REG-BlackRock World Mng: Half-year Report
23/08/2022 17:00
BlackRock World Mining Trust plc
LEI - LNFFPBEUZJBOSR6PW155
Condensed Half Yearly Financial Report 30 June 2022
OVERVIEW AND PERFORMANCE
PERFORMANCE RECORD
As at 30 June 2022 As at 31 December 2021
Net assets (£’000) (1) 1,099,462 1,142,874
Net asset value per ordinary share (NAV) (pence) 584.92 622.21
Ordinary share price (mid-market) (pence) 573.00 589.00
Reference Index (2)– net total return 5,031.01 5,258.16
Discount to net asset value (3) 2.0% 5.3%
--------------- ---------------
Performance (with dividends reinvested)
Net asset value per share (3) -1.7% +20.7%
Ordinary share price (3) +1.8% +17.5%
Reference Index (2) -4.3% +15.1%
========= =========
For the six months ended 30 June 2022 For the six months ended 30 June 2021 Change %
Revenue
Net revenue profit on ordinary activities after taxation (£’000) 37,148 33,243 +11.7
Revenue earnings per ordinary share (pence) (4) 20.07 18.64 +7.7
Dividend per ordinary share (pence)
– 1st interim 5.50 4.50 +22.2
– 2nd interim 5.50 5.50 -
--------------- --------------- ---------------
Total dividends paid and payable 11.00 10.00 +10.0
========= ========= =========
(1) The change in net assets reflects market movements, dividends paid
and the reissue of ordinary shares from treasury during the period.
(2) MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total
return).
(3) Alternative Performance Measures, see Glossary in the Condensed
Half Yearly Financial Report. Performance figures are calculated in Sterling
terms with dividends reinvested.
(4) Further details are given in the Glossary in the Condensed Half
Yearly Financial Report.
CHAIRMAN’S STATEMENT
OVERVIEW
It has been a challenging market environment in the first half of the
financial year, dominated by the war in Ukraine and the devastating
humanitarian consequences that have followed. In response, nations and
governments across the world have united to sever financial and business ties
with Russia. The war in Europe is the most significant crisis in decades and
food security and energy needs have become key concerns, with the West
following a determined path to reduce its reliance on Russian energy and
imports. A long period of steady growth and low inflation is over and we now
have a world of heightened macro volatility where central banks face a
difficult trade-off between addressing soaring inflation and stabilising an
already fragile economic recovery following the COVID-19 pandemic.
Against this difficult backdrop, the mining sector had a positive start to the
year, driven by a commodity-focused market environment and higher prices for
mined commodities. However, June was a particularly difficult month, with the
Company’s Reference Index (the MSCI ACWI Metals & Mining 30% Buffer 10/40
Index) recording its worst month in ten years. This resulted in the mining
equities giving back almost all of the returns during the month of June (the
June NAV was down by 17.2%), but it remained meaningfully ahead of broader
equity markets for the six months through to the end of June.
PERFORMANCE
Over the six months ended 30 June 2022, the Company’s net asset value (NAV)
returned -1.7%(1) and the share price +1.8%(1). The Company’s Reference
Index returned -4.3% (all percentages calculated in Sterling terms with
dividends reinvested).
Since the period end and up to the close of business on 22 August 2022, the
Company’s NAV has increased by 5.5% compared to a rise of 4.2% (on a net
return basis) in the Reference Index (with dividends reinvested). Further
information on the Company’s performance and the factors that contributed to
performance during the six months are set out in the Investment Manager’s
Report below.
REVENUE RETURN AND DIVIDENDS
The Company’s net revenue earnings for the six months to 30 June 2022
amounted to 20.07p per share, compared to 18.64p per share during the same
six-month period last year. This represents an increase of 7.7%. Despite the
broader market turmoil, the income generated to date this year is positive
but, as mentioned in the Investment Manager’s Report below, some investee
companies are choosing to prioritise share repurchases over dividends to
shareholders.
The first quarterly dividend of 5.50p per share was paid on 30 June 2022 and,
today, the Board has announced a second quarterly dividend of 5.50p per share
which will be paid on 30 September 2022 to shareholders on the register on 2
September 2022, the ex-dividend date being 1 September 2022. It remains the
Board’s intention to distribute substantially all of the Company’s
available income in the future.
SHARE PRICE DISCOUNT/PREMIUM
The Directors recognise the importance to investors that the Company’s share
price should not trade at a significant premium or discount to NAV, and
therefore, in normal market conditions, may use the Company’s share buy back
and share issuance powers to ensure that the share price does not go to an
excessive discount or premium to the underlying NAV.
The discount of the Company’s share price to the underlying NAV per share
finished the period under review at 2.0% on a cum income basis, having stood
at a discount of 5.3% at the beginning of the period. At the close of business
on 22 August 2022, the Company’s shares were trading at a discount of 3.3%
on a cum income basis.
Over the six months to 30 June 2022, the Company’s shares have traded at an
average discount of 0.6%, and within a range of a 7.3% discount to a 3.8%
premium. I am pleased to report that, during the period, the Company reissued
4,286,920 ordinary shares from treasury at an average price of 709.11p per
share for a net consideration of £30,399,000. All shares were reissued at a
premium to the prevailing cum income NAV and were therefore accretive to
existing shareholders. The Company did not buy back any shares during the
period. Since the period end and up to the date of this report, a further
785,000 ordinary shares have been reissued.
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 Group. Gearing as at 30 June 2022 was 12.1% which was the
maximum during the period.
SHAREHOLDER COMMUNICATION
We appreciate how important access to regular information is to our
shareholders. To supplement our website, we offer shareholders the ability to
sign up to the Trust Matters newsletter which includes information on the
Company, as well as news, views and insights. Further information on how to
sign up is included on the inside cover of the Condensed Half Yearly Financial
Report.
OUTLOOK
Following the COVID-19 pandemic, the fragility of the global economy has been
further stressed by the Russia-Ukraine crisis, both of which have led to
growing concerns around inflation, increasing pressure on central banks to
raise interest rates. Economic data from China has also remained relatively
weak, as the country has struggled with rising COVID-19 cases and localised
lockdowns as a result of its zero COVID-19 policy. However, recent indications
suggest that growth momentum may show some recovery in China in the second
half of the year, with cities beginning to reopen and helped by government
policy stimulus.
Against this challenging backdrop, our Portfolio Managers remain cautiously
optimistic for the mining sector. Mining companies are generally in robust
financial shape today with strong balance sheets and high levels of free cash
flow being generated. Supply and demand in mined commodity markets is also
generally tight and prices look well-supported. The transition to net zero
carbon emissions will continue to create investment opportunities in those
companies that service the associated supply chains.
(1) Alternative Performance Measures. All percentages calculated in
Sterling terms with dividends reinvested. Further details of the calculation
of performance with dividends reinvested are given in the Glossary in the
Condensed Half Yearly Financial Report.
DAVID CHEYNE
Chairman
23 August 2022
INVESTMENT MANAGER’S REPORT
The first half of 2022 was certainly volatile and it seems that from where we
started the year to where this period has ended is radically different. The
mining sector moved from spectacular returns during the first few months to
giving back almost all of them during the month of June alone, with the
Company's Reference Index falling by 15.9% during the month. In isolation this
is disappointing given the huge gains made during the first five months, but
when looked at versus broader financial markets the result remains well ahead
on most metrics. For context, the FTSE All-Share Index was down 4.6% and the
MSCI World Index was down 11.3% versus a gain of 1.8% for the Company’s
share price (all percentages calculated in Sterling terms with dividends
reinvested).
In hindsight, the ongoing COVID-19 related economic weakness in China, the
threat of a recession in the developed economies and the Russian invasion of
Ukraine were too much for commodity prices, triggering a violent sell-off as
the first half of the year ended. Stale long positions were liquidated at
speed during June causing downward moves in share prices. The scale of falls
were reminiscent of the panic selling in 2008, despite the strong balance
sheets that mining companies have today. It is our expectation that once the
dust settles this will present a significant opportunity for the Company.
At the time of writing it is too early to see how well the companies have done
during the first half of the year. Finding a balance between managing the cost
pressures from inflation, whilst trying to capture strong prices when selling
production, is going to be key to successful first half year results.
Nevertheless, cash generation is likely to have remained high and with capital
allocation continuing to favour shareholder returns it is our expectation that
dividends will once again be at healthy levels.
Over the period, the net asset value (NAV) of the Company returned -1.7% and
the share price returned +1.8%. This compares to the FTSE 100 Index which
returned -1.0%, Consumer Price Index (CPI) which was up by 9.4% for June 2022
and the Reference Index (MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net
total return)) which returned -4.3% (all percentages other than CPI are in
Sterling terms with dividends reinvested).
MACRO TENSIONS
When writing last year’s interim report, estimates were for one of the
strongest periods of economic growth in decades. This played out as expected
with global gross domestic product (GDP) finishing the year at 5.8%. As the
growth outlook remained buoyant, commodity prices continued to move higher in
the first few months of 2022 with many reaching new all-time highs e.g. copper
at US$5.01/lb, lithium US$1,347/lb, zinc US$2.05/lb and aluminium US$1.85/lb.
There was also a huge squeeze in the nickel market that took the price to a
level of US$21.88/lb before rapidly retreating as the situation unwound
itself. The combination of ongoing growth, plus a trend of rising capex on
green-related infrastructure against a constrained supply outlook, kept prices
high for most of the first half of the year.
However, the situation ran out of steam towards the end of May as huge support
provided by governments and central banks during the COVID-19 lockdown came
home to roost. After years of low interest rates and below trend inflation,
both started to rapidly rise. Recent data points to some of the highest levels
of inflation seen in decades and how central banks deal with this is going to
be key to the financial market direction over the coming years.
Central banks across the globe have begun reacting to changing market
conditions, with interest rates rising in most countries within the developed
world and the forward interest rates implying rates hitting 3.00% or more in
the US, 2.11% in the UK and 2.50% in Australia. It seems as though the
European Union is behind the curve versus other developed markets, with the
European Central Bank announcing its first increase in rates in 11 years from
-0.50% to 0.00% in July 2022 despite many adjacent countries seeing the rates
on their government bonds trading above 3.00%. In addition to the fear of
inflation, investors are concerned with how much growth needs to slow in order
to combat inflation. Fears of a recession have increased and, should the
inflationary pressures that have been further fuelled by the Russian invasion
of Ukraine prove harder to control, then rates might need to go even higher
than estimated.
In addition, the impact on commodity demand from slower growth in China has
started to bite. China seems committed to its zero COVID-19 policy and this
has caused a dramatic slowdown in economic activity. At this stage the Chinese
government has reiterated its goal for GDP growth of 5.5% for 2022, but with
the numbers for the first half of the year likely to come in far below this
rate, activity in the second half will need to be materially stronger. Should
this transpire, then commodity demand, and in turn prices, are likely to
benefit but should COVID-19 shutdowns persist for longer than expected then it
seems improbable that China will be able to meet the GDP growth numbers set
for 2022.
ESG AND THE SOCIAL LICENCE TO OPERATE
In line with our approach to Environmental, Social and Governance (ESG)
integration, ESG information (such as insights and data regarding
sustainability risks) are considered when managing risk within mining related
investments.
ESG is of critical importance to the mining sector and the Investment Manager
spends 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 continuing to improve health and safety
standards across the industry.
While ESG integration does not change the Company's investment objective or
constrain the investable universe, or mean that an ESG investment strategy has
been adopted by the Company, as part of its approach to ESG issues the Company
will apply the following considerations to its investments:
· ESG is an integral element of the investment process used to
build and manage the portfolio. As a general approach the Company will not
invest in companies which have high ESG risks and which have no plans to
address existing deficiencies.
· We are also challenging the executives of the portfolio
companies in which we invest to set out how their current business plans are
compatible with achieving a net zero carbon emissions economy by 2050.
