TIDMBRWM
BlackRock World Mining Trust plc LEI - LNFFPBEUZJBOSR6PW155
Annual Results Announcement (Article 4 Transparency Directive, DTR 4.1)
for the year ended 31 December 2019
PERFORMANCE RECORD
31 31
December December
2019 2018
Net assets (GBP'000)¹ 757,110 685,595
Net asset value per ordinary share (NAV) (pence) 433.17 388.81
Ordinary share price (mid-market) (pence) 383.00 340.50
Discount to net asset value2,3 11.6% 12.4%
Performance
Net asset value per share (total return)3 +17.2% -11.5%
Ordinary share price (total return)3 +19.4% -10.7%
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1 The change in net assets reflects market movements, dividends paid and the
buyback of ordinary shares into treasury during the year.
2 This is the difference between the share price and NAV per share with debt
at par. Further details of the calculation of the discount are given in the
Glossary in the Annual Report and Financial Statements.
3 Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements. Total return performance figures are calculated in
sterling terms with dividends reinvested.
Year Year
ended ended Change
31 31 %
December December
2019 2018
Revenue
Net revenue profit after taxation (GBP'000) 39,561 32,013 +23.6
Revenue return per ordinary share (pence) 22.46 18.15 +23.7
Dividend per ordinary share (pence)
- 1st interim 4.00 3.00 +33.3
- 2nd interim 4.00 3.00 +33.3
- 3rd interim 4.00 3.00 +33.3
- Final 10.00 9.00 +11.1
Total dividends paid and payable 22.00 18.00 +22.2
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CHAIRMAN'S STATEMENT
I am pleased to report that 2019 was a record year for the Company in terms of
revenue earnings per share and income available for distribution to
shareholders. As a result, the Directors have recommended an annual dividend
which is up 22.2% on last year.
PERFORMANCE
Over the twelve months to 31 December 2019, the Company's net asset value per
share (NAV) returned 17.2%1 and the share price 19.4%1 (both percentages
calculated in sterling terms with dividends reinvested). By way of reference,
over the same period the EMIX Global Mining Index (net return) increased by
22.1%, a 'UCITS capped' version of the MSCI ACWI Metals & Mining 30% Buffer 10/
40 Index (net return) returned 15.3%, the FTSE All-Share Total Return Index
returned 19.2% and the UK Consumer Price Index (CPI) increased by 1.3%. A
discussion on which indices might be considered useful as references in future
is set out later in this statement.
As mentioned in the interim report, the mining sector started the year strongly
as mined commodity prices recovered after a challenging end to 2018. However,
towards the end of the summer, the sector fell on the back of deteriorating
global economic activity. In the last couple of months of the year, sentiment
began to turn on a perceived easing of geopolitical tensions and confidence
increased as the US and China agreed more positive terms for a trade deal.
A detailed commentary on the portfolio's performance, its positioning and the
investment outlook for the forthcoming year can be found in the Investment
Manager's Report. Since the year end and up until the close of business on 25
February 2020, the Company's NAV has decreased by 6.9%.
¹Alternative Performance Measures. Further details of the calculation of
performance with dividends reinvested are given in the Glossary in the Annual
Report and Financial Statements.
REVENUE RETURN AND DIVIDS
The Company's revenue return per share for the year amounted to 22.46p compared
with 18.15p for the previous year, representing an increase of 23.7%, a record
high for the Company. This was due to increased dividend payments from
portfolio companies, including additional special dividends, supplemented by
option writing income and a 104.2% increase in returns from royalty related
instruments.
During the year, three quarterly interim dividends each of 4.00p per share were
paid on 28 June 2019, 1 October 2019 and 20 December 2019. The Board is
proposing a final dividend payment of 10.00p per share for the year ended 31
December 2019. This, together with the quarterly interim dividends, makes a
total of 22.00p per share (2018: 18.00p per share) representing an increase of
22.2% on payments made in the previous financial year and, as in past years,
all dividends are fully covered by income. This level of dividend makes a new
high in annual payments with the previous high being 21.00p per share.
Shareholders should be aware that the Company has a policy of maximising total
return through the cycle and 2019 presented an opportunity to do so in relation
to the income component of returns. While the Company seeks to diversify
sources of revenue, it will continue to receive the majority of its income from
dividends on its investments. Decisions on whether to invest in higher yielding
investments or those expected to provide higher capital growth (and produce a
higher total return) will affect the Company's income. In particular, dividend
income may be affected by special dividends which in the year amounted to 3.8p
per share. As a result, shareholders should appreciate that in future years
there is no certainty that the current level of income will be maintained and
the Board does not have a progressive dividend policy.
Subject to approval at the Annual General Meeting, the final dividend will be
paid on 7 May 2020 to shareholders on the Company's register on 20 March 2020,
the ex-dividend date being 19 March 2020. It remains the Board's intention to
seek to distribute substantially all of the Company's available income.
DISCOUNT
The Directors recognise the importance to investors that the market price of
the Company's shares should not trade at a significant discount to the
underlying NAV and therefore, in normal market conditions, will consider the
repurchase of shares when it believes it is in shareholders' interests. The
second half of 2019 presented an opportunity to take advantage of a widened
discount. Share repurchases were therefore commenced to capitalise on the
situation. During the year, a total of 1,545,515 shares were purchased at an
average price of 356.08p per share for a total gross consideration of GBP
5,546,000. Subsequent to the year end, a further 979,707 shares have been
purchased for a total consideration of GBP3,673,000. All shares have been placed
in treasury. The average discount for the year to 31 December 2019 was 13.9%
and the discount at the year end was 11.6%. At 25 February 2020 the discount
was 11.9%.
The Company currently has authority to buy back up to 14.99% of the issued
share capital, excluding treasury shares, and the Board is proposing that the
existing authority be renewed at the forthcoming Annual General Meeting. No
shares were issued or sold from treasury during the year ended 31 December 2019
or up to the date of this report.
REFERENCE INDICES
My interim statement discussed the drawbacks of comparing the Company's
performance over the short term with an 'all-equity' reference index. Our
Portfolio Managers' approach to investing in the sector will encompass a range
of different mining securities, including fixed income investments, royalties
and traded options. As a consequence, we already provide a number of indices as
potential yardsticks for comparison, including the all-equity EMIX Global
Mining Index (which was previously the Euromoney Global Mining Index).
After examining the range of possible 'all-equity' reference indices which are
based on the mining sector, the Board believes that an index which restricts
the size of any one position in line with the UCITS diversification rules would
be better aligned to the Portfolio Managers' belief in the benefits of stock
level diversification and the Company's investment policy. The Board has
concluded that the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (MSCI ACWI)
would provide a better future reference tool for shareholders. This index is
designed to be less concentrated and more diversified than other indices by
constraining the exposure to any single issuer to 10% of the index value and
the sum of the weights of all securities with weights at more than 5% of the
index at 40%. The index also has what is referred to as a 'buffer' at 30%. The
buffer operates to ensure that the index does not have to be rebalanced
constantly to retain its diversification characteristics due to the market
movement of the index securities. The buffer is applied at the quarterly
rebalancing of the index, further limiting the maximum weight of any index
security and the sum of weights of larger securities. A more detailed
explanation of the methodology is explained in the Glossary in the Annual
Report and Financial Statements. The Board also believes the MSCI ACWI is a
better-known family of indices, as well as being a broader index than the EMIX,
as it includes steel companies.
The steel and diversified miners provide investors with exposure to the same
end markets and make up the same supply chain. However, as global metals supply
moves towards recycling, where the steel sector plays a key role, there is
merit in considering these opportunities for investors.
For the time being the performance of both indices (as two of the range of
reference indices provided) will be shown so that shareholders can make a fair
comparison of the Company's performance over time. However, for the forthcoming
year the principal reference index will be the MSCI ACWI Metals & Mining 30%
Buffer 10/40 Index. In due course the Directors will consider dropping the EMIX
Index.
BOARD OF DIRECTORS
As mentioned at the interim stage, the Board commenced a search to identify a
new Director assisted by a third-party recruitment firm. Having carefully
considered the Board's composition and the need to ensure a suitable balance of
skills, knowledge and experience, I am delighted to welcome Ollie Oliveira who
was appointed to the Board with effect from 3 February 2020. Ollie has over 35
years of strategic and operating experience in the mining industry and
corporate finance, complementing and enhancing the skills and experience of the
existing Board. Further details of Ollie's background can be found in his
biography in the Annual Report and Financial Statements. Ollie will be subject
to election by shareholders at the forthcoming Annual General Meeting, at which
time shareholders will have an opportunity to meet him.
At the date of this report the Board consists of six non-executive Directors.
Having served on the Board since July 2001, Colin Buchan has announced that he
will not be seeking re-election at the Company's next Annual General Meeting.
On behalf of my fellow Directors, I would like to thank Colin for his
tremendous contribution to the Company during his time as a Director, including
serving as both Senior Independent Director and Chairman of the Audit &
Management Engagement Committee. Following Colin's retirement, Russell Edey
will succeed him as Chair of the Audit & Management Engagement Committee
and will also become Senior Independent Director.
SUSTAINABLE INVESTMENT
Since inception of the Company, and given the nature of mining as an industry,
your Board has always had a strong focus on sustainable investment and the
environmental and social impact of portfolio investments.
We have therefore been encouraged by the even greater emphasis placed on these
factors by your Investment Manager, BlackRock, and the systematic integration
of Environmental, Social and Governance (ESG) factors into the investment
decision-making and monitoring process.
BlackRock have asserted their belief that climate change is now a defining
factor in companies' long-term prospects, and that it will have a significant
and lasting impact on economic growth and prosperity. In their view, which is
shared by your Board, climate risk now equates to investment risk and this will
drive a profound reassessment of risk and asset values as investors seek to
react to the impact of climate policy changes. This in turn will drive a
significant reallocation of capital away from traditional carbon intensive
industries over the next decade. The Company has had minimal exposure to
companies whose principal activity is the extraction of thermal coal and, going
forward, the Portfolio Managers will no longer invest in businesses which
generate more than 25% of their revenues from thermal coal production.
In January 2020, with this transition in mind, BlackRock announced that it
would accelerate its efforts with regard to sustainable investing, making a
number of enhancements to its investment management and risk processes,
including the following:
· heightening scrutiny on sectors with a high ESG risk, such as thermal
coal producers, due to the investment risk they present to client portfolios;
· putting ESG analysis at the heart of Aladdin (BlackRock's proprietary
investment management system) and using proprietary tools to help analyse ESG
risk; and
· placing oversight of ESG risk with BlackRock's Risk and Quantitative
Analysis group (RQA), to ensure that ESG risk is given increased weighting as a
risk factor and is analysed with the same weight given to traditional measures
such as credit or liquidity risk.
Your Board fully supports and applauds this approach, which is set out in
greater detail in the Strategic Report within the Annual Report and Financial
Statements.
TAILINGS FACILITY MANAGEMENT
In 2019 the investment team undertook a comprehensive review of all investments
in regard to tailings facility management, following the tragic Vale tailings
dam failure. While the review was, on the whole, relatively satisfactory, it
highlighted the complexity of tailings management and an area of weakness in
company disclosure and global industry reporting standards. The review helped
spur the investment community into action, which led to the formation of an
Investor Mining & Tailings Safety Initiative. This review is an evolving
process, but the investment team is working closely with the BlackRock
Investment Stewardship and Sustainable Investment teams to engage with
companies and the review panels on an ongoing basis to ensure standards and
reporting are improved across the industry.
CORPORATE GOVERNANCE
Earlier this year, the Association of Investment Companies (AIC) published the
2019 Code of Corporate Governance (the AIC Code) which was endorsed by the
Financial Reporting Council (FRC) as being appropriate for investment
companies. The AIC Code applies to accounting periods beginning on or after 1
January 2019.
The Board has determined that the Company has complied with the recommendations
of the AIC Code and the provisions contained within the UK Corporate Governance
Code issued by the FRC in July 2018 (the UK Code) that are relevant to the
Company for the accounting period which commenced on 1 January 2019. The AIC
Code is, in most material respects, the same as the UK Code, save that there is
greater flexibility regarding the tenure of the office of the Chairman and
membership of the Audit Committee.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at the offices of BlackRock
at 12 Throgmorton Avenue, London EC2N 2DL on Thursday, 30 April 2020 at 11.30
a.m. Details of the business of the meeting are set out in the Notice of
Meeting in the Annual Report and Financial Statements. The Portfolio Managers
will make a presentation to shareholders on the Company's progress and the
outlook for the mining sector in the year ahead.
OUTLOOK
Mining is a cyclical sector, highly exposed to global trade and overall levels
of economic activity. A preliminary agreement with China to halt the trade war
should prove positive for markets and, in Europe, the outcome of the UK
election has removed some degree of the uncertainty surrounding Brexit,
improving sentiment. Global growth is therefore likely to stabilise and could
gradually pick up over the next six to twelve months, helped in part by the
easier financial conditions introduced in 2019 by the US Federal Reserve and
European Central Bank. However, the recent escalation in US-Iran tensions and
the virus outbreak in China is a reminder of the potential for unforeseen risks
that can easily destabilise the rather encouraging outlook.
Your Portfolio Managers believe that the mining sector currently offers good
risk adjusted value compared to other sectors and as such they feel there is
the opportunity to generate competitive returns over the medium term. The focus
will be on quality companies with the right ESG credentials that can deliver
acceptable total return through the cycle.
DAVID CHEYNE
Chairman
27 February 2020
INVESTMENT MANAGER'S REPORT
PORTFOLIO PERFORMANCE
Despite the numerous macro risks 2019 was a strong year for shareholders, with
the Company delivering a NAV total return of 17.2% and share price total return
of 19.4% as mining companies continued down the path of disciplined capital
allocation and a focus on shareholder returns. As can be seen in the table
below, this return is in line with the broader mix of comparators that the
Board uses to assess performance and was only marginally behind the EMIX Global
Mining reference index, which, unlike the Company, is only exposed to equity
securities. It is also important to note the significant contribution from
income in 2019, with a record level of revenue earnings per share for the
Company at 22.46p, up by 23.7% on the prior year. The strategy of allocating
capital to enhance income whilst also diversifying the sources of income
generation leaves the Company well positioned to benefit from any further
growth in distributions and with lower overall income volatility.
2019 2019 3 Year 5 Year
Price Total Total Total
Change Return Return Return
% % % %
BRWM share price 12.5% 19.4% 32.4% 67.4%
BRWM NAV 11.4% 17.2% 28.7% 60.6%
EMIX Global Mining Index (net total return) 18.4% 22.1% 37.8% 67.0%
FTSE 100 Index 12.1% 17.3% 19.9% 40.8%
FTSE All Share Index 14.2% 19.2% 22.0% 43.8%
UK CPI 1.3% 1.3% 6.5% 8.4%
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All performance figures in GBP.
2019 was a year of valuation recovery after the disappointing sell-off during
the fourth quarter of 2018. Fears of recession and tighter monetary policy in
the fourth quarter of 2018 caused a sudden drop in share prices which left the
sector trading on valuations not seen for several years. Given the successful
deleveraging that had taken place post the 2015 collapse, the market was
discounting higher financial risk than was reality, leaving large amounts of
value available for investors. Despite this, it seemed that the memory of pain
from prior years was still too fresh and, with concerns on global trade,
recession and elections, caused the recovery to be more gradual than expected.
As the year unfolded, confidence peaked and troughed many times causing
multiple rallies and declines but left the sector strongly up for the year as a
whole.
