depositary fees 63 88
FCA fee 18 18
Directors’ insurance 14 22
Marketing fees 159 139
Stock exchange fees 19 19
Legal and professional fees 43 67
Bank facility fees (3 ) 75 72
Directors’ search fees 26 –
Printing and postage costs 45 26
Other administrative costs 87 54
----------------- -----------------
1,030 1,025
========== ==========
Allocated to capital
Custody transaction charges 20 14
----------------- -----------------
1,050 1,039
========== ==========
2019 2018
The Company’s ongoing charges (4), calculated as a percentage of average net assets and using recurring expenses excluding finance costs, direct transaction costs, custody transaction charges and taxation were: 1.02% 0.93%
The Company’s ongoing charges (4), calculated as a percentage of average gross assets and using recurring expenses excluding finance costs, direct transaction costs, custody transaction charges and taxation were: 0.89% 0.82%
========== ==========
1 Fees paid to the auditors for non-audit services of £6,580
excluding VAT (2018: £6,580) relate to the review of the half yearly
financial statements.
2 Details of the Directors’ emoluments are given in the
Directors’ Remuneration Report in the Annual Report and Financial
Statements. Emoluments include taxable benefits for reimbursement of expenses.
3 There is a 4 basis point facility fee chargeable on the full loan
facility amount whether drawn or undrawn.
4 Alternative Performance Measures, see Glossary in the Annual
Report and Financial Statements.
For the year ended 31 December 2019, expenses of £20,000 (2018: £14,000)
were charged to the capital column of the Consolidated Statement of
Comprehensive Income. These relate to costs charged by the Custodian on sale
and purchase trades.
6. FINANCE COSTS
2019 2018
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Interest on bank loans 889 2,662 3,551 779 2,312 3,091
Interest payable – bank overdraft 7 21 28 19 57 76
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total 896 2,683 3,579 798 2,369 3,167
========== ========== ========== ========== ========== ==========
7. DIVIDENDS
Record date Payment date 2019 £’000 2018 £’000
Final dividend of 9.00p per share for the year ended 31 December 2018 (2017: 6.60p) 22 March 2019 10 May 2019 15,870 11,646
1st interim dividend of 4.00p per share for the year ended 31 December 2019 (2018: 3.00p) 31 May 2019 28 June 2019 7,053 5,294
2nd interim dividend of 4.00p per share for the year ended 31 December 2019 (2018: 3.00p) 20 August 2019 1 October 2019 7,052 5,293
3rd interim dividend of 4.00p per share for the year ended 31 December 2019 (2018: 3.00p) 22 November 2019 20 December 2019 7,030 5,290
----------------- -----------------
37,005 27,523
========== ==========
The total dividends payable in respect of the year ended 31 December 2019
which form the basis of section 1158 of the Corporation Tax Act 2010 and
section 833 of the Companies Act 2006, and the amounts proposed, meet the
relevant requirements as set out in this legislation.
Dividends paid, proposed or declared on equity shares:
2019 £’000 2018 £’000
1st interim dividend of 4.00p per share for the year ended 31 December 2019 (2018: 3.00p) 7,053 5,294
2nd interim dividend of 4.00p per share for the year ended 31 December 2019 (2018: 3.00p) 7,052 5,293
3rd interim dividend of 4.00p per share for the year ended 31 December 2019 (2018: 3.00p) 7,030 5,290
Final interim dividend of 10.00p per share for the year ended 31 December 2019 (2018: final dividend 9.00p)* 17,380 15,870
----------------- -----------------
38,515 31,747
========== ==========
* Based on 173,805,020 (2018: 176,330,242) ordinary shares in issue
on 27 February 2020.
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
2019 2018
Net revenue profit attributable to ordinary shareholders (£’000) 39,561 32,013
Net capital profit/(loss) attributable to ordinary shareholders (£’000) 74,505 (123,100)
---------------------- ----------------------
Total profit/(loss) attributable to ordinary shareholders (£’000) 114,066 (91,087)
=========== ===========
Equity shareholders' funds (£’000) 757,110 685,595
The weighted average number of ordinary shares in issue during the year, on which the earnings per ordinary share was calculated was: 176,135,318 176,426,789
The actual number of ordinary shares in issue at the year end, on which the net asset value per ordinary share was calculated was: 174,784,727 176,330,242
Earnings per share
Revenue earnings per share (pence) 22.46 18.15
Capital profit/(loss) per share (pence) 42.30 (69.78)
---------------------- ----------------------
Total profit/(loss) per share (pence) 64.76 (51.63)
=========== ===========
As at 31 December 2019 As at 31 December 2018
Net asset value per ordinary share (pence) 433.17 388.81
Ordinary share price (pence) 383.00 340.50
=========== ===========
There were no dilutive securities at the year end.
