BlackRock World Mining Trust plc
LEI - LNFFPBEUZJBOSR6PW155
Annual Results
Announcement (Article 4 Transparency Directive, DTR 4.1)
for the year ended 31 December
2022
Performance record
|
As at
31 December
2022 |
As at
31 December
2021 |
|
| Net assets (£’000)¹ |
1,299,285 |
1,142,874 |
|
| Net asset value per ordinary share
(NAV) (pence) |
688.35 |
622.21 |
|
| Ordinary share price (mid-market)
(pence) |
697.00 |
589.00 |
|
| Reference Index2 – net
total return |
5,863.32 |
5,258.16 |
|
| Premium/(discount) to net asset
value3 |
1.3% |
(5.3)% |
|
|
--------------- |
--------------- |
|
| Performance (with dividends
reinvested) |
|
|
|
| Net asset value per
share3 |
+17.7% |
+20.7% |
|
| Ordinary share
price3 |
+26.0% |
+17.5% |
|
| Reference Index2 |
+11.5% |
+15.1% |
|
|
--------------- |
--------------- |
|
| Performance since inception (with
dividends reinvested) |
|
|
|
| Net asset value per
share3 |
+1,413.6% |
+1,187.8% |
|
| Ordinary share
price3 |
+1,535.8% |
+1,198.1% |
|
| Reference Index2 |
+979.6% |
+868.2% |
|
|
========= |
========= |
|
|
For the
year ended
31 December
2022 |
For the
year ended
31 December
2021 |
Change
% |
| Revenue |
|
|
|
| Net revenue profit after taxation
(£’000) |
76,013 |
78,910 |
-3.7 |
| Revenue return per ordinary share
(pence)4 |
40.68 |
43.59 |
-6.7 |
|
--------------- |
--------------- |
--------------- |
| Dividends per ordinary share
(pence) |
|
|
|
| – 1st interim |
5.50 |
4.50 |
+22.2 |
| – 2nd interim |
5.50 |
5.50 |
– |
| – 3rd interim |
5.50 |
5.50 |
– |
| – Final |
23.50 |
27.00 |
-13.0 |
|
--------------- |
--------------- |
--------------- |
| Total dividends paid and
payable |
40.00 |
42.50 |
-5.9 |
|
========= |
========= |
========= |
1
The change in net assets reflects portfolio movements, share
reissues and dividends paid during the year.
2
MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total
return). With effect from 31 December
2019, the Reference Index changed to the MSCI ACWI Metals
& Mining 30% Buffer 10/40 Index (net total return). Prior to
31 December 2019, the Reference Index
was the EMIX Global Mining Index (net total return). The
performance returns of the Reference Index since inception have
been blended to reflect this change.
3
Alternative Performance Measures, see Glossary in the Annual Report
and Financial Statements.
4
Further details are given in the Glossary in the Annual Report and
Financial Statements.
CHAIRMAN’S STATEMENT
HIGHLIGHTS
- NAV per share +17.7%1 (with
dividends reinvested)
- Share price +26.0%1 (with
dividends reinvested)
- Total dividends of 40.00p per share
PERFORMANCE
I am pleased to report that your Company has reported another year
of excellent performance. Over the twelve months to 31 December 2022, the Company’s net asset value
per share (NAV) returned +17.7%1 and the share price
+26.0%1. In comparison, over the same period, the
Company’s reference index, the MSCI ACWI Metals & Mining 30%
Buffer 10/40 Index (net total return), returned +11.5%, the FTSE
All-Share Index returned +0.3% and the UK Consumer Price Index
(CPI) increased by 9.2%.
OVERVIEW
As the Company’s financial year began, the mining sector held up
better than broader equity markets, which recorded their worst
month since March 2020, when more
widespread public health measures were introduced following the
outbreak of the COVID-19 pandemic. Supply constraints, coupled with
increasing demand as post-COVID-19 economic activity restarted,
caused inflation to rise sharply and the geopolitical events of
early 2022, with Russia’s unprovoked invasion of Ukraine, exacerbated an already challenging
market environment. For much of the previous decade, markets have
been characterised by low inflation and very low interest rates,
but the resulting rise in energy and food prices pushed inflation
in the UK to a 41-year high in October
2022. This, when added to higher interest rates, had a
pronounced impact on equity markets and caused a deep fall in
households’ real disposable incomes.
Given the aforementioned headwinds, it is extremely impressive
that the mining sector delivered such strong gains in absolute
terms and when compared with the wider market. It is also important
to remember that China, the
world’s largest consumer of mined commodities, remained in varying
stages of lockdowns for most of the year. Miners should be
applauded for being responsible in capital allocation and balance
sheet discipline during the prevailing market environment. Whilst
this practice is encouraging, companies will be compelled to invest
in growth in the medium to long term. The sector was also aided by
supply constraints across a number of commodities which kept prices
higher and the continued growth in demand for mined commodities for
the transition to net zero carbon emissions. Encouragingly, the
Company’s mining holdings outperformed during the year, including
the contribution from our unquoted investments.
1 Alternative Performance
Measures. All percentages calculated in sterling terms with
dividends reinvested. Further details of the calculation of
performance with dividends reinvested are given in the Glossary in
the Annual Report and Financial Statements.
REVENUE RETURN AND DIVIDENDS
This year was the second best year in the Company’s history for
income and only marginally short of last year’s record.
Collectively, the balance sheets of mining companies have never
been stronger, reflecting tight financial discipline and strength
in commodity prices. By prioritising financial stability and
investor returns over growth, the mining sector has enabled
investors to continue to share in the fundamentals benefiting the
underlying companies.
The Company’s revenue return per share for the year amounted to
40.68p compared with 43.59p for the previous year, representing a
slight decrease of 6.7%. During the year, three quarterly interim
dividends of 5.50p per share were paid on 30
June 2022, 30 September 2022
and 22 December 2022. The Board is
proposing a final dividend payment of 23.50p per share for the year
ended 31 December 2022. This,
together with the quarterly interim dividends, makes a total of
40.00p per share (2021: 42.50p per share) representing a small
decrease of 5.9% on payments made in the previous financial year.
As in past years, all dividends are fully covered by income. In
accordance with the Board’s stated policy, the total dividends
represent substantially all of the year’s available income.
Subject to approval at the Annual General Meeting, the final
dividend will be paid on 26 April
2023 to shareholders on the Company’s register on
10 March 2023, the ex-dividend date
being 9 March 2023. It remains the
Board’s intention to seek to distribute substantially all of the
Company’s available income along similar lines in the future.
GEARING
The Company operates a flexible gearing policy which takes into
account prevailing market conditions. It is not intended that
gearing will exceed 25% of the net assets of the Group. Gearing at
31 December 2022 was 9.6%. Average
gearing over the year to 31 December
2022 was 11.2%.
MANAGEMENT OF SHARE RATING
The Board recognises the importance to investors that the market
price of the Company’s shares should not trade at a significant
premium or discount to the underlying NAV. Accordingly, in normal
market conditions, the Board may use the Company’s share buyback,
sale of shares from treasury and share issuance powers to ensure
that the share price is broadly in line with the NAV, if it is
deemed to be in shareholders’ interests.
I am pleased to report that during the year the Company reissued
5,071,920 ordinary shares from treasury for a net consideration of
£34,902,000, at an average price of 688.14p per share and an
average 1.3% premium to NAV. Since the year end up to 2 March 2023, a further 150,000 shares have been
reissued from treasury at an average premium over NAV of 1.5%, at
an average price of 717.50p for a total consideration of
£1,086,000. As at 28 February March
2023 the discount stood at 0.2%.
Resolutions to renew the authorities to issue and buy back
shares will be put to shareholders at the forthcoming Annual
General Meeting.
BOARD COMPOSITION
Russell Edey has informed the Board
of his intention to retire as a Director of the Company following
the Annual General Meeting in April
2023 and, accordingly, will not be seeking re-election.
Russell joined the Board in May 2014
and has acted as Chairman of the Audit Committee and Management
Engagement Committee and Senior Independent Director since
May 2020. The Board would like to
express its strong appreciation for Russell’s wise counsel and
invaluable contribution to the Company.
The Board has commenced a search to identify a new Director and
a further announcement will be made in due course. Following Mr
Edey’s retirement, Mr Venkatakrishnan will be appointed as Chairman
of the Audit Committee. Ms Lewis will become Chair of the
Management Engagement Committee and Ms Mosely will become the
Company’s Senior Independent Director.
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting (AGM) will be held at the
offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 18 April 2023 at 11.30
a.m. Details of the business of the meeting are set out in
the Notice of Meeting in the Annual Report and Financial
Statements.
Shareholders who intend to attend the AGM should ensure that
they have read and understood the venue requirements for entry to
the AGM. These requirements, along with further arrangements for
the AGM, can be found in the Directors’ Report in the Annual Report
and Financial Statements. In the absence of any reimposition of
COVID-19 restrictions, the Board very much looks forward to meeting
with shareholders at the AGM.
OUTLOOK
The impact of the COVID-19 pandemic has receded, but the recovery
of the global economy has been hindered by geopolitical tensions
and rising interest rates. Since recognising the urgent need for
policy tightening to combat inflationary pressures on the back of
soaring prices, the US Federal Reserve has raised interest rates at
the fastest pace in more than three decades, with most other major
developed central banks following suit. High inflation has sparked
cost-of-living crises and slowing global growth and, although
central banks are forecast to slow the rate of interest rate
increases, the possibility of recession for developed markets
looms.
Whilst the macro environment in developed market economies
continues to present near-term headwinds for commodity markets, the
structural backdrop with low inventories, limited investment in new
production and a more rapid recovery in China than expected, are supportive tailwinds.
The energy transition will require enormous scale of investment by
mining companies over the coming decades. Mining companies are in
an excellent financial position, with high levels of free cash flow
and solid balance sheets and these factors combined with the above
potential tailwinds could be a major factor in how 2023 shapes up
for the sector.
Against this backdrop, our Investment Manager remains cautiously
optimistic for the mining sector. The Board is also confident that
the Company remains well-placed to benefit from the transition to
net zero carbon emissions which will continue to create investment
opportunities in those companies that service the associated supply
chains.
