Final Results
BlackRock World Mining Trust plc LEI - LNFFPBEUZJBOSR6PW155
Annual Results Announcement (Article 4 Transparency Directive, DTR 4.1)
for the year ended 31 December 2021
PERFORMANCE RECORD
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31 December 2021 |
31 December 2020 |
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| Net assets (£000)¹ | 1,142,874 | 930,825 | |
| Net asset value per ordinary share (NAV) (pence) | 622.21 | 536.34 | |
| Ordinary share price (mid-market) (pence) | 589.00 | 522.00 | |
| Reference Index2 – net total return | 5,258.16 | 4,566.93 | |
| Discount to net asset value 3 | 5.3% | 2.7% | |
| --------------- | --------------- | ||
| Performance (with dividends reinvested) | |||
| Net asset value per share3 | +20.7% | +31.8% | |
| Ordinary share price3 | +17.5% | +46.7% | |
| Reference Index2 | +15.1% | +20.6% | |
| ========= | ========= |
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Year ended 31 December 2021 |
Year ended 31 December 2020 |
Change % |
| Revenue | |||
| Net revenue profit after taxation (£000) | 78,910 | 35,451 | +122.6 |
| Revenue return per ordinary share (pence)4 | 43.59 | 20.40 | +113.7 |
| --------------- | --------------- | --------------- | |
| Dividends per ordinary share (pence) | |||
| – 1st interim | 4.50 | 4.00 | +12.5 |
| – 2nd interim | 5.50 | 4.00 | +37.5 |
| – 3rd interim | 5.50 | 4.00 | +37.5 |
| – Final | 27.00 | 8.30 | +225.3 |
| Total dividends paid and payable | 42.50 | 20.30 | +109.4 |
| ========= | ========= | ========= |
1 The change in net assets reflects market movements, dividends paid and the buyback and reissue of ordinary shares during the year.
2 MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return).
3 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.
4 Further details are given in the Glossary in the Annual Report and Financial Statements.
CHAIRMAN’S STATEMENT
HIGHLIGHTS
· Record total dividend +109.4%
· NAV per share total return +20.7%1
· Share price total return +17.5%1
PERFORMANCE
I am delighted to be able to report on another excellent year for your Company.
Over the twelve months to 31 December 2021, the Company’s net asset value per share (NAV) returned +20.7%1 (31 December 2020: 31.8%1) and the share price +17.5%1 (31 December 2020: 46.7%1). In comparison, over the same period the Company’s Reference Index, the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return), returned +15.1%, the FTSE All-Share Index returned +18.3% and the UK Consumer Price Index (CPI) increased by 5.4%.
The average prices achieved for almost all commodities during the year, and base metals in particular, were substantially ahead of 2020’s levels and these helped drive this year’s exceptional growth in revenue. This was the standout feature of the year and has resulted in total dividends increasing by 176.3% compared to last year.
NAV growth, after a strong first half, was more subdued in the final two quarters, largely reflecting a deceleration in economic growth in China and concerns surrounding elements of the property development sector there.
A detailed commentary on the portfolio’s performance, its positioning, and how Environmental Social and Governance (ESG) factors impact on investment selection, can be found in the Investment Manager’s Report, alongside the investment outlook for the forthcoming year. Since the year end and up until the close of business on 2 March 2022, the Company’s NAV has increased by 20.2% and the share price has increased by 28.7%.
OVERVIEW
The themes which have characterised the sector in recent years continue to apply. Strong capital discipline has limited new supply at a time when government stimulus, including through infrastructure spending in the US and Europe, has boosted demand. In many sectors of the economy, increased demand has been met with bottlenecks, as post lockdown activity has picked up, leading to disruptions in supply chains and, often, higher prices.
In the mining sector the dynamic looks more structural. The obstacles to bringing on new supply have increased, with greater focus on the environmental and social impact of new mining activity, including factors such as water availability and usage. These increase the return hurdles required to justify new investment. In addition, the grades from existing mines have often continued to decline as the mines mature and forecasts of production output in recent years have also generally been too optimistic. On the demand side, the pressing need to decarbonise economic activity in forthcoming decades will create further pressure on all commodities associated with the electrification of energy production and transportation, such as copper, nickel, lithium and cobalt.
Progress has also been made this year in how leading mining companies have responded to the challenge of improving their ESG credentials and your Investment Manager addresses this in their report.
REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the year amounted to 43.59p compared with 20.40p for the previous year, representing an increase of 113.7%.
During the year, three quarterly interim dividends of 4.50p, 5.50p and 5.50p per share were paid on 25 June 2021, 24 September 2021 and 24 December 2021. The Board is proposing a final dividend payment of 27.00p per share for the year ended 31 December 2021. This, together with the quarterly interim dividends, makes a total of 42.50p per share (2020: 20.30p per share) representing an increase of 109.4% on payments made in the previous financial year and, as in past years, all dividends are fully covered by income. In accordance with the Board’s stated policy, the total dividends represent substantially all of the year’s available income.
Subject to approval at the Annual General Meeting, the final dividend will be paid on 19 May 2022 to shareholders on the Company’s register on 18 March 2022, the ex-dividend date being 17 March 2022.
It has been an exceptional year for dividend receipts. The Company’s income is highly dependent on the dividends paid by the companies it invests in. It should not be assumed that the very high level of these dividends will continue this year or that the Company’s revenue return, and accordingly the Company’s total dividends, will be at the same level as last year. It remains the Board’s intention to seek to distribute substantially all of the Company’s available income in the future.
DISCOUNT CONTROL
The Board recognises the importance to investors that the market price of the Company’s shares should not trade at a significant discount to the underlying NAV. Accordingly, the Board monitors the Company’s discount to NAV and will look to buy back shares in normal market conditions if it is deemed to be in shareholders’ interests. During the year, a total of 69,698 shares were purchased at a price of 560.76p per share for a total cost of £393,000. All shares have been placed in treasury.
I am pleased to report that in the first half of the year the Company’s shares were trading at a premium and the Company was able to reissue 10,200,000 ordinary shares from treasury for a net consideration of £63,187,000 at an average price of 619.48p per share and an average 0.9% premium to NAV. Since the year end and up to 2 March 2022, a further 875,000 ordinary shares have been reissued from treasury for a total consideration net of costs of £6,281,000. As at 2 March 2022 the premium stood at 1.4%.
Resolutions to renew the authorities to issue and buy back shares will be put to shareholders at the forthcoming Annual General Meeting.
ESG INTEGRATION AND SOCIALLY RESPONSIBLE INVESTMENT
As a Board we are conscious that ESG criteria are increasingly at the forefront of investors’ minds. Given the nature of mining as an industry, your Board has a strong focus on ESG and believes that it is important that our Company’s investee companies operate in a responsible and sustainable way having regard to the interests of all their stakeholders, whether these are shareholders, employees, customers, regulators or suppliers. The Board is also aware that ESG issues and risks must be considered when investing in the Natural Resources sector and, as a general approach, the Company will not invest in companies which the Investment Manager considers to have high ESG risks and no plans to address existing deficiencies.
Our Manager, BlackRock, has an Investment Stewardship team which is responsible for protecting and enhancing the value of your Company’s investments through engagement with companies to encourage business and management practices that support sustainable financial performance over the long term. Further information can be found in the Strategic Report below.
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting (AGM) will be held at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Friday, 6 May 2022 at 11.30 a.m. Details of the business of the meeting are set out in the Notice of Meeting in the Annual Report and Financial Statements.
At present UK Government restrictions on public gatherings are no longer in force in connection with COVID-19 and the AGM can be held in the normal way with physical attendance by shareholders. However, shareholders should be aware that it is possible that such restrictions could be reimposed prior to the date of the AGM. In such event, these restrictions could mean that the AGM is required to be held as a closed meeting as happened last year with physical attendance limited to only a small number of attendees comprising the required quorum for the meeting and those persons whose attendance is necessary for the conduct of the meeting, and that any other persons will be refused entry. Accordingly, all shareholders are recommended to vote by proxy in advance of the AGM and to appoint the Chairman of the meeting as their proxy. This will ensure that shareholders’ votes will be counted even if they (or any appointed proxy) are not able to attend. All votes will be taken by poll so that all proxy votes are counted. Appointing a proxy does not prevent a shareholder attending the AGM in person.
The Company may impose entry restrictions on persons wishing to attend the AGM (including, if required, refusing entry) in order to secure the orderly conduct of the AGM and the safety of the attendees. All shareholders intending to attend should either be fully vaccinated or obtain a negative COVID-19 test result before entering the venue. Negative test results must be obtained no earlier than one day before entering the venue and fully vaccinated shareholders are also strongly encouraged to get tested. Shareholders who have recovered from COVID-19 for 90 days from the date of their infection are exempt from the above.
Attendees will also be required to wear a face covering at all times within the venue except when seated in the relevant meeting room. Shareholders are also requested not to attend the AGM if they have tested positive for COVID-19 in the 10 days prior to the AGM, are experiencing new or worsening COVID-19 related symptoms, have been in close contact with anyone who is experiencing symptoms or has contracted COVID-19 during the 10 days prior to the AGM or are required to self-isolate pursuant to UK Government guidance.
OUTLOOK
In the short term our Investment Manager is optimistic that the Chinese economy is now accelerating again after the dip seen in the second half of last year and metals and mining stocks have certainly made a strong start to 2022. Although the risk of further disruption from new COVID-19 variants cannot be ruled out, the most recent news on the milder impact of the Omicron variant has been encouraging. Last year’s exceptional growth in revenue is unlikely to be repeated, but our Investment Manager remains optimistic about the sector’s prospects in the medium term.
Much of the new demand for metals over the last two decades resulted from the urbanisation of the Chinese economy. It is possible that the drive to decarbonise economic activity will have a similar long-term structural impact. It may also be the case that the investment required to supply the raw materials for this transformation will sustain prices for longer than in previous cycles; higher prices will be needed to provide the incentive to invest to meet this demand.
Last year’s COP26 climate conference in Glasgow brought home the urgency of the need for radical action to tackle global warming. As your Investment Manager points out, the holdings in your Company will play a huge part in supplying the raw materials necessary for the world to transition to net zero by 2050. This imperative, and a return to sustainable economic growth following the pandemic, provide strong underpinning for your Company’s prospects.
At the time of writing geopolitical tensions remain very high following Russia's invasion of Ukraine. As at 3 March 2022, 0.1% of net assets (with a value of £1.7 million) was in securities with exposure to companies whose principal activities are in Russia. BlackRock also announced on Monday, 28 February 2022, that it had suspended the purchase of all Russian securities in its active and index funds.
The appalling humanitarian consequences of the war are already evident. It is too early to assess the long-term implications of these events but it seems inevitable that they will lead to higher volatility in commodity prices and likely that they will add to short-term concerns on inflation.
DAVID CHEYNE
Chairman
7 March 2022
1 Alternative Performance Measures. All percentages calculated in Sterling terms with dividends reinvested. Further details of the calculation of performance with dividends reinvested are given in the Glossary in the Annual Report and Financial Statements.
INVESTMENT MANAGER’S REPORT
PORTFOLIO PERFORMANCE
The last few years have been tremendous for the resources sector and in turn for the Company. We are pleased to report that 2021 was another year of positive returns but sadly not as much as expected given the stark difference between the first half of the year and the second. It really was a year of two halves as seen in the chart on page 9 of the Annual Report and Financial Statements. During first six months of the year ended 31 December 2021, the NAV of the Company returned +17.4% with dividends reinvested and the share price total return was +18.9%. This compares to a NAV and share price total return of 2.8% and -1.2% for the second half of 2021. There is more detail on the reasons behind this later in the report but, in summary, the huge moves early in the year were met with a softening in demand, especially for iron ore in China, as well as profit taking in other commodities.
2021 was a very eventful year. Ongoing COVID-19 related disruptions were ever present with waves of, at first, the Delta variant and then the Omicron variant as the year drew to a close. In addition, the global economy was impacted by supply chain issues, especially for semi-conductor chips, which pulled back Gross Domestic Product (GDP) growth from the elevated levels seen at the start of the year. Despite these challenges, the resources sector benefited from margin expansion as commodity prices rose faster than inflation. Capital discipline by and large remained in place, aside from a handful of new projects, leaving shareholders to benefit from record levels of dividends and share buy backs.
For the year as a whole, the NAV total return of the Company was up by 20.7% (31 December 2020: 31.8%) with dividends reinvested and the share price total return was up by 17.5% (31 December 2020: 46.7%). This compares to the FTSE 100 Index total return which was up by 18.4%, the UK Consumer Price Index (CPI) increase of 5.4% and the Company’s Reference Index, the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return), which was up by 15.1% (all numbers are in British Pound Sterling terms).
ONGOING RECOVERY
Following the COVID-19 related economic impacts seen in 2020, this year was a reversal from those lows. Economic growth around the world bounced back sharply on the back of accommodative financial policies put in place by Governments during the prior year. Business support packages covered disruption, lowered tax rates and for some people there was wage protection. These were combined with record low interest rates and increased access to government backed finance schemes. The end result was a huge increase in liquidity across the world which muted the worst of the economic downturn caused by COVID-19.
These measures have played out in a whole range of ways. One has been the repricing of assets such as property, commodities, equities, art and other tangible investments that should preserve purchasing power through time. The shortage of income has led to investors paying higher prices for securities that offer income as well as premiums for growth businesses. The prospect of inflation on the back of loose monetary policy also saw a huge rally in index linked bonds and this even flowed through into the crypto currency space with bitcoin and other virtual assets moving to record high prices. At the other end of the scale, government bonds seem to have ended a multi decade bull market as the prospect of interest rate increases loom in 2022 and beyond.
The moves in financial assets have masked other consequences from COVID-19. The huge drop in oil demand as economic activity collapsed only added to the existing Environment Social and Governance (ESG) related pressure for producers to reduce investment in future supply. This tightened up the market to such an extent that when demand recovered in 2021 prices soared due to the lack of spare capacity in the market. Many commodities are now out of balance, with deficits commonplace across the market and prices reflecting the situation.
ESG INTEGRATION AND THE SOCIAL LICENCE TO OPERATE
During the last two years we have made specific mention of the way in which the Company manages risks related to ESG and the social licence to operate. These have been covered in other parts of the Annual Report but for reference the text below sets the framework for how this is done:
“As part of BlackRock’s structured investment process, ESG risks and opportunities (including sustainability/climate risk) are considered within our fundamental analysis of companies and industries and we work closely with BlackRock’s Investment Stewardship team (BIS) to assess the governance quality of companies and investigate any potential issues, risks or opportunities.
As part of our approach to ESG integration, we use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio.
As an extractive industry the mining sector naturally faces a number of ESG challenges. However, we feel the sector can also provide benefits to society through the provision of critical infrastructure, taxes and employment to local communities, and enabling the carbon transition through the production of sustainable metals.”
As part of our commitment to consideration of ESG information and risks as being integral to our investment process to build and manage the portfolio:
· As a general approach, the Company will not invest in companies which have high ESG risks and which we consider to 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 investee 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 evidence that the company’s culture has changed and that better operating practices have been put in place.
During the year the main areas of focus remained on ESG issues relating to Rio Tinto, Norilsk Nickel and Vale. The Investment Manager engages with these portfolio companies and the Board receives regular updates at its meetings. By way of an update:
Rio Tinto – during the year the company made progress on announcing new CEO and CFO positions, as well as adding heritage expertise to the board. In December 2021, Dominic Barton was appointed as Chairman and he is expected to start in the second quarter of 2022. The company also published a comprehensive external review of its workplace culture, commissioned as part of its commitment to ensure sustained cultural change across its global operations.
Norilsk Nickel – the company had a number of new environmental issues and fatalities. The Company exited its holding in March 2021 despite the strong outlook for the commodities that the company produces.
Vale – the company has continued its journey to raise its ESG profile following the tragic tailings related events from the last decade. On the Governance front, a new Board was elected including the appointment of Ollie Olivera who left the Board of the Company to join Vale as a non-executive director.
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31 December 2021 | % Change in 2021 |
% Change average prices 2021 vs 2020 |
| Commodity | |||
| Gold US$/ounce | 1,822 | -4.0 | 1.7 |
| Silver US$/ounce | 23 | -11.8 | 22.5 |
| Platinum US$/ounce | 959 | -10.8 | 23.3 |
| Palladium US$/ounce | 1,973 | -16.8 | 9.4 |
| Copper US$/pound | 4.42 | 25.7 | 50.6 |
| Nickel US$/pound | 9.47 | 26.1 | 33.7 |
| Aluminium US$/pound | 1.27 | 42.2 | 45.1 |
| Zinc US$/pound | 1.63 | 31.5 | 32.5 |
| Lead US$/pound | 1.06 | 18.3 | 20.5 |
| Tin US$/pound | 17.86 | 91.6 | 88.9 |
| Iron Ore (China 62% fines) US$/tonne | 215.5 | -23.9 | 47.7 |
| Thermal Coal (fob Newcastle) US$/tonne | 176.6 | 101.3 | 127.3 |
| Metallurgical Coal US$/tonne | 342.0 | 237.0 | 76.2 |
| Lithium (Battery Grade China) US$/kilogram | 35.95 | 453.1 | 107.7 |
| West Texas Intermediate Oil (Cushing) US$/barrel | 75.21 | 55.8 | 72.1 |
| ========= | ========= | ========= |
Sources: Datastream and Bloomberg.
STAND OUT YEAR
At the half year stage we wrote about the clean sweep of price rises and, despite some falls in the second half, the average prices for the year, the most important thing for earnings, have been stunning across the board. This year we have seen new highs in nine commodities: iron ore US$233/tonne, thermal coal US$270/tonne fob Newcastle, copper US$11,300/tonne, tin US$41,118/tonne, bauxite US$63/tonne, palladium US$2,985/ounce, lithium spodumene US$1,525/tonne, hard coking coal US$346/tonne fob and U.S. hot-rolled coil steel US$1,960/tonne. Iron ore has subsequently fallen back and is now lower than in 2020.
Within the commodities suite, base metals have seen huge rises with copper the standout for the Company’s portfolio given the large weighting to companies like Freeport-McMoRan, First Quantum Minerals and Sociedad Minera Cerro Verde. However, other commodities have been equally strong, such as zinc and nickel. Even the more unexciting metals such as aluminium delivered significant increases. All of these moves should feed through into the full year earnings and, as mentioned earlier, if they hold up in 2022 should help to mitigate the impact of lower iron ore prices when it comes to dividends.