· There will be cases where a serious event has occurred and,
in that case, we will assess whether the company is taking appropriate action
to resolve matters before deciding what to do.
· There will be companies which have derated on the back of an
ESG event or generally poor ESG practices and there may be opportunities to
invest at a discounted price. However, we will only invest in these
value-based opportunities if we are satisfied that there is real evidence that
the company’s culture has changed and that better operating practices have
been put in place.
The main areas of focus for investments within the portfolio remain Rio Tinto
and Vale. By way of an update:
Rio Tinto – Over the last two years the company has appointed a new
Chairman, CEO and CFO, as well as a refreshment of the executive team. We have
had numerous engagements with the company at all levels and continue to
evaluate the progress they are making to resolve many of the outstanding
issues. Rio Tinto is strengthening its relationships with communities and
traditional owners through its new social cultural heritage management plan
and is implementing 26 recommendations from the Everyday Respect report
following the external review of its workplace culture.
Vale – As mentioned in our Annual Report, Vale has continued to drive change
across both the governance of the company and through operational
improvements. Whilst the legal issues related to the tragic tailings events
and the US Securities and Exchange Commission suit relating to dam safety
management disclosures remain outstanding, we continue to see progress on many
fronts. In February, Vale established a schedule and reinforced its commitment
with the Minas Gerais Government to eliminate all 23 upstream dams in Brazil.
In addition, Vale will commit a further 236 million Brazilian Real for
investments in social and environmental projects in the region.
NEW RECORDS
It is startling when looking at the below table the difference between the
year-to-date price moves versus the average prices over the respective
periods. This puts into context the scale of price falls in June which have
continued into July. However, as mentioned earlier, many commodity prices
broke records during the first half of 2022 as new highs were reached on a
spot market basis. In addition, and more importantly for the companies, prices
remained elevated for much of the first half of the year and in turn new
records on received prices are likely to be announced with company results.
For example, the average price for copper during the first half of the year
was US$4.43/lb, US$12.98/lb for nickel and US$1,212/lb for lithium. These
price levels should have offset much of the cost pressures from increased
inputs such as diesel and labour, allowing cash flows to remain strong.
SELECTED COMMODITY PRICE CHANGES DURING THE FIRST HALF OF 2022
Commodity 30 June 2022 % change YTD in 1H22 % change average price 1H22 vs 1H21
Gold US$/oz 1,806.87 -0.9% 3.8%
Silver US$/oz 20.48 -12.0% -11.8%
Platinum US$/oz 907 -5.4% -15.1%
Palladium US$/oz 1,888 -4.3% -14.8%
Copper US$/lb 3.74 -15.3% 7.5%
Nickel US$/lb 10.27 8.4% 64.1%
Aluminium US$/lb 1.1 -13.5% 36.6%
Zinc US$/lb 1.44 -11.3% 35.3%
Lead US$/lb 0.86 -18.6% 9.5%
Tin US$/lb 12.1 -32.2% 42.9%
Uranium US$/lb 49.0 16.0% 44.0%
Iron Ore (China 62% fines) US$/tonne 122 -0.4% -23.3%
Thermal Coal (Newcastle) US$/tonne 385.95 142.0% 225.0%
Metallurgical Coal US$/tonne 302 -16.0% 254.0%
Lithium Carbonate US$/tonne 62,812 63.0% 443.0%
West Texas Intermediate Oil (Cushing) US$/barrel 107.7 43.2% 64.5%
========= ========= =========
Sources: Datastream and Bloomberg, June 2022.
As per prior periods, the key commodity exposures for the Company remain
copper and iron ore. Both have been volatile during the period given the
shifting economic drivers during the six months but, despite this, price
levels have been in excess of estimates and bode well for the producers. In
fact, as mentioned earlier, copper moved to a new all time high of just above
US$5/lb during April 2022. Recent falls though will undoubtedly trigger
downgrades to estimates for earnings in the second half of the year unless
China decides to adapt its zero COVID-19 approach.
Other base metals also performed strongly during the period with new strength
in aluminium, zinc and especially nickel. A metal that is hard to gain
exposure to via the equity market is tin. The price has been extremely
volatile, with huge new highs reached during the period, but like others much
of these were given back during the month of June.
During the period, the Russian invasion of Ukraine had a material impact on
supply chains for key commodities, especially energy related fossil fuels.
Both the physical disruption to supply from Ukraine and a deliberate move away
from Russian sourced gas and oil resulted in a sharp uptick in the price of
those commodities coming from other countries. Huge spikes in the price of
oil, gas and thermal coal caused corresponding moves in the price of power,
especially in Europe, and the situation looks likely to persist for the
foreseeable future. The Company has no exposure to pure play thermal coal
production but does have exposure to metallurgical coal used for making steel
and indirect exposure to thermal coal via diversified mining companies such as
Glencore and BHP.
Precious metals generally moved lower during the period, especially platinum
and palladium where the demand outlook remains constrained due to ongoing
production issues in the automotive sector. The Company has been underweight
precious metals for some time now.
The steel sector, like other areas, suffered from reduced economic activity
causing prices to fall from all-time highs as the first six months drew to a
close. At the end of June, margins within the sector remain healthy but with
huge dispersion around the world. US producers seem best positioned due to the
less volatile domestic energy market, whereas producers in Europe are under
significant pressure from very elevated power prices and a number of Chinese
steel producers are loss-making at present due to lower Asian steel prices. In
total, the underweight to this area within the portfolio was a positive for
relative performance.
CAPITAL ALLOCATION
Over the last few years these reports have highlighted the prospects for
exceptional levels of income from portfolio holdings. We are pleased to report
that this has played out better than expected resulting in the record dividend
the Company paid last year.
This year started well with portfolio holdings continuing to distribute in
line with guidance pay-out ratios and in many cases at the upper end of
expectations. Indeed, looking at the average commodity prices during the first
half of the year, it is likely that many companies will have the flexibility
to top up payments when announcing mid-year results. However, given the
unsettled macro environment and the consequential impact this has had on
valuations (as seen in the charts on page 10 of the Condensed Half Yearly
Financial Report), it is anticipated that companies will seek to take
advantage of this and may prefer to repurchase shares rather than increase
dividends. In the short term this would likely result in a drag on the
Company’s ability to sustain its dividends but, given the low valuations,
the compounding impact on NAV from share count reduction should boost the
chances of capital growth.
The chart on page 11 of the Condensed Half Yearly Financial Report highlights
this. It shows the impact of share buybacks on the shares in issue for three
portfolio holdings: ArcelorMittal, Glencore and Vale. All three have set out
over the last two years to utilise excess cash flows to reduce the shares in
issue as part of a well described capital allocation framework. This is having
a dramatic impact as can be seen in the chart which shows a material reduction
in free float over a short period of time. It is important to note that all
three of these companies have done this at the same time as increasing
dividend payments and reducing balance sheet debt levels. It should also be
noted that the current free float of ArcelorMittal is 53.1% due to the 39%
holding of the Mittal family and 8% of shares held in treasury.
Recent announcements by portfolio holdings include: ArcelorMittal announcing a
US$1 billion share buyback, Glencore announcing US$4.5 billion of shareholder
returns consisting of a US$3 billion buyback and US$1.45 billion special
dividend, Vale announcing a share buyback of US$500 million and Teck Resources
also announcing a share buyback of US$500 million.
ENERGY TRANSITION
Last year we mentioned the energy transition as a key factor behind
expectations for better than forecast demand for commodities over the medium
to long term. This remains the case and probably even more so given the move
in Europe to rapidly diversify energy needs away from Russia. However, the
near-term focus of governments on dealing with inflation is likely to offset
the impact of green infrastructure related demand for the balance of this year
and into 2023. Despite this, our focus remains on trying to capture the
opportunities that this near-term weakness might present with the mindset of
ensuring that the Company is well-positioned to benefit over the coming years.
The focus within the portfolio, outside of value and growth, is to find
companies that are supplying the much needed transition related commodities,
along with those that are rapidly moving to reduce their own emissions
footprint. Our aim is to have a well developed framework to ensure we are able
to assess the robustness of mining company decarbonisation plans so that the
portfolio is as transition ready as possible.
BASE METALS
Base metal prices started the year strongly, peaking just after the invasion
of Ukraine in March. However, since then they have declined by over 30% with
inflation turning from a tailwind to headwind impacting demand and triggering
a central bank policy response and slowing of the global business cycle. The
COVID-19 related lockdowns in China have also caused a sharp dip in demand
which is yet to be fully recovered after reopening.
The copper price started the year strongly reaching over US$4.85/lb in early
March. However, since then, it has fallen nearly 23% to finish the first half
of the year down by 15%.
As the global business cycle has slowed, we have seen physical data for copper
deteriorate, premiums decline and treatment charges rise. Exchange stocks
remain low but have increased by nearly 220,000 tonnes since January and there
is some evidence of stockpiles of concentrate. Chinese demand is expected to
improve into the second half of the year which should support demand, but
there is still uncertainty around the continuing zero COVID-19 policy, weak
property market and slower export demand given the deterioration in western
economies. Stimulus from China could support a stronger market outlook. We
remain confident in copper decarbonisation led demand supporting prices longer
term, along with persistent supply side challenges noting the global business
cycle’s impact and uncertain outlook for short-term demand.
On the supply side, production has generally disappointed year-to-date with
forecasts of production growth declining to around 3% this year from closer to
5%. Chile, which accounts for one-third of global copper supply, has seen
year-to-date copper production decline by 6% versus 2021. Production halts
include mining at Las Bambas in Peru stopping for 52 days due to community
protests and a pipeline leak at Los Pelambres in Chile.
We have seen new projects announced with an additional 400,000 tonnes per
annum announced from an expansion at Kamoa-Kakula, an asset owned by Ivanhoe
Mines, a 1.5% holding in the Company's portfolio. Once complete, this will
make Kamoa-Kakula the world’s third largest copper mine. We also saw Ero
Copper (0.3% of the portfolio) approve its 27,000 tonne Boa Esperança
Greenfield copper project. Technology developments also look increasingly
likely to play a role with low-grade sulphide leaching of copper potentially
providing additional material. The Company has exposure to this through its
private investment in Jetti Resources (1.0% of the portfolio).
The aluminium price finished the first half of the year down by 14%, facing
similar headwinds to the copper market. Aluminium has been particularly
vulnerable to exports from China, given weak domestic demand in the first six
months. There were fears that Russian exports of primary aluminium may be
impacted by sanctions. Russia produced 3.9 million tonnes of primary aluminium
in 2021 and consumed 1 million tonnes domestically. Whilst certain companies
have chosen not to purchase Russian material, there have been no sanctions
imposed directly on Russian aluminium exports and there has been no
confirmation of Russian aluminium production cuts. There has been significant
cost inflation in aluminium due to power prices since the Russian invasion of
Ukraine and this has resulted in further aluminium production cuts across
Europe. The Company has exposure to two aluminium producers – Alcoa (1.4% of
the portfolio) and Norsk Hydro (1.2% of the portfolio) which both have access
to renewable, low-cost energy for the majority of their production, leaving
them well-positioned in the current environment of high energy costs and
longer term as the market places a greater cost on carbon.
Nickel prices have been very volatile this year. A short squeeze temporarily
drove prices above US$100,000 per tonne before the London Metal Exchange (LME)
suspended the market and cancelled some trades in March. Since the LME
restarted trading with stricter controls, LME prices have fallen; however, the
price remains 8.4% higher year-to-date. Similar to aluminium, Russia is also a
significant producer of nickel, but we are yet to see any supply disruptions.
In 2021 global nickel use rose by 17% while supply only grew by 5.3% creating
a deficit market, but in 2022 supply is projected to grow 17.5%, led by
Indonesia. We have seen significant supply announcements from Indonesia across
many different nickel products including nickel pig iron for stainless steel
and nickel matte and nickel sulphate which go into battery demand. If these
projects come to fruition by 2025, Indonesia could reach 60% of global supply
compared with 30% in 2020. The Company has exposure to Indonesian nickel
growth through its 0.9% investment in Nickel Industries.
