Half-year Report
BlackRock World Mining Trust plc
LEI - LNFFPBEUZJBOSR6PW155
Half Yearly Financial Report 30 June 2018
FINANCIAL HIGHLIGHTS
as at 30 June 2018
Attributable to ordinary shareholders |
30 June 2018 (unaudited) |
31 December 2017 (audited) |
% change |
| Assets | |||
| Net assets (£’000) | 786,619 | 804,647 | -2.2 |
| Net asset value per ordinary share | 445.79p | 456.01p | -2.2 |
| – with dividends reinvested | 0.0 | ||
| Ordinary share price (mid-market) | 386.50p | 397.75p | -2.8 |
| – with dividends reinvested | -0.3 | ||
| EMIX Global Mining Index – net total return* | 572.17 | 567.79 | 0.8 |
| EMIX Global Mining Index – gross total return* | 606.29 | 599.99 | 1.1 |
| -------- | -------- | ||
| Discount to net asset value | 13.3% | 12.8% | |
| -------- | -------- |
| For the six months ended 30 June 2018 (unaudited) |
For the six months ended 30 June 2017 (unaudited) |
% change |
|
| Revenue | |||
| Net profit after taxation (£’000) | 16,393 | 14,788 | 10.9 |
| Revenue earnings per ordinary share | 9.29p | 8.38p | 10.9 |
| Dividend per ordinary share | |||
| – 1st quarterly interim | 3.00p | 3.00p | - |
| – 2nd quarterly interim | 3.00p | 3.00p | - |
| -------- | -------- | -------- | |
| Total dividends paid and payable | 6.00p | 6.00p | - |
| -------- | -------- | -------- |
* The Company’s performance benchmark (the EMIX Global Mining Total Return Index) may be calculated on either a Gross or a Net return basis. Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a Gross basis. As the Company is subject to the same withholding tax rates for the countries in which it invests, the NR basis is felt to be the most accurate, appropriate, consistent and fair comparison for the Company. Historically the benchmark data for the Company has always been stated on a Gross basis, and therefore for transparency both sets of benchmark data are provided in the table above. Going forward it is the Board’s intention to monitor the Company’s performance with reference to the NR version of the benchmark.
CHAIRMAN’S STATEMENT
MARKET OVERVIEW
The broadly flat net asset value performance over the period belies what was in fact a relatively volatile spell, in which encouraging underlying earnings progress in the sector was disrupted by increasingly hostile rhetoric from the US administration on trade tariffs. Mining companies continued to focus on balance sheet repair, with little new capital expenditure announced, and returning excess cash to shareholders. However, whilst 2017 was a year of unusually low volatility, rising uncertainty in the macro outlook has led to greater dispersion of returns this year. Although the global economic growth outlook overall remains bright, rising US interest rates and a stronger US dollar have contributed to tightening financial conditions. Additionally, at the end of the six month period, heightened concerns over the potential for trade wars between the US and China overshadowed market sentiment and mining commodities suffered as a result.
PERFORMANCE
Over the six months ended 30 June 2018, the Company’s net asset value per share (NAV) remained unchanged and the share price decreased by 0.3% (both calculated in sterling terms with dividends reinvested on a total return basis). During the same period, the reference benchmark, the EMIX Global Mining Index, increased by 0.8% on a net total return basis and by 1.1% on a gross total return basis (with effect from 18 June 2018, all Euromoney indices were rebranded as EMIX indices). Further information on investment performance is given in the Investment Manager’s Report.
Since the period end and up to the close of business on 15 August 2018, the Company’s NAV has decreased by 8.5% compared to a fall of 7.5% (on a net return basis) in the reference benchmark (with income reinvested).
REVENUE RETURN AND DIVIDENDS
The Company’s net revenue earnings for the six month period to 30 June 2018 amounted to 9.29p per share (six months to 30 June 2017: 8.38p) an increase of 10.9%. The first quarterly dividend of 3.00p per share was paid on 29 June 2018 and, today, the Board has announced a second quarterly dividend of 3.00p per share which will be paid on 21 September 2018 to shareholders on the register on 24 August 2018, the ex-dividend date being 23 August 2018.
DISCOUNT
The discount of the Company’s share price to the underlying NAV per share finished the period under review at 13.3% on a cum income basis having stood at 12.8% at the start of the year. At the close of business on 15 August 2018, the Company’s shares were trading at a discount of 12.5%.
The Directors recognise the importance to shareholders that the market price of the Company’s shares in the stock market should not trade at a significant discount to the underlying NAV and the decision as to whether to buy back the Company’s shares is addressed regularly in Board discussions. During the period under review, and up to the date of this report, the Company has not repurchased any shares.
GEARING
The Company operates a flexible gearing policy which depends on prevailing market conditions. It is not intended that gearing will exceed 25% of the net assets of the Company and its subsidiary. The maximum gearing used during the period was 15.9%.
UNQUOTED HOLDING – AVANCO RESOURCES
In March, OZ Minerals, an Australian based copper and gold producer, announced an off-market takeover offer to acquire Avanco Resources, subject to a 50.1% minimum acceptance condition. The offer was a 50/50 cash/scrip consideration comprising A$0.085 cash and 0.009 OZ Minerals shares per Avanco share.
I am pleased to report that, prior to the period end, OZ Minerals owned more than 90% of Avanco allowing it to acquire all of the remaining shares and on 29 June 2018 the Company received proceeds of A$20.4 million cash and 2.16 million OZ Minerals shares. We believe there is the potential for value creation from an OZ Minerals and Avanco combination as OZ Minerals brings open pit and underground mining experience, along with a strong balance sheet which should help to de-risk the development of the Avanco assets.
At the end of June, following completion of the transaction, the royalty represented 2.1% of the portfolio and the Company held a 2.2% position in OZ Minerals. (In line with the guidelines associated with the Company’s royalty strategy, whereby investments in individual royalties should not exceed 3% of gross assets, the royalty and equity position have not been aggregated.)
OUTLOOK
Higher levels of uncertainty will be a key theme for the remainder of 2018. US-China economic tensions have increased significantly and a further sharp escalation in retaliatory tariffs globally could act as a brake on economic expansion. The unprecedented monetary policy accommodation of recent years is also now ending with the US Federal Reserve pushing on with normalisation and the European Central Bank set to wind down its asset purchases by the end of this year.
Against this, global economic data has remained healthy and valuations in the mining sector remain competitive relative to broader equity markets. Free cash flow in the sector is also close to the highest it has ever been and we expect the focus on financial prudence, particularly among the largest globally diversified miners, to continue in a generally supportive price environment. Consequently, despite recent market volatility and the positive performance in the sector over the past couple of years, we remain cautiously optimistic on the outlook, as companies are better positioned to withstand commodity price volatility.
Ian Cockerill
16 August 2018
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report give details of the important events which have occurred during the period and their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as follows:
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Counterparty;
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Investment performance;
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Legal & Compliance;
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Market;
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Operational;
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Financial;
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Marketing; and
- Securities lending.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 December 2017. A detailed explanation can be found in the Strategic Report on pages 10 to 12 and note 18 on pages 68 to 82 of the Annual Report and Financial Statements which is available on the website maintained by BlackRock, at www.blackrock.co.uk/brwm.
In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.
GOING CONCERN
The Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objective and the Company’s projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are predominantly readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges (excluding finance costs, transaction costs and taxation) for the year ended 31 December 2017 were approximately 1.00% of net assets.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the management and marketing fees payable are set out in notes 4 and 5 respectively and note 11.
The related party transactions with the Directors are set out in note 12.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
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the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with International Accounting Standard 34 ‘Interim Financial Reporting’; and
- the Interim Management Report, together with the Chairman’s Statement and Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure and Transparency Rules.
This half yearly financial report has been reviewed by the Company’s auditors and their report forms part of this announcement.
The half yearly financial report was approved by the Board on 16 August 2018 and the above responsibility statement was signed on its behalf by the Chairman.
Ian Cockerill
For and on behalf of the Board
16 August 2018
INVESTMENT MANAGER’S REPORT
The first half of 2018 has in many ways resembled the beginning of last year with a strong start followed swiftly by gains being eroded and then recovering to leave the sector, as measured by the benchmark in sterling terms on a net total return basis, up 0.8%. However, unlike last year when gains were harvested by investors, this year, despite the strong fundamentals, it seems as though investor patience has been tested by constant threats of tariffs that could derail expectations of synchronous global growth.
Despite being frustrated by the sudden pick-up in equity volatility during the period we remained true to our view that company fundamentals outweigh the near term risks. This has kept the portfolio concentrated around the themes of value, growth, resource replenishment and de-leveraging. It remains our hope that generalist investors eventually recognise the abundance of value available in the sector and this triggers a rotation of capital towards the opportunity.
