BlackRock World Mining Trust plc
LEI - LNFFPBEUZJBOSR6PW155
Condensed Half Yearly Financial Report 30 June 2023
PERFORMANCE RECORD
|
As at
30 June
2023
|
As at
31 December
2022
|
|
Net assets (£’000)1
|
1,171,418
|
1,299,285
|
|
Net asset value per ordinary share (NAV) (pence)
|
612.72
|
688.35
|
|
Ordinary share price (mid-market) (pence)
|
599.00
|
697.00
|
|
Reference index2
– net total return
|
5,546.55
|
5,863.32
|
|
(Discount)/premium to net asset value3
|
(2.2%)
|
1.3%
|
|
|
========
|
========
|
|
|
For the
six months
ended
30 June
2023
|
For the
year
ended
31 December
2022
|
|
Performance (with dividends reinvested)
|
|
|
|
Net asset value per ordinary share3
|
-7.1%
|
+17.7%
|
|
Ordinary share price3
|
-10.3%
|
+26.0%
|
|
Reference index2
|
-5.4%
|
+11.5%
|
|
|
========
|
========
|
|
|
For the
six months
ended
30 June 2023
|
For the
six months
ended
30 June 2022
|
Change
%
|
Revenue
|
|
|
|
Net revenue profit on ordinary activities after taxation
(£’000)
|
31,767
|
37,148
|
-14.5
|
Revenue earnings per ordinary share (pence)3
|
16.73
|
20.07
|
-16.6
|
Dividend per ordinary share (pence)
|
|
|
|
– 1st interim
|
5.50
|
5.50
|
–
|
– 2nd interim
|
5.50
|
5.50
|
–
|
|
---------------
|
---------------
|
---------------
|
Total dividends paid and payable
|
11.00
|
11.00
|
–
|
|
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|
========
|
========
|
1 The
change in net assets reflects portfolio movements, dividends paid
and the reissue of ordinary shares from treasury during the
period.
2 With
effect from 31 December 2019, the
reference index changed to the MSCI ACWI Metals & Mining 30%
Buffer 10/40 Index (net total return). Prior to 31 December 2019, the reference index was the
EMIX Global Mining Index (net total return). The performance
returns of the reference index since inception have been blended to
reflect this change.
3 Alternative
Performance Measures; further details are given in the Glossary
contained within the Half Yearly Financial Report.
CHAIRMAN’S STATEMENT
Overview
The global economy performed well at the start of the year,
supported by factors such as falling energy prices, strong consumer
balance sheets and the reopening of the Chinese economy. There was
positive sentiment in the mining sector too following China’s
reversal of its zero COVID-19 policies which initially led to
strong commodity demand and the majority of mined commodity prices
performing well. However, relatively quickly, positive momentum
stalled as global manufacturing activity receded and China’s
economy, historically a major demand engine, delivered a
disappointing rebound. By the end of the first half of the year,
most mined commodity prices had fallen below the levels where they
started.
Performance
Against this backdrop, over the six months ended 30 June 2023, the Company’s net asset value per
share (NAV) returned -7.1% and the share price -10.3%. The
Company’s reference index, the MSCI ACWI Metals & Mining 30%
Buffer 10/40 Index, returned -5.4% (all percentages calculated in
Sterling terms with dividends reinvested).
Since the period end and up to the close of business on
22 August 2023, the Company’s NAV has
decreased by 5.2% compared to a fall of 3.2% (on a net return
basis) in the reference index (in Sterling terms with dividends
reinvested). Further information on the Company’s performance and
the factors that contributed to, or detracted from, performance
during the six months are set out in the Investment Manager’s
Report below.
Revenue return and dividends
The Company’s revenue return per share for the six-month period
ended 30 June 2023 amounted to 16.73p
per share, compared to 20.07p per share during the same six-month
period last year. This represents a decrease of 16.6% and reflects
reductions in dividends from many mining companies.
The first quarterly dividend of 5.50p per share was paid on
31 May 2023 and, today, the Board has
announced a second quarterly dividend of 5.50p per share which will
be paid on 6 October 2023 to
shareholders on the register on 8 September
2023, the ex-dividend date being 7
September 2023.
It remains the Board’s intention to distribute substantially all of
the Company’s available income in the future.
Management of share rating
The Directors recognise the importance to investors that the
Company’s share price should not trade at a significant premium or
discount to NAV, and therefore, in normal market conditions, may
use the Company’s share buyback and share issuance powers to ensure
that the share price is broadly in line with the underlying
NAV.
The discount of the Company’s share price to the underlying NAV per
share finished the six months under review at 2.2% on a cum income
basis, having stood at a premium of 1.3% at the beginning of the
period. At the close of business on 22
August 2023, the Company’s shares were trading at a discount
of 1.9% on a cum income basis.
Over the six months to 30 June 2023,
the Company’s shares have traded at an average premium of 0.2%, and
within a range of a 4.2% discount to a 3.1% premium. I am pleased
to report that, during the first half of the year, the Company
reissued 2,430,000 ordinary shares from treasury at an average
price of 644.44p per share for a total consideration of
£15,691,000. All shares were reissued at a premium to the
prevailing NAV and were therefore accretive to existing
shareholders. The Company did not buy back any shares during the
six month period ended 30 June 2023.
Since the period end and up to the date of this report, no ordinary
shares have been reissued or bought back.
Gearing
The Company operates a flexible gearing policy which depends on
prevailing market conditions. It is not intended that gearing will
exceed 25% of the net assets of the Company and its subsidiary.
Gearing as at 30 June 2023 was 9.6%
and maximum gearing during the period was 14.6%.
Board composition
I am delighted to welcome Charles (Chip)
Goodyear to the Board. Chip was appointed today and brings a
wealth of relevant industry knowledge and experience and, subject
to his re-election by shareholders, he is intended to succeed me as
Chairman immediately following the next Annual General Meeting. He
began his career at Kidder, Peabody & Co. where he participated
in merger and acquisition and financing activities for natural
resources companies. Chip then joined Freeport-McMoRan, one of the
world’s largest producers of copper and gold, where he was promoted
to executive vice president and chief financial officer. In 1999 he
joined BHP Billiton (now BHP), the world’s largest diversified
resources company as chief financial officer and served in that
role until 2001 when he became chief development officer, a post he
held until 2003 when he then became chief executive
officer.
In October 2007 Chip retired from BHP
and in 2009 served as CEO-designate of Temasek Holdings, an
investment company wholly owned by the Singapore Minister for Finance. He also served
on Temasek’s board. He is currently the president of Goodyear
Capital Corporation and Goodyear Investment Company and a director
of several private companies. Chip has also been a member of the
International Council on Mining and Metals and the National
Petroleum Council.
Market outlook
Central banks in most parts of the world have aggressively
tightened monetary policy to restrictive levels and the way forward
remains uncertain as they try to strike a delicate balance between
fighting inflation and maintaining financial stability. Headline
inflation rates are currently falling in the developed world,
driven by lower energy prices and normalising supply chains.
However, core inflation, which excludes items frequently subject to
volatile prices like food and energy, does not appear likely to
fall to many central banks’ 2.0% inflation target due to ongoing
strength in wage growth.
Uncertainty on the interest rate path, reflecting inflation
concerns, weighs on the outlook for economic growth. However, there
has never been greater demand for metals and minerals and the
mining sector must increase production to supply businesses with
the materials, such as lithium and copper, they need in enabling
the global economy to shift to a carbon-free future. The mining and
metals industry as a whole is also confident that it can reconcile
rapid output growth with sustainability goals.
Whilst near-term caution is warranted, the Board remains fully
supportive of our portfolio managers, the strength of the holdings
in the portfolio and their belief in the ability of our companies
to navigate the upcoming environment.
David
Cheyne
Chairman
24
August 2023
INVESTMENT MANAGERS’ REPORT
The first half of 2023 finished worse than expected, despite a
strong start to the year. Commodity prices initially moved higher
but by March started to fall, finishing the period in negative
territory on the back of fears of further interest rate hikes and
uncertainty on Chinese economic activity. The combination of these
two factors was able to overwhelm supportive supply side
constraints and growth from the energy transition related demand.
Mining company share prices fell in tandem with the aforementioned
moves but were also pressured by cost inflation that compressed
margins.
Given the negative backdrop of the period, returns would
historically have been worse than what transpired due to weak
balance sheets, overspending on growth and falling margins. These
factors have nearly always resulted in enlarging the negative
returns and driving the steep cyclicality most investors associate
with the sector, but once again the sector proved to be more
resilient than in the past. Mining companies have largely paid down
debt, leaving balance sheets supportive rather than the opposite.
Disciplined capital spending has reduced commitments to growth
related capital expenditure and thus freed up cash to spend on
buybacks and dividends. If companies can hold to the capital
allocation frameworks outlined at last cycle’s low point, 2016,
then there is a strong probability that once the near-term economic
noise dissipates, the underlying fundamentals should drive
returns.
Over the period, the NAV of the Company was down by 7.1% with
dividends reinvested and the share price total return was down by
10.3%. This compares to the FTSE 100 Index which was up by 3.2%,
the Consumer Price Index (during the 12 months to 30 June 2023) which was up by 7.9% and the
reference index (MSCI ACWI Metals & Mining Index 30% Buffer
10/40 Index net total return) which was down by 5.4% (all total
return numbers based in Sterling terms).
The old enemy – inflation
Central banks from the Federal Reserve, the Bank of England, the European Central Bank and nearly
all other regions sought to raise rates in a battle against
inflation. A near perfect storm of supply chain issues, strong
consumer balance sheets and tight labour markets drove inflation to
levels not seen for years. In addition, the stickiness of the data
continually defied market expectations that rates would peak in the
near term.
Given the focus of governments, society and central banks on
bringing inflation under control, we consider that it is likely
that rates will remain higher than expected and for longer,
especially if the consumer continues to spend down the “personal
balance sheet” built up during the COVID-19 pandemic. However,
recent data points are starting to show a reprieve in areas such as
energy costs, raw materials and food prices. Time will tell if
these will result in a steep enough fall in overall inflation data
allowing central banks to pause rather than raise interest rates
again.
As shown in the chart on page 8 of the Half yearly Financial
Report, rates are now at a level where investors seem to be
satisfied with the return available on short-term deposit rates of
5% or more. The attractiveness of this creates a significant burden
for general equities given the higher volatility and lower yields
versus the simple return on cash. In addition, ongoing economic
uncertainty in certain parts of the world means that equity returns
are likely to remain divergent. The year to date moves in large cap
technology companies versus companies aligned to the broader
economy is a case in point (as seen in the chart on page 7 of the
Half Yearly Financial Report).
ESG issues and the social licence to
operate
ESG (Environmental, Social and Governance) issues are highly
relevant to the mining sector and we seek to understand the ESG
risks and possible related opportunities facing companies and
industries in the portfolio. As an extractive industry, the mining
sector naturally faces a number of ESG challenges given its
dependence on water, carbon emissions and geographical location of
assets. However, we consider that the sector can provide critical
infrastructure, taxes and employment to local communities, as well
as materials essential to technological development, enabling the
carbon transition through the production of the metals required for
the technology underpinning that transition.
We consider ESG insights and data, including sustainability risks,
within the total set of information in our research process and
makes a determination as to the materiality of such information as
part of the investment process used to build and manage the
portfolio. ESG insights are not the sole consideration when making
investment decisions but, in most cases, the Company will not
invest in companies which have high ESG risks (risks that affect a
company’s financial position or operating performance) and which
have no plans to address existing deficiencies.
- We
take a long-term approach, focused on engaging with portfolio
company boards and executive leadership to understand the drivers
of risk and financial value creation in companies' business models,
including material sustainability-related risks and opportunities,
as appropriate.
- There
will be cases where a serious event has occurred and, in that case,
we will assess whether the relevant portfolio company is taking
appropriate action to resolve matters before deciding what to
do.
- There
will be companies which have derated (the downward adjustment of
multiples) as a result of an adverse ESG event or generally due to
poor ESG practices where there may be opportunities to invest at a
discounted price. However, the Company will only invest in these
value-based opportunities if we are satisfied that there is real
evidence that the relevant company’s culture has changed and that
better operating practices have been put in place.
The main areas of focus during the period have been on
decarbonisation plans. It is increasingly clear how essential it is
for resource producers to move away from the carbon heavy processes
that have been used for generations. New technologies will be
required to facilitate this transition, as well as significant
amounts of capital. It is also important that investors understand
that the journey will not be a straight line, as companies contend
with both the speed of decarbonisation and the importance of
growing production to meet the needs of customers. In order to
monitor progress, it is hoped that some new industry standards are
implemented that will make assessing progress easier, as happened
when the sector focused on safety many years ago.
Another area of focus during the period has been on governance.
Given the battle to grow either by investing in new supply or via
mergers and acquisitions, it is important that management teams
respect their fiduciary duty when dealing with the latter. It is
too easy for executives to shy away from opportunities by
retreating into the safety of their own structure rather than
engaging to see what might be possible. It is our hope that the
positives delivered by increased focus on capital discipline are
not wasted when it comes to evaluating value accretive
opportunities.
Weaker prices
The first half of 2023 has seen markedly lower prices versus both
the start of the year and versus the average prices seen in the
same period last year. Double digit falls are commonplace across
the industrial metals arena, with only precious metals showing
upwards moves. Despite the scale of the falls, current prices
continue to deliver strong margins for the producers and it is
therefore important to highlight the ongoing cash generation the
sector is likely to enjoy. In addition, inventory levels have
fallen to record lows for a number of metals meaning that when
demand strength returns the impact on prices from restocking could
be dramatic.