DAVID CHEYNE
Chairman
2 March 2023
INVESTMENT MANAGER’S REPORT
PORTFOLIO PERFORMANCE
We are pleased to report another strong year of absolute returns
for the Company in 2022. The year also marked a record in terms of
another all-time high in NAV and share price total returns as,
since the Initial Public Offering (IPO) of the Company in 1993 at
100p per share, the shares have delivered a NAV total return of
1412.5% and a share price total return of 1535.8% against a
reference index total return of 979.6%. In addition, the year was
also significant for income after the record-breaking numbers in
2021. Despite not quite matching last year’s record, the total was
well in excess of expectations with all parts of the strategy
contributing. Also, like last year, the performance was split into
distinct periods with excellent gains made during the first four
months, followed by falls during the summer before a decent rally
in the final quarter. This volatility allowed us to take advantage
of opportunities by adjusting holdings, as well as selling
volatility out to the market using options. It is also important to
remember that the Company delivered these gains against a broader
market backdrop of strongly negative returns across not just
equities but also fixed income making the relative return very
valuable to investors.
COMMODITY PRICE MOVES
|
31 December
2022 |
% Change in
2022 |
% Change
average
prices 2022 vs 2021 |
| Commodity |
|
|
|
| Gold US$/oz |
1,815.6 |
-0.4% |
+0.1% |
| Silver US$/oz |
23.75 |
2.1% |
-13.3% |
| Platinum US$/oz |
1,065 |
11.1% |
-11.8% |
| Palladium US$/oz |
1,788 |
-9.4% |
-12.1% |
| Copper US$/lb |
3.79 |
-14.1% |
-5.2% |
| Nickel US$/lb |
13.56 |
+43.3% |
+42.1% |
| Aluminium US$/lb |
1.07 |
-16.3% |
+9.3% |
| Zinc US$/lb |
1.36 |
-16.3% |
+16.0% |
| Lead US$/lb |
1.06 |
-0.1% |
-2.1% |
| Tin US$/lb |
11.23 |
-37.1% |
-3.3% |
| Baltic Freight Rate |
1,515 |
-31.7% |
-33.7% |
| West Texas Intermediate Oil
(Cushing) US$/barrel |
80.2 |
+6.7% |
+39.5% |
| Iron Ore fines 62% US$/t |
118 |
-3.7% |
-24.5% |
| Thermal Coal US$/t |
145.16 |
+18.5% |
+110.6% |
| Metallurgical Coal US$/t |
279.45 |
-24.5% |
+63.4% |
| Lithium US$/lb |
191.5 |
+101.6% |
+274.0% |
|
========= |
========= |
========= |
Sources: Datastream and Bloomberg, December 2022.
Looking at the year more broadly, it was driven by a shifting
macro backdrop and a sharp uptick in geopolitical tensions. The
former saw interest rates rise across the world causing equities to
derate on the back of both a higher cost of capital but also fears
of recessionary impacts to profit margins. These issues were
further compounded by the invasion of Ukraine by Russia which triggered a range of consequences
from spikes in oil prices, huge volatility in European power costs
and shortages of natural resources from oil/gas/metals/fertilizers
etc. China was also impacted by
their zero COVID-19 policy which badly damaged their economic
growth. Given all of the above it is even more remarkable that the
mining sector not only managed to navigate its way through this
unscathed, but also posted such a strong year of gains and
dividends. Credit must go to the executive teams who have stayed
the course of disciplined capital allocation and strong balance
sheets, as without this the sector would surely have come unstuck
given the huge macro challenges.
It would be remiss not to highlight the contribution from the
investments in illiquid assets during 2022. During the year two
companies, Ivanhoe Electric and Bravo Mining, completed successful
IPOs at big premiums to the entry prices paid by the Company. This
happened despite the difficult conditions in financial markets and
is testament to the quality of the opportunities each company has
exposure to. In addition, Jetti Resources completed a successful
capital raise at a substantial premium to their last round and with
more trial projects moving into commercial discussion the outlook
remains encouraging. There is more detail on the illiquid portfolio
later in this report.
For the year as a whole, the NAV of the Company was up by 17.7%
with income reinvested and the share price total return was 26.0%.
This compares to the FTSE 100 rising 4.7%, the Consumer Price Index
up by 9.2% and the reference index (MSCI ACWI Metals & Mining
30% Buffer 10/40 Index net total return) up by 11.5% (all
percentages calculated in sterling terms with dividends
reinvested).
PRESSURE BUILDING
2022 was a complicated year for the mining sector in many ways. If
one had known beforehand about the big macro headwinds such as
slower growth in China, rising
rates and recessionary conditions across the developed world, most
people would have expected mining shares to have delivered negative
returns for the year. Therefore, to see the leading sectoral gains
in financial markets for the year coming from natural resources
shares, with energy leading the way on the back of supply
disruption following Russia’s invasion of Ukraine, makes it easy to understand why
generalist investors missed the opportunity. It is also easy to
understand their reticence to buy after such a long period of
outperformance.
It is our belief that the trends of prior years, such as capital
discipline and strong balance sheets, have built strong foundations
for the sector and it is these factors that drove the
outperformance in 2022. For example, if mining companies had gone
into the year with large capital spending plans and high levels of
debt, share prices would have fallen as sharply as in similar
periods from the past. The work that has been done to entrench
capital discipline, combined with keeping stronger balance sheets,
in our view saved the day in 2022.
Another output of the improved capital allocation decisions has
been a lower level of reinvestment into production. This has
allowed free cash flow to grow, but, more importantly, it has meant
limited new supply growth across the industry. Given that the world
economy now needs commodities to build the projects for the energy
transition, the absence of new supply has left commodity markets
extremely tight. In fact, at the end of 2022, inventories at London
Metal Exchange warehouses were at 25-year lows. Available
inventories for aluminium, copper, nickel and zinc decreased by
over two-thirds during the year. The low levels of stockpiles
reflect a tension that has kept traders and consumers gripped as
demand weakened (due to China
economic slowdown and recessionary fears in developed markets), but
constrained supplies kept prices at levels higher than
expected.
It is our expectation that the supply constraints are unlikely
to ease during the next few years due to the scarcity of “shovel
ready” projects and high permitting barriers. This has left
companies focused on growth needing to revisit mergers and
acquisitions (M&A), as producing assets valued in the equity
markets often trade below the cost of building new capacity. In
Australia, BHP managed to agree
terms to buy OZ Minerals after many months of discussions. The deal
looks set to complete in 2023 and the Company has benefited
materially from this deal due to having a large holding in OZ
Minerals. It is hard to see other deals happening due to the small
number of listed copper producers and fears of resource nationalism
that continue to add risk to moving capital into more remote
regions e.g. the threat of closing First Quantum’s new Cobre de
Panama mine.
Outside of sector specific issues, the geo-political tensions
caused by Russia’s invasion of Ukraine further tightened markets due to the
sanctions imposed by other countries. This disrupted commodity
supply chains at a time when markets were already tight, further
supporting prices at a time when economic weakness would normally
have seen them fall. As the year developed, prices did cool during
the summer, only to recover in Q4 2022 as China started to ease COVID-19 restrictions.
It will be interesting to see the impact that post COVID-19 Chinese
demand has on metals markets.
ESG ISSUES AND THE SOCIAL LICENSE TO OPERATE
Information on the way in which the Company seeks to manage risks
related to ESG (Environmental, Social and Governance) and the
social license to operate is covered in further detail in the
Strategic Report within the Annual Report and Financial Statements.
The Investment Manager also seeks to understand the ESG risks and
opportunities facing companies and industries in the portfolio. As
an extractive industry, the mining sector naturally faces a number
of ESG challenges given its dependence on water, carbon emissions
and geographical location of assets. However, we consider that the
sector can provide critical infrastructure, taxes and employment to
local communities, as well as materials essential to technological
development, enabling the carbon transition through the production
of the metals required for the technology underpinning that
transition.
The Investment Manager considers ESG insights and data,
including sustainability risks, within the total set of information
in its research process and makes a determination as to the
materiality of such information as part of the investment process
used to build and manage the portfolio. Further information on the
Investment Manager’s approach to ESG integration is set out in the
AIFMD Fund Disclosures in respect of the Company, available on the
Company’s website. ESG insights are not the sole consideration when
making investment decisions but, in most cases, the Company will
not invest in companies which have high ESG risks (risks that
affect a company's financial position or operating performance) and
which have no plans to address existing deficiencies.
- The Investment Manager is also
engaging with the executives of portfolio companies in which the
Company invests to understand how their current business plans are
compatible with achieving a net zero carbon emissions economy by
2050.
- There will be cases where a serious
event has occurred and, in that case, the Investment Manager will
assess whether the relevant portfolio company is taking appropriate
action to resolve matters before deciding what to do.
- There will be companies which have
derated (the downward adjustment of multiples) as a result of an
adverse ESG event or due to generally poor ESG practices where
there may consequently be opportunities to invest at a discounted
price. However, the Company will only invest in these value-based
opportunities if the portfolio managers are satisfied that there is
real evidence that the relevant company’s culture has changed and
that better operating practices have been put in place.
- Given the activities that mining
companies undertake, negative ESG events can occur. However, there
were very few company-specific events in 2022. This meant that
ongoing engagement focused mainly on the Company’s holdings
approach to the energy transition and how they plan to not only
benefit from the opportunities but also how they are going to
decarbonise their own operations.
During the year the main areas of focus in relation to ESG risks
and issues remained on Rio Tinto and Vale. By way of an update, at
Rio Tinto work is ongoing with historical owners, including the
establishment of the Juukan Gorge Legacy Foundation, which will
support major cultural and social projects. At Vale, the company
has continued its journey to raise its ESG profile following the
tragic tailings related events from the last decade. Further
changes have also been made to the Vale board and its operating
structure. The company was also upgraded by Fitch on the back of
the work they have done to improve their ESG track record.
PRICE WEAKNESS BUT STRONG MARGINS
2022 saw prices generally down for the year as a whole, as well as
lower average prices versus the prior year. However, it is
important not just to look at the moves in isolation. For example,
the average price of copper in 2022 was down 5.2% compared with
2021 but the actual level of US$4.2/lb was the second highest average price
ever, leaving companies enjoying healthy margins. The opposite is
true for nickel where the prices were up year-on-year but the
average price was not as high as it had been in the past, but still
at extremely profitable levels for producers.
