TIDMBSRT
RNS Number : 3143K
Baker Steel Resources Trust Ltd
21 April 2020
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the
provisions of The Companies (Guernsey) Law, 2008 as amended)
21 April 2020
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
Annual Report and Audited Financial Statements
For the year ended 31 December 2019
The Company has today, in accordance with DTR 6.3.5, released
its Annual Audited Financial Report for the year ended 31 December
2019. The Report is available via www.bakersteelresourcestrust.com
and will shortly be submitted to the National Storage
Mechanism.
Further details of the Company and its investments are available
on the Company's website www.bakersteelresourcestrust.com
Enquiries:
Baker Steel Resources Trust Limited: +44 20 7389 8237
Francis Johnstone
Trevor Steel
Numis Securities Limited: +44 20 7260 1000
David Benda (Corporate)
James Glass (sales)
HSBC Securities Services (Guernsey) Limited
Company Secretary: +44 1481 717 852
MANAGEMENT AND ADMINISTRATION
DIRECTORS: Howard Myles (Chairman)
Charles Hansard
Clive Newall
Christopher Sherwell (Retired 28 May 2019)
David Staples (Appointed 29 May 2019)
(all of whom are non-executive and independent)
REGISTERED OFFICE: Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
MANAGER: Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
INVESTMENT MANAGER: Baker Steel Capital Managers LLP*
34 Dover Street
London W1S 4NG
United Kingdom
STOCK BROKERS: Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
SOLICITORS TO THE COMPANY: Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London SE1 2AQ
United Kingdom
ADVOCATES TO THE COMPANY: Ogier
(as to Guernsey law) Redwood House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 1WA
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY: HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
* The Investment Manager was authorised as an Alternative
Investment Fund Manager ("AIFM") for the purpose of the Alternative
Investment Fund Managers Directive ("AIFMD") on 22 July 2014.
SUB-ADMINISTRATOR TO THE COMPANY: HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE COMPANY: HSBC France, Dublin Branch*
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
SAFEKEEPING AND MONITORING AGENT: HSBC France, Dublin Branch*
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
AUDITOR: BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter Port
Guernsey GY1 3LL
Channel Islands
REGISTRAR: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
UK PAYING AGENT AND TRANSFER AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
RECEIVING AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
PRINCIPAL BANKER: HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
*HSBC Institutional Trust Services (Ireland) DAC (the
"Custodian" and "Safekeeping and Monitoring Agent") merged with
HSBC France, Dublin Branch on 1 April 2019.
CHAIRMAN'S STATEMENT
For the year ended 31 December 2019.
2019 was a positive year for mining shares with the EMIX Global
Mining Index rising 18.1% in Sterling terms. The Company does not
benchmark itself against any index as its strategy is based on
absolute returns, but against this favourable background the
Company's NAV increased 29.9% during the year. This was assisted by
a high proportion of the portfolio being invested in precious
metals projects with over 50% invested in gold and silver at the
beginning of the year although this had fallen to 38% at 31
December 2019 following the sale of a significant proportion of our
Polymetal International plc ("Polymetal") shares received as
consideration from the sale of Polar Silver in 2018.
Precious metals were the best performing metals during 2019 with
gold up 18.8% and silver up 15.9% with base metals such as copper
and zinc lagging on fears of a global slowdown particularly in
China. Looking forward, a major theme for the resources sector will
be the impact of electrification and those metals required for the
infrastructure for renewable energy. The Company's strategy
continues to be "bottom up", concentrating on the quality of the
projects whilst maintaining a wide spread of commodities, but we
will continue to analyse projects with exposure to the trend
towards electrification.
During 2019, the Company sold down a large part of its interest
in Polymetal, partly to fund the successful tender offer to the
Company's shareholders to repurchase shares in accordance with its
returns policy. Proceeds from the sale of Polymetal were also used
to make four new significant investments: a royalty over Futura
Resources Ltd's coking coal mines in Australia; a convertible loan
and option to acquire a royalty over Azarga Metals Corp's
copper/silver project in Russia; a convertible loan with Mines
& Metals Trading (Peru) Plc for its operating silver/lead/zinc
mine in Peru and a convertible loan with Tungsten West Ltd in
relation to its tungsten mine in the United Kingdom. Further
details of these investments are contained in the Investment
Manager's report but importantly they helped rebalance the
portfolio and diversify risk in terms of commodity, geographical
exposure and project development stage in accordance with the
Company's policy. The structuring of new investments through
convertible loans develops the Investment Manager's strategy of
"positively skewed alpha" such that equity upside is maintained
with a degree of downside protection achieved through the loan
structure.
Looking forward, two of our long-term holdings have reached
important milestones in their development and are set for price
discovery transactions during 2020. Bilboes Gold Ltd has completed
a positive definitive feasibility study on its 200,000 ounce per
annum open pit gold project in Zimbabwe, and Nussir has likewise
completed its definitive feasibility study on its 14,000 tonne per
annum copper project in Norway. It is the core strategy of the
Company to invest in mining companies it considers to be
undervalued and that have strong fundamentals and attractive growth
prospects with the potential to move up the "development curve" and
into production. Achieving a positive definitive feasibility study
is one of the key milestones on the development curve and
represents a significant reduction in the project's risk. It
remains to be seen whether the best way to unlock the value in
these projects is through the companies raising the requisite
capital themselves and developing them, or through joint venture or
sale to third parties but in the case of Bilboes, open pit mines
that can produce 200,000 ounces per annum are reasonably rare, as
are
fully permitted copper projects in Europe in the case of
Nussir.
ESG
Environmental, social and governance ("ESG") factors are
becoming increasingly important for all businesses. As an
investment company we have neither employees nor physical
infrastructure and so our direct footprint is limited but through
proactive management of our investments we can exert a significant
influence on the policies of the companies in which we invest. This
is not only to support sustainable and ethical investment but
because we believe ESG considerations are key for creating and
maintaining shareholder value. As such, they are incorporated into
the Investment Manager's investment decision process at multiple
levels during screening and company analysis, as well as being
directly addressed with company management. Mining is often seen as
an activity having a negative impact on the environment but this is
not the case if it is done in a responsible and sustainable
way.
Covid-19
At the time of writing the world is still coming to grips with
the implications of the Covid-19 virus and what it will mean to
supply chains and the global economy. In the past two months we
have seen weakness in base metals and steel mineral prices as
output has been suspended particularly in China. However,
structuring of many of our investments as convertible loans at
least means that we have the benefit of accruing a coupon and
potentially improving conversion terms should there be, for
example, a delay to a project. Moreover, a high proportion of the
portfolio assets are in precious metal projects and should in
theory act as a hedge in case of a prolonged crisis.
On 7 April 2020, we published the Company's NAV as at 31 March
2020. In doing so, we decided to update the valuations of our
unlisted investments (in normal markets, something we would only do
at the half and full year ends). The NAV per share was 67.3 pence
as against a NAV per share at 31 December 2019 of 73.9 pence, a
fall of 8.9%. This is in the context of much larger falls in stock
markets generally and largely reflects the fact that gold mining
companies such as Bilboes and Polymetal have held up well together
with the currency benefit of a weaker GBP sterling.
In relation to the operation of the Company itself, I am pleased
to report that the Board has had assurances from all its key
suppliers that the service levels, despite the fact that virtually
all involved are presently working from home, will be maintained
such that the Company will be able to function as normal.
Certainly, at the time of writing, this has very much been our
experience. I would like to thank everyone involved for all their
hard work during these troubling times.
The Board
It has now been ten years since the Company was formed and the
original directors were appointed immediately prior to the listing
on the London Stock Exchange. As referred to in my Chairman's
Statement last year, the Board has put in place a succession plan
to refresh the Board whilst maintaining continuity. During 2019 we
welcomed to the Board David Staples, previously a partner of PwC
and an experienced non-executive director, who replaced Chris
Sherwell and is serving as Chairman of the Audit Committee. The
next director to step down will be Clive Newall who will retire on
15 September this year. I would like to thank Clive for his
valuable contribution to the Company since its formation. We are
pleased to announce the appointment to the Board of Fiona
Perrott-Humphrey as from that date, subject to completion of
regulatory process. Fiona was formerly Head of Mining Research for
Europe and South Africa at Citigroup. She is now a director of AIM
Mining Research and founding director of a strategic consulting
business, and an Adviser on the mining sector to Rothschild and
Co.
Howard Myles
Chairman
20 April 2020
INVESTMENT MANAGER'S REPORT
For the year ended 31 December 2019
Financial Performance
The audited undiluted Net Asset Value per Ordinary Share ("NAV")
as at 31 December 2019 was 73.9 pence, an increase of 29.9% in the
year but a decrease of 26.1% from the Company's first NAV
calculated on 30 April 2010. During the year the EMIX Global Mining
Index was up 18.1% ( down 25.1 % since 30 April 2010 ) in Sterling
terms.
For the purpose of calculating the NAV per share, unquoted
investments were carried at fair value as at 31 December 2019 as
determined by the Directors and quoted investments were carried at
their quoted prices as at 31 December 2019.
Net assets at 31 December 2019 comprised the following:
GBPm % net assets
Unquoted Investments 68.3 86.6
Quoted Investments 8.7 11.1
Cash and other net assets 1.7 2.3
------------- -----------------------
78.7 100.0
Investment Update
Largest 10 Holdings - 31 December 2019 % of NAV
Bilboes Gold Limited 15.9
Futura Resources Limited 15.0
Polar Acquisition Limited 11.3
Cemos Group Plc 10.0
Tungsten West Limited 8.0
Polymetal International Plc 6.1
Anglo Saxony Mining Limited 4.6
Mines & Metals Trading (Peru) Plc 4.4
Nussir ASA 4.1
Sarmin Minerals Exploration 3.7
83.1
Other Investments 14.6
Cash and other net assets 2.3
---------
100.0%
=========
Largest 10 Holdings - 31 December 2018 % of NAV
Polymetal International Plc 28.9%
Bilboes Gold Limited 11.9%
Cemos Group Plc 10.5%
Futura Resources Limited 10.3%
Polar Acquisition Limited 9.3%
Sarmin Minerals Exploration 5.3%
Black Pearl Limited Partnership 4.2%
Nussir ASA 3.4%
Ivanhoe Mines Limited 2.3%
PRISM Diversified Limited 2.2%
---------
88.3%
Other Investments 5.7%
Cash and other net assets 6.0%
---------
100.0%
=========
Investment Update
At the year end, the Company was fully invested, holding 18
investments of which the top 10 holdings comprised 83% of the
portfolio by value. The portfolio is well diversified both in terms
of commodity and the geographical location of the projects. In
terms of commodity the portfolio has exposure to gold, silver,
metallurgical coal, tungsten, potash, iron, copper, platinum group
metals, nickel, tin, lead and zinc. Its projects are located in
Australia, Canada, Democratic Republic of Congo, Germany,
Indonesia, Madagascar, Mongolia, Morocco, Norway, Peru, the
Philippines, Republic of Congo, Russia, South Africa, the UK and
Zimbabwe.
During the year, the mining market recommenced its recovery
after a broadly flat 2018 with the EMIX Global Mining Index up
18.1% over the year in Sterling terms. This was largely driven by
precious metals with gold up 18.8% and silver 15.9% in US Dollars
which was reflected in the 36.8% rise in the EMIX Global Mining
Gold Index (Sterling terms). Other commodities to which the Company
is exposed were mixed with iron ore up 27.5%, metallurgical coal
down 32.9%, copper up 3.4%, tin down 12.0%, and lead down 4.7%
during 2019 (all in US dollars). Palladium was particularly strong,
rising 54.2% on the move to petrol autocatalysts in hybrid
cars.
Likewise, performance of the Company's portfolio was largely
driven by its investments in precious metals with the share price
of Polymetal International PLC ("Polymetal") up 45% on the London
Stock Exchange and the value of Bilboes Gold Ltd was increased by
38% in line with the Company's index of comparable listed gold
companies. In addition, the value of Polar Acquisition Limited
("PAL") was increased by 43% following the increase in the silver
price and further production guidance from Polymetal on the Prognoz
Silver project over which PAL holds a royalty.
Investment in large capitalisation mining stocks, such as the
holding in Polymetal received as consideration for the sale of the
Prognoz silver project, in the long term does not fall within the
Company's investment strategy . However, Polymetal has continued to
overdeliver on its operational targets and its shares are highly
liquid so were retained until the Company required funds for new
investments and for the successful tender offer to shareholders
during the year. At the end of the year Polymetal comprised only
6.1% of NAV.
The Company's largest investment, Bilboes Gold Limited
("Bilboes") completed its definitive feasibility study ("DFS") on
its Isabella-McCays-Bubi gold project in Matabeleland, Zimbabwe
shortly after the year end. Originally it had been planned for the
project to start at a production rate of approximately 100,000
ounces of gold per annum and then utilise cashflow to fund the
additional capex to expand production to 200,000 ounces per annum.
However, during the compilation of the DFS it became obvious that
this plan was sub-optimal as insufficient capital could be saved
prior to first production and therefore the DFS was completed on a
mine moving straight to full capacity of 200,000 ounces per annum.
The peak funding requirement for the project is US$231 million with
cash operating costs of US$664 per ounce of gold and All-in
Sustaining Costs of US$742 per ounce of gold. At a gold price of
US$1,500 per ounce, the project economics show an after tax net
present value ("NPV") (discount rate of 8%) of just over US$300
million with an internal rate of return ("IRR") of 36% and a
payback on investment of just over one year from the start of
production. The recent strength of the gold price should assist in
raising the capital for development or the price for a sale of the
project.
The Company made four significant new investments during 2019.
In the first quarter, the Company increased its exposure to Futura
Resources' Wilton and Fairhill metallurgical coal properties in
Queensland, Australia through the acquisition of a 0.75% Gross
Revenue Royalty ("GRR") on future production from the two
properties for A$6 million, together with an option to acquire an
additional 0.25% GRR for a further A$2 million which was exercised
in February 2020. At industry forecast long term average prices for
metallurgical coal, the GRRs are anticipated to generate around
A$3m per annum for the Company before tax once Futura's properties
reach full production. The commencement of production was delayed
pending award of the operating licences with the licence for Wilton
now expected in the second quarter 2020 and the Fairhill licence
the following quarter. Aggregate coal production will ramp-up to a
targeted sustainable level of 2.3 million tonnes of coal per annum
of saleable processed coal by 2022 for at least 25 years. The
Company's acquisition of these royalties is supportive of the
strategy to add additional royalties to the Company's portfolio in
order to generate income which can in turn be passed on to
shareholders through the returns policy.
The second new investment was a US$3 million secured convertible
loan in TSXV listed Azarga Metals Corp. ("Azarga") with
accompanying warrants and the right to acquire a royalty over
Azarga's Unkur copper/silver project in far eastern Russia. Azarga
completed a positive PEA in 2018 envisaging an open pit operation
with an 8-year mine life producing 13.2kt of copper and 3.7M oz of
silver per year. Azarga is currently undertaking a second phase
drilling and exploration program at its Unkur Copper-Silver
Project, with a view to more than doubling the drilling undertaken
by it to date.
The third significant new investment was a US$4 million
investment in a convertible debenture with Mines & Metals
Trading Peru PLC ("MMTP"), a private company with operations in the
Huancavelica region within the central zone of the Western Andean
Cordillera of Peru. MMTP's Recuperada project in Peru comprises
11,261 Ha of mining concessions centred around a 600 tonne per day
processing plant. MMTP is currently transitioning from treating
silver/lead/zinc ore from third party miners to processing ore from
its own concessions. In December 2019, MMTP agreed a definitive
business combination with TSX-V shell Zincore Inc. The plan was for
the combined company to relist in the second quarter 2020 on the
TSX Venture Exchange under the name of Latitude Base Metals Inc but
due to the Covid-19 situation the listing is expected to be
deferred to 2021.
The fourth major investment during the year was in GBP5 million
secured convertible loan notes in Tungsten West. This enabled
Tungsten West to exercise its option to acquire the Hemerdon
Tungsten Mine, 7 miles northeast of Plymouth in Devon, England
which had previously been mined by Wolf Minerals Limited and had
been forced to close following financial difficulties in October
2018. Wolf commenced production at Hemerdon in 2015 but never
achieved the designed recovery rate of tungsten from its plant.
During 2019 Tungsten West undertook extensive mineralogical and
metallurgical testwork on ore from Hemerdon and engaged independent
mineral consultants, Wardell Armstrong, to prepare a Competent
Persons Report on the project. These studies suggest that sorting
of the ore before processing and reconfiguration of the processing
plant could significantly increase tungsten recovery and reduce
costs. Tungsten West is currently undertaking pilot plant testwork
to refine its proposed process flowsheet with a pre-feasibility
study planned for mid-2020.
The rest of the portfolio continued to make progress during 2019
with Cemos Group PLC ramping up production at its cement plant in
Morocco as it generated new customers. The operations are cash flow
positive and Cemos has started repayment of the vendor finance from
Loesche, which fabricated and constructed the plant. Preliminary
planning for a second production line has commenced which would
double production capacity. Following its positive pre-feasibility
study in September 2018, Sarmin sought to sell or joint venture its
Kanga potash project in the Republic of Congo. However, one of the
key concerns revealed in the marketing process was the grant of the
operational mining licence which requires a full feasibility study.
Shareholders therefore decided to progress the full feasibility
study which is being funded by Sarmin's major investors and is due
for completion in the second half of 2020.
The DFS on Nussir's Nussir/Ulveryggen copper project in Norway
was delayed by six months following a decision to drill an area of
inferred resources in close proximity to the site of the main
portal for the mine. This enabled Nussir to upgrade additional
resource into the measured and indicated categories and therefore
were included in the mine plan for the DFS. This additional
resource significantly enhanced the economics of the DFS which was
completed in March 2020. At a long term copper price of US$6,500
per tonne the economic model gave a net present value using a 6%
discount rate ("NPV(6%)") of US$132.6 million with an internal rate
of return ("IRR") of 23%. An upside case on the basis that the
Inferred Resources are converted into the Indicated category gave
an NPV(6%) of US$189.8 million. Nussir is fully licenced and will
now examine its options as to the best way to fund the mine
development and realise the value of the project as well as
investigating the potential to develop the mine using electric
mining and haulage equipment. The Mining Licence for Nussir was
awarded in February 2019, and although this was appealed, the
appeal was rejected by the Norwegian government and the final
licence award was made in December 2019.
