REG-BlackRock World Mng: Final Results
04/03/2021 20:05
BlackRock World Mining Trust plc LEI - LNFFPBEUZJBOSR6PW155
Annual Results Announcement (Article 4 Transparency Directive, DTR 4.1)
for the year ended 31 December 2020
Performance record
31 December 2020 31 December 2019
Net assets (£’000)¹ 930,825 757,110
Net asset value per ordinary share (NAV) (pence) 536.34 433.17
Ordinary share price (mid-market) (pence) 522.00 383.00
Reference Index (4)– net total return 4,566.93 3,786.17
Discount to net asset value (2,3) 2.7% 11.6%
Performance
Net asset value per share (with dividends reinvested) (3) +31.8% +17.2%
Ordinary share price (with dividends reinvested) (3) +46.7% +19.4%
Reference Index (4) +20.6% +15.3%
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(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. Performance figures are calculated in sterling terms
with dividends reinvested.
(4) MSCI ACWI Metals and Mining 30% Buffer 10/40 Index (net total
return).
Year ended 31 December 2020 Year ended 31 December 2019 Change %
Revenue
Net revenue profit after taxation (£’000) 35,451 39,561 -10.4
Revenue return per ordinary share (pence) 20.40 22.46 -9.2
Dividend per ordinary share (pence)
– 1st interim 4.00 4.00 –
– 2nd interim 4.00 4.00 –
– 3rd interim 4.00 4.00 –
– Final 8.30 10.00 -17.0
Total dividends paid and payable 20.30 22.00 -7.7
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Chairman’s Statement
HIGHLIGHTS
*
NAV per share +31.8%(1) (with dividends reinvested)
*
Share price +46.7%(1) (with dividends reinvested)
*
Dividend -7.7%
I am pleased to present the Annual Financial Report for the year ended 31
December 2020.
PERFORMANCE
It is very pleasing to report that over the twelve months to 31 December 2020,
the Company’s net asset value per share (NAV) returned +31.8%(1) and the
share price +46.7%(1). In comparison, over the same period the Company’s
Reference Index, the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net
total return), returned +20.6%, our previous reference index, the EMIX Global
Mining Index, returned +21.8%, the FTSE All-Share Index returned -9.8% and the
UK Consumer Price Index (CPI) increased by 0.6%.
This is an excellent achievement given that our Portfolio Managers have had to
navigate the exceptional global economic and social upheaval following the
outbreak of COVID-19 and the ensuing pandemic. A detailed commentary on the
portfolio’s performance, its positioning, ESG factors and their importance
in portfolio construction together with 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 1 March 2021, the Company’s
NAV has increased by 8.5%.
(1 ) Alternative Performance Measures. All percentages calculated in
sterling terms with dividends reinvested. Further details of the calculation
of performance with dividends reinvested are given in the Glossary in the
Annual Report and Financial Statements.
OVERVIEW
The year ended 31 December 2020 saw enormous disruption brought on by the
global pandemic, which led to the partial shutdown of many economies across
the world for much of the period. The nature and scale of the disruption was
unparalleled but the significant fiscal and monetary response was also
unprecedented. This response played an important part in markets rebounding
from their March lows. It has also ensured that economies would not suffer
large scale or permanent demand destruction outside a few specific industries.
Throughout the COVID-19 outbreak, the Board has had to adjust its mode of
operation to minimise the risk the virus has posed to the health and wellbeing
of those working on the management and administration of the Company. The
Board has continued to meet regularly and since April all scheduled meetings
have been held by video conference. The Board has also worked closely with its
Manager to ensure that the Company’s operations have not been adversely
impacted, that BlackRock and key service providers have established business
continuity plans and a good level of service has continued to be maintained.
Unfortunately, however, the arrangements for last year’s Annual General
Meeting were disrupted as a result of COVID-19 related restrictions and, with
the current lockdowns in place, this may well be the case again for the
forthcoming Annual General Meeting. The proposed Annual General Meeting
arrangements are set out below.
REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the year amounted to 20.40p
compared with 22.46p for the previous year, representing a decrease of 9.2%.
The main difference was a fall in special dividends received from our investee
companies, although the Company benefited from the positive outcome on a tax
ruling which was explained in my Interim Statement to shareholders. In August
2020, HM Revenue & Customs accepted that the Company was entitled to claim
double tax relief in relation to underlying tax suffered on dividends received
from non-UK companies in a number of past accounting periods and subsequently
the Company received a corporation tax refund including interest of
£2,980,000.
During the year, three quarterly interim dividends each of 4.00p per share
were paid on 26 June 2020, 25 September 2020 and 18 December 2020. The Board
is proposing a final dividend payment of 8.30p per share for the year ended 31
December 2020. This, together with the quarterly interim dividends, makes a
total of 20.30p per share (2019: 22.00p per share) representing a decrease of
7.7% on payments made in the previous financial year and, as in past years,
all dividends are fully covered by income. In accordance with the Board’s
stated policy, the total dividends represent substantially all of the year’s
available income.
Subject to approval at the Annual General Meeting, the final dividend will be
paid on 6 May 2021 to shareholders on the Company’s register on 19 March
2021, the ex-dividend date being 18 March 2021. It remains the Board’s
intention to seek to distribute substantially all of the Company’s available
income along similar lines in the future.
DISCOUNT CONTROL
The Board recognises the importance to investors that the market price of the
Company’s shares should not trade at a significant discount to the
underlying NAV. Accordingly, the Board monitors the Company’s discount to
NAV and will look to buy back shares in normal market conditions if it is
deemed to be in shareholders’ interests. During the year, a total of
1,233,913 shares were purchased at an average price of 373.53p per share for a
total gross consideration of £4,609,000. All shares have been placed in
treasury.
I am pleased to report that the Company’s discount narrowed considerably
during December and, at the year end, stood at 2.7%. Accordingly, no further
shares have been purchased since the year end, up to and including the date of
this report. Subsequent to the year end, the Company’s shares have traded at
a premium to the underlying NAV and 3,720,000 shares have been reissued from
treasury at an average price of 588.59p per share and an average premium to
the estimated NAV of 1.2% for a total gross consideration of £21,896,000. As
at 1 March 2021 the premium stood at 1.4%.
Resolutions to renew the authorities to issue and buy back shares will be put
to shareholders at the forthcoming Annual General Meeting.
ESG AND SOCIALLY RESPONSIBLE INVESTMENT
As a Board we are conscious that Environmental, Social and Governance (ESG)
criteria are increasingly at the forefront of investors’ minds. Given the
nature of mining as an industry, your Board has a strong focus on ESG and
believes that it is important that our Company’s investee companies operate
in a responsible and sustainable way having regard to the interests of all
their stakeholders, whether these are shareholders, employees, customers,
regulators or suppliers. The Board is also aware that ESG must be considered
when investing in the Natural Resources sector and, as a general approach, the
Company will not invest in companies which have high ESG risks and no plans to
address existing deficiencies. Our Manager, BlackRock, has an Investment
Stewardship team which is responsible for protecting and enhancing the value
of your Company’s investments through engagement with companies to encourage
business and management practices that support sustainable financial
performance over the long term.
Climate change is one of the most significant global risks and companies,
governments and investors reacted positively during 2020, with firm policy
commitments to achieve net zero emissions across many of the major world
economies. We expect momentum to build and accelerate in 2021, with profound
implications for the global economy. BlackRock believes that its clients are
best served by being at the forefront of the transition to ‘net zero’ and
in January 2021 announced key actions to help investors prepare for a net zero
world, an approach fully supported by your Board. Further information can be
found in the Strategic Report below.
ARTICLES OF ASSOCIATION
In light of the circumstances created by the outbreak of the COVID-19
pandemic, the Board is proposing to make amendments to the Articles of
Association (the Articles) to enable the Company to hold general meetings
(wholly or partially) by electronic means and to give additional powers in
respect of postponing or adjourning meetings in appropriate circumstances. The
amendments are being sought in response to challenges posed by government
restrictions on social interactions as a result of the COVID-19 pandemic,
which have made it impossible for shareholders to attend physical general
meetings.
The Board’s objective in introducing these changes is to make it easier for
shareholders to participate in general meetings through introducing electronic
access for those unable to travel and also to ensure appropriate security
measures are in place for the protection and wellbeing of shareholders. I
should make it clear that these powers would only be used if the specific
circumstances or applicable law and regulation required it and the Board’s
intention is to always hold a physical Annual General Meeting provided it is
both safe and practical to do so. The safety of shareholders and the
Company’s third-party service providers must of course remain paramount.
The principal changes proposed to be introduced in the Articles, and their
effect, are set out in more detail in the Directors’ Report in the Annual
Report and Financial Statements.
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, 29 April 2021
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.
At the time of writing, guidance has been issued by the UK, Scottish and Welsh
governments, regarding measures to reduce the transmission of COVID-19 in the
UK. These measures are, and will continue to be, subject to periodic amendment
and currently impose rules on social distancing and limitations on, among
other things, public gatherings.
Accordingly, in view of this guidance, the Board is changing the format of the
Annual General Meeting again this year to follow the minimum legal
requirements for an Annual General Meeting. Only the formal business set out
in the Notice will be considered. In line with this guidance, shareholders
are strongly discouraged from attending the meeting and indeed entry will be
refused if current UK Government guidance is unchanged. Shareholders are
encouraged to check the Manager’s website at blackrock.com/uk/brwm for
updates to the Annual General Meeting arrangements, as changes may well be
required to comply with new guidance and/or government measures.
The Board is aware that many shareholders look forward to hearing the views of
the Portfolio Managers and may have questions for them and the Board.
Accordingly, the Annual General Meeting will be followed by a webinar to
include an introduction from the Chairman and a presentation by the Portfolio
Managers, followed by a question and answer session. Shareholders are invited
to join the webinar and address any questions they have either by submitting
questions during the webinar or in advance by writing to the Company Secretary
at cosec@blackrock.com. Details of the exact timing and how to register for
this event will be uploaded to the Manager’s website at
blackrock.com/uk/brwm.
Notwithstanding these difficult circumstances, the Board looks forward to
offering opportunities for shareholders to meet the Portfolio Managers in the
future once it becomes safe for all.
OUTLOOK
World equities appear to be on a firmer footing and there is increased
optimism now that the uncertainty of the US election has been resolved and the
distribution of COVID-19 vaccines provides hope for some return to normality.
However, at the time of writing, the full extent of the economic and social
impact of the pandemic and the likely duration of the current national
lockdowns remain unclear. There are still challenges in the very near term
with a resurgence of cases and the emergence of new mutations of the virus.
Ongoing policy support from central banks, alongside fiscal stimulus, is
therefore vital to limit any permanent economic scarring. Widely administered,
effective vaccinations should, however, provide more clarity for governments,
businesses and households about the timescale to revive the post COVID-19
economy.
Mined commodity prices performed well during 2020 aided by China’s swift
post pandemic recovery and significant government investment in
infrastructure. In other regions, risks of pandemic-related supply disruptions
and slower than forecast economic recovery may linger into next year but their
impact on the sector should be relatively moderate and the dominance of China
in determining overall demand growth for industrial metals will remain. The
restrained approach to capital spending in the sector in recent years should
also cap the rapid emergence of new supply, underpinning the current
attractive margins for some time. Your Portfolio Managers therefore believe
that the commodity demand and pricing outlook is strong, and they will remain
focused on high quality companies with, alongside engagement on ESG matters,
strong balance sheets and lower costs, an approach fully supported by the
Board.
DAVID CHEYNE
Chairman
4 March 2021
Investment manager’s report
PORTFOLIO PERFORMANCE
We are delighted to report that 2020 delivered another strong year for our
Company despite the headwinds caused by the COVID-19 pandemic. Normally when
global Gross Domestic Product (GDP) collapses, unemployment rates surge and
equity market volatility explodes, the mining sector is one of the worst
performing places to be invested but this time things were very different. The
years of balance sheet repair, rigid capital discipline and sensible growth
plans left the companies well placed to navigate the challenges brought about
by the global pandemic.
The table below highlights the Company’s results versus the broader mix of
comparators that the Board uses to assess performance. Not only has the share
price return been positive for four out of the last five years, but the total
share price return moved to a new all-time high on 31 December 2020. In
addition, the share price has benefited from a narrowing of the discount
especially during the last quarter of 2020. Revenues for the Company have been
robust as strong balance sheets have allowed mining companies to continue
returning surplus cash to shareholders. However, the decrease in special
dividends has meant that this year the Company’s total dividend payment to
shareholders could not match last year’s record payment level.
2020 Price Change % 2020 Total Return % 3 Year Total Return % 5 Year Total Return %
Share price 36.3 46.7 56.3 289.5
NAV per share 23.8 31.8 36.7 227.1
MSCI ACWI Metals & Mining 30% Buffer 10/40 Index 17.5 20.6 22.8 186.2
FTSE 100 Index -14.3 -11.5 -5.3 26.2
FTSE All-Share Index -12.5 -9.8 -2.7 28.5
UK CPI 0.6 0.6 4.0 8.8
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All performance figures in sterling with dividends reinvested.
Source: BlackRock.
Looking back on 2020 it is hard to know where to start given all the events
that influenced returns. Obviously, the key factor was the outbreak of
COVID-19 leading to a global pandemic being declared. The huge impact of the
virus on people’s physical health during the year varied across the globe.