In precious metals, gold was the standout as the average price
was flat for the year compared to silver, platinum and palladium
which were all lower. However, gold companies seem to have suffered
more from cost inflation as they did not go into the inflationary
environment with levels of profitability as high as their
industrial peers.
The standout commodity for the year was lithium, as the price
soared driven by demand exceeding estimates as electric vehicle
(EV) adoption rates increased across the world. In fact, the whole
battery material suite looks set to see strong demand as the
transition away from the combustion engine gathers pace.
DO NOT FORGET THE INCOME
In 2021 the Company received record levels of income as the
underlying investments paid surplus cash back to their investors.
Despite fearing that this would be a peak and 2022 might be less
favourable for investors, we are delighted to report that once
again companies honoured their commitments and continued with a
strategy of distributions. The chart in the Annual Report and
Financial Statements compares the payments received in 2021 and
2022 versus the average payments received by the Company in prior
years. It is clear just how much higher these last two years have
been and it is testament to the hard work done during earlier years
that has left the companies in a position to deliver this.
It is also important to note how the portfolio investments have
generally moved to a more shareholder friendly strategy. In 2021
82% of the Company’s assets were exposed to companies paying
dividends versus only 68% in 2013. Part of this change has been due
to changes in the portfolio, but by far the majority has come from
more and more companies moving to dividend paying mode as project
capital expenditure and debt repayment needs declined. In summary,
the combination of more companies paying dividends, combined with
diversification into royalties, should build in some resilience to
general economic risks.
THE ENERGY TRANSITION
As alluded to earlier, the energy transition continues to gather
pace. EVs are taking market share away from combustion engine
vehicles at levels well in excess of expectations. The roll out of
renewable power projects and related infrastructure is happening
far quicker than planned. This has in part been driven by a desire
by European countries to diversify away from Russian supplied
fossil fuels and the fact that with fossil fuel prices so high
renewable power is substantially more cost effective, not to
mention helping countries/companies to meet their net zero
commitments.
Despite the positive news from 2022, it is clear that we remain
very close to the start of the energy transition cycle given the
enormous scale of investment that is going to be needed over the
coming decades. Looking at the data for renewable power, it is
increasingly obvious how much more resource intensive it is (see
charts in the Annual Report and Financial Statements). On top of
this there will also be commodity demand from battery storage needs
and the buildout of the hydrogen economy.
It is also essential for mining companies to embrace the need to
decarbonise their own operations as future demand is likely to seek
out supply from companies that do not just meet quality but also
have green credentials. This move from “Brown to Green” presents a
range of investment opportunities for the Company both in trying to
reduce the heavy discount rates applied to carbon intensive
production techniques, as well as new technologies that could solve
some of the more damaging historical processes.
BASE METALS
It was a volatile year for base metals with prices starting the
year well on strong western world demand and risks around supply
amplified with the invasion of Ukraine. However, as we approached the middle
of the year, the macro-outlook began to deteriorate with COVID-19
lockdowns in China, further
weakness in the Chinese property market and interest rate increases
to tame inflation which led to concerns around global growth,
particularly in Europe as energy
prices became an increasing toll on consumer and economic activity.
This resulted in peak to trough declines of 30% to 40% across the
base metal complex, which combined with supply challenges, cost
inflation and royalty increases created a difficult environment for
the producers. Given this, share prices fared far better than might
have been expected, a reflection of the balance sheet strength of
the producers and improving outlook for demand.
Encouragingly, as we approached the year end, several measures
announced by the Chinese government to support the economy,
including relaxation of its zero COVID-19 policies, buoyed
sentiment with prices rallying from their Q3 lows. Interestingly,
when we look at the overall price performance for the year as shown
in the table in the Annual Report and Financial Statements, while
the majority of base metal prices finished the year lower, with the
exception of nickel, the average price received in 2022 was higher
than the prior year, supporting earnings for the producers. As we
look forward into 2023 and the potential impact of China re-opening, not only do we expect to see
a year-on-year pick-up in underlying demand, but also a re-stocking
of commodities such as copper and aluminium assuming China reverts back to its pre-COVID-19 levels
of inventory cover. Given the tightness in physical markets and low
level of base metal inventories today, this creates upside risk to
commodity prices over the next two years if Chinese growth
stabilises and the slowdown in the US economy is not
protracted.
The copper price started the year strongly reaching US$4.85/lb in early March, to subsequently trade
between US$3.25/lb to US$3.70/lb for much of the second half before
rallying to US$3.79/lb at the end of
the year as China looked to
stabilise its economy. Whilst the absolute copper price is high
versus history, the cumulative impact of cost inflation over the
last five years has seen a step change in the operating cost base
of the industry with several mines operating at cash breakeven
levels during the low copper prices of Q3.
Copper is a clear beneficiary of the energy transition with more
than 65% of copper used for applications that deliver electricity,
whilst at the same time the industry is facing mine supply
challenges resulting in a material deficit in the market longer
term. This is driven by a lack of new greenfield copper projects,
as well as deteriorating performance at existing assets,
particularly in Chile. The
expectation was for 2022 to deliver a step-up in copper supply with
new projects such as QB2 (Teck Resources) and Qualleveco
(Anglo American) due to come online.
However, as we approached the year end, a swathe of production cuts
has delayed growth until 2023/2024, leaving the physical market
tight with a lack of inventory becoming an increasing issue for
industrial users. Given the significant copper supply gap estimated
longer term (3.5Mt gap estimated by Macquarie Bank by 2030), we
continue to believe that copper prices need to remain above
incentive prices to induce new supply into the market which is an
attractive position for existing low-cost producers.
As at the end of December 2022,
the Company had 22.0% of the portfolio exposed to copper producing
companies which modestly detracted from performance for the year.
The Company’s second largest copper exposure Freeport-McMoRan (4.0%
of the portfolio) continued to deliver operationally at Grasberg,
as well as executing on their US$3
billion buyback which they announced in late 2021. Among our
other copper producers, Ivanhoe
Mines (1.8% of the portfolio) have continued to surpass the
market’s expectation on the ramp-up of Kamoa-Kakula, underpinning
our confidence in the management team’s ability to deliver value
from their other assets including the Western Forelands in the
future. Among our mid-cap holdings in the portfolio, there was
exceptional performance from Ivanhoe Electric which held an IPO
during the year delivering close to a 100% return from our pre-IPO
investment, as well as Jetti Resources which raised US$100 million at a substantially higher level
than our entry price. Both are discussed in detail in the unquoted
section of the report. The portfolio has also benefited from
M&A activity during the year following BHP’s cash offer for OZ
Minerals (1.2% of the portfolio) that was recommended by the OZ
Minerals Limited board in December
2022. Strategically the transaction brings significant
benefits to BHP given the proximity of OZ Minerals’ assets to BHP’s
Olympic Dam operation in South
Australia and supports the build-out of an Australian based
copper basin for BHP in the years ahead. OZ Minerals have been an
exceptionally strong performer over a number of years where the
Company benefited from the re-rating of the company as they
delivered operationally, and they were also the operator of the OZ
Minerals Brazil Royalty when they acquired Avanco Resources in
2018.
The aluminium price finished the year down by 16%, facing
similar global growth headwinds as the copper market. In the first
half of the year there were fears that Russian exports of primary
aluminium might be impacted by sanctions which supported prices.
However, whilst certain companies have chosen not to purchase
Russian material, there have been no sanctions imposed directly on
Russian aluminium exports and these tonnes have still entered the
market. With power a major cost component for aluminium smelters,
higher energy costs have resulted in 1.2mtpa of capacity curtailed
in Europe. At an aluminium price
of US$2,500/tonne, WoodMac estimates
that 30% of smelters are loss making on a full cost basis, which
provides a level of downside protection to the price. However,
increasing aluminium exports from China this year has largely capped the price.
As China’s domestic demand improves into 2023, we would expect
exports to moderate, which in turn should support prices. The
Company has exposure to two aluminium producers Alcoa (1.2% of the
portfolio) and Norsk Hydro (2.1% of the portfolio) both of which
have access to renewable, low cost energy for the majority of their
production, leaving them well positioned in the current environment
of high energy costs and longer term as the market places a greater
cost on carbon.
Nickel prices have been very volatile this year where a short
squeeze temporarily drove prices above US$100,000 a tonne before the LME suspended the
market and cancelled some trades in March. Similar to aluminium,
Russia is also a significant
producer of nickel, but we are yet to see any supply disruptions.
Overall, the nickel price finished the year up by 43% with the
market becoming increasingly aware of the longer-term deficit
building for high grade nickel used in batteries. In Q4 2022, the
Company made an investment in Lifezone which announced a business
combination with a Special Purpose Acquisition Company (SPAC)
GoGreen Investments which is listed on the New York Stock Exchange.
Lifezone has a controlling shareholding in Kabanga, the largest and
highest-grade undeveloped nickel project globally, located in
Tanzania. The project has
significant backing from BHP the world’s largest mining company
which has invested US$100 million
into the asset at a see-through valuation of US$627 million to acquire 14.3% of the project,
with the option to acquire a 51% interest once the feasibility
study is completed by the end of 2023.
BULK COMMODITIES AND STEEL
It was a challenging year for the iron ore market with average
prices 24.5% lower year-on-year, with demand undermined by China’s
zero COVID-19 policy and ongoing weakness in China’s key steel
intensive property sector. Whilst the market enjoyed a post Beijing
Winter Olympics restock in first quarter seeing prices hold a
healthy range between US$120-140/tonne during the first half of the
year, they subsequently averaged below US$100/tonne during the second half of the year
bottoming at US$80/tonne in the third
quarter as Chinese steel margins turned negative and uncertainty
around China’s COVID-19 policy saw further de-stocking by
customers.
China’s shift in COVID-19 policy and further support announced
for the property sector at the end of the year, has seen prices
rally back above US$100/tonne as the
market looks to price in the impact of China re-opening. As we look into 2023, we
expect to see a recovery in construction activity, which combined
with first quarter seasonality in the iron ore market with both
Brazilian and Australian tonnes exposed to weather events, it
provides a constructive backdrop for the price during the first
half of the year. Among the ‘big 4’ producers there is modest (~1%)
growth in supply this year which will be second half weighted and
we continue to see the producers being disciplined around volumes
which should be supportive of the price over the medium term.
