REG-BlackRock World Mng: Half-year Report
19/08/2020 17:05
BlackRock World Mining Trust plc
LEI - LNFFPBEUZJBOSR6PW155
Half Yearly Financial Report 30 June 2020
OVERVIEW AND PERFORMANCE
PERFORMANCE RECORD
As at As at
30 June 31 December
2020 2019
(unaudited) (audited)
Net assets (£'000) (1) 743,443 757,110
Net asset value per ordinary share (NAV) (pence) 428.24 433.17
Ordinary share price (mid-market) (pence) 376.00 383.00
Discount to net asset value (2,3) 12.2% 11.6%
Performance
Net asset value per share (with dividends reinvested) (3) +3.4% +17.2%
Ordinary share price (with dividends reinvested) (3) +3.7% +19.4%
Reference index (4) -0.7% +15.3%
======== ========
(1) The change in net assets reflects market
movements, dividends paid and the buyback of ordinary shares into treasury
during the period/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 Half Yearly
Financial Report.
(3) Alternative Performance Measures, see Glossary
in the Half Yearly Financial Report. Performance figures are calculated in
sterling terms with dividends reinvested.
(4) MSCI ACWI Metals & Mining 30% Buffer 10/40
Index (net return) (MSCI ACWI).
For the For the Change
six months six months %
ended ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
Revenue
Net revenue profit after taxation (£'000) 15,342 20,160 -23.9
Revenue return per ordinary share (pence) 8.82 11.43 -22.8
Dividend per ordinary share (pence)
– 1st interim 4.00 4.00 +0.0
– 2nd interim 4.00 4.00 +0.0
-------------- -------------- --------------
Total dividends paid and payable 8.00 8.00 +0.0
======== ======== ========
CHAIRMAN’S STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2020
MARKET OVERVIEW
The past six months have proved extremely challenging for markets, with
all-time highs in global equities in February 2020 followed by the outbreak of
the COVID-19 pandemic. The pandemic prompted countries to adopt varying
degrees of social distancing, self-quarantine and lockdown measures which
severely curtailed economic activity in most economies and resulted in an
unprecedented near-term contraction. Market jitters were compounded by
plunging oil prices, following heightened political tensions between the major
oil producing nations.
Policy response, with significant fiscal and monetary stimulus, cushioned the
devastating impact of the virus shock and helped turn markets around in late
March. Oil prices also partially recovered and most mined commodity prices
have remained resilient. The rebound in global equity markets has been sharp
and they have continued to recover on the back of improving economic data and
as economies gradually begin to emerge from lockdown. However, high market
volatility is expected to continue until the full implications of COVID-19
become clearer.
PERFORMANCE
Over the six months ended 30 June 2020, the Company’s net asset value (NAV)
returned +3.4% and the share price +3.7%. The Company’s reference index, the
MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (MSCI ACWI) returned -0.7%
(all percentages calculated in sterling terms with dividends reinvested). As
discussed in my annual statement to shareholders, the Board concluded that the
MSCI ACWI is a better reference tool to measure the Company’s performance
over time and was therefore introduced from the start of the new financial
year.
As mentioned in the Investment Manager’s Report, the Company’s strong
relative result compared with most other sectors has been as a result of its
exposure to highly cash generative companies such as iron ore producers, as
well as to gold miners which have continued to sell production at gradually
rising prices.
Since the period end and up to the close of business on 17 August 2020, the
Company’s NAV has increased by 10.3% compared to a rise of 10.2% (on a net
return basis) in the reference index (with income reinvested).
REVENUE RETURN AND DIVIDENDS
The Company’s net revenue earnings for the six months to 30 June 2020
amounted to 8.82p per share (six months to 30 June 2019: 11.43p per share) a
decrease of 22.8%. Only four special dividends totalling £330,000 were
received in the period under review, whilst six special dividends totalling
£10.2 million were received during the corresponding six-month period in
2019. All special dividends have been taken to revenue, with the exception of
one special dividend amounting to £34,000 which was taken to capital (2019:
one special dividend of £5.2 million taken to capital).
Despite many sectors struggling to pay dividends during the COVID-19 crisis,
there are others that are proving to be more resilient. Some of the mining
companies in the Company’s portfolio are well-positioned on the dividend
front, given their balance sheet strength and free cash flow generation.
The first quarterly dividend of 4.00p per share was paid on 26 June 2020 and,
today, the Board has announced a second quarterly dividend of 4.00p per share
which will be paid on 25 September 2020 to shareholders on the register on 28
August 2020, the ex-dividend date being 27 August 2020.
DISCOUNT
The discount of the Company’s share price to the underlying NAV per share
finished the period under review at 12.2% on a cum income basis, having stood
at 11.6% at the beginning of the period. At the close of business on 17 August
2020, the Company’s shares were trading at a discount of 11.9% on a cum
income basis.
During January and February, the Company bought back 1,179,707 shares into
treasury at a total cost of £4,400,000. As the COVID-19 pandemic took hold
and market conditions deteriorated during March, the Company’s share price
fell sharply and the discount briefly widened to 22.5% before rapidly
narrowing again. 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, and share buybacks will be undertaken in
normal market conditions when, in the view of the Board, it is in the best
interests of shareholders to do so.
GEARING
The Company operates a flexible gearing policy which depends on prevailing
market conditions. It is not intended that gearing will exceed 25% of the net
assets of the Company and its subsidiary. Gearing as at 30 June 2020 was 9.8%
and maximum gearing during the period was 15.6%.
FRANKED INVESTMENT INCOME GROUP LITIGATION ORDER V HMRC
As reported in the Company’s 2018 Annual Report, we were pleased to receive
a positive outcome on a tax ruling relating to overseas dividends with the UK
Supreme Court handing down its judgement in the Prudential Case on 25 July
2018. In August 2020, HM Revenue & Customs (HMRC) 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.
While the amount of repayment has not been formally agreed with HMRC and, as
such, a degree of uncertainty still remains, the Board has been advised that
the receipt of a repayment in respect of these amounts had become sufficiently
probable to merit recognition in the Company’s NAV. As a result, it was
announced today that an asset of £2,560,568 had been reflected in the NAV in
respect of these claims. As the original tax expense fell within the revenue
column of the consolidated income statement, the benefit of this recovery has
been credited to the revenue column of the consolidated income statement. It
will result in an increase of 1.47 pence per share to the Company’s revenue
earnings per share for the year ending 31 December 2020. More information is
given in note 17.
OUTLOOK
At the beginning of the year a continuation of modest economic growth was the
base case expectation but now we are contemplating a deep economic downturn of
unknown duration. We anticipate continued volatility for the mining sector and
broader equity market. Economies are slowly restarting, but the pace of
activity depends on how successful countries are in suppressing the virus as
they reopen.
Mining companies should be well-placed to withstand the economic weakness
relative to other sectors given their balance sheet strength. Strong capital
discipline should also help miners weather the volatility, as well as the
sector being a key beneficiary of increased infrastructure spending and a
recovery in demand. Whilst huge uncertainties remain over the short-term
outlook, the quality bias in the portfolio, with a focus on companies with
stronger balance sheets and lower costs, should hold the Company in good
stead.
DAVID CHEYNE
Chairman
19 August 2020
INVESTMENT MANAGER’S REPORT
The first half of 2020, whilst being extremely volatile, ended far better than
expected given the massive economic tremors caused by the outbreak of the
COVID-19 virus. The prior years of capital discipline and shrewd management
decisions meant mining companies were in a strong position to navigate through
this period far better than in prior recessions. The reference index, the MSCI
ACWI Metals & Mining 30% Buffer 10/40 Index net total return in sterling, was
down by 0.7% during the period, versus the FTSE All Share (with dividends
reinvested) in sterling which was down by 17.4%.
The impact of the virus on the global economy has been enormous. The way in
which it rapidly moved around the world likened it to a rolling blackout of
economic activity. Businesses and general industry were rapidly shut down,
people were moved into lockdown and financial markets responded with huge
downward moves. The uncertainty generated by this, combined with the still
fresh memories of the 2008 global financial crisis, triggered a rush for cash
which meant waves of selling by investors. Fortunately, central banks were
quick to act, and they put in place unprecedented measures designed to protect
the financial plumbing of world markets. This stabilised indices and allowed
the least impacted sectors to recover swiftly in terms of valuations.
Over the period the net asset value (NAV) of the Company was up by 3.4%
with dividends reinvested. Given the huge falls in other sectors, this is a
strong relative result especially when compared to previous crises where the
mining sector has more often than not been one of the worst places to be
invested. In addition, compared to the relative return of world markets, the
Company also benefited from its exposure to highly cash generative companies,
such as iron ore producers, as well as to gold miners who continue to sell
production at gradually rising prices.
HARD WORK PAYS OFF
For the last few years we have written about the lengths mining company
management teams and Boards have gone to rebuild trust between the companies
and their owners, the shareholders. New frameworks were put into place to
reduce the chance of poor capital allocation decisions and entrench the
businesses into a culture of shareholder driven returns. The consequence of
this was a much more robust business model, where companies have underspent
compared to the previous period of extravagance and a more prudent level of
balance sheet gearing. During the last few years, this generated large amounts
of free cash flow which was returned to shareholders. This left the sector in
the unusual position of being much better prepared for a crisis, which was
fortunate given the recent events in the first half of the year.