BULK COMMODITIES AND STEEL
Following China’s curtailment of steel production at the end of 2021, our
expectation was for a stronger market and higher steel output levels post the
Beijing Winter Olympics in February. This largely played out with steel demand
increasing and iron ore restocking occurring during March, which resulted in
the iron ore price holding a healthy range between US$130-160/tonne. However,
ongoing weakness in the Chinese property market and China’s zero COVID-19
policy saw the price fade towards the end of the first half of the year with
the price finishing flat for the six months at US$122/tonne.
Iron ore supply has been weaker than expected with Ukrainian predominantly
high-grade material being largely removed from the market, labour constraints
impacting Pilbara production and weather impacting Brazilian production. This
kept the iron ore market tight during March and April which saw port stocks
drawn down and blast furnace utilisation rates in China increase, supporting
the iron ore price. However, as domestic steel demand weakened due to
China’s zero COVID-19 policy, finished steel exports from China increased,
particularly in May, putting pressure on global steel and in turn iron ore
prices. Encouragingly, as we ended the six-month period, the Chinese
Government announced a major US$1.1 billion infrastructure investment to
support the economy which should see infrastructure investment increase by 8%
year-on-year supporting commodity demand.
The Company’s exposure to iron ore is in the diversified majors BHP, Vale
and Rio Tinto, which have performed well during the period under review
returning 21%, 7% and 20% respectively, as well as pure play high grade iron
ore producers Champion Iron and Labrador Iron which have returned 8% and -14%
respectively.
The US has remained a geography of relative strength for steel, supported by
domestic construction as well as demand also increasing from low levels for
both renewable energy infrastructure and oil & gas. Automotive steel demand
has been impacted by the global chip shortage, but we expect these bottlenecks
to be relieved in 2023. The Company’s exposure to steel is focused on
companies with a track record of capital returns through share buybacks and
dividends, as well as disciplined growth and a sound decarbonisation strategy.
Nucor (1.7% of the portfolio) announced during the first half that it would
build a new US$2.7 billion steel mill in the US to supply up to 3 million
tonnes for the construction and auto market, as well as a new US$3 billion
share buyback plan in May. Since 2020 Nucor has reduced its share count by
12%, whilst other steel companies held in the portfolio, Steel Dynamics and
ArcelorMittal (1.8% and 3.1% of the portfolio respectively), have also reduced
their share count by 10% and 17% respectively since the end of 2020. We expect
this trend to continue given the strong cash generation of these businesses
and low multiples that they currently trade on.
We believe the steel industry is on the cusp of structural change with
increased focus on carbon emissions. The industry is reducing production from
pollutive blast furnace capacity and transitioning towards lower carbon
production (electric arc furnaces and hydrogen-based production) which will
reduce overcapacity, improve margins and better position the industry once
carbon taxes are introduced. There will be clear winners and losers from this
transition where we have deployed a strategy in the portfolio to invest in
those companies that are already well-positioned for this shift such as Nucor
and Steel Dynamics, as well as investing in companies which have a first mover
advantage such as ArcelorMittal through its investment in decarbonisation
technology over recent years.
The seaborne thermal coal market has been a significant performer in the first
half of the year, with thermal coal benchmarks up close to 200%. Energy
markets have been significantly disrupted by the Russian invasion of Ukraine
and tightness across the energy complex has resulted in increased demand for
thermal coal. A ban on Russian coal imports into Europe came into force on 10
August and it appears Europe is stockpiling ahead of this. There are
significant Russian gas supply risks, which if they materialise will result in
the gas price supporting the coal price into winter. For example, Germany is
planning to use coal-fired power stations which would have been idled this
year and next as reserve facilities in case of disruption to gas supplies from
Russia.
Supply of coal has lagged demand with capital availability impacted by ESG
pressures, as well as infrastructure, logistics and labour constraints. Unless
we see a thawing of relations between Russia and Europe, we expect ongoing
tightness in both markets for the remainder of the year. Thermal coal exposure
is primarily via our 8.4% position in Glencore, which is using elevated
thermal coal prices to deleverage the business and remains focused on
decreasing its coal exposure over time. This strategy of responsible run off
in production rather than “forced divestment” seems to be a far more
sensible outcome for all stakeholders. The Company has no exposure to pure
play thermal coal producers.
The seaborne metallurgical coal price reached a new all-time high during the
six months at US$600/tonne supported by Russian supply concerns (5% of global
supply), the thermal coal price, as well as the recent flooding in Australia
which has impacted supply. However, end demand has been impacted by weaker
automotive steel demand in Europe, as well as weaker margins for the steel
producers, which saw the coal price decline towards the end of June 2022 to
US$300/tonne. The Company’s exposure to metallurgical coal remains in the
two leading producers, BHP and Teck Resources, which have been able to
generate very strong levels of free cash flow from their coking coal
businesses to support returns to shareholders.
PRECIOUS METALS
Precious metals have remained largely range bound at high levels over the
first half with the gold price down by 1% and silver by 12%. The gold price
has been largely driven by two opposing forces, geopolitical tension with the
Russian invasion of Ukraine which saw the gold price reach US$2,056/ounce in
March and, on the flip-side, the US Federal Reserve rate hikes increasing real
rates and the US Dollar. We continue to expect a largely range bound gold
price for the remainder of the year, with the gold price holding up despite
increases in real interest rates, which is typically a headwind to the gold
price and highlights the market's concern that central bank interest rate
rises may not be able to curb inflation and may potentially induce a
recession.
The price of silver has underperformed the gold price during the first six
months of the year, with the gold/silver ratio rising to 88 due to its
exposure to the deteriorating industrial demand outlook. Longer term we see
upside potential from greater solar penetration and increased usage of
semi-conductors, both of which rely on silver due to its high level of
electrical conductivity.
An encouraging feature of the gold equity market over recent years has been
the increased focus on shareholder returns, with focus on free cash flow and
dividends. However, results in 2022 have shown margin compression due to
rising labour, energy and other input costs. Whilst the portfolio has
continued to hold a lower allocation (16.5%) to gold companies versus a
similar time last year (18.3%) we have maintained our strategy of focusing on
high quality producers which have an attractive operating margin and solid
production profile and resource base. Amongst our gold companies, Newmont
Corporation’s performance continues to stand out in the sector, a reflection
of its cash return policy. In addition, the Company’s exposure to the
royalty companies Franco-Nevada (3.0% of the portfolio) and Wheaton Precious
Metals (2.5% of the portfolio) aided performance given the stronger margins
and lack of exposure to cost inflation.
Demand for the Platinum Group Metals (PGMs) continues to be impacted by the
weakness in global auto production, which was down by circa 11% to May, and
share gains from electric vehicles (over internal combustion engines) which do
not use PGMs. While Russia is a major producer of PGMs accounting for 40% of
global palladium production, to date we have seen minimal impact to Russian
PGMs. As auto demand recovers, we also expect to see a demand recovery across
the PGMs.
We continue to remain positive on the medium-term outlook for the PGMs and
believe the PGM basket will remain high relative to history given limited new
supply projects, increasing PGM loadings for auto catalysts to meet rising
emissions standards and a sustained global auto recovery. The Company has 2.0%
of the portfolio exposed to PGM producers through Impala Platinum, Northam
Platinum, Sibanye Stillwater and Bravo Mining. In addition, the Company has
exposure to PGMs via its holding in Anglo American (7.0% of the portfolio)
which owns 79% of Anglo American Platinum.
ENERGY TRANSITION METALS
The shift towards electric vehicles (EVs) continues to be one of the strongest
trends we foresee, which creates growth opportunities for those companies
supplying the materials that enable that transition. COVID-19 may have
encouraged people to favour car ownership in order to avoid the use of public
transport. More importantly, we are seeing government stimulus focused on
restarting economies post lockdown target sustainable themes, with EVs an
important pillar of that. This year growth to May in pure battery EV units has
been 81%, with plug in hybrids also growing by 44%. The Company has exposure
to the raw materials that go into EV batteries and the e-motor.
Lithium is a critical component of an EV battery and demand for lithium has
been strong this year with the market firmly in deficit and prices reaching
all-time highs, up by 122.5% in the first half of the year. The Company added
to its lithium holdings in late 2021, establishing positions in Sociedad
Quimica y Minera and Sigma Lithium, both of which have performed well in this
environment returning 84% and 68% respectively. We also added a new position
in relative underperformer Albemarle in June, as it too stands to benefit from
the continued tight demand supply situation in lithium, which should be
supported in the second half of the year by the increase in activity from
China post COVID-19 lockdowns. The Company has 3.1% of the portfolio across
its lithium holdings.
A critical component of the electric car is also the e-motor, which most
commonly uses a Praseodymium-Neodymium magnet, an alloy of two rare earth
elements (REEs). REEs are commonly mined and processed in China and have been
deemed of strategic importance by both Europe and the US. The Company has
exposure to REEs through Lynas Rare Earths (Lynas), a REE miner and processor
crucially based in Malaysia and Australia. During the first half of the year,
Lynas announced that it had won a contract from The Pentagon to deliver a US
rare earth separation facility, underscoring the strategic growth opportunity.
The Company also has exposure to REEs via its holding in Iluka Resources (1.0%
of the portfolio) a mineral sands company that has recently secured financing
from the Western Australian government to build a rare earths processing
facility for its Eneabba mine in Western Australia. As Iluka Resources’
production of REEs grows, we expect this to increase the multiple that the
company trades at given its growing exposure to green commodity demand linked
to electric vehicles and wind turbines.
EV battery raw materials include cobalt, where LME prices fell by 14% as
supply increased faster than demand; the market is moving to lower cobalt
intensity cathode materials with higher nickel or lithium iron phosphate
chemistry. Supply growth is set to continue, with cobalt being a by-product of
many of the Indonesian nickel projects announced. Glencore’s Mutanda mine in
the Democratic Republic of the Congo continued to ramp-up in this half of the
year. Glencore is an 8.4% position in the Company and its share price rose by
21% during the six months to the end of June. Glencore is a globally
significant cobalt producer, which produced 22% of total cobalt mine
production in 2020. This percentage is set to increase with Mutanda’s
ramp-up.
ROYALTY AND UNQUOTED INVESTMENTS
Over the last year the Company has been busy with regards to growing the
unquoted part of the portfolio. In line with the Company's objective, the
focus has been to generate both capital growth and income to seek to deliver
the objective of maximising total returns to shareholders. We are pleased to
report that this part of the portfolio has had a great period of performance.
Ongoing income from the royalty investments has continued with the OZ Minerals
Brazil Royalty starting to benefit from the ramp-up of the Pedra Branca mine,
whilst the Vale Debentures enjoyed a better period of production despite lower
iron ore prices.
In the unquoted equity sleeve, Ivanhoe Electric completed its Initial Public
Offering (IPO) in June despite the difficult market conditions. This results
in an increase in the value of the holding of 91.5% in less than 10 months
since the position was acquired. Elsewhere, Bravo Mining completed its IPO in
July 2022, post the end of the reporting period, at a valuation 170% higher
than the price paid for the shares in May 2022. Both of these positions have
achieved excellent returns for the Company and there is more detail on all of
the holdings below.
During the period the Company completed a small investment in MCC Mining which
is exploring for base metals in Colombia. As at the time of writing the
Company has two unlisted equity holdings, Jetti Resources and MCC Mining, as
well the OZ Minerals Brazil Royalty. These, together with the quoted royalty
investment, Vale Debentures, represent 6.7% 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 within the Annual
Report.
