Portfolio Update

BLACKROCK WORLD MINING TRUST plc  (LEI - LNFFPBEUZJBOSR6PW155)
All information is at 31 August 2017 and unaudited.
Performance at month end with net income reinvested
		One			Three				One	Three		Five
		Month			Months				Year	Years		Years
Net asset value		8.3%			18.8%				41.9%	7.1%		-8.1%
Share price		6.4%			17.3%				44.1%	0.1%		-3.8%
Euromoney Global Mining Index		8.9%			20.1%				37.9%	17.3%		5.9%
(Total return)
Sources: BlackRock, Euromoney Global Mining Index, Datastream
At month end
Net asset value including income1:								442.72p
Net asset value capital only:								437.80p
1 Includes net revenue of 4.92p
Share price:								388.50p
Discount to NAV2:								12.2%
Total assets:								£895.0m
Net yield3:								3.9%
Net gearing:								15.0%
Ordinary shares in issue:								176,455,242
Ordinary shares held in treasury:								16,556,600
Ongoing charges4:								1.10%
2 Discount to NAV including income. 3 Based on quarterly interim dividends of 3.00p per share declared on 4 May 2017 and 10 August 2017 in respect of the year ending 31 December 2017 and a final dividend of 9.00p per share in respect of the year ended 31 December 2016. 4 Calculated as a percentage of average net assets and using expenses, excluding finance costs, for the year ended 31 December 2016.
Sector	% Total					Country Analysis					% Total
	Assets										Assets
Diversified	49.4					Global					65.8
Copper	19.6					Latin America					11.1
Gold	17.3					Australasia					10.7
Silver & Diamonds	7.1					Other Africa					6.4
Industrial Minerals	4.9					Canada					4.2
Iron Ore	1.1					South Africa					0.8
Zinc	0.8					Russia					0.5
Aluminium	0.2					Kazakhstan					0.4
Net current liabilities	(0.4)					USA					0.2
	-----					India					0.2
	100.0					Emerging Europe					0.1
	=====					Net current liabilities					(0.4)
											-----
											100.0
											=====
Ten Largest Investments
Company				% Total Assets
BHP				10.6
Rio Tinto				9.4
First Quantum Minerals				8.2
Glencore				8.1
Vale				7.0
Teck Resources				4.4
Lundin Mining				4.0
Sociedad Minera Cerro Verde				3.2
Newmont Mining				3.2
South32				2.6

Commenting on the markets, Evy Hambro and Olivia Markham, representing the Investment Manager noted:

Performance

Macroeconomic data points were mixed during the period with a confluence of factors keeping equity markets broadly flat (as displayed by a 0.1% increase in the MSCI World Index). China’s Purchasing Manager’s Index (PMI) recorded a reading of 51.7, up from 51.4 in July, whilst elsewhere, it was announced that US domestic inflation increased at its slowest pace since 2015, boosting expectations that the Federal Reserve will delay increasing interest rates. These supportive factors were offset by rising political tensions around North Korea’s nuclear program and negative investor sentiment around the upcoming European Central Bank meeting and speed of tapering of bond purchases. For the mining sector, performance was positive for the base metals during the month, with nickel, zinc, copper and aluminium increasing by 15.5%, 12.8%, 6.7% and 10.7% respectively.  Iron ore also saw positive performance, increasing by 4.5% during the month.

The mining sector finished H1 2017 reporting during the month, and the strong results announced evidenced a remarkable turnaround in the financial health of mining companies since the start of 2016.  Within 18 months, the mining sector has gone from the market believing it was on the brink of bankruptcy, back to strong profits, robust free cash flow and rising dividends having returned +99% over that period, as measured by the Euromoney Global Mining Index.  The key themes that emerged from the H1 reporting season were rising free cash flow, deleveraging and returning capital to shareholders, all fuelled by the significant improvement we have seen in mined commodity prices and costs of production.

Strategy and Outlook

The latest round of reporting highlights the remarkable turnaround in the financial health of the mining sector. For some time, we have been confident that January 2016 marked the bottom of the mining cycle as, back then, the market was concerned about a ‘hard-landing’ in China as well as mining companies’ stretched balance sheets. Today, balance sheets are in much better shape and given current commodity prices, we are optimistic about a continued recovery in share prices. The mining sector has among the highest free cash flow yield out of any global sector and given the improvement in balance sheets, we expect lower earnings volatility relative to the previous three years to help drive a re-rating.

Whilst the mining sector has performed strongly, we are only back at July 2014 levels and still a very long way below the peak in 2011. Mined commodity prices have surged above analyst expectations, with copper and iron ore at 3-year highs and zinc at a 10-year high for example, sparking fears of a pull back. However, importantly, mining shares are still pricing in commodity prices well below current spot prices.

We recognise that China remains the key risk for investors in the mining sector but believe that the Chinese administration has shown itself willing and able to step in with support to avoid a ‘hard-landing’ type event. Reform measures put in place by the government across a range of industries, including steel, coal and aluminium, to tackle pollution and excess capacity have been more effective than many expected and improved the profitability across a number of sectors, which we see as a key benefit in the longer-term. China should also benefit from a spillover effect from the wider improvements we have seen in global economic growth in recent months. Concerns mounted in Q2 2017 of this year that tighter credit conditions in the country could lead to a slowdown. However, economic data has continued to defy the sceptics and exceed expectations with, for example, China’s steel PMI data coming in at a 16-month high.

Meanwhile, commodity prices should also be supported by constraints on the supply side resulting from the underinvestment we have seen in the mining sector in recent years, with global mining sector capex down 66% since the peak in 2012. The key question for investors today is whether the mining companies can maintain the same level of capital discipline or will they slip back into bad habits? For now, we feel the pain of the recent down-cycle is still too fresh and rhetoric from management teams gives us optimism that the sector’s focus remains on shareholder returns.

All data points are in US dollar terms unless stated otherwise.

14 September 2017

ENDS

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