Initially the virus outbreak affected China but by March it had spread to
Europe leading to mass lockdowns across the continent. After rapidly moving
through Europe, the virus impacted Africa and South America and reached North
America in early summer, again leading to lockdowns to prevent it escalating
to a level that would put the health service at risk. By late summer data
suggested that the measures put into place to bring the virus under control
had delivered the hoped-for results and restrictions were gradually lifted
across the world, especially as research evidence suggested an effective
vaccine was imminent. However, this positive momentum was short lived, as by
early autumn the virus was spreading rapidly once again and new mutated
strains, feared to be more contagious than the original ones, were causing
record high rates of infections in Europe and the United States (US).
Governments once again acted by bringing lockdowns back into play just as the
year end festive season got under way. At the time of writing, it is clear
that these new measures are likely to be in place for several months until
confidence that the vaccine roll-out has had the desired effect in controlling
the virus.
Outside of the health risks, the virus obviously had a huge impact on economic
activity. With large parts of the world in complete lockdown, many industries
have been severely impacted including travel, tourism, hotels, leisure and
entertainment, whilst others have thrived, the digital economy being the major
beneficiary. Anything that could be bought online and delivered to your home
saw a massive recovery from the lows in March and many companies have enjoyed
staggering share price rallies leaving them at new all-time highs by the year
end. Governments have sought to protect as much of the economy and workforce
as possible by putting in place financial support packages to protect jobs and
support businesses during the lockdown periods. These measures were meant to
be short lived, but as the virus has continued to thrive, the economic life
support that governments provided has been extended for far longer than
originally expected. This has left central bank balance sheets with record
levels of debt following this sharp increase in government spending and
equally sharp drop in interest rates with many falling to zero or below.
Whilst the pandemic has been the biggest factor during the year, other issues
that had been expected to dominate events seem to have passed with only
limited impact. In the US, President Trump lost his battle for a second term
and now it seems that the Biden administration is likely to deliver sweeping
changes on the environment, large increases to government spending and
probably a less aggressive tone on Chinese trade, whilst still being tough on
human rights and technology. Key for the resources sector will be the policy
on spending and the environment. The combination of these two areas seems
likely to result in a significant increase in investment to support the
transition to a lower carbon economy, which is likely to be associated with an
increase in commodity demand, especially for key metals such as copper. The
focus on climate will likely see further pressure on fossil fuels and, over
time, impact demand for them.
Outside of the US, tensions related to Brexit have been high in Europe and
between China and Australia on trade. As the year drew to a close, Brexit
terms were finally agreed between the UK and Europe removing a key policy
overhang for both economies. The likely outcome is for both economic areas to
increase spending to support a recovery from the pandemic and limit the
economic fallout from the UK leaving the European Union. In Australia it seems
that China is doing everything it can to impact trade between the two
countries with bans put in place on a whole range of goods from wine to coal.
Should the situation continue to worsen, one key risk for the portfolio is
Chinese demand for iron ore given its dominance in the seaborne market. Whilst
iron ore is seen as unlikely to be brought into the fight, it is something we
watch very closely given the large exposure within the portfolio.
Positives over the last twelve months are that miners have generally benefited
from a lack of cost inflation driven by weaker currencies in the first half of
the year and the huge fall in the price of oil. In addition, the lack of
growth-related spending means that labour costs have seen little upwards
pressure from rising demand, as have prices for equipment. Looking into 2021,
we expect these trends to reverse given weakness in the US dollar, the
recovery in oil prices and a catch up in mining company capital expenditure,
whilst labour cost inflation should be manageable given the high rates of
unemployment across the world.
After a year that has been disrupted in such a major way, it is very
encouraging to see the long-term return and dividend trend for the Company
remaining resolute. Many sectors and companies have been unable to pay
dividends to shareholders during 2020 and the outlook for recovery in these
areas remains uncertain to say the least. It is our hope that investors
recognise the value of stable income from resource companies in a world where
yields are now so low. Perhaps we will see a rotation of capital into mining
companies during 2021?
Since the Initial Public Offering of the Company in 1993 at 100p per share,
the shares have delivered a NAV total return of 959.9%. On an annualised
basis, the Company’s NAV has returned 9.1% since launch compared to 6.2% and
6.7% for the FTSE 100 Index and FTSE All-Share Index respectively.
MINING SECTOR OVERVIEW
As discussed earlier, the influence of the pandemic has been significant in
driving company performance during the year given the scale of government
enforced lockdowns and the corresponding impact they had on economic activity.
Companies operating in the most affected sectors such as travel, leisure,
fitness studios, tourism, high street retail and entertainment saw revenues
reduce radically and share prices collapse. On the other side of the equation,
beneficiaries saw trends in place prior to the pandemic accelerate in their
favour. Digital retail revenues exploded, home media entertainment soared,
online grocery deliveries grew market share and at home, fitness services
displaced gyms. These swings in economic fortune were reflected in the stock
market with a massive divergence in performance by sector. We are pleased to
say that despite all of the volatility, for the mining sector the outcome over
the twelve month period was not only better than feared but actually extremely
positive.
Mining companies were well-positioned to see out the immediate volatility due
to the robustness of their businesses. Strong revenues, rock solid balance
sheets and long duration debt maturities softened the blow from lockdowns. In
addition, immediate closure of capacity in response to virus outbreaks meant
that inventories did not build into a supply overhang so that when demand
restarted prices were able to react positively to the recovering activity.
Finally, with limited amounts of new supply coming onstream, this has left the
market looking ‘short’ compared to the likely ongoing demand recovery
during 2021. The chart on page 11 of the Annual Report and Financial
Statements highlights the sensitivity of ‘basic resources’ to world GDP
and no sector is better placed to benefit than the miners.
Despite all of the positives, mining companies in the portfolio were rightly
cautious during the initial virus outbreak and, given the timing, this
resulted in lower than expected dividend payments to shareholders during the
year. This was most acutely reflected in the low level of special dividends
paid by the diversified majors whose balance sheets now hold significant
levels of excess cash. Shareholders are expecting 2021 to be a year of
significant distributions of excess cash, as most companies now have gearing
well below the bottom end of guidance levels. For the Company, special
dividends accounted for 0.30p per share in 2020 versus 3.80p in 2019, but
looking forward this area could potentially be a very supportive factor for
income in 2021.
During the year the Company maintained large holdings in key producers of iron
ore given the ongoing supply issues and resultant better than expected prices.
Our holdings in key beneficiaries such as Vale, Rio Tinto, BHP and Fortescue
Metals Group, together with the iron royalty exposures in Vale Debentures and
Labrador Iron Ore, all helped to increase the Company’s NAV during the year.
Exposure to gold producers in the first half delivered excellent capital
growth, as gold prices moved to new record levels on the back of the expansion
of central bank balance sheets and collapse in interest rates. Gold shares
enjoyed huge share price rallies, as the absence of cost inflation allowed
them to capture the higher prices in margins. Also, in precious metals, the
platinum group metals (PGM) sector enjoyed equally spectacular returns, with
the PGM basket rising to new all-time highs, initially driven by palladium and
then taken higher by rhodium during the second half of the year.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ISSUES
The focus on ESG continues to intensify with society increasingly aware of the
climate risks facing civilisation. Sustainability is at the forefront of
decision making for governments and regulators, climate risk is being embedded
into corporate strategy, society is demanding change and there is a growing
recognition from the financial community that ESG is a key driver of long-term
growth.
We are also challenging the executives of the portfolio companies in which we
invest to set out how their current business plans are compatible with
achieving a net zero carbon emissions economy by 2050. We are also supporting
the adoption of the Task Force on Climate-related Financial Disclosures (TCFD)
and the Sustainability Accounting Standards Board (SASB) disclosures to help
bring greater focus on climate risk and broader sustainability issues.
The commitment to sustainability was put to test in 2020 with COVID-19
providing an opportunity for targets to be delayed. Encouragingly, we have
seen numerous companies reconfirm and increase commitments around carbon
emissions, using more sustainable packaging and increasing recycling rates
highlighting the importance placed on this theme. Governments have centred
stimulus packages around sustainability with a focus on renewable energy,
electric vehicles and sustainable building materials, with investors rewarding
companies that are embracing and benefiting from sustainability themes in the
market.
During the year a number of governments committed to carbon neutrality, most
notably China, which is targeting to become carbon neutral by 2060. The scale
of investment required to meet this goal is enormous and will be a key driver
of China’s GDP growth and commodity demand for decades to come. We view
copper and other sustainable materials such as nickel, lithium and cobalt as
the clear winners from this transition. Substantial investment will be
required into these commodities with the mining sector a clear beneficiary of
the energy transition. On the flip side, thermal coal faces increasing
regulatory and societal pressure with demand expected to decline as cleaner
and cheaper sources of renewable power become available. The Company is
well-positioned to benefit from these trends and we expect to build exposure
to metals that will benefit from this transition in years ahead.
Within the portfolio, a number of the larger companies provided clarity on
their long-term carbon emission targets. Companies such as Anglo American and
BHP have committed to reduce their scope 1 & 2 emissions by 30% by 2030 and
are looking to achieve carbon neutrality for their own operations by 2040 and
2050 respectively. These commitments will be a key driver of investment going
forward with the sector focused on replacing diesel with renewable power
sources, investing in technology to reduce their own and their customers
emissions and exiting businesses with a high carbon intensity. As at the end
of the year, the Company has no exposure to pure-play thermal coal companies.
ESG is a broad and rapidly evolving area and is of critical importance to the
mining sector. As investment managers we spend a considerable amount of time
understanding the ESG risks and opportunities facing companies and industries
in the portfolio. As an extractive industry, the mining sector naturally faces
a number of ESG challenges given its dependence on water, its carbon emissions
and the geographical location of assets. However, we feel the sector
under-emphasises the many positive ESG benefits it provides to society through
the provision of critical infrastructure, taxes and employment to local
communities, providing materials essential to human progress, enabling the
carbon transition through the production of sustainable metals and continuing
to improve health and safety standards across the industry.
While the majority of the Company’s holdings have advanced their ESG
credentials during the year, particularly around climate change and COVID-19
support provided to their host communities and employees, there have sadly
also been some ESG controversies. The most notable was the destruction of
historical caves at Juukan Gorge on the land of the Puutu Kunti Kurrama and
Pinikura people (PKKP) in the Pilbara region of Western Australia. This tragic
incident has cast a dim light over Rio Tinto’s ESG practices which
ultimately saw the removal of the CEO and a number of other key executives.
Following the Australian parliamentary inquiry into Juukan Gorge and a review
of the Native Title Act, we expect increased scrutiny over land access and
regulatory approval for future projects which adds uncertainty to Australian
iron ore supply longer term.
Norilsk Nickel has been under significant scrutiny following an oil spill
which saw circa 21,000t of diesel spilled into the Arctic region. Norilsk has
been ordered to pay US$1.9 billion in fines and damages.
Vale has been under ESG scrutiny following the tailings dam incidents at
Samarco in 2015 and Brumadinho in 2019. Both events have been extremely tragic
and resulted in a heavy focus on tailings dam management across the sector.
Vale is committed to restoring Brumadinho and continues to make good progress
rebuilding its pact with society. Vale has implemented a number of changes to
its tailings dam management process following an independent review to ensure
it is aligned with the highest level of international practices. As confidence
increases in the improved ESG credentials of the company, we would expect the
shares to re-rate higher to reflect the reduced ESG risk.
ESG is an integral element of the investment process used to build and manage
the portfolio. As a general approach the Company will not invest in companies
which have high ESG risks and which have no plans to address existing
deficiencies.
We are also challenging the executives of the portfolio companies in which we
invest to set out how their current business plans are compatible with
achieving a net zero carbon emissions economy by 2050. We are also supporting
the adoption of the Task Force on Climate-related Financial Disclosures (TCFD)
and the Sustainability Accounting Standards Board (SASB) disclosures to help
bring greater focus on climate risk and broader sustainability issues.
There will be cases where a serious event has occurred and in that case we
will assess whether the company is taking appropriate action to resolve
matters before deciding what to do. Depending on our assessment of the
reaction of the Board and management to the event, we will take appropriate
measures, which may include the full disposal of shares.
In addition there will be companies which have derated on the back of an ESG
event or generally poor ESG practices and there may be opportunities to invest
at a discounted price. However we will only invest in these value-based
opportunities if we are satisfied that there is real evidence that the
company’s culture has changed and that better operating practices have been
put in place. In these cases, we will actively engage with management and
closely monitor their remedial programmes.
Should a company achieve such a change, the shares can go from trading at an
ESG discount to more normal multiples or even an ESG premium which will be to
the benefit of the Company and all stakeholders.
SHAREHOLDER RETURNS
Despite 2020 being a slightly lower year for income compared to the record of
2019, compared with other sectors it was an outstanding result. Only a handful
of companies either cancelled dividend payments or deferred them until later
in the year which is remarkable given the scale of economic impact caused by
global lockdowns. The principal difference between the two years was the lower
level of special dividends in 2020 which was mostly in response to
cautiousness rather than an inability to pay. What was most pleasing was the
adherence to policy on shareholder returns, as normally companies would have
been forced into change during recessions. Dividends generally remained robust
in absolute terms as shown in the chart on page 14 of the Annual Report and
Financial Statements. Within the data the growth seen from gold companies has
been spectacular.
