Half-year Report
BlackRock World Mining Trust plc
LEI - LNFFPBEUZJBOSR6PW155
Half Yearly Financial Report 30 June 2019
OVERVIEW AND PERFORMANCE
PERFORMANCE RECORD AS AT 30 JUNE 2019
| 30 June 2019 (unaudited) |
31 December 2018 (audited) |
|
| Net assets (£’000)¹ | 777,571 | 685,595 |
| Net asset value per ordinary share (NAV) (pence) | 440.97 | 388.81 |
| Ordinary share price (mid-market) (pence) | 375.50 | 340.50 |
| EMIX Global Mining Index (net total return) | 643.03 | 532.67 |
| Discount to net asset value2 | 14.8% | 12.4% |
| ------------------ | ------------------ | |
| Performance | ||
| NAV (total return)3 | +17.0% | -11.5% |
| Ordinary share price (total return)3 | +14.4% | -10.7% |
| EMIX Global Mining Index (net total return) | +20.7% | -6.2% |
| =========== | =========== |
1 The change in net assets reflects market movements and dividends paid.
2 This is the difference between the share price and NAV per share with debt at par.
3 This measures the Company’s NAV and share price total return, which assumes dividends paid by the Company have been reinvested.
| For the six months ended 30 June 2019 (unaudited) |
For the six months ended 30 June 2018 (unaudited) |
Change % |
|
| Revenue | |||
| Net revenue profit after taxation (£’000) | 20,160 | 16,393 | +23.0 |
| Revenue return per ordinary share (pence) | 11.43 | 9.29 | +23.0 |
| ------------------ | ------------------ | ------------------ | |
| Dividend per ordinary share (pence) | |||
| – 1st interim | 4.00 | 3.00 | +33.3 |
| – 2nd interim* | 4.00 | 3.00 | +33.3 |
| ------------------ | ------------------ | ------------------ | |
| Total dividends paid and payable | 8.00 | 6.00 | +33.3 |
| =========== | =========== | =========== |
* Payable on 1 October 2019.
CHAIRMAN’S STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2019
In my first half yearly report to you as Chairman, I am pleased to be able to report growth in the Company’s net asset value per share (NAV) over the six month period to 30 June 2019.
MARKET OVERVIEW
Mining shares made a strong start to 2019, as the fears of a sharp slowdown in Chinese demand which had characterised the last quarter of 2018 proved to be unfounded. A reversal in the likely trajectory of US interest rates created a more positive tone for equity markets, as they had previously been bracing for rising rates. The tragic collapse of Vale’s Brumadinho tailings dam and associated loss of life also significantly impacted the iron ore market, lifting prices as capacity was taken out of production in order to test the vulnerability of dams elsewhere in the region.
PERFORMANCE
Over the six months ended 30 June 2019, the Company’s NAV increased by 17.0% and the share price by 14.4%. By way of reference, the EMIX Global Mining Index (net total return) (Reference Index) increased by 20.7% and the FTSE-All Share Index increased by 13.0% (all percentages calculated in sterling terms with dividends reinvested). The Consumer Price Index 12-month inflation rate in June was 2.0%.
As a long-term investor, with an investment strategy based around a range of different mining securities, including exposure to fixed interest securities, royalties and traded options, there will be periods of time when short-term performance deviates from that of the all equity Reference Index, which is provided as a reference rather than as a specific benchmark. In this period, for instance, our NAV increase compared with the Reference Index, in part reflects the Company’s exposure to assets which are not part of the Reference Index, as well as lack of exposure to Fortescue Metals, an iron ore producer, which was highly geared to the sharp rise in the iron ore price arising from the Brazilian tailings dam incident. Over the long term, our goal is very much to provide superior risk adjusted returns to those which can be achieved from simply investing in the Reference Index.
As set out in the 2018 Annual Report, we added to the Company’s holding in Vale’s debentures in February. This continues our strategy of selectively adding to attractive longer-term assets, taking advantage of the Company’s closed-end structure to make strategic investments which are not available or suitable for funds with shorter-term horizons, with their requirement to meet daily redemption requests. In this instance, the debenture income is by way of a royalty exposed to the revenues arising from Vale’s Northern System and Southeastern System iron ore deposits in Brazil. The royalty is currently paying from production from the Northern System which has not been impacted by the mine associated with the tailings dam event.
Since the period end and up to the close of business on 19 August 2019, the Company’s NAV has decreased by 6.0% compared to a fall of 5.4% (on a net return basis) in the Reference Index (with dividends reinvested).
REVENUE RETURN AND DIVIDENDS
The Company’s net revenue earnings for the six month period to 30 June 2019 amounted to 11.43p per share (six months to 30 June 2018: 9.29p per share) an increase of 23.0%. Six special dividends totalling £10.2 million were received during the six month period from BHP, Rio Tinto, Coronado Global Resources, China Molybdenum, Newmont Mining and South32. The special dividend from BHP amounting to £5.2 million has been treated as capital, whilst the other five have been treated as income.
The first quarterly dividend of 4.00p per share was paid on 28 June 2019 and, today, the Board has announced a second quarterly dividend of 4.00p per share which will be paid on 1 October 2019 to shareholders on the register on 30 August 2019, the ex-dividend date being 29 August 2019. The increase in the interim dividend level over 2018 represents the Board’s desire to smooth dividends paid in 2019.
DISCOUNT
The discount of the Company’s share price to the underlying NAV per share finished the period under review at 14.8% on a cum income basis having stood at 12.4% at the start of the year. At the close of business on 19 August 2019, the Company’s shares were trading at a discount of 14.9%.
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. Accordingly, the Board monitors this closely and will consider the repurchase of shares in normal market conditions when it believes it is in shareholders’ interests. During the period under review, the Company did not repurchase any shares. Since the period end, and up to the date of this report, the Company repurchased 33,766 shares for a total consideration of £129,000.
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 during the period was 14.0%.
BOARD
Ian Cockerill retired as Chairman of the Company following the Company’s Annual General Meeting held on 2 May 2019. This followed the announcement of his appointment to the board of BHP and the Board would like to express its appreciation for all his efforts on behalf of the Company during his time as both a Director and Chairman. The Board has decided that it will now seek to appoint one or more additional directors with appropriate industry experience and has retained headhunters to assist in this process.
OUTLOOK
Current low valuations in the sector appear to reflect investor caution about the outlook for global growth and therefore scepticism about current pricing. This sees the sector trading at a significant valuation discount to world markets, despite the improvement in balance sheets across the sector, strong levels of cash generation, and the scope to use surplus cash flow to enhance earnings per share through buy backs.
Our Portfolio Managers believe that, notwithstanding the duration of the current economic cycle, there remains scope for economic growth to continue. With high and well covered dividend yields, the major diversified mining companies offer an attractive return from their dividend income alone, enhanced by the scope for capital appreciation when the strength and flexibility of their free cash flow becomes better appreciated by the market.
DAVID CHEYNE
20 August 2019
INVESTMENT MANAGER’S REPORT
The year 2019 has so far been a year in which unforeseen events have impacted the performance of both the Company and the mining sector more than in recent years. Despite global markets continuing to grow, the gyrations in both political and financial factors have largely dictated returns. In addition, the tragic tailings dam collapse in Brazil has completely altered the iron ore market, which in turn significantly shifted the outlook for iron ore producers around the world. For the first six months of the year the Reference Index delivered a net return of 20.7% (with dividends reinvested) versus the MSCI World Index return of 17.0%.
Another area of frustration has been the ongoing derating of resources companies, as multiples have continued to contract versus prior periods. The obvious value that is available in the equity market today is encouraging, but the fact that it has been around so long leaves us wondering when the sector is going to be able to command the multiples it used to enjoy.
Over the six month period the NAV of the Company increased by 17.0% with dividends reinvested. The strong positive return has come from our exposure to the diversified companies which have benefited from being exposed to iron ore and Ero Copper, an exploration and development company in Brazil, which has successfully delivered on its planned rejuvenation of historic assets. The single largest contributor to the lower return relative to the Reference Index came from not owning Fortescue Metals following the Brumadinho tailings collapse in January this year.
POSITIVE TIMES RETURN
It is very pleasing to see the sector returning to positive territory. In last year’s Annual Report we mentioned how disappointing it was to see companies doing the right thing but not being rewarded by the market. This confusing trend continues today as generalist investors remain on the side-lines, still nervous about increasing exposure to the miners. It is easy to have sympathy with their caution due to the ongoing US/China trade discussions, slowing global growth, political battles in Europe, as well as Brexit, reversal of US interest rate policy, heightened tensions in the Middle East and North Korea once again testing missiles. Despite all of this, we feel that it is important for investors to look through the headlines and search for the detail behind the companies to look at the true investment case and not get distracted by media coverage of the macro issues.