2019 returns are explained by a small number of factors such as the rally in
iron ore following the tragic tailings dam collapse in Brazil, the return of
quantitative easing (QE) and the corresponding rally in gold companies, lower
than expected commodity demand (especially for copper) and finally the
increasing focus on Environmental, Social and Governance (ESG) issues by
investors. The Company was positioned for better than expected iron ore prices
with holdings in large diversified producers and the iron ore royalty exposure,
but not the extreme price moves seen during the year. In addition, a positive
view on copper, based around supply issues, did not play out due to the
depressed demand which left this part of the portfolio lagging behind. However,
copper holdings should catch up if the strong rally in price that we saw in
December holds into the year ahead. Finally, the solid rally in gold prices was
captured in the portfolio, but only in line with the sector as a whole due to
our goal within the portfolio of always being diversified by commodity. The
combination of the above, left the Company's NAV behind the reference index due
to not having enough exposure to lower quality iron ore producers and the
underperformance of our copper holdings. In addition, the very highly
concentrated exposure to the large diversified mining companies in the
reference index, which performed strongly, also impacted the Company's returns
on a relative basis.
As mentioned earlier, revenue generated during the year was up strongly leading
to a record level of revenue earnings per share, up by 23.7% on last year. The
main drivers were increased ordinary dividends, a raft of special dividends,
another year of solid returns from option premiums and a doubling of royalty
related payments on the back of the Vale Debenture acquisition. The final
dividend for the year is 10.00p, giving a total payment for the year as a whole
of 22.00p which is a new high and up 22.2% on the prior year. The dividend is
fully covered and again has delivered a superior yield to that available in the
broader sector.
MINING SECTOR OVERVIEW
After the declines in the last few months of 2018, the year started from a low
point on valuations. Investor sentiment for miners remained weak due to fears
on global growth and the seemingly perpetual debate on a global recession. This
was part of the two-speed economic system where services, which make up the
majority of the developed markets economies, were held up on the back of modest
global growth and technology names moved from strength to strength. Blame for
the manufacturing recession has fallen at the feet of the 'trade war'; Donald
Trump's broad campaign is to level the playing field with China and reduce the
US/China trade deficit, as well as to protect American Intellectual Property
and restrict Chinese players in critical industries like defence and 5G. This
created uncertainty in China and delayed investment decisions and spending,
slowing growth. The manufacturing industry globally was also negatively
impacted by tightening credit conditions, caused by the Federal Reserve raising
interest rates in the fourth quarter of 2018. This all contributed to the
economic slowdown, which in turn was negative for mined metals as they are used
in physical manufacturing, as well as construction. However, as the year
unfolded, governments around the world took action with many cutting rates,
injecting liquidity back into the economy and stimulating growth through fiscal
spending. This sudden shift from quantitative tightening (QT) back to QE took
investors by surprise and perpetuated the strong returns to growth away from
value.
Given the above, expectations for commodity prices at the start of the year
were low, especially for iron ore, and consensus positioning was for prices to
fade as the year progressed. Soon into the year, the tragic collapse of the
Brumadinho tailings facility in Brazil happened and, with it, huge amounts of
iron ore supply were removed from the seaborne market. This disruption caused a
rally in price but also the closing of the price differential between low and
high grade ore. This led to a rally in the valuations of iron ore producers,
especially those with balance sheet leverage, and not owning the likes of
Fortescue Mining resulted in significant lost relative return.
The base metals suite suffered during the year with average prices for 2019
lower than those of the prior year. Nickel was the only exception to this as
prices were supported by the Indonesian government ban on exports of nickel
ore. As a result, base metal equities were generally laggards compared to the
diversified names as the latter's exposure to iron ore meant cash generation
significantly exceeded expectations.
The precious metal suite was a standout performer within the whole commodity
space. Prices of gold, platinum and especially palladium soared on the back of
the move to more accommodative and stimulative government policies. Gold had
its best year in the last decade with prices rising 18.7% over the year, as
demand from investors increased significantly on the back of the move back to
QE. In addition, Central Banks were also large buyers of gold in 2019.
Purchases were up 2.5% over the prior year and this now marks the eleventh year
in a row of buying by Central Banks after over 30 years of selling prior to
this. The move in gold was substantial but this was pedestrian compared with
the 52.0% rise in the price of palladium. Shortages of supply and continued
growth in demand meant prices moved to reflect the tightness in the market and
platinum group metal equities soared higher.
In the interim report we emphasised the underlying themes that the Company
invests in, with portfolio returns largely driven by those themes as opposed to
just commodity beta. These themes evolve as the fundamentals of the companies
and markets change. For example, from 2016 to 2018 the Company had significant
exposure to deleveraging. This theme has largely played out and the companies
have moved from deleveraging to rewarding shareholders. Resource replenishment,
capital discipline, asset quality and growth remain key drivers of portfolio
selection and we expect these to continue to support positive performance of
the portfolio over the longer term. The reform agenda in China continues to
play a key role in commodity markets especially with the increased global focus
on the environment. A new area for the Company has been to review opportunities
in recycling and reuse of materials. We expect this area to be a core part of
global materials' production in years to come but at present the opportunity to
invest in this area remains challenging due to a lack of choice. We actively
consider investment opportunities within this thematic area.
SHAREHOLDER RETURNS
2019 was an echo of the previous 12 months, as the large diversified miners who
deleveraged post the crash of 2015 continued to return cash to shareholders.
During the year the Company received numerous special dividends on top of large
increases in the ordinary dividends from a whole range of companies, with the
biggest contributions coming from BHP and Rio Tinto. In addition, some of the
mid-sized and junior mining companies either initiated dividends or announced
significant increases to their payout ratios. The Company was a beneficiary of
this due to holdings in companies like Lundin Mining and Teck Resources in the
base metals space and Agnico Eagle Mines, B2Gold and Alamos Gold in the gold
sector. Outside of dividends, share buyback plans continued and the equity base
of the sector is now steadily shrinking which is compounding the small rates of
volume growth on a per share basis. It was interesting to note that Newmont
Mining has become the first gold miner to start buying back its shares.
GROWTH AND RESOURCE REPLENISHMENT
Despite the more positive tone to the sector during the year, growth in supply
remains muted which is supportive for commodity prices. We continue to look
for, and invest in, quality growth companies where we see that growth
translating into growth on a value per share basis. For the last couple of
years, the portfolio has focused on growth related to copper producers given
the need for further supply to be added in that market longer term. Key copper
growth investments in the portfolio include Ero Copper, First Quantum Minerals,
OZ Minerals, Nevada Copper, SolGold and Lundin Mining (following their recent
acquisition of the Chapada copper/gold mine from Yamana). Copper growth is also
part of the reason for the ongoing exposure to Teck Resources whose expansion
of the Quebrada project will diversify the company from the current high
exposure to coal and oil.
A select few gold companies also fall into the growth basket. Most of this has
come from acquisitions as mid-sized companies have been able to purchase
non-core assets from the 'super majors' in a wave of activity not seen since
the gold boom of the last decade. The Company has helped to finance many of
these deals by either adding to existing holdings or initiating new positions
in companies that should re-rate post deal. An example of this is Northern Star
Resources which has added the Pogo project in Alaska and more recently
purchased half of the famous Super Pit in Australia from Newmont. Another
example is Teranga Gold which has utilised its existing plant facilities to
extract synergies from the Massawa project it purchased from Barrick Gold in
the latter part of 2019.
Outside of gold, the Company had a basket of growth-related equity exposure
with the majority of holdings likely to be longer term in nature. An
example would be exposure to Ivanhoe Mines which is developing huge new copper
mines in the Democratic Republic of Congo (DRC) with Chinese backing and a new
platinum mine in South Africa with Japanese partners. These projects will take
several years before they generate their first cash flow, but the potential is
vast. Nearer-term growth has come from Nickel Mines in Indonesia. This group
has been able to unlock huge value from working closely with a large Chinese
industrial group to fast track themselves into nickel production.
In the resource replenishment theme the driver is always exploration drilling.
The ability for the Company to be patient and wait for discoveries has
generated a lot of value over the life of the Company. Recent success in this
area has mostly come from the gold space with Pretium Resources and B2Gold
delivering significant life extension at their mines. Life extension can also
come from strategic mergers and acquisitions (M&A) where new owners unlock
additional life by changing operating practices that result in lower costs. The
Company has exposure to this via groups like Northern Star who have been
extremely active over the last five years buying non-core gold assets from
major producers.
SUSTAINABLE MATERIALS
The rise of the electrified vehicle (EV) has continued this year, led by growth
in sales of EVs in China which grew 1.3% year-on-year (Source: Autocar, January
2020). Sales have been incentivised by significant subsidies in China. However,
the subsidies were so successful they are now no longer required to meet
government targets. As such these subsidies were halved in July 2019 and will
likely be reduced again in 2020. This was a headwind to EV sales in China in
the second half of the year. Nevertheless, despite the recent hit to sentiment,
China again committed to EVs and increased targets. In December, China released
the latest draft of its New Energy Vehicle 2035 plan and increased the 2025
target from 20% of automotive sales to 25%. China appears to be driven to lead
in the auto industry, reduce pollution and secure energy independence.
The main raw materials that go into batteries, cobalt and lithium, were hit by
the tempering of expectations after strong price increases in 2017 and 2018.
However, it is important to note that the absolute tonnage demand continues to
grow strongly. For cobalt prices it was a year of two halves, with prices down
in the first half before Glencore acted to balance the cobalt market in August
with a decision to suspend the Mutanda project in the DRC for two years,
impacting 20% of global supply. A key driver here has been production from the
DRC where both Chinese and artisanal producers responded with surprising speed
to the very high cobalt price in the first half of 2018. We also saw ESG
concerns come to the fore in 2019 with Apple, Alphabet, Microsoft, Dell and
Tesla facing a lawsuit by a human rights group over alleged child-labour abuses
in the supply chain for cobalt used in their products. Both higher prices and
supply chain concerns have resulted in increased thrifting of cobalt enabled by
technological advances.
Prices for lithium moved lower throughout the year and ended down by 31.5%. As
well as the tempered growth outlook, prices have been hit by bottlenecks in the
battery supply chain with some Australian miners being unable to sell their
lithium spodumene concentrate due to processing capacity projects being
delayed. The holding in Albemarle was hit by negative sentiment around lithium
prices and fell 5.2% during the year. Albemarle's key advantage, a portfolio of
long-term contracts which secure pricing in exchange for quality supply,
enabled Albemarle to mitigate losses in such weak markets. Currently we see
signs of stabilisation in the price decline going into 2020. Prices are now
sufficiently low in lithium for supply to be exiting the market, particularly
at the junior end where we saw two bankruptcies of lithium project developers,
Nemaska Lithium and Alita Resources. Albemarle also remains well placed to
benefit from volume growth, with a number of key expansion projects such as
Atacama and Greenbushes. Albemarle further added to its project pipeline by
acquiring 50% of the Wodgina deposit from Mineral Resources. Immediately after
acquiring the stake, Albemarle paused operations in an effort to deliver more
value in the long term and we expect it to remain disciplined in their supply
of material into the market.
Another major battery metal is nickel, where demand is likely to stand to
benefit from the increased penetration of EVs and thus demand for lithium
batteries which contain nickel in the cathode of the battery. However, today
the number one use of nickel driving near-term demand is stainless steel
production. Not all nickel production is created equal when it comes to
suitability for different end-uses and for battery cathodes the most efficient
raw nickel units are nickel sulphide tonnes, whilst for stainless steel
ferronickel is very cost effective.
BASE METALS
Base metals were the weakest part of the commodity mix during the year with
nickel being the only base metal to record a high average price year-on-year. A
combination of generally weak industrial activity and resulting low demand
growth left the complex under pressure from financial investors who chose to
use the forward markets to express a negative view on the global economy. Large
short positions in copper were a feature of the year and it was only towards
the year end that these started to close. On the supply side, 2019 was a year
of low growth and disruptions but the scale was not enough to move prices
higher. With the general macro risk for the global economy now improving it is
hoped that base metal demand should recover during 2020 and, with limited
supply growth, prices should put in a better performance over the near term.
Within the copper space the Company has a large exposure to more growth
orientated producers and it is hoped that when the metal price starts to
improve these names should deliver strong performance due to a mix of balance
sheet leverage, production growth and exploration potential. Key holdings are
Freeport-McMoRan Copper & Gold, First Quantum Minerals, Ero Copper, OZ
Minerals, Lundin Mining and Ivanhoe Mines. The Company also has holdings in
debt securities issued by copper producers and these should also perform well
with better metal prices.
During the year, the price of nickel went through a major cycle as depressed
demand left the price languishing at the start of the year after a rapid
sell-off in the second half of 2018. No sooner had the year begun prices
started to rally and early price hikes were compounded by the announcement of
export bans from Indonesia. The price soared and touched an intra year high of
almost US$8.50/lb before giving up some of the gains during the final quarter
of the year. The Company has two main exposures to nickel via a holding in
Norilsk Nickel, which is a diversified base metal and Platinum Group Metals
(PGM) producer in Russia, and Nickel Mines. The latter is a high growth company
with exposure to domestic production of nickel in Indonesia which is integrated
directly into a stainless-steel production facility. During the year the shares
were up 137% despite having issued new equity to fund the ongoing production
growth. The miner is now very well positioned to harvest returns from its
existing assets, whilst also having further growth options it could develop.
The rest of the base metals complex was very weak, especially by comparison to
precious metals and iron ore. The Company had minimal exposure to this area
but, given the price falls to levels below long-term averages and improving
macro outlook, it is an area we plan to monitor closely during the coming year
as commodity prices have a long record of mean reversion.
BULK COMMODITIES
The iron ore price was up 28.1% in 2019 with the market significantly impacted
by the tragic Brumadinho tailings dam incident which occurred at the beginning
of the year. The tailings dam at the Feijão iron ore mine which is owned by
Vale suffered a catastrophic failure collapsing and killing 272 people. The
Feijão tailings dam was constructed using the 'Upstream' method, which meant
that the dam's stability relied on the tailings material and this is seen as a
key weakness of the Upstream construction method. Following the disaster, Vale
announced that it would decommission nine Upstream iron ore dams in Brazil and
suspended around 60mt of production. This, in addition to the direct production
impact, resulted in Vale's iron ore production falling by around 80mt in 2019
compared with 2018, equivalent to 6% of global seaborne demand. Vale has guided
for the 60mt of production to recommence once the dams are de-characterised
over 2020 and 2021 (Source: Vale Quarterly results).
This was a significant shock to the market and resulted in sharply higher
prices versus expectations. Although these high prices have incentivised an
increase in supply at smaller mines, it has not been enough to stop global
seaborne supply shrinking year-on-year. Notably the other big three suppliers
outside Vale - Rio Tinto, BHP and Fortescue Metals - have not increased
production. Supply in iron ore remains highly concentrated with the 'Big 4'
supplying over 60% of the seaborne iron ore market. These major producers have
evidenced they are pursuing a value over volume strategy limiting growth to
maintain price and preserve margins. It is likely that the iron ore price will
need to continue to incentivise new production, as well as draw down on
inventory to balance the market in 2020. The ongoing resumption of suspended
Vale production in 2021, as well as the ramp-up of Vale's Northern System
production which was unaffected by the disaster, should balance the market in
2021.
Selected commodity price changes during 2019
Price % % Change
31/12/ Change Avg
2019 12 2019 vs.
month 2018
Precious Metals US$/oz
Silver 17.92 15.5 3.2
Gold 1,520.50 18.7 9.7
Platinum 971 22.3 -1.8
Palladium 1,920 52.0 49.2
Base Metals US$/lb
Tin 7.79 -12.0 -7.4
Zinc 1.03 -9.5 -12.8
Lead 0.87 -4.7 -10.9
Aluminium 0.81 -4.4 -14.9
Copper 2.79 3.4 -8.0
Nickel 6.33 31.5 6.1
Industrial Commodities
Coking Coal Future US$/t 136.0 -37.6 -6.7
Thermal Coal US$/t Newcastle 64.9 -36.0 -27.1
Iron Ore - fines 62% Fe China Import US$/t 93.0 28.1 34.6
Uranium US$/lb 25.0 -12.3 5.5
Lithium Carbonate CIF to China spot 99% US$/t 9,250 -31.5 -21.4
========= ======== ========
== === ===
Sources: Datastream and Bloomberg.