During the course of the year, we had the opportunity to visit
BHP’s and Rio Tinto’s key iron ore assets in the Pilbara Region of
Western Australia which enabled us
to learn more about the world class size and grade of these assets,
their approach to ESG and the focus on decarbonising their
operations.
The Company’s exposure to iron ore is in the diversified majors
BHP, Vale and Rio Tinto, which have performed well this year
returning 30%, 35% and 19% respectively. In addition, the Company
has exposure to two pure play high grade iron ore producers
Champion Iron and Labrador Royalty Company which have returned 41%
and -6% respectively, as well as Mineral Resources which is looking
to grow its iron ore business alongside its lithium, mining service
and gas business which finished the year up by 45%.
Coal markets have been one of the most interesting commodity
markets over the last couple of years with record prices achieved
for both metallurgical and thermal coal during 2022. Thermal coal
markets have benefited from tightness in global energy markets
particularly in Europe due to the
ban of Russian coal imports, limited supply growth due to ESG
pressures and higher than normal levels of rainfall in Australia which accounts for 60% of seaborne
supply. With levels of gas storage in Europe above average levels at the end of
2022, we have seen European gas prices decline which poses a risk
to thermal coal prices. However, given the tightness in the market
for high grade Australian thermal coal, prices have held at a
record level of ~US$400/tonne at the
end of 2022. As we look into 2023, we continue to see a tight
market for thermal coal given much of Europe’s coal and inventory
build was sourced from Russia, but
with supply from Australia
expected to recover in 2023 after record rain impacts in 2022, a
moderation in thermal coal prices from record levels is likely.
The Company’s thermal coal exposure is via our 7.7% position in
Glencore, which is using elevated thermal coal prices to deleverage
the business and remains focused on decreasing its coal exposure
overtime. Glencore has indicated that they intend to return excess
cashflow above their net debt target of US$10 billion. This implies a 15% capital return
yield for 2022 which is industry leading and will result in a circa
10% decline in their share capital outstanding. The Company has no
exposure to pure play thermal coal producers.
The seaborne metallurgical coal price reached a new all-time
high during the first half of the year at circa US$500/tonne, supported by Russian supply
concerns (5% of global supply), tightness in the thermal coal
market, as well as the flooding in Australia which impacted supply. However, as
we moved into the second half of the year, prices moderated as
weaker steel demand in Europe
began to bite with the metallurgical coal price finishing the year
at US$295/tonne (Premium Hard Coking
Coal, FOB). During the course of the year, we saw a number of
production downgrades announced including Anglo American reducing volume guidance for its
Grosvenor mine in Queensland and
Teck Resources reducing guidance at Elkview due to operational
issues. This, combined with limited investment into new supply and
seasonal weather events, leaves the coking coal market susceptible
to upside spikes in prices which has been a consistent feature of
this market in recent years. The Company’s exposure to
metallurgical coal remains in the two leading producers of BHP and
Teck Resources which have been able to generate very strong levels
of free cash flow from their coking coal businesses to support
returns to shareholders. (All data reported in pounds sterling
terms.)
PRECIOUS METALS
The last three years have seen a largely rangebound price
environment for precious metals, with the average annual gold price
between 2020 to 2022 within 1.7% of each other in US dollar terms.
This is a remarkable level of stability for a commodity, with the
gold price driven by two opposing forces over the last year. On the
positive side we have seen rising inflation, elevated geopolitical
and market risk, while on the other hand the impact of interest
rate hikes to combat inflation which has seen real rates for
Government bonds flip from negative to positive over the course of
the year. As we approached the year end, we saw the gold price
rally and breakthrough US$1800/oz on
the back of China’s reopening news, the knock-on impact from a
weaker US dollar and the potential for the Federal Reserve (the
Fed) to slow the pace of interest rate hikes as inflation started
to moderate.
With positive real interest rates in the US and most global
economies, the appeal for non-yielding gold in the short term is
limited. The performance of gold over the next 12 months is likely
to be driven by the Fed’s ability to tame inflation and whether
they can effectively bring down inflation to their targeted level,
or whether inflation remains at a structurally higher level than in
the past which should raise inflation expectations supportive of
the gold price.
An encouraging feature of the gold equity market over recent
years has been the increased focus on shareholder returns, free
cash flow and dividends. However, results in 2022 have shown margin
compression due to rising labour, energy and other input costs.
Whilst the portfolio has continued to hold a lower allocation
(13.0%) to gold companies versus a similar time last year (16.4%)
we have maintained our strategy of focusing on high quality
producers which have an attractive operating margin and solid
production profile and resource base. This includes the Company’s
exposure to the royalty companies Franco Nevada (2.6% of the
portfolio) and Wheaton Precious Metals (2.3% of the portfolio)
which outperformed the gold equities during the year given their
stronger margins and lack of exposure to cost inflation. In
addition, the Company’s exposure to Endeavour Mining (0.6% of the
portfolio) and Northern Star Resources (1.2% of the portfolio),
both mid-cap growth focused gold companies, added to performance as
the benefit of volume growth helped offset some of the cost
inflation in the sector.
Demand for the Platinum Group Metals (PGMs) continues to be
impacted by the weakness in global auto production and the share
gains from electric vehicles (over internal combustion engines)
which do not use PGMs. While Russia is a major producer of PGMs, accounting
for 40% of global palladium production, there has been minimal
impact to Russian PGM supply. During 2022 there was mixed
performance from the PGMs with the platinum price (+11%)
outperforming the palladium price (-9%).
We continue to remain positive on the medium-term outlook for
the PGMs and believe the PGM basket will remain high relative to
history given limited new supply and increasing PGM loadings for
auto catalysts to meet rising emissions standards. The Company has
reduced its exposure to pure play PGM producers during the year
which represented 2.0% of the portfolio at the year end. In
addition, the Company has exposure to PGMs via its holding in
Anglo American (5.2% the portfolio)
which owns 79% of Anglo American Platinum. The standout performer
among our PGM exposure during the year was our investment in Bravo
Metals, a PGM exploration company focused on the Luanga project in
Brazil which they acquired from
Vale. As outlined in the unquoted section of the report, the
company’s IPO during the year resulted in a 170% uplift from our
pre-IPO investment made in early 2022 and finished the year above
its IPO price with early results from its drilling campaign
confirming and, in a number of instances, exceeding the historical
drilling results from Vale showing previously unidentified rhodium
and nickel sulphide mineralisation in the assay results.
ENERGY TRANSITION METALS
Growth in battery electric vehicles (BEVs) continued in 2022,
creating significant demand for the materials that enable that
transition. Demand for pure battery electric vehicles grew 40% in
2022 to 267,000 units (16% of all new car registrations in 2022),
with demand for plug-in hybrids also growing. This growth has been
mainly driven by China, with
Europe and the US lagging. We
expect this structural growth to continue and accelerate
particularly in the US, driven by increased model launches,
strengthening consumer preference due to technological advantage
and government policy. Of particular note in 2022, was the
announcement of the US Inflation Reduction Act. As well as other
climate change related measures, this policy supports EV demand
through significant subsidies of up to US$7,500 per car. This is expected to support US
BEV demand in 2023. The Company has exposure to the raw materials
that go into EV batteries and the e-motor.
Lithium is a critical component of an EV battery and demand for
lithium has been strong this year with the market firmly in deficit
and benchmark Chinese prices reaching all-time highs in November,
finishing 2022 up by 101.6%. The Company added to its lithium
holdings in late 2021, establishing a position in SQM and Sigma
Lithium both of which have performed well in this environment
returning 78% and 207% respectively (GBP returns). We also added a
new position in relative underperformer Albemarle in June and
Mineral Resources in October, as they too stand to benefit from the
continued tight demand supply situation in lithium, as well as
their own volume growth. The Company has a 2.1% position across its
lithium holdings.
A critical component of the electric car is also the e-motor,
which most commonly uses a Praseodymium-Neodymium (NdPr) magnet, an
alloy of two rare earth elements (REE). REE are commonly mined and
processed in China and have been
deemed of strategic importance by both Europe and the US. The Company has exposure to
REEs through Lynas, a REE miner and processor crucially based in
Malaysia and Australia. In 2022 Lynas equity fell by 19.1%,
but the company announced in June that they had won a contract from
the US Department of Defence to deliver a US rare earth separation
facility, underscoring the strategic growth opportunity.
EV battery raw materials include cobalt, where LME prices fell
by 26.3% as supply increased faster than demand; the market is
moving to lower cobalt intensity cathode materials with higher
nickel or lithium iron phosphate chemistry (LFP). Supply growth is
set to continue with cobalt being a by-product of many of the
Indonesian nickel projects announced and currently ramping. In
addition, 2023 may be impacted by the release of 10,000 tonnes of
stockpiled cobalt from the Tenke mine in the Democratic Republic of the Congo (DRC) which
has been unable to export in the second half of 2022 due to a
government dispute. Glencore’s Mutanda mine in the DRC ramped-up
production in 2022, supporting circa 50% growth in cobalt
production in the first nine months of the year. Glencore, in which
the Company has a 7.7% position, saw its share price rise by 47.3%
during 2022. Glencore is a globally significant cobalt producer
which produced 22% of mine production in 2020 and this is set to
increase with Mutanda’s ramp-up.
ROYALTY AND UNQUOTED INVESTMENTS
Over the last year the Company has been busy growing the unquoted
part of the portfolio and we are delighted to report that this has
delivered great performance through a combination of IPOs,
financing valuation uplifts and strong income generation. As
mentioned in previous reports, the focus of the unquoted
investments is to seek to generate both capital growth and income
to deliver the superior total return goal for the portfolio.
Ongoing income from the royalty investments has continued with the
OZ Minerals Brazil Royalty starting to benefit from the ramp-up of
the Pedra Branca mine, whilst the Vale Debentures enjoyed a better
period of production despite lower iron ore prices
year-on-year.