The mining sector today is in a very different place to that of prior decades and cycles. The lessons that have been learnt from these earlier periods have shifted strategy away from growth at any cost to a more shareholder friendly approach. We describe the potential for the last few years and those in the near term to be called the ‘Era of the Shareholder’.
In this period we have seen a number of things play out. It started in 2016 when companies went through a process of right sizing the debt burden by deleveraging balance sheets. Assets were sold, cash flows were used to repay debt and management outlined a disciplined approach to capital allocation. The culmination of these actions left the large diversified mining companies looking very different to prior periods. Today all of them have conservative balance sheets with some close to having zero net debt. Capital expenditure levels remain low as projects go through tougher approval processes and reinvestment decisions are reviewed versus returns to shareholders. New supply is also looked at in the context of its impact on existing supply and therefore pricing to see what it might do to the profitability of existing production (iron ore markets being the best example of this). Dividends are no longer progressive but based on payout ratios and many companies are reducing their equity base by buying back shares. All of this should boost interest in the sector, but for the reasons mentioned earlier it seems that the attractive characteristics on display are not yet enough to tempt people back into the sector when viewed in the context of macro risks.
This year has been a tragic period for the mining sector following the collapse of the Brumadinho tailings dam in Brazil. The complete collapse of the retaining wall caused vast amounts of inert mine waste to flow downstream and this resulted in a huge loss of life. Vale, the Brazilian mining company, and local authorities are still working out the exact cause of the event and we expect clarity later this year but for the time being it has had a material impact on iron ore markets. Vale’s production of iron ore has been severely impacted with iron ore production estimated to be approximately 60Mts lower versus the prior year. On its own, this represents close to 4.0% of the seaborne iron ore market, but more importantly it resulted in huge volatility in iron ore price premiums for ore qualities and supply into the pellet production market.
Outside of Brazil, iron ore supply has also been impacted by problems in Australia where cyclones and production issues have taken additional supply out of the market. In total we estimate that close to 93Mts has been lost from the market this year and it is unlikely that much of this, if any, can be replaced with higher production during the remainder of the year. The fact that this has happened when steel production rates in China are at record levels, currently annualising at over 1 billion tonnes of production, means that inventories of iron ore at Chinese ports have fallen sharply, leaving the market tight going into the seasonally weaker summer months and boding well for the ongoing profitability of iron ore producers in the near term.
Base metal prices have generally been weaker as fears of slowing growth have cooled estimates for demand. Copper in particular has been surprisingly weak given the elevated level of supply disruptions in South America, Indonesia and Africa. Nickel markets remain hostage to the rapidly growing supply of highly profitable integrated stainless steel being produced in Indonesia and the Company is well positioned to benefit from this trend.
Precious metals, particularly gold and palladium, have performed well with the former benefiting from the shift in monetary policy in the US and expectations of rate cuts and a weaker dollar. The latter has seen supply tightness and strong demand result in prices moving to high levels and, despite expectations for this only to be temporary, the palladium price has remained strong.
SELECTED COMMODITY PRICE CHANGE
Commodity |
30 June 2019 |
% change YTD in 1H 2019 |
% change average price 1H 2019 vs 1H 2018 |
| Iron Ore (China 62% fines) U$/t | 118.2 | 28.9% | 0.0% |
| Oil West Texas Intermediate (Cushing) US$/barrel | 58.2 | 28.9% | -12.6% |
| Nickel US/lb | 5.72 | 19.0% | -11.2% |
| Gold US$/oz | 1412.3 | 10.2% | -0.9% |
| Met Coal U$/t | 191 | 3.8% | 10.3% |
| Platinum US$/oz | 818.0 | 3.0% | -11.5% |
| Zinc US$/lb | 1.16 | 1.9% | -16.2% |
| Copper US$/lb | 2.71 | 0.6% | -10.9% |
| Silver US$/oz | 15.3 | -1.2% | -8.5% |
| Tin US$/lb | 8.54 | -3.5% | -3.1% |
| Aluminium US$/lb | 0.81 | -4.5% | -17.2% |
| Lead US$/lb | 0.87 | -4.5% | -20.1% |
| Uranium US$/lb | 24.7 | -13.3% | 0.0% |
| Lithium (Battery Grade China) U$/t | 11,700 | -18.2% | -17.8% |
| Thermal Coal (Newcastle) U$/t | 72.13 | -28.9% | -15.12% |
Sources: Datastream and Macquarie.
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 evolve as the fundamentals of the companies and markets change. For example from 2016 to 2018 the Company had significant exposure to deleveraging. This theme has largely played out and the companies that were part of this strategy have moved from deleveraging to rewarding shareholders. Resource replenishment, capital discipline, asset quality and growth remain key parts of the portfolio and we expect these to be longer term in relation to overall performance. The reform agenda in China continues to play a key role on commodity markets, especially with the increased global focus on the environment. A new area for the Company has been to review opportunities in recycling and reuse of materials. We expect this area to be a core part of global materials production in years to come but at present the opportunity to invest in this area remains challenging due to a lack of choice.
SHAREHOLDER RETURNS
In recent reports we have emphasised the improvement in capital discipline across the sector with balance sheets strengthened, less investment in growth and improved returns to shareholders via dividends and buybacks. During 2016 and 2017 the primary focus for the sector was strengthening balance sheets and since 2018 we have seen companies look to step up returns to shareholders via dividends and in some cases buybacks. The two largest companies in the sector, BHP and Rio Tinto, announced record dividends in 2018 which the Company significantly benefited from at the beginning of this year. Over the last twelve months BHP and Rio Tinto have returned US$16,570 million and US$13,895 million to shareholders respectively.
As we look into the second half of the year, we continue to remain positive on the outlook for dividends particularly for the iron ore exposed diversified miners given the rally in the iron ore price and the resulting ‘windfall profits’ year-to-date. We increasingly see dividends and buybacks as an important component of total shareholder return given the low level of reinvestment into growth across the sector.
With dividends across the sector underpinned by record balance sheet strength, we find it perplexing that the sector continues to trade at an elevated dividend yield. There are numerous factors cited to explain this such as dividend volatility following the move to pay-out ratios and the risk of dividend cuts if commodity prices weaken. Despite this, we struggle to see why the mining sector does not increasingly appeal to traditional UK income investors with a number of the UK dividend stalwarts increasingly coming under pressure to cut dividends.
A common criticism of the mining sector is the perceived lack of growth. Whilst this is largely correct if we look at volume growth across the sector on an absolute basis, it is not the case if we look at growth on a per share basis. Some interesting analysis from Citigroup highlights that the major mining companies have meaningful growth on a per share basis if they use 50% of their free cash flows to buyback shares at the current share price. Under this scenario we see 15% to 30% copper equivalent volume growth on a per share basis over the next two years for the UK diversified miners, in addition to the dividend pay-out policies they have committed to. Given the low execution risk of this growth and the compounding benefits of reducing shares through time, we believe the sector should consider this strategy more aggressively.
GROWTH AND RESOURCE REPLENISHMENT
Whilst growth across the sector remains muted, we continue to look for, and invest in, quality growth companies where we see that growth translating into growth on a value per share basis. The majority of the Company’s growth focused investments are copper producers, given the need for further supply to be added in that market longer term. Key copper growth investments in the portfolio include Ero Copper, First Quantum Minerals, Teck Resources, SolGold and Lundin Mining, following its recent acquisition of the Chapada copper/gold mine from Yamana.
Among our growth investments Ero Copper, a Brazilian based copper producer, has been the standout investment for the Company, up almost 400% since its IPO in 2017. Ero Copper continues to have exploration success at its existing mines Pilar and Vermelhos, with the company currently undertaking a significant regional exploration programme. This will confirm whether these assets have district potential that would support a much higher production level and likely attract corporate interest from the majors.
Another significant growth company for the Company is First Quantum Minerals where we have exposure to both equity and the debt. It has been a volatile six months for the shares which significantly outperformed following Chinese stimulus and expectations on a US/China trade deal, to give all its gains back by the end of June following the announcement of increased sales taxes in Zambia and calls for royalty rates to be reviewed in Panama. Our investment thesis for First Quantum Minerals has centred around the company’s ability to deleverage, with free cash flow building strongly once Cobre Panama moves into production. The increase in royalties and taxes, combined with higher near-term capital expenditure at Cobre Panama and a lower copper price, has seen this cash flow inflection point pushed out and we have subsequently chosen to reduce the equity position in the portfolio.
