BlackRock World Mining Trust
plc - LNFFPBEUZJBOSR6PW155
Annual Results
Announcement (Article 4 Transparency Directive, DTR 4.1)
for the year ended 31 December
2016
Financial Highlights
Attributable to ordinary shareholders |
31 December
2016 |
31 December
2015 |
Change
% |
Assets |
|
|
|
Net assets (£’000) |
677,546 |
377,313 |
+79.6 |
Net asset value per ordinary
share |
383.98p |
212.83p |
+80.4 |
– with income reinvested |
|
|
+92.9 |
|
-------- |
-------- |
-------- |
Ordinary share price
(mid-market) |
336.50p |
181.00p |
+85.9 |
– with income reinvested |
|
|
+100.6 |
|
-------- |
-------- |
-------- |
Euromoney Global Mining Index |
496.61 |
255.94 |
+94.0 |
Discount to net asset value |
12.4% |
15.0% |
|
|
======== |
======== |
======== |
|
For the year ended
31 December
2016 |
For the year ended
31 December
2015 |
Change
% |
Revenue |
|
|
|
Net revenue return after taxation
(£’000) |
23,303 |
32,744 |
-28.8 |
Revenue return per ordinary
share |
13.19p |
18.47p |
-28.6 |
Dividend per ordinary share |
|
|
|
– Interim |
4.00p |
7.00p |
-42.9 |
– Final |
9.00p |
14.00p |
-35.7 |
|
-------- |
-------- |
-------- |
Total dividends paid and
payable |
13.00p |
21.00p |
-38.1 |
|
======== |
======== |
======== |
Chairman’s statement
OVERVIEW
In 2016 we witnessed a dramatic turnaround in the mining sector.
After five challenging years, a result of slowing growth in
China and falling prices, the
cycle began to turn. This was driven by two key factors. The first
was that bearishness on China
troughed in early 2016 and the Chinese government’s stimulus
package in spring of that year led to improved economic data points
and increased property prices. Second, mining companies are
delivering strong financial discipline by focusing on cost
reduction, reducing debt and increasing productivity. Share prices
of mining companies, whose revenues are derived in US dollars, have
also benefited from the weakness in sterling following the UK’s
referendum vote on 23 June 2016.
PERFORMANCE
Over the twelve months to 31 December
2016, the Company’s net asset value (NAV) per share has
risen by 92.9% and the share price by 100.6%. The Company’s
benchmark, the Euromoney Global Mining Index, rose by 94.0% over
the same period (all percentages calculated in sterling terms with
income reinvested).
Notwithstanding the huge positive return, the NAV of the
portfolio slightly lagged the rally in the equity only benchmark
whilst the share price outpaced it. The lost relative return was
mainly due to avoiding poor quality, distressed gold mining
equities in the portfolio in the first two months of the year.
These rallied in response to increased investor demand for
'safe-haven' assets at a time of heightened concerns over global
economic growth. Further information on commodity markets and key
contributors and detractors to portfolio performance are set out in
the Investment Manager’s Report.
Since the year end and up until the close of business on
22 February 2017, the Company’s NAV
has increased by 15.4% compared with a rise of 14.5% in the
benchmark index.
REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the year to
31 December 2016 amounted to 13.19p compared with 18.47p for
the previous year. As reported at the interim stage, falling
commodity prices forced a number of the underlying portfolio
companies to cut or cancel dividends, leading to a decline in the
Company’s investment income.
The Directors are recommending the payment of a final dividend
of 9.00p per share for the year ended 31
December 2016 (2015: 14.00p). This, together with the
interim dividend of 4.00p per share (2015: 7.00p), makes a total of
13.00p per share (2015: 21.00p). The final payment will be made on
12 May 2017 to shareholders on the
Company’s register on 17 March 2017,
the ex-dividend date being 16 March
2017.
We mentioned in the half yearly financial report that the Board
would be increasing the frequency of dividend payments from twice
to four times a year. It is intended that dividends will be
announced in February, May, August and November and are expected to
be paid no later than May, June, September and December in each
relevant year. The Company will declare its first interim dividend
in May 2017 to be paid no later than
June 2017.
It remains the Board’s intention to seek to distribute
substantially all of the income available. Income from ordinary
dividends is expected to grow in 2017 as mining companies increase
or reinstate dividend payments on the back of improved
profitability and reduced balance sheet concerns. The Board’s
current target is to declare three dividends of at least 3.00p per
share in the year to 31 December 2017
and to recommend a final dividend for approval by shareholders at
the Annual General Meeting in 2018. The ability to match or exceed
this target will depend on portfolio dividend distributions,
currency movements, royalty payments and income from option writing
and should not be interpreted as a profit forecast.
In the Interim Report we highlighted our belief that the sector
had bottomed and it was therefore timely to increase exposure to
longer term and hopefully higher growth opportunities. During the
year a number of such investments were made and I am pleased to
report that they are already delivering positive returns for
shareholders. In the short term, the emphasis from these
investments will be for capital rather than income growth.
DISCOUNT
The discount of the Company’s share price to the underlying NAV
finished the year under review at 12.4% on a cum income basis
having stood at 15.0% at the start of the year. The shares were
trading at a discount of 11.3% as at the close of business on
22 February 2017.
The Directors recognise the importance to shareholders that the
market price of the Company’s shares in the stock market should not
trade at a significant discount to the underlying NAV. The decision
as to whether to purchase the Company’s shares is addressed
regularly in Board discussions and, during the year under review,
the Company repurchased 832,000 ordinary shares at an average price
of 226.99p and at an average discount to NAV of 14.5% at a cost of
£1,882,000 including expenses. These shares have been placed in
treasury. The Board will continue to consider whether share
purchases should be made and is proposing that the Company’s
existing authority to buy back up to 14.99% of the Company’s issued
share capital, excluding treasury shares, be renewed at the
forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at the
offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Thursday, 4 May 2017 at 11.30
a.m. Details of the business of the meeting are set out in
the Notice of Meeting on pages 85 to 88 of the Annual Report and
Financial Statements. The meeting will include a presentation by
the Portfolio Managers on the Company’s performance and the outlook
for the year ahead.
This year, for the first time, shareholders who are unable to
attend in person will be able to watch the meeting via a live
stream. Further details of how to register for this are given on
page 79 of the Annual Report and Financial Statements.
OUTLOOK
The outlook for the mining sector improved significantly over
the year under review and remains largely positive for the longer
term. Industry-wide trends toward increased free cash flow, upward
earnings momentum and the potential to return excess capital to
shareholders will aid mining stocks, although it is unlikely that
we will see the same percentage increase in underlying share
prices this year given that prices started 2017 significantly
higher than they did in 2016.
There are some risks hanging over the market, including US
dollar strength, the threat of new supply, rising oil prices adding
to costs, and a depreciation in China’s currency. However, global
growth expectations appear to be picking up after an extended
slide, encouraged by China’s stabilising growth and President
Trump’s pledge to revise taxes and increase infrastructure spending
in the US, which should support commodity demand. Overall,
companies in the mining sector have stronger fundamentals than a
year ago and the outlook appears promising.
Ian Cockerill
Chairman
23 February 2017
Strategic report
The Directors present the Strategic Report of the Company for
the year ended 31 December 2016.
PRINCIPAL ACTIVITY
The Company carries on business as an investment trust. Its
principal activity is portfolio investment and that of its
subsidiary, BlackRock World Mining Investment Company Limited
(together the Group), is investment dealing.
OBJECTIVE
The Company’s objective is to maximise total returns to
shareholders through a worldwide portfolio of mining and metal
securities. The Board recognises the importance of dividends to
shareholders in achieving that objective, in addition to capital
returns.
STRATEGY, BUSINESS MODEL AND
INVESTMENT POLICY
Strategy
The Company invests in accordance with the objective given
above. The Board is collectively responsible to shareholders for
the long term success of the Company and is its governing body.
There is a clear division of responsibility between the Board and
the Manager. Matters for the Board include setting the Company’s
strategy, including its investment objective and policy, setting
limits on gearing (both bank borrowings and the effect of
derivatives), capital structure, governance and appointing and
monitoring of the performance of service providers, including the
Manager.
Business model
The Company’s business model follows that of an externally
managed investment trust. Therefore the Company does not have any
employees and outsources its activities to third party service
providers including the Manager who is the principal service
provider. In accordance with the Alternative Investment Fund
Managers' Directive (AIFMD) the Company is an Alternative
Investment Fund (AIF). BlackRock Fund Managers Limited (the
Manager) is the Company’s Alternative Investment Fund Manager.
The management of the investment portfolio and the
administration of the Company have been contractually delegated to
the Manager who in turn (with the permission of the Company) has
delegated certain investment management and other ancillary
services to BlackRock Investment Management (UK) Limited (the
Investment Manager or BIM (UK)). The
Manager, operating under an investment management agreement, has
direct responsibility for the decisions relating to the day-to-day
running of the Company and is accountable to the Board for the
investment, financial and operating performance of the Company.
Other service providers include the Depositary, BNY Mellon Trust
& Depositary (UK) Limited. The Manager also delegates fund
accounting services to BIM (UK),
which in turn sub-delegates these services to Bank of New York
Mellon (International) Limited and also sub-delegates registration
services to the Registrar, Computershare Investor Services PLC.
Details of the contractual terms with other third party service
providers are set out in the Directors’ Report on page 27 of the
Annual Report and Financial Statements.
Investment policy
The Company’s investment policy is to provide a diversified
investment in mining and metal securities worldwide. While the
policy is to invest principally in quoted securities, the Company’s
investment policy includes investing in royalties derived from the
production of metals and minerals as well as physical metals.
In order to achieve its objective, it is intended that the Group
will normally be fully invested, which means at least 90% of the
gross assets of the Company and its subsidiary will be invested in
stocks, shares, royalties and physical metals. However, if such
investments are deemed to be overvalued, or if the Manager finds it
difficult to identify attractively priced opportunities for
investment, then up to 25% of the Group’s assets may be held in
cash or cash equivalents. Risk is spread by investing in a number
of holdings, many of which themselves are diversified
businesses.
The Group may occasionally utilise derivative instruments such
as options, futures and contracts for difference, if it is deemed
that these will, at a particular time or for a particular period,
enhance the performance of the Group in the pursuit of its
objectives. The Company is also permitted to enter into stock
lending arrangements.
The Group may invest in any single holding, of quoted or
unquoted investments, that would represent up to 20% of gross
assets at the time of acquisition. Although investments are
principally in companies listed on recognised stock exchanges, the
Company may invest up to 20% of the Group’s gross assets in
investments other than quoted securities. Such investments include
unquoted royalties, equities or bonds. In order to afford the
Company the flexibility of obtaining exposure to metal and mining
related royalties, it is possible that, in order to diversify risk,
all or part of such exposure may be obtained directly or indirectly
through a holding company, a fund or another investment or special
purpose vehicle, which may be quoted or unquoted. The Board will
seek the prior approval of shareholders to any unquoted investment
in a single company, fund or special purpose vehicle or any single
royalty which represents more than 10% of the Group’s assets at the
time of acquisition.
In addition, while the Company may hold shares in other listed
investment companies (including investment trusts), the Company
will not invest more than 15% of the Group’s gross assets in other
UK listed investment companies.
The Group’s financial statements are maintained in sterling.
Although many investments are denominated and quoted in currencies
other than sterling, the Board does not intend to employ a hedging
strategy against fluctuations in exchange rates.
The Investment Manager believes that tactical use of gearing can
add value from time to time. This gearing is typically in the form
of an overdraft or short term loan facility, which can be repaid at
any time or matched by cash. The level and benefit of gearing is
discussed and agreed with the Board regularly. The Company may
borrow up to 25% of the Group’s net assets. The maximum level of
gearing used during the year was 16.0% and, at the financial
reporting date, net gearing (calculated as borrowings less cash as
a percentage of net assets) stood at 12.4% of shareholders’ funds
(2015: 12.2%). For further details on borrowings refer to note
6.
No material change will be made to the investment policy without
shareholder approval.
PORTFOLIO ANALYSIS
As at 31 December 2016, two
investments were held at Directors’ valuation, including one fair
valued investment in the Banro gold-linked preference share
representing a total of £13,633,000 (2015: £10,572,000) and the
unquoted investment in Avanco Resources representing £19,917,000
(2015: £8,142,000). Unquoted investments can prove to be more risky
than listed investments.
Information regarding the Company’s investment exposures is
contained within the ten largest investments, the investments
listing, and portfolio analysis. Further information regarding
investment risk and activity throughout the year can be found in
the Investment Manager’s Report.
DIVERSIFYING SOURCES OF INCOME
2014 Revenue Breakdown
Ordinary Dividends |
55.9% |
Special Dividends |
7.9% |
Fixed Interest |
16.2% |
Option Premium Income |
17.5% |
Royalty Income |
1.0% |
Other |
1.0% |
2015 Revenue Breakdown
Ordinary Dividends |
61.9% |
Special Dividends |
0.2% |
Fixed Interest |
15.8% |
Option Premium Income |
22.1% |
Royalty Income |
0.0% |
Other |
0.0% |
2016 Revenue Breakdown
Ordinary Dividends |
47.6% |
Special Dividends |
3.6% |
Fixed Interest |
20.8% |
Option Premium Income |
22.2% |
Royalty Income |
5.5% |
Other |
0.3% |
CONTINUATION VOTE
As agreed by shareholders in 1998, an ordinary resolution for
the continuation of the Company is proposed at each Annual General
Meeting. Following market weakness in the mining sector in recent
years, January 2016 appears to have
been the low point in the cycle given the scale of upwards moves
that followed. The industry has taken action to return commodities
into balance and the sector has responded positively. The Directors
therefore recommend that shareholders vote in support of the
Company’s continuation.
PERFORMANCE
In the year to 31 December 2016,
the Company’s NAV has risen by 92.9% compared with an increase in
the Euromoney Global Mining Index of 94.0%. The Company’s share
price rose by 100.6% over the same period (all figures calculated
in sterling terms with income reinvested).
RESULTS AND DIVIDENDS
The results for the Company are set out in the Consolidated
Statement of Comprehensive Income. The total profit for the year,
after taxation, was £333,912,000 (2015: loss of £210,131,000) of
which £23,303,000 (2015: £32,744,000) is revenue profit.
It is the Board’s intention to distribute substantially all of
the available income. The Directors recommend the payment of a
final dividend as set out in the Chairman’s Statement. Dividend
payments for the year ended 31 December
2016 (including the interim dividend) amount to £22,939,000
(2015: £37,230,000).
KEY PERFORMANCE INDICATORS
The Board measures the development and success of the Company’s
business through achievement of the Company’s investment objective,
to maximise total returns through the cycle, which is considered to
be the most significant key performance indicator for the
Company.
Performance measured against various indices
The Board reviews and compares, at each meeting, the performance
of the portfolio as well as the net asset value and share price for
the Company and various indices. Information on the Company’s
performance is given in the Chairman’s Statement and the Investment
Manager’s Report. The Company slightly underperformed its benchmark
index in the year ended 31 December
2016 but the Board is encouraged by the Company’s
performance in recent months.
