Half-year Report
BlackRock World Mining Trust plc
LEI - LNFFPBEUZJBOSR6PW155
Condensed Half Yearly Financial Report 30 June 2022
OVERVIEW AND PERFORMANCE
PERFORMANCE RECORD
|
|
As at 30 June 2022 |
As at 31 December 2021 |
| Net assets (£000)1 | 1,099,462 | 1,142,874 |
| Net asset value per ordinary share (NAV) (pence) | 584.92 | 622.21 |
| Ordinary share price (mid-market) (pence) | 573.00 | 589.00 |
| Reference Index2 – net total return | 5,031.01 | 5,258.16 |
| Discount to net asset value3 | 2.0% | 5.3% |
| --------------- | --------------- | |
| Performance (with dividends reinvested) | ||
| Net asset value per share3 | -1.7% | +20.7% |
| Ordinary share price3 | +1.8% | +17.5% |
| Reference Index2 | -4.3% | +15.1% |
| ========= | ========= |
|
|
For the six months ended 30 June 2022 |
For the six months ended 30 June 2021 |
Change % |
| Revenue | |||
| Net revenue profit on ordinary activities after taxation (£000) | 37,148 | 33,243 | +11.7 |
| Revenue earnings per ordinary share (pence)4 | 20.07 | 18.64 | +7.7 |
| Dividend per ordinary share (pence) | |||
| – 1st interim | 5.50 | 4.50 | +22.2 |
| – 2nd interim | 5.50 | 5.50 | - |
| --------------- | --------------- | --------------- | |
| Total dividends paid and payable | 11.00 | 10.00 | +10.0 |
| ========= | ========= | ========= |
1 The change in net assets reflects market movements, dividends paid and the reissue of ordinary shares from treasury during the period.
2 MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return).
3 Alternative Performance Measures, see Glossary in the Condensed Half Yearly Financial Report. Performance figures are calculated in Sterling terms with dividends reinvested.
4 Further details are given in the Glossary in the Condensed Half Yearly Financial Report.
CHAIRMAN’S STATEMENT
OVERVIEW
It has been a challenging market environment in the first half of the financial year, dominated by the war in Ukraine and the devastating humanitarian consequences that have followed. In response, nations and governments across the world have united to sever financial and business ties with Russia. The war in Europe is the most significant crisis in decades and food security and energy needs have become key concerns, with the West following a determined path to reduce its reliance on Russian energy and imports. A long period of steady growth and low inflation is over and we now have a world of heightened macro volatility where central banks face a difficult trade-off between addressing soaring inflation and stabilising an already fragile economic recovery following the COVID-19 pandemic.
Against this difficult backdrop, the mining sector had a positive start to the year, driven by a commodity-focused market environment and higher prices for mined commodities. However, June was a particularly difficult month, with the Company’s Reference Index (the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index) recording its worst month in ten years. This resulted in the mining equities giving back almost all of the returns during the month of June (the June NAV was down by 17.2%), but it remained meaningfully ahead of broader equity markets for the six months through to the end of June.
PERFORMANCE
Over the six months ended 30 June 2022, the Company’s net asset value (NAV) returned -1.7%1 and the share price +1.8%1. The Company’s Reference Index returned -4.3% (all percentages calculated in Sterling terms with dividends reinvested).
Since the period end and up to the close of business on 22 August 2022, the Company’s NAV has increased by 5.5% compared to a rise of 4.2% (on a net return basis) in the Reference Index (with dividends reinvested). Further information on the Company’s performance and the factors that contributed to performance during the six months are set out in the Investment Manager’s Report below.
REVENUE RETURN AND DIVIDENDS
The Company’s net revenue earnings for the six months to 30 June 2022 amounted to 20.07p per share, compared to 18.64p per share during the same six-month period last year. This represents an increase of 7.7%. Despite the broader market turmoil, the income generated to date this year is positive but, as mentioned in the Investment Manager’s Report below, some investee companies are choosing to prioritise share repurchases over dividends to shareholders.
The first quarterly dividend of 5.50p per share was paid on 30 June 2022 and, today, the Board has announced a second quarterly dividend of 5.50p per share which will be paid on 30 September 2022 to shareholders on the register on 2 September 2022, the ex-dividend date being 1 September 2022. It remains the Board’s intention to distribute substantially all of the Company’s available income in the future.
SHARE PRICE DISCOUNT/PREMIUM
The Directors recognise the importance to investors that the Company’s share price should not trade at a significant premium or discount to NAV, and therefore, in normal market conditions, may use the Company’s share buy back and share issuance powers to ensure that the share price does not go to an excessive discount or premium to the underlying NAV.
The discount of the Company’s share price to the underlying NAV per share finished the period under review at 2.0% on a cum income basis, having stood at a discount of 5.3% at the beginning of the period. At the close of business on 22 August 2022, the Company’s shares were trading at a discount of 3.3% on a cum income basis.
Over the six months to 30 June 2022, the Company’s shares have traded at an average discount of 0.6%, and within a range of a 7.3% discount to a 3.8% premium. I am pleased to report that, during the period, the Company reissued 4,286,920 ordinary shares from treasury at an average price of 709.11p per share for a net consideration of £30,399,000. All shares were reissued at a premium to the prevailing cum income NAV and were therefore accretive to existing shareholders. The Company did not buy back any shares during the period. Since the period end and up to the date of this report, a further 785,000 ordinary shares have been reissued.
GEARING
The Company operates a flexible gearing policy which depends on prevailing market conditions. It is not intended that gearing will exceed 25% of the net assets of the Group. Gearing as at 30 June 2022 was 12.1% which was the maximum during the period.
SHAREHOLDER COMMUNICATION
We appreciate how important access to regular information is to our shareholders. To supplement our website, we offer shareholders the ability to sign up to the Trust Matters newsletter which includes information on the Company, as well as news, views and insights. Further information on how to sign up is included on the inside cover of the Condensed Half Yearly Financial Report.
OUTLOOK
Following the COVID-19 pandemic, the fragility of the global economy has been further stressed by the Russia-Ukraine crisis, both of which have led to growing concerns around inflation, increasing pressure on central banks to raise interest rates. Economic data from China has also remained relatively weak, as the country has struggled with rising COVID-19 cases and localised lockdowns as a result of its zero COVID-19 policy. However, recent indications suggest that growth momentum may show some recovery in China in the second half of the year, with cities beginning to reopen and helped by government policy stimulus.
Against this challenging backdrop, our Portfolio Managers remain cautiously optimistic for the mining sector. Mining companies are generally in robust financial shape today with strong balance sheets and high levels of free cash flow being generated. Supply and demand in mined commodity markets is also generally tight and prices look well-supported. The transition to net zero carbon emissions will continue to create investment opportunities in those companies that service the associated supply chains.
1 Alternative Performance Measures. All percentages calculated in Sterling terms with dividends reinvested. Further details of the calculation of performance with dividends reinvested are given in the Glossary in the Condensed Half Yearly Financial Report.
DAVID CHEYNE
Chairman
23 August 2022
INVESTMENT MANAGER’S REPORT
The first half of 2022 was certainly volatile and it seems that from where we started the year to where this period has ended is radically different. The mining sector moved from spectacular returns during the first few months to giving back almost all of them during the month of June alone, with the Company's Reference Index falling by 15.9% during the month. In isolation this is disappointing given the huge gains made during the first five months, but when looked at versus broader financial markets the result remains well ahead on most metrics. For context, the FTSE All-Share Index was down 4.6% and the MSCI World Index was down 11.3% versus a gain of 1.8% for the Company’s share price (all percentages calculated in Sterling terms with dividends reinvested).
In hindsight, the ongoing COVID-19 related economic weakness in China, the threat of a recession in the developed economies and the Russian invasion of Ukraine were too much for commodity prices, triggering a violent sell-off as the first half of the year ended. Stale long positions were liquidated at speed during June causing downward moves in share prices. The scale of falls were reminiscent of the panic selling in 2008, despite the strong balance sheets that mining companies have today. It is our expectation that once the dust settles this will present a significant opportunity for the Company.
At the time of writing it is too early to see how well the companies have done during the first half of the year. Finding a balance between managing the cost pressures from inflation, whilst trying to capture strong prices when selling production, is going to be key to successful first half year results. Nevertheless, cash generation is likely to have remained high and with capital allocation continuing to favour shareholder returns it is our expectation that dividends will once again be at healthy levels.
Over the period, the net asset value (NAV) of the Company returned -1.7% and the share price returned +1.8%. This compares to the FTSE 100 Index which returned -1.0%, Consumer Price Index (CPI) which was up by 9.4% for June 2022 and the Reference Index (MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return)) which returned -4.3% (all percentages other than CPI are in Sterling terms with dividends reinvested).
MACRO TENSIONS
When writing last year’s interim report, estimates were for one of the strongest periods of economic growth in decades. This played out as expected with global gross domestic product (GDP) finishing the year at 5.8%. As the growth outlook remained buoyant, commodity prices continued to move higher in the first few months of 2022 with many reaching new all-time highs e.g. copper at US$5.01/lb, lithium US$1,347/lb, zinc US$2.05/lb and aluminium US$1.85/lb. There was also a huge squeeze in the nickel market that took the price to a level of US$21.88/lb before rapidly retreating as the situation unwound itself. The combination of ongoing growth, plus a trend of rising capex on green-related infrastructure against a constrained supply outlook, kept prices high for most of the first half of the year.
However, the situation ran out of steam towards the end of May as huge support provided by governments and central banks during the COVID-19 lockdown came home to roost. After years of low interest rates and below trend inflation, both started to rapidly rise. Recent data points to some of the highest levels of inflation seen in decades and how central banks deal with this is going to be key to the financial market direction over the coming years.
Central banks across the globe have begun reacting to changing market conditions, with interest rates rising in most countries within the developed world and the forward interest rates implying rates hitting 3.00% or more in the US, 2.11% in the UK and 2.50% in Australia. It seems as though the European Union is behind the curve versus other developed markets, with the European Central Bank announcing its first increase in rates in 11 years from -0.50% to 0.00% in July 2022 despite many adjacent countries seeing the rates on their government bonds trading above 3.00%. In addition to the fear of inflation, investors are concerned with how much growth needs to slow in order to combat inflation. Fears of a recession have increased and, should the inflationary pressures that have been further fuelled by the Russian invasion of Ukraine prove harder to control, then rates might need to go even higher than estimated.
In addition, the impact on commodity demand from slower growth in China has started to bite. China seems committed to its zero COVID-19 policy and this has caused a dramatic slowdown in economic activity. At this stage the Chinese government has reiterated its goal for GDP growth of 5.5% for 2022, but with the numbers for the first half of the year likely to come in far below this rate, activity in the second half will need to be materially stronger. Should this transpire, then commodity demand, and in turn prices, are likely to benefit but should COVID-19 shutdowns persist for longer than expected then it seems improbable that China will be able to meet the GDP growth numbers set for 2022.
ESG AND THE SOCIAL LICENCE TO OPERATE
In line with our approach to Environmental, Social and Governance (ESG) integration, ESG information (such as insights and data regarding sustainability risks) are considered when managing risk within mining related investments.
ESG is of critical importance to the mining sector and the Investment Manager spends a considerable amount of time understanding the ESG risks and opportunities facing companies and industries in the portfolio. As an extractive industry, the mining sector naturally faces a number of ESG challenges given its dependence on water, carbon emissions and geographical location of assets. However, we feel the sector underemphasises the many positive ESG benefits it provides to society through the provision of critical infrastructure, taxes and employment to local communities, providing materials essential to human progress, enabling the carbon transition through the production of sustainable metals and continuing to improve health and safety standards across the industry.
While ESG integration does not change the Company's investment objective or constrain the investable universe, or mean that an ESG investment strategy has been adopted by the Company, as part of its approach to ESG issues the Company will apply the following considerations to its investments:
· ESG is an integral element of the investment process used to build and manage the portfolio. As a general approach the Company will not invest in companies which have high ESG risks and which have no plans to address existing deficiencies.
· We are also challenging the executives of the portfolio companies in which we invest to set out how their current business plans are compatible with achieving a net zero carbon emissions economy by 2050.
· There will be cases where a serious event has occurred and, in that case, we will assess whether the company is taking appropriate action to resolve matters before deciding what to do.
· There will be companies which have derated on the back of an ESG event or generally poor ESG practices and there may be opportunities to invest at a discounted price. However, we will only invest in these value-based opportunities if we are satisfied that there is real evidence that the company’s culture has changed and that better operating practices have been put in place.
The main areas of focus for investments within the portfolio remain Rio Tinto and Vale. By way of an update:
Rio Tinto – Over the last two years the company has appointed a new Chairman, CEO and CFO, as well as a refreshment of the executive team. We have had numerous engagements with the company at all levels and continue to evaluate the progress they are making to resolve many of the outstanding issues. Rio Tinto is strengthening its relationships with communities and traditional owners through its new social cultural heritage management plan and is implementing 26 recommendations from the Everyday Respect report following the external review of its workplace culture.