OZ MINERALS BRAZIL ROYALTY CONTRACT (1.6% OF THE PORTFOLIO)
In July 2014 the Company signed a binding royalty agreement with Avanco
Minerals. The Company provided US$12 million in return for a Net Smelter
Return (net revenue after deductions for freight, smelter and refining
charges) royalty payments comprising 2% on copper, 25% on gold and 2% on all
other metals produced from mines built on Avanco’s Antas North and Pedra
Branca licences. In addition, there is a flat 2% royalty over all metals
produced from any other discoveries within Avanco’s licence area as at the
time of the agreement.
In 2018 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$20.3 million in royalty payments with
the royalty achieving full payback on the initial investment in 3.5 years. As
at the end of June 2022, the royalty was valued at £20.2 million (1.8% of the
NAV) which equates to a 4.1x cash return on the initial US$12 million
invested.
In 2021 OZ Minerals achieved a significant milestone and commenced mining of
Pedra Branca ore. This year we have seen the ramp-up progress ahead of plan,
with a monthly record for ore processed achieved in the last reported month of
March. The transition of the Antas open pit to a tailings storage facility is
also well progressed. We continue to remain optimistic on the longer-term
optionality provided by the royalty via the development of Pedra Branca West,
as well as greenfield exploration over the licence area.
VALE DEBENTURES (3.4% OF THE PORTFOLIO)
At the beginning of 2019, the Company completed a significant transaction to
increase its holding in the 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.
Dividend payments are expected to grow once royalty payments commence on the
Southeastern System in 2024 and volumes from the newly commissioned iron ore
project S11D continue to ramp-up. Vale is looking to further increase
production from the Northern System from 192mtpa at the end of 2020 to 260mtpa
longer term, which provides additional upside to our original expectations for
the Debentures.
Despite the strong performance of the Debentures over the last two years, we
continue to see further upside with the H1 2022 payment implying a yield on
the investment in excess of 13% which is very attractive for a royalty
instrument. This value opportunity has been recognised by other listed royalty
producers, Franco-Nevada and Sandstorm Gold Royalties, which have both
acquired stakes in the Debentures since the sell-down occurred in 2021.
Whilst the Vale Debentures are a royalty, they are also a listed security on
the Brazilian National Debentures System. As we have highlighted in previous
reports, shareholders should be aware that historically there has been a low
level of liquidity in the Debentures and price volatility is to be expected.
However, this has improved following the sell down in April 2021. We continue
to actively look for opportunities to grow royalty exposure as in our view
this is a key differentiator of the Company and an effective mechanism to
potentially lock-in long-term income which may further diversify the
Company’s revenues.
IVANHOE ELECTRIC/I-PULSE (2.0% OF THE PORTFOLIO)
In early August 2021 the Company made a US$20 million investment into Ivanhoe
Electric, an exploration and mining business focused on identifying and
developing “electric metals” (copper, nickel, gold and silver) required
for the energy transition. The exploration portfolio is focused in the United
States where they have developed a proprietary exploration technology that has
the ability to identify mineral resources at greater depths than existing
methods. The team is led by Robert Friedland who has a successful track-record
of identifying and developing world class mineral deposits such as Voisey’s
Bay, Oyu Tolgoi and Kamoa-Kukula.
In June 2022, Ivanhoe Electric successfully completed an IPO at US$11.75 per
share. The Company’s investment consisted of common shares of Ivanhoe
Electric, as well as convertible notes which convert at a discount to the IPO
price into Ivanhoe Electric shares with a total return of 108% on our initial
investment. Accordingly, this investment is no longer unquoted at 30 June
2022.
JETTI RESOURCES (1.0% OF THE PORTFOLIO)
We are pleased to report that the Company made an investment into mining
technology company Jetti Resources (Jetti) in early 2022. Jetti alongside the
University of British Colombia, has developed a new catalyst that aims to
improve copper recovery from primary copper sulphides (specifically copper
contained in chalcopyrite, which is often uneconomic) under conventional leach
conditions. Jetti is currently trialling their technology at 35 mines where it
will look to integrate their catalyst into existing heap leach mines to
improve recoveries at a low capital cost. The technology has been demonstrated
to work at scale at the Pinto Valley copper mine, with further trials at
different copper assets planned for this year. If Jetti’s technology is
proven to work at scale, we see material valuation upside with Jetti sharing
in the economics of additional copper volumes recovered through the
application of their catalyst. In January 2022 Teck Resources and Jetti signed
an agreement to test the technology.
MCC MINING (0.5% OF THE PORTFOLIO)
MCC Mining operates as a mineral exploration company focusing on exploring for
copper in Colombia. The company has several large porphyry targets which we
believe could have significant potential. Shareholders include other mid to
large cap copper miners, which is another indication of the strategic value of
the company. The valuation of the company is based on the US$170.7 million
equity value implied by the April 2022 equity raise. The money raised will
fund a drilling campaign, which we expect to commence next year and if
successful should add significant value. In June 2022, Gustavo Petro was
elected as the first left-wing President of Colombia but the new government is
yet to clarify their approach to the mining industry. Clear regulation for the
mining industry will also be important to MCC Mining’s ability to generate
value.
BRAVO MINING (0.2% OF THE PORTFOLIO)
Bravo Mining is a Canada and Brazil-based mineral exploration and development
company focused on advancing the Luanga platinum group metals/gold/nickel
project in the world-class Carajas Mineral Province of Brazil. The Company
participated in a pre-IPO round at US$0.50/share in April 2022, at a US$39
million valuation due to our belief in the asset’s potential. The proceeds
of the raise were used to fund drilling and survey work. Since the pre-IPO
round the company decided to IPO, which completed in July 2022 at
C$1.75/share. This represents a 170% return since our investment in April
2022.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts, mostly
involving the sale of “puts” and “calls”. These are taken to revenue
and are subject to Board guidelines which limit their magnitude to an
aggregate 10% of the portfolio. In the first half of 2022 income generated
from options was £2.4 million. This was lower than in the prior year as
volatility levels made option writing less value accretive to the Company, but
nonetheless a number of opportunities presented themselves allowing healthy
levels of income to be earned. At the end of the period the Company had 0.1%
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 2022 the Company had £132.4 million of net debt, with a gearing
level of 12.1% of net assets. The debt is held principally in US Dollar
rolling short-term loans and managed against the value of the portfolio as a
whole. During the period the Company sought to maximise the use of gearing
from a combination of short-term tactical investments designed to capture
exposure to the rising markets. This was mostly done via the equity markets
given the better relative value compared to mining company bonds. The US
Dollar denominated debt is used to invest in US Dollar denominated securities
in the portfolio to provide an economic hedge against exchange rate movements.
Shareholders should note that the total gearing available to the Company has
increased during the period due to the rise in assets but remains within the
25% of net assets limit. On the back of this, facilities were refreshed with
our lenders and stand at £200 million for US Dollar loans and £30 million
for Sterling loans. The cost of debt for the Company remains low at 0.90% plus
SONIA following the demise of LIBOR.
OUTLOOK
The first half of 2022 has been extremely positive for the producing mining
companies given record price levels for many of their products, but as the
period drew to an end the realities of the challenges that lie ahead started
to be priced in by investors. Ongoing cost pressures from strong inflationary
factors such as high oil prices, rising wages rates, higher raw material input
costs and supply chain issues are likely to impact results in the second half
of the year.
Whilst all of the above have materially impacted share prices in the short
term, the outlook actually remains very strong indeed. Balance sheets for
nearly all mining companies remain as strong as they have ever been.
Demand has been impacted by the zero COVID-19 policy in China and recessionary
fears in the developed world. Both of these factors seem to have been largely
priced in and should prove to be less severe than feared with a clear room for
a rebound in valuations. Lastly the medium-term outlook of negligible supply
side growth and supportive demand from the essential transition to a lower
carbon economy remain yet to play out in full.
With the above in mind, we currently intend to be opportunistic during this
period of volatility by seeking out quality investments that have been
“thrown out with the bath water” as investors became defensive. We realise
that this might not be easy, given the uptick in volatility and shifting
interest rate expectations, but in the medium term these investments may
deliver strong returns in the context of our goal of maximising total returns
for shareholders through the cycle.
EVY HAMBRO AND OLIVIA MARKHAM
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
23 August 2022
TEN LARGEST INVESTMENTS
1 = VALE(1,2) (2021: 1st)
Diversified mining group
Market value: £110,560,000
Share of investments: 8.9% (2021: 8.5%)
One of the largest mining groups in the world, with operations in 30
countries. Vale is the world’s largest producer of iron ore and iron ore
pellets, and the world’s largest producer of nickel. The group also produces
manganese ore, ferroalloys, copper, platinum group metals, gold, silver and
cobalt.
2 = BHP (2021: 2nd)
Diversified mining group
Market value: £106,623,000
Share of investments: 8.7% (2021: 7.7%)
The world’s largest diversified mining group by market capitalisation. The
group is an important global player in a number of commodities including iron
ore, copper, thermal and metallurgical coal, manganese, nickel and silver.
3 = GLENCORE (2021: 3rd)
Diversified mining group
Market value: £103,763,000
Share of investments: 8.4% (2021: 7.7%)
One of the world’s largest globally diversified natural resources groups.
The group’s operations include approximately 150 mining and metallurgical
sites and oil production assets. Glencore’s mined commodity exposure
includes copper, cobalt, nickel, zinc, lead, ferroalloys, thermal coal,
aluminium, iron ore, gold and silver.
4 = ANGLO AMERICAN (2021: 4th)
Diversified mining group
Market value: £85,849,000
Share of investments: 7.0% (2021: 7.5%)
A global mining group. The group’s mining portfolio includes bulk
commodities including iron ore, manganese, metallurgical coal, base metals
including copper and nickel and precious metals and minerals including
platinum and diamonds. Anglo American has mining operations globally, with
significant assets in Africa and South America.
5 + RIO TINTO (2021: 7th)
Diversified mining group
Market value: £50,503,000
Share of investments: 4.1% (2021: 4.2%)
One of the world’s leading mining groups. The group’s primary product is
iron ore, but it also produces aluminium, copper, diamonds, gold, industrial
minerals and energy products.
6 - FREEPORT-MCMORAN (2021: 5th)
Copper producer
Market value: £46,782,000
Share of investments: 3.8% (2021: 6.2%)
A global mining group which operates large, long-lived, geographically diverse
assets with significant proven and probable reserves of copper, gold and
molybdenum.
7 + NEWMONT CORPORATION (2021: 9th)
Gold producer
Market value: £44,998,000
Share of investments: 3.7% (2021: 3.5%)
Following the acquisition of Goldcorp in the first half of 2019, Newmont
Corporation is the world’s largest gold producer by market capitalisation.
The group has gold and copper operations on five continents, with active gold
mines in Nevada, Australia, Ghana, Peru and Suriname.
8 = TECK RESOURCES (2021: 8th)
Diversified mining group
Market value: £42,878,000
Share of investments: 3.5% (2021: 3.6%)
A diversified mining group headquartered in Canada. Teck Resources is engaged
in mining and mineral development with operations and projects in Canada, the
US, Chile and Peru. The group has exposure to copper, zinc, steelmaking coal
and energy.
9 + FIRST QUANTUM MINERALS(1) (2021: 10th)
Copper producer
Market value: £42,490,000
Share of investments: 3.5% (2021: 2.9%)
An established growing copper mining company operating seven mines including
the ramp-up of their newest mine, Cobre Panama, which declared commercial
production in September 2019. The group is a significant copper producer and
also produces nickel, gold and zinc.
10 - ARCELORMITTAL(1) (2021: 6th)
Steel producer
Market value: £38,468,000
Share of investments: 3.1% (2021: 5.2%)
A multinational steel manufacturing group, with a focus on growing sustainable
steel production. The group has operations across the world and is the largest
steel producer in Europe.
(1) Includes fixed income securities.
(2) Includes investments held at Directors’ valuation.
All percentages reflect the value of the holding as a percentage of total
investments. For this purpose, where more than one class of securities is
held, these have been aggregated.