BALANCE SHEET STRENGTH
On top of robust finances, the sector has broadly managed the operational side
very well. There has been limited interruption to business in key regions such
as the Pilbara in Australia, but the same cannot be said for other areas such
as the Andean copper belt in Peru and Chile. These two areas have seen
significant falls in copper production during the last few months as
operations ceased to help manage the virus outbreak. Other notable areas
impacted by the lockdowns were platinum supply from South Africa and physical
gold supply from refineries. In summary, the main impact has been to reduce
production of raw materials at a time of demand weakness, which has reduced
the build-up of inventories normally associated with an economic slowdown. The
absence of a typical overhang has allowed prices to recover sharply from the
initial economic shock and bodes well for future returns should the virus now
be contained.
The US-China trade war has overshadowed the sector since mid-2018. Following
months of prolonged negotiations, the long-awaited phase one deal was signed
in January this year with China pledging to buy US$200 billion of US goods.
Initially, despite scepticism over targets being met, this provided some
relief to the sector. However, it was quickly forgotten, with governments’
focus turning to managing the COVID-19 pandemic. In recent months US-China
relations have continued to worsen with the US President blaming the Chinese
government for failing to contain the COVID-19 outbreak, putting further
progress on trade negotiations at risk. At first pass this would appear
negative for industrial demand. However, the impact of deglobalisation and a
greater desire for onshoring has the potential to be inflationary and actually
positive for commodity demand. While we continue to see trade tensions as a
risk factor for the sector, we anticipate the impact to be more muted in the
medium term.
ESG AND THE SOCIAL LICENSE TO OPERATE
Environmental, Social and Governance (ESG) is of critical importance to the
mining sector and the Portfolio Managers 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, carbon emissions and
geographical location of assets. However, we feel the sector underemphasises
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 the continuing improvements to health
& safety standards across the industry.
Rio Tinto, Norilsk Nickel and Vale have been the key ESG focus areas during
the first half of the year. Following the events at Juukan Gorge in late May,
Rio Tinto has launched a board-led review of its heritage management processes
and will examine the company’s relationship and communications with the
Puutu Kunti Kurrama and Pinikura people (PKKP). The review will be made public
and is due to be released in October 2020, involving consultation with the
indigenous leaders, traditional owners, subject matter experts and Rio Tinto
employees. We look forward to receipt of the report.
Norilsk Nickel has been under significant scrutiny following an oil spill in
May which saw circa 21,000 tonnes of diesel spill into the Artic region with
the Russian President declaring a state of emergency in the region. Norilsk
Nickel has been ordered to pay US$2.1 billion in fines and damages, with
Norilsk Nickel disputing the methodology used to calculate the damage caused
by the oil spill.
Vale has been under ESG scrutiny following the tailings dam incidents at
Samarco in 2015 and the Brumadinho collapse in 2019. Both events saw tragic
loss of life and resulted in a heavy focus on tailings dam management across
the sector. Vale is committed to restoring Brumadinho and rebuilding its pact
with society. The company has US$4 billion in provisions related to Brumadinho
and will also invest US$1.8 billion in dry stacking to reduce the reliance on
tailings dams. 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.
DIVERGENCE
During the first half of 2020 the spread of returns within the commodity
complex has been as wide as we have ever seen. Iron ore prices remained rock
solid throughout the period, as ongoing supply issues in Brazil kept markets
tight despite the COVID-19 led recession. Gold prices have been stellar due to
the move to near zero interest rates across the world and the weak US dollar.
Finally, the price of palladium moved to unprecedented levels on the back of
supply concerns and improved loadings in heavy duty vehicles. These rises are
in stark contrast to the large falls in base metals prices during the period.
Miners of zinc, tin, aluminium, copper and lead saw double digit percentage
falls in average prices year-on-year leaving some metal prices below marginal
costs of supply, for example aluminium where capacity is being closed by key
supply producers such as Rio Tinto. Coal miners also suffered as prices fell
deep into the cost curve on the back of ongoing cuts to demand, as the world
transitions more rapidly towards a lower carbon economy.
On the back of the wide range of moves in metal prices, the spread of returns
in the equities has been equally wide. Amongst the industrial commodities, key
holdings such as Rio Tinto, BHP and Anglo American have materially
outperformed others with greater exposure to base metals such as Glencore. In
addition, non-copper producers have fared far worse than key holdings in
Freeport-McMoRan Copper & Gold, Lundin Mining and Antofagasta. Finally, the
gold equities outperformed almost all other holdings as margins and cash flow
meaningfully expanded as the gold price rose and by the end of the period our
position in gold companies had risen to 35.2% of the portfolio (31 December
2019: 23.2%).
In addition to commodity prices, geographic location has been a significant
driver of returns as governments imposed different restrictions on mining
operations in response to COVID-19. For example, in Australia, iron producers
have been able to operate at close to full capacity throughout the period,
versus producers in Peru, South Africa, Mexico and Canada that were forced to
reduce people at site and mining rates in response to the virus. We have also
seen a large divergence in demand by geography, the most notable in steel,
where Chinese steel demand has recovered strongly underpinning demand for iron
ore, whilst European steel demand has waned putting pressure on coking coal
prices which were down by 43% during the first half of the year.
Amidst the commodity price volatility in the first half of the year, margins
have generally held up better across the sector given the absence of cost
inflation. The sharp move down in oil prices and commodity currencies such as
the Brazilian real and South African rand, has helped to buffer the downward
move in prices year to date. Anglo American and Vale have enjoyed a strong
tailwind from foreign exchange rates this year and we expect this to become
apparent in the second half as operating volumes improve for both companies.
SELECTED COMMODITY PRICE CHANGES DURING FIRST HALF OF 2020
Commodity 30 June 2020 % Change % Change average price
YTD in 1H 20 1H20 vs 1H19
Gold US$/oz 1,783.7 17.3% 26.1%
Silver US$/oz 18.2 1.5% 9.2%
Platinum US$/oz 814.0 -16.7% 1.7%
Palladium US$/oz 1,905.0 -0.8% 50.8%
Copper US$/lb 2.72 -2.4% -10.8%
Nickel US$/lb 5.79 -8.6% 1.5%
Aluminium US$/lb 0.73 -10.1% -12.7%
Zinc US$/lb 0.92 -10.7% -25.0%
Lead US$/lb 0.80 -7.9% -10.0%
Tin US$/lb 7.63 -2.1% -21.4%
Uranium US$/lb 46.5 -1.1% 14.2%
Iron Ore (China 62% fines) US$/t 101.5 10.3% -0.5%
Thermal Coal (Newcastle) US$/t 50.3 -22.6% -31.1%
Met Coal US$/t 111.0 -43.5% -32.8%
Lithium (Battery Grade China) 6,750 -27.0% -39.4%
WTI (Cushing) US$/barrel 39.27 -32.6% -35.1%
======== ======== ========
Sources: Datastream and Macquarie.
DIVIDEND LED ROTATION?
In recent reports we have emphasised and applauded the improved capital
discipline across the sector, which today sees the sector with one of the
strongest balance sheets globally, enabling the companies to offer an
attractive dividend yield to investors. Since 2018 we have seen a step up in
returns via dividends and last year we saw record dividends paid by BHP and
Rio Tinto due to a combination of high iron ore prices and asset sales.
Given the dividend challenges faced by companies globally and especially in
the UK, versus the market’s ongoing desire for yield, we believe there is
potential for investors who are desperately searching for income to
increasingly look towards this sector for income. Should this come to pass it
might trigger a rotation of capital from other sectors back into the mining
shares and in turn compress the dividend yield premium that the mining sector
trades on.
As we look towards the second half of the year, we remain broadly optimistic
on the outlook for dividends particularly for the iron ore exposed diversified
miners given the strength in prices year to date. The absolute level of
dividends will be ultimately dictated by the underlying commodity prices.
However, given balance sheet strength, the limited calls on growth capital and
companies’ strong commitment to adhere to their capital allocation
strategies, we continue to believe the mining sector can deliver a healthy
level of income for shareholders. To date, we have seen limited dividend cuts
across the sector, with Glencore (not in the portfolio) cutting its dividend,
Antofagasta reducing its announced dividend and Freeport-McMoRan Copper & Gold
cutting its quarterly dividend in March, as the copper price bottomed.
Conversely, we have seen strong dividend increases from a number of gold
companies with Newmont Corporation raising its quarterly dividend by 79% and
other smaller players doubling dividend payments. Today, the gold companies
trade on modest dividend yields in absolute terms; however, given the increase
in free cash flow generation this year, we look forward to higher
distributions coming through and with fixed income returns setting a low bar
maybe even a premium yield is reached.
GROWTH AND RESOURCE REPLENISHMENT
Volume growth across the sector has been limited in recent years. However, we
continue to selectively look for and invest in quality growth companies. The
majority of the Company’s growth focused investments are copper and gold
producers given the need for additional supply to be added to these markets
longer term. Key growth investments in the portfolio include Ero Copper,
Ivanhoe Mines, Anglo American, Nickel Mines, Northern Star Resources and
Teranga Gold.