Share price discount to net asset value (NAV) per share
The Company publishes a NAV per share figure on a daily basis
through the official newswire of the London Stock Exchange. This
figure is calculated in accordance with the Association of
Investment Companies (AIC) formula. At each Board meeting, the
Board monitors the level of the Company’s discount to NAV and
reviews the average discount/premium for the Company’s relevant
sector. In the year to 31 December
2016, the discount narrowed from 15.0% on a cum income basis
to 12.4%.
The Board considers the use of share buybacks to enhance
shareholder value. At its regular meetings, it also undertakes
reviews of marketing/investor relations and sales reports from the
Manager and considers their effectiveness, as well as measures of
investor sentiment.
Ongoing charges
The Board continues to review the Company’s ongoing charges to
ensure that the total costs incurred by shareholders in the running
of the Company remain competitive when measured against peer group
funds. An analysis of the Company’s costs, including the management
fee, Directors’ fees and general expenses, is submitted to each
Board meeting. The management fee is reviewed at least
annually.
The key performance indicators (KPIs) used to measure the
progress and performance of the Company over time and which are
comparable to those reported by other investment trusts are set out
below:
|
Year ended
31 December
2016 |
Year ended
31 December
2015 |
Net asset value total return |
+92.9% |
-35.3% |
Share price total return |
+100.6% |
-37.0% |
Benchmark total return |
+94.0% |
-36.9% |
Discount to net asset value |
12.4% |
15.0% |
Revenue earnings per share |
13.19p |
18.47p |
Total dividends per share |
13.00p |
21.00p |
Ongoing charges1 |
1.10% |
1.21% |
Ongoing charges on gross
assets2 |
0.96% |
1.08% |
1. Ongoing charges represent the management fee and
all other operating expenses, excluding finance costs, transaction
costs and taxation, as a % of average shareholders’ funds.
2. Ongoing charges based on gross assets represent
the management fee and all other operating expenses, excluding
finance costs, transaction costs and taxation, as a % of average
gross assets. Gross assets are calculated based on net assets
during the year before the deduction of the bank overdraft and
loans. Ongoing charges based on gross assets are considered to be
an appropriate performance measure as management fees are payable
on gross assets only in the event of an increase in NAV on a
quarter-on-quarter basis.
The Board monitors the above KPIs on a regular basis.
Additionally, it regularly reviews a number of indices and ratios
to understand the impact on the Company’s relative performance of
the various components such as asset allocation and stock
selection. For further details refer to the Investment Manager’s
Report.
PRINCIPAL RISKS
The principal risks faced by the Company are set out below. The
Board has put in place a robust process to assess and monitor these
risks. A core element of this is the Company’s risk register. This
identifies the risks facing the Company and assesses the likelihood
and potential impact of each risk and the quality of controls
operating to mitigate it. A residual risk rating is then calculated
for each risk based on the outcome of the assessment. This approach
allows the effect of any mitigating procedures to be reflected in
the final assessment.
The risk register and the operation of key controls in the
Manager’s and other third party service providers’ systems of
internal control, are reviewed on a regular basis by the Audit
& Management Engagement Committee. In order to gain a more
comprehensive understanding of the Manager’s and other third party
service providers’ risk management processes and how these apply to
the Company’s business, the Audit & Management Engagement
Committee periodically receives presentations from BlackRock’s
Internal Audit and Risk & Quantitative Analysis teams and
reviews internal control reports from the Company’s service
providers.
In relation to the 2014 UK Corporate Governance Code, the Board
is comfortable that the procedures that the Company has put in
place are sufficient to ensure that the necessary monitoring of
risks and controls has been carried out throughout the reporting
period. The Board will continue to assess the principal risks
facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity, on an
ongoing basis.
The principal risks and uncertainties faced by the Company
during the financial year, together with the potential effects,
controls and mitigating factors, are set out in the following
table.
Principal Risk
|
Mitigation/Control
|
Counterparty |
|
The potential loss that the Company
could incur if a counterparty is unable (or unwilling) to perform
on its commitments.
|
Due diligence is
undertaken before contracts are entered into and exposures are
diversified across a number of counterparties.
The Depositary is now liable for restitution for the loss of
financial instruments held in custody unless able to demonstrate
the loss was a result of an event beyond its reasonable
control. |
Investment performance |
|
Returns achieved are
reliant primarily upon the performance of the portfolio.
An inappropriate investment policy may lead to underperformance
compared to the benchmark index, a loss of capital and dissatisfied
shareholders. |
To manage this risk the
Board:
- regularly reviews the Company’s investment mandate and long
term strategy;
- has set investment restrictions and guidelines which the
Investment Manager monitors and regularly reports on;
- receives from the Investment Manager a regular explanation
of stock selection decisions, portfolio exposure, gearing and any
changes in gearing and the rationale for the composition of the
investment portfolio;
- monitors and maintains an adequate spread of investments in
order to minimise the risks associated with particular countries or
factors specific to particular sectors, based on the
diversification requirements inherent in the investment policy;
- receives and reviews regular reports showing an analysis of
the Company’s performance against the Euromoney Global Mining Index
and other similar indices, including the performance of major
companies in the sector; and
- has been assured that the Investment Manager has training
and development programmes in place for its employees and its
recruitment and remuneration packages are developed in order to
retain key staff. |
Legal & Compliance |
|
The Company has been
accepted by HM Revenue & Customs as an investment trust,
subject to continuing to meet the relevant eligibility conditions,
and operates as an investment trust in accordance with Chapter 4 of
Part 24 of the Corporation Tax Act 2010. As such, the Company is
exempt from capital gains tax on the profits realised from the sale
of its investments.
Any breach of the relevant eligibility conditions could lead to the
Company losing investment trust status and being subject to
corporation tax on capital gains realised within the Company’s
portfolio.
Any serious breach could result in the Company and/or the Directors
being fined or the subject of criminal proceedings or the
suspension of the Company’s shares which would in turn lead to a
breach of the Corporation Tax Act 2010.
The Company is required to comply with the provisions of the
Companies Act 2006, the Alternative Investment Fund Managers’
Directive, the UK Listing Rules, Disclosure and Transparency Rules
and the Market Abuse Regulation. |
The Investment Manager
monitors investment movements, the level and type of forecast
income and expenditure and the amount of proposed dividends to
ensure that the provisions of Chapter 4 of Part 24 of the
Corporation Tax Act 2010 are not breached. The results are reported
to the Board at each meeting. Compliance with the accounting rules
affecting investment trusts are also carefully and regularly
monitored.
The Company Secretary, the Manager and the Company’s professional
advisers provide regular reports to the Board in respect of
compliance with all applicable rules and regulation. The Board and
the Manager also monitor changes in government policy and
legislation which may have an impact on the Company. |
Market |
|
Market risk arises from
volatility in the prices of the Company’s investments. It
represents the potential loss the Company might suffer through
realising investments in the face of negative market movements.
Changes in general economic and market conditions, such as currency
exchange rates, interest rates, rates of inflation, industry
conditions, tax laws, political events and trends, including the
impact of the UK leaving the EU and the results of the US
Presidential election, can also substantially and adversely affect
the securities and, as a consequence, the Company’s prospects and
share price. |
The Board considers the
diversification of the portfolio, asset allocation, stock selection
and levels of gearing on a regular basis and has set investment
restrictions and guidelines which are monitored and reported on by
the Investment Manager. The Board monitors the implementation and
results of the investment process with the Investment Manager. |
Operational |
|
In common with most
other investment trust companies, the Company has no employees. The
Company therefore relies on the services provided by third parties
and is dependent on the control systems of the Manager, BNY Mellon
Trust & Depositary (UK) Limited (the Depositary) and the Bank
of New York Mellon (International) Limited, who maintain the
Company’s assets, dealing procedures and accounting records. The
security of the Company’s assets, dealing procedures, accounting
records and adherence to regulatory and legal requirements depend
on the effective operation of the systems of these third party
service providers.
Failure by any service provider to carry out its obligations could
have a material adverse effect on the Company’s performance.
Disruption to the accounting, payment systems or custody records
(including cybersecurity risk) could prevent the accurate reporting
and monitoring of the Company’s financial position. |
Due diligence is
undertaken before contracts are entered into with third party
service providers. Thereafter, the performance of the provider is
subject to regular review and reported to the Board.
Third party service providers produce internal control reports to
provide assurance regarding the effective operation of internal
controls as reported on by their reporting accountants. These
reports are provided to the Audit & Management Engagement
Committee.
The Company’s assets are subject to a strict liability regime and,
in the event of a loss of assets, the Depositary must return assets
of an identical type or the corresponding amount, unless able to
demonstrate the loss was a result of an event beyond its reasonable
control.
The Board reviews the overall performance of the Manager,
Investment Manager and all other third party service providers on a
regular basis and compliance with the investment management
agreement annually.
The Board also considers the business continuity arrangements of
the Company’s key service providers. |
Financial |
|
The Company’s investment activities
expose it to a variety of financial risks which include market
risk, counterparty credit risk, liquidity risk and the valuation of
financial instruments. |
Details of these risks are disclosed
in note 18 on pages 64 to 76 of the Annual Report and Financial
Statements, together with a summary of the policies for managing
these risks. |
Marketing |
|
Marketing efforts are inadequate or
do not comply with relevant regulatory requirements. There is a
failure to communicate adequately with shareholders or identify
potential new shareholders resulting in reduced demand for the
Company’s shares and a widening of the discount. |
The Board reviews
marketing strategy and initiatives and the Manager is required to
provide regular updates on progress. BlackRock has a dedicated
investment trust sales team visiting both existing and potential
clients on a regular basis. Data on client meetings and issues
raised are provided to the Board on a regular basis.
All investment trust marketing documents are subject to appropriate
review and authorisation. |
VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate
Governance Code, the Directors have assessed the prospects of the
Company for a period of three years. This is generally the
investment holding period investors consider while investing in the
natural resources companies sector. In its assessment of the
viability of the Company the Directors have noted that:
- the Company invests predominantly in highly liquid,
large listed companies so its assets are readily realisable and
provide a level of cash receipts in the form of interest and
dividends;
- the Company invests in mining companies with long life
assets;
- the Company’s forecasts for revenues, expenses and
liabilities are relatively stable and it has largely fixed
overheads which comprise a very small percentage of net assets
(1.10%); and
- the business model should remain attractive for much
longer than three years, unless there is a significant
deterioration in commodity markets or further regulatory
change.
The Company will undertake its annual continuation vote at the
forthcoming Annual General Meeting and the Board has reviewed the
potential impact that this may have on the Company’s viability. The
Board is confident that the continuation vote will be passed and
have prepared the viability statement under this assumption.
The Directors have also reviewed:
- the Company’s principal risks and uncertainties as set
out above;
- the potential impact of a fall in commodity equity
markets on the value of the Company’s investment portfolio and
underlying dividend income;
- the ongoing relevance of the Company’s investment
objective, business model and investment policy; and
- the level of demand for the Company’s shares.
The Directors reviewed the assumptions and considerations
underpinning the Company’s existing going concern assertion which
are based on:
- processes for monitoring costs;
- key financial ratios;
- evaluation of risk management controls;
- compliance with the investment objective;
- portfolio risk profile;
- share price discount to NAV;
- gearing; and
- counterparty exposure and liquidity risk.
Based on the results of their analysis, the Directors have
concluded that there is a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the period of their assessment.
FUTURE PROSPECTS
The Board’s main focus is to maximise total returns over the
longer term through investment in mining and metal assets. The
outlook for the Company is discussed in both the Chairman’s
Statement and the Investment Manager’s Report.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust with no employees, the Company has no
direct social or community responsibilities or impact on the
environment. However, the Company believes that it is in
shareholders’ interests to consider human rights issues and
environmental, social and governance factors when selecting and
retaining investments. Details of the Company’s policy on socially
responsible investment are set out on page 37 of the Annual Report
and Financial Statements.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or
services in the normal course of business, and does not have
customers. Accordingly, the Directors consider that the Company is
not required to make any slavery or human trafficking statement
under the Modern Slavery Act 2015. In any event, the Board
considers the Company’s supply chains, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in relation to this matter.
DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 31
December 2016 are set out in the governance structure and
Directors’ biographies on page 25 of the Annual Report and
Financial Statements. The Board currently consists of four male
Directors and two female Directors. The Company does not have any
employees; therefore there are no disclosures to be made in that
respect.
The information set out on pages 13 to 24 of the Annual Report
and Financial Statements forms part of this Strategic Report. The
Strategic Report was approved by the Board at its meeting on
23 February 2017.
By order of the Board
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BlackRock Investment Management (UK) Limited
Company Secretary
23 February 2017
Transactions with the AIFM and the
Investment Manager
BlackRock Fund Managers Limited (BFM) was appointed as the
Company’s Alternative Investment Fund Manager (AIFM) with effect
from 2 July 2014. BlackRock
Investment Management (UK) Limited (BIM
(UK)) continues to act as the Company’s Investment Manager
under a delegation agreement with BFM.
The investment management fee due to BFM for the year ended
31 December 2016 amounted to
£5,027,000 (2015: £5,312,000). At the year end, £1,532,000 (2015:
£1,952,000) was outstanding in respect of the management fees.
In addition to the above services, BlackRock has provided
marketing services. The total fees paid or payable for these
services for the year ended 31 December
2016 amounted to £104,000 excluding VAT (2015: £17,000
excluding VAT). Marketing fees of £94,000 were outstanding as at
31 December 2016
(2015: £143,000).
Related Party Transactions
The Board consists of six 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 £45,000, the Chairman of the Audit &
Management Engagement Committee/Senior Independent Director
receives an annual fee of £37,500, and each other Director receives
an annual fee of £30,000. All six members of the Board hold shares
in the Company. Mr Buchan holds 29,000 ordinary shares, Mr Cheyne
24,000 ordinary shares, Mr Cockerill 36,789 ordinary shares, Mr
Edey 20,000 ordinary shares, Ms Mosely 7,400 ordinary shares and Ms
Lewis 2,429 ordinary shares. The amount of Directors’ fees
outstanding at 31 December 2016 was
£16,875 (2015: £19,375).
Statement of directors’
responsibilities in respect of the Annual Report and Financial
Statements
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law, the
Directors are required to prepare the financial statements under
IFRS as adopted by the European Union.
Under Company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group for that period. In preparing these
financial statements, the Directors are required to:
- present fairly the financial position, financial
performance and cash flows of the Group and Company;
- select suitable accounting policies in accordance with
IAS 8: Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- make judgements and estimates that are reasonable and
prudent;
- state whether the financial statements have been
prepared in accordance with IFRS as adopted by the European Union,
subject to any material departures disclosed and explained in the
financial statements;
- provide additional disclosures when compliance with the
specific requirements in IFRS as adopted by the European Union is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group and
Company’s financial position and financial performance; and
- prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group and
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic
Report, Directors’ Report, the Directors’ Remuneration Report, the
Corporate Governance Statement and the Report of the Audit &
Management Engagement Committee in accordance with the Companies
Act 2006 and applicable regulations, including the requirements of
the Listing Rules and the Disclosure and Transparency Rules. The
Directors have delegated responsibility to the Manager for the
maintenance and integrity of the Company’s corporate and financial
information included on the BlackRock website. Legislation in the
United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Each of the Directors confirm to the best of their knowledge
that:
- the financial statements, which have been prepared in
accordance with IFRS as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial positon and net
return of the Group and Company; and
- the Strategic Report contained in the Annual Report and
Financial Statements includes a fair review of the development and
performance of the business and the positon of the Group and
Company, together with a description of the principal risks and
uncertainties that it faces.