Together, the ten largest investments represented 54.7% of total investments
of the Company’s portfolio as at 30 June 2022 (ten largest investments as at
31 December 2021: 57.0%).
INVESTMENTS AS AT 30 JUNE 2022
Main geographical exposure Market value £’000 % of investments
Diversified
Vale Global 68,317 } 8.9
Vale Debentures (*#^) Global 42,243
BHP Global 106,623 8.7
Glencore Global 103,763 8.4
Anglo American Global 85,849 7.0
Rio Tinto Global 50,503 4.1
Teck Resources Global 42,878 3.5
Trident Global 4,982 0.4
--------------- ---------------
505,158 41.0
========= =========
Copper
Freeport-McMoRan Global 46,782 3.8
First Quantum Minerals (*) Global 42,490 3.5
OZ Minerals Brazil Royalty (#~) Latin America 20,194 } 2.3
OZ Minerals Australasia 8,523
Ivanhoe Electric United States 16,088 } 2.0
I-Pulse (*) United States 8,673
Ivanhoe Mines Other Africa 19,011 1.5
Sociedad Minera Cerro Verde Latin America 15,835 1.3
Jetti Resources (#) Global 12,327 1.0
Solaris Resources Latin America 10,712 0.9
Antofagasta Latin America 10,529 0.9
Develop Global Australasia 6,775 0.6
MCC Mining (#) Latin America 5,764 0.5
Aurubis Global 4,230 0.3
SolGold Latin America 3,884 0.3
Ero Copper Latin America 3,833 0.3
Lundin Mining Global 3,561 0.3
Hudbay Global 3,518 0.3
Nevada Copper United States 499 –
--------------- ---------------
243,228 19.8
========= =========
Gold
Newmont Corporation Global 44,998 3.7
Franco-Nevada Global 37,161 3.0
Barrick Gold Global 35,043 2.9
Wheaton Precious Metals Global 30,822 2.5
Newcrest Mining Australasia 20,883 1.7
Northern Star Resources Australasia 11,257 0.9
Endeavour Mining Other Africa 8,703 0.7
Kinross Gold Global 6,233 0.5
Agnico Eagle Mines Canada 5,736 0.5
Polymetal International Russia 1,773 0.1
Polyus (#) Russia 2 –
--------------- ---------------
202,611 16.5
========= =========
Steel
ArcelorMittal (*) Global 38,468 3.1
Steel Dynamics United States 21,720 1.8
Nucor United States 20,648 1.7
Stelco Holdings Canada 5,656 0.5
--------------- ---------------
86,492 7.1
========= =========
Industrial Minerals
Sociedad Quimica y Minera ADR Latin America 17,301 1.4
Lynas Rare Earths Australasia 12,838 1.0
Iluka Resources Australasia 12,384 1.0
Albemarle Global 10,995 } 0.9
Albemarle Put Option 15/07/22 US$210 Global (550)
Sigma Lithium Latin America 9,712 0.8
Sheffield Resources Australasia 5,048 0.4
--------------- ---------------
67,728 5.5
========= =========
Iron Ore
Labrador Iron Canada 22,085 1.8
Champion Iron Canada 9,034 0.7
Deterra Royalties Australasia 4,836 0.4
Equatorial Resources Other Africa 306 –
--------------- ---------------
36,261 2.9
========= =========
Aluminium
Alcoa Global 17,362 1.4
Norsk Hydro Global 15,169 1.2
--------------- ---------------
32,531 2.6
========= =========
Platinum Group Metals
Northam Platinum Global 9,633 0.8
Impala Platinum South Africa 8,812 0.7
Sibanye Stillwater South Africa 3,526 0.3
Bravo Mining (#) Latin America 2,470 0.2
--------------- ---------------
24,441 2.0
========= =========
Other
Woodside Energy Group Australasia 14,064 1.1
--------------- ---------------
14,064 1.1
========= =========
Nickel
Nickel Industries Indonesia 11,296 0.9
Bindura Nickel Global 42 –
--------------- ---------------
11,338 0.9
========= =========
Mining Services
Epiroc Global 5,186 0.4
--------------- ---------------
5,186 0.4
========= =========
Zinc
Titan Mining United States 2,539 0.2
--------------- ---------------
2,539 0.2
========= =========
Silver
Sierra Metals Latin America 234 –
--------------- ---------------
234 –
--------------- ---------------
1,231,811 100.0
========= =========
Comprising:
– Investments 1,232,361 100.0
– Options (550) –
--------------- ---------------
1,231,811 100.0
========= =========
(*) Includes fixed income securities.
(#) Includes investments held at Directors’ valuation.
(~) Mining royalty contract.
(^) The investment in the Vale Debentures is illiquid and has been
valued using secondary market pricing information provided by the Brazilian
Financial and Capital Markets Association (ANBIMA).
All investments are in equity shares unless otherwise stated.
The total number of investments as at 30 June 2022 (including options
classified as liabilities on the balance sheet) was 64 (31 December 2021: 56).
As at 30 June 2022 the Company did not hold any equity interests in companies
comprising more than 3% of a company’s share capital.
PORTFOLIO ANALYSIS AS AT 30 JUNE 2022
COMMODITY EXPOSURE(1)
2022 portfolio 2021 portfolio (#) 2022 Reference Index (*)
Diversified 41.0% 39.5% 37.9%
Copper 19.8% 21.5% 9.4%
Gold 16.5% 16.4% 21.5%
Steel 7.1% 7.7% 16.7%
Industrial Minerals 5.5% 4.1% 1.8%
Iron Ore 2.9% 2.8% 4.0%
Aluminium 2.6% 3.3% 3.8%
Platinum Group Metals 2.0% 3.1% 3.0%
Other (&) 0.0% 0.0% 0.6%
Nickel 0.9% 1.4% 0.1%
Mining Services 0.4% 0.0% 0.1%
Zinc 0.2% 0.2% 0.4%
Silver 0.0% 0.0% 0.7%
(1) Based on index classifications.
(#) Represents exposure at 31 December 2021.
(*) MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return).
(&) Represents a very small exposure.
GEOGRAPHIC EXPOSURE(1)
2022
Global 70.6%
Latin America 8.3%
Australasia 7.7%
Other (2) 6.7%
Canada 3.5%
Other Africa (ex South Africa) 2.2%
South Africa 1.0%
2021
Global 69.9%
Latin America 8.0%
Other (2) 7.4%
Australasia 6.3%
South Africa 3.1%
Other Africa (ex South Africa) 3.1%
Canada 2.2%
(1) Based on the principal commodity exposure and place of operation of each
investment.
(2) Consists of Indonesia, Russia and United States.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report above 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 Group can be divided into various areas as
follows:
· Counterparty;
· Investment performance;
· Legal and regulatory compliance;
· Market;
· Political;
· Operational; and
· Financial.
The Board reported on the principal risks and uncertainties faced by the Group
in the Annual Report and Financial Statements for the year ended 31 December
2021. A detailed explanation can be found in the Strategic Report on pages 41
to 45 and note 18 on pages 111 to 128 of the Annual Report and Financial
Statements which is available on the website maintained by BlackRock at
www.blackrock.com/uk/brwm.
The Directors have assessed the impact of market conditions arising from the
COVID-19 outbreak on the Company’s ability to meet its investment objective.
Based on the latest available information, the Company continues to be managed
in line with its investment objective, with no disruption to the operations of
the Company and the publication of its net asset values.
Certain financial markets have fallen due primarily to geopolitical tensions
arising from Russia’s incursion into Ukraine and the impact of the
subsequent range of sanctions, regulations and other measures which impaired
normal trading in Russian securities. The Board and Investment Manager
continue to monitor performance in line with the Company’s investment
objective and the operations of the Company and publication of net asset
values are continuing.
In the view of the Board, there have not been any changes to the fundamental
nature of the principal risks and uncertainties since the previous report and
these are equally applicable to the remaining six months of the financial year
as they were to the six months under review.
GOING CONCERN
The Board remains mindful of the ongoing uncertainty surrounding the potential
duration of the COVID-19 pandemic and its longer-term effects on the global
economy and the current heightened geo-political risk. Nevertheless, the
Directors, having considered the nature and liquidity of the portfolio, the
Group’s investment objective and the Group’s projected income and
expenditure, are satisfied that the Group has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
The Board believes that the Group 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 Group 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
Group will be able to meet all its obligations. Borrowings under the overdraft
and revolving credit facilities shall at no time exceed £230 million or 25%
of the Group’s net asset value (whichever is the lower) and this covenant
was complied with during the period.
Ongoing charges for the year ended 31 December 2021 were approximately 0.95%
of net assets and this is unlikely to change significantly going forward.
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.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE 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, 5 and 12 below.
The related party transactions with the Directors are set out in note 13
below.
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 Condensed Half Yearly Financial Report has been prepared in accordance
with UK-adopted 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 Financial Conduct Authority
Disclosure Guidance and Transparency Rules.
This Condensed Half Yearly Financial Report has been reviewed by the
Company’s auditors and their report is set out below.
The Condensed Half Yearly Financial Report was approved by the Board on
23 August 2022 and the above responsibility statement was signed on its
behalf by the Chairman.
DAVID CHEYNE
FOR AND ON BEHALF OF THE BOARD
23 August 2022
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30
JUNE 2022
Six months ended 30 June 2022 (unaudited) Six months ended 30 June 2021 (unaudited) Year ended 31 December 2021 (audited)
Notes Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Income from investments held at fair value through profit or loss 3 39,251 – 39,251 33,690 – 33,690 80,558 – 80,558
Other income 3 2,472 – 2,472 4,080 – 4,080 7,118 – 7,118
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue 41,723 – 41,723 37,770 – 37,770 87,676 – 87,676
======= ======= ======= ======= ======= ======= ======= ======= =======
Net (loss)/profit on investments held at fair value through profit or loss – (30,608) (30,608) – 130,660 130,660 – 122,374 122,374
Net (loss)/profit on foreign exchange – (16,160) (16,160) – 458 458 – (1,696) (1,696)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 41,723 (46,768) (5,045) 37,770 131,118 168,888 87,676 120,678 208,354
======= ======= ======= ======= ======= ======= ======= ======= =======
Expenses
Investment management fee 4 (1,279) (3,949) (5,228) (1,143) (3,538) (4,681) (2,252) (6,978) (9,230)
Other operating expenses 5 (532) (7) (539) (493) (5) (498) (1,034) (9) (1,043)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses (1,811) (3,956) (5,767) (1,636) (3,543) (5,179) (3,286) (6,987) (10,273)
======= ======= ======= ======= ======= ======= ======= ======= =======
Net profit/(loss) on ordinary activities before finance costs and taxation 39,912 (50,724) (10,812) 36,134 127,575 163,709 84,390 113,691 198,081
Finance costs 6 (306) (891) (1,197) (174) (519) (693) (374) (1,117) (1,491)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net profit/(loss) on ordinary activities before taxation 39,606 (51,615) (12,009) 35,960 127,056 163,016 84,016 112,574 196,590
======= ======= ======= ======= ======= ======= ======= ======= =======
Taxation (charge)/credit (2,458) 804 (1,654) (2,717) 965 (1,752) (5,106) 986 (4,120)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net profit/(loss) on ordinary activities after taxation 8 37,148 (50,811) (13,663) 33,243 128,021 161,264 78,910 113,560 192,470
======= ======= ======= ======= ======= ======= ======= ======= =======
Earnings/(loss) per ordinary share (pence) 8 20.07 (27.45) (7.38) 18.64 71.79 90.43 43.59 62.73 106.32
======= ======= ======= ======= ======= ======= ======= ======= =======
The total column of this statement represents the Group’s Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards (IASs). The supplementary revenue and capital accounts
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 loss
for the period disclosed above represents the Group’s total comprehensive
loss.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE
2022
Note Called up share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserves £’000 Revenue reserve £’000 Total £’000
For the six months ended 30 June 2022 (unaudited)
At 31 December 2021 9,651 138,818 22,779 155,123 742,430 74,073 1,142,874
Total comprehensive income:
Net (loss)/profit for the period – – – – (50,811) 37,148 (13,663)
Transactions with owners, recorded directly to equity:
Ordinary shares reissued from treasury – 8,752 – 21,708 – – 30,460
Share reissue costs – – – (61) – – (61)
Dividends paid (1) 7 – – – – – (60,148) (60,148)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 30 June 2022 9,651 147,570 22,779 176,770 691,619 51,073 1,099,462
========= ========= ========= ========= ========= ========= =========
For the six months ended 30 June 2021 (unaudited)
At 31 December 2020 9,651 127,155 22,779 103,992 628,870 38,378 930,825
Total comprehensive income:
Net profit for the period – – – – 128,021 33,243 161,264
Transactions with owners, recorded directly to equity:
Ordinary shares reissued from treasury – 11,663 – 51,651 – – 63,314
Share purchase costs – – – (127) – – (127)
Dividends paid (2) 7 – – – – – (23,006) (23,006)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 30 June 2021 9,651 138,818 22,779 155,516 756,891 48,615 1,132,270
========= ========= ========= ========= ========= ========= =========
For the year ended 31 December 2021 (audited)
At 31 December 2020 9,651 127,155 22,779 103,992 628,870 38,378 930,825
Total comprehensive income:
Net profit for the year – – – – 113,560 78,910 192,470
Transactions with owners, recorded directly to equity:
Ordinary shares reissued from treasury – 11,663 – 51,651 – – 63,314
Share reissue costs – – – (127) – – (127)
Ordinary shares purchased into treasury – – – (390) – – (390)
Share purchase costs – – – (3) – – (3)
Dividends paid (3) 7 – – – – – (43,215) (43,215)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 December 2021 9,651 138,818 22,779 155,123 742,430 74,073 1,142,874
========= ========= ========= ========= ========= ========= =========
(1) The final dividend for the year ended 31 December 2021 of 27.00p
per share, declared on 8 March 2022 and paid on 19 May 2022, and 1st quarterly
dividend for the year ended 31 December 2022 of 5.50p per share, declared on 6
May 2022 and paid on 30 June 2022.