Against this supply backdrop we have seen global demand growth this year,
despite higher prices. This demand growth could only be met with a drawdown in
global inventories. Iron ore is mainly used in steel production and Chinese
steel production grew by 8.3% in 2019 as steel mill profitability remained
strong, particularly for construction materials. As the Chinese economy has
matured and generated more scrap steel, the mix of steel raw material has moved
towards scrap steel, away from iron ore, and we saw this continue in 2019 with
scrap accounting for 18% of Fe units from 17% in 2018 (Source: Citi).
The Company has benefited from the high iron ore prices through positions in
Rio Tinto and BHP which returned 36% and 20% respectively. The Company's
position in Vale has hurt performance with a sterling total return of -1%
(Source: Bloomberg).
Coking coal is another key steel raw material, but unlike iron ore the price
was down 37.6% in 2019. China introduced a quota system for coal imports in
2019 with the aim to prevent imports rising on 2018 levels and protect domestic
thermal coal producers. As part of this, coking coal imports were also blocked.
In addition, European coking coal demand was weak, partly due to falling demand
for auto steel. Indian demand has increased, mitigating some of the impact of
the Chinese quota, with India now the biggest seaborne coking coal market. The
thermal coal price fell 36.0% through the year; as well as the Chinese import
restriction, low Asian LNG prices and coal-gas switching in Europe, has weighed
on demand.
The Company's coking coal holdings include Teck Resources and Coronado Global
Resources which have both negatively impacted the Company's performance in
2019. However, both companies remain on attractive valuations and Coronado in
particular has a track record of returning excess capital to shareholders,
having returned 50% of its year end share price in dividends during 2019.
Likewise, Teck Resources has paid special dividends during the last two years
and is now regularly buying back its shares.
PRECIOUS METALS
2019 was a stellar year for precious metals as a group. Gold and silver prices
were up by 18.7% and 15.5% respectively and this is the first year in nine that
we have seen such significant moves. Key within this move for the companies is
that the price increase has come about when the companies were already
generating decent returns and, as such, this extra margin should flow through
to the bottom line given the absence of growth in capex and debt to repay. It
will still take some time for shareholders to receive the full benefit given
that the price increase was mostly second half weighted, but it is very
encouraging to see the first signs of this coming through. During 2019 several
gold miners raised dividends; for example, Agnico Eagle Mines raised its
dividend by 40%, Barrick Gold by 66% and Alamos Gold by 100%, but the most
impressive has been Newmont Mining. Following the purchase of Goldcorp in the
early part of the year, Newmont paid out a special dividend which is reflected
in the income of the Company this year. In addition, in December Newmont
announced a US$1 billion share buyback, the first for a gold producer for many
years. Then, in January 2020, Newmont announced a 79% increase in its annual
dividend and that they had already completed half of the buyback. Newmont has
raised the bar for shareholder returns in the gold sector and we look forward
to other companies following suit.
The last two years have been a busy period for M&A teams in the gold sector.
The end of 2018 saw the merger of Barrick Gold and Randgold Resources, followed
quickly by the takeover of Goldcorp by Newmont. This was then followed by the
merger of Barrick and Newmont's Nevada gold assets to create a massive
market-leading US gold business with huge synergies to come. Others have also
been busy as the big players divested non-core assets. The famous Australian
Super Pit was sold by Newmont and Barrick to Northern Star and Saracen Mineral.
In Africa, Barrick sold the Massawa project to Teranga Gold and completed the
buyout of the minorities in Acacia Mining, whilst in Canada Newmont sold Red
Lake to Evolution Mining. We expect this period of gold company consolidation
to continue as the mid cap producers look to gain relevance in global financial
markets by increasing the size of their businesses. The Company has been very
active during the year by helping to finance some of these deals and harvesting
returns in the process.
The PGMs were the leaders within the precious metals area. The long bull run in
these metal prices, especially palladium, continued in 2019 and with it the
turnaround in the profitability of the producers. The Company bought a position
in Impala Platinum during the third quarter of 2018 and it has been one of the
best performers within the Company. The shares were up 312% in sterling terms
during 2019 and the company has used the improving margins to strengthen the
balance sheet and diversify its production away from South Africa into Canada.
The other holding in the Company is Northam Platinum which, like Impala, saw a
huge 207% increase in share price during the year. Outside of these producers
the Company has exposure to PGMs via a holding in Norilsk Nickel and through
Anglo American. Profit margins and free cash flow are expected to remain
elevated for the near term and, should South African producers start to pay
decent dividends, then this could turn into a driver of income for the Company
as a whole.
ROYALTIES AND ILLIQUID INVESTMENTS
The Company currently has one unquoted investment, the OZ Minerals Brazil
Royalty representing 1.9% of the portfolio (GBP15.8 million) as at the end of
December 2019. The Company has an additional royalty investment in Vale
Shareholder Debentures, representing 3.4% of the portfolio. The latter is
technically listed in Brazil but due to limited liquidity it is covered in this
section. Together, the two royalty investments make up 5.3% of the portfolio.
These, and any future investments, will be managed in line with the guidelines
set by the Board as outlined to shareholders in the Strategic Report*.
*Liquidity refers to the ease of buying and selling a particular investment.
Illiquid investments, such as unquoted investments, or thinly traded
investments, may not be easily sold without a loss in value and may also be
hard to sell quickly, however there is often additional return available on
illiquid investments which bear illiquidity risk.
OZ MINERALS BRAZIL ROYALTY CONTRACT (1.9%)
In July 2014 the Company signed a binding royalty agreement with Avanco
Minerals. The Company provided US$12 million in return for a Net Smelter Return
(net revenue after deductions for freight, smelter and refining charges)
royalty payments comprising 2% on copper, 25% on gold and 2% on all other
metals produced from mines built on two licenses containing Avanco's Antas
North and Pedra Branca projects. In addition, there is a flat 2% royalty over
all metals produced from any other discoveries within Avanco's license area as
at the time of the agreement.
Last year we reported that the royalty has now been assumed by OZ Minerals, an
Australian based copper and gold producer, after Avanco was successfully
acquired by OZ Minerals. Since our initial US$12 million investment was made,
we have received US$12.3 million in royalty payments with the royalty achieving
full payback on the initial investment. As at the end of December 2019, the
royalty was valued at GBP15.8 million (2.1% of NAV) which equates to a 176.5%
total return since our investment.
In November 2019, OZ Minerals approved the development of the Pedra Branca
underground mine and released a feasibility study and mine plan detailing an
8-year life of mine. This mine will provide ore which will be trucked to the
existing processing facilities at the Antas license site from mid-2021, as part
of the Carajas Antas Hub strategy which OZ Minerals outlined in July 2019 - a
low risk, modest capital, hub strategy, with processing infrastructure on the
Antas license serving multiple small to mid-scale mines. OZ Minerals has guided
for mining on the Antas license to cease in 2021 but processing is expected to
continue for at least the life of the Pedra Branca mine. Exploration activities
also continue in the Carajas region with OZ Minerals detailing an exploration
target of 2.0 to 4.0 million tonnes at a grade of 3.1% to 5.0% copper at their
Clovis prospect, which is around 2km from Antas, following encouraging initial
drill results.
From a valuation perspective, the positive decision to mine the Pedra Branca
deposit results in a lower discount rate applied on the cash flow from this
mine. However, the life of mine, at eight years, is shorter than originally
expected from the Mineral Reserve released in July. An independent valuation of
the royalty was completed giving a range of valuations under different
scenarios. The current valuation sits both within the range of values given by
the independent valuation and BlackRock's own internal valuation range. As
such, the Directors have chosen to keep the value unchanged.
VALE SHAREHOLDER DEBENTURES
In early 2019 the Company completed a transaction to increase its existing
holding in Vale Shareholder Debentures. The primary benefits of owning these
securities are an entitlement to a 1.8% net revenue royalty over Vale's
Northern System and Southeastern System iron ore assets in Brazil, as well as a
1.25% royalty over the Sossego copper mine. The iron ore assets are world class
given their grade, cost position, infrastructure and resource life which is
well in excess of 50 years. Prior to this transaction, the Company had a 0.5%
position in these securities versus the current level of 3.4%. Vale has
indicated that they are studying increasing production at the Northern System
to further increase dry-processing operations and reduce its usage of tailings
dams, which provides additional upside to our original expectations.
The chart on page 18 of the Annual Report and Financial Statements shows the
historic distributions paid by Vale to the owners of the Debentures and in 2019
this amounted to R775 million. The payments are expected to grow further once
royalty payments commence on the Southeastern System in 2023 and volumes from
the newly commissioned iron ore project S11D continue to ramp-up. Vale's
Northern System is currently producing at 195Mt and forecast to grow to 230Mt
once S11D ramps-up, while the Southeastern System is currently operating at
circa 75Mt and is expected to remain around this level.
Whilst the Vale Debentures are a royalty, they are also a listed security on
the Brazilian National Debentures System. However, shareholders should be aware
that historically there has been a low level of liquidity in the Debentures and
price volatility is to be expected. Since the acquisition of a significant
number of additional Debentures in February 2019, the Debentures have paid out
a total of R2/Debenture versus the R23 paid for each one giving a yield on the
acquisition cost of 9.0%.
We continue to actively look for opportunities to grow royalty exposure given
it is a key differentiator of the Company and an effective mechanism to lock-in
long-term income which further diversifies the Company's revenues.
FIXED INCOME SECURITIES
The Company continues to have a meaningful part of the portfolio allocated to
fixed income securities. These were 8.1% of the portfolio as at the end of
2019. This year saw market conditions continue to improve and allowed companies
to strengthen balance sheets by paying down debt. This was highlighted as a
risk to an important source of income for the Company, especially when combined
with potential rising interest rates which eat away at the arbitrage between
the Company's cost of debt versus the underlying mining companies' costs.
During the year a number of bonds were either repaid or positions were sold as
the running yields reduced, which cut the overall amount invested in this part
of the portfolio. One new holding was added which met the value and income
goals and we continue to look for new deals but with a very strict focus on
return versus quality.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts, mostly
involving the sale of 'puts' and 'calls'. These are taken to revenue and are
subject to strict Board guidelines which limit their magnitude to an aggregate
10% of the portfolio. During 2019 income generated from options was GBP6.0
million net of contracts repurchased. In common with last year most of the
premium was generated from writing a mixture of puts and calls due to the
swings in valuation over the year as a whole. The majority of options expired
out of the money as options were written with short lives and share prices
generally remained in narrow ranges during these periods. For the year as
whole, option premium was in line with the prior year and at the end of 2019
the Company had 2.1% of net assets exposed to derivatives.
GEARING
Debt, 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. At 31 December 2019,
the Company had debt net of group cash amounting to GBP88.5 million representing
gearing of 11.7%. Over the last few years the amount of gearing allocated
against higher yielding mining company corporate bonds has declined due to
increased returns available in the equities and also reduced availability of
bonds that meet the valuation criteria. Therefore, for 2019, the majority of
the Company's debt was drawn against the equity portfolio and royalty
positions.
ESG
The importance of sustainability to society is unquestionable and its
consequent higher profile in the financial markets, particularly during the
course of 2019, was marked. Campaigns to reduce single-use plastic, change food
culture and reduce carbon emissions have played a part in the rapid increase in
focus on this area during the year. We have also seen much greater interest in
corporate sustainability, defined as creating long-term value for all
stakeholders, from employees, to local communities, the environment and
government.
The Company, like many in the industry, has historically analysed its
investments looking at environmental, social and governance risks, and
considered not just the legal right to operate a mine but the company's social
license to operate. This has been an area of focus for the Company over many
years and it has been core to the investment process run by the management
team. Given the rapid increase in attention now focused on this area, we see
potential risks and outcomes becoming broader and more impactful than ever
before.
The majority of the Company's holdings are publicly traded securities and, as
risks rise for certain securities, so will demanded returns. For example, this
is seen in the coal sector where regulation has increased the cost of coal
electricity, particularly in Europe, and has reduced European demand in favour
of renewable power. Crucially, coal companies now trade at a major valuation
discount to other miners on the back of a whole range of fears from the risk of
further societal driven demand destruction, or regulatory supply constraints.
This regulation does not actually have to occur; the increased investor
perception of the risk is enough to drive negative returns. In addition, the
reduced availability of capital to thermal coal producers from banks and
investors means that the cost of capital has risen significantly and thus the
equity risk premium for securities in this area is set to remain high for the
foreseeable future. It is also interesting to note that, in the case of single
use plastic, this was not driven by regulation but instead was in response to a
grass roots movement fostered by social media.
In metals and mining, investors are becoming more demanding with higher
expectations of how metals are produced, now and in the future. 2019 saw
significant focus in three areas:
· Safety, particularly around tailings dams - The tragic Vale disaster
highlighted the importance of employee safety and prompted the International
Council on Mining and Metals to work with the United Nations Environment
Programme (UNEP) and the Principles for Responsible Investment (PRI) to
co-convene an inclusive global tailings review for the purpose of establishing
an international standard for tailings storage facilities.
· Society's desire to reduce its carbon impact - A key route to carbon
reduction is renewable power. The mining sector is impacted broadly by power
costs and we recently saw BHP move to take its Chilean operations away from
coal power, breaking early from coal power contracts causing a US$700 million
impairment. However, even including this impairment, BHP disclosed that
renewable power has reduced spot power prices in Chile to such an extent that
this move was net positive for value creation. We also saw investment decisions
around reducing the carbon intensity of both steel and aluminium - for example
the joint venture between Rio Tinto and Alcoa, ELYSIS, supported by Apple and
the governments of Canada and Quebec, which is developing aluminium smelting
technology with no direct greenhouse gas emissions.
· Recycling and the circular economy - There may be opportunities for
miners who position themselves to benefit from the circular economy: metal
production from recycling is expected to grow as a percentage of supply over
the coming years. 2019 saw a number of investment decisions in recycled steel
demand in the USA from BlueScope, Nucor and Steel Dynamics. This steel
production will likely replace imports and domestic blast furnace production.
The announcement of growth capital going into expanding recycling facilities in
Europe and China was a regular occurrence and we expect the pace and scale of
these investments to continue to increase going forward.
The whole subject of ESG is very broad and rapidly evolving. The Company has
always taken into account these elements in its investment process to analyse
risk to an operation but during the last few years opportunities have arisen
for the Company to deploy capital in growth investments that should benefit
from the demand for 'green' materials. It is likely that this area will become
a more significant part of the portfolio, especially when this subsector of the
materials space looks for fresh capital.
OUTLOOK AND STRATEGY FOR 2020
After the strong returns generated during the year it might seem foolish to
expect another year of competitive total returns for the mining sector in 2020
but, with macro risks seemingly on the turn for the better, the outlook is
relatively favourable. The US and China have recently agreed a 'Phase One' deal
on new trade terms and this might mark a reversal in trade fears that have been
a burden on commodities demand ever since the last US Presidential election. In
addition, the return to accommodative monetary policies in 2019 has left the
global economy poised for an increased level of economic activity especially in
China and the US. During the last few months of 2019 data was very supportive
of this view, with strong US labour markets and a recovery in the Chinese
Manufacturing Purchasing Managers' Index to a 7-month high supported by
rallying retail and industrial sales in China. In Europe, the data is less
supportive but still not negative and with increased clarity on Brexit
following the UK election this risk should start to fade. Offsetting the
positives is the ongoing threat to growth from the recent virus outbreak. This
looks potentially set to cause downgrades to economic growth given the likely
disruption to trade via travel restrictions and consumer confidence. At the
time of writing concerns are rising and we will watch out for signs of it being
under control before deploying additional risk in the portfolio.
At the company level capital discipline has kept growth investments on hold,
which means any increase in demand should result in better prices given the
generally low level of metal inventories. Operating cost inflation looks to be
under control and companies seem to be achieving productivity gains, with an
increased use of big data analytics and automation. Finally, mining companies
look set to continue returning surplus capital to shareholders, although the
level of special dividends is likely to be lower year-on-year. With this in
mind, we will seek to optimise the income element of the portfolio once again
so as to maximise the total return should share prices not reflect the growth
tailwinds in the global economy.