The 2014 UK Corporate Governance Code also requires Directors to
ensure that the Annual Report and Financial Statements are fair,
balanced and understandable. In order to reach a conclusion on this
matter, the Board has requested that the Audit & Management
Engagement Committee advise on whether it considers that the Annual
Report and Financial Statements fulfil these requirements. The
process by which the Committee has reached these conclusions is set
out in the Audit & Management Engagement Committee’s Report on
pages 38 to 41 of the Annual Report and Financial Statements. As a
result, the Board has concluded that the Annual Report and
Financial Statements for the year ended 31
December 2016, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Group’s and Company’s position,
performance, business model and strategy.
For and on behalf of the Board
Ian Cockerill
Chairman
23 February 2017
Investment manager’s report
Portfolio performance
We are pleased to report that after five years in a row of
negative returns for the mining sector, an unprecedented run of
share price falls leading to a total fall of 82.8% from peak to
trough, 2016 has at last broken the trend and it has done so in
spectacular fashion. In the year to 31
December 2016, in sterling terms with income reinvested, the
net asset value (NAV) of the Company was up by 92.9% and the share
price was up by 100.6%, making it one of the best performing
investment trusts. The return in the second half lagged the first
half in part due to the low base from which the move commenced and
also due to the Brexit fuelled collapse in sterling which happened
at the end of June. More recently, it has been reassuring to see
the share price moves supported by rising commodity prices across
the suite. As covered later in the report, the performance varied
by commodity and by period. Precious metals led the rally early in
2016 but then gave back some of the gains, initially on the back of
profit taking and then on a further move lower in the gold price
following the US Presidential election result. Base metal prices
moved higher throughout the year, with copper joining in as the
year ended. Bulk commodity prices soared with coking coal rising
like a phoenix from the ashes after having declined for four years
in a row.
By comparison, the Company’s benchmark, the Euromoney Global
Mining Index, rose by 94.0% (in sterling terms with income
reinvested). The majority of the Company’s underperformance in NAV
happened in the first two months of 2016, as the lowest quality
assets rallied and those with the highest indebtedness moved from
the cusp of financial failure to survival. These huge moves
happened very rapidly and against the underlying tone of the
commodity market which was still suffering from demand uncertainty.
After the slow start to the year in terms of relative return, the
portfolio started to perform well as the quality bias in the
portfolio delivered in the second half of the year.
Lastly, on income, our worst fears look like being short lived
as the Company received more than expected in dividends and, at
this stage, the outlook for 2017 appears more robust than expected
at this time last year.
Mining sector overview
The last few years have been difficult to work through due to
the constant derating of equity valuations, declining commodity
prices and companies unravelling numerous poor quality investments
made during more optimistic times. The debt that was taken on to
fund either M&A activity or unwise capital spending damaged the
credibility of the sector and destroyed the stunning returns
generated during the previous decade. In the Interim Report we
bravely suggested that we were past the worst and in years to come
investors will point to January 2016
as the low point in the cycle. Given the scale of upwards moves
that followed, it now seems highly likely that this will prove to
be the case.
In the early part of the year the rally in share prices seemed
to be more to do with investors taking profits on short positions
that were put on as the shares were falling. In fact, the peak in
‘short interest’ across the sector was in the first quarter of 2016
and the buying needed to close this out supported prices without
commodity prices rallying to justify the upwards moves. As the year
progressed, commodities, first led by precious metals and then
followed by iron ore, coking coal, and zinc, started to support
valuations. What had been years in a row of a vicious circle
started to unwind and the pressure to close shorts/underweights
built as company profitability increased. Companies whose balance
sheets were seen as a negative quickly became the go-to-stocks due
to the upside leverage from debt reduction. By the end of the
summer, the five year vicious circle was well and truly broken.
Over the year, companies did a range of transactions to help
deleverage balance sheets. Assets were sold, costs were cut,
capital spending plans were shelved and, for the most, vulnerable
dividends were suspended. 2016 turned out to be the lowest year
since 2003 for M&A activity with only US$28 billion of deals conducted. In short,
management tried everything to stop the rot of debt eating further
into the equity value of their businesses. These efforts steadied
the ship and shareholders should be thankful that so many companies
have survived what was one of the worst periods of share price
volatility ever seen in the sector.
Outside of the self-help actions taken by the companies, the
demand side of the equation was assisted by an injection of
liquidity into the Chinese economy. This boosted sentiment and
helped buoy confidence allowing property prices to recover and
business activity to increase. Soon, steel prices started to rise
leading to increases in iron ore and other steel-making raw
materials. In the summer, the world faced the uncertainty of the
Brexit vote and this caused a severe fall in sterling which has
been a significant help to the valuation of companies whose
earnings are based in US dollars. In fact, the potential for the UK
listed mining sector to be seen as the driver of income growth in
2017, and beyond, is very real due to rising profitability and US
dollar based dividends being magnified by the depreciation in
sterling.
During the second half of the year, investor confidence started
to build on the back of reduced fears on China and commodity markets moving from being
in surplus to being in deficit. Better than expected demand
accelerated inventory depletion rates and brought forward the point
when commodities moved from being in surplus to being in deficit.
For example, it was notable in copper that the price only started
to move higher from October onwards and this caused copper equities
to lag the market for most of the year. We had been expecting this
process to happen naturally, but the events of the second half of
2015 masked what was building as a normal cycle bottom and raised
fears that things would never recover. Confidence in commodity
demand was boosted further with the US election result, as
expectations of a jump in business activity from the pro-growth
Trump agenda drove metal prices to highs for the year.
Base metals
Given the moves seen during the year it certainly feels like
2016 marked the bottom of the base metal price cycle. For the year
as a whole it was a clean sweep of upwards moves, as seen from the
table below, with zinc and tin leading the way. However, when
looked at using the average prices for 2016 versus the average
prices for 2015 it tells a different story. The momentum is clearly
positive as mentioned previously but for some of the metals the
moves were second half weighted as the year-on-year average prices
showed a negative rather than positive move. Copper prices were the
most impacted by the late move with the price only breaking out to
the upside in October. This meant that copper equities lagged the
overall move in the sector until very late into the year. Given the
significant weighting to copper producers in the Company (19.8% to
copper equities) it was a significant contributor to the relative
underperformance in the first half and there was only a partial
catch up towards the year end. However, the Company is well
positioned for 2017 as at current margins copper producers should
be the biggest beneficiaries for such a change year-on-year.
Selected commodity price changes during 2016
|
Price
31 December
2016 |
%
change
12
month |
% change
average
2016
vs.
2015 |
Precious metals US$/oz |
|
|
|
Silver |
16.05 |
15.9 |
9.13 |
Gold |
1,157.5 |
8.95 |
7.58 |
Platinum |
898 |
3.46 |
-6.23 |
|
|
|
|
Base metals US$/lb |
|
|
|
Tin |
9.62 |
45.33 |
11.71 |
Zinc |
1.16 |
60.59 |
8.34 |
Lead |
0.91 |
11.27 |
4.43 |
Aluminium |
0.77 |
13.58 |
-3.61 |
Copper |
2.51 |
17.37 |
-11.63 |
Nickel |
4.52 |
13.49 |
-19.02 |
|
|
|
|
Industrial commodities |
|
|
|
Coking Coal US$/t |
226 |
189.0 |
33.64 |
Thermal Coal US$/t Newcastle |
94.7 |
87.15 |
11.45 |
Iron Ore – fines 62% Fe China Import
US$/t |
81.8 |
89.35 |
4.65 |
Uranium US$/lb |
20.25 |
-40.88 |
-28.04 |
Lithium Carbonate CIF to China spot
99% US$/t |
17,887 |
-9.96 |
143.43 |
Baltic Freight Rate Index US$ |
961 |
101.05 |
-5.53 |
Sources: Datastream and Bloomberg.
The key copper holding in the Company is First Quantum where it
owns not just shares (3.3% in shares) but also has exposure to
First Quantum corporate bonds. The company is aiming to complete a
major debt refinance by mid-year using a project facility attached
to their Cobre de Panama asset.
This, combined with the ramp-up of expanded capacity in
Zambia, leaves the company ideally
positioned to deliver exposure to a deleveraging balance sheet,
production growth and copper exposure. Shares in First Quantum
rallied significantly during the year finishing up 217% in sterling
terms. First Quantum debt started the year trading at 63 cents in the dollar and finished the year
trading above par.
Another holding that offers similar exposure to both the ability
to deleverage its balance sheet and growth in production is
Cerro Verde (3.2% of the portfolio).
The company went through a major expansion during the last three
years and this has left the balance sheet weaker than its owners
would like. We expect the company to refinance its short term debt
in 2017 and then resume dividend payments in 2018. The Company also
has exposure to copper via a group of other holdings such as Lundin
(4.4% of the portfolio), Boliden (2.0% of the portfolio), Avanco
(1.3% in shares) and OZ Minerals (0.9% of the portfolio). Lundin is
in the process of completing the sale of its stake in the Tenke
mine in DRC and this could result in a material special dividend
during the second half of the year. Both Lundin and Boliden give
the Company exposure to mines producing zinc, nickel and copper,
all of which we feel have good potential for improved cash
generation this year. Lundin was up 106.7% and Boliden was up 85.4%
(both in sterling terms).
Like copper, nickel also started to rally in the second half of
the year. This was based on improved demand and the prospect of
further supply reductions on the back of mine closures in
Indonesia. The Company has
continued to maintain a material holding in Norilsk Nickel (4.5% of
the portfolio) due to its world class assets that deliver exposure
to nickel, copper and PGMs (platinum group metals). In addition,
the company continues to offer low cost growth optionality and a
sector leading dividend yield. Norilsk was a relative
underperformer in 2016, rising only 58.2%, with nearly all the
rally coming in the second half of the year.
Gold & precious metals
It was a year of two halves in the gold market as the price rose
25% in the first half of 2016 before handing back part of its gains
later in the year, with the majority of the fall happening after
the US Presidential election in November. For the year, the price
finished up 9% in US dollar terms after falling 12.4% in the second
half of the year. The first half rally was driven by a pick-up in
demand for ‘safe-haven’ assets as diversification properties came
to the fore on the back of equity market weakness, currency
volatility and rising geopolitical uncertainty. Global equity
markets suffered their worst start to a year since 2009 on
heightened concerns over global economic growth. Meanwhile, soft US
GDP data and dovish commentary from the US Federal Reserve pushed
out expectations for further US interest rate rises. In the end,
the US Federal Reserve did not raise rates in March as had been
expected and instead revised its rate projections down from four
hikes in 2016 to two. Central bank policy elsewhere in the world
remained supportive of gold; the Bank of Japan introduced negative interest rates on a
select portion of the banks’ reserves and Mario Draghi announced a further cut to interest
rates in Europe, as well as an
expansion of quantitative easing. At one point in the year, the
entire spread of bonds issued by the Swiss National Bank were
trading with negative yields.
From July onwards the gold market started to give back its gains
made during the first half. The post Brexit high of US$1,369 made in July was swiftly followed with
rising consumer confidence and reduced concerns regarding Chinese
growth. In addition, markets started to price-in an increased
probability that the US would raise rates and this cooled
enthusiasm for gold, as well as seeing the dollar strengthen
further. Political uncertainty continued with the US Presidential
election; November saw the unexpected victory of President
Donald Trump which dominated global
markets. Contrary to widely held expectations that this would be
supportive of gold, Trump’s acceptance speech saw global equity
markets rotating to a pro-growth position. The back end of the US
yield curve steepened significantly, increasing the opportunity
cost of holding gold, a non-yielding asset. The message from
markets following the US Presidential election appears to be that
the reflation trend is set to begin. On the back of this, US
10-year Treasury yields rose to over 2.5% in December, and the US
dollar strengthened as consumer confidence spiked to the highest
level seen since August 2001. Dollar
strength acted as a headwind for gold, as a more positive economic
outlook was fuelled by Trump’s pledged stimulus measures. However,
uncertainty regarding Trump’s administration, combined with wider
global economic and political uncertainty, means the appeal of
owning gold as a safe-haven asset remains high.
Turning to the physical market, key themes in 2016 were the
impact of government restrictions in both India and China. In November, the Indian government
decided to immediately withdraw the Rs
500 and Rs 1,000 notes which
account for 85% of notes in circulation as part of the government’s
plan to tackle corruption and tax evasion. They also introduced
measures to dampen the demand for physical gold including a 1%
excise duty on most gold purchases, as well as a compulsory
declaration to authorities of large retail gold purchases. In
China we also saw the government
restrict gold purchases as part of measures designed to prevent
capital outflows. As a result, gold in China was in short supply as evidenced by
premiums paid on the Shanghai Gold Exchange which set new five year
highs at over US$40/oz in December.
It was a good year for investment demand for gold with ETFs adding
12.8mil oz, taking total holdings to 58.2mil oz at the end of the
year.
The gold equities, as measured by the FTSE Gold Mines Index,
rose by 59.5% in US dollar terms (90.2% in sterling terms),
outperforming the industrial miners. Underweights to Barrick Gold and Newmont Mining (2.8% of the
portfolio) hurt relative performance in the first half of the year
as the rising gold price rapidly expanded both companies’ narrow
profit margins and bolstered balance sheets. On the positive side,
the Company benefited from the same dynamic through its position in
AngloGold. Cost deflation was also a theme in the gold miner space,
with ‘all-in sustaining costs’ of production declining with lower
consumables, energy and currencies. There was management change at
Goldcorp, with a new CEO David
Garofalo taking office during a time of both operational
problems at their Penasquito plant and labour issues at Cerro
Negro. The Company’s underweight to Goldcorp added to relative
performance. In the more junior part of the portfolio, performance
was helped by exposure to key growth names such as Northern Star
Resources (1.1% of the portfolio), OceanaGold (1.1% of the
portfolio), Metals Exploration (0.5% of the portfolio) and TMAC
Resources (0.4% of the portfolio). Following the price correction
in the second half, exposure to gold producers that have a strong
growth profile was increased further.
Elsewhere in the precious metals space, silver outperformed gold
this year rising 15.9%. Silver has many industrial uses and tends
to outperform in an accelerating global growth environment. The
Company’s position in Fresnillo
(1.9% of the portfolio) added to relative performance, as the stock
first outperformed in the wake of the Brexit vote and then on the
back of Trump related weakness in the Mexican peso which reduces
Fresnillo’s cost of production and improves cash flow generation.
This should boost the profitability of Industrias Penoles (1.0% of
the portfolio), the parent company of Fresnillo, which is also held in the
portfolio.