In addition to volume growth, companies that have successfully invested in exploration through the cycle and have sufficient asset quality to replenish reserves and resources, we believe will be strong outperformers in this next phase of the cycle. This is particularly prevalent amongst the gold companies given their shorter mine lives and greater need for reinvestment. Australian based gold producer Northern Star Resources has an excellent track record of adding value through exploration at its existing Australian assets and last year made its first international acquisition acquiring the Pogo Mine in Alaska from Sumitomo. We remain optimistic that Northern Star Resources can extract significant value from this asset as it looks to implement its world class operating practices to improve costs and productivity at the operation, as well as invigorate exploration around the asset.
CHINA SUPPLY-SIDE REFORM AND INCREASING ENVIRONMENTAL STANDARDS
Over the last couple of years we have discussed the impact of China’s supply-side reform agenda and efforts to improve environmental standards in the country. This has had a significant impact on the steel, aluminium and coal industry with pollutive and loss-making capacity closed and any new capacity limited to high quality efficient operations. China’s efforts to combat pollution have been relaxed this year, as it has increased steel production to support the domestic economy. Despite this, the longer-term goal of reducing pollution remains clear. This should support demand and, in turn, price premiums for high quality product such as high grade iron ore, high calorific value thermal coal and ethically sourced cobalt.
Another key development in this area has been China’s move to ban waste imports from 2017. This is a wide ranging policy with China, previously the world’s largest importer of waste, banning 24 types of scrap from being processed in the country in 2018. In the metals space, the most significant impact has been in the copper scrap market with China banning the import of category-7 copper scrap. The plastic and packaging market has also been significantly impacted, with developed countries no longer able to rely on China to deal with their waste problem. This is a profound issue which we expect will continue to gain traction through time. As we look forward, we expect environmental measures to continue to be at the forefront of Chinese Government policy which will increase the demand for electric vehicles, renewable energy and recycling.
Today the metals recycling industry remains fragmented, but we expect to see significant growth over time, particularly as China begins to recycle steel. The Company’s exposure to the recycling theme is primarily through its holding in Umicore, a recycling and battery cathode material producer. Umicore is set to deliver strong organic volume growth over the medium term, leveraged to the growing demand for electric vehicles. During the first half of 2019 the shares came under pressure following a profit downgrade, with the company guiding to weaker than expected growth in electric vehicles over the next two years than originally anticipated. Despite this, we believe the longer-term trend remains intact and we continue to retain exposure to Umicore.
BATTERY MATERIALS
The rise of the electric vehicle (EV) has continued this year, led by growth in sales of electric vehicles in China which grew 41% compared with the equivalent six months in the prior year (Source: CAAM). Sales have been incentivised by significant subsidies in China; however, the subsidies have been so successful they are now no longer required to meet government targets. As such these subsidies will halve in the second half of 2019 before being removed in 2020 and we expect this to be a headwind to near-term EV sales in China. We have seen the industry destock ahead of the normalisation of demand and sentiment for growth decline. The raw materials that go into the battery - cobalt and lithium - have been hit by the tempering of expectations after strong price increases in 2017 and 2018; however, it is important to note that the absolute tonnage demand continues to grow strongly.
Cobalt prices have continued to decline, due to a large increase in refined supply. A key driver here has been production from the Democratic Republic of Congo where both Chinese and artisanal producers responded with surprising speed to the very high cobalt price in the first half of 2018. Another headwind for the cobalt price has been the mix of different metals used in the battery, with technological advances resulting in the increased thrifting of cobalt; however, this is unlikely to completely offset the volume growth required to meet electric vehicle demand.
Prices for lithium have continued to move lower in the first six months of 2019, down 18.2%. As well as the tempered growth outlook, prices have been hit by bottlenecks in the battery supply chain, with some Australian miners being unable to sell their lithium spodumene concentrate due to processing capacity builds being delayed. The Company’s 0.9% holding in Albemarle has been hit by negative sentiment around lithium prices; however, we expect the impact to be limited due to Albemarle’s portfolio of long-term contracts which secure pricing in exchange for quality supply security. Albemarle also remains well placed to benefit from volume growth, with a number of key projects such as the Atacama and Greenbushes expansion. Albemarle further added to their project pipeline by acquiring 50% of the Wodgina deposit from Mineral Resources in the first half of 2019; this deal is expected to close in the second half of 2019.
Another major battery metal is nickel where demand is expected to benefit from the increased penetration of electric vehicles and thus demand for lithium batteries. However, today the number one use of nickel driving near term demand is stainless steel production. Not all nickel production is created equal when it comes to suitability for different end-uses, and for battery cathodes the most efficient nickel is nickel sulphide, whilst for stainless steel ferronickel is the most cost effective.
2019 has seen large volume growth from Indonesia in ferronickel, as well as stainless steel. The Company has exposure to these rising volumes through its 0.7% holding in Nickel Mines which was up 57% (Source: Bloomberg) in the period as its assets have ramped-up. Outside of ferronickel there has been a lack of supply for nickel, with production shrinking for the last three years and this may cause an eventual divergence in pricing of the nickel market.
ROYALTY AND UNQUOTED INVESTMENTS
The Company currently has one unquoted investment, the OZ Minerals Brazil Royalty, representing 2.1% of the portfolio as at the end of June. The Company has an additional quoted royalty investment, the Vale debentures, representing 3.0% of the portfolio, with total royalty investments equal to 5.1% of the portfolio. This, and any future investments, will be managed in line with the guidelines set by the Board as outlined to shareholders in the Strategic Report in the 2018 Annual Report.
OZ MINERALS BRAZIL ROYALTY CONTRACT (2.1%)
In October 2013 the Company signed a non-binding memorandum of understanding with Avanco Resources for a contractual royalty covering its exploration licenses within the world-class mineral district of Carajas in Brazil. A binding royalty agreement was subsequently signed in July 2014 in which 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 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 license area as at the time of the agreement.
Last year we were delighted to report that Avanco was successfully acquired by OZ Minerals, an Australian based copper and gold producer for A$418 million, with the royalty now assumed by OZ Minerals. Since our initial US$12 million investment was made, we have received US$11.2 million in royalty payments with the royalty on track to achieve a less than three year payback on the initial investment. As at the end of June 2019, the royalty was valued at £18.3 million (2.1% of the portfolio) which equates to a 187.3% total return since our investment.
After the interim period, OZ Minerals released its review of the core Brazilian assets acquired from Avanco, including updated resource statements at Antas North and Pedra Branca and its proposed development strategy. OZ Minerals is looking to adopt a low risk, low capex, hub strategy to leverage the existing processing facilities at Antas. OZ Minerals has guided for the Antas North mine to be closed in 2021, with ore from Pedra Branca to be trucked and processed through Antas’s processing facilities from mid-2021. This is a lower capital requirement for OZ Minerals allowing them to develop Pedra Branca quicker than originally anticipated. OZ Minerals has reduced the copper grade at both assets, which has resulted in lower production at both Antas and Pedra Branca. OZ Minerals is currently finalizing the economics at Pedra Branca with a decision to mine to be made at the end of the third quarter of 2019.
Following the period end, the Directors, in conjunction with the BlackRock EMEA Pricing Committee, have chosen to downgrade the independent valuation of the royalty by 7%, following the update from OZ Minerals. This valuation will be reviewed post the review at Pedra Branca, which is due at the end of the third quarter of 2019.
VALE DEBENTURES (3.0%)
As noted in last year’s Annual Report, the Company completed a significant transaction in February to increase its existing holding in the Vale debentures. The debentures consist of a 1.8% net revenue royalty over Vale’s Northern System and Southeastern System iron ore assets in Brazil, as well as a 1.25% royalty over the Sossego copper mine. The iron ore assets are world class given their grade, cost position, infrastructure and resource life which is well in excess of 50 years. We believe that the duration of the future income stream, the exposure to high grade iron ore and attractive current yield, make this a compelling long-term investment. Prior to this transaction, the Company had a 0.5% position in the Vale debentures, with total exposure equal to 3.0% as at the end of June.
Vale’s tragic tailings dam incident at the beginning of the year has significantly altered the iron ore market with the iron ore price rallying over 30% since the event. Vale is expected to spend several billion US dollars restoring the communities and environment impacted by the incident. However, it is important to note that this cost is not borne by the debentures as it is a revenue royalty with payments directly linked to the iron ore price which has appreciated during the first half of the year. It is also important to highlight that the operations impacted by the incident are in the Southern and Southeastern System, with the Vale debentures currently only making royalty payments from the Northern System. Vale has indicated that it is studying increasing production at the Northern System to further increase dry-processing operations and reduce its usage of tailings dams which provides additional upside to our original expectations.