Over the period the net asset value per share (NAV) of the Company’s return was flat versus 0.8% in the reference benchmark. It is pleasing to note the strong sector returns over the last twelve months with the Company up by 24.4% versus the reference benchmark up by 22.3% (all returns in sterling terms on a net total return basis).
LONG JOURNEY
It seems like only yesterday that the sector was on its knees. Investors were panicking at the prospect of companies going bust and they rushed for the exit during the second half of 2015, only to mark a multi-year low in January 2016. The subsequent rapid recovery in fortunes during the last two years has left the sector trading on extremely low multiples relative to the past as the memories of the last bear market remain fresh in people’s minds. It is clear that, despite the current low valuations, shareholders are reluctant to reinvest for fear of seeing their wealth damaged by a repeat of the price falls seen during 2011 through to 2016. As with all long journeys, it will take time for trust to be earned and confidence to morph into optimism and in turn a rotation of capital back into mining equities.
At the start of the year there was widespread acceptance of the prospect of synchronous growth across the world. GDP growth rates were being upgraded and it looked as though commodity demand was going to soar. When combined with the lack of supply growth due to the long period of underinvestment by the mining companies from 2012 through to today, the prospect of a commodity price bull market was intoxicating. Share prices continued their upwards moves in January on the back of rising earnings and expectations of increased dividends. Despite companies delivering on the latter, expectations of growth were soon dampened as President Trump unsettled markets with his ‘Tweets’ on trade tariffs.
For the mining companies it was pretty much business as usual. The agenda of the last few years was followed as companies paid down debt, sold non-core assets and refrained from reinvesting just for growth in volume. Whilst this is paving the way to a re-rating, for the time being investor enthusiasm for exposure is dulled by the prospect of trade wars impacting global growth. While frustrating, this has allowed the Company to build an ever greater exposure to both high quality companies trading on deep discounts to historical multiples and other themes that are core to the portfolio’s overall strategy.
As can be seen in the table below, the end of the period saw a sudden sell-off in commodity prices as trade fears escalated. For example, the price of copper having averaged 314USc/lb during the first half of 2018, some 20% higher than the average price in the first half of 2017, finished the period only just above 300USc/lb and at the time of writing had fallen by a further 11.7% to a level of 265USc/lb. This trend seems to have swept across the base metal suite with all prices showing sudden drops in July. In contrast, bulk prices, especially those in coal, remain elevated as tightness in physical markets has kept prices well supported. Precious metals were generally weaker especially in platinum which is now down over 50% from its high seen back in 2013.
Commodity |
Price 30 June 2018 |
% change YTD in 1H 2018 |
% change average price 1H2018 vs 1H2017 |
| WTI (Cushing) US$/barrel | 74.1 | 22.6% | 30.9% |
| Nickel US$/lb | 6.7 | 16.7% | 42.2% |
| Iron Ore (China 62% fines) US$/t | 61.0 | 0.0% | -17.9% |
| Tin US$/lb | 9.0 | -1.3% | 5.3% |
| Lead US$/lb | 1.1 | -3.2% | 10.6% |
| Gold US$/oz | 1,251.1 | -4.0% | 6.4% |
| Aluminium US$/lb | 1.0 | -4.5% | 17.6% |
| Uranium US$/lb | 22.6 | -5.1% | -2.5% |
| Silver US$/oz | 16.2 | -5.1% | -3.9% |
| Copper US$/lb | 3.0 | -8.1% | 20.4% |
| Platinum US$/oz | 851.0 | -8.2% | -1.9% |
| Met Coal US$/t | 211.0 | -8.7% | 17.4% |
| Thermal Coal (Newcastle) US$/t | 113.9 | -12.1% | 27.4% |
| Zinc US$/lb | 1.3 | -12.9% | 21.6% |
| Lithium (Battery Grade China) | 16,261.0 | -23.2% | 20.3% |
| -------- | -------- | -------- |
Source: Datastream.
In recent years we have emphasised the underlying themes that the Company invests in, with portfolio returns largely driven by those themes as opposed to just commodity beta. These themes revolve around deleveraging, resource replenishment, capital discipline, asset quality and growth. Investment themes will naturally evolve over time and during the last 12 months we have been increasingly focused on a new theme, China supply-side reform and increasing environmental standards in the country. This has impacted commodity prices in different ways from both demand, supply and quality issues.
DELEVERAGING AND CAPITAL DISCIPLINE
The ‘deleveraging’ trade has dominated share price returns since the beginning of 2016 and for most companies this has now played out. Numerous companies including Glencore, Anglo American and Vale saw their share prices crater through 2014-15 due to excessive debt levels in an environment of falling commodity prices. Since 2016 the sector, in particular the more leveraged companies, has enjoyed a material rerating of share prices, as debt has been reduced via asset sales, lower capex and higher earnings. Over the last three years, the Company has generated significant absolute and relative returns from this theme via our large holdings in Vale, Glencore, Teck Resources and First Quantum. While there are some stocks whose share prices will still benefit from further deleveraging, the pure ‘deleveraging’ theme has now evolved into one of capital returns.
Today the sector is generating robust levels of free cash flow, with the major mining companies operating at historically low gearing levels, seeing them well-positioned to maintain a healthy level of returns to shareholders, selectively grow and weather any commodity price volatility. We find it perplexing that, despite the lower level of risk in the equities, the sector continues to trade at a material discount to broader markets. As the market begins to appreciate the balance sheet strength and sustainability of dividends in the sector, we expect it will drive a rerating of mining share prices.
Improved capital discipline has been an important driver of deleveraging across the sector. The ‘super cycle’ saw a rapid increase in capital spending across the sector with shareholder returns a second consideration to volume growth. This led to oversupply in many commodities, depressed prices, high levels of debt and in turn a massive derating of the sector. In an effort to protect balance sheets, companies became far more focused on capital allocation decisions and we have been particularly encouraged to see this discipline maintained with management teams looking to maximise returns from existing assets, drive costs lower, as well as being more transparent around the return thresholds required to justify an investment today. This ‘value over volume’ approach has not only improved returns, it has also helped to tighten commodity markets and in turn improve commodity prices.
The clearest example of this has been in the iron ore market where the major producers Vale, Rio Tinto and BHP have emphasised their value over volume strategy when considering supply additions in the market. Despite very healthy margins the majors have been cognisant of materially growing production given the resultant impact on price, instead focusing on maximising returns from their existing assets and investing to maintain current production levels. This discipline has seen the iron ore price trade between US$60-70/t since the beginning of 2017, despite analyst expectations of the price to fall towards US$50/t as a result of supply growth.
GROWTH AND RESOURCE REPLENISHMENT
Capital discipline does not preclude companies from investing in growth and we are strong supporters of companies looking to grow provided the investment translates into growth on a value per share basis. The lack of investment in growth has tightened commodity markets and we are now at the point where new supply can be absorbed by rising demand.
In the Company we have invested in a number of growth orientated companies where we see the volume growth translating into growth on a NAV/share basis. A number of our growth focused investments in the Company are copper producers, given the need for further supply to be added in that market. Key growth investments include First Quantum which is targeting a 60% increase in copper production by 2021 once Cobre Panama reaches full production; Teck Resources which is beginning to reap the rewards of its investment in Fort Hills, an oil sands project which commenced production at the end of 2017; along with Vale, which has seen significant growth via the ramp-up of its high grade iron ore mine S11D, higher premiums on the iron ore it produces, cost reductions in its base metals business and a rapid de-gearing of its balance sheet.
Our strategy of selectively backing early-stage opportunities at the bottom of the cycle continues to drive positive absolute and relative returns and we continue to actively recycle capital in this area of the portfolio. Some of the key wins for the Company year-to-date in this area include our holding in Ero Copper which has had ongoing exploration success in Brazil; Arizona Mining which was bid for by South32 at a 50% premium; and Altura Mining, an Australian based lithium company which has recently commenced production and has seen its share price more than double since our initial investment, and which we have now exited following the strong performance.
In addition to volume growth, companies that have successfully invested in exploration through the cycle and have sufficient asset quality to replenish reserves and resources should be strong outperformers in the next phase of the cycle. This is particularly prevalent amongst the gold companies given their shorter mine lives and greater need for reinvestment. Australian based gold producer Northern Star has continued to be a strong contributor to performance as the company has invested substantially in exploration in recent years which has allowed them to grow production, reserves and resource life consistently, on a per share basis since 2010. The declining production profile for the gold industry at large is likely to see a pick-up in M&A activity, particularly among the mid-cap producers. The Company is well-positioned to benefit from this trend by owning quality companies such as Agnico Eagle and Newmont which do not have a burning need to acquire ounces, as well as companies that are attractive takeover candidates.