Precious metals were generally a lot weaker in the second half of 2021, continuing the downtrend from the peaks that were reached during the prior twelve months. In particular, gold has failed to regain ground despite the supportive macro backdrop of rising inflation and low interest rates. In the Platinum Group Metals (PGM) space, prices softened as automotive producers had to cut output on the back of the semi-conductor chip shortages.
As mentioned in the Interim Report, steel is a key exposure for the Company with large holdings in European and US steel producers. Record prices were reached over the summer months and the associated huge margins caused share prices to move higher. It is pleasing to see most of the steel manufacturing companies in the portfolio continue to be disciplined in allocating capital despite some peers reverting back to old ways. It is our hope that this trend continues, as the value accretion from share buybacks is enormous given where the shares are trading.
INCOME, INCOME AND MORE INCOME
In last year’s Annual Report and again in the Interim Report we flagged the prospect that the Company was well placed to receive record levels of income given the excellent pay-outs being made by the underlying holdings. We are delighted to report that this has played out even better than expected. The chart on page 12 of the Annual Report and Financial Statements highlights the 121.5% growth in income received this year versus prior years, as well as showing how it has changed by each source. Not only has there been tremendous growth in ordinary dividends, but special dividends also increased substantially.
The key reason for the income growth has been dividends from the large diversified mining companies which benefited from much higher iron ore prices than expected. Given that prices today are lower than the average realisations received during 2021, it is likely that they will not be able to match the dividends paid last year. However, the outlook is bright for other parts of the portfolio such as copper names. Copper miners who have spent years paying down debt or spending on new mines now seem to have dealt with these cash consuming constraints leaving them free to boost shareholder returns in 2022. One example is Freeport-McMoRan which restarted dividends in 2021, raised them at the end of the year and announced a new policy which gives it flexibility to boost them should prices remain at levels in excess of its needs. We hope that other base metal producers which have historically shied away from dividends follow this lead and reward their shareholders now that producers are benefiting from these windfalls.
DECARBONISATION, A MULTI DECADE DRIVER FOR THE SECTOR
Decarbonising power, industrial manufacturing, transportation and food is a key structural trend that will persist for decades to come. Over the twelve months in the lead up to COP26 we saw announcements from major economies, most notably China and the United States of America (USA), regarding their commitment to reach net zero. The scale of investment required to meet this goal is enormous, with commodities playing a key role in this transition.
From a mining sector perspective, we look at decarbonisation from two angles. The first looks at the impact on demand for the various commodities and which commodity markets will see significant change once carbon is appropriately priced. The second area is how the mining sector is reducing emissions from their own operations (scope 1 & 2 emissions), as well as their customers’ emissions (scope 3).
In our view, the market is underestimating the impact that the energy transition will have on commodity markets, particularly on the supply side. Copper, battery related materials (lithium, cobalt, nickel) and rare earths are key beneficiaries. Each of these commodities will see significant demand growth as renewable energy investment is increased, the grid is upgraded, electric vehicle penetration grows and the requirement for battery storage increases. Another interesting dynamic is the structural change we expect to see in various commodity markets once carbon is appropriately priced. This is most prevalent for the aluminium and steel industries given their energy intensity. China’s steel industry alone accounts for 5% of global greenhouse gas (GHG) emissions so it is imperative for these upstream sectors to be addressed. As part of this transition, we expect older more pollutive capacity to be curtailed which should improve industry structure and margins. As carbon taxes are rolled out globally there will be clear winners and losers where those companies with existing access to low carbon power such as Norsk Hydro (1.6% of the portfolio)* or companies with superior decarbonisation technology will benefit. Not only will these companies face less carbon taxes, but they may also be able to charge premiums for their products given the demand for low energy and sustainable materials by customers.
Over the last year we have seen mining companies articulate how they will reduce their own emissions, with companies generally looking to reduce emissions by 30% by 2030, with many targeting net zero by 2050. Over the next decade, the reduction of emissions will be largely achieved by switching to a renewable power source for mining fleets, transportation and parts of the processing circuit. Beyond this it becomes more challenging to achieve net zero emissions and will require advancement in technology in areas such as green hydrogen for the hard to abate emissions. We are actively engaged with management teams on these goals and the capital and returns associated with it. Amongst the Company’s holdings, we view Australian based iron ore producer Fortescue Metals Group and diversified miner Anglo American as leading in this area.
BASE METALS
It was an exceptional year for the base metal complex with average prices increasing by 20% to 50% and a new all-time high set for the copper price. This year saw the strongest metal demand increase in history as global industrial activity recovered, broad based supply issues, energy shortages and low inventories kept physical markets tight with each of the base metals finishing the year in a deficit market position. This is a feature of the market not seen for a number of years and supports our conviction that commodity prices will remain above market expectations for many years to come due to structural supply constraints and global decarbonisation spending.
The first half of the year saw a very rapid increase in prices as China’s COVID-19 related stimulus fed into the real economy via the property market and broad-based infrastructure spending. The acceleration in Chinese demand was not sustainable and during the second half of the year, the Chinese Government put in a number of measures linked to the property sector, carbon emissions and energy usage to slow activity down. As discussed further below, this had a significant impact on the steel industry and in turn the iron ore price. However, the base metal prices proved largely resilient with average prices further increasing in the second half of the year. Part of this resilience has been due to a pick-up in demand from the rest of the world, namely the USA and Europe, creating a more diversified and robust demand outlook in our view. Given the dominance of China on commodity markets for much of the last two decades, as we look forwards towards the multi trillion-dollar spending required to achieve net zero targets, we expect to see more stable and resilient commodity demand which has the potential to create a global capex cycle akin to what we saw in the early 2000s.
Copper was the standout commodity for the Company in 2021 finishing the year up by 25.7%, with the average price 50% higher. After a very strong first half, the copper price proved largely resilient despite weakness in China’s property market highlighting tightness in the physical market with London Metal Exchange (LME) inventories dropping to the lowest level on record towards the end of the year. Copper is a clear beneficiary of the energy transition with more than 65% of copper used for applications that deliver electricity, whilst at the same time the industry is facing mine supply challenges resulting in a material deficit in the market longer term. We have consistently seen mine supply disappoint relative to market expectations and to the best of our knowledge there were no new major greenfield copper developments sanctioned in 2021 despite record high prices. The challenges to mine supply are further exacerbated by increased resource nationalism, ESG issues and permit requirements. Whilst we expect to see some mine supply growth in 2022 through projects that the Company has exposure to, including Ivanhoe Mines’ Kamoa-Kakula project in the Democratic Republic of Congo (DRC), Anglo American’s Quellaveco project and Teck Resources Quebrada Blanca Phase 2 (QB2) project, both in Chile, looking beyond that it is challenging for us to see how future supply meets anticipated growth.
As at 31 December 2021, the Company had 21.4% of the portfolio exposed to copper producing companies which significantly aided performance for the year. The Company’s largest copper exposure, Freeport-McMoRan (6.2% of the portfolio), continued to deliver operationally at Grasberg. This combined with high copper prices has allowed Freeport-McMoRan to deleverage faster than anticipated with the company increasing dividends and announcing a US$3 billion buyback in November. Among our other copper producers, Sociedad Minera Cerro Verde (1.7% of the portfolio) was the Company’s largest contributor to performance in 2021 with the shares up by 77% in US Dollar terms. Both volumes and earnings at Sociedad Minera Cerro Verde recovered during the year leaving it in a strong position to pay higher dividends going forward. We continue to be impressed with the operational performance of Ivanhoe Mines (2.4% of the portfolio), which has surpassed the market’s expectation of both the timing and production level of its Kamoa-Kakula asset in the DRC. This underpins our confidence in the management team’s ability to deliver value from its other assets including the Western Forelands in the future. Among our smaller holdings, Solaris Resources (1.5% of the portfolio) had an exceptional year increasing by 178.6% where it continues to report exceptional drilling results at its Warintza deposit in Ecuador which we believe has the potential to attract significant mergers and acquisition (M&A) interest from the majors if it starts to show Tier 1 characteristics.
Amongst the other base metals, the aluminium price was up by 42.2% benefiting from strong demand, production caps in China and global smelter curtailments due to rising energy costs. Aluminium, long regarded as the laggard amongst the base metals, is going through a period of structural change we believe with China reducing exports due to its greater focus on emissions and the incorporation of carbon prices benefiting producers with renewable power sources. The Company has direct exposure to this theme via its holding in Norsk Hydro (1.6% of the portfolio), Alcoa (1.7% of the portfolio) and Rio Tinto (4.2% of the portfolio) which all have hydro based aluminium production and are poised to benefit in an environment of market-based carbon pricing. The nickel market continued to tighten driven by strong stainless-steel demand which (accounts for 70% of primary nickel demand), as well as improving Electric Vehicle (EV) battery demand. We continue to see a tight market for battery grade nickel given increasing EV demand and persistent supply challenges to bring on battery grade nickel. Finally, zinc, which the Company has exposure to via Teck Resources and Glencore, is likely to see the largest metal deficit in 2022 as inventories have further declined on energy-linked European smelter cuts.
BULK COMMODITIES AND STEEL
It was very much a year of two halves for the iron ore market with record demand and prices translating into a new all-time high price for iron ore of US$239/tonne in the first half as steel producers scrambled to access material. However, it was a very different picture in the second half, as the Chinese Government put in place a number of measures ranging from direct output caps, emissions controls and energy restrictions to cool the economy and ensure that steel production did not exceed 2020 levels. Weakness in the Chinese property market and fears around the fallout from Evergrande exacerbated the situation which ultimately saw the iron ore price fall by US$120/tonne in the third quarter of 2021, with steel production finishing the year at levels not seen since the lows of 2016. In response, major producer Vale cut production of higher cost material which helped to stabilise the market which, combined with weaker production from Rio Tinto, saw the iron ore market finish in a less than feared surplus.
Recent commentary, focused on stabilising steel demand via property, infrastructure and credit availability, is encouraging and our expectation is that we will see a pick-up in steel demand post Chinese New Year and the Beijing Winter Olympics. We believe the steel industry is on the cusp of structural change with increased focus on carbon emissions from which, over the next two decades, we expect to see reduced production from pollutive blast furnace capacity 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. The Company is invested in those steel companies that are already well positioned for this shift such as Nucor Corp (0.9% of the portfolio) and Steel Dynamics (1.6% of the portfolio). The Company is also invested in companies which have a first mover advantage such as ArcelorMittal (5.2% of the portfolio) through its investment in decarbonisation technology over recent years.
Coal markets have been some of the most interesting commodity markets over the last couple of years, with record prices being achieved for both metallurgical and thermal coal during the year. Tightness across coal markets has been driven by significant supply side distortion with China banning imports of Australian metallurgical and thermal coal, along with the spike in energy prices which saw the benchmark Australian thermal coal price reach US$270/tonne in October. Whilst coal (in particular thermal coal) faces longer-term demand headwinds linked to decarbonisation of steel and power in the near term, both markets face supply side shortages and a lack of investment particularly for thermal coal, and with producers focused on responsible run-off, may very well see the price exceed market expectations for a period of time. The Company has no exposure to pure play thermal coal producers, with thermal coal exposure limited to Glencore (7.7% of the portfolio) which is focused on a managed decline of their thermal coal asset base over time. Teck Resources (3.6% of the portfolio) is the Company’s primary exposure to metallurgical coal, which has been able to take advantage of the higher Chinese coking coal prices during the year given their Canadian asset base.
PRECIOUS METALS
Unlike the recovery fuelled performance of the industrial metals, the precious metals have remained largely rangebound in 2021, with the average gold price 1.7% higher than last year. The gold price continues to be driven by two opposing forces: concerns over rising inflation and excessive government debt, and on the other hand the impact of rate hikes with the US Federal Reserve indicating in December that it will begin raising rates in March 2022 in an effort to stem rising inflation. This is likely to see a strengthening US$ headwind to gold, but the key determinant of the gold price this year will be whether rate hikes prove sufficient to cool inflation. If this is not the case and inflation is more “persistent” and less “transitory”, we would expect real rates to decline further creating a constructive backdrop for gold. Typically, gold underperforms equities and the US Dollar heading into a rate hike cycle, but outperforms thereafter giving us confidence in the medium-term outlook for gold. While the silver price underperformed gold on a year-to-date basis, declining by 11.8%, the average price year-on-year was higher by 22.5% versus gold at +1.7%. We have seen a solid recovery in silver’s industrial demand over the last year, with longer-term upside potential from greater solar penetration and increasing usage of semi-conductors.
An encouraging feature of the gold equity market over recent years has been the increased focus on shareholder returns, with higher gold prices translating into higher margins, free cash flow and dividends. This trend has generally continued through 2021, albeit margins have been compressed through rising cost inflation. The portfolio finished the year with 16.4% exposure to gold equities, roughly half the peak exposure to gold equities in the first half of 2020. The underperformance of the gold equities has been notable over the last 18 months where we have maintained our strategy of focusing on high-quality producers which we see as best positioned to weather cost inflation and maintain production levels. Amongst our gold companies, Newmont Corporation’s (3.5% of the portfolio) performance continues to stand out in the sector, a reflection of its solid operational performance and cash return.
It has been a volatile year for the Platinum Group Metals (PGMs) with record pricing for the PGM basket during the first half, to then face a downturn in demand as the global chip shortage hit auto production towards the end of the year. With 40% to 80% of PGM end-use linked to the auto industry, prices came under significant pressure with the platinum price finishing the year -11%, palladium -17% and rhodium -20%. We expect to see improved demand for PGMs during the first half of 2022 as chip shortages ease and auto producers begin re-stocking raw materials. Whilst a lack of supply growth and increased PGM loadings on auto catalysts to meet rising emissions standards bodes well for the PGMs, the industry faces the structural headwind of the shift in demand from internal combustion engine vehicles to electric vehicles. The Company’s exposure to PGMs is via Impala Platinum (1.1% of the portfolio), Northam Platinum (1.2% of the portfolio), Sibanye Stillwater (0.8% of the portfolio) and Anglo American (7.5% of the portfolio) through its 78.5% ownership of Anglo Platinum. During the second half of the year, we saw a step-up in mergers & acquisitions (M&A) activity amongst the group with Sibanye Stillwater looking to further move into the battery materials space with the acquisition of a historically challenged Brazilian copper and nickel asset, whilst Northam Platinum and Impala Platinum entered into a bidding war for Royal Bafokeng Platinum. These are worrying trends as investors had hoped that strengthened balance sheets and improved free cash flow across the sector would allow the producers to deliver on their commitment to return cash to shareholders.
SUSTAINABLE METALS
The shift towards electric vehicles (EVs) continues to be one of the strongest trends in global markets. The market is anticipated to grow more than ten-fold by 2030 from 2020 levels, which creates opportunities for those companies supplying the materials that enable the transition. The Company is well placed to benefit from this given its exposure to the raw materials that go into EV batteries and the e-motor.
Transportation was significantly impacted by the COVID-19 pandemic with global passenger car sales falling 17% year-on-year in 2020. In 2021 car sales have been constrained by supply chain semiconductor shortages, although there is evidence of significant demand with price increases and shortages seen in the second-hand market.
The level of demand and price action in lithium surprised even the most optimistic of forecasters in 2021, with the Chinese Lithium Carbonate price ending the year at US$43.7/kilogram, up by 429% year-on-year. 2021 saw 153% growth in China for Battery and Plug-In EVs sales, up by 64% in Europe. We ended 2021 with the EV share of new car sales standing at 19.3% in China and 31.1% in Europe. The US market remains a significant growth opportunity, with sales lagging other markets like Europe and China and penetration rates at 6.2%. The Company has exposure to lithium via its holding in Sociedad Química y Minera de Chile ADR (SQM) (1.0% of the portfolio) which is expected to achieve higher pricing in 2022 due to the lagged nature of its contract pricing structure, along with Sigma Lithium (0.4% of the portfolio), which is developing a spodumene project in Brazil and has several supply agreements including to LG Chem, the world’s no. 2 battery maker.
A critical component of the electric car is the e-motor, which most commonly uses a Praseodymium-Neodymium (NdPr) magnet, an alloy of two rare earth elements (REE). The increased demand for EVs has resulted in increasing demand for NdPr, with the price up by 101% during 2021. REEs are commonly mined and processed in China and have been deemed of strategic importance by both Europe and the USA. The Company has exposure to REE through Lynas Corporation (1.4% of the portfolio), a REE miner and processor crucially based in Malaysia and Australia. In 2021 Lynas Corporation's equity returned 154%.
EV battery raw materials include cobalt, where LME prices were up by 119% in 2021 as demand recovered driven by battery demand, particularly EV batteries. Significantly, Glencore announced the 2022 restart of the Mutanda mine in the DRC, which will most likely be ramped-up in a way that keeps the market balanced. Glencore (7.7% of the portfolio) rose by 66.9% during 2021, and is a globally significant cobalt producer which produced 22% of mine production in 2020 which is set to increase with Mutanda’s ramp-up.
2021 has seen growing excitement about the potential for hydrogen to disrupt the commercial vehicle market. Compared to batteries, hydrogen and fuel cells offer better energy density, improved range and faster refuelling, giving them an inherent advantage in efforts to decarbonise high utilisation transport like industrial trucks. That said, there are substantial hurdles to overcome, with costs needing to fall dramatically for the switch to be economic. We see the technology’s long-term potential but believe that we are still in the early stages of its development. Technologies involving platinum are crucial to the adoption of the hydrogen fuel cell; the Company has exposure to this theme via its PGM exposure.
ROYALTY AND UNQUOTED INVESTMENTS
At 31 December 2021 the Company has two unquoted investments, the OZ Minerals Brazil Royalty (1.5% of the portfolio), as well as an investment in Ivanhoe Electric/I-Pulse (1.2% of the portfolio). The Company has an additional quoted royalty investment, Vale Debentures (3.3% of the portfolio), with total royalty investments amounting to 4.8% of the Company’s portfolio. These, and any future investments, will be managed in line with the guidelines set by the Board as outlined to shareholders in the Strategic Report.
OZ Minerals Brazil royalty contract (1.5%)
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 licenses. In addition, there is a flat 2% royalty over all metals produced from any other discoveries within Avanco’s licence area as at the time of the agreement.