Shareholders should also be aware of the currency risk to income given the
possibility of a recovery in sterling relative to the US dollar. At current
levels the drag should not be material, but if the pound was to rally further,
then this would reduce revenues in sterling terms.
In summary, we remain confident on the value available in the sector,
especially when looked at relative to the low level of mining company
indebtedness. It is our expectation that this will allow the Company to deliver
a superior total return for its shareholders through the cycle, from a
combination of capital growth and a premium yield to that generally available
from the mining sector, and to continue to generate competitive returns
compared to world markets.
EVY HAMBRO AND OLIVIA MARKHAM
BlackRock Investment Management (UK) Limited
27 February 2020
TEN LARGEST INVESTMENTS
1 = BHP (2018: 1st)
Diversified mining company
Market value: GBP82,204,000
Share of investments: 9.7%
The world's largest diversified mining company by market capitalisation. The
company is an important global player in a number of commodities including iron
ore, copper, thermal and metallurgical coal, manganese, nickel, silver and
diamonds. The company also has significant interests in oil, gas and liquefied
natural gas.
2 = Rio Tinto (2018: 2nd)
Diversified mining company
Market value: GBP78,662,000
Share of investments: 9.3%
One of the world's leading mining companies. The company's primary product is
iron ore, but it also produces aluminium, copper, diamonds, gold, industrial
minerals and energy products.
3 = Vale1,2 (2018: 3rd)
Diversified mining company
Market value: GBP73,107,000
Share of investments: 8.6%
One of the largest mining companies in the world, with operations in 30
countries. Vale is the world's largest producer of iron ore and iron ore
pellets and a leading producer of nickel. The company also produces manganese
ore, ferroalloys, metallurgical and thermal coal, copper, platinum group
metals, gold, silver and cobalt.
4 + Anglo American (2018: n/a)
Diversified mining company
Market value: GBP51,863,000
Share of investments: 6.1%
A global mining company. The company's mining portfolio includes bulk
commodities including iron ore, manganese and metallurgical coal, base metals
including copper and nickel and precious metals and minerals including platinum
and diamonds. Anglo American has mining operations globally, with significant
assets in Africa and South America.
5 + Barrick Gold (2018: n/a)4
Gold producer
Market value: GBP37,617,000
Share of investments: 4.4%
Following the merger with Randgold Resources in 2018, Barrick Gold is the
second largest gold company by market capitalisation and has operations and
projects in fifteen countries across the world. In 2019 the company
successfully established a joint venture with Newmont Mining across their
Nevada assets to maximize the synergies across both sets of assets.
6 + Newmont Mining (2018: 9th)
Gold producer
Market value: GBP37,382,000
Share of investments: 4.4%
Following the acquisition of Goldcorp in the first half of 2019, Newmont is the
world's largest gold producer by market capitalisation. The company has gold
and copper operations on five continents, with active gold mines in Nevada,
Australia, Ghana, Peru and Suriname.
7 - First Quantum Minerals1 (2018: 5th)
Copper producer
Market value: GBP35,581,000
Share of investments: 4.2%
An established growing copper mining company operating seven mines including
their newest mine, Cobre Panama, which declared commercial production in
September 2019. The company is a significant copper producer and also produces
nickel, gold and zinc.
8 + Agnico Eagle Mines (2018: 21st)
Gold producer
Market value: GBP31,504,000
Share of investments: 3.7%
A Canadian based gold company with mines in Canada, Finland and Mexico, with
exploration activities in each of these countries as well as in the United
States and Sweden. Agnico Eagle has a strong operational track-record and has
declared a cash dividend every year since 1983.
9 + Wheaton Precious Metals (2018: 17th)
Silver and Diamond producer
Market value: GBP31,036,000
Share of investments: 3.7%
A precious metals streaming company that purchases silver and gold production
from mines that it does not own and operate. The company has streaming
agreements with 22 operating mines worldwide including Newmont's Penasquito,
HudBay's Constancia and Vale's Salobo and Sudbury mines.
10 = OZ Minerals2,3 (2018: 10th)
Copper producer
Market value: GBP27,233,000
Share of investments: 3.3%
An Australian based copper producer which operates Prominent Hill, a
copper-gold mine in South Australia and is currently developing Carrapateena
one of Australia's largest copper-gold resources. OZ Minerals is a
well-capitalised company with strong cash generation, no debt and cash of A$505
million as at 31 December 2019. In 2018 the company successfully acquired
Avanco Resources for A$418 million in a 50/50 cash/scrip deal. Along with its
existing asset base, this transaction provides OZ Minerals with a strong copper
growth pipeline with options in both Australia and Brazil.
1 Includes fixed income securities.
2 Includes investments held at Directors' valuation.
3 Includes mining royalty contract.
4 Excludes a 2.3% holding in Randgold Resources as at 31 December 2018.
Randgold Resources and Barrick Gold merged in early 2019.
All percentages reflect the value of the holding as a percentage of total
investments. Together, the ten largest investments represent 57.4% of total
investments (ten largest investments as at 31 December 2018: 61.0%). Amounts in
the table above are shown in pounds sterling.
INVESTMENTS AS AT 31 DECEMBER 2019
Main Market
geographical value % of
exposure GBP'000 investments
Diversified
BHP Global 82,204 9.7
Rio Tinto Global 78,662 9.3
Vale Global 44,405 5.2
Vale 0% Debentures#* Latin 28,702 3.4
America
Anglo American Global 51,863 6.1
Glencore Global 21,363 2.5
Teck Resources Global 20,474 2.4
Teck Resources Put Option 17/01/20 CA$28 Global (66) -
Lundin Mining Global 14,418 1.7
Boliden Sweden 7,028 0.8
Boliden Put Option 17/01/20 SEK245 Sweden (58) -
South32 Global 6,447 0.8
---------------------- ----------------------
355,442 41.9
============ ============
Gold
Barrick Gold Global 37,617 4.4
Newmont Mining Global 37,382 4.4
Agnico Eagle Mines Canada 31,504 3.7
Franco-Nevada Global 23,377 2.8
Northern Star Resources Australasia 18,837 2.2
Newcrest Mining Australasia 17,657 2.1
B2Gold Canada 7,567 0.9
Polyus Russia 5,683 0.7
Teranga Gold Other Africa 4,766 0.6
Pretium Resources Canada 3,637 0.4
Alamos Gold Latin 3,582 0.4
America
Polymetal International Russia 2,390 0.3
Shanta Gold Convertible* Other Africa 1,397 0.2
TMAC Resources Canada 1,199 0.1
Carawine Resources+ Australasia 5 -
---------------------- ----------------------
196,600 23.2
============ ============
Copper
First Quantum Minerals* Global 35,581 4.2
OZ Minerals Brazil Royalty# Latin 15,790 1.9
America
OZ Minerals Global 11,443 1.4
Sociedad Minera Cerro Verde Latin 22,337 2.6
America
Freeport-McMoRan Copper & Gold Global 18,219 2.2
Freeport-McMoRan Copper & Gold Call Option 17/ Global (131) -
01/20 US$13
Ero Copper Latin 16,502 2.0
America
Antofagasta Latin 10,543 1.2
America
Antofagasta Call Option 17/01/20 GBP9.60 Latin (20) -
America
Antofagasta Call Option 17/01/20 GBP9.20 Latin (39) -
America
Ivanhoe Mines Other Africa 7,578 0.9
Nevada Copper USA 6,621 0.8
SolGold Latin 2,911 0.3
America
Sierra Metals Latin 2,066 0.2
America
KAZ Minerals Kazakhstan 797 0.1
Katanga Mining Other Africa 728 0.1
---------------------- ----------------------
150,926 17.9
============ ============
Silver & Diamonds
Wheaton Precious Metals Global 31,036 3.7
Mountain Province Diamonds* Canada 8,145 1.0
Fresnillo Latin 4,496 0.5
America
Industrias Penoles Latin 3,360 0.4
America
Petra Diamonds* South Africa 1,723 0.2
---------------------- ----------------------
48,760 5.8
============ ============
Industrial Minerals
Iluka Resources Global 9,870 1.2
Umicore Global 8,616 1.0
Pilgangoora* Australasia 8,036 1.0
Albemarle Global 7,165 0.8
Sheffield Resources Australasia 4,034 0.5
Neo Lithium Latin 559 0.1
America
---------------------- ----------------------
38,280 4.6
============ ============
Nickel
Norilsk Nickel Russia 14,169 1.7
Nickel Mines Indonesia 7,473 0.9
Bindura Nickel Other Africa 23 -
---------------------- ----------------------
21,665 2.6
============ ============
Iron ore
Labrador Iron Canada 10,024 1.2
Equatorial Resources Other Africa 390 -
---------------------- ----------------------
10,414 1.2
============ ============
Coal
Coronado Global Resources Australasia 3,870 0.5
---------------------- ----------------------
3,870 0.5
============ ============
Aluminium
Metro Mining Australasia 1,441 0.2
---------------------- ----------------------
1,441 0.2
============ ============
Zinc
Titan Mining USA 974 0.1
Osisko Metals Canada 96 -
---------------------- ----------------------
1,070 0.1
============ ============
Other
Impala Platinum South Africa 12,584 1.5
Northam Platinum South Africa 4,411 0.5
---------------------- ----------------------
16,995 2.0
============ ============
Portfolio 845,463 100.0
============ ============
Comprising
- Investments 845,777 100.0
- Written options (314) -
---------------------- ----------------------
845,463 100.0
============ ============
* Includes fixed income securities.
# Includes investments held at Directors' valuation.
Mining royalty contract.
+ Includes warrant investments.
All investments are in equity shares unless otherwise stated.
The total number of investments as at 31 December 2019 (including options
classified as liabilities on the balance sheet) was 65 (31 December 2018: 65).
As at 31 December 2019 the Company held equity interests in three companies
comprising more than 3% of a company's share capital as follows: Nevada Copper,
Sheffield Resources and Titan Mining.
PORTFOLIO ANALYSIS AS AT 31 DECEMBER 2019
COMMODITY EXPOSURE1
2019 2018# 2019
Company portfolio Company portfolio EMIX Global Mining
Index
Other 2.0% 0.8% 2.4%
Molybdenum 0.0% 0.0% 0.2%
Zinc 0.1% 0.9% 0.0%
Aluminium 0.2% 0.9% 2.8%
Coal 0.5% 0.7% 3.6%
Iron Ore 1.2% 0.1% 2.1%
Nickel 2.6% 0.4% 2.7%
Industrial 4.6% 6.6% 1.4%
Minerals
Silver & 5.8% 6.4% 2.7%
Diamonds
Copper 17.9% 18.9% 7.6%
Gold 23.2% 15.5% 30.1%
Diversified 41.9% 48.8% 44.4%
# Represents exposure at 31 December 2018.
GEOGRAPHIC EXPOSURE2
2019 2018
Global 63.8% 60.0%
Latin America 13.0% 12.4%
Canada 7.3% 7.4%
Australasia 6.5% 10.9%
Other3,4 5.4% 3.3%
South Africa 2.2% 1.5%
Other Africa 1.8% 4.5%
(ex SA)
1 Based on index classifications.
2 Based on the principal commodity exposure and place of operation of each
investment.
3 Consists of Indonesia, Kazakhstan, Russia, Sweden, United Kingdom and USA.
4 Consists of Indonesia, Kazakhstan, Russia, Turkey and USA.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31
December 2019. The aim of the Strategic Report is to provide shareholders with
the information to assess how the Directors have performed their duty to
promote the success of the Company during the year under review.
PRINCIPAL ACTIVITY
The Company carries on business as an investment trust and has a premium
listing on the London Stock Exchange. Its principal activity is portfolio
investment and that of its subsidiary, BlackRock World Mining Investment
Company Limited (together the Group), is investment dealing. Investment trusts
are pooled investment vehicles which allow exposure to a diversified range of
assets through a single investment, thus spreading investment risk.
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 BlackRock Fund Managers Limited (the Manager). Matters
reserved 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 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). The Manager, operating under guidelines determined by the
Board, 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.
The Manager delegates fund accounting services to the Investment Manager, which
in turn sub-delegates these services to The Bank of New York Mellon
(International) Limited. The Company sub-delegates registration services to the
Registrar, Computershare Investor Services PLC. Other service providers include
the Depositary, The Bank of New York Mellon (International) Limited. Details of
the contractual terms with these service providers are set out in the
Directors' Report in 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. Up to 10% of gross assets may be held in 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.
As approved by shareholders in August 2013, 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 March 2015 the Board refined the guidelines associated with the Company's
royalty strategy and proposed to maintain the 20% maximum exposure to royalties
but the royalty/unquoted portfolio should itself deliver diversification across
operator, country and commodity. To this end, new investments into individual
royalties/unquoted investments should not exceed circa 3% of gross assets at
the time of investment. Total exposure to any single operator, including other
issued securities such as debt and/or equity, where greater than 30% of that
operator's revenues come from the mine over which the royalty lies, must also
not be greater than 3% at the time of investment. In addition, the guidelines
require that the Investment Manager must, at the time of investment, manage
total exposure to a single operator, via reducing exposure to listed securities
if they are also held in the portfolio, in a timely manner where royalties/
unquoted investments are revalued upwards. In the jurisdictions where statutory
royalties are possible (in countries where mineral rights are privately owned)
these will be preferred and in respect of contractual royalties (a contractual
obligation entered into by the operator and typically unsecured) the valuation
must take into account the higher credit risk involved. Board approval will
continue to be required for all royalty/unquoted investments.
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.
No material change will be made to the investment policy without shareholder
approval.
Gearing
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 14.2% and, at the financial
reporting date, net gearing (calculated as borrowings less cash and cash
equivalents as a percentage of net assets) stood at 11.7% of shareholders'
funds (2018: 13.5%). For further details on borrowings refer to note 14 and the
Alternative Performance Measure in the Glossary in the Annual Report and
Financial Statements.
Portfolio analysis
As at 31 December 2019, the investment in the OZ Minerals Brazil Royalty was
held at Directors' valuation, representing a total of GBP15,790,000
(US$20,918,000) (2018: GBP18,513,000 (US$23,578,000)). 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 investment listing and the portfolio analysis.
Further information regarding investment risk and activity throughout the year
can be found in the Investment Manager's Report.
Continuation vote
As agreed by shareholders in 1998, an ordinary resolution for the continuation
of the Company is proposed at each Annual General Meeting. 2019 was a strong
year, with mining companies continuing down the path of disciplined capital
allocation and focusing on returning surplus capital to shareholders. The
Directors remain confident on the value available in the sector and therefore
recommend that shareholders vote in support of the Company's continuation.
Performance
Details of the Company's performance for the year are given in the Chairman's
Statement. The Investment Manager's Report includes a review of the main
developments during the year, together with information on investment activity
within the Company's portfolio.
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 GBP
114,066,000 (2018: loss of GBP91,087,000) of which GBP39,561,000 (2018: GBP
32,013,000) is revenue profit.
It is the Board's intention to distribute substantially all of the Company's
available income. The Directors recommend the payment of a final dividend as
set out in the Chairman's Statement. Dividend payments/payable for the year
ended 31 December 2019 amounted to GBP38,515,000 (2018: GBP31,747,000).
Promoting the success of the Company
Directors of large companies now have to explain more fully how they have
discharged their duties under section 172(1) of the Companies Act 2006 in
promoting the success of their companies for the benefit of members as a whole.
This includes the likely consequences of their decisions in the longer term and
how they have taken wider stakeholders' needs into account.
The enhanced disclosure that follows covers how the Board has engaged with and
understands the views of stakeholders and how stakeholders' needs have been
taken into account, the outcome of this engagement and the impact that it has
had on the Board's decisions. The Board considers the main stakeholders in the
Company to be the Manager, Investment Manager and the shareholders. The Board's
main working relationship is with the Investment Manager, who is responsible
for the Company's assets, asset allocation, stock and sector selection and risk
management, as well as ancillary functions such as administration, secretarial,
accounting and marketing services. In addition to this, the Board considers
investee companies and key service providers of the Company to be stakeholders;
the latter comprise the Company's Custodian, Depositary, Registrar and Broker.