(2) The final dividend for the year ended 31 December 2020 of 8.30p
per share, declared on 4 March 2021 and paid on 6 May 2021, and 1st quarterly
dividend for the year ended 31 December 2021 of 4.50p per share, declared on
29 April 2021 and paid on 25 June 2021.
(3) The final dividend of 8.30p per share for the year ended 31
December 2020, declared on 4 March 2021 and paid on 6 May 2021; 1st interim
dividend of 4.50p per share for the year ended 31 December 2021, declared on
29 April 2021 and paid on 25 June 2021; 2nd interim dividend of 5.50p per
share for the year ended 31 December 2021, declared on 19 August 2021 and
paid on 24 September 2021 and 3rd interim dividend of 5.50p per share for the
year ended 31 December 2021, declared on 18 November 2021 and paid on 24
December 2021.
For information on the Company’s distributable reserves, please refer to
note 10 below.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2022
Notes 30 June 2022 (unaudited) £’000 30 June 2021 (unaudited) £’000 31 December 2021 (audited) £’000
Non current assets
Investments held at fair value through profit or loss 11 1,232,361 1,272,562 1,256,801
Current assets
Current tax asset 490 87 85
Other receivables 5,560 6,755 5,209
Cash collateral held with brokers 2,651 – 580
Cash and cash equivalents 52,255 6,556 26,332
--------------- --------------- ---------------
Total current assets 60,956 13,398 32,206
========= ========= =========
Total assets 1,293,317 1,285,960 1,289,007
========= ========= =========
Current liabilities
Current tax liability (281) (5) (427)
Other payables (15,135) (5,373) (5,183)
Derivative financial liabilities held at fair value through profit or loss 11 (550) – (667)
Bank overdraft (177) (11,605) (356)
Bank loans (177,273) (136,544) (138,867)
--------------- --------------- ---------------
Total current liabilities (193,416) (153,527) (145,500)
========= ========= =========
Total assets less current liabilities 1,099,901 1,132,433 1,143,507
========= ========= =========
Non current liabilities
Deferred taxation liability (439) (163) (633)
--------------- --------------- ---------------
Net assets 1,099,462 1,132,270 1,142,874
========= ========= =========
Equity attributable to equity holders
Called up share capital 9 9,651 9,651 9,651
Share premium account 147,570 138,818 138,818
Capital redemption reserve 22,779 22,779 22,779
Special reserve 176,770 155,516 155,123
Capital reserves 691,619 756,891 742,430
Revenue reserve 51,073 48,615 74,073
--------------- --------------- ---------------
Total equity 1,099,462 1,132,270 1,142,874
========= ========= =========
Net asset value per ordinary share (pence) 8 584.92 616.20 622.21
========= ========= =========
CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2022
Six months ended 30 June 2022 (unaudited) £’000 Six months ended 30 June 2021 (unaudited) £’000 Year ended 31 December 2021 (audited) £’000
Operating activities
Net (loss)/profit on ordinary activities before taxation (12,009) 163,016 196,590
Add back finance costs 1,197 693 1,491
Net loss/(profit) on investments and options held at fair value through profit or loss (including transaction costs) 30,608 (130,660) (122,374)
Net loss/(profit) on foreign exchange 16,160 (458) 1,696
Sales of investments and derivatives held at fair value through profit or loss 266,982 118,844 354,182
Purchases of investments and derivatives held at fair value through profit or loss (273,507) (215,769) (442,711)
Increase in other receivables (203) (2,943) (1,233)
Increase in other payables 540 3,030 2,571
(Increase)/decrease in amounts due from brokers (148) 2,907 2,776
Increase/(decrease) in amounts due to brokers 9,412 (2,473) (2,473)
Net movement in cash collateral held with brokers (2,071) 2,943 2,363
--------------- --------------- ---------------
Net cash inflow/(outflow) from operating activities before interest and taxation 36,961 (60,870) (7,122)
========= ========= =========
Taxation paid (261) (484) (484)
Taxation on investment income included within gross income (1,733) (1,825) (3,303)
--------------- --------------- ---------------
Net cash inflow/(outflow) from operating activities 34,967 (63,179) (10,909)
========= ========= =========
Financing activities
Drawdown of loans 22,359 35,020 35,020
Interest paid (1,362) (627) (1,439)
Shares purchased into treasury – – (390)
Share purchase costs paid – – (3)
Net proceeds from ordinary shares reissued from treasury 30,399 63,187 63,187
Dividends paid (60,148) (23,006) (43,215)
--------------- --------------- ---------------
Net cash (outflow)/inflow from financing activities (8,752) 74,574 53,160
========= ========= =========
Increase in cash and cash equivalents 26,215 11,395 42,251
Cash and cash equivalents at start of the period 25,976 (16,008) (16,008)
Effect of foreign exchange rate changes (113) (436) (267)
--------------- --------------- ---------------
Cash and cash equivalents at end of the period 52,078 (5,049) 25,976
========= ========= =========
Comprised of:
Cash at bank 52,255 6,556 26,332
Bank overdraft (177) (11,605) (356)
--------------- --------------- ---------------
52,078 (5,049) 25,976
========= ========= =========
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
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 six month period ended 30 June
2022 have been prepared in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the Financial Conduct Authority and with the
UK-adopted International Accounting Standard 34 (IAS 34), Interim Financial
Reporting. The Half Yearly Financial Statements should be read in conjunction
with the Group’s Annual Report and Financial Statements for the year ended
31 December 2021, which have been prepared in accordance with UK adopted
International Accounting Standards (IASs).
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 and updated in July 2022, is compatible with
UK-adopted IASs, the financial statements have been prepared in accordance
with guidance set out in the SORP.
There was no impact or changes in accounting policies from the year end to the
Half Yearly Financial Statements.
International Accounting Standards that have yet to be adopted:
IFRS 17 – Insurance contracts (effective 1 January 2023). 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.
This standard is unlikely to have any impact on the Group as it has no
insurance contracts.
IAS 12 – Deferred tax related to assets and liabilities arising from a
single transaction (effective 1 January 2023). The International Accounting
Standards Board (IASB) has amended IAS 12, Income taxes, to require companies
to recognise deferred tax on particular transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible temporary
differences. According to the amended guidance, a temporary difference that
arises on initial recognition of an asset or liability is not subject to the
initial recognition exemption if that transaction gave rise to equal amounts
of taxable and deductible temporary differences. These amendments might have a
significant impact on the preparation of financial statements by companies
that have substantial balances of right-of-use assets, lease liabilities,
decommissioning, restoration and similar liabilities. The impact for those
affected would be the recognition of additional deferred tax assets and
liabilities.
The amendment of this standard is unlikely to have any significant impact on
the Group.
3. INCOME
Six months ended 30 June 2022 (unaudited) £’000 Six months ended 30 June 2021 (unaudited) £’000 Year ended 31 December 2021 (audited) £’000
Investment income:
UK dividends 9,575 8,919 25,681
UK special dividends 2,167 1,045 5,507
Overseas dividends 19,768 18,014 36,624
Overseas special dividends 1,670 – 1,250
Income from contractual rights (OZ Minerals Royalty) 1,674 715 2,562
Income from Vale Debentures 3,308 4,012 6,971
Income from fixed interest investments 1,089 985 1,963
--------------- --------------- ---------------
Total investment income 39,251 33,690 80,558
========= ========= =========
Other income:
Option premium income 2,371 4,067 7,065
Deposit interest 65 – –
Stock lending income 36 13 53
--------------- --------------- ---------------
2,472 4,080 7,118
========= ========= =========
Total income 41,723 37,770 87,676
========= ========= =========
During the period, the Group received option premium income in cash totalling
£2,035,000 (six months ended 30 June 2021: £3,746,000; year ended 31
December 2021: £6,745,000) 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 £2,371,000 (six
months ended 30 June 2021: £4,067,000; year ended 31 December 2021:
£7,065,000) were amortised to revenue.
At 30 June 2022 there was one open position (30 June 2021: none; 31 December
2021: two) with an associated liability of £550,000 (30 June 2021: £nil; 31
December 2021: £667,000).
Dividends and interest received in cash in the six months ended 30 June 2022
amounted to £34,977,000 and £3,775,000 (six months ended 30 June 2021:
£26,052,000 and £1,862,000; year ended 31 December 2021: £68,199,000 and
£5,186,000).
No special dividends have been recognised in capital for the six months ended
30 June 2022 (six months ended 30 June 2021: £nil; year ended 31 December
2021: £nil).
4. INVESTMENT MANAGEMENT FEE
Six months ended 30 June 2022 (unaudited) Six months ended 30 June 2021 (unaudited) Year ended 31 December 2021 (audited)
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Investment management fee 1,279 3,949 5,228 1,143 3,538 4,681 2,252 6,978 9,230
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 1,279 3,949 5,228 1,143 3,538 4,681 2,252 6,978 9,230
========= ========= ========= ========= ========= ========= ========= ========= =========
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 £4,961,000 (six
months ended 30 June 2021: £4,214,000; year ended 31 December 2021:
£8,537,000) of the investment management fee was generated from net assets
and £267,000 (six months ended 30 June 2021: £467,000; year ended 31
December 2021: £693,000) 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 NAV per share (pence) Quarterly increase/ (decrease) % Gearing effect on management fees (£’000)
31 December 2021 622.21
31 March 2022 769.58 +23.7 267
30 June 2022 584.92 -24.0 –
========= ========= =========
The daily average of the net assets under management during the period ended
30 June 2022 was £1,287,808,000 (six months ended 30 June 2021:
£1,069,435,000; year ended 31 December 2021: £1,085,438,000).
The fee is allocated 25% to the revenue account and 75% to the capital account
of the Consolidated Statement of Comprehensive Income.
There is no additional fee for company secretarial and administration
services.