Key highlights in the unquoted equity sleeve include Ivanhoe
Electric which completed its IPO in June despite the difficult
market conditions. This resulted in an increase in the value of the
holding of over 100% in less than 10 months since the position was
acquired. Elsewhere Bravo Mining completed its IPO in July at a
valuation 170% higher than the price paid for the shares in
May 2022. Both positions finished the
year at a price higher than IPO and will no longer be reported in
the unquoted section of the portfolio as they are now fully
tradeable securities. Jetti Resources completed its Series D
financing, raising US$100 million at
a substantial valuation uplift to our investment made at the
beginning of 2022. OZ Minerals received a takeover offer from BHP
which has been recommended by the OZ Minerals board and is expected
to complete in Q2 of 2023 which will see BHP become the operator of
the mines linked to our royalty.
As at the end of 2022, the unquoted and illiquid investments in
the portfolio amounted to 6.6% of the portfolio and consist of the
OZ Minerals Brazil Royalty, the Vale Debentures, Jetti Resources
and MCC Mining. These, and any future investments, will be managed
in line with the guidelines set by the Board as outlined to
shareholders in the Strategic Report.
We continue to actively look for opportunities to grow royalty
exposure given it is a key differentiator of the Company and an
effective mechanism to lock-in long-term income which further
diversifies the Company's revenues.
OZ MINERALS BRAZIL ROYALTY
CONTRACT
In July 2014 the Company signed a
binding royalty agreement with Avanco Minerals. The Company
invested US$12 million in return for
a Net Smelter Return (net revenue after deductions for freight,
smelter and refining charges) royalty payments comprising 2% on
copper, 25% on gold and 2% on all other metals produced from mines
built on Avanco’s Antas North and Pedra Branca licences. In
addition, there is a flat 2% royalty over all metals produced from
any other discoveries within Avanco’s licence area as at the time
of the agreement.
In 2018 Avanco was successfully acquired by OZ Minerals, an
Australian based copper and gold producer for A$418 million, with the royalty now assumed by OZ
Minerals. Since our initial US$12
million investment was made, we have received US$22.1 million in royalty payments, with the
royalty achieving full payback on the initial investment in 3½
years. As at the end of December
2022, the royalty was valued at £21.2 million (1.5% NAV)
which equates to a 297.1% return on the initial US$12 million invested.
In 2021 OZ Minerals achieved a significant milestone and
commenced mining of Pedra Branca ore. This year we have seen the
ramp-up progress ahead of plan with Pedra Branca on track to
achieve its 2022 guidance of 10-12kt copper and 8-10koz gold, with
the company targeting production beyond this level in 2023. We
continue to remain optimistic on the longer-term optionality
provided by the royalty via the development of Pedra Branca West, as well as greenfield
exploration over the licence area.
In August 2022, OZ Minerals
received an initial indicative proposal from BHP to acquire the
company in an all-cash deal at A$25
per share. This offer was rejected by the OZ Minerals board with
BHP submitting a revised offer of A$28.25 per share which was unanimously
recommended in November 2022. The
deal remains subject to approval by OZ Minerals shareholders with
the deal expected to close in Q2 2023. This will see BHP operate
the Brazilian assets and assume the royalty, consistent with the
mechanism used when OZ Minerals acquired Avanco in 2018. We believe
that BHP’s strong operating focus, balance sheet strength and ESG
credentials leaves the Brazilian operations in a very strong set of
hands.
VALE DEBENTURES
At the beginning of 2019, the Company completed a significant
transaction to increase its holding in Vale Debentures. The
Debentures consist of a 1.8% net revenue royalty over Vale’s
Northern System and Southeastern System iron ore assets in
Brazil, as well as a 1.25% royalty
over the Sossego copper mine. We consider that the iron ore assets
are world class given their grade, cost position, infrastructure
and resource life which is well in excess of 50 years. As at the
end of December 2022 the Company’s
exposure to the Vale Debentures was 2.6%.
Dividend payments are expected to grow once royalty payments
commence on the Southeastern System in 2024 and volumes from S11D
and Serra Norte improve into 2023 where project ramp-ups have been
challenged in 2022 by licencing requirements. In December, Vale
reduced its longer-term iron ore production profile in light of
licencing challenges and also a greater focus on high grade
material. This now sees Vale target modest volume growth from the
Northern System out to 2026, but the improvement in grade, to the
extent achieved, will aid received pricing that the royalty will
benefit from.
Despite the decline in iron ore prices during 2022, the
Debentures continue to offer an attractive yield of circa 10% based
on the 1H-22 annualised dividend. This is an attractive yield for a
royalty investment, with this value opportunity recognised by other
listed royalty producers, Franco Nevada and Sandstorm royalties,
which have both acquired stakes in the Debentures since the
sell-down occurred in 2021.
Whilst the Vale Debentures are a royalty, they are also a listed
security on the Brazilian National Debentures System. As we have
highlighted in previous reports, shareholders should be aware that
historically there has been a low level of liquidity in the
Debentures and price volatility is to be expected. However, we
expect this progressively to improve following the sell down in
April 2021.
IVANHOE ELECTRIC
In early August 2021 the Company made
a US$20 million investment
(equivalent to 1.3% of NAV) into Ivanhoe Electric, an exploration
and mining business focused on identifying and developing “electric
metals” (copper, nickel, gold and silver) required for the energy
transition. The exploration portfolio is focused in the US where
they have developed a proprietary exploration technology that has
the ability to identify mineral resources at greater depths than
existing methods. The team is led by Robert
Friedland who has a successful track-record of identifying
and developing world class mineral deposits such as Voisey’s Bay,
Oyu Tolgoi and Kamoa-Kukula.
In June 2022 Ivanhoe Electric
(2.4% of the portfolio) successfully completed an IPO at
US$11.75 per share. The Company’s
investment consisted of common shares of Ivanhoe Electric, as well
as convertible notes which convert at a discount to the IPO price
into Ivanhoe Electric shares with a total return of 91% on our
initial investment. During the course of 2022, the company has been
focused on exploration drilling at their Santa Cruz asset in Arizona which is the third-largest undeveloped
copper deposit in the US. An updated Santa Cruz resource estimate and Preliminary
Economic Analysis report is due to be released in the first half of
2023 and we expect to see significant growth in the size of the
resource, based on recent drilling success at the existing
Santa Cruz deposit, as well as new
discoveries at East Ridge and Texaco. 2023 is set to be an exciting
year for Ivanhoe Electric with the company potentially offering
significant strategic benefit as a future low carbon producer of
copper in the US.
JETTI RESOURCES
In early 2022 the Company made an investment into mining technology
company Jetti Resources which has developed a new catalyst that
appears to improve copper recovery from primary copper sulphides
(specifically copper contained in chalcopyrite, which is often
uneconomic) under conventional leach conditions. Jetti is currently
trialling their technology at 35 mines where they will look to
integrate their catalyst into existing heap leach SX-EW mines to
improve recoveries at a low capital cost. The technology has been
demonstrated to work at scale at the Pinto Valley copper mine, with
further trials at different copper assets planned for this year. If
Jetti’s technology is proven to work at scale we see material
valuation upside, with Jetti sharing in the economics of additional
copper volumes recovered through the application of their
catalyst.
During the second half of 2022 we are pleased to report that
Jetti completed its Series D financing to raise US$100 million at a substantially higher
valuation than when our investment was made at the beginning of
2022. This sees the company fully financed to execute on their
expected growth plans in the years ahead. As at the end of
December, Jetti represented 2.1% of the portfolio.
MCC MINING
MCC Mining (0.4% of the portfolio) operates as a mineral
exploration company focused on exploring for copper in Columbia.
The company has several large porphyry targets which we believe
could have significant potential. Shareholders include other mid to
large cap copper miners, which is another indication of the
strategic value of the company. The valuation of the company is
based on the US$170.7 million equity
value implied by the April 2022
equity raise. The money raised will fund a drilling campaign which
commenced in Q4 2022 at their Comita project, a joint venture with
Rio Tinto, with drilling on two other projects (Urrao and Pantanos)
expected to commence in mid-2023. Importantly, MCC’s three projects
are located in the Forestry Reserve in Colombia which allows for exploration drilling
in the forestry reserve based on new regulations introduced in
Colombia in early 2022.
BRAVO MINING
Bravo Mining (0.9% of NAV) is a Brazil-based mineral exploration and
development company focused on advancing the Luanga platinum group
metals/gold/nickel project in the world-class Carajas Mineral
Province of Brazil. Due to our
belief in the asset's potential, the Company participated in a
pre-IPO round in April 2022, at a
$39 million valuation. The proceeds
of the raise were used to fund drilling and survey work. Since the
pre-IPO round the company has decided to IPO, which completed in
July at C$1.75/share. This represents
a 170% return since the Company's investment.
During the course of 2022, Bravo has been focused on drilling
the historical resource at Luanga which has confirmed and, in a
number of cases, exceeded the expectations of the original
resource. With less than half of the phase 1 drilling analysed and
a similar sized drill program scheduled for 2023, we expect to see
substantial growth in Luanga’s resource where recent results show
rhodium and potential for nickel sulphide which was previously
unknown. Bravo is still in the early days of its journey and
highlights the potential value unlock available by backing quality
management in attractive geological areas.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts,
mostly involving the sale of “puts” and “calls”. These are taken to
revenue and are subject to strict Board guidelines which limit
their magnitude to an aggregate 10% of the portfolio. In 2022
income generated from options was £7.3 million in line with
contributions from prior periods. During the year opportunities
presented themselves in the first few months and once again during
the autumn and into winter when volatility was priced at elevated
levels. At the end of the period the Company had 2.6% of the net
assets exposed to derivatives and the average exposure to
derivatives during the period was less than 5%.
GEARING
At 31 December 2022, the Company had
£125.0 million of net debt, with a gearing level of 9.6%. The debt
is held principally in US dollar rolling short-term loans and
managed against the value of the debt securities and the high
yielding royalty positions in the Company. During the year the
Company sought to maximise the use of gearing against the equity
holdings rather than debt securities. This was driven by the risk
adjusted relative value available in shares where dividend yields
were mostly in excess of the coupons being paid on the bonds. Since
the companies in the portfolio also have strong balance sheets, it
was opportune to gear up the equity portfolio of the Company since
we were not adding debt to holdings that were already heavily
leveraged themselves.