Commodity price moves
Commodity
|
30 June 2023
|
% change
YTD in 1H 23
|
% change average price
1H23 vs 1H22
|
Gold US$/oz
|
1,916
|
5.5%
|
3.1%
|
Silver US$/oz
|
22.76
|
-4.2%
|
0.1%
|
Platinum US$/oz
|
897
|
-15.8%
|
1.7%
|
Palladium US$/oz
|
1,254
|
-29.9%
|
-31.8%
|
Copper US$/lb
|
3.77
|
-0.5%
|
-10.9%
|
Nickel US$/lb
|
9.23
|
-31.9%
|
-15.4%
|
Aluminium US$/lb
|
0.96
|
-10.3%
|
-23.9%
|
Zinc US$/lb
|
1.08
|
-20.6%
|
-26.0%
|
Lead US$/lb
|
0.97
|
-8.5%
|
-5.9%
|
Tin US$/lb
|
12.46
|
11.0%
|
-34.6%
|
Iron Ore (China 62% fines) US$/t
|
114
|
-3.4%
|
-15.3%
|
Thermal Coal (Newcastle) US$/t
|
159
|
-42.0%
|
12.0%
|
Metallurgical Coal US$/t
|
230
|
-14.0%
|
-8.0%
|
Lithium (Battery Grade China) US$/kg
|
106.2
|
-44.5%
|
-21.2%
|
West Texas Intermediate Oil (Cushing) US$/barrel
|
70.6
|
-12.0%
|
-26.4%
|
|
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|
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|
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|
Sources: Datastream and Bloomberg, June
2023.
The key exposures for the Company are to producers of iron ore and
copper. Average prices for these two commodities were lower in the
first half of 2023 versus the first half of 2022 with iron ore down
by 15% and copper down by 10%. What is interesting is that the
actual year to date return for copper is flat, highlighting the
volatility during the period. Inventories are now at levels rarely
seen before, leaving consumers heavily exposed to price risk when
they decide to rebuild stocks.
It is not just metals prices that have suffered during the period
but also prices for other commodities such as oil and agricultural
crops. During the period, OPEC (Organisation of Petroleum Exporting
Countries) has had to step into the market to cut supply twice this
year in order to protect prices in the face of lower economic
activity. On the other side of the equation, sales of oil from the
US Strategic Petroleum Reserve have moderated and the US Government
has said they would look to restock at around US$70/bbl which is not far from current
levels.
Capital allocation
It is now seven years since companies started to introduce changes
to their capital allocation frameworks. The focus on value over
volume, balance sheet risk, looking through the cycle, flexibility,
improved payments to shareholders etc. have entrenched a culture of
discipline which has steadied the ship during volatile times. It is
great to see ongoing support for these plans and it is clear from
the reduced share price volatility in periods like the first half
of 2023 that they are working.
Many of the historic return plans continue to drive support for the
sector. It is noteworthy the scale of delivery and ongoing ambition
around share buyback plans that continue to erode the number of
shares in issue for various companies. For example, ArcelorMittal
has reduced its share count by 31.0%, Glencore by 5.2% and Vale by
7.4%. The full impact of deploying capital in this way is yet to be
felt during an upswing in markets and time will tell just how much
value can be generated from them but the potential is very
exciting.
In regard to dividends, it is clear that based on current levels of
profitability and existing pay-out policies, dividends to
shareholders are likely to be lower and in some cases significantly
lower in 2023 than the prior year. This is to be expected but what
should not be ignored is just how competitive the forecast yields
continue to be versus the broader market e.g. the reference index
has a dividend yield of 4.1% versus the MSCI All Country World
Index at 2.2%.
Decarbonisation a multi decade driver for the
sector
The low carbon transition is one of the most encouraging structural
opportunities that we see in the market and creates a compelling
growth opportunity for those companies supplying the materials that
enable the transition. In 2022 global battery electric vehicle
sales reached 10 million
units, with the International Energy Agency (IEA) forecasting this
to increase to 13 million units in 2023. Energy storage systems
doubled in 2022 compared with 2021 and are on track to double again
in 2023. We also saw record spending on renewable energy in 2022 at
almost US$600 billion, with
China alone adding 100GW of solar
capacity (+70% versus 2021) where they are looking to increase this
to 150GW in 2023.
Policy continues to be supportive of this trend where we have seen
an acceleration in legislation to support the transition to a
low-carbon economy over the last 12 months. The US Inflation
Reduction Act (IRA), passed in August
2022, contains a range of measures to support the transition
with nearly US$400 billion of public
spending in the form of tax incentives, rebates and loans. The IRA
has contributed to a doubling of real manufacturing construction
spending since late 2021. In Europe, the Green Deal Industrial Plan has
earmarked more than EUR 600 billion
in public sector investment to incentivise European production of
clean technology and critical raw materials to ensure Europe remains competitive in the global race
to net-zero.
Base metals
It was a difficult half year for the base metals as concerns around
global growth, the strength of the recovery in China and higher interest rates depressed
demand. Base metal prices for the first half of 2023 were between
11% to 26% lower than the corresponding period last year. While
physical markets remain robust, particularly in the case of copper,
the impact of using higher rates to stem inflation overwhelmed
prices in the first six months. Encouragingly, as we approached the
end of the period, China’s two most senior politicians sought to
allay concerns around China’s growth and have indicated that they
will look to stimulate parts of the economy to support
growth.
Copper has been caught in the crossfires of a macro versus micro
debate this year. The fundamentals of the copper market look robust
– inventory levels are low and drawing down and China’s apparent
consumption is strong (copper imports into China reached a record level in May 2023). However, concerns around the growth
outlook in China and the rest of
the world depressed the price, with copper finishing the first half
of the year flat (-0.5%) versus the beginning of the year. The
copper price has benefited over the last two years from a number of
project delays and supply downgrades. Whilst we do not see a wall
of new supply entering the market, we will begin to see delayed
production from assets such as Anglo American’s Quelleveco mine in
Peru and Teck Resources’ QB2
project in Chile which began
ramping up production this year.
With the long-term fundamentals of the copper market remaining
robust, in particular copper’s role in enabling the energy
transition, we continue to remain positively exposed to copper
producers within the Company. Encouragingly, we saw a better
performance from copper equities versus the underlying copper price
during the period. A number of mid-cap and development companies
performed particularly well. Lundin Mining (0.8% of the portfolio)
delivered improved operational performance and acquired a 51% stake
in the Casserone’s copper mine in Chile. This is located close to the
undeveloped Josemaria project and provides Lundin Mining with a
strong presence in the Vicuna district of Chile which is also home to the world class
Filo del Sol project owned by Filo
Mining, another Lundin Group company. Ivanhoe Mines (2.2% of the portfolio) continues
to deliver as they ramp-up their Komoa-Kakula asset in the
Democratic Republic of the Congo.
Ivanhoe Electric (2.8% of the portfolio) announced a concurrent
equity investment and 50/50 exploration joint venture with Ma’aden
(Saudi Arabia’s leading mining company) to explore minerals in the
Middle Eastern country which will see them invest US$126 million for a 9.9% stake in the company.
This formerly private investment has continued to perform well now
that it is listed on the New York Stock Exchange.
The aluminium price was down 13% compared with last year but has
largely traded around its cost curve, which is used to estimate its
price support level. This is a function of the move down in energy
prices which are the largest cost component of producing aluminium.
There have been risks to China’s aluminium supply base with
production restrictions imposed in Yunnan due to low hydro levels, but overall
supply and demand have been reasonably well balanced in
China. While the demand for
“green” or low-carbon aluminium continues to grow, we have seen an
element of aluminium de-stocking year-to-date. The Company’s
largest exposure to aluminium is via Norsk Hydro (2.4% of the
portfolio) which is one of the lowest-carbon producers of aluminium
by virtue of its access to hydro power in Norway and it continues to pursue its strategy
of growing the low-carbon product mix via recycling and investing
into renewable energy.
The nickel market was particularly challenged in 2023 as stainless
steel production, its key source of demand, declined year-on-year.
With Indonesian nickel pig iron supply continuing to grow, a
substantial surplus has built up which caused the nickel price to
decline 32% during the first half of the year. Nickel pig iron
(NPI) producers are increasingly looking to adapt their facilities
allowing production of nickel matte and other intermediary
products. This move allows them to sell into the market for Class 1
battery grade nickel where demand is likely to remain high and
could command a premium over time. The Company has two pure play*
exposures to nickel – the first is Nickel Industries (0.9% of the
portfolio), today a NPI producer which is transitioning towards LME
grade nickel production which will improve earnings and margins.
The second investment was done via a “PIPE” deal in 2022 that has
now taken Lifezone Metals from private into a public company at the
end of June. Lifezone Metals, in conjunction with BHP, owns the
Kabanga project in Tanzania which
is one of the world’s largest undeveloped nickel sulphide deposits.
As at the end of July, Lifezone Metals was trading 19.7% above the
capital raising entry price of US$10
per share.
* Companies
with significant revenue exposure to the commodity.
Bulk commodities and steel
The outlook for the iron ore market at the end of last year was
largely positive with most investors expecting to see a recovery in
construction activity, particularly in China, leading to better prices during the
first half of the year. To a large extent this proved correct with
the iron ore price reaching US$125/t
in Q1 and averaging US$112/t for the
first half of the year. While this iron ore price does not support
the record levels of dividends paid by the iron ore exposed
diversified miners in 2021 and 2022 it is a very attractive price
for these low-cost producers.
The Company’s exposure to iron ore is via the diversified majors
BHP (8.9% of the portfolio), Vale (9.1% of the portfolio) and Rio
Tinto (2.6% of the portfolio). Whilst iron ore prices have softened
versus the prior year, so too have the share prices and the
companies continue to offer an attractive and well supported
dividend yield. In addition, the Company has exposure to two pure
play high grade iron ore producers, Champion Iron and Labrador
Royalty Company. Champion Iron is ramping up its Bloom Lake
operation in Canada and targeting
the production of high grade (69% Fe) iron ore which is a key
component of low carbon steel production.
China’s domestic steel mills are currently operating at break-even
margins, with the steel price largely tracking moves in its key
cost inputs, iron ore and coking coal. As we look into the second
half of the year, we would expect to see a moderation in steel
production rates in China given
the government’s goal of maintaining to reducing steel production
year-on-year. During the first half of the year, China’s steel
output was annualising at 1,050Mt
versus their capacity target of around 1,000Mt. Addressing oversupply and measuring the
carbon intensity of production in the Chinese steel market is
positive for those producers (namely European) who compete against
Chinese imports.
The US has remained a bastion of relative strength for steel,
supported by domestic construction, government policy and a
recovery in automotive demand from the chip-impacted production in
2020-2022. As we look forward there is an increasingly positive
outlook for steel in the US with higher infrastructure and
re-shoring investment. The energy transition is also supportive of
steel demand, with steel intensity of certain renewable power more
steel intensive than a natural gas fired power plant, such as
onshore wind at 3.4x for the same level of energy
generation.
The Company’s exposure to steel is focused on companies with a
track record of capital returns through share buybacks and
dividends, as well as disciplined growth and an industry leading
approach to decarbonisation. Our preference in the Company is to
have exposure to low carbon producers, such as the US EAF producers
including Nucor and Steel Dynamics, or to be invested in those
producers who might be carbon intensive today, but have credible
plans to decarbonise their production as is the case with
ArcelorMittal. During the first half, we saw Nucor (1.6% holding in
the portfolio) announce a new US$4
billon share buyback plan in May – since 2020 Nucor has reduced its
share count by 17%, with the newly announced buyback compressing
this further. ArcelorMittal and Steel Dynamics (2.7% and 1.8%
holdings respectively) have also reduced their share count by 27%
and 20% respectively since the end of 2020 and we expect this trend
to continue.
Coal markets have been some of the most interesting commodity
markets over the last couple of years with record prices achieved
for both metallurgical and thermal coal during 2022. While coal
markets have continued to be interesting, the price performance has
been the worst among the commodities, primarily due to an elevated
starting point and lower demand due to a warmer than expected
northern hemisphere winter. With coal demand in Europe, Japan
and South Korea relatively muted
year-to-date, China has been
dominating imports with their coal burn up 16% year-on-year in May.
From here, the outlook for coal is largely weather dependent. If
the northern hemisphere winter is colder than average, inventories
will need to be replenished which should be supportive of
prices.
The Company’s thermal coal exposure is via our 8.0% position in
Glencore which is using elevated thermal coal prices to deleverage
the business and remains focused on decreasing its coal exposure
over time. During the first half of 2023, Glencore made a proposal
to Teck Resources to merge their two businesses and subsequently
demerge the combined coal business to create two separate companies
– a metals business and a coal business. While the Teck Resources
board has not accepted the proposal from Glencore, Glencore is
separately pursuing an acquisition of Teck Resources’ coking coal
business that they have indicated will allow them to separate coal
from the rest of the business over time. As a reminder, the Company
has no exposure to pure play thermal coal producers.
A consistent feature of the metallurgical coal market has been its
susceptibility to upside price surprises due to seasonal weather
effects during the first half of the year. This has resulted in
prices spiking to over US$600/t in
recent years when Queensland,
Australia’s key coking coal region, was heavily impacted by extreme
flooding. While not to the same extreme, volatility has been a
feature of the hard coking coal market this year with prices
reaching close to US$400/t in
February as exports from Australia
hit 6-year lows, to subsequently decline to around US$230-250/t at present as supply recovered.
Limited investment into new supply and ongoing supply side risks
are likely to keep this market well supported over the medium term.
The Company’s exposure to metallurgical coal remains in the two
leading producers, BHP and Teck Resources, which have been able to
generate very strong levels of free cash flow from their coking
coal businesses to support returns to shareholders in recent
years.
Precious metals
The last three years have seen a range bound environment for gold
with the average annual price in a range of circa 10%. Whilst the
price in US Dollar terms has been relatively stable, the
performance of gold in non-US Dollar terms has been far stronger.
In 2023 gold has traded at the top-end of its recent trading range
surpassing US$2,000/oz, supported by
persistent inflation concerns, heightened geopolitical tension and
currency debasement. As we look to the remainder of the year, the
performance of gold will be likely dictated by the outlook for
inflation and in turn rates. If inflation proves to be more
persistent than expected, yet central banks choose to pause on
interest rate hikes, we will see real yields compress and a
positive gold price environment emerge.
The silver price has modestly underperformed gold when looking at
average prices during the first half of 2023 versus the same period
last year. Longer term we see upside potential from greater solar
penetration (the greater proportion of solar within the energy mix)
and increasing usage of semi-conductors.
An encouraging feature of the gold equity market over recent years
has been the increased focus on shareholder returns, free cash flow
and dividends. Cost inflation has been a challenge for the gold
producers over the last couple of years. However signs are
suggesting the cost inflation is reaching a peak and the move up in
gold prices is also supporting margins.