During the year the Company invested the second GBP1 million
tranche of its convertible loan with Anglo Saxony Mining Limited
("ASM"), which holds the rights to a previously producing tin mine
in Germany. This was used to fund a pre-feasibility study (PFS")
which was completed in March 2020. The PFS showed that further
optimisation work needed to be undertaken for the mine to be
economic at the currently depressed tin price. However, tin is
regarded as one of the likeliest metals to benefit from the trend
towards electrification and cleaner energy supply and therefore the
project will continue to be pursued.
Elsewhere in the portfolio Black Pearl continued discussions
with Chinese partners regarding the use of its mine as the basis
for a new steel plant in Indonesia and Prism Diversified is seeking
funding for a feasibility study into its proposed iron powders and
vanadium production facility . Your Company has retained some of
its original holding of shares in TSX-listed Ivanhoe Mines although
it is a non core holdings in the portfolio. Ivanhoe continues to
make good progress in developing its Kamoa-Kakula project in the
Democratic Republic of Congo as well as the Platreef platinum group
metal project in South Africa. During 2019, Metals Exploration
plc's Runruno gold mine in the Philippines produced a total of
68,983 ounces of gold compared to 46,000 ounces of gold in 2018,
albeit still below its target of approximately 100,000 ounces of
gold per annum. Although the operations were cash positive in the
last quarter of 2019, it was still insufficient to service its
loans which were acquired by Metals Exploration's major
shareholders. The shares were suspended by the AIM market of the
London Stock Exchange in March 2020, pending a resolution of the
reorganisation of its debt.
The outlook for mining and metals is presently uncertain and it
is very dependent on the global reaction to the Covid-19 virus, its
duration and the scale and efficacy of any government stimulus
programmes. Given the four significant new investments in 2019, it
is expected that the Company will concentrate on supporting its
existing investments during 2020 and will not be seeking new
investments until the next significant realisation is made.
Further details of each of these investments and the Company's
other significant holdings are provided below.
Description of Largest Investments at 31 December 2019
Bilboes Gold Limited ("Bilboes")
Bilboes is a private Zimbabwean based gold mining company which
has a JORC compliant Proved and Probable Reserves containing 1.8
million ounces of gold out of a total Mineral Resource of 3.8
million ounces of gold. A positive definitive feasibility study of
a mine with production capacity of up to 200,000 ounces per annum
was completed in 2020.
Futura Resources Ltd ("Futura")
Futura owns the Wilton and Fairhill coking coal projects in the
Bowen Basin in Queensland, Australia which hold Measured and
Indicated resources of 843 million tonnes of coking coal.
Production is targeted to commence at both projects during 2020,
for a targeted combined sustainable level of 2.3 million tonnes per
annum of saleable processed coal by 2021/22 with a mine life of at
least 25 years once in full production.
Polar Acquisition Limited ("PAL")
PAL is a private company which holds a 0.9% to 1.8% royalty in
the Prognoz silver project ("Prognoz"), 444km north of Yakutsk in
Russia, now owned by Polymetal. Progroz has a 256 million ounce
silver equivalent Indicated and Inferred Mineral Resource at a
grade of 789 g/t silver equivalent. A pre-feasibility study is
being undertaken by Polymetal and is expected to be completed in
the second half of 2020.
Cemos Group plc ("Cemos")
Cemos is a private cement producer and oil shale explorer and
developer whose key asset is the Tarfaya project in Morocco. As a
first step for development, Cemos completed the construction of a
cement plant at Tarfaya in December 2018 with a capacity of up to
270,000 tonnes cement per annum.
Tungsten West Limited ("Tungsten West")
Tungsten West is a private company which owns the Hemerdon Mine
in Devon, United Kingdom which contains estimated Measured and
Indicated Mineral Resources totaling 116 million tonnes of tungsten
ore at a grade of 0.13% WO(3) with a further 110 million tonnes at
a grade of 0.12 WO(3) in inferred resources. A pre-feasibility
study is planned for mid-2020.
Polymetal International plc ("Polymetal")
Polymetal is a leading precious metals mining group operating in
Russia and Kazakhstan, listed on the London Stock Exchange and
Moscow Stock Exchange and is a member of FTSE100 Index. Polymetal
has a portfolio of nine producing gold and silver mines which in
2019 produced 1.61 million gold equivalent ounces.
Anglo Saxony ("Anglo Saxony")
Anglo Saxony is a private company which holds the Tellerhäuser,
operations in Germany. Total mineral resources for the project have
been estimated at 22.1 million tonnes of ore grading 0.46% tin. A
pre-feasibility study was completed in March 2020.
Mines & Metals Trading Peru PLC ("MMTP")
MMTP is a private company with operations in Peru. Total mineral
resources for the project have been estimated at 7.3 million tonnes
of ore grading 4.77oz silver per tonne, 3.91% lead, and 2.53% zinc
for the 54 vein systems identified.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the
Nussir/Ulveryggen copper project in Northern Norway. A JORC
compliant report estimated Measured and Indicated Mineral Resources
at 29.9 million tonnes grading 1.0% copper containing 300,000
tonnes of copper. The resource statement also included 530,000
million tonnes of copper in Inferred Mineral Resources providing
combined contained copper of 830,000 tonnes. A definitive
feasibility study into a mine producing approximately 14,000 tonnes
of copper per annum was completed in March 2020.
Sarmin Minerals Exploration Inc ("Sarmin")
Sarmin is private company which holds the Kanga potash project,
in the Republic of Congo which has an Inferred Mineral Resource of
7,160 million tonnes grading 16.7% KCl containing 1,197 million
tonnes KCl. A positive pre-feasibility study, completed in
September 2018 outlined a phased project employing solution mining,
which will commence with a 400,000 tonne KCl per annum operation
rising to 2.4 million KCl tonnes per annum. A feasibility study is
due for completion in the second half of 2020.
Black Pearl Limited Partnership ("Black Pearl")
Black Pearl is a special purpose vehicle formed to invest in the
Black Pearl beach placer iron sands project in West Java,
Indonesia. The Black Pearl concession area is 15,000 ha of which
1,600 ha has been drilled. JORC compliant Mineral Resources stand
at 572 million tonnes grading 10% Fe. Negotiations are ongoing for
the Black Pearl project to form the base production for an
integrated steel production facility.
Ivanhoe Mines Limited ("Ivanhoe")
Ivanhoe is a company listed on the Toronto Stock Exchange which
holds the Kamoa-Kakula copper project (39.6% owned) and Kipushi
zinc mine (68% owned) both in the Democratic Republic of Congo
("DRC") and the Platreef nickel, platinum, palladium, copper and
gold project (64% owned) in South Africa.
PRISM Consolidated Limited ("PRISM")
PRISM is a private Canadian company which owns the Clear Hills
Iron Ore/Vanadium Project ("Clear Hills") in Alberta, Canada. Clear
Hills currently has Indicated Resources of 557.7 million tonnes at
33.3% iron and 0.2% vanadium and an Inferred Resource of 94.7
million tonnes at 34.1% iron.
Azarga Metals Corp. ("Azarga")
Azarga is a TSX-V listed company which holds the Unkur
copper/silver project in far eastern Russia with Inferred Mineral
Resources estimated at 62 million tonnes at 0.53% copper and
38.6g/t silver, containing 328,600 tonnes of copper and 76.8
million troy ounces of silver (0.56 Mt of copper equivalent).
Metals Exploration plc ("Metals Exploration")
Metals Exploration is an AIM listed company which owns the
Runruno gold mine in the Philippines. The Runruno mine produced
69,000 ounces of gold in 2019.
Baker Steel Capital Managers LLP
Investment Manager
PORTFOLIO STATEMENT
AS AT 31 DECEMBER 2019
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Listed equity shares
Canadian Dollars
1,470,443 Azarga Metals Corp 55,652 0.07
1,000,000 Ivanhoe Mines Limited 2,474,638 3.15
Canadian Dollars Total 2,530,290 3.22
--------------- ---------
Great Britain Pounds
122,760,000 Metals Exploration Plc 1,411,740 1.80
400,000 Polymetal International Plc 4,780,000 6.08
Great Britain Pounds Total 6,191,740 7.88
--------------- ---------
Total investment in listed equity
shares 8,722,030 11.10
--------------- ---------
Debt instruments
Australian Dollars
200 Futura Resources Limited 6,967,954 8.86
Australian Dollars Total 6,967,954 8.86
--------------- ---------
Canadian Dollars
PRISM Diversified Limited Loan Note
275,000 1 109,197 0.14
PRISM Diversified Limited Loan Note
250,500 2 380,756 0.48
Canadian Dollars Total 489,953 0.62
--------------- ---------
Euro
959 Cemos Group 4,116,550 5.23
Euro Total 4,116,550 5.23
--------------- ---------
Great Britain Pounds
2,000,000 Anglo Saxony Mining Limited 3,026,877 3.85
Tungsten West Limited Convertible
16,666,667 Loan Note 5,035,097 6.40
Great Britain Pounds Total 8,061,974 10.25
--------------- ---------
United States Dollars
Azarga Metals Secured Convertible
3,000,000 Loan Note 1,986,320 2.53
Bilboes Holdings Convertible Loan
440,000 Note 1,483,398 1.89
220,000 Bilboes Holdings Loan Note 118,463 0.15
7,009,332 Black Pearl Limited Partnership 2,643,205 3.36
4,000,000 Mines & Metals Trading (Peru) Plc 3,425,407 4.35
United States Dollars Total 9,656,793 12.28
--------------- ---------
Total investments in debt instruments 29,293,224 37.24
--------------- ---------
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Unlisted equity shares and warrants
and royalties
Australian Dollars
6,000,000 Futura Gross Revenue Royalty 5,104,052 6.49
56,011,015 Indian Pacific Resources Limited 497,086 0.63
Australian Dollars Total 5,601,138 7.12
--------------- ---------
Canadian Dollars
13,083,936 PRISM Diversified Limited 1,660,802 2.11
PRISM Diversified Limited Warrants
1,000,000 31/12/2023 75,743 0.10
13,490,414 Azarga Metals Warrants 12/04/2021 40,594 0.05
Canadian Dollars Total 1,777,139 2.26
--------------- ---------
Great Britain Pounds
1,594,646 Celadon Mining Limited 15,947 0.02
24,004,167 Cemos Group plc 3,732,648 4.75
5,118,750 Tungsten West Limited 1,279,688 1.63
3,300,001 Anglo Saxony Mining Limited 475,200 0.60
Great Britain Pounds Total 5,503,483 7.00
--------------- ---------
Norwegian Krone
12,434,294 Nussir ASA 3,204,604 4.07
Norwegian Krone Total 3,204,604 4.07
--------------- ---------
United States Dollars
451,445 Bilboes Gold Limited 10,885,956 13.84
4,244,550 Gobi Coal & Energy Limited 150,658 0.19
1,000,000 Midway Resources International - -
16,352 Polar Acquisition Limited 8,915,921 11.33
56,042 Sarmin Minerals Exploration 2,877,964 3.66
United States Dollars Total 22,830,499 29.02
--------------- ---------
Total Unlisted equity shares and
warrants 38,916,863 49.47
--------------- ---------
Financial assets held at fair value
through profit or loss 76,932,117 97.81
--------------- ---------
Other Assets & Liabilities 1,731,193 2.19
--------------- ---------
Total Equity 78,663,310 100.00
--------------- ---------
STRATEGIC REPORT
Company Structure
The Company is a registered closed-ended investment scheme
registered pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended ("POI Law") and the Registered
Collective Investment Scheme Rules 2018 issued by the Guernsey
Financial Services Commission ("GFSC"). The Company is not
authorised or regulated as a collective investment scheme by the
Financial Conduct Authority. The Company is subject to the Listing
Rules and the Disclosure and Transparency Rules of the UK Listing
Authority. The Articles of the Company contain provisions as to the
life of the Company. At the Annual General Meeting ("AGM") falling
in 2018 and at each third AGM convened by the Board thereafter, the
Board will propose a special resolution to discontinue (the
Company) which if passed will require the Directors, within 6
months of the passing of the special resolution, to submit
proposals to shareholders that will provide shareholders with an
opportunity to realise the value of their Ordinary Shares.
Shareholders voted against discontinuing the Company at the 2018
AGM, and the next discontinuation vote will be held in 2021.
Role and Composition of the Board
The Board is the Company's governing body; it sets the Company's
strategy and is collectively responsible for its long-term
performance. The Board, which is comprised entirely of independent
Non-Executive Directors, is responsible for appointing and
subsequently monitoring the activities of the Manager and other
service providers to ensure that the investment objectives of the
Company continue to be met. The Board also ensures that the Manager
adheres to the investment restrictions described in the Company's
Prospectus and acts within the parameters set by it in any other
respect. It also identifies and monitors the key risks facing the
Company.
Investment activities are predominantly monitored through
quarterly Board meetings at which the Board receives detailed
reports and updates from the Investment Manager, who attends each
Board meeting. Services from other key service providers are
reviewed as appropriate.
Subject to meeting solvency requirements, if the Ordinary Shares
trade at a discount in excess of 15 per cent to their NAV, the
Board will consider whether the Company should buy back its own
Ordinary Shares, taking into account the Company's liquidity,
conditions in the stock market and mining markets.
The Board continues to review the Company's ongoing expenditure
to ensure that the total costs incurred in the running of the
Company remain competitive. An analysis of the Company's costs,
including management fees (which are based on the market
capitalisation of the Company), Directors' fees and general
expenses, is submitted to each Board meeting.
As at 31 December 2019, the Board comprised four Directors
(2018: four).
Investment Management
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the Management Agreement).
Under the Management Agreement, the Manager acts as manager of the
Company, subject to the overall control and supervision of the
Directors and was authorised to appoint the Investment Manager to
manage and invest the assets of the Company. The Manager is
responsible for the payment of the fees of the Investment Manager.
The Manager is a company incorporated in the Cayman Islands on 10
April 2002 with registration number 117030 and is an affiliate of
the Investment Manager.
Baker Steel Capital Managers LLP acts as Investment Manager of
the Company and was incorporated in England and Wales on 19
December 2001. It is authorised and regulated by the Financial
Conduct Authority in the United Kingdom. The Investment Manager is
a limited liability partnership with registration number OC301191
and is an affiliate of the Manager. The Investment Manager has been
appointed by the Company to act as its Alternative Investment Fund
Manager ("AIFM") and is responsible for the portfolio management
and risk management of the Company. The Investment Manager manages
the Company in accordance with the Alternative Investment Fund
Managers Directives ("AIFMD"). The Investment Manager is a
specialist natural resources asset management and advisory firm
operating from its head office in London and its branch office in
Sydney. It has an experienced team of fund managers covering the
precious metals, base metals and minerals sectors worldwide, both
in relation to commodity equities and the commodities
themselves.
The Directors formally review the performance of the Investment
Manager on an annual basis and remain satisfied that the Investment
Manager has the appropriate resources and expertise to manage the
portfolio of the Company in the best interests of the Company and
its shareholders.
Investment Objective
The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting
principally of the equities, loans or related instruments of
natural resources companies. The Company invests predominantly in
unlisted companies (i.e. those companies that have not yet made an
initial public offering ("IPO")) but also in listed securities
(including special situations opportunities and less liquid
securities) with a view to making attractive investment returns
through the uplift in value resulting from the development
progression of the investee companies' projects and through
exploiting value inherent in market inefficiencies and pricing
anomalies.
Investment Policy
The core of the Company's strategy is to invest in natural
resources companies, predominantly unlisted, that the Investment
Manager considers to be undervalued and that have strong
fundamentals and attractive growth prospects. Natural resources
companies, for the purposes of the investment policy, are those
involved in the exploration for and production of base metals,
precious metals, bulk commodities, thermal and metallurgical coals,
industrial minerals, energy and uranium, and include single-asset
as well as diversified natural resources companies.
It is intended that unlisted investments be realised through an
IPO, trade sale, management repurchase or other methods.
The Company focuses primarily on making investments in companies
with producing and/or tangible assets such as resources and
reserves that have been verified under internationally recognised
standards for reporting, such as those of the Australasian Joint
Ore Reserves Committee ("JORC"). The Company may also invest from
time to time in exploration companies whose activities are
speculative by nature.
The Company has flexibility to invest in a wide range of
investments in addition to unlisted and listed equities and
equity-related securities, including but not limited to
commodities, convertible bonds, debt securities, royalties,
options, warrants and futures. Derivatives may be used for
efficient portfolio management, hedging and for the purposes of
obtaining investment exposure. The Company may also have exposure
from time to time to other companies within the wider resources and
materials sector, including services companies, transport and
infrastructure companies, utilities and downstream processing
companies.
The Company may take legal or management control of a company
from time to time. The Company may invest in other investment funds
or vehicles, including any managed by the Manager or Investment
Manager, where such investment would be complementary to the
Company's investment objective and policy.
Borrowing and Leverage
The Company may, at the discretion of the Investment Manager,
and within limits set by the Board, incur leverage for liquidity
purposes by borrowing funds from banks, broker-dealers or other
financial institutions or entities. The costs of leverage will
affect the operating results of the Company.
During the current and prior year, no leverage was used by the
Company.
Investment Restrictions
There are no fixed limits on the allocation between unlisted and
listed equities or equity-related securities and cash although, as
a guideline, typically the Investment Manager will aim for the
Company to be invested over the long-term as follows:
-- between 40 and 100 per cent of the value of its gross assets
in unlisted equities or equity-related securities;
-- up to 50 per cent of the value of its gross assets in listed
equities or equity-related securities;
-- up to 10 per cent of the value of its gross assets in cash or cash-like holdings; and
-- typically in 10 to 20 core positions to provide adequate
diversification whilst retaining a focused core approach. Core
positions will be between 5 per cent and 15 per cent of NAV as at
the date of acquisition.