In 2018 Avanco was acquired by OZ Minerals, an Australian based copper and gold producer, for A$418 million, with the royalty now assumed by OZ Minerals. Since our initial US$12 million investment was made, we have received US$19.2 million in royalty payments with the royalty achieving full payback on the initial investment. As at 31 December 2021, the royalty was valued at £18.2 million (1.5% of NAV) which equates to a 265.3% total return since our investment.
It has been a challenging operating environment in Brazil over the last 18 months primarily due to COVID-19. As expected, the Antas Mine ceased production in the middle of the year, with Pedra Branca steadily ramping-up during the second half with ore processed through the Antas processing facility. OZ Minerals had flagged the risk of not meeting the 10-15kt copper guidance during this year due to COVID-19, with production downgraded to 7kt-10kt copper and 5koz-8koz gold. Given the better-than-expected copper price and our conservative production assumption this year, it has had minimal impact on income, and we have confidence in production returning to planned levels during 2022. 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 (3.3% of the portfolio)
At the beginning of 2019, the Company completed a significant transaction to increase its holding in Vale Debentures. The Debentures consist of a 1.8% net revenue royalty over Vale’s Northern System and Southeastern System iron ore assets in Brazil, as well as a 1.25% royalty over the Sossego copper mine. The iron ore assets are world class given their grade, cost position, infrastructure and resource life which is well in excess of 50 years. As at 31 December 2021 the Company’s exposure to the Vale Debentures was 3.3%.
It has been a remarkable environment for the iron ore market since the Company acquired the Debentures at the beginning of 2019. From a supply perspective, the iron ore market was significantly tightened following Vale’s tragic tailings dam collapse at the beginning of 2019 which has been further intensified as Vale has failed to meet its annual production guidance in 2020 and 2021. These supply issues combined with record steel demand in China has seen the iron ore price average at US$117/tonne since the beginning of 2019, a notable increase from the US$70/tonne iron ore price at the beginning of 2019 when the Company acquired the Debentures.
Despite the strong rally in the Debentures, we continue to see value with the current yield on the investment in excess of 10% which is 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, we expect this to be improved following the recent sell-down in April 2021.
We continue to actively look for opportunities to grow royalty exposure given it is a key differentiator of the Company and an effective mechanism to lock-in long-term income which further diversifies the Company’s revenues.
Ivanhoe Electric/I-Pulse (1.2% of the portfolio)
In early August the Company made a US$20 million investment into Ivanhoe Electric/I-Pulse, 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 USA where it has 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.
The Company’s investment consists of an investment into the common shares of Ivanhoe Electric/I-Pulse, as well as convertible notes which convert at a discount to the initial public offering (IPO) price into Ivanhoe Electric shares. The company is targeting an IPO over the next six to twelve months and the exploration potential of this asset base is encouraging. Since making the investment, Ivanhoe Electric has successfully secured an option to acquire 100% of the Santa Cruz deposit, a historic high-grade copper oxide resource in Arizona. Earn-in spend is approximately US$100 million over the next three years with the management team focused on verifying the historic drilling to produce a 43-101 resource statement ahead of IPO in 2022. We believe this has potential to add significant value to our August 2021 entry price.
Jetti Resources
We are pleased to report that subsequent to the year-end the Company has made an investment into copper technology company Jetti Resources. Jetti Resources, alongside the University of British Colombia, has developed a new catalyst that improves copper recovery from primary copper sulphides (specifically from chalcopyrite, which is often uneconomic under conventional leach conditions). Jetti is currently testing at 23 projects at various stages, including five active pilots where they will look to integrate their catalyst into existing heap leach SX-EW 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 deployments at different copper assets planned for this year. If industry adoption of Jetti’s technology continues to accelerate and 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.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts, mostly involving the sale of “puts” and “calls”. These are taken to revenue and are subject to strict Board guidelines on the use of derivatives which limit the exposure to an aggregate 10% of gross assets of the Group. In 2021 income generated from options was £7.1 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 2.4% of net assets exposed to derivatives and the average exposure to derivatives during the period was once again less than 5%.
GEARING
At 31 December 2021, the Company had £113.3 million of net debt, with a gearing level of 9.9% of net assets. The debt is held principally in US Dollar rolling short-term loans and managed against the value of the debt securities and the high yielding royalty positions held by the Company. During the year, the Company sought to maximise the use of gearing against the equity holdings rather than debt securities. This was driven by the risk adjusted relative value available in shares where dividend yields were mostly in excess of the coupons being paid on the bonds. Since the investee companies also have strong balance sheets, it was opportune to gear up the equity portfolio of the Company since we were not adding debt to holdings that were already heavily leveraged themselves.
Shareholders should note that the total gearing available to the Company has increased during the year due to the rise in net assets but remains within the 25% of net assets limit set by the Board. On the back of this, facilities were refreshed with our lenders and now stand at £138.9 million for loans and £0.4 million for the overdraft. The cost of debt for the Company remains very low at 1.10% for US Dollar loans and 0.97% for Sterling loans and these are now linked to SOFR/SONIA following the demise of LIBOR.
OUTLOOK
2022 seems to have started well for the global economy with fears around the Omicron variant starting to wane as its impact seems to be less damaging than initially feared. With global growth still strong and inflation numbers higher than desired, it is likely that Central Banks will become less accommodative and start raising rates. Transitions such as this are always associated with higher periods of volatility as investors rotate portfolios to reflect the new environment.
Looking more closely at the commodity sector, the outlook remains as bright as it has been for the last few years. Prices for almost all metals are well supported by ongoing demand strength and limited new supply growth. In addition, current price levels generate margins that are high by historical standards meaning that the companies should continue to enjoy excellent levels of cash flow generation. If current capital allocation trends and tighter cost containment measures continue, shareholders should see further years of strong income but probably not the records seen in 2021, especially if the focus moves to share buy backs rather than dividends.
EVY HAMBRO AND OLIVIA MARKHAM
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
7 March 2022
* Portfolio positions are shown as at 31 December 2021.
TEN LARGEST INVESTMENTS
1 =
Vale1,2,3 (2020: 1st)
Diversified mining group
Market value: £106,625,000
Share of investments: 8.5% (2020: 10.9%)
One of the largest mining groups in the world, with operations in 30 countries. Vale is the world’s largest producer of iron ore and iron ore pellets, and the world’s largest producer of nickel. The group also produces manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals, gold, silver and cobalt.
2 =
BHP3 (2020: 2nd)
Diversified mining group
Market value: £96,883,000
Share of investments: 7.7% (2020: 7.6%)
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, silver and diamonds. The group also has significant interests in oil, gas and liquefied natural gas but has signed a binding share sale agreement for the merger of the oil and gas business with Woodside.
3 +
Glencore (2020: 18th)
Diversified mining group
Market value: £96,651,000
Share of investments: 7.7% (2020: 1.7%)
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, aluminium, coal, gold and silver.
4 =
Anglo American (2020: 4th)
Diversified mining group
Market value: £93,608,000
Share of investments: 7.5% (2020: 7.2%)
A global mining group. The group’s mining portfolio includes bulk commodities including iron ore, manganese and metallurgical coal, base metals including copper and nickel and precious metals and minerals including platinum and diamonds. Anglo American has mining operations globally, with significant assets in Africa and South America.
5 =
Freeport-McMoRan (2020: 5th)
Copper producer
Market value: £77,970,000
Share of investments: 6.2% (2020: 5.2%)
A global mining group which operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum.
6 +
ArcelorMittal1 (2020: 13th)
Steel producer
Market value: £65,024,000
Share of investments: 5.2% (2020: 2.5%)
A multinational steel manufacturing group, with a focus on producing safe sustainable steel. The company has operations across the world and is the largest steel manufacturer in North America, South America and Europe.
7 - Rio Tinto (2020: 3rd)
Diversified mining group
Market value: £52,315,000
Share of investments: 4.2% (2020: 7.5%)
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.
8 +
Teck Resources (2020: 15th)
Diversified mining group
Market value: £45,543,000
Share of investments: 3.6% (2020: 2.2%)
A diversified mining group headquartered in Canada. The group 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 -
Newmont Corporation (2020: 6th)
Gold producer
Market value: £43,489,000
Share of investments: 3.5% (2020: 4.5%)
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.
10 =
First Quantum Minerals1 (2020: 10th)
Copper producer
Market value: £36,575,000
Share of investments: 2.9% (2020: 4.2%)
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 company is a significant copper producer and also produces nickel, gold and zinc.
1 Includes fixed income securities.
2 Includes investments held at Directors’ valuation.
3 Includes options.
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 57.0% of total investments of the Company’s portfolio as at 31 December 2021 (ten largest investments as at 31 December 2020: 56.4%).
INVESTMENTS AS AT 31 DECEMBER 2021
|
|
Main geographical exposure |
Market value £000 |
% of investments |
| Diversified | |||
| Vale | Global | 66,106 | 5.3 |
| Vale Debentures*#^ | Global | 40,895 | 3.3 |
| Vale Put Option 21/01/22 $13.84 | Global | (376) | (0.1) |
| BHP | Global | 97,174 | 7.7 |
| BHP Put Option 20/01/22 $40.99 | Global | (291) | – |
| Glencore | Global | 96,651 | 7.7 |
| Anglo American | Global | 93,608 | 7.5 |
| Rio Tinto | Global | 52,315 | 4.2 |
| Teck Resources | Global | 45,543 | 3.6 |
| Trident | Global | 4,055 | 0.3 |
| --------------- | --------------- | ||
| 495,680 | 39.5 | ||
| ========= | ========= | ||
| Copper | |||
| Freeport-McMoRan | Global | 77,970 | 6.2 |
| First Quantum Minerals* | Global | 36,575 | 2.9 |
| Ivanhoe Mines | Other Africa | 30,108 | 2.4 |
| OZ Minerals Brazil Royalty#~ | Latin America | 18,162 | 1.5 |
| OZ Minerals | Australasia | 16,358 | 1.3 |
| Sociedad Minera Cerro Verde | Latin America | 21,895 | 1.7 |
| Solaris Resources# | Latin America | 19,046 | 1.5 |
| Ivanhoe Electric/I-Pulse*# | United States | 15,250 | 1.2 |
| Antofagasta | Latin America | 12,207 | 1.0 |
| Ero Copper | Latin America | 6,231 | 0.5 |
| HudBay | Global | 5,611 | 0.5 |
| Lundin Mining | Global | 3,945 | 0.3 |
| SolGold | Latin America | 3,777 | 0.3 |
| Nevada Copper | United States | 1,254 | 0.1 |
| Sierra Metals | Latin America | 706 | 0.1 |
| --------------- | --------------- | ||
| 269,095 | 21.5 | ||
| ========= | ========= | ||
| Gold | |||
| Newmont Corporation | Global | 43,489 | 3.5 |
| Barrick Gold | Global | 35,042 | 2.8 |
| Wheaton Precious Metals | Global | 34,285 | 2.7 |
| Franco-Nevada | Global | 27,824 | 2.2 |
| Northern Star Resources | Australasia | 15,146 | 1.2 |
| Polyus | Russia | 14,567 | 1.2 |
| Kinross Gold | Global | 10,376 | 0.8 |
| Polymetal International | Russia | 9,929 | 0.8 |
| Endeavour Mining | Other Africa | 8,293 | 0.7 |
| Kirkland Lake Gold | Australasia | 5,942 | 0.5 |
| --------------- | --------------- | ||
| 204,893 | 16.4 | ||
| ========= | ========= | ||
| Steel | |||
| ArcelorMittal* | Global | 65,024 | 5.2 |
| Steel Dynamics | United States | 20,377 | 1.6 |
| Nucor Corp | United States | 10,934 | 0.9 |
| --------------- | --------------- | ||
| 96,335 | 7.7 | ||
| ========= | ========= | ||
| Industrial Minerals | |||
| Lynas Corporation | Australasia | 18,268 | 1.4 |
| Iluka Resources | Australasia | 13,004 | 1.0 |
| Sociedad Química y Minera de Chile ADR | Latin America | 12,924 | 1.0 |
| Sigma Lithium# | Latin America | 5,610 | 0.4 |
| Sheffield Resources | Australasia | 3,756 | 0.3 |
| --------------- | --------------- | ||
| 53,562 | 4.1 | ||
| ========= | ========= | ||
| Aluminium | |||
| Alcoa | Global | 21,096 | 1.7 |
| Norsk Hydro | Global | 20,040 | 1.6 |
| --------------- | --------------- | ||
| 41,136 | 3.3 | ||
| ========= | ========= | ||
| Platinum Group Metals | |||
| Northam Platinum | South Africa | 15,182 | 1.2 |
| Impala Platinum | South Africa | 14,257 | 1.1 |
| Sibanye Stillwater | South Africa | 10,255 | 0.8 |
| --------------- | --------------- | ||
| 39,694 | 3.1 | ||
| ========= | ========= | ||
| Iron Ore | |||
| Labrador Iron | Canada | 27,768 | 2.2 |
| Deterra Royalties | Australasia | 4,650 | 0.4 |
| Fortescue Metals Group | Australasia | 2,576 | 0.2 |
| Equatorial Resources | Other Africa | 306 | – |
| Champion Iron | Canada | 112 | – |
| --------------- | --------------- | ||
| 35,412 | 2.8 | ||
| ========= | ========= | ||
| Nickel | |||
| Nickel Mines | Indonesia | 17,679 | 1.4 |
| Bindura Nickel | Other Africa | 128 | – |
| --------------- | --------------- | ||
| 17,807 | 1.4 | ||
| ========= | ========= | ||
| Zinc | |||
| Titan Mining+# | United States | 2,520 | 0.2 |
| --------------- | --------------- | ||
| 2,520 | 0.2 | ||
| ========= | ========= | ||
| 1,256,134 | 100.0 | ||
| ========= | ========= | ||
| Comprising | |||
| – Investments | 1,256,801 | 100.1 | |
| – Options | (667) | (0.1) | |
| --------------- | --------------- | ||
| 1,256,134 | 100.0 | ||
| ========= | ========= |
* Includes fixed income securities.
# Includes investments held at Directors’ valuation.
~ Mining royalty contract.
^ The investment in the Vale debenture 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 31 December 2021 (including options classified as liabilities on the balance sheet) was 56 (31 December 2020: 56).
As at 31 December 2021 the Company did not hold any equity interests in companies comprising more than 3% of a company’s share capital.
PORTFOLIO ANALYSIS AS AT 31 DECEMBER 2021
COMMODITY EXPOSURE1
| 2021 portfolio | 2020# portfolio | 2021 Reference Index* | |
| Diversified | 39.5% | 37.2% | 34.3% |
| Copper | 21.5% | 19.2% | 11.1% |
| Gold | 16.4% | 24.3% | 21.7% |
| Steel | 7.7% | 3.4% | 18.6% |
| Industrial Minerals | 4.1% | 1.8% | 1.0% |
| Aluminium | 3.3% | 0.1% | 3.5% |
| Platinum Group Metals | 3.1% | 4.7% | 3.0% |
| Iron Ore | 2.8% | 6.0% | 3.0% |
| Nickel | 1.4% | 2.7% | 1.9% |
| Zinc | 0.2% | 0.3% | 0.4% |
| Silver & Diamonds | 0.0% | 0.3% | 1.1% |
| Other& | 0.0% | 0.0% | 0.4% |
1 Based on index classifications.
# Represents exposure at 31 December 2020.
* MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return).
& Represents a very small exposure.
GEOGRAPHIC EXPOSURE1
| 2021 | |
| Global | 69.9% |
| Latin America | 8.0% |
| Other2 | 7.4% |
| Australasia | 6.3% |
| South Africa | 3.1% |
| Other Africa (ex South Africa) | 3.1% |
| Canada | 2.2% |
| 2020 | |
| Global | 64.9% |
| Australasia | 9.4% |
| Latin America | 7.3% |
| Other3 | 6.5% |
| South Africa | 5.2% |
| Canada | 5.1% |
| Other Africa (ex South Africa) | 1.6% |
1 Based on the principal commodity exposure and place of operation of each investment.
2 Consists of Indonesia, Russia and United States.
3 Consists of Indonesia, Russia, United Kingdom and United States.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31 December 2021. The aim of the Strategic Report is to provide shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company for the collective benefit of shareholders.
The Chairman’s Statement together with the Investment Manager’s Report form part of this Strategic Report. The Strategic Report was approved by the Board at its meeting on 7 March 2022.
PRINCIPAL ACTIVITIES
The Company carries on business as an investment trust and has a premium listing on the London Stock Exchange. Its principal activity is portfolio investment and that of its subsidiary, BlackRock World Mining Investment Company Limited (together the Group), is investment dealing. The Company was incorporated in England on 28 October 1993 and this is the 28th Annual Report.
Investment trusts are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment, thus spreading investment risk.
OBJECTIVE
The Company’s objective is to maximise total returns to shareholders through a worldwide portfolio of mining and metal securities.
The Board recognises the importance of dividends to shareholders in achieving that objective, in addition to capital returns.
STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Strategy
The Company invests in accordance with the objective given above. The Board is collectively responsible to shareholders for the long-term success of the Company and is its governing body. There is a clear division of responsibility between the Board and BlackRock Fund Managers Limited (the Manager). Matters reserved for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing (both bank borrowings and the effect of derivatives), capital structure, governance and appointing and monitoring of the performance of service providers, including the Manager.
Business model
The Company’s business model follows that of an externally managed investment trust. Therefore, the Company does not have any employees and outsources its activities to third party service providers including the Manager who is the principal service provider. In accordance with the Alternative Investment Fund Managers’ Directive (AIFMD), as implemented, retained and onshored in the UK, the Company is an Alternative Investment Fund (AIF). BlackRock Fund Managers Limited is the Company’s Alternative Investment Fund Manager.
The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager who in turn (with the permission of the Company) has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited (the Investment Manager). The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.
The Company delegates fund accounting services to the Manager, which in turn sub-delegates these services to The Bank of New York Mellon (International) Limited (BNYM) (the Fund Accountant) and also sub-delegates registration services to the Registrar, Computershare Investor Services PLC. Other service providers include the Depositary (also BNYM). Details of the contractual terms with these service providers and more details of sub-delegation arrangements in place governing custody services are set out in the Directors’ Report.