The Company has modestly increased its exposure to gold producers
during the six-month period given the improved outlook. However, we
have maintained our strategy of focusing on high quality producers
which have an attractive operating margin and solid production
profile and resource base. This includes the Company’s exposure to
the royalty companies Franco-Nevada (2.2% of the portfolio) and
Wheaton Precious Metals (3.1% of the portfolio) which have
generally outperformed the gold equities during the year given
their stronger margins and lack of exposure to cost inflation. We
have also seen further consolidation in the sector with the
Newcrest Mining (2.4% of the portfolio) board recommending Newmont
Corporation’s (3.2% of the portfolio) proposal to acquire Newcrest
Mining to create the world’s largest gold producer.
It was a torrid period for the platinum group metals (PGMs) with
destocking driving prices significantly lower during the first
half, with the platinum price down by 16%, palladium down by 30%
and rhodium falling a spectacular 65% during the half given the
elevated price levels over the last 18 months. It has been a
challenging period for the PGMs with global auto production still
tracking circa 15% below pre-COVID-19 levels, with Battery Electric
Vehicles (BEV) continuing to take market share from Internal
Combustion Engine (ICE) vehicles. We expect to see a modest
recovery in auto sales in 2023 as chip shortages begin to ease, but
an environment of rising inflation and interest rates is
challenging for auto demand.
Among the PGMs, platinum has fared better than palladium which
faces the structural challenge of declining diesel vehicle demand.
Platinum continues to see autocatalyst demand growth, with
increasing emissions standards requiring more platinum loading for
autocatalysts in China. While the
demand outlook has well recognised challenges, the supply of PGMs
has come under significant pressure in recent years due to the lack
of reinvestment and operating challenges (mainly power related) in
South Africa. A key question for
global PGM supply is whether sanctions are placed on Russian
materials, which would significantly tighten the market.
As at the end of the period, the Company had a combined exposure of
2.3% to PGM producers through Bravo Mining, Impala Platinum,
Northam Platinum and Sibanye Stillwater versus 2.0% at the same
time last year. In addition, the Company has reduced its exposure
to Anglo American (2.4% of the
portfolio) which owns 79% of Anglo American Platinum. The clear
bright spot for the Company’s PGM exposure was from Bravo Mining, a
Brazilian-based PGM exploration and development company which the
Company invested in pre-IPO in April
2022 at US$0.50/share due to
our belief in the assets and management’s potential. Since our
initial investment the company has successfully done an IPO and as
at 30 June 2023 was trading at
C$4/share, which represents a 500%
return on our initial investment. They continue to have great
success with the initial exploration phase confirming the
occurrence of rhodium in the orebody, along with the potential for
nickel sulphide.
Energy transition metals
It was a volatile half for lithium, a critical component of
batteries, with the prices beginning the year at elevated levels
and subsequently falling by 60% between January and April, due to
de-stocking along the battery supply chain. Lithium demand is
expected to remain solid this year at +20%, with the market to
remain in balance which should support the recent rally in prices.
Much has been said around the potential for meaningful supply
growth in lithium. However, project delays have become a feature of
this market in recent years. Concerns around the future
availability of lithium has seen a number of OEM’s (Original
Equipment Manufacturers) including Ford and General Motors look to
fund lithium projects and producers through a combination of equity
investments, off-takes (the amount of goods purchased during a
given period) and loans. Following the pullback in lithium equities
alongside the fall in spot prices during Q1, the Company added to
its lithium holdings through Albemarle (1.6% of the portfolio) and
Mineral Resources (1.3% of the portfolio). The Company’s lithium
holdings constitute 7.8% of the portfolio.
A critical component of the electric car is also the e-motor, which
most commonly uses a Praseodymium-Neodymium (NdPr) magnet, an alloy
of two rare earth elements (REEs). REEs are commonly mined and
processed in China and have been
deemed of strategic importance by both Europe and the USA. The Company has exposure to REEs through
Lynas Rare Earths, a REE miner and processor crucially based in
Malaysia and Australia, as well as through Iluka Resources
which is building a rare earths conversion facility in Western Australia to process its Eneabba rare
earths concentrate. It has been a challenging first half for Lynas
Rare Earths, with the Malaysian Government confirming that no
cracking and leaching of rare earths will be allowed at their
facility in Malaysia from
1 January 2024. While Lynas Rare
Earths is building a cracking and leaching plant in Western Australia, there was hope that both
cracking and leaching assets could operate in both Malaysia and Western
Australia, allowing Lynas Rare Earths to further grow
volumes.
Other metals with uses in support of the energy transition include
cobalt, where prices are down by 65% from their June 2022 peak. Demand has been challenged, with
higher cobalt battery chemistries the slowest growth among the
battery chemistries, but still up by 28% year-on-year. From a
supply perspective, the market looks well supplied with China
Molybdenum increasing both production and the processing of
stockpiles. Supply growth is also set to continue, with cobalt
being a by-product of many of the Indonesian Nickel projects
announced. The Company’s only exposure to cobalt is via
Glencore.
Royalty and unquoted investments
Over the last year the Company has enjoyed a number of successes
from the unquoted part of the portfolio with two private holdings,
Ivanhoe Electric and Bravo Mining, going public at a substantially
higher level than the Company’s initial investment. The Company’s
long-standing Brazilian copper and gold royalty previously operated
by OZ Minerals was transferred to BHP following its acquisition of
OZ Minerals in 2023. Jetti Resources, a copper leaching company,
completed a US$100 million fund
raising at a substantially higher level than the Company’s initial
investment and finally two PIPE investments completed their
business combinations and are trading above our entry
price.
As at the end of the first half of 2023, the unquoted investments
in the portfolio amounted to 6.9% of the portfolio and consist of
the BHP Brazil Royalty, the Vale Debentures, Jetti Resources and
MCC Mining. 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 in the 2022 Annual
Report.
BHP Brazil Royalty Contract (1.5% of the
portfolio)
In July 2014 the Company signed a
binding royalty agreement with Avanco Minerals. The Company
invested US$12 million in return for
Net Smelter Return (net revenue after deductions for freight,
smelter and refining charges) royalty payments comprising 2% on
copper, 25% on gold and 2% on all other metals produced from mines
built on Avanco Minerals’ Antas North and Pedra Branca licences. In
addition, there is a flat 2% royalty over all metals produced from
any other discoveries within Avanco Minerals’ licence area as at
the time of the agreement.
In 2018 we were delighted to report that Avanco Minerals was
successfully acquired by OZ Minerals, an Australian based copper
and gold producer, for A$418 million.
We are now equally pleased to report that OZ Minerals was acquired
by the world’s largest mining company, BHP, in early 2023, with BHP
now operating the assets underlying the royalty. Since our initial
US$12 million investment was made, we
have received US$27.1 million in
royalty payments, with the royalty achieving full payback on the
initial investment in 3½ years. As at the end of June 2023, the royalty was valued at £19.4
million (1.5% of the portfolio) which equates to a 330.8% cash
return on the initial US$12 million
invested.
In 2021, OZ Minerals achieved a significant milestone and commenced
mining of Pedra Branca ore. Since then we have seen production at
Pedra Branca increase, with the company targeting production of
13kt-16kt of copper and 11koz-13koz of gold production in 2023
(Source: 2023 guidance, as at end 2022). We continue to remain
optimistic on the longer-term optionality provided by the royalty
via the development of Pedra Branca
West, as well as greenfield exploration over the licence
area. Following BHP’s acquisition of OZ Minerals in early 2023, BHP
is now the operator of the royalty. BHP’s strong operating focus,
balance sheet strength and ESG credentials leaves the Brazilian
operations in a very strong set of hands.
Vale Debentures (2.5% of the portfolio)
At the beginning of 2019, the Company completed a significant
transaction to increase its holding in Vale Debentures. The
Debentures consist of a 1.8% net revenue royalty over Vale’s
Northern System and Southeastern System iron ore assets in
Brazil, as well as a 1.25% royalty
over the Sossego copper mine. The iron ore assets are world class
given their grade, cost position, infrastructure and resource life,
which is well in excess of 50 years.
We currently expect dividend payments to grow once royalty payments
commence on the Southeastern System in 2024 and volumes from S11D
and Serra Norte in the Northern System improve later in 2023 where
project ramp-ups have been challenged in 2022 by licensing. In
December, Vale reduced its longer-term iron ore production profile
in light of licensing challenges and also a greater focus on high
grade material. This now sees Vale target modest volume growth from
the Northern System out to 2026. However, the improvement in grade
will aid received pricing which the royalty will benefit
from.
The Debentures continue to offer an attractive yield of circa 10.2%
based on the 1H-2023 annualised dividend. This is an attractive
yield for a royalty investment, with this value opportunity
recognised by other listed royalty producers Franco-Nevada and
Sandstorm Royalties, which have both acquired stakes in the
Debentures since the sell-down occurred in 2021.
Whilst the Vale Debentures are a royalty, they are also a listed
security on the Brazilian National Debentures System. As we have
highlighted in previous reports, shareholders should be aware that
historically there has been a low level of liquidity in the
Debentures and price volatility is to be expected. 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.
Jetti Resources (2.2% of the portfolio)
In early 2022, the Company made an investment into mining
technology company Jetti Resources (Jetti) which has developed a
new catalyst that improves copper recovery from primary copper
sulphides (specifically copper contained in chalcopyrite, which is
often uneconomic) under conventional leach conditions. Jetti is
currently trialling their technology across a number of mines where
they will look to integrate their catalyst into existing heap leach
SX-EW (solvent extraction and electrowinning) mines to improve
recoveries at a low capital cost. The technology has been
demonstrated to work at scale at Capstone’s Pinto Valley copper
mine, as well as Freeport-McMoRan’s Bagdad and El Abra operations.
If Jetti’s technology is proven to work at scale, we see valuation
upside with Jetti sharing in the economics of additional copper
volumes recovered through the application of their
catalyst.
During the second half of 2022 we were pleased to report that Jetti
completed its Series D financing to raise US$100 million and a substantially higher
valuation than when our investment was made at the beginning of
2022. This sees the company fully financed to execute on their
expected growth plans in the years ahead.
MCC Mining (0.4% of the portfolio)
MCC Mining operates as a mineral exploration company focused on
exploring for copper in Colombia.
The company has several large porphyry targets which we believe
could have significant potential. Shareholders include other mid to
large cap copper miners, which is another indication of the
strategic value of the company. The valuation of the Company is
based on the US$170.7 million equity
value implied by the April 2022
equity raise. The money they raised will fund a drilling campaign,
which commenced in Q4 2022 at their Comita project, a joint venture
with Rio Tinto, with drilling on two other projects (Urrao and
Pantanos) commencing during the first half of 2023. Whilst it is
still very early days, initial drilling looks encouraging.
Importantly, MCC’s three projects are located in the Forestry
Reserve in Colombia which allows
for exploration drilling in the forestry reserve based on new
regulations introduced in Colombia
in early 2022.
Derivatives activity
The Company from time to time enters into derivatives contracts,
mostly involving the sale of “puts” and “calls”. These are taken to
revenue and are subject to strict Board guidelines which limit
their magnitude to an aggregate 10% of the portfolio. In the first
half of 2023 income generated from options was £2.5 million.
Volatility levels for most of the period were lower, making option
writing less value accretive to the Company, but nonetheless a
number of opportunities presented themselves allowing healthy
levels of income to be earned. At the end of the period the Company
had 0% of the net assets exposed to derivatives and the average
exposure to derivatives during the period was less than 5% of net
assets.
Gearing
At 30 June 2023 the Company had
£150.2 million of net debt, with a gearing level of 9.6%. The debt
is held principally in US Dollar rolling short-term loans and
managed against the value of the portfolio as a whole. During the
period the Company reviewed the use of gearing given the sharp
increase in rates, which had an impact on the returns for using
debt to make investments. Less debt was used during the period than
in prior years, which softened the impact of the negative drag on
returns during the six months. At present we remain optimistic
that, as some of the macro risks fade, opportunities will present
themselves for gearing levels to rise back to normal levels even
though the debt will have a higher cost. On the back of this,
facilities were refreshed with our lenders and remain at £200
million for the revolving credit facility and £30 million for the
overdraft. The current total cost of debt for the Company remains
low at 5.99% and is linked to SONIA following the demise of
LIBOR.
Outlook
The first half of the year was weaker than expected both in
absolute terms and versus the broader market. Valuation multiples
compressed alongside lower than forecast metal prices leading to
reduced levels of profitability. As mentioned previously, we
believe these poor returns are due both to the short-term focus on
interest rates and to Chinese economic data. The energy transition
appears to be happening faster than expected with EV car sales
beating estimates, deployment of renewable infrastructure
accelerating and corporate decarbonisation spending becoming
mainstream. Supply of materials remains constrained and growth
projects seem to be taking longer and costing more.
In this environment, shareholders should expect the portfolio to
remain fully invested with a focus on stock specific outcomes
rather than just market related factors such as commodity price
sensitivity. This approach has delivered strong results over the
last few years and the current mix of holdings has a high degree of
exposure to similar dynamics, which we consider bodes well for the
future.
In addition, the Company will continue to seek out opportunities to
maximise income during the balance of the year in order to try to
offset recent reductions to dividends from core holdings. Achieving
this is integral to the goal of delivering a superior total return
for shareholders through the cycle.
Evy Hambro and Olivia Markham
BlackRock Investment Management (UK)
Limited
24 August 2023
TEN LARGEST INVESTMENTS
1
▲
Vale1,2
(2022: 2nd)
Diversified mining group
Market value: £117,277,000
Share of investments: 9.1%
(2022: 9.1%) comprising equity 6.6% and debentures 2.5%
One of the largest mining groups in the world, with operations in
30 countries. Vale is the world’s largest producer of iron ore and
iron ore pellets and the world’s largest producer of nickel. The
group also produces manganese ore, ferroalloys, metallurgical and
thermal coal, copper, platinum group metals, gold, silver and
cobalt.
2
▼
BHP
(2022: 1st)
Diversified mining group
Market value: £113,843,000
Share of investments: 8.9%
(2022: 9.5%)
The world’s largest diversified mining group by market
capitalisation. The group is an important global player in a number
of commodities including iron ore, copper, thermal and
metallurgical coal, manganese, nickel, silver and
diamonds.
3
►
Glencore
(2022: 3rd)
Diversified mining group
Market value: £102,143,000
Share of investments: 8.0%
(2022: 7.7%)
One of the world’s largest globally diversified natural resources
groups. The group’s operations include approximately 150 mining and
metallurgical sites and oil production assets. Glencore’s mined
commodity exposure includes copper, cobalt, nickel, zinc, lead,
ferroalloys, aluminium, thermal coal, iron ore, gold and
silver.