A number of gold producers announced 100% increases in dividends, admittedly
from low levels, and a handful did this not once but twice during the year.
Newmont Corporation enhanced its returns policy by committing to a new gold
price linked dividend payment policy which at current prices should lead to
further increases in payments. In general, the year was far better than feared
and the outlook for 2021 looks particularly promising.
GROWTH AND RESOURCE REPLENISHMENT
Just as in prior years this theme is the hardest to capture, especially when
it comes to production growth, as companies have remained disciplined in
allocating capital to new projects. Whilst this is challenging in terms of
identifying exposure to growth, it is extremely positive for commodity prices
due to the lack of new supply and even more so when the demand outlook is as
positive as it now appears.
Within the portfolio, Anglo American remains the major contributor with the
highest rate of production growth amongst the diversified miners, driven by
new copper production coming from the Quellaveco project in Peru and longer
term the Woodsmith polyhalite mine in Yorkshire. In copper, First Quantum
Minerals has ramped-up its new Cobre Panama mine and is now able to use cash
flow from higher production and better prices to reduce debt to more
manageable levels. Ivanhoe Mines is on track to bring its new Kamoa-Kakula
mine into production by the end of the year and ramp-up to capacity during
2022. Nevada Copper was the biggest detractor from performance within the
growth area, as the company was forced to delay their ramp-up in capacity due
to COVID-19 and, as a result, needed to raise additional debt at expensive
rates and highly dilutive share issuance. Finally, the Company continued to
support Nickel Mines as it raised capital to further grow production through
exposure to additional production lines in Indonesia. Since the Company first
supported Nickel Mines at its IPO in August 2018, the shares have risen by
2.5x and, in addition, the company paid an inaugural dividend in July 2020.
The other source of growth for companies is mergers and acquisitions (M&A)
activity, but this has also been constrained by the sector’s focus on
capital discipline. Gold has been the busiest area over the last few years and
this continued in 2020 where the largest transaction was the merger between
Northern Star Resources and Saracen Mineral Holdings. Key to this deal was the
fact that each company bought a fifty percent stake in the Australian ‘Super
Pit’ in Kalgoorlie from Newmont Corporation and Barrick Gold back in 2019.
Simplifying the ownership structure should allow cost saving synergies to be
captured, significant tax savings and the fast tracking of value-added
investment decisions. Also, in gold, SSR Mining and Alacer Gold combined in a
merger of equals, once again driven by cost synergies and increasing the
diversity of the asset base. For the Company, the most beneficial deal was the
announced purchase of Teranga Gold by Endeavour Mining. The Company bought its
exposure in Teranga Gold in December 2019 when the business sought finance for
the purchase of the Massawa gold project from Barrick Gold. Since then, the
shares have risen almost threefold and the ability to retain ongoing exposure
to the assets through a holding in Endeavour Mining means additional value can
accrue to the Company over time.
Outside of gold there were some smaller deals that impacted the portfolio.
First, the sell down by Sheffield Resources in its Thunderbird Mineral Sands
Project to Yansteel. This should see the project move forward by unblocking
the financing hurdle that faced Sheffield Resources. Also, in Australia, Iluka
Resources completed the demerger of its MAC iron ore royalty into a new listed
company. It is believed that by placing the royalty into a separately listed
company it will allow the new group, called Deterra Royalties, to diversify
into other royalties. Lastly, Independence Group announced the purchase of a
stake in the Greenbushes Lithium Mine via a holding in the joint venture that
owns half the operation. The Company managed to buy into the deal during the
capital raise to fund the transaction and the shares have risen significantly
as the market rerates the combined business more akin to a higher multiple
used for valuing ESG sustainable companies from the lower multiples normally
applying to mining companies.
BASE METALS
The rerating of base metal prices since the virus-hit lows of March has been
exceptional, with all base metal prices finishing the year higher. However,
with the exception of copper, it is worth noting that average prices were
actually lower on a year-on-year basis reflecting the steep COVID-19 drawdown
in March. As we have seen in similar demand shock periods, financial investors
used the base metals forward markets to express a negative view on the global
economy. Much of the price rally can be explained by the broad-based pick-up
in end demand. However, there were a number of other factors which intensified
the rally such as COVID-19 related supply impacts, a collapse in scrap
collection, speculative inflow into commodities and green related stimulus
packages benefiting copper in particular.
Selected commodity price changes during 2020
Price 31/12/2020 % Change 12 month % Change Avg 2020 vs. 2019
Precious Metals US$/oz
Silver 26.5 47.2 26.6
Gold 1,897.8 24.8 27.1
Platinum 1,075.0 10.7 2.4
Palladium 2,370.0 23.4 42.5
Base Metals US$/lb
Tin 9.3 19.6 -8.0
Zinc 1.2 19.7 -11.0
Lead 0.9 10.8 -8.6
Aluminium 0.9 10.8 -5.0
Copper 3.5 26.0 2.9
Nickel 7.5 18.7 -0.7
Industrial Commodities
Coking Coal US$/t 101.4 -25.4 -29.5
Thermal Coal US$/t Newcastle 80.5 18.9 -22.8
Iron Ore - fines 62% Fe China Import US$/t 161.0 73.1 16.3
Uranium US$/lb 30.0 20.0 13.6
Lithium Carbonate CIF to China spot 99% US$/t 7,430.4 31.0 -36.6
======== ======== ========
Sources: Datastream and Bloomberg.
Copper, the standout base metal in 2020, led the recovery. Its price bottomed
at US$2.10/lb in March but subsequently rallied circa 70% to finish the year
at US$3.53/lb, a price level not seen since 2013, with the market benefiting
from strong Chinese imports for investment into the state grid, property and
strategic stockpiling, a feature we have not seen in the market for a number
of years. This surge in demand saw the copper market move into a deficit by
year end, with investors beginning to reassess the longer-term demand picture
as governments prioritise ‘green-related’ stimulus into renewables,
electric vehicles and the grid which has the potential to see medium-term
copper demand increase by 3% to 5% per annum. We view copper as a clear
beneficiary from decarbonisation spending, which is a key multi-decade theme
for the sector. Copper supply fundamentals also remain supportive with
production impacted in key regions such as Peru and Chile, growth projects
delayed by 12 to 24 months and scrap underperforming. We have previously
talked about the long-term supply challenges the copper industry faces and,
given the acceleration in green-related demand, we continue to remain positive
on the commodity.
The Company has a very large exposure to copper which represented 19.2% of the
portfolio at the year-end and was the key driver of performance in 2020.
Standout performers included Freeport-McMoRan which has seen a sharp
inflection in free cash flow as the Grasberg underground mine ramps-up, First
Quantum Minerals which is rapidly deleveraging as its flagship Cobre Panama
mine increases production and OZ Minerals which has exceeded expectations at
its newest asset Carrapateena and continues to extract value at Prominent
Hill. As we look into 2021, Ivanhoe Mines will move from developer to producer
at the world-class Kamoa-Kakula project and we are set to receive higher
dividend payments from Cerro Verde.
The other base metal that the Company has significant exposure to is nickel
which saw its price rise by 18.7% in 2020. The nickel market has been in
surplus for much of 2020. However, it tightened in Q4 as Chinese stainless
steel demand recovered along with the rest of the world. A striking feature of
the nickel market has been the rapid growth in nickel pig iron (NPI)
production from Indonesia, which has overtaken China as the largest producer
of NPI globally. The Company has directly benefited from this via its
investment in Nickel Mines, an Australian listed nickel producer, that owns
three nickel projects in Indonesia which are operated under an agreement with
Tsingshan. Nickel Mines has been a remarkable investment for the Company with
attributable production to grow from zero to circa 50ktpa Ni in under five
years since the IPO of the company in 2018.
BULK COMMODITIES
Iron ore was the standout commodity during 2020, with the price rallying more
than 70% to finish the year at US$161/t. It was a perfect storm for the iron
ore market which saw record steel demand in China, coupled with ongoing supply
issues in Brazil. Following the tragic Brumadinho tailings dam incident at the
beginning of 2019, the iron ore market has significantly tightened with the
price more than doubling. This tightness was intensified during 2020 with
China surpassing expectations in ramping its steel production back above
pre-COVID-19 levels by the middle of the year, as the government increased
infrastructure investment and eased the property sector in an effort to
support the economy. China’s overall steel output grew by 5% in 2020 to
1.05Bt and is poised to remain strong during 2021, underpinned by existing
infrastructure projects. We would expect to see a moderation in steel demand
during the second half of 2021 as policy stimulus is phased out. However, we
still expect China’s steel output to remain strong with the iron ore market
to be in deficit again in 2021.
Supply disruption was a key feature of the iron ore market in 2020. This was
largely centred on Brazil which saw Vale miss the mid-point of its original
2020 guidance by over 40Mt, as operations were initially hampered by excessive
rainfall and then by COVID-19. The Australian iron ore producers performed far
better with BHP, Rio Tinto and Fortescue Metals Group seeing minimal
operational impact from COVID-19. However, supply risks have risen following
the Australian parliamentary inquiry into the destruction of Juukan Gorge and
the review of the Native Title Act in Australia. This has the potential to
force changes to current and future mine approvals, consequently impacting
production and capital expenditure for the Australian iron ore producers.
We would expect supply tightness to begin to ease from the end of 2021, as
Vale continues to bring tonnes into the market and China looks to increase its
use of scrap steel. Market commentators have talked about a ‘stronger for
longer’ iron ore market which seems plausible and underpins a strong
dividend outlook for the major producers. However, the last two years of
elevated iron ore prices have incentivised new production into the market. The
world class Simandou iron ore project has received approval from the Guinean
government to be developed by a China led consortium. Despite the high capital
intensity of the asset due to the associated infrastructure development,
Simandou offers strategic benefits to China reducing their dependency on
Australian iron ore and also providing them with another source of high-grade
supply. The ultimate outcome of these additional projects coming to the market
is likely to result in a larger oversupply of iron ore once China’s steel
production starts to moderate longer term.
The Company has benefited from the high level of iron ore prices during 2020
through its exposure to BHP, Rio Tinto, Vale (both equity and the Debentures),
Fortescue Metals Group and Labrador Iron. These producers are enjoying record
margins given the decline in their operating cost base since the last peak in
the iron ore price and have returned a significant proportion of free cash
flow in dividends. Given our expectation of another robust year for the iron
ore market, we expect another strong year for shareholder returns in 2021.
Coking coal is another key steel raw material but unlike iron ore the price
was down 25% in 2020. Coking coal has been a casualty of the Australia-China
trade dispute, with China placing an informal ban on Australian coal imports
leaving circa 30% of Australia’s metallurgical coking coal looking for a new
home. A two-tier market has developed between the landed China seaborne price
which is trading at a US$75/t premium to the equivalent quality of coking coal
from Australia. While there has been some rebalancing of trade flows with
Canada and Russia looking to fill the supply void, however, given the scale of
the deficit, we would expect that China will allow imports from Australia
again over the course of 2021.
The Company’s coking coal holdings include Teck Resources and BHP. Teck
Resources has lagged the sector year-to-date given reduced coking coal demand
in Europe, as well as the dramatic fall in the oil price which has impacted
Fort Hills, its Canadian oil sands asset. With Teck Resources able to take
advantage of the strong coking coal price in China and the better oil price
outlook, we are looking for improved performance in 2021.
PRECIOUS METALS
2020 was a stellar year for the precious metals with a new all-time high gold
price set at US$2,064/oz in August. Gold and silver prices were up 25% and 47%
respectively which follows strong performance for both commodities in 2019.
The huge expansion in central bank balance sheets, as governments adopted a
‘whatever it takes’ approach in response to COVID-19, has seen a collapse
in rates globally with the US 10 year real rate moving into negative territory
in 2020. This, combined with the US Federal Reserve moving to an average
inflation target and willing to tolerate periods of higher inflation, we
believe has opened the door for real rates to reach never previously seen low
levels and a new higher trading range to be established for gold.
An encouraging feature of the gold equity market in recent years has been the
increased focus on shareholder returns, with higher gold prices translating
into higher margins and dividends. The gold sector has generated decent
returns in recent years with balance sheets deleveraged and growth projects
rationalised, which has seen several companies materially raise dividends
during 2020. Key dividend increases for the Company include Newmont
Corporation with a 79% dividend increase announced at the beginning of the
year which was supplemented by a new gold-linked dividend policy, Barrick Gold
increasing its quarterly dividend by 80% and B2Gold by 100%. Given the
continued strength in the gold price and the increased dividend commitment
from the sector, we look forward to further dividend growth in 2021.
The last few years have been a busy period for M&A 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 Corporation. This was then followed by
the merger of Barrick Gold and Newmont Corporation’s Nevada gold assets to
create a massive market-leading US gold business. The gold M&A market has been
more subdued in 2020, the most notable transaction being the merger between
Northern Star Resources and Saracen Mineral Holdings, its Joint Venture
partner in the Kalgoorlie ‘Super Pit’. Northern Star Resources has a
proven track record of value creation from M&A where it has grown from a
single asset, 100koz producer in 2010, to today being over a 1Moz producer.
Other notable contributors to performance this year include Newmont
Corporation which offers the most attractive dividend yield of the senior
producers, Wheaton Precious Metals which benefited from the strong increase in
the silver price which is seeing rising industrial demand via increased solar
investment and our exposure to the Russian gold producers, Polyus and
Polymetal International.