In 2018 payments made by Vale under the debentures amounted to US$161.2 million. This payment is expected to grow once royalty payments commence on the Southeastern System in 2023 and volumes from the newly commissioned iron ore project S11D continue to ramp-up. Vale’s Northern System is currently producing at 200Mt and forecast to grow to 230Mt once S11D ramps-up (with further upside to this number), while the Southeastern System is currently operating at ~70Mt and is expected to remain around this level. The Northern System has benefited from the rise in premiums for high grade iron ore in recent years with the debentures directly exposed to this.
Whilst the Vale debentures are a royalty, they are also a listed security on the Brazilian National Debentures System. However, shareholders should be aware that historically there has been a low level of liquidity in the debentures and price volatility is to be expected. We continue to actively look for opportunities to grow royalty exposure given it is a key differentiator of the Company and an effective mechanism to lock-in long-term income which further diversifies the Company’s revenues.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts, mostly involving the sale of “puts†and “callsâ€. These are taken to revenue and are subject to strict Board guidelines which limit their magnitude to an aggregate 10% of the portfolio. In the first half of 2019 income generated from options was £3.2 million net of contracts repurchased. We follow the disciplined approach to only making use of option contracts where there is value to be had from writing them. Given the volatile period, this has played out well with nearly all the contracts expiring worthless or have provided an intra period chance to rewrite on better terms. At the end of the period the Company had 1.3% 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 2019 the Company had £114.3 million of debt, with a net gearing level of 9.4%. 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 period we have gradually reduced the total indebtedness as debt instruments have matured or alternative opportunities have arisen. Given the low multiples that companies are trading on, shareholders should expect debt levels to remain around current levels in order to enable ongoing investment in the equity portfolio of the Company.
OUTLOOK
Unlike the last two years, 2019 to date has delivered a strong period of returns despite the ongoing macro headwinds on trade, monetary policy and political risks. Whilst we do not expect these issues to be resolved in the short term, we remain very confident on the underlying fundamentals of the companies in the sector. Management continue to be disciplined, balance sheets are generally very strong, free cash flow yields are high, cost inflation is low and shareholders continue to be rewarded with rising dividends. On the back of this we plan to keep the Company fully invested and make use of the gearing facilities at our disposal.
It is important that shareholders are aware that the Company continues to back core themes, as mentioned earlier, 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
20 August 2019
PORTFOLIO
TEN LARGEST INVESTMENTS AS AT 30 JUNE 2019
BHP: 11.0% (2018: 12.3%) The world’s largest diversified mining company by market capitalisation. The company is an important global player in a number of commodities including iron ore, copper, thermal and metallurgical coal, manganese, nickel, silver and diamonds. The company also has significant interests in oil, gas and liquefied natural gas.
Rio Tinto1: 10.1% (2018: 10.0%) One of the world’s leading mining companies. The company’s primary product is iron ore, but it also produces aluminium, copper, diamonds, gold, industrial minerals and energy products.
Vale2,3: 8.5% (2018: 8.7%) One of the largest mining companies in the world, with operations in 30 countries. Vale is the world’s largest producer of iron ore and iron ore pellets and the world’s largest producer of nickel. The company also produces manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals, gold, silver and cobalt.
Newmont Mining: 5.0% (2018: 2.6%) Following the acquisition of Goldcorp in the first half of 2019, Newmont is the world’s largest gold producer by market capitalisation. The company has gold and copper operations on five continents, with active gold mines in Nevada, Australia, Ghana, Peru and Suriname.
First Quantum Minerals2: 4.3% (2018: 6.2%) An established and rapidly growing copper mining company operating seven mines and developing five projects worldwide. The company is a significant copper producer and also produces nickel, gold and zinc.
Teck Resources: 4.2% (2018: 4.9%) 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 one of the world’s largest zinc metal refiners. Teck is a major producer of copper and also produces gold, lead, molybdenum and various other metal products. Teck owns a 21.3% interest in the Fort Hills oil sands project, which entered commercial production in 2018.
OZ Minerals3,4: 4.0% (2018: 4.5%) An Australian based copper & gold producer currently producing from its Prominent Hill operation in Australia and remains on track to achieve first production in Q4 2019 at its Carrapateena copper gold mine. Following OZ Minerals’ acquisition of Avanco Resources in 2018, the Company’s exposure to OZ Minerals is both to the equity and a contractual royalty.
Barrick Gold: 3.7% (2018: nil5) Following the merger with Randgold Resources in 2018, Barrick Gold is the second largest gold company by market capitalisation and has operations and projects in 15 countries across the world. In 2019 the company successfully established a joint venture with Newmont Mining both companies' Nevada assets to maximize the synergies across both sets of assets.
Glencore: 3.2% (2018: 7.9%) A diversified miner with activities in mining, smelting, refining, processing and marketing of metals and minerals, energy products and agricultural products globally. Since mid-2015 the company has been focused on rapidly deleveraging its balance sheet, with net debt falling from US$26 billion (December 2015) to a targeted range of US$10-16 billion, to provide greater balance sheet strength and flexibility going forward.
Agnico Eagle Mines: 3.2% (2018: 1.3%) A Canadian based gold company with mines in Canada, Finland and Mexico, with exploration activities in each of these countries as well as in the United States and Sweden. Agnico Eagle has a strong operational track-record and has declared a cash dividend every year since 1983.
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 2018. Together, the ten largest investments represent 57.2% of total investments (31 December 2018: 63.1%).
1 Includes options.
2 Includes fixed income securities.
3 Includes investments held at Directors’ valuation.
4 Includes mining royalty contract.
5 Excludes a 2.3% holding in Randgold Resources as at 31 December 2018. Randgold Resources and Barrick Gold merged in early 2019.
PORTFOLIO ANALYSIS AS AT 30 JUNE 2019
Commodity Exposure¹
| BlackRock World Mining Trust plc 2019 |
BlackRock World Mining Trust plc 2018# |
EMIX Global Mining Index 2019 |
|
| Iron Ore | 0.1% | 0.1% | 2.1% |
| Molybdenum | 0.1% | 0.0% | 0.1% |
| Aluminium | 0.1% | 0.9% | 3.5% |
| Zinc | 0.3% | 0.9% | 0.5% |
| Nickel | 0.7% | 0.4% | 2.4% |
| Other | 0.7% | 0.8% | 2.0% |
| Coal | 1.6% | 0.7% | 4.8% |
| Industrial Minerals | 5.9% | 6.6% | 1.4% |
| Silver & Diamonds | 6.0% | 6.4% | 2.7% |
| Copper | 18.5% | 18.9% | 7.3% |
| Gold | 21.7% | 15.5% | 29.8% |
| Diversified | 44.3% | 48.8% | 43.4% |
Geographic Exposure2
| 2019 | 2018# | |||
| Global | 65.4% | Global | 60.0% | |
| Australasia3 | 10.9% | Latin America | 12.4% | |
| Latin America | 10.5% | Australia | 10.9% | |
| Canada | 6.9% | Canada | 7.4% | |
| Other4 | 3.4% | Africa (ex SA) | 4.5% | |
| Africa (ex SA) | 1.8% | Other5 | 3.3% | |
| South Africa | 1.1% | South Africa | 1.5% |
1 Based on index classifications.
2 Based on the principal commodity exposure and place of operation of each investment.
3 Australasia was previously reported as Australia.
4 Consists of China, Indonesia, Kazakhstan, Russia and USA.
5 Consists of Indonesia, Kazakhstan, Russia, Turkey and USA.
# Represents exposure as at 31 December 2018.
Source: BlackRock.