CHINA SUPPLY-SIDE REFORM AND INCREASING ENVIRONMENTAL STANDARDS
A new theme that has emerged in recent years has been China’s supply-side reform agenda and improving environmental standards in the country. This dynamic, not well understood by the market, has served to tighten targeted commodities far quicker than we would have originally expected. In addition, measures to close production over winter months in an effort to combat pollution have seen premiums for higher grade, low impurity products materially increase. The clearest example of this is in the Chinese steel industry, which has seen steel capacity decline from 1.3 billion tonnes in 2015 to 980 million tonnes in 2018. In turn, steel mill utilisation and profitability has increased, with China reducing exports and preferencing higher grade iron ore to maximise production from its reduced steel capacity. This has seen premiums for higher grade iron ore increase, with the discount of lower grade iron ore widening. This has been a fantastic environment for high grade iron ore producers such as Vale (7.9% of the portfolio), which is in the process of ramping-up production from its world class high grade iron ore mine S11D in Brazil.
We continue to look for other opportunities to play this theme which we believe is likely to persist for many years. China’s efforts to improve environmental and safety standards is seeing lower quality domestic production exit the market. This is important for commodities where China has a significant domestic production base such as in zinc, bauxite, mineral sands and thermal coal. The Company is well positioned to benefit from this via its various zinc holdings including Trevali and Titan, its development bauxite play Metro Mining, as well as its exposure to mineral sands producer Iluka and emerging zircon producer Sheffield Resources.
BATTERY MATERIALS
The rise of the electrified vehicle (EV) has continued this year, led by huge growth in sales of electric vehicles in China. Sales have been incentivised by significant subsidies as they target 5 million EVs and Hybrids on the road by 2020. We have continued to see the costs of batteries decline, key to reducing the upfront purchase costs of an electric vehicle and bringing us closer to the tipping point for significant adoption. The raw materials that go into the battery - cobalt, lithium and nickel - have seen strong demand and prices over the last two years, as the market expectations for EV demand continue to increase.
The industry has responded to higher prices for cobalt, with the development of new technologies that reduce cobalt use. This has impacted sentiment and during the first half of the year the cobalt price peaked at ~US$95,000/t, finished the half at US$77,500/t and has continued to weaken after the period end. This hurt the Company’s investments in Katanga and Cobalt 27. Cobalt 27 is a holding company with a physical position in cobalt and streaming assets, including an agreement over cobalt from Vale’s Voisey’s Bay expansion.
There have also been concerns raised about the amount of new lithium production expected to enter the market in coming years and the resulting impact on lithium prices. This damaged sentiment towards lithium companies in the period, including our holding in Albemarle, an established lithium carbonate producer, with arguably the two lowest cost production assets in the world, the Talison mine in Western Australia and the Salar de Atacama in Chile. Whilst there are numerous expansion announcements and new projects planned, some of which we have exposure to via our holdings in Nemaska and Galaxy, we note the broader industry has seen delays in historic projects due to the complexities of lithium mining.
UNQUOTED INVESTMENTS
AVANCO ROYALTY (2.1%)
In July 2014 the Company signed a binding royalty agreement with Avanco Resources, a contractual royalty covering its exploration licenses within the world-class mineral district of Carajas in Brazil. The Company made an investment of 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 that will be produced from their Antas North and Pedra Branca licenses. In addition, there will be a flat 2% royalty over all metals produced from any other discoveries within Avanco’s licence area as at the time of the agreement.
We are pleased to report that during the period, Avanco Resources was bid for by Australian based copper and gold producer OZ Minerals for A$418 million. The deal valued Avanco at A$0.17/sh, a 119% premium to its one month volume-weighted-average-price, generating meaningful gains for the Company via its equity position and points to further upside in the royalty. Subsequent to the end of the period, OZ Minerals confirmed that its offer for Avanco closed on 9 July 2018.
Following the transaction, the Company has a 2.2% position in OZ Minerals and given the royalty represents less than 30% of OZ Mineral’s pro-forma revenue, the royalty and equity position are not added together as per the royalty guidelines. OZ Minerals is yet to update the market with specific details around the timing and associated capital expenditure into Avanco’s assets; however, its stated aim is to be a more than 50ktpa copper and more than 100koz gold producer in Brazil at the bottom half of the cost curve. Once we have further clarity around the development plan for Antas and Pedra Branca, we will revisit the royalty valuation. We remain supportive of the deal and see value creation from the combination with OZ Minerals bringing their open pit and underground mining expertise, better access to capital to develop Pedra Branca and invest in exploration. Geologically Avanco’s assets are similar in nature to OZ Minerals’ existing assets, Prominent Hill and Carrapateena. This transaction transforms OZ Minerals into a copper growth stock and we expect to see a re-rating in the share price once the company daylights the growth optionality within their portfolio.
As at the end of June 2018, the royalty was valued at £19.1 million representing 2.1% of the portfolio. Since our initial US$12 million investment was made and up to 31 March 2018, we have received US$7.9 million in royalty payments with the royalty on track to achieve a less than three-year payback on the initial investment. We continue to be impressed with the performance of the investment and remain optimistic on further upside under OZ Minerals’ ownership. Operationally, Antas reported an improvement in production in Q1 2018 at 3,016t copper and 2,390oz gold following the mining and blasting difficulties at the end of 2017. The country-wide truck drivers’ strike in Brazil resulted in a brief shutdown of the Antas mine, but it is not expected to impact costs or full year production with operations now resumed.
DERIVATIVES ACTIVITY
The Company from time-to-time enters into derivatives contracts, mostly involving the sale of ‘puts’ and covered ‘calls’. These are taken to revenue and are subject to strict Board guidelines which limit their exposure to an aggregate 10% of the portfolio. In the first half of 2018, income generated from options was £3.0 million net of contracts repurchased. Given the ongoing positive momentum in the sector and our belief in an abundance of value in the mining equity market, our strategy has been to write more puts than calls during the period. Over the first half of the year, the majority of contracts expired worthless as we were able to sell contracts at high levels of implied volatility and at attractive strike prices. At the end of the period the Company had 3.4% of the net assets exposed to derivatives and the average exposure to derivatives during the period was once again less than 5%.
GEARING
At 30 June 2018 the Company had £116.8 million of net debt, with a gearing level (calculated as borrowings less cash as a percentage of net assets) of 13.3%. The debt is held principally in US dollar rolling short-term loans and managed against the value of the debt securities in the Company. During the last twelve months, the higher cost of gearing combined with the reduction in borrowing costs for companies issuing debt, has reduced the differential available to the Company. On the back of the lower rate of return from this strategy relative to the value available in the equities, debt is held both against the debt portfolio and the equity investments. In addition to the loans, the Company also makes use of a short-term sterling overdraft facility to manage near-term liquidity.
OUTLOOK
Like last year, it is disappointing to have seen the gains made at the start of the year given back so quickly, especially as companies are now carrying levels of gearing well below historical measures. We remain positive on mining equities as they continue to report high margins, low levels of cost inflation and well above average levels of free cash flow generation. However, we are also well aware of the risks to this outlook both from heightened trade tensions and the impact this would have on business confidence, as well as investor pressure on companies to invest for the sake of volume growth. It is essential that companies remain disciplined or they run the risk of derailing a rotation of investor capital back into the mining sector. Should share prices be impacted by these risks, we remain ready to increase our exposure to the sector as it is our expectation that this will be limited in scale due to strong corporate balance sheets.
It is important that shareholders are aware that the Company continues to back core themes such as growth, deleveraging, value and resource replenishment ahead of pure commodity views. It is our expectation that this will allow the Company to deliver a superior total return for its shareholders through the cycle from a combination of capital growth and a premium yield to that generally available from the mining sector.
Evy Hambro and Olivia Markham
BlackRock Investment Management (UK) Limited
16 August 2018
TEN LARGEST INVESTMENTS
as at 30 June 2018
Set out below is a brief description by the Investment Manager of the Company’s ten largest investments
Rio Tinto: 10.7% (2017: 8.8%) is the world’s second largest mining company by market capitalisation. It has interests over a broad range of metals and minerals including iron ore, aluminium, copper, coal, industrial minerals, gold and uranium. With one of the strongest balance sheets in the sector, the company announced US$8.2 billion of cash returns to shareholders in 2017. During the first half of 2018, the company announced asset sales of US$5 billion (pre-tax), with a further non-binding agreement announced to sell its entire interest in Grasberg for US$3.5 billion in July 2018. Rio Tinto continues to pursue a cash focus and value over volume strategy, where it is targeting US$1.5 billion of productivity improvements per year from 2021. The company is selectively investing in growth such as Amrun, a high-grade bauxite asset in Australia, as well as an expansion at its Oyu Tolgoi copper project in Mongolia.