4
▲
Teck Resources
(2022: 9th)
Diversified mining group
Market value: £57,999,000
Share of investments: 4.5%
(2022: 3.6%)
A diversified mining group headquartered in Canada. The company is engaged in mining and
mineral development with operations and projects in Canada, the US, Chile and Peru. The group has exposure to copper, zinc,
metallurgical coal and energy.
5 ▲
Freeport-McMoRan
(2022: 8th)
Copper producer
Market value: £50,113,000
Share of investments: 3.9%
(2022: 4.0%)
A global mining group which operates large, long-lived,
geographically diverse assets with significant proven and probable
reserves of copper, gold and molybdenum.
6
►First
Quantum Minerals1
(2022: 6th)
Copper producer
Market value: £45,866,000
Share of investments: 3.6%
(2022: 4.1%) comprising equity 2.8% and bonds 0.8%
A Canadian-based mining and metals group with principal activities
that include mineral exploration, development and mining. Its main
product is copper.
7
▲
Newmont Corporation
(2022: 18th)
Gold producer
Market value: £40,518,000
Share of investments: 3.2%
(2022: 1.9%)
Following the acquisition of Goldcorp in the first half of 2019,
Newmont Corporation is the world’s largest gold producer by market
capitalisation. The group has gold and copper operations on five
continents, with active gold mines in Nevada, Australia, Ghana, Peru
and Suriname.
8
▲
Wheaton Precious Metals
(2022: 14th)
Gold producer
Market value: £39,577,000
Share of investments: 3.1%
(2022: 2.3%)
One of the world’s largest precious metals streaming companies. The
company purchases silver and gold production from mines that it
does not own and operate. The company has streaming agreements with
19 operating mines and 13 development projects
worldwide.
9
▲
Ivanhoe Electric/I-Pulse1
(2022: 11th)
Copper producer
Market value: £36,296,000
Share of investments: 2.8%
(2022: 2.4%) comprising equity 1.9% and bonds 0.9%
An American minerals exploration and development company focused on
advancing their portfolio of electric metals projects located
primarily in the United States.
Ivanhoe Electric has a specific focus on sources of electric metals
such as copper, gold, silver and nickel. These metals are essential
for the world’s revolutionary transition to an electrified economy.
I-Pulse is the former parent company of Ivanhoe Electric and today
retains a minority shareholding interest in Ivanhoe Electric which
was spun-out from the I-Pulse group in 2021.
10
▼
ArcelorMittal
(2022: 7th)
Steel producer
Market value: £35,172,000
Share of investments: 2.7%
(2022: 4.0%)
A multinational steel manufacturing group, with a focus on
producing safe ‘lower carbon’ steel. The group has operations
across the globe and is the largest steel manufacturer in
North America, South America and Europe.
1 Includes
fixed income securities.
2 Includes
investments held at Directors’ valuation.
All percentages reflect the value of the holding as a percentage of
total investments. For this purpose, where more than one class of
securities is held, these have been aggregated.
Together, the ten largest investments represented 49.8% of total
investments of the Company’s portfolio as at 30 June 2023 (ten largest investments as at
31 December 2022: 54.3%).
INVESTMENTS AS AT 30 JUNE
2023
|
Main
geographical
exposure
|
Market
value
£’000
|
|
% of
investments
|
Diversified
|
|
|
|
|
Vale
|
Global
|
85,198
|
}
|
9.1
|
Vale Debentures*#^
|
Global
|
32,079
|
BHP
|
Global
|
113,843
|
|
8.9
|
Glencore
|
Global
|
102,143
|
|
8.0
|
Teck Resources
|
Global
|
57,999
|
|
4.5
|
Rio Tinto
|
Global
|
33,766
|
|
2.6
|
Anglo American
|
Global
|
30,267
|
|
2.4
|
Trident
|
Global
|
5,214
|
|
0.4
|
|
|
---------------
|
|
---------------
|
|
|
460,509
|
|
35.9
|
|
|
=========
|
|
=========
|
Copper
|
|
|
|
|
Freeport-McMoRan
|
Global
|
50,113
|
|
3.9
|
First Quantum Minerals*
|
Global
|
45,866
|
|
3.6
|
Ivanhoe Electric
|
United States
|
24,125
|
}
|
2.8
|
I-Pulse*
|
United States
|
12,171
|
Jetti Resources#
|
Global
|
28,264
|
|
2.2
|
Ivanhoe Mines
|
Other Africa
|
27,768
|
|
2.2
|
BHP Brazil Royalty#~
|
Latin America
|
19,350
|
|
1.5
|
Sociedad Minera Cerro Verde
|
Latin America
|
16,107
|
|
1.3
|
Develop Global
|
Australasia
|
15,432
|
|
1.2
|
Lundin Mining
|
Global
|
10,197
|
|
0.8
|
Ero Copper
|
Latin America
|
8,805
|
|
0.7
|
Solaris Resources
|
Latin America
|
7,823
|
|
0.6
|
CSA Cobar Mine#
|
Australasia
|
6,852
|
|
0.5
|
Foran Mining#
|
Canada
|
5,876
|
|
0.5
|
MCC Mining#
|
Latin America
|
5,506
|
|
0.4
|
Aurubis
|
Global
|
5,095
|
|
0.4
|
Filo Mining#
|
Latin America
|
4,179
|
|
0.3
|
Antofagasta
|
Latin America
|
2,284
|
|
0.2
|
MTAL Founders Shares#
|
Australasia
|
347
|
|
–
|
|
|
---------------
|
|
---------------
|
|
|
296,160
|
|
23.1
|
|
|
=========
|
|
=========
|
Gold
|
|
|
|
|
Newmont Corporation
|
Global
|
40,518
|
|
3.2
|
Wheaton Precious Metals
|
Global
|
39,577
|
|
3.1
|
Newcrest Mining
|
Australasia
|
30,243
|
|
2.4
|
Franco-Nevada
|
Global
|
28,470
|
|
2.2
|
Barrick Gold
|
Global
|
26,708
|
|
2.1
|
Northern Star Resources
|
Australasia
|
17,663
|
|
1.4
|
Endeavour Mining
|
Other Africa
|
9,675
|
|
0.8
|
Agnico Eagle Mines
|
Canada
|
5,992
|
|
0.5
|
Polymetal International
|
United Kingdom
|
1,842
|
|
0.1
|
Polyus
|
Russia
|
–
|
|
–
|
|
|
---------------
|
|
---------------
|
|
|
200,688
|
|
15.8
|
|
|
=========
|
|
=========
|
Industrial Minerals
|
|
|
|
|
Sigma Lithium
|
Latin America
|
21,826
|
|
1.7
|
Albemarle
|
Global
|
21,182
|
|
1.6
|
Mineral Resources
|
Australasia
|
16,236
|
|
1.3
|
Iluka Resources
|
Australasia
|
12,963
|
|
1.0
|
Chalice Mining
|
Australasia
|
8,298
|
|
0.6
|
Lynas Rare Earths
|
Australasia
|
8,247
|
|
0.6
|
Sociedad Quimica y Minera ADR
|
Latin America
|
8,153
|
|
0.6
|
Sheffield Resources
|
Australasia
|
5,463
|
|
0.4
|
|
|
---------------
|
|
---------------
|
|
|
102,368
|
|
7.8
|
|
|
=========
|
|
=========
|
Steel
|
|
|
|
|
ArcelorMittal
|
Global
|
35,172
|
|
2.7
|
Steel Dynamics
|
United States
|
23,507
|
|
1.8
|
Nucor
|
United States
|
20,668
|
|
1.6
|
Stelco Holdings
|
Canada
|
6,989
|
|
0.5
|
|
|
---------------
|
|
---------------
|
|
|
86,336
|
|
6.6
|
|
|
=========
|
|
=========
|
Aluminium
|
|
|
|
|
Norsk Hydro
|
Global
|
30,431
|
|
2.4
|
Alcoa
|
Global
|
9,033
|
|
0.7
|
|
|
---------------
|
|
---------------
|
|
|
39,464
|
|
3.1
|
|
|
=========
|
|
=========
|
Platinum Group Metals
|
|
|
|
|
Bravo Mining
|
Latin America
|
21,825
|
|
1.7
|
Northam Platinum
|
Global
|
3,456
|
|
0.3
|
Impala Platinum
|
South Africa
|
2,170
|
|
0.2
|
Sibanye Stillwater
|
South Africa
|
1,169
|
|
0.1
|
|
|
---------------
|
|
---------------
|
|
|
28,620
|
|
2.3
|
|
|
=========
|
|
=========
|
Iron Ore
|
|
|
|
|
Labrador Iron
|
Canada
|
12,994
|
|
1.0
|
Champion Iron
|
Canada
|
10,238
|
|
0.8
|
Deterra Royalties
|
Australasia
|
4,852
|
|
0.4
|
Equatorial Resources
|
Other Africa
|
259
|
|
–
|
|
|
---------------
|
|
---------------
|
|
|
28,343
|
|
2.2
|
|
|
=========
|
|
=========
|
Uranium
|
|
|
|
|
Cameco
|
Canada
|
14,083
|
|
1.1
|
|
|
---------------
|
|
---------------
|
|
|
14,083
|
|
1.1
|
|
|
=========
|
|
=========
|
Mining Services
|
|
|
|
|
Woodside Energy Group
|
Australasia
|
7,819
|
|
0.6
|
Epiroc
|
Global
|
6,082
|
|
0.5
|
|
|
---------------
|
|
---------------
|
|
|
13,901
|
|
1.1
|
|
|
=========
|
|
=========
|
Nickel
|
|
|
|
|
Nickel Industries
|
Indonesia
|
11,679
|
|
0.9
|
Bindura Nickel
|
Global
|
40
|
|
–
|
Lifezone SPAC Commitment#
|
Global
|
–
|
|
–
|
|
|
---------------
|
|
---------------
|
|
|
11,719
|
|
0.9
|
|
|
=========
|
|
=========
|
Zinc
|
|
|
|
|
Titan Mining
|
United States
|
1,667
|
|
0.1
|
|
|
---------------
|
|
---------------
|
|
|
1,667
|
|
0.1
|
|
|
---------------
|
|
---------------
|
Comprising:
|
|
1,283,858
|
|
100.0
|
|
|
=========
|
|
=========
|
– Investments
|
|
1,283,858
|
|
100.0
|
|
|
---------------
|
|
---------------
|
|
|
1,283,858
|
|
100.0
|
|
|
=========
|
|
=========
|
* Includes
fixed income securities.
# Includes
investments held at Directors’ valuation.
~ Includes
mining royalty contract.
^ The
investment in the Vale debenture is illiquid and has been valued
using secondary market pricing information provided by the
Brazilian Financial and Capital Markets Association
(ANBIMA).
All investments are in equity shares unless otherwise
stated.
The total number of investments as at 30
June 2023 (including options classified as liabilities on
the balance sheet) was 66 (31 December
2022: 68).
As at 30 June 2023 the Company did
not hold any equity interests in companies comprising more than 3%
of a company’s share capital.
PORTFOLIO ANALYSIS AS AT 30 JUNE
2023
Commodity Exposure1
|
2023
portfolio
|
2022
portfolio#
|
2023
reference index*
|
Diversified
|
35.9%
|
40.0%
|
34.2%
|
Copper
|
23.1%
|
22.0%
|
11.6%
|
Gold
|
15.6%
|
13.0%
|
22.2%
|
Industrial Minerals
|
8.0%
|
6.5%
|
2.1%
|
Steel
|
6.7%
|
8.1%
|
19.6%
|
Aluminium
|
3.1%
|
3.3%
|
3.1%
|
Platinum Group Metals
|
2.2%
|
2.0%
|
1.6%
|
Iron Ore
|
2.2%
|
3.1%
|
3.9%
|
Uranium
|
1.1%
|
0.4%
|
0.0%
|
Mining Services
|
1.1%
|
0.4%
|
0.1%
|
Nickel
|
0.9%
|
0.8%
|
0.1%
|
Zinc
|
0.1%
|
0.1%
|
0.3%
|
Other&
|
0.0%
|
0.3%
|
1.2%
|
1 Based
on index classifications.
# Represents
exposure at 31 December
2022.
* MSCI
ACWI Metals & Mining 30% Buffer 10/40 Index (net total
return).
& Represents
a very small exposure.
Geographic Exposure1
|
2023
|
Global
|
65.6%
|
Australasia
|
10.4%
|
Latin America
|
9.0%
|
Other2
|
7.3%
|
Canada
|
4.4%
|
Other Africa (ex South Africa)
|
3.0%
|
South Africa
|
0.3%
|
|
2022
|
Global
|
69.2%
|
Australasia
|
9.0%
|
Latin America
|
7.5%
|
Other2
|
7.1%
|
Canada
|
4.1%
|
Other Africa (ex South Africa)
|
2.4%
|
South Africa
|
0.7%
|
1 Based
on the principal commodity exposure and place of operation of each
investment.
2 Consists
of Indonesia, Russia, United
Kingdom and United
States.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY
STATEMENT
The Chairman’s Statement and the Investment Manager’s Report above
give details of the important events which have occurred during the
period and their impact on the financial statements.
Principal risks and uncertainties
The principal risks faced by the Group can be divided into various
areas as follows:
- Counterparty;
- Investment
performance;
- Legal
and regulatory compliance;
- Market;
- Political;
- Operational;
and
- Financial.
The Board reported on the principal risks and uncertainties faced
by the Group in the Annual Report and Financial Statements for the
year ended 31 December 2022. A
detailed explanation can be found in the Strategic Report on pages
43 to 46 and note 18 on pages 113 to 131 of the Annual Report and
Financial Statements which is available on the website maintained
by BlackRock at
www.blackrock.com/uk/brwm.
In the view of the Board, there have not been any changes to the
fundamental nature of the principal risks and uncertainties since
the previous report and these are equally applicable to the
remaining six months of the financial year as they were to the six
months under review.
Going concern
The Directors, having considered the nature and liquidity of the
portfolio, the Group’s investment objective and the Group’s
projected income and expenditure, are satisfied that the Group has
adequate resources to continue in operational existence for the
foreseeable future and is financially sound. The Board believes
that the Group and its key third-party service providers have in
place appropriate business continuity plans and these services have
continued to be supplied without interruption.