The actual percentage of the Company's gross assets invested in
listed and unlisted equities and equity-related securities and cash
and cash-like holdings and the number of positions held may fall
outside these ranges from time to time. For example, listed
securities might exceed the above guideline following a significant
number of IPOs or in certain market conditions and likewise cash
balances may exceed the above guideline following the realisation
of one or more investments or following the issue of new equity in
the Company, pending investment of the proceeds.
The investment policy has the following limits:
-- Save in respect of cash and cash-like holdings awaiting
investment, and except as set out below, the Company will invest or
lend no more than 20 per cent in aggregate of the value of its
gross assets in or to any one particular company or group of
companies, as at the date of the relevant transaction.
-- No more than 10 per cent in aggregate of the value of the
gross assets of the Company may be invested in other listed
closed-ended investment funds, except for those which themselves
have stated investment strategies to invest no more than 15 per
cent of their gross assets in other listed closed-ended investment
funds.
Where derivatives are used for investment exposure, these limits
will be applied in respect of the investment exposures so
obtained.
The Company will avoid (a) cross-financing between the
businesses forming part of its investment portfolio and (b) the
operation of common treasury functions between it and the investee
companies. When deemed appropriate, the Company may borrow up to 10
per cent of NAV for temporary purposes such as settlement of
mis-matches. Borrowings will not however be incurred for the
purposes of any Share repurchases. Any material change in the
investment objective, investment policy or borrowing policy will
only be made with the prior approval of holders of Ordinary Shares
by Ordinary Resolution. In the event of any breach of the
investment restrictions the Investment Manager would report the
breach to the Board and shareholders would be informed of any
corrective action required. No breaches of investment restrictions
occurred during the year ended 31 December 2019.
Hedging
The Investment Manager will not normally hedge the exposure of
the Company to currency fluctuations.
Performance
The Company monitors NAV against the EMIX Global Mining Index as
a key performance indicator. An outline of performance, market
background, investment activity and portfolio strategy during the
year under review, as well as outlook, is provided in the
Chairman's Statement on page 3 and the Investment Manager's Report
on pages 5 to 9.
Principal and emerging risks
A summary of the principal and emerging risks faced by the
Company is set out below. The Company has a risk matrix which is
reviewed on an ongoing basis by the Audit Committee. Changes to the
risk matrix, be that for an emerging risk or a change in the
assessment of an already documented risk, are recommended to the
Board for approval before finalising.
Market and financial risks
Market risk arises from volatility in the prices of the
Company's underlying investments which, in view of the Company's
investment policy, are in turn particularly sensitive to commodity
prices. Market risk represents the potential loss the Company might
suffer through holding investments in the face of negative market
movements. The Board has set investment restrictions and guidelines
to help mitigate this risk. These are monitored and reported on by
the Investment Manager on a regular basis. Further details are
disclosed in note 4 on pages 48 to 54.
The Company's investment activities also expose it to a variety
of financial risks including in particular foreign currency risk.
The foreign exchange risk might be affected by Brexit, but the
impact of Brexit, hard or soft, is not quantifiable at the time of
publication of these financial statements. A sensitivity to foreign
exchange is presented on pages 49 to 50.
The Coronavirus (Covid-19) is an emerging risk and has had a
significant impact on financial markets since the Company's year
end. While it cannot be predicted how long market conditions will
remain depressed, the Board considers that the Company's exposure
to precious metals projects should, to some extent, act as a hedge
to weaknesses in base metals and steel mineral prices in the event
of a prolonged crisis.
Portfolio management and Performance risks
The Board is responsible for determining the investment strategy
to allow the Company to fulfil its objectives and also for
monitoring the performance of the Investment Manager which has been
delegated day to day discretionary management of the Company's
portfolio. An inappropriate strategy may lead to poor performance.
The investment policy of the Company allows for a highly focused
portfolio which can lead to a concentration of risk. To manage this
risk, the Investment Manager provides to the Board, on an ongoing
basis, an explanation of the significant stock selection
recommendations and the rationale for the composition of the
investment portfolio. The Board mandates and monitors an adequate
diversification of investments, both geographically and by
commodity, in order to reduce the risks associated with particular
sectors, based on the diversification requirements inherent in the
Company's investment policy.
The Company invests in certain companies whose projects are
located in emerging markets. In such countries governments can
exercise substantial influence over the private sector and
political risk can be a significant factor. In adverse social and
political circumstances, governments have been involved in policies
of expropriation, confiscatory taxation, nationalisation,
intervention in the securities markets and imposition of foreign
exchange controls and investment restrictions. The Investment
Manager and the Board take into account specific political risks
when entering into an investment and seek to mitigate them by
diversifying geographically.
The Company's ability to implement its investment policy depends
on the Investment Manager's ability to identify, analyse and invest
in investments that meet the Company's investment criteria. Failure
by the Investment Manager to find additional investment
opportunities meeting the Company's investment objectives and to
manage investments effectively could have a material adverse effect
on the Company's business, financial condition, and results of
operations. The Company has no employees and, subject to oversight
by the Board, is reliant on the Investment Manager, which has
significant discretion as to the implementation of the Company's
operating policies and strategies. The Company is subject to the
risk that the Investment Manager or its key investment
professionals will cease to be involved in the management of any
part of the Company's assets and that no suitable replacement will
be found. The Board regularly monitors the performance and
capabilities of the Investment Manager and its key man risk
plans.
There is the risk that the market capitalisation of the Company
(on which the Investment Manager's fee is calculated) falls to such
an extent that it will no longer be viable for the Investment
Manager to provide the services that it currently provides. The
Board monitors this possibility and, should it start to become an
issue, would review it with the Investment Manager.
Risk of a vote to wind-up the Company
The Articles contain provisions for a special resolution of
shareholders at the AGM in 2018 and every three years thereafter on
whether to discontinue the Company. Should there be a catastrophic
loss of value in the Company's assets, possibly as a result of the
risks above, or merely a change in sentiment towards the mining
sector generally by a sufficient proportion of investors, there is
the risk of shareholders voting to wind-up the Company at that
time. Because the Company's investments are largely unlisted it
could then take a protracted amount of time to realise them or they
may need to be sold at a discount to Fair Value if an accelerated
timetable is required.
The Board has conducted sensitivity tests of future income and
expenditure and the ability to realise assets should assets fall in
value by over 50% over a three-year time period. The Board has
concluded that, even in circumstances representing such further
deterioration in markets, it can remain viable until the
discontinuation vote and should there be a vote to continue, it can
remain viable for at least two years beyond. To understand the
requirements of the Company's major shareholders, the Investment
Manager regularly liaises with the Company's broker and meets major
shareholders. The Chairman is also available to meet with
shareholders as required.
In the event of a winding up of the Company, Shareholders will
rank behind any creditors of the Company.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code, published by the Financial Reporting Council ("FRC") in July
2018 (the "UK Code"), the Directors have assessed the prospects of
the Company over 3 years, being the period until the
discontinuation vote at the AGM in 2021 and two years thereafter.
The Directors consider that this is an appropriate timeframe to
assess the viability of the Company as, in relation to the types of
investments the Company makes, three years mostly provides
sufficient time for major milestones to be reached on mining
projects together with some realisations and new investments to be
made by the Company. Beyond three years, the Board considers the
mining and minerals markets to be too difficult to predict to be
sufficiently helpful. Three years is also the period between each
discontinuation vote.
The Directors have considered each of the principal risks and
uncertainties detailed above individually and collectively and have
taken into account in particular the impact of the shareholder
discontinuation vote in 2021, which the Directors have assumed will
not be passed, on the viability of the Company.
The Company has previously seen pressures from the fall in
commodity prices and a move by its share price to an increased
discount to its NAV. The mining market is inherently cyclical and
dependent on world economic output. Notwithstanding this, it is a
feature of closed-ended investment companies such as BSRT that the
greatest risk to viability is that the investments lose value to an
extent where the expense ratio becomes excessive such that the
Company becomes an unattractive investment proposition. In such
conditions, it may also be a risk that liquidity (ie the ability to
sell or realise cash from the portfolio, or raise borrowings should
that be necessary) is insufficiently available to meet
liabilities.
In the case of the Company, which has no gearing, the Investment
Manager has conducted stress and sensitivity tests of future income
and expenditure and the ability to realise assets, and has
concluded that, even in circumstances representing a further
deterioration in value of 50% of net assets and a complete
inability to sell any of the unlisted assets in the portfolio, the
Company should remain viable over the period to the 2023 AGM. The
key factor in this assessment is that currently the Company's
greatest expense is the management fee which is calculated on the
market capitalisation of the Company. Should net assets fall,
market capitalisation would be expected to fall in line or at a
higher rate, such that the costs of the Company would also fall. It
is also assumed that the liquidity required over the three-year
period and under the highly stressed conditions modelled, is
largely provided by regular realisations of the Company's listed
equities such as Polymetal and Ivanhoe. The Directors believe this
to be reasonable given that these equities are regularly traded at
sufficient volumes in the context of the very minor positions the
Company's holdings represent.
As a result, the Board of Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment.
Environmental, Social and Governance
The Company believes that monitoring environmental, social and
governance ("ESG") factors is important not only to support
sustainable and ethical investment but because ESG considerations
are key for creating and maintaining shareholder value. The
Investment Manager has developed an ESG Investment Policy which
draws from international best practice and builds upon the
principles and processes outlined in the United Nations Principles
for Responsible Investment, of which it is a signatory.
ESG considerations are considered as an enhanced risk management
tool and, as such, are incorporated into the Investment Manager's
investment decision process at multiple levels during stock
screening and company analysis, as well as being directly addressed
with company management during meetings and on-site visits. The
Company is an active investor and will use its voting rights to
influence company direction in a sustainable way where deemed
appropriate. The Company considers that social and environmental
responsibility, along with good governance, are an integral element
of running a successful mining company.
Non-Mainstream Pooled Investment
The Directors intend to operate the Company in such a manner
that its shares are not categorised as non-mainstream pooled
investments.
Future Developments
The future performance of the Company depends upon the success
of the Company's investment strategy and, as to its share price and
market rating, partly on investors' view of mining related
investments as an asset class. Further comments on the outlook for
the Company can be found in the Chairman's Statement on page 3 and
the Investment Manager's Report on pages 5 to 9.
Signed on behalf of the Board of Directors by:
Howard Myles
20 April 2020
BOARD OF DIRECTORS
The Board of Directors is listed below. Mr Staples was appointed
on 29 May 2019; all other Directors were appointed on 12 March
2010. No limit on the overall length of service of any of the
Company's Directors, including the Chairman, has been imposed, as
the Board believes that any decisions regarding tenure should
consider the balance between the need for continuity of knowledge
and experience, and the need periodically to refresh the Board's
composition in terms of skills, diversity and length of service. In
this context , the Board has put in place a succession plan to
refresh its membership while maintaining a degree of continuity.
Christopher Sherwell was the first director to retire as part of
the succession plan. Christopher resigned at the Company's 2019
AGM, held on 28 May 2019. The next director to step down will be
Clive Newall who will retire at this year's AGM. With the
assistance of independent recruitment consultants, the Board
considered a number of potential candidates to replace Mr Newall.
Subject to regulatory process , he will be succeeded by Fiona
Perrott -Humphrey on that date.
Howard Myles: Howard Myles currently acts as a non-executive
director of a number of investment companies. Howard was a partner
in Ernst & Young from 2001 until 2007 and was responsible for
the Investment Funds Corporate Advisory team. He was previously
with UBS Warburg from 1987 to 2001. Howard began his career in
stockbroking in 1971 as an equity salesman and joined Touche Ross
in 1975 where he qualified as a chartered accountant. In 1978 he
joined W. Greenwell & Co. in the corporate broking team and in
1987 moved to SG Warburg Securities where he was involved in a wide
range of commercial and industrial transactions in addition to
leading UBS Warburg's corporate finance function for investment
funds. He is a fellow of the Institute of Chartered Accountants and
of The Chartered Institute for Securities and Investments. Howard
is a Director of JP Morgan Brazil Investment Trust plc, Chelverton
UK Dividend Trust plc and BBGI SICAV, all of which are listed on
the London Stock Exchange.
Howard is a member of the Company's Audit Committee.
Notwithstanding that Howard's tenure extends beyond nine years, the
Board is satisfied that he remains and demonstrates independence of
the Investment Manager.
Charles Hansard: Charles Hansard has over 32 years' experience
in the investment industry as a professional and in a non-executive
capacity. He currently serves as a non-executive director on a
number of boards which include the Moore Capital group of funds,
AAA- rated Deutsche Bank Global Liquidity Fund, and Electrum Ltd.,
a privately owned gold exploration company. He formerly served as a
director of Apex Silver Mines Ltd., where he chaired the finance
committee during its capital raising phase and as chairman of the
board of African Platinum Plc, which he led through reorganisation
and feasibility prior to its sale to Impala Platinum. He commenced
his career in South Africa with Anglo American Corporation and
Fleming Martin as a mining analyst. He subsequently worked in New
York as an investment banker for Hambros before returning to the UK
to co-found IFM Ltd., one of the earliest European hedge fund
managers. Charles holds a B.B.S. from Trinity College Dublin.
Clive Newall: Clive Newall graduated from the Royal School of
Mines, University of London, England in 1971 with an honours degree
in Mining Geology, and was awarded an MBA from the Scottish
Business School at Strathclyde University. He has worked in mining
and exploration throughout his career, having held senior
management positions with Amax Exploration Inc. and the Robertson
Group plc. Clive has been a director of a number of public
companies in the United Kingdom and Canada. He is the founder of
First Quantum Minerals Ltd and has been its President and a
director since its incorporation. First Quantum Minerals is listed
on the Toronto Stock Exchange.
Clive is a member of the Company's Audit Committee.
David Staples: David Staples worked for PWC in London for 25
years, including 13 years as Partner. He has many years' experience
serving on boards of listed and private companies as a
non-executive director, including as chairman of listed investment
companies. David has a BSc in Economics and Accounting, is a Fellow
Chartered Accountant, a Chartered Tax Adviser and a holder of the
Institute of Directors' Certificate in Company Direction. He is a
Director of Ruffer Investment Company Limited and NB Global
Floating Rate Income Fund, both of which are listed on the London
Stock Exchange.
David is the Chairman of the Audit Committee.
DIRECTOR'S REPORT
For the year ended 31 December 2019
The Directors of the Company present their tenth annual report
and the audited financial statements for the year ended 31 December
2019.
The Directors' Report contains information that covers this
period and the period up to the date of publication of this Report.
Please note that more up to date information is available on the
Company's website www.bakersteelresourcestrust.com .
Principal activity and business review
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
on 9 March 2010 in Guernsey under the Companies (Guernsey) Law,
2008 with registration number 51576. The Company is a registered
closed-ended investment scheme registered pursuant to the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended ("POI Law") and the Registered Collective Investment Scheme
Rules 2018 issued by the Guernsey Financial Services Commission
("GFSC"). On 28 April 2010 the Ordinary Shares and Subscription
Shares of the Company were admitted to the Official List of the UK
Listing Authority and to trading on the Main Market of the London
Stock Exchange, Premium Segment.
Investment Objective
Details of the Company's investment objectives and policies are
described in the Strategic Report on page 13.
Performance
In the year to 31 December 2019, the Company's NAV per Ordinary
Share increased by 29.9% (2018: 0.2%). This compares with a rise in
the EMIX Global Mining Index (capital return in Sterling terms) of
18.1% (2018: fall of 5.9%). A more detailed explanation of the
performance of the Company is provided within the Investment
Manager's Report on pages 5 to 9.
The results for the year are shown in the Statement of
Comprehensive Income on pages 34 and 35 and the Company's financial
position at the end of the year is shown in the Statement of
Financial Position on page 33.
Dividends and distribution policy
During the year ended 31 December 2015 the Board introduced a
capital returns policy whereby, subject to applicable laws and
regulations, it will allocate cash for distributions to
shareholders. The amount to be distributed will be calculated and
paid following publication of the Company's audited financial
statements for each year and will be no less than 15% of the
aggregate net realised cash gains (after deducting losses) in that
financial year. The Board will retain discretion for determining
the most appropriate manner to make such distribution which may
include share buybacks, tender offers and dividend payments.
In accordance with the Company's policy on distributions, the
Company enacted a tender offer by Numis Securities Limited for
9,677,478 Ordinary Shares at 51 pence per share in May 2019. The
tender was oversubscribed and the total value of Shares purchased
was GBP4,935,514. These shares were repurchased by the Company at a
discount to the net asset value per share at the time, resulting in
a small increase in the net asset value per share.
Although the Company made a net realised gain during the year,
the majority of this related to the sale of Polymetal shares which
had been taken into account in the calculation of the distribution
made during the year in respect of 2018. Accordingly, no
distribution is proposed in respect of 2019.
Directors and their interests
The Directors of the Company who served during the year and up
until the date of signing of the financial statements are:
Howard Myles (Chairman)
Charles Hansard
Clive Newall
Christopher Sherwell (Retired 28 May 2019)
David Staples (Appointed 29 May 2019)
Biographical details of each of the Directors who were on the
Board of the Company at the time of signing the annual report and
financial statements for the year ended 31 December 2019 ("the
Annual Report") are presented on page 17 of these financial
statements.
Each of the Directors is considered to be independent in
character and judgement.
The Directors' interests in the share capital of the Company
were:
Number of Number of
Ordinary Shares Ordinary Shares
2019 2018
Christopher Sherwell (Retired 28 May 2019) N/A 104,198
Clive Newall 25,000 25,000
Each Director is asked to declare his interests at each Board
Meeting. No Director has any material interest in any other
contract which is significant to the Company's business.