Vale – As mentioned in our Annual Report, Vale has continued to drive change across both the governance of the company and through operational improvements. Whilst the legal issues related to the tragic tailings events and the US Securities and Exchange Commission suit relating to dam safety management disclosures remain outstanding, we continue to see progress on many fronts. In February, Vale established a schedule and reinforced its commitment with the Minas Gerais Government to eliminate all 23 upstream dams in Brazil. In addition, Vale will commit a further 236 million Brazilian Real for investments in social and environmental projects in the region.
NEW RECORDS
It is startling when looking at the below table the difference between the year-to-date price moves versus the average prices over the respective periods. This puts into context the scale of price falls in June which have continued into July. However, as mentioned earlier, many commodity prices broke records during the first half of 2022 as new highs were reached on a spot market basis. In addition, and more importantly for the companies, prices remained elevated for much of the first half of the year and in turn new records on received prices are likely to be announced with company results. For example, the average price for copper during the first half of the year was US$4.43/lb, US$12.98/lb for nickel and US$1,212/lb for lithium. These price levels should have offset much of the cost pressures from increased inputs such as diesel and labour, allowing cash flows to remain strong.
SELECTED COMMODITY PRICE CHANGES DURING THE FIRST HALF OF 2022
|
Commodity |
30 June 2022 |
% change YTD in 1H22 |
% change average price 1H22 vs 1H21 |
| Gold US$/oz | 1,806.87 | -0.9% | 3.8% |
| Silver US$/oz | 20.48 | -12.0% | -11.8% |
| Platinum US$/oz | 907 | -5.4% | -15.1% |
| Palladium US$/oz | 1,888 | -4.3% | -14.8% |
| Copper US$/lb | 3.74 | -15.3% | 7.5% |
| Nickel US$/lb | 10.27 | 8.4% | 64.1% |
| Aluminium US$/lb | 1.1 | -13.5% | 36.6% |
| Zinc US$/lb | 1.44 | -11.3% | 35.3% |
| Lead US$/lb | 0.86 | -18.6% | 9.5% |
| Tin US$/lb | 12.1 | -32.2% | 42.9% |
| Uranium US$/lb | 49.0 | 16.0% | 44.0% |
| Iron Ore (China 62% fines) US$/tonne | 122 | -0.4% | -23.3% |
| Thermal Coal (Newcastle) US$/tonne | 385.95 | 142.0% | 225.0% |
| Metallurgical Coal US$/tonne | 302 | -16.0% | 254.0% |
| Lithium Carbonate US$/tonne | 62,812 | 63.0% | 443.0% |
| West Texas Intermediate Oil (Cushing) US$/barrel | 107.7 | 43.2% | 64.5% |
| ========= | ========= | ========= |
Sources: Datastream and Bloomberg, June 2022.
As per prior periods, the key commodity exposures for the Company remain copper and iron ore. Both have been volatile during the period given the shifting economic drivers during the six months but, despite this, price levels have been in excess of estimates and bode well for the producers. In fact, as mentioned earlier, copper moved to a new all time high of just above US$5/lb during April 2022. Recent falls though will undoubtedly trigger downgrades to estimates for earnings in the second half of the year unless China decides to adapt its zero COVID-19 approach.
Other base metals also performed strongly during the period with new strength in aluminium, zinc and especially nickel. A metal that is hard to gain exposure to via the equity market is tin. The price has been extremely volatile, with huge new highs reached during the period, but like others much of these were given back during the month of June.
During the period, the Russian invasion of Ukraine had a material impact on supply chains for key commodities, especially energy related fossil fuels. Both the physical disruption to supply from Ukraine and a deliberate move away from Russian sourced gas and oil resulted in a sharp uptick in the price of those commodities coming from other countries. Huge spikes in the price of oil, gas and thermal coal caused corresponding moves in the price of power, especially in Europe, and the situation looks likely to persist for the foreseeable future. The Company has no exposure to pure play thermal coal production but does have exposure to metallurgical coal used for making steel and indirect exposure to thermal coal via diversified mining companies such as Glencore and BHP.
Precious metals generally moved lower during the period, especially platinum and palladium where the demand outlook remains constrained due to ongoing production issues in the automotive sector. The Company has been underweight precious metals for some time now.
The steel sector, like other areas, suffered from reduced economic activity causing prices to fall from all-time highs as the first six months drew to a close. At the end of June, margins within the sector remain healthy but with huge dispersion around the world. US producers seem best positioned due to the less volatile domestic energy market, whereas producers in Europe are under significant pressure from very elevated power prices and a number of Chinese steel producers are loss-making at present due to lower Asian steel prices. In total, the underweight to this area within the portfolio was a positive for relative performance.
CAPITAL ALLOCATION
Over the last few years these reports have highlighted the prospects for exceptional levels of income from portfolio holdings. We are pleased to report that this has played out better than expected resulting in the record dividend the Company paid last year.
This year started well with portfolio holdings continuing to distribute in line with guidance pay-out ratios and in many cases at the upper end of expectations. Indeed, looking at the average commodity prices during the first half of the year, it is likely that many companies will have the flexibility to top up payments when announcing mid-year results. However, given the unsettled macro environment and the consequential impact this has had on valuations (as seen in the charts on page 10 of the Condensed Half Yearly Financial Report), it is anticipated that companies will seek to take advantage of this and may prefer to repurchase shares rather than increase dividends. In the short term this would likely result in a drag on the Company’s ability to sustain its dividends but, given the low valuations, the compounding impact on NAV from share count reduction should boost the chances of capital growth.
The chart on page 11 of the Condensed Half Yearly Financial Report highlights this. It shows the impact of share buybacks on the shares in issue for three portfolio holdings: ArcelorMittal, Glencore and Vale. All three have set out over the last two years to utilise excess cash flows to reduce the shares in issue as part of a well described capital allocation framework. This is having a dramatic impact as can be seen in the chart which shows a material reduction in free float over a short period of time. It is important to note that all three of these companies have done this at the same time as increasing dividend payments and reducing balance sheet debt levels. It should also be noted that the current free float of ArcelorMittal is 53.1% due to the 39% holding of the Mittal family and 8% of shares held in treasury.
Recent announcements by portfolio holdings include: ArcelorMittal announcing a US$1 billion share buyback, Glencore announcing US$4.5 billion of shareholder returns consisting of a US$3 billion buyback and US$1.45 billion special dividend, Vale announcing a share buyback of US$500 million and Teck Resources also announcing a share buyback of US$500 million.
ENERGY TRANSITION
Last year we mentioned the energy transition as a key factor behind expectations for better than forecast demand for commodities over the medium to long term. This remains the case and probably even more so given the move in Europe to rapidly diversify energy needs away from Russia. However, the near-term focus of governments on dealing with inflation is likely to offset the impact of green infrastructure related demand for the balance of this year and into 2023. Despite this, our focus remains on trying to capture the opportunities that this near-term weakness might present with the mindset of ensuring that the Company is well-positioned to benefit over the coming years.
The focus within the portfolio, outside of value and growth, is to find companies that are supplying the much needed transition related commodities, along with those that are rapidly moving to reduce their own emissions footprint. Our aim is to have a well developed framework to ensure we are able to assess the robustness of mining company decarbonisation plans so that the portfolio is as transition ready as possible.
BASE METALS
Base metal prices started the year strongly, peaking just after the invasion of Ukraine in March. However, since then they have declined by over 30% with inflation turning from a tailwind to headwind impacting demand and triggering a central bank policy response and slowing of the global business cycle. The COVID-19 related lockdowns in China have also caused a sharp dip in demand which is yet to be fully recovered after reopening.
The copper price started the year strongly reaching over US$4.85/lb in early March. However, since then, it has fallen nearly 23% to finish the first half of the year down by 15%.
As the global business cycle has slowed, we have seen physical data for copper deteriorate, premiums decline and treatment charges rise. Exchange stocks remain low but have increased by nearly 220,000 tonnes since January and there is some evidence of stockpiles of concentrate. Chinese demand is expected to improve into the second half of the year which should support demand, but there is still uncertainty around the continuing zero COVID-19 policy, weak property market and slower export demand given the deterioration in western economies. Stimulus from China could support a stronger market outlook. We remain confident in copper decarbonisation led demand supporting prices longer term, along with persistent supply side challenges noting the global business cycle’s impact and uncertain outlook for short-term demand.
On the supply side, production has generally disappointed year-to-date with forecasts of production growth declining to around 3% this year from closer to 5%. Chile, which accounts for one-third of global copper supply, has seen year-to-date copper production decline by 6% versus 2021. Production halts include mining at Las Bambas in Peru stopping for 52 days due to community protests and a pipeline leak at Los Pelambres in Chile.
We have seen new projects announced with an additional 400,000 tonnes per annum announced from an expansion at Kamoa-Kakula, an asset owned by Ivanhoe Mines, a 1.5% holding in the Company's portfolio. Once complete, this will make Kamoa-Kakula the world’s third largest copper mine. We also saw Ero Copper (0.3% of the portfolio) approve its 27,000 tonne Boa Esperança Greenfield copper project. Technology developments also look increasingly likely to play a role with low-grade sulphide leaching of copper potentially providing additional material. The Company has exposure to this through its private investment in Jetti Resources (1.0% of the portfolio).
The aluminium price finished the first half of the year down by 14%, facing similar headwinds to the copper market. Aluminium has been particularly vulnerable to exports from China, given weak domestic demand in the first six months. There were fears that Russian exports of primary aluminium may be impacted by sanctions. Russia produced 3.9 million tonnes of primary aluminium in 2021 and consumed 1 million tonnes domestically. Whilst certain companies have chosen not to purchase Russian material, there have been no sanctions imposed directly on Russian aluminium exports and there has been no confirmation of Russian aluminium production cuts. There has been significant cost inflation in aluminium due to power prices since the Russian invasion of Ukraine and this has resulted in further aluminium production cuts across Europe. The Company has exposure to two aluminium producers – Alcoa (1.4% of the portfolio) and Norsk Hydro (1.2% of the portfolio) which both have access to renewable, low-cost energy for the majority of their production, leaving them well-positioned in the current environment of high energy costs and longer term as the market places a greater cost on carbon.
Nickel prices have been very volatile this year. A short squeeze temporarily drove prices above US$100,000 per tonne before the London Metal Exchange (LME) suspended the market and cancelled some trades in March. Since the LME restarted trading with stricter controls, LME prices have fallen; however, the price remains 8.4% higher year-to-date. Similar to aluminium, Russia is also a significant producer of nickel, but we are yet to see any supply disruptions.
In 2021 global nickel use rose by 17% while supply only grew by 5.3% creating a deficit market, but in 2022 supply is projected to grow 17.5%, led by Indonesia. We have seen significant supply announcements from Indonesia across many different nickel products including nickel pig iron for stainless steel and nickel matte and nickel sulphate which go into battery demand. If these projects come to fruition by 2025, Indonesia could reach 60% of global supply compared with 30% in 2020. The Company has exposure to Indonesian nickel growth through its 0.9% investment in Nickel Industries.
BULK COMMODITIES AND STEEL
Following China’s curtailment of steel production at the end of 2021, our expectation was for a stronger market and higher steel output levels post the Beijing Winter Olympics in February. This largely played out with steel demand increasing and iron ore restocking occurring during March, which resulted in the iron ore price holding a healthy range between US$130-160/tonne. However, ongoing weakness in the Chinese property market and China’s zero COVID-19 policy saw the price fade towards the end of the first half of the year with the price finishing flat for the six months at US$122/tonne.
Iron ore supply has been weaker than expected with Ukrainian predominantly high-grade material being largely removed from the market, labour constraints impacting Pilbara production and weather impacting Brazilian production. This kept the iron ore market tight during March and April which saw port stocks drawn down and blast furnace utilisation rates in China increase, supporting the iron ore price. However, as domestic steel demand weakened due to China’s zero COVID-19 policy, finished steel exports from China increased, particularly in May, putting pressure on global steel and in turn iron ore prices. Encouragingly, as we ended the six-month period, the Chinese Government announced a major US$1.1 billion infrastructure investment to support the economy which should see infrastructure investment increase by 8% year-on-year supporting commodity demand.
The Company’s exposure to iron ore is in the diversified majors BHP, Vale and Rio Tinto, which have performed well during the period under review returning 21%, 7% and 20% respectively, as well as pure play high grade iron ore producers Champion Iron and Labrador Iron which have returned 8% and -14% respectively.
The US has remained a geography of relative strength for steel, supported by domestic construction as well as demand also increasing from low levels for both renewable energy infrastructure and oil & gas. Automotive steel demand has been impacted by the global chip shortage, but we expect these bottlenecks to be relieved in 2023. The Company’s exposure to steel is focused on companies with a track record of capital returns through share buybacks and dividends, as well as disciplined growth and a sound decarbonisation strategy. Nucor (1.7% of the portfolio) announced during the first half that it would build a new US$2.7 billion steel mill in the US to supply up to 3 million tonnes for the construction and auto market, as well as a new US$3 billion share buyback plan in May. Since 2020 Nucor has reduced its share count by 12%, whilst other steel companies held in the portfolio, Steel Dynamics and ArcelorMittal (1.8% and 3.1% of the portfolio respectively), have also reduced their share count by 10% and 17% respectively since the end of 2020. We expect this trend to continue given the strong cash generation of these businesses and low multiples that they currently trade on.