BHP: 10.0% (2017: 8.4%) is the world’s largest mining company by market capitalisation. The company is an important global player in a number of commodities including iron ore, copper, coal and petroleum. The underperformance of BHP over the last three years has seen the company come under focus from a number of shareholders. In August 2017, the company announced that it had exited its US onshore shale business, would keep capital spending below US$8 billion over the next few years and target a net debt range of US$10-15 billion. The company remains focused on various productivity and incremental brownfield growth options targeting a >10% reduction in copper equivalent unit costs over the medium-term and improving Return on Capital Employed to ~20% by 2022. The company has completed the exit of its US Onshore shale business, which supports the cash return potential of the business.
Glencore: 8.1% (2017: 8.7%) is a diversified miner with activities in mining, smelting, refining, processing and marketing of metals and minerals, energy products and agricultural products globally. In addition, the company provides financing, logistics, marketing and purchasing services to producers and consumers of commodities. Since mid-2015 the company has been focused on rapidly de-gearing the balance sheet, with net debt falling from US$26 billion (December 2015) to a target of US$10 billion, providing greater balance sheet strength and flexibility. Going forward, the company intends to pay a base dividend of US$1 billion from its Marketing business, plus a minimum payout of 25% of Industrial free cash flow. During the first half of 2018 the company suffered following a series of disputes centred around its copper-cobalt assets in the Democratic Republic of Congo. In addition, the company received a subpoena on 2 July 2018 from the US Department of Justice relating to compliance with the Foreign Corrupt Practices Act and United States money laundering statutes.
Vale*: 7.9% (2017: 7.3%) is a Brazilian-based diversified mining company and the world’s largest producer of iron ore and nickel, as well as rising outputs of copper, coal and fertilisers. Its main mining operations are in Brazil, Canada, Australia, Indonesia and Mozambique, and the dominant earnings and cash flow driver continues to be its Brazilian based iron ore operations. During 2016 the company significantly de-geared through a divestment programme and significant cash flow generation from its mining operations. In May 2017, Vale appointed a new CEO Fabio Schvartsman with a key focus of creating a leaner and more competitive company, with the company targeting to reduce net debt to US$10 billion by the end of 2018. During 2017, Vale improved its corporate governance with the shares migrating to a single class of shares and listing on the Novo Mercado exchange in Brazil. During the first half of 2018, Vale announced that it had sold a Cobalt Stream for US$690 million to unlock its Voisey’s Bay mine expansion, further reinforcing the capital discipline of the company.
First Quantum Minerals*: 7.5% (2017: 7.3%) is an integrated copper producer whose principal operating assets are in Zambia. First Quantum is in the midst of a significant expansion of its business, most notably the Cobre Panama mine in Panama which remains on-track to reach commercial production in 2019. During the course of 2016, the company took several actions to de-risk the balance sheet, which along with the successful commissioning of the Sentinel copper mine and Kansanshi smelter and higher copper prices, has re-rated the stock over the last two years. By 2020 First Quantum is targeting an almost 60% increase in copper production from 2017 levels, making it one of the strongest copper growth stocks globally. The Company holds both the equity and the senior unsecured debt.
Teck Resources: 5.7% (2017: 5.7%) is a world leader in metallurgical coal production, with an 8% share of the global seaborne coking coal market. The company is also the world’s third-largest zinc concentrate producer and the tenth-largest zinc metal refiner. Teck is a major producer of copper and also produces gold, lead, molybdenum and various other metal products. Teck owns a 20.9% interest in the Fort Hills oil sands project, which is having a successful ramp-up in 2018 amidst a strengthening oil market. The strong rally in coking coal prices during 2016 and 2017, combined with asset sales, has allowed Teck to materially strengthen its balance sheet as it looks to approve its QB2 Project towards the end of the year.
Sociedad Minera Cerro Verde: 3.2% (2017: 3.8%) is a copper and molybdenum operation in Peru operated by Freeport-McMoRan Copper & Gold which holds a 53.6% ownership in the company. In 2013, construction activities commenced on the US$4.4 billion large-scale expansion of the asset which has resulted in copper production more than doubling from 210kt in 2015 to 560kt in 2017. The project is now successfully ramped and the company has now resumed dividend payments.
Mountain Province Diamonds*: 2.8% (2017: 2.1%) is a Canadian diamond mining company headquartered in Toronto. Mountain Province owns a 49% interest in the Gacho Kué Diamond Mine in Canada’s Northwest Territories, a joint venture with De Beers Canada, which is a subsidiary of Anglo American. The company holds the marketing rights for its 49% share of diamonds.
OZ Minerals: 2.2% (2017: 1.0%) is an Australian based copper producer who operates Prominent Hill, a copper-gold mine in South Australia and is currently developing Carrapateena, one of Australia’s largest copper-gold resources. OZ Minerals is a well-capitalised company with strong cash generation, no debt and cash of A$646 million as at 31 March 2018. During the first half of 2018, the company successfully acquired Avanco Resources for A$418 million in a 50/50 cash/scrip deal. Along with its existing asset base, this transaction provides OZ Minerals with a strong copper growth pipeline with options in both Australia and Brazil.
Newcrest Mining: 2.2% (2017: 2.3%) is one of the world’s largest gold mining companies with four operating assets in Australia, Papua New Guinea and Indonesia. Newcrest has transformed the operating performance of the business in recent years, with the business underpinned by a long reserve life. By 2020 Newcrest’s aspiration is to have exposure to five tier 1 orebodies with costs in the first quartile of the cost curve.
* Includes fixed interest securities.
All percentages reflect the value of the holding as a percentage of total investments. Percentages in brackets represent the value of the holding as at 31 December 2017. Together, the ten largest investments represent 60.3% of total investments (31 December 2017: 58.5%).
PORTFOLIO ANALYSIS
30 June 2018
COMMODITY EXPOSURE*
| BlackRock World Mining Trust plc 2018 |
BlackRock World Mining Trust plc 2017# |
EMIX Global Mining Index 2018 |
|
| Other | 0.0 | 0.0 | 3.5 |
| Coal | 0.0 | 0.0 | 6.2 |
| Iron Ore | 0.1 | 0.1 | 1.7 |
| Aluminium | 0.3 | 0.3 | 3.5 |
| Steel | 0.4 | 0.0 | 0.0 |
| Zinc | 0.9 | 1.4 | 0.6 |
| Silver & Diamonds | 6.8 | 7.6 | 4.4 |
| Industrial Minerals | 7.2 | 7.0 | 1.5 |
| Gold | 14.0 | 15.4 | 20.8 |
| Copper | 20.7 | 20.3 | 9.0 |
| Diversified | 49.6 | 47.9 | 48.8 |
GEOGRAPHIC EXPOSURE*
2018
| Global | 62.4% |
| Latin America | 11.2% |
| Australia | 10.3% |
| Canada | 6.7% |
| Africa (ex SA) | 6.3% |
| Other*** | 2.4% |
| South Africa | 0.7% |
2017#
| Global | 62.7% |
| Latin America | 11.2% |
| Australia | 10.3% |
| Africa (ex SA) | 7.1% |
| Canada | 5.4% |
| Other** | 2.6% |
| South Africa | 0.7% |
* Based on the principal commodity exposure and place of operation of each investment.
** Consists of India, Kazakhstan, Philippines, Russia, Turkey and USA.
*** Consists of Kazakhstan, Philippines, Russia, Turkey and USA.
# Represents exposure as at 31 December 2017.
Source: BlackRock.