Shareholders should note that the total gearing available to the
Company has increased during the year due to the rise in assets but
remains within the percentage limits set by the Board. On the back
of this, facilities were refreshed with our lenders and stand at
£200 million for loans and £30 million for the overdraft. The
current average cost of debt for the Company remains low at 2.82%
and is linked to SONIA following the demise of LIBOR.
OUTLOOK
At the macro level it seems likely that the peak in the pace of
interest rate increases is behind us and, if anything, the economic
background should become more supportive for economic activity
during the year assuming inflation pressures start to fade. On the
geo-political front, it is very hard to gauge what will happen, but
even if there is an end to conflict it will be many years before
sanctions are lifted and commodity trade routes reopen meaning that
ongoing disruption to supply will last longer than the
conflict.
With the energy transition well under way and the Chinese
economy emerging from its self-imposed COVID-19 related disruption,
the outlook for commodities demand is strong. At the same time
supply remains constrained by a range of issues from permitting,
elevated capital expenditure, delays due to ESG factors and a
scarcity of projects. It is these factors that fuel our ongoing
positive outlook for commodity prices and the fact that they are
not yet priced into valuations means there are plenty of
opportunities within the mining equity market.
At the company levels, despite all of the uncertainties at the
start of the new year, the mining sector goes forward on a strong
footing as corporate balance sheets remain some of the strongest of
any equity sector. In addition, profit margins continue at very
healthy levels even after adjusting for the cost inflation seen
during the last year. However, it is worth pointing out that free
cash might easily be impacted by capital expenditure and
decarbonisation projects as the sector transitions to producing
“greener” commodities needed for the energy transition. The
priority to allocate cash flow into these areas means that there
could be less available for dividends and as such the Company might
see a lower level of distributions. In the results announced to
date in 2023, dividends from some of our portfolio companies have
decreased.
EVY HAMBRO AND OLIVIA MARKHAM
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
2 March 2023
TEN LARGEST INVESTMENTS
1 + BHP (2021: 2nd)
Diversified mining group
Market value: £135,048,000
Share of investments: 9.5% (2021: 7.7%)
The world’s largest diversified mining group by market
capitalisation. The group is an important global player in a number
of commodities including iron ore, copper, thermal and
metallurgical coal, manganese, nickel, silver and diamonds.
2 - Vale1,2 (2021: 1st)
Diversified mining group
Market value: £130,476,000
Share of investments: 9.1% (2021: 8.5%)
One of the largest mining groups in the world, with operations
in 30 countries. Vale is the world’s largest producer of iron ore
and iron ore pellets and the world’s largest producer of nickel.
The group also produces manganese ore, ferroalloys, metallurgical
and thermal coal, copper, platinum group metals, gold, silver and
cobalt.
3 = Glencore (2021: 3rd)
Diversified mining group
Market value: £109,508,000
Share of investments: 7.7% (2021: 7.7%)
One of the world’s largest globally diversified natural
resources groups. The group’s operations include approximately 150
mining and metallurgical sites and oil production assets.
Glencore’s mined commodity exposure includes copper, cobalt,
nickel, zinc, lead, ferroalloys, aluminium, thermal coal, iron ore,
gold and silver.
4 = Anglo American3 (2021:
4th)
Diversified mining group
Market value: £73,942,000
Share of investments: 5.2% (2021: 7.5%)
A global mining group. The group’s mining portfolio includes
bulk commodities including iron ore, manganese, metallurgical coal,
base metals including copper and nickel and precious metals and
minerals including platinum and diamonds. Anglo American has mining operations globally,
with significant assets in Africa
and South America.
5 + Rio Tinto (2021: 7th)
Diversified mining group
Market value: £63,652,000
Share of investments: 4.5% (2021: 4.2%)
One of the world’s leading mining groups. The group’s primary
product is iron ore, but it also produces aluminium, copper,
diamonds, gold, industrial minerals and energy products.
6 + First Quantum Minerals1
(2021: 10th)
Copper producer
Market value: £58,504,000
Share of investments: 4.1% (2021: 2.9%)
A Canadian-based mining and metals group with principal
activities that include mineral exploration, development and
mining. Its main product is copper.
7 - ArcelorMittal1 (2021:
6th)
Steel producer
Market value: £57,127,000
Share of investments: 4.0% (2021: 5.2%)
A multinational steel manufacturing group, with a focus on
producing safe sustainable steel. The group has operations across
the globe and is the largest steel manufacturer in North America, South
America and Europe.
8 - Freeport-McMoRan3
(2021: 5th)
Copper producer
Market value: £56,549,000
Share of investments: 4.0% (2021: 6.2%)
A global mining group which operates large, long-lived,
geographically diverse assets with significant proven and probable
reserves of copper, gold and molybdenum.
9 - Teck Resources (2021: 8th)
Diversified mining group
Market value: £51,395,000
Share of investments: 3.6% (2021: 3.6%)
A diversified mining group headquartered in Canada. The company is engaged in mining and
mineral development with operations and projects in Canada, the US, Chile and Peru. The group has exposure to copper, zinc,
metallurgical coal and energy.
10 + Franco Nevada (2021: 14th)
Gold royalty
Market value: £37,460,000
Share of investments: 2.6% (2021: 2.2%)
A leading gold-focused royalty and streaming group with the
largest and most diversified portfolio of cash-flow producing
assets. Its business model provides investors with gold price and
exploration optionality while limiting exposure to cost
inflation.
1 Includes fixed income
securities.
2 Includes investments held
at Directors’ valuation.
3 Includes options.
All percentages reflect the value of the holding as a percentage
of total investments. For this purpose, where more than one class
of securities is held, these have been aggregated.
Together, the ten largest investments represented 54.3% of total
investments of the Company’s portfolio as at 31 December 2022 (ten largest investments as at
31 December 2021: 57.0%).
INVESTMENTS AS AT 31
DECEMBER 2022
|
Main
geographical
exposure |
Market
value
£’000 |
|
% of
investments |
| Diversified |
|
|
|
|
| BHP |
Global |
135,048 |
|
9.5 |
| Vale |
Global |
93,137 |
} |
9.1 |
| Vale Debentures*#^ |
Global |
37,339 |
| Glencore |
Global |
109,508 |
|
7.7 |
| Anglo American |
Global |
74,626 |
} |
5.2 |
| Anglo American Call Option 20/01/23
GBP£31.40 |
Global |
(684) |
| Rio Tinto |
Global |
63,652 |
|
4.5 |
| Teck Resources |
Global |
51,395 |
|
3.6 |
| Trident |
Global |
5,793 |
|
0.4 |
|
|
--------------- |
|
--------------- |
|
|
569,814 |
|
40.0 |
|
|
========= |
|
========= |
| Copper |
|
|
|
|
| First Quantum Minerals* |
Global |
58,504 |
|
4.1 |
| Freeport-McMoRan |
Global |
56,848 |
} |
4.0 |
| Freeport-McMoRan Put Option 20/01/23
US$37 |
Global |
(299) |
| OZ Minerals Brazil Royalty#~ |
Latin
America |
21,199 |
} |
2.7 |
| OZ Minerals |
Australasia |
17,320 |
| Ivanhoe Electric |
United
States |
23,753 |
} |
2.4 |
| I-Pulse* |
United
States |
10,727 |
| Jetti Resources# |
Global |
29,873 |
|
2.1 |
|
|
|
| Ivanhoe Mines |
Other Africa |
25,364 |
|
1.8 |
| Sociedad Minera Cerro Verde |
Latin
America |
17,171 |
|
1.2 |
| Develop Global |
Australasia |
15,316 |
|
1.1 |
| Solaris Resources |
Latin
America |
8,889 |
|
0.6 |
| Ero Copper |
Latin
America |
6,316 |
|
0.4 |
| Antofagasta |
Latin
America |
6,291 |
|
0.4 |
| MCC Mining# |
Latin
America |
5,819 |
|
0.4 |
| Aurubis |
Global |
5,139 |
|
0.4 |
| Lundin Mining |
Global |
3,490 |
|
0.2 |
| Hudbay |
Global |
2,371 |
|
0.2 |
| SolGold |
Latin
America |
346 |
|
– |
|
|
--------------- |
|
--------------- |
|
|
314,437 |
|
22.0 |
|
|
========= |
|
========= |
| Gold |
|
|
|
|
| Franco Nevada |
Global |
37,460 |
|
2.6 |
| Barrick Gold |
Global |
32,994 |
|
2.3 |
| Wheaton Precious Metals |
Global |
32,472 |
|
2.3 |
| Newmont Corporation |
Global |
27,014 |
|
1.9 |
| Newcrest Mining |
Australasia |
19,719 |
|
1.4 |
| Northern Star Resources |
Australasia |
17,160 |
|
1.2 |
| Endeavour Mining |
Other Africa |
9,119 |
|
0.6 |
| Agnico Eagle Mines |
Canada |
6,594 |
|
0.5 |
| Polymetal International |
United
Kingdom |
2,306 |
|
0.2 |
| Polyus |
Russia |
– |
|
– |
|
|
--------------- |
|
--------------- |
|
|
184,838 |
|
13.0 |
|
|
========= |
|
========= |
| Steel |
|
|
|
|
| ArcelorMittal* |
Global |
57,127 |
|
4.0 |
| Nucor |
United
States |
28,520 |
} |
2.0 |
| Nucor Call Option 20/01/23
US$136 |
United
States |
(244) |
| Steel Dynamics |
United
States |
22,285 |
|
1.6 |
| Stelco Holdings |
Canada |
7,457 |
|
0.5 |
|
|
--------------- |
|
--------------- |
|
|
115,145 |
|
8.1 |
|
|
========= |
|
========= |
| Industrial Minerals |
|
|
|
|
| Sigma Lithium |
Latin
America |
15,728 |
|
1.1 |
| Albemarle |
Global |
13,936 |
|
1.0 |
| Mineral Resources |
Australasia |
13,721 |
|
1.0 |
| Sociedad Quimica y Minera ADR |
Latin
America |
13,506 |
|
1.0 |
| Iluka Resources |
Australasia |
11,973 |
|
0.8 |
| Lynas Rare Earths |
Australasia |
10,191 |
|
0.7 |
| Chalice Mining |
Australasia |
7,602 |
|
0.5 |
| Sheffield Resources |
Australasia |
5,945 |
|
0.4 |
|
|
--------------- |
|
--------------- |
|
|
92,602 |
|
6.5 |
|
|
========= |
|
========= |
| Aluminium |
|
|
|
|
| Norsk Hydro |
Global |
30,036 |
|
2.1 |
| Alcoa |
Global |
16,798 |
|
1.2 |
|
|
--------------- |
|
--------------- |
|
|
46,834 |
|
3.3 |
|
|
========= |
|
========= |
