Monthly Investor Report - August

CQS Natural Resources Grwth&Inc PLC

25 September 2023

 

CQS Natural Resources Growth & Income Plc

Monthly Investor Report - August

The full monthly factsheet is now available on the Company's website and a summary can be found below.

https://ncim.co.uk/wp/city-natural-resources-high-yield-trust

Enquiries:

For the Investment Manager

CQS (UK) LLP

Craig Cleland

0207 201 5368

For the Company Secretary and Administrator

BNP Paribas S.A., Jersey Branch

Dean Plowman

01534 813 967

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Fund Description

The Fund aims to generate capital growth and income, predominantly from a portfolio of mining and resource equities, and from mining, resource and industrial fixed interest securities.

Portfolio Managers

Ian Francis, Keith Watson and Robert Crayfourd

Key Advantages for the Investor

·    Access to under-researched, mid and smaller-cap companies in the global Natural Resources sector

·    Quarterly dividend paid to shareholders

·    Potential inflation hedge

Key Fund Facts¹

Total Gross Assets                              £157.26m

Reference Currency                           GBP

Ordinary Shares:       

Net Asset Value                                  211.18p

Mid-Market Price                                178.25p

Dividend Yield (estimated)                  3.1%

Net gearing⁴                                        11.4%

Discount                                              (15.59%)

Ordinary Share and NAV Performance²

	One Month	Three Months	Six Months	One Year	Three Years	Five Years	Since Inception
	(%)	(%)	(%)	(%)	(%)	(%)	(%)
NAV	-1.6	9.9	-4.1	-4.8	107.8	99.7	618.3
Share Price	-2.5	1.3	-3.5	-6.3	114.0	110.4	563.3

Commentary³

Industrial metals declined over the first half of August though subsequently recovered as weak economic data and still hawkish central bank commentary gave way to prospects for more meaningful Chinese stimulus. In the US, the ISM manufacturing PMI reading for July showed the industrial sector remained in contraction. Nevertheless, FOMC minutes maintained a hawkish bias with the FED reiterating its willingness to accept "a period of below-trend growth in real GDP and some softening in labour market conditions" to return inflation to its 2% target. A continuation of weak Chinese economic data was also evident though acute pressure in the property sector, and by extension increased stress local government financing, prompted some monetary easing by the PBOC and also a loosening of mortgage requirements in the region. Having declined nearly 8% copper recovered to end the month down a more modest 4.4 while related copper mining equities ended the month down 10% having slipped 14%. Proving more sensitive to the property sector stimulus, the benchmark iron ore price recovered from a 7% mid-month fall to end August up 2%. Steel input nickel faired less well closing August down around 9%.

Energy commodities performed well. Brent and WTI posting modest gains of around 1-2% while related E&P equities ended August up around 4%. Crude oil prices were supported by OPEC's decision to extend production cuts helping to eat into global inventories. The prospect of a replenishment of the US Strategic Petroleum Reserve also provide relative support though the OPEC+ led pricing strategy has deterred any meaningful refill to date. Meanwhile natural gas benchmark prices jumped as the prospect of strike action by Australian LNG workers on major Australian gas fields threatened to disrupt supply. Asian and EU benchmarks rose almost 21% and 16% respectively while US Henry Hub prices ended August unchanged. Uranium prices were supported by the pick up in utility contracting, with spot U308 prices rising 6.2% to close the month at $59.75/lb. News flow remained positive: China approved six new nuclear reactors as it continues to grow low carbon, baseload power capacity; Niger's new military government banned uranium exports following France's withdrawal of financial aid to the country; and the physically Sprott trust briefly returned to a premium allowing it to issue shares and purchase some material.

With oil and gas demand being less discretionary than base metal demand and related E&P valuations appearing relatively more attractive than mining equities the Fund retains a large energy weighting in preference to industrial metals exposure.

Gold ended the month down a modest 1% with related equities slipping around 4.5%. Gold demand remains supported by strong central bank buying, though are yet to see buying by physical ETFs which can have an outsized impact on the market balance. China's recent reduction in US treasury holdings may also signify intent to diversify away from the US dollar with ongoing political tensions between the two nations.

Performance

The Fund NAV fell 1.6% over the month with the performance of energy stocks offsetting weakness of industrial metal and gold mining equities. Shipping and uranium stocks made positive contributions to performance. Continued improvement in day rates for LPG shipper BW LPG and crude shipper Euronav saw the respective share prices rise 15% and 5% in sterling terms. Uranium miners such as Nexgen and UR-Energy also gained 8% and 26% respectively in sterling terms, as the benefits of the nuclear sector as the only source of zero carbon, base load power continues to provide a strong tailwind of political and investor support.

After month end, Leo Lithium came off trading halt and reported that the Malian government were not going to allow direct shipping of ore. Whilst this has minimal impact on the NPV as the majority of their ore would be processed once the plant was built, it does remove a source of near-term cash flow, whilst the Lithium price had also been weaker during the halted period. The stock opened down 50%, giving up much of the prior gains and is reflected in the daily NAV's. Sigma Lithium was also detractor over the month, but having been greatly reduced, the impact was small.

Sector Breakdown (% of MV) ⁴

Top 20 Holdings (% of MV)^1,5

Company	% of MV
Precision Drilling Com NPV	5.9
Transocean USD0.01	5.5
Nexgen Energy NPV	5.1
Leo Lithium NPV	5.1
BW LPG USD0.01	5.0
Diamondback Energy USD0.01	4.0
Emerald Resources NPV	3.6
Diversified Energy GBP0.01	3.6
Vermilion Energy Com NPV	3.3
EOG Resources USD0.01	3.0
REA Hldgs 9% Cum Pref GBP1	2.6
West African Resources NPV	2.2
First Quantum Minerals NPV	2.0
Frontline USD1.0000	2.0
Foran Mining Corp NPV	1.9
Lynas Rare Earths NPV	1.7
Galena Mining NPV	1.7
Talon Metals Corp NPV	1.6
Thungela Resources NPV	1.6
Karora Resources NPV	1.6
Top 20 Holdings Represent	63.0

Sources: ¹CQS as at the last business day of the month indicated at the top of this investor report. ²Total return performance net of fees and expenses as at the last business day of the month indicated at the top of this investor report. The Company's investment benchmark is 80 per cent. Euromoney Global Mining Index (sterling adjusted) and 20 per cent Credit Suisse High Yield Index (sterling adjusted). Performance data is calculated from 1 August 2003 (total return basis). ³All market data sourced from Bloomberg unless otherwise stated. All returns quoted in local currency unless otherwise stated. The Company may since have exited some or all of the positions detailed in the commentary. ⁴CQS as at the last business day of the month indicated at the top of this investor report. ⁵CQS, as at the last business day of the month indicated at the top of this investor report. For methodology details see Article 4(3) of Directive 2011/61/EU (AIFMD) and Articles 6, 7, 9 and 10 of Delegated Regulation 231/2013. ⁶CQS as at the last business day of the month indicated at the top of this investor report. For methodology details see Article 4(3) of Directive 2011/61/EU (AIFMD) and Articles 6, 8, 9, 10 and 11 of Delegated Regulation 231/2013. ⁷All holdings data are rounded to one decimal place. Totals may therefore differ to sum of constituents. These include historic returns and past performance is not a reliable indicator of future results. The value of investments can go down as well as up. Please read the important legal notice at the end of this document.

 

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