The Group has a portfolio of investments which are predominantly
readily realisable and is able to meet all of its liabilities from
its assets and income generated from these assets. Accounting
revenue and expense forecasts are maintained and reported to the
Board regularly and it is expected that the Group will be able to
meet all its obligations. Borrowings under the overdraft and
revolving credit facilities shall at no time exceed £230 million or
25% of the Group’s net asset value (whichever is the lower) and
this covenant was complied with during the period.
Ongoing charges for the year ended 31
December 2022 were approximately 0.95% of net assets and
this is unlikely to change significantly going forward. Based on
the above, the Board is satisfied that it is appropriate to
continue to adopt the going concern basis in preparing the
financial statements.
Related party disclosure and transactions with the
Manager
BlackRock Fund Managers Limited (BFM) was appointed as the
Company’s Alternative Investment Fund Manager (AIFM) with effect
from 2 July 2014. BFM has (with the
Company’s consent) delegated certain portfolio and risk management
services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)).
Both BFM and BIM (UK) are regarded
as related parties under the Listing Rules. Details of the
management and marketing fees payable are set out in notes 4 and 5
respectively and note 13 below.
The related party transactions with the Directors are set out in
note 14 below.
Directors’ responsibility statement
The Disclosure Guidance and Transparency Rules (DTR) of the UK
Listing Authority require the Directors to confirm their
responsibilities in relation to the preparation and publication of
the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge
that:
- the
condensed set of financial statements contained within the
Condensed Half Yearly Financial Report has been prepared in
accordance with UK-adopted International Accounting Standard 34
Interim Financial Reporting; and
- the
Interim Management Report, together with the Chairman’s Statement
and Investment Manager’s Report, include a fair review of the
information required by 4.2.7R and 4.2.8R of the Financial Conduct
Authority Disclosure Guidance and Transparency Rules.
This Condensed Half Yearly Financial Report has been reviewed by
the Company’s auditors and their report is set out in the Half
Yearly Financial Report.
The Condensed Half Yearly Financial Report was approved by the
Board on 24 August 2023 and the above
responsibility statement was signed on its behalf by the
Chairman.
David
Cheyne
For and on behalf of the Board
24 August 2023
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX
MONTHS ENDED 30 JUNE
2023
|
|
Six months ended
30 June 2023
(unaudited)
|
Six months ended
30 June 2022
(unaudited)
|
Year ended
31 December 2022
(audited)
|
|
Notes
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Income from investments held at fair value through profit or
loss
|
3
|
34,111
|
630
|
34,741
|
39,251
|
–
|
39,251
|
78,087
|
811
|
78,898
|
Other income
|
3
|
2,891
|
–
|
2,891
|
2,472
|
–
|
2,472
|
7,909
|
–
|
7,909
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
--------------
|
Total revenue
|
|
37,002
|
630
|
37,632
|
41,723
|
–
|
41,723
|
85,996
|
811
|
86,807
|
|
|
=========
|
========
|
========
|
=========
|
========
|
========
|
========
|
========
|
========
|
Net (loss)/profit on investments held at fair value through profit
or loss
|
|
–
|
(123,495)
|
(123,495)
|
–
|
(30,608)
|
(30,608)
|
–
|
152,937
|
152,937
|
Net profit/(loss) on foreign exchange
|
|
–
|
8,301
|
8,301
|
–
|
(16,160)
|
(16,160)
|
–
|
(17,645)
|
(17,645)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
--------------
|
Total
|
|
37,002
|
(114,564)
|
(77,562)
|
41,723
|
(46,768)
|
(5,045)
|
85,996
|
136,103
|
222,099
|
|
|
========
|
========
|
========
|
========
|
========
|
========
|
========
|
========
|
========
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Investment management fee
|
4
|
(1,171)
|
(3,622)
|
(4,793)
|
(1,279)
|
(3,949)
|
(5,228)
|
(2,615)
|
(8,031)
|
(10,646)
|
Other operating expenses
|
5
|
(644)
|
(11)
|
(655)
|
(532)
|
(7)
|
(539)
|
(1,037)
|
(28)
|
(1,065)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
--------------
|
Total operating expenses
|
|
(1,815)
|
(3,633)
|
(5,448)
|
(1,811)
|
(3,956)
|
(5,767)
|
(3,652)
|
(8,059)
|
(11,711)
|
|
|
=========
|
========
|
========
|
=========
|
========
|
========
|
========
|
========
|
========
|
Net profit/(loss) on ordinary activities before finance
costs and taxation
|
|
35,187
|
(118,197)
|
(83,010)
|
39,912
|
(50,724)
|
(10,812)
|
82,344
|
128,044
|
210,388
|
Finance costs
|
6
|
(1,121)
|
(3,432)
|
(4,553)
|
(306)
|
(891)
|
(1,197)
|
(1,182)
|
(3,520)
|
(4,702)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
--------------
|
Net profit/(loss) on ordinary activities before
taxation
|
|
34,066
|
(121,629)
|
(87,563)
|
39,606
|
(51,615)
|
(12,009)
|
81,162
|
124,524
|
205,686
|
Taxation (charge)/credit
|
|
(2,299)
|
1,212
|
(1,087)
|
(2,458)
|
804
|
(1,654)
|
(5,149)
|
1,883
|
(3,266)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
--------------
|
Net profit/(loss) on ordinary activities after
taxation
|
8
|
31,767
|
(120,417)
|
(88,650)
|
37,148
|
(50,811)
|
(13,663)
|
76,013
|
126,407
|
202,420
|
|
|
=========
|
========
|
========
|
=========
|
========
|
========
|
========
|
========
|
========
|
Earnings/(loss) per ordinary share (pence) – basic and
diluted
|
8
|
16.73
|
(63.40)
|
(46.67)
|
20.07
|
(27.45)
|
(7.38)
|
40.68
|
67.64
|
108.32
|
|
|
=========
|
========
|
========
|
=========
|
========
|
========
|
========
|
========
|
========
|
The total columns of this statement represent the Group’s Statement
of Comprehensive Income, prepared in accordance with UK-adopted
International Accounting Standards (IASs). The supplementary
revenue and capital accounts are both prepared under guidance
published by the Association of Investment Companies (AIC). All
items in the above statement derive from continuing operations. No
operations were acquired or discontinued during the period. All
income is attributable to the equity holders of the
Group.
The Group does not have any other comprehensive income/(loss)
(30 June 2022: £nil; 31 December 2022: £nil). The net profit/(loss)
for the period disclosed above represents the Group’s total
comprehensive income/(loss).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX
MONTHS ENDED 30 JUNE
2023
|
Note
|
Called
up share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Special
reserve
£’000
|
Capital
reserves
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
For the six months ended 30 June 2023
(unaudited)
|
|
|
|
|
|
|
|
|
At 31 December 2022
|
|
9,651
|
148,107
|
22,779
|
180,736
|
868,837
|
69,175
|
1,299,285
|
Total comprehensive income:
|
|
|
|
|
|
|
|
|
Net (loss)/profit for the period
|
|
–
|
–
|
–
|
–
|
(120,417)
|
31,767
|
(88,650)
|
Transactions with owners, recorded directly to equity:
|
|
|
|
|
|
|
|
|
Ordinary shares reissued from treasury
|
|
–
|
3,386
|
–
|
12,305
|
–
|
–
|
15,691
|
Share reissue costs
|
|
–
|
–
|
–
|
(31)
|
–
|
–
|
(31)
|
Dividends paid1
|
7
|
–
|
–
|
–
|
–
|
–
|
(54,877)
|
(54,877)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 30 June 2023
|
|
9,651
|
151,493
|
22,779
|
193,010
|
748,420
|
46,065
|
1,171,418
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
For the six months ended 30 June 2022
(unaudited)
|
|
|
|
|
|
|
|
|
At 31 December 2021
|
|
9,651
|
138,818
|
22,779
|
155,123
|
742,430
|
74,073
|
1,142,874
|
Total comprehensive income:
|
|
|
|
|
|
|
|
|
Net (loss)/profit for the period
|
|
–
|
–
|
–
|
–
|
(50,811)
|
37,148
|
(13,663)
|
Transactions with owners, recorded directly to equity:
|
|
|
|
|
|
|
|
|
Ordinary shares reissued from treasury
|
|
–
|
8,752
|
–
|
21,708
|
–
|
–
|
30,460
|
Share reissue costs
|
|
–
|
–
|
–
|
(61)
|
–
|
–
|
(61)
|
Dividends paid2
|
7
|
–
|
–
|
–
|
–
|
–
|
(60,148)
|
(60,148)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 30 June 2022
|
|
9,651
|
147,570
|
22,779
|
176,770
|
691,619
|
51,073
|
1,099,462
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
For the year ended 31 December 2022
(audited)
|
|
|
|
|
|
|
|
|
At 31 December 2021
|
|
9,651
|
138,818
|
22,779
|
155,123
|
742,430
|
74,073
|
1,142,874
|
Total comprehensive income:
|
|
|
|
|
|
|
|
|
Net profit for the year
|
|
–
|
–
|
–
|
–
|
126,407
|
76,013
|
202,420
|
Transactions with owners, recorded directly to equity:
|
|
|
|
|
|
|
|
|
Ordinary shares reissued from treasury
|
|
–
|
9,289
|
–
|
25,683
|
–
|
–
|
34,972
|
Share reissue costs
|
|
–
|
–
|
–
|
(70)
|
–
|
–
|
(70)
|
Dividends paid3
|
7
|
–
|
–
|
–
|
–
|
–
|
(80,911)
|
(80,911)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 31 December 2022
|
|
9,651
|
148,107
|
22,779
|
180,736
|
868,837
|
69,175
|
1,299,285
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 The
final dividend for the year ended 31
December 2022 of 23.50p per share, declared on 3 March 2023 and paid on 26 April 2023, and 1st quarterly interim dividend
for the year ended 31 December 2023
of 5.50p per share, declared on 18 April
2023 and paid on 31 May
2023.
2 The
final dividend for the year ended 31
December 2021 of 27.00p per share, declared on 8 March 2022 and paid on 19 May 2022, and 1st quarterly interim dividend
for the year ended 31 December 2022
of 5.50p per share, declared on 6 May
2022 and paid on 30 June
2022.
3 The
final dividend of 27.00p per share for the year ended 31 December 2021, declared on 8 March 2022 and paid on 19 May 2022; 1st quarterly interim dividend of
5.50p per share for the year ended 31
December 2022, declared on 6 May
2022 and paid on 30 June 2022;
2nd quarterly interim dividend of 5.50p per share for the year
ended 31 December 2022, declared on
23 August 2022 and paid on
30 September 2022; and 3rd quarterly
interim dividend of 5.50p per share for the year ended 31 December 2022, declared on 16 November 2022 and paid on 22 December 2022.
For information on the Company’s distributable reserves, please
refer to note 11 below.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT
30 JUNE 2023
|
Notes
|
30 June
2023
(unaudited)
£’000
|
30 June
2022
(unaudited)
£’000
|
31 December
2022
(audited)
£’000
|
Non current assets
|
|
|
|
|
Investments held at fair value through profit or loss
|
12
|
1,283,858
|
1,232,361
|
1,424,844
|
Current assets
|
|
|
|
|
Current tax asset
|
|
1,036
|
490
|
821
|
Other receivables
|
|
3,512
|
5,560
|
4,431
|
Cash collateral held with brokers
|
|
–
|
2,651
|
6,795
|
Cash and cash equivalents
|
|
42,207
|
52,255
|
29,492
|
|
|
---------------
|
---------------
|
---------------
|
Total current assets
|
|
46,755
|
60,956
|
41,539
|
|
|
=========
|
=========
|
=========
|
Total assets
|
|
1,330,613
|
1,293,317
|
1,466,383
|
|
|
=========
|
=========
|
=========
|
Current liabilities
|
|
|
|
|
Current tax liability
|
|
(353)
|
(281)
|
(373)
|
Other payables
|
|
(8,326)
|
(15,135)
|
(6,155)
|
Derivative financial liabilities held at fair value through profit
or loss
|
12
|
–
|
(550)
|
(1,227)
|
Bank overdraft
|
|
–
|
(177)
|
–
|
Bank loans
|
|
(150,234)
|
(177,273)
|
(158,783)
|
|
|
---------------
|
---------------
|
---------------
|
Total current liabilities
|
|
(158,913)
|
(193,416)
|
(166,538)
|
|
|
=========
|
=========
|
=========
|
Total assets less current liabilities
|
|
1,171,700
|
1,099,901
|
1,299,845
|
|
|
=========
|
=========
|
=========
|
Non current liabilities
|
|
|
|
|
Deferred taxation liability
|
|
(282)
|
(439)
|
(560)
|
|
|
---------------
|
---------------
|
---------------
|
Net assets
|
|
1,171,418
|
1,099,462
|
1,299,285
|
|
|
=========
|
=========
|
=========
|
Equity attributable to equity holders
|
|
|
|
|
Called up share capital
|
9
|
9,651
|
9,651
|
9,651
|
Share premium account
|
|
151,493
|
147,570
|
148,107
|
Capital redemption reserve
|
|
22,779
|
22,779
|
22,779
|
Special reserve
|
|
193,010
|
176,770
|
180,736
|
Capital reserves
|
|
748,420
|
691,619
|
868,837
|
Revenue reserve
|
|
46,065
|
51,073
|
69,175
|
|
|
---------------
|
---------------
|
---------------
|
Total equity
|
|
1,171,418
|
1,099,462
|
1,299,285
|
|
|
=========
|
=========
|
=========
|
Net asset value per ordinary share
(pence)
|
8
|
612.72
|
584.92
|
688.35
|
|
|
=========
|
=========
|
=========
|
CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED
30 JUNE 2023
|
Six months
ended
30 June 2023
(unaudited)
£’000
|
Six months
ended
30 June 2022
(unaudited)
£’000
|
Year ended
31 December
2022
(audited)
£’000
|
Operating activities
|
|
|
|
Net (loss)/profit on ordinary activities before taxation
|
(87,563)
|
(12,009)
|
205,686
|
Add back finance costs
|
4,553
|
1,197
|
4,702
|
Net loss/(profit) on investments and options held at fair value
through profit or loss (including transaction costs)
|
123,495
|
30,608
|
(152,937)
|
Net (profit)/loss on foreign exchange
|
(8,301)
|
16,160
|
17,645
|
Net amount for capital special dividends received
|
(535)
|
–
|
–
|
Sales of investments and derivatives held at fair value through
profit or loss
|
343,438
|
266,982
|
489,236
|
Purchases of investments and derivatives held at fair value through
profit or loss
|
(326,545)
|
(273,507)
|
(503,782)
|
Decrease/(increase) in other receivables
|
918
|
(203)
|
13
|
Increase in other payables
|
2,026
|
540
|
1,025
|
Decrease/(increase) in amounts due from brokers
|
1
|
(148)
|
243
|
Increase in amounts due to brokers
|
–
|
9,412
|
–
|
Net movement in cash collateral held with brokers
|
6,795
|
(2,071)
|
(6,215)
|
|
---------------
|
---------------
|
---------------
|
Net cash inflow from operating activities before
taxation
|
58,282
|
36,961
|
55,616
|
|
=========
|
=========
|
=========
|
Taxation paid
|
–
|
(261)
|
(432)
|
Taxation on investment income included within gross
income
|
(1,437)
|
(1,733)
|
(3,210)
|
|
---------------
|
---------------
|
---------------
|
Net cash inflow from operating
activities
|
56,845
|
34,967
|
51,974
|
|
=========
|
=========
|
=========
|
Financing activities
|
|
|
|
Drawdown of loans
|
–
|
22,359
|
2,359
|
Interest paid
|
(4,665)
|
(1,362)
|
(4,720)
|
Net proceeds from ordinary shares reissued from treasury
|
15,660
|
30,399
|
34,902
|
Dividends paid
|
(54,877)
|
(60,148)
|
(80,911)
|
|
---------------
|
---------------
|
---------------
|
Net cash outflow from financing
activities
|
(43,882)
|
(8,752)
|
(48,370)
|
|
=========
|
=========
|
=========
|
Increase in cash and cash equivalents
|
12,963
|
26,215
|
3,604
|
Cash and cash equivalents at start of the period
|
29,492
|
25,976
|
25,976
|
Effect of foreign exchange rate changes
|
(248)
|
(113)
|
(88)
|
|
---------------
|
---------------
|
---------------
|
Cash and cash equivalents at end of the
period
|
42,207
|
52,078
|
29,492
|
|
=========
|
=========
|
=========
|
Comprised of:
|
|
|
|
Cash and cash equivalents
|
42,207
|
52,255
|
29,492
|
Bank overdraft
|
–
|
(177)
|
–
|
|
---------------
|
---------------
|
---------------
|
|
42,207
|
52,078
|
29,492
|
|
=========
|
=========
|
=========
|
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
30 JUNE 2023
1. Principal activity
The principal activity of the Company is that of an investment
trust company within the meaning of Section 1158 of the Corporation
Tax Act 2010.