Ero Copper, a Brazilian based copper producer, has been a standout investment
for the Company, up almost 400% since its Initial Public Offering (IPO) in
2017. While the shares have traded down in the first half of 2020, Ero Copper
continues to have exploration success, most recently drilling its highest
grade-meter intercept at the Pilar mine in the company’s new ‘Superpod’
discovery – the Pilar Deepening Extension zone. Ero Copper continues to
pursue its significant exploration programme, focused on existing assets and
regional exploration, which has the potential to both increase production and
extend mine life.
Another successful growth investment for the Company has been Nickel Mines, an
Australian listed, Indonesian based nickel producer. In less than two years
since its IPO, Nickel Mines has become a globally significant nickel producer
with attributable nickel production of 35ktpa. During the first half of the
year, the company exercised its right to increase its interest in two Rotary
Kiln Electric Furnace (RKEF) projects to 80% raising A$231 million via a fully
underwritten entitlement offer. This transformative transaction consolidates
Nickel Mines’ position as a Tier 1 global nickel producer.
Among the Company’s larger holdings, Anglo American is actively pursuing
growth targeting to increase copper production to circa 1Mt via the
development of Quellaveco in Peru and is also studying an expansion of the
Collahuasi Copper mine in Chile. In addition to copper, Anglo American has
near-term growth in iron ore and metallurgical coal and in the first half of
the year acquired the Woodsmith project via the acquisition of Sirius
Minerals. Woodsmith is a longer-dated growth option for Anglo American which
believes this has the potential to be a Tier 1 asset for the company with
US$1.1 billion already invested in the project and all key permits in place.
In addition to volume growth, companies that have successfully invested in
exploration through the cycle and have sufficient asset quality to replenish
reserves and resources, we believe will be strong outperformers in this next
phase of the cycle. This is particularly prevalent amongst the gold companies
given their shorter mine lives and greater need for reinvestment. There has
been a resurgence in junior and mid-cap gold companies this year with a number
of deals announced during the first half of 2020. In the Company, we have been
able to take advantage of this via our holding in Teranga Gold which acquired
the Massawa project from Barrick Gold, as well as Northern Star Resources
which raised equity at the end of 2019 to acquire 50% of KCGM (the Superpit)
from Newmont Mining. Northern Star Resources along with its joint venture
partner at the asset, Saracen, will look to update the market on the
longer-term potential of the asset in September, which has the potential to be
a cornerstone asset for the company.
SUSTAINABLE METALS
The shift towards electric vehicles (EVs) is one of the strongest trends we
foresee. We expect a more than 10-fold increase in the size of the market by
2030, which creates growth opportunities for those companies supplying the
materials that enable that transition.
Transportation has been impacted by the COVID-19 pandemic given the
significant restrictions imposed on the movement of individuals over recent
months. The sale of new vehicles has been significantly affected, with
passenger car sales falling 80% year-on-year at the trough in both China and
Europe. Encouragingly, sales in China have rebounded sharply and there is
evidence in China that the virus is encouraging people to favour car ownership
in order to avoid the use of public transport.
Looking ahead, it is actually possible that the outlook for the theme has been
strengthened by recent events. More importantly, we are seeing government
stimulus focused on restarting economies post lockdown, target sustainable
themes, with EVs an important pillar of that, which has the potential to
further accelerate the transport revolution. In Europe, for instance, the
market share of EVs has increased every month so far this year and overall,
the year to date share of EVs is around 7%, which is more than double what it
was in 2019.
In China, the government has extended its subsidies for EVs by two years. In
Europe, France has increased its EV subsidies by over 15%. Germany has gone
even further, announcing a doubling of its EV subsidy and a temporary
reduction in VAT, and has mandated that refuelling stations install EV
charging points. The decision by the German government to only introduce
automotive support measures for EVs is an incredibly powerful message about
the industry’s future direction.
The main raw materials that go into EV batteries are cobalt, nickel and
lithium. For cobalt we saw a price recovery, post a weak second half in 2019,
with London Metal Exchange prices up by 12.9% in the first half of 2020. Last
year Glencore acted to balance the cobalt market with a decision to suspend
the Mutanda project in the Democratic Republic of Congo for two years,
impacting 20% of global supply. In April, Glencore announced the acquisition
of Katanga Mining from the minority equity holders, including the Company.
This transaction was completed in June 2020.
Prices for lithium moved lower throughout the year, down 27% in the first half
of 2020. As well as the tempered growth outlook, prices have been hit by
increased supply of Australian lithium concentrate. Prices continue to be low
enough for supply to be exiting the market and projects to be halted. In March
2020, we saw China’s Tianqi Lithium postpone commissioning of their
Australian lithium conversion project in Kwinana and we have also seen
Albemarle cut capital expenditure and delay projects whilst preserving
optionality. The Company exited Albemarle during the first half of the year,
redeploying this capital into other opportunities. The Company continues to be
exposed to lithium through its holdings in the Pilgangoora Bond and Neo
Lithium. Another major battery metal is nickel where demand is likely to
benefit from the increased penetration of EVs and thus demand for lithium
batteries which contain nickel in the cathode of the battery.
2020 has seen growing excitement about the potential for hydrogen to disrupt
the commercial vehicle market. Compared to batteries, hydrogen and fuel cells
offer better energy density, improved range and faster refuelling, giving them
an inherent advantage in efforts to decarbonise the heavy truck market. That
said, there are substantial hurdles to overcome, with costs needing to fall
dramatically for the switch to be economic. We see the technology’s
long-term potential but believe that we are still in the early stages of its
development. Technologies involving platinum are crucial to the adoption of
hydrogen fuel cell and electrolyser technologies. The Company’s positions in
Impala Platinum, Northam Platinum, Anglo American and Norilsk Nickel provide
exposure here.
ROYALTIES AND UNQUOTED INVESTMENTS
The Company currently has one unquoted investment, the OZ Minerals Brazil
Royalty representing 2.1% of the portfolio as at the end of June. The Company
has an additional quoted royalty investment, the Vale Debentures, representing
3.3% of the portfolio, with total royalty investments equal to 5.4% 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 in the Annual Report.
OZ MINERALS BRAZIL ROYALTY CONTRACT (2.1%)
In July 2014 the Company signed a binding royalty agreement with Avanco
Minerals. The Company provided US$12 million in return for 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
licenses. In addition, there is a flat 2% royalty over all metals produced
from any other discoveries within Avanco’s license area as at the time of
the agreement.
In 2018 we were delighted to report that Avanco was successfully 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$13.4 million in royalty payments,
with the royalty achieving full payback on the initial investment. As at the
end of June 2020, the royalty was valued at £16.8 million (2.1% of the
portfolio) which equates to a 185.0% 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 the mine. This mine will provide ore to the existing
processing facilities at Antas from mid-2021. OZ Minerals has guided for the
Antas North mine to be closed in 2021. The Pedra Branca mine is the first
spoke in the Carajas Antas Hub strategy which OZ Minerals outlined in July
2019, a low risk, modest capital, hub strategy with processing infrastructure
serving multiple small to mid-scale mines. Exploration activities continue in
the Carajas region with OZ Minerals detailing an Exploration Target of 2.0-4.0
million tonnes at a grade of 3.1-5.0% copper at their Clovis Prospect, which
is around 2km from Antas.
From a valuation perspective, last year’s positive decision to mine on Pedra
Branca resulted in a lower discount rate applied on the cash flow from this
mine in the valuation, which offset the more conservative assumptions on the
Pedra Branca mine. Since then the Antas mine operation, Pedra Branca
development and royalty payments have continued to plan, with no material
impact from the COVID-19 pandemic on production or costs. As such, the
Directors have chosen to keep the value unchanged, save for the impact of
royalty payments paid. An independent valuation of the royalty was also
completed at the end of 2019.
VALE DEBENTURES (3.3%)
At the beginning of 2019, the Company completed a significant transaction to
increase its holding in Vale Debentures. The 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. As at
the end of June 2020, the portfolio’s exposure to the Vale Debentures was
3.3%.
The iron ore market has been significantly altered following Vale’s tragic
tailings dam incident at the beginning of 2019. In 2019, Vale’s production
was circa 80Mt lower than initially forecast following the tailings dam
failure and the requirement to suspend all upstream tailings dams. This saw
the iron ore price increase by 28.1% in 2019, significantly above the
market’s expectation of prices. This year, the iron ore market has continued
to remain tight with disappointing production volumes from Vale due to the
heavy wet season in Brazil and rising COVID-19 risk in the country. This has
seen the iron ore price average at US$92/t during the first half of 2020, well
above estimates used when the deal was concluded to increase the holding two
years ago.
Vale has provisioned US$4 billion (as at March 2020) for Brumadinho to restore
the environment and communities impacted by the incident. However, it is
important to note that this cost is not borne by the debentures as it is a
revenue royalty with payments directly linked to the iron ore price. At
present, the Vale Debentures are only making royalty payments from the
Northern System, with a total dividend payment of R$2.32/debenture in 2019
(equivalent to US$172.8 million), of which R$1.30/debenture was received in
the first half of 2020. Vale currently anticipates that royalty payments from
the Southeastern System will commence in June 2024 versus previous guidance of
2023, due to the impact of Brumadinho.
Vale’s Northern System is currently producing at 200Mt and forecast to grow
to 230Mt once S11D ramps up, while the Southeastern System is currently
operating at circa 70Mt and is expected to remain around this level. Vale has
indicated that it is studying increasing production at the Northern System to
further increase dry-processing operations and reduce its usage of tailings
dams, which provides additional upside to our original expectations.