INVESTMENTS
as at 30 June 2018
| Main geographical exposure |
Market value £’000 |
% of investments |
||
| Diversified | ||||
| Rio Tinto | Global | 96,612 | 10.7 | |
| Rio Tinto Call Option 20/07/18 £46 | Global | (46) | – | |
| BHP | Global | 90,397 | 10.0 | |
| Glencore | Global | 73,124 | 8.1 | |
| Vale* | Global | 71,140 | 7.9 | |
| Teck Resources | Global | 51,264 | 5.7 | |
| South32 | Global | 18,132 | 2.0 | |
| Boliden | Global | 14,775 | 1.6 | |
| Lundin Mining* | Global | 13,923 | 1.5 | |
| Lundin Mining Put Option 20/07/18 CA$7 | Global | (190) | – | |
| Volcan-Convertible* | Peru | 10,635 | 1.2 | |
| KAZ Minerals | Kazakhstan | 3,393 | 0.4 | |
| Sierra Metals | Peru | 3,208 | 0.3 | |
| Osisko Metals+ | Canada | 1,452 | 0.2 | |
| -------- | -------- | |||
| 447,819 | 49.6 | |||
| -------- | -------- | |||
| Copper | ||||
| First Quantum Minerals* | Global | 67,482 | 7.5 | |
| Sociedad Minera Cerro Verde | Peru | 28,529 | 3.2 | |
| OZ Minerals | Australia | 20,243 | 2.2 | |
| Avanco Royalty# | Brazil | 19,147 | 2.1 | |
| Nevsun Resources | Eritrea | 15,754 | 1.7 | |
| Ero Copper | Brazil | 10,490 | 1.2 | |
| Nevada Copper | USA | 6,737 | 0.7 | |
| Ivanhoe Mines | DRC | 6,176 | 0.7 | |
| Katanga Mining | DRC | 5,528 | 0.6 | |
| SolGold | Ecuador | 3,296 | 0.4 | |
| Metals X | Australia | 2,239 | 0.2 | |
| Grupo Mexico | Peru | 2,005 | 0.2 | |
| -------- | -------- | |||
| 187,626 | 20.7 | |||
| -------- | -------- | |||
| Gold | ||||
| Newcrest Mining | Australia | 19,511 | 2.2 | |
| Randgold Resources | Mali | 18,804 | 2.1 | |
| Newmont Mining | Global | 18,571 | 2.0 | |
| Northern Star Resources | Australia | 15,823 | 1.7 | |
| Agnico Eagle Mines | Canada | 11,522 | 1.3 | |
| Franco-Nevada | Global | 11,049 | 1.2 | |
| Centamin | Egypt | 5,943 | 0.7 | |
| Pretium Resources | Canada | 5,182 | 0.6 | |
| B2Gold | Canada | 4,866 | 0.5 | |
| Alamos Gold | Mexico | 4,307 | 0.5 | |
| Polyus | Russia | 3,289 | 0.4 | |
| Metals Exploration | Philippines | 2,488 | 0.3 | |
| Shanta Gold Convertible* | Tanzania | 2,102 | 0.2 | |
| Eldorado Gold | Global | 1,506 | 0.2 | |
| TMAC Resources | Canada | 1,108 | 0.1 | |
| Stratex International | Turkey | 136 | – | |
| Carawine Resources+ | Australia | 76 | – | |
| -------- | -------- | |||
| 126,283 | 14.0 | |||
| -------- | -------- | |||
| Industrial Minerals | ||||
| Iluka Resources | Australia | 18,457 | 2.0 | |
| Nemaska Lithium*+ | Canada | 10,827 | 1.2 | |
| Albemarle | Global | 10,717 | 1.2 | |
| Pilbara Minerals* | Australia | 8,481 | 0.9 | |
| Galaxy Resources | Australia | 4,051 | 0.5 | |
| Umicore | Global | 3,886 | 0.4 | |
| Sheffield Resources | Australia | 2,602 | 0.3 | |
| Cobalt 27 Capital# | Global | 1,960 | 0.2 | |
| Syrah Resources | Mozambique | 1,580 | 0.2 | |
| Neo Lithium | Argentina | 1,440 | 0.2 | |
| Bacanora Lithium | Mexico | 1,263 | 0.1 | |
| -------- | -------- | |||
| 65,264 | 7.2 | |||
| -------- | -------- | |||
| Silver & Diamonds | ||||
| Mountain Province Diamonds* | Canada | 25,626 | 2.8 | |
| Wheaton Precious Metals | Global | 13,300 | 1.5 | |
| Fresnillo | Mexico | 8,033 | 0.9 | |
| Industrias Peñoles | Mexico | 6,853 | 0.8 | |
| Petra Diamonds* | South Africa | 6,740 | 0.7 | |
| MAG Silver | Mexico | 1,036 | 0.1 | |
| Silver Mines | Australia | 251 | – | |
| Cautivo Mining | Peru | 3 | – | |
| -------- | -------- | |||
| 61,842 | 6.8 | |||
| -------- | -------- | |||
| Zinc | ||||
| Titan Mining | USA | 5,159 | 0.6 | |
| Trevali Mining | Global | 2,715 | 0.3 | |
| -------- | -------- | |||
| 7,874 | 0.9 | |||
| -------- | -------- | |||
| Steel | ||||
| ArcelorMittal | Global | 3,324 | 0.4 | |
| -------- | -------- | |||
| 3,324 | 0.4 | |||
| -------- | -------- | |||
| Aluminium | ||||
| Metro Mining | Australia | 2,420 | 0.3 | |
| -------- | -------- | |||
| 2,420 | 0.3 | |||
| -------- | -------- | |||
| Iron Ore | ||||
| Equatorial Resources | DRC | 554 | 0.1 | |
| -------- | -------- | |||
| 554 | 0.1 | |||
| -------- | -------- | |||
| Other | ||||
| Bindura Nickel | Zimbabwe | 119 | – | |
| -------- | -------- | |||
| 119 | – | |||
| -------- | -------- | |||
| Portfolio | 903,125 | 100.0 | ||
| -------- | -------- | |||
| Comprising: | ||||
| – Investments | 903,361 | 100.0 | ||
| – Written options | (236) | (0.0) | ||
| -------- | -------- | |||
| 903,125 | 100.0 | |||
| -------- | -------- | |||
* Includes fixed interest investments.
# Investments held at Directors’ valuation.
+ Includes warrant investments.
All investments are in equity shares unless otherwise stated.
The total number of investments as at 30 June 2018 (including options classified as liabilities on the balance sheet) was 68 (31 December 2017: 70).
As at 30 June 2018 the Company held equity interests in five companies comprising more than 3% of a company’s share capital as follows:
Metals Exploration; Osisko Metals; Stratex International; Titan Mining; and Nevada Copper.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2018
Notes |
Revenue £’000 | Capital £’000 | Total £’000 | |||||||
| Six months ended 30.06.18 (unaudited) |
Six months ended 30.06.17 (unaudited) |
Year ended 31.12.17 (audited) |
Six months ended 30.06.18 (unaudited) |
Six months ended 30.06.17 (unaudited) |
Year ended 31.12.17 (audited) |
Six months ended 30.06.18 (unaudited) |
Six months ended 30.06.17 (unaudited) |
Year ended 31.12.17 (audited) |
||
| Income from investments held at fair value through profit or loss | 3 | 16,257 | 14,484 | 28,017 | – | – | – | 16,257 | 14,484 | 28,017 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Other income | 3 | 3,032 | 3,243 | 6,152 | – | – | – | 3,032 | 3,243 | 6,152 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total revenue | 19,289 | 17,727 | 34,169 | – | – | – | 19,289 | 17,727 | 34,169 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| (Loss)/profit on investments held at fair value through profit or loss | – | – | – | (12,915) | (17,491) | 127,963 | (12,915) | (17,491) | 127,963 | |
| (Loss)/profit on foreign exchange | – | – | – | (1,994) | 4,860 | 8,414 | (1,994) | 4,860 | 8,414 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total | 19,289 | 17,727 | 34,169 | (14,909) | (12,631) | 136,377 | 4,380 | 5,096 | 170,546 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Expenses | ||||||||||
| Investment management fees | 4 | (768) | (687) | (1,500) | (2,414) | (2,171) | (4,774) | (3,182) | (2,858) | (6,274) |
| Other operating expenses | 5 | (509) | (510) | (979) | (7) | (2) | (4) | (516) | (512) | (983) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total operating expenses | (1,277) | (1,197) | (2,479) | (2,421) | (2,173) | (4,778) | (3,698) | (3,370) | (7,257) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 18,012 | 16,530 | 31,690 | (17,330) | (14,804) | 131,599 | 682 | 1,726 | 163,289 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Finance costs | 6 | (357) | (229) | (512) | (1,066) | (702) | (1,535) | (1,423) | (931) | (2,047) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit/(loss) on ordinary activities before taxation | 17,655 | 16,301 | 31,178 | (18,396) | (15,506) | 130,064 | (741) | 795 | 161,242 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Taxation | (1,262) | (1,513) | (3,085) | 915 | 496 | 706 | (347) | (1,017) | (2,379) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit/(loss) on ordinary activities after taxation | 8 | 16,393 | 14,788 | 28,093 | (17,481) | (15,010) | 130,770 | (1,088) | (222) | 158,863 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Earnings/(loss) per ordinary share (pence) | 8 | 9.29 | 8.38 | 15.92 | (9.91) | (8.51) | 74.11 | (0.62) | (0.13) | 90.03 |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ||
The total column of this statement represents the Group’s Consolidated Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU). The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.