Authorised Share Capital
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
Issue of Shares
The Company was admitted to trading on the London Stock Exchange
on 28 April 2010. On that date, 30,468,865 Ordinary Shares and
6,093,772 Subscription Shares were issued pursuant to a placing and
offer for subscription and 35,554,224 Ordinary Shares and 7,110,822
Subscription Shares were issued pursuant to a Scheme of
Reorganisation of Genus Capital Fund.
In addition, 10,000 Management Ordinary Shares were issued.
T he Company had a total of 116,129,980 Ordinary and 10,000
Management Shares in issue as at 31 December 2018, of which 700,000
Ordinary Shares were held in Treasury.
In May 2019, the Company enacted a tender offer for 9,677,478
Ordinary Shares at 51 pence per share. The repurchased shares were
cancelled. As a result, the Company had a total of 106,453,335
Ordinary and 9,167 Management Ordinary Shares in issue as at 31
December 2019, of which 700,000 Ordinary Shares were held in
Treasury.
Significant Shareholdings
As at 31 December 2019, the Company had received notifications
in accordance with the FCA's Disclosure and Transparency Rule 5.1.2
R of the following interests in 3% or more of the voting rights
attaching to the Company's issued share capital.
Number of
Ordinary Shares % of Total
Ordinary Shareholder 000's Shares in issue
Bank of New York Nominees Limited* 20,568 19.19
Vidacos Nominees Limited* 19,062 17.79
Nortrust Nominees Limited* 12,964 12.10
Citibank Nominees Limited* 12,678 11.83
Harewood Nominees Limited* 12,517 11.68
BNY Nominees Limited* 7,990 7.46
Rock Nominees Limited* 4,120 3.85
* Custodian accounts held on behalf of individual shareholders,
the majority of whom retained the associated voting rights. These
holdings are aggregated.
The Investment Manager, Baker Steel Capital Managers LLP had an
interest in 9,167 Management Ordinary Shares at 31 December 2019
(31 December 2018: 10,000).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest in 6,597,877 Ordinary Shares in the
Company at 31 December 2019 (2018: 7,469,609). These shares are
included in the Vidacos Nominees Limited holding disclosed above.
Precious Metals Fund has the same Investment Manager as the
Company.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and financial statements in accordance with applicable Guernsey
law, Listing Rules, Disclosures and Transparency Rules, UK
Corporate Governance Code and generally accepted accounting
principles.
Guernsey company law requires the Directors to prepare financial
statements for each financial year which give a true and fair view
of the state of affairs of the Company and of the profit or loss of
the Company for that year. In preparing these financial statements
the Directors should:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and which enable the Directors to
ensure that the financial statements comply with the Companies
(Guernsey) Law, 2008. The Directors are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors confirm that to the best of their knowledge:
- the financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU") and give a true and fair view of the
assets, liabilities and financial position and profit or loss of
the Company;
- the Annual Report includes a fair review of the position and
performance of the business of the Company together with the
description of the principal risks and uncertainties that the
Company faces, as required by the Disclosure and Transparency Rules
of the UK Listing Authority;
- the Annual Report and Financial Statements, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy; and
- they have carried out a robust assessment of the emerging and
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity.
Auditor Information
The Directors at the date of approval of this Report confirm
that, so far as each of the Directors is aware, there is no
relevant audit information of which the Company's auditor is
unaware and each Director has taken all the reasonable steps he
ought to have taken as a director to make himself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Going Concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and consider it appropriate to adopt
the going concern basis of accounting. The Board are satisfied that
it has the resources to continue in business for at least 12 months
following the signing of these financial statements. As at 31
December 2019, approximately 11.9% of the Company's assets were
represented by cash and unrestricted listed and quoted investments
which are readily realisable. The Directors are not aware of any
material uncertainties that may cast significant doubt upon the
Company's ability to continue as a going concern.
Corporate Governance Compliance
The Guernsey Financial Services Commission's Finance Sector Code
of Corporate Governance (the "GFSC Code") provides a framework
which applies to all companies in the regulated finance sector in
Guernsey. The Company reports against the UK Corporate Governance
Code (the "Code"), which meets the requirements of the GFSC Code.
The Board is committed to high standards of corporate governance
and has implemented a framework for corporate governance that it
considers to be appropriate for an investment company in order to
comply with the principles of the Code. The Code is available on
the FRCs website www.frc.org.uk and the Company has made its
corporate governance practices publicly available and these can be
found at www.bakersteelresourcestrust.com. The disclosures in this
statement report against the provisions of the Code, as revised in
2018 effective for periods commencing on or after 1 January
2019.
Throughout the year ended 31 December 2019, the Company has
complied with the recommendations of the Code except as set out
below.
The Code includes provisions relating to:
-- The role of the Chief Executive,
-- Executive Directors' remuneration
-- The requirement for a senior Independent Director
-- Nomination, Remuneration and Management Engagement Committees
-- The requirement for an internal audit function
The Board considers these provisions are not relevant for the
Company as it is an externally managed investment entity. The
Company has therefore not reported further in respect of these
provisions. The Directors are all independent and non-executive and
the Company does not have employees, hence no Chief Executive is
required for the Company. The Board is satisfied that any relevant
issues can be properly considered by the Board as explained further
on the following pages.
There have been no other instances of non-compliance, other than
those noted above.
Operation and composition of the Board
-- Composition
The Board has no executive directors and has contractually
delegated responsibility to service providers for the management of
the Company's investment portfolio, the arrangement of custodial
and cash flow monitoring and oversight services and the provision
of accounting and company secretarial services. The Company has no
employees.
-- Independence
The Board consists entirely of independent non-executive
Directors, of whom Howard Myles is the Chairman. Each of the
Directors confirms that they have no other significant commitments
that impact on their ability to act for the Company and its
shareholders, and that they have sufficient time to fulfil their
obligations to the Company.
-- Senior Independent Director
In view of its non-executive nature and small size, the Board
considers that it is not necessary for a Senior Independent
Director to be appointed.
-- Appointment and re-election
The Company has a transparent procedure for the appointment and
re-election of the Directors. There are no service contracts in
place for the Directors.
The Directors are not required to retire by rotation; instead
each director puts himself forward for re-election on an annual
basis at the AGM. The AGM also includes a resolution whereby
shareholders are able to approve the maximum cumulative
remuneration for the Board.
All the Directors are responsible for reviewing the size,
structure and skills of the Board and considering whether any
changes are required or new appointments are necessary to meet the
requirements of the Company's business or to maintain a balanced
Board.
-- Information
The Board receives full details of the Company's assets,
liabilities and other relevant information in advance of Board
meetings, including information on regulatory and accounting
developments.
-- Performance appraisal
The performance of the Board and the Audit Committee is
evaluated through a formal and rigorous assessment process led by
the Chairman. The performance of the Chairman is evaluated by the
other Directors.
-- Investment Manager assessment
The Investment Manager was appointed pursuant to an investment
management agreement with the Manager dated 31 March 2010 and which
was amended and restated, with the Company joining as a party, on
14 November 2014 (the Investment Management Agreement). The
Investment Manager is paid by the Manager and is not separately
remunerated by the Company. The Investment Management Agreement
pursuant to which the Company and the Manager have appointed the
Investment Manager is terminable by any party giving the other
parties not less than 12 months' written notice.
The Investment Manager prepares regular reports to the Board to
allow it to review and assess the Company's activities and
performance on an ongoing basis. The Board and the Investment
Manager have agreed clearly defined investment criteria, exposure
limits and specified levels of authority. The Board completes a
formal assessment of the Investment Manager on an annual basis. The
assessment covers such matters as the performance of the Company
relative to its peers and sector, the management of investor
relations and the reasonableness of fee arrangements. Based on its
assessment it is the opinion of the Board that the continuation of
the appointment of the Investment Manager is in the best interests
of shareholders of the Company.
-- Board meetings
The Board generally meets at least four times a year, at which
time the Directors review the management of the Company's assets
and all other significant matters so as to ensure that the
Directors maintain overall control and supervision of the Company's
affairs. The Board is responsible for the appointment and
monitoring of all service providers to the Company. Between these
quarterly meetings there is regular contact with the Investment
Manager and Company Secretary. The Directors are kept fully
informed of investment and financial controls and other matters
which are relevant to the business of the Company and which should
be brought to the attention of the Directors. The Directors also
have direct access to the Company Secretary (through its appointed
representatives who are responsible for ensuring that Board
procedures are followed and that applicable rules and regulations
are complied with) and, where necessary in the furtherance of their
duties, to independent professional advice at the expense of the
Company.
Attendance at the Board and Audit Committee meetings during the
year was as follows:
Audit Committee
Board Meetings Meetings
Held Attended Held Attended
Howard Myles 4 4 4 4
Christopher Sherwell* 4 1 4 1
Clive Newall 4 4 4 4
Charles Hansard 4 4 4 N/A
David Staples* 4 3 4 3
*Christopher Sherwell retired from the Board on 28 May 2019 and
David Staples was appointed to the Board on 29 May 2019. Since this
date to the end of the year there have been three quarterly Board
meetings and three Audit Committee meetings.
In addition to the quarterly meetings, adhoc Board and committee
meetings are convened as required. All Directors contribute to a
significant exchange of views with the Investment Manager on
specific matters, in particular in relation to developments in the
portfolio.
-- Relations with Shareholders
The Board believes that the maintenance of good relations with
shareholders is vital for the long-term prospects of the Company.
The Company's stockbrokers, Numis Securities Limited, and the
Investment Manager are responsible for managing relationships with
shareholders and each provides the Board with feedback on a regular
basis that includes a shareholder contact report and any concerns
the shareholder has raised. The Chairman and the Board are also
available to meet with shareholders at the Company's Annual General
Meeting or otherwise.
-- Engagement with key Stakeholders
The Board considers its key stakeholders to be the Company's
Investment Manager, Administrator, Company Secretary and
Stockbroker. Engagement with each Stakeholder is formalised by
quarterly reporting at the Board Meetings but outside of the formal
meetings, is continuous as required by the operations of the
Company. The Board is very aware of the importance to the success
of the Company of these key stakeholders and encourages open and
frequent dialogue to facilitate improvements to the way that the
Company functions.
Committees
The Committees of the Board have formal Terms of Reference which
are available on the Company's webpage
http://bakersteelresourcestrust.com/corporate-governance/ .
-- Audit Committee
The Board has established an Audit Committee. The Audit
Committee meets at least three times a year and is responsible for
ensuring that the financial performance of the Company is properly
reported on and monitored and provides a forum through which the
Company's external auditor may report to the Board. The Audit
Committee operates within established terms of reference. The
Directors consider there is no need for an internal audit function
because the Company operates through service providers and the
Directors receive control reports on its key service providers.
David Staples is Chairman of the Audit Committee.
-- Nomination, Remuneration and Management Engagement Committees
Given the size and nature of the Company and the fact that all
the Directors are independent and non-executive it is not deemed
necessary to form separate Nomination, Remuneration, and Management
Engagement Committees. The Board, as a whole, considers new Board
appointments, remuneration and the engagement of service
providers.
Internal Controls
The Board has delegated to service providers the day to day
responsibilities for the management of the Company's investment
portfolio, the provision of depositary services and administration,
registrar and corporate secretarial functions including the
independent calculation of the Company's NAV and the production of
the Annual Report and Financial Statements which are independently
audited.
Formal contractual agreements have been put in place between the
Company and providers of these services.
Even though the Board has delegated responsibility for these
functions, it retains accountability for them and is responsible
for the systems of internal control. However, it has delegated the
regular review and oversight of the systems of internal control to
the Audit Committee which reports back to the Board following each
Audit Committee meeting. At each quarterly Board meeting,
compliance reports are provided by the Administrator and Investment
Manager.
The Company's risk matrix continues to be the core element of
the Company's risk management process in establishing the Company's
system of internal financial and reporting control. The risk matrix
is prepared and maintained by the Investment Manager and reviewed
regularly by the Audit Committee which initially identifies the
risks facing the Company and then collectively assesses the
likelihood of each risk, the impact of those risks and the strength
of the controls mitigating each risk. The system of internal
financial and operating control is designed to manage rather than
to eliminate the risk of failure to achieve business objectives and
by its nature can only provide reasonable and not absolute
assurance against misstatement and loss. These controls aim to
ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for
publication is reliable. The Audit Committee confirms to the Board
that there is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Company.
This process has been in place for the year under review and up
to the date of approval of this Annual Report and Audited Financial
Statements and is reviewed by the Board by way of reporting from
the Audit Committee and is in accordance with the Guidance on Risk
Management Internal Control and Related Financial Reporting and
Business Reporting.
The Board therefore believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the
risks to which it is exposed.
Director's Remuneration Policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors' remuneration. No advice or services were
provided by any external person in respect of its consideration of
the Directors' remuneration.
The Company's policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company's
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate directors of a quality
required to run the Company successfully. The Chairs of the Board
and the Audit Committee are paid a higher fee in recognition of
their additional responsibilities. The fee levels are reviewed
annually.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors. No Director has a
service contract with the Company but each of the Directors is
appointed by a letter of appointment which sets out the main terms
of their appointment. Directors hold office until they retire or
cease to be a director in accordance with the Articles of
Incorporation or by operation of law.
The Directors recognise the benefits of diversity in terms of
gender and ethnicity and will take these into account when
considering future appointments to the Board. However, their
principal criteria will remain the skills and experience of a new
director which the Board believes will add most value.
The Directors are remunerated for their services at such rate as
the Directors determine provided that the aggregate amount of such
fees may not exceed GBP200,000 per annum (or such sum as the
Company in general meeting shall from time to time determine).
For the year ended 31 December 2019, the total remuneration of
the Directors was GBP115,000 (2018: GBP115,000), with GBP28,750
(2018: GBP28,750) payable at the year end.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally. The fees paid to each
Director in respect of the years ended 31 December 2019 and 31
December 2018 are shown below.
2019 2018
GBP GBP
Howard Myles 35,000 35,000
David Staples 17,733 -
Charles Hansard 25,000 25,000
Clive Newall 25,000 25,000
Christopher Sherwell 12,267 30,000
Independent Auditors
The auditors, BDO Limited, have indicated their willingness to
continue in office and a resolution for their re-appointment will
be proposed at the Annual General Meeting.
Subsequent Events
Please refer to Note 16 of the financial statements on page
59.
Signed on behalf of the Board of Directors by:
Howard Myles
20 April 2020
Report of the Audit CommitteE
For the year ended 31 December 2019
The function of the Audit Committee as described in its Terms of
Reference is to ensure that the Company maintains high standards of
integrity in its financial reporting and internal controls.
The Board, as a whole, including the Audit Committee members,
considers the nature and extent of the Company's risk management
framework and the risk profile that is acceptable in order to
achieve the Company's strategic objectives. As a result, it is
considered that the Board has fulfilled its obligations under the
UK Code.
The Audit Committee continues to be responsible for reviewing
the adequacy and effectiveness of the Company's on-going risk
management systems and processes. The Company's system of internal
controls, along with its design and operating effectiveness, is
subject to review by the Audit Committee through reports received
from all key service providers.
In the event of any deficiencies or breaches reported, the Board
would consider the actions required to remedy and prevent
significant failings or weaknesses. During the year ended 31
December 2019, no significant weaknesses or failings were
identified.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery and
corruption policies of the Company. The Board receives a
confirmation from all service providers that there have been no
instances of fraud or bribery.
The Audit Committee considers the adequacy and security of the
arrangements for the employees of its service providers to raise
concerns, in confidence, about possible wrongdoing in financial
reporting or other matters. The Audit Committee is satisfied it has
the ability and resources to investigate any such matters which may
arise and to follow up on any conclusion reached by such
investigation.
The Audit Committee is appointed by the Board and all members
are considered to be independent both of the Investment Manager and
the external auditor. The Audit Committee meets a minimum of three
times a year to discuss the Interim and Annual Report and Audited
Financial Statements, the audit plan and engagement letter, and the
Company's risks, via discussion of its risk matrix. The Board is
satisfied that the Audit Committee is properly constituted with
members having recent and relevant financial experience, including
two members who are chartered accountants.
Primary Areas of Judgement
As part of its review of the Company's financial statements, the
Audit Committee takes account of the most significant issues and
risks, both operational and financial, likely to impact on the
financial statements and the mitigating controls to address these
risks. The Audit Committee has determined that the key risk of
misstatement is the valuation of investments for which there is no
readily observable market price. Such investments are recorded at
fair value which is the price that would be expected to be received
to sell an asset in an orderly transaction between market
participants at the measurement date. Significant judgements are
required in respect of the valuation of the Company's investments
for which there is no observable market price. Further information
on the Company's methodologies is provided in Note 3 to the
financial statements.
The risk is mitigated through the review by the Board of
detailed reports prepared by the Investment Manager on portfolio
valuation including valuation methodology, the underlying
assumptions and the valuation process.
The Investment Manager also provides information to the Board on
relevant market indices, recent transactions in similar assets and
other relevant information to allow an assessment of appropriate
carrying value having regard to the relevant factors.
The responsibility for ensuring that investments are carried at
fair value lies with the Board.
Through its meetings during the year ended 31 December 2019 and
its review of the Company's Annual Report and Audited Financial
Statements, the Audit Committee considered the following
significant risks as well as the principal risks and uncertainties
described on pages 14 and 15.
Risk Considered How addressed
The accuracy of the Company's Annual Review of the Annual Report and
Report and Financial Statements Audited Financial Statements, discussions
with the external auditor and meetings
with the auditor to understand the
audit approach and findings having
regard to the level of materiality
agreed with it.
Adequacy of the Company's accounting Consideration of the Company's risk
and internal controls systems matrix, taking account of the relevant
risks, the potential impact to the
Company and the mitigating controls
in place.
Valuation of the Company's investments, Reports received from the Investment
in particular the valuation of unquoted Manager providing support for the
investments investment valuations. The Investment
Manager reporting is then supported
by the independent auditor's review
of the investment valuations.