The principal activity of the subsidiary, BlackRock World Mining
Investment Company Limited, is investment dealing.
2. Basis of preparation
The Half Yearly Financial Statements for the six month period ended
30 June 2023 have been prepared in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the Financial Conduct Authority and with the
UK-adopted International Accounting Standard 34 (IAS 34) Interim
Financial Reporting. The Half Yearly Financial Statements should be
read in conjunction with the Group’s Annual Report and Financial
Statements for the year ended 31 December
2022, which have been prepared in accordance with UK-adopted
International Accounting Standards (IASs) in conformity with the
requirements of the Companies Act 2006.
Insofar as the Statement of Recommended Practice (SORP) for
investment trust companies and venture capital trusts, issued by
the Association of Investment Companies (AIC) in October 2019 and updated in July 2022, is compatible with UK-adopted IASs,
the financial statements have been prepared in accordance with
guidance set out in the SORP.
Relevant International Accounting Standards that have yet
to be adopted:
IFRS 17 – Insurance contracts
(effective 1 January 2023). This
standard replaces IFRS 4, which currently permits a wide
range of accounting practices in accounting for insurance
contracts. IFRS 17 will fundamentally change the accounting by all
entities that issue insurance contracts and investment contracts
with discretionary participation features.
This standard is unlikely to have any impact on the Group as it
does not issue insurance contracts.
IAS 12 – Deferred tax related to assets and liabilities
arising from a single transaction
(effective 1 January 2023).
The
International Accounting Standards Board (IASB) has amended IAS 12
Income Taxes to require companies to recognise deferred tax on
particular transactions that, on initial recognition, give rise to
equal amounts of taxable and deductible temporary differences.
According to the amended guidance, a temporary difference that
arises on initial recognition of an asset or liability is not
subject to the initial recognition exemption if that transaction
gave rise to equal amounts of taxable and deductible temporary
differences. These amendments might have a significant impact on
the preparation of financial statements by companies that have
substantial balances of right-of-use assets, lease liabilities,
decommissioning, restoration and similar liabilities. The impact
for those affected would be the recognition of additional deferred
tax assets and liabilities.
The amendment of this standard is unlikely to have any significant
impact on the Group.
None of the standards that have been issued but are not yet
effective are expected to have a material impact on the
Group.
3. Income
|
Six months
ended
30 June 2023
(unaudited)
£’000
|
Six months
ended
30 June 2022
(unaudited)
£’000
|
Year ended
31 December
2022
(audited)
£’000
|
Investment income:
|
|
|
|
UK dividends
|
5,150
|
9,575
|
17,536
|
UK special dividends
|
–
|
2,167
|
2,167
|
Overseas dividends
|
17,281
|
19,768
|
45,094
|
Overseas special dividends
|
6,269
|
1,670
|
3,808
|
Income from contractual rights (BHP Brazil Royalty)
|
2,760
|
1,674
|
3,096
|
Income from Vale debentures
|
1,498
|
3,308
|
3,863
|
Income from fixed income investments
|
1,153
|
1,089
|
2,523
|
|
---------------
|
---------------
|
---------------
|
Total investment income
|
34,111
|
39,251
|
78,087
|
|
=========
|
=========
|
=========
|
Other income:
|
|
|
|
Option premium income
|
2,483
|
2,371
|
7,297
|
Deposit interest
|
305
|
65
|
513
|
Broker interest received
|
49
|
–
|
18
|
Stock lending income
|
54
|
36
|
81
|
|
---------------
|
---------------
|
---------------
|
|
2,891
|
2,472
|
7,909
|
|
=========
|
=========
|
=========
|
Total income
|
37,002
|
41,723
|
85,996
|
|
=========
|
=========
|
=========
|
During the period, the Group received option premium income in cash
totalling £2,525,000 (six months ended 30
June 2022: £2,035,000; year ended 31
December 2022: £7,541,000) for writing put and covered call
options for the purposes of revenue generation.
Option premium income is amortised evenly over the life of the
option contract and, accordingly, during the period, option
premiums of £2,483,000 (six months ended 30
June 2022: £2,371,000; year ended 31
December 2022: £7,297,000) were amortised to
revenue.
At 30 June 2023 there were no open
positions (30 June 2022: one;
31 December 2022: three) with an
associated liability of £nil (30 June
2022: £550,000; 31 December
2022: £1,227,000).
Dividends and interest received in cash in the six months ended
30 June 2023 amounted to £27,716,000
and £3,080,000 (six months ended 30 June
2022: £34,977,000 and £3,775,000; year ended 31 December 2022: £68,630,000 and
£5,918,000).
Special dividends of £630,000 have been recognised in capital for
the six months ended 30 June 2023
(six months ended 30 June 2022: £nil;
year ended 31 December 2022:
£811,000).
4. Investment management fee
|
Six months ended
30 June 2023
(unaudited)
|
Six months ended
30 June 2022
(unaudited)
|
Year ended
31 December 2022
(audited)
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Investment management fee
|
1,171
|
3,622
|
4,793
|
1,279
|
3,949
|
5,228
|
2,615
|
8,031
|
10,646
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total
|
1,171
|
3,622
|
4,793
|
1,279
|
3,949
|
5,228
|
2,615
|
8,031
|
10,646
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The investment management fee (which includes all services provided
by BlackRock) is 0.80% of the Company’s gross assets (subject to
certain adjustments). During the period, £4,793,000 (six months
ended 30 June 2022: £4,961,000; year
ended 31 December 2022: £9,848,000)
of the investment management fee was generated from net assets and
£nil (six months ended 30 June 2022:
£267,000; year ended 31 December
2022: £798,000) from the gearing effect on gross assets due
to the quarter-on-quarter increase in the NAV per share for the
period as set out below:
Quarter end
|
Cum income
NAV per share
(pence)
|
Quarterly
increase/
(decrease) %
|
Gearing effect
on management
fees (£’000)
|
31 December 2021
|
622.21
|
–
|
–
|
31 March 2022
|
769.58
|
+23.7
|
267
|
30 June 2022
|
584.86
|
-24.0
|
–
|
30 September 2022
|
602.65
|
+3.0
|
294
|
31 December 2022
|
688.35
|
+14.2
|
237
|
31 March 2023
|
664.51
|
-3.5
|
–
|
30 June 2023
|
612.72
|
-7.8
|
–
|
|
=========
|
=========
|
=========
|
The daily average of the net assets under management during the
period ended 30 June 2023 was
£1,276,151,000 (six months ended 30 June
2022: £1,287,808,000; year ended 31
December 2022: £1,232,043,000).
The fee is allocated 25% to the revenue account and 75% to the
capital account of the Consolidated Statement of Comprehensive
Income.
There is no additional fee for company secretarial and
administration services.
5. Other operating expenses
|
Six months
ended
30 June 2023
(unaudited)
£’000
|
Six months
ended
30 June 2022
(unaudited)
£’000
|
Year ended
31 December
2022
(audited)
£’000
|
Allocated to revenue:
|
|
|
|
Custody fee
|
55
|
59
|
101
|
Auditors’ remuneration:
|
|
|
|
– audit services
|
25
|
25
|
51
|
– non-audit services1
|
5
|
5
|
9
|
Registrar’s fee
|
41
|
40
|
86
|
Directors’ emoluments
|
94
|
88
|
197
|
AIC fees
|
10
|
10
|
21
|
Broker fees
|
12
|
12
|
24
|
Depositary fees
|
61
|
61
|
116
|
FCA fee
|
16
|
13
|
30
|
Directors’ insurance
|
11
|
11
|
23
|
Marketing fees
|
65
|
81
|
132
|
Stock exchange fees
|
26
|
18
|
37
|
Legal and professional fees
|
82
|
20
|
35
|
Bank facility fees2
|
39
|
51
|
97
|
Printing and postage costs
|
29
|
28
|
47
|
Write back of prior year expenses3
|
–
|
(24)
|
(55)
|
Other administrative costs
|
73
|
34
|
86
|
|
---------------
|
---------------
|
---------------
|
|
644
|
532
|
1,037
|
|
=========
|
=========
|
=========
|
Allocated to capital:
|
|
|
|
Custody transaction charges4
|
11
|
7
|
28
|
|
---------------
|
---------------
|
---------------
|
|
655
|
539
|
1,065
|
|
=========
|
=========
|
=========
|
1 Fees
paid to the auditor for non-audit services of £4,675 excluding VAT
(six months ended 30 June 2022:
£4,500; year ended 31 December 2022:
£8,925) relate to the review of the Condensed Half Yearly Financial
Report.
2 There
is a 4 basis point facility fee chargeable on the full loan
facilities whether drawn or undrawn.
3 No
expenses were written back during the six months ended 30 June 2023 (six months ended 30 June 2022: Directors' expenses, miscellaneous
fees and professional services fees; year ended 31 December 2022: Directors' expenses,
miscellaneous fees, legal fees and professional services
fees).
4 For
the six months ended 30 June 2023,
expenses of £11,000 (six months ended 30
June 2022: £7,000; year ended 31
December 2022: £28,000) were charged to the capital account
of the Statement of Comprehensive Income. These relate to
transaction costs charged by the custodian on sale and purchase
trades.
The transaction costs incurred on the acquisition of investments
amounted to £504,000 for the six months ended 30 June 2023 (six months ended 30 June 2022: £488,000; year ended 31 December 2022: £828,000). Costs relating to
the disposal of investments amounted to £67,000 for the six months
ended 30 June 2023 (six months ended
30 June 2022: £106,000; year ended
31 December 2022: £238,000). All
transaction costs have been included within the capital
reserves.
6. Finance costs
|
Six months ended
30 June 2023
(unaudited)
|
Six months ended
30 June 2022
(unaudited)
|
Year ended
31 December 2022
(audited)
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Interest payable – bank loans
|
1,118
|
3,423
|
4,541
|
304
|
885
|
1,189
|
1,177
|
3,505
|
4,682
|
Interest payable – bank
|
|
|
|
|
|
|
|
|
|
overdraft
|
3
|
9
|
12
|
2
|
6
|
8
|
5
|
15
|
20
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total
|
1,121
|
3,432
|
4,553
|
306
|
891
|
1,197
|
1,182
|
3,520
|
4,702
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Finance costs are charged 25% to the revenue account and 75% to the
capital account of the Consolidated Statement of Comprehensive
Income.
7. Dividends
The final dividend of 23.50p per share for the year ended
31 December 2022 was paid on
26 April 2023. The Board has declared
a first quarterly interim dividend of 5.50p per share for the
quarter ended 31 March 2023, paid on
31 May 2023 to shareholders on the
register on 5 May 2023.
The Board has declared a second quarterly interim dividend of 5.50p
per share for the quarter ended 30 June
2023 which will be paid on 6 October
2023 to shareholders on the register on 8 September 2023. This dividend has not been
accrued in the financial statements for the six months ended
30 June 2023 as, under IAS, interim
dividends are not recognised until paid. Dividends are debited
directly to reserves.