INVESTMENTS AS AT 30 JUNE 2019
| Main geographical exposure |
Market value (£’000) |
% of investments |
|
| Diversified | |||
| BHP | Global | 93,694 | 11.0 |
| Rio Tinto | Global | 85,695 | 10.1 |
| Rio Tinto Call Option 19/07/19 £48 | Global | (337) | – |
| Vale | Global | 47,062 | 5.5 |
| Vale 0% debentures#* | Global | 25,203 | 3.0 |
| Teck Resources | Global | 35,508 | 4.2 |
| Glencore | Global | 27,423 | 3.2 |
| Volcan II* | Global | 21,628 | 2.5 |
| Anglo American | Global | 17,936 | 2.1 |
| Lundin Mining | Global | 15,149 | 1.8 |
| South32 | Global | 7,890 | 0.9 |
| -------------------- | -------------------- | ||
| 376,851 | 44.3 | ||
| -------------------- | -------------------- | ||
| Gold | |||
| Newmont Mining | Global | 42,296 | 5.0 |
| Barrick Gold | Global | 31,249 | 3.7 |
| Agnico Eagle Mines | Canada | 27,326 | 3.2 |
| Northern Star Resources | Australasia | 23,125 | 2.7 |
| Newcrest Mining | Australasia | 17,611 | 2.1 |
| Franco-Nevada | Global | 16,609 | 1.9 |
| B2Gold | Canada | 5,968 | 0.7 |
| Polyus | Russia | 4,822 | 0.6 |
| Alamos Gold | Latin America | 3,724 | 0.4 |
| TMAC Resources | Canada | 3,563 | 0.4 |
| Centamin | Other Africa | 3,423 | 0.4 |
| Pretium Resources | Canada | 3,410 | 0.4 |
| Shanta Gold Convertible* | Other Africa | 1,455 | 0.2 |
| Carawine Resources+ | Australasia | 31 | – |
| -------------------- | -------------------- | ||
| 184,612 | 21.7 | ||
| -------------------- | -------------------- | ||
| Copper | |||
| First Quantum Minerals* | Global | 36,859 | 4.3 |
| OZ Minerals Brazil Royalty#~ | Latin America | 18,297 | 2.1 |
| OZ Minerals | Australasia | 16,006 | 1.9 |
| Sociedad Minera Cerro Verde | Latin America | 25,912 | 3.0 |
| Ero Copper | Latin America | 20,383 | 2.4 |
| KAZ Minerals | Kazakhstan | 8,270 | 1.0 |
| Ivanhoe Mines | Other Africa | 7,644 | 0.9 |
| Nevada Copper# | USA | 7,361 | 0.9 |
| Freeport-McMoRan Copper & Gold | Global | 4,893 | 0.6 |
| SolGold | Latin America | 4,642 | 0.6 |
| Antofagasta | Latin America | 3,717 | 0.4 |
| Katanga Mining | Other Africa | 1,834 | 0.2 |
| Sierra Metals | Latin America | 1,816 | 0.2 |
| -------------------- | -------------------- | ||
| 157,634 | 18.5 | ||
| -------------------- | -------------------- | ||
| Silver & Diamonds | |||
| Wheaton Precious Metals | Global | 19,563 | 2.3 |
| Mountain Province Diamonds* | Canada | 16,809 | 2.0 |
| Fresnillo | Latin America | 6,110 | 0.7 |
| Industrias Penoles | Latin America | 4,294 | 0.5 |
| Petra Diamonds* | South Africa | 2,833 | 0.4 |
| MAG Silver | Latin America | 1,055 | 0.1 |
| -------------------- | -------------------- | ||
| 50,664 | 6.0 | ||
| -------------------- | -------------------- | ||
| Industrial Minerals | |||
| Iluka Resources | Australasia | 15,711 | 1.9 |
| Umicore | Global | 12,855 | 1.5 |
| Pilgangoora* | Australasia | 8,723 | 1.0 |
| Albemarle | Global | 7,190 | 0.9 |
| Sheffield Resources | Australasia | 3,728 | 0.4 |
| Cobalt27 Capital | Global | 983 | 0.1 |
| Neo Lithium | Latin America | 782 | 0.1 |
| Nemaska Lithium+ | Canada | 3 | – |
| Australian Carbon | Australasia | – | – |
| -------------------- | -------------------- | ||
| 49,975 | 5.9 | ||
| -------------------- | -------------------- | ||
| Coal | |||
| Whitehaven Coal | Global | 6,622 | 0.8 |
| Coronado Global Resources | Australasia | 6,514 | 0.8 |
| -------------------- | -------------------- | ||
| 13,136 | 1.6 | ||
| -------------------- | -------------------- | ||
| Nickel | |||
| Nickel Mines | Indonesia | 5,663 | 0.7 |
| Bindura Nickel | Other Africa | 257 | – |
| -------------------- | -------------------- | ||
| 5,920 | 0.7 | ||
| -------------------- | -------------------- | ||
| Zinc | |||
| Osisko Metals+ | Canada | 1,499 | 0.2 |
| Titan Mining | USA | 1,417 | 0.1 |
| -------------------- | -------------------- | ||
| 2,916 | 0.3 | ||
| -------------------- | -------------------- | ||
| Aluminium | |||
| Metro Mining | Australasia | 1,065 | 0.1 |
| -------------------- | -------------------- | ||
| 1,065 | 0.1 | ||
| -------------------- | -------------------- | ||
| Molybdenum | |||
| China Molybdenum | China | 1,060 | 0.1 |
| -------------------- | -------------------- | ||
| 1,060 | 0.1 | ||
| -------------------- | -------------------- | ||
| Iron Ore | |||
| Equatorial Resources | Other Africa | 463 | 0.1 |
| -------------------- | -------------------- | ||
| 463 | 0.1 | ||
| -------------------- | -------------------- | ||
| Other | |||
| Impala Platinum | South Africa | 6,304 | 0.7 |
| -------------------- | -------------------- | ||
| 6,304 | 0.7 | ||
| -------------------- | -------------------- | ||
| Portfolio | 850,600 | 100.0 | |
| ============ | ============ | ||
| Comprising: | |||
| – Investments | 850,937 | 100.0 | |
| – Derivative financial instruments (written option) | (337) | – | |
| -------------------- | -------------------- | ||
| 850,600 | 100.0 | ||
| ============ | ============ |
* Includes fixed income securities.
# Includes investments held at Directors’ valuation.
~ Includes mining royalty contract.
+ Includes warrant investments.
All investments are in equity shares unless otherwise stated.
The total number of investments as at 30 June 2019 (including options classified as liabilities on the balance sheet) was 62 (31 December 2018: 65).
As at 30 June 2019 the Company held equity interests in three companies comprising more than 3% of a company’s share capital as follows: Osisko Metals, Sheffield Resources and Titan Mining.
GOVERNANCE
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report give details of the important events which have occurred during the period and their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as follows:
• Counterparty;
• Investment performance;
• Legal & Compliance;
• Market;
• Operational;
• Financial;
• Marketing; and
• Securities lending
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 December 2018. A detailed explanation can be found in the Strategic Report on pages 32 to 35 and note 18 on pages 85 to 102 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 2018 were approximately 0.93% 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 Guidance and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
- the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with International Accounting Standard 34 ‘Interim Financial Reporting’; and
- the Interim Management Report, together with the Chairman’s Statement and Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance and Transparency Rules.
This half yearly financial report has been reviewed by the Company’s auditors.
The half yearly financial report was approved by the Board on 20 August 2019 and the above responsibility statement was signed on its behalf by the Chairman.
DAVID CHEYNE
FOR AND ON BEHALF OF THE BOARD
20 August 2019
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2019
| Notes | Revenue £’000 | Capital £’000 | Total £’000 | |||||||
| Six months ended | Six months ended | Six months ended | ||||||||
| 30.06.19 (unaudited) |
30.06.18 (unaudited) |
Year ended 31.12.18 (audited) |
30.06.19 (unaudited) |
30.06.18 (unaudited) |
Year ended 31.12.18 (audited) |
30.06.19 (unaudited) |
30.06.18 (unaudited) |
Year ended 31.12.18 (audited) |
||
| Income from investments held at fair value through profit or loss | 3 | 20,677 | 16,257 | 32,049 | – | – | – | 20,677 | 16,257 | 32,049 |
| Other income | 3 | 3,100 | 3,032 | 6,145 | – | – | – | 3,100 | 3,032 | 6,145 |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Total income | 23,777 | 19,289 | 38,194 | – | – | – | 23,777 | 19,289 | 38,194 | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Net profit/(loss) on investments and derivatives held at fair value through profit or loss | – | – | – | 98,159 | (12,915) | (112,935) | 98,159 | (12,915) | (112,935) | |
| Net loss on foreign exchange | – | – | – | (214) | (1,994) | (4,754) | (214) | (1,994) | (4,754) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Total | 23,777 | 19,289 | 38,194 | 97,945 | (14,909) | (117,689) | 121,722 | 4,380 | (79,495) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Expenses | ||||||||||
| Investment management fees | 4 | (793) | (768) | (1,454) | (2,491) | (2,414) | (4,587) | (3,284) | (3,182) | (6,041) |
| Other operating expenses | 5 | (517) | (509) | (1,025) | (8) | (7) | (14) | (525) | (516) | (1,039) |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Total operating expenses | (1,310) | (1,277) | (2,479) | (2,499) | (2,421) | (4,601) | (3,809) | (3,698) | (7,080) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 22,467 | 18,012 | 35,715 | 95,446 | (17,330) | (122,290) | 117,913 | 682 | (86,575) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Finance costs | 6 | (471) | (357) | (798) | (1,404) | (1,066) | (2,369) | (1,875) | (1,423) | (3,167) |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Net profit/(loss) on ordinary activities before taxation | 21,996 | 17,655 | 34,917 | 94,042 | (18,396) | (124,659) | 116,038 | (741) | (89,742) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Taxation | (1,836) | (1,262) | (2,904) | 697 | 915 | 1,559 | (1,139) | (347) | (1,345) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Profit/(loss) for the period | 8 | 20,160 | 16,393 | 32,013 | 94,739 | (17,481) | (123,100) | 114,899 | (1,088) | (91,087) |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Earnings/(loss) per ordinary share (pence) | 8 | 11.43 | 9.29 | 18.15 | 53.73 | (9.91) | (69.78) | 65.16 | (0.62) | (51.63) |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
The total column of this statement represents the Group’s Consolidated Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU). The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Group.