The effectiveness and independence The Audit Committee has regular
of the external audit process dialogue with the external auditor
both before and during the audit
process. The auditor presents to
the Audit Committee at both the
engagement and audit review stage,
and confirms its independence at
each stage. The Audit Committee
receives feedback from the Investment
Manager on the audit process and
any concerns or challenges faced.
Emerging Risks The Audit Committee discusses the
Company's risk matrix each time
it meets. Through these discussions
emerging risks such as those caused
by the Covid-19 virus are assessed.
The Audit Committee also provides a forum through which the
Company's auditor reports to the Board. The Board, not the Audit
Committee, approves all non-audit work carried out by the auditor
in advance and the fees paid to the auditor in this respect.
External Audit
The Company's external auditor is BDO Limited ("BDO").
The fees due to auditor during the year were as follows:
2019 2018
Audit fees Audit Fees GBP GBP
49,000 45,000
Agreed Upon Procedures
relating to the review
Non-audit fees of the half year report
7,650 7,500
Total Fees 56,650 52,500
================== =======
The external auditor provides an audit planning report in
advance of the annual audit. The Audit Committee has the
opportunity to question and challenge the auditor in respect of
their work. Based on levels of interaction with the auditor, and
the assessment of auditor reporting, the audit planning, adherence
to audit standards, competence of the audit team and feedback from
the Investment Manager, the Audit Committee and the Board are
satisfied that the reappointment of the external auditor should be
proposed at the Annual General Meeting of the Company.
Internal Audit
The Audit Committee believes that the Company does not require
an internal audit function because it delegates its day to day
functions to third party service providers, although the Audit
Committee oversees these operations and receives regular reports in
this respect.
Risk Management and Internal Controls
The Board is responsible for the Company's system of internal
controls and risk management. The Audit Committee has been
delegated the responsibility for reviewing the ongoing
effectiveness of the Company's internal controls and it discharges
its duties in this area by assessing the nature and extent of the
significant risks the Company is willing to accept in achieving the
Company's objectives and ensuring that effective systems of risk
identification, assessment and mitigation have been implemented.
The Strategic Report on pages 14 and 15 outlines the principal
risks and uncertainties affecting the Company and the section on
Internal Controls in the Directors Report on pages 23 and 24 gives
details of the work performed by the Audit Committee in this
area.
By their nature, the control mechanisms can only provide
reasonable rather than absolute assurance against misstatement or
loss. The Audit Committee seeks continual improvement in the
Company's internal control mechanisms. The Audit Committee was not
aware of any significant failings or weaknesses in the Company's
internal controls in the year under review nor up to the date of
this report.
Financial Reporting
The primary role of the Audit Committee in relation to financial
reporting is to review the Annual Report and Financial Statements
and the Half Year Report with the Administrator and the Investment
Manager and assess their appropriateness. It focuses in this
respect, amongst other matters, on:
-- the clarity of the disclosures in the financial reporting and
compliance with statutory, regulatory and other financial reporting
requirements;
-- the quality and acceptability of accounting policies and practices;
-- material areas where significant judgements and estimates
have been applied or where there has been discussion with the
auditor; and
-- taken as a whole, whether the financial statements are fair,
balanced and understandable and provide shareholders with the
necessary information to assess the Company's performance and
strategy, reporting to the Board in this respect.
Going Concern
The Audit Committee has made an assessment of the Company's
ability to continue as a going concern. Particular regard has been
given to the fact that the Company holds listed securities that can
if necessary be realised to meet liabilities as they become due. As
at 31 December 2019, approximately 11.9% of the Company's assets
were represented by cash and unrestricted quoted investments.
On the basis of its review, the Audit Committee is satisfied
that the Company has the resources to continue in business for at
least 12 months from the date of signing these financial statements
and therefore is of the opinion that the financial statements
should be prepared on a going concern basis and has accordingly
recommended this opinion to the Board.
David Staples
Audit Committee Chairman
20 April 2020
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF BAKER STEEL
RESOURCES TRUST LIMITED
Opinion
We have audited the financial statements of Baker Steel
Resources Trust Limited ("the Company") for the year ended 31
December 2019 which comprise the Statement of Financial Position,
the Statement of Comprehensive Income, the Statement of Changes in
Equity, the Statement of Cash Flows and notes to the financial
statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2019 and of its profit for the year then
ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Company
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to principal risks, going concern and
viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the ISAs
(UK) require us to report to you whether we have anything material
to add or draw attention to:
-- the directors' confirmation set out on page 20 in the annual
report that they have carried out a robust assessment of the
Group's emerging and principal risks and the disclosures in the
annual report that describe the principal risks and the procedures
in place to identify emerging risks and explain how they are being
managed or mitigated;
-- the directors' statement on page 20 in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the
financial statements and the directors' identification of any
material uncertainties to the Company's ability to continue to do
so over a period of at least twelve months from the date of
approval of the financial statements;
-- whether the directors' statement relating to going concern is
materially inconsistent with our knowledge obtained in the audit;
or
-- the directors' explanation set out on pages 15 and 16 in the
annual report as to how they have assessed the prospects of the
Company, over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified including those which had the greatest
effect on the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
In arriving at our audit opinion on the financial statements,
the key audit matter that had the greatest effect on our audit is
included in the table below. In addition, we have set out how we
tailored our audit to address this specific area in order to
provide an opinion on the financial statements as a whole. This is
not a complete list of all risks identified by our audit.
Key Audit Matter How we addressed the key audit
matter in the audit
Valuation of and existence of unlisted We performed the following substantive
investments including unrealised gains/(losses) procedures for all unlisted investments:
Refer to the accounting policies on In respect of existence we obtained
pages 38 - 42 and Note 3 to the Financial direct confirmation of ownership
Statements. from the underlying investee.
The majority ( 84.7 %: 2019, 66%: For unlisted investments we agreed
2018) of the carrying value of the the number of warrants to the warrant
investments relates to the Company's instrument and obtained direct
holdings in unquoted investments, confirmation from the underlying
which are valued using different valuation investee for the holdings of other
techniques as explained in Note 3 unlisted investments.
(pages 46-48).
In respect of valuation we performed
The valuations are subjective, with the following procedures for all
a high level of judgment and estimation unlisted investments:
linked to the determination of fair
value with limited market information * Considered the processes, policies and methodologies
available. used by management for fair valuing unlisted
investments held by the Company including reviewing
As a result of the subjectivity, there the hierarchy of application of valuation principles:
is a risk of an inappropriate valuation
model being applied, together with
the risk of inappropriate inputs to * Agreed the manager's application of valuation
the model being used. techniques as appropriate to the circumstances of the
asset and the accounting policies were appropriate
The valuation of the unquoted investments relevant and consistently applied:
is a key driver of the Company's net
asset value and total return. Incorrect
valuations could have a significant * Agreed the inputs into the models to independent
impact on the net asset value of the sources and evaluated whether all key terms of each
Company and therefore the return generated of the investment agreements had been considered:
for members.
* Corroborated to independent third party sources,
market volatility rates used in each model:
* Recalculated management's applied basket of indices
for each investment which had an Index valuation:
* For those investments which used recent Investment as
a basis for recalibrating inputs to the valuation
model, we considered if there were any material
changes in the market or changes in the performance
of the Investee Company affecting the fair value of
the investment at year end.
* Agreed the valuation per the models to the financial
statements.
Key observation:
Based on the procedures performed
we are satisfied that the investment
valuations and ownership testing
of the unlisted portfolio has been
performed appropriately.
-------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
We considered materiality to be the level by which misstatements
individually or in aggregate, including omissions, could influence
the economic decisions of the relevant users. Based on our
professional judgment, we determined materiality for the financial
statements as a whole to be GBP1,380,000, which is based on a level
of 1.75% of total assets (2018 GBP1, 187,000 , which was based on
1.75% of total assets). We considered total assets to be the most
appropriate benchmark due to the Company being an investment fund
with the objective of long-term capital growth.
We considered the application of materiality at the individual
account or balance level and set an amount, performance
materiality, to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality. This performance materiality has
been set at GBP897,000 which is 65% of materiality (2018:
GBP830,900 which was 70% of materiality). This has been set based
upon the control environment in place, the assessment of risk and
the fact that the main item in the financial statements is the
unlisted investments which involves a high degree of estimations
and judgements in determining its value.
International Standards on Auditing (UK) also allow the auditor
to set a lower materiality for particular classes of transaction,
balances or disclosures for which misstatements of lesser amounts
than materiality for the financial statements as a whole could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements. In this context, we
set a lower level of materiality to apply certain trading
activities, such as sensitive overhead expenses. Specific
materiality has been determined on the basis of 10% of materiality
being GBP138,000 (2018: 10% of materiality GBP118,700).
We agreed with the Board of Directors that we would report all
audit differences in excess of GBP69,000 (2018: GBP59,350). We also
agreed to report differences below this threshold that, in our
view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
We tailored the scope of our audit taking into account the
nature of the Company's investments, involvement of the Manager and
the company Administrator, the accounting and reporting environment
and the industry in which the Company operates.
In designing our overall audit approach, we determined
materiality and assessed the risk of material misstatement in the
financial statements.
This assessment took into account the likelihood, nature and
potential magnitude of any misstatement. As part of this risk
assessment we considered the Company's interaction with the Manager
and the company administrator. We considered the control
environment in place at the Manager and the company administrator
to the extent that it was relevant to our audit. Following this
assessment, we applied professional judgement to determine the
extent of testing required over each balance in the financial
statements.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the annual
report and audited financial statements, other than the financial
statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to address specifically the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
-- Fair, balanced and understandable set out on page 20 - the
statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company's position, performance,
business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
-- Audit committee reporting set out on page 27 - the section
describing the work of the audit committee does not appropriately
address matters communicated by us to the audit committee; or
-- Directors' statement of compliance with the UK Corporate
Governance Code set out on page 20 - the parts of the Directors'
statement required under the Listing Rules relating to the
Company's compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate Governance
Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- proper accounting records have not been kept by the Company; or
-- the financial statements are not in agreement with the accounting records; or
-- we have failed to obtain all the information and explanations
which, to the best of our knowledge and belief, are necessary for
the purposes of our audit.
Responsibilities of Directors
As explained more fully in the statement of directors'
responsibilities within the directors' report set out on page 20,
the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at:
https://www.frc.org.uk/auditorsresponsibilities . This
description forms part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Richard Michael Searle FCA
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
Date
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
2019 2018
Notes GBP GBP
Assets
Cash and cash equivalents 9 659,757 3,811,921
Interest receivable 2(i) 1,266,886 -
Other receivables 17,284 385,659
Financial assets held at fair value through
profit or loss 3 76,932,117 62,019,940
Total assets 78,876,044 66,217,520
----------- -------------
Equity and Liabilities
Liabilities
Directors' fees payable 12 28,750 28,750
Management fees payable 7,12 85,447 75,370
Administration fees payable 6 42,447 16,731
Audit fees payable 49,000 45,050
Other payables 752 18,073
Custodian fees payable 6,338 5,762
Total liabilities 212,734 189,736
----------- -------------
Equity
Management Ordinary Shares 10 9,167 10,000
Ordinary Shares 10 75,972,688 81,024,525
Retained reserves 2,681,455 (15,006,741)
Total equity 78,663,310 66,027,784
----------- -------------
Total equity and liabilities 78,876,044 66,217,520
=========== =============
Net Asset Value per Ordinary Share (in Pence)
- Basic and Diluted 13 73.9 56.9
The financial statements on pages 33 to 59 were approved and authorised
for issue by the Board of Directors on
20 April 2020 and signed on its behalf by:
Howard Myles
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
Year ended Year ended Year ended
2019 2019 2019
Revenue Capital Total
Notes GBP GBP GBP
Income
Loan guarantee income 2(h) 193,577 - 193,577
Interest income 2(i) 1,457,593 - 1,457,593
Dividend income 538,787 - 538,787
Net gain on financial assets at
fair value through profit or loss 3 - 17,088,162 17,088,162
Net foreign exchange loss - (104,193) (104,193)
----------- ----------- -----------
Net income 2,189,957 16,983,969 19,173,926
----------- ----------- -----------
Expenses
Management fees 7,12 965,402 - 965,402
Directors' fees 12 115,000 - 115,000
Administration fees 6 103,938 - 103,938
Other expenses 8 95,648 - 95,648
Custody fees 77,521 - 77,521
Audit fees 56,650 - 56,650
Broker fees 40,972 - 40,972
Legal fees 11,620 - 11,620
Directors' meetings expenses 18,979 - 18,979
----------- ----------- -----------
Total expenses 1,485,730 - 1,485,730
----------- ----------- -----------
Net gain for the year 704,227 16,983,969 17,688,196
=========== =========== ===========
Net gain for the year per Ordinary
Share:
Basic and Diluted (in pence) 13 0.6 15.5 16.1
In the year ended 31 December 2019 there were no other gains or losses than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice.
S
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
Year ended Year ended Year ended
2018 2018 2018
Revenue Capital Total
Notes GBP GBP GBP
Income
Loan guarantee income 2(h) 358,951 - 358,951
Interest income* 2(i) 304,597 - 304,597
Dividend income 20,389,040 - 20,389,040
Net loss on financial assets at
fair value through profit or loss* 3 - (19,614,324) (19,614,324)
Foreign exchange gain - 65,492 65,492
Net income 21,052,588 (19,548,832) 1,503,756
----------- ------------- -------------
Expenses
Management fees 7,12 928,850 - 928,850
Directors' fees 12 115,000 - 115,000
Administration fees 6 100,111 - 100,111
Other expenses 8 80,444 - 80,444
Custody fees 71,639 - 71,639
Audit fees 52,500 - 52,500
Broker fees 38,236 - 38,236
Directors' meetings expenses 16,240 - 16,240
Legal fees 4,408 - 4,408
----------- ------------- -------------
Total expenses 1,407,428 - 1,407,428
----------- ------------- -------------
Net gain/(loss) for the year 19,645,160 (19,548,832) 96,328
=========== ============= =============
Net gain for the year per Ordinary
Share:
Basic and diluted (in pence) 13 16.9 (16.8) 0.1
In the year ended 31 December 2018 there were no other gains or losses than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice.
*Interest income in the amount of GBP304,597 has been
reclassified in the comparatives from net gain on financial assets
at fair value through profit or loss to interest income given it
was revenue in nature.
Whilst not material, the Company has restated for the purposes
of comparability.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2019
Management Retained Retained
Ordinary Ordinary Treasury revenue capital Total
Shares Shares Shares reserve reserve equity
GBP GBP GBP GBP GBP GBP
Balance as at
1 January
2018 10,000 81,165,017 (140,492) (9,540,751) (5,562,318) 65,931,456
Net
gain/(loss)
for
the year - - - 19,645,160 (19,548,832) 96,328
Balance as at
31
December 2018 10,000 81,165,017 (140,492) 10,104,409 (25,111,150) 66,027,784
Redemption of
Ordinary
Shares (833) (4,934,681) - - - (4,935,514)
Expenses
related
to Tender
offer - (117,156) - - - (117,156)
Net
(loss)/gain
for
the year - - - 704,227 16,983,969 17,688,196
------------------- ------------------- ---------------- ------------ ------------- ------------
Balance as at
31
December 2019 9,167 76,113,180 (140,492) 10,808,636 (8,127,181) 78,663,310
=================== =================== ================ ============ ============= ============
Note 10 10 10
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2019
Year ended Year ended
2019 2018
Notes GBP GBP
Cash flows from operating activities * (Restated)
Net gain for the year 17,688,196 96,328
Adjustments to reconcile gain for the year to
net cash used in operating activities:
Interest income (1,457,593) (663,548)
Dividend income (538,787) (20,389,040)
Net gain on financial assets at fair value through
profit or loss 3 (17,088,162) 19,614,324
Net decrease/(increase) in receivables 5,286 (7,164)
Net increase/(decrease) in payables 22,998 (24,535)
------------- ---------------
(1,368,062) (1,373,635)
Interest received 553,796 300,459
Dividend received 538,787 1,045,972
Net cash used in operating activities (275,479) (27,204)
------------- ---------------
Cash flows from investing activities
Purchase of financial assets at fair value through
profit or loss (16,601,793) (5,380,263)
Sale of financial assets at fair value through
profit or loss 18,777,778 8,159,311
Net cash provided by investing activities 2,175,985 2,779,048
------------- ---------------
Cash flows from financing activities
Expenses related to the tender offer (117,156) -
Payments for redemption of shares (4,935,514) -
------------- ---------------
Net cash used in financing activities (5,052,670) -
Net (decrease)/increase in cash and cash equivalents (3,152,164) 2,751,844
Cash and cash equivalents at the beginning of
the year 3,811,921 1,060,077
Cash and cash equivalents at the end of the
year 9 659,757 3,811,921
============= ===============
* A policy of splitting out income on the face of the cashflow from net gains/losses on investments
was adopted in 2019.
The comparative amounts in the cashflow have been restated in respect of this change only.
Whilst not material, the Company has restated for the purposes of comparability.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2019
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
and domiciled on 9 March 2010 in Guernsey under the Companies
(Guernsey) Law, 2008 with registration number 51576. The Company is
a registered closed-ended investment scheme registered pursuant to
the Protection of Investors Law and the Registered Collective
Investment Scheme Rules 2018 issued by the Guernsey Financial
Services Commission ("GFSC"). On 28 April 2010 the Ordinary Shares
and Subscription Shares of the Company were admitted to the
Official List of the UK Listing Authority and to trading on the
Main Market of the London Stock Exchange. The Company's Ordinary
and Subscription Shares were admitted to the Premium Listing
Segment of the Official List on 28 April 2010.
The final exercise date for the Subscription Shares was 2 April
2013. No Subscription Shares were exercised at this time and all
residual/unexercised Subscription Shares were subsequently
cancelled.
The Company's portfolio is managed by Baker Steel Capital
Managers (Cayman) Limited (the "Manager"). The Manager has
appointed Baker Steel Capital Managers LLP (the "Investment
Manager") as the Investment Manager to carry out certain duties.