A summary of the key areas of engagement undertaken by the Board with its key
stakeholders in the year under review and how Directors have acted upon this to
promote the long-term success of the Company are set out in the table below.
Areas of Issue Engagement Impact
engagement
Investment Our main working relationship is with We continued to work very closely with The portfolio activities undertaken by
mandate and the management company that we hold the Investment Manager throughout the the Investment Manager can be found in
objective to account in managing shareholders' year in further developing our their report. The Company has been
assets. The Board has responsibility investment strategy and underlying building exposure to longer dated
to shareholders to ensure that the policies, not simply for the purpose growth opportunities that have
Company's portfolio of assets is of achieving the Company's investment significant potential, as well as
invested in line with the stated objective but in the interests of quality growth companies where that
investment objective and in a way shareholders and future investors. growth translates into growth on a
that ensures an appropriate balance value per share basis.
between spread of risk and portfolio
returns.
Responsible The mining industries in which the The Board believes that responsible The Board and the Investment Manager
ownership Company's investment universe operate investment and sustainability are believe there is a positive correlation
are facing ethical and sustainability integral to the longer-term delivery between strong ESG practices and
issues that cannot be ignored by of the Company's success. The Board investment performance. It is
asset managers and investment works closely with the Investment especially vital in mining given the
companies alike. More than ever Manager to regularly review the long investment cycle and its ability
before the importance of good Company's performance, investment to impact a company maintaining its
governance and sustainability strategy and underlying policies to social license to operate. ESG is one
practices are key factors in making ensure that the Company's investment of the many factors that we look at and
investment decisions. objective continues to be met in an site visits to companies' mines provide
effective, responsible and sustainable valuable insights into their ESG
way in the interests of shareholders practices.
and future investors.
BlackRock has stated that, as part of
The Investment Manager's approach to its commitment to sustainability, it
the consideration of ESG factors in will divest any investment in companies
respect of the Company's portfolio, as that derive more than 25% of revenues
well as the Investment Manager's from thermal coal production from all
engagement with investee companies to discretionary active investment
encourage the adoption of sustainable portfolios. During the year under
business practices which support review, the Company has had minimal
long-term value creation, are kept exposure to companies whose principal
under review by the Board. The Board activity is the extraction of thermal
also expects to be informed by coal.
the Investment Manager of any
sensitive voting issues involving the Within the parameters of the Company's
Company's investments. Environmental existing investment policy, the
issues were prominent in the Investment Manager is continuing to
engagement, as was executive pay and look for opportunities to deploy
the re-election of directors. capital in growth investments that
should benefit from the demand for
The Investment Manager reports to the 'green' materials. It is likely that
Board in respect of its ESG policies this area will become a more
and how these are integrated into the significant part of the portfolio.
investment process; a summary of
BlackRock's approach to ESG and
sustainability is set out in the
Annual Report and Financial
Statements. The Investment Manager's
engagement and voting policy is
detailed in the Annual Report and
Financial Statements and on
the BlackRock website.
Shareholders Continued shareholder support and The Board is committed to maintaining The Board values any feedback and
engagement are critical to the open channels of communication and to questions from shareholders ahead of
continued existence of the Company engage with shareholders. The Company and during Annual General Meetings in
and the successful delivery of its welcomes and encourages attendance and order to gain an understanding of their
long-term strategy. participation from shareholders at its views and will take action when and as
Annual General Meetings. Shareholders appropriate. Feedback and questions
will have the opportunity to meet the will also help the Company evolve its
Directors and Investment Manager and reporting, aiming to make reports more
to address questions to them directly. transparent and understandable.
The Investment Manager will also
provide a presentation on the Feedback from all substantive meetings
Company's performance and the outlook between the Investment Manager and
for the mining sector. shareholders will be shared with the
Board. The Directors will also receive
The Annual Report and Half Yearly updates from the Company's broker on
Financial Report are available on the any feedback from shareholders, as well
BlackRock website and are also as share trading activity, share price
circulated to shareholders either in performance and an update from the
printed copy or via electronic Investment Manager.
communications. In addition, regular
updates on performance, monthly
factsheets, the daily NAV and other
information are also published on the
website at blackrock.co.uk/brwm.
Unlike trading companies, one-to-one
shareholder meetings normally take the
form of a meeting with the Investment
Manager as opposed to members of the
Board. The Company's willingness to
enter into discussions with
institutional shareholders is also
demonstrated by the programmes of
institutional presentations by the
Investment Manager. If shareholders
wish to raise issues or concerns with
the Board, they are welcome to do so
at any time. The Chairman is available
to meet directly with shareholders
periodically to understand their views
on governance and the Company's
performance where they wish to do so.
He may be contacted via the Company
Secretary whose details are given
in the Annual Report and Financial
Statements.
Discount One of the Board's long-term The Board monitors the Company's During the financial year the Company
management strategic aspirations is that the discount on an ongoing basis and has bought back 1,545,515 shares at a cost
Company's shares should trade met with the Investment Manager and of GBP5,546,000. Since the year end and
consistently at a price close to the the Company's Broker on a regular up to the date of this report, the
NAV per share. basis to discuss methods to manage the Company has bought back a further
discount. A range of discount control 979,707 shares at a cost of GBP3,673,000.
mechanisms have been reviewed and the
benefits and disadvantages of these The Company participates in a focused
have been discussed at length. investment trust sales and marketing
initiative operated by the Manager on
In addition, the Board has worked behalf of the investment trusts under
closely with the Investment Manager to its management. Further details are set
develop the Company's marketing out in the Annual Report and Financial
strategy, with the aim of ensuring Statements. The Board also took the
effective communication with existing opportunity in the 25th anniversary to
shareholders and to attract new promote the Company through marketing
shareholders to the Company in order and public relation initiatives and, at
to improve liquidity in the Company's a wider social level, by supporting
shares and to sustain the share rating scholarships for talented, but
of the Company. financially disadvantaged students to
continue their studies to pursue a
career in the mining industry.
The Company's average discount for the
year to 31 December 2019 was 13.9% and
the discount at 25 February 2020 stands
at 11.9%.
Service levels The Board acknowledges the importance The Investment Manager reports to the All performance evaluations were
of third party of ensuring that the Company's Board on the Company's performance on performed on a timely basis and the
providers principal suppliers are providing a a regular basis. The Board carries out Board concluded that all third party
suitable level of service, including a robust annual evaluation of the service providers, including the
the Investment Manager in respect of Investment Manager's performance, Manager and Investment Manager, were
investment performance and delivering their commitment and available operating effectively and providing a
on the Company's investment mandate; resources. good level of service.
the Custodian and Depositary in
respect of their duties towards The Board performs an annual review of The level of fees paid to the
safeguarding the Company's assets; the service levels of all third-party Depositary was reviewed and reduced
the Registrar in its maintenance of service providers and concludes on from 1.15 basis points per annum of net
the Company's share register and their suitability to continue in their assets to a rate of 0.95 basis points
dealing with investor queries; and role. The Board receives regular per annum with effect from 1 January
the Company's Brokers in respect of updates from the AIFM, Depositary, 2019. The interest rate on the
the provision of advice and acting as Registrar and Brokers on an ongoing Company's overdraft facility with The
a market maker for the Company's basis. Bank of New York Mellon (International)
shares. Limited and the revolving credit
facility with The Bank of New York
Mellon was also reduced during the year
by 10 basis points.
Board The Board is committed to ensuring The Board undertook a review of The Board appointed Ollie Oliveira as a
composition that its own composition brings an succession planning arrangements in Director of the Company with effect
appropriate balance of knowledge, the year and identified the need for a from 3 February 2020. His biography is
experience and skills, and that it is new Director. The Nomination Committee set out in the Annual Report and
compliant with best corporate agreed the selection criteria and the Financial Statements. Details of each
governance practice under the UK method of selection, recruitment and Directors' contribution to the success
Code, including guidance on tenure appointment, Board diversity, and promotion of the Company are set
and the composition of the Board's including gender, were carefully out in the Directors' Report in the
committees. considered when establishing the Annual Report and Financial Statements.
criteria. The services of an external
search consultant, Norman Broadbent Colin Buchan will retire at the
Group PLC, as well as the Directors' forthcoming Annual General Meeting.
range of contacts, were used to
identify potential candidates.
SUSTAINABILITY AND OUR ESG POLICIES
The Board's approach
Environmental, social and governance (ESG) issues can present both
opportunities and threats to long-term investment performance. The Company's
investment universe comprises sectors that are likely to be highly impacted by
increasing regulation as a result of climate change and other social and
governance factors. Your Board is committed to ensuring that we have appointed
a Manager that applies the highest standards of ESG practice. The Board
believes that BlackRock is well placed as Manager to fulfil these requirements
due to the integration of ESG into its investment processes, the emphasis it
places on sustainability in its investment stewardship activities and its
position in the industry as the largest supplier of sustainable investment
products in the global market. More information on BlackRock's approach to
sustainability is set out below.
Responsible ownership - BlackRock's approach
As a fiduciary to its clients, BlackRock has built its business to protect and
grow the value of clients' assets. From BlackRock's perspective,
business-relevant sustainability issues can contribute to a company's long-term
financial performance and thus further incorporating these considerations into
the investment research, portfolio construction and stewardship process can
enhance long-term risk adjusted returns. By expanding access to data, insights
and learning on material ESG risks and opportunities in investment processes
across BlackRock's diverse platform, BlackRock believes that the investment
process is greatly enhanced. ESG factors have been a key consideration of the
BlackRock Natural Resources team's investment process since the team was formed
in 2001 and the Company's portfolio managers work closely with BlackRock's
Investment Stewardship team to assess the governance quality of companies and
investigate any potential issues, risks or opportunities. The Portfolio
Managers use ESG information when conducting research and due diligence on new
investments and again when monitoring investments in the portfolio.
BlackRock's approach to sustainable investing
Considerations about sustainability have been at the centre of BlackRock's
investment approach for many years and the firm offers more than 100
sustainable products and solutions. BlackRock believes that climate change is
now a defining factor in companies' long-term prospects and that will have a
significant and lasting impact on economic growth and prosperity. It is
BlackRock's belief that climate risk now equates to investment risk and this
will drive a profound reassessment of risk and asset values as investors seek
to react to the impact of climate policy changes. This in turn is likely to
drive a significant reallocation of capital away from traditional carbon
intensive industries over the next decade.
In January 2020, with this transition in mind, BlackRock announced that it
would accelerate its sustainable investing efforts and make a number of
enhancements to its investment management and risk processes, including the
following:
· heightening scrutiny on sectors with a high ESG risk, such as thermal
coal producers, due to the investment risk they present to client portfolios;
· putting ESG analysis at the heart of Aladdin (BlackRock's proprietary
trading platform) and using proprietary tools to help analyse ESG risk; and
· placing oversight of ESG risk with BlackRock's Risk and Quantitative
Analysis group (RQA), to ensure that ESG risk is given increased weighting as a
risk factor and is analysed with the same weight given to traditional measures
such as credit or liquidity risk.
The importance of considering ESG when investing in the Natural
Resources Sector
Environmental Social Corporate governance
Mines will inevitably have an impact on the BlackRock believes it is As with all companies, good
local environment. Key is how companies vital that natural corporate governance is
manage this process ensuring the benefits resources companies critical for natural resources
are appropriately shared amongst all maintain their social companies. In conjunction with
stakeholders. The negative impact on the license to operate. By the BlackRock Investment
market capitalisation of companies such as this, BlackRock means that Stewardship team, the portfolio
BHP and Vale, after the Samarco and companies maintain broad management team actively
Brumadinho tailings dam failures, acceptance from their engages with companies on a
highlights the key role that ESG has on employees, stakeholders, wide range of governance issues
share price performance. As set out in more local communities and the including board independence,
detail in the Annual Report and Financial national government. The executive compensation,
Statements, BlackRock will be aligning its portfolio management team's shareholder protection and
engagement and stewardship priorities to UN site visits to companies' timely disclosure.
Sustainable Development Goals and is assets provide them with
committed to voting against management to valuable insight into these
the extent that they have not demonstrated issues which often cannot
sufficient progress in how they manage be properly understood from
these environmental impacts and operating company reports.
events.
Investment stewardship
BlackRock also places a strong emphasis on sustainability in its stewardship
activities. BlackRock has engaged with companies on sustainability-related
questions for a number of years, urging management teams to make progress while
also deliberately giving companies time to enhance disclosure consistent with
the Sustainability Accounting Standards Board (SASB) and the Task Force on
Climate-related Financial Disclosures (TCFD). This includes each company's plan
for operating under a scenario where the Paris Agreement's goal of limiting
global warming to less than two degrees is fully realised, as expressed by the
TCFD guidelines. To this end, BlackRock is now a member of Climate Action 100+,
a group of investors that engages with companies to improve climate disclosure
and align business strategy with the goals of the Paris Agreement. BlackRock
will be aligning its engagement and stewardship priorities to UN Sustainable
Development Goals (including Gender Equality and Affordable and Clean Energy).
BlackRock is committed to voting against management to the extent that they
have not demonstrated sufficient progress on sustainability issues.
BlackRock is committed to transparency in terms of disclosure on its engagement
with companies and voting rationales. Last year BlackRock voted against or
withheld votes from 4,800 directors at 2,700 different companies. More details
about BlackRock's investment stewardship process can be found on BlackRock's
website at https://www.blackrock.com/uk/individual/about-us/
investment-stewardship.
In terms of its own reporting, BlackRock believes that the SASB provides a
clear set of standards for reporting sustainability information across a wide
range of issues, from labour practices to data privacy to business ethics. For
evaluating and reporting climate-related risks, as well as the related
governance issues that are essential to managing them, the TCFD provides a
valuable framework. BlackRock recognise that reporting to these standards
requires significant time, analysis and effort. BlackRock's own SASB-aligned
disclosure is available on its website at https://www.blackrock.com/corporate/
literature/continuous-disclosure-and-important-information/
blackrock2018sasbdisclosure.pdf, and BlackRock is working towards a
TCFD-aligned disclosure by the end of 2020.
BlackRock is also a founding member of the TCFD and a signatory to the UN's
Principles for Responsible Investment. BlackRock also signed the Vatican's 2019
statement advocating carbon pricing regimes, which it believes are essential to
combating climate change. BlackRock has also joined with France, Germany and
global foundations to establish the Climate Finance Partnership, which is one
of several public-private efforts to improve financing mechanisms for
infrastructure investment. More information on BlackRock's policies on
Corporate Sustainability can be found on BlackRock's website at https://
www.blackrock.com/uk/individual/about-us/corporate-sustainability.
KEY PERFORMANCE INDICATORS
A number of key performance indicators (KPIs) are used to monitor and assess
the Company's success in achieving its objectives and to measure its progress
and performance. The principal KPIs are described below.
Performance
At each meeting, the Board reviews the performance of the portfolio, as well as
the net asset value and share price for the Company and compares this against
various companies and indices. The Company does not have a benchmark; however,
the Board reviews performance in the context of a number of indices as set out
in the Financial Highlights in the Annual Report and Financial Statements.
Share price discount to net asset value per share (NAV)
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 2019, the discount fell from 12.4% on a cum income
basis to 11.6% and the average discount for the year was 13.9%. During the
year, the Company bought back 1,545,515 ordinary shares and a further 979,707
have been repurchased since the financial year end and up to the date of this
report. More details are given in the Directors' Report in the Annual Report
and Financial Statements. The Board considers the use of share buy backs 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.
Further details, setting out how the discount or premium at which the Company's
shares trade is calculated, are included in the Glossary in the Annual Report
and Financial Statements.
Ongoing charges
The ongoing charges are based on actual costs incurred in the year as being the
best estimate of future costs.
The Board reviews the Company's ongoing charges and monitors expenses 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 at each Board meeting. A definition
setting out in detail how the ongoing charges ratio is calculated is included
in the Glossary in the Annual Report and Financial Statements.