5. OTHER OPERATING EXPENSES
Six months ended 30 June 2022 (unaudited) £’000 Six months ended 30 June 2021 (unaudited) £’000 Year ended 31 December 2021 (audited) £’000
Allocated to revenue:
Custody fee 59 53 103
Auditors’ remuneration:
– audit services 25 23 41
– audit-related assurance services (1) 5 5 9
Registrar’s fee 40 45 91
Directors’ emoluments 88 86 176
AIC fees 10 10 21
Broker fees 12 12 25
Depositary fees 61 48 101
FCA fee 13 10 24
Directors’ insurance 11 9 19
Marketing fees 81 64 140
Stock exchange fees 18 13 26
Legal and professional fees 20 28 52
Bank facility fees (2) 51 34 73
Printing and postage costs 28 17 37
Write back of prior year expenses (3) (24) – –
Other administration costs 34 36 96
--------------- --------------- ---------------
532 493 1,034
========= ========= =========
Allocated to capital:
Custody transaction charges (4) 7 5 9
--------------- --------------- ---------------
539 498 1,043
========= ========= =========
(1 ) Fees paid to the auditor for audit-related assurance
services of £4,500 excluding VAT (six months ended 30 June 2021: £5,000;
year ended 31 December 2021: £8,500) relate to the review of the Half Yearly
Financial Statements.
(2 ) There is a 4 basis point facility fee chargeable on the full
loan facility amount whether drawn or undrawn.
(3 ) Relates to Directors’ expenses, miscellaneous fees and
professional services fees written back during the period ended 30 June 2022.
(4 ) For the six month period ended 30 June 2022, expenses of
£7,000 (six months ended 30 June 2021: £5,000; year ended 31 December 2021:
£9,000) were charged to the capital account of the Consolidated Statement of
Comprehensive Income. These relate to transaction costs charged by the
custodian on sale and purchase trades.
The transaction costs incurred on the acquisition of investments amounted to
£488,000 for the six months ended 30 June 2022 (six months ended 30 June
2021: £344,000; year ended 31 December 2021: £690,000). Costs relating to
the disposal of investments amounted to £106,000 for the six months ended 30
June 2022 (six months ended 30 June 2021: £79,000; year ended 31 December
2021: £260,000). All transaction costs have been included within the capital
reserves.
6. FINANCE COSTS
Six months ended 30 June 2022 (unaudited) Six months ended 30 June 2021 (unaudited) Year ended 31 December 2021 (audited)
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Interest payable – bank loans 304 885 1,189 168 507 675 365 1,097 1,462
Interest payable – bank overdraft 2 6 8 6 12 18 9 20 29
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 306 891 1,197 174 519 693 374 1,117 1,491
========= ========= ========= ========= ========= ========= ========= ========= =========
Finance costs are charged 25% to the revenue account and 75% to the capital
account of the Consolidated Statement of Comprehensive Income.
7. DIVIDENDS
The final dividend of 27.00p per share for the year ended 31 December 2021 was
paid on 19 May 2022. The Board has declared a first quarterly interim dividend
of 5.50p per share for the quarter ended 31 March 2022, paid on 30 June 2022
to shareholders on the register on 27 May 2022.
The Board has declared a second quarterly interim dividend of 5.50p per share
for the quarter ended 30 June 2022 which will be paid on 30 September 2022 to
shareholders on the register on 2 September 2022. This dividend has not been
accrued in the financial statements for the six months ended 30 June 2022 as,
under IAS, interim dividends are not recognised until paid. Dividends are
debited directly to reserves.
Dividends on equity shares paid during the period were:
Six months ended 30 June 2022 (unaudited) £’000 Six months ended 30 June 2021 (unaudited) £’000 Year ended 31 December 2021 (audited) £’000
Final dividend for the year ended 31 December 2021 of 27.00p per share (2020: 8.30p) 49,898 14,782 14,782
1st quarterly interim dividend for the year ending 31 December 2022 of 5.50p per share (2021: 4.50p) 10,250 8,224 8,224
2nd quarterly interim dividend for the year ended 31 December 2021 of 5.50p per share (2020: 4.00p) – – 10,106
3rd quarterly interim dividend for the year ended 31 December 2021 of 5.50p per share (2020: 4.00p) – – 10,103
--------------- --------------- ---------------
60,148 23,006 43,215
========= ========= =========
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue return, capital return and net asset value are shown below and
have been calculated using the following:
Six months ended 30 June 2022 (unaudited) Six months ended 30 June 2021 (unaudited) Year ended 31 December 2021 (audited)
Net revenue profit attributable to ordinary shareholders (£’000) 37,148 33,243 78,910
Net capital (loss)/profit attributable to ordinary shareholders (£’000) (50,811) 128,021 113,560
--------------- --------------- ---------------
Total (loss)/profit attributable to ordinary shareholders (£’000) (13,663) 161,264 192,470
========= ========= =========
Equity shareholders’ funds (£’000) 1,099,462 1,132,270 1,142,874
The weighted average number of ordinary shares in issue during each period on which the return per ordinary share was calculated was: 185,071,986 178,324,404 181,037,188
The actual number of ordinary shares in issue at the period end on which the net asset value was calculated was: 187,968,036 183,750,814 183,681,116
Earnings per share
Revenue earnings per share (pence) – basic and diluted 20.07 18.64 43.59
Capital (loss)/earnings per share (pence) – basic and diluted (27.45) 71.79 62.73
--------------- --------------- ---------------
Total (loss)/earnings per share (pence) – basic and diluted (7.38) 90.43 106.32
========= ========= =========
As at 30 June 2022 (unaudited) As at 30 June 2021 (unaudited) As at 31 December 2021 (audited)
Net asset value per ordinary share (pence) 584.92 616.20 622.21
Ordinary share price (pence) 573.00 608.00 589.00
========= ========= =========
There were no dilutive securities at the period end.
9. CALLED UP SHARE CAPITAL
Ordinary shares in issue number Treasury shares number Total shares number Nominal value £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 5 pence each:
At 31 December 2021 183,681,116 9,330,726 193,011,842 9,651
Ordinary shares reissued from treasury 4,286,920 (4,286,920) – –
----------------- ----------------- ----------------- -----------------
At 30 June 2022 187,968,036 5,043,806 193,011,842 9,651
========== ========== ========== ==========
During the period to 30 June 2022, no shares were bought back and transferred
to treasury (six months ended 30 June 2021: none; year ended 31 December 2021:
69,698) for a total consideration including costs of £nil (six months ended
30 June 2021: £nil; year ended 31 December 2021: £393,000).
During the period to 30 June 2022, 4,286,920 shares were reissued from
treasury (six months ended 30 June 2021: 10,200,000; year ended 31 December
2021: 10,200,000) for a net consideration after costs of £30,399,000 (six
months ended 30 June 2021: £63,187,000; year ended 31 December 2021:
£63,187,000).
Since the period end, a further 785,000 ordinary shares have been reissued
from treasury for a total consideration of £4,512,000.
10. RESERVES
The share premium and capital redemption reserve are not distributable profits
under the Companies Act 2006. In accordance with ICAEW Technical Release
02/17BL on Guidance on Realised and Distributable Profits under the Companies
Act 2006, the special reserve and capital reserves of the Parent Company may
be used as distributable profits for all purposes and, in particular, the
repurchase by the Parent Company of its ordinary shares and for payments as
dividends. In accordance with the Company’s Articles of Association, the
special reserve, capital reserves and the revenue reserve may be distributed
by way of dividend. The Parent Company's capital reserve arising on the
revaluation of listed investments of £218,851,000 (30 June 2021: gain of
£435,729,000; year ended 31 December 2021: gain of £387,997,000) is subject
to fair value movements and may not be readily realisable at short notice, as
such it may not be entirely distributable. The reserves of the subsidiary
company are not distributable until distributed as a dividend to the Parent
Company. The investments are subject to financial risks, as such capital
reserves (arising on investments sold) and the revenue reserve may not be
entirely distributable if a loss occurred during the realisation of these
investments.
11. VALUATION OF FINANCIAL INSTRUMENTS
Market risk arising from price risk
Price risk is the risk that the fair value or 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,
climate change or other events could have a significant impact on the Group
and its investments.
The coronavirus outbreak has had a profound impact on all aspects of society
in recent years. While there is a growing consensus in developed economies
that the worst of the impact is now over, there is an expectation that travel
restrictions, enhanced health screenings at ports of entry and elsewhere,
disruption of and delays in healthcare service preparation and delivery,
cancellations, supply chain disruptions, and lower consumer demand will create
ongoing challenges. While widescale vaccination programmes are now in place in
many countries and are having a positive effect, the impact of COVID-19
continues to adversely affect the economies of many nations across the globe
and this impact may be greater where vaccination rates are lower, such as in
certain emerging markets. Although it is difficult to make timing predictions,
it is expected that the economic effects of COVID-19 will continue to be felt
for a period after the virus itself has moved from being pandemic to endemic
in nature, and this in turn may continue to impact investments held by the
Company.
Liquidity risk
The Group has an overdraft facility of £30 million (six months ended 30 June
2021: £30 million; year ended 31 December 2021: £30 million) and a
multi-currency loan facility of £200 million (six months ended 30 June 2021:
£200 million; year ended 31 December 2021: £200 million) which are updated
and renewed on an annual basis. Under this facility, the individual loan
drawdowns are taken with a three month maturity period.
At 30 June 2022, the Group had a US Dollar loan outstanding of US$191,000,000
which matures on 23 September 2022 (six months ended 30 June 2021: US Dollar
loan of US$161,000,000 which matured on 12 August 2021; year ended 31 December
2021: US Dollar loan of US$161,000,000 which matured on 11 February 2022). The
Group also had a UK Sterling loan outstanding of £20,000,000 which matures on
23 September 2022 (six months ended 30 June 2021: £20,000,000 which matured
on 12 August 2021; year ended 31 December 2021: £20,000,000 which matured on
11 February 2022).
As per the borrowing agreements, borrowings under the overdraft and loan
facilities shall at no time exceed £230 million or 25% of the Group’s net
asset value (whichever is the lower) (six months ended 30 June 2021 and year
ended 31 December 2021: £230 million or 25% of the Group’s net asset value
(whichever is lower)) and this covenant was complied with during the
respective periods.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in the
Consolidated Statement of Financial Position at their fair value (investments
and derivatives) or at an amount which is considered to be the 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 2021. All investments are held at fair value through profit or loss.
The amortised cost amounts of due from brokers, dividends and interest
receivable, due to brokers, accruals, cash at bank, bank loans and bank
overdrafts approximate their fair value.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily available from an exchange, 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 active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm’s length transactions, reference to other
instruments that are substantially the same, discounted cash flow analysis,
option pricing models and other valuation techniques commonly used by market
participants making the maximum use of market inputs and relying as little as
possible on entity specific inputs.
Over-the-counter derivative option contracts have been classified as Level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts
expose the Group.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for
similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes ‘observable’ inputs
requires significant judgement by the Investment Manager.
Valuation process and techniques for Level 3 valuations
(a) OZ Minerals Brazil Royalty
The Directors engage a mining consultant, an independent valuer with a
recognised and relevant professional qualification, to conduct a periodic
valuation of the contractual rights and the fair value of the contractual
rights is assessed with reference to relevant factors. At the reporting date
the income streams from contractual rights have been valued on the net present
value of the pre-tax cash flows discounted at a rate the external valuer
considers reflects the risk associated with the project. The valuation model
uses discounted cash flow analysis which incorporates both observable and
non-observable data. Observable inputs include assumptions regarding current
rates of interest and commodity prices. Unobservable inputs include
assumptions regarding production profiles, price realisations, cost of capital
and discount rates. In determining the discount rate to be applied, the
external valuer considers the country and sovereign risk associated with the
project, together with the time horizon to the commencement of production and
the success or failure of projects of a similar nature. To assess the
significance of a particular input to the entire measurement, the external
valuer performs a sensitivity analysis. The external valuer has undertaken an
analysis of the impact of using alternative discount rates on the fair value
of contractual rights.