The net profit/(loss) for the period disclosed above represents the Group’s total comprehensive income/(loss). The Group does not have any other comprehensive income.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2019
| Note | Called up share capital £’000 |
Share premium account £’000 |
Capital redemption reserve £’000 |
Special reserve £’000 |
Capital reserves £’000 |
Revenue reserves £’000 |
Total £’000 |
|
| For the six months ended 30 June 2019 (unaudited) | ||||||||
| At 31 December 2018 | 9,651 | 127,155 | 22,779 | 114,147 | 373,301 | 38,562 | 685,595 | |
| Total comprehensive income: | ||||||||
| Net profit for the period | – | – | – | – | 94,739 | 20,160 | 114,899 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid(a) | 7 | – | – | – | – | – | (22,923) | (22,923) |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| At 30 June 2019 | 9,651 | 127,155 | 22,779 | 114,147 | 468,040 | 35,799 | 777,571 | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| For the 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(b) | 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 year ended 31 December 2018 (audited) | ||||||||
| 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 year | – | – | – | – | (123,100) | 32,013 | (91,087) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury | – | – | – | (439) | – | – | (439) | |
| Share purchase costs | – | – | – | (3) | – | – | (3) | |
| Dividends paid(c) | 7 | – | – | – | – | – | (27,523) | (27,523) |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| At 31 December 2018 | 9,651 | 127,155 | 22,779 | 114,147 | 373,301 | 38,562 | 685,595 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== |
(a) The final dividend for the year ended 31 December 2018 of 9.00p per share, declared on 28 February 2019 and paid on 10 May 2019 and 1st quarterly interim dividend for the year ended 31 December 2019 of 4.00p per share, declared on 2 May 2019 and paid on 28 June 2019.
(b) 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 ended 31 December 2018 of 3.00p per share, declared on 25 April 2018 and paid on 29 June 2018.
(c) The final dividend of 6.60p per share for the year ended 31 December 2017, declared on 26 February 2018 and paid on 10 May 2018; 1st interim dividend of 3.00p per share for the year ended 31 December 2018, declared on 25 April 2018 and paid on 29 June 2018; 2nd interim dividend of 3.00p per share for the year ended 31 December 2018, declared on 17 August 2018 and paid on 21 September 2018; and 3rd interim dividend of 3.00p per share for the year ended 31 December 2018, declared on 8 November 2018 and paid on 21 December 2018.
The transaction costs relating to the acquisition and disposal of investments amounted to £309,000 and £198,000 respectively for the six months ended 30 June 2019 (six months ended 30 June 2018: £294,000 and £104,000; year ended 31 December 2018: £471,000 and £246,000). All transaction costs have been included within the capital reserve.
The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. The special reserve may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. In accordance with the Company’s articles, net capital reserves may be distributed by way of dividend.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019
Notes |
30 June 2019 £’000 (unaudited) |
30 June 2018 £’000 (unaudited) |
31 December 2018 £’000 (audited) |
|
| Non current assets | ||||
| Investments held at fair value through profit or loss | 10 | 850,937 | 903,361 | 778,526 |
| ---------------- | ---------------- | ---------------- | ||
| Current assets | ||||
| Other receivables | 5,585 | 2,097 | 2,326 | |
| Cash collateral held with brokers | 1,144 | 678 | 650 | |
| Cash and cash equivalents | 39,888 | 11,501 | 35,501 | |
| ---------------- | ---------------- | ---------------- | ||
| 46,617 | 14,276 | 38,477 | ||
| ---------------- | ---------------- | ---------------- | ||
| Total assets | 897,554 | 917,637 | 817,003 | |
| ---------------- | ---------------- | ---------------- | ||
| Current liabilities | ||||
| Other payables | (5,238) | (13,770) | (16,725) | |
| Derivative financial liabilities held at fair value through profit or loss | 10 | (337) | (236) | (312) |
| Bank overdraft | – | (5,905) | – | |
| Bank loans | (114,288) | (110,892) | (114,221) | |
| ---------------- | ---------------- | ---------------- | ||
| (119,863) | (130,803) | (131,258) | ||
| ---------------- | ---------------- | ---------------- | ||
| Total assets less current liabilities | 777,691 | 786,834 | 685,745 | |
| ---------------- | ---------------- | ---------------- | ||
| Non current liabilities | ||||
| Deferred taxation liability | (120) | (215) | (150) | |
| ---------------- | ---------------- | ---------------- | ||
| Net assets | 777,571 | 786,619 | 685,595 | |
| ---------------- | ---------------- | ---------------- | ||
| 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 | 114,147 | 114,589 | 114,147 | |
| Capital reserves | 468,040 | 478,920 | 373,301 | |
| Revenue reserves | 35,799 | 33,525 | 38,562 | |
| ---------------- | ---------------- | ---------------- | ||
| Total equity | 777,571 | 786,619 | 685,595 | |
| ---------------- | ---------------- | ---------------- | ||
| Net asset value per ordinary share (pence) | 8 | 440.97 | 445.79 | 388.81 |
| ========== | ========== | ========== |
CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2019
| Six months ended 30 June 2019 £’000 (unaudited) |
Six months ended 30 June 2018 £’000 (unaudited) |
Year ended 31 December 2018 £’000 (audited) |
|
| Operating activities | |||
| Net profit/(loss) on ordinary activities before taxation | 116,038 | (741) | (89,742) |
| Add back finance costs | 1,875 | 1,423 | 3,167 |
| Net (profit)/loss on investments and options held at fair value through profit or loss (including transaction costs) | (98,159) | 12,915 | 113,315 |
| Net loss on foreign exchange | 214 | 1,994 | 4,754 |
| Sales of investments and derivatives held at fair value through profit or loss | 215,998 | 102,315 | 235,980 |
| Purchases of investments and derivatives held at fair value through profit or loss | (190,008) | (112,480) | (221,634) |
| (Increase)/decrease in other receivables | (321) | 370 | (119) |
| (Decrease)/increase in other payables | (122) | 1,676 | (1,889) |
| (Increase)/decrease in amounts due from brokers | (2,907) | 100 | 360 |
| (Decrease)/increase in amounts due to brokers | (11,632) | 7,320 | 13,639 |
| Net movement in cash collateral held with brokers | (494) | 1,305 | 1,333 |
| ---------------- | ---------------- | ---------------- | |
| Net cash inflow from operating activities before interest and taxation | 30,482 | 16,197 | 59,164 |
| ---------------- | ---------------- | ---------------- | |
| Taxation paid | (659) | (558) | (969) |
| Taxation on investment income included within gross income | (495) | (314) | (765) |
| ---------------- | ---------------- | ---------------- | |
| Net cash inflow from operating activities | 29,328 | 15,325 | 57,430 |
| ---------------- | ---------------- | ---------------- | |
| Financing activities | |||
| Drawdown of loans | – | 20,000 | 20,000 |
| Interest paid | (1,871) | (1,423) | (3,167) |
| Shares purchased into treasury | – | – | (439) |
| Share purchase costs paid | – | – | (3) |
| Dividends paid | (22,923) | (16,940) | (27,523) |
| ---------------- | ---------------- | ---------------- | |
| Net cash (outflow)/inflow from financing activities | (24,794) | 1,637 | (11,132) |
| ---------------- | ---------------- | ---------------- | |
| Increase in cash and cash equivalents | 4,534 | 16,962 | 46,298 |
| ---------------- | ---------------- | ---------------- | |
| Cash and cash equivalents at start of the period | 35,501 | (11,556) | (11,556) |
| Effect of foreign exchange rate changes | (147) | 190 | 759 |
| ---------------- | ---------------- | ---------------- | |
| Cash and cash equivalents at end of period | 39,888 | 5,596 | 35,501 |
| ---------------- | ---------------- | ---------------- | |
| Comprised of: | |||
| Cash at bank | 39,888 | 11,501 | 35,501 |
| Bank overdraft | – | (5,905) | – |
| ---------------- | ---------------- | ---------------- | |
| 39,888 | 5,596 | 35,501 | |
| ========== | ========== | ========== |
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2019
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.