The Group does not have any other comprehensive income. The net profit/(loss) for the period disclosed above represents the Group’s total comprehensive income/(loss).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2018
Note |
Called up share capital £’000 |
Share premium account £’000 |
Capital redemption reserve £’000 |
Special reserve £’000 |
Capital reserves £’000 |
Revenue reserve £’000 |
Total £’000 |
|
| For the six months ended 30 June 2018 (unaudited) | ||||||||
| At 31 December 2017 | 9,651 | 127,155 | 22,779 | 114,589 | 496,401 | 34,072 | 804,647 | |
| Total comprehensive income: | ||||||||
| Net (loss)/profit for the period | – | – | – | – | (17,481) | 16,393 | (1,088) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid(a) | 7 | – | – | – | – | – | (16,940) | (16,940) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 30 June 2018 | 9,651 | 127,155 | 22,779 | 114,589 | 478,920 | 33,525 | 786,619 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| For the six months ended 30 June 2017 (unaudited) | ||||||||
| At 31 December 2016 | 9,651 | 127,155 | 22,779 | 114,589 | 365,631 | 37,741 | 677,546 | |
| Total comprehensive income: | ||||||||
| Net (loss)/profit for the period | – | – | – | – | (15,010) | 14,788 | (222) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid(b) | 7 | – | – | – | – | – | (21,175) | (21,175) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 30 June 2017 | 9,651 | 127,155 | 22,779 | 114,589 | 350,621 | 31,354 | 656,149 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| For the year ended 31 December 2017 (audited) | ||||||||
| At 31 December 2016 | 9,651 | 127,155 | 22,779 | 114,589 | 365,631 | 37,741 | 677,546 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | – | 130,770 | 28,093 | 158,863 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid(c) | 7 | – | – | – | – | – | (31,762) | (31,762) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 December 2017 | 9,651 | 127,155 | 22,779 | 114,589 | 496,401 | 34,072 | 804,647 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- |
(a) The final dividend for the year ended 31 December 2017 of 6.60p per share, declared on 26 February 2018 and paid on 10 May 2018 and 1st quarterly interim dividend for the year ending 31 December 2018 of 3.00p per share, declared on 25 April 2018 and paid on 29 June 2018.
(b) The final dividend for the year ended 31 December 2016 of 9.00p per share, declared on 23 February 2017 and paid on 12 May 2017 and 1st quarterly interim dividend for the year ended 31 December 2017 of 3.00p per share, declared on 4 May 2017 and paid on 30 June 2017.
(c) The final dividend in respect of the year ended 31 December 2016 of 9.00p per share, declared on 23 February 2017 and paid on 12 May 2017; 1st interim dividend for the year ended 31 December 2017 of 3.00p per share, declared on 4 May 2017 and paid on 30 June 2017; 2nd interim dividend for the year ended 31 December 2017 of 3.00p per share, declared on 10 August 2017 and paid on 15 September 2017; and 3rd interim dividend for the year ended 31 December 2017 of 3.00p per share, declared on 10 November 2017 and paid on 22 December 2017.
The transaction costs relating to the acquisition and disposal of investments amounted to £294,000 and £104,000 respectively for the period ended 30 June 2018 (six months ended 30 June 2017: £155,000 and £128,000; year ended 31 December 2017: £392,000 and £289,000).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2018
Notes |
30 June 2018 £’000 (unaudited) |
30 June 2017 £’000 (unaudited) |
31 December 2017 £’000 (audited) |
|
| Non current assets | ||||
| Investments held at fair value through profit or loss | 10 | 903,361 | 759,329 | 906,479 |
| Current assets | ||||
| Other receivables | 2,097 | 1,734 | 2,567 | |
| Cash collateral held with brokers | 678 | 2,013 | 1,983 | |
| Cash and cash equivalents | 11,501 | 137 | 693 | |
| -------- | -------- | -------- | ||
| 14,276 | 3,884 | 5,243 | ||
| -------- | -------- | -------- | ||
| Total assets | 917,637 | 763,213 | 911,722 | |
| -------- | -------- | -------- | ||
| Current liabilities | ||||
| Other payables | (13,770) | (10,816) | (4,873) | |
| Derivative financial liabilities held at fair value through profit or loss | 10 | (236) | (522) | (604) |
| Bank overdraft | (5,905) | (3,229) | (12,249) | |
| Bank loans | (110,892) | (92,382) | (88,708) | |
| -------- | -------- | -------- | ||
| (130,803) | (106,949) | (106,434) | ||
| -------- | -------- | -------- | ||
| Net assets less current liabilities | 786,834 | 656,264 | 805,288 | |
| -------- | -------- | -------- | ||
| Non current liabilities | ||||
| Deferred tax liability | (215) | (115) | (641) | |
| -------- | -------- | -------- | ||
| Net assets | 786,619 | 656,149 | 804,647 | |
| -------- | -------- | -------- | ||
| Equity attributable to equity holders | ||||
| Called up share capital | 9 | 9,651 | 9,651 | 9,651 |
| Share premium account | 127,155 | 127,155 | 127,155 | |
| Capital redemption reserve | 22,779 | 22,779 | 22,779 | |
| Special reserve | 114,589 | 114,589 | 114,589 | |
| Capital reserves | 478,920 | 350,621 | 496,401 | |
| Revenue reserve | 33,525 | 31,354 | 34,072 | |
| -------- | -------- | -------- | ||
| Total equity | 786,619 | 656,149 | 804,647 | |
| -------- | -------- | -------- | ||
| Net asset value per ordinary share (pence) | 8 | 445.79 | 371.85 | 456.01 |
| ======== | ======== | ======== |
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 June 2018
| Six months ended 30 June 2018 £’000 (unaudited) |
Six months ended 30 June 2017 £’000 (unaudited) |
Year ended 31 December 2017 £’000 (audited) |
|
| Operating activities | |||
| Net (loss)/profit before taxation | (741) | 795 | 161,242 |
| Add back finance costs | 1,423 | 931 | 2,047 |
| Net loss/(profit) on investments held at fair value through profit or loss (including transaction costs) | 12,915 | 17,491 | (127,963) |
| Net loss/(profit) on foreign exchange | 1,994 | (4,860) | (8,414) |
| Sales of investments held at fair value through profit or loss | 102,315 | 121,786 | 232,049 |
| Purchases of investments held at fair value through profit or loss | (112,480) | (138,773) | (250,649) |
| Decrease in other receivables | 370 | 3,444 | 2,946 |
| Increase in other payables | 1,676 | 1,325 | 2,029 |
| Decrease/(increase) in amounts due from brokers | 100 | (25) | (360) |
| Increase in amounts due to brokers | 7,320 | 6,497 | 74 |
| Net movement in cash collateral held with brokers | 1,305 | 399 | 429 |
| -------- | -------- | -------- | |
| Net cash inflow from operating activities before interest and taxation | 16,197 | 9,010 | 13,430 |
| -------- | -------- | -------- | |
| Taxation paid | (558) | (514) | (1,215) |
| Taxation on investment income included within gross income | (314) | (492) | (852) |
| -------- | -------- | -------- | |
| Net cash inflow from operating activities | 15,325 | 8,004 | 11,363 |
| -------- | -------- | -------- | |
| Financing activities | |||
| Drawdown of loans | 20,000 | 11,914 | 11,900 |
| Interest paid | (1,423) | (931) | (2,047) |
| Dividends paid | (16,940) | (21,175) | (31,762) |
| -------- | -------- | -------- | |
| Net cash inflow/(outflow) from financing activities | 1,637 | (10,192) | (21,909) |
| -------- | -------- | -------- | |
| Increase/(decrease) in cash and cash equivalents | 16,962 | (2,188) | (10,546) |
| -------- | -------- | -------- | |
| Cash and cash equivalents at start of the period | (11,556) | (1,256) | (1,256) |
| Effect of foreign exchange rate changes | 190 | 352 | 246 |
| -------- | -------- | -------- | |
| Cash and cash equivalents at end of the period | 5,596 | (3,092) | (11,556) |
| -------- | -------- | -------- | |
| Comprised of: | |||
| Cash and cash equivalents | 11,501 | 137 | 693 |
| Bank overdraft | (5,905) | (3,229) | (12,249) |
| -------- | -------- | -------- | |
| 5,596 | (3,092) | (11,556) | |
| ======== | ======== | ======== |
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 30 June 2018
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.
The principal activity of the subsidiary, BlackRock World Mining Investment Company Limited, is investment dealing.
2. BASIS OF PREPARATION
The accounting policies applied, including those arising from the adoption of IFRS 9 and IFRS 15 on 1 January 2018, are consistent with those described in the Group’s annual financial statements for the year ended 31 December 2017.
The half yearly financial statements for the period ended 30 June 2018 have been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting, as adopted by the European Union. The half yearly financial statements should be read in conjunction with the Company’s Annual Report and Financial Statements for the year ended 31 December 2017, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (AIC), issued in November 2014 and updated in January 2017 is compatible with IFRS, the financial statements have been prepared in accordance with guidance set out in the SORP.
The taxation charge has been calculated by applying an estimate of the annual effective tax rate to any profit for the period.