This investment in contractual rights is reviewed regularly to ensure that the
initial classification remains correct given the asset’s characteristics and
the Group’s investment policies. The contractual rights are initially
recognised using the transaction price as it was indicative in this instance
of the best evidence of fair value at acquisition and are subsequently
measured at fair value, taking into consideration the relevant IFRS 13
requirements. In arriving at their estimates of market values, the valuers
have used their market knowledge and professional judgement. The Group
classifies the fair value of this investment as Level 3.
Valuations are the responsibility of the Directors of the Company. In arriving
at a final valuation, the Directors consider the independent valuer’s
report, the significant assumptions used in the fair valuation and the review
process undertaken by BlackRock’s Pricing Committee. The valuation of
unquoted investments is performed on a quarterly basis by the Investment
Manager and reviewed by the Pricing Committee of the Manager. On a quarterly
basis the Investment Manager will review the valuation of the contractual
rights and inputs for significant changes. A valuation of contractual rights
is performed annually by an external valuer, SRK Consulting (UK) Limited, and
reviewed by the Pricing Committee of the Manager. The valuations are also
subject to quality assurance procedures performed within the Pricing
Committee. On a semi-annual basis, after the checks above have been performed,
the Investment Manager presents the valuation results to the Directors. This
includes a discussion of the major assumptions used in the valuations. There
were no changes in valuation techniques during the period.
(b) Other Level 3 investments
The fair value of the investments in equity shares of Jetti Resources, MCC
Mining and Bravo Mining were assessed by an independent valuer with a
recognised and relevant professional qualification. The valuation is carried
out based on a market comparison approach using the price of a recent
investment in secondary market transactions, comparable trading multiples for
assets, revenue and an entity’s earnings before interest, tax, depreciation
and amortisation (EBITDA). The valuation model is based on market multiples
derived from quoted prices of companies comparable to the investee and the
assets/expected revenue and EBITDA of the investee. The estimate is adjusted
for considerations such as illiquidity and size differences between the
comparable companies based on company-specific facts and circumstances.
The estimates include an implicit yield based on internal rates of return,
implied volatility and asset multiples. Changes in assumptions about these
factors could affect the reported fair value of financial instruments in the
Consolidated Statement of Financial Position and the level where the
instruments are disclosed in the fair value hierarchy. To assess the
significance of a particular input to the entire measurement, the external
valuer performs a sensitivity analysis.
From 3 March 2022, following the suspension of trading of depositary receipts
of Russian companies on the international stock exchanges, the fair value of
the position in Polyus was written down to a nominal value of US$0.01 which is
reflected in the fair value of investments presented in the Consolidated
Statement of Financial Position at 30 June 2022.
Fair values of financial assets and financial liabilities
For exchange listed equity investments the quoted price is the bid price.
Substantially all investments are valued based on unadjusted quoted market
prices. Where such quoted prices are readily available in an active market,
such prices are not required to be assessed or adjusted for any price related
risks, including climate risk, in accordance with the fair value related
requirements of the Group’s financial reporting framework.
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 2022 (unaudited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 1,070,588 16,122 20,563 1,107,273
Fixed income securities 53,978 50,916 – 104,894
Investment in contractual rights – – 20,194 20,194
--------------- --------------- --------------- ---------------
Total assets 1,124,566 67,038 40,757 1,232,361
========= ========= ========= =========
Liabilities:
Derivative financial instruments – written options – (550) – (550)
--------------- --------------- --------------- ---------------
Total 1,124,566 66,488 40,757 1,231,811
========= ========= ========= =========
Financial assets/(liabilities) at fair value through profit or loss as at 30 June 2021 (unaudited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 1,130,158 5,159 – 1,135,317
Fixed income securities 62,659 55,121 – 117,780
Investment in contractual rights – – 19,465 19,465
--------------- --------------- --------------- ---------------
Total assets 1,192,817 60,280 19,465 1,272,562
========= ========= ========= =========
Liabilities:
Derivative financial instruments – written options – – – –
--------------- --------------- --------------- ---------------
Total 1,192,817 60,280 19,465 1,272,562
========= ========= ========= =========
Financial assets/(liabilities) at fair value through profit or loss as at 31 December 2021 (audited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 1,114,430 8,955 1,846 1,125,231
Fixed income securities 59,108 40,895 13,405 113,408
Investment in contractual rights – – 18,162 18,162
--------------- --------------- --------------- ---------------
Total assets 1,173,538 49,850 33,413 1,256,801
========= ========= ========= =========
Liabilities:
Derivative financial instruments – written options – (667) – (667)
--------------- --------------- --------------- ---------------
Total 1,173,538 49,183 33,413 1,256,134
========= ========= ========= =========
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 ended 30 June 2022 (unaudited) £’000 Six months ended 30 June 2021 (unaudited) £’000 Year ended 31 December 2021 (audited) £’000
Opening fair value 33,413 19,753 19,753
Return of capital – royalty (145) (143) (267)
Additions at cost 18,895 – 14,390
Conversion of convertible bond to equity and transfer to Level 2 (10,160) – –
Transfer of equities and convertible bonds to Level 2 (19,305) – –
Transfer of equities from Level 1 to Level 3 2 – –
Total gains or losses included in gains/(losses) on investments in the Consolidated Statement of Comprehensive Income:
– assets transferred to Level 2 during the period 14,214 – –
– assets held at the end of the period 3,843 (145) (463)
--------------- --------------- ---------------
Closing balance 40,757 19,465 33,413
========= ========= =========
The Level 3 investments as at 30 June 2022 in the table below relate to the OZ
Minerals Brazil Royalty, Jetti Resources, MCC Mining, Bravo Mining and Polyus
and, in accordance with IFRS 13, these investments were categorised as Level
3. In arriving at the fair value of these investments, the key inputs are the
underlying commodity prices and illiquidity discount. Ivanhoe Electric/I-Pulse
went through an initial public offering during the period ending 30 June 2022
and its shares became listed. As the shares held by the Company are subject to
a 180 day lock in period, a discount is applied to the market value of the
shares and therefore these have been transferred from Level 3 to Level 2 as
the price is based on observable market data.
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 98 and 99 of the
Company’s Annual Report and Financial Statements for the year ended 31
December 2021 and a detailed explanation of the techniques is also available
above under “valuation process and techniques”.
Quantitative information of significant unobservable inputs – Level 3 –
Group and Company
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 2022, 30 June 2021
and 31 December 2021 are as shown below.
Description As at 30 June 2022 £’000 Valuation technique Unobservable input Range of weighted average inputs Reasonable possible shift (1) +/ - Impact on fair value
OZ Minerals Brazil Royalty 20,194 Discounted cash flows Discount rate – weighted average cost of capital 5.0% – 8.0% 1.0% £1.0m
Average gold prices US$1,400 – US$1,600 per ounce 10.0% £1.5m
Average copper prices US$7,209 – US$8,510 per tonne 10.0% £1.0m
Jetti Resources 12,327 Market approach Earnings multiple 2.51x 5.0% £0.6m
MCC Mining 5,764 Market approach Price of recent transaction 5.0% £0.3m
Bravo Mining 2,470 Market approach Price of recent transaction 5.0% £0.1m
Polyus ADRs 2 Listing suspended – valued at nominal US$0.01
---------------
Total 40,757
=========
Description As at 30 June 2021 £’000 Valuation technique Unobservable input Range of weighted average inputs Reasonable possible shift (1) +/ - Impact on fair value
OZ Minerals Brazil Royalty 19,465 Discounted cash flows Discounted rate – weighted average cost of capital 5.0% – 12.0% 1.0% £1.1m
Average gold prices US$1,450 – US$1,816 per ounce 10.0% £0.9m
Average copper prices US$6,390 – US$8,300 per tonne 10.0% £0.5m
Description As at 31 December 2021 £’000 Valuation technique Unobservable input Range of weighted average inputs Reasonable possible shift (1) +/ - Impact on fair value
OZ Minerals Brazil Royalty 18,162 Discounted cash flows Discounted rate – weighted average cost of capital 5.0% – 8.0% 1.0% £1.0m
Average gold prices US$1,400 – US$1,600 per ounce 10.0% £1.5m
Average copper prices US$7,209 – US$8,510 per tonne 10.0% £1.0m
Ivanhoe Electric and I-Pulse – convertible bonds and equity shares 15,251 Market approach and scenario analysis for convertible notes Asset multiple 0.75x – 1.25x 25.0% £0.5m
(1) The sensitivity analysis refers to a percentage amount added or
deducted from the input and the effect this has on the fair value.
The sensitivity impact on fair value is calculated based on the sensitivity
estimates set out by the independent valuer in its report on the valuation of
contractual rights. Significant increases/(decreases) in estimated commodity
prices and discount rates in isolation would result in a significantly
higher/(lower) fair value measurement. Generally, a change in the assumption
made for the estimated value is accompanied by a directionally similar change
in the commodity prices and discount rates.
12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND THE AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months’
notice. BFM has (with the Company’s consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock
Investment Management (UK) Limited (BIM (UK)). Further details of the
investment management contract are disclosed in the Directors’ Report on
pages 56 and 57 of the Annual Report and Financial Statements for the year
ended 31 December 2021.
The investment management fee due for the six months ended 30 June 2022
amounted to £5,228,000 (six months ended 30 June 2021: £4,681,000; year
ended 31 December 2021: £9,230,000). At the period end, £5,228,000 was
outstanding in respect of the management fee (six months ended 30 June 2021:
£4,681,000; year ended 31 December 2021: £4,587,000).
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 2022 amounted to £81,000 excluding VAT (six months ended
30 June 2021: £64,000; year ended 31 December 2021: £140,000). Marketing
fees of £134,000 were outstanding as at 30 June 2022 (30 June 2021: £82,000;
31 December 2021: £55,000).
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
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 £47,000, the
Chairman of the Audit Committee and Management Engagement Committee and Senior
Independent Director receives an annual fee of £39,500 and each of the other
Directors receives an annual fee of £32,000.
As at 30 June 2022 an amount of £15,000 (30 June 2021: £nil; 31 December
2021: £14,000) 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 (Chairman) 35,000
Russell Edey 20,000
Jane Lewis 5,362
Judith Mosely 7,900
Srinivasan Venkatakrishnan 1,000
=========
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 2022 (six months ended 30 June
2021: nil; year ended 31 December 2021: nil).
15. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this Half Yearly Financial 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 2022 and
30 June 2021 has been reviewed by the Company’s auditors.
The information for the year ended 31 December 2021 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 2022 in February 2023.
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 2023, with the Annual General Meeting being held in
April 2023.
INDEPENDENT REVIEW REPORT TO BLACKROCK WORLD MINING TRUST PLC
REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Our conclusion
We have reviewed BlackRock World Mining Trust plc’s condensed 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 2022 (the “period”).
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 UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom’s Financial Conduct
Authority.
The interim financial statements comprise:
· the Consolidated Statement of Financial Position as at 30
June 2022;
· the Consolidated Statement of Comprehensive Income for the
period then ended;
· the Consolidated Statement of Changes in Equity for the
period then ended;
· the Consolidated Cash Flow Statement 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
of BlackRock World Mining Trust plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, ‘Review of Interim Financial Information Performed by
the Independent Auditor of the Entity’ issued by the Financial Reporting
Council 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the Group to cease to continue as a going concern.
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. In preparing the Half
Yearly Financial Report, including the interim financial statements, the
Directors are responsible for assessing the Group’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Directors either intend
to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Half Yearly Financial Report based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. 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.
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Edinburgh
23 August 2022
ENDS
The Condensed Half Yearly Financial Report will also be available on the
BlackRock website at www.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:
Melissa Gallagher, Head of Closed End Funds, BlackRock Investment Management
(UK) Limited -
Tel: 020 7743 3893
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
23 August 2022
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