Total exposure to the diamond sector increased in 2016 and ended
the year at 4.7% of the portfolio through names like Petra Diamonds
(1.8% of the portfolio both equity and debt), Lucara Diamond (1.0%
of the portfolio) and Mountain Province Diamonds (1.3% of the
portfolio). With the US leading the global growth acceleration and
remaining the largest diamond market in the world, the outlook for
diamonds improved in the second half. These holdings are all likely
to deliver strong margins and growth in production during 2017,
leaving them well positioned to benefit from price increases that
might arise on the back of a better market for diamonds.
Bulk commodities
The reversal in prices for bulk commodities during 2016 was
spectacular. 2015 was the first decline in global demand for crude
steel since 2009 with a 3.5% contraction. This year crude steel
demand is estimated to have risen by a mere 0.5% but, given the low
inventories throughout the production pipeline, this reversal of
trend caused a rally in demand for steel making raw materials. Hard
coking coal prices, having fallen from a high back in January 2011 of US$380/t to a low of US$73/t in November
2015, soared in 2016. The rally started on the back of
changes to Chinese domestic coal production where the Government
restricted production to 276 days a year for coal producers in
April. Coking coal moved from its multi-year low of US$73/t in November
2015 to a high of US$309/t by
November 2016. The squeeze in supply
triggered aggressive restocking and, now that supply concerns have
eased, prices have started to correct back to US$186/t – still a massive 226% up based on where
they started the year.
The move higher in price resulted in huge windfalls for
producers and those with the weakest balance sheets benefited the
most due to their ability to use the cash to pay down debt and in
turn reduce the risk implied in their share prices. A key
beneficiary was Teck Resources (2.6% of the portfolio) whose debt
started the year trading at less than 50
cents in the dollar and finished the year above par. The
Company rebuilt its holding in the shares during the early part of
the year and this delivered strong gains to the portfolio, both on
a relative and absolute basis. Another key holding to benefit from
this rally was South32 (2.7% of the portfolio). The company not
only benefited from the rally in coking coal prices but also
thermal coal and manganese. The combination of all three of these
commodities moving higher should leave South32 in an excellent
position to return surplus cash to shareholders in 2017 and, if so,
it will be a key part of the growth in dividend income for the
coming year.
Iron ore prices also rallied strongly but not to the same extent
as that of coking coal. This was in part due to the improving
demand for steel and flow through from steel producers who were
able to raise prices around the world. The higher prices flowed
down to the iron ore producers who were at the same time showing
discipline with regards to production. In addition, there was also
a subtle shift in tone from the miners as they all seemed to reduce
volume targets and defer expansion plans. The combination of the
above allowed traders, principally domestic Chinese groups, to move
from being bearish to bullish and this caused a sudden and material
rise in prices. In January, iron ore for delivery to China was trading below US$40/t and by December it was trading above
US$80/t, a price not seen since
2014.
Given the move in prices, the leveraged companies were standout
performers during the year. The Company has exposure to iron ore
principally via the diversified mining companies such as Rio Tinto
(10.0% of the portfolio), BHP Billiton (8.2% of the portfolio) and
Vale (5.4% of the portfolio). Out of these three, Vale was the
biggest year-on-year change to the portfolio. Following a visit to
meet with management in Brazil
during April, and subsequent review of our models, we took the
decision to build a substantial position in Vale. The combination
of improving commodity prices, a high probability of successful
asset sales and management commitment to deleverage the balance
sheet meant that the shares could see a significant rerating. This
happened in the second half of the year and, given that the balance
sheet repair work is not completed, it is likely that there is
further for the shares to move as the company makes progress in
this regard.
One final point to make is the resilience in costs despite the
soaring commodity prices. Across the mining industry, producers
continue to reduce costs where possible and iron ore miners have
seen some of the steepest drops. The falls in costs have remained
in place during the year and, as such, the combination of the rapid
increase in prices and stability in costs has made the margin
expansion even more powerful allowing companies to generate cash at
levels well ahead of estimates.
Industrial metals
After an extremely strong 2015 in which the Chinese lithium
carbonate price rose 162%, 2016 saw the price give back some of
these gains with a 10% fall. However, demand continued to grow
dramatically with batteries the most prominent and visible growth
driver, with current estimates showing there was +30% growth in
demand for lithium in 2016. During the year, the Company has
maintained its exposure to the area with a position in Albermarle
(1.4% of the portfolio), the world’s largest lithium producer, and
initiated several positions in emerging producers. Exposure to the
developers and emerging producers is part of a general strategy to
add exposure to this high growth part of the mining market.
Another key area within this sector is mineral sands. These
commodities benefit when global growth improves due to their
principal use in the construction industry. The reversal of falls
in the Chinese property sector, combined with better economic data
in the US and other developed nations, has led to a reduction in
inventories at the same time as producers have idled capacity. The
Company has maintained its holding in Iluka Resources (1.7% of the
portfolio), an Australian zircon and rutile producer, whichhas
recently used its strong balance sheet to consolidate an African
based producer of rutile at what looks to be the bottom of the
cycle. The Company also has exposure to a junior developer called
Sheffield Resources (0.2% of the portfolio) which is advancing the
high grade Thunderbird deposit in Western
Australia.
Longer term investments
In the Interim Report we outlined our belief that the sector had
bottomed in January and that at this point in the cycle it made
sense to increase exposure to smaller companies with projects at an
earlier stage of development. Investing in these stocks
is higher risk and reduces exposure to dividend bearing
companies, but offsetting this is the potential for significant
returns on capital. Over the year we invested in companies meeting
these criteria including Nemaska Lithium (0.2% of the portfolio),
Orocobre Minerals (0.1% of the portfolio), TMAC Resources (0.4% of
the portfolio), Sheffield Resources (0.2% of the portfolio), Silver
Mines (0.2% of the portfolio), Metals Exploration (0.5% of the
portfolio), Pretium Resources (0.2% of the portfolio) and Arizona
Mining (0.2% of the portfolio). In addition, exposure to existing
longer term investments was increased further and we hope to grow
this theme during the coming year. We are pleased to report that by
the year end these investments had already delivered positive
returns for shareholders but patience will be required whilst the
development risks are overcome so that the full potential of the
strategy can be unlocked.
Royalties and illiquid investments
4.4% of the Company’s portfolio is invested in unquoted
investments. These, and any future investments, will be managed in
line with the guidelines set by Board as outlined to shareholders
in the Annual Report.
Avanco royalty contract
In October 2013, the Company
signed a non-binding memorandum of understanding with Avanco
Resources for a contractual royalty covering its exploration
licenses within the world-class mineral district of Carajas in
Brazil. A binding royalty
agreement was subsequently signed in July
2014 in which the Company committed US$12 million in return for Net Smelter Return
(net revenue after deductions for freight, smelter and refining
charges) royalty payments comprising 2% on copper, 25% on gold and
2% on all other metals produced from their Antas North and
Pedra Branca (Stage 1 and Stage 2)
licenses. In addition, there will be a flat 2% royalty over all
metals produced from any other discoveries within Avanco’s license
area as at the time of the agreement.
In March 2016 the Company funded
the final US$4 million for the
royalty, taking the total invested up to the full
US$12 million committed. The Antas North mine ramped-up on
time and budget in the first half of 2016, with commercial
production declared in the third quarter of 2016. At full
production, Antas North is estimated to produce 12,000 tonnes of
copper and 7,000 ounces of gold for the next ten years. The Company
received two cash payments from the royalty in 2016 totalling
US$1.58 million earned from revenues
during the ramp-up of the mine in the second and third quarter. The
royalty payment with respect to the fourth quarter of 2016 is
expected in early 2017 and the mine continues to produce as
expected.
In September, Avanco released the results of its Pedra Branca
East Scoping Study. Avanco is in the process of completing a
pre-feasibility study on a large scale underground mine at Pedra
Branca East and, due to encouraging results to date, they have
approved the commencement of an underground mine which will enable
a small amount of initial ore to be processed at the Antas plant.
This should add an additional 3,000 tonnes of production annually
for the next couple of years. The bigger project of the large scale
underground mine will target 24,000 tonnes of copper production at
an operating cost of US$1.14/lb for
copper. This project will likely require US$170 million of capital expenditure and, given
that Avanco has no debt and is cash flow positive, there are a
range of options on how to finance this.
Since the previous annual SRK valuation as at 31 December 2015, the mine on the area subject to
the royalty, Antas North, has moved from development to commercial
production during 2016. Additionally, SRK now include a
contribution from Pedra Branca East into their Preferred Technical
Valuation, recognising the scoping study work that has been
completed during 2016. This progress towards production has given a
greater degree of confidence in the underlying parameters and
therefore justifies inclusion within the overall valuation of the
investment but still at a heavily discounted level due to not yet
being in production.
Further information is available in the Pedra Branca East
Scoping Study and Development of Decline dated 12 September 2016 which can be found at
http://www.avancoresources.com/content/investor-centre/asx-announcements/.
Following an independent valuation by SRK Consulting (UK)
Limited (SRK) of the Avanco Royalty investment there has been an
upwards revaluation to US$25.2
million (previously US$12
million) resulting in an estimated uplift to the NAV
per share of 6.05 pence (based
on an exchange rate of 1$ = £0.8093). This investment now
represents approximately 2.7% of the Company’s net assets. The
change was reflected in the NAV calculated as at close of
business on 10 February 2017.
Banro gold-linked linked preference share
The Company’s portfolio has a 1.8% exposure to a gold-linked
preference share issued by Canadian listed gold company Banro
Corporation. The preference share provides exposure to the gold
price, as well as to production growth, with the principal value
moving in line with the gold price and the coupon ranging between
10% and 15% depending on Banro’s overall level of production. Since
the Company purchased the preference share in April 2013, the Company has received a total of
US$10.1 million in dividends, with
deferred dividends expected to be received in the first half of
2017.
Operational results at Banro were in line with guidance in 2016
and, as of the end of the third quarter, had produced 147,242
ounces of gold from Twangiza and Namoya combined with a total
all-in sustaining cost of US$963 per
ounce. Namoya, the company’s second asset, declared commercial
production on 1 January 2016 and
continued to ramp-up during the year reaching a production rate in
line with steady state operations in the third quarter at 28,190
ounces per annum. Production is expected to further increase in
2017 as Namoya operates at higher rates for the entire year.
As at the end of the year, the Board in conjunction with a
recommendation from the BlackRock Pricing Committee, has applied a
30% discount to the valuation of the gold-linked preference share.
This is in excess of the discount to par value that the senior
secured notes have traded at during the last year due to the gold
linked preference share ranking behind the notes. At the end of
January, Banro announced a proposed refinancing of its
outstanding debt (including the Company's gold-linked preference
share). Should the deal be approved by shareholders, this would
lead to the Company reducing its exposure to Banro and an uplift in
the carrying value due to removal of the 30% discount.
Fixed income securities
The Company continues to have a significant part of the
portfolio allocated to fixed income securities. As at the end of
2016, the Company had 9.4% of the portfolio in corporate debt.
First Quantum debt made up the largest exposure to a single issuer
at 6.1% of the Company’s assets. During the year, Hudbay Minerals
refinanced a bond held by the Company which forced the Company to
sell the holding. Given the current market conditions, it is likely
that it will be hard to replace this exposure due to the low
coupons on new debt being issued. The remaining holdings mostly
mature after 2020 and it is likely they will be held until maturity
assuming the cost of debt for the company provides an attractive
arbitrage opportunity and the credit worthiness of the issuers
remains suitable.
Derivatives activity
The Company sometimes holds positions in derivatives contracts
with virtually all of the activity focused on selling either puts
or calls in order to increase or decrease position sizes and take
advantage of high prices paid for exposure to volatility. These
derivative positions, which are small in comparison with the size
of the Company, usually have the effect of obliging us to buy or
sell stock or futures at levels we believe are attractive. During
2016, we primarily focused on writing short dated options to
maximise the price paid for the implied volatility and at the same
time minimise the duration of the exposure. The overall strategy
worked well during the year and income from option writing was
£6.39 million. At the end of 2016 the Company had three put option
positions with time still to run and two expired worthless in
January 2017.
Gearing
At 31 December 2016, the Company
had debt net of group cash amounting to £83.8 million, representing
gearing of 12.4%. For the most part, this gearing has been drawn
down against the higher yielding mining company corporate bonds and
is predominantly denominated in the same currency as that of the
bonds. Gearing, which can be drawn down or repaid at any time, is
used in the portfolio to take tactical advantage of market
volatility and opportunities, as well as enhance overall returns
during the medium to long term.
Outlook and strategy for 2017
After such a strong year it is hard to imagine 2017 being a
repeat of 2016 given we are starting the year from a much higher
base. Nonetheless, the outlook is promising. Corporate balance
sheets seem to have passed the point of maximum leverage and should
commodity prices remain around current levels they will rapidly
deleverage. If management teams can hold themselves back from
either investing the cash back into new projects, or using it for
corporate transactions, then long suffering shareholders should
benefit as debt is paid down and increased returns become
possible.
Given the scale of the share price moves last year it is likely
that equity volatility will revert to the normal levels seen in
prior years. This means that the Company will be paid less for the
risk it takes in selling volatility and in turn the opportunity to
generate income from this area will be reduced. However, dividends
are expected to grow in 2017 as companies either increase the
amounts paid out or return to paying them after having been forced
to cancel them in the downturn. In addition, we see room for other
companies to return surplus cash by either paying special dividends
or starting share buyback programmes.
It is our hope that during 2017 common sense prevails and mining
companies do not restart mothballed production too rapidly or dust
off capex plans as the recovery is still in its early days. The
outlook for the global economy feels better, but with China still navigating its way through its
varied challenges, and the developed economies having to
accommodate a new US President and Brexit, the outlook, although
positive, is still fraught with uncertainty. The last thing this
sector needs after the pain of the last five years is the threat of
new supply just as commodity markets are finally moving into
balance. If it can get it right however, the opportunities are
compelling.
Evy Hambro and Olivia Markham
BlackRock Investment Management (UK) Limited
23 February 2017
Ten largest investments as at
31 December 2016
Set out below is a brief description by the Investment Manager
of the Company’s ten largest investments.
Rio Tinto: 10.0% (2015: 10.7%) is
the world’s second largest mining company by market capitalisation.
It has interests over a broad range of metals and minerals
including iron ore, aluminium, copper, coal, industrial minerals,
gold and uranium. Rio Tinto has a strong balance sheet, currently
stronger than its stated 20% to 30% gearing targeted range, which
should help the company both sustain its dividend policy of a 40%
to 60% pay-out of earnings and drive organic growth and shareholder
returns. The most significant organic growth project is the Oyu
Tolgoi phase II copper project in Mongolia. In 2016, Rio announced
productivity targets to drive US$5 billion of free cash flow over
the next five years and further drive shareholder returns. Towards
the end of the year, news of SEC investigation into activity in
deals done around securing of licences at Simandou caused concern
and we look to see how this develops in 2017. |
First Quantum Minerals*: 9.4% (2015:
6.7%) is an integrated copper producer whose principal operating
assets are in Zambia. First Quantum is in the midst of a
significant expansion of the business, most notable the Cobre
Panama mine in Panama. At the beginning of 2016, we saw the company
take action to de-risk the balance sheet, including in the first
half of 2016 the successful sale of the Kevista nickel mine for
US$712 million to Boliden. In addition, the company refinanced its
US$3 billion credit facility with a new US$1.8 billion facility
with improved financial covenants and amortization schedule.