We believe the steel industry is on the cusp of structural change with increased focus on carbon emissions. The industry is reducing production from pollutive blast furnace capacity and transitioning towards lower carbon production (electric arc furnaces and hydrogen-based production) which will reduce overcapacity, improve margins and better position the industry once carbon taxes are introduced. There will be clear winners and losers from this transition where we have deployed a strategy in the portfolio to invest in those companies that are already well-positioned for this shift such as Nucor and Steel Dynamics, as well as investing in companies which have a first mover advantage such as ArcelorMittal through its investment in decarbonisation technology over recent years.
The seaborne thermal coal market has been a significant performer in the first half of the year, with thermal coal benchmarks up close to 200%. Energy markets have been significantly disrupted by the Russian invasion of Ukraine and tightness across the energy complex has resulted in increased demand for thermal coal. A ban on Russian coal imports into Europe came into force on 10 August and it appears Europe is stockpiling ahead of this. There are significant Russian gas supply risks, which if they materialise will result in the gas price supporting the coal price into winter. For example, Germany is planning to use coal-fired power stations which would have been idled this year and next as reserve facilities in case of disruption to gas supplies from Russia.
Supply of coal has lagged demand with capital availability impacted by ESG pressures, as well as infrastructure, logistics and labour constraints. Unless we see a thawing of relations between Russia and Europe, we expect ongoing tightness in both markets for the remainder of the year. Thermal coal exposure is primarily via our 8.4% position in Glencore, which is using elevated thermal coal prices to deleverage the business and remains focused on decreasing its coal exposure over time. This strategy of responsible run off in production rather than “forced divestment” seems to be a far more sensible outcome for all stakeholders. The Company has no exposure to pure play thermal coal producers.
The seaborne metallurgical coal price reached a new all-time high during the six months at US$600/tonne supported by Russian supply concerns (5% of global supply), the thermal coal price, as well as the recent flooding in Australia which has impacted supply. However, end demand has been impacted by weaker automotive steel demand in Europe, as well as weaker margins for the steel producers, which saw the coal price decline towards the end of June 2022 to US$300/tonne. The Company’s exposure to metallurgical coal remains in the two leading producers, BHP and Teck Resources, which have been able to generate very strong levels of free cash flow from their coking coal businesses to support returns to shareholders.
PRECIOUS METALS
Precious metals have remained largely range bound at high levels over the first half with the gold price down by 1% and silver by 12%. The gold price has been largely driven by two opposing forces, geopolitical tension with the Russian invasion of Ukraine which saw the gold price reach US$2,056/ounce in March and, on the flip-side, the US Federal Reserve rate hikes increasing real rates and the US Dollar. We continue to expect a largely range bound gold price for the remainder of the year, with the gold price holding up despite increases in real interest rates, which is typically a headwind to the gold price and highlights the market's concern that central bank interest rate rises may not be able to curb inflation and may potentially induce a recession.
The price of silver has underperformed the gold price during the first six months of the year, with the gold/silver ratio rising to 88 due to its exposure to the deteriorating industrial demand outlook. Longer term we see upside potential from greater solar penetration and increased usage of semi-conductors, both of which rely on silver due to its high level of electrical conductivity.
An encouraging feature of the gold equity market over recent years has been the increased focus on shareholder returns, with focus on free cash flow and dividends. However, results in 2022 have shown margin compression due to rising labour, energy and other input costs. Whilst the portfolio has continued to hold a lower allocation (16.5%) to gold companies versus a similar time last year (18.3%) we have maintained our strategy of focusing on high quality producers which have an attractive operating margin and solid production profile and resource base. Amongst our gold companies, Newmont Corporation’s performance continues to stand out in the sector, a reflection of its cash return policy. In addition, the Company’s exposure to the royalty companies Franco-Nevada (3.0% of the portfolio) and Wheaton Precious Metals (2.5% of the portfolio) aided performance given the stronger margins and lack of exposure to cost inflation.
Demand for the Platinum Group Metals (PGMs) continues to be impacted by the weakness in global auto production, which was down by circa 11% to May, and share gains from electric vehicles (over internal combustion engines) which do not use PGMs. While Russia is a major producer of PGMs accounting for 40% of global palladium production, to date we have seen minimal impact to Russian PGMs. As auto demand recovers, we also expect to see a demand recovery across the PGMs.
We continue to remain positive on the medium-term outlook for the PGMs and believe the PGM basket will remain high relative to history given limited new supply projects, increasing PGM loadings for auto catalysts to meet rising emissions standards and a sustained global auto recovery. The Company has 2.0% of the portfolio exposed to PGM producers through Impala Platinum, Northam Platinum, Sibanye Stillwater and Bravo Mining. In addition, the Company has exposure to PGMs via its holding in Anglo American (7.0% of the portfolio) which owns 79% of Anglo American Platinum.
ENERGY TRANSITION METALS
The shift towards electric vehicles (EVs) continues to be one of the strongest trends we foresee, which creates growth opportunities for those companies supplying the materials that enable that transition. COVID-19 may have encouraged people to favour car ownership in order to avoid the use of public transport. More importantly, we are seeing government stimulus focused on restarting economies post lockdown target sustainable themes, with EVs an important pillar of that. This year growth to May in pure battery EV units has been 81%, with plug in hybrids also growing by 44%. The Company has exposure to the raw materials that go into EV batteries and the e-motor.
Lithium is a critical component of an EV battery and demand for lithium has been strong this year with the market firmly in deficit and prices reaching all-time highs, up by 122.5% in the first half of the year. The Company added to its lithium holdings in late 2021, establishing positions in Sociedad Quimica y Minera and Sigma Lithium, both of which have performed well in this environment returning 84% and 68% respectively. We also added a new position in relative underperformer Albemarle in June, as it too stands to benefit from the continued tight demand supply situation in lithium, which should be supported in the second half of the year by the increase in activity from China post COVID-19 lockdowns. The Company has 3.1% of the portfolio across its lithium holdings.
A critical component of the electric car is also the e-motor, which most commonly uses a Praseodymium-Neodymium magnet, an alloy of two rare earth elements (REEs). REEs are commonly mined and processed in China and have been deemed of strategic importance by both Europe and the US. The Company has exposure to REEs through Lynas Rare Earths (Lynas), a REE miner and processor crucially based in Malaysia and Australia. During the first half of the year, Lynas announced that it had won a contract from The Pentagon to deliver a US rare earth separation facility, underscoring the strategic growth opportunity. The Company also has exposure to REEs via its holding in Iluka Resources (1.0% of the portfolio) a mineral sands company that has recently secured financing from the Western Australian government to build a rare earths processing facility for its Eneabba mine in Western Australia. As Iluka Resources’ production of REEs grows, we expect this to increase the multiple that the company trades at given its growing exposure to green commodity demand linked to electric vehicles and wind turbines.
EV battery raw materials include cobalt, where LME prices fell by 14% as supply increased faster than demand; the market is moving to lower cobalt intensity cathode materials with higher nickel or lithium iron phosphate chemistry. Supply growth is set to continue, with cobalt being a by-product of many of the Indonesian nickel projects announced. Glencore’s Mutanda mine in the Democratic Republic of the Congo continued to ramp-up in this half of the year. Glencore is an 8.4% position in the Company and its share price rose by 21% during the six months to the end of June. Glencore is a globally significant cobalt producer, which produced 22% of total cobalt mine production in 2020. This percentage is set to increase with Mutanda’s ramp-up.
ROYALTY AND UNQUOTED INVESTMENTS
Over the last year the Company has been busy with regards to growing the unquoted part of the portfolio. In line with the Company's objective, the focus has been to generate both capital growth and income to seek to deliver the objective of maximising total returns to shareholders. We are pleased to report that this part of the portfolio has had a great period of performance. Ongoing income from the royalty investments has continued with the OZ Minerals Brazil Royalty starting to benefit from the ramp-up of the Pedra Branca mine, whilst the Vale Debentures enjoyed a better period of production despite lower iron ore prices.
In the unquoted equity sleeve, Ivanhoe Electric completed its Initial Public Offering (IPO) in June despite the difficult market conditions. This results in an increase in the value of the holding of 91.5% in less than 10 months since the position was acquired. Elsewhere, Bravo Mining completed its IPO in July 2022, post the end of the reporting period, at a valuation 170% higher than the price paid for the shares in May 2022. Both of these positions have achieved excellent returns for the Company and there is more detail on all of the holdings below.
During the period the Company completed a small investment in MCC Mining which is exploring for base metals in Colombia. As at the time of writing the Company has two unlisted equity holdings, Jetti Resources and MCC Mining, as well the OZ Minerals Brazil Royalty. These, together with the quoted royalty investment, Vale Debentures, represent 6.7% of the portfolio. These, and any future investments, will be managed in line with the guidelines set by the Board as outlined to shareholders in the Strategic Report within the Annual Report.
OZ MINERALS BRAZIL ROYALTY CONTRACT (1.6% OF THE PORTFOLIO)
In July 2014 the Company signed a binding royalty agreement with Avanco Minerals. The Company provided US$12 million in return for a Net Smelter Return (net revenue after deductions for freight, smelter and refining charges) royalty payments comprising 2% on copper, 25% on gold and 2% on all other metals produced from mines built on Avanco’s Antas North and Pedra Branca licences. In addition, there is a flat 2% royalty over all metals produced from any other discoveries within Avanco’s licence area as at the time of the agreement.
In 2018 we were delighted to report that Avanco was successfully acquired by OZ Minerals an Australian based copper and gold producer for A$418 million, with the royalty now assumed by OZ Minerals. Since our initial US$12 million investment was made, we have received US$20.3 million in royalty payments with the royalty achieving full payback on the initial investment in 3.5 years. As at the end of June 2022, the royalty was valued at £20.2 million (1.8% of the NAV) which equates to a 4.1x cash return on the initial US$12 million invested.
In 2021 OZ Minerals achieved a significant milestone and commenced mining of Pedra Branca ore. This year we have seen the ramp-up progress ahead of plan, with a monthly record for ore processed achieved in the last reported month of March. The transition of the Antas open pit to a tailings storage facility is also well progressed. We continue to remain optimistic on the longer-term optionality provided by the royalty via the development of Pedra Branca West, as well as greenfield exploration over the licence area.
VALE DEBENTURES (3.4% OF THE PORTFOLIO)
At the beginning of 2019, the Company completed a significant transaction to increase its holding in the Vale Debentures. The Debentures consist of a 1.8% net revenue royalty over Vale’s Northern System and Southeastern System iron ore assets in Brazil, as well as a 1.25% royalty over the Sossego copper mine. The iron ore assets are world class given their grade, cost position, infrastructure and resource life which is well in excess of 50 years.
Dividend payments are expected to grow once royalty payments commence on the Southeastern System in 2024 and volumes from the newly commissioned iron ore project S11D continue to ramp-up. Vale is looking to further increase production from the Northern System from 192mtpa at the end of 2020 to 260mtpa longer term, which provides additional upside to our original expectations for the Debentures.
Despite the strong performance of the Debentures over the last two years, we continue to see further upside with the H1 2022 payment implying a yield on the investment in excess of 13% which is very attractive for a royalty instrument. This value opportunity has been recognised by other listed royalty producers, Franco-Nevada and Sandstorm Gold Royalties, which have both acquired stakes in the Debentures since the sell-down occurred in 2021.
Whilst the Vale Debentures are a royalty, they are also a listed security on the Brazilian National Debentures System. As we have highlighted in previous reports, shareholders should be aware that historically there has been a low level of liquidity in the Debentures and price volatility is to be expected. However, this has improved following the sell down in April 2021. We continue to actively look for opportunities to grow royalty exposure as in our view this is a key differentiator of the Company and an effective mechanism to potentially lock-in long-term income which may further diversify the Company’s revenues.
IVANHOE ELECTRIC/I-PULSE (2.0% OF THE PORTFOLIO)
In early August 2021 the Company made a US$20 million investment into Ivanhoe Electric, an exploration and mining business focused on identifying and developing “electric metals” (copper, nickel, gold and silver) required for the energy transition. The exploration portfolio is focused in the United States where they have developed a proprietary exploration technology that has the ability to identify mineral resources at greater depths than existing methods. The team is led by Robert Friedland who has a successful track-record of identifying and developing world class mineral deposits such as Voisey’s Bay, Oyu Tolgoi and Kamoa-Kukula.
In June 2022, Ivanhoe Electric successfully completed an IPO at US$11.75 per share. The Company’s investment consisted of common shares of Ivanhoe Electric, as well as convertible notes which convert at a discount to the IPO price into Ivanhoe Electric shares with a total return of 108% on our initial investment. Accordingly, this investment is no longer unquoted at 30 June 2022.