| Iron Ore |
|
|
|
|
| Labrador Iron |
Canada |
24,172 |
|
1.7 |
| Champion Iron |
Canada |
14,546 |
|
1.0 |
| Deterra Royalties |
Australasia |
5,202 |
|
0.4 |
| Equatorial Resources |
Other Africa |
313 |
|
– |
|
|
--------------- |
|
--------------- |
|
|
44,233 |
|
3.1 |
|
|
========= |
|
========= |
| Platinum Group Metals |
|
|
|
|
| Bravo Mining |
Latin
America |
11,287 |
|
0.9 |
|
|
|
| Northam Platinum |
Global |
6,050 |
|
0.4 |
| Impala Platinum |
South Africa |
6,011 |
|
0.4 |
| Sibanye Stillwater |
South Africa |
3,768 |
|
0.3 |
|
|
--------------- |
|
--------------- |
|
|
27,656 |
|
2.0 |
|
|
========= |
|
========= |
| Nickel |
|
|
|
|
| Nickel Mines |
Indonesia |
10,806 |
|
0.8 |
| Bindura Nickel |
Global |
60 |
|
– |
| Lifezone SPAC PIPE Commitment# |
Global |
– |
|
– |
|
|
--------------- |
|
--------------- |
|
|
10,866 |
|
0.8 |
|
|
========= |
|
========= |
| Mining Services |
|
|
|
|
| Epiroc |
Global |
6,184 |
|
0.4 |
|
|
--------------- |
|
--------------- |
|
|
6,184 |
|
0.4 |
|
|
========= |
|
========= |
| Uranium |
|
|
|
|
| Cameco |
Canada |
5,363 |
|
0.4 |
|
|
--------------- |
|
--------------- |
|
|
5,363 |
|
0.4 |
|
|
========= |
|
========= |
| Other |
|
|
|
|
| Woodside Energy Group |
Australasia |
3,638 |
|
0.3 |
|
|
--------------- |
|
--------------- |
|
|
3,638 |
|
0.3 |
|
|
========= |
|
========= |
| Zinc |
|
|
|
|
| Titan Mining |
United
States |
2,007 |
|
0.1 |
|
|
--------------- |
|
--------------- |
|
|
2,007 |
|
0.1 |
|
|
========= |
|
========= |
| Comprising: |
|
1,423,617 |
|
100.0 |
|
|
========= |
|
========= |
| – Investments |
|
1,424,844 |
|
100.1 |
| – Options |
|
(1,227) |
|
(0.1) |
|
|
--------------- |
|
--------------- |
|
|
1,423,617 |
|
100.0 |
|
|
========= |
|
========= |
* Includes fixed income
securities.
# Includes investments held
at Directors’ valuation.
~ Mining royalty
contract.
^ The investment in the Vale
Debentures is illiquid and has been valued using secondary market
pricing information provided by the Brazilian Financial and Capital
Markets Association (ANBIMA).
All investments are in equity shares unless otherwise
stated.
The total number of investments as at 31
December 2022 (including options classified as liabilities
on the balance sheet) was 68 (31 December
2021: 56).
As at 31 December 2022 the Company
did not hold any equity interests in companies comprising more than
3% of a company’s share capital.
PORTFOLIO ANALYSIS AS AT 31 DECEMBER 2022
Commodity Exposure1
|
2022 portfolio |
2021#
portfolio |
2022 Reference
Index* |
| Diversified |
40.0% |
39.5% |
39.4% |
| Copper |
22.0% |
21.5% |
9.3% |
| Gold |
13.0% |
16.4% |
20.6% |
| Steel |
8.1% |
7.7% |
16.5% |
| Industrial Minerals |
6.5% |
4.1% |
2.4% |
| Aluminium |
3.3% |
3.3% |
3.8% |
| Iron Ore |
3.1% |
2.8% |
3.9% |
| Platinum Group Metals |
2.0% |
3.1% |
2.6% |
| Nickel |
0.8% |
1.4% |
0.1% |
| Mining Services |
0.4% |
0.0% |
0.1% |
| Uranium |
0.4% |
0.0% |
0.0% |
| Other& |
0.3% |
0.0% |
0.9% |
| Zinc |
0.1% |
0.2% |
0.4% |
1 Based on index
classifications.
# Represents exposure at
31 December 2021.
* MSCI ACWI Metals &
Mining 30% Buffer 10/40 Index (net total return).
& Represents a very small
exposure.
Geographic Exposure1
|
2022 |
| Global |
69.2% |
| Australasia |
9.0% |
| Latin America |
7.5% |
| Other2 |
7.1% |
| Canada |
4.1% |
| Other Africa (ex South Africa) |
2.4% |
| South Africa |
0.7% |
|
2021 |
| Global |
69.9% |
| Latin America |
8.0% |
| Other3 |
7.4% |
| Australasia |
6.3% |
| South Africa |
3.1% |
| Other Africa (ex South Africa) |
3.1% |
| Canada |
2.2% |
1 Based on the principal
commodity exposure and place of operation of each investment.
2 Consists of Indonesia, Russia, United
Kingdom and United
States.
3 Consists of Indonesia, Russia and United
States.
STRATEGIC REPORT
The Directors present the Strategic Report of BlackRock World
Mining Trust plc for the year ended 31
December 2022. The aim of the Strategic Report is to provide
shareholders with the information to assess how the Directors have
performed their duty to promote the success of the Company for the
collective benefit of shareholders.
The Chairman’s Statement together with the Investment Manager’s
Report form part of this Strategic Report. The Strategic Report was
approved by the Board at its meeting on 2
March 2023.
Principal activities
The Company carries on business as an investment trust and has a
premium listing on the London Stock Exchange. Its principal
activity is portfolio investment and that of its subsidiary,
BlackRock World Mining Investment Company Limited (together the
Group), is investment dealing. The Company was incorporated in
England on 28 October 1993 and this is the 29th Annual
Report.
Investment trusts are pooled investment vehicles which allow
exposure to a diversified range of assets through a single
investment, thus spreading investment risk.
Objective
The Company’s objective is to maximise total returns to
shareholders through a worldwide portfolio of mining and metal
securities.
The Board recognises the importance of dividends to shareholders
in achieving that objective, in addition to capital returns.
Strategy, business model and investment policy
Strategy
The Company invests in accordance with the objective given above.
The Board is collectively responsible to shareholders for the
long-term success of the Company and is its governing body. There
is a clear division of responsibility between the Board and
BlackRock Fund Managers Limited (the Manager). Matters reserved for
the Board include setting the Company’s strategy, including its
investment objective and policy, setting limits on gearing (both
bank borrowings and the effect of derivatives), capital structure,
governance and appointing and monitoring of the performance of
service providers, including the Manager.
Business model
The Company’s business model follows that of an externally managed
investment trust. Therefore, the Company does not have any
employees and outsources its activities to third-party service
providers including the Manager who is the principal service
provider. In accordance with the Alternative Investment Fund
Managers’ Directive (AIFMD), as implemented, retained and onshored
in the UK, the Company is an Alternative Investment Fund (AIF).
BlackRock Fund Managers Limited is the Company’s Alternative
Investment Fund Manager.
The management of the investment portfolio and the
administration of the Company have been contractually delegated to
the Manager who in turn (with the permission of the Company) has
delegated certain investment management and other ancillary
services to BlackRock Investment Management (UK) Limited (the
Investment Manager). The Manager, operating under guidelines
determined by the Board, has direct responsibility for the
decisions relating to the day-to-day running of the Company and is
accountable to the Board for the investment, financial and
operating performance of the Company.
The Company delegates fund accounting services to the Manager,
which in turn sub-delegates these services to The Bank of New York
Mellon (International) Limited (BNYM) (the Fund Accountant) and
also sub-delegates registration services to the Registrar,
Computershare Investor Services PLC. Other service providers
include the Depositary (also BNYM). Details of the contractual
terms with these service providers and more details of
sub-delegation arrangements in place governing custody services are
set out in the Directors’ Report in the Annual Report and Financial
Statements.
Investment policy
The Company’s investment policy is to provide a diversified
investment in mining and metal securities worldwide actively
managed with the objective of maximising total returns. While the
policy is to invest principally in quoted securities, the Company’s
investment policy includes investing in royalties derived from the
production of metals and minerals as well as physical metals. Up to
10% of gross assets may be held in physical metals.
In order to achieve its objective, it is intended that the Group
will normally be fully invested, which means at least 90% of the
gross assets of the Company and its subsidiary will be invested in
stocks, shares, royalties and physical metals. However, if such
investments are deemed to be overvalued, or if the Manager finds it
difficult to identify attractively priced opportunities for
investment, then up to 25% of the Group’s assets may be held in
cash or cash equivalents. Risk is spread by investing in a number
of holdings, many of which themselves are diversified
businesses.
The Group may occasionally utilise derivative instruments such
as options, futures and contracts for difference, if it is deemed
that these will, at a particular time or for a particular period,
enhance the performance of the Group in the pursuit of its
objectives. The Company is also permitted to enter into stock
lending arrangements.
As approved by shareholders in August
2013, the Group may invest in any single holding of quoted
or unquoted investments that would represent up to 20% of gross
assets at the time of acquisition. Although investments are
principally in companies listed on recognised stock exchanges, the
Company may invest up to 20% of the Group’s gross assets in
investments other than quoted securities. Such investments include
unquoted royalties, equities or bonds. In order to afford the
Company the flexibility of obtaining exposure to metal and mining
related royalties, it is possible that, in order to diversify risk,
all or part of such exposure may be obtained directly or indirectly
through a holding company, a fund or another investment or special
purpose vehicle, which may be quoted or unquoted. The Board will
seek the prior approval of shareholders to any unquoted investment
in a single company, fund or special purpose vehicle or any single
royalty which represents more than 10% of the Group’s assets at the
time of acquisition.