INVESTMENT POLICY
The Company’s investment policy is to provide a diversified investment in mining and metal securities worldwide actively managed with the objective of maximising total returns. While the policy is to invest principally in quoted securities, the Company’s investment policy includes investing in royalties derived from the production of metals and minerals as well as physical metals. Up to 10% of gross assets may be held in physical metals.
In order to achieve its objective, it is intended that the Group will normally be fully invested, which means at least 90% of the gross assets of the Company and its subsidiary will be invested in stocks, shares, royalties and physical metals. However, if such investments are deemed to be overvalued, or if the Manager finds it difficult to identify attractively priced opportunities for investment, then up to 25% of the Group’s assets may be held in cash or cash equivalents. Risk is spread by investing in a number of holdings, many of which themselves are diversified businesses.
The Group may occasionally utilise derivative instruments such as options, futures and contracts for difference, if it is deemed that these will, at a particular time or for a particular period, enhance the performance of the Group in the pursuit of its objectives. The Company is also permitted to enter into stock lending arrangements.
As approved by shareholders in August 2013, the Group may invest in any single holding of quoted or unquoted investments that would represent up to 20% of gross assets at the time of acquisition. Although investments are principally in companies listed on recognised stock exchanges, the Company may invest up to 20% of the Group’s gross assets in investments other than quoted securities. Such investments include unquoted royalties, equities or bonds. In order to afford the Company the flexibility of obtaining exposure to metal and mining related royalties, it is possible that, in order to diversify risk, all or part of such exposure may be obtained directly or indirectly through a holding company, a fund or another investment or special purpose vehicle, which may be quoted or unquoted. The Board will seek the prior approval of shareholders to any unquoted investment in a single company, fund or special purpose vehicle or any single royalty which represents more than 10% of the Group’s assets at the time of acquisition.
In March 2015 the Board refined the guidelines associated with the Company’s royalty strategy and proposed to maintain the 20% maximum exposure to royalties but the royalty/unquoted portfolio should itself deliver diversification across operator, country and commodity. To this end, new investments into individual royalties/unquoted investments should not exceed circa 3% of gross assets at the time of investment. Total exposure to any single operator, including other issued securities such as debt and/or equity, where greater than 30% of that operator’s revenues come from the mine over which the royalty lies, must also not be greater than 3% at the time of investment. In addition, the guidelines require that the Investment Manager must, at the time of investment, manage total exposure to a single operator, via reducing exposure to listed securities if they are also held in the portfolio, in a timely manner where royalties/unquoted investments are revalued upwards. In the jurisdictions where statutory royalties are possible (in countries where mineral rights are privately owned) these will be preferred and in respect of contractual royalties (a contractual obligation entered into by the operator and typically unsecured) the valuation must take into account the higher credit risk involved. Board approval will continue to be required for all royalty/unquoted investments.
While the Company may hold shares in other listed investment companies (including investment trusts), the Company will not invest more than 15% of the Group’s gross assets in other UK listed investment companies.
The Group’s financial statements are maintained in Sterling. Although many investments are denominated and quoted in currencies other than Sterling, the Board does not intend to employ a hedging strategy against fluctuations in exchange rates.
No material change will be made to the investment policy without shareholder approval.
GEARING
The Investment Manager believes that tactical use of gearing can add value from time to time. This gearing is typically in the form of an overdraft or short-term loan facility, which can be repaid at any time or matched by cash. The level and benefit of gearing is discussed and agreed with the Board regularly. The Company may borrow up to 25% of the Group’s net assets. The maximum level of gearing used during the year was 14.2% and, at the financial reporting date, net gearing (calculated as borrowings less cash and cash equivalents as a percentage of net assets) stood at 9.9% of shareholders’ funds (2020: 12.3%). For further details on borrowings refer to note 14 in the Financial Statements and the Alternative Performance Measure in the Glossary in the Annual Report and Financial Statements.
PORTFOLIO ANALYSIS
Information regarding the Company’s investment exposures is contained within Section 2 (Portfolio) in the Annual Report and Financial Statements, with information on the ten largest investments above, the investments listed above and portfolio analysis above. Further information regarding investment risk and activity throughout the year can be found in the Investment Manager’s Report.
As at 31 December 2021, the Level 3 unquoted investments (see note 18 in the Annual Report and Financial Statements) in the OZ Minerals Brazil Royalty and convertible bonds and equity shares of Ivanhoe Electric/I-Pulse were held at Directors’ valuation, representing a total of £33,412,000 (US$45,255,000) (2020: £19,753,000 (US$27,002,000)). Unquoted investments can prove to be more risky than listed investments.
CONTINUATION VOTE
As agreed by shareholders in 1998, an ordinary resolution for the continuation of the Company is proposed at each Annual General Meeting. 2021 was another solid year with mining companies continuing down the path of capital discipline, balance sheets in strong shape and earnings and dividends rising. The Directors remain confident on the value available in the sector and therefore recommend that shareholders vote in support of the Company’s continuation.
PERFORMANCE
Details of the Company’s performance for the year are given in the Chairman’s Statement. The Investment Manager’s Report includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.
RESULTS AND DIVIDENDS
The results for the Company are set out in the Consolidated Statement of Comprehensive Income. The total profit for the year, after taxation, was £192,470,000 (2020: £216,515,000) of which £78,910,000 (2020: £35,451,000) is revenue profit.
It is the Board’s intention to distribute substantially all of the Company’s available income. The Directors recommend the payment of a final dividend as set out in the Chairman’s Statement. Dividend payments/payable for the year ended 31 December 2021 amounted to £78,263,000 (2020: £35,612,000).
FUTURE PROSPECTS
The Board’s main focus is to maximise total returns over the longer term through investment in mining and metal assets. The outlook for the Company is discussed in both the Chairman’s Statement and the Investment Manager’s Report.
EMPLOYEES, SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust with no employees, the Company has no direct social or community responsibilities or impact on the environment and the Company has not adopted an ESG investment strategy or exclusionary screens. However, the Company believes that it is in shareholders’ interests to consider human rights issues and environmental, social and governance factors when selecting and retaining investments. Details of the Board's approach to ESG and details of the Manager’s approach to ESG integration are set out in the Annual Report and Financial Statements.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company are set out in the Directors’ Biographies in the Annual Report and Financial Statements. The Board consists of three male Directors and two female Directors. The Company does not have any executive employees.
KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to other investment trusts are set out below. As indicated in the footnote to the table, some of these KPIs fall within the definition of ‘Alternative Performance Measures’ under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary in the Annual Report and Financial Statements. Additionally, the Board regularly reviews the performance of the portfolio, as well as the net asset value and share price of the Company and compares this against various companies and indices. Information on the Company’s performance is given in the Chairman’s Statement.
|
|
Year ended 31 December 2021 |
Year ended 31 December 2020 |
| Net asset value total return1,2 | 20.7% | 31.8% |
| Share price total return1,2 | 17.5% | 46.7% |
| Discount to net asset value2 | 5.3% | 2.7% |
| Revenue earnings per share | 43.59p | 20.40p |
| Total dividends per share | 42.50p | 20.30p |
| Ongoing charges2,3 | 0.95% | 0.99% |
| Ongoing charges on gross assets2,4 | 0.84% | 0.87% |
| ========= | ========= |
1 This measures the Company’s NAV and share price total return, which assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.
3 Ongoing charges represent the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items, as a % of average daily net assets.
4 Ongoing charges based on gross assets represent the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items, as a % of average daily gross assets. Gross assets are calculated based on net assets during the year before the deduction of the bank overdraft and loans. Ongoing charges based on gross assets are considered to be an appropriate performance measure as management fees are payable on gross assets only in the event of an increase in NAV on a quarter-on-quarter basis.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. As required by the 2018 UK Corporate Governance Code (the UK Code), the Board has put in place a robust ongoing process to identify, assess and monitor the principal risks and emerging risks. A core element of this process is the Company’s risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the quality of controls operating to mitigate it. A residual risk rating is then calculated for each risk based on the outcome of the assessment.
The risk register, its method of preparation and the operation of key controls in BlackRock’s and other third party service providers’ systems of internal control, are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive understanding of BlackRock’s and other third party service providers’ risk management processes and how these apply to the Company’s business, BlackRock’s internal audit department provides an annual presentation to the Audit Committee Chairs of the BlackRock investment trusts setting out the results of testing performed in relation to BlackRock’s internal control processes. The Audit Committee also periodically receives and reviews internal control reports from BlackRock and the Company’s service providers.
The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The COVID-19 pandemic has given rise to unprecedented challenges for businesses across the globe and the Board has taken into consideration the risks posed to the Company by the crisis and incorporated these into the Company’s risk register. The threat of climate change has also reinforced the importance of more sustainable practices and environmental responsibility for investee companies.
Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. They were also considered as part of the annual evaluation process. Additionally, the Manager considers emerging risks in numerous forums and the BlackRock Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company through the annual risk survey will be communicated to the Board.
The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.
The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors, are set out in the following table.
| Principal Risk | Mitigation/Control |
|
Counterparty
The potential loss that the Company could incur if a counterparty is unable (or unwilling) to perform on its commitments. |
Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties. The Depositary is liable for restitution for the loss of financial instruments held in custody unless able to demonstrate the loss was a result of an event beyond its reasonable control. |
|
Investment performance
The returns achieved are reliant primarily upon the performance of the portfolio. The Board is responsible for: · deciding the investment strategy to fulfil the Company’s objective; and · monitoring the performance of the Investment Manager and the implementation of the investment strategy. An inappropriate investment policy may lead to: · underperformance compared to the reference index; · a reduction or permanent loss of capital; and · dissatisfied shareholders and reputational damage. |
To manage this risk the Board: · regularly reviews the Company’s investment mandate and long-term strategy; · has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on; · receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing, and the rationale for the composition of the investment portfolio; · monitors and maintains an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the investment policy; · receives and reviews regular reports showing an analysis of the Company’s performance against other indices, including the performance of major companies in the sector; and · has been assured that the Investment Manager has training and development programmes in place for its employees and its recruitment and remuneration packages are developed in order to retain key staff. |
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Legal and regulatory compliance
The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions, and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. In such event, the investment returns of the Company may be adversely affected. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst other relevant laws, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive as implemented, retained and onshored in the UK (AIFMD), the UK Listing Rules, Disclosure Guidance and Transparency Rules and the Market Abuse Regulation (as retained and onshored in the UK). |
The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting. Compliance with the accounting rules affecting investment trusts is also carefully and regularly monitored. The Company Secretary, Manager and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations. The Board and the Manager also monitor changes in government policy and legislation which may have an impact on the Company. |
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Market
Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements. Changes in general economic and market conditions, such as currency exchange rates, interest rates, rates of inflation, industry conditions, tax laws, political events and trends, can also substantially and adversely affect the securities and, as a consequence, the Company’s prospects and share price. Market risk includes the potential impact of events which are outside the Company’s control, such as the COVID-19 pandemic. Companies operating in the sectors in which the Company invests may be impacted by new legislation governing climate change and environmental issues, which may have a negative impact on their valuation and share price. |
The Board considers the diversification of the portfolio, asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager. The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced with the COVID-19 pandemic. Unlike open-ended counterparts, closed-end funds are not obliged to sell-down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the Investment Manager to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves. The Investment Manager considers the Environmental, Social and Governance (ESG) risks and opportunities facing companies and industries in the portfolio. They use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio. Further information on BlackRock's approach to ESG integration can be found in the Annual Report and Financial Statements. |
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Operational
In common with most other investment trust companies, the Company has no employees. The Company therefore relies on the services provided by third parties and is dependent on the control systems of the Manager and BNYM (the Depositary, Custodian and Fund Accountant) which maintain the Company’s assets, dealing procedures and accounting records. The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of these third party service providers. There is a risk that a major disaster, such as floods, fire, a global pandemic, or terrorist activity, renders the Company’s service providers unable to conduct business at normal operating effectiveness. Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records (including cyber security risk) could prevent the accurate reporting and monitoring of the Company’s financial position. |
Due diligence is undertaken before contracts are entered into with third-party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board. The Board reviews on a regular basis an assessment of the fraud risks that the Company could potentially be exposed to and also a summary of the controls put in place by the Manager, Depositary, Custodian, Fund Accountant and Registrar specifically to mitigate these risks. Most third-party service providers produce internal control reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit Committee for review. The Committee would seek further representations from service providers if not satisfied with the effectiveness of their control environment. The Company’s financial instruments held in custody are subject to a strict liability regime and, in the event of a loss of such financial instruments, the Depositary must return financial assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control. The Board reviews the overall performance of the Manager, Investment Manager and all other third-party service providers on a regular basis and compliance with the Investment Management Agreement annually. The Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of its review of the Company’s risk register. In respect of the risks posed by the COVID-19 pandemic in terms of the ability of service providers to function effectively, the Board has received reports from key service providers setting out the measures that they have put in place to address the crisis, in addition to their existing business continuity framework. Having considered these arrangements and reviewed service levels since the crisis has evolved, the Board is confident that a good level of service has been and will be maintained. |
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Financial
The Company’s investment activities expose it to a variety of financial risks which include market risk, counterparty credit risk, liquidity risk and the valuation of financial instruments. |
Details of these risks are disclosed in note 18 to the Financial Statements, together with a summary of the policies for managing these risks. |
In the view of the Board, there have not been any changes to the fundamental nature of these risks and these principal risks and uncertainties are equally applicable for the current financial year.
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the ‘Going Concern’ guidelines. The Company is an investment trust with the objective of providing an attractive level of income return together with capital appreciation over the long term.
The Directors expect the Company to continue for the foreseeable future and have therefore conducted this review for a period up to the Annual General Meeting in 2025. The Directors assess viability over a rolling three-year period as they believe it best balances the Company’s long-term objective, its financial flexibility and scope, with the difficulty in forecasting economic conditions which could affect both the Company and its shareholders. The Company also undertakes a continuation vote every year with the next one taking place at the forthcoming Annual General Meeting.
In making an assessment on the viability of the Company, the Board has considered the following:
· the impact of a significant fall in commodity markets on the value of the Company’s investment portfolio;
· the ongoing relevance of the Company’s investment objective, business model and investment policy in the prevailing market;
· the principal and emerging risks and uncertainties, as set out above, and their potential impact;
· the level of ongoing demand for the Company’s shares;
· the Company’s share price discount/premium to NAV;
· the liquidity of the Company’s portfolio; and
· the level of income generated by the Company and future income and expenditure forecasts.
The Directors have concluded that there is a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due over the period of their assessment based on the following considerations:
· the Investment Manager’s compliance with the investment objective and policy, its investment strategy and asset allocation;
· the portfolio mainly comprises readily realisable assets which can be sold to meet funding requirements if necessary. As at 2 March 2022, 82.8% of the portfolio was estimated as being capable of being liquidated within three days;
· the operational resilience of the Company and its key service providers and their ability to continue to provide a good level of service for the foreseeable future;
· the effectiveness of business continuity plans in place for the Company and its key service providers;
· the ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company’s total assets;
· the Board’s discount management policy; and
· the Company is a closed-end investment company and therefore does not suffer from the liquidity issues arising from unexpected redemptions.
In addition, the Board’s assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement which can be found in the Directors’ Report.
Section 172 statement: Promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require directors of large companies to explain more fully how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This includes the likely consequences of their decisions in the longer term and how they have taken wider stakeholders’ needs into account.
The disclosure that follows covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions. The Board considers the main stakeholders in the Company to be the Manager, Investment Manager and the shareholders. In addition to this, the Board considers investee companies and key service providers of the Company to be stakeholders; the latter comprise the Company’s Depositary, Registrar, Fund Accountants and Brokers.