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.
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.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts, mostly
involving the sale of ‘put’ and ‘call’ options. These are taken to
revenue and are subject to strict Board guidelines which limit their magnitude
to an aggregate 10% of the portfolio. In the first half of 2020 income
generated from options was £4.4 million. During the period, the increase in
market volatility presented a range of opportunities to monetise value for the
Company and this resulted in a 40.4% increase in option income versus the
first half of 2019. At the end of the period, the Company had 2.5% of net
assets exposed to derivatives and the average exposure to derivatives during
the period was once again less than 5%.
GEARING
At 30 June 2020, the Company had £97.1 million of net debt, with a gearing
level of 9.8%. The debt is held principally in US dollar rolling short-term
loans and managed against the value of the debt securities and the high
yielding royalty positions in the Company. During the period, the underlying
investments in fixed income securities evolved as some were reduced and one
new position was added. Outside of this, total indebtedness has been reduced
over the period due to the uncertainty in markets and the better returns
available outside of the fixed income sector.
OUTLOOK
Given the rapid response from central banks and governments, financial markets
have reacted well to the support mechanisms put in place. The next phase is a
balancing act between restarting the economy, whilst trying to minimise a
sizable second wave virus outbreak. At the time of writing, the fiscal
measures that have been announced are extremely supportive for growth and
should the dollars be deployed in a reasonable time then industrial
commodities are likely to benefit from this.
Unlike in previous periods of economic disruption, the mining sector has fared
much better largely due to the time spent rebuilding the businesses post the
2015 low. With first half results highlighting the strong cash flows and
decent yields, there is the prospect that those investors looking for quality
equity income investments rotate into the resources sector allowing the
consensus underweight positions to reduce. If this happens, the shares are
likely to rerate towards historic multiples delivering material upside from
current levels.
Historic data shows that the largest and most consistent contributor to total
shareholder returns in the mining sector comes from dividends. With this in
mind, it is the aim of the Company to maximise the opportunities to enhance
the yield of the portfolio to allow the Company to deliver a superior total
return for its shareholders through the cycle.
EVY HAMBRO AND OLIVIA MARKHAM
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
19 August 2020
PORTFOLIO
TEN LARGEST INVESTMENTS
1 = BHP (2019: 1st)
Diversified mining company
Market value: £71,958,000
Share of investments: 8.8% (2019: 9.7%)
The world’s largest diversified mining company by market capitalisation. The
company is an important global player in a number of commodities including
iron ore, copper, thermal and metallurgical coal, manganese, nickel, silver
and diamonds. The company also has significant interests in oil, gas and
liquefied natural gas.
2 + Vale(1,2) (2019: 3rd)
Diversified mining company
Market value: £71,127,000
Share of investments: 8.7% (2019: 8.6%)
One of the largest mining companies in the world, with operations in 30
countries. Vale is the world’s largest producer of iron ore and iron ore
pellets and the world’s largest producer of nickel. The company also
produces manganese ore, ferroalloys, metallurgical and thermal coal, copper,
platinum group metals, gold, silver and cobalt.
3 - Rio Tinto(3) (2019: 2nd)
Diversified mining company
Market value: £68,161,000
Share of investments: 8.4% (2019: 9.3%)
One of the world’s leading mining companies. The company’s primary product
is iron ore, but it also produces aluminium, copper, diamonds, gold,
industrial minerals and energy products.
4 + Barrick Gold (2019: 5th)
Gold producer
Market value: £61,430,000
Share of investments: 7.5% (2019: 4.4%)
Following the merger with Randgold Resources in 2018, Barrick Gold is the
second largest gold company by market capitalisation and has operations and
projects in fifteen countries across the world. In 2019 the company
successfully established a joint venture with Newmont Corporation across their
Nevada assets to maximise the synergies across both sets of assets.
5 + Newmont Corporation (2019: 6th)
Gold producer
Market value: £60,042,000
Share of investments: 7.4% (2019: 4.4%)
Following the acquisition of Goldcorp in the first half of 2019, Newmont
Corporation is the world’s largest gold producer by market capitalisation.
The company has gold and copper operations on five continents, with active
gold mines in Nevada, Australia, Ghana, Peru and Suriname.
6 - Anglo American (2019: 4th)
Diversified mining company
Market value: £48,505,000
Share of investments: 5.9% (2019: 6.1%)
A global mining company. The company’s mining portfolio includes bulk
commodities including iron ore, manganese and metallurgical coal, base metals
including copper, nickel and precious metals and minerals including platinum
and diamonds. Anglo American has mining operations globally, with significant
assets in Africa and South America.
7 + Wheaton Precious Metals (2019: 9th)
Gold streaming company
Market value: £37,001,000
Share of investments: 4.5% (2019: 3.7%)
A precious metals streaming company that purchases silver and gold production
from mines that it does not own and operate. The company has streaming
agreements with 22 operating mines worldwide including Newmont Corporation’s
Penasquito, HudBay’s Constancia and Vale’s Salobo and Sudbury mines.
8 + OZ Minerals(2,4) (2019: 10th)
Copper producer
Market value: £29,277,000
Share of investments: 3.6% (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 advanced exploration 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.
9 + Freeport-McMoRan Copper & Gold(3) (2019: 16th)
Copper producer
Market value: £28,474,000
Share of investments: 3.5% (2019: 2.2%)
A leading international mining company headquartered in Arizona. The company
operates long-lived geographically diverse assets with reserves of copper,
gold and molybdenum. The company’s portfolio of assets includes one of the
world’s largest copper and gold deposits within the Grasberg minerals
district in Indonesia, as well as mining operations in the Americas.
10 + Franco-Nevada (2019: 11th)
Gold company
Market value: £28,310,000
Share of investments: 3.5% (2019: 2.8%)
A gold focused royalty investment company which aims for 80% of revenue from
precious metal royalties and 20% from oil and natural gas, mostly located in
geopolitically secure countries. In total, Franco-Nevada owns more than 300
royalty interests that span a range of commodities and stages of development.
(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. Together, the ten largest investments represent 61.8% of total
investments (ten largest investments as at 31 December 2019: 57.4%). Amounts
in the table above are shown in pounds sterling.
INVESTMENTS AS AT 30 JUNE 2020
Main Market % of
geographical value investments
exposure £’000
Gold
Barrick Gold Global 61,430 7.5
Newmont Corporation Global 60,042 7.4
Wheaton Precious Metals Global 37,001 4.5
Franco-Nevada Global 28,310 3.5
Northern Star Resources Australasia 16,850 2.1
Polymetal International Russia 13,302 1.6
Agnico Eagle Mines Canada 11,454 1.4
B2Gold Canada 11,454 1.4
Polyus Russia 11,169 1.4
Teranga Gold Other Africa 8,676 1.1
Gold Fields South Africa 6,519 0.8
Alamos Gold Latin America 5,915 0.7
Kinross Gold Global 4,142 0.5
Evolution Mining Global 3,991 0.5
Kirkland Lake Gold Australasia 3,743 0.5
Shanta Gold Convertible (*) Other Africa 1,498 0.2
Pretium Resources Canada 936 0.1
Carawine Resources (+) Australasia 1 –
-------------- --------------
286,433 35.2
======== ========
Diversified
BHP Global 71,958 8.8
Vale Global 43,823 5.4
Vale 0% Debentures (*#) Latin America 27,304 3.3
Rio Tinto Global 68,379 8.4
Rio Tinto Call Option 17/07/20 £46 Global (218) –
Anglo American Global 48,505 5.9
Teck Resources Global 11,739 1.4
-------------- --------------
271,490 33.2
======== ========
Copper
OZ Minerals Brazil Royalty (#~) Latin America 16,805 2.1
OZ Minerals Global 12,472 1.5
Freeport-McMoRan Copper & Gold Global 28,681 3.5
Freeport-McMoRan Copper & Gold Put Option 17/07/20 US$11 Global (207) –
First Quantum Minerals (*) Global 23,061 2.8
Sociedad Minera Cerro Verde Latin America 22,852 2.8
Lundin Mining Global 14,220 1.7
Ero Copper Latin America 9,737 1.2
Ivanhoe Mines Other Africa 6,971 0.8
Antofagasta Latin America 6,425 0.8
Nevada Copper USA 3,522 0.4
SolGold Latin America 3,049 0.4
-------------- --------------
147,588 18.0
======== ========
Nickel
Norilsk Nickel Russia 18,935 2.3
Nickel Mines Indonesia 8,955 1.1
Bindura Nickel Other Africa 175 –
-------------- --------------
28,065 3.4
======== ========
Industrial Minerals
Iluka Resources Global 10,963 1.3
Pilgangoora (*) Australasia 7,625 0.9
Umicore Global 5,377 0.7
Sheffield Resources Australasia 1,605 0.2
Neo Lithium Latin America 547 0.1
Australian Carbon Australasia – –
-------------- --------------
26,117 3.2
======== ========
Platinum Group Metals
Impala Platinum South Africa 9,532 1.2
Northam Platinum South Africa 9,232 1.1
-------------- --------------
18,764 2.3
======== ========
Steel
ArcelorMittal (*) Global 14,670 1.8
Steel Dynamics USA 3,377 0.4
-------------- --------------
18,047 2.2
======== ========
Iron ore
Labrador Iron Canada 14,634 1.8
Equatorial Resources Other Africa 451 0.1
-------------- --------------
15,085 1.9
======== ========
Silver & Diamonds
Sierra Metals Latin America 1,477 0.2
Petra Diamonds (*) South Africa 1,155 0.1
-------------- --------------
2,632 0.3
======== ========
Aluminium
Metro Mining Australasia 1,233 0.2
-------------- --------------
1,233 0.2
======== ========
Zinc
Titan Mining USA 718 0.1
-------------- --------------
718 0.1
======== ========
Portfolio 816,172 100.0
======== ========
Comprising
– Investments 816,597 100.1
– Written options (425) (0.1)
-------------- --------------
816,172 100.0
======== ========
(*) Includes fixed income securities.