The principal activity of the subsidiary, BlackRock World Mining Investment Company Limited, is investment dealing.
2. BASIS OF PREPARATION
The half yearly financial statements for the period ended 30 June 2019 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 2018, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and as applied in accordance with the provisions of the Companies Act 2006) and in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’.
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (AIC), issued in November 2014 and updated in February 2018 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.
Adoption of new and amended standards and interpretations
IFRS 16 Leases
The Company adopted IFRS 16 as of the date of initial application of 1 January 2019. IFRS 16 specifies accounting for leases and removes the distinction between operating and finance leases. This standard is not applicable to the Company as it has no leases.
IFRIC 23 Uncertainty over Income Tax Treatments
The Company adopted IFRIC 23 as of the date of initial application of 1 January 2019. IFRIC 23 seeks to provide clarity on how to account for uncertainty over income tax treatments and specifies that an entity must consider whether it is probable that the relevant tax authority will accept each tax treatment, or group of tax treatments, that it plans to use in its income tax filing. The interpretation also requires companies to reassess the judgements and estimates applied if facts and circumstances change. The interpretation would require the Company to recognise uncertain tax positions which are more than probable within its financial statements.
3. INCOME
| Six months ended 30 June 2019 £’000 (unaudited) |
Six months ended 30 June 2018 £’000 (unaudited) |
Year ended 31 December 2018 £’000 (audited) |
|
| Investment income: | |||
| UK dividends | 4,660 | 5,940 | 10,806 |
| UK special dividends | 3,283 | - | - |
| Overseas dividends | 4,584 | 5,987 | 12,245 |
| Overseas special dividends | 1,663 | 266 | 396 |
| Income from contractual rights (OZ Minerals Royalty) | 795 | 1,219 | 2,294 |
| Income from Vale debentures | 2,252 | 143 | 277 |
| Fixed income | 3,440 | 2,702 | 6,031 |
| ---------------- | ---------------- | ---------------- | |
| 20,677 | 16,257 | 32,049 | |
| ---------------- | ---------------- | ---------------- | |
| Other income: | |||
| Option premium income | 3,166 | 2,963 | 6,129 |
| Deposit interest | 56 | 7 | 36 |
| Underwriting commission | – | – | 188 |
| Stock lending income | 56 | 62 | 172 |
| Loss on investment dealing | (178) | – | (380) |
| ---------------- | ---------------- | ---------------- | |
| 3,100 | 3,032 | 6,145 | |
| ---------------- | ---------------- | ---------------- | |
| Total income | 23,777 | 19,289 | 38,194 |
| ========== | ========== | ========== |
During the period the Group received option premium income totalling £3,002,000 (six months ended 30 June 2018: £2,755,000; year ended 31 December 2018: £5,874,000) for writing put and covered call options for the purposes of revenue generation. Option premiums of £3,166,000 (six months ended 30 June 2018: £2,963,000; year ended 31 December 2018: £6,129,000) were amortised to income. At 30 June 2019 there was 1 open position (30 June 2018: 2; 31 December 2018: 2) with an associated liability of £337,000 (30 June 2018: £236,000; 31 December 2018: £312,000).
Dividends and interest received in cash in the six months ended 30 June 2019 amounted to £14,366,000 and £4,312,000 (six months ended 30 June 2018: £12,835,000 and £2,606,000 and year ended 31 December 2018: £23,675,000 and £6,060,000) respectively.
Special dividends of £5,229,000 have been recognised in capital for the six months ended 30 June 2019 (six months ended 30 June 2018: £nil; year ended 31 December 2018: £nil).
4. INVESTMENT MANAGEMENT FEE
| Six months ended 30 June 2019 (unaudited) |
Six months ended 30 June 2018 (unaudited) |
Year ended 31 December 2018 (audited) |
|||||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Investment management fee | 793 | 2,491 | 3,284 | 768 | 2,414 | 3,182 | 1,454 | 4,587 | 6,041 |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | |
The investment management fee (which includes all services provided by BlackRock) is 0.8% of the Company’s net assets. However, in the event that the NAV per share increases on a quarter-on-quarter basis, the fee will then be paid on gross assets for the quarter. During the period £2,948,000 (30 June 2018: £2,971,000; 31 December 2018: £5,830,000) of the investment management fee was generated from net assets and £336,000 (30 June 2018: £211,000; 31 December 2018: £211,000) from the gearing effect on gross assets due to the quarter-on-quarter increase in the NAV per share for the period as below:
Quarter end |
Cum income NAV per share (pence) |
Quarterly increase/ (decrease) % |
Gearing effect on management fees (£’000) |
| 31 December 2018 | 388.81 | ||
| 31 March 2019 | 422.80 | +8.7 | 188 |
| 30 June 2019 | 440.97 | +4.3 | 148 |
| ========== | ========== | ========== |
The average of the net assets under management during the period ended 30 June 2019 was £727,181,000 (30 June 2018: £787,211,000; 31 December 2018: £755,993,000).
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 2019 £’000 (unaudited) |
Six months ended 30 June 2018 £’000 (unaudited) |
Year ended 31 December 2018 £’000 (audited) |
|
| Allocated to revenue: | |||
| Custody fee | 55 | 68 | 127 |
| Auditors’ remuneration: | |||
| – audit services | 18 | 15 | 33 |
| – other assurance services | 6 | 6 | 7 |
| Registrar’s fee | 42 | 42 | 87 |
| Directors’ emoluments | 95 | 108 | 221 |
| AIC fees | 11 | 10 | 20 |
| Broker fees | 11 | 12 | 25 |
| Depositary fees | 34 | 44 | 88 |
| FCA fee | 9 | 9 | 18 |
| Directors’ liability insurance | 7 | 12 | 22 |
| Marketing fees | 61 | 73 | 139 |
| Stock exchange fees | 10 | 9 | 19 |
| Legal and professional fees | 38 | 21 | 67 |
| Printing fees | 22 | 11 | 22 |
| Bank facility fees | 38 | 36 | 72 |
| Other administration costs | 60 | 33 | 58 |
| ---------------- | ---------------- | ---------------- | |
| 517 | 509 | 1,025 | |
| ---------------- | ---------------- | ---------------- | |
| Allocated to capital: | |||
| Custody transaction charges | 8 | 7 | 14 |
| ---------------- | ---------------- | ---------------- | |
| 525 | 516 | 1,039 | |
| ========== | ========== | ========== |
6. FINANCE COSTS
| Six months ended 30 June 2019 (unaudited) |
Six months ended 30 June 2018 (unaudited) |
Year ended 31 December 2018 (audited) |
|||||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Interest on bank loans | 470 | 1,402 | 1,872 | 340 | 1,016 | 1,356 | 779 | 2,312 | 3,091 |
| Interest payable – bank overdraft | 1 | 2 | 3 | 17 | 50 | 67 | 19 | 57 | 76 |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | |
| Total | 471 | 1,404 | 1,875 | 357 | 1,066 | 1,423 | 798 | 2,369 | 3,167 |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | |
Finance costs are charged 25% to the revenue column and 75% to the capital column of the Consolidated Statement of Comprehensive Income.
7. DIVIDENDS
The final dividend of 9.00p per share for the year ended 31 December 2018 was paid on 10 May 2019. The Board has declared a first quarterly interim dividend of 4.00p per share for the quarter ended 31 March 2019, paid on 28 June 2019 to shareholders on the register on 31 May 2019. Dividends are debited directly to reserves.
The Board has declared a second quarterly interim dividend of 4.00p per share for the quarter ended 30 June 2019 which will be paid on 1 October 2019 to shareholders on the register on 30 August 2019. This dividend has not been accrued in the financial statements for the six months ended 30 June 2019 as, under IFRS, interim dividends are not recognised until paid.