3. INCOME
| Six months ended 30 June 2018 £’000 (unaudited) |
Six months ended 30 June 2017 £’000 (unaudited) |
Year ended 31 December 2017 £’000 (audited) |
|
| Investment income: | |||
| UK listed dividends | 5,940 | 4,438 | 9,071 |
| Overseas listed dividends | 5,987 | 6,646 | 10,495 |
| Overseas listed special dividends | 266 | – | 628 |
| Income from contractual rights (Avanco Royalty) | 1,219 | 940 | 2,438 |
| Fixed interest | 2,845 | 2,460 | 5,385 |
| -------- | -------- | -------- | |
| 16,257 | 14,484 | 28,017 | |
| -------- | -------- | -------- | |
| Other income: | |||
| Option premium income | 2,963 | 3,229 | 6,093 |
| Deposit interest | 7 | 3 | 5 |
| Underwriting commission | – | – | 35 |
| Stock lending income | 62 | 11 | 19 |
| -------- | -------- | -------- | |
| 3,032 | 3,243 | 6,152 | |
| -------- | -------- | -------- | |
| Total income | 19,289 | 17,727 | 34,169 |
| ======== | ======== | ======== |
During the period, the Group received option premium income totalling £2,755,000 (six months ended 30 June 2017: £3,007,000; year ended 31 December 2017: £6,140,000) for writing put and covered call options for the purposes of revenue generation. Option premiums of £2,963,000 (six months ended 30 June 2017: £3,229,000; year ended 31 December 2017: £6,093,000) were amortised to income. At 30 June 2018 there were 2 open positions (30 June 2017: 1; 31 December 2017: 3) with an associated liability of £236,000 (30 June 2017: £522,000; 31 December 2017: £604,000).
Dividends and interest received in cash in the six months ended 30 June 2018 amounted to £12,835,000 and £2,606,000 (six months ended 30 June 2017: £14,061,000 and £2,790,000 and year ended 31 December 2017: £21,538,000 and £5,964,000) respectively.
There were no special dividends recognised in capital for the six months ended 30 June 2018 (six months ended 30 June 2017: £nil; year ended 31 December 2017: £nil).
4. INVESTMENT MANAGEMENT FEE
| Six months ended 30 June 2018 (unaudited) |
Six months ended 30 June 2017 (unaudited) |
Year ended 31 December 2017 (audited) |
|||||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Investment management fee | 768 | 2,414 | 3,182 | 687 | 2,171 | 2,858 | 1,500 | 4,774 | 6,274 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| 768 | 2,414 | 3,182 | 687 | 2,171 | 2,858 | 1,500 | 4,774 | 6,274 | |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | |
The 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 at the end of the quarter. During the period £2,971,000 (30 June 2017: £2,688,000; 31 December 2017: £5,707,000) of the investment management fee was generated from net assets and £211,000 (30 June 2017: £170,000; 31 December 2017: £567,000) from the gearing effect on gross assets. The average of the net assets under management during the period ended 30 June 2018 was £787,211,000 (30 June 2017: £713,036,000; 31 December 2017: £727,890,000).
The fee is allocated 25% to the revenue column and 75% to the capital column of the Consolidated Statement of Comprehensive Income.
5. OTHER OPERATING EXPENSES
| Six months ended 30 June 2018 £’000 (unaudited) |
Six months ended 30 June 2017 £’000 (unaudited) |
Year ended 31 December 2017 £’000 (audited) |
|
| Allocated to revenue: | |||
| Custody fee | 68 | 57 | 115 |
| Auditors’ remuneration: | |||
| – audit services | 15 | 12 | 31 |
| – other assurance services | 6 | 6 | 6 |
| Registrar’s fee | 42 | 38 | 78 |
| Directors’ emoluments | 108 | 110 | 217 |
| Broker fees | 12 | 12 | 25 |
| Depositary fees | 44 | 40 | 82 |
| Marketing fees | 73 | 59 | 93 |
| Bank facility fees | 36 | 103 | 154 |
| Other administration costs | 105 | 73 | 178 |
| -------- | -------- | -------- | |
| 509 | 510 | 979 | |
| -------- | -------- | -------- | |
| Allocated to capital: | |||
| Custody transaction charges | 7 | 2 | 4 |
| -------- | -------- | -------- | |
| 516 | 512 | 983 | |
| -------- | -------- | -------- |
6. FINANCE COSTS
| Six months ended 30 June 2018 (unaudited) |
Six months ended 30 June 2017 (unaudited) |
Year ended 31 December 2017 (audited) |
|||||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Interest on bank loans | 340 | 1,016 | 1,356 | 226 | 693 | 919 | 495 | 1,484 | 1,979 |
| Interest on bank overdraft | 17 | 50 | 67 | 3 | 9 | 12 | 17 | 51 | 68 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Total | 357 | 1,066 | 1,423 | 229 | 702 | 931 | 512 | 1,535 | 2,047 |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | |
7. DIVIDENDS
The final dividend of 6.60p per share for the year ended 31 December 2017 was paid on 10 May 2018. The Board has declared a first quarterly interim dividend of 3.00p per share for the quarter ended 31 March 2018, paid on 29 June 2018 to shareholders on the register on 1 June 2018. Dividends are debited directly to reserves.
The Board has declared a second quarterly interim dividend of 3.00p per share for the quarter ended 30 June 2018 which will be paid on 21 September 2018 to shareholders on the register on 24 August 2018. This dividend has not been accrued in the financial statements for the six months ended 30 June 2018 as, under IFRS, interim dividends are not recognised until paid.
It is expected that the third quarterly interim dividend and final dividend for the year ending 31 December 2018 will be declared on 8 November 2018 and 21 February 2019 respectively.
Dividends on equity shares paid during the period were:
| Six months ended 30 June 2018 £’000 (unaudited) |
Six months ended 30 June 2017 £’000 (unaudited) |
Year ended 31 December 2017 £’000 (audited) |
|
| Final dividend for the year ended 31 December 2017 of 6.60p per share (2016: 9.00p) | 11,646 | 15,881 | 15,881 |
| First quarterly interim dividend for the year ending 31 December 2018 of 3.00p per share (2017: 3.00p) | 5,294 | 5,294 | 5,294 |
| Second quarterly interim dividend for the year ended 31 December 2017 of 3.00p per share (2016: nil) | – | – | 5,293 |
| Third quarterly interim dividend for the year ended 31 December 2017 of 3.00p per share (2016: nil) | – | – | 5,294 |
| -------- | -------- | -------- | |
| 16,940 | 21,175 | 31,762 | |
| ======== | ======== | ======== |
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue and capital returns per share are shown below and have been calculated using the following:
| Six months ended 30 June 2018 (unaudited) |
Six months ended 30 June 2017 (unaudited) |
Year ended 31 December 2017 (audited) |
|
| Net revenue profit attributable to ordinary shareholders (£’000) | 16,393 | 14,788 | 28,093 |
| Net capital (loss)/profit attributable to ordinary shareholders (£’000) | (17,481) | (15,010) | 130,770 |
| -------- | -------- | -------- | |
| Total (loss)/profit attributable to ordinary shareholders (£’000) | (1,088) | (222) | 158,863 |
| -------- | -------- | -------- | |
| Equity shareholders’ funds (£’000) | 786,619 | 656,149 | 804,647 |
| -------- | -------- | -------- | |
| The weighted average number of ordinary shares in issue during each period, on which the return per ordinary share was calculated was: | 176,455,242 | 176,455,242 | 176,455,242 |
| -------- | -------- | -------- | |
| The actual number of ordinary shares in issue (excluding treasury shares) at the period end, on which the net asset value was calculated was: | 176,455,242 | 176,455,242 | 176,455,242 |
| -------- | -------- | -------- | |
| Returns per share | |||
| Revenue earnings per share (pence) | 9.29 | 8.38 | 15.92 |
| Capital (loss)/earnings per share (pence) | (9.91) | (8.51) | 74.11 |
| -------- | -------- | -------- | |
| Total (loss)/earnings per share (pence) | (0.62) | (0.13) | 90.03 |
| -------- | -------- | -------- | |
| As at 30 June 2018 (unauditied) |
As at 30 June 2017 (unauditied) |
As at 31 December 2017 (audited) |
|
| Net asset value per ordinary share (pence) | 445.79 | 371.85 | 456.01 |
| -------- | -------- | -------- | |
| Ordinary share price (pence) | 386.50 | 333.50 | 397.75 |
| ======== | ======== | ======== |
9. CALLED UP SHARE CAPITAL
| Ordinary shares in issue (number) |
Treasury shares (number) |
Total shares (number) |
Nominal value £’000 |
|
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 5 pence each: | ||||
| At 31 December 2017 and 30 June 2018 | 176,455,242 | 16,556,600 | 193,011,842 | 9,651 |
| ======== | ======== | ======== | ======== |
During the period to 30 June 2018, no ordinary shares were issued, purchased or cancelled (six months ended 30 June 2017: nil; year ended 31 December 2017: nil).