JETTI RESOURCES (1.0% OF THE PORTFOLIO)
We are pleased to report that the Company made an investment into mining technology company Jetti Resources (Jetti) in early 2022. Jetti alongside the University of British Colombia, has developed a new catalyst that aims to improve copper recovery from primary copper sulphides (specifically copper contained in chalcopyrite, which is often uneconomic) under conventional leach conditions. Jetti is currently trialling their technology at 35 mines where it will look to integrate their catalyst into existing heap leach mines to improve recoveries at a low capital cost. The technology has been demonstrated to work at scale at the Pinto Valley copper mine, with further trials at different copper assets planned for this year. If Jetti’s technology is proven to work at scale, we see material valuation upside with Jetti sharing in the economics of additional copper volumes recovered through the application of their catalyst. In January 2022 Teck Resources and Jetti signed an agreement to test the technology.
MCC MINING (0.5% OF THE PORTFOLIO)
MCC Mining operates as a mineral exploration company focusing on exploring for copper in Colombia. The company has several large porphyry targets which we believe could have significant potential. Shareholders include other mid to large cap copper miners, which is another indication of the strategic value of the company. The valuation of the company is based on the US$170.7 million equity value implied by the April 2022 equity raise. The money raised will fund a drilling campaign, which we expect to commence next year and if successful should add significant value. In June 2022, Gustavo Petro was elected as the first left-wing President of Colombia but the new government is yet to clarify their approach to the mining industry. Clear regulation for the mining industry will also be important to MCC Mining’s ability to generate value.
BRAVO MINING (0.2% OF THE PORTFOLIO)
Bravo Mining is a Canada and Brazil-based mineral exploration and development company focused on advancing the Luanga platinum group metals/gold/nickel project in the world-class Carajas Mineral Province of Brazil. The Company participated in a pre-IPO round at US$0.50/share in April 2022, at a US$39 million valuation due to our belief in the asset’s potential. The proceeds of the raise were used to fund drilling and survey work. Since the pre-IPO round the company decided to IPO, which completed in July 2022 at C$1.75/share. This represents a 170% return since our investment in April 2022.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts, mostly involving the sale of “puts” and “calls”. These are taken to revenue and are subject to Board guidelines which limit their magnitude to an aggregate 10% of the portfolio. In the first half of 2022 income generated from options was £2.4 million. This was lower than in the prior year as volatility levels made option writing less value accretive to the Company, but nonetheless a number of opportunities presented themselves allowing healthy levels of income to be earned. At the end of the period the Company had 0.1% of net assets exposed to derivatives and the average exposure to derivatives during the period was once again less than 5%.
GEARING
At 30 June 2022 the Company had £132.4 million of net debt, with a gearing level of 12.1% of net assets. The debt is held principally in US Dollar rolling short-term loans and managed against the value of the portfolio as a whole. During the period the Company sought to maximise the use of gearing from a combination of short-term tactical investments designed to capture exposure to the rising markets. This was mostly done via the equity markets given the better relative value compared to mining company bonds. The US Dollar denominated debt is used to invest in US Dollar denominated securities in the portfolio to provide an economic hedge against exchange rate movements. Shareholders should note that the total gearing available to the Company has increased during the period due to the rise in assets but remains within the 25% of net assets limit. On the back of this, facilities were refreshed with our lenders and stand at £200 million for US Dollar loans and £30 million for Sterling loans. The cost of debt for the Company remains low at 0.90% plus SONIA following the demise of LIBOR.
OUTLOOK
The first half of 2022 has been extremely positive for the producing mining companies given record price levels for many of their products, but as the period drew to an end the realities of the challenges that lie ahead started to be priced in by investors. Ongoing cost pressures from strong inflationary factors such as high oil prices, rising wages rates, higher raw material input costs and supply chain issues are likely to impact results in the second half of the year.
Whilst all of the above have materially impacted share prices in the short term, the outlook actually remains very strong indeed. Balance sheets for nearly all mining companies remain as strong as they have ever been.
Demand has been impacted by the zero COVID-19 policy in China and recessionary fears in the developed world. Both of these factors seem to have been largely priced in and should prove to be less severe than feared with a clear room for a rebound in valuations. Lastly the medium-term outlook of negligible supply side growth and supportive demand from the essential transition to a lower carbon economy remain yet to play out in full.
With the above in mind, we currently intend to be opportunistic during this period of volatility by seeking out quality investments that have been “thrown out with the bath water” as investors became defensive. We realise that this might not be easy, given the uptick in volatility and shifting interest rate expectations, but in the medium term these investments may deliver strong returns in the context of our goal of maximising total returns for shareholders through the cycle.
EVY HAMBRO AND OLIVIA MARKHAM
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
23 August 2022
TEN LARGEST INVESTMENTS
1 = VALE1,2 (2021: 1st)
Diversified mining group
Market value: £110,560,000
Share of investments: 8.9% (2021: 8.5%)
One of the largest mining groups in the world, with operations in 30 countries. Vale is the world’s largest producer of iron ore and iron ore pellets, and the world’s largest producer of nickel. The group also produces manganese ore, ferroalloys, copper, platinum group metals, gold, silver and cobalt.
2 = BHP (2021: 2nd)
Diversified mining group
Market value: £106,623,000
Share of investments: 8.7% (2021: 7.7%)
The world’s largest diversified mining group by market capitalisation. The group is an important global player in a number of commodities including iron ore, copper, thermal and metallurgical coal, manganese, nickel and silver.
3 = GLENCORE (2021: 3rd)
Diversified mining group
Market value: £103,763,000
Share of investments: 8.4% (2021: 7.7%)
One of the world’s largest globally diversified natural resources groups. The group’s operations include approximately 150 mining and metallurgical sites and oil production assets. Glencore’s mined commodity exposure includes copper, cobalt, nickel, zinc, lead, ferroalloys, thermal coal, aluminium, iron ore, gold and silver.
4 = ANGLO AMERICAN (2021: 4th)
Diversified mining group
Market value: £85,849,000
Share of investments: 7.0% (2021: 7.5%)
A global mining group. The group’s mining portfolio includes bulk commodities including iron ore, manganese, metallurgical coal, base metals including copper and nickel and precious metals and minerals including platinum and diamonds. Anglo American has mining operations globally, with significant assets in Africa and South America.
5 + RIO TINTO (2021: 7th)
Diversified mining group
Market value: £50,503,000
Share of investments: 4.1% (2021: 4.2%)
One of the world’s leading mining groups. The group’s primary product is iron ore, but it also produces aluminium, copper, diamonds, gold, industrial minerals and energy products.
6 - FREEPORT-MCMORAN (2021: 5th)
Copper producer
Market value: £46,782,000
Share of investments: 3.8% (2021: 6.2%)
A global mining group which operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum.
7 + NEWMONT CORPORATION (2021: 9th)
Gold producer
Market value: £44,998,000
Share of investments: 3.7% (2021: 3.5%)
Following the acquisition of Goldcorp in the first half of 2019, Newmont Corporation is the world’s largest gold producer by market capitalisation. The group has gold and copper operations on five continents, with active gold mines in Nevada, Australia, Ghana, Peru and Suriname.
8 = TECK RESOURCES (2021: 8th)
Diversified mining group
Market value: £42,878,000
Share of investments: 3.5% (2021: 3.6%)
A diversified mining group headquartered in Canada. Teck Resources is engaged in mining and mineral development with operations and projects in Canada, the US, Chile and Peru. The group has exposure to copper, zinc, steelmaking coal and energy.
9 + FIRST QUANTUM MINERALS1 (2021: 10th)
Copper producer
Market value: £42,490,000
Share of investments: 3.5% (2021: 2.9%)
An established growing copper mining company operating seven mines including the ramp-up of their newest mine, Cobre Panama, which declared commercial production in September 2019. The group is a significant copper producer and also produces nickel, gold and zinc.
10 - ARCELORMITTAL1 (2021: 6th)
Steel producer
Market value: £38,468,000
Share of investments: 3.1% (2021: 5.2%)
A multinational steel manufacturing group, with a focus on growing sustainable steel production. The group has operations across the world and is the largest steel producer in Europe.
1 Includes fixed income securities.
2 Includes investments held at Directors’ valuation.
All percentages reflect the value of the holding as a percentage of total investments. For this purpose, where more than one class of securities is held, these have been aggregated.
Together, the ten largest investments represented 54.7% of total investments of the Company’s portfolio as at 30 June 2022 (ten largest investments as at 31 December 2021: 57.0%).
INVESTMENTS AS AT 30 JUNE 2022
|
|
Main geographical exposure |
Market value £000 |
% of investments |
|
| Diversified | ||||
| Vale | Global | 68,317 | } | 8.9 |
| Vale Debentures*#^ | Global | 42,243 | ||
| BHP | Global | 106,623 | 8.7 | |
| Glencore | Global | 103,763 | 8.4 | |
| Anglo American | Global | 85,849 | 7.0 | |
| Rio Tinto | Global | 50,503 | 4.1 | |
| Teck Resources | Global | 42,878 | 3.5 | |
| Trident | Global | 4,982 | 0.4 | |
| --------------- | --------------- | |||
| 505,158 | 41.0 | |||
| ========= | ========= | |||
| Copper | ||||
| Freeport-McMoRan | Global | 46,782 | 3.8 | |
| First Quantum Minerals* | Global | 42,490 | 3.5 | |
| OZ Minerals Brazil Royalty#~ | Latin America | 20,194 | } | 2.3 |
| OZ Minerals | Australasia | 8,523 | ||
| Ivanhoe Electric | United States | 16,088 | } | 2.0 |
| I-Pulse* | United States | 8,673 | ||
| Ivanhoe Mines | Other Africa | 19,011 | 1.5 | |
| Sociedad Minera Cerro Verde | Latin America | 15,835 | 1.3 | |
| Jetti Resources# | Global | 12,327 | 1.0 | |
| Solaris Resources | Latin America | 10,712 | 0.9 | |
| Antofagasta | Latin America | 10,529 | 0.9 | |
| Develop Global | Australasia | 6,775 | 0.6 | |
| MCC Mining# | Latin America | 5,764 | 0.5 | |
| Aurubis | Global | 4,230 | 0.3 | |
| SolGold | Latin America | 3,884 | 0.3 | |
| Ero Copper | Latin America | 3,833 | 0.3 | |
| Lundin Mining | Global | 3,561 | 0.3 | |
| Hudbay | Global | 3,518 | 0.3 | |
| Nevada Copper | United States | 499 | – | |
| --------------- | --------------- | |||
| 243,228 | 19.8 | |||
| ========= | ========= | |||
| Gold | ||||
| Newmont Corporation | Global | 44,998 | 3.7 | |
| Franco-Nevada | Global | 37,161 | 3.0 | |
| Barrick Gold | Global | 35,043 | 2.9 | |
| Wheaton Precious Metals | Global | 30,822 | 2.5 | |
| Newcrest Mining | Australasia | 20,883 | 1.7 | |
| Northern Star Resources | Australasia | 11,257 | 0.9 | |
| Endeavour Mining | Other Africa | 8,703 | 0.7 | |
| Kinross Gold | Global | 6,233 | 0.5 | |
| Agnico Eagle Mines | Canada | 5,736 | 0.5 | |
| Polymetal International | Russia | 1,773 | 0.1 | |
| Polyus# | Russia | 2 | – | |
| --------------- | --------------- | |||
| 202,611 | 16.5 | |||
| ========= | ========= | |||
| Steel | ||||
| ArcelorMittal* | Global | 38,468 | 3.1 | |
| Steel Dynamics | United States | 21,720 | 1.8 | |
| Nucor | United States | 20,648 | 1.7 | |
| Stelco Holdings | Canada | 5,656 | 0.5 | |
| --------------- | --------------- | |||
| 86,492 | 7.1 | |||
| ========= | ========= | |||
| Industrial Minerals | ||||
| Sociedad Quimica y Minera ADR | Latin America | 17,301 | 1.4 | |
| Lynas Rare Earths | Australasia | 12,838 | 1.0 | |
| Iluka Resources | Australasia | 12,384 | 1.0 | |
| Albemarle | Global | 10,995 | } | 0.9 |
| Albemarle Put Option 15/07/22 US$210 | Global | (550) | ||
| Sigma Lithium | Latin America | 9,712 | 0.8 | |
| Sheffield Resources | Australasia | 5,048 | 0.4 | |
| --------------- | --------------- | |||
| 67,728 | 5.5 | |||
| ========= | ========= | |||
| Iron Ore | ||||
| Labrador Iron | Canada | 22,085 | 1.8 | |
| Champion Iron | Canada | 9,034 | 0.7 | |
| Deterra Royalties | Australasia | 4,836 | 0.4 | |
| Equatorial Resources | Other Africa | 306 | – | |
| --------------- | --------------- | |||
| 36,261 | 2.9 | |||
| ========= | ========= | |||
| Aluminium | ||||
| Alcoa | Global | 17,362 | 1.4 | |
| Norsk Hydro | Global | 15,169 | 1.2 | |
| --------------- | --------------- | |||
| 32,531 | 2.6 | |||
| ========= | ========= | |||
| Platinum Group Metals | ||||
| Northam Platinum | Global | 9,633 | 0.8 | |
| Impala Platinum | South Africa | 8,812 | 0.7 | |
| Sibanye Stillwater | South Africa | 3,526 | 0.3 | |
| Bravo Mining# | Latin America | 2,470 | 0.2 | |
| --------------- | --------------- | |||
| 24,441 | 2.0 | |||
| ========= | ========= | |||
| Other | ||||
| Woodside Energy Group | Australasia | 14,064 | 1.1 | |
| --------------- | --------------- | |||
| 14,064 | 1.1 | |||
| ========= | ========= | |||
| Nickel | ||||
| Nickel Industries | Indonesia | 11,296 | 0.9 | |
| Bindura Nickel | Global | 42 | – | |
| --------------- | --------------- | |||
| 11,338 | 0.9 | |||
| ========= | ========= | |||
| Mining Services | ||||
| Epiroc | Global | 5,186 | 0.4 | |
| --------------- | --------------- | |||
| 5,186 | 0.4 | |||
| ========= | ========= | |||
| Zinc | ||||
| Titan Mining | United States | 2,539 | 0.2 | |
| --------------- | --------------- | |||
| 2,539 | 0.2 | |||
| ========= | ========= | |||
| Silver | ||||
| Sierra Metals | Latin America | 234 | – | |
| --------------- | --------------- | |||
| 234 | – | |||
| --------------- | --------------- | |||
| 1,231,811 | 100.0 | |||
| ========= | ========= | |||
| Comprising: | ||||
| – Investments | 1,232,361 | 100.0 | ||
| – Options | (550) | – | ||
| --------------- | --------------- | |||
| 1,231,811 | 100.0 | |||
| ========= | ========= |
* Includes fixed income securities.