Dividends on equity shares paid during the period were:
|
Six months
ended
30 June 2023
(unaudited)
£’000
|
Six months
ended
30 June 2022
(unaudited)
£’000
|
Year ended
31 December
2022
(audited)
£’000
|
Final dividend for the year ended 31 December 2022 of 23.50p per
share (2021: 27.00p)
|
44,392
|
49,898
|
49,898
|
1st quarterly interim dividend for the year ending 31 December 2023
of 5.50p per share (2022: 5.50p)
|
10,485
|
10,250
|
10,251
|
2nd quarterly interim dividend for the year ended 31 December 2022
of 5.50p per share (2021: 5.50p)
|
–
|
–
|
10,381
|
3rd quarterly interim dividend for the year ended 31 December 2022
of 5.50p per share (2021: 5.50p)
|
–
|
–
|
10,381
|
|
---------------
|
---------------
|
---------------
|
|
54,877
|
60,418
|
80,911
|
|
=========
|
=========
|
=========
|
8. Consolidated earnings and net asset value per ordinary
share
Total revenue, capital earnings/(loss) and net asset value per
ordinary share are shown below and have been calculated using the
following:
|
Six months
ended
30 June 2023
(unaudited)
|
Six months
ended
30 June 2022
(unaudited)
|
Year ended
31 December
2022
(audited)
|
Net revenue profit attributable to ordinary shareholders
(£’000)
|
31,767
|
37,148
|
76,013
|
Net capital (loss)/profit attributable to ordinary shareholders
(£’000)
|
(120,417)
|
(50,811)
|
126,407
|
|
---------------
|
---------------
|
---------------
|
Total (loss)/profit attributable to ordinary shareholders
(£’000)
|
(88,650)
|
(13,663)
|
202,420
|
|
=========
|
=========
|
=========
|
Equity shareholders’ funds (£’000)
|
1,171,418
|
1,099,462
|
1,299,285
|
The weighted average number of ordinary shares in issue during each
period on which the earnings per ordinary share was calculated
was:
|
189,935,356
|
185,071,986
|
186,868,187
|
The actual number of ordinary shares in issue at the period end on
which the net asset value per ordinary share was calculated
was:
|
191,183,036
|
187,968,036
|
188,753,036
|
Earnings per ordinary share
|
|
|
|
Revenue earnings per share (pence) – basic and diluted
|
16.73
|
20.07
|
40.68
|
Capital (loss)/earnings per share (pence) – basic and
diluted
|
(63.40)
|
(27.45)
|
67.64
|
|
---------------
|
---------------
|
---------------
|
Total (loss)/earnings per share (pence) – basic and
diluted
|
(46.67)
|
(7.38)
|
108.32
|
|
=========
|
=========
|
=========
|
|
As at
30 June
2023
(unaudited)
|
As at
30 June
2022
(unaudited)
|
As at
31 December
2022
(audited)
|
Net asset value per ordinary share (pence)
|
612.72
|
584.92
|
688.35
|
Ordinary share price (pence)
|
599.00
|
573.00
|
697.00
|
|
|
|
|
There were no dilutive securities at the period end.
9. Called up share capital
|
Ordinary
shares
in issue
number
|
Treasury
shares
number
|
Total
shares
number
|
Nominal
value
£’000
|
Allotted, called up and fully paid share capital
comprised:
|
|
|
|
|
Ordinary shares of 5 pence each:
|
|
|
|
|
At 31 December 2022
|
188,753,036
|
4,258,806
|
193,011,842
|
9,651
|
Ordinary shares reissued from treasury
|
2,430,000
|
(2,430,000)
|
–
|
–
|
|
---------------
|
---------------
|
---------------
|
---------------
|
At 30 June 2023
|
191,183,036
|
1,828,806
|
193,011,842
|
9,651
|
|
=========
|
=========
|
=========
|
=========
|
During the six months ended 30 June
2023, the Company:
–
did not buy back shares into treasury (six months ended
30 June 2022: no shares were bought
back into treasury; year ended 31 December
2022: no shares were bought back into treasury).
–
reissued 2,430,000 shares (six months ended 30 June 2022: 4,286,920 shares; year ended
31 December 2022: 5,071,920 shares)
from treasury for a net consideration after costs of £15,660,000
(six months ended 30 June 2022:
£30,399,000; year ended 31 December
2022: £34,902,000).
Since the period end and up to 24 August
2023, the Company has not reissued any ordinary shares from
treasury.
10. Reconciliation of liabilities arising from financing
activities
|
Six months
ended
30 June 2023
(unaudited)
£’000
|
Six months
ended
30 June 2022
(unaudited)
£’000
|
Year ended
31 December
2022
(audited)
£’000
|
Bank loan and overdraft at beginning of the period/year
|
158,783
|
139,223
|
139,223
|
Cash flows:
|
|
|
|
Movement in overdraft
|
–
|
(179)
|
(356)
|
Net drawdown of loan
|
–
|
22,359
|
2,359
|
Non-cash flows:
|
|
|
|
Effects of foreign exchange (gain)/loss
|
(8,549)
|
16,047
|
17,557
|
Bank loan and overdraft at end of the
period/year
|
150,234
|
177,450
|
158,783
|
|
=========
|
=========
|
=========
|
11. Reserves
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
£157,633,000 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 reserves under the Companies Act 2006. In accordance
with ICAEW Technical Release 02/17BL on Guidance on Realised and
Distributable Profits under the Companies Act 2006, the special
reserve and capital reserve of the Parent Company may be used as
distributable reserves for all purposes and, in particular, the
repurchase by the Parent Company of its ordinary shares and for
payments such as dividends. In accordance with the Company’s
Articles of Association, the special reserve, capital reserve and
revenue reserve may be distributed by way of dividend. The Parent
Company's capital gains of £754,209,000 (six months ended
30 June 2022: capital gain of
£697,303,000; year ended 31 December
2022: gain of £874,567,000) comprise a gain on capital
reserve arising on investments sold of £494,063,000 (six months
ended 30 June 2022: £405,815,000;
year ended 31 December 2022:
£426,822,000), a gain on capital reserve arising on revaluation of
listed investments of £225,150,000 (six months ended 30 June 2022: £280,362,000; year ended
31 December 2022: £409,037,000),
revaluation gains on unquoted investments of £27,706,000 (six
months ended 30 June 2022:
£3,941,000; year ended 31 December
2022: £31,477,000) and a revaluation gain on the investment
in the subsidiary of £7,290,000 (30 June
2022: £7,185,000; year ended 31
December 2022: £7,231,000). The capital reserve arising on
the revaluation of listed investments of £225,150,000 (six months
ended 30 June 2022: £280,362,000;
year ended 31 December 2022:
£391,896,000) is subject to fair value movements and may not be
readily realisable at short notice; as such it may not be entirely
distributable. The reserves of the subsidiary company are not
distributable until distributed as a dividend to the Parent
Company. The investments are subject to financial risks, as such
capital reserves (arising on investments sold) and the revenue
reserve may not be entirely distributable if a loss occurred during
the realisation of these investments.
12. Financial risks and valuation of financial
instruments
The Company’s investment activities expose it to the various types
of risk which are associated with the financial instruments and
markets in which it invests. The risks are substantially consistent
with those disclosed in the previous annual financial statements
with the exception of those outlined below.
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in market
prices (other than those arising from interest rate risk or
currency risk), whether those changes are caused by factors
specific to the individual financial instrument or its issuer, or
factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health
issues, recessions, climate change or other events could have a
significant impact on the Group and its investments.
The current environment of heightened geopolitical risk given the
war in Ukraine has undermined
investor confidence and market direction. In addition to the tragic
and devastating events in Ukraine,
the war has constricted supplies of key commodities, pushing prices
up and creating a level of market uncertainty and volatility which
is likely to persist for some time.
Liquidity risk
The Group has an overdraft facility of £30 million (six months
ended 30 June 2022: £30 million; year
ended 31 December 2022: £30 million)
and a multi-currency loan facility of £200 million (six months
ended 30 June 2022: £200 million;
year ended 31 December 2022: £200
million) which are updated and renewed on an annual basis. Under
the loan facility, the individual loan drawdowns are taken with a
three month maturity period.
At 30 June 2023, the Group had a US
Dollar loan outstanding of US$191,000,000 which matures on 22 September 2023 (six months ended 30 June 2022: US Dollar loan of US$191,000,000 which matured on 23 September 2022; year ended 31 December 2022: US Dollar loan of US$191,000,000 which matured on 17 March 2023). The Group had no outstanding
Pound Sterling loan at 30 June 2023
(six months ended 30 June 2022:
£20,000,000 which matured on 23 September
2022; year ended 31 December
2022: £nil).
As per the borrowing agreements, borrowings under the overdraft and
loan facilities shall at no time exceed £230 million or 25% of the
Group’s net asset value (whichever is the lower) (six months ended
30 June 2022 and year ended
31 December 2022: £230 million or 25%
of the Group’s net asset value (whichever is the lower)) and this
covenant was complied with during the respective
periods.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in
the Consolidated Statement of Financial Position at their fair
value (investments and derivatives) or at an amount which is
considered to be the fair value (due from brokers, dividends and
interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Group to classify fair value
measurements using a fair value hierarchy that reflects the
significance of inputs used in making the measurements. The
valuation techniques used by the Group are explained in the
accounting policies note 2(h), as set out in the Group's Annual
Report and Financial Statements for the year ended 31 December 2022. All investments are held at
fair value through profit or loss. The amortised cost amounts of
due from brokers, dividends and interest receivable, due to
brokers, accruals, cash at bank, bank loans and bank overdrafts
approximate their fair value.
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in
active markets
A financial instrument is regarded as quoted in an active market if
quoted prices are readily available from an exchange, industry
group, pricing service or regulatory agency and those prices
represent actual and regularly occurring market transactions on an
arm’s length basis. The Group does not adjust the quoted price for
these instruments.
Level 2 – Valuation techniques using observable
inputs
This category includes instruments valued using quoted prices for
similar instruments in markets that are considered less active, or
other valuation techniques where all significant inputs are
directly or indirectly observable from market data.
Valuation techniques used for non-standardised financial
instruments such as options, currency swaps and other
over-the-counter derivatives include the use of comparable recent
arm’s length transactions, reference to other instruments that are
substantially the same, discounted cash flow analysis, option
pricing models and other valuation techniques commonly used by
market participants making the maximum use of market inputs and
relying as little as possible on entity specific inputs.
Over-the-counter derivative option contracts have been classified
as Level 2 investments as their valuation has been based on market
observable inputs represented by the underlying quoted securities
to which these contracts expose the Group.
Level 3 – Valuation techniques using significant
unobservable inputs
This category includes all instruments where the valuation
technique includes inputs not based on market data and these inputs
could have a significant impact on the instrument’s
valuation.
This category includes instruments that are valued based on quoted
prices for similar instruments where significant entity determined
adjustments or assumptions are required to reflect differences
between the instruments and instruments for which there is no
active market. The Investment Manager considers observable data to
be that market data that is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in
the relevant market.
The level in the fair value hierarchy within which the fair value
measurement is categorised in its entirety is determined on the
basis of the lowest level input that is significant to the fair
value measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the Level 3 asset or liability including an assessment
of the relevant risks including but not limited to credit risk,
market risk, liquidity risk, business risk and sustainability risk.
The determination of what constitutes ‘observable’ inputs requires
significant judgement by the Investment Manager and these risks are
adequately captured in the assumptions and inputs used in
measurement of Level 3 assets or liabilities.
Valuation process and techniques for Level 3
valuations
(a) BHP Brazil Royalty
The Directors engage a mining consultant, an independent valuer
with a recognised and relevant professional qualification, to
conduct a periodic valuation of the contractual rights and the fair
value of the contractual rights is assessed with reference to
relevant factors. At the reporting date the income streams from
contractual rights have been valued on the net present value of the
pre-tax cash flows discounted at a rate the external valuer
considers reflects the risk associated with the project. The
valuation model uses discounted cash flow analysis which
incorporates both observable and non-observable data. Observable
inputs include assumptions regarding current rates of interest and
commodity prices. Unobservable inputs include assumptions regarding
production profiles, price realisations, cost of capital and
discount rates. In determining the discount rate to be applied, the
external valuer considers the country and sovereign risk associated
with the project, together with the time horizon to the
commencement of production and the success or failure of projects
of a similar nature. To assess the significance of a particular
input to the entire measurement, the external valuer performs a
sensitivity analysis. The external valuer has undertaken an
analysis of the impact of using alternative discount rates on the
fair value of contractual rights.
This investment in contractual rights is reviewed regularly to
ensure that the initial classification remains correct given the
asset’s characteristics and the Group’s investment policies. The
contractual rights are initially recognised using the transaction
price as it was indicative in this instance of the best evidence of
fair value at acquisition and are subsequently measured at fair
value, taking into consideration the relevant IFRS 13 requirements.
In arriving at their estimates of market values, the valuers have
used their market knowledge and professional judgement. The Group
classifies the fair value of this investment as Level 3.
Valuations are the responsibility of the Directors of the Company.
In arriving at a final valuation, the Directors consider the
independent valuer’s report, the significant assumptions used in
the fair valuation and the review process undertaken by BlackRock’s
Pricing Committee. The valuation of unquoted investments is
performed on a quarterly basis by the Investment Manager and
reviewed by the Pricing Committee of the Manager. On a quarterly
basis the Investment Manager will review the valuation of the
contractual rights and inputs for significant changes. A valuation
of contractual rights is performed annually by an external valuer,
SRK Consulting (UK) Limited, and reviewed by the Pricing Committee
of the Manager. The valuations are also subject to quality
assurance procedures performed within the Pricing Committee. On a
semi-annual basis, after the checks above have been performed, the
Investment Manager presents the valuation results to the Directors.
This includes a discussion of the major assumptions used in the
valuations. There were no changes in valuation techniques during
the period.
(b) Other Level 3 investments
Jetti Resources and MCC Mining
The fair value of the investment equity shares of Jetti Resources
and MCC Mining were assessed by an independent valuer with a
recognised and relevant professional qualification. The valuation
is carried out based on market approach using earnings multiple and
price of recent transactions. Changes in assumptions about these
factors could affect the reported fair value of financial
instruments in the Consolidated and 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.
Fair values of financial assets and financial
liabilities
For exchange listed equity investments the quoted price is the bid
price. Substantially all investments are valued based on unadjusted
quoted market prices. Where such quoted prices are readily
available in an active market, such prices are not required to be
assessed or adjusted for any business related risks, including
climate risk, in accordance with the fair value related
requirements of the Group’s financial reporting
framework.
The table below sets out fair value measurements using the IFRS 13
fair value hierarchy.