The PGMs continued their strong performance in 2020 with the palladium and
platinum price up 23% and 11% respectively. We continue to remain positive on
the PGM space and believe the PGM basket will remain high relative to history
given limited new supply projects, increasing PGM loadings for auto catalysts
to meet emissions standards and a sustained global auto recovery. In terms of
supply, a combination of Anglo American Platinum’s converter failure and
South Africa’s COVID-19 lockdowns, saw 2020 refined platinum and palladium
supply fall by 22% and 24% respectively. In the year ahead, the PGMs we see as
particularly strong are palladium, with the market forecast to remain in
deficit in 2021 and rhodium the less talked about PGM which is seeing
increasing demand to meet Nitrogen Oxide (NOx) emission standards. The move in
the rhodium price in 2020 has been nothing short of spectacular at +280%. The
Company has continued to increase its pure play PGM exposure via its holdings
in Impala Platinum, Northam Platinum and Sibanye Stillwater, which combined
equated to 4.7% of the portfolio at the end of December. In addition, the
Company also has exposure to PGMs via its holding in Anglo American (7.2% of
the portfolio) which owns 79% of Anglo American Platinum and Norilsk Nickel
(1.1% of the portfolio).
ROYALTIES AND ILLIQUID INVESTMENTS
The Company currently has one unquoted investment, the OZ Minerals Brazil
Royalty, representing 1.9% of the portfolio as at the end of December 2020.
The Company has an additional royalty investment, Vale Shareholder Debentures,
representing 4.1% of the portfolio. The latter is technically listed in Brazil
but due to the limited liquidity it is covered in this section. Together the
two royalty investments make up 6.0% 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.
OZ MINERALS BRAZIL ROYALTY CONTRACT (1.9% OF THE PORTFOLIO)
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 Avanco’s Antas North and Pedra
Branca licences. In addition, there is a flat 2% royalty over all metals
produced from any other discoveries within Avanco’s licence area as at the
time of the agreement.
In 2018 Avanco was acquired by OZ Minerals an Australian based copper and gold
producer for A$418 million, with the royalty now assumed by OZ Minerals. Since
our initial US$12 million investment was made, we have received US$15.1
million in royalty payments, with the royalty achieving full payback on the
initial investment. As at the end of December 2020, the royalty was valued at
£19.8m (1.9% of the portfolio) which equates to a 251.1% 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
eight-year life of mine. This is OZ Minerals’ second operating asset in
Brazil and is expected to produce more than twice the amount of copper and
gold production per year than the existing Antas Mine. Mining at Antas is
scheduled to cease during 2021, after which ore from Pedra Branca will be
processed through the existing facilities, making Pedra Branca a lower risk,
capital light development project. Despite the challenges of operating in
Brazil during COVID-19, we are pleased to report that the first development
ore from Pedra Branca was trucked to the Carajas Antas hub during the
September quarter, leaving the asset well-positioned to ramp-up production
during the first half of 2021.
From a valuation perspective, the discount rate applied to Pedra Branca has
been moved to a level that reflects the project moving from development status
to production. In addition, with the increasing amount of royalty revenue
being generated from gold in line with the increase in the gold price, we have
in part reflected a lower discount rate applied to gold royalties, in line
with how the market prices precious metals royalties. This, in addition to
minor changes to commodity prices, has resulted in a valuation of £19.8
million for the royalty which has been approved by the Directors after
considering the independent valuation of the Royalty carried out by SRK
Consulting (UK) Limited.
VALE SHAREHOLDER DEBENTURES
In early 2019 the Company completed a transaction to increase its holding in
the Vale Shareholder Debentures. The Vale Debentures consist of 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 4.1%.
The iron ore market has significantly tightened since Vale’s tragic tailings
dam accident at the beginning of 2019 which saw the iron ore price rally over
30%. This was further intensified in 2020, with Vale failing to meet its
annual production guidance due to severe rains in the first half of the year,
as well as COVID-19 related operating challenges. These supply issues combined
with record steel demand in China, saw the iron ore price increase by more
than 70% in 2020. The Debentures have directly benefited from the move higher
in the iron ore price with the Company enjoying increasing distributions as
shown in the chart on page 20 of the Annual Report and Financial Statements.
Vale is expected to spend US$13 billion restoring the communities and
environment impacted by the Brumadinho incident between 2019 and 2030.
However, it is important to note that this cost is not borne by the Debentures
as they are a revenue royalty with payments directly linked to the iron ore
price which appreciated during the first half of 2020. It is also important to
highlight that the operations impacted by the incident are in the Southern and
Southeastern System, with the Vale Debentures currently only making royalty
payments from the Northern System.
The chart on page 20 of the Annual Report and Financial Statements shows the
historic distributions paid by Vale to the owners of the Debentures and in
2020 this amounted to US$2.3 million for the Company. The payments are
expected to grow further once royalty payments commence on the Southeastern
System in 2024 and volumes from the newly commissioned iron ore project S11D
continue to ramp-up. Vale is looking to further increase production from the
Northern System from 206mtpa today to 260mtpa longer term which provides
additional upside to our original expectations for the Debentures.
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 in
February 2019 the Debentures have paid out a total of R4.56/debenture
resulting in a 20% distribution return in two years. The securities were
priced at R48.2/debenture at the end of 2020 versus a price of R23 when the
holding was last added to.
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 small but decreasing proportion of the
portfolio allocated to fixed income securities, due to the ongoing decline in
interest rates leaving the arbitrage return net of tax less attractive than
alternative investments. At the end of the year 4.2% of the portfolio was
invested in fixed income securities. Outside of the decline in interest rates,
the ongoing improvement in corporate balance sheets meant both repayment of
expiring bonds and limited new issuance further reduced the opportunities
available in the market. If current conditions continue then revenue from this
area will decline further, but it is hoped that this will be covered by
increases from other areas such as ordinary dividends. During the year one new
holding was added to this part of the portfolio, ArcelorMittal Mandatory
Convertible Notes (MCNs) purchased as part of a capital raising during the
summer. Returns on this investment have been spectacular so far given the
recovery in steel markets and it is hoped that, with the underlying company
now committed to stepping up shareholder returns, income from the MCNs will
rise in 2021. As ever, 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 2020 income generated from options was
£8.8 million net of contracts repurchased. This is higher than in the last
couple of years, as the spike in volatility during the peak of the pandemic
presented a range of great opportunities to monetise premiums. The majority of
options expired out of the money as options were written with short lives and
share prices rapidly recovered from the pandemic low point. Given the spike in
volatility during the year, it is unlikely that this will be repeated in 2021
and therefore income from options is likely to be lower. At the end of 2020
the Company had 2.6% of the 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 over the medium to long term. At 31 December 2020, the
Company had debt net of group cash amounting £114.8 million representing
gearing of 12.3%. Over the last few years, the amount of gearing allocated
against higher yielding mining company corporate bonds has declined due to
increased returns available through the equities as well as reduced
availability of bonds that meet our valuation criteria. For 2020 the majority
of the Company’s debt was once again hedged against the fixed income
portfolio and royalty positions.
OUTLOOK AND STRATEGY FOR 2021
This time last year we made the following bold statement: ‘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 this might easily play out’. With
the benefit of hindsight, it is clear that whilst our forecast of strong
returns played out, we never expected the scale of disruption caused by the
COVID-19 pandemic. This leads us to the often used quote from Mark Twain ‘it
is difficult to make predictions, particularly about the future’ so this
year we will limit our forecast to that of another strong year of expected
returns without linking it to seemingly unforecastable macro events.
Our confidence on returns comes from two areas: strong corporate outlook and
commodity market imbalances. The former is based on the robust balance sheets,
higher profit margins and five-year track record of shareholder return
discipline. The combination of all of these gives us conviction when expecting
companies to do the right thing for shareholders when faced with windfall
gains from better than expected market conditions. With regard to the latter,
as mentioned earlier in the report, the expected pick-up in fiscal spending
around the world is set to drive commodity demand growth to levels above that
of the last decade or longer. In addition, the underinvestment into supply
over the last five years or more means that industrial commodity prices should
be well supported in 2021.
As always there are risks to the outlook and we are well aware that margins
are elevated, especially for producers of iron ore where these are well above
historic levels. Given the mean reverting nature of commodity markets, these
will at some point contract despite ongoing supply side issues and better than
expected demand from steel producers. In addition, the pressure on management
to spend money on growth projects is at its greatest when balance sheets are
strong, metal prices are high and demand is rising. We hope that any
investment decisions are thoroughly reviewed to limit the chances of value
destroying history repeating itself.
In summary, we believe that with the demand outlook so strong there could be a
few years of positive total returns ahead given how long it takes for new
supply to come into production. The goal for the Company continues to be to
deliver a superior total return for shareholders through the cycle from a
combination of capital growth and a premium yield to that generally available
from the mining sector and to keep generating competitive returns compared to
world markets.
EVY HAMBRO AND OLIVIA MARKHAM
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
4 March 2021
TEN LARGEST INVESTMENTS
1 + Vale(1, 2) (2019: 3rd)
Diversified mining group
Market value: £114,280,000
Share of investments: 10.9% (2019: 8.6%)
One of the largest mining groups in the world, with operations in 30
countries. Vale is the world’s largest producer of iron ore and iron ore
pellets, and the world’s largest producer of nickel. The group also produces
manganese ore, ferroalloys, metallurgical coal, copper, platinum group metals,
gold, silver and cobalt.
2 - BHP(3) (2019: 1st)
Diversified mining group
Market value: £79,817,000
Share of investments: 7.6% (2019: 9.7%)
The world’s largest diversified mining group by market capitalisation. The
group is an important global player in a number of commodities including iron
ore, copper, metallurgical coal, manganese, nickel, silver and diamonds. The
group also has significant interests in oil, gas and liquefied natural gas.
3 - Rio Tinto(3) (2019: 2nd)
Diversified mining group
Market value: £77,724,000
Share of investments: 7.5% (2019: 9.3%)
One of the world’s leading mining groups. The group’s primary product is
iron ore, but it also produces aluminium, copper, diamonds, gold, industrial
minerals and energy products.
4 = Anglo American (2019: 4th)
Diversified mining group
Market value: £75,031,000
Share of investments: 7.2% (2019: 6.1%)
A global mining group. The group’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. The group has mining operations globally, with
significant assets in Africa and South America.
5 + Freeport-McMoRan (2019: 16th)
Copper producer
Market value: £54,595,000
Share of investments: 5.2% (2019: 2.2%)
A global mining group which operates large, long-lived, geographically diverse
assets with significant proven and probable reserves of copper, gold and
molybdenum.
6 = Newmont Corporation (2019: 6th)
Gold producer
Market value: £46,903,000
Share of investments: 4.5% (2019: 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 group has
gold and copper operations on five continents, with active gold mines in
Nevada, Australia, Ghana, Peru and Suriname.
7 - Barrick Gold (2019: 5th)
Gold producer
Market value: £43,339,000
Share of investments: 4.1% (2019: 4.4%)
Following the merger with Randgold Resources in 2018, Barrick Gold is the
second largest gold producer by market capitalisation and has operations and
projects in 15 countries across the world. In 2019, the group successfully
established a joint venture with Newmont across their Nevada assets to
maximize the synergies across both sets of assets.
8 + Wheaton Precious Metals (2019: 9th)
Precious metals streaming group
Market value: £34,374,000
Share of investments: 3.3% (2019: 3.7%)
A precious metals streaming group. The group purchases silver and gold
production from mines that it does not own and operate. The group has
streaming agreements with 22 operating mines worldwide including Newmont’s
Penasquito, HudBay’s Constancia and Vale’s Salobo and Sudbury mines.
9 + OZ Minerals(2,4) (2019: 10th)
Copper producer
Market value: £33,544,000
Share of investments: 3.2% (2019: 3.3%)
An Australian based mining company, with a primary focus on copper. The
company owns and operates the high quality Prominent Hill copper-gold mine and
the Carrapateena copper-gold project, both situated in South Australia. In
2018 OZ Minerals successfully acquired Avanco Resources, with the Company’s
royalty assumed by OZ Minerals.
10 - First Quantum Minerals(1) (2019: 7th)
Copper producer
Market value: £29,954,000
Share of investments: 2.9% (2019: 4.2%)
An established growing copper mining group operating seven mines including the
ramp-up of their newest mine, Cobre Panama, which declared commercial
production in September 2019. The group is a significant copper producer and
also produces nickel, gold and zinc.
(1) Includes fixed income securities.
(2) Includes investments held at Directors’ valuation.
(3) Includes options.
(4) Includes mining royalty contract.
All percentages reflect the value of the holding as a percentage of total
investments. For this purpose, where more than one class of securities is
held, these have been aggregated.
Together, the ten largest investments represented 56.4% of total investments
of the Company’s portfolio as at 31 December 2020 (ten largest investments
as at 31 December 2019: 57.4%).