# Includes investments held at Directors’ valuation.
~ Mining royalty contract.
^ The investment in the Vale Debentures is illiquid and has been valued using secondary market pricing information provided by the Brazilian Financial and Capital Markets Association (ANBIMA).
All investments are in equity shares unless otherwise stated.
The total number of investments as at 30 June 2022 (including options classified as liabilities on the balance sheet) was 64 (31 December 2021: 56).
As at 30 June 2022 the Company did not hold any equity interests in companies comprising more than 3% of a company’s share capital.
PORTFOLIO ANALYSIS AS AT 30 JUNE 2022
COMMODITY EXPOSURE1
| 2022 portfolio |
2021 portfolio# |
2022 Reference Index* |
|
| Diversified | 41.0% | 39.5% | 37.9% |
| Copper | 19.8% | 21.5% | 9.4% |
| Gold | 16.5% | 16.4% | 21.5% |
| Steel | 7.1% | 7.7% | 16.7% |
| Industrial Minerals | 5.5% | 4.1% | 1.8% |
| Iron Ore | 2.9% | 2.8% | 4.0% |
| Aluminium | 2.6% | 3.3% | 3.8% |
| Platinum Group Metals | 2.0% | 3.1% | 3.0% |
| Other& | 0.0% | 0.0% | 0.6% |
| Nickel | 0.9% | 1.4% | 0.1% |
| Mining Services | 0.4% | 0.0% | 0.1% |
| Zinc | 0.2% | 0.2% | 0.4% |
| Silver | 0.0% | 0.0% | 0.7% |
1 Based on index classifications.
# Represents exposure at 31 December 2021.
* MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return).
& Represents a very small exposure.
GEOGRAPHIC EXPOSURE1
| 2022 | |
| Global | 70.6% |
| Latin America | 8.3% |
| Australasia | 7.7% |
| Other2 | 6.7% |
| Canada | 3.5% |
| Other Africa (ex South Africa) | 2.2% |
| South Africa | 1.0% |
| 2021 | |
| Global | 69.9% |
| Latin America | 8.0% |
| Other2 | 7.4% |
| Australasia | 6.3% |
| South Africa | 3.1% |
| Other Africa (ex South Africa) | 3.1% |
| Canada | 2.2% |
1 Based on the principal commodity exposure and place of operation of each investment.
2 Consists of Indonesia, Russia and United States.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report above give details of the important events which have occurred during the period and their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Group can be divided into various areas as follows:
· Counterparty;
· Investment performance;
· Legal and regulatory compliance;
· Market;
· Political;
· Operational; and
· Financial.
The Board reported on the principal risks and uncertainties faced by the Group in the Annual Report and Financial Statements for the year ended 31 December 2021. A detailed explanation can be found in the Strategic Report on pages 41 to 45 and note 18 on pages 111 to 128 of the Annual Report and Financial Statements which is available on the website maintained by BlackRock at www.blackrock.com/uk/brwm.
The Directors have assessed the impact of market conditions arising from the COVID-19 outbreak on the Company’s ability to meet its investment objective. Based on the latest available information, the Company continues to be managed in line with its investment objective, with no disruption to the operations of the Company and the publication of its net asset values.
Certain financial markets have fallen due primarily to geopolitical tensions arising from Russia’s incursion into Ukraine and the impact of the subsequent range of sanctions, regulations and other measures which impaired normal trading in Russian securities. The Board and Investment Manager continue to monitor performance in line with the Company’s investment objective and the operations of the Company and publication of net asset values are continuing.
In the view of the Board, there have not been any changes to the fundamental nature of the principal risks and uncertainties since the previous report and these are equally applicable to the remaining six months of the financial year as they were to the six months under review.
GOING CONCERN
The Board remains mindful of the ongoing uncertainty surrounding the potential duration of the COVID-19 pandemic and its longer-term effects on the global economy and the current heightened geo-political risk. Nevertheless, the Directors, having considered the nature and liquidity of the portfolio, the Group’s investment objective and the Group’s projected income and expenditure, are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and is financially sound. The Board believes that the Group and its key third-party service providers have in place appropriate business continuity plans and these services have continued to be supplied without interruption throughout the COVID-19 pandemic.
The Group has a portfolio of investments which are predominantly readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Accounting revenue and expense forecasts are maintained and reported to the Board regularly and it is expected that the Group will be able to meet all its obligations. Borrowings under the overdraft and revolving credit facilities shall at no time exceed £230 million or 25% of the Group’s net asset value (whichever is the lower) and this covenant was complied with during the period.
Ongoing charges for the year ended 31 December 2021 were approximately 0.95% of net assets and this is unlikely to change significantly going forward. Based on the above, the Board is satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the management and marketing fees payable are set out in notes 4, 5 and 12 below.
The related party transactions with the Directors are set out in note 13 below.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within the Condensed Half Yearly Financial Report has been prepared in accordance with UK-adopted International Accounting Standard 34 'Interim Financial Reporting'; and
· the Interim Management Report, together with the Chairman’s Statement and Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority Disclosure Guidance and Transparency Rules.
This Condensed Half Yearly Financial Report has been reviewed by the Company’s auditors and their report is set out below.
The Condensed Half Yearly Financial Report was approved by the Board on 23 August 2022 and the above responsibility statement was signed on its behalf by the Chairman.
DAVID CHEYNE
FOR AND ON BEHALF OF THE BOARD
23 August 2022
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2022
|
|
|
Six months ended 30 June 2022 (unaudited) |
Six months ended 30 June 2021 (unaudited) |
Year ended 31 December 2021 (audited) |
||||||
|
|
Notes | Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| Income from investments held at fair value through profit or loss | 3 | 39,251 | – | 39,251 | 33,690 | – | 33,690 | 80,558 | – | 80,558 |
| Other income | 3 | 2,472 | – | 2,472 | 4,080 | – | 4,080 | 7,118 | – | 7,118 |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ||
| Total revenue | 41,723 | – | 41,723 | 37,770 | – | 37,770 | 87,676 | – | 87,676 | |
| ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ||
| Net (loss)/profit on investments held at fair value through profit or loss | – | (30,608) | (30,608) | – | 130,660 | 130,660 | – | 122,374 | 122,374 | |
| Net (loss)/profit on foreign exchange | – | (16,160) | (16,160) | – | 458 | 458 | – | (1,696) | (1,696) | |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ||
| Total | 41,723 | (46,768) | (5,045) | 37,770 | 131,118 | 168,888 | 87,676 | 120,678 | 208,354 | |
| ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ||
| Expenses | ||||||||||
| Investment management fee | 4 | (1,279) | (3,949) | (5,228) | (1,143) | (3,538) | (4,681) | (2,252) | (6,978) | (9,230) |
| Other operating expenses | 5 | (532) | (7) | (539) | (493) | (5) | (498) | (1,034) | (9) | (1,043) |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ||
| Total operating expenses | (1,811) | (3,956) | (5,767) | (1,636) | (3,543) | (5,179) | (3,286) | (6,987) | (10,273) | |
| ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 39,912 | (50,724) | (10,812) | 36,134 | 127,575 | 163,709 | 84,390 | 113,691 | 198,081 | |
| Finance costs | 6 | (306) | (891) | (1,197) | (174) | (519) | (693) | (374) | (1,117) | (1,491) |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ||
| Net profit/(loss) on ordinary activities before taxation | 39,606 | (51,615) | (12,009) | 35,960 | 127,056 | 163,016 | 84,016 | 112,574 | 196,590 | |
| ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ||
| Taxation (charge)/credit | (2,458) | 804 | (1,654) | (2,717) | 965 | (1,752) | (5,106) | 986 | (4,120) | |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ||
| Net profit/(loss) on ordinary activities after taxation | 8 | 37,148 | (50,811) | (13,663) | 33,243 | 128,021 | 161,264 | 78,910 | 113,560 | 192,470 |
| ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ||
| Earnings/(loss) per ordinary share (pence) | 8 | 20.07 | (27.45) | (7.38) | 18.64 | 71.79 | 90.43 | 43.59 | 62.73 | 106.32 |
| ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ======= | ||
The total column of this statement represents the Group’s Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards (IASs). The supplementary revenue and capital accounts are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Group.
The Group does not have any other comprehensive income/(loss). The net loss for the period disclosed above represents the Group’s total comprehensive loss.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2022
|
|
Note |
Called up share capital £000 |
Share premium account £000 |
Capital redemption reserve £000 |
Special reserve £000 |
Capital reserves £000 |
Revenue reserve £000 |
Total £000 |
| For the six months ended 30 June 2022 (unaudited) | ||||||||
| At 31 December 2021 | 9,651 | 138,818 | 22,779 | 155,123 | 742,430 | 74,073 | 1,142,874 | |
| Total comprehensive income: | ||||||||
| Net (loss)/profit for the period | – | – | – | – | (50,811) | 37,148 | (13,663) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares reissued from treasury | – | 8,752 | – | 21,708 | – | – | 30,460 | |
| Share reissue costs | – | – | – | (61) | – | – | (61) | |
| Dividends paid1 | 7 | – | – | – | – | – | (60,148) | (60,148) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 30 June 2022 | 9,651 | 147,570 | 22,779 | 176,770 | 691,619 | 51,073 | 1,099,462 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| For the six months ended 30 June 2021 (unaudited) | ||||||||
| At 31 December 2020 | 9,651 | 127,155 | 22,779 | 103,992 | 628,870 | 38,378 | 930,825 | |
| Total comprehensive income: | ||||||||
| Net profit for the period | – | – | – | – | 128,021 | 33,243 | 161,264 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares reissued from treasury | – | 11,663 | – | 51,651 | – | – | 63,314 | |
| Share purchase costs | – | – | – | (127) | – | – | (127) | |
| Dividends paid2 | 7 | – | – | – | – | – | (23,006) | (23,006) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 30 June 2021 | 9,651 | 138,818 | 22,779 | 155,516 | 756,891 | 48,615 | 1,132,270 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
| For the year ended 31 December 2021 (audited) | ||||||||
| At 31 December 2020 | 9,651 | 127,155 | 22,779 | 103,992 | 628,870 | 38,378 | 930,825 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | – | 113,560 | 78,910 | 192,470 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares reissued from treasury | – | 11,663 | – | 51,651 | – | – | 63,314 | |
| Share reissue costs | – | – | – | (127) | – | – | (127) | |
| Ordinary shares purchased into treasury | – | – | – | (390) | – | – | (390) | |
| Share purchase costs | – | – | – | (3) | – | – | (3) | |
| Dividends paid3 | 7 | – | – | – | – | – | (43,215) | (43,215) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 31 December 2021 | 9,651 | 138,818 | 22,779 | 155,123 | 742,430 | 74,073 | 1,142,874 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
1 The final dividend for the year ended 31 December 2021 of 27.00p per share, declared on 8 March 2022 and paid on 19 May 2022, and 1st quarterly dividend for the year ended 31 December 2022 of 5.50p per share, declared on 6 May 2022 and paid on 30 June 2022.