| Stakeholders | |||
|
Shareholders |
Manager and Investment Manager |
Other key service providers |
Investee companies |
| Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objective in maximising total returns to shareholders through a worldwide portfolio of mining and metal securities. | The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation. | In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the Financial Conduct Authority (FCA) and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason, the Board considers the Company’s Depositary, Registrar, Fund Accountants and Brokers to be stakeholders. The Board maintains regular contact with its key external service providers and receives regular reporting from them through the Board and Committee meetings, as well as outside of the regular meeting cycle. | Portfolio holdings are ultimately shareholders’ assets and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship arrangements and receives regular feedback from the Manager in respect of meetings with the management of investee companies. |
| Area of Engagement |
Issue |
Engagement |
Impact |
| Investment mandate and objective | The Board has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns. | The Board worked closely with the Investment Manager throughout the year in further developing investment strategy and underlying policies, not simply for the purpose of achieving the Company’s investment objective but in the interests of shareholders and future investors. | The portfolio activities undertaken by the Investment Manager can be found in their Report. The Investment Manager continues to actively look for opportunities to grow royalty exposure given it is a key differentiator of the Company and an effective mechanism to lock-in long-term income which further diversifies the Company’s revenues. |
| Responsible ownership | More than ever, the importance of good governance and sustainability practices are key factors in making investment decisions. Climate change is becoming a defining factor in companies’ long-term prospects across the investment spectrum with significant and lasting implications for economic growth and prosperity. The mining industries in which the Company’s investment universe operate are facing ethical and sustainability issues that cannot be ignored by asset managers and investment companies alike. | The Board believes that responsible investment and sustainability are integral to the longer-term delivery of the Company’s success. The Board works closely with the Investment Manager to regularly review the Company’s performance, investment policy and strategy to ensure that the Company’s investment objective continues to be met in an effective and responsible way in the interests of shareholders and future investors. The Investment Manager’s approach to the consideration of ESG factors in respect of the Company’s portfolio, as well as the Investment Manager’s engagement with investee companies to encourage the adoption of sustainable business practices which support long-term value creation, are kept under review by the Board. The Board also expects to be informed by the Investment Manager of any sensitive voting issues involving the Company’s investments. Environmental issues were prominent in the engagement, as was executive pay and the re-election of directors in portfolio companies. The Investment Manager reports to the Board in respect of its approach to ESG integration; a summary of BlackRock’s approach to ESG integration is set out in the Annual Report and Financial Statements. The Investment Manager’s approach to engagement with investee companies and voting guidelines is summarised in the Annual Report and Financial Statements and further detail is available on the BlackRock website. |
The Board and the Investment Manager believe there is likely to be a positive correlation between strong ESG practices and investment performance over time. This is especially important in mining given the long investment cycle and the impact of ESG practices on the ability of a mining company to maintain its social licence to operate. ESG is one of the many factors that we look at and site visits to companies’ operations (when circumstances permit) provide valuable insights into their ESG practices. The Investment Manager has continued to engage with investee companies virtually and has, where necessary, conducted virtual site visits. BlackRock has stated that, as part of its commitment to sustainability, it will divest any investment in companies that derive more than 25% of revenues from thermal coal production from all discretionary active investment portfolios. During the year under review, the Company has had no exposure to companies whose principal activity is the extraction of thermal coal. Within the parameters of the Company’s existing investment policy, the Investment Manager is continuing to look for opportunities to deploy capital in growth investments that should benefit from the demand for ‘green’ materials. It is likely that this area will become a more significant part of the portfolio. |
| Shareholders | Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. | The Board is committed to maintaining open channels of communication and to engage with shareholders. The Company welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. Shareholders will have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. The Investment Manager will also provide a presentation on the Company’s performance and the outlook for the mining sector. The Annual Report and Half Yearly Financial Report are available on the BlackRock website and are also circulated to shareholders either in printed copy or via electronic communications. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are also published on the website at www.blackrock.com/uk/brwm. Unlike trading companies, one-to-one shareholder meetings normally take the form of a meeting with the Investment Manager as opposed to members of the Board. The Company’s willingness to enter into discussions with institutional shareholders is also demonstrated by the programmes of institutional presentations by the Investment Manager. If shareholders wish to raise issues or concerns with the Board, they are welcome to do so at any time. The Chairman is available to meet directly with shareholders periodically to understand their views on governance and the Company’s performance where they wish to do so. He may be contacted via the Company Secretary whose details are given in the Annual Report and Financial Statements. |
The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the Company evolve its reporting, aiming to make reports more transparent and understandable. Feedback from all substantive meetings between the Investment Manager and shareholders will be shared with the Board. The Directors will also receive updates from the Company’s broker and Kepler, marketing consultants, on any feedback from shareholders, as well as share trading activity, share price performance and an update from the Investment Manager. Portfolio holdings are ultimately shareholders’ assets and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship arrangements and receives regular feedback from the Investment Manager in respect of meetings with the management of portfolio companies. |
| Discount management | The Board recognises the importance to shareholders that the market price of the Company’s shares should not trade at either a significant discount or premium to their prevailing NAV. The Board believes this may be achieved by the use of share buyback powers and the issue of shares. | The Board monitors the Company’s discount on an ongoing basis and receives regular updates from the Manager and the Company’s Brokers regarding the level of discount. The Board believes that the best way of maintaining the share rating at an optimal level over the long term is to create demand for the shares in the secondary market. To this end, the Investment Manager is devoting considerable effort to broadening the awareness of the Company, particularly to wealth managers and to the wider retail market. In addition, the Board has worked closely with the Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with existing shareholders and to attract new shareholders to the Company in order to improve liquidity in the Company’s shares and to sustain the share rating of the Company. |
The Board continues to monitor the Company’s discount to NAV and will look to buy back shares if it is deemed to be in the interests of shareholders as a whole. The Company participates in a focused investment trust sales and marketing initiative operated by the Manager on behalf of the investment trusts under its management. Further details are set out in the Annual Report and Financial Statements. During the first quarter the Company’s shares generally traded at a discount but over the year as a whole the Company’s shares traded at an average discount of 2.4%. |
| Service levels of third party providers | The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service, including the Investment Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries; and the Company’s Brokers in respect of the provision of advice and acting as a market maker for the Company’s shares. | The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, their commitment and available resources. The Board performs an annual review of the service levels of all third-party service providers and concludes on their suitability to continue in their role. The Board receives regular updates from the AIFM, Depositary, Registrar and Brokers on an ongoing basis. In light of the challenges presented by the COVID-19 pandemic to the operation of businesses across the globe, the Board has worked closely with the Manager to gain comfort that relevant business continuity plans are operating effectively for all of the Company’s key service providers. |
All performance evaluations were performed on a timely basis and the Board concluded that all third-party service providers, including the Manager and Investment Manager, were operating effectively and providing a good level of service. The Board has received updates in respect of business continuity planning from the Company’s Manager, Custodian, Depositary, Fund Accountant, Registrar and Printer and is confident that arrangements are in place to ensure a good level of service will continue to be provided despite the impact of the COVID-19 pandemic. |
| Board composition | The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the UK Code, including guidance on tenure and the composition of the Board’s committees. | All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions of the 2021 evaluation process are given in the Annual Report and Financial Statements). All Directors stand for re-election by shareholders annually. Shareholders may attend the Annual General Meeting and raise any queries in respect of Board composition or individual Directors in person or may contact the Company Secretary or the Chairman using the details provided in the Annual Report and Financial Statements with any issues. The Board undertook a review of succession planning arrangements and identified the need for a new Director following the retirement of Mr Oliveira. The Nomination Committee agreed the selection criteria and the method of selection, recruitment and appointment, Board diversity, including gender, were carefully considered when establishing the criteria. The Directors’ range of contacts, were used to identify potential candidates. |
As at the date of this report, the Board was comprised of three men and two women. Mr Cheyne has a tenure in excess of nine years. Details of each Director’s contribution to the success and promotion of the Company are set out in the Directors’ Report in the Annual Report and Financial Statements and details of the Directors’ biographies can be found in the Annual Report and Financial Statements. The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in the year under review. The Board appointed Srinivasan Venkatakrishnan as a Director of the Company with effect from 1 August 2021. Ollie Oliveira retired as a Director on 31 July 2021. |
Environmental, Social and Governance approach
THE BOARD’S APPROACH
Environmental, Social and Governance (ESG) issues can present both opportunities and threats to long term investment performance. The Company’s investment universe comprises sectors that are undergoing significant structural change and are likely to be highly impacted by increasing regulation as a result of climate change and other social and governance factors. Your Board is committed to ensuring that we have appointed a Manager that integrates ESG considerations into its investment process, and has the skill to navigate the structural transition that the Company’s investment universe is undergoing. The Board believes effective engagement with company management is, in most cases, the most effective way of driving meaningful change in the behaviour of investee company management. While the Company does not have an ESG or impact focused investment strategy or apply exclusionary screens, as a general approach the Company will not invest in companies which have high ESG risks and no plans to address existing deficiencies. Where the Board is not satisfied that an investee company is taking steps to address matters of an ESG nature, it may discuss with the Manager how this situation might be resolved, including potentially by a full disposal of shares.
ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe, and does not mean that an ESG or impact focused investment strategy or any exclusionary screens have been or will be adopted by the Company. Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks. More information on BlackRock’s global approach to ESG integration, as well as activity specific to the BlackRock World Mining Trust plc portfolio is set out below.
BLACKROCK WORLD MINING TRUST PLC – ENGAGEMENT WITH PORTFOLIO COMPANIES IN 2021
Given the Board’s belief in the importance of engagement and communication with portfolio companies, they receive regular updates from the Manager in respect of activity undertaken for the year under review. The Board notes that over the year to 31 December 2021, 56 total company engagements were held with the management teams of 27 portfolio companies representing 71% of the portfolio by value at 31 December 2021. To put this into context, there were 53 companies in the BlackRock World Mining Trust plc portfolio at 31 December 2021. Additional information is set out in the table below and the charts on page 51 of the Annual Report and Financial Statements as well as the key engagement themes for the meetings held in respect of the Company’s portfolio holdings.
|
|
Year ended 31 December 2021 |
| Number of engagements held | 56 |
| Number of companies met | 27 |
| % of equity investments covered | 71 |
| Shareholder meetings voted at | 57 |
| Number of proposals voted on | 630 |
| Number of votes against management | 39 |
| % of total votes represented by votes against management | 6.1 |
| ========= |
Source: Institutional Shareholder Services as at 19 January 2022.
The importance and challenges of considering ESG when investing in the Natural Resources Sector and BlackRock’s approach to ESG Integration
| Environmental | Social | Corporate governance | |
| Impact | As well as the longer-term contribution to carbon emissions and the impact on the environment, the activities undertaken by many companies in the portfolio such as digging mines will inevitably have an impact on local surroundings. It is important how companies manage this process and ensure that an appropriate risk oversight framework is in place, with consideration given to all stakeholders. The significant fall in the market cap of companies like Vale, after the Brumadinho dam collapse, highlights the key role that ESG has on share price performance. Climate change and other sustainability factors pose some of the greatest risks to the operating models of companies in the mining sector as the world transitions to a low-carbon economy. How such companies manage these risks and evolve their operating models through this transition will be a defining feature of their ability to generate long-term sustainable value for shareholders. In order to unlock the full potential of the energy transition these companies must be prepared to adapt, innovate and pivot their business models. |
BlackRock believes it is vital that natural resources companies maintain their social licence to operate. By this, BlackRock means that companies maintain broad acceptance from their key stakeholders, including business partners (such as suppliers and distributors), clients and consumers, national governments, and the communities in which they operate. Considering the interests of key stakeholders recognises the collective nature of long-term value creation and the extent to which each company’s prospects for growth are tied to its ability to foster strong sustainable relationships with and support from those stakeholders. | As with all companies, good corporate governance is especially critical for natural resources companies. The performance and effectiveness of the board is critical to the success of a company, the protection of shareholders’ interests, and long-term shareholder value creation. Governance issues, including the management of material sustainability issues that have a significant impact for natural resources companies, all require effective leadership and oversight from a company’s board. Companies with engaged, diverse and experienced board directors who actively advise and oversee management have a competitive advantage. |
|
BlackRock Approach |
BlackRock prefers direct dialogue with companies on complex issues such as climate risk and other environmental risks. Where it has concerns that are not addressed by engagements, BlackRock may vote against management, including against corporate directors (and in favour of certain types of shareholder proposals) should companies fail to demonstrate material progress against specific measures. Specifically, BlackRock asks companies to articulate how their business model is aligned to a scenario in which global warming is limited to well below 2°C, moving towards global net zero emissions by 2050, and to disclose a business plan for how they intend to deliver long-term financial performance through this transition to global net zero, consistent with their business model and sector. More information in respect of how BlackRock assesses how companies are delivering on these plans can be found at https://www.blackrock.com/ corporate/literature/publication/ blk-commentary-climate-risk-and-energy- transition.pdf Where corporate disclosures are insufficient to make a thorough assessment, or a company has not provided a credible plan to transition its business model to a low-carbon economy, the BlackRock Investment Stewardship (BIS) team may vote against the directors it considers responsible for climate risk oversight. BIS may also support shareholder proposals that it believes address gaps in a company’s approach to climate risk and the energy transition. |
In normal operating conditions (and when not prevented by travel restrictions imposed by COVID-19) the portfolio management team’s site visits to companies’ assets provide them with valuable insight into these issues which often cannot be properly understood from company reports. BIS advocates for improved disclosures to understand how companies are making prudent decisions considering their stakeholders’ interests. BIS also asks companies to demonstrate how they have put in place appropriate board oversight, due diligence, and remediation mechanisms relating to adverse impacts on people arising from their business operations – including those indirectly employed or communities that could be harmed or displaced by a company’s expanding operations. BIS considers the Sustainability Accounting Standards Board (SASB) standards materiality framework to be a helpful tool for companies considering enhancing their disclosures on industry-specific human capital metrics. Given continuing advances in sustainability reporting standards, in addition to BlackRock’s request that all companies report in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), BlackRock is evolving its perspective on sustainability reporting to recognise that companies may use standards other than those of the SASB, and reiterate its request for metrics that are industry or company-specific. More information on BlackRock’s approach can be found at https://www.blackrock.com/ corporate/literature/fact-sheet/blk- responsible-investment-engprinciples- global.pdf |
In conjunction with BIS, the portfolio management team actively engages with companies on a wide range of governance issues including board independence, executive compensation, shareholder protection and timely and adequate disclosure. BIS may also vote against the re-election of directors when they do not seem to be acting in the economic interests of long-term shareholders. The effectiveness of voting against directors is well documented in BlackRock’s, as well as independent third party, research which indicated that across the FTSE 350 companies where BIS voted against directors over remuneration concerns, 83% made revisions to their pay policies within twelve months1,2. |
1 https://www.blackrock.com/corporate/literature/publication/2021-voting-spotlight-full-report.pdf (page 22).
2 The data in this table applies to BIS’s engagements globally across all BlackRock-managed portfolios.
| Environmental | Social | Corporate governance | |
| BIS – examples of approach to voting and engagement across ESG categories (year ended 30 June 2021)1,2 | BIS has created a climate focus universe of over 1,000 carbon-intensive public companies that represent 90% of the global scope 1 and 2 GHG emissions of its clients’ public equity holdings with BlackRock. This 2021 climate focus universe represents companies where climate change and other sustainability factors pose the greatest risk to clients’ investments. More detail can be found at https://www.blackrock.com/ corporate/literature/publication/blk-climate-focus-universe.pdf. BIS held over 1,300 engagements with nearly 670 of the companies in this climate focus universe between 1 July 2020 and 30 June 2021. BIS held 2,330 company engagements on climate related proposals overall. BIS voted against management on climate risk concerns at approximately 2% of the nearly 11,000 proposals it voted on at energy/utilities companies globally. BIS voted against 255 directors and against management at 319 companies for climate risk related concerns. |
BIS held 1,350 engagements related to engaging and voting on company impacts on people. This year, BIS supported 35 out of 100 social-related shareholder proposals. |
During the 2021 proxy year, BIS did not support 2,222 directors at 1,327 unique companies globally over concerns about independence. BIS voted against 1,862 directors at 975 unique companies globally for concerns related to board diversity. BIS voted against 758 directors globally at 639 unique companies for being overcommitted. BIS voted against the re-election of 931 directors at 453 companies due to concerns over remuneration. |
1 Source: BlackRock’s 2021 voting spotlight report which can be found at https://www.blackrock.com/corporate/literature/publication/2021-voting-spotlight-full-report.pdf
2 The data in this table applies to BIS’s engagements globally across all BlackRock-managed portfolios.
BLACKROCK’S APPROACH TO ESG INTEGRATION
BlackRock believes that sustainability risk – and climate risk in particular – now equates to investment risk, and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn, in BlackRock’s view, is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. BlackRock believes that carbon-intensive companies will play an integral role in unlocking the full potential of the energy transition, and to do this, they must be prepared to adapt, innovate and pivot their strategies towards a low carbon economy.
As part of BlackRock’s structured investment process, ESG risks and opportunities (including sustainability/climate risk) are considered within the portfolio management team’s fundamental analysis of companies and industries and the Company’s portfolio managers work closely with BlackRock’s Investment Stewardship team (BIS) to assess the governance quality of companies and investigate any potential issues, risks or opportunities.
As part of their approach to ESG integration, portfolio managers use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio. In particular, portfolio managers now have access to 1,200 key ESG performance indicators in Aladdin (BlackRock’s proprietary trading system) from third-party data providers. BlackRock’s internal sustainability research framework scoring is also available alongside third-party ESG scores in core portfolio management tools. BlackRock’s scale and unparalleled access to company management allows it to engage on issues that are identified through questioning management teams and conducting site visits. In conjunction with the portfolio management team, BIS meets with boards of companies frequently to evaluate how they are strategically managing their longer-term issues, including those surrounding ESG and the potential impact these may have on company financials. BIS’s and the portfolio management team’s understanding of ESG issues is further supported by BlackRock’s Sustainable Investment Team (BSI). BSI looks to advance ESG research and integration, active engagement and the development of sustainable investment solutions across the firm.
INVESTMENT STEWARDSHIP
As a fiduciary to its clients, BlackRock has built its business to protect and grow the value of clients’ assets. As part of this fiduciary duty to its clients, BIS is committed to promoting sound corporate governance through engagement with investee companies, development of proxy voting policies that support best governance practices and also through wider engagement on public policy issues.
Global Principles
BlackRock’s approach to corporate governance and stewardship is explained in its Global Principles. These high-level Principles are the framework for BlackRock’s more detailed, market-specific voting guidelines, all of which are published on the BlackRock website. The Principles describe BlackRock’s philosophy on stewardship (including how it monitors and engages with companies), its policy on voting, its integrated approach to stewardship matters and how it deals with conflicts of interest. These apply across relevant asset classes and products as permitted by investment strategies. BlackRock reviews its Global Principles annually and updates them as necessary to reflect market standards, evolving governance practice and insights gained from engagement over the prior year. BlackRock’s Global Principles are available on its website at https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf
Market-specific proxy voting guidelines
BlackRock’s voting guidelines are intended to help clients and companies understand its thinking on key governance matters. They are the benchmark against which it assesses a company’s approach to corporate governance and the items on the agenda to be voted on at the shareholder meeting. BlackRock applies its guidelines pragmatically, taking into account a company’s unique circumstances where relevant. BlackRock informs voting decisions through research and engages as necessary. BlackRock reviews its voting guidelines annually and updates them as necessary to reflect changes in market standards, evolving governance practice and insights gained from engagement over the prior year.
BlackRock’s market-specific voting guidelines are available on its website at https://www.blackrock.com/corporate/about-us/investment-stewardship#principles-and-guidelines
In 2021, BIS explicitly asked that all companies disclose a business plan aligned with the goal of limiting global warming to well below 2ºC, consistent with achieving net zero global greenhouse gas (GHG) emissions by 2050. BlackRock viewed these disclosures as essential to helping investors assess a company’s ability to transition its business to a low carbon world and to capture value-creation opportunities created by the climate transition. BlackRock also asked that companies align their disclosures to the Task Force on Climate-related Financial Disclosures (TCFD) framework and the SASB standards. For 2022, BIS is evolving its perspective on sustainability reporting to recognise that companies may use standards other than that of the SASB and reiterates its request for metrics that are industry- or company-specific. BIS is also encouraging companies to demonstrate that their plans are resilient under likely decarbonisation pathways, and the global aspiration to limit warming to 1.5°C. BIS is also asking companies to disclose how considerations related to having a reliable energy supply and just transition affect their plans. More information in respect of BlackRock’s investment stewardship approach to sustainable investing can be found at https://www.blackrock.com/corporate/literature/publication/blk-commentary-climate-risk-and-energy-transition.pdf
BlackRock has been a member of Climate Action 100+ since 2020 and has aligned its engagement and stewardship priorities to UN Sustainable Development Goals (including Gender Equality and Affordable and Clean Energy). A map of how BIS’s engagement priorities align to the UN Sustainable Development Goals (SDGs) can be found at https://www.blackrock.com/corporate/literature/publication/blk-engagement-priorities-aligned-to-sdgs.pdf
BlackRock is committed to transparency in terms of disclosure on its engagement with companies and voting rationales and is committed to voting against management to the extent that they have not demonstrated sufficient progress on ESG issues. This year, BlackRock voted against or withheld votes from 6,560 directors globally at 3,400 different companies driven by concerns regarding director independence, executive compensation, insufficient progress on board diversity and overcommitted directors, reflecting our intensified focus on sustainability risks. In the 2020-2021 proxy year, BlackRock voted against 255 directors and against 319 companies for climate-related concerns that could negatively affect long-term shareholder value. More detail in respect of BIS’s engagement and voting history can be found at https://www.blackrock.com/corporate/literature/publication/2021-voting-spotlight-full-report.pdf
BIS also publishes voting bulletins explaining its vote decision and the engagement and analysis underpinning it, on certain high-profile proposals at company shareholder meetings. Vote bulletins for 2021 can be found at https://www.blackrock.com/corporate/about-us/investment-stewardship#vote-bulletins
BLACKROCK’S REPORTING AND DISCLOSURES
In terms of its own reporting, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the TCFD provides a valuable framework. BlackRock recognises that reporting to these standards requires significant time, analysis, and effort. BlackRock’s 2021 TCFD report can be found at https://www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2021-blkinc.pdf
By order of the Board
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
7 March 2022
TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Group’s consent) delegated certain portfolio and risk management services, and other ancillary services to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report in the Annual Report and Financial Statements.