The table that follows sets out the key KPIs for the Company. These KPIs fall
within the definition of 'Alternative Performance Measures' under guidance
issued by the European Securities and Markets Authority (ESMA) and additional
information explaining how these are calculated is set out in the Glossary
in the Annual Report and Financial Statements.
Year Year
ended ended
31 31
December December
2019 2018
Net asset value total return1,2 17.2% -11.5%
Share price total return1,2 19.4% -10.7%
Discount to net asset value2 11.6% 12.4%
Revenue earnings per share 22.46p 18.15p
Total dividends per share 22.00p 18.00p
Ongoing charges2,3 1.02% 0.93%
Ongoing charges on gross assets2,4 0.89% 0.82%
========= =========
==== ====
1 This measures the Company's NAV and share price total return, which
assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements.
3 Ongoing charges represent the management fee and all other recurring
operating expenses, excluding finance costs, direct transaction costs, custody
transaction charges and taxation, as a % of average shareholders' funds.
4 Ongoing charges based on gross assets represent the management fee and all
other recurring operating expenses, excluding finance costs, direct transaction
costs, custody transaction charges 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.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. The Board has
put in place a robust process to identify, assess and monitor the principal
risks and emerging risks. A core element of this process is the Company's risk
register which identifies the risks facing the Company and assesses the
likelihood and potential impact of each risk and the controls established for
mitigation. A residual risk rating is then calculated for each risk based on
the outcome of the assessment.
The risk register is regularly reviewed and the risks reassessed. The risk
environment in which the Company operates is also monitored and regularly
appraised. New risks are also added to the register as they are identified
which ensures that the document continues to be an effective risk management
tool.
The risk register, its method of preparation 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, BlackRock's internal audit department
provides an annual presentation to the Audit Committee chairmen of the
BlackRock investment trusts setting out the results of testing performed in
relation to BlackRock's internal control processes. The Audit & Management
Engagement Committee periodically receives and reviews internal control reports
from BlackRock and the Company's Custodian (The Bank of New York Mellon
(International) Limited). The Custodian is appointed by the Company's
Depositary and does not have a direct contractual relationship with the
Company.
The Board has undertaken a robust assessment of both the principal and emerging
risks facing the Company, including those that would threaten its business
model, future performance, solvency or liquidity. Those principal risks have
been described in the table that follows, together with an explanation of how
they are managed and mitigated.
Emerging risks are considered by the Board as they come into view and are
incorporated into the existing review of the Company's risk register. They were
also considered as part of the annual evaluation process. Additionally, the
Manager considers emerging risks in numerous forums and the Risk and
Quantitative Analysis team produces an annual risk survey. Any material risks
of relevance to the Company through the annual risk survey will be communicated
to the Board.
The Board will continue to assess these risks on an ongoing basis. In relation
to the 2018 UK Corporate Governance Code, the Board is confident 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 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 Due diligence is undertaken before
incur if a counterparty is unable (or contracts are entered into and exposures
unwilling) to perform on its commitments. are diversified across a number of
counterparties.
The Depositary is 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
The returns achieved are reliant primarily To manage this risk the Board:
upon the performance of the portfolio.
· regularly reviews the Company's
The Board is responsible for: investment mandate and long-term strategy;
· setting the investment strategy to · has set investment restrictions and
fulfil the Company's objective; and guidelines which the Investment Manager
monitors and regularly reports on;
· monitoring the performance of the
Investment Manager and the implementation · receives from the Investment Manager
of the investment strategy. a regular explanation of stock selection
decisions, portfolio exposure, gearing, and
An inappropriate investment policy may lead any changes in gearing, and the rationale
to: for the composition of the investment
portfolio;
· underperformance compared to the
reference indices; · monitors and maintains an adequate
spread of investments in order to minimise
· a reduction or permanent loss of the risks associated with particular
capital; and countries or factors specific to particular
sectors, based on the diversification
· dissatisfied shareholders and requirements inherent in the investment
reputational damage. policy;
· receives and reviews regular reports
showing an analysis of the Company's
performance against other 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 and regulatory compliance
The Company has been approved by HM Revenue The Investment Manager monitors investment
& Customs as an investment trust, subject movements, the level and type of forecast
to continuing to meet the relevant income and expenditure and the amount of
eligibility conditions, and operates as an proposed dividends to ensure that the
investment trust in accordance with Chapter provisions of Chapter 4 of Part 24 of the
4 of Part 24 of the Corporation Tax Act Corporation Tax Act 2010 are not breached.
2010. As such, the Company is exempt from The results are reported to the Board at
capital gains tax on the profits realised each meeting. Compliance with the
from the sale of its investments. Any accounting rules affecting investment
breach of the relevant eligibility trusts are also carefully and regularly
conditions could lead to the Company losing monitored.
investment trust status and being subject
to corporation tax on capital gains The Company Secretary, the Manager and the
realised within the Company's portfolio. Company's professional advisers provide
regular reports to the Board in respect of
Any serious breach could result in the compliance with all applicable rules and
Company and/or the Directors being fined or regulations. The Board and the Manager also
the subject of criminal proceedings, or the monitor changes in government policy and
suspension of the Company's shares which legislation which may have an impact on the
would in turn lead to a breach of the Company.
Corporation Tax Act 2010.
Following authorisation under the
Amongst other relevant laws, the Company is Alternative Investment Fund Managers'
required to comply with the provisions of Directive (AIFMD), the Company and its
the Companies Act 2006, the Alternative Alternative Investment Fund Manager (AIFM)
Investment Fund Managers' Directive, the UK are subject to the risks that the
Listing Rules, Disclosure Guidance and requirements of the Directive are not
Transparency Rules, the Market Abuse correctly complied with. The Board and the
Regulation, the Bribery Act 2010, Criminal AIFM monitor changes in government policy
Finances Act 2017 and General Data and legislation which may have an impact on
Protection Regulation 2018. the Company.
The Market Abuse Regulation came into force
across the European Union on 3 July 2016.
The Board has taken steps to ensure that
individual Directors (and their Persons
Closely Associated) are aware of their
obligations under the regulation and has
updated internal processes, where
necessary, to ensure the risk of
non-compliance is effectively mitigated.
Market
Market risk arises from volatility in the The Board considers the diversification of
prices of the Company's investments. It the portfolio, asset allocation, stock
represents the potential loss the Company selection and levels of gearing on a
might suffer through realising investments regular basis and has set investment
in the face of negative market movements. restrictions and guidelines which are
monitored and reported on by the Investment
Changes in general economic and market Manager.
conditions, such as currency exchange
rates, interest rates, rates of inflation, The Board monitors the implementation and
industry conditions, tax laws, political results of the investment process with the
events and trends, including the impact of Investment Manager.
the UK leaving the EU, can also
substantially and adversely affect the While it is not possible to predict fully
securities and, as a consequence, the the impact Brexit will have on the Company
Company's prospects and share price. and our markets, the Board and Manager
continue to monitor external events to
ensure that we are prepared for any
short-term risks.
Operational
The Company relies on the services provided Due diligence is undertaken before
by third parties and is dependent on the contracts are entered into with third party
control systems of the Manager and The Bank service providers. Thereafter, the
of New York Mellon (International) Limited performance of the provider is subject to
(which acts as both Depositary, Custodian regular review and reported to the Board.
and Fund Accountant and maintains the
Company's assets, settlement and accounting Third party service providers, BlackRock
records). The security of the Company's and The Bank of New York Mellon
assets, dealing procedures, accounting (International) Limited, produce internal
records and adherence to regulatory and control reports to provide assurance
legal requirements depend on the effective regarding the effective operation of
operation of the systems of these third internal controls as reported on by their
party service providers. reporting accountant. These reports are
provided to the Audit & Management
Failure by any service provider to carry Engagement Committee.
out its obligations to the Company could
have a material adverse effect on the The Company's financial assets are subject
Company's performance. Disruption to the to a strict liability regime and, in the
accounting, payment systems or custody event of a loss of assets, the Depositary
records (including cyber security risk) must return assets of an identical type or
could prevent the accurate reporting and the corresponding amount, unless able to
monitoring of the Company's financial demonstrate the loss was a result of an
position. 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
management contract annually.
The Board also considers the business
continuity arrangements of the Company's
key service providers.
Financial
The Company's investment activities expose Details of these risks are disclosed in
it to a variety of financial risks which note 18 of the Annual Report and Financial
include market risk, counterparty credit Statements, together with a summary of the
risk, liquidity risk and the valuation of policies for managing these risks.
financial instruments.
Marketing
Marketing efforts are inadequate or do not The Board reviews marketing strategy and
comply with relevant regulatory initiatives and the Manager is required to
requirements. There is a failure to provide regular updates on progress.
communicate adequately with shareholders or BlackRock has a dedicated investment trust
identify potential new shareholders sales team visiting both existing and
resulting in reduced demand for the potential clients on a regular basis. Data
Company's shares and a widening of the on client meetings and issues raised are
discount. provided to the Board on a regular basis.
All investment trust marketing documents
are subject to appropriate review and
authorisation.
Securities lending
The Company may engage in securities The Company intends to ensure that all
lending. Engaging in securities lending securities lending is fully collateralised
will have a credit risk exposure to the but, to the extent that any securities
counterparties to any securities lending lending is not fully collateralised (for
contract. The Company's investments can be example due to timing issues arising from
lent to counterparties over a period of payment lags), the Company will have a
time. A default by the counterparty, credit risk exposure to the counterparties
combined with a fall in the value of the to the securities lending contracts.
collateral below that of the value of the
securities lent, may result in a reduction Further details on securities lending are
in the value of the Company. disclosed in the Annual Report and
Financial Statements.
VIABILITY STATEMENT
In accordance with Provision 31 of the 2018 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 (1.02%); 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.
EMPLOYEES, 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 in 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, GER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 31 December 2019 are set out in the Directors'
Biographies in the Annual Report and Financial Statements. The Board 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 Strategic Report was approved by the Board at its meeting on 27 February
2020.
By order of the Board
CAROLINE DRISCOLL
For and on behalf of
BlackRock Investment Management (UK) Limited
Company Secretary
27 February 2020
TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months'
notice. BFM has (with the Company's consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment
management contract are disclosed in the Directors' Report in the Annual Report
and Financial Statements.
The investment management fee due for the year ended 31 December 2019 amounted
to GBP6,480,000 (2018: GBP6,041,000). At the year end, GBP1,714,000 (2018: GBP
1,359,000) was outstanding in respect of the management fee.
In addition to the above services, BlackRock has provided the Group with
marketing services. The total fees paid or payable for these services for the
year ended 31 December 2019 amounted to GBP159,000 excluding VAT (2018: GBP139,000
excluding VAT). Marketing fees of GBP50,000 were outstanding as at 31 December
2019 (2018: GBP69,000).
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 GBP45,000, the Chairman of
the Audit & Management Engagement Committee/Senior Independent Director
receives an annual fee of GBP37,500, and each other Director receives an annual
fee of GBP30,000. Five members of the Board hold shares in the Company. Mr Buchan
holds 29,000 ordinary shares, Mr Cheyne 24,000 ordinary shares, Mr Edey 20,000
ordinary shares, Ms Mosely 7,400 ordinary shares and Ms Lewis 5,362 ordinary
shares. The amount of Directors' fees outstanding at 31 December 2019 was GBP
14,375 (2018: GBP16,875).
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 those 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's 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 Guidance 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, whose names are listed in the Annual Report and
Financial Statements, 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 position 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 position of the Group and Company, together with a description
of the principal risks and uncertainties that it faces.
The 2018 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 in 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
2019, 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
DAVID CHEYNE
Chairman
27 February 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARED 31 DECEMBER
2019
Revenue Revenue Capital Capital Total Total
2019 2018 2019 2018 2019 2018
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income from investments 3 40,880 32,049 - - 40,880 32,049
held at fair value through
profit or loss
Other income 3 5,634 6,145 - - 5,634 6,145
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total revenue 46,514 38,194 - - 46,514 38,194
========== ========== ========== ========== ========== ==========
Net profit/(loss) on - - 77,517 (112,935) 77,517 (112,935)
investments held at fair
value through profit or
loss
Net profit/(loss) on - - 3,230 (4,754) 3,230 (4,754)
foreign exchange
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total 46,514 38,194 80,747 (117,689) 127,261 (79,495)
========== ========== ========== ========== ========== ==========
Expenses
Investment management fee 4 (1,564) (1,454) (4,916) (4,587) (6,480) (6,041)
Other operating expenses 5 (1,030) (1,025) (20) (14) (1,050) (1,039)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total operating expenses (2,594) (2,479) (4,936) (4,601) (7,530) (7,080)
========== ========== ========== ========== ========== ==========
Net profit/(loss) on 43,920 35,715 75,811 (122,290) 119,731 (86,575)
ordinary activities before
finance costs and
taxation
Finance costs 6 (896) (798) (2,683) (2,369) (3,579) (3,167)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Net profit/(loss) on 43,024 34,917 73,128 (124,659) 116,152 (89,742)
ordinary activities before
taxation
========== ========== ========== ========== ========== ==========
Taxation (3,463) (2,904) 1,377 1,559 (2,086) (1,345)
Profit/(loss) for the 39,561 32,013 74,505 (123,100) 114,066 (91,087)
year
========== ========== ========== ========== ========== ==========
Earnings/(loss) per 8 22.46 18.15 42.30 (69.78) 64.76 (51.63)
ordinary share (pence)
========== ========== ========== ========== ========== ==========
The total column of this statement represents the Group'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. All income is attributable to the equity
holders of the Group.
The Group does not have any other comprehensive income/(loss). The net profit/
(loss) for the year disclosed above represents the Group's total comprehensive
income/(loss).
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARED 31 DECEMBER 2019
Called Share Capital
up share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Group Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the year ended 31
December 2019
At 31 December 2018 9,651 127,155 22,779 114,147 373,301 38,562 685,595
Total comprehensive
income:
Net profit for the year - - - - 74,505 39,561 114,066
Transactions with
owners, recorded
directly to equity:
Ordinary shares 9, 10 - - - (5,512) - - (5,512)
purchased into treasury
Share purchase costs 10 - - - (34) - - (34)
Dividends paid1 7 - - - - - (37,005) (37,005)
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 December 2019 9,651 127,155 22,779 108,601 447,806 41,118 757,110
========== ========== ========== ========== ========== ========== ==========
For the year ended 31
December 2018
At 31 December 2017 9,651 127,155 22,779 114,589 496,401 34,072 804,647
Total comprehensive
(loss)/income:
Net (loss)/profit for - - - - (123,100) 32,013 (91,087)
the year
Transactions with
owners, recorded
directly to equity:
Ordinary shares 9 - - - (439) - - (439)
purchased into treasury
Share purchase costs 9 - - - (3) - - (3)
Dividends paid2 7 - - - - - (27,523) (27,523)
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 December 2018 9,651 127,155 22,779 114,147 373,301 38,562 685,595
========== ========== ========== ========== ========== ========== ==========
1 The final dividend of 9.00p per share for the year ended 31 December 2018,
declared on 28 February 2019 and paid on 10 May 2019; 1st interim dividend of
4.00p per share for the year ended 31 December 2019, declared on 2 May 2019 and
paid on 28 June 2019; 2nd interim dividend of 4.00p per share for the year
ended 31 December 2019, declared on 20 August 2019 and paid on 1 October 2019;
and 3rd interim dividend of 4.00p per share for the year ended 31 December
2019, declared on 14 November 2019 and paid on 20 December 2019.
2 The final dividend of 6.60p per share for the year ended 31 December 2017,
declared on 26 February 2018 and paid on 10 May 2018; 1st interim dividend of
3.00p per share for the year ended 31 December 2018, declared on 25 April 2018
and paid on 29 June 2018; 2nd interim dividend of 3.00p per share for the year
ended 31 December 2018, declared on 17 August 2018 and paid on 21 September
2018; and 3rd interim dividend of 3.00p per share for the year ended 31
December 2018, declared on 8 November 2018 and paid on 21 December 2018.