2 The final dividend for the year ended 31 December 2020 of 8.30p per share, declared on 4 March 2021 and paid on 6 May 2021, and 1st quarterly dividend for the year ended 31 December 2021 of 4.50p per share, declared on 29 April 2021 and paid on 25 June 2021.
3 The final dividend of 8.30p per share for the year ended 31 December 2020, declared on 4 March 2021 and paid on 6 May 2021; 1st interim dividend of 4.50p per share for the year ended 31 December 2021, declared on 29 April 2021 and paid on 25 June 2021; 2nd interim dividend of 5.50p per share for the year ended 31 December 2021, declared on 19 August 2021 and paid on 24 September 2021 and 3rd interim dividend of 5.50p per share for the year ended 31 December 2021, declared on 18 November 2021 and paid on 24 December 2021.
For information on the Company’s distributable reserves, please refer to note 10 below.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2022
|
|
Notes |
30 June 2022 (unaudited) £000 |
30 June 2021 (unaudited) £000 |
31 December 2021 (audited) £000 |
| Non current assets | ||||
| Investments held at fair value through profit or loss | 11 | 1,232,361 | 1,272,562 | 1,256,801 |
| Current assets | ||||
| Current tax asset | 490 | 87 | 85 | |
| Other receivables | 5,560 | 6,755 | 5,209 | |
| Cash collateral held with brokers | 2,651 | – | 580 | |
| Cash and cash equivalents | 52,255 | 6,556 | 26,332 | |
| --------------- | --------------- | --------------- | ||
| Total current assets | 60,956 | 13,398 | 32,206 | |
| ========= | ========= | ========= | ||
| Total assets | 1,293,317 | 1,285,960 | 1,289,007 | |
| ========= | ========= | ========= | ||
| Current liabilities | ||||
| Current tax liability | (281) | (5) | (427) | |
| Other payables | (15,135) | (5,373) | (5,183) | |
| Derivative financial liabilities held at fair value through profit or loss | 11 | (550) | – | (667) |
| Bank overdraft | (177) | (11,605) | (356) | |
| Bank loans | (177,273) | (136,544) | (138,867) | |
| --------------- | --------------- | --------------- | ||
| Total current liabilities | (193,416) | (153,527) | (145,500) | |
| ========= | ========= | ========= | ||
| Total assets less current liabilities | 1,099,901 | 1,132,433 | 1,143,507 | |
| ========= | ========= | ========= | ||
| Non current liabilities | ||||
| Deferred taxation liability | (439) | (163) | (633) | |
| --------------- | --------------- | --------------- | ||
| Net assets | 1,099,462 | 1,132,270 | 1,142,874 | |
| ========= | ========= | ========= | ||
| Equity attributable to equity holders | ||||
| Called up share capital | 9 | 9,651 | 9,651 | 9,651 |
| Share premium account | 147,570 | 138,818 | 138,818 | |
| Capital redemption reserve | 22,779 | 22,779 | 22,779 | |
| Special reserve | 176,770 | 155,516 | 155,123 | |
| Capital reserves | 691,619 | 756,891 | 742,430 | |
| Revenue reserve | 51,073 | 48,615 | 74,073 | |
| --------------- | --------------- | --------------- | ||
| Total equity | 1,099,462 | 1,132,270 | 1,142,874 | |
| ========= | ========= | ========= | ||
| Net asset value per ordinary share (pence) | 8 | 584.92 | 616.20 | 622.21 |
| ========= | ========= | ========= |
CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2022
|
|
Six months ended 30 June 2022 (unaudited) £000 |
Six months ended 30 June 2021 (unaudited) £000 |
Year ended 31 December 2021 (audited) £000 |
| Operating activities | |||
| Net (loss)/profit on ordinary activities before taxation | (12,009) | 163,016 | 196,590 |
| Add back finance costs | 1,197 | 693 | 1,491 |
| Net loss/(profit) on investments and options held at fair value through profit or loss (including transaction costs) | 30,608 | (130,660) | (122,374) |
| Net loss/(profit) on foreign exchange | 16,160 | (458) | 1,696 |
| Sales of investments and derivatives held at fair value through profit or loss | 266,982 | 118,844 | 354,182 |
| Purchases of investments and derivatives held at fair value through profit or loss | (273,507) | (215,769) | (442,711) |
| Increase in other receivables | (203) | (2,943) | (1,233) |
| Increase in other payables | 540 | 3,030 | 2,571 |
| (Increase)/decrease in amounts due from brokers | (148) | 2,907 | 2,776 |
| Increase/(decrease) in amounts due to brokers | 9,412 | (2,473) | (2,473) |
| Net movement in cash collateral held with brokers | (2,071) | 2,943 | 2,363 |
| --------------- | --------------- | --------------- | |
| Net cash inflow/(outflow) from operating activities before interest and taxation | 36,961 | (60,870) | (7,122) |
| ========= | ========= | ========= | |
| Taxation paid | (261) | (484) | (484) |
| Taxation on investment income included within gross income | (1,733) | (1,825) | (3,303) |
| --------------- | --------------- | --------------- | |
| Net cash inflow/(outflow) from operating activities | 34,967 | (63,179) | (10,909) |
| ========= | ========= | ========= | |
| Financing activities | |||
| Drawdown of loans | 22,359 | 35,020 | 35,020 |
| Interest paid | (1,362) | (627) | (1,439) |
| Shares purchased into treasury | – | – | (390) |
| Share purchase costs paid | – | – | (3) |
| Net proceeds from ordinary shares reissued from treasury | 30,399 | 63,187 | 63,187 |
| Dividends paid | (60,148) | (23,006) | (43,215) |
| --------------- | --------------- | --------------- | |
| Net cash (outflow)/inflow from financing activities | (8,752) | 74,574 | 53,160 |
| ========= | ========= | ========= | |
| Increase in cash and cash equivalents | 26,215 | 11,395 | 42,251 |
| Cash and cash equivalents at start of the period | 25,976 | (16,008) | (16,008) |
| Effect of foreign exchange rate changes | (113) | (436) | (267) |
| --------------- | --------------- | --------------- | |
| Cash and cash equivalents at end of the period | 52,078 | (5,049) | 25,976 |
| ========= | ========= | ========= | |
| Comprised of: | |||
| Cash at bank | 52,255 | 6,556 | 26,332 |
| Bank overdraft | (177) | (11,605) | (356) |
| --------------- | --------------- | --------------- | |
| 52,078 | (5,049) | 25,976 | |
| ========= | ========= | ========= |
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2022
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010.
The principal activity of the subsidiary, BlackRock World Mining Investment Company Limited, is investment dealing.
2. BASIS OF PREPARATION
The Half Yearly Financial Statements for the six month period ended 30 June 2022 have been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority and with the UK-adopted International Accounting Standard 34 (IAS 34), Interim Financial Reporting. The Half Yearly Financial Statements should be read in conjunction with the Group’s Annual Report and Financial Statements for the year ended 31 December 2021, which have been prepared in accordance with UK adopted International Accounting Standards (IASs).
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts, issued by the Association of Investment Companies (AIC) in October 2019 and updated in July 2022, is compatible with UK-adopted IASs, the financial statements have been prepared in accordance with guidance set out in the SORP.
There was no impact or changes in accounting policies from the year end to the Half Yearly Financial Statements.
International Accounting Standards that have yet to be adopted:
IFRS 17 – Insurance contracts (effective 1 January 2023). This standard replaces IFRS 4, which currently permits a wide range of accounting practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features.
This standard is unlikely to have any impact on the Group as it has no insurance contracts.
IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction (effective 1 January 2023). The International Accounting Standards Board (IASB) has amended IAS 12, Income taxes, to require companies to recognise deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. According to the amended guidance, a temporary difference that arises on initial recognition of an asset or liability is not subject to the initial recognition exemption if that transaction gave rise to equal amounts of taxable and deductible temporary differences. These amendments might have a significant impact on the preparation of financial statements by companies that have substantial balances of right-of-use assets, lease liabilities, decommissioning, restoration and similar liabilities. The impact for those affected would be the recognition of additional deferred tax assets and liabilities.
The amendment of this standard is unlikely to have any significant impact on the Group.
3. INCOME
|
|
Six months ended 30 June 2022 (unaudited) £000 |
Six months ended 30 June 2021 (unaudited) £000 |
Year ended 31 December 2021 (audited) £000 |
| Investment income: | |||
| UK dividends | 9,575 | 8,919 | 25,681 |
| UK special dividends | 2,167 | 1,045 | 5,507 |
| Overseas dividends | 19,768 | 18,014 | 36,624 |
| Overseas special dividends | 1,670 | – | 1,250 |
| Income from contractual rights (OZ Minerals Royalty) | 1,674 | 715 | 2,562 |
| Income from Vale Debentures | 3,308 | 4,012 | 6,971 |
| Income from fixed interest investments | 1,089 | 985 | 1,963 |
| --------------- | --------------- | --------------- | |
| Total investment income | 39,251 | 33,690 | 80,558 |
| ========= | ========= | ========= | |
| Other income: | |||
| Option premium income | 2,371 | 4,067 | 7,065 |
| Deposit interest | 65 | – | – |
| Stock lending income | 36 | 13 | 53 |
| --------------- | --------------- | --------------- | |
| 2,472 | 4,080 | 7,118 | |
| ========= | ========= | ========= | |
| Total income | 41,723 | 37,770 | 87,676 |
| ========= | ========= | ========= |
During the period, the Group received option premium income in cash totalling £2,035,000 (six months ended 30 June 2021: £3,746,000; year ended 31 December 2021: £6,745,000) for writing put and covered call options for the purposes of revenue generation.
Option premium income is amortised evenly over the life of the option contract and, accordingly, during the period, option premiums of £2,371,000 (six months ended 30 June 2021: £4,067,000; year ended 31 December 2021: £7,065,000) were amortised to revenue.
At 30 June 2022 there was one open position (30 June 2021: none; 31 December 2021: two) with an associated liability of £550,000 (30 June 2021: £nil; 31 December 2021: £667,000).
Dividends and interest received in cash in the six months ended 30 June 2022 amounted to £34,977,000 and £3,775,000 (six months ended 30 June 2021: £26,052,000 and £1,862,000; year ended 31 December 2021: £68,199,000 and £5,186,000).
No special dividends have been recognised in capital for the six months ended 30 June 2022 (six months ended 30 June 2021: £nil; year ended 31 December 2021: £nil).
4. INVESTMENT MANAGEMENT FEE
|
|
Six months ended 30 June 2022 (unaudited) |
Six months ended 30 June 2021 (unaudited) |
Year ended 31 December 2021 (audited) |
||||||
|
|
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| Investment management fee | 1,279 | 3,949 | 5,228 | 1,143 | 3,538 | 4,681 | 2,252 | 6,978 | 9,230 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Total | 1,279 | 3,949 | 5,228 | 1,143 | 3,538 | 4,681 | 2,252 | 6,978 | 9,230 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | |
The investment management fee (which includes all services provided by BlackRock) is 0.8% of the Company’s net assets. However, in the event that the NAV per share increases on a quarter-on-quarter basis, the fee will then be paid on gross assets for the quarter. During the period £4,961,000 (six months ended 30 June 2021: £4,214,000; year ended 31 December 2021: £8,537,000) of the investment management fee was generated from net assets and £267,000 (six months ended 30 June 2021: £467,000; year ended 31 December 2021: £693,000) from the gearing effect on gross assets due to the quarter-on-quarter increase in the NAV per share for the period as set out below:
|
Quarter end |
Cum income NAV per share (pence) |
Quarterly increase/ (decrease) % |
Gearing effect on management fees (£000) |
| 31 December 2021 | 622.21 | ||
| 31 March 2022 | 769.58 | +23.7 | 267 |
| 30 June 2022 | 584.92 | -24.0 | – |
| ========= | ========= | ========= |
The daily average of the net assets under management during the period ended 30 June 2022 was £1,287,808,000 (six months ended 30 June 2021: £1,069,435,000; year ended 31 December 2021: £1,085,438,000).
The fee is allocated 25% to the revenue account and 75% to the capital account of the Consolidated Statement of Comprehensive Income.
There is no additional fee for company secretarial and administration services.