9. CALLED UP SHARE CAPITAL
Number of ordinary shares Treasury shares Total shares Nominal value £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 5p each
At 31 December 2018 176,330,242 16,681,600 193,011,842 9,651
Shares purchased into treasury (1,545,515) 1,545,515 – –
---------------------- ---------------------- ---------------------- ----------------------
At 31 December 2019 174,784,727 18,227,115 193,011,842 9,651
============ ============ ============ ============
During the year 1,545,515 shares were bought back and transferred to treasury
for a total consideration of £5,546,000 (2018: 125,000 shares were bought
back and transferred to treasury for a total consideration of £442,000).
Since the year end a further 979,707 ordinary shares have been bought back and
held in treasury for a total consideration of £3,673,000.
10. RESERVES
Distributable reserves
Group Share premium account £'000 Capital redemption reserve £'000 Special reserve £'000 Capital reserve - arising on investments sold £'000 Capital reserve - arising on revlauation of investments held £'000 Revenue reserve £'000
At 31 December 2018 127,155 22,779 114,147 252,127 121,174 38,562
Movement during the year:
Total comprehensive income:
Net capital profit for the year – – – 29,423 45,082 –
Net revenue profit for the year – – – – – 39,561
Transactions with owners recorded directly to equity:
Ordinary shares purchased into treasury – – (5,512) – – –
Share purchase costs – – (34) – – –
Dividends paid – – – – – (37,005)
---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
At 31 December 2019 127,155 22,779 108,601 281,550 166,256 41,118
============ ============ ============ ============ ============ ============
Distributable reserves
Company Share premium account £'000 Capital redemption reserve £'000 Special reserve £'000 Capital reserve - arising on investments sold £'000 Capital reserve - arising on revaluation of investments held £'000 Revenue reserve £'000
At 31 December 2018 127,155 22,779 114,147 252,126 128,360 31,377
Movement during the year:
Total comprehensive income:
Net capital profit for the year – – – 28,484 45,643 –
Net revenue profit for the year – – – – – 39,939
Transactions with owners recorded directly to equity:
Ordinary shares purchased into treasury – – (5,512) – – –
Share purchase costs – – (34) – – –
Dividends paid – – – – – (37,005)
---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
At 31 December 2019 127,155 22,779 108,601 280,610 174,003 34,311
============ ============ ============ ============ ============ ============
Pursuant to a resolution of the Company passed at an Extraordinary General
Meeting on 13 January 1998 and following the Company's application to the
Court for cancellation of its share premium account, the Court approval was
received on 27 January 1999 and £157,633,000 was transferred from the share
premium account to a special reserve which is a distributable reserve.
The share premium account and capital redemption reserve are not distributable
profits under the Companies Act 2006. The special reserve and capital reserve
may be used as distributable profits for all purposes and, in particular, the
repurchase by the Company of its ordinary shares and for payments as
dividends. In accordance with the Company’s Articles of Association, net
capital returns may be distributed by way of dividend.
11. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the
Consolidated and Parent Company Statements of Financial Position at their fair
value (investment and derivatives) or at an amount which is a reasonable
approximation of fair value (due from brokers, dividends and interest
receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS
13 requires the Group to classify fair value measurements using a fair value
hierarchy that reflects the significance of inputs used in making the
measurements. The valuation techniques used by the Group are explained in the
accounting policies note 2(h) to the Financial Statements.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency and those prices
represent actual and regularly occurring market transactions on an arm’s
length basis. The Group does not adjust the quoted price for these
instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less than active, or other
valuation techniques where all significant inputs are directly or indirectly
observable from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm’s length transactions, reference to other
instruments that are substantially the same, discounted cash flow analysis,
option pricing models and other valuation techniques commonly used by market
participants making the maximum use of market inputs and relying as little as
possible on entity specific inputs.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes ‘observable’ inputs
requires significant judgement by the Investment Manager.
Over-the-counter derivative option contracts have been classified as Level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts
expose the Group.