Called Share Capital
up share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Company Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the year ended 31
December 2019
At 31 December 2018 9,651 127,155 22,779 114,147 380,486 31,377 685,595
Total comprehensive
income:
Net profit for the year - - - - 74,127 39,939 114,066
Transactions with
owners, recorded
directly to equity:
Ordinary shares 9, 10 - - - (5,512) - - (5,512)
purchased into treasury
Share purchase costs 10 - - - (34) - - (34)
Dividends paid1 7 - - - - - (37,005) (37,005)
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 December 2019 9,651 127,155 22,779 108,601 454,613 34,311 757,110
========== ========== ========== ========== ========== ========== ==========
For the year ended 31
December 2018
At 31 December 2017 9,651 127,155 22,779 114,589 503,885 26,588 804,647
Total comprehensive
(loss)/income:
Net (loss)/profit for - - - - (123,399) 32,312 (91,087)
the year
Transactions with
owners, recorded
directly to equity:
Ordinary shares 9 - - - (439) - - (439)
purchased into treasury
Share purchase costs 9 - - - (3) - - (3)
Dividends paid2 7 - - - - - (27,523) (27,523)
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
At 31 December 2018 9,651 127,155 22,779 114,147 380,486 31,377 685,595
========== ========== ========== ========== ========== ========== ==========
1 The final dividend of 9.00p per share for the year ended 31 December 2018,
declared on 28 February 2019 and paid on 10 May 2019; 1st interim dividend of
4.00p per share for the year ended 31 December 2019, declared on 2 May 2019 and
paid on 28 June 2019; 2nd interim dividend of 4.00p per share for the year
ended 31 December 2019, declared on 20 August 2019 and paid on 1 October 2019;
and 3rd interim dividend of 4.00p per share for the year ended 31 December
2019, declared on 14 November 2019 and paid on 20 December 2019.
2 The final dividend of 6.60p per share for the year ended 31 December 2017,
declared on 26 February 2018 and paid on 10 May 2018; 1st interim dividend of
3.00p per share for the year ended 31 December 2018, declared on 25 April 2018
and paid on 29 June 2018; 2nd interim dividend of 3.00p per share for the year
ended 31 December 2018, declared on 17 August 2018 and paid on 21 September
2018; and 3rd interim dividend of 3.00p per share for the year ended 31
December 2018, declared on 8 November 2018 and paid on 21 December 2018.
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION AS AT 31
DECEMBER 2019
31 December 2019 31 December 2018
Group Company Group Company
Notes GBP'000 GBP'000 GBP'000 GBP'000
Non current assets
Investments held at fair value through 845,777 851,732 778,526 784,300
profit or loss
----------------- ----------------- ----------------- -----------------
Current assets
Other receivables 4,626 4,626 2,326 2,326
Cash collateral held with brokers 431 431 650 650
Cash and cash equivalents 1,399 39 35,501 30,793
----------------- ----------------- ----------------- -----------------
6,456 5,096 38,477 33,769
----------------- ----------------- ----------------- -----------------
Total assets 852,233 856,828 817,003 818,069
========== ========== ========== ==========
Current liabilities
Other payables (4,003) (5,071) (16,725) (17,791)
Derivative financial liabilities held at (314) (314) (312) (312)
fair value through profit or loss
Bank overdraft (99) (3,626) - -
Bank loans (90,583) (90,583) (114,221) (114,221)
----------------- ----------------- ----------------- -----------------
(94,999) (99,594) (131,258) (132,324)
----------------- ----------------- ----------------- -----------------
Total assets less current liabilities 757,234 757,234 685,745 685,745
========== ========== ========== ==========
Non current liabilities
Deferred taxation liability (124) (124) (150) (150)
Net assets 757,110 757,110 685,595 685,595
========== ========== ========== ==========
Equity attributable to equity holders
Called up share capital 9 9,651 9,651 9,651 9,651
Share premium account 10 127,155 127,155 127,155 127,155
Capital redemption reserve 10 22,779 22,779 22,779 22,779
Special reserve 10 108,601 108,601 114,147 114,147
Capital reserves
At 1 January 373,301 380,486 496,401 503,885
Net profit/(loss) for the year 74,505 74,127 (123,100) (123,399)
----------------- ----------------- ----------------- -----------------
10 447,806 454,613 373,301 380,486
----------------- ----------------- ----------------- -----------------
Revenue reserve
At 1 January 38,562 31,377 34,072 26,588
Net profit for the year 39,561 39,939 32,013 32,312
Dividends paid (37,005) (37,005) (27,523) (27,523)
----------------- ----------------- ----------------- -----------------
10 41,118 34,311 38,562 31,377
----------------- ----------------- ----------------- -----------------
Total equity 757,110 757,110 685,595 685,595
========== ========== ========== ==========
Net asset value per ordinary share (pence) 8 433.17 433.17 388.81 388.81
========== ========== ========== ==========
CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS FOR THE YEARED
31 DECEMBER 2019
31 December 2019 31 December 2018
Group Company Group Company
Notes GBP'000 GBP'000 GBP'000 GBP'000
Operating activities
Net profit/(loss) before taxation 116,152 116,152 (89,742) (89,742)
Add back finance costs 3,579 3,579 3,167 3,167
Net (profit)/loss on investments held at (76,960) (77,141) 113,315 113,234
fair value through profit or loss
(including transaction costs)
Net (profit)/loss on foreign exchange (3,230) (3,230) 4,754 4,754
Sales of investments held at fair value 377,210 377,210 235,980 235,980
through profit or loss
Purchases of investments held at fair value (367,499) (367,499) (221,634) (218,342)
through profit or loss
Increase in other receivables (2,058) (2,058) (119) (119)
Increase/(decrease) in other payables 268 270 (1,889) (1,889)
(Increase)/decrease in amounts due from (118) (118) 360 360
brokers
(Decrease)/increase in amounts due to (13,713) (13,713) 13,639 13,639
brokers
Net movement in cash collateral held with 219 219 1,333 1,333
brokers
----------------- ----------------- ----------------- -----------------
Net cash inflow from operating activities 33,850 33,671 59,164 62,375
before taxation
========== ========== ========== ==========
Taxation paid (2,035) (2,035) (969) (969)
Taxation on investment income included (124) (124) (765) (765)
within gross income
----------------- ----------------- ----------------- -----------------
Net cash inflow from operating activities 31,691 31,512 57,430 60,641
========== ========== ========== ==========
Financing activities
(Repayment)/drawdown of loans (20,000) (20,000) 20,000 20,000
Interest paid (3,815) (3,815) (3,167) (3,167)
Payments for ordinary shares purchased into (4,632) (4,632) (439) (439)
treasury
Share purchase costs paid (32) (32) (3) (3)
Dividends paid 7 (37,005) (37,005) (27,523) (27,523)
----------------- ----------------- ----------------- -----------------
Net cash outflow from financing activities (65,484) (65,484) (11,132) (11,132)
========== ========== ========== ==========
(Decrease)/increase in cash and cash (33,793) (33,972) 46,298 49,509
equivalents
Cash and cash equivalents at start of the 35,501 30,793 (11,556) (19,475)
year
Effect of foreign exchange rate changes (408) (408) 759 759
----------------- ----------------- ----------------- -----------------
Cash and cash equivalents at end of year 1,300 (3,587) 35,501 30,793
========== ========== ========== ==========
Comprised of:
Cash and cash equivalents 1,399 39 35,501 30,793
Bank overdraft (99) (3,626) - -
----------------- ----------------- ----------------- -----------------
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER 2019
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010. The Company
was incorporated on 28 October 1993 and this is the 26th Annual Report.
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 have been
applied consistently, other than where new policies have been adopted and are
set out below.
(a) Basis of preparation
The Group and Parent Company financial statements have been prepared under the
historic cost convention modified by the revaluation of certain financial
assets and financial liabilities held at fair value through profit or loss and
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 Statement of Comprehensive Income 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 and updated in October 2019, is
compatible with IFRS, the financial statements have been prepared in accordance
with guidance set out in the SORP.
The revised SORP issued in October 2019 is applicable for accounting periods
beginning on or after 1 January 2019. As a result, the gains on disposals of
investments of GBP31,498,000 (2018: loss of GBP60,679,000) and gains on revaluation
of investments of GBP45,462,000 (2018: loss of GBP52,636,000) have now been
combined, as shown in note 10 in the Annual Report and Financial Statements.
The result of this change has no impact on the net asset value or total return
for both the current year and prior year. No other accounting policies or
disclosures have changed as a result of the revised SORP.
Substantially, all of the assets of the Group 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 financial statements are presented in sterling, which is the
functional currency of the Group and the currency of the primary economic
environment in which the Group operates. All values are rounded to the nearest
thousand pounds sterling (GBP'000) except where otherwise indicated.
IFRS standards that have been recently adopted:
IFRS 16 - Leases (effective 1 January 2019) specifies accounting for leases and
removes the distinction between operating and finance leases. This standard is
not applicable to the Group as it has no leases.
IFRIC 23 - Uncertainty over Income Tax Treatments seeks to provide clarity on
how to account for uncertainty over income tax treatments and specifies that an
entity must consider whether it is probable that the relevant tax authority
will accept each tax treatment, or group of tax treatments, that it plans to
use in its income tax filing. The interpretation also requires companies to
reassess the judgements and estimates applied if facts and circumstances
change. The interpretation is effective for annual reporting periods beginning
on or after 1 January 2019. The interpretation would require the Group to
recognise uncertain tax positions which are more than probable within its
financial statements and could potentially require the Group to recognise tax
reclaims filed with HMRC if their recoverability becomes more than probable.
The adoption of this interpretation has had no impact on the financial
statements of the Group.
IFRS standards that have yet to be adopted:
A number of new standards, amendments to standards and interpretations are
effective for the annual periods beginning on or after 1 January 2020 and have
not been adopted early in preparing these financial statements (major changes
and new standards issued are detailed below), as these are not expected to have
any effect on the measurement of the amounts recognised in the financial
statements of the Group.
Amendments to IFRS 3 - definition of a business (effective 1 January 2020).
This amendment revises the definition of a business. According to feedback
received by the International Accounting Standards Board, application of the
current guidance is commonly thought to be too complex and it results in too
many transactions qualifying as business combinations. The standard has not
been endorsed by the EU. This standard is unlikely to have any impact on the
Group.
Amendments to IAS 1 and IAS 8 on the definition of material (effective 1
January 2020). The amendments to IAS 1, 'Presentation of financial statements',
and IAS 8, 'Accounting policies, changes in accounting estimates and errors',
and consequential amendments to other IFRSs require companies to:
(i) use a consistent definition of materiality throughout IFRSs and the
Conceptual Framework for Financial Reporting;
(ii) clarify the explanation of the definition of material; and
(iii) incorporate some of the guidance in IAS 1 about immaterial information.
The standard has not been endorsed by the EU. This standard is unlikely to have
any impact on the Group.
Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform
(effective 1 January 2020). These amendments provide certain reliefs in
connection with the interest rate benchmark reform. The reliefs relate to hedge
accounting and have the effect that the Inter Bank Offer Rate (IBOR) reform
should not generally cause hedge accounting to terminate. However, any hedge
ineffectiveness should continue to be recorded in the income statement. Given
the pervasive nature of hedges involving IBOR based contracts, the reliefs will
affect companies in all industries.
The standard has been endorsed by the EU. This standard is unlikely to have any
significant impact on the Group as it does not hedge.
IFRS 17 - 'Insurance contracts' (effective 1 January 2021). This standard
replaces IFRS 4, which currently permits a wide variety of practices in
accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features. The standard has not been
endorsed by the EU. This standard is unlikely to have any impact on the Group
as it has no insurance contracts.
(b) Basis of consolidation
The Group's financial statements are made up to 31 December each year and
consolidate the financial statements of the Company and its wholly owned
subsidiary, which is registered and operates in England and Wales, BlackRock
World Mining Investment Company Limited (together 'the Group'). The subsidiary
company is not considered an investment entity.
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 Consolidated Statement of Comprehensive Income between items of a
revenue and a capital nature has been presented alongside the Consolidated
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 year end are treated as revenue for the year.
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 deposit interest is
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 Consolidated
Statement of Comprehensive Income unless the option has been written for the
maintenance and enhancement of the Group's investment portfolio and represents
an incidental part of a larger capital transaction, in which case any premia
arising are allocated to the capital column of the Consolidated Statement of
Comprehensive Income.
Royalty income from contractual rights is measured at the fair value of the
consideration received or receivable where the Investment 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.
Where the Group has elected to receive its dividends in the form of additional
shares rather than in cash, the cash equivalent of the dividend is recognised
as income. Any excess in the value of the shares received over the amount of
the cash dividend is recognised in capital.
Underwriting commission receivable is taken into account on an accruals basis.
(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 or sale 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 within note 10 to the financial statements in the
Annual Report and Financial Statements;
· expenses are treated as capital where a connection with the maintenance
or enhancement of the value of the investments can be demonstrated;
· 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 expectations of the
long-term split of returns, in the form of capital gains and income,
respectively, from the investment portfolio.
(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 year.
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 tax in the
future or right to pay less tax 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
In accordance with IFRS 9, the Group classifies its investments at initial
recognition as held at fair value through profit or loss and are managed and
evaluated on a fair value basis in accordance with its investment strategy and
business model.
All investments, including contractual rights, are initially and subsequently
measured 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 are
initially measured at fair value excluding transaction costs. Sales of
investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price
at the financial reporting date, without deduction for the estimated future
selling costs. This policy applies to all current and non-current asset
investments held by the Group.
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 Statement of
Financial Position is fair valued which is deemed to be the net asset value of
the subsidiary. Changes in the 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 net profits or losses on
investments held at fair value through profit or loss. Also included within the
heading are transaction costs in relation to the purchase or sale of
investments.
For all financial instruments not traded in an active market, the fair value is
determined by using various valuation techniques. Valuation techniques include
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). Where no reliable fair value can be
estimated for such instruments, they are carried at cost subject to any
provision for impairment. See note 2(q) below.
(i) Options
Options are held at fair value based on the bid/offer prices of the options
written to which the Group is 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 exercised the gain or loss is
accounted for as a capital gain or loss. Any cost on closing out an option is
transferred to revenue along with any remaining unamortised premium.
(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 on an amortised cost basis.
(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 Consolidated and
Parent Company Statements of Changes in Equity.
(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
and non-monetary assets held at fair value 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 profit/(loss) 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, bank overdrafts 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. Bank overdrafts are shown separately on the
Consolidated and Parent Company Statements of Financial Position.
(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) Offsetting
Financial assets and financial liabilities are offset and the net amount
reported in the Consolidated and Parent Company 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.
(p) Share repurchases
Shares repurchased and subsequently cancelled - share capital is reduced by the
nominal value of the shares repurchased and the capital redemption reserve is
correspondingly increased in accordance with section 733 of the Companies Act
2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury - the full cost of the repurchase is
charged to the special reserve.
(q) 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 Consolidated and Parent Company 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 OZ Minerals 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
Consolidated and Parent Company 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 a sensitivity analysis.
(b) The investment in the subsidiary company was 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(d) of the Annual
Report and Financial Statements.
3. INCOME
2019 2018
GBP'000 GBP'000
Income from investments held at fair value through profit or loss:
UK dividends 11,817 10,806
UK special dividends 4,402 -
Overseas dividends 11,394 12,245
Overseas special dividends 2,249 396
Income from contractual rights (OZ Minerals Royalty) 1,541 2,294
Income from debentures (Vale) 3,708 277
Fixed income 5,769 6,031
----------------- -----------------
40,880 32,049
========== ==========
Other income:
Option premium income 6,008 6,129
Deposit interest 106 36
Underwriting commission - 188
Stock lending income 77 172
Losses on investment dealing in the subsidiary (557) (380)
---------------- ----------------
5,634 6,145
----------------- -----------------
Total income 46,514 38,194
========== ==========
During the year, the Group received option premiums totalling GBP5,986,000 (2018:
GBP5,874,000) for writing options for the purposes of revenue generation. Option
premiums of GBP6,008,000 (2018: GBP6,129,000) were amortised to revenue; see
accounting policy note 2(e). At 31 December 2019, there were five (2018: two)
open positions with an associated liability of GBP314,000 (2018: GBP312,000).