5. OTHER OPERATING EXPENSES
|
|
Six months ended 30 June 2022 (unaudited) £000 |
Six months ended 30 June 2021 (unaudited) £000 |
Year ended 31 December 2021 (audited) £000 |
| Allocated to revenue: | |||
| Custody fee | 59 | 53 | 103 |
| Auditors’ remuneration: | |||
| – audit services | 25 | 23 | 41 |
| – audit-related assurance services1 | 5 | 5 | 9 |
| Registrar’s fee | 40 | 45 | 91 |
| Directors’ emoluments | 88 | 86 | 176 |
| AIC fees | 10 | 10 | 21 |
| Broker fees | 12 | 12 | 25 |
| Depositary fees | 61 | 48 | 101 |
| FCA fee | 13 | 10 | 24 |
| Directors’ insurance | 11 | 9 | 19 |
| Marketing fees | 81 | 64 | 140 |
| Stock exchange fees | 18 | 13 | 26 |
| Legal and professional fees | 20 | 28 | 52 |
| Bank facility fees2 | 51 | 34 | 73 |
| Printing and postage costs | 28 | 17 | 37 |
| Write back of prior year expenses3 | (24) | – | – |
| Other administration costs | 34 | 36 | 96 |
| --------------- | --------------- | --------------- | |
| 532 | 493 | 1,034 | |
| ========= | ========= | ========= | |
| Allocated to capital: | |||
| Custody transaction charges4 | 7 | 5 | 9 |
| --------------- | --------------- | --------------- | |
| 539 | 498 | 1,043 | |
| ========= | ========= | ========= |
1 Fees paid to the auditor for audit-related assurance services of £4,500 excluding VAT (six months ended 30 June 2021: £5,000; year ended 31 December 2021: £8,500) relate to the review of the Half Yearly Financial Statements.
2 There is a 4 basis point facility fee chargeable on the full loan facility amount whether drawn or undrawn.
3 Relates to Directors’ expenses, miscellaneous fees and professional services fees written back during the period ended 30 June 2022.
4 For the six month period ended 30 June 2022, expenses of £7,000 (six months ended 30 June 2021: £5,000; year ended 31 December 2021: £9,000) were charged to the capital account of the Consolidated Statement of Comprehensive Income. These relate to transaction costs charged by the custodian on sale and purchase trades.
The transaction costs incurred on the acquisition of investments amounted to £488,000 for the six months ended 30 June 2022 (six months ended 30 June 2021: £344,000; year ended 31 December 2021: £690,000). Costs relating to the disposal of investments amounted to £106,000 for the six months ended 30 June 2022 (six months ended 30 June 2021: £79,000; year ended 31 December 2021: £260,000). All transaction costs have been included within the capital reserves.
6. FINANCE COSTS
|
|
Six months ended 30 June 2022 (unaudited) |
Six months ended 30 June 2021 (unaudited) |
Year ended 31 December 2021 (audited) |
||||||
|
|
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| Interest payable – bank loans | 304 | 885 | 1,189 | 168 | 507 | 675 | 365 | 1,097 | 1,462 |
| Interest payable – bank overdraft | 2 | 6 | 8 | 6 | 12 | 18 | 9 | 20 | 29 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Total | 306 | 891 | 1,197 | 174 | 519 | 693 | 374 | 1,117 | 1,491 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | |
Finance costs are charged 25% to the revenue account and 75% to the capital account of the Consolidated Statement of Comprehensive Income.
7. DIVIDENDS
The final dividend of 27.00p per share for the year ended 31 December 2021 was paid on 19 May 2022. The Board has declared a first quarterly interim dividend of 5.50p per share for the quarter ended 31 March 2022, paid on 30 June 2022 to shareholders on the register on 27 May 2022.
The Board has declared a second quarterly interim dividend of 5.50p per share for the quarter ended 30 June 2022 which will be paid on 30 September 2022 to shareholders on the register on 2 September 2022. This dividend has not been accrued in the financial statements for the six months ended 30 June 2022 as, under IAS, interim dividends are not recognised until paid. Dividends are debited directly to reserves.
Dividends on equity shares paid during the period were:
|
|
Six months ended 30 June 2022 (unaudited) £000 |
Six months ended 30 June 2021 (unaudited) £000 |
Year ended 31 December 2021 (audited) £000 |
| Final dividend for the year ended 31 December 2021 of 27.00p per share (2020: 8.30p) | 49,898 | 14,782 | 14,782 |
| 1st quarterly interim dividend for the year ending 31 December 2022 of 5.50p per share (2021: 4.50p) | 10,250 | 8,224 | 8,224 |
| 2nd quarterly interim dividend for the year ended 31 December 2021 of 5.50p per share (2020: 4.00p) | – | – | 10,106 |
| 3rd quarterly interim dividend for the year ended 31 December 2021 of 5.50p per share (2020: 4.00p) | – | – | 10,103 |
| --------------- | --------------- | --------------- | |
| 60,148 | 23,006 | 43,215 | |
| ========= | ========= | ========= |
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue return, capital return and net asset value are shown below and have been calculated using the following:
|
|
Six months ended 30 June 2022 (unaudited) |
Six months ended 30 June 2021 (unaudited) |
Year ended 31 December 2021 (audited) |
| Net revenue profit attributable to ordinary shareholders (£000) | 37,148 | 33,243 | 78,910 |
| Net capital (loss)/profit attributable to ordinary shareholders (£000) | (50,811) | 128,021 | 113,560 |
| --------------- | --------------- | --------------- | |
| Total (loss)/profit attributable to ordinary shareholders (£000) | (13,663) | 161,264 | 192,470 |
| ========= | ========= | ========= | |
| Equity shareholders’ funds (£000) | 1,099,462 | 1,132,270 | 1,142,874 |
| The weighted average number of ordinary shares in issue during each period on which the return per ordinary share was calculated was: | 185,071,986 | 178,324,404 | 181,037,188 |
| The actual number of ordinary shares in issue at the period end on which the net asset value was calculated was: | 187,968,036 | 183,750,814 | 183,681,116 |
| Earnings per share | |||
| Revenue earnings per share (pence) – basic and diluted | 20.07 | 18.64 | 43.59 |
| Capital (loss)/earnings per share (pence) – basic and diluted | (27.45) | 71.79 | 62.73 |
| --------------- | --------------- | --------------- | |
| Total (loss)/earnings per share (pence) – basic and diluted | (7.38) | 90.43 | 106.32 |
| ========= | ========= | ========= |
|
|
As at 30 June 2022 (unaudited) |
As at 30 June 2021 (unaudited) |
As at 31 December 2021 (audited) |
| Net asset value per ordinary share (pence) | 584.92 | 616.20 | 622.21 |
| Ordinary share price (pence) | 573.00 | 608.00 | 589.00 |
| ========= | ========= | ========= |
There were no dilutive securities at the period end.
9. CALLED UP SHARE CAPITAL
|
|
Ordinary shares in issue number |
Treasury shares number |
Total shares number |
Nominal value £000 |
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 5 pence each: | ||||
| At 31 December 2021 | 183,681,116 | 9,330,726 | 193,011,842 | 9,651 |
| Ordinary shares reissued from treasury | 4,286,920 | (4,286,920) | – | – |
| ----------------- | ----------------- | ----------------- | ----------------- | |
| At 30 June 2022 | 187,968,036 | 5,043,806 | 193,011,842 | 9,651 |
| ========== | ========== | ========== | ========== |
During the period to 30 June 2022, no shares were bought back and transferred to treasury (six months ended 30 June 2021: none; year ended 31 December 2021: 69,698) for a total consideration including costs of £nil (six months ended 30 June 2021: £nil; year ended 31 December 2021: £393,000).
During the period to 30 June 2022, 4,286,920 shares were reissued from treasury (six months ended 30 June 2021: 10,200,000; year ended 31 December 2021: 10,200,000) for a net consideration after costs of £30,399,000 (six months ended 30 June 2021: £63,187,000; year ended 31 December 2021: £63,187,000).
Since the period end, a further 785,000 ordinary shares have been reissued from treasury for a total consideration of £4,512,000.
10. RESERVES
The share premium and capital redemption reserve are not distributable profits under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the special reserve and capital reserves of the Parent Company may be used as distributable profits for all purposes and, in particular, the repurchase by the Parent Company of its ordinary shares and for payments as dividends. In accordance with the Company’s Articles of Association, the special reserve, capital reserves and the revenue reserve may be distributed by way of dividend. The Parent Company's capital reserve arising on the revaluation of listed investments of £218,851,000 (30 June 2021: gain of £435,729,000; year ended 31 December 2021: gain of £387,997,000) is subject to fair value movements and may not be readily realisable at short notice, as such it may not be entirely distributable. The reserves of the subsidiary company are not distributable until distributed as a dividend to the Parent Company. The investments are subject to financial risks, as such capital reserves (arising on investments sold) and the revenue reserve may not be entirely distributable if a loss occurred during the realisation of these investments.
11. VALUATION OF FINANCIAL INSTRUMENTS
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, climate change or other events could have a significant impact on the Group and its investments.
The coronavirus outbreak has had a profound impact on all aspects of society in recent years. While there is a growing consensus in developed economies that the worst of the impact is now over, there is an expectation that travel restrictions, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, cancellations, supply chain disruptions, and lower consumer demand will create ongoing challenges. While widescale vaccination programmes are now in place in many countries and are having a positive effect, the impact of COVID-19 continues to adversely affect the economies of many nations across the globe and this impact may be greater where vaccination rates are lower, such as in certain emerging markets. Although it is difficult to make timing predictions, it is expected that the economic effects of COVID-19 will continue to be felt for a period after the virus itself has moved from being pandemic to endemic in nature, and this in turn may continue to impact investments held by the Company.
Liquidity risk
The Group has an overdraft facility of £30 million (six months ended 30 June 2021: £30 million; year ended 31 December 2021: £30 million) and a multi-currency loan facility of £200 million (six months ended 30 June 2021: £200 million; year ended 31 December 2021: £200 million) which are updated and renewed on an annual basis. Under this facility, the individual loan drawdowns are taken with a three month maturity period.
At 30 June 2022, the Group had a US Dollar loan outstanding of US$191,000,000 which matures on 23 September 2022 (six months ended 30 June 2021: US Dollar loan of US$161,000,000 which matured on 12 August 2021; year ended 31 December 2021: US Dollar loan of US$161,000,000 which matured on 11 February 2022). The Group also had a UK Sterling loan outstanding of £20,000,000 which matures on 23 September 2022 (six months ended 30 June 2021: £20,000,000 which matured on 12 August 2021; year ended 31 December 2021: £20,000,000 which matured on 11 February 2022).
As per the borrowing agreements, borrowings under the overdraft and loan facilities shall at no time exceed £230 million or 25% of the Group’s net asset value (whichever is the lower) (six months ended 30 June 2021 and year ended 31 December 2021: £230 million or 25% of the Group’s net asset value (whichever is lower)) and this covenant was complied with during the respective periods.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Consolidated Statement of Financial Position at their fair value (investments and derivatives) or at an amount which is considered to be the fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Group to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Group are explained in the accounting policies note 2(h), as set out in the Group's Annual Report and Financial Statements for the year ended 31 December 2021. All investments are held at fair value through profit or loss. The amortised cost amounts of due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank, bank loans and bank overdrafts approximate their fair value.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an exchange, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Group does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.
Over-the-counter derivative option contracts have been classified as Level 2 investments as their valuation has been based on market observable inputs represented by the underlying quoted securities to which these contracts expose the Group.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.
Valuation process and techniques for Level 3 valuations
(a) OZ Minerals Brazil Royalty
The Directors engage a mining consultant, an independent valuer with a recognised and relevant professional qualification, to conduct a periodic valuation of the contractual rights and the fair value of the contractual rights is assessed with reference to relevant factors. At the reporting date the income streams from contractual rights have been valued on the net present value of the pre-tax cash flows discounted at a rate the external valuer considers reflects the risk associated with the project. The valuation model uses discounted cash flow analysis which incorporates both observable and non-observable data. Observable inputs include assumptions regarding current rates of interest and commodity prices. Unobservable inputs include assumptions regarding production profiles, price realisations, cost of capital and discount rates. In determining the discount rate to be applied, the external valuer considers the country and sovereign risk associated with the project, together with the time horizon to the commencement of production and the success or failure of projects of a similar nature. To assess the significance of a particular input to the entire measurement, the external valuer performs a sensitivity analysis. The external valuer has undertaken an analysis of the impact of using alternative discount rates on the fair value of contractual rights.
This investment in contractual rights is reviewed regularly to ensure that the initial classification remains correct given the asset’s characteristics and the Group’s investment policies. The contractual rights are initially recognised using the transaction price as it was indicative in this instance of the best evidence of fair value at acquisition and are subsequently measured at fair value, taking into consideration the relevant IFRS 13 requirements. In arriving at their estimates of market values, the valuers have used their market knowledge and professional judgement. The Group classifies the fair value of this investment as Level 3.
Valuations are the responsibility of the Directors of the Company. In arriving at a final valuation, the Directors consider the independent valuer’s report, the significant assumptions used in the fair valuation and the review process undertaken by BlackRock’s Pricing Committee. The valuation of unquoted investments is performed on a quarterly basis by the Investment Manager and reviewed by the Pricing Committee of the Manager. On a quarterly basis the Investment Manager will review the valuation of the contractual rights and inputs for significant changes. A valuation of contractual rights is performed annually by an external valuer, SRK Consulting (UK) Limited, and reviewed by the Pricing Committee of the Manager. The valuations are also subject to quality assurance procedures performed within the Pricing Committee. On a semi-annual basis, after the checks above have been performed, the Investment Manager presents the valuation results to the Directors. This includes a discussion of the major assumptions used in the valuations. There were no changes in valuation techniques during the period.