The Company's investment objective is to seek capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities, or related instruments, of natural
resources companies. The Company invests predominantly in unlisted
companies (i.e. those companies which have not yet made an Initial
Public Offering ("IPO")) and also in listed securities (including
special situations opportunities and less liquid securities) with a
view to exploiting value inherent in market inefficiencies and
pricing anomalies.
Baker Steel Capital Managers LLP was authorised to act as an
Alternative Investment Fund Manager ("AIFM") of Alternative
Investment Funds ("AIFs") on 22 July 2014. On 14 November 2014, the
Investment Manager signed an amended Investment Management
Agreement with the Company, to take into account AIFM regulations.
AIFMD focuses on regulating the AIFM rather than the AIFs
themselves, so the impact on the Company is limited.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a historical cost
basis except for Financial Instruments at Fair Value Through Profit
or Loss in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union. The financial
statements have been prepared on a going concern basis.
The Company's functional currency is the Great Britain pound
Sterling ("GBP"), being the currency in which its Ordinary Shares
are issued and in which returns are made to shareholders. The
presentation currency is the same as the functional currency. The
financial statements have been rounded to the nearest GBP. The
Company invests in companies around the world whose shares are
denominated in various currencies. At 31 December 2019, the largest
portion of the portfolio was denominated in US Dollars but this
will not necessarily remain the case going forward.
Income encompasses both revenue and capital gains/losses. For a
listed investment company, it is best practice to distinguish
revenue from capital Revenue includes items such as dividends,
interests, fees and other equivalent items. Capital is the return,
positive or negative, from holding investments other than that part
of the return that is revenue.
Assets and liabilities are presented in order of liquidity.
Their maturities are disclosed in Note 4(c).
New standards, amendments and interpretations to existing
standards which are not yet effective for the current year
Amendment to IFRS 3: Definition of Business
On 22 October 2018, the IFRS Interpretations Committee of the
International Accounting Standards Board ("IASB") issued a
narrow-scope amendment to the definition of business in IFRS 3
Business combinations. The amendments are intended to assist
entities to determine whether a transaction should be accounted for
as a business combination or as an asset acquisition. The IASB
provided guidance on option to use a concentration test which is a
simplified assessment that results in an asset acquisition if
substantially all of the fair value of the gross assets is
concentrated in a single identifiable asset or a group of similar
identifiable assets.
The amendment applies to businesses acquired in annual reporting
periods beginning on or after 1 January 2020. Earlier application
is permitted. The standard is not expected to have a significant
impact on the Company's financial statements as generally
investments are not acquired as part of a business combination.
Amendments to IAS 1 and IAS 8: Definition of Material
On 31 October 2018, the International Accounting Standards Board
("IASB") issued amendments to IAS 1 Presentation of Financial
Statements and IAS 8 to align the definition of 'material' across
the standards and to clarify certain aspects of the definition. The
new definition states that, 'Information is material if omitting,
misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general purpose
financial statements make on the basis of those financial
statements, which provide financial information about a specific
reporting entity.'
This amendment is effective for annual periods beginning on or
after 1 January 2020. Early application of the amendment is
permitted. The standard is not expected to have an impact on the
Company's financial statements.
New standards, amendments and interpretations to existing
standards which are effective for the current year
There are a number of new standards, amendments to standards and
interpretations that are effective for annual periods beginning
after 1 January 2019 which will be adopted from their effective
date. The Directors consider there to be no material impact to the
Company.
Amendments to IFRS 9: Prepayment Features with Negative
Compensation
The amendments to IFRS 9 clarify that a financial asset passes
the Solely Payments of Principal and Interest (SPPI) criterion
regardless of the event or circumstance that causes the early
termination of the contract and irrespective of which party pays or
receives reasonable compensation for the early termination of the
contract. The amendments are intended to apply where the prepayment
amount approximates to unpaid amounts of principal and interest
plus or minus an amount that reflects the change in a benchmark
interest rate. This implies that prepayments at current fair value
or at an amount that includes the fair value of the cost to
terminate an associated hedging instrument, will normally satisfy
the SPPI criterion only if other elements of the change in fair
value, such as the effects of credit risk or liquidity, are
small.
The amendment applies to businesses acquired in annual reporting
periods beginning on or after 1 January 2019. The standard did not
have a significant impact on the Company's financial
statements.
Amendments to IAS 28 - Long term interests in Associates and
Joint Ventures
The amendments clarify that an entity applies IFRS 9 to
long-term interests in an associate or joint venture to which the
equity method is not applied but that, in substance, form part of
the net investment in the associate or joint venture (long-term
interests). This implies that the expected credit loss model in
IFRS 9 applies to such long-term interests.
This amendment is effective for annual periods beginning on or
after 1 January 2019. The standard did not have an impact on the
Company's financial statements as there are no such investments
held. All investments in Associates are fair valued.
IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy
or sell non-financial items.
Classification and measurement of financial assets and financial
liabilities
A financial asset or liability is measured at amortised cost if
it meets both of the following conditions and are not designated as
at FVTPL:
Ø it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
Ø its contractual terms give rise on specified dates to cash
flows that are solely payments of principal
and interest on the principal amount outstanding.
All financial assets of the Company are measured at FVTPL,
except for cash and cash equivalents which are measured at
amortised cost.
All financial liabilities of the Company are measured at
amortised cost.
Impairment of financial assets
Under IFRS 9 for trade receivables the Company has applied the
simplified model. Under the simplified approach the requirement is
to always recognise lifetime ECL. Under the simplified approach
there is no need to monitor significant increases in credit risk
and measure lifetime expected credit losses at all times. The
interest receivable is in respect of the Convertible loan notes and
no provision has been made for credit losses. This is on the basis
that the fair value of the underlying asset supports the
convertible receivable.
For other receivables, the Directors have concluded that any
expected credit loss on these receivables would be highly
immaterial.
b) Significant accounting judgements and estimates
The preparation of the Company's financial statements requires
the Directors to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements
and disclosure of contingent liabilities. However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability in future periods.
(i) Judgements
In the process of applying the Company's accounting policies,
the Directors have made the following judgements, which have had
the most significant effect on the amounts recognised in the
financial statements:
Assessment as Investment Entity
As per IFRS 10, an entity shall determine whether it is an
investment entity. An investment entity is an entity that fulfils
the following criteria:
Ø It obtains funds from one or more investors for the purpose of
providing those investors with investment services.
Ø It commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income or both.
Ø It measures and evaluates the performance of substantially all
of its investments on a fair value basis.
The Company meets the above criteria and is therefore considered
to be an investment entity and therefore does not consolidate its
subsidiaries.
In making their assessment the Directors have considered the
other income from the Cemos guarantee. As the guarantee was to
protect the investment in Cemos the income has been assessed as
being in the nature of the investment given the quantum is
immaterial.
Subsidiaries
Entities in which the Company holds more than 50% of the voting
rights, and where the Company has appointed or has the right to
appoint the majority of directors or where the Company is otherwise
able to exercise control are considered as subsidiaries of the
Company. Investments in subsidiaries are carried at fair value
through profit or loss.
Associates
The Directors consider that entities over which the Company
exercises significant influence, including where it holds between
20% and 50% of the voting rights, or where there is a shareholder
agreement giving the Company the right to appoint a director and
the right to veto significant financial decisions should be
considered as associates of the Company. These are disclosed in
Note 14 of the financial statements. This also includes entities
where the Company has representation on the board and such
representation is considered to have significant influence over the
major decisions of such entity. Investments in associates are
carried at fair value through profit or loss.
Going Concern
As described in the Directors' Report, the Directors have made
an assessment of the Company's ability to continue as a going
concern and considered it appropriate to adopt the going concern
basis of accounting. The Board are satisfied that it has the
resources to continue in business for at least 12 months following
the signing of these financial statements. As at 31 December 2019,
approximately 11.9% of the Company's assets were represented by
cash and unrestricted listed and quoted investments which are
readily realisable. The Directors are not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern.
(i) Estimates and assumptions
The key assumptions concerning the future and other key sources
of uncertainty at the reporting date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year, are discussed
below. The Company based its assumptions and estimates on
parameters available when the financial statements were prepared.
However, existing circumstances and assumptions about future
developments may change due to market changes or circumstances
arising beyond the control of the Company. Such changes are
reflected in the assumptions when they occur. Please refer to Note
3 for further information.
(ii) Fair value of financial instruments
When the fair values of financial assets and financial
liabilities recorded in the Statement of Financial Position cannot
be derived from active markets, their fair value is determined
using a variety of valuation techniques that include the use of
valuation models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible,
estimation is required in establishing fair values. The estimates
include considerations of liquidity and model inputs related to
items such as credit risk, correlation and volatility. Changes in
assumptions about these factors could affect the reported fair
value of financial instruments in the Statement of Financial
Position and the level where the instruments are disclosed in the
fair value hierarchy. The models are tested for validity by
calibrating to prices from any observable current market
transactions in the same instrument (without modification or
repackaging) when available. To assess the significance of a
particular input to the entire measurement, the Company performs
sensitivity analysis or stress testing techniques. Please refer to
Note 3 for further information.
c) Interest income and expense
Bank interest income and interest expense are recognised on an
accruals basis using the effective interest method.
d) Expenses
All expenses are recognised on an accruals basis.
e) Translation of foreign currencies
Foreign currency transactions during the year are translated
into Sterling at the rate of exchange ruling at the date of the
transaction. Assets and liabilities denominated in foreign
currencies are translated into Sterling at the rate of exchange
ruling at the Statement of Financial Position date. Exchange
differences including those arising from adjustment to fair value
of financial instruments during the year, are included in the
Statement of Comprehensive Income. The foreign exchange movements
relating to financial assets form part of the fair value movement
in the Statement of Comprehensive Income.
f) Segment information
The Directors are of the opinion that the Company is engaged in
a single segment of business: investing in natural resources
companies.
g) Net asset value per share
Net Asset Value per Ordinary Share disclosed on the face of the
Statement of Financial Position is calculated in accordance with
the Company's Prospectus by dividing the net assets of the Company
on the Statement of Financial Position date by the number of
Ordinary Shares (including the Management Ordinary Shares)
outstanding at that date.
h) Loan guarantee income
These are guarantee fees receivable in respect of shareholder
guarantees given over certain facilities of Cemos Group plc which
are accounted for on an accruals basis.
i) Interest on investments
These comprise of interest accrued and interest received from
convertible loans which are accounted for on an accruals basis and
recognised in the Statement of Comprehensive Income.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended Year ended
Investment Summary: 2019 2018
GBP GBP
Opening book cost 70,753,693 50,780,732
Purchases at cost 16,601,793 24,723,331
Proceeds on sale of investments (18,777,778) (8,159,311)
Realised gains 5,961,444 3,408,941
------------- ------------
Closing cost 74,539,152 70,753,693
Unrealised gains/(losses) 2,392,965 (8,733,753)
------------- ------------
Financial assets held at fair value through profit
or loss 76,932,117 62,019,940
============= ============
The following table analyses net gains/(losses) on financial
assets at fair value through profit or loss for the years ended
31 December 2019 and 31 December 2018.
Year ended Year ended
2019 2018
GBP GBP
Financial assets at fair value through profit or
loss
Realised gains/(losses) on:
- Listed equity shares 6,135,349 3,358,649
- Debt instruments (173,905) 72,118
- Warrants - (21,826)
5,961,444 3,408,941
Movement in unrealised gains/(losses) on:
- Listed equity shares 250,838 (5,291,074)
- Unlisted equity shares 5,134,808 (530,188)
- Royalties 4,373,836 (18,537,782)
- Debt instruments 1,280,943 1,284,890
- Warrants 86,293 50,889
------------ -------------
11,126,718 (23,023,265)
------------ -------------
Net gain/(loss) on financial assets at fair value
through profit or loss 17,088,162 (19,614,324)
============ =============
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2019.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at
fair value through profit
or loss
Listed equity shares 8,722,030 - - 8,722,030
Unlisted equity shares - - 24,780,551 24,780,551
Royalties - - 14,019,975 14,019,975
Warrants - - 116,337 116,337
Debt instruments - - 29,293,224 29,293,224
------------- ------------------ ------------ -----------
8,722,030 - 68,210,087 76,932,117
============= ================== ============ ===========
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2018.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at fair
value through profit
or loss
Listed equity shares 21,113,621 - - 21,113,621
Unlisted equity shares - - 18,894,281 18,894,281
Royalties - - 6,163,793 6,163,793
Warrants - - 30,044 30,044
Debt instruments - - 15,818,201 15,818,201
------------- ------------------ ------------ ----------
21,113,621 - 40,906,319 62,019,940
============= ================== ============ ==========
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in net gain on financial
assets and liabilities at fair value through profit or loss held at
31 December 2019.
Unlisted Debt
31 December 2019 Equities Royalties instruments Warrants Total
GBP GBP GBP GBP GBP
Opening balance 1 January
2019 18,894,281 6,163,793 15,818,201 30,044 40,906,319
Purchases of investments 751,462 3,482,346 12,367,985 - 16,601,793
Change in net unrealised
gains 5,134,808 4,373,836 1,280,943 86,293 10,875,880
Realised losses - - (173,905) - (173,905)
Closing balance 31 December
2019 24,780,551 14,019,975 29,293,224 116,337 68,210,087
------------ ----------- ------------ --------- -----------
Unrealised (losses)/gains
on investments still held
at 31 December 2019 (1,455,715) 3,174,130 1,421,092 116,337 3,255,844
============ =========== ============ ========= ===========
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in net gain on financial
assets and liabilities at fair value through profit or loss held at
31 December 2018.
Unlisted Debt
31 December 2018 Equities Royalties instruments Warrants Total
GBP GBP GBP GBP GBP
Opening balance 1 January
2018 18,947,018 24,648,274 9,611,682 981 53,207,955
Purchases of investments 477,451 53,301 4,849,511 - 5,380,263
Change in net unrealised
(losses)/gains (530,188) (18,537,782) 1,284,890 50,889 (17,732,191)
Realised gains/(losses) - 72,118 (21,826) 50,292
Closing balance 31 December
2018 18,894,281 6,163,793 15,818,201 30,044 40,906,319
------------ ------------- ------------ --------- -------------
Unrealised (losses)/gains
on investments still held
at 31 December 2018 (6,590,524) (1,199,706) 93,270 30,044 (7,666,916)
============ ============= ============ ========= =============
It is the Company's policy to recognise a change in hierarchy
level when there is a change in the status of the investment, for
example when a listed company delists or vice versa, or when shares
previously subject to a restriction have that restriction released.
The transfers between levels are recorded either on the value of
the investment immediately after the event or the carrying value of
the investment at the beginning of the financial year. There were
no changes in levels during the year ended 31 December 2019.
In determining an investment's position within the fair value
hierarchy, the Directors take into consideration the following
factors:
Investments whose values are based on quoted market prices in
active markets are classified within Level 1. These include listed
equities with observable market prices. The Directors do not adjust
the quoted price for such instruments, even in situations where the
Company holds a large position and a sale could reasonably impact
the quoted price.
Investments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer
quotations or alternative pricing sources supported by observable
inputs, are classified within Level 2. These include certain
less-liquid listed equities. Level 2 investments are valued with
reference to the listed price of the shares should they be freely
tradable after applying a discount for liquidity if relevant. As
Level 2 investments include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information. The
Company held no Level 2 investments at 31 December 2019 (31
December 2018: none).
Investments classified within Level 3 have significant
unobservable inputs. They include unlisted debt instruments,
unlisted equity shares and warrants. Level 3 investments are valued
using valuation techniques explained below. The inputs used by the
Directors in estimating the value of Level 3 investments include
the original transaction price, recent transactions in the same or
similar instruments if representative in volume and nature,
completed or pending third-party transactions in the underlying
investment of comparable issuers, subsequent rounds of financing,
recapitalisations and other transactions across the capital
structure, offerings in the equity or debt capital markets, and
changes in financial ratios or cash flows. Level 3 investments may
also be adjusted with a discount to reflect illiquidity and/or
non-transferability in the absence of market information. All
valuations were completed pre Covid-19 which is considered to be a
non-adjusting event in respect of the Statement of the Financial
Position and no adjustment is made in the financial statements as a
result.
Valuation methodology of Level 3 investments
The default valuation technique is of "Latest Recent
Transaction". Where an unquoted investment has been acquired or
where there has been a material arm's length transaction during the
past six months it will be carried at transaction value, having
taken into account any change in market conditions and the
performance of the investee company between the transaction date
and the valuation date. Where there has been no Latest Recent
Transaction the primary valuation driver is IndexVal. For each core
unlisted investment, the Company maintains a weighted average
basket of listed companies which are comparable to the investment
in terms of commodity, stage of development and location
("IndexVal"). IndexVal is used as an indication of how an
investment's share price might have moved had it been listed.
Movements in commodity prices are deemed to have been taken into
account by the movement of IndexVal.
A secondary tool used by Management to evaluate potential
investments as well as to provide underlying valuation references
for the Fair Value already established is Development Risk Adjusted
Values ("DRAV"). DRAVs are not a primary determinant of Fair Value.
The Investment Manager also prepares discounted cash flow models
for the Company's core investments annually and also for
significant new information and decision making purposes when
required. From these, DRAVs are derived. The computations are based
on consensus forecasts for long term commodity prices and investee
company management estimates of operating and capital costs. The
Investment Manager takes account of market, country and development
risks in its discount factors. Some market analysts incorporate
development risk into the discount rate in arriving at a net
present value ("NPV") rather than establishing an NPV discounted
purely for cost of capital and country risk and then applying a
further overall discount to the project economics dependent on
where such project sits on the development curve per the DRAV
calculations.