Valuation process and techniques for Level 3 valuations
The Directors engage a mining consultant, an independent valuer with a
recognised and relevant professional qualification, to conduct a periodic
valuation of the contractual rights and the fair value of the contractual
rights is assessed with reference to relevant factors. At the reporting date
the income streams from contractual rights have been valued on the net present
value of the pre-tax cash flows discounted at a rate the external valuer
considers reflects the risks associated with the project. The valuation model
uses discounted cash flow analysis which incorporates both observable and
non-observable data. Observable inputs include assumptions regarding current
rates of interest and commodity prices. Unobservable inputs include
assumptions regarding production profiles, price realisations, cost of capital
and discount rates. In determining the discount rate to be applied, the
external valuer considers the country and sovereign risk associated with the
project, together with the time horizon to the commencement of production and
the success or failure of projects of a similar nature. To assess the
significance of a particular input to the entire measurement, the external
valuer performs a sensitivity analysis. The external valuer has undertaken an
analysis of the impact of using alternative discount rates on the fair value
of contractual rights.
This investment in contractual rights is reviewed regularly to ensure that the
initial classification remains correct given the asset’s characteristics and
the Group’s investment policies. The contractual rights are initially
recognised using the transaction price as the best evidence of fair value at
acquisition and are subsequently measured at fair value, taking into
consideration the relevant IFRS 13 requirements. In arriving at their
estimates of market values, the valuers have used their market knowledge and
professional judgement. The Group classifies the fair value of this investment
as Level 3.
Valuations are the responsibility of the Directors of the Company. In arriving
at a final valuation, the Directors consider the independent valuer’s
report, the significant assumptions used in the fair valuation and the review
process undertaken by BlackRock’s Pricing Committee. The valuation of
unquoted investments is performed on a quarterly basis by the Portfolio
Managers and reviewed by the Pricing Committee of the Investment Manager. On a
quarterly basis the Portfolio Managers will review the valuation of the
contractual rights and inputs for significant changes. A valuation of
contractual rights is performed annually by an external valuer, SRK Consulting
(UK) Limited, and reviewed by the Pricing Committee of the Investment Manager.
The valuations are also subject to quality assurance procedures performed
within the Pricing Committee. On a semi-annual basis, after the checks above
have been performed, the Investment Manager presents the valuation results to
the Directors. This includes a discussion of the major assumptions used in the
valuations. There were no changes in valuation techniques during the year.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value through profit or loss at 31 December 2019 - Group Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 761,242 – - 761,242
Fixed income securities 38,646 30,099 - 68,745
Investment in contractual rights – – 15,790 15,790
---------------------- ---------------------- ---------------------- ----------------------
Total assets 799,888 30,099 15,790 845,777
============ ============ ============ ============
Liabilities:
Derivative financial instruments – written options – (314) – (314)
---------------------- ---------------------- ---------------------- ----------------------
Total 799,888 29,785 15,790 845,463
============ ============ ============ ============
Financial assets/(liabilities) at fair value through profit or loss at 31 December 2018 - Group Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 676,645 6,101 – 682,746
Fixed income securities 74,017 3,250 – 77,267
Investment in contractual rights – – 18,513 18,513
---------------------- ---------------------- ---------------------- ----------------------
Total assets 750,662 9,351 18,513 778,526
============ ============ ============ ============
Liabilities:
Derivative financial instruments – written options – (312) – (312)
---------------------- ---------------------- ---------------------- ----------------------
Total 750,662 9,039 18,513 778,214
============ ============ ============ ============
Financial assets/(liabilities) at fair value through profit or loss at 31 December 2019 - Company Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 758,889 – 8,308 767,197
Fixed income securities 38,646 30,099 – 68,745
Investment in contractual rights – – 15,790 15,790
---------------------- ---------------------- ---------------------- ----------------------
Total assets 797,535 30,099 24,098 851,732
============ ============ ============ ============
Liabilities:
Derivative financial instruments – written options – (314) – (314)
---------------------- ---------------------- ---------------------- ----------------------
Total 797,535 29,785 24,098 851,418
============ ============ ============ ============
Financial assets/(liabilities) at fair value through profit or loss 31 December 2018 - Company Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 673,733 6,101 8,686 688,520
Fixed income securities 74,017 3,250 – 77,267
Investment in contractual rights – – 18,513 18,513
---------------------- ---------------------- ---------------------- ----------------------
Total assets 747,750 9,351 27,199 784,300
============ ============ ============ ============
Liabilities:
Derivative financial instruments – written options – (312) – (312)
---------------------- ---------------------- ---------------------- ----------------------
Total 747,750 9,039 27,199 783,988
============ ============ ============ ============
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 Financial assets at fair value through profit or loss At 31 December – Group 2019 £’000 2018 £’000
Opening fair value 18,513 18,943
Total profit or loss included in net (loss)/profit on investments in the Consolidated Statement of Comprehensive Income:
– assets disposed during the year – –
– assets held at the end of the year (2,723) (430)
---------------------- ----------------------
Closing balance 15,790 18,513
============ ============
Level 3 Financial assets at fair value through profit or loss At 31 December – Company 2019 £’000 2018 £’000
Opening fair value 27,199 27,928
Total profit or loss included in net (loss)/profit on investments in the Consolidated Statement of Comprehensive Income:
– assets disposed during the year – –
– assets held at the end of the year (3,101) (729)
---------------------- ----------------------
Closing balance 24,098 27,199
============ ============
The Level 3 valuation process and techniques used are explained in the
accounting policies in note 2(h). A more detailed description of the
techniques is found in the Annual Report and Financial Statements under
‘Valuation process and techniques’.