Through the course of 2016, management added to a copper price
hedge to ensure the capital availability for the Cobre Panama
expenditure. Elsewhere, at the Sentinel copper mine in the DRC, the
company successfully commissioned the second power line to ensure
power availability; commercial production at Sentinel is expected
in 2017. The Company holds both the equity and senior unsecured
debt. |
BHP Billiton: 8.2% (2015: 11.3%) is
the world’s largest mining company by market cap. The company is an
important global player in a number of commodities including iron
ore, copper, coal, manganese, aluminium, diamonds and uranium.
During the first half of 2016, the company ended its progressive
dividend policy, cutting its dividend by 75%. Going forward, the
company will pay out a minimum of 50% of underlying profit, with
the ability to pay additional amounts depending on capital needs
within the business. After the tragic tailings dam collapse at
Samarco last year, the company defined a framework agreement
subject to court ratification which has been challenged; resolution
is expected in 2017. BHP is a 50% owner in Samarco alongside
Vale. |
Glencore: 7.3% (2015: 3.8%) is a
diversified miner with activities in mining, smelting, refining,
processing and marketing of metals and minerals, energy products
and agricultural products globally. In addition, the company
provides financing, logistics, marketing and purchasing services to
producers and consumers of commodities. Glencore remains focused on
preserving its investment grade credit rating targeting a BBB+
rating over the medium term. The Company has met asset sale
proceeds of US$4 billion to US$5 billion, with the
company successfully selling a 40% equity stake in its agriculture
business for US$2.5 billion in April 2016. Since mid-2015 the
company has been focused on rapidly de-gearing the balance sheet,
targeting a net debt position of US$17 to US$18 billion by
December 2016 versus net debt of US$26 billion in December
2015. |
Vale: 5.4% (2015: 0.1%) is a
Brazilian-based diversified mining company and the world's largest
producer of iron ore as well as rising outputs of copper, coal
and fertilisers. Its main mining operations are in Brazil, Canada,
Australia, Indonesia and Mozambique and the dominant earnings and
cash flow driver continues to be its Brazilian based iron ore
operations. During 2016, the company significantly de-geared
through a divestment programme and significant cash flow generation
from its mining operations. Divestments include the announced sale
of the fertilisers business to Mosaic for US$2.5 billion and a deal
to sell a stake of its Mozambique coal assets to Mitsui. This year
will see the ramp-up of S11D, a significant growth project in iron
ore. Vale is a 50% owner in Samarco alongside BHP Billiton. |
Norilsk Nickel: 4.5% (2015: 5.0%) is
the world’s largest nickel and palladium producer, with significant
platinum and copper production. It is a Russian company whose core
assets are located in northern Siberia, within the Arctic Circle.
The company has benefited from the significant weakening in the
Russian rouble in recent years. |
Lundin Mining*: 4.4% (2015: 5.3%) is
a base metals producer with operations in Chile, Europe and the US.
In November this year, Lundin announced they had successfully
negotiated a deal to sell their 24% stake in Tenke to China
Molybdenum for US$1.2 billion. Freeport announced that it had
entered an agreement to sell its 56% interest in Tenke for US$2.65
billion to China Molybdenum earlier in the year and prompted
Lundin’s exit. Other key news events this year for Lundin included
its key asset Candelaria receiving permits for construction of a
new tailings dam to ensure operations out to 2030 and beyond. Last
year saw Lundin also start development to access Eagle east – a
mine life extension project at their nickel/copper Eagle mine in
Canada. The Company holds both the equity and the 7.875% senior
secured notes due 2022. |
Sociedad Minera Cerro Verde: 3.2%
(2015: 3.8%) is a copper and molybdenum operation in Peru operated
by Freeport-McMoRan Copper & Gold where Freeport maintain a
53.6% ownership in the company. In 2013, construction activities
commenced on the US$4.4 billion large-scale expansion of the asset
which will see copper production more than double from 210kt in
2015 to 560kt in 2017. The project successfully ramped-up during
2016 with significant cash flows and dividend payments expected
from 2018. |
Newmont Mining: 2.8% (2015: nil) is
one of the world’s leading gold producers with the majority of its
production from North America and Australia. In recent years,
Newmont has divested assets to build a longer-life, lower cost
asset portfolio. On 30 June 2016, the company sold its
interest in the Batu Hijau project in Indonesia for US$920 million
in cash to be used for debt repayment. Last year saw two of
Newmont’s growth projects, Merian and Long Canyon completed on time
and on budget; both will ramp-up during 2017. In October, Newmont
also announced an update to its dividend policy with a 25% pay-out
of free cash flow targeted. |
Newcrest Mining: 2.8% (2015: 1.6%)
is a major Australian-based gold producer operating in four
countries. Newcrest has an industry leading reserve life and cost
position. 2016 saw through-put at the Lihir operation in PNG
increase to the targeted 13mt and 2017 should see further progress.
Newcrest also agreed to sell its 50% interest in the Hidden Valley
joint venture for US$1. Longer term the company has organic growth
potential at its Wafi-Golpu project in PNG. |
* Includes fixed
interest securities.
All percentages reflect the value of the holding as a percentage of
total investments. Percentages in brackets represent the value of
the holding as at 31 December 2015. Together, the ten largest
investments represent 58.0% of total investments (31 December 2015:
56.6%). |
Investments as at 31 December 2016
|
Main
geographical exposure |
Market
value
£’000 |
%
of investments |
Diversified |
|
|
|
Rio Tinto |
Global |
75,854 |
10.0 |
Rio Tinto Put Option 20/01/17
US$31 |
Global |
(94) |
- |
Rio Tinto Put Option 20/01/17
US$32 |
Global |
(161) |
- |
BHP Billiton |
Global |
61,988 |
8.2 |
Glencore |
Global |
55,470 |
7.3 |
Vale |
Global |
40,845 |
5.4 |
Norilsk Nickel |
Russia |
33,940 |
4.5 |
Lundin Mining* |
Global |
33,769 |
4.4 |
South32 |
Australia |
20,716 |
2.7 |
Teck Resources |
Global |
19,459 |
2.6 |
Teck Resources Put Option 20/01/17
CAD$28 |
Global |
(600) |
(0.1) |
Boliden |
Sweden |
14,897 |
2.0 |
Umicore |
Global |
3,003 |
0.4 |
|
|
-------- |
-------- |
|
|
359,086 |
47.4 |
|
|
-------- |
-------- |
Copper |
|
|
|
First Quantum Minerals* |
Global |
71,630 |
9.4 |
Avanco Resources#~ |
Brazil |
29,733 |
3.9 |
Sociedad Minera Cerro Verde |
Peru |
23,984 |
3.2 |
Nevsun Resources |
Eritrea |
14,990 |
2.0 |
OZ Minerals |
Australia |
6,935 |
0.9 |
Ivanhoe Mines |
DRC |
1,410 |
0.2 |
Metals X |
Australia |
984 |
0.1 |
Katanga Mining |
DRC |
917 |
0.1 |
|
|
-------- |
-------- |
|
|
150,583 |
19.8 |
|
|
-------- |
-------- |
Gold |
|
|
|
Newmont Mining |
Global |
21,369 |
2.8 |
Newcrest Mining |
Australia |
20,939 |
2.8 |
Banro Barbados +#> |
DRC |
13,637 |
1.8 |
Agnico Eagle Mines |
Canada |
11,298 |
1.5 |
Randgold Resources |
Africa |
10,510 |
1.4 |
Franco-Nevada |
Global |
10,259 |
1.4 |
Eldorado Gold |
Global |
8,896 |
1.2 |
Northern Star Resources |
Australia |
8,485 |
1.1 |
OceanaGold |
Global |
8,089 |
1.1 |
Detour Gold |
Canada |
7,272 |
1.0 |
Alamos Gold |
Mexico |
5,540 |
0.6 |
Metals Exploration |
Global |
4,053 |
0.5 |
TMAC Resources |
Canada |
3,221 |
0.4 |
Shanta Gold convertible |
Tanzania |
2,315 |
0.3 |
Pretium Resources |
Canada |
1,670 |
0.2 |
Beadell Resources |
Australia |
1,553 |
0.2 |
Westgold Resources |
Australia |
1,453 |
0.2 |
Stratex International |
Turkey |
580 |
0.1 |
|
|
-------- |
-------- |
|
|
141,139 |
18.6 |
|
|
-------- |
-------- |
Silver &
Diamonds |
|
|
|
Fresnillo |
Mexico |
14,640 |
1.9 |
Petra Diamonds* |
South
Africa |
13,833 |
1.8 |
Silver Wheaton |
Canada |
12,464 |
1.6 |
Mountain Province Diamonds |
Canada |
10,165 |
1.3 |
Industrias Penoles |
Mexico |
7,548 |
1.0 |
Lucara Diamond |
Botswana |
7,314 |
1.0 |
Tahoe Resources |
Global |
4,002 |
0.5 |
Sierra Metals |
Peru |
2,015 |
0.3 |
Silver Mines |
Australia |
1,631 |
0.2 |
Volcan |
Peru |
1,090 |
0.1 |
MAG Silver |
Mexico |
445 |
0.1 |
|
|
-------- |
-------- |
|
|
75,147 |
9.8 |
|
|
-------- |
-------- |
Industrial Minerals |
|
|
|
Iluka Resources |
Australia |
12,763 |
1.7 |
Albemarle |
Global |
9,756 |
1.4 |
Sheffield Resources |
Australia |
1,861 |
0.2 |
Nemaska Lithium > |
Canada |
1,651 |
0.2 |
Bacanora Minerals |
Mexico |
1,093 |
0.1 |
Orocobre |
Australia |
776 |
0.1 |
|
|
-------- |
-------- |
|
|
27,900 |
3.7 |
|
|
-------- |
-------- |
Zinc |
|
|
|
Nyrstar |
Global |
3,040 |
0.4 |
Arizona Mining |
Global |
1,585 |
0.2 |
|
|
-------- |
-------- |
|
|
4,625 |
0.6 |
|
|
-------- |
-------- |
Iron Ore |
|
|
|
Equatorial Resources |
Republic of
Congo |
730 |
0.1 |
|
|
-------- |
-------- |
|
|
730 |
0.1 |
|
|
-------- |
-------- |
Other |
|
|
|
Bindura Nickel |
Zimbabwe |
102 |
– |
|
|
-------- |
-------- |
|
|
102 |
– |
|
|
-------- |
-------- |
Portfolio |
|
759,312 |
100.0 |
|
|
-------- |
-------- |
*
Includes fixed interest investments.
#
Investments held at Directors’ valuation.
+
Includes Banro gold-linked preference share.
~
Includes mining royalty contract.
>
Includes warrant investments.
All investments are in equity shares unless otherwise
stated.
The total number of investments as at 31
December 2016 (including options classified as liabilities
on the balance sheet) was 60 (31 December
2015: 56).
As at 31 December 2016 the Company
held equity interests in four companies comprising more than 3% of
a company’s share capital as follows: Metals Exploration; Silver
Mines; Stratex International; and Avanco Resources.
Portfolio analysis as at 31 December 2016
COMMODITY EXPOSURE*
|
BlackRock World
Mining Trust plc 2016 |
BlackRock World
Mining Trust plc 2015 |
Euromoney Global
Mining Index 2016 |
|
% |
% |
% |
Coal |
0.0 |
0.0 |
5.0 |
Aluminium |
0.0 |
0.5 |
2.5 |
Other |
0.0 |
0.5 |
3.8 |
Iron Ore |
0.1 |
0.1 |
1.6 |
Zinc |
0.6 |
0.0 |
1.9 |
Industrial Minerals |
3.7 |
6.5 |
1.0 |
Silver & Diamonds |
9.8 |
13.2 |
6.0 |
Gold |
18.6 |
17.7 |
23.7 |
Copper |
19.8 |
21.0 |
10.7 |
Diversified |
47.4 |
40.5 |
43.8 |
GEOGRAPHICAL EXPOSURE*
2016
Global |
57.1% |
Latin America |
11.2% |
Australia |
10.2% |
Africa (ex SA) |
6.9% |
Other*** |
6.6% |
Canada |
6.2% |
South Africa |
1.8% |
2015
Global |
48.7% |
Latin America |
14.9% |
Australia |
10.0% |
Africa (ex SA) |
9.1% |
Other** |
7.3% |
Canada |
5.9% |
South Africa |
4.1% |
* Based on the principal commodity exposure and place of
operation of each investment.
** Consists of Indonesia,
Russia, Serbia, Sweden and Turkey.
*** Consists of Russia,
Sweden and Turkey.
Consolidated statement of
comprehensive income for the year ended 31
December 2016
|
Notes |
Revenue
2016
£’000 |
Revenue
2015
£’000 |
Capital
2016
£’000 |
Capital
2015
£’000 |
Total
2016
£’000 |
Total
2015
£’000 |
Income from investments |
3 |
22,383 |
30,503 |
- |
- |
22,383 |
30,503 |
Other income |
3 |
6,487 |
8,742 |
- |
- |
6,487 |
8,742 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
|
|
28,870 |
39,245 |
- |
- |
28,870 |
39,245 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Profit/(loss) on investments held at
fair value through profit or loss |
|
- |
- |
326,525 |
(236,061) |
326,525 |
(236,061) |
Loss on foreign exchange |
|
- |
- |
(11,981) |
(2,942) |
(11,981) |
(2,942) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Total |
|
28,870 |
39,245 |
314,544 |
(239,003) |
343,414 |
(199,758) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Expenses |
|
|
|
|
|
|
|
Investment management fee |
4 |
(1,179) |
(1,328) |
(3,848) |
(3,984) |
(5,027) |
(5,312) |
Other operating expenses |
5 |
(895) |
(1,030) |
(13) |
(13) |
(908) |
(1,043) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Total operating expenses |
|
(2,074) |
(2,358) |
(3,861) |
(3,997) |
(5,935) |
(6,355) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Net profit/(loss) before finance
costs and taxation |
|
26,796 |
36,887 |
310,683 |
(243,000) |
337,479 |
(206,113) |
Finance costs |
6 |
(309) |
(288) |
(940) |
(864) |
(1,249) |
(1,152) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Net profit/(loss) on ordinary
activities before taxation |
|
26,487 |
36,599 |
309,743 |
(243,864) |
336,230 |
(207,265) |
Taxation |
|
(3,184) |
(3,855) |
866 |
989 |
(2,318) |
(2,866) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Profit/(loss) for the year |
|
23,303 |
32,744 |
310,609 |
(242,875) |
333,912 |
(210,131) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Earnings/(loss) per ordinary
share |
8 |
13.19p |
18.47p |
175.85p |
(137.00)p |
189.04p |
(118.53)p |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
The total column of this statement represents the Company’s
Statement of Comprehensive Income, prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union (EU). The supplementary revenue and capital
columns are both prepared under guidance published by the
Association of Investment Companies (AIC). All items in the above
statement derive from continuing operations. No operations were
acquired or discontinued during the year.
The Company does not have any other comprehensive income. The
net profit/(loss) for the year disclosed above represents the
Company’s total comprehensive income.