INVESTMENTS AS AT 31 DECEMBER 2020
Main geographical exposure Market value £’000 % of investments
Diversified
Vale Global 70,917 6.8
Vale 0% Debentures (*#) Global 43,363 4.1
BHP Global 79,980 7.6
BHP Put Option 15/01/21 £19 Global (163) –
Rio Tinto Global 78,148 7.5
Rio Tinto Call Option 15/01/21 £54 Global (424) –
Anglo American Global 75,031 7.2
Teck Resources Global 23,077 2.2
Glencore Global 17,540 1.7
Independence Group Australasia 1,006 0.1
-------------- --------------
388,475 37.2
======== ========
Gold
Newmont Corporation Global 46,903 4.5
Barrick Gold Global 43,339 4.1
Wheaton Precious Metals Global 34,374 3.3
Northern Star Resources Australasia 22,504 2.2
Franco-Nevada Global 21,992 2.1
Kinross Gold Global 13,521 1.3
Polymetal International United Kingdom 13,289 1.3
Polyus Russia 11,462 1.1
Teranga Gold Canada 8,934 0.9
Agnico Eagle Mines Canada 8,175 0.8
B2Gold Canada 7,812 0.7
Kirkland Lake Gold Australasia 6,041 0.6
Gold Fields South Africa 5,654 0.5
Alamos Gold Latin America 4,805 0.5
Evolution Mining Global 3,524 0.3
Shanta Gold Convertible (*) Other Africa 1,313 0.1
-------------- --------------
253,642 24.3
======== ========
Copper
Freeport-McMoRan Global 54,595 5.2
OZ Minerals Brazil Royalty (#~) Latin America 19,753 1.9
OZ Minerals Australasia 13,791 1.3
First Quantum Minerals (*) Global 29,954 2.9
Sociedad Minera Cerro Verde Latin America 23,358 2.2
Lundin Mining Global 16,496 1.6
Ivanhoe Mines Other Africa 15,204 1.5
Antofagasta Latin America 9,446 0.9
Ero Copper Latin America 9,372 0.9
SolGold Latin America 4,298 0.4
Nevada Copper United States 2,463 0.2
Solaris Resources (#) Latin America 2,405 0.2
-------------- --------------
201,135 19.2
======== ========
Iron Ore
Fortescue Metals Group Australasia 28,793 2.8
Labrador Iron Canada 28,738 2.7
Deterra Royalties Australasia 5,424 0.5
Equatorial Resources Other Africa 499 –
-------------- --------------
63,454 6.0
======= ========
Platinum Group Metals
Northam Platinum South Africa 17,032 1.6
Impala Platinum South Africa 16,966 1.6
Sibanye Stillwater South Africa 15,255 1.5
-------------- --------------
49,253 4.7
======== ========
Steel
ArcelorMittal (*) Global 25,770 2.5
Steel Dynamics United States 9,286 0.9
-------------- --------------
35,056 3.4
======== ========
Nickel
Nickel Mines Indonesia 16,223 1.6
Norilsk Nickel United Kingdom 11,163 1.1
Bindura Nickel Other Africa 106 –
-------------- --------------
27,492 2.7
======== ========
Industrial Minerals
Lynas Corporation Australasia 7,823 0.7
Iluka Resources Australasia 7,369 0.7
Sheffield Resources Australasia 4,203 0.4
-------------- --------------
19,395 1.8
======== ========
Zinc
Titan Mining (+#) United States 3,396 0.3
-------------- --------------
3,396 0.3
======== ========
Silver & Diamonds
Sierra Metals Latin America 3,325 0.3
-------------- --------------
3,325 0.3
======== ========
Aluminium
Metro Mining Australasia 608 0.1
-------------- --------------
608 0.1
======== ========
1,045,231 100.0
======== ========
Comprising
– Investments 1,045,818 100.1
– Written options (587) (0.1)
======== ========
1,045,231 100.0
======== ========
(*) 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 2020 (including options classified as
liabilities on the balance sheet) was 56 (31 December 2019: 65).
As at 31 December 2020 the Company held equity interests in two companies
comprising more than 3% of a company’s share capital as follows: Sheffield
Resources and Titan Mining.
PORTFOLIO ANALYSIS AS AT 31 DECEMBER 2020
COMMODITY EXPOSURE(1)
2020 Company portfolio 2019 (#) Company portfolio 2020 Reference Index*
Other 0.0% 2.0% 0.3%
Coal 0.0% 0.5% 0.0%
Aluminium 0.1% 0.2% 2.1%
Silver & Diamonds 0.3% 5.8% 1.8%
Zinc 0.3% 0.1% 0.4%
Industrial Minerals 1.8% 4.6% 0.3%
Nickel 2.7% 2.6% 2.3%
Platinum Group Metals 4.7% 0.0% 2.2%
Steel 3.4% 0.0% 15.6%
Iron Ore 6.0% 1.2% 4.2%
Copper 19.2% 17.9% 10.0%
Gold 24.3% 23.2% 28.6%
Diversified 37.2% 41.9% 32.2%
(1) Based on index classifications.
(#) Represents exposure at 31 December 2019.
(*) MSCI ACWI Metals & Mining 30% Buffer 10/40 Index.
GEOGRAPHIC EXPOSURE(2)
2020
Global 64.9%
Australasia 9.4%
Latin America 7.3%
Other (3) 6.5%
South Africa 5.2%
Canada 5.1%
Other Africa (ex South Africa) 1.6%
2019
Global 63.8%
Latin America 13.0%
Canada 7.3%
Australasia 6.5%
Other (4) 5.4%
South Africa 2.2%
Other Africa (ex South Africa) 1.8%
(2 ) Based on the principal commodity exposure and place of
operation of each investment.
(3 ) Consists of Indonesia, Russia, United Kingdom and United
States.
(4 ) Consists of Indonesia, Kazakhstan, Russia, Sweden, United
Kingdom and United States.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended
31 December 2020. 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 for the collective benefit of shareholders.
The Chairman’s Statement together with the Investment Manager’s Report
form part of this Strategic Report. The Strategic Report was approved by the
Board at its meeting on 4 March 2021.
PRINCIPAL ACTIVITIES
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 Company delegates fund accounting services to the Investment Manager,
which in turn sub-delegates these services to The Bank of New York Mellon
(International) Limited (BNYM) (the Fund Accountant) and also sub-delegates
registration services to the Registrar, Computershare Investor Services PLC.
Other service providers include the Depositary (also BNYM). Details of the
contractual terms with these service providers and more details of
sub-delegation arrangements in place governing custody services 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 15.6% and, at the financial
reporting date, net gearing (calculated as borrowings less cash and cash
equivalents as a percentage of net assets) stood at 12.3% of shareholders’
funds (2019: 11.7%). For further details on borrowings refer to note 14 in the
Financial Statements and the Alternative Performance Measure in the Glossary
in the Annual Report and Financial Statements.
Portfolio analysis
Information regarding the Company’s investment exposures is contained within
the ten largest investments, the investments listed and portfolio analysis all
detailed above. Further information regarding investment risk and activity
throughout the year can be found in the Investment Manager’s Report above.
As at 31 December 2020, the investment in the OZ Minerals Brazil Royalty was
held at Directors’ valuation, representing a total of £19,753,000
(US$27,002,000) (2019: £15,790,000 (US$20,918,000)). Unquoted investments can
prove to be more risky than listed investments.
Continuation vote
As agreed by shareholders in 1998, an ordinary resolution for the continuation
of the Company is proposed at each Annual General Meeting. Despite the turmoil
in markets due to the COVID-19 pandemic, 2020 was a solid year with mining
companies continuing down the path of capital discipline, balance sheets in
strong shape and earnings and dividends rising. 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 above. 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
£216,515,000 (2019: £114,066,000) of which £35,451,000 (2019: £39,561,000)
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 2020 amounted to £35,543,000 (2019:
£38,496,000).
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.
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 are set out in the Directors’ Biographies in
the Annual Report and Financial Statements. The Board consists of three male
Directors and two female Directors. The Company does not have any executive
employees.
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company’s success in achieving its objectives. The key
performance indicators (KPIs) used to measure the progress and performance of
the Company over time and which are comparable to other investment trusts are
set out below. As indicated in the footnote to the table, some of 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.
Additionally, the Board regularly reviews the performance of the portfolio, as
well as the net asset value and share price of the Company and compares this
against various companies and indices. Information on the Company’s
performance is given in the Chairman’s Statement.
Year ended 31 December 2020 Year ended 31 December 2019
Net asset value total return (1, 2) 31.8% 17.2%
Share price total return (1, 2) 46.7% 19.4%
Discount to net asset value (2) 2.7% 11.6%
Revenue earnings per share 20.40p 22.46p
Total dividends per share 20.30p 22.00p
Ongoing charges (2, 3) 0.99% 1.02%
Ongoing charges on gross assets (2, 4) 0.87% 0.89%
======== ========
(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
operating expenses, excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation and certain non-recurring items,
as a % of average daily net assets.
(4 ) Ongoing charges based on gross assets represent the
management fee and all other operating expenses, excluding finance costs,
direct transaction costs, custody transaction charges, VAT recovered, taxation
and certain non-recurring items, as a % of average daily 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. As required by
the 2018 UK Corporate Governance Code (the UK Code), the Board has put in
place a robust ongoing 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 quality of controls
operating to mitigate it. A residual risk rating is then calculated for each
risk based on the outcome of the assessment.
The risk register, its method of preparation and the operation of key controls
in BlackRock’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
BlackRock’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 also periodically receives and
reviews internal control reports from BlackRock and the Company’s service
providers.
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. The COVID-19
pandemic has given rise to unprecedented challenges for businesses across the
globe and the Board has taken into consideration the risks posed to the
Company by the crisis and incorporated these into the Company’s risk
register. The threat of climate change has also reinforced the importance of
more sustainable practices and environmental responsibility.
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 UK 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: · deciding 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 index; · 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. In such event, the investment returns of the Company may be adversely affected. 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 and the Market Abuse Regulation. 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, 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.
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, can also substantially and adversely affect the securities and, as a consequence, the Company’s prospects and share price. Market risk includes the potential impact of events which are outside the Company’s control, such as the COVID-19 pandemic. Companies operating in the sectors in which the Company invests may be impacted by new legislation governing climate change and environmental issues, which may have a negative impact on their valuation 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. The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced with the COVID-19 pandemic.
Unlike open-ended counterparts, closed-end funds are not obliged to sell-down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund
structure to remain invested for the long term enables the Portfolio Managers to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves. The
Portfolio Managers spend a considerable amount of time understanding the environmental, social and governance (ESG) risks and opportunities facing companies and industries in the portfolio. They use ESG information when conducting research and due
diligence on new investments and again when monitoring investments in the portfolio.
Operational In common with most other investment trust companies, the Company has no employees. The Company therefore relies on the services provided by third parties and is dependent on the control systems of the Manager and BNYM (the Depositary, Custodian and Fund Accountant) which maintain the Company’s assets, dealing procedures 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. There is a risk that a major disaster, such as floods, fire, a global pandemic, or terrorist activity, renders the Company’s service providers unable to conduct business at normal operating effectiveness. 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. The Board reviews on a regular basis an assessment of the
fraud risks that the Company could potentially be exposed to and also a summary of the controls put in place by the Manager, Depositary, Custodian, Fund Accountant and Registrar specifically to mitigate these risks. Most third-party service providers
produce internal control reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit & Management Engagement Committee for review. The Committee
would seek further representations from service providers if not satisfied with the effectiveness of their control environment. The Company’s 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 Investment Management Agreement annually. The Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of
its review of the Company’s risk register. In respect of the unprecedented and emerging risks posed by the COVID-19 pandemic in terms of the ability of service providers to function effectively, the Board has received reports from key service providers
setting out the measures that they have put in place to address the crisis, in addition to their existing business continuity framework. Having considered these arrangements and reviewed service levels since the crisis has evolved, the Board is confident
that a good level of service has and will be maintained.
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 to the Financial Statements in the Annual Report and Financial Statements, together with a summary of the policies for managing these risks.
In the view of the Board, there have not been any changes to the fundamental
nature of these risks and these principal risks and uncertainties are equally
applicable for the current financial year.
Viability statement
In accordance with Provision 31 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the twelve months referred to by the ‘Going Concern’ guidelines.
The Board is cognisant of the uncertainty surrounding the potential duration
of the COVID-19 pandemic, its impact on the global economy and the prospects
for many of the Company’s portfolio holdings. Notwithstanding this crisis,
and given the factors stated below, the Board expects the Company to continue
for the foreseeable future and has therefore conducted this review for a
period of three years. This is generally the investment holding period
investors consider while investing in the mining 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 continues to meet its financial covenants in
respect of its borrowing facilities;
· the Company’s forecasts for revenues, expenses and
liabilities are relatively stable and it has largely fixed overheads which
comprise a small percentage of net assets (0.99%); and
· the business model should remain attractive for much longer
than three years, unless there is significant economic or 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 impact of a significant fall in commodity markets on the
value of the Company’s investment portfolio, factoring in the impact of the
recent volatility related to the COVID-19 pandemic;
· the ongoing relevance of the Company’s investment
objective, business model and investment policy in the current environment;
and
· the level of demand for the Company’s shares.