The valuation technique for Level 3 investments can be divided
into five groups:
i. Transaction
Where there have been transactions within the past 6 months
either through a capital raising by the investee company or known
secondary market transactions, representative in volume and nature
and conducted on an arm's length basis, this is taken as the
primary driver for valuing Level 3 investments, having taken into
account of any change in market conditions and the performance of
the investee company between the transaction date and the valuation
date.
ii. IndexVal
Where there have been no known transactions for 6 months, at the
Company's half year and year end, movements in IndexVal will
generally be taken into account in assessing Fair Value where there
has been at least a 10% movement in IndexVal over at least a
six-month period. The IndexVal results are used as an indication of
trend and are viewed in the context of investee company progress
and any requirement for finance in the short term for further
progression.
iii. Royalty Valuation Model
Royalties are valued on projected cashflows taking into account
expected time to production and development risk and adjusted for
movement in commodity prices.
iv. Warrants
Warrants are valued using a simplified Black Scholes model
taking into account time to expiry, exercise price and volatility.
Where there is no established market for the underlying shares the
average volatility of the companies in that investment's basket of
IndexVal comparables is utilised in the Black Scholes model.
v. Convertible loans
Convertible loans are valued at fair value through profit and
loss, taking into account credit risk and the value of the
conversion aspect.
Quantitative information of significant unobservable inputs -
Level 3
Range of unobservable
input
2019 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 5,661,710 Transaction Private transactions n/a
Unlisted Equity 19,102,895 IndexVal Change in IndexVal n/a
Royalties 14,019,975 Royalty Valuation Production n/a
model profile & development
risk adjustment
Unlisted Equity 15,946 Other Exploration n/a
results, study
results, financings
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 2,643,205 estimated recovery range +/- 50%
Valued at fair
value with reference
to credit risk
Other Convertible and value of embedded Rate of Credit
Debentures/Loans 26,650,019 derivative Risk 20%-40%
Simplified Black
Warrants 116,337 Scholes Model Volatilities 50%
Range of unobservable
input
2018 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 9,223,833 Transaction Private transactions n/a
Unlisted Equity 9,355,029 IndexVal Change in IndexVal n/a
Royalties 6,163,793 Royalty Valuation Exploration n/a
model results
Unlisted Equity 315,419 Other Exploration n/a
results, study
results, financings
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 2,749,620 estimated recovery range +/- 50%
Valued at fair
value with reference
to credit risk
Other Convertible and value of embedded Rate of Credit
Debentures/Loans 13,068,581 derivative Risk 20%-40%
Simplified Black
Warrants 30,044 Scholes Model Volatilities 50%
Information on third party transactions in unlisted equities is
derived from the Investment Manager's market contacts. The change
in IndexVal for each particular unlisted equity is derived from the
weighted average movements of the individual baskets for that
equity so it is not possible to quantify the range of such
inputs.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 investments
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2019 are as shown below:
Description Input Sensitivity Effect on Fair
used Value (GBP)
Unlisted Equity Change in IndexVal +/-43.5%* +/-8,309,760
Royalty valuation
Royalties models +/-20% +/-2,803,995
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/-872,258
Others/Loans Risk discount rate +/-20% +/-4,747,375
Volatility of Index
Warrants Basket +/-40% +100,833/--61,601
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2018 are as shown below:
Description Input Sensitivity Effect on Fair
used Value (GBP)
Unlisted Equity Change in IndexVal +/-31%* +/-2,900,059
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/- 915,320
Others/Loans Risk discount rate +/-20% +/- 2,241,196
Volatility of Index
Warrants Basket +70/-50% +37,625/-30,044
*The sensitivity analysis refers to a percentage amount added or
deducted from the input and the effect this has on the fair value.
The 43.5% sensitivity was used as this was the highest movement
observed for IndexVal for the comparable baskets in the year
(2018:31%).
The Company has not disclosed the fair value for financial
assets such as cash and cash equivalents and short-term receivables
and payables, because their carrying amounts are a reasonable
approximation of fair values.
4. RISK MANAGEMENT POLICIES AND DISCLOSURES
The Company's principal financial instruments comprise financial
assets, primarily unlisted equity investments and loans in natural
resources companies. The portfolio is concentrated on projects on
the large liquid commodity markets and diversified in terms of
geography. These investments reflect the core of the Company's
investment strategy.
The Company manages its exposure to key financial risks
primarily through diversification of geography and commodity, and
through technical and legal due diligence. The objective of the
policy is to support the delivery of the Company's core investment
objective whilst maintaining future financial security. The main
risks that could adversely affect the Company's financial assets or
future cash flows are market risk (comprising market price risk,
currency risk and interest rate risk), commodity price risk,
liquidity risk, concentration risk and credit risk.
The Company's financial liabilities principally comprise fees
payable to various parties and arise directly from its
operations.
Risk exposures and responses
The Company's Board of Directors oversees the management of
financial risks, each of which is summarised below.
a) Market risk
Market risk is the risk that the fair value of a financial
instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: market price risk,
currency risk and interest rate risk.
i. Market price risk
Market price risk is the risk that the fair value of future cash
flows will fluctuate because of changes in the market prices of the
Company's investment portfolio.
The following illustrates the sensitivity of the income to an
increase or decrease of 43.5% in the fair value of the Company's
investment portfolio. The level of change is considered to be
reasonably possible based on 43.5% max index swing. The sensitivity
analysis assumes all other variables are held constant.
The impact of a 43.5% decrease in the value of investments on
the financial assets at fair value of the Company as at 31 December
2019 would have been a decrease of GBP33,465,470 (31 December 2018:
GBP19,226,181). An increase of 43.5% would increase the NAV by
GBP33,465,470 (31 December 2018: GBP19,226,181). In practice, the
actual results may differ from the sensitivity analysis above and
the difference could be material.
ii. Currency risk
At 31 December 2019, the largest portion of the Company's
financial assets and liabilities was denominated in US Dollars. The
functional currency of the Company is Sterling. Currency risk is
the risk that the value of non-GBP denominated financial
instruments will fluctuate due to changes in foreign exchange
rates. The table below shows the currencies and amounts the Company
was exposed to at 31 December 2019.
31 December 2019
The table below shows the currencies and amounts the Company was
exposed to at 31 December 2019 and 31 December 2018.
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 24,918,433 0.5306 13,220,893 16.81%
CAD 8,239,132 0.5823 4,797,382 6.10%
EUR 5,402,335 0.8475 4,578,409 5.82%
GBP 20,324,844 1.0000 20,324,844 25.84%
NOK 37,302,882 0.0859 3,204,604 4.07%
USD 43,084,105 0.7552 32,537,178 41.36%
78,663,310 100.00%
----------- ---------------
31 December 2018
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 12,960,918 0.5530 7,166,842 10.85
CAD 5,849,807 0.5749 3,363,273 5.09
EUR 4,439,852 0.8983 3,988,412 6.04
GBP 27,797,348 1.0000 27,797,348 42.10
NOK 24,535,256 0.0905 2,220,894 3.36
USD 27,392,449 0.7846 21,491,015 32.55
66,027,784 100.00
---------- ---------------
Analysis has been completed to assess what movements in currency
rates are reasonably possible. This analysis has considered the
variance between the highest and lowest conversion rates in 2018
and 2019 for each of the currencies in the table below. Due to the
impact on markets in 2020, as a result of Covid-19, the movements
year to date in 2020 have also been considered.
Reasonably 2019 2018
Currency Possible Value Value
Move GBP GBP
AUD 10% 1,344,200 716,684
CAD 11% 527,712 369,960
EUR 13% 595,193 518,494
NOK 20% 640,921 444,179
USD 16% 5,197,578 3,438,562
--------- ---------
8,305,604 5,487,879
========= =========
The estimated movement is based on management's determination of
a reasonably possible change in foreign exchange rates. In
practice, the actual results may differ from the sensitivity
analysis above and the difference could be material.
iii. Interest rate risk
Although the Company's financial assets and liabilities expose
it indirectly to risks associated with the effects of fluctuations
in the prevailing levels of market interest rates on its financial
position and fair value, it is subject to little direct exposure to
interest rate fluctuations as the majority of the financial assets
are equity investments or similar investments which do not pay
interest. For valuation purposes convertible loans all have fixed
interest rates and are treated more like quasi equity albeit with
higher ranking than equity. As such they are not directly exposed
to interest rates from a cash flow perspective. Any excess cash and
cash equivalents are invested at short-term market interest rates
which expose the Company, to a limited extent, to interest rate
risk and corresponding gains/losses from a change in the fair value
of these financial instruments.
The table below summarises the Company's exposure to interest
rate risk. It includes the Company's assets and liabilities at fair
values, categorised by the earlier of contractual re-pricing or
maturity dates.
At 31 December 2019 Less than More than Non-interest
6 months 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 659,757 - - 659,757
Financial assets held at fair value through profit or loss* - 76,932,117 - 76,932,117
Other receivables - - 17,284 17,284
Interest receivable* 1,266,886 - - 1,266,886
--------- ----------- ------------ -----------
Total Assets 1,926,643 76,932,117 17,284 78,876,044
========= =========== ============ ===========
Liabilities
Other liabilities - - 212,734 212,734
Total Liabilities - - 212,734 212,734
========= =========== ============ ===========
Interest rate sensitivity gap 1,926,643 76,932,117
========= ===========
*The interest rate risk on these items are considered as part of
overall price risk in valuing the convertibles.
The table below summarises the Company's exposure to interest
rate risk. It includes the Company's assets and liabilities at fair
values, categorised by the earlier of contractual re-pricing or
maturity dates.
At 31 December 2018 Less than More than Non-interest
6 months 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 3,811,921 - - 3,811,921
Financial assets held at fair value through profit or loss - 62,019,940 - 62,019,940
Other receivables - - 385,659 385,659
Total Assets 3,811,921 62,019,940 385,659 66,217,520
========= ========== ============ ==========
Liabilities
Other liabilities - - 189,736 189,736
Total Liabilities - - 189,736 189,736
========= ========== ============ ==========
Interest rate sensitivity gap 3,811,921 62,019,940
========= ==========
Interest rate sensitivity
It is the opinion of the Directors that the Company is not
materially exposed to interest rate risk and accordingly no
interest rate sensitivity calculation has been provided in these
financial statements.
b) Commodity price risk
The Company is exposed to the risk of fluctuations in prevailing
market commodity prices through its investment portfolio. Commodity
price risk is beyond the Company's control but will be mitigated to
a certain extent as a result of the Company's diversified portfolio
as long as commodity prices remain uncorrelated. It is not possible
to quantify within reasonable ranges the impact of commodity price
changes on the valuation of the Company's investments although it
will be reflected in the value of IndexVal and in the price of
financings within the investment and therefore be reflected in
carrying value. In general, long term commodity price increases
should give rise to an increase in fair value of the Company's
investments, and vice-versa.
c) Liquidity risk
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations as they fall due. The
Company invests in unlisted equities for which there may not be an
immediate market. The Company seeks to mitigate this risk by
maintaining cash and readily realisable listed equity positions
which will cover its ongoing operational expenses.
The Company has the ability to incur borrowings of up to 10% of
its NAV but the Company's policy is to restrict any such borrowings
to temporary purposes only, such as settlement mis-matches.
The table below analyses the Company's financial assets and
liabilities into relevant maturity groupings based on the remaining
period at the Statement of Financial Position date to the
contractual maturity date. The amounts in the table are the
contractual cash flows.
At 31 December 2019 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 659,757 - - - - 659,757
Financial assets held at fair value
through profit
or loss - - 380,756 31,105,980 45,445,381 76,932,117
Receivables 1,284,170 - - - - 1,284,170
--------- ---------- ----------- ----------- -------------- -----------
Total Assets 1,943,927 - 380,756 31,105,980 45,445,381 78,876,044
========= ========== =========== =========== ============== ===========
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 28,750 97,463 86,521 - - 212,734
--------- ---------- ----------- ----------- -------------- -----------
Total Liabilities 28,750 97,463 86,521 - - 212,734
========= ========== =========== =========== ============== ===========
Net assets attributable to shareholders 78,663,310
===========
At 31 December 2018 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 3,811,921 - - - - 3,811,921
Financial assets held at fair value
through profit
or loss - - 295,870 14,544,619 47,179,451 62,019,940
Receivables 385,659 - - - - 385,659
--------- ---------- ----------- ---------- -------------- ----------
Total Assets 4,197,580 - 295,870 14,544,619 47,179,451 66,217,520
========= ========== =========== ========== ============== ==========
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 28,750 103,436 57,550 - - 189,736
--------- ---------- ----------- ---------- -------------- ----------
Total Liabilities 28,750 103,436 57,550 - - 189,736
========= ========== =========== ========== ============== ==========
Net assets attributable to shareholders 66,027,784
==========
The value of the cash and listed equity positions held by the
Company at the year end is GBP9,381,787 (2018: GBP24,925,542) with
the total liabilities at the year end at GBP212,734 (2018:
GBP189,736).
d) Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full as they fall due. The Company has exposure to
credit risk in relation to its cash balances, debt instruments,
loan and loan notes as stated in the Statement of Financial
Position.
The Company seeks to mitigate this risk by lending to companies
with projects which have significant value over and above the value
of the debt in such company so that there is a significant equity
"buffer". The maximum credit risk on debt instruments for the
Company is GBP29,952,981 (2018: GBP19,630,122).
The Company's financial assets are exposed to credit risk, which
amounted to the following at the Statement of Financial Position
date:
2019 2018
GBP GBP
Assets
Cash and cash equivalents 659,757 3,811,921
Interest receivable 1,266,886 -
Other receivables 17,284 385,659
Financial assets held at fair value through
profit or loss 76,932,117 62,019,940
Total assets 78,876,044 66,217,520
----------- -----------
As at 31 December 2019, the Company's financial assets exposed
to credit risk were held with the following ratings:
Financial Assets Counterparty **Credit 2019
Rating % of net assets
-Convertible Loan & Loan Note Anglo Saxony Mining Limited NR* 3.96
-Convertible Loan & Loan Note Azarga Metals NR* 2.59
-Convertible Loan & Loan Note Bilboes Holdings NR* 2.04
-Convertible Loan & Loan Note Tungsten West Limited NR* 6.40
-Convertible Loan & Loan Note Mines & Metals Trading (Peru) Plc NR* 4.35
-Convertible Loan Note Black Pearl Limited Partnership NR* 3.36
-Convertible Loan Note Futura Resources Limited NR* 8.55
-Loan Note Cemos Group Plc NR* 5.23
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.14
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.48
Cash and cash equivalents HSBC Bank plc AA- 0.84
Total 37.94
===============
As at 31 December 2018, the Company's financial assets exposed
to credit risk were held with the following weight:
Financial Assets Counterparty **Credit 2018
Rating % of net assets
Debt instruments
-Convertible Loan Note Anglo Saxony Mines Limited NR* 1.53
-Convertible Loan Note Bilboes Gold Limited NR* 1.69
-Convertible Loan & Loan Note Black Pearl Limited Partnership NR* 4.16
-Convertible Loan Note Cemos Group Plc NR* 5.50
-Convertible Loan Note Indian Pacific Resources Limited NR* 0.27
-Convertible Loan Note PRISM Diversified Limited 31/12/2018 NR* 0.45
-Loan Notes PRISM Diversified Limited NR* 0.07
-Convertible Loan Note Futura Resources Limited NR* 10.29
Cash and cash equivalents HSBC Bank Plc A 5.77
Total 29.73
===============
* No rating available
**As per S&P
e) Concentration risk
The Company's investment policy is to invest in natural
resources companies, both listed and unlisted, that the Investment
Manager considers to be undervalued and that have strong
fundamentals and attractive growth prospects which means that the
Company has significant concentration risk relating to natural
resources companies.
Concentration risks include, but are not limited to natural
resources asset category (such as gold) and geography. The Company
may at certain times hold relatively few investments. The Company
could be subject to significant losses if it holds a large position
in a particular investment that declines in value or is otherwise
adversely affected, including by the default of the issuer. Such
risks potentially could have a material adverse effect on the
Company's financial position, results of operations, business
prospects and returns to investors. The Company's investments are
geographically diverse reducing this aspect of concentration risk.
In terms of commodity, the portfolio is likewise diversified in the
large liquid markets of silver, gold, iron ore, coal, copper,
platinum group metals, nickel and oil to mitigate this aspect of
concentration risk.
4. TAXATION
The Company is a Guernsey Exempt Company and is therefore not
subject to taxation in Guernsey on its income under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989. An annual exemption fee
of GBP1,200 (2018: GBP1,200) has been paid.
5. ADMINISTRATION FEES
The Administrator, HSBC Securities Services (Guernsey) Limited,
is paid fees for acting as administrator of the Company at the rate
of 7 basis points of gross asset value up to US$ 250 million; the
rate reduces to 5 basis points of gross asset value above US$ 250
million. The Administrator is also reimbursed by the Company for
reasonable out-of-pocket expenses. These fees are calculated and
accrued as at the last business day of each month and paid monthly
in arrears.
The Administrator is also entitled to a fee for its provision of
corporate secretarial services provided to the Company on a time
spent basis and subject to a minimum annual fee of GBP40,000. The
Company is also responsible for any sub-administration fees as
agreed in writing from time to time, and reasonable out-of-pocket
expenses. The Administrator is also entitled to fees of EUR5,000
for preparation of the financial statements of the Company.
The administration fees paid for the year ended 31 December 2019
were GBP103,938 (2018: GBP100,111) of which GBP42,447 (2018:
GBP16,731) was payable at 31 December 2019. HSBC Securities
Services (Ireland) DAC, the sub-Administrator, is paid a portion of
these fees by the Administrator.
6. MANAGEMENT AND PERFORMANCE FEES
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the "Management Agreement").
The Company pays to the Manager a management fee which is equal to
1/12th of 1.75 per cent of the total average market capitalisation
of the Company during each month. The management fee is calculated
and accrued as at the last business day of each month and is paid
monthly in arrears. The Investment Manager's fees are paid by the
Manager.
The management fee for the year ended 31 December 2019 was
GBP965,402 (2018: GBP928,850) of which GBP85,447 (2018: GBP75,370)
was outstanding at the year end.