Quantitative information of significant unobservable inputs – Level 3 –
Group and Company
Description 2019 £’000 2018 £’000 Valuation technique Unobservable input
OZ Minerals Brazil Royalty 15,790 18,513 Discounted cash flows Discounted rate – weighted average cost of capital Average gold and copper prices
Investment in subsidiary company 8,308 8,686 Net assets Net assets
============ ============ ============ ============
Sensitivity analysis to significant changes in unobservable inputs within
Level 3 hierarchy
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy, together with an
estimated quantitative sensitivity analysis, as at 31 December 2019 are as
shown below.
Description Input Estimated sensitivity used* Impact on fair value
OZ Minerals Brazil Royalty Discount rate – weighted average cost of capital 2019 – 1% 2018 - 1% 2019 – £0.8m 2018 - £2.3m
Average gold and copper prices 2019 – 10% 2018 - 10% 2019 – £2.2m 2018 - £3.5m
============= =============
* The sensitivity analysis refers to a percentage amount added or
deducted from the input and the effect this has on the fair value.
The sensitivity impact on fair value is calculated based on the sensitivity
estimates set out by the independent valuer in its report on the valuation of
contractual rights. Significant increases/(decreases) in estimated commodity
prices and discount rates in isolation would result in a significantly
higher/(lower) fair value measurement. Generally, a change in the assumption
made for the estimated value is accompanied by a directionally similar change
in the commodity prices and discount rates.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2019 (2018: nil).
13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The Annual Report and
Financial Statements for the year ended 31 December 2019 will be filed with
the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the auditor, whose report
for the year ended 31 December 2019 contains no qualification or statement
under section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of
BlackRock World Mining Trust plc and its subsidiary for the year ended 31
December 2018, which have been filed with the Registrar of Companies. The
report of the auditor on those financial statements contained no qualification
or statement under section 498 of the Companies Act 2006.
14. ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Annual Report and Financial Statements will be published shortly
and will be available from the registered office, c/o The Secretary, BlackRock
World Mining Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
15. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Thursday, 30 April 2020 at 11.30 a.m.
ENDS
The Annual Report and Financial Statements will also be available on the
BlackRock website at www.blackrock.co.uk/brwm. Neither the contents of the
website nor the contents of any website accessible from hyperlinks on the
website (or any other website) is incorporated into, or forms part of, this
announcement.
For further information, please contact:
Simon White, Managing Director, Closed End Funds, BlackRock Investment
Management (UK) Limited – Tel: 020 7743 5284
Evy Hambro, Fund Manager, BlackRock Investment Management (UK) Limited –
Tel: 020 7743 4511
Emma Phillips, Media & Communications, BlackRock Investment Management (UK)
Limited – Tel: 020 7743 2922
Press enquires:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
27 February 2020
12 Throgmorton Avenue
London EC2N 2DL
Copyright (c) 2020 PR Newswire Association,LLC. All Rights ReservedRecent news on BlackRock World Mining Trust
See all newsREG-BlackRock World Mining Trust Plc: Net Asset Value(s)
AnnouncementREG-BlackRock World Mining Trust Plc: Net Asset Value(s)
AnnouncementREG-BlackRock World Mining Trust Plc: Net Asset Value(s)
AnnouncementREG-BlackRock World Mining Trust Plc: Net Asset Value(s)
AnnouncementREG-BlackRock World Mining Trust Plc: Net Asset Value(s)
Announcement