The Board has also considered a number of other factors, including:
· portfolio liquidity in light of the COVID-19 pandemic on
global market liquidity. As at 1 March 2021, 97.5% of the portfolio was
estimated as being capable of being liquidated within three to five days;
· the Company’s revenue and expense forecasts in light of the
COVID-19 pandemic and its anticipated impact on dividend income and market
valuations. The Board is confident that the Company’s business model remains
viable and that there are sufficient resources to meet all liabilities as they
fall due for the period under review;
· the principal risks and uncertainties as set out above and is
confident that the Company has appropriate controls and processes in place to
manage these and to maintain its operating model, even given the challenges
posed by COVID-19;
· the operational resilience of the Company and its key service
providers and their ability to continue to provide a good level of service for
the foreseeable future;
· the effectiveness of business continuity plans in place for
the Company and key service providers; and
· the level of income generated by the Company and future
income forecasts.
Based on the results of their analysis, the Directors have concluded that
there is a reasonable expectation that the Company will continue in operation
and meet its liabilities as they fall due over the period of their assessment.
Section 172 statement: Promoting the success of the Company
New regulations (The Companies (Miscellaneous Reporting) Regulations) require
directors of large companies 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. 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.
Stakeholders
Shareholders Manager and Investment Manager Other key service providers Investee companies
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 focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objective in maximising total returns to shareholders through a worldwide portfolio of mining and metal securities. The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the Portfolio holdings are ultimately shareholders’ assets and the Board recognise the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship arrangements and receives regular feedback from the Manager in respect of meetings with the management of investee companies.
other relevant legislation. Financial Conduct Authority (FCA) and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board
relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For
this reason, the Board consider the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board
maintains regular contact with its key external service providers and receives regular reporting from them through the Board and
Committee meetings, as well as outside of the regular meeting cycle.
Area of Engagement Issue Engagement Impact
Investment mandate and objective 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. The Board worked closely with the Investment Manager throughout the year in further developing investment strategy and 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.
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 More than ever, the importance of good governance and sustainability practices are key factors in making investment decisions. Climate change is becoming a defining factor in companies’ long-term prospects across the investment spectrum with significant and lasting implications for economic growth and prosperity. 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. 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 believes there is likely to be a positive correlation between strong ESG practices and investment performance over time. It is especially vital in mining given the long investment cycle and its ability to impact a company maintaining its social licence 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 in
portfolio companies. 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 and Kepler, marketing consultants, on any feedback from shareholders, as well as share trading activity, share price performance and an update from the Investment Manager. Portfolio holdings are ultimately shareholders’ assets and the Board recognise the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship arrangements and receives regular feedback from the Investment Manager in respect of meetings with the management of portfolio companies.
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.com/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 The Board recognises the importance to shareholders that the market price of the Company’s shares should not trade at either a significant discount or premium to the NAV. The Board monitors the Company’s discount on an ongoing basis and receives regular updates from the Manager and the Company’s The Board continues to monitor the Company’s discount to NAV and will look to buy back shares if it is deemed to be in the interests of shareholders as a whole. 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. During the year, the Company’s discount narrowed significantly. The Company’s average discount for the year to 31 December 2020 was 11.3% and, since February 2021, the shares have been trading at a premium to NAV.
Broker regarding the level of discount. The Board believes that the best way of maintaining the share rating at an optimal level
over the long term is to create demand for the shares in the secondary market. To this end, the Investment Manager is devoting
considerable effort to broadening the awareness of the Company, particularly to wealth managers and to the wider retail market.
In addition, the Board has worked closely with the 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 Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual 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 Board has received updates in respect of business continuity planning from the Company’s Manager, Custodian, Depositary, Fund Accountant, Registrar and Printer and is confident that arrangements are in place to ensure a good level of service will continue to be provided despite the impact of the COVID-19 pandemic.
evaluation of the 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. In light of the challenges
presented by the COVID-19 pandemic to the operation of businesses across the globe, the Board has worked closely with the
Manager to gain comfort that relevant business continuity plans are operating effectively for all of the Company’s key service
providers.
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. All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions of the 2020 As at the date of this report, the Board was comprised of three men and two women. No Director has a tenure in excess of nine years. 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 and details of the Directors’ biographies can be found in the Annual Report and Financial Statements. The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in the year under review. The Board appointed Ollie Oliveira as a Director of the Company with effect from 3 February 2020. Colin Buchan retired as a Director on 30 April 2020.
evaluation process are given in the Annual Report and Financial Statements). All Directors stand for re-election by shareholders
annually. Shareholders may attend the Annual General Meeting and raise any queries in respect of Board composition or
individual Directors in person or may contact the Company Secretary or the Chairman using the details provided in the Annual
Report and Financial Statements with any issues. The Board undertook a review of succession planning arrangements and
identified the need for a new Director. The 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 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 licence 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 below, 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.
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. These ethical and sustainability issues cannot be ignored
and your Board has appointed a Manager that applies the highest standards of
ESG practice. Effective engagement with management is, in most cases, the most
constructive way of driving meaningful change in the behaviour of investee
company management. However, as a general approach the Company will not invest
in companies which have high ESG risks and no plans to address existing
deficiencies. Where the Board is not satisfied that an investee company is
taking steps to address matters of an ESG nature, it may discuss with the
Manager how this situation might be resolved, including potentially by a full
disposal of shares.
BlackRock’s approach to sustainable investing
Sustainability is BlackRock's standard for investing, based on the investment
conviction that integrating sustainability can help investors build more
resilient portfolios and achieve better long term, risk-adjusted returns.
BlackRock believes 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. BlackRock believes 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 outlined how it was
making sustainability integral to the way BlackRock manage risk, generate
alpha, build portfolios and pursue investment stewardship, in order to help
improve investment outcomes for clients.
By December 2020, BlackRock announced that the following key achievements had
been made in progress towards its goals, including:
· Ensuring that 100% of active portfolios are ESG-integrated;
· Launching a new database (Aladdin Climate) to set a new
standard for climate data and analytics;
· Intensifying the investment stewardship focus on
sustainability;
· Joining Climate Action 100+, a natural progression in
BlackRock’s work to advance sustainable business practices aligned with the
Task Force on Climate-related Financial Disclosures (TCFD); and
· Establishing nearly a hundred new sustainable BlackRock funds
in 2020, helping to increase access and provide investors with greater choice.
A detailed summary of the actions taken by BlackRock in 2020 on making
sustainability the new standard for investing can be found at
https://www.blackrock.com/corporate/
literature/publication/our-2020-sustainability-actions.pdf
BlackRock also announced in January 2021 that it was committed to supporting
the goal of ‘net zero’ (building an economy that emits no more carbon
dioxide than it removes from the atmosphere) by 2050 (the
scientifically-established threshold necessary to keep global warming well
below 2ºC). BlackRock is taking a number of steps to help investors prepare
their portfolios for a net zero world, including capturing opportunities
created by the net zero transition. Key actions targeted by BlackRock for 2021
include:
Measurement and Transparency
· Publishing the proportion of BlackRock assets under
management that are currently aligned to net zero, and announcing an interim
target on the proportion of BlackRock assets under management that will be
aligned to net zero in 2030, for markets with sufficiently reliable data; and
· Through Aladdin Climate, helping more investors manage and
meet their climate objectives by tracking investment portfolios’
trajectories toward net zero, and helping to catalyse increasingly robust and
standardised climate data and metrics to better serve the industry.
Investment Management
· Incorporating the impacts of climate change into
BlackRock’s capital market assumptions, the cornerstone for portfolio
construction at BlackRock;
· Implementing a ‘heightened-scrutiny model’ in
BlackRock’s active portfolios as a framework and for managing securities
that pose significant climate risk; and
· Helping BlackRock's clients benefit from opportunities
created by the energy transition, from investments in electric cars to clean
energy to energy-efficient housing.
Stewardship
· Using investment stewardship to ensure the companies that
BlackRock invests in on behalf of clients are mitigating climate risk and
considering the opportunities presented by the net zero transition;
· Asking companies to disclose a business plan aligned with the
goal of limiting global warming to well below 2ºC, consistent with achieving
net zero global greenhouse gas emissions by 2050; and
· Increasing the role of votes on shareholder proposals in
BlackRock’s stewardship efforts around sustainability.
Integration of ESG into BlackRock’s investment management process
As well as the initiatives set out above, as part of BlackRock’s structured
investment process, ESG risks and opportunities are considered within the
portfolio management team’s fundamental analysis of companies and
industries. The team aims to assess financial materiality in relation to ESG
via data insights integrated into the team’s standard research templates
shown in the BlackRock ESG Risk Window. The Risk Window, using MSCI data,
flags any stock-specific concerns allowing investors to investigate them
further. It screens for ESG metrics through over 400 single data points and
ranks potential risks from High to Managed. BlackRock’s portfolio management
teams also have access to other data sources such as RepRisk or
SustainAnalytics to complement the Risk Window. BlackRock’s unparalleled
access to company management allows it to engage on these issues through
questioning management teams and conducting site visits. BlackRock looks to
understand how management approaches ESG risks and opportunities and the
potential impact this may have on company financials.
The BlackRock Investment Stewardship team (BIS) promotes sound corporate
governance and sustainable business practices to help maximize long-term
shareholder value for BlackRock's clients. BIS does this in three ways:
engaging with companies, using BlackRock's vote, and promoting thought
leadership. Through this combination of quantitative and qualitative
assessment, BlackRock ensures that its understanding of the portfolio’s
investments is thorough, reliable and up to date. The portfolio management
team’s understanding of ESG issues is further supported by BlackRock’s
Sustainable Investment team (BSI). BSI looks to advance ESG research and
integration, active engagement and the development of sustainable investment
solutions across the firm. BlackRock believes ESG issues have important
financial impacts over the long term.
The sustainable investing effort is embedded into BlackRock’s culture from
the top down through the belief that a company’s ability to manage ESG
matters demonstrate the leadership and good governance that is essential to
sustainable, long-term growth.
Investment stewardship
BIS plays a fundamental role in the activation of BlackRock’s purpose of
helping more and more people experience financial well-being. As a fiduciary,
BlackRock has a responsibility to its clients to make sure companies are
adequately managing and disclosing ESG risks and opportunities that can impact
their ability to generate long-term financial performance and to hold them
accountable through BlackRock’s vote if they are not.
BlackRock’s BIS team has been focusing on sustainability issues for years.
Each year, the BIS team prioritises its work around several engagement themes
that it believes will encourage sound governance practices and deliver
sustainable long-term financial performance for BlackRock clients. For
each engagement priority, BIS provides a high level, globally relevant
‘Key Performance Indicator’ (KPI) so companies are aware of BlackRock’s
expectations.
In 2020, BIS put an increased focus on ESG-related issues and relevant
disclosures, given the growing impact of these issues on long-term value
creation. To that end, BIS made an explicit ask that companies align their
disclosures to the TCFD framework and the Sustainability Accounting Standards
Board (SASB) standards. This includes each investee 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. BlackRock is greatly encouraged by the progress it has seen
over the past year – a 363% increase in SASB disclosures and more than 1,700
organisations expressing support for the TCFD.
As reported in the BIS 2020 annual report, in the year from 1 July 2019 to 30
June 2020, BIS held over 3,000 engagements globally with over 2,000 companies
covering 61% by value of BlackRock’s clients’ equity investments. In terms
of voting, BIS voted at approximately 16,200 shareholder meetings and on
153,000 proposals. Voting is how BIS holds companies accountable when they
fall short of expectations. BIS might vote against directors or other
management proposals or might vote to support a shareholder proposal. BIS
views holding directors accountable as one of the most effective ways to
encourage change at a company. Given the groundwork already laid through past
engagements and the growing investment risks surrounding sustainability, BIS
will be increasingly disposed to vote against the re-election of directors
when companies have not made sufficient progress. In the year to 30 June 2020,
BIS opposed the re-election of over 5,100 directors, more than ever before,
sending a strong signal of concern when companies did not make sufficient
progress on issues that are central to long-term value creation. BIS raised
questions on board quality, taking voting action against directors for lack of
independence on the board, insufficient board diversity and overcommitment.
BIS also held directors to account for not meeting expectations on climate
risk management or disclosures and for management and compensation policies
inconsistent with sustainable long-term financial performance. BIS also sees
voting on shareholder proposals playing an increasingly important role in
BlackRock’s stewardship efforts around sustainability. Accordingly, where
BIS agrees with the intent of a shareholder proposal addressing a material
business risk, and if BIS determines that management could do better in
managing and disclosing that risk, BIS will support the proposal. BIS may also
support a proposal if management is on track but BIS believes that voting in
favour might accelerate their progress. As a long-term investor, BIS has
historically engaged to explain its views on an issue and given management
ample time to address it. However, given the need for urgent action on many
business relevant sustainability issues, BIS will be more likely to support a
shareholder proposal without waiting to assess the effectiveness of
engagement.
As the past year has only intensified BlackRock’s conviction that
sustainability risk, and climate risk in particular, is investment risk, BIS
is continuing to increase its focus on how sustainability-related factors are
impacting a company’s ability to generate shareholder returns. As detailed
in the 2021 BIS Stewardship Expectations report and the BIS commentary on
Climate Risk and Transition to a Low-Carbon Economy, BIS expects companies
to disclose a business plan aligned with the goal of limiting global warming
to well below 2ºC, consistent with achieving net zero global greenhouse gas
(GHG) emissions by 2050. These disclosures are essential to helping investors
assess a company’s ability to transition its business to a low-carbon world
and to capture value-creation opportunities created by the climate transition.
This report can be found at
https://www.blackrock.com/corporate/literature/publication/our-2021-stewardship-expectations.pdf.