Dividends and interest received in cash during the year amounted to GBP27,581,000
and GBP8,252,000 respectively (2018: GBP23,675,000 and GBP6,060,000).
Special dividends amounting to GBP5,229,000 (2018: GBPnil) have been recognised in
capital during the year and included within investment gains.
4. INVESTMENT MANAGEMENT FEE
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 1,564 4,916 6,480 1,454 4,587 6,041
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total 1,564 4,916 6,480 1,454 4,587 6,041
========== ========== ========== ========== ========== ==========
The investment management fee (which includes all services provided by
BlackRock) is 0.8% of the Company's net assets. However, in the event that the
NAV per share increases on a quarter-on-quarter basis, the fee will then be
paid on gross assets for the quarter. During the year GBP5,888,000 (2018: GBP
5,830,000) of the investment management fee was generated from net assets and GBP
592,000 (2018: GBP211,000) from the gearing effect on gross assets due to the
quarter-on-quarter increase in the NAV per share during the year as set out
below:
Gearing
Cum effect
income Quarterly on
NAV per increase/ management
Quarter end share (decrease) fees (GBP
(pence) % '000)
31 December 2018 388.81 - -
31 March 2019 422.80 +8.7 188
30 June 2019 440.97 +4.3 148
30 September 2019 414.80 (5.9) -
31 December 2019 433.17 +4.4 256
======== ========== ==========
==
The daily average of the net assets under management during the year ended 31
December 2019 was GBP733,356,000 (2018: GBP755,993,000). The fee is allocated 25%
to the revenue column and 75% to the capital column of the Consolidated
Statement of Comprehensive Income.
5. OTHER OPERATING EXPENSES
2019 2018
GBP'000 GBP'000
Allocated to revenue
Custody fee 114 127
Auditors' remuneration:
- audit services 36 33
- non-audit services1 7 7
Registrar's fee 88 87
Directors' emoluments2 190 221
AIC Fees 22 20
Broker fees 24 25
Depositary fees 63 88
FCA fee 18 18
Directors' insurance 14 22
Marketing fees 159 139
Stock exchange fees 19 19
Legal and professional fees 43 67
Bank facility fees3 75 72
Directors' search fees 26 -
Printing and postage costs 45 26
Other administrative costs 87 54
----------------- -----------------
1,030 1,025
========== ==========
Allocated to capital
Custody transaction charges 20 14
----------------- -----------------
1,050 1,039
========== ==========
2019 2018
The Company's ongoing charges4, calculated as a percentage of average 1.02% 0.93%
net assets and using recurring expenses excluding finance costs,
direct transaction costs, custody transaction charges and taxation
were:
The Company's ongoing charges4, calculated as a percentage of average 0.89% 0.82%
gross assets and using recurring expenses excluding finance costs,
direct transaction costs, custody transaction charges and taxation
were:
======== ========
== ==
1 Fees paid to the auditors for non-audit services of GBP6,580 excluding VAT
(2018: GBP6,580) relate to the review of the half yearly financial statements.
2 Details of the Directors' emoluments are given in the Directors'
Remuneration Report in the Annual Report and Financial Statements. Emoluments
include taxable benefits for reimbursement of expenses.
3 There is a 4 basis point facility fee chargeable on the full loan
facility amount whether drawn or undrawn.
4 Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements.
For the year ended 31 December 2019, expenses of GBP20,000 (2018: GBP14,000) were
charged to the capital column of the Consolidated Statement of Comprehensive
Income. These relate to costs charged by the Custodian on sale and purchase
trades.
6. FINANCE COSTS
2019 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest on bank loans 889 2,662 3,551 779 2,312 3,091
Interest payable - bank overdraft 7 21 28 19 57 76
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total 896 2,683 3,579 798 2,369 3,167
========== ========== ========== ========== ========== ==========
7. DIVIDS
Record Payment 2019 2018
date date GBP'000 GBP'000
Final dividend of 9.00p per share for the 22 March 2019 10 May 2019 15,870 11,646
year ended 31 December 2018 (2017: 6.60p)
1st interim dividend of 4.00p per share 31 May 2019 28 June 2019 7,053 5,294
for the year ended 31 December 2019 (2018:
3.00p)
2nd interim dividend of 4.00p per share 20 August 2019 1 October 2019 7,052 5,293
for the year ended 31 December 2019 (2018:
3.00p)
3rd interim dividend of 4.00p per share 22 November 2019 20 December 7,030 5,290
for the year ended 31 December 2019 (2018: 2019
3.00p)
----------------- -----------------
37,005 27,523
========== ==========
The total dividends payable in respect of the year ended 31 December 2019 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.
Dividends paid, proposed or declared on equity shares:
2019 2018
GBP'000 GBP'000
1st interim dividend of 4.00p per share for the year ended 31 December 7,053 5,294
2019 (2018: 3.00p)
2nd interim dividend of 4.00p per share for the year ended 31 December 7,052 5,293
2019 (2018: 3.00p)
3rd interim dividend of 4.00p per share for the year ended 31 December 7,030 5,290
2019 (2018: 3.00p)
Final interim dividend of 10.00p per share for the year ended 31 17,380 15,870
December 2019 (2018: final dividend 9.00p)*
----------------- -----------------
38,515 31,747
========== ==========
* Based on 173,805,020 (2018: 176,330,242) ordinary shares in issue on 27
February 2020.
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
2019 2018
Net revenue profit attributable to ordinary shareholders (GBP'000) 39,561 32,013
Net capital profit/(loss) attributable to ordinary shareholders (GBP 74,505 (123,100)
'000)
---------------------- ----------------------
Total profit/(loss) attributable to ordinary shareholders (GBP'000) 114,066 (91,087)
=========== ===========
Equity shareholders' funds (GBP'000) 757,110 685,595
The weighted average number of ordinary shares in issue during the 176,135,318 176,426,789
year, on which the earnings per ordinary share was calculated was:
The actual number of ordinary shares in issue at the year end, on 174,784,727 176,330,242
which the net asset value per ordinary share was calculated was:
Earnings per share
Revenue earnings per share (pence) 22.46 18.15
Capital profit/(loss) per share (pence) 42.30 (69.78)
---------------------- ----------------------
Total profit/(loss) per share (pence) 64.76 (51.63)
=========== ===========
As at As at
31 31
December December
2019 2018
Net asset value per ordinary share (pence) 433.17 388.81
Ordinary share price (pence) 383.00 340.50
========= =========
== ==
There were no dilutive securities at the year end.
9. CALLED UP SHARE CAPITAL
Nominal
Number of Treasury Total value
ordinary shares shares shares GBP'000
Allotted, called up and fully paid share
capital comprised:
Ordinary shares of 5p each
At 31 December 2018 176,330,242 16,681,600 193,011,842 9,651
Shares purchased into treasury (1,545,515) 1,545,515 - -
---------------------- ---------------------- ---------------------- ----------------------
At 31 December 2019 174,784,727 18,227,115 193,011,842 9,651
============ ============ ============ ============
During the year 1,545,515 shares were bought back and transferred to treasury
for a total consideration of GBP5,546,000 (2018: 125,000 shares were bought back
and transferred to treasury for a total consideration of GBP442,000). Since the
year end a further 979,707 ordinary shares have been bought back and held in
treasury for a total consideration of GBP3,673,000.
10. RESERVES
Distributable reserves
Capital
reserve -
Capital arising on revlauation
reserve - of
Share Capital arising on investments investments
premium redemption reserve Special sold held Revenue
account GBP'000 reserve GBP'000 GBP'000 reserve
Group GBP'000 GBP'000 GBP'000
At 31 December 2018 127,155 22,779 114,147 252,127 121,174 38,562
Movement during the year:
Total comprehensive income:
Net capital profit for the year - - - 29,423 45,082 -
Net revenue profit for the year - - - - - 39,561
Transactions with owners recorded
directly to equity:
Ordinary shares purchased into - - (5,512) - - -
treasury
Share purchase costs - - (34) - - -
Dividends paid - - - - - (37,005)
---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
At 31 December 2019 127,155 22,779 108,601 281,550 166,256 41,118
============ ============ ============ ============ ============ ============
Distributable reserves
Capital
reserve -
Capital arising on
reserve - revaluation
Share Capital arising on of
premium redemption Special investments investments Revenue
account reserve reserve sold held reserve
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2018 127,155 22,779 114,147 252,126 128,360 31,377
Movement during the year:
Total comprehensive income:
Net capital profit for the year - - - 28,484 45,643 -
Net revenue profit for the year - - - - - 39,939
Transactions with owners recorded
directly to equity:
Ordinary shares purchased into - - (5,512) - - -
treasury
Share purchase costs - - (34) - - -
Dividends paid - - - - - (37,005)
---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
At 31 December 2019 127,155 22,779 108,601 280,610 174,003 34,311
============ ============ ============ ============ ============ ============
Pursuant to a resolution of the Company passed at an Extraordinary General
Meeting on 13 January 1998 and following the Company's application to the Court
for cancellation of its share premium account, the Court approval was received
on 27 January 1999 and GBP157,633,000 was transferred from the share premium
account to a special reserve which is a distributable reserve.
The share premium account and capital redemption reserve are not distributable
profits under the Companies Act 2006. The special reserve and capital reserve
may be used as distributable profits for all purposes and, in particular, the
repurchase by the Company of its ordinary shares and for payments as dividends.
In accordance with the Company's Articles of Association, net capital returns
may be distributed by way of dividend.
11. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the
Consolidated and Parent Company 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 2(h) to the 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.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency and those prices represent
actual and regularly occurring market transactions on an arm's length basis.
The Group does not adjust the quoted price for these instruments.
Level 2 - Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less than active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants
making the maximum use of market inputs and relying as little as possible on
entity specific inputs.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument's valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes 'observable' inputs
requires significant judgement by the Investment Manager.
Over-the-counter derivative option contracts have been classified as Level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts expose
the Group.
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 risks associated with the project. The valuation model
uses discounted cash flow analysis which incorporates both observable and
non-observable data. Observable inputs include assumptions regarding current
rates of interest and commodity prices. Unobservable inputs include assumptions
regarding production profiles, price realisations, cost of capital and discount
rates. In determining the discount rate to be applied, the external valuer
considers the country and sovereign risk associated with the project, together
with the time horizon to the commencement of production and the success or
failure of projects of a similar nature. To assess the significance of a
particular input to the entire measurement, the external valuer performs a
sensitivity analysis. The external valuer has undertaken an analysis of the
impact of using alternative discount rates on the fair value of contractual
rights.
This investment in contractual rights is reviewed regularly to ensure that the
initial classification remains correct given the asset's characteristics and
the Group's investment policies. The contractual rights are initially
recognised using the transaction price as 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
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value through Level 1 Level 2 Level 3 Total
profit or loss at 31 December 2019 - Group GBP'000 GBP'000 GBP'000 GBP'000
Assets:
Equity investments 761,242 - - 761,242
Fixed income securities 38,646 30,099 - 68,745
Investment in contractual rights - - 15,790 15,790
---------------------- ---------------------- ---------------------- ----------------------
Total assets 799,888 30,099 15,790 845,777
============ ============ ============ ============
Liabilities:
Derivative financial instruments - written options - (314) - (314)
---------------------- ---------------------- ---------------------- ----------------------
Total 799,888 29,785 15,790 845,463
============ ============ ============ ============
Financial assets/(liabilities) at fair value through Level 1 Level 2 Level 3 Total
profit or loss at 31 December 2018 - Group GBP'000 GBP'000 GBP'000 GBP'000
Assets:
Equity investments 676,645 6,101 - 682,746
Fixed income securities 74,017 3,250 - 77,267
Investment in contractual rights - - 18,513 18,513
---------------------- ---------------------- ---------------------- ----------------------
Total assets 750,662 9,351 18,513 778,526
============ ============ ============ ============
Liabilities:
Derivative financial instruments - written options - (312) - (312)
---------------------- ---------------------- ---------------------- ----------------------
Total 750,662 9,039 18,513 778,214
============ ============ ============ ============
Financial assets/(liabilities) at fair value through Level 1 Level 2 Level 3 Total
profit or loss at 31 December 2019 - Company GBP'000 GBP'000 GBP'000 GBP'000
Assets:
Equity investments 758,889 - 8,308 767,197
Fixed income securities 38,646 30,099 - 68,745
Investment in contractual rights - - 15,790 15,790
---------------------- ---------------------- ---------------------- ----------------------
Total assets 797,535 30,099 24,098 851,732
============ ============ ============ ============
Liabilities:
Derivative financial instruments - written options - (314) - (314)
---------------------- ---------------------- ---------------------- ----------------------
Total 797,535 29,785 24,098 851,418
============ ============ ============ ============
Financial assets/(liabilities) Level 1 Level 2 Level 3 Total
at fair value through profit or GBP'000 GBP'000 GBP'000 GBP'000
loss 31 December 2018 -
Company
Assets:
Equity investments 673,733 6,101 8,686 688,520
Fixed income securities 74,017 3,250 - 77,267
Investment in contractual - - 18,513 18,513
rights
---------------------- ---------------------- ---------------------- ----------------------
Total assets 747,750 9,351 27,199 784,300
============ ============ ============ ============
Liabilities:
Derivative financial instruments - (312) - (312)
- written options
---------------------- ---------------------- ---------------------- ----------------------
Total 747,750 9,039 27,199 783,988
============ ============ ============ ============
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 Financial assets at fair value through profit or 2019 2018
loss GBP'000 GBP'000
At 31 December - Group
Opening fair value 18,513 18,943
Total profit or loss included in net (loss)/profit on
investments in the Consolidated Statement
of Comprehensive Income:
- assets disposed during the - -
year
- assets held at the end of the (2,723) (430)
year
---------------------- ----------------------
Closing balance 15,790 18,513
============ ============
Level 3 Financial assets at fair value through profit or 2019 2018
loss GBP'000 GBP'000
At 31 December - Company
Opening fair value 27,199 27,928
Total profit or loss included in net (loss)/profit on
investments in the Consolidated Statement
of Comprehensive Income:
- assets disposed during the - -
year
- assets held at the end of the (3,101) (729)
year
---------------------- ----------------------
Closing balance 24,098 27,199
============ ============
The Level 3 valuation process and techniques used are explained in the
accounting policies in note 2(h). A more detailed description of the techniques
is found in the Annual Report and Financial Statements under 'Valuation process
and techniques'.
Quantitative information of significant unobservable inputs - Level 3 - Group
and Company
2019 2018 Valuation Unobservable
Description GBP'000 GBP'000 technique input
Discounted
rate -
weighted
average
cost of
capital
Discounted Average gold
OZ Minerals Brazil Royalty 15,790 18,513 cash and
flows copper
prices
Investment in subsidiary company 8,308 8,686 Net Net assets
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 2019 are as
shown below.
Estimated sensitivity
Description Input used* Impact on fair
value
OZ Minerals Brazil Royalty Discount rate -
weighted 2019 - 1% 2019 - GBP0.8m
average cost of
capital 2018 - 1% 2018 - GBP2.3m
Average gold and 2019 - 10% 2019 - GBP2.2m
copper
prices 2018 - 10% 2018 - GBP3.5m
============= =============
* The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value.
The sensitivity impact on fair value is calculated based on the sensitivity
estimates set out by the independent valuer in its report on the valuation of
contractual rights. Significant increases/(decreases) in estimated commodity
prices and discount rates in isolation would result in a significantly higher/
(lower) fair value measurement. Generally, a change in the assumption made for
the estimated value is accompanied by a directionally similar change in the
commodity prices and discount rates.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2019 (2018: 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 2019 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 2019 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 2018, 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, 30 April 2020 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:
Simon White, Managing Director, Closed End Funds, BlackRock Investment
Management (UK) Limited - Tel: 020 7743 5284
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 enquires:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
27 February 2020
12 Throgmorton Avenue
London EC2N 2DL
END
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