Since 30 June 2018 and up to the date of this report, no ordinary shares have been issued or repurchased.
10. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Consolidated Statement of Financial Position at their fair value (investment and derivatives) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Group to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Group are explained in the accounting policies note 2(h), as set out in the Group’s Annual Report and Financial Statements for the year ended 31 December 2017.
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 as follows.
The fair value hierarchy has the following levels:
Level 1 – Quoted prices for an identical instrument in an active market
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Group does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on observable market data and these inputs could have a significant impact on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
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.
There has been no change to the valuation techniques during the period under review or as at the date of this report.
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 30 June 2018 (unaudited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 806,595 | 509 | – | 807,104 |
| Investment in contractual rights | – | – | 19,147 | 19,147 |
| Fixed interest securities | 73,952 | 3,158 | – | 77,110 |
| -------- | -------- | -------- | -------- | |
| 880,547 | 3,667 | 19,147 | 903,361 | |
| -------- | -------- | -------- | -------- | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (236) | – | (236) |
| -------- | -------- | -------- | -------- | |
| 880,547 | 3,431 | 19,147 | 903,125 | |
| ======== | ======== | ======== | ======== |
| Financial assets/(liabilities) at fair value through profit or loss at 30 June 2017 (unaudited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 667,294 | – | 6,708 | 674,002 |
| Investment in contractual rights | – | – | 18,765 | 18,765 |
| Fixed interest securities | 66,562 | – | – | 66,562 |
| -------- | -------- | -------- | -------- | |
| 733,856 | – | 25,473 | 759,329 | |
| -------- | -------- | -------- | -------- | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (522) | – | (522) |
| -------- | -------- | -------- | -------- | |
| 733,856 | (522) | 25,473 | 758,807 | |
| ======== | ======== | ======== | ======== |
| Financial assets/(liabilities) at fair value through profit or loss at 31 December 2017 (audited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 817,259 | 2,605 | – | 819,864 |
| Investment in contractual rights | – | – | 18,943 | 18,943 |
| Fixed interest securities | 64,991 | 2,681 | – | 67,672 |
| -------- | -------- | -------- | -------- | |
| 882,250 | 5,286 | 18,943 | 906,479 | |
| -------- | -------- | -------- | -------- | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (604) | – | (604) |
| -------- | -------- | -------- | -------- | |
| 882,250 | 4,682 | 18,943 | 905,875 | |
| ======== | ======== | ======== | ======== |
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 Financial assets at fair value through profit or loss |
Six months ended 30 June 2018 £’000 (unaudited) |
Six months ended 30 June 2017 £’000 (unaudited) |
Year ended 31 December 2017 £’000 (audited) |
| Opening fair value | 18,943 | 33,550 | 33,550 |
| Purchases at cost | – | 6,708 | – |
| Return of capital – royalty | (286) | (474) | – |
| Preference shares converted to equity and transferred to Level 1 | – | (7,236) | (13,482) |
| Disposals – preference shares previously in Level 3 redeemed for cash | – | (6,397) | (6,396) |
| Total gains or losses included in gains/(losses) on investments in the Consolidated Statement of Comprehensive Income: | |||
| – assets disposed during the period | – | – | 6,245 |
| – assets held at the end of the period | 490 | (678) | (974) |
| -------- | -------- | -------- | |
| Closing balance | 19,147 | 25,473 | 18,943 |
| ======== | ======== | ======== |
The Level 3 investments as at 30 June 2018 in the table below relate to the Avanco Royalty and, in accordance with IFRS 13, this investment was categorised as Level 3. In arriving at the fair value of this investment, the key inputs are the underlying commodity prices and illiquidity discount.
The Level 3 valuation process and techniques used by the Company are explained in the accounting policies in notes 2(h) and 2(p) and a detailed explanation of the techniques is also available on page 79 under ‘Valuation process and techniques’ in the Company’s Annual Report and Financial Statements for the year ended 31 December 2017.
Quantitative information of significant unobservable inputs – Level 3
Description |
Six months ended 30 June 2018 £’000 (unaudited) |
Six months ended 30 June 2017 £’000 (unaudited) |
Year ended 31 December 2017 £’000 (audited) |
Valuation technique |
Unobservable input |
| Kennady Diamonds | – | 2,649 | – | Discount to quoted prices | Illiquidity discount |
| Trevali Mining | – | 4,059 | – | Discount to quoted prices | Illiquidity discount |
| Avanco Royalty* | 19,147 | 18,765 | 18,943 | Discounted cash flows | Discount rate – weighted average cost of capital Average gold and copper prices |
| Total | 19,147 | 25,473 | 18,943 | ||
| -------- | -------- | -------- |
* Adjusted for changes in currency movements and return of capital.
Sensitivity analysis to significant changes in unobservable inputs within Level 3 hierarchy
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy, together with an estimated quantitative sensitivity analysis, as at 30 June 2018 are as shown below.
| Description | Input | Estimated sensitivity used* | Impact on fair value |
| Avanco Royalty | Discount rate – weighted average cost of capital |
1% |
£2.2m |
| Average gold and copper prices | 10% |
£4.8m |
* 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 commodity prices and discount rates.
11. TRANSACTIONS WITH THE AIFM AND THE INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) is the Company’s Alternative Investment Fund Manager (AIFM). BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)).
The investment management fee due to BFM for the six months ended 30 June 2018 amounted to £3,182,000 (six months ended 30 June 2017: £2,858,000; year ended 31 December 2017: £6,274,000). At the period end £4,896,000 was outstanding in respect of the investment management fee (six months ended 30 June 2017: £2,858,000; year ended 31 December 2017: £3,515,000).
In addition to the above services, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the period ended 30 June 2018 amounted to £73,000 excluding VAT (six months ended 30 June 2017: £37,000; year ended 31 December 2017: £93,000). Marketing fees of £73,000 were outstanding as at 30 June 2018 (30 June 2017: £37,000; 31 December 2017: £93,000).
12. RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTS
The Board consists of six non-executive Directors, all of whom are considered to be independent of the Manager by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £45,000, the Chairman of the Audit & Management Engagement Committee/Senior Independent Director receives an annual fee of £37,500 and each of the other Directors receives an annual fee of £30,000.
As at 30 June 2018 no amounts (30 June 2017: £nil; 31 December 2017: £16,875) were outstanding in respect of Directors’ fees.
At the period end members of the Board held ordinary shares in the Company as set out below:
| Ordinary shares | |
| Ian Cockerill1 | 60,789 |
| Colin Buchan2 | 29,000 |
| David Cheyne | 24,000 |
| Russell Edey | 20,000 |
| Jane Lewis | 2,429 |
| Judith Mosely | 7,400 |
| -------- |
1. Chairman.
2. Chairman of the Audit & Management Engagement Committee and Senior Independent Director.
Since the period end and up to the date of this report there have been no changes in Directors’ holdings.
13. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2018 (six months ended 30 June 2017: nil; year ended 31 December 2017: nil).
14. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this half yearly report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2018 and 30 June 2017 has been reviewed by the Company’s auditors.
The information for the year ended 31 December 2017 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the auditors on those accounts contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.
15. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 December 2018, as prepared under IFRS, in February 2019.
Copies of the results announcement can be obtained from the Secretary on 020 7743 3000 or at cosec@blackrock.com. The Annual Report should be available by the beginning of March 2019, with the Annual General Meeting being held in May 2019.
INDEPENDENT REVIEW REPORT TO BLACKROCK WORLD MINING TRUST PLC
Report on the financial statements
OUR CONCLUSION
We have reviewed BlackRock World Mining Trust plc’s Financial Statements (the ‘interim financial statements’) in the Half Yearly Financial Report of BlackRock World Mining Trust plc for the six month period ended 30 June 2018. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.
WHAT WE HAVE REVIEWED
The interim financial statements comprise:
-
the Consolidated Statement of Financial Position as at 30 June 2018;
-
the Consolidated Statement of Comprehensive Income for the period then ended;
-
the Consolidated Cash Flow Statement for the period then ended;
-
the Consolidated Statement of Changes in Equity for the period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Yearly Financial Report have been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
The Half Yearly Financial Report, including the interim financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Yearly Financial Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Half Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
WHAT A REVIEW OF INTERIM FINANCIAL STATEMENTS INVOLVES
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
16 August 2018
ENDS
The half yearly financial report will also be available on the BlackRock website at blackrock.co.uk/brwm. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited -
Tel: 020 7743 5284
Evy Hambro, Fund Manager, BlackRock Investment Management (UK) Limited –
Tel: 020 7743 3000
Press enquiries:
Lucy Horne, Lansons Communications – Tel: 020 7294 3689
E-mail: lucyh@lansons.com
12 Throgmorton Avenue
London EC2N 2DL
16 August 2018
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