Consolidated and parent statements of
changes in equity for the year ended 31
December 2016
Group |
Note |
Ordinary
share
capital
£’000 |
Share
premium
account
£’000 |
Special
reserve
£’000 |
Capital
redemption
reserve
£’000 |
Capital
reserves
£’000 |
Revenue
reserve
£’000 |
Total
£’000 |
For the year ended 31 December
2016 |
|
|
|
|
|
|
|
|
At 31 December 2015 |
|
9,651 |
127,155 |
116,471 |
22,779 |
55,022 |
46,235 |
377,313 |
Total comprehensive income: |
|
|
|
|
|
|
|
|
Net profit for the year |
|
– |
– |
– |
– |
310,609 |
23,303 |
333,912 |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
Share purchase costs |
|
– |
– |
(9) |
– |
– |
– |
(9) |
Ordinary shares purchased into
treasury |
|
– |
– |
(1,873) |
– |
– |
– |
(1,873) |
Dividends paid |
7 |
– |
– |
– |
– |
– |
(31,797) |
(31,797) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 31 December 2016 |
|
9,651 |
127,155 |
114,589 |
22,779 |
365,631 |
37,741 |
677,546 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
======== |
For the year ended 31 December
2015 |
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
9,651 |
127,155 |
116,471 |
22,779 |
297,897 |
50,721 |
624,674 |
Total comprehensive income: |
|
|
|
|
|
|
|
|
Net (loss)/profit for the year |
|
– |
– |
– |
– |
(242,875) |
32,744 |
(210,131) |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
Dividends paid |
7 |
– |
– |
– |
– |
– |
(37,230) |
(37,230) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 31 December 2015 |
|
9,651 |
127,155 |
116,471 |
22,779 |
55,022 |
46,235 |
377,313 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
======== |
Company |
Note |
Ordinary
share
capital
£’000 |
Share
premium
account
£’000 |
Special
reserve
£’000 |
Capital
redemption
reserve
£’000 |
Capital
reserves
£’000 |
Revenue
reserve
£’000 |
Total
£’000 |
For the year ended 31 December
2016 |
|
|
|
|
|
|
|
|
At 31 December 2015 |
|
9,651 |
127,155 |
116,471 |
22,779 |
62,504 |
38,753 |
377,313 |
Total comprehensive income: |
|
|
|
|
|
|
|
|
Net profit for the year |
|
– |
– |
– |
– |
310,611 |
23,301 |
333,912 |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
Share purchase costs |
|
– |
– |
(9) |
– |
– |
– |
(9) |
Ordinary shares purchased into
treasury |
|
– |
– |
(1,873) |
– |
– |
– |
(1,873) |
Dividends paid |
7 |
– |
– |
– |
– |
– |
(31,797) |
(31,797) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 31 December 2016 |
|
9,651 |
127,155 |
114,589 |
22,779 |
373,115 |
30,257 |
677,546 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
======== |
For the year ended 31 December
2015 |
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
9,651 |
127,155 |
116,471 |
22,779 |
309,346 |
39,272 |
624,674 |
Total comprehensive income: |
|
|
|
|
|
|
|
|
Net (loss)/profit for the year |
|
– |
– |
– |
– |
(246,842) |
36,711 |
(210,131) |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
Dividends paid |
7 |
– |
– |
– |
– |
– |
(37,230) |
(37,230) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 31 December 2015 |
|
9,651 |
127,155 |
116,471 |
22,779 |
62,504 |
38,753 |
377,313 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
======== |
Consolidated and parent statements of
financial position as at 31 December
2016
|
Notes |
2016
Group
£’000 |
2016
Company
£’000 |
2015
Group
£’000 |
2015
Company
£’000 |
Non current assets |
|
|
|
|
|
Investments held at fair value
through profit or loss |
|
760,167 |
769,152 |
426,085 |
435,067 |
|
|
-------- |
-------- |
-------- |
-------- |
|
|
760,167 |
769,152 |
426,085 |
435,067 |
|
|
-------- |
-------- |
-------- |
-------- |
Current assets |
|
|
|
|
|
Other receivables |
|
5,153 |
5,153 |
3,797 |
3,797 |
Cash held on margin deposit with
brokers |
|
2,412 |
2,412 |
1,340 |
1,277 |
Cash and cash equivalents |
|
68 |
68 |
13,223 |
5,307 |
|
|
-------- |
-------- |
-------- |
-------- |
|
|
7,633 |
7,633 |
18,360 |
10,381 |
|
|
-------- |
-------- |
-------- |
-------- |
Total assets |
|
767,800 |
776,785 |
444,445 |
445,448 |
|
|
-------- |
-------- |
-------- |
-------- |
Current liabilities |
|
|
|
|
|
Other payables |
|
(2,931) |
(3,997) |
(6,254) |
(7,257) |
Derivative financial liabilities
held at fair value through profit or loss |
|
(855) |
(855) |
(161) |
(161) |
Bank overdraft |
|
(1,324) |
(9,243) |
– |
– |
Bank loans |
|
(84,976) |
(84,976) |
(60,708) |
(60,708) |
|
|
-------- |
-------- |
-------- |
-------- |
|
|
(90,086) |
(99,071) |
(67,123) |
(68,126) |
|
|
-------- |
-------- |
-------- |
-------- |
Total assets less current
liabilities |
|
677,714 |
677,714 |
377,322 |
377,322 |
|
|
-------- |
-------- |
-------- |
-------- |
Non current liabilities |
|
|
|
|
|
Deferred tax liabilities |
|
(168) |
(168) |
(9) |
(9) |
|
|
-------- |
-------- |
-------- |
-------- |
Net assets |
|
677,546 |
677,546 |
377,313 |
377,313 |
|
|
-------- |
-------- |
-------- |
-------- |
Equity attributable to equity
holders |
|
|
|
|
|
Ordinary share capital |
9 |
9,651 |
9,651 |
9,651 |
9,651 |
Share premium account |
|
127,155 |
127,155 |
127,155 |
127,155 |
Special reserve |
|
114,589 |
114,589 |
116,471 |
116,471 |
Capital redemption reserve |
|
22,779 |
22,779 |
22,779 |
22,779 |
Capital reserves |
|
365,631 |
373,115 |
55,022 |
62,504 |
Revenue reserve |
|
37,741 |
30,257 |
46,235 |
38,753 |
|
|
-------- |
-------- |
-------- |
-------- |
Total equity |
|
677,546 |
677,546 |
377,313 |
377,313 |
|
|
======== |
======== |
======== |
======== |
Net asset value per ordinary
share |
8 |
383.98p |
383.98p |
212.83p |
212.83p |
|
|
======== |
======== |
======== |
======== |
Consolidated and parent cash flow
statements for the year ended 31 December
2016
|
2016
Group
£’000 |
2016
Company
£’000 |
2015
Group
£’000 |
2015
Company
£’000 |
Operating activities |
|
|
|
|
Profit/(loss) before taxation* |
336,230 |
336,230 |
(207,265) |
(207,273) |
Add back finance costs |
1,249 |
1,249 |
1,152 |
1,152 |
(Gains)/losses on investments held
at fair value through profit or loss including transaction
costs |
(326,525) |
(326,528) |
236,061 |
240,028 |
Net movement on foreign
exchange |
11,981 |
11,981 |
2,942 |
2,942 |
Sales of investments held at fair
value through profit or loss |
264,377 |
264,377 |
230,407 |
230,407 |
Purchases of investments held at
fair value through profit or loss |
(271,240) |
(271,240) |
(197,355) |
(197,355) |
(Increase)/decrease in other
receivables |
(1,356) |
(1,356) |
2,187 |
1,517 |
Decrease in other payables |
(660) |
(660) |
(191) |
(166) |
Decrease in amounts due from
brokers |
– |
– |
18 |
18 |
Net movement in cash held on margin
deposit with brokers |
(1,072) |
(1,072) |
344 |
343 |
(Decrease)/increase in amounts due
to brokers |
(2,714) |
(2,714) |
2,714 |
2,714 |
|
-------- |
-------- |
-------- |
-------- |
Net cash inflow from operating
activities before interest and taxation |
10,270 |
10,267 |
71,014 |
74,327 |
|
-------- |
-------- |
-------- |
-------- |
Interest paid |
(1,249) |
(1,249) |
(1,242) |
(1,242) |
Taxation paid |
(1,495) |
(1,495) |
(441) |
(441) |
Taxation on overseas investment
income included within gross income |
(613) |
(613) |
(1,651) |
(1,651) |
|
-------- |
-------- |
-------- |
-------- |
Net cash inflow from operating
activities |
6,913 |
6,910 |
67,680 |
70,993 |
|
-------- |
-------- |
-------- |
-------- |
Financing activities |
|
|
|
|
Drawdown/(repayment) of loans |
24,268 |
24,268 |
(48,305) |
(48,305) |
Dividends paid |
(31,797) |
(31,797) |
(37,230) |
(37,230) |
Shares purchased into treasury |
(1,882) |
(1,882) |
– |
– |
|
-------- |
-------- |
-------- |
-------- |
Net cash outflow from financing
activities |
(9,411) |
(9,411) |
(85,535) |
(85,535) |
|
-------- |
-------- |
-------- |
-------- |
Decrease in cash and cash
equivalents |
(2,498) |
(2,501) |
(17,855) |
(14,542) |
|
-------- |
-------- |
-------- |
-------- |
Cash and cash equivalents at start
of the year |
13,223 |
5,307 |
31,054 |
19,825 |
Effect of foreign exchange rate
changes |
(11,981) |
(11,981) |
24 |
24 |
|
-------- |
-------- |
-------- |
-------- |
Cash and cash equivalents at end of
the year |
(1,256) |
(9,175) |
13,223 |
5,307 |
|
======== |
======== |
======== |
======== |
Comprised of: |
|
|
|
|
Cash & cash equivalents |
68 |
68 |
13,223 |
5,307 |
Bank overdraft |
(1,324) |
(9,243) |
– |
– |
|
-------- |
-------- |
-------- |
-------- |
* Includes dividends and interest received in the
year of £13,253,000 and £6,157,000 (2015: £25,713,000 and
£6,634,000) respectively. |
Notes to the financial statements
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. Accounting policies
The principal accounting policies adopted by the Group and
Company are set out below.
(a) Basis of preparation
The Group and Parent Company financial statements have been
prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006. The
Company has taken advantage of the exemption provided under section
408 of the Companies Act 2006 not to publish its individual income
statement and related notes. All of the Group’s operations are of a
continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for
investment trust companies and venture capital trusts issued by the
Association of Investment Companies (AIC), revised in November 2014, is compatible with IFRS, the
financial statements have been prepared in accordance with guidance
set out in the SORP.
Substantially, all of the assets of the Group and Company
consist of securities that are readily realisable and, accordingly,
the Directors believe that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Consequently, the Directors have determined that it is appropriate
for the financial statements to be prepared on a going
concern basis.
The Group’s and the Company’s financial statements are presented
in sterling, which is the functional currency of the Group and the
Company and the currency of the primary economic environment in
which the Group operates. All values are rounded to the nearest
thousand pounds (£’000) except where otherwise indicated.
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning on or
after 1 January 2016 and have not
been applied in preparing these financial statements (major changes
and new standards issued are detailed below). None of these are
expected to have a significant effect on the measurement of the
amounts recognised in the financial statements of the Group.
IFRS 9 – Financial Instruments (2014) replaces IAS 39 and deals
with a package of improvements including principally a revised
model for classification and measurement of financial instruments,
a forward looking expected loss impairment model and a revised
framework for hedge accounting. In terms of classification and
measurement, the revised standard is principles based depending on
the business model and nature of cash flows. Under this approach,
instruments are measured at either amortised cost or fair value.
Under IFRS 9 equity and derivative investments will be held at fair
value because they fail the ‘solely payments of principal and
interest’ test and debt investments will be held at fair value
because the business model is to manage them on a fair value basis.
The standard is effective from 1 January
2018 with earlier application permitted. The Group does not
plan to early adopt this standard.
Amendments to IFRS 10, IFRS 12 and IAS 28 (amendments to IFRS 12
are effective 1 January 2016, a date
is to be determined for IFRS 10 and IAS 28) are in relation to
applying the consolidation exception for investment entities. The
Group does not expect the eventual impact of these amendments to be
significant.
Amendments to IAS 1 (effective 1 January
2016) require changes to the presentation of financial
instruments. The amendment is not expected to have a significant
effect on the measurement of amounts recognised in the financial
statements of the Company.
Amendments to IAS 7 - Disclosure initiative Statement of Cash
Flows (effective 1 January 2017). The
amendments are not expected to have a significant effect on the
presentation of the Cash Flow Statement within the financial
statements of the Company.
Amendments to IAS 12 – Recognition of deferred tax assets for
unrealised losses (effective 1 January
2017). The amendment is not expected to have a significant
effect on the measurement of amounts recognised in the financial
statements of the Company.
IFRS 14 – Regulatory Deferral Accounts (effective 1 January 2016) allows first time IFRS adopters
to continue to account for ‘regulatory deferral account balances’
in accordance with previous GAAP. The Company has no such accounts
and, therefore, the provisions of the standard are not
applicable.
IFRS 15 – Revenue from Contracts with Customers (effective
1 January 2017) specifies how and
when an entity should recognise revenue and enhances the nature of
revenue disclosures. Given the nature of the Company’s revenue
streams from financial instruments, the provisions of this standard
are not expected to have a material impact.
IFRS 16 – Leases (effective 1 January
2019). The Company does not enter into lease agreements,
therefore the provisions of this standard are not applicable.
(b) Basis of consolidation
The consolidated financial statements are made up to 31 December
each year and incorporate the financial statements of the Company
and its wholly-owned subsidiary, BlackRock World Mining Investment
Company Limited. Subsidiaries are consolidated from the date of
their acquisition, being the date on which the Company obtains
control, and continue to be consolidated until the date that such
control ceases. The financial statements of subsidiaries used in
the preparation of the consolidated financial statements are based
on consistent accounting policies. All intra-group balances and
transactions, including unrealised profits arising therefrom, are
eliminated.
(c) Presentation of the Consolidated Statement of Comprehensive
Income
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and a capital
nature has been presented alongside the Statement of Comprehensive
Income.
(d) Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business being investment business.
(e) Income
Dividends receivable on equity shares are recognised as revenue
for the year on an ex-dividend basis. Where no ex-dividend date is
available, dividends receivable on or before the period end are
treated as revenue for the period. Provision is made for any
dividends not expected to be received. Special dividends, if any,
are treated as a capital or a revenue receipt depending on the
facts or circumstances of each particular case. The return on a
debt security is recognised on a time apportionment basis so as to
reflect the effective yield on the debt security. Interest income
and expenses are accounted for on an accruals basis.
Options may be purchased or written over securities held in the
portfolio for generating or protecting capital returns, or for
generating or maintaining revenue returns. Where the purpose of the
option is the generation of income, the premium is treated as a
revenue item. Where the purpose of the option is the maintenance of
capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the
life of the option contract and included in the revenue column of
the Statement of Comprehensive Income unless the option has been
written for the maintenance and enhancement of the Company’s
investment portfolio and represents an incidental part of a larger
capital transaction, in which case any premium arising are
allocated to the capital column of the Statement of Comprehensive
Income. When an option is closed out or exercised the gain or loss
is accounted for as capital.