The investment management fee due for the year ended 31 December 2021 amounted to £9,230,000 (2020: £6,405,000). At the year end, £4,587,000 (2020: £2,064,000) was outstanding in respect of management fees.
In addition to the above services, BlackRock has provided the Group with marketing services. The total fees paid or payable for these services for the year ended 31 December 2021 amounted to £140,000 excluding VAT (2020: £152,000 excluding VAT). Marketing fees of £55,000 were outstanding as at 31 December 2021 (2020: £55,000).
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware USA.
RELATED PARTY TRANSACTIONS
The Board consists of five non-executive Directors all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £47,000, the Chairman of the Audit Committee/Senior Independent Director receives an annual fee of £39,500, and each other Director receives an annual fee of £32,000. All five members of the Board hold shares in the Company. Mr Cheyne 35,000 ordinary shares, Mr Edey 20,000 ordinary shares, Ms Lewis 5,362 ordinary shares, Ms Mosely 7,400 ordinary shares and Mr Venkatakrishnan 1,000 ordinary shares. The amount of Directors’ fees outstanding at 31 December 2021 was £14,375 (2020: £14,375).
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the financial statements in accordance with UK-adopted International Accounting Standards (IAS).
Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing those financial statements, the Directors are required to:
· present fairly the financial position, financial performance and cash flows of the Group and Company;
· select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· state whether the financial statements have been prepared in accordance with UK-adopted IAS, subject to any material departures disclosed and explained in the financial statements;
· provide additional disclosures when compliance with the specific requirements in accordance with UK-adopted IAS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s and Company’s financial position and financial performance; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report, Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company’s corporate and financial information included on the BlackRock website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed in the Annual Report and Financial Statements, confirm to the best of their knowledge that:
· the financial statements, which have been prepared in accordance with UK-adopted IAS, give a true and fair view of the assets, liabilities, financial position and net return of the Group and Company; and
· the Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit Committee’s Report in the Annual Report and Financial Statements. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 December 2021, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s and Company’s position, performance, business model and strategy.
For and on behalf of the Board
DAVID CHEYNE
Chairman
7 March 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021
| Revenue | Capital | Total | |||||
|
|
Notes |
2021 £000 |
2020 (Restated)1 £000 |
2021 £000 |
2020 £000 |
2021 £000 |
2020 (Restated)1 £000 |
| Income from investments held at fair value through profit or loss | 3 | 80,558 | 31,613 | – | – | 80,558 | 31,613 |
| Other income | 3 | 7,118 | 7,964 | – | – | 7,118 | 7,964 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total revenue | 87,676 | 39,577 | – | – | 87,676 | 39,577 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Net profit on investments held at fair value through profit or loss | – | – | 122,374 | 183,667 | 122,374 | 183,667 | |
| Net (loss)/profit on foreign exchange | – | – | (1,696) | 2,431 | (1,696) | 2,431 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total | 87,676 | 39,577 | 120,678 | 186,098 | 208,354 | 225,675 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Expenses | |||||||
| Investment management fee | 4 | (2,252) | (1,546) | (6,978) | (4,859) | (9,230) | (6,405) |
| Other operating expenses | 5 | (1,034) | (1,103) | (9) | (18) | (1,043) | (1,121) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total operating expenses | (3,286) | (2,649) | (6,987) | (4,877) | (10,273) | (7,526) | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Net profit on ordinary activities before finance costs and taxation | 84,390 | 36,928 | 113,691 | 181,221 | 198,081 | 218,149 | |
| Finance costs | 6 | (374) | (424) | (1,117) | (1,272) | (1,491) | (1,696) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net profit on ordinary activities before taxation | 84,016 | 36,504 | 112,574 | 179,949 | 196,590 | 216,453 | |
| Taxation (charge)/credit | (5,106) | (1,053) | 986 | 1,115 | (4,120) | 62 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net profit on ordinary activities after taxation | 78,910 | 35,451 | 113,560 | 181,064 | 192,470 | 216,515 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Earnings per ordinary share (pence) – basic and diluted | 8 | 43.59 | 20.40 | 62.73 | 104.22 | 106.32 | 124.62 |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
1 Please refer to note 2 “Restatement of 2020 comparatives” below for further details.
The total column of this statement represents the Group’s Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards. 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 year. All income is attributable to the equity holders of the Group.
The Group does not have any other comprehensive income. The net profit for the year disclosed above represents the Group’s total comprehensive income.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021
|
Group |
Notes |
Called up share capital £000 |
Share premium account £000 |
Capital redemption reserve £000 |
Special reserve £000 |
Capital reserves £000 |
Revenue reserve £000 |
Total £000 |
| For the year ended 31 December 2021 | ||||||||
| 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 | 9,10 | – | 11,663 | – | 51,651 | – | – | 63,314 |
| Share reissue costs | 9,10 | – | – | – | (127) | – | – | (127) |
| Ordinary shares purchased into treasury | 9,10 | – | – | – | (390) | – | – | (390) |
| Share purchase costs | 9,10 | – | – | – | (3) | – | – | (3) |
| Dividends paid1 | 7 | – | – | – | – | – | (43,215) | (43,215) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 31 December 2021 | 9,651 | 138,818 | 22,779 | 155,123 | 742,430 | 74,073 | 1,142,874 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| For the year ended 31 December 2020 | ||||||||
| At 31 December 2019 | 9,651 | 127,155 | 22,779 | 108,601 | 447,806 | 41,118 | 757,110 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | – | 181,064 | 35,451 | 216,515 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury | – | – | – | (4,573) | – | – | (4,573) | |
| Share purchase costs | – | – | – | (36) | – | – | (36) | |
| Dividends paid2 | 7 | – | – | – | – | – | (38,191) | (38,191) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 31 December 2020 | 9,651 | 127,155 | 22,779 | 103,992 | 628,870 | 38,378 | 930,825 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
1 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.
2 The final dividend of 10.00p per share for the year ended 31 December 2019, declared on 27 February 2020 and paid on 7 May 2020; 1st interim dividend of 4.00p per share for the year ended 31 December 2020, declared on 30 April 2020 and paid on 26 June 2020; 2nd interim dividend of 4.00p per share for the year ended 31 December 2020, declared on 19 August 2020 and paid on 25 September 2020 and 3rd interim dividend of 4.00p per share for the year ended 31 December 2020, declared on 12 November 2020 and paid on 18 December 2020.
For information on the Company’s distributable reserves please refer to note 17 in the Annual Report and Financial Statements.
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021
|
Company |
Notes |
Called up share capital £000 |
Share premium account £000 |
Capital redemption reserve £000 |
Special reserve £000 |
Capital reserves £000 |
Revenue reserve £000 |
Total £000 |
| For the year ended 31 December 2021 | ||||||||
| At 31 December 2020 | 9,651 | 127,155 | 22,779 | 103,992 | 634,547 | 32,701 | 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 | 9,10 | – | 11,663 | – | 51,651 | – | – | 63,314 |
| Share reissue costs | 9,10 | – | – | – | (127) | – | – | (127) |
| Ordinary shares purchased into treasury | 9,10 | – | – | – | (390) | – | – | (390) |
| Share purchase costs | 9,10 | – | – | – | (3) | – | – | (3) |
| Dividends paid1 | 7 | – | – | – | – | – | (43,215) | (43,215) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 31 December 2021 | 9,651 | 138,818 | 22,779 | 155,123 | 748,107 | 68,396 | 1,142,874 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| For the year ended 31 December 2020 | ||||||||
| At 31 December 2019 | 9,651 | 127,155 | 22,779 | 108,601 | 454,613 | 34,311 | 757,110 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | – | 179,934 | 36,581 | 216,515 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury | – | – | – | (4,573) | – | – | (4,573) | |
| Share purchase costs | – | – | – | (36) | – | – | (36) | |
| Dividends paid2 | 7 | – | – | – | – | – | (38,191) | (38,191) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 31 December 2020 | 9,651 | 127,155 | 22,779 | 103,992 | 634,547 | 32,701 | 930,825 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
1 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.
2 The final dividend of 10.00p per share for the year ended 31 December 2019, declared on 27 February 2020 and paid on 7 May 2020; 1st interim dividend of 4.00p per share for the year ended 31 December 2020, declared on 30 April 2020 and paid on 26 June 2020; 2nd interim dividend of 4.00p per share for the year ended 31 December 2020, declared on 19 August 2020 and paid on 25 September 2020 and 3rd interim dividend of 4.00p per share for the year ended 31 December 2020, declared on 12 November 2020 and paid on 18 December 2020.
For information on the Company’s distributable reserves please refer to note 17 in the Annual Report and Financial Statements.
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2021
| 31 December 2021 | 31 December 2020 | |||||
|
|
Notes |
Group £000 |
Company £000 |
Group (Restated)1 £000 |
Company £000 |
|
| Non current assets | ||||||
| Investments held at fair value through profit or loss | 1,256,801 | 1,263,979 | 1,045,818 | 1,052,996 | ||
| Current assets | ||||||
| Current tax asset | 85 | 85 | 114 | 114 | ||
| Other receivables | 5,209 | 5,209 | 6,723 | 6,723 | ||
| Cash collateral held with brokers | 580 | 580 | 2,943 | 2,943 | ||
| Cash and cash equivalents | 26,332 | 20,222 | 6,419 | 309 | ||
| --------------- | --------------- | --------------- | --------------- | |||
| Total current assets | 32,206 | 26,096 | 16,199 | 10,089 | ||
| ========= | ========= | ========= | ========= | |||
| Total assets | 1,289,007 | 1,290,075 | 1,062,017 | 1,063,085 | ||
| Current liabilities | ||||||
| Current tax liability | (427) | (427) | (511) | (511) | ||
| Other payables | (5,183) | (6,251) | (5,034) | (6,102) | ||
| Derivative financial liabilities held at fair value through profit or loss | (667) | (667) | (587) | (587) | ||
| Bank overdraft | (356) | (356) | (22,427) | (22,427) | ||
| Bank loans | (138,867) | (138,867) | (102,418) | (102,418) | ||
| --------------- | --------------- | --------------- | --------------- | |||
| Total current liabilities | (145,500) | (146,568) | (130,977) | (132,045) | ||
| --------------- | --------------- | --------------- | --------------- | |||
| Total assets less current liabilities | 1,143,507 | 1,143,507 | 931,040 | 931,040 | ||
| ========= | ========= | ========= | ========= | |||
| Non current liabilities | ||||||
| Deferred taxation liability | (633) | (633) | (215) | (215) | ||
| --------------- | --------------- | --------------- | --------------- | |||
| Net assets | 1,142,874 | 1,142,874 | 930,825 | 930,825 | ||
| ========= | ========= | ========= | ========= | |||
| Equity attributable to equity holders | ||||||
| Called up share capital | 9 | 9,651 | 9,651 | 9,651 | 9,651 | |
| Share premium account | 10 | 138,818 | 138,818 | 127,155 | 127,155 | |
| Capital redemption reserve | 10 | 22,779 | 22,779 | 22,779 | 22,779 | |
| Special reserve | 10 | 155,123 | 155,123 | 103,992 | 103,992 | |
| Capital reserves: | ||||||
| At 1 January | 628,870 | 634,547 | 447,806 | 454,613 | ||
| Net profit for the year | 113,560 | 113,560 | 181,064 | 179,934 | ||
| --------------- | --------------- | --------------- | --------------- | |||
| At 31 December | 10 | 742,430 | 748,107 | 628,870 | 634,547 | |
| ========= | ========= | ========= | ========= | |||
| Revenue reserve: | ||||||
| At 1 January | 38,378 | 32,701 | 41,118 | 34,311 | ||
| Net profit for the year | 78,910 | 78,910 | 35,451 | 36,581 | ||
| Dividends paid | (43,215) | (43,215) | (38,191) | (38,191) | ||
| --------------- | --------------- | --------------- | --------------- | |||
| At 31 December | 10 | 74,073 | 68,396 | 38,378 | 32,701 | |
| ========= | ========= | ========= | ========= | |||
| Total equity | 1,142,874 | 1,142,874 | 930,825 | 930,825 | ||
| ========= | ========= | ========= | ========= | |||
| Net asset value per ordinary share (pence) | 8 | 622.21 | 622.21 | 536.34 | 536.34 | |
| ========= | ========= | ========= | ========= | |||
1 Please refer to note 2 “Restatement of 2020 comparatives” below for further details.
CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
| 31 December 2021 | 31 December 2020 | |||
|
|
Group £000 |
Company £000 |
Group (Restated)1 £000 |
Company £000 |
| Operating activities | ||||
| Net profit before taxation | 196,590 | 196,590 | 216,453 | 216,453 |
| Add back finance costs | 1,491 | 1,491 | 1,696 | 1,696 |
| Net profit on investments held at fair value through profit or loss (including transaction costs) | (122,374) | (122,374) | (183,667) | (182,536) |
| Loss on investment dealing in the subsidiary | – | – | 1,128 | – |
| Net loss/(profit) on foreign exchange | 1,696 | 1,696 | (2,431) | (2,431) |
| Sales of investments held at fair value through profit or loss | 354,182 | 354,182 | 360,288 | 359,062 |
| Purchases of investments held at fair value through profit or loss | (442,711) | (442,711) | (377,517) | (377,517) |
| (Increase)/decrease in other receivables | (1,233) | (1,233) | 618 | 618 |
| Increase in other payables | 2,571 | 2,571 | 268 | 268 |
| Decrease/(increase) in amounts due from brokers | 2,776 | 2,776 | (2,902) | (2,902) |
| (Decrease)/increase in amounts due to brokers | (2,473) | (2,473) | 2,473 | 2,473 |
| Net movement in cash collateral held with brokers | 2,363 | 2,363 | (2,512) | (2,512) |
| --------------- | --------------- | --------------- | --------------- | |
| Net cash (outflow)/inflow from operating activities before taxation | (7,122) | (7,122) | 13,895 | 12,672 |
| Taxation paid | (484) | (484) | (1,038) | (1,038) |
| Taxation on investment income included within gross income | (3,303) | (3,303) | (1,664) | (1,664) |
| Prior years corporation tax refund | – | – | 2,687 | 2,687 |
| --------------- | --------------- | --------------- | --------------- | |
| Net cash (outflow)/inflow from operating activities | (10,909) | (10,909) | 13,880 | 12,657 |
| ========= | ========= | ========= | ========= | |
| Financing activities | ||||
| Drawdown of loans | 35,020 | 35,020 | 15,016 | 15,016 |
| Interest paid | (1,439) | (1,439) | (1,772) | (1,772) |
| Shares purchased into treasury | (390) | (390) | (5,455) | (5,455) |
| Share purchase costs paid | (3) | (3) | (36) | (36) |
| Net proceeds from ordinary shares reissued from treasury | 63,187 | 63,187 | – | – |
| Dividends paid | (43,215) | (43,215) | (38,191) | (38,191) |
| --------------- | --------------- | --------------- | --------------- | |
| Net cash inflow/(outflow) from financing activities | 53,160 | 53,160 | (30,438) | (30,438) |
| ========= | ========= | ========= | ========= | |
| Increase/(decrease) in cash and cash equivalents | 42,251 | 42,251 | (16,558) | (17,781) |
| Cash and cash equivalents at start of the year | (16,008) | (22,118) | 1,300 | (3,587) |
| Effect of foreign exchange rate changes | (267) | (267) | (750) | (750) |
| --------------- | --------------- | --------------- | --------------- | |
| Cash and cash equivalents at end of year | 25,976 | 19,866 | (16,008) | (22,118) |
| ========= | ========= | ========= | ========= | |
| Comprised of: | ||||
| Cash and cash equivalents | 26,332 | 20,222 | 6,419 | 309 |
| Bank overdraft | (356) | (356) | (22,427) | (22,427) |
| --------------- | --------------- | --------------- | --------------- | |
| 25,976 | 19,866 | (16,008) | (22,118) | |
| ========= | ========= | ========= | ========= | |
1 Please refer to note 2 “Restatement of 2020 comparatives” below for further details.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010. The Company was incorporated in England on 28 October 1993 and this is the 28th Annual Report.
The principal activity of the subsidiary, BlackRock World Mining Investment Company Limited, is investment dealing.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Group and Company have been applied consistently, other than where new policies have been adopted and are set out below.
(a) Basis of preparation
On 31 December 2020, International Financial Reporting Standards (IFRS) as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted International Accounting Standards in its consolidated financial statements with effect from 1 January 2021. There was no impact or changes in accounting policies from the transition.
The Group and Company financial statements have been prepared under the historic cost convention modified by the revaluation of certain financial assets and financial liabilities held at fair value through profit or loss and in accordance with UK-adopted International Accounting Standards (IASs). The Company has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to publish its individual Statement of Comprehensive Income and related notes. All of the Group’s operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts, issued by the Association of Investment Companies (AIC) in October 2019 and updated in April 2021, is compatible with UK-adopted International Accounting Standards, the financial statements have been prepared in accordance with guidance set out in the SORP.