(b) Other Level 3 investments
The fair value of the investments in equity shares of Jetti Resources, MCC Mining and Bravo Mining were assessed by an independent valuer with a recognised and relevant professional qualification. The valuation is carried out based on a market comparison approach using the price of a recent investment in secondary market transactions, comparable trading multiples for assets, revenue and an entity’s earnings before interest, tax, depreciation and amortisation (EBITDA). The valuation model is based on market multiples derived from quoted prices of companies comparable to the investee and the assets/expected revenue and EBITDA of the investee. The estimate is adjusted for considerations such as illiquidity and size differences between the comparable companies based on company-specific facts and circumstances.
The estimates include an implicit yield based on internal rates of return, implied volatility and asset multiples. Changes in assumptions about these factors could affect the reported fair value of financial instruments in the Consolidated Statement of Financial Position and the level where the instruments are disclosed in the fair value hierarchy. To assess the significance of a particular input to the entire measurement, the external valuer performs a sensitivity analysis.
From 3 March 2022, following the suspension of trading of depositary receipts of Russian companies on the international stock exchanges, the fair value of the position in Polyus was written down to a nominal value of US$0.01 which is reflected in the fair value of investments presented in the Consolidated Statement of Financial Position at 30 June 2022.
Fair values of financial assets and financial liabilities
For exchange listed equity investments the quoted price is the bid price. Substantially all investments are valued based on unadjusted quoted market prices. Where such quoted prices are readily available in an active market, such prices are not required to be assessed or adjusted for any price related risks, including climate risk, in accordance with the fair value related requirements of the Group’s financial reporting framework.
The table below sets out fair value measurements using the IFRS 13 fair value hierarchy.
| Financial assets/(liabilities) at fair value through profit or loss as at 30 June 2022 (unaudited) |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Assets: | ||||
| Equity investments | 1,070,588 | 16,122 | 20,563 | 1,107,273 |
| Fixed income securities | 53,978 | 50,916 | – | 104,894 |
| Investment in contractual rights | – | – | 20,194 | 20,194 |
| --------------- | --------------- | --------------- | --------------- | |
| Total assets | 1,124,566 | 67,038 | 40,757 | 1,232,361 |
| ========= | ========= | ========= | ========= | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (550) | – | (550) |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 1,124,566 | 66,488 | 40,757 | 1,231,811 |
| ========= | ========= | ========= | ========= |
| Financial assets/(liabilities) at fair value through profit or loss as at 30 June 2021 (unaudited) |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Assets: | ||||
| Equity investments | 1,130,158 | 5,159 | – | 1,135,317 |
| Fixed income securities | 62,659 | 55,121 | – | 117,780 |
| Investment in contractual rights | – | – | 19,465 | 19,465 |
| --------------- | --------------- | --------------- | --------------- | |
| Total assets | 1,192,817 | 60,280 | 19,465 | 1,272,562 |
| ========= | ========= | ========= | ========= | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | – | – | – |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 1,192,817 | 60,280 | 19,465 | 1,272,562 |
| ========= | ========= | ========= | ========= |
| Financial assets/(liabilities) at fair value through profit or loss as at 31 December 2021 (audited) |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Assets: | ||||
| Equity investments | 1,114,430 | 8,955 | 1,846 | 1,125,231 |
| Fixed income securities | 59,108 | 40,895 | 13,405 | 113,408 |
| Investment in contractual rights | – | – | 18,162 | 18,162 |
| --------------- | --------------- | --------------- | --------------- | |
| Total assets | 1,173,538 | 49,850 | 33,413 | 1,256,801 |
| ========= | ========= | ========= | ========= | |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (667) | – | (667) |
| --------------- | --------------- | --------------- | --------------- | |
| Total | 1,173,538 | 49,183 | 33,413 | 1,256,134 |
| ========= | ========= | ========= | ========= |
A reconciliation of fair value measurement in Level 3 is set out below.
|
Level 3 Financial assets at fair value through profit or loss |
Six months ended 30 June 2022 (unaudited) £000 |
Six months ended 30 June 2021 (unaudited) £000 |
Year ended 31 December 2021 (audited) £000 |
| Opening fair value | 33,413 | 19,753 | 19,753 |
| Return of capital – royalty | (145) | (143) | (267) |
| Additions at cost | 18,895 | – | 14,390 |
| Conversion of convertible bond to equity and transfer to Level 2 | (10,160) | – | – |
| Transfer of equities and convertible bonds to Level 2 | (19,305) | – | – |
| Transfer of equities from Level 1 to Level 3 | 2 | – | – |
| Total gains or losses included in gains/(losses) on investments in the Consolidated Statement of Comprehensive Income: | |||
| – assets transferred to Level 2 during the period | 14,214 | – | – |
| – assets held at the end of the period | 3,843 | (145) | (463) |
| --------------- | --------------- | --------------- | |
| Closing balance | 40,757 | 19,465 | 33,413 |
| ========= | ========= | ========= |
The Level 3 investments as at 30 June 2022 in the table below relate to the OZ Minerals Brazil Royalty, Jetti Resources, MCC Mining, Bravo Mining and Polyus and, in accordance with IFRS 13, these investments were categorised as Level 3. In arriving at the fair value of these investments, the key inputs are the underlying commodity prices and illiquidity discount. Ivanhoe Electric/I-Pulse went through an initial public offering during the period ending 30 June 2022 and its shares became listed. As the shares held by the Company are subject to a 180 day lock in period, a discount is applied to the market value of the shares and therefore these have been transferred from Level 3 to Level 2 as the price is based on observable market data.
The Level 3 valuation process and techniques used by the Company are explained in the accounting policies in notes 2(h) and 2(q) on pages 98 and 99 of the Company’s Annual Report and Financial Statements for the year ended 31 December 2021 and a detailed explanation of the techniques is also available above under “valuation process and techniques”.
Quantitative information of significant unobservable inputs – Level 3 – Group and Company
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy, together with an estimated quantitative sensitivity analysis, as at 30 June 2022, 30 June 2021 and 31 December 2021 are as shown below.
|
Description |
As at 30 June 2022 £000 |
Valuation technique |
Unobservable input |
Range of weighted average inputs |
Reasonable possible shift1 +/ - |
Impact on fair value |
| OZ Minerals Brazil Royalty |
20,194 |
Discounted cash flows |
Discount rate – weighted average cost of capital |
5.0% – 8.0% |
1.0% |
£1.0m |
|
Average gold prices |
US$1,400 – US$1,600 per ounce |
10.0% |
£1.5m |
|||
|
Average copper prices |
US$7,209 – US$8,510 per tonne |
10.0% |
£1.0m |
|||
| Jetti Resources | 12,327 | Market approach | Earnings multiple |
2.51x |
5.0% |
£0.6m |
| MCC Mining |
5,764 |
Market approach |
Price of recent transaction |
5.0% |
£0.3m |
|
| Bravo Mining |
2,470 |
Market approach |
Price of recent transaction |
5.0% |
£0.1m |
|
| Polyus ADRs |
2 |
Listing suspended – valued at nominal US$0.01 |
||||
| --------------- | ||||||
| Total | 40,757 | |||||
| ========= |
|
Description |
As at 30 June 2021 £000 |
Valuation technique |
Unobservable input |
Range of weighted average inputs |
Reasonable possible shift1 +/ - |
Impact on fair value |
|
| OZ Minerals Brazil Royalty |
19,465 |
Discounted cash flows |
Discounted rate – weighted average cost of capital |
5.0% – 12.0% |
1.0% |
£1.1m |
|
|
Average gold prices |
US$1,450 – US$1,816 per ounce |
10.0% |
£0.9m |
||||
|
Average copper prices |
US$6,390 – US$8,300 per tonne |
10.0% |
£0.5m |
||||
|
Description |
As at 31 December 2021 £000 |
Valuation technique |
Unobservable input |
Range of weighted average inputs |
Reasonable possible shift1 +/ - |
Impact on fair value |
|
| OZ Minerals Brazil Royalty |
18,162 |
Discounted cash flows |
Discounted rate – weighted average cost of capital |
5.0% – 8.0% |
1.0% |
£1.0m |
|
|
Average gold prices |
US$1,400 – US$1,600 per ounce |
10.0% |
£1.5m |
||||
|
Average copper prices |
US$7,209 – US$8,510 per tonne |
10.0% |
£1.0m |
||||
| Ivanhoe Electric and I-Pulse – convertible bonds and equity shares |
15,251 |
Market approach and scenario analysis for convertible notes |
Asset multiple |
0.75x – 1.25x |
25.0% |
£0.5m |
1 The sensitivity analysis refers to a percentage amount added or deducted from the input and the effect this has on the fair value.
The sensitivity impact on fair value is calculated based on the sensitivity estimates set out by the independent valuer in its report on the valuation of contractual rights. Significant increases/(decreases) in estimated commodity prices and discount rates in isolation would result in a significantly higher/(lower) fair value measurement. Generally, a change in the assumption made for the estimated value is accompanied by a directionally similar change in the commodity prices and discount rates.
12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND THE AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report on pages 56 and 57 of the Annual Report and Financial Statements for the year ended 31 December 2021.
The investment management fee due for the six months ended 30 June 2022 amounted to £5,228,000 (six months ended 30 June 2021: £4,681,000; year ended 31 December 2021: £9,230,000). At the period end, £5,228,000 was outstanding in respect of the management fee (six months ended 30 June 2021: £4,681,000; year ended 31 December 2021: £4,587,000).
In addition to the above services, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the period ended 30 June 2022 amounted to £81,000 excluding VAT (six months ended 30 June 2021: £64,000; year ended 31 December 2021: £140,000). Marketing fees of £134,000 were outstanding as at 30 June 2022 (30 June 2021: £82,000; 31 December 2021: £55,000).
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
13. RELATED PARTY DISCLOSURE
Directors’ emoluments
The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £47,000, the Chairman of the Audit Committee and Management Engagement Committee and Senior Independent Director receives an annual fee of £39,500 and each of the other Directors receives an annual fee of £32,000.
As at 30 June 2022 an amount of £15,000 (30 June 2021: £nil; 31 December 2021: £14,000) was outstanding in respect of Directors’ fees.
At the period end members of the Board held ordinary shares in the Company as set out below:
|
Directors |
Ordinary Shares |
| David Cheyne (Chairman) | 35,000 |
| Russell Edey | 20,000 |
| Jane Lewis | 5,362 |
| Judith Mosely | 7,900 |
| Srinivasan Venkatakrishnan | 1,000 |
| ========= |
Since the period end and up to the date of this report there have been no changes in Directors’ holdings.
14. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2022 (six months ended 30 June 2021: nil; year ended 31 December 2021: nil).
15. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2022 and 30 June 2021 has been reviewed by the Company’s auditors.
The information for the year ended 31 December 2021 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the auditors on those accounts contained no qualification or statement under Sections 498(2) or (3) of the Companies Act 2006.
16. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 December 2022 in February 2023.
Copies of the results announcement can be obtained from the Secretary on 020 7743 3000 or at cosec@blackrock.com. The Annual Report should be available by the beginning of March 2023, with the Annual General Meeting being held in April 2023.
INDEPENDENT REVIEW REPORT TO BLACKROCK WORLD MINING TRUST PLC
REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Our conclusion
We have reviewed BlackRock World Mining Trust plc’s condensed consolidated interim financial statements (the “interim financial statements”) in the Half Yearly Financial Report of BlackRock World Mining Trust plc for the 6 month period ended 30 June 2022 (the “period”).
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.
The interim financial statements comprise:
· the Consolidated Statement of Financial Position as at 30 June 2022;
· the Consolidated Statement of Comprehensive Income for the period then ended;
· the Consolidated Statement of Changes in Equity for the period then ended;
· the Consolidated Cash Flow Statement for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Yearly Financial Report of BlackRock World Mining Trust plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the Directors have inappropriately adopted the going concern basis of accounting or that the Directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with this ISRE. However, future events or conditions may cause the Group to cease to continue as a going concern.
RESPONSIBILITIES FOR THE INTERIM FINANCIAL STATEMENTS AND THE REVIEW
Our responsibilities and those of the Directors
The Half Yearly Financial Report, including the interim financial statements, is the responsibility of, and has been approved by the Directors. The Directors are responsible for preparing the Half Yearly Financial Report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority. In preparing the Half Yearly Financial Report, including the interim financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial statements in the Half Yearly Financial Report based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion paragraph of this report. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Edinburgh
23 August 2022
ENDS
The Condensed Half Yearly Financial Report will also be available on the BlackRock website at www.blackrock.com/uk/brwm. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Melissa Gallagher, Head of Closed End Funds, BlackRock Investment Management (UK) Limited -
Tel: 020 7743 3893
Evy Hambro, Fund Manager, BlackRock Investment Management (UK) Limited -
Tel: 020 7743 3000
Emma Phillips, Media & Communications, BlackRock Investment Management (UK) Limited - Tel: 020 7743 2922
Press enquires:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
12 Throgmorton Avenue
London EC2N 2DL
23 August 2022
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