Royalty income from contractual rights is measured at the fair
value of the consideration received or receivable where the Manager
can reliably estimate the amount, pursuant to the terms of the
agreement. Royalty income from contractual rights received comprise
of a return of income and a return of capital based on the
underlying cost of the contract and, accordingly, the return of
income element is taken to the revenue account and the return of
capital element is taken to the capital account. These amounts are
disclosed in the Consolidated Statement of Comprehensive Income
within income from investments and gains/losses on investments held
at fair value through profit or loss, respectively.
The useful life of the contractual rights will be determined by
reference to the contractual arrangements, the planned mine life on
commencement of mining and the underlying cost of the contractual
rights will be revalued on a systematic basis using the units of
production method over the life of the contractual rights which is
estimated using available estimated proved and probable reserves
specifically associated with the mine. The Investment Manager
relies on public disclosures for information on proven and probable
reserves from the operators of the mine. Amortisation rates are
adjusted on a prospective basis for all changes to estimates of the
life of contractual rights and iron ore reserves. These are
disclosed in the Consolidated Statement of Comprehensive Income
within gains/losses on investments held at fair value through
profit or loss.
(f) Expenses
All expenses, including finance costs, are accounted for on an
accruals basis. Expenses have been charged wholly to the revenue
column of the Consolidated Statement of Comprehensive Income,
except as follows:
- expenses which are incidental to the acquisition of an
investment are charged to the capital column of the Consolidated
Statement of Comprehensive Income. Details of transaction costs on
the purchases and sales of investments are disclosed in note 10 on
page 61 of the Annual Report and Financial Statements;
- the investment management fee and finance costs have
been allocated 75% to the capital column and 25% to the revenue
column of the Consolidated Statement of Comprehensive Income in
line with the Board’s expected long term split of returns, in the
form of capital gains and income, respectively, from the investment
portfolio;
- expenses are treated as capital where a connection with
the maintenance or enhancement of the value of the investments can
be demonstrated.
(g) Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax. The tax currently payable is based on the taxable
profit for the period. Taxable profit differs from net profit as
reported in the Consolidated Statement of Comprehensive Income
because it excludes items of income or expenses that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Group’s liability for current tax
is calculated using tax rates that were applicable at the balance
sheet date.
Where expenses are allocated between capital and revenue, any
tax relief in respect of the expenses is allocated between capital
and revenue returns on the marginal basis using the Company’s
effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all temporary
differences that have originated but not reversed at the financial
reporting date, where transactions or events that result in an
obligation to pay more taxation in the future or right to pay less
taxation in the future have occurred at the financial reporting
date. This is subject to deferred taxation assets only being
recognised if it is considered more likely than not that there will
be suitable profits from which the future reversal of the temporary
differences can be deducted. Deferred taxation assets and
liabilities are measured at the rates applicable to the legal
jurisdictions in which they arise.
(h) Investments held at fair value through profit or loss
The Company’s investments, including contractual rights, are
classified as held at fair value through profit or loss in
accordance with IAS 39 – ‘Financial Instruments: Recognition and
Measurement’ and are managed and evaluated on a fair value basis in
accordance with its investment strategy.
All investments, including contractual rights, are designated
upon initial recognition as held at fair value through profit or
loss. Purchases of investments are recognised on a trade date
basis. Contractual rights are recognised on the completion date,
where a purchase of the rights is under a contract, and is
initially measured at fair value excluding transaction costs. The
sales of assets are recognised at the trade date of the disposal.
Proceeds are measured at fair value, which is regarded as the
proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their
quoted bid price at the financial reporting date, without deduction
for the estimated selling costs. For all financial instruments not
traded in an active market, the fair value is determined by using
valuation techniques deemed by the Board to be appropriate in the
circumstances. Valuation techniques include the market approach
(i.e., using recent arm’s length market transactions adjusted as
necessary and reference to the current market value of another
instrument that is substantially the same) and the income approach
(i.e., discounted cash flow analysis and option pricing models
making as much use of available and supportable market data as
possible).
The gains and losses from changes in fair value of contractual
rights are taken to the Consolidated Statement of Comprehensive
Income and arise as a result of the revaluation of the underlying
cost of the contractual rights, changes in commodity prices and
changes in estimates of proven and probable reserves specifically
associated with the mine.
Under IFRS, the investment in the subsidiary in the Company’s
Statements of Financial Position is fair valued which is deemed to
be the net asset value of the subsidiary. Changes in the fair value
of investments held at fair value through profit or loss and gains
and losses on disposal are recognised in the Consolidated Statement
of Comprehensive Income as ‘Gains or losses on investments held at
fair value through profit or loss’. Also included within this
heading are transaction costs in relation to the purchase or sale
of investments.
(i) Offsetting
Financial assets and financial liabilities are offset and the
net amount reported in the Statements of Financial Position if
there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest
and are short term in nature and are accordingly stated at their
nominal value.
(k) Dividends payable
Under IFRS, final dividends should not be accrued in the
financial statements unless they have been approved by shareholders
before the financial reporting date. Interim dividends should not
be accrued in the financial statements unless they have
been paid.
Dividends payable to equity shareholders are recognised in the
Statements of Changes in Equity and have become a liability of the
Group when they have been approved by shareholders in the case of a
final dividend, or paid in the case of an interim dividend.
(l) Foreign currency translation
Transactions involving foreign currencies are converted at the
rate ruling at the date of the transaction. Foreign currency
monetary assets and liabilities are translated into sterling at the
rate ruling on the financial reporting date. Foreign exchange
differences arising on translation are recognised in the
Consolidated Statement of Comprehensive Income as a revenue or
capital item depending on the income or expense to which they
relate. For investment transactions and investments held at the
year end, denominated in a foreign currency, the resulting gains or
losses are included in the losses on investments held at fair value
through profit or loss in the Consolidated Statement of
Comprehensive Income.
(m) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and that are subject
to an insignificant risk of changes in value.
(n) Bank borrowings
Bank overdrafts and loans are recorded as the proceeds received.
Finance charges, including any premium payable on settlement or
redemption and direct issue costs, are accounted for on an accruals
basis in the Consolidated Statement of Comprehensive Income using
the effective interest rate method and are added to the carrying
amount of the instrument to the extent that they are not settled in
the period in which they arise.
(o) Derivatives
Derivatives are classified as financial instruments held at fair
value through profit or loss held for trading and are initially
recognised at fair value. The derivatives are subsequently held at
fair value based on the bid/offer prices of the options written to
which the Group and Company are exposed. The value of the option is
subsequently marked-to-market to reflect the fair value of the
option based on traded prices. Where the premium is taken to
revenue, an appropriate amount is shown as capital return such that
the total return reflects the overall change in the fair value of
the option. When an option is closed out or exercised the gain or
loss is accounted for as a capital gain or loss.
(p) Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates and assumptions will, by
definition, seldom equal the related actual results. Estimates and
judgements are regularly evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are addressed below.
Fair value of unquoted financial instruments
When the fair values of financial assets and financial
liabilities recorded in the Statements of Financial Position cannot
be derived from active markets, their fair value is determined
using a variety of valuation techniques that include the use of
valuation models.
(a) The fair value of the Avanco contractual rights was assessed
by an independent valuer with a recognised and relevant
professional qualification. The inputs to these models are taken
from observable markets where possible, but where this is not
feasible, estimation is required in establishing fair values. The
estimates include considerations of production profiles, commodity
prices, cash flows and discount rates. Changes in assumptions about
these factors could affect the reported fair value of financial
instruments in the Statements 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 sensitivity analysis.
(b) The investment in the Banro gold linked preference share is
valued by reference to gold prices and an illiquidity discount to
reflect the discount to par value at which the senior secured notes
issued by Banro have traded during the year.
(c) The investment in the subsidiary company is valued based on
the net assets of the subsidiary company which is considered
appropriate based on the nature and volume of transactions in the
subsidiary company.
The key assumptions used to determine the fair value of the
unquoted financial instruments and sensitivity analyses are
provided in note 18 of the Annual Report and Financial
Statements.
3. Income
|
2016
£’000 |
2015
£’000 |
Investment income: |
|
|
UK listed dividends |
4,727 |
9,782 |
Overseas listed dividends* |
9,008 |
14,460 |
Special dividends |
1,038 |
71 |
Income from contractual rights
(Avanco royalty) |
1,595 |
– |
Fixed interest income |
6,015 |
6,190 |
|
-------- |
-------- |
|
22,383 |
30,503 |
|
-------- |
-------- |
Other income: |
|
|
Option premiums |
6,397 |
8,647 |
Deposit interest |
6 |
26 |
Profit on futures |
– |
25 |
Stock lending income |
84 |
44 |
Underwriting commission and other
income |
– |
– |
|
-------- |
-------- |
|
6,487 |
8,742 |
|
-------- |
-------- |
Total income |
28,870 |
39,245 |
|
======== |
======== |
Total income comprises: |
|
|
Dividends |
14,773 |
24,313 |
Deposit interest |
6 |
26 |
Option premiums |
6,397 |
8,647 |
Income from contractual rights |
1,595 |
– |
Fixed interest income |
6,015 |
6,190 |
Profit on futures |
– |
25 |
Stock lending income |
84 |
44 |
|
-------- |
-------- |
|
28,870 |
39,245 |
|
-------- |
-------- |
* Includes £1,153,000 from
Banro. |
|
|
During the year ended 31 December
2016, the Company received option premiums of £6,800,000
(2015: £8,503,000) for writing covered call options for the
purposes of revenue generation. Options written for income purposes
are credited to the revenue column of the Consolidated Statement of
Comprehensive Income and recognised evenly over the life of the
option contracts and amounted to £6,397,000 (2015: £8,647,000).
4. Investment management fee
|
2016
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
2015
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Investment management fee |
1,179 |
3,848 |
5,027 |
1,328 |
3,984 |
5,312 |
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Total |
1,179 |
3,848 |
5,027 |
1,328 |
3,984 |
5,312 |
|
======== |
======== |
======== |
======== |
======== |
======== |
With effect from 1 October 2015
the annual management fee was reduced to 0.80% of 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 year, £4,472,000 (2015: £5,312,000) of
the investment management fee was generated from net assets and
£555,000 (2015: £nil) from the gearing effect on gross assets. The
average of the net assets under management during 2016 was
£537,003,000 (2015: £526,273,000).
Until 31 March 2015 the investment
management fee was levied quarterly at a rate of 1.3% per annum,
based on the value of gross assets on the last day of each
quarter.
Between 1 April 2015 and
30 June 2015, the annual management
fee was reduced to:
- 1.10% on the first £500 million of gross assets
- 0.70% on the next £500 million
- 0.40% on gross assets above £1 billion
Between 1 July 2015 and
30 September 2015 the annual
management fee was increased to:
- 1.20% on the first £500 million of gross assets
- 1.00% on the next £500 million
- 0.85% on gross assets above £1 billion
75% of the management fees are allocated to the capital column
and 25% to the revenue column of the Consolidated Statement of
Comprehensive Income.
5. Other operating expenses
|
2016
£’000 |
2015
£’000 |
Allocated to revenue |
|
|
Custody fee |
91 |
90 |
Auditors’ remuneration: |
|
|
– audit services |
31 |
29 |
– other assurance services* |
6 |
6 |
Registrar’s fee |
78 |
72 |
Directors’ emoluments** |
228 |
256 |
Broker fees |
– |
269 |
Depositary fees |
60 |
62 |
Marketing expenses |
149 |
17 |
Other administrative costs |
252 |
229 |
|
-------- |
-------- |
|
895 |
1,030 |
|
-------- |
-------- |
Allocated to capital |
|
|
|
-------- |
-------- |
Transaction charges |
13 |
13 |
|
-------- |
-------- |
|
908 |
1,043 |
|
======== |
======== |
|
|
|
|
2016 |
2015 |
The Company’s ongoing charges,
calculated as a percentage of average net assets and using
expenses, excluding finance costs, transaction costs and taxation
were***: |
1.10% |
1.21% |
|
-------- |
-------- |
The Company’s ongoing charges,
calculated as a percentage of average gross assets and using
expenses, excluding finance costs, transaction costs and taxation
were****: |
0.96% |
1.08% |
|
-------- |
-------- |
* Fees paid to the
auditors for other assurance services of £6,200 excluding VAT
(2015: £6,500) relate to the review of the half yearly financial
statements.
** Details of the Directors'
emoluments are given in the Directors’ Remuneration Report on page
32 of the Annual Report and Financial Statements. The emoluments of
Ian Cockerill, Chairman, who
previously was also the highest paid Director, were £54,547 (2015:
£51,280). His emoluments include taxable benefits for reimbursement
of travel expenses.
*** Ongoing charges based on net assets
represent the management fee and all other operating expenses,
excluding finance costs, transaction charges and taxation, as a %
of average net assets.
**** Ongoing charges based on gross assets
represent the management fee and all other operating expenses,
excluding finance costs, transaction costs and taxation, as a % of
average gross assets. Gross assets are calculated based on net
assets during the year before the deduction of the bank overdraft
and loans.