BlackRock is also committed to transparency in terms of disclosure on its
engagement with companies and voting rationales. More details about BlackRock
Investment Stewardship can be found on BlackRock’s website at
www.blackrock.com/corporate/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 recognises that reporting to these standards requires significant
time, analysis, and effort. BlackRock’s own SASB-aligned disclosure is
available on its website at
www.blackrock.com/corporate/literature/continuousdisclosure-and-important-information/
blackrock-2019-sasb-disclosure.pdf and BlackRock published a detailed
TCFD-aligned report on its 2020 activities. More information on BlackRock’s
policies on Corporate Sustainability can be found on BlackRock’s website at
www.blackrock.com/corporate/sustainability.
BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
4 March 2021
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 2020 amounted
to £6,405,000 (2019: £6,480,000). At the year end, £2,064,000 (2019:
£1,714,000) was outstanding in respect of management fees.
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 2020 amounted to £152,000 excluding VAT (2019:
£159,000 excluding VAT). Marketing fees of £55,000 were outstanding as at 31
December 2020 (2019: £50,000).
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC
Financial Services Group, Inc. (PNC) was a substantial shareholder in
BlackRock, Inc. PNC did not provide any services to the Company during the
financial year ended 31 December 2019 and the period up to 11 May 2020, when
PNC announced its intent to sell its investment in BlackRock, Inc. through a
registered offering and related buyback by BlackRock, Inc.
RELATED PARTY TRANSACTIONS
The Board consists of five 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. All five members of the Board hold shares in the
Company. Mr Cheyne 24,000 ordinary shares, Mr Edey 20,000 ordinary shares, Ms
Lewis 5,362 ordinary shares, Ms Mosely 7,400 ordinary shares and Mr Oliveira
18,000 ordinary shares. The amount of Directors’ fees outstanding at 31
December 2020 was £14,375 (2019: £14,375).
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 in accordance with International Financial Reporting Standards
(IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and in conformity with the requirements of the Companies Act
2006.
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 adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and in conformity with the requirements of the
Companies Act 2006, subject to any material departures disclosed and explained
in the financial statements;
· provide additional disclosures when compliance with the
specific requirements in accordance with IFRS adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union and in conformity with
the requirements of the Companies Act 2006 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 adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and in conformity with the requirements of the
Companies Act 2006, 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
2020, 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
4 March 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER
2020
Notes Revenue 2020 £’000 Revenue 2019 £’000 Capital 2020 £’000 Capital 2019 £’000 Total 2020 £’000 Total 2019 £’000
Income from investments held at fair value through profit or loss 3 31,507 40,880 – – 31,507 40,880
Other income 3 7,964 5,634 – – 7,964 5,634
-------------- -------------- -------------- -------------- -------------- --------------
Total revenue 39,471 46,514 – – 39,471 46,514
======== ======== ======== ======== ======== ========
Net profit on investments held at fair value through profit or loss – – 183,667 77,517 183,667 77,517
Net profit on foreign exchange – – 2,431 3,230 2,431 3,230
-------------- -------------- -------------- -------------- -------------- --------------
Total 39,471 46,514 186,098 80,747 225,569 127,261
======== ======== ======== ======== ======== ========
Expenses
Investment management fee 4 (1,546) (1,564) (4,859) (4,916) (6,405) (6,480)
Other operating expenses 5 (997) (1,030) (18) (20) (1,015) (1,050)
-------------- -------------- -------------- -------------- -------------- --------------
Total operating expenses (2,543) (2,594) (4,877) (4,936) (7,420) (7,530)
======== ======== ======== ======== ======== ========
Net profit on ordinary activities before finance costs and taxation 36,928 43,920 181,221 75,811 218,149 119,731
Finance costs 6 (424) (896) (1,272) (2,683) (1,696) (3,579)
-------------- -------------- -------------- -------------- -------------- --------------
Net profit on ordinary activities before taxation 36,504 43,024 179,949 73,128 216,453 116,152
======== ======== ======== ======== ======== ========
Taxation (1,053) (3,463) 1,115 1,377 62 (2,086)
Profit for the year 35,451 39,561 181,064 74,505 216,515 114,066
-------------- -------------- -------------- -------------- -------------- --------------
Earnings per ordinary share (pence) 8 20.40 22.46 104.22 42.30 124.62 64.76
======== ======== ======== ======== ======== ========
The total column of this statement represents the Group’s Statement of
Comprehensive Income, prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006. 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. The profit for the
year disclosed above represents the Group’s total comprehensive income.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER
2020
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 2020
At 31 December 2019 9,651 127,155 22,779 108,601 447,806 41,118 757,110
Total comprehensive income:
Net profit for the year – – – – 181,064 35,451 216,515
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury 9,10 – – – (4,573) – – (4,573)
Share purchase costs 9,10 – – – (36) – – (36)
Dividends paid (1) 7 – – – – – (38,191) (38,191)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2020 9,651 127,155 22,779 103,992 628,870 38,378 930,825
======== ======== ======== ======== ======== ======== ========
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 – – – (5,512) – – (5,512)
Share purchase costs – – – (34) – – (34)
Dividends paid (2) 7 – – – – – (37,005) (37,005)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2019 9,651 127,155 22,779 108,601 447,806 41,118 757,110
======== ======== ======== ======== ======== ======== ========
(1) The final dividend of 10.00p per share for the year ended 31
December 2019, declared on 27 February 2020 and paid on 7 May 2020; 1st
interim dividend of 4.00p per share for the year ended 31 December 2020,
declared on 30 April 2020 and paid on 26 June 2020; 2nd interim dividend of
4.00p per share for the year ended 31 December 2020, declared on 19 August
2020 and paid on 25 September 2020 and 3rd interim dividend of 4.00p per share
for the year ended 31 December 2020, declared on 12 November 2020 and paid on
18 December 2020.
(2 ) 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.
For information on the Company’s distributable reserves, please refer to
note 17 in the Annual Report and Financial Statements.
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER
2020
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 2020
At 31 December 2019 9,651 127,155 22,779 108,601 454,613 34,311 757,110
Total comprehensive income:
Net profit for the year – – – – 179,934 36,581 216,515
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury 9,10 – – – (4,573) – – (4,573)
Share purchase costs 9,10 – – – (36) – – (36)
Dividends paid (1) 7 – – – – – (38,191) (38,191)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2020 9,651 127,155 22,779 103,992 634,547 32,701 930,825
======== ======== ======== ======== ======== ======== ========
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 – – – (5,512) – – (5,512)
Share purchase costs – – – (34) – – (34)
Dividends paid (2) 7 – – – – – (37,005) (37,005)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2019 9,651 127,155 22,779 108,601 454,613 34,311 757,110
======== ======== ======== ======== ======== ======== ========
(1) The final dividend of 10.00p per share for the year ended 31
December 2019, declared on 27 February 2020 and paid on 7 May 2020; 1st
interim dividend of 4.00p per share for the year ended 31 December 2020,
declared on 30 April 2020 and paid on 26 June 2020; 2nd interim dividend of
4.00p per share for the year ended 31 December 2020, declared on 19 August
2020 and paid on 25 September 2020 and 3rd interim dividend of 4.00p per share
for the year ended 31 December 2020, declared on 12 November 2020 and paid on
18 December 2020.
(2 ) 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.
For information on the Company’s distributable reserves, please refer to
note 17 in the Annual Report and Financial Statements.
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION AS AT 31
DECEMBER 2020
31 December 2020 31 December 2019
Notes Group £’000 Company £’000 Group £’000 Company £’000
Non current assets
Investments held at fair value through profit or loss 1,045,818 1,052,996 845,777 851,732
Current assets
Other receivables 6,837 6,837 4,626 4,626
Cash collateral held with brokers 2,943 2,943 431 431
Cash and cash equivalents 309 309 1,399 39
-------------- -------------- -------------- --------------
Total current assets 10,089 10,089 6,456 5,096
======== ======== ======== ========
Total assets 1,055,907 1,063,085 852,233 856,828
======== ======== ======== ========
Current liabilities
Other payables (5,545) (6,613) (4,003) (5,071)
Derivative financial liabilities held at fair value through profit or loss (587) (587) (314) (314)
Bank overdraft (16,317) (22,427) (99) (3,626)
Bank loans (102,418) (102,418) (90,583) (90,583)
-------------- -------------- -------------- --------------
Total current liabilities (124,867) (132,045) (94,999) (99,594)
-------------- -------------- -------------- --------------
Total assets less current liabilities 931,040 931,040 757,234 757,234
======== ======== ======== ========
Non current liabilities
Deferred taxation liability (215) (215) (124) (124)
-------------- -------------- -------------- --------------
Net assets 930,825 930,825 757,110 757,110
======== ======== ======== ========
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 10 103,992 103,992 108,601 108,601
Capital reserves:
At 1 January 447,806 454,613 373,301 380,486
Net profit for the year 181,064 179,934 74,505 74,127
10 628,870 634,547 447,806 454,613
Revenue reserve:
At 1 January 41,118 34,311 38,562 31,377
Net profit for the year 35,451 36,581 39,561 39,939
Dividends paid (38,191) (38,191) (37,005) (37,005)
10 38,378 32,701 41,118 34,311
-------------- -------------- -------------- --------------
Total equity 930,825 930,825 757,110 757,110
======== ======== ======== ========
Net asset value per ordinary share (pence) 8 536.34 536.34 433.17 433.17
======== ======== ======== ========
CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 31
DECEMBER 2020
31 December 2020 31 December 2019
Group £’000 Company £’000 Group £’000 Company £’000
Operating activities
Net profit before taxation 216,453 216,453 116,152 116,152
Add back finance costs 1,696 1,696 3,579 3,579
Net profit on investments held at fair value through profit or loss (including transaction costs) (182,539) (182,536) (76,960) (77,141)
Net profit on foreign exchange (2,431) (2,431) (3,230) (3,230)
Sales of investments held at fair value through profit or loss 360,288 359,062 377,210 377,210
Purchases of investments held at fair value through profit or loss (377,517) (377,517) (367,499) (367,499)
Decrease/(increase) in other receivables 618 618 (2,058) (2,058)
Increase in other payables 268 268 268 270
Increase in amounts due from brokers (2,902) (2,902) (118) (118)
Increase/(decrease) in amounts due to brokers 2,473 2,473 (13,713) (13,713)
Net movement in cash collateral held with brokers (2,512) (2,512) 219 219
======== ======== ======== ========
Net cash inflow from operating activities before taxation 13,895 12,672 33,850 33,671
======== ======== ======== ========
Taxation paid (1,038) (1,038) (2,035) (2,035)
Taxation on investment income included within gross income (1,664) (1,664) (124) (124)
Prior year corporation tax refund 2,687 2,687 – –
======== ======== ======== ========
Net cash inflow from operating activities 13,880 12,657 31,691 31,512
======== ======== ======== ========
Financing activities
Drawdown/(repayment) of loans 15,016 15,016 (20,000) (20,000)
Interest paid (1,772) (1,772) (3,815) (3,815)
Payments for ordinary shares purchased into treasury (5,455) (5,455) (4,632) (4,632)
Share purchase costs paid (36) (36) (32) (32)
Dividends paid (38,191) (38,191) (37,005) (37,005)
======== ======== ======== ========
Net cash outflow from financing activities (30,438) (30,438) (65,484) (65,484)
======== ======== ======== ========
Decrease in cash and cash equivalents (16,558) (17,781) (33,793) (33,972)
Cash and cash equivalents at start of the year 1,300 (3,587) 35,501 30,793
Effect of foreign exchange rate changes (750) (750) (408) (408)
-------------- -------------- -------------- --------------
Cash and cash equivalents at end of year (16,008) (22,118) 1,300 (3,587)
======== ======== ======== ========
Comprised of:
Cash and cash equivalents 309 309 1,399 39
Bank overdraft (16,317) (22,427) (99) (3,626)
-------------- -------------- -------------- --------------
(16,008) (22,118) 1,300 (3,587)
======== ======== ======== ========
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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 27th 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) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
and in conformity with the requirements 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) in October 2019, is compatible with IFRS adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union and in
conformity with the requirements of the Companies Act 2006, the financial
statements have been prepared in accordance with guidance set out in the 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
Directors have considered any potential impact of the COVID-19 pandemic and
the mitigation measures which key service providers, including the Manager,
have in place to maintain operational resilience on the going concern of the
Company. The Directors have reviewed compliance with the covenants associated
with the bank overdraft facility, loan facility, income and expense
projections and the liquidity of the investment portfolio in making their
assessment.
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 (£’000) except where otherwise indicated.
IFRS standards that have recently been adopted:
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 been
endorsed by the EU. The adoption of this standard has had no impact on the
financial statements of the Group.
Amendments to IAS 1 and IAS 8 – 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 of IAS 1 about immaterial
information.
This standard has been endorsed by the EU. The adoption of this standard has
had no impact on the financial statements of 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.
This standard has been endorsed by the EU. The adoption of this standard has
had no impact on the financial statements of the Group as it does not hedge.
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 2021 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.
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 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 and interest income 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; and
· 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 and share reissues
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.
Where treasury shares are subsequently reissued:
· amounts received to the extent of the repurchase price are
credited to the special reserve; and
· any surplus received in excess of the repurchase price is
taken to the share premium account.
(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 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) in the Annual
Report and Financial Statements.