Dividends on equity shares paid during the period were:
| Six months ended 30 June 2019 £’000 (unaudited) |
Six months ended 30 June 2018 £’000 (unaudited) |
Year ended 31 December 2018 £’000 (audited) |
|
| Final dividend for the year ended 31 December 2018 of 9.00p per share (2017: 6.60p) | 15,870 | 11,646 | 11,646 |
| First quarterly interim dividend for the year ending 31 December 2019 of 4.00p per share (2018: 3.00p) | 7,053 | 5,294 | 5,294 |
| Second quarterly interim dividend for the year ended 31 December 2018 of 3.00p per share (2017: 3.00p) | – | – | 5,293 |
| Third quarterly interim dividend for the year ended 31 December 2018 of 3.00p per share (2017: 3.00p) | – | – | 5,290 |
| ---------------- | ---------------- | ---------------- | |
| 22,923 | 16,940 | 27,523 | |
| ========== | ========== | ========== |
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 2019 (unaudited) |
Six months ended 30 June 2018 (unaudited) |
Year ended 31 December 2018 (audited) |
|
| Net revenue profit attributable to ordinary shareholders (£’000) | 20,160 | 16,393 | 32,013 |
| Net capital profit/(loss) attributable to ordinary shareholders (£’000) | 94,739 | (17,481) | (123,100) |
| ------------------- | ------------------- | ------------------- | |
| Total profit/(loss) attributable to ordinary shareholders (£’000) | 114,899 | (1,088) | (91,087) |
| ------------------- | ------------------- | ------------------- | |
| Equity shareholders’ funds (£’000) | 777,571 | 786,619 | 685,595 |
| ------------------- | ------------------- | ------------------- | |
| The weighted average number of ordinary shares in issue during each period, on which the return per ordinary share was calculated was: | 176,330,242 | 176,455,242 | 176,426,789 |
| ------------------- | ------------------- | ------------------- | |
| The actual number of ordinary shares in issue (excluding treasury shares) at the period end, on which the net asset value was calculated was: | 176,330,242 | 176,455,242 | 176,330,242 |
| ------------------- | ------------------- | ------------------- | |
| Returns per share | |||
| Revenue earnings per share (pence) | 11.43 | 9.29 | 18.15 |
| Capital earnings/(loss) per share (pence) | 53.73 | (9.91) | (69.78) |
| ------------------- | ------------------- | ------------------- | |
| Total earnings/(loss) per share (pence) | 65.16 | (0.62) | (51.63) |
| =========== | =========== | =========== |
| As at 30 June 2019 (unaudited) |
As at 30 June 2018 (unaudited) |
As at 31 December 2018 (audited) |
|
| Net asset value per ordinary share (pence) | 440.97 | 445.79 | 388.81 |
| ------------------- | ------------------- | ------------------- | |
| Ordinary share price (pence) | 375.50 | 386.50 | 340.50 |
| =========== | =========== | =========== |
9. CALLED UP SHARE CAPITAL
| Ordinary shares (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 2018 and 30 June 2019 | 176,330,242 | 16,681,600 | 193,011,842 | 9,651 |
| =========== | =========== | =========== | =========== |
During the period to 30 June 2019, no ordinary shares were issued, purchased or cancelled (six months ended 30 June 2018: nil; year ended 31 December 2018: 125,000 shares were bought back and transferred to treasury for a total consideration of £442,000).
Since 30 June 2019 and up to the date of this report, 33,766 ordinary shares have been repurchased for a total consideration of £129,000.
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 2018.
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. 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.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.
Over-the-counter derivative option contracts have been classified as Level 2 investments as their valuation has been based on market observable inputs represented by the underlying quoted securities to which these contracts expose the Group.
The table below sets out fair value measurements using the IFRS 13 fair value hierarchy.
Financial assets/(liabilities) at fair value through profit or loss at 30 June 2019 (unaudited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 730,953 | 3,492 | – | 734,445 |
| Fixed income securities | 72,992 | 25,203 | – | 98,195 |
| Investment in contractual rights | – | – | 18,297 | 18,297 |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| 803,945 | 28,695 | 18,297 | 850,937 | |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (337) | – | (337) |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| 803,945 | 28,358 | 18,297 | 850,600 | |
| =========== | =========== | =========== | =========== |
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 |
| Fixed income securities | 73,952 | 3,158 | – | 77,110 |
| Investment in contractual rights | – | – | 19,147 | 19,147 |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| 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 31 December 2018 (audited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 676,645 | 6,101 | – | 682,746 |
| Fixed income securities | 74,017 | 3,250 | – | 77,267 |
| Investment in contractual rights | – | – | 18,513 | 18,513 |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| 750,662 | 9,351 | 18,513 | 778,526 | |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (312) | – | (312) |
| ------------------- | ------------------- | ------------------- | ------------------- | |
| 750,662 | 9,039 | 18,513 | 778,214 | |
| =========== | =========== | =========== | =========== |
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 2019 £’000 (unaudited) |
Six months ended 30 June 2018 £’000 (unaudited) |
Year ended 31 December 2018 £’000 (audited) |
| Opening fair value | 18,513 | 18,943 | 18,943 |
| Return of capital – royalty | (225) | (286) | (674) |
| Total gains or losses included in gains/(losses) on investments in the Consolidated Statement of Comprehensive Income: | |||
| – assets held at the end of the period | 9 | 490 | 244 |
| ------------------- | ------------------- | ------------------- | |
| Closing balance | 18,297 | 19,147 | 18,513 |
| =========== | =========== | =========== |
The Level 3 investments as at 30 June 2019 in the table below relate to the OZ Minerals Royalty and, in accordance with IFRS 13, this investment was categorised as Level 3. In arriving at the fair value of these investments, the key inputs are the underlying commodity prices and illiquidity discount.
The Level 3 valuation process and techniques used by the Company are explained in the accounting policies in notes 2(h) and 2(p) and a detailed explanation of the techniques is also available on page 99 under “valuation process and techniques†in the Company’s Annual Report and Financial Statements for the year ended 31 December 2018.
Quantitative information of significant unobservable inputs – Level 3
| Six months ended 30 June 2019 £’000 (unaudited) |
Six months ended 30 June 2018 £’000 (unaudited) |
Year ended 31 December 2018 £’000 (audited) |
Valuation technique |
Unobservable input |
|
| OZ Minerals Brazil Royalty | 18,297 | 19,147 | 18,513 | Discounted cash flows |
Discount rate – weighted average cost of capital Average gold and copper prices |
Sensitivity analysis to significant changes in unobservable inputs within Level 3 hierarchy
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy, together with an estimated quantitative sensitivity analysis, as at 30 June 2019 are as shown below.
Input |
Estimated sensitivity used* |
Impact on fair value |
|
| OZ Minerals Brazil Royalty | Discount rate – weighted average cost of capital |
1% | £2.3m |
| Average gold and copper prices |
10% | £3.5m |
* 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 2019 amounted to £3,284,000 (six months ended 30 June 2018: £3,182,000; year ended 31 December 2018: £6,041,000). At the period end, £1,656,000 was outstanding in respect of the investment management fee (six months ended 30 June 2018: £4,896,000; year ended 31 December 2018: £1,359,000).
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 2019 amounted to £61,000 excluding VAT (six months ended 30 June 2018: £73,000; year ended 31 December 2018: £139,000). Marketing fees of £74,000 were outstanding as at 30 June 2019 (30 June 2018: £73,000; 31 December 2018: £69,000). The marketing fees will be deducted from the management fee payable to BlackRock such that the total fee will not exceed 0.80% of gross assets.
12. RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTS
The Board consists of five 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 2019 no amounts (30 June 2018: £nil: 31 December 2018: £16,875) were outstanding in respect of Directors’ fees.
At the period end members of the Board, including any connected persons, held ordinary shares in the Company as set out below:
| Ordinary shares |
|
| David Cheyne¹ | 24,000 |
| Colin Buchan² | 29,000 |
| Russell Edey | 20,000 |
| Jane Lewis | 5,362 |
| Judith Mosely | 7,400 |
1Chairman.
2Chairman 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 2019 (six months ended 30 June 2018: nil; year ended 31 December 2018: 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 2019 and 30 June 2018 has been reviewed by the Company’s auditors.
The information for the year ended 31 December 2018 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 2019, as prepared under IFRS, in February 2020.
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 2020, with the Annual General Meeting being held in April 2020.
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 2019. 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 2019;
• 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
20 August 2019
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, Co-head of Closed End Funds, 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
20 August 2019
Latest directors dealings
- 16 hours ago IntegraFin Holding
- 16 hours ago Spirent Communications
- 17 hours ago CRH (CDI)
- 17 hours ago Bezant Resources
- 18 hours ago EJF Investments Ltd NPV