The Manager is also entitled to a performance fee. The
Performance Period is each 12-month period ending on 31 December
(the "Performance Period"). The amount of the performance fee is 15
per cent of the total increase in the NAV, if the Hurdle has been
met, at the end of the relevant Performance Period, over the
highest previously recorded NAV as at the end of a Performance
Period in respect of which a performance fee was last accrued,
having made adjustments for numbers of Ordinary Shares issued
and/or repurchased ("Highwater Mark"). In addition, the performance
fee will only become payable if there has been sufficient net
realised gains. As at 31 December 2019, the Highwater Mark was the
equivalent of approximately 94 pence per share with the relevant
Hurdle being the equivalent of approximately 130 pence per
share.
There were no earned performance fees for the current or prior
year.
If the Company wishes to terminate the Management Agreement
without cause it is required to give the Manager 12 months prior
notice or pay to the Manager an amount equal to: (a) the aggregate
investment management fee which would otherwise have been payable
during the 12 months following the date of such notice (such amount
to be calculated for the whole of such period by reference to the
Market Capitalisation prevailing on the Valuation Day on or
immediately prior to the date of such notice); and (b) any
performance fee accrued at the end of any Performance Period which
ended on or prior to termination and which remains unpaid at the
date of termination which shall be payable as soon as, and to the
extent that, sufficient cash or other liquid assets are available
to the Company (as determined in good faith by the Directors),
provided that such accrued performance fee shall be paid prior to
the Company making any new investment or settling any other
liabilities; and (c) where termination does not occur at 31
December in any year, any performance fee accrued at the date of
termination shall be payable as soon as and to the extent that
sufficient cash or other liquid assets are available to the Company
(as determined in good faith by the Directors), provided that such
accrued performance fee shall be paid prior to the Company making
any new investment or settling any other liabilities.
8. OTHER EXPENSES
2019 2018
TOTAL TOTAL
GBP GBP
Public relations fees 10,800 7,500
Listing fees 10,295 10,398
Regulatory fees 6,009 13,854
Registrar fees 28,684 36,739
Website expenses 1,000 1,000
Income tax exemption fee 1,200 1,200
Reimbursement expense 19,277 -
Research fees 12,000 -
Miscellaneous 6,383 9,753
-------
95,648 80,444
======= =======
9. CASH AND CASH EQUIVALENTS
2019 2018
GBP GBP
Cash at HSBC Bank plc 659,757 3,811,921
======== ==========
10. SHARE CAPITAL
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
The Company has a total of 106,453,335 (2018: 116,129,980)
Ordinary Shares in issue with additional 700,000 (2018: 700,000)
held in treasury. In addition, the Company has 9,167 (2018: 10,000)
Management Ordinary Shares in issue, which are held by the
Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment
of the Official List of the London Stock Exchange. Holders of
Ordinary Shares have the right to receive notice of and to attend
and vote at general meetings of the Company.
Each holder of Ordinary Shares being present in person or by
proxy at a meeting will, upon a show of hands, have one vote and
upon a poll each such holder of Ordinary Shares present in person
or by proxy will have one vote for each Ordinary Share held by
him.
Holders of Management Ordinary Shares have the right to receive
notice of and to attend and vote at general meetings of the
Company, except that the holders of Management Ordinary Shares are
not entitled to vote on any resolution relating to certain specific
matters, including a material change to the Company's investment
objective, investment policy or borrowing policy. Each holder of
Management Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll
each such holder of Management Ordinary Shares present in person or
by proxy will have one vote for each Management Ordinary Share held
by him. Holders of Ordinary Shares and Management Ordinary Shares
are entitled to receive, and participate in, any dividends or other
distributions out of the profits of the Company available for
dividend and resolved to be distributed in respect of any
accounting period or other income or right to participate
therein.
The details of issued share capital of the Company are as
follows:
2019 2018
Amount No. of shares** Amount No. of shares**
GBP GBP
Issued and fully paid share
capital
Ordinary Shares of no par value*/*** 76,122,347 107,162,502 81,175,017 116,839,980
(including Management Ordinary
Shares)
Treasury Shares (140,492) (700,000) (140,492) (700,000)
The outstanding Ordinary Shares as at the year ended 31 December
2019 are as follows:
Ordinary Shares Treasury Shares
No. of
Amount No. of shares** Amount shares
GBP GBP
Balance at 1 January 2019 &
31 December 2019 76,122,347 106,462,502 140,492 700,000
----------- ---------------- ------------ ------------
The outstanding Ordinary Shares as at the year ended 31 December
2018 were as follows:
Ordinary Shares Treasury Shares
No. of
Amount No. of shares** Amount shares
GBP GBP
Balance at 1 January 2018 &
31 December 2018 81,175,017 116,139,980 140,492 700,000
----------- ---------------- ------------------------ --------
* During 2019, 9,677,478 shares were repurchased and cancelled
following a tender offer totalling GBP4,935,514 excluding
expenses.
** Includes 9,167 (2018: 10,000) Management Ordinary Shares.
*** The value reported for the ordinary shares represents the
net of subscriptions and redemptions (including any associated
expenses)
Capital Management
The Company regards capital as comprising its issued Ordinary
Shares. The Company does not have any debt that might be regarded
as capital. The Company's objectives in managing capital are:
-- To safeguard its ability to continue as a going concern and
provide returns to shareholders in the form of capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities or related instruments of natural
resources companies;
-- To allocate capital to those assets that the Directors
consider are most likely to provide the above returns; and
-- To manage, so far as is reasonably possible, any discount
between the Company's share price and its NAV per Ordinary
Share.
The Company has continued to hold sufficient cash and listed
assets positions to enable it to meet its obligations as they arise
and the Investment Manager provides the Directors with reporting on
the activities of the investments of the Company such that they can
be satisfied with the allocation of capital.
As discussed in the Strategic Report, in August 2015, the
Company introduced a share buyback programme with the objective of
managing the discount the Company's shares trade at as compared to
its NAV to date. The Company has repurchased 700,000 shares at an
average price of 20 pence per share through this programme and the
repurchased shares are held in Treasury.
The Company has authority to make market purchases of up to
14.99 Per Cent of its own Ordinary Shares in issue. A renewal of
such authority is sought from Shareholders at each Annual General
Meeting of the Company or at a General Meeting of the Company, if
required. Any purchases of Ordinary Shares will be made within
internal guidelines established from time to time by the Board and
within applicable regulations.
As described in the Directors' Report on page 17, the Company
has a policy to distribute at least 15 per cent of net realised
cash gains after deducting losses during the financial year through
dividends or otherwise. The Company had a realised net gain per the
Statement of Comprehensive Income and realised an aggregate cash
gain for the year ended 31 December 2019. However, the majority of
this related to the sale of Polymetal shares which had been taken
into account in the calculation of the distribution made during the
year in respect of 2018. Accordingly, no distribution is proposed
in respect of 2019.
The Company is not subject to any externally imposed capital
requirements.
11. COMMITMENTS
The Company has provided a letter of comfort regarding a EUR1.35
million overdraft facility for Cemos with the Bank of Morocco.
During 2019, the Company received 19.88 Convertible Unsecured Loan
notes with a nominal value of EUR99,375 in respect of the comfort
letter regarding the overdraft facility.
12. RELATED PARTY TRANSACTIONS
The Directors' interests in the share capital of the Company
were:
Number of Number of
Ordinary Shares Ordinary Shares
2019 2018
Christopher Sherwell N/A 104,198
Clive Newall 25,000 25,000
The Investment Manager, Baker Steel Capital Managers LLP had an
interest in 9,167 Management Ordinary Shares at 31 December 2019
(31 December 2018: 10,000).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest in 5,622,877 Ordinary Shares in the
Company at 31 December 2019 (2018: 7,469,609). Precious Metals Fund
participated in the Tender Offer, selling 871,732 shares, with a
further 975,000 shares being sold in the market during the year.
These shares are held in a custodian account with Citibank N.A.
London. Precious Metals Fund shares a common Investment Manager
with the Company.
David Baker and Trevor Steel, Directors of the Manager, are
interested in the shares held by Northcliffe Holdings Limited and
The Sonya Trust respectively, which are therefore considered to be
Related Parties. Both Northcliffe Holdings Limited and The Sonya
Trust participated in the tender offer. The holdings of Northcliffe
Holdings Limited and The Sonya Trust before and after the Tender
Offer are presented below:
Shares held pre Shares held post Shares sold through
tender offer tender offer tender offer
Northcliffe Holdings
Limited 14,097,398 12,452,177 1,645,221
---------------- ----------------- --------------------
The Sonya Trust 14,307,552 12,673,350 1,670,202
---------------- ----------------- --------------------
In the prior year, the Company guaranteed EUR1.7 million of
vendor financing from Loesche GmbH to Cemos Group plc in relation
to the development of the Tarfaya project in Morocco for which it
received a fee of 1% per month up to October 2018 and thereafter a
fee of 2% per month until 1 August 2019 at which point the loan had
been largely repaid by Cemos and the guarantee fell away. The
Company has also provided a letter of comfort regarding a EUR1.35
million overdraft facility for Cemos with the Bank of Morocco for
which it is accruing a fee of 0.5% per month. Both fees are payable
in cash or Convertible Unsecured Loan Stock at the discretion of
Cemos. The Company holds 25.7 per cent of the shares of Cemos and
Mr Steel (a director of the Manager and a member of the Investment
Manager) is a director appointed by the Company, therefore Cemos is
considered an Associate. See Notes 11 and 14.
The Company's Associates are described in Note 14 to these
financial statements.
The Management fees and Directors' fees paid and accrued for the
year were:
2019 2018
Management fees 965,402 928,850
Directors' fees 115,000 115,000
The Management fees and Directors' fees outstanding at the year
end were:
2019 2018
Management fees 85,447 75,370
Directors' fees 28,750 28,750
13. NET ASSET VALUE PER SHARE AND GAIN PER SHARE
Net asset value per share is based on the net assets of
GBP78,663,310 (31 December 2018: GBP66,027,784) and 106,462,502 (31
December 2018: 116,139,980) Ordinary Shares, being the number of
shares in issue at the year end. The calculation for basic and
diluted NAV per share is as below:
31 December 2019 31 December 2018
Ordinary Shares Ordinary Shares
Net assets at the year end (GBP) 78,663,310 66,027,784
Number of shares 106,462,502 116,139,980
Net asset value per share (in pence)
basic and diluted 73.9 56.9
Weighted average number of shares 109,688,328 116,139,980
The basic and diluted gain per share for 2019 is based on the
net gain for the year of the Company of GBP17,688,196 and on
109,688,328 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year.
The basic and diluted gain per share for 2018 is based on the
net gain for the year of the Company of GBP96,328 and on
116,139,980 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year.
14. INVESTMENT IN ASSOCIATES
The interests in the below companies are for investment purposes
and they are deemed associates by virtue of the Company having
appointed a non-executive director ("NED") and/or holding in excess
of 20% of the voting rights of the relevant company. Investments in
associates are carried at fair value as they are held as part of
the investment portfolio which is valued on a fair value basis.
Country of Incorporation
Investment Incorpo Incorpo Voting Rights held NED Appointed
Cemos Group Limited Jersey 25.70% Yes
Bilboes Gold Limited Mauritius 21.70% Yes
PRISM Diversified Yes
Limited Canada 16.40%
Nussir ASA Norway 14.10% Yes
India Pacific Resources Yes
Limited Australia 14.80%
Futura Resources Australia Convertible Loan Yes
Tungsten West Limited England and Wales 15.4% Yes
Anglo Saxony Mining Yes
Limited England and Wales Convertible Loan
Polar Acquisition British Virgin Yes
Limited Islands 49.99%
Azarga Canada Convertible Loan Yes
Various Baker Steel representatives and their associates
received fees and incentives for their role as directors to these
companies. These fees are received in addition to the management
fees charged.
15. SIGNIFICANT EVENTS
Christopher Sherwell retired as a Director of the Company on 28
May 2019.
David Staples was appointed a Director of the Company and
Chairman of the Audit Committee on 29 May 2019.
16. SUBSEQUENT EVENTS
Covid-19 is a developing situation and as of the date of
signing, the assessment of this situation will need continued
attention and will evolve over time. In our view, consistent with
many others in our industry, Covid-19 is considered to be a
non-adjusting event in respect of the Statement of the Financial
Position and no adjustment is made in the financial statements as a
result.
The rapid development and fluidity of the situation of the
Covid-19 virus means it cannot be predicted how long the market
conditions will remain depressed. At 31 March 2020, the Company
reviewed the value of its unlisted holdings in response to market
volatility. This unaudited valuation review which was similar but
less comprehensive than the process undertaken at 31 December 2019
led to an 8.4% reduction in the unaudited NAV of the portfolio from
the unaudited NAV at 28 February 2020. The Board considers that the
Company's exposure to precious metals projects should act as a
partial hedge, covering weaknesses in base metals and steel mineral
prices in the event of a prolonged crisis.
In February 2020, the Company exercised its option to acquire a
further 0.25% gross royalty interest in Futura Resources' Wilton
and Fairhill metallurgical coal mines for A$1.8 million.
In March 2020, the Company entered into a further US$1 million
loan with Mines and Metals Trading (Peru) Limited. The Company
committed to a further US$500,000 loan to Azarga and has
renegotiated the terms of its convertible loan subject to TSX
approval and a further C$30,000 loan to PRISM. - The existing PRISM
loan has been extended to the end of May 2020.
There were no other events subsequent to the reporting date that
materially impacted on the Company that require disclosure or
adjustment to these financial statements.
17. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL
STATEMENTS
The Annual Report and Audited Financial Statements for the
year-ended 31 December 2019 were approved by the Board of Directors
on 20 April 2020.
Appendix - additional information (UnAUDITED)
REMUNERATION DETAILS FOR INVESTMENT MANAGER'S STAFF
As noted earlier, under AIFMD, the Investment Manager received
approval to act as a full scope UK AIFM to the Company as of 22
July 2014. Pursuant to Article 22(2)9e) and (f) of AIFMD, an AIFM
must, where appropriate for each AIF it manages, make an annual
report available to the AIF investors. The annual report must
contain, amongst other items, the total amount of remuneration paid
by the AIFM to its staff for the financial year, split into fixed
and variable remuneration including, where relevant, any carried
interest paid by the AIF, along with the aggregate remuneration
awarded to senior management and members of staff whose actions
have a material impact on the risk profile of the AIF.
For the year ended 31 December 2019 the LLP as Investment
Manager paid fixed remuneration to members and those identified as
AIF code staff of GBP197,774. Variable remuneration amounted to
GBP287,822. No carried interest was paid by the Company. These
figures represent the aggregate remuneration paid to members and
those identified as AIF code staff of the LLP as Investment Manager
for the year ended 31 December 2019. The total remuneration of the
individuals whose actions have a material impact upon the risk
profile of the AIF managed by the AIFM amounted to GBP485,596.
The total AIFM remuneration attributable to senior management
was GBP485,596. No other staff were identified as material risk
takers in the year. The remuneration figures reflect an
approximation of the portion of AIFM remuneration reasonably
attributable to the AIF.
GLOSSARY OF TERMS
4PE - Platinum, Palladium, Gold and Rhodium
AIF - Alternative Investment Fund
AIFM - Alternative Investment Fund Manager
AIFMD - Alternative Investment Fund Managers Directive
BSRT - Baker Steel Resources Trust Limited
Commission - Guernsey Financial Services Commission
DRAVs - Development Risk Adjusted Values
DRC -- Democratic Republic of Congo
EU - European Union
EGM - Extraordinary General Meeting
FCA - Financial Conduct Authority
FRC - Financial Reporting Council
FVO - Fair value option
FVOCI- Fair value through other comprehensive income
FVTPL - Fair value through profit or loss
GFSC - Guernsey Financial Services Commission
GFSC Code - Guernsey Financial Services Commission Code of
Corporate Governance
g/t - Grams per tonne
IAS - International Accounting Standards
ITG - IFRS Transition Resource Group of Impairment of Financial
Instruments
IFRS - International Financial Reporting Standards as adopted by
the European Union
IndexVal - Where there have been no known transactions for 6
months, at the Company's half year and year-end, movements in
IndexVal will generally be taken into account in assessing Fair
Value where there has been at least a 10% movement in IndexVal over
at least a six month period. The IndexVal results are used as an
indication of trend and are viewed in the context of investee
company progress.
IPO - Initial Public Offering (stock market launch)
JORC - AUSTRALASIAN JOINT ORE RESERVES COMMITTEE
The Code for Reporting of Mineral Resources and Ore Reserves
(the JORC Code) of the Australasian Joint Ore Reserves Committee
(JORC) is widely accepted as a standard for professional reporting
of mineral resources and ore reserves. Mineral resources are
classified as 'Inferred', 'Indicated' or 'Measured', while ore
reserves are either 'Probable' or 'Proven'.
Mt - million tonnes
NAV - Net Asset Value
NI 43 -101 - CANADIAN NATIONAL INSTRUMENT 43-101
Canadian National Instrument 43-101 is a mineral resource
classification instrument which dictates reporting and public
disclosure of information in Canada relating to mineral
properties.
NAV Discount - NAV to market price discount The Net Asset Value
("NAV") per share is the value of all the investment company's
assets, less any liabilities it has, divided by the number of
shares. However, because the Company's Ordinary Shares are traded
on the London Stock Exchange's Main Market, the share price may be
higher or lower than the NAV. The difference is known as a discount
or premium. The Company's discount is calculated by expressing the
difference between the period end share price and the period end
NAV per share as a percentage of the period end NAV per share
(2019: 0.32%, 2018: 0.32%).
OCI - Other comprehensive income
PEA - Preliminary Economic Assessment
SORP - Statement of Recommended Practice issued by The
Association of Investments Companies dated November 2014
UK Code - UK Corporate Governance Code published by the
Financial Reporting Council in September 2014.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEDSLFESSEIL
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