6. Finance costs
|
2016
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
2015
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Interest on bank loans |
289 |
881 |
1,170 |
271 |
812 |
1,083 |
Interest on bank overdraft |
20 |
59 |
79 |
17 |
52 |
69 |
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
Total |
309 |
940 |
1,249 |
288 |
864 |
1,152 |
|
======== |
======== |
======== |
======== |
======== |
======== |
7. Dividends
Under IFRS, final dividends are not recognised until they are
approved by shareholders, and special and interim dividends are not
recognised until they are paid. They are also debited directly to
reserves. Amounts recognised as distributable to ordinary
shareholders for the period to 31 December were debited to the
revenue reserve. These amounts are as follows:
|
2016
£’000 |
2015
£’000 |
Interim ordinary dividend in respect
of the year ended 31 December 2016 of 4.00p per share, declared on
25 August 2016 and paid on 16 September 2016 |
7,058 |
12,410 |
Final ordinary dividend in respect
of the year ended 31 December 2015 of 14.00p per share, approved by
shareholders on 24 March 2016 and paid on 8 May 2016 |
24,739 |
24,820 |
|
-------- |
-------- |
|
31,797 |
37,230 |
|
======== |
======== |
The total dividends payable in respect of the year which form
the basis of section 1158 of the Corporation Tax Act 2010 and
section 833 of the Companies Act 2006, and the amounts proposed,
meet the relevant requirements as set out in this legislation.
|
2016
£’000 |
2015
£’000 |
Dividends paid or proposed on equity
shares: |
|
|
Interim ordinary dividend paid of
4.00p (2015: 7.00p) |
7,058 |
12,410 |
Proposed final ordinary dividend of
9.00p per share (2015: 14.00p)* |
15,881 |
24,820 |
|
-------- |
-------- |
|
22,939 |
37,230 |
|
-------- |
-------- |
* Based on 176,455,242 (2015:
177,287,242) ordinary shares. |
|
|
8. Consolidated earnings and net asset
value per ordinary share
Revenue and capital returns per share and net asset value per
share are shown below and have been calculated using the
following:
|
2016 |
2015 |
Net revenue profit attributable to
ordinary shareholders (£’000) |
23,303 |
32,744 |
Net capital profit/(loss)
attributable to ordinary shareholders (£’000) |
310,609 |
(242,875) |
|
-------- |
-------- |
Total profit/(loss) attributable to
ordinary shareholders (£’000) |
333,912 |
(210,131) |
|
======== |
======== |
Equity shareholders’ funds
(£’000) |
677,546 |
377,313 |
|
======== |
======== |
The weighted average number of
ordinary shares in issue during the year, on which the return per
ordinary share was calculated was: |
176,639,636 |
177,287,242 |
The actual number of ordinary shares
in issue at the year end, on which the net asset value per ordinary
share was calculated was: |
176,455,242 |
177,287,242 |
|
-------- |
-------- |
Revenue earnings per share |
13.19p |
18.47p |
Capital earnings/(loss) per
share |
175.85p |
(137.00p) |
|
-------- |
-------- |
Total profit/(loss) per share |
189.04p |
(118.53p) |
|
-------- |
-------- |
Net asset value per share |
383.98p |
212.83p |
Ordinary share price
(mid-market) |
336.50p |
181.00p |
|
======== |
======== |
9. Called up Share capital
|
Ordinary
shares
number
(nominal) |
Treasury
shares
number
(nominal) |
Total
shares |
£’000 |
Allotted, called up and fully paid
share capital comprised: |
|
|
|
|
Ordinary shares of 5p each |
|
|
|
|
|
-------- |
-------- |
-------- |
-------- |
Allotted, issued and fully
paid: |
|
|
|
|
|
-------- |
-------- |
-------- |
-------- |
At 1 January 2016 |
177,287,242 |
15,724,600 |
193,011,842 |
9,651 |
|
-------- |
-------- |
-------- |
-------- |
Purchase of ordinary shares |
(832,000) |
832,000 |
– |
– |
|
-------- |
-------- |
-------- |
-------- |
At 31 December 2016 |
176,455,242 |
16,556,600 |
193,011,842 |
9,651 |
|
======== |
======== |
======== |
======== |
During the year ended 31 December
2016, the Company purchased 832,000 (2015: nil) shares for a
total consideration of £1,882,000 (2015: nil) including costs. No
shares have been purchased since the year end and up to and
including the date of this report.
10. Share Premium and reserves
Group |
Share
premium
account
£’000 |
Special
reserve
£’000 |
Capital
redemption
reserve
£’000 |
Capital
reserve –
arising on
investments
sold
£’000 |
Capital
reserve –
arising on
investments
held
£’000 |
Revenue
reserve
£’000 |
At 1 January 2016 |
127,155 |
116,471 |
22,779 |
311,996 |
(256,974) |
46,235 |
Movement during the year: |
|
|
|
|
|
|
Total comprehensive income: |
|
|
|
|
|
|
(Losses)/profit for the year |
– |
– |
– |
(15,879) |
326,488 |
23,303 |
Transactions with owners: |
|
|
|
|
|
|
Ordinary shares purchased into
treasury |
– |
(1,882) |
– |
– |
– |
– |
Dividends paid |
– |
– |
– |
– |
– |
(31,797) |
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 31 December 2016 |
127,155 |
114,589 |
22,779 |
296,117 |
69,514 |
37,741 |
|
======== |
======== |
======== |
======== |
======== |
======== |
Company |
Share
premium
account
£’000 |
Special
reserve
£’000 |
Capital
redemption
reserve
£’000 |
Capital
reserve –
arising on
investments
sold
£’000 |
Capital
reserve –
arising on
investments
held
£’000 |
Revenue
reserve
£’000 |
At 1 January 2016 |
127,155 |
116,471 |
22,779 |
311,996 |
(249,492) |
38,753 |
Movement during the year: |
|
|
|
|
|
|
Total comprehensive income: |
|
|
|
|
|
|
(Losses)/profit for the year |
– |
– |
– |
(15,879) |
326,490 |
23,301 |
Transactions with owners: |
|
|
|
|
|
|
Ordinary shares purchased into
treasury |
– |
(1,882) |
– |
– |
– |
– |
Dividends paid |
– |
– |
– |
– |
– |
(31,797) |
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
At 31 December 2016 |
127,155 |
114,589 |
22,779 |
296,117 |
76,998 |
30,257 |
|
======== |
======== |
======== |
======== |
======== |
======== |
The net revenue profit before distribution dealt with in the
financial statements of the parent company was £23,301,000 (2015:
£36,711,000). As permitted under section 408 of the Companies Act
2006, the Statement of Comprehensive Income of the parent company
is not presented as part of these financial statements.
The share premium account and capital redemption reserve are not
distributable profits under the Companies Act 2006. The special
reserve may be used as distributable profits for all purposes and
in particular the repurchase by the Company of its ordinary shares.
Under the Company’s Articles, the Company is permitted to
distribute accumulated realised capital profits in the form of
dividends.
11. Risk Management Policies and
Procedures
Valuation of Financial Instruments
Financial assets and financial liabilities are either carried in
the Statements of Financial Position at their fair value
(investment and derivatives) or at an amount which is a reasonable
approximation of fair value (due from brokers, dividends and
interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Group to classify fair value
measurements using a fair value hierarchy that reflects the
significance of inputs used in making the measurements. The
valuation techniques used by the Group are explained in the
accounting policies note to the Financial Statements on page 54 of
the Annual Report and Financial Statements.
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset as follows.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price in an active market for an
identical instrument. These include exchange traded derivative
option contracts. A financial instrument is regarded as quoted in
an active market if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual
and regularly occurring market transactions on an arm’s length
basis.
Level 2 – Valuation techniques used to price securities based on
observable inputs. This category includes instruments valued using
quoted market prices in active markets for identical instruments;
quoted prices for similar instruments in markets that are
considered less than active; or other valuation techniques where
all significant inputs are directly or indirectly observable from
market data.
Valuation techniques used for non-standardised financial
instruments such as options, currency swaps and other
over-the-counter derivatives, include the use of comparable recent
arm’s length transactions, reference to other instruments that are
substantially the same, discounted cash flow analysis, option
pricing models and other valuation techniques commonly used by
market participants making the maximum use of market inputs and
relying as little as possible on entity specific inputs.
Level 3 – Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the
unobservable 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 unobservable adjustments or assumptions are required to
reflect differences between the instruments and instruments for
which there is no active 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 in its
entirety.
For this purpose, the significance of an input is assessed
against the fair value measurement in its entirety. If a fair value
measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a
Level 3 measurement. Assessing the significance of a particular
input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or
liability.
The determination of what constitutes ‘observable ’ requires
significant judgement by the Investment Manager. 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.
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 Company.
Valuation process and techniques for Level 3 valuations
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
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 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 Portfolio
Managers and reviewed by the Pricing Committee of the Investment
Manager. On a quarterly basis the Portfolio Managers 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 Investment 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 year.
Fair values of financial assets and financial liabilities
Financial assets and financial liabilities are either carried in
the Statements of Financial Position at their fair value
(investment and derivatives) or at an amount which is a reasonable
approximation of fair value (cash and cash equivalents, collateral
pledged, other receivables, other payables and bank loans and
overdrafts).
The table below sets out fair value measurements using the IFRS
13 fair value hierarchy.
Financial assets at fair value through profit or loss
at 31 December 2016 – Group |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
Assets: |
|
|
|
|
Equity |
655,028 |
4 |
13,633 |
668,665 |
Fixed interest securities |
68,015 |
3,570 |
– |
71,585 |
Investment in contractual
rights |
– |
– |
19,917 |
19,917 |
|
-------- |
-------- |
-------- |
-------- |
|
723,043 |
3,574 |
33,550 |
760,167 |
Liabilities: |
|
|
|
|
Derivative financial instruments –
written options |
– |
(855) |
– |
(855) |
|
-------- |
-------- |
-------- |
-------- |
|
723,043 |
2,719 |
33,550 |
759,312 |
|
======== |
======== |
======== |
======== |
Financial assets at fair value through profit or loss
at 31 December 2015 – Group |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
Assets: |
|
|
|
|
Equity |
352,482 |
76 |
10,572 |
363,130 |
Fixed interest securities |
54,813 |
– |
– |
54,813 |
Investment in contractual
rights |
– |
– |
8,142 |
8,142 |
|
-------- |
-------- |
-------- |
-------- |
|
407,295 |
76 |
18,714 |
426,085 |
Liabilities: |
|
|
|
|
Derivative financial instruments –
written options |
– |
(161) |
– |
(161) |
|
-------- |
-------- |
-------- |
-------- |
|
407,295 |
(85) |
18,714 |
425,924 |
|
======== |
======== |
======== |
======== |
Financial assets at fair value through profit or loss
at 31 December 2016 – Company |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
Assets: |
|
|
|
|
Equity |
655,028 |
4 |
22,618 |
677,650 |
Fixed interest securities |
68,015 |
3,570 |
– |
71,585 |
Investment in contractual
rights |
– |
– |
19,917 |
19,917 |
|
-------- |
-------- |
-------- |
-------- |
|
723,043 |
3,574 |
42,535 |
769,152 |
Liabilities: |
|
|
|
|
Derivative financial instruments –
written options |
– |
(855) |
– |
(855) |
|
-------- |
-------- |
-------- |
-------- |
|
723,043 |
2,719 |
42,535 |
768,297 |
|
======== |
======== |
======== |
======== |
Financial assets at fair value through profit or loss
at 31 December 2015 – Company |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
Assets: |
|
|
|
|
Equity |
352,482 |
76 |
19,554 |
372,112 |
Fixed interest securities |
54,813 |
– |
– |
54,813 |
Investment in contractual
rights |
– |
– |
8,142 |
8,142 |
|
-------- |
-------- |
-------- |
-------- |
|
407,295 |
76 |
27,696 |
435,067 |
Liabilities: |
|
|
|
|
Derivative financial instruments –
written options |
– |
(161) |
– |
(161) |
|
-------- |
-------- |
-------- |
-------- |
|
407,295 |
(85) |
27,696 |
434,906 |
|
======== |
======== |
======== |
======== |
A reconciliation of fair value measurement in Level 3 is set out
below.
Level 3 Financial assets at fair value through profit or loss
at 31 December – Group |
2016
£’000 |
2015
£’000 |
Opening fair value |
18,714 |
17,864 |
Purchases at cost |
– |
7,685 |
Disposals |
– |
(8,861) |
Total gains or losses included in
gains/(losses) on investments in the Consolidated Statement of
Comprehensive Income: |
|
|
– assets disposed during the
year |
– |
2,370 |
– assets held at the end of the
year |
14,836 |
(344) |
|
-------- |
-------- |
Closing balance |
33,550 |
18,714 |
|
======== |
======== |
Level 3 Financial assets at fair value through profit or loss
at 31 December – Company |
2016
£’000 |
2015
£’000 |
Opening fair value |
27,696 |
30,813 |
Purchases at cost |
– |
7,685 |
Disposals |
– |
(8,861) |
Total gains or losses included in
gains/(losses) on investments in the Consolidated Statement of
Comprehensive Income: |
|
|
– assets disposed during the
year |
– |
2,370 |
– assets held at the end of the
year |
14,839 |
(4,311) |
|
-------- |
-------- |
Closing balance |
42,535 |
27,696 |
|
======== |
======== |
Level 3 valuation process and techniques used by the Company are
explained in the accounting policies in note 2(h). A more
detailed description of the techniques is found on page 73 of the
Annual Report and Financial Statements under ‘Valuation process and
techniques’.
Quantitative information of significant unobservable inputs –
Level 3 – Group and Company
Description |
2016
£’000 |
2015
£’000 |
Valuation technique |
Unobservable input |
Banro gold-linked preference
share |
13,633 |
10,572 |
Discount to gold
prices |
30% Illiquidity
discount |
|
-------- |
-------- |
-------- |
-------- |
Avanco |
19,917 |
8,142 |
Discount cash flows |
Discount rate –
weighted average cost of capital
Average gold and
copper prices |
|
-------- |
-------- |
-------- |
-------- |
Investment in subsidiary
company |
8,985 |
8,982 |
Net assets |
Net assets |
|
======== |
======== |
======== |
======== |
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 hierarchy
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy,
together with an estimated quantitative sensitivity analysis, as at
31 December 2016 are as shown below.
The rationale for the explanation of the illiquidity discount is
given in the Investment Manager’s Report.
Description |
Input |
Estimated sensitivity used* |
Impact on fair value |
Banro gold-linked preference
share |
Average gold prices |
10% |
£1.4m |
|
-------- |
-------- |
-------- |
Avanco royalty |
Discount rate – weighted
average cost of capital
Average gold and copper prices |
1%
10% |
£2.2m
£4.8m |
|
======== |
======== |
======== |
* The sensitivity analysis refers to a
percentage amount added or deducted from the input and the effect
this has on the fair value.
The sensitivity impact on fair value is calculated based on the
sensitivity estimates set out by the independent valuer in its
report on the valuation of contractual rights. Significant
increases/(decreases) in estimated commodity prices and discount
rates in isolation would result in a significantly higher/(lower)
fair value measurement. Generally, a change in the assumption made
for the estimated value is accompanied by a directionally similar
change in the commodity prices and discount rates.
12. Contingent liabilities
There were no contingent liabilities at 31 December 2016 (2015: nil).
13. Publication of Non Statutory Accounts
The financial information contained in this announcement does
not constitute statutory accounts as defined in the Companies Act
2006. The Annual Report and Financial Statements for the year ended
31 December 2016 will be filed with
the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the
auditor, whose report for the year ended 31
December 2016 contains no qualification or statement under
section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial
statements of BlackRock World Mining Trust plc and its subsidiary
for the year ended 31 December 2015,
which have been filed with the Registrar of Companies. The report
of the auditor on those financial statements contained no
qualification or statement under section 498 of the Companies Act
2006.
14. Annual Report and Financial Statements
Copies of the Annual Report and Financial Statements will be
published shortly and will be available from the registered office,
c/o The Secretary, BlackRock World Mining Trust plc, 12 Throgmorton
Avenue, London EC2N 2DL.
15. Annual General Meeting
The Annual General Meeting of the Company will be held at 12
Throgmorton Avenue, London EC2N
2DL on Thursday, 4 May 2017 at
11.30 a.m.
ENDS
The Annual Report and Financial Statements will also be
available on the BlackRock website at www.blackrock.co.uk/brwm.
Neither the contents of the website nor the contents of any website
accessible from hyperlinks on the website (or any other website) is
incorporated into, or forms part of, this announcement.
For further information, please contact:
Mark Johnson, Head of Closed End
Funds, BlackRock Investment Management (UK) Limited – Tel:
020 7743 2300
Evy Hambro, Fund Manager,
BlackRock Investment Management (UK) Limited – Tel: 020 7743
4511
Emma Phillips, Media &
Communications, BlackRock Investment Management (UK) Limited –
Tel: 020 7743 2922
Press Enquiries:
Lucy Horne, Lansons
Communications – Tel: 020 7294 3689
E-mail: lucyh@lansons.com
23 February 2017
12 Throgmorton Avenue
London EC2N 2DL