Substantially all of the assets of the Group consist of securities that are readily realisable and, accordingly, the Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of at least one year from the date of approval of the financial statements and therefore consider the going concern assumption to be appropriate. The Directors have considered the potential impact of the COVID-19 pandemic, its potential longer-term effects on the global economy and the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience on the going concern of the Group. The Directors have reviewed compliance with the covenants associated with the bank overdraft facility, loan facility, income and expense projections and the liquidity of the investment portfolio in making their assessment.
The Group’s financial statements are presented in Sterling, which is the currency of the primary economic environment in which the Group operates. All values are rounded to the nearest thousand pounds (£000) except where otherwise indicated.
Adoption of new and amended standards and interpretations:
Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform Phase 2 (effective 1 January 2021). The Phase 2 amendments address issues that might affect financial reporting during the reform of an interest rate benchmark, including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate (replacement issues).
The objectives of the Phase 2 amendments are to assist companies in:
· applying IFRS Standards when changes are made to contractual cash flows or hedging relationships because of the interest rate benchmark reform; and
· providing useful information to users of financial statements.
In Phase 2 of its project, the Board amended requirements in IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases relating to:
· changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities;
· hedge accounting; and
· disclosures.
The Phase 2 amendments apply only to changes required by the interest rate benchmark reform to financial instruments and hedging relationships.
These amendments have been adopted by the UK. The adoption of these amendments did not have any significant impact on the Group.
Relevant International accounting standards (IASs) that have yet to be adopted:
IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction (effective 1 January 2023). The 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.
Restatement of 2020 comparatives
In May 2021, the Company received correspondence from the FRC’s Corporate Reporting Review Team who had reviewed the 2020 annual report and financial statements. The FRC requested further information relating to disclosure of quantitative information about significant unobservable inputs used in the valuation of OZ Minerals Brazil royalty, on which the Company was required to respond to help the FRC Corporate Reporting Review Team understand how the Company had satisfied the relevant reporting requirements. In addition, the Company was encouraged to make improvements in relation to a number of observations made by the FRC on the 2020 annual report and financial statements, if material and relevant.
Following provision of the information requested, the FRC Corporate Reporting Review Team closed its enquiry in June 2021. Further disclosure observations made by the FRC were given full consideration and additional disclosures were incorporated into the 2021 annual report and financial statements where material and relevant to do so.
In order to better reflect the requirements of IAS 32, ‘Financial Instruments: Presentation’, the Parent Company’s bank overdraft has been presented separately from the subsidiary’s cash balance in the Consolidated Statement of Financial Position and the Consolidated Cash Flow Statement with comparatives restated. These balances were previously shown on a net basis for the Group. This change in presentation has no impact on the Group’s net assets or the Group’s Statement of Comprehensive Income. The Group’s cash and cash equivalents balance as at 31 December 2020 has been restated from £309,000 to £6,419,000 and the Group overdraft balance has been restated from £16,317,000 to £22,427,000.
The Group has restated separately the presentation of the Curret tax asset of £114,000 at 31 December 2020 and Current tax liability of £511,000 at 31 December 2020 which were previously included within Other receivables and Other payables respectively in the Consolidated Statement of Financial Position.
The Group has restated the presentation of provision for doubtful debts of £106,000 for the year ended 31 December 2020 which was presented within income in note 3 and has now been classified as an other operating expense in note 5. This change in presentation has no impact on the Group’s net revenue earnings or the Group’s net assets.
(b) Basis of consolidation
The Group’s financial statements are made up to 31 December each year and consolidate the financial statements of the Company and its wholly owned subsidiary, which is registered and operates in England and Wales, BlackRock World Mining Investment Company Limited (together ‘the Group’). The subsidiary company is not considered an investment entity. In the financial statements of the Parent Company, the investment in the subsidiary company is held at fair value.
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are based on consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising therefrom, are eliminated.
(c) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Consolidated Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Consolidated Statement of Comprehensive Income.
(d) Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment of business being investment business.
(e) Income
Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends and interest income not expected to be received. Special dividends, if any, are treated as a capital or a revenue receipt depending on the facts or circumstances of each particular case. The return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security. Interest income and deposit interest is accounted for on an accruals basis.
Options may be purchased or written over securities held in the portfolio for generating or protecting capital returns, or for generating or maintaining revenue returns. Where the purpose of the option is the generation of income, the premium is treated as a revenue item. Where the purpose of the option is the maintenance of capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the life of the option contract and included in the revenue account of the Consolidated Statement of Comprehensive Income unless the option has been written for the maintenance and enhancement of the Group’s investment portfolio and represents an incidental part of a larger capital transaction, in which case any premia arising are allocated to the capital account of the Consolidated Statement of Comprehensive Income.
Royalty income from contractual rights is measured at the fair value of the consideration received or receivable where the Investment Manager can reliably estimate the amount, pursuant to the terms of the agreement. Royalty income from contractual rights received comprises of a return of income and a return of capital based on the underlying cost of the contract and, accordingly, the return of income element is taken to the revenue account and the return of capital element is taken to the capital account. These amounts are disclosed in the Consolidated Statement of Comprehensive Income within income from investments and net profit on investments held at fair value through profit or loss, respectively.
The useful life of the contractual rights will be determined by reference to the contractual arrangements, the planned mine life on commencement of mining and the underlying cost of the contractual rights will be revalued on a systematic basis using the units of production method over the life of the contractual rights which is estimated using available estimated proved and probable reserves specifically associated with the mine. The Investment Manager relies on public disclosures for information on proven and probable reserves from the operators of the mine. Amortisation rates are adjusted on a prospective basis for all changes to estimates of the life of contractual rights and iron ore reserves. These are disclosed in the Consolidated Statement of Comprehensive Income within net profit on investments held at fair value through profit or loss.
Where the Group has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.
Underwriting commission receivable is taken into account on an accruals basis.
(f) Expenses
All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue account of the Consolidated Statement of Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an investment are charged to the capital account of the Consolidated Statement of Comprehensive Income. Details of transaction costs on the purchases and sales of investments are disclosed within note 10 to the financial statements in the Annual Report and Financial Statements;
· expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated; and
· the investment management fee and finance costs have been allocated 75% to the capital account and 25% to the revenue account of the Consolidated Statement of Comprehensive Income in line with the Board’s expectations of the long-term split of returns, in the form of capital gains and income, respectively, from the investment portfolio.
(g) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.
Where expenses are allocated between capital and revenue accounts, any tax relief in respect of the expenses is allocated between capital and revenue returns on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to pay less taxation in the future have occurred at the financial reporting date. This is subject to deferred taxation assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred taxation assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.
(h) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Group classifies its investments at initial recognition as held at fair value through profit or loss and are managed and evaluated on a fair value basis in accordance with its investment strategy and business model.
All investments, including contractual rights, are measured initially and subsequently at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Contractual rights are recognised on the completion date, where a purchase of the rights is under a contract, and are initially measured at fair value excluding transaction costs. Sales of investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price at the financial reporting date, without deduction for the estimated future selling costs. This policy applies to all current and non-current asset investments held by the Group.
The gains and losses from changes in fair value of contractual rights are taken to the Consolidated Statement of Comprehensive Income and arise as a result of the revaluation of the underlying cost of the contractual rights, changes in commodity prices and changes in estimates of proven and probable reserves specifically associated with the mine.
Under IFRS, the investment in the subsidiary in the Company’s Statement of Financial Position is fair valued which is deemed to be the net asset value of the subsidiary.
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Consolidated Statement of Comprehensive Income as ‘Net profits or losses on investments held at fair value through profit or loss’. Also included within the heading are transaction costs in relation to the purchase or sale of investments.
For all financial instruments not traded in an active market, the fair value is determined by using various valuation techniques. Valuation techniques include market approach (i.e., using recent arm’s length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (i.e., discounted cash flow analysis and option pricing models making as much use of available and supportable market data where possible). See note 2(q) below.
(i) Options
Options are held at fair value through profit or loss based on the bid/offer prices of the options written to which the Group is exposed. The value of the option is subsequently marked-to-market to reflect the fair value through profit or loss of the option based on traded prices. Where the premium is taken to the revenue account, an appropriate amount is shown as capital return such that the total return reflects the overall change in the fair value of the option. When an option is exercised, the gain or loss is accounted for as a capital gain or loss. Any cost on closing out an option is transferred to the revenue account along with any remaining unamortised premium.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated on an amortised cost basis.
(k) Dividends payable
Under IASs, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the financial reporting date. Interim dividends should not be recognised in the financial statements unless they have been paid.
Dividends payable to equity shareholders are recognised in the Consolidated and Parent Company Statements of Changes in Equity.
(l) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities and non-monetary assets held at fair value are translated into Sterling at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate. For investment transactions and investments held at the year end, denominated in a foreign currency, the resulting gains or losses are included in the profit/(loss) on investments held at fair value through profit or loss in the Consolidated Statement of Comprehensive Income.
(m) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. Bank overdrafts are shown separately on the Consolidated and Parent Company Statements of Financial Position.
(n) Bank borrowings
Bank overdrafts and loans are recorded as the proceeds received. Finance charges, including any premium payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Consolidated Statement of Comprehensive Income using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
(o) Offsetting
Financial assets and financial liabilities are offset and the net amount reported in the Consolidated and Parent Company Statements of Financial Position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
(p) Share repurchases and share reissues
Shares repurchased and subsequently cancelled – share capital is reduced by the nominal value of the shares repurchased and the capital redemption reserve is correspondingly increased in accordance with Section 733 of the Companies Act 2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is charged to the special reserve.
Where treasury shares are subsequently reissued:
· amounts received to the extent of the repurchase price are credited to the special reserve; and
· any surplus received in excess of the repurchase price is taken to the share premium account.
(q) Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
Fair value of unquoted financial instruments
When the fair values of financial assets and financial liabilities recorded in the Consolidated and Parent Company Statements of Financial Position cannot be derived from active markets, their fair value is determined using a variety of valuation techniques that include the use of valuation models.
(a) The fair value of the OZ Minerals contractual rights was assessed by an independent valuer with a recognised and relevant professional qualification. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. The estimates include considerations of production profiles, commodity prices, cash flows and discount rates. Changes in assumptions about these factors could affect the reported fair value of financial instruments in the Consolidated and Parent Company Statements of Financial Position and the level where the instruments are disclosed in the fair value hierarchy. To assess the significance of a particular input to the entire measurement, the external valuer performs sensitivity analysis.
(b) The fair value of the investment in convertible bonds and equity shares of Ivanhoe Electric and I-Pulse were assessed by an independent valuer with a recognised and relevant professional qualification. The valuation is carried out based on market approach using multiples based on total assets. The valuation of convertible notes is based on a scenario approach, with the conversion at a discount in an IPO modelled as debt-like payments, and the conversion option modelled via the Black-Scholes option pricing model. The estimates include 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 and Parent Company Statements of Financial Position and the level where the instruments are disclosed in the fair value hierarchy. To assess the significance of a particular input to the entire measurement, the external valuer performs sensitivity analysis.
(c) The investment in the subsidiary company was valued based on the net assets of the subsidiary company, which is considered appropriate based on the nature and volume of transactions in the subsidiary company.
The key assumptions used to determine the fair value of the unquoted financial instruments and sensitivity analyses are provided in note 11 below.
3. INCOME
|
|
2021 £000 |
2020 (Restated)1 £000 |
| Investment income: | ||
| UK dividends | 25,681 | 12,328 |
| UK special dividends | 5,507 | – |
| Overseas dividends | 36,624 | 12,133 |
| Overseas special dividends | 1,250 | 538 |
| Income from contractual rights (OZ Minerals Royalty) | 2,562 | 1,800 |
| Income from Vale debentures | 6,971 | 2,304 |
| Income from fixed income investments | 1,963 | 2,510 |
| --------------- | --------------- | |
| 80,558 | 31,613 | |
| ========= | ========= | |
| Other income: | ||
| Option premium income | 7,065 | 8,765 |
| Deposit interest | – | 7 |
| Interest on corporation tax refund | – | 293 |
| Stock lending income | 53 | 27 |
| Loss on investment dealing in the subsidiary | – | (1,128) |
| --------------- | --------------- | |
| 7,118 | 7,964 | |
| ========= | ========= | |
| Total income | 87,676 | 39,577 |
| ========= | ========= |
1 Please refer to note 2 “Restatement of 2020 comparatives” above for further details.
During the year, the Group received option premium income in cash totalling £6,745,000 (2020: £8,821,000) for writing put and covered call options for the purposes of revenue generation.
Option premium income is amortised evenly over the life of the option contract and, accordingly, during the year, option premiums of £7,065,000 (2020: £8,765,000) were amortised to revenue.
At 31 December 2021, there were two open positions (2020: two) with an associated liability of £667,000 (2020: £587,000).
Dividends and interest received in cash during the year amounted to £68,199,000 and £5,186,000 (2020: £25,363,000 and £3,421,000).
No special dividends have been recognised in capital during the year (2020: £34,000).
4. INVESTMENT MANAGEMENT FEE
| 2021 | 2020 | |||||
|
|
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| Investment management fee | 2,252 | 6,978 | 9,230 | 1,546 | 4,859 | 6,405 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Total | 2,252 | 6,978 | 9,230 | 1,546 | 4,859 | 6,405 |
| ========= | ========= | ========= | ========= | ========= | ========= | |
The investment management fee (which includes all services provided by BlackRock) is 0.8% of the Company’s net assets. However, in the event that the NAV per share increases on a quarter–on–quarter basis, the fee will then be paid on gross assets for the quarter. During the year, £8,537,000 (2020: £5,907,000) of the investment management fee was generated from net assets and £693,000 (2020: £498,000) from the gearing effect on gross assets due to the quarter–on–quarter increase in the NAV per share for the year as set out below:
|
Quarter end |
Cum income NAV per share (pence) |
Quarterly increase/ (decrease) % |
Gearing effect on management fees (£000) |
| 31 December 2020 | 536.34 | – | – |
| 31 March 2021 | 566.62 | +5.6 | 243 |
| 30 June 2021 | 616.20 | +8.8 | 224 |
| 30 September 2021 | 554.49 | -10.0 | – |
| 31 December 2021 | 622.21 | +12.2 | 226 |
| ========= | ========= | ========= |
|
Quarter end |
Cum income NAV per share (pence) |
Quarterly increase/ (decrease) % |
Gearing effect on management fees (£000) |
| 31 December 2019 | 433.17 | – | – |
| 31 March 2020 | 307.48 | -29.0 | – |
| 30 June 2020 | 428.24 | +39.3 | – |
| 30 September 2020 | 456.18 | +6.5 | – |
| 31 December 2020 | 536.34 | +17.6 | – |
| ========= | ========= | ========= |
The daily average of the net assets under management during the year ended 31 December 2021 was £1,085,438,000 (2020: £748,853,000).
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
|
|
2021 £000 |
2020 (Restated)1 £000 |
| Allocated to revenue: | ||
| Custody fee | 103 | 105 |
| Auditors’ remuneration: | ||
| – audit services | 41 | 39 |
| – non-audit services² | 9 | 8 |
| Registrar’s fee | 91 | 86 |
| Directors’ emoluments³ | 176 | 183 |
| AIC fees | 21 | 17 |
| Broker fees | 25 | 24 |
| Depositary fees | 101 | 74 |
| FCA fee | 24 | 20 |
| Directors’ insurance | 19 | 14 |
| Marketing fees | 140 | 152 |
| Stock exchange fees | 26 | 21 |
| Legal and professional fees | 52 | 40 |
| Bank facility fees4 | 73 | 72 |
| Directors’ search fees | – | 13 |
| Printing and postage fees | 37 | 41 |
| Write back of prior year expenses5 | – | (18) |
| Provision for doubtful debts | – | 106 |
| Other administrative costs | 96 | 106 |
| --------------- | --------------- | |
| 1,034 | 1,103 | |
| ========= | ========= | |
| Allocated to capital: | ||
| Custody transaction charges6 | 9 | 18 |
| --------------- | --------------- | |
| 1,043 | 1,121 | |
| ========= | ========= |
| 2021 | 2020 | |
| The Company’s ongoing charges7, calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items were: | 0.95% | 0.99% |
| --------------- | --------------- | |
| The Company’s ongoing charges7, calculated as a percentage of average daily gross assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items were: | 0.84% | 0.87% |
| ========= | ========= |
1 Please refer to note 2 “Restatement of 2020 comparatives” above for further details.
2 Fees paid to the auditor for non-audit services of £8,500 excluding VAT (2020: £7,540) relate to the review of the Condensed Half Yearly Financial Report.
3 Details of the Directors’ emoluments can be found in the Directors’ Remuneration Report in the Annual Report and Financial Statements. The Company has no employees.
4 There is a 4 basis point facility fee chargeable on the full loan facility amount whether drawn or undrawn.
5 Relates to prior year accrual for broker fees written back during the year.
6 For the year ended 31 December 2021, expenses of £9,000 (2020: £18,000) 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.
7 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.
6. FINANCE COSTS
| 2021 | 2020 | |||||
|
|
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| Interest payable – bank loans | 365 | 1,097 | 1,462 | 409 | 1,229 | 1,638 |
| Interest payable – bank overdraft | 9 | 20 | 29 | 15 | 43 | 58 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Total | 374 | 1,117 | 1,491 | 424 | 1,272 | 1,696 |
| ========= | ========= | ========= | ========= | ========= | ========= | |
7. DIVIDENDS
Dividends paid on equity shares:
|
|
Record date |
Payment date |
2021 £000 |
2020 £000 |
| Final dividend of 8.30p per share for the year ended 31 December 2020 (2019: 10.00p) |
19 March 2021 | 6 May 2021 | 14,782 | 17,361 |
| 1st interim dividend of 4.50p per share for the year ended 31 December 2021 (2020: 4.00p) | 28 May 2021 | 25 June 2021 | 8,224 | 6,944 |
| 2nd interim dividend of 5.50p per share for the year ended 31 December 2021 (2020: 4.00p) | 27 August 2021 | 24 September 2021 | 10,106 | 6,944 |
| 3rd interim dividend of 5.50p per share for the year ended 31 December 2021 (2020: 4.00p) | 26 November 2021 | 24 December 2021 | 10,103 | 6,942 |
| --------------- | --------------- | |||
| 43,215 | 38,191 | |||
| ========= | ========= |
The total dividends payable in respect of the year ended 31 December 2021 which form the basis of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amounts proposed, meet the relevant requirements as set out in this legislation.