(+) Includes warrant investments.
(#) Includes investments held at Directors’
valuation.
(~) Mining royalty contract.
All investments are in equity shares unless otherwise stated.
The total number of investments as at 30 June 2020 (including options
classified as liabilities on the balance sheet) was 56 (31 December 2019: 65).
As at 30 June 2020 the Company held equity interests in three companies
comprising more than 3% of a company’s share capital as follows: Nevada
Copper, Sheffield Resources and Titan Mining.
PORTFOLIO ANALYSIS AS AT 30 JUNE 2020
COMMODITY EXPOSURE(1)
2020 Company portfolio 2019 (#)Company portfolio 2020 EMIX Global Mining Index 2020 Reference Index*
Other 0.0 2.0 0.7 0.3
Coal 0.0 0.5 2.4 0.0
Zinc 0.1 0.1 0.0 0.4
Aluminium 0.2 0.2 1.9 1.5
Silver & Diamonds 0.3 5.8 2.6 1.6
Iron ore 1.9 1.2 2.6 3.1
Steel 2.2 0.0 0.0 14.3
Platinum Group Metals 2.3 0.0 1.3 1.7
Industrial Minerals 3.2 4.6 1.0 0.0
Nickel 3.4 2.6 2.5 2.6
Copper 18.0 17.9 6.5 7.0
Diversified 33.2 41.9 39.4 29.8
Gold 35.2 23.2 39.1 37.7
GEOGRAPHICAL EXPOSURE(2)
2020 2019 (#)
Global 67.1% 63.8%
Latin America 11.6% 13.0%
Other 7.3% (3) 5.4% (4)
Canada 4.7% 7.3%
Australasia 3.9% 6.5%
South Africa 3.2% 2.2%
Other Africa (ex SA) 2.2% 1.8%
(1) Based on index classifications.
(2) Based on the principal commodity exposure and
place of operation of each investment.
(3) Consists of Indonesia, Russia and USA.
(4) Consists of Indonesia, Kazakhstan, Russia,
Sweden, United Kingdom and USA.
(#) Represents exposure as at 31 December 2019.
(*) MSCI ACWI Metals & Mining 30% Buffer 10/40
Index.
GOVERNANCE
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report give details
of the important events which have occurred during the period and their impact
on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as
follows:
• Counterparty;
• Investment performance;
• Legal & Compliance;
• Market;
• Operational;
• Financial;
• Marketing; and
• Securities lending.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 31
December 2019. A detailed explanation can be found in the Strategic Report on
pages 44 to 46 and note 18 on pages 99 to 115 of the Annual Report and
Financial Statements which is available on the website maintained by BlackRock
at www.blackrock.com/uk/brwm.
In the view of the Board, the outbreak of an infectious respiratory illness
caused by a novel coronavirus known as COVID-19, that was first detected in
China in December 2019 and has developed into a global pandemic, has
fundamentally altered the nature of the risks reported in the Annual Report
and Financial Statements. The coronavirus has resulted in travel restrictions,
closed international borders, enhanced health screenings at ports of entry and
elsewhere, disruption of and delays in healthcare service preparation and
delivery, prolonged quarantines, cancellations, supply chain disruptions, and
lower consumer demand, as well as general concern and uncertainty. The impact
of COVID-19 has adversely affected the economies of many nations across the
entire global economy, individual issuers and capital markets, and could
continue to an extent that cannot necessarily be foreseen. In addition, the
impact of infectious illnesses in emerging market countries may be greater due
to generally less established healthcare systems. Public health crises caused
by the COVID-19 outbreak may exacerbate other pre-existing political, social
and economic risks in certain countries or globally. The duration of the
COVID-19 outbreak and its effects cannot be determined with certainty.
In the view of the Board, with the exception of COVID-19, there have not been
any changes to the fundamental nature of the risks set out in the Annual
Report and these principal risks and uncertainties are equally applicable to
the remaining six months of the financial year as they were to the six months
under review. The Board recognises the benefits of a closed-end structure in
extremely volatile markets such as those experienced during 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 the closed-end 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.
Going concern
The Board is mindful of the uncertainty surrounding the potential duration of
the COVID-19 pandemic and its impact on the global economy, the Company’s
assets and the potential for the level of revenue derived from the portfolio
to reduce versus the prior year. The Portfolio Managers will continue to
review the composition of the Company’s portfolio and to be pro-active in
taking investment decisions as necessary.
The Directors, having considered the nature and liquidity of the portfolio,
the Company’s investment objective and the Company’s projected income and
expenditure, are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
The Board believes that the Company and its key third party service providers
have in place appropriate business continuity plans and these services have
continued to be supplied without interruption throughout the COVID-19
pandemic.
The Company has a portfolio of investments which are predominantly readily
realisable and is able to meet all of its liabilities from its assets and
income generated from these assets. Accounting revenue and expense forecasts
are maintained and reported to the Board regularly and it is expected that the
Company will be able to meet all its obligations. Borrowings under the
overdraft and revolving credit facilities shall at no time exceed £180
million or 25% of the Group’s net asset value (whichever is the lower) and
this covenant was complied with during the period. Based on the above, the
Board is satisfied that it is appropriate to continue to adopt the going
concern basis in preparing the financial statements. Ongoing charges
(excluding finance costs, direct transaction costs, custody transaction
charges, non-recurring charges and taxation) for the year ended 31 December
2019 were approximately 1.02% of net assets.
Related party disclosure and transactions with the AIFM and Investment Manager
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s
Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. 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)). Both BFM and BIM (UK) are regarded as
related parties under the Listing Rules. Details of the management and
marketing fees payable are set out in notes 4 and 5 respectively and note 12.
The related party transactions with the Directors are set out in note 13.
Directors’ responsibility statement
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing
Authority require the Directors to confirm their responsibilities in relation
to the preparation and publication of the Interim Management Report and
Financial Statements.
The Directors confirm to the best of their knowledge that:
• the condensed set of financial statements contained within
the half yearly financial report has been prepared in accordance with
International Accounting Standard 34 ‘Interim Financial Reporting’; and
• the Interim Management Report, together with the
Chairman’s Statement and Investment Manager’s Report, include a fair
review of the information required by 4.2.7R and 4.2.8R of the FCA’s
Disclosure Guidance and Transparency Rules.
This half yearly financial report has been reviewed by the Company’s
auditors and their report is set out below.
The half yearly financial report was approved by the Board on 19 August 2020
and the above responsibility statement was signed on its behalf by the
Chairman.
DAVID CHEYNE
FOR AND ON BEHALF OF THE BOARD
19 August 2020
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30
JUNE 2020
Six months ended Six months ended Year ended
30 June 2020 30 June 2019 31 December 2019
(unaudited) (unaudited) (audited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Income from investments held at fair value through profit or loss 3 14,923 – 14,923 20,677 – 20,677 40,880 – 40,880
Other income 3 3,335 – 3,335 3,100 – 3,100 5,634 – 5,634
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total income 18,258 – 18,258 23,777 – 23,777 46,514 – 46,514
======== ======== ======== ======== ======== ======== ======== ======== ========
Net profit on investments and derivatives held at fair value through profit or loss – 8,902 8,902 – 98,159 98,159 – 77,517 77,517
Net (loss)/profit on foreign exchange – (6,896) (6,896) – (214) (214) – 3,230 3,230
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 18,258 2,006 20,264 23,777 97,945 121,722 46,514 80,747 127,261
======== ======== ======== ======== ======== ======== ======== ======== ========
Expenses
Investment management fee 4 (623) (1,980) (2,603) (793) (2,491) (3,284) (1,564) (4,916) (6,480)
Other operating expenses 5 (471) (13) (484) (517) (8) (525) (1,030) (20) (1,050)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total operating expenses (1,094) (1,993) (3,087) (1,310) (2,499) (3,809) (2,594) (4,936) (7,530)
======== ======== ======== ======== ======== ======== ======== ======== ========
Net profit on ordinary activities before finance costs and taxation 17,164 13 17,177 22,467 95,446 117,913 43,920 75,811 119,731
Finance costs 6 (280) (827) (1,107) (471) (1,404) (1,875) (896) (2,683) (3,579)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Net profit/(loss) on ordinary activities before taxation 16,884 (814) 16,070 21,996 94,042 116,038 43,024 73,128 116,152
======== ======== ======== ======== ======== ======== ======== ======== ========
Taxation (1,542) 510 (1,032) (1,836) 697 (1,139) (3,463) 1,377 (2,086)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Profit/(loss) for the period 8 15,342 (304) 15,038 20,160 94,739 114,899 39,561 74,505 114,066
======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings/(loss) per ordinary share (pence) 8 8.82 (0.17) 8.65 11.43 53.73 65.16 22.46 42.30 64.76
======== ======== ======== ======== ======== ======== ======== ======== ========
The total column of this statement represents the Group’s Consolidated
Statement of Comprehensive Income, prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union (EU).
The supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies (AIC). All items in the
above statement derive from continuing operations. No operations were acquired
or discontinued during the period. All income is attributable to the equity
holders of the Group.
The Group does not have any other comprehensive income/(loss). The net
profit/(loss) for the period disclosed above represents the Group’s total
comprehensive income/(loss).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE
2020
Notes Called Share Capital Special Capital Revenue Total
up share premium redemption reserve reserves reserve £’000
capital account reserve £’000 £’000 £’000
£’000 £’000 £’000
For the six months ended 30 June 2020 (unaudited)
At 31 December 2019 9,651 127,155 22,779 108,601 447,806 41,118 757,110
Total comprehensive income:
Net (loss)/profit for the period – – – – (304) 15,342 15,038
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury – – – (4,363) – – (4,363)
Share purchase costs – – – (37) – – (37)
Dividends paid (1) 7 – – – – – (24,305) (24,305)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 30 June 2020 9,651 127,155 22,779 104,201 447,502 32,155 743,443
======== ======== ======== ======== ======== ======== ========
For the six months ended 30 June 2019 (unaudited)
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 period – – – – 94,739 20,160 114,899
Transactions with owners, recorded directly to equity:
Dividends paid (2) 7 – – – – – (22,923) (22,923)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 30 June 2019 9,651 127,155 22,779 114,147 468,040 35,799 777,571
======== ======== ======== ======== ======== ======== ========
For the year ended 31 December 2019 (audited)
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 (3) 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 for the year ended 31
December 2019 of 10.00p per share, declared on 27 February 2020 and paid on 7
May 2020, and 1st quarterly interim dividend for the year ended 31 December
2020 of 4.00p per share, declared on 30 April 2020 and paid on 26 June 2020.
(2) The final dividend for the year ended 31
December 2018 of 9.00p per share, declared on 28 February 2019 and paid on 10
May 2019, and 1st quarterly interim dividend for the year ended 31 December
2019 of 4.00p per share, declared on 2 May 2019 and paid on 28 June 2019.
(3) 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 quarterly 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 quarterly
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 quarterly
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.
The transaction costs relating to the acquisition and disposal of investments
amounted to £248,000 and £140,000 respectively for the six months ended 30
June 2020 (six months ended 30 June 2019: £309,000 and £198,000; year ended
31 December 2019: £868,000 and £323,000). All transaction costs have been
included within the capital reserve.
The share premium account and capital redemption reserve are not distributable
profits under the Companies Act 2006. The special reserve may be used as
distributable profits for all purposes and, in particular, for the repurchase
by the Company of its ordinary shares and for payment as dividends. In
accordance with the Company’s articles, net capital reserves may be
distributed by way of dividend.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020
Notes 30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Non current assets
Investments held at fair value through profit or loss 10 816,597 850,937 845,777
Current assets
Other receivables 7,679 5,585 4,626
Cash collateral held with brokers 1,614 1,144 431
Cash and cash equivalents 24,182 39,888 1,399
Total current assets 33,475 46,617 6,456
-------------- -------------- --------------
Total assets 850,072 897,554 852,233
======== ======== ========
Current liabilities
Other payables (8,981) (5,238) (4,003)
Derivative financial liabilities held at fair value through profit or loss 10 (425) (337) (314)
Bank overdraft – – (99)
Bank loans (97,119) (114,288) (90,583)
-------------- -------------- --------------
Total current liabilities (106,525) (119,863) (94,999)
-------------- -------------- --------------
Total assets less current liabilities 743,547 777,691 757,234
======== ======== ========
Non current liabilities
Deferred taxation liability (104) (120) (124)
-------------- -------------- --------------
Net assets 743,443 777,571 757,110
======== ======== ========
Equity attributable to equity holders
Called up share capital 9 9,651 9,651 9,651
Share premium account 127,155 127,155 127,155
Capital redemption reserve 22,779 22,779 22,779
Special reserve 104,201 114,147 108,601
Capital reserves 447,502 468,040 447,806
Revenue reserve 32,155 35,799 41,118
-------------- -------------- --------------
Total equity 743,443 777,571 757,110
======== ======== ========
Net asset value per ordinary share (pence) 8 428.24 440.97 433.17
======== ======== ========
CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2020
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Operating activities
Net profit on ordinary activities before taxation 16,070 116,038 116,152
Add back finance costs 1,107 1,875 3,579
Net profit on investments and options held at fair value through profit or loss (including transaction costs) (8,902) (98,159) (76,960)
Net loss/(profit) on foreign exchange 6,896 214 (3,230)
Sales of investments and derivatives held at fair value through profit or loss 198,078 215,998 377,210
Purchases of investments and derivatives held at fair value through profit or loss (159,051) (190,008) (367,499)
Decrease/(increase) in other receivables 692 (321) (2,058)
(Decrease)/increase in other payables (1,038) (122) 268
Increase in amounts due from brokers (3,649) (2,907) (118)
Increase/(decrease) in amounts due to brokers 6,308 (11,632) (13,713)
Net movement in cash collateral held with brokers (1,183) (494) 219
-------------- -------------- --------------
Net cash inflow from operating activities before interest and taxation 55,328 30,482 33,850
======== ======== ========
Taxation paid (696) (659) (2,035)
Taxation on investment income included within gross income (668) (495) (124)
-------------- -------------- --------------
Net cash inflow from operating activities 53,964 29,328 31,691
======== ======== ========
Financing activities
Drawdown of loans – – (20,000)
Interest paid (1,135) (1,871) (3,815)
Shares purchased into treasury* (5,245) – (4,632)
Share purchase costs paid (37) – (32)
Dividends paid (24,305) (22,923) (37,005)
-------------- -------------- --------------
Net cash outflow from financing activities (30,722) (24,794) (65,484)
======== ======== ========
Increase/(decrease) in cash and cash equivalents 23,242 4,534 (33,793)
Cash and cash equivalents at start of the period 1,300 35,501 35,501
Effect of foreign exchange rate changes (360) (147) (408)
-------------- -------------- --------------
Cash and cash equivalents at end of period 24,182 39,888 1,300
======== ======== ========
Comprised of:
Cash at bank 24,182 39,888 1,399
Bank overdraft – – (99)
-------------- -------------- --------------
24,182 39,888 1,300
======== ======== ========
* Includes payment of £0.88m made on settlement of share buybacks on 30
December 2019 and 31 December 2019.
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 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 principal activity of the subsidiary, BlackRock World Mining Investment
Company Limited, is investment dealing.
2. BASIS OF PREPARATION
The half yearly financial statements for the period ended 30 June 2020 have
been prepared in accordance with the Disclosure Guidance and Transparency
Rules sourcebook of the Financial Conduct Authority and with International
Accounting Standard 34 (IAS 34), ‘Interim Financial Reporting’, as adopted
by the European Union (EU). The half yearly financial statements should be
read in conjunction with the Company’s Annual Report and Financial
Statements for the year ended 31 December 2019, which have been prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted
by the EU and as applied in accordance with the provisions of the Companies
Act 2006 and in accordance with IAS 34 Interim Financial Reporting.
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, the financial
statements have been prepared in accordance with guidance set out in the SORP.
Adoption of new and amended standards and interpretations
Amendments to IFRS 3 – Definition of a business (effective 1 January 2020).
This amendment revised the definition of a business.
This standard did not have any impact on 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 required 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 did not have any impact on the Group.
Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform
(effective 1 January 2020). These amendments provided certain reliefs in
connection with the interest rate benchmark reform. These reliefs relate to
hedge accounting and have the effect that the Inter Bank Offer Rate (IBOR)
reform should not cause hedge accounting to terminate.
This standard did not have any impact on the Group.
IFRS standards that have yet to be adopted
IFRS 17 – Insurance contracts (effective 1 January 2021). This standard
replaces IFRS 4, which currently permits a wide range of accounting 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.
3. INCOME
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Investment income:
UK dividends 7,131 4,660 11,817
UK special dividends – 3,283 4,402
Overseas dividends 3,985 4,584 11,394
Overseas special dividends 296 1,663 2,249
Income from contractual rights (OZ Minerals Royalty) 723 795 1,541
Income from Vale debentures 1,248 2,252 3,708
Income from fixed interest investments 1,646 3,440 5,769
Less provision for doubtful debts (106) – –
-------------- -------------- --------------
14,923 20,677 40,880
======== ======== ========
Other income:
Option premium income 4,446 3,166 6,008
Deposit interest 2 56 106
Stock lending income 15 56 77
Loss on investment dealing in the subsidiary (1,128) (178) (557)
-------------- -------------- --------------
3,335 3,100 5,634
-------------- -------------- --------------
Total income 18,258 23,777 46,514
======== ======== ========
During the period, the Group received option premium income in cash totalling
£4,611,000 (six months ended 30 June 2019: £3,002,000; year ended 31
December 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 period, option premiums of £4,446,000 (six months
ended 30 June 2019: £3,166,000; year ended 31 December 2019: £6,008,000)
were amortised to revenue.
