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BlackRock World Mng (BRWM)

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Wednesday 23 January, 2019

BlackRock World Mng

Portfolio Update

All information is at 31 December 2018 and unaudited.
Performance at month end with net income reinvested
One Three One Three Five
Month Months Year Years Years
Net asset value 1.4% -7.9% -11.2% 112.1% 0.9%
Share price 2.9% -6.1% -10.7% 122.5% -2.3%
EMIX Global Mining Index (Net)* 3.4% -2.7% -6.2% 118.2% 18.3%
(Total return)
Sources: BlackRock, EMIX Global Mining Index, Datastream
* The Company’s performance reference index (the EMIX Global Mining Total Return Index) may be calculated on either a Gross or a Net return basis.  Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a Gross basis.  As the Company is subject to the same withholding tax rates for the countries in which it invests, the NR basis is felt to be the most accurate, appropriate, consistent and fair comparison for the Company.
At month end
Net asset value including income1: 389.36p
Net asset value capital only: 380.10p
1 Includes net revenue of 9.26p
Share price: 340.50p
Discount to NAV2: 12.5%
Total assets: £800.8m
Net yield3: 4.6%
Net gearing: 13.7%
Ordinary shares in issue: 176,330,242
Ordinary shares held in treasury: 16,681,600
Ongoing charges4: 1.00%
2 Discount to NAV including income.
3 Based on quarterly interim dividends of 3.00p per share declared on 25 April 2018, 16 August 2018 and 8 November 2018 in respect of the year ended 31 December 2018 and a final dividend of 6.60p per share in respect of the year ended 31 December 2017.
4 Calculated as a percentage of average net assets and using expenses, excluding finance costs, for the year ended 31 December 2017.
Sector % Total Country Analysis % Total
Assets Assets
Diversified 46.5 Global 58.4
Copper 17.7 Latin America 12.0
Gold 14.8 Australasia 10.7
Silver & Diamonds 8.4 Canada 7.2
Industrial Minerals 6.0 Other Africa 4.3
Mining 1.4 USA 1.7
Aluminium 0.9 South Africa 1.4
Materials 0.7 Kazakhstan 0.6
Zinc 0.6 Russia 0.5
Nickel 0.4 Indonesia 0.4
Iron Ore 0.1 Peru 0.2
Current Assets 2.5 Argentina 0.1
Current Assets 2.5
----- -----
100.0 100.0
===== =====
Ten Largest Investments 

% Total
BHP 12.0
Rio Tinto 9.8
Vale 8.4
Glencore 7.7
First Quantum Minerals 6.0
Teck Resources 4.7
Sociedad Minera Cerro Verde 3.2
Mountain Province Diamonds 2.7
Avanco Resources - royalty 2.7
Newmont Mining 2.5


Commenting on the markets, Evy Hambro and Olivia Markham, representing the Investment Manager noted:
The Company’s NAV increased by 1.4% in December, underperforming its reference index, the EMIX Global Mining Index (net return), which increased by 3.4%.
December was a tough month for broader equity markets, with the MSCI World Index falling by 7.6% in US dollar terms, its largest monthly fall since September 2011. Given mining is typically cyclical, it was particularly encouraging to see the sector post positive returns over the period. In our view, this reflected the sector’s attractive relative valuation and balance sheet strength. Broader equity market weakness appeared to be on the back of deteriorating global economic growth expectations, as the market began to view a global recession in the next 12-18 months as a more realistic proposition. The US Federal Reserve disappointed the market with an increase in interest rates but lowered 2019 guidance from three hikes to two. Chinese economic data came in below expectations, with its Caixin Manufacturing PMI at 49.7, indicating contraction. China has, however, begun stimulating its economy by stepping up infrastructure spending. We expect this to help stabilize its economy but do not anticipate the same scale of stimulus that we saw in early 2016.
Amidst this backdrop, mined commodity price performance was mixed. The base metals were weak with copper, zinc and nickel prices off -4.5%, -5.1% and -4.8% respectively. The iron ore (62% fe) price, however, rebounded post a correction in November, rising +10.0% to $72.6/tonne. This appeared to be driven by restocking by Chinese steel mills ahead of peak steel production post Chinese New Year. (Returns in USD.)
The Company’s exposure to copper producers had a negative impact on relative performance during the month. We continue to believe copper has among the most attractive supply and demand fundamentals of the mined commodities over the next one to three years. Nonetheless, positions in First Quantum and Cerro Verde were among the largest detractors.
Strategy and Outlook
We recognise that finding a resolution to the US/China trade war will be difficult. There appears to be bipartisan support in the US for a tough stance on China and it is unclear how the technology transfer issue can be resolved. However, our view is that the market has priced a lot of this negativity in and should we see even gradual improvements in relations between the two countries, we would expect mined commodity prices to improve. Meanwhile, our overall base case for China is that it has the tools to successfully manage a gradual slow-down and we do not anticipate a hard-landing type event.
Supply and demand is tight in most mined commodity markets today and, given the cuts in mining sector spending since 2012 (down ~66%), we expect it to remain so. Our base case is therefore, barring an economic slowdown, mined commodity prices to be stable to rising through 2019. Meanwhile, we believe the shares are pricing in a materially worse commodity price environment. We see the risk-reward opportunity in mining as attractive given the improvements in balance sheets over the last 2-3 years and given many of the large diversified miners are trading on free cash flow yields of above 10%.
All data points are in GBP terms unless stated otherwise.
23 January 2019
Latest information is available by typing on the internet. 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.

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