3. INCOME
2020 £’000 2019 £’000
Investment income:
UK dividends 12,328 11,817
UK special dividends – 4,402
Overseas dividends 12,133 11,394
Overseas special dividends 538 2,249
Income from contractual rights (OZ Minerals Royalty) 1,800 1,541
Income from Vale debentures 2,304 3,708
Income from fixed income investments 2,510 5,769
Less provision for doubtful debts (106) –
======== ========
31,507 40,880
======== ========
Other income:
Option premium income 8,765 6,008
Deposit interest 7 106
Interest on corporation tax refund 293 –
Stock lending income 27 77
Loss on investment dealing in the subsidiary (1,128) (557)
======== ========
7,964 5,634
======== ========
Total income 39,471 46,514
======== ========
During the year, the Group received option premium income in cash totalling
£8,821,000 (2019: £5,986,000) for writing put and covered call options for
the purposes of revenue generation. Option premium income is amortised evenly
over the life of the option contract and accordingly, during the year, option
premiums of £8,765,000 (2019: £6,008,000) were amortised to revenue. At 31
December 2020, there were two (2019: five) open positions with an associated
liability of £587,000 (2019: £314,000).
Dividends and interest received in cash during the year amounted to
£25,363,000 and £3,421,000 (2019: £27,581,000 and £8,252,000)
respectively.
Special dividends amounting to £34,000 (2019: £5,229,000) have been
recognised in capital during the year and included within investment gains.
4. INVESTMENT MANAGEMENT FEE
2020 2019
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Investment management fee 1,546 4,859 6,405 1,564 4,916 6,480
-------------- -------------- -------------- -------------- -------------- --------------
Total 1,546 4,859 6,405 1,564 4,916 6,480
======== ======== ======== ======== ======== ========
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 £5,907,000
(2019: £5,888,000) of the investment management fee was generated from net
assets and £498,000 (2019: £592,000) from the gearing effect on gross assets
due to the quarter–on–quarter increase in the NAV per share during the
year as below:
Quarter end Cum income NAV per share (pence) Quarterly increase/(decrease) % Gearing effect on management fees (£’000)
31 December 2019 433.17 – –
31 March 2020 307.48 (29.0) –
30 June 2020 428.24 +39.3 113
30 September 2020 456.18 +6.5 183
31 December 2020 536.34 +17.6 202
======== ======== ========
The daily average of the net assets under management during the year ended 31
December 2020 was £748,853,000 (2019: £733,356,000). The fee is allocated
25% to the revenue column and 75% to the capital column of the Consolidated
Statement of Comprehensive Income.
There is no additional fee for company secretarial and administration
services.
5. OTHER OPERATING EXPENSES
2020 £’000 2019 £’000
Allocated to revenue
Custody fee 105 114
Auditors’ remuneration:
– audit services 39 36
– non-audit services (1) 8 7
Registrar’s fee 86 88
Directors’ emoluments (2) 183 190
Broker fees 24 24
Depositary fees 74 63
Marketing fees 152 159
Stock exchange fees 21 19
Legal and professional fees 40 43
Bank facility fees (3) 72 75
AIC Fees 17 22
FCA Fee 20 18
Directors’ insurance 14 14
Directors’ search fees 13 26
Printing and postage fees 41 45
Other administrative costs 106 87
Write back of prior year expenses (4) (18) –
-------------- --------------
997 1,030
======== ========
Allocated to capital
Custody transaction charges (5) 18 20
-------------- --------------
1,015 1,050
======== ========
2020 2019
The Company’s ongoing charges (6), calculated as a percentage of average daily net assets and using management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items were: 0.99% 1.02%
======== ========
The Company’s ongoing charges (6), calculated as a percentage of average daily gross assets and using management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items were: 0.87% 0.89%
======== ========
(1) Fees paid to the auditor for non-audit services of £7,540
excluding VAT (2019: £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.
The Company has no employees.
(3) There is a 4 basis point facility fee chargeable on the full loan
facility amount whether drawn or undrawn.
(4 ) Relates to prior year accrual for broker fees written back
during the year.
(5 ) These relate to costs charged by the custodian on sale and
purchase trades.
(6) Alternative Performance Measures, see Glossary in the Annual
Report and Financial Statements.
6. FINANCE COSTS
2020 2019
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Interest on bank loans 409 1,229 1,638 889 2,662 3,551
Interest on bank overdraft 15 43 58 7 21 28
-------------- -------------- -------------- -------------- -------------- -------------
Total 424 1,272 1,696 896 2,683 3,579
======== ======== ======== ======== ======== ========
7. DIVIDENDS
Record date Payment date 2020 £’000 2019 £’000
Final dividend of 10.00p per share for the year ended 31 December 2019 (2018: 9.00p) 20 March 2020 7 May 2020 17,361 15,870
1st interim dividend of 4.00p per share for the year ended 31 December 2020 (2019: 4.00p) 29 May 2020 26 June 2020 6,944 7,053
2nd interim dividend of 4.00p per share for the year ended 31 December 2020 (2019: 4.00p) 28 August 2020 25 September 2020 6,944 7,052
3rd interim dividend of 4.00p per share for the year ended 31 December 2020 (2019: 4.00p) 20 November 2020 18 December 2020 6,942 7,030
-------------- --------------
38,191 37,005
======== ========
The total dividends payable in respect of the year ended 31 December 2020
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:
2020 £’000 2019 £’000
1st interim dividend of 4.00p per share for the year ended 31 December 2020 (2019: 4.00p) 6,944 7,053
2nd interim dividend of 4.00p per share for the year ended 31 December 2020 (2019: 4.00p) 6,944 7,052
3rd interim dividend of 4.00p per share for the year ended 31 December 2020 (2019: 4.00p) 6,942 7,030
Final interim dividend of 8.30p per share for the year ended 31 December 2020 (2019: final dividend 10.00p) (1) 14,713 17,361
-------------- --------------
35,543 38,496
======== ========
(1) Based on 177,270,814 ordinary shares in issue on 4 March
2021.
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
2020 2019
Net revenue profit attributable to ordinary shareholders (£’000) 35,451 39,561
Net capital profit attributable to ordinary shareholders (£’000) 181,064 74,505
-------------- --------------
Total profit attributable to ordinary shareholders (£’000) 216,515 114,066
======== ========
Equity shareholders’ funds (£’000) 930,825 757,110
The weighted average number of ordinary shares in issue during the year, on which the earnings per ordinary share was calculated was: 173,740,499 176,135,318
The actual number of ordinary shares in issue at the year end, on which the net asset value per ordinary share was calculated was: 173,550,814 174,784,727
Earnings per share
Revenue earnings per share (pence) 20.40 22.46
Capital profit per share (pence) 104.22 42.30
-------------- --------------
Total profit per share (pence) 124.62 64.76
======== ========
As at 31 December 2020 As at 31 December 2019
Net asset value per ordinary share (pence) 536.34 433.17
Ordinary share price (pence) 522.00 383.00
======== ========
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 2019 174,784,727 18,227,115 193,011,842 9,651
Shares purchased into treasury (1,233,913) 1,233,913 – –
----------------- ----------------- ----------------- -----------------
At 31 December 2020 173,550,814 19,461,028 193,011,842 9,651
========== ========== ========== ==========
During the year 1,233,913 shares were bought back and transferred to treasury
for a total consideration of £4,609,000 (2019: 1,545,515 shares were bought
back and transferred to treasury for a total consideration of £5,546,000).
Since the year end, the Company has reissued 3,720,000 ordinary shares from
treasury for a total gross consideration of £21,896,000.
10. RESERVES
Group 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 2019 127,155 22,779 108,601 281,550 166,256 41,118
Movement during the year:
Total comprehensive income:
Net capital (loss)/profit for the year – – – (4,161) 185,225 –
Net revenue profit for the year – – – – – 35,451
Transactions with owners recorded directly to equity:
Ordinary shares purchased into treasury – – (4,573) – – –
Share purchase costs – – (36) – – –
Dividends paid – – – – – (38,191)
-------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2020 127,155 22,779 103,992 277,389 351,481 38,378
======== ======== ======== ======== ======== ========
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 2019 127,155 22,779 108,601 280,610 174,003 34,311
Movement during the year:
Total comprehensive income:
Net capital (loss)/profit for the year – – – (4,722) 184,656 –
Net revenue profit for the year – – – – – 36,581
Transactions with owners recorded directly to equity:
Ordinary shares purchased into treasury – – (4,573) – – –
Share purchase costs – – (36) – – –
Dividends paid – – – – – (38,191)
-------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2020 127,155 22,779 103,992 275,888 358,659 32,701
======== ======== ======== ======== ======== ========
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. In accordance with ICAEW Technical
Release 02/17BL on Guidance on Realised and Distributable Profits under the
Companies Act 2006, the special reserve and capital reserve (excluding capital
reserves of £9,601,000 on revaluation of unquoted investments and subsidiary)
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. The £358,659,000 of
capital reserve arising on the revaluation of investments is subject to fair
value movements and may not be readily realisable at short notice, as such it
may not be entirely distributable.
The reserves of the subsidiary company are not distributable until distributed
as a dividend to the Company.
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 in the Annual Report
and 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 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.
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.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on observable 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.
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 risk 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 2020 – Group Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 935,805 2,811 – 938,616
Fixed income securities 42,773 44,676 – 87,449
Investment in contractual rights – – 19,753 19,753
-------------- -------------- -------------- --------------
Total assets 978,578 47,487 19,753 1,045,818
-------------- -------------- -------------- --------------
Liabilities:
Derivative financial instruments – written options – (587) – (587)
-------------- -------------- -------------- --------------
Total 978,578 46,900 19,753 1,045,231
======== ======== ======== ========
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 2020 – Company Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 935,805 2,811 7,178 945,794
Fixed income securities 42,773 44,676 – 87,449
Investment in contractual rights – – 19,753 19,753
-------------- -------------- -------------- --------------
Total assets 978,578 47,487 26,931 1,052,996
-------------- -------------- -------------- --------------
Liabilities:
Derivative financial instruments – written options – (587) – (587)
-------------- -------------- -------------- --------------
Total 978,578 46,900 26,931 1,052,409
======== ======== ======== ========
Financial assets/(liabilities) at fair value through profit or loss 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
======== ======== ======== ========
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 2020 £’000 2019 £’000
Opening fair value 15,790 18,513
Total profit or loss included in net profit on investments in the Consolidated Statement of Comprehensive Income:
– assets held at the end of the year 3,963 (2,723)
-------------- --------------
Closing balance 19,753 15,790
======== ========
Level 3 Financial assets at fair value through profit or loss At 31 December – Company 2020 £’000 2019 £’000
Opening fair value 24,098 27,199
Total profit or loss included in net profit on investments in the Consolidated Statement of Comprehensive Income:
– assets held at the end of the year 2,833 (3,101)
-------------- --------------
Closing balance 26,931 24,098
======== ========
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 2020 £’000 2019 £’000 Valuation technique Unobservable input
OZ Minerals Brazil Royalty 19,753 15,790 Discounted cash flows Discounted rate – weighted average cost of capital Average gold and copper prices
Investment in subsidiary company 7,178 8,308 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 2020 are as
shown below.
Description Input Estimated sensitivity used (1) Impact on fair value
OZ Minerals Brazil Royalty Discount rate – weighted average cost of capital 2020 – 1% 2019 - 1% 2020 – £1.1m 2019 - £0.8m
Average gold and copper prices 2020 – 10% 2019 - 10% 2020 – £1.4m 2019 - £2.2m
(1) 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. 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 2020 amounted
to £6,405,000 (2019: £6,480,000). At the year end, £2,064,000 (2019:
£1,714,000) was outstanding in respect of management fees.
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 2020 amounted to £152,000 excluding VAT (2019:
£159,000 excluding VAT). Marketing fees of £55,000 were outstanding as at 31
December 2020 (2019: £50,000).
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC
Financial Services Group, Inc. (PNC) was a substantial shareholder in
BlackRock, Inc. PNC did not provide any services to the Company during the
financial year ended 31 December 2019 and the period up to 11 May 2020, when
PNC announced its intent to sell its investment in BlackRock, Inc. through a
registered offering and related buyback by BlackRock, Inc.
13. RELATED PARTY DISCLOSURE
Directors’ emoluments
At the date of this report, the Board consists of five non-executive
Directors, all of whom are considered to be independent of the Manager by the
Board.
Disclosures of the Directors’ interests in the ordinary shares of the
Company and fees and expenses payable to the Directors are set out in the
Directors’ Remuneration Report in the Annual Report and Financial
Statements. As at 31 December 2020 £14,375 (2019: £14,375) was outstanding
in respect of Directors’ fees.
Significant Holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of
BlackRock Inc. (“Related BlackRock Funds”) or
b. investors (other than those listed in (a) above) who held more
than 20% of the voting shares in issue in the Company and are as a result,
considered to be related parties to the Company (“Significant Investors”).
As at 31 December 2020
Total % of shares held by Related BlackRock Funds Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc.
2.45 n/a n/a
As at 30 December 2019
Total % of shares held by Related BlackRock Funds Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc.
1.99 n/a n/a
14. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2020 (2019: nil).
15. 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 2020 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 2020 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 2019, 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.
16. 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.
17. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Thursday, 29 April 2021 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
4 March 2021
12 Throgmorton Avenue
London EC2N 2DL
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