At 30 June 2020 there were two open positions (30 June 2019: one; 31 December
2019: five) with an associated liability of £425,000 (30 June 2019:
£337,000; 31 December 2019: £314,000).
Dividends and interest received in cash in the six months ended 30 June 2020
amounted to £12,758,000 and £1,516,000 (six months ended 30 June 2019:
£14,366,000 and £4,312,000; year ended 31 December 2019: £27,581,000 and
£8,252,000) respectively.
Special dividends of £34,000 have been recognised in capital for the six
months ended 30 June 2020 (six months ended 30 June 2019: £5,229,000; year
ended 31 December 2019: £5,229,000).
4. INVESTMENT MANAGEMENT FEE
Six months ended Six months ended Year ended
30 June 2020 30 June 2019 31 December 2019
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 623 1,980 2,603 793 2,491 3,284 1,564 4,916 6,480
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 623 1,980 2,603 793 2,491 3,284 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 period £2,490,000 (30
June 2019: £2,948,000; 31 December 2019: £5,888,000) of the investment
management fee was generated from net assets and £113,000 (30 June 2019:
£336,000; 31 December 2019: £592,000) from the gearing effect on gross
assets due to the quarter-on-quarter increase in the NAV per share for the
period as set out below:
Quarter end Cum income Quarterly Gearing effect
NAV per share increase/ on management
(pence) (decrease) % fees (£’000)
31 December 2019 433.17 – –
31 March 2020 307.48 (29.0) –
30 June 2020 428.24 +39.3 113
-------------- -------------- --------------
The daily average of the net assets under management during the period ended
30 June 2020 was £672,597,000 (30 June 2019: £727,181,000; 31 December 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.
5. OTHER OPERATING EXPENSES
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Allocated to revenue
Custody fee 48 55 114
Auditors’ remuneration:
– audit services 18 18 36
– non-audit services 6 6 7
Registrar’s fee 43 42 88
Directors’ emoluments 94 95 190
AIC fees 12 11 22
Broker fees 12 11 24
Depositary fees 37 34 63
FCA fee 9 9 18
Directors’ insurance 7 7 14
Marketing fees 64 61 159
Stock exchange fees 10 10 19
Legal and professional fees 26 38 43
Bank facility fees 36 38 75
Directors’ search fees 13 – 26
Printing and postage costs 20 25 45
Other administration costs 16 57 87
-------------- -------------- --------------
471 517 1,030
======== ======== ========
Allocated to capital
Custody transaction charges 13 8 20
-------------- -------------- --------------
484 525 1,050
======== ======== ========
6. FINANCE COSTS
Six months ended Six months ended Year ended
30 June 2020 30 June 2019 31 December 2019
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Interest on bank loans 278 823 1,101 470 1,402 1,872 889 2,662 3,551
Interest payable – bank overdraft 2 4 6 1 2 3 7 21 28
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 280 827 1,107 471 1,404 1,875 896 2,683 3,579
======== ======== ======== ======== ======== ======== ======== ======== ========
Finance costs are charged 25% to the revenue column and 75% to the capital
column of the Consolidated Statement of Comprehensive Income.
7. DIVIDENDS
The final dividend of 10.00p per share for the year ended 31 December 2019 was
paid on 7 May 2020. The Board has declared a first quarterly interim dividend
of 4.00p per share for the quarter ended 31 March 2020, paid on 26 June 2020
to shareholders on the register on 29 May 2020. Dividends are debited directly
to reserves.
The Board has declared a second quarterly interim dividend of 4.00p per share
for the quarter ended 30 June 2020 which will be paid on 25 September 2020 to
shareholders on the register on 28 August 2020. This dividend has not been
accrued in the financial statements for the six months ended 30 June 2020 as,
under IFRS, interim dividends are not recognised until paid.
Dividends on equity shares paid during the period were:
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Final dividend for the year ended 31 December 2019 of 10.00p per share (2018: 9.00p) 17,361 15,870 15,870
First quarterly interim dividend for the year ending 31 December 2020 of 4.00p per share (2019: 4.00p) 6,944 7,053 7,053
Second quarterly interim dividend for the year ended 31 December 2019 of 4.00p per share (2018: 3.00p) – – 7,052
Third quarterly interim dividend for the year ended 31 December 2019 of 4.00p per share (2018: 3.00p) – – 7,030
-------------- -------------- --------------
24,305 22,923 37,005
======== ======== ========
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue and capital returns per share are shown below and have been
calculated using the following:
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
(unaudited) (unaudited) (audited)
Net revenue profit attributable to ordinary shareholders (£’000) 15,342 20,160 39,561
Net capital (loss)/profit attributable to ordinary shareholders (£’000) (304) 94,739 74,505
-------------- -------------- --------------
Total profit attributable to ordinary shareholders (£’000) 15,038 114,899 114,066
======== ======== ========
Equity shareholders' funds (£'000) 743,443 777,571 757,110
The weighted average number of ordinary shares in issue during each period, on which the return per ordinary share was calculated was: 173,906,653 176,330,242 176,135,318
The actual number of ordinary shares in issue (excluding treasury shares) at the period end, on which the net asset value was calculated was: 173,605,020 176,330,242 174,784,727
Earnings per share
Revenue earnings per share (pence) 8.82 11.43 22.46
Capital (loss)/profit per share (pence) (0.17) 53.73 42.30
-------------- -------------- --------------
Total profit per share (pence) 8.65 65.16 64.76
======== ======== ========
As at As at As at
30 June 2020 30 June 2019 31 December
(unaudited) (unaudited) 2019
(audited)
Net asset value per ordinary share (pence) 428.24 440.97 433.17
Ordinary share price (pence) 376.00 375.50 383.00
-------------- -------------- --------------
There were no dilutive securities at the period end.
9. CALLED UP SHARE CAPITAL
Number of Treasury Total Nominal
Ordinary shares shares value
shares £’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 (1,179,707) 1,179,707 – –
----------------- ----------------- ----------------- -----------------
At 30 June 2020 173,605,020 19,406,822 193,011,842 9,651
========== ========== ========== ==========
During the period to 30 June 2020, 1,179,707 shares were bought back and
transferred to treasury for a total consideration of £4,400,000 (six months
ended 30 June 2019: nil; year ended 31 December 2019: 1,545,515 shares were
bought back and transferred to treasury for a total consideration of
£5,546,000).
Since the period end, no ordinary shares have been bought back.
10. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the
Consolidated Statement 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), as set out in the Group’s Annual Report and Financial Statements for
the year ended 31 December 2019.
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 an identical instrument in an active
market
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.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary and
provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. If a fair value
measurement uses observable inputs that require significant adjustment based
on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes ‘observable’ inputs
requires significant judgement by the Investment Manager.
Over-the-counter derivative option contracts have been classified as Level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts
expose the Group.
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 as at 30 June 2020 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 730,024 – – 730,024
Fixed income securities 40,966 28,802 – 69,768
Investment in contractual rights – – 16,805 16,805
-------------- -------------- -------------- --------------
770,990 28,802 16,805 816,597
-------------- -------------- -------------- --------------
Liabilities:
Derivative financial instruments – written options – (425) – (425)
-------------- -------------- -------------- --------------
Total 770,990 28,377 16,805 816,172
======== ======== ======== ========
Financial assets/(liabilities) at fair value through profit or loss as at 30 June 2019 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 730,953 3,492 – 734,445
Fixed income securities 72,992 25,203 – 98,195
Investment in contractual rights – – 18,297 18,297
-------------- -------------- -------------- --------------
803,945 28,695 18,297 850,937
-------------- -------------- -------------- --------------
Liabilities:
Derivative financial instruments – written options – (337) – (337)
-------------- -------------- -------------- --------------
Total 803,945 28,358 18,297 850,600
======== ======== ======== ========
Financial assets/(liabilities) at fair value through profit or loss at 31 December 2019 (audited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’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
-------------- -------------- -------------- --------------
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
======== ======== ======== ========
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 Financial assets at fair value through profit or loss Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Opening fair value 15,790 18,513 18,513
Return of capital - royalty (125) (225) (271)
Total gains or losses included in gains/(losses) on investments in the Consolidated Statement of Comprehensive Income:
– assets held at the end of the period 1,140 9 (2,452)
-------------- -------------- --------------
Closing balance 16,805 18,297 15,790
======== ======== ========
The Level 3 investment as at 30 June 2020 in the table below relate to the OZ
Minerals Brazil Royalty and, in accordance with IFRS 13, this investment was
categorised as Level 3. In arriving at the fair value of these investments,
the key inputs are the underlying commodity prices and illiquidity discount.
The Level 3 valuation process and techniques used by the Company are explained
in the accounting policies in notes 2(h) and 2(q) on pages 87 to 89 of the
Company’s Annual Report and Financial Statements for the year ended 31
December 2019 and a detailed explanation of the techniques is also available
on pages 112 and 113 under “valuation process and techniques”.
Quantitative information of significant unobservable inputs – Level 3
Six months Six months Year ended Valuation Unobservable
ended ended 31 December technique input
30 June 2020 30 June 2019 2019
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
OZ Minerals Brazil Royalty 16,805 18,297 15,790 Discounted cash flows Discount rate – weighted average cost of capital Average gold and copper prices
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 30 June 2020 are as shown
below.