Financial assets/(liabilities) at fair value through profit
or loss
as at 30 June 2023 (unaudited)
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
Assets:
|
|
|
|
|
Equity investments
|
1,164,070
|
12,860
|
33,770
|
1,210,700
|
Fixed income securities
|
9,558
|
44,250
|
–
|
53,808
|
Investment in contractual rights
|
–
|
–
|
19,350
|
19,350
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total assets
|
1,173,628
|
57,110
|
53,120
|
1,283,858
|
|
=========
|
=========
|
=========
|
=========
|
Liabilities:
|
|
|
|
|
Derivative financial instruments – written options
|
–
|
–
|
–
|
–
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total
|
1,173,628
|
57,110
|
53,120
|
1,283,858
|
|
=========
|
=========
|
=========
|
=========
|
Financial assets/(liabilities) at fair value through profit
or loss
as at 30 June 2022 (unaudited)
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
Assets:
|
|
|
|
|
Equity investments
|
1,070,588
|
16,122
|
20,563
|
1,107,273
|
Fixed income securities
|
53,978
|
50,916
|
–
|
104,894
|
Investment in contractual rights
|
–
|
–
|
20,194
|
20,194
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total assets
|
1,124,566
|
67,038
|
40,757
|
1,232,361
|
|
=========
|
=========
|
=========
|
=========
|
Liabilities:
|
|
|
|
|
Derivative financial instruments – written options
|
–
|
(550)
|
–
|
(550)
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total
|
1,124,566
|
66,488
|
40,757
|
1,231,811
|
|
=========
|
=========
|
=========
|
=========
|
Financial assets/(liabilities) at fair value through profit
or loss
as at 31 December 2022 (audited)
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
Assets:
|
|
|
|
|
Equity investments
|
1,250,984
|
9
|
35,692
|
1,286,685
|
Fixed income securities
|
68,894
|
48,066
|
–
|
116,960
|
Investment in contractual rights
|
–
|
–
|
21,199
|
21,199
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total assets
|
1,319,878
|
48,075
|
56,891
|
1,424,844
|
|
=========
|
=========
|
=========
|
=========
|
Liabilities:
|
|
|
|
|
Derivative financial instruments – written options
|
–
|
(1,227)
|
–
|
(1,227)
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total
|
1,319,878
|
46,848
|
56,891
|
1,423,617
|
|
=========
|
=========
|
=========
|
=========
|
A reconciliation of fair value measurement in Level 3 is set out
below.
Level 3 Financial assets at fair value through profit or
loss
|
Six months
ended
30 June 2023
(unaudited)
£’000
|
Six months
ended
30 June 2022
(unaudited)
£’000
|
Year ended
31 December
2022
(audited)
£’000
|
Opening fair value
|
56,891
|
33,413
|
33,413
|
Return of capital – royalty
|
(341)
|
(145)
|
(267)
|
Additions at cost
|
–
|
18,895
|
20,106
|
Conversion of convertible bond to equity and transfer to Level
2
|
–
|
(10,160)
|
(10,160)
|
Transfer of equities and convertible bonds to Level 2
|
–
|
(19,305)
|
(19,305)
|
Transfer of equities from Level 1 to Level 3
|
–
|
2
|
2
|
Conversion of equity and transfer to Level 1
|
–
|
–
|
(2,546)
|
Total gains or losses included in net (loss)/profit on investments
in the Consolidated Statement of Comprehensive Income:
|
|
|
|
– assets transferred to Level 1 during the period
|
–
|
–
|
169
|
– assets transferred to Level 2 during the period
|
–
|
14,214
|
14,212
|
– assets held at the end of the period
|
(3,430)
|
3,843
|
21,267
|
|
---------------
|
---------------
|
---------------
|
Closing balance
|
53,120
|
40,757
|
56,891
|
|
=========
|
=========
|
=========
|
The Level 3 investments as at 30 June
2023 in the table below relate to the BHP Brazil Royalty,
Jetti Resources and MCC Mining and, in accordance with IFRS 13,
these investments were categorised as Level 3. In arriving at the
fair value of these investments, the key inputs are the underlying
commodity prices and illiquidity discount. Ivanhoe Electric/I-Pulse
went through an initial public offering during the period ending
30 June 2022 and its shares were
listed. As the shares held by the Company were subject to a 180 day
lock in period, a discount was applied to the market value of the
shares and therefore these were transferred from Level 3 to Level 2
as the price was based on observable market data during that
period.
The Level 3 valuation process and techniques used by the Company
are explained in the accounting policies in notes 2(h) and 2(q) on
pages 99 to 101 of the Company’s Annual Report and Financial
Statements for the year ended 31 December
2022 and a detailed explanation of the techniques is also
available on page 42 under “valuation process and
techniques”.
Quantitative information of significant unobservable inputs
– Level 3 – Group and Company
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy,
together with an estimated quantitative sensitivity analysis, as at
30 June 2023, 30 June 2022 and 31
December 2022 are as shown below.
Description
|
As at
30 June
2023
£’000
|
Valuation
technique
|
Unobservable
input
|
Range of weighted
average inputs
|
Reasonable
possible shift1
+/ -
|
Impact on fair
value
|
Jetti Resources
|
28,264
|
Market approach
|
Earnings multiple
|
6.22x
|
5.0%
|
£0.6m
|
BHP Brazil Royalty
|
19,350
|
Discounted
cash flows
|
Discounted rate –
weighted average
cost of capital
|
5.0% - 8.0%
|
1.0%
|
£1.0m
|
|
|
Average gold
prices
|
US$1,400 – US$1,600
per ounce
|
10.0%
|
£1.5m
|
|
|
Average copper
prices
|
US$7,209 – US$8,510
per tonne
|
10.0%
|
£1.0m
|
MCC Mining
|
5,506
|
Market
approach
|
Price of recent
transaction
|
|
5.0%
|
£0.6m
|
Polyus ADRs
|
–
|
Listing
suspended
- valued at
nominal
US$0.01
|
|
|
|
|
|
---------------
|
|
|
|
|
|
Total
|
53,120
|
|
|
|
|
|
|
=========
|
|
|
|
|
|
Description
|
As at
30 June
2022
£’000
|
Valuation
technique
|
Unobservable
input
|
Range of weighted
average inputs
|
Reasonable
possible shift1
+/ -
|
Impact on fair
value
|
BHP Brazil Royalty
|
20,194
|
Discounted
cash flows
|
Discount rate –
weighted average
cost of capital
|
5.0% – 8.0%
|
1.0%
|
£1.0m
|
|
|
Average gold
prices
|
US$1,400 – US$1,600
per ounce
|
10.0%
|
£1.5m
|
|
|
Average copper
prices
|
US$7,209 – US$8,510
per tonne
|
10.0%
|
£1.0m
|
Jetti Resources
|
12,327
|
Market
approach
|
Earnings multiple
|
2.51x
|
5.0%
|
£0.6m
|
MCC Mining
|
5,764
|
Market
approach
|
Price of recent
transaction
|
|
5.0%
|
£0.3m
|
Bravo Mining
|
2,470
|
Market
approach
|
Price of recent
transaction
|
|
5.0%
|
£0.1m
|
Polyus ADRs
|
2
|
Listing
suspended
– valued
at nominal
US$0.01
|
|
|
|
|
|
---------------
|
|
|
|
|
|
Total
|
40,757
|
|
|
|
|
|
|
=========
|
|
|
|
|
|
Description
|
As at
31 December
2022
£’000
|
Valuation
technique
|
Unobservable
input
|
Range of weighted
average inputs
|
Reasonable
possible shift1
+/ -
|
Impact on fair
value
|
BHP Brazil Royalty
|
21,199
|
Discounted
cash flows
|
Discounted rate –
weighted average
cost of capital
|
5.0% – 8.0%
|
1.0%
|
£1.0m
|
|
|
Average gold
prices
|
US$1,400 – US$1,600
per ounce
|
10.0%
|
£1.5m
|
|
|
Average copper
prices
|
US$7,209 - US$8,510
per tonne
|
10.0%
|
£1.0m
|
Jetti Resources
|
29,873
|
Market
approach
|
Earnings multiple
|
5.93x
|
5.0%
|
£0.6m
|
MCC Mining
|
5,819
|
Market
approach
|
Price of recent
transaction
|
|
5.0%
|
£0.3m
|
Lifezone Commitment
|
–
|
|
|
|
|
|
Polyus ADRs
|
–
|
Listing
suspended
– valued
at nominal
US$0.01
|
|
|
|
|
|
---------------
|
|
|
|
|
|
Total
|
56,891
|
|
|
|
|
|
|
=========
|
|
|
|
|
|
1 The
sensitivity analysis refers to a percentage amount added or
deducted from the input and the effect this has on the fair
value.
The sensitivity impact on fair value is calculated based on the
sensitivity estimates set out by the independent valuer in its
report on the valuation of contractual rights. Significant
increases/(decreases) in estimated commodity prices and discount
rates in isolation would result in a significantly higher/(lower)
fair value measurement. Generally, a change in the assumption made
for the estimated value is accompanied by a directionally similar
change in the commodity prices and discount rates.
13. 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 on page 59 of the Annual Report and Financial
Statements for the year ended 31 December
2022.
The investment management fee due for the six months ended
30 June 2023 amounted to £4,793,000
(six months ended 30 June 2022:
£5,228,000; year ended 31 December
2022: £10,646,000). At the period end, £7,685,000 was
outstanding in respect of the management fee (six months ended
30 June 2022: £5,228,000; year ended
31 December 2022:
£5,443,000).
In addition to the above services, BIM
(UK) has provided the Group with marketing services. The
total fees paid or payable for these services for the period ended
30 June 2023 amounted to £65,000
excluding VAT (six months ended 30 June
2022: £81,000; year ended 31 December
2022: £132,000). Marketing fees of £81,000 were outstanding
as at 30 June 2023 (30 June 2022: £134,000; 31
December 2022: £62,000).
The ultimate holding company of the Manager and the Investment
Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
14. Related party disclosure
Directors’ emoluments
The Board consists of five non-executive Directors, all of whom are
considered to be independent by the Board. None of the Directors
has a service contract with the Company. The Chairman receives an
annual fee of £49,350, the Chairman of the Audit Committee receives
an annual fee of £41,475 and each of the other Directors receives
an annual fee of £33,600.
As at 30 June 2023 an amount of
£13,000 (30 June 2022: £15,000;
31 December 2022: £16,000) was
outstanding in respect of Directors’ fees.
At the period end members of the Board held ordinary shares in the
Company as set out below:
Directors
|
30 June
2023
Ordinary shares
|
30 June
2022
Ordinary shares
|
31 December
2022
Ordinary shares
|
David Cheyne (Chairman)
|
35,000
|
35,000
|
35,000
|
Russell Edey1
|
n/a
|
20,000
|
20,000
|
Jane Lewis
|
5,362
|
5,362
|
5,362
|
Judith Mosely
|
7,400
|
7,400
|
7,400
|
Srinivasan Venkatakrishnan
|
1,000
|
1,000
|
1,000
|
Charles Goodyear2
|
n/a
|
n/a
|
n/a
|
|
=========
|
=========
|
=========
|
1 Retired
as a Director on 18 April
2023.
2 Appointed
as a Director on 24 August
2023.
Since the period end and up to the date of this report there have
been no changes in Directors’ holdings.
Significant Holdings
The following investors are:
a. funds
managed by the BlackRock Group or are affiliates of BlackRock, Inc.
(Related BlackRock Funds); or
b. investors
(other than those listed in (a) above) who held more than 20% of
the voting shares in issue in the Company and are, as a result,
considered to be related parties to the Company (Significant
Investors).
As at 30 June 2023
Total % of shares held by Related BlackRock
Funds
|
Total % of shares held by Significant Investors who are not
affiliates of BlackRock Group or BlackRock,
Inc.
|
Number of Significant Investors who are not affiliates of
BlackRock Group or BlackRock, Inc.
|
1.25
|
n/a
|
n/a
|
As at 30 June 2022
Total % of shares held by Related BlackRock
Funds
|
Total % of shares held by Significant Investors who are not
affiliates of BlackRock Group or BlackRock,
Inc.
|
Number of Significant Investors who are not affiliates of
BlackRock Group or BlackRock, Inc.
|
1.66
|
n/a
|
n/a
|
15. Capital commitments and contingent
liabilities
The Group had one capital commitment at 30
June 2023 (30 June 2022: none;
31 December 2022: one). This was a
US$10 million commitment in relation
to the SPAC PIPE commitment for investment in Lifezone SPAC. There
were no contingent liabilities at 30 June
2023 (30 June 2022: none;
31 December 2022: none).
On 6 July 2023 the Lifezone SPAC PIPE
transaction was completed and the company did a successful IPO. The
Company received 1,000,000 shares in Lifezone Metals
Limited.
16. Publication of non-statutory
accounts
The financial information contained in this Half Yearly Financial
Report does not constitute statutory accounts as defined in Section
435 of the Companies Act 2006. The financial information for the
six months ended 30 June 2023 and
30 June 2022 has been reviewed by the
Company’s auditors.
The information for the year ended 31
December 2022 has been extracted from the latest published
audited financial statements, which have been filed with the
Registrar of Companies, unless otherwise stated. The report of the
auditors on those accounts contained no qualification or statement
under Sections 498(2) or (3) of the Companies Act 2006.
17. Annual results
The Board expects to announce the annual results for the year
ending 31 December 2023 in
February 2024.
Copies of the results announcement can be obtained from the
Secretary on 020 7743 3000 or at
cosec@blackrock.com.
The Annual Report should be available by the beginning of
March 2024, with the Annual General
Meeting being held in May
2024.
ENDS
The Condensed Half Yearly Financial Report will also be available
on the BlackRock website at www.blackrock.com/uk/brwm. Neither the
contents of the Manager’s website nor the contents of any website
accessible from hyperlinks on the Manager’s website (or any other
website) is incorporated into, or forms part of, this
announcement.
For further information, please
contact:
Sarah Beynsberger, Director - Closed End Funds, BlackRock
Investment Management (UK) Limited -
Tel: 020 7743 2639
Evy Hambro, Fund Manager, BlackRock
Investment Management (UK) Limited -
Tel: 020 7743 3000
Emma Phillips, Media &
Communications, BlackRock Investment Management (UK) Limited -
Tel:
020
7743 2922
Press enquires:
Ed Hooper, Lansons
Communications
Tel:
020 7294 3620
E-mail:
BlackRockInvestmentTrusts@lansons.com
or
EdH@lansons.com
12 Throgmorton Avenue
London EC2N 2DL
24 August 2023