Dividends paid, proposed or declared on equity shares relating to the year ended 31 December:
|
|
2021 £000 |
2020 £000 |
| 1st quarterly interim dividend of 4.50p per share for the year ended 31 December 2021 (2020: 4.00p) | 8,224 | 6,944 |
| 2nd quarterly interim dividend of 5.50p per share for the year ended 31 December 2021 (2020: 4.00p) | 10,106 | 6,944 |
| 3rd quarterly interim dividend of 5.50p per share for the year ended 31 December 2021 (2020: 4.00p) | 10,103 | 6,942 |
| Final dividend of 27.00p per share for the year ended 31 December 2021 (2020: final dividend 8.30p)1 | 49,830 | 14,782 |
| --------------- | --------------- | |
| 78,263 | 35,612 | |
| ========= | ========= |
1 Based on 184,556,116 ordinary shares in issue on 2 March 2022.
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue, capital return and net asset value per ordinary share are shown below and have been calculated using the following:
| 2021 | 2020 | |
| Net revenue profit attributable to ordinary shareholders (£000) | 78,910 | 35,451 |
| Net capital profit attributable to ordinary shareholders (£000) | 113,560 | 181,064 |
| --------------- | --------------- | |
| Total profit attributable to ordinary shareholders (£000) | 192,470 | 216,515 |
| ========= | ========= | |
| Equity shareholders’ funds (£000) | 1,142,874 | 930,825 |
| The weighted average number of ordinary shares in issue during the year, on which the earnings per ordinary share was calculated was: | 181,037,188 | 173,740,499 |
| The actual number of ordinary shares in issue at the year end, on which the net asset value per ordinary share was calculated was: | 183,681,116 | 173,550,814 |
| Earnings per share | ||
| Revenue earnings per share (pence) – basic and diluted | 43.59 | 20.40 |
| Capital earnings per share (pence) – basic and diluted | 62.73 | 104.22 |
| --------------- | --------------- | |
| Total earnings per share (pence) – basic and diluted | 106.32 | 124.62 |
| ========= | ========= |
|
|
As at 31 December 2021 |
As at 31 December 2020 |
| Net asset value per ordinary share (pence) | 622.21 | 536.34 |
| Ordinary share price (pence) | 589.00 | 522.00 |
| ========= | ========= |
There were no dilutive securities at the year 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 5p each | ||||
| At 31 December 2020 | 173,550,814 | 19,461,028 | 193,011,842 | 9,651 |
| Ordinary shares reissued from treasury | 10,200,000 | (10,200,000) | – | – |
| Ordinary shares bought back into treasury | (69,698) | 69,698 | – | – |
| --------------- | --------------- | --------------- | --------------- | |
| At 31 December 2021 | 183,681,116 | 9,330,726 | 193,011,842 | 9,651 |
| ========= | ========= | ========= | ========= |
During the year ended 31 December 2021, the Company bought back 69,698 (2020: 1,233,913) shares into treasury for a total consideration including costs of £393,000 (2020: £4,609,000).
The Company also reissued 10,200,000 (2020: nil) shares from treasury for a total consideration net of costs of £63,187,000 (2020: nil).
Since the year end and up to 2 March 2022, the Company has reissued 875,000 ordinary shares from treasury net of costs for a total consideration of £6,281,000.
10. RESERVES
|
Group |
Share premium account £000 |
Capital redemption reserve £000 |
Special reserve £000 |
Capital reserve arising on investments sold £000 |
Capital reserve arising on revaluation of investments held £000 |
Revenue reserve £000 |
| At 31 December 2020 | 127,155 | 22,779 | 103,992 | 277,389 | 351,481 | 38,378 |
| Movement during the year: | ||||||
| Total comprehensive income: | ||||||
| Net profit for the year | – | – | – | 68,205 | 45,355 | 78,910 |
| Transactions with owners, recorded directly to equity: | ||||||
| Ordinary shares reissued from treasury | 11,663 | – | 51,651 | – | – | – |
| Share reissue costs | – | – | (127) | – | – | – |
| Ordinary shares purchased into treasury | – | – | (390) | – | – | – |
| Share purchase costs | – | – | (3) | – | – | – |
| Dividends paid | – | – | – | – | – | (43,215) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 December 2021 | 138,818 | 22,779 | 155,123 | 345,594 | 396,836 | 74,073 |
| ========= | ========= | ========= | ========= | ========= | ========= |
| Distributable reserves | ||||||
|
Company |
Share premium account £000 |
Capital redemption reserve £000 |
Special reserve £000 |
Capital reserve arising on investments sold £000 |
Capital reserve arising on revaluation of investments held £000 |
Revenue reserve £000 |
| At 31 December 2020 | 127,155 | 22,779 | 103,992 | 275,888 | 358,659 | 32,701 |
| Movement during the year: | ||||||
| Total comprehensive income: | ||||||
| Net profit for the year | – | – | – | 68,205 | 45,355 | 78,910 |
| Transactions with owners, recorded directly to equity: | ||||||
| Ordinary shares reissued from treasury | 11,663 | – | 51,651 | – | – | – |
| Share reissue costs | – | – | (127) | – | – | – |
| Ordinary shares purchased into treasury | – | – | (390) | – | – | – |
| Share purchase costs | – | – | (3) | – | – | – |
| Dividends paid | – | – | – | – | – | (43,215) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 December 2021 | 138,818 | 22,779 | 155,123 | 344,093 | 404,014 | 68,396 |
| ========= | ========= | ========= | ========= | ========= | ========= | |
|
Group |
Share premium account £000 |
Capital redemption reserve £000 |
Special reserve £000 |
Capital reserve arising on investments sold £000 |
Capital reserve arising on revaluation of investments held £000 |
Revenue reserve £000 |
| At 31 December 2019 | 127,155 | 22,779 | 108,601 | 281,550 | 166,256 | 41,118 |
| Movement during the year: | ||||||
| Total comprehensive income: | ||||||
| Net profit for the year | – | – | – | (4,161) | 185,225 | 35,451 |
| Transactions with owners, recorded directly to equity: | ||||||
| Ordinary shares purchased into treasury | – | – | (4,573) | – | – | – |
| Share purchase costs | – | – | (36) | – | – | – |
| Dividends paid | – | – | – | – | – | (38,191) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 December 2020 | 127,155 | 22,779 | 103,992 | 277,389 | 351,481 | 38,378 |
| ========= | ========= | ========= | ========= | ========= | ========= |
| Distributable reserves | ||||||
|
Company |
Share premium account £000 |
Capital redemption reserve £000 |
Special reserve £000 |
Capital reserve arising on investments sold £000 |
Capital reserve arising on revaluation of investments held £000 |
Revenue reserve £000 |
| At 31 December 2019 | 127,155 | 22,779 | 108,601 | 280,610 | 174,003 | 34,311 |
| Movement during the year: | ||||||
| Total comprehensive income: | ||||||
| Net profit for the year | – | – | – | (4,722) | 184,656 | 36,581 |
| Transactions with owners, recorded directly to equity: | ||||||
| Ordinary shares purchased into treasury | – | – | (4,573) | – | – | – |
| Share purchase costs | – | – | (36) | – | – | – |
| Dividends paid | – | – | – | – | – | (38,191) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 31 December 2020 | 127,155 | 22,779 | 103,992 | 275,888 | 358,659 | 32,701 |
| ========= | ========= | ========= | ========= | ========= | ========= | |
Pursuant to a resolution of the Company passed at an Extraordinary General Meeting on 13 January 1998 and following the Company’s application to the Court for cancellation of its share premium account, the Court approval was received on 27 January 1999 and £157,633,000 was transferred from the share premium account to a special reserve which is a distributable reserve.
The share premium and capital redemption reserve are not distributable profits under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the special reserve and capital reserve 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 gains of £748,107,000 (2020: capital gain of £634,547,000) comprise a gain on capital reserve arising on investments sold of £344,093,000 (2020: gain of £275,888,000), a gain on capital reserve arising on revaluation of listed investments of £387,997,000 (2020: gain of £339,413,000), revaluation gains on unquoted investments of £8,839,000 (2020: gain of £12,068,000) and a revaluation gain on the investment in the subsidiary of £7,178,000 (2020: gain of £7,178,000). The capital reserve arising on the revaluation of listed investments of £387,997,000 (2020: £339,413,000) is subject to fair value movements and may not be readily realisable at short notice; as such it may not be entirely distributable. The 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. The reserves of the subsidiary company are not distributable until distributed as a dividend to the Parent Company.
11. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Consolidated and Parent Company Statements of Financial Position at their fair value (investment and derivatives) or at amortised cost (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Group to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Group are explained in the accounting policies note 2(h) to the Financial Statements above.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an exchange, dealer, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Group does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.
Over-the-counter derivative option contracts have been classified as Level 2 investments as their valuation has been based on market observable inputs represented by the underlying quoted securities to which these contracts expose the Group.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on observable market data and these inputs could have a significant impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement.
Assessing the significance of a particular input to the fair value measurement requires judgement by the Investment Manager, considering factors specific to the asset or liability.
Valuation process and techniques for Level 3 valuations
(a) OZ Minerals 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 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 year.
(b) Ivanhoe Electric and I-Pulse convertible bonds and equity shares
The fair value of the investment in convertible bonds and equity shares of Ivanhoe Electric and I-Pulse were assessed by an independent valuer with a recognised and relevant professional qualification. The valuation is carried out based on market approach using multiples based on total assets. The valuation of convertible notes is based on a scenario approach, with the conversion at a discount in an IPO modelled as debt-like payments, and the conversion option modelled via the Black-Scholes option pricing model.
The estimates include 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 and Parent Company Statements of Financial Position and the level where the instruments are disclosed in the fair value hierarchy. To assess the significance of a particular input to the entire measurement, the external valuer performs a sensitivity analysis.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value hierarchy.
| Financial assets/(liabilities) at fair value through profit or loss at 31 December 2021 – Group |
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 |
| ========= | ========= | ========= | ========= |
| Financial assets/(liabilities) at fair value through profit or loss at 31 December 2020 – Group |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Assets: | ||||
| Equity investments | 935,805 | 2,811 | – | 938,616 |
| Fixed income securities | 42,773 | 44,676 | – | 87,449 |
| Investment in contractual rights | – | – | 19,753 | 19,753 |
| --------------- | --------------- | --------------- | --------------- | |
| Total assets | 978,578 | 47,487 | 19,753 | 1,045,818 |
| ========= | ========= | ========= | ========= | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (587) | – | (587) |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 978,578 | 46,900 | 19,753 | 1,045,231 |
| ========= | ========= | ========= | ========= |
| Financial assets/(liabilities) at fair value through profit or loss at 31 December 2021 – Company |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Assets: | ||||
| Equity investments | 1,114,430 | 8,955 | 9,024 | 1,132,409 |
| 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 | 40,591 | 1,263,979 |
| ========= | ========= | ========= | ========= | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (667) | – | (667) |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 1,173,538 | 49,183 | 40,591 | 1,263,312 |
| ========= | ========= | ========= | ========= |
| Financial assets/(liabilities) at fair value through profit or loss 31 December 2020 – Company |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Assets: | ||||
| Equity investments | 935,805 | 2,811 | 7,178 | 945,794 |
| Fixed income securities | 42,773 | 44,676 | – | 87,449 |
| Investment in contractual rights | – | – | 19,753 | 19,753 |
| --------------- | --------------- | --------------- | --------------- | |
| Total assets | 978,578 | 47,487 | 26,931 | 1,052,996 |
| ========= | ========= | ========= | ========= | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (587) | – | (587) |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 978,578 | 46,900 | 26,931 | 1,052,409 |
| ========= | ========= | ========= | ========= |
A reconciliation of fair value measurement in Level 3 is set out below.
| Level 3 Financial assets at fair value through profit or loss At 31 December – Group |
2021 £000 |
2020 £000 |
| Opening fair value | 19,753 | 15,790 |
| Return of capital – royalty | (267) | (184) |
| Additions at cost | 14,390 | – |
| Total profit or loss included in net profit on investments in the Consolidated Statement of Comprehensive Income: | ||
| – assets held at the end of the year | (463) | 4,147 |
| --------------- | --------------- | |
| Closing balance | 33,413 | 19,753 |
| ========= | ========= |
| Level 3 Financial assets at fair value through profit or loss At 31 December – Company |
2021 £000 |
2020 £000 |
| Opening fair value | 26,931 | 24,098 |
| Return of capital – royalty | (267) | (184) |
| Additions at cost | 14,390 | – |
| Total profit or loss included in net profit on investments in the Consolidated Statement of Comprehensive Income: | ||
| – assets held at the end of the year | (463) | 3,017 |
| --------------- | --------------- | |
| Closing balance | 40,591 | 26,931 |
| ========= | ========= |
The Level 3 valuation process and techniques used are explained in the accounting policies in note 2(h). A more detailed description of the techniques is found above, under ‘Valuation process and techniques’.
The Level 3 investments as at 31 December 2021 in the table below relate to the OZ Minerals Brazil Royalty, convertible bonds and equity shares of Ivanhoe Electric and I-Pulse. In accordance with IFRS 13, these investments were categorised as Level 3.
In arriving at the fair value of the OZ Minerals Brazil Royalty, the key inputs are the underlying commodity prices and illiquidity discount. In arriving at the fair value of Ivanhoe Electric and I-Pulse securities, the key input is asset multiple.
The Level 3 valuation process and techniques used by the Company are explained in the accounting policies in notes 2(h) and 2(q) and a detailed explanation of the techniques is also available in the Annual Report and Financial Statements 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 31 December 2021 and 31 December 2020 are as shown below.
|
Description |
As at 31 December 2021 |
Valuation technique |
Unobservable input |
Range of weighted average inputs |
Reasonable possible shift¹ +/- |
Impact on fair value |
| OZ Minerals Brazil Royalty | 18,162 | Discounted cash flows | Discounted rate – weighted average cost of Capital Average gold prices Average copper prices |
5.0% – 8.0% US$1,400-US$1,600 per ounce US$7,209-US$8,510 per tonne |
1.0% 10.0% 10.0% |
£1.0m £1.5m £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.
|
Description |
As at 31 December 2020 |
Valuation technique |
Unobservable input |
Range of weighted average inputs |
Reasonable possible shift¹ +/- |
Impact on fair value |
| OZ Minerals Brazil Royalty | 19,753 | Discounted cash flows | Discounted rate – weighted average cost of capital Average gold prices Average copper prices |
5.0% – 9.0% US$1,410 – US$1,870 per ounce US$6,305 – US$6,945 per tonne |
1.0% 10.0% 10.0% |
£1.1m £0.9m £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 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 Group’s consent) delegated certain portfolio and risk management services, and other ancillary services to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report in the Annual Report and Financial Statements.
The investment management fee due for the year ended 31 December 2021 amounted to £9,230,000 (2020: £6,405,000). At the year end, £4,587,000 (2020: £2,064,000) was outstanding in respect of management fees.
In addition to the above services, BlackRock has provided the Group with marketing services. The total fees paid or payable for these services for the year ended 31 December 2021 amounted to £140,000 excluding VAT (2020: £152,000 excluding VAT). Marketing fees of £55,000 were outstanding as at 31 December 2021 (2020: £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
At the date of this report, the Board consists of five non-executive Directors, all of whom are considered to be independent of the Manager by the Board.
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report in the Annual Report and Financial Statements. As at 31 December 2021 £14,375 (2020: £14,375) was outstanding in respect of Directors’ fees.
Significant holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock Inc. (“Related BlackRock Funds”) or
b. investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are as a result, considered to be related parties to the Company (“Significant Investors”).
As at 31 December 2021
|
Total % of shares held by Related BlackRock Funds |
Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
| 1.77 | n/a | n/a |
As at 31 December 2020
|
Total % of shares held by Related BlackRock Funds |
Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
| 2.45 | n/a | n/a |
14. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2021 (2020: nil).
15. SUBSEQUENT EVENTS
Since the balance sheet date, the borrowings that matured on 11 February 2022 have been renewed for a further period of three months expiring on 11 May 2022. The overdraft and revolving loan credit facility agreements have been renewed up to 24 June 2022.
As noted in the Chairman’s Statement, since the financial year end, financial markets have fallen significantly due primarily to geopolitical tensions arising from Russia's incursion into Ukraine and the impact of a subsequent range of sanctions, regulations and other measures which impaired normal trading in Russian securities. In the light of these events, BlackRock on Monday, 28 February 2022, suspended the purchase of all Russian securities in its active and index funds.
As at balance sheet date, 2.1% of net assets (with a value of £24.5 million) was in securities with exposure to companies whose principal activities are in Russia. This has since fallen on 3 March 2022 to 0.1% of net assets (with a value of £1.7 million).
Whilst these investments have experienced downward volatility and trading suspensions, subsequent to the year end, the share price and the net asset value of the Company’s shares as at 2 March 2022 has increased by 28.7% and 20.2% (when compared to 31 December 2021), respectively, benefiting from the performance from the rest of the portfolio. There were no other significant events affecting the Group since the financial year end.
16.
PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The Annual Report and Financial Statements for the year ended 31 December 2021 will be filed with the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the auditor, whose report for the year ended 31 December 2021 contains no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of BlackRock World Mining Trust plc and its subsidiary for the year ended 31 December 2020, which have been filed with the Registrar of Companies. The report of the auditor on those financial statements contained no qualification or statement under Section 498 of the Companies Act 2006.
17.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Annual Report and Financial Statements will be published shortly and will be available from the registered office, c/o The Secretary, BlackRock World Mining Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
18.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Friday, 6 May 2022 at 11.30 a.m.
ENDS
The Annual Report and Financial Statements will also be available on the BlackRock website at www.blackrock.co.uk/brwm. Neither the contents of the website nor the contents of any website accessible from hyperlinks on the website (or any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Simon White, Managing Director, Closed End Funds, BlackRock Investment Management (UK) Limited – Tel: 020 7743 5284
Evy Hambro, Fund Manager, BlackRock Investment Management (UK) Limited – Tel: 020 7743 4511
Emma Phillips, Media & Communications, BlackRock Investment Management (UK) Limited – Tel: 020 7743 2922
Press enquires:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
7 March 2022
12 Throgmorton Avenue
London EC2N 2DL
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