Description Input Estimated sensitivity used* Impact on fair value
OZ Minerals Brazil Royalty Discount rate – weighted average cost of capital Average gold and copper prices 1% 10% £0.8m £2.2m
* 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.
11. FINANCIAL RISKS
The Company’s investment activities expose it to the various types of risk
which are associated with the financial instruments and markets in which it
invests. The risks are substantially consistent with those disclosed in the
previous annual financial statements with the exception of those outlined
below.
Market risk arising from price risk
Price risk is the risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than
those arising from interest rate risk or currency risk), whether those changes
are caused by factors specific to the individual financial instrument or its
issuer, or factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issues, recessions, or
other events could have a significant impact on the Company and the market
price of its investments and could result in increased premiums or discounts
to the Company’s net asset value.
An outbreak of an infectious respiratory illness caused by a novel coronavirus
known as COVID-19 was first detected in China in December 2019 and has now
developed into a global pandemic. This coronavirus has resulted in travel
restrictions, closed international borders, enhanced health screenings at
ports of entry and elsewhere, disruption of and delays in healthcare service
preparation and delivery, prolonged quarantines, cancellations, supply chain
disruptions, and lower consumer demand, as well as general concern and
uncertainty. The impact of COVID-19 has adversely affected the economies of
many nations across the entire global economy, individual issuers and capital
markets, and could continue to extents that cannot necessarily be foreseen. In
addition, the impact of infectious illnesses in emerging market countries may
be greater due to generally less established healthcare systems. Public health
crises caused by the COVID-19 outbreak may exacerbate other pre-existing
political, social and economic risks in certain countries or globally. The
duration of the COVID-19 outbreak and its effects cannot be determined with
certainty.
A key metric used by the BlackRock Risk and Quantitative Analysis Group to
measure risk is Value-at-Risk (“VaR”) which encompasses currency, interest
rate and price risk. VaR is a statistical risk measure that estimates the
potential portfolio loss from adverse market movements in an ordinary market
environment. VaR analysis reflects the interdependencies between risk
variables, unlike a traditional sensitivity analysis.
The one-day VaR as of 30 June 2020 and 31 December 2019 based on 99%
confidence level was 8.09% and 2.19%.
12. TRANSACTIONS WITH THE AIFM AND THE INVESTMENT MANAGER
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 on
pages 48 and 49 of the Annual Report and Financial Statements for the year
ended 31 December 2019.
The investment management fee due for the six months ended 30 June 2020
amounted to £2,603,000 (six months ended 30 June 2019: £3,284,000; year
ended 31 December 2019: £6,480,000). At the period end, £1,592,000 was
outstanding in respect of the management fee (six months ended 30 June 2019:
£1,656,000; year ended 31 December 2019: £1,714,000).
In addition to the above services, BlackRock has provided the Company with
marketing services. The total fees paid or payable for these services for the
period ended 30 June 2020 amounted to £64,000 excluding VAT (six months ended
30 June 2019: £61,000; year ended 31 December 2019: £159,000). Marketing
fees of £77,000 were outstanding as at 30 June 2020 (30 June 2019: £74,000;
31 December 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
six months ended 30 June 2020 and the financial year ended 31 December 2019.
On 11 May 2020, 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
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 of the other Directors
receives an annual fee of £30,000.
As at 30 June 2020 an amount of £nil (30 June 2019: £nil; 31 December 2019:
£14,375) was outstanding in respect of Directors’ fees.
At the period end members of the Board held ordinary shares in the Company as
set out below:
Directors Ordinary
Shares
David Cheyne (1) 24,000
Russell Edey (2) 20,000
Jane Lewis 5,362
Judith Mosely 7,400
Ollie Oliveira (3) –
--------------
(1) Chairman
(2) Chairman of the Audit & Management Engagement
Committee and Senior Independent Director
(3) Appointed 3 February 2020
Since the period end and up to the date of this report there have been no
changes in Directors’ holdings.
14. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2020 (six months ended 30 June
2019: nil; year ended 31 December 2019: nil).
15. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this half yearly report does not
constitute statutory accounts as defined in Section 435 of the Companies Act
2006. The financial information for the six months ended 30 June 2020 and 30
June 2019 has been reviewed by the Company’s auditors.
The information for the year ended 31 December 2019 has been extracted from
the latest published audited financial statements, which have been filed with
the Registrar of Companies, unless otherwise stated. The report of the
auditors on those accounts contained no qualification or statement under
Sections 498(2) or (3) of the Companies Act 2006.
16. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31
December 2020, as prepared under IFRS, in February 2021.
Copies of the results announcement can be obtained from the Secretary on 020
7743 3000 or at cosec@blackrock.com. The Annual Report should be available by
the beginning of March 2021, with the Annual General Meeting being held in
April 2021.
17. SUBSEQUENT EVENTS
Subsequent to the period end, the Company received correspondence from HMRC
accepting the entitlement of the Company to make a claim for double tax relief
in the relevant accounting periods in relation to underlying tax suffered on
dividends from non-UK companies. This double tax relief will reduce the
corporation tax liability to nil for all periods, resulting in a repayment of
the corporation tax suffered in the relevant accounting periods. While the
amount of the repayment has not been formally agreed with HMRC, and as such a
degree of uncertainty remains, the Company now considers receipt of a
repayment is sufficiently probable that it should make an accrual for
accounting purposes to reflect such treatment.
The IFRS accounting rules applicable to the Company determine that an
uncertain tax receivable shall be accrued in the NAV of the Company when, in
the view of the Board, the successful future receipt of such receivable is
probable. The Board’s current assessment is that the future receipt of the
tax reclaims described above is probable and so meets this threshold.
The corporation tax refund expected to be received by the Company following
HMRC’s acceptance of the claims for the relevant accounting periods amounts
to £2,560,568 and has been recognised in the NAV and has been applied as
revenue through the Company’s profit and loss account with effect from 18
August 2020.
The Company has also made claims, which if successful, will allow the Company
to amend the group relief claims for the 2006 and 2007 periods and submit a
double tax relief claim to HMRC for the full amount of corporation tax paid by
the Company in respect of those years. If successful, this may result in an
additional refund of £3.4 million. However, the timing and success of these
claims remains uncertain, as currently HMRC is not agreeing these claims and
any refund to the Company may be subject to further litigation.
INDEPENDENT REVIEW REPORT TO BLACKROCK WORLD MINING TRUST PLC
REPORT ON THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Our conclusion
We have reviewed BlackRock World Mining Trust plc’s consolidated interim
financial statements (the “interim financial statements”) in the Half
Yearly Financial Report of BlackRock World Mining Trust plc for the 6 month
period ended 30 June 2020. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial statements are
not prepared, in all material respects, in accordance with International
Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the
European Union and the Disclosure Guidance and Transparency Rules sourcebook
of the United Kingdom’s Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
• the consolidated statement of financial position as at 30
June 2020;
• the consolidated statement of comprehensive income for the
period then ended;
• the consolidated cash flow statement for the period then
ended;
• the consolidated statement of changes in equity for the
period then ended; and
• the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Yearly Financial Report
have been prepared in accordance with International Accounting Standard 34,
‘Interim Financial Reporting’, as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial
reporting framework that has been applied in the preparation of the full
annual financial statements of the Group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
RESPONSIBILITIES FOR THE INTERIM FINANCIAL STATEMENTS AND THE REVIEW
Our responsibilities and those of the Directors
The Half Yearly Financial Report, including the interim financial statements,
is the responsibility of, and has been approved by, the Directors. The
Directors are responsible for preparing the Half Yearly Financial Report in
accordance with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom’s Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the Half Yearly Financial Report based on our review. This
report, including the conclusion, has been prepared for and only for the
Company for the purpose of complying with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom’s Financial Conduct
Authority and for no other purpose. We do not, in giving this conclusion,
accept or assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information
Performed by the Independent Auditor of the Entity’ issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Half Yearly Financial
Report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim financial
statements.
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
London
19 August 2020
ENDS
The Half Yearly Financial Report will also be available on the BlackRock
website at blackrock.com/uk/brwm. Neither the contents of the Manager’s
website nor the contents of any website accessible from hyperlinks on the
Manager’s website (or any other website) is incorporated into, or forms part
of, this announcement.
For further information, please contact:
Simon White, Co-head of Closed End Funds, BlackRock Investment Management (UK)
Limited -
Tel: 020 7743 3000
Evy Hambro, Fund Manager, BlackRock Investment Management (UK) Limited -
Tel: 020 7743 3000
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
12 Throgmorton Avenue
London EC2N 2DL
19 August 2020
Copyright (c) 2020 PR Newswire Association,LLC. All Rights ReservedRecent news on BlackRock World Mining Trust
See all newsREG-BlackRock World Mining Trust Plc: Net Asset Value(s)
AnnouncementREG-BlackRock World Mining Trust Plc: Net Asset Value(s)
AnnouncementREG-BlackRock World Mining Trust Plc: Dividend Declaration
AnnouncementREG-BlackRock World Mining Trust Plc: Result of AGM
AnnouncementREG-BlackRock World Mining Trust Plc: Net Asset Value(s)
Announcement