In March 2015 the Board refined
the guidelines associated with the Company’s royalty strategy and
proposed to maintain the 20% maximum exposure to royalties but the
royalty/unquoted portfolio should itself deliver diversification
across operator, country and commodity. To this end, new
investments into individual royalties/unquoted investments should
not exceed circa 3% of gross assets at the time of investment.
Total exposure to any single operator, including other issued
securities such as debt and/or equity, where greater than 30% of
that operator’s revenues come from the mine over which the royalty
lies, must also not be greater than 3% at the time of investment.
In addition, the guidelines require that the Investment Manager
must, at the time of investment, manage total exposure to a single
operator, via reducing exposure to listed securities if they are
also held in the portfolio, in a timely manner where
royalties/unquoted investments are revalued upwards. In the
jurisdictions where statutory royalties are possible (in countries
where mineral rights are privately owned) these will be preferred
and in respect of contractual royalties (a contractual obligation
entered into by the operator and typically unsecured) the valuation
must take into account the higher credit risk involved. Board
approval will continue to be required for all royalty/unquoted
investments.
While the Company may hold shares in other listed investment
companies (including investment trusts), the Company will not
invest more than 15% of the Group’s gross assets in other UK listed
investment companies.
The Group’s financial statements are maintained in sterling.
Although many investments are denominated and quoted in currencies
other than sterling, the Board does not intend to employ a hedging
strategy against fluctuations in exchange rates.
No material change will be made to the investment policy without
shareholder approval.
Gearing
The Investment Manager believes that tactical use of gearing can
add value from time to time. This gearing is typically in the form
of an overdraft or short-term loan facility, which can be repaid at
any time or matched by cash. The level and benefit of gearing is
discussed and agreed with the Board regularly. The Company may
borrow up to 25% of the Group’s net assets. The maximum level of
gearing used during the year was 14.7% and, at the financial
reporting date, net gearing (calculated as borrowings less cash and
cash equivalents as a percentage of net assets) stood at 9.6% of
shareholders’ funds (2021: 9.9%). For further details on borrowings
refer to note 14 in the Financial Statements and the Alternative
Performance Measure in the Glossary, both contained in the Annual
Report and Financial Statements.
Portfolio analysis
Information regarding the Company’s investment exposures is
contained within Section 2 (Portfolio), with information on the ten
largest investments above, the investments listed above and
portfolio analysis above. Further information regarding investment
risk and activity throughout the year can be found in the
Investment Manager’s Report above.
As at 31 December 2022, the Level
3 unquoted investments (see note 18 in the Financial Statements in
the Annual Report and Financial Statements) in the OZ Minerals
Brazil Royalty and preferred shares and equity shares of Jetti
Resources and MCC Mining were held at Directors’ valuation,
representing a total of £56,891,000 (US$67,269,000) (2021: £33,412,000 (US$45,255,000)). Unquoted investments can prove
to be more risky than listed investments.
Continuation vote
As agreed by shareholders in 1998, an ordinary resolution for the
continuation of the Company is proposed at each Annual General
Meeting. 2022 was another solid year with mining companies
continuing down the path of capital discipline, balance sheets in
strong shape and earnings and dividends exceeding expectations. The
Directors remain confident on the value available in the sector and
therefore recommend that shareholders vote in support of the
Company’s continuation.
Performance
Details of the Company’s performance for the year are given in the
Chairman’s Statement above. The Investment Manager’s Report above
includes a review of the main developments during the year,
together with information on investment activity within the
Company’s portfolio.
Results and dividends
The results for the Company are set out in the Consolidated
Statement of Comprehensive Income. The total profit for the year,
after taxation, was £202,420,000 (2021: £192,470,000) of which
£76,013,000 (2021: £78,910,000) is revenue profit.
It is the Board’s intention to distribute substantially all of
the Company’s available income. The Directors recommend the payment
of a final dividend as set out in the Chairman’s Statement above.
Dividend payments/payable for the year ended 31 December 2022 amounted to £75,405,000 (2021:
£78,331,000).
Future prospects
The Board’s main focus is to maximise total returns over the longer
term through investment in mining and metal assets. The outlook for
the Company is discussed in both the Chairman’s Statement and the
Investment Manager’s Report above.
Employees, social, community and human rights issues
As an investment trust, the Company has no direct social or
community responsibilities or impact on the environment and the
Company has not adopted an ESG investment strategy or exclusionary
screens. However, the Directors believe that it is important and in
shareholders’ interests to consider human rights issues and
environmental, social and governance factors when selecting and
retaining investments. Details of the Company’s approach to ESG
integration are set out in the Annual Report and Financial
Statements and details of the Manager’s approach to ESG integration
are set out in the Annual Report and Financial Statements.
Modern Slavery Act
As an investment vehicle, the Company does not provide goods or
services in the normal course of business and does not have
customers. The Investment Manager considers modern slavery as part
of supply chains and labour management within the investment
process. Accordingly, the Directors consider that the Company is
not required to make any slavery or human trafficking statement
under the Modern Slavery Act 2015. In any event, the Board
considers the Company’s supply chains, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company are set out in the Directors’
Biographies in the Annual Report and Financial Statements. The
Board consists of three male Directors and two female Directors.
The Company’s policy on diversity is set out in the Annual Report
and Financial Statements. The Company does not have any executive
employees.
Key performance indicators
At each Board meeting, the Directors consider a number of
performance measures to assess the Company’s success in achieving
its objectives. The key performance indicators (KPIs) used to
measure the progress and performance of the Company over time and
which are comparable to other investment trusts are set out below.
As indicated in the footnote to the table, some of these KPIs fall
within the definition of ‘Alternative Performance Measures’ under
guidance issued by the European Securities and Markets Authority
(ESMA) and additional information explaining how these are
calculated is set out in the Glossary in the Annual Report and
Financial Statements. Additionally, the Board regularly reviews the
performance of the portfolio, as well as the net asset value and
share price of the Company and compares this against various
companies and indices. Information on the Company’s performance is
given in the Chairman’s Statement above.
|
Year ended
31 December
2022 |
Year ended
31 December
2021 |
| Net asset value total
return1,2 |
17.7% |
20.7% |
| Share price total
return1,2 |
26.0% |
17.5% |
| Premium/(discount) to net asset
value2 |
1.3% |
(5.3)% |
| Revenue earnings per share |
40.68p |
43.59p |
| Total dividends per share |
40.00p |
42.50p |
| Ongoing charges2,3 |
0.95% |
0.95% |
| Ongoing charges on gross
assets2,4 |
0.84% |
0.84% |
|
========= |
========= |
1 This measures the Company’s
NAV and share price total return, which assumes dividends paid by
the Company have been reinvested.
2 Alternative Performance
Measures, see Glossary in the Annual Report and Financial
Statements.
3 Ongoing charges represent
the management fee and all other operating expenses, excluding
finance costs, direct transaction costs, custody transaction
charges, VAT recovered, taxation, prior year expenses written back
and certain non-recurring items, as a % of average daily net
assets.
4 Ongoing charges based on
gross assets represent the management fee and all other operating
expenses, excluding finance costs, direct transaction costs,
custody transaction charges, VAT recovered, taxation, prior year
expenses written back and certain non-recurring items, as a % of
average daily gross assets. Gross assets are calculated based on
net assets during the year before the deduction of the bank
overdraft and loans. Ongoing charges based on gross assets are
considered to be an appropriate performance measure as management
fees are payable on gross assets (subject to certain adjustments
and deductions).
Principal risks
The Company is exposed to a variety of risks and uncertainties. As
required by the 2018 UK Corporate Governance Code (the UK Code),
the Board has put in place a robust ongoing process to identify,
assess and monitor the principal risks and emerging risks facing
the Company including those that would threaten its business model.
A core element of this process is the Company’s risk register which
identifies the risks facing the Company and assesses the likelihood
and potential impact of each risk and the quality of controls
operating to mitigate it. A residual risk rating is then calculated
for each risk based on the outcome of the assessment.
The risk register, its method of preparation and the operation
of key controls in BlackRock’s and third-party service providers’
systems of internal control, are reviewed on a regular basis by the
Audit Committee. In order to gain a more comprehensive
understanding of BlackRock’s and other third-party service
providers’ risk management processes and how these apply to the
Company’s business, BlackRock’s internal audit department provides
an annual presentation to the Audit Committee chairs of the
BlackRock investment trusts setting out the results of testing
performed in relation to BlackRock’s internal control processes.
The Audit Committee also periodically receives and reviews internal
control reports from BlackRock and the Company’s service
providers.
The Board has undertaken a robust assessment of both the
principal and emerging risks facing the Company, including those
that would threaten its business model, future performance,
solvency or liquidity. Over the course of 2020 and through to the
present time, the COVID-19 pandemic has given rise to unprecedented
challenges for businesses across the globe. Additionally, the risk
that unforeseen or unprecedented events including (but not limited
to) heightened geo-political tensions such as the war in
Ukraine, high inflation and the
current cost of living crisis has had a significant impact on
global markets. The Board has taken into consideration the risks
posed to the Company by these events and incorporated these into
the Company’s risk register. The threat of climate change has also
reinforced the importance of more sustainable practices and
environmental responsibility for investee companies.
Emerging risks are considered by the Board as they come into
view and are incorporated into the existing review of the Company’s
risk register. They were also considered as part of the annual
evaluation process. Additionally, the Manager considers emerging
risks in numerous forums and the BlackRock Risk and Quantitative
Analysis team produces an annual risk survey. Any material risks of
relevance to the Company through the annual risk survey will be
communicated to the Board.
The Board will continue to assess these risks on an ongoing
basis. In relation to the UK Code, the Board is confident that the
procedures that the Company has put in place are sufficient to
ensure that the necessary monitoring of risks and controls has been
carried out throughout the reporting period.
The principal risks and uncertainties faced by the Company
during the financial year, together with the potential effects,
controls and mitigating factors, are set out in the following
table.
| Principal Risk |
Mitigation/Control |
Counterparty
The potential loss that the Company could incur if a counterparty
is unable (or unwilling) to perform on its commitments. |
Due diligence is undertaken before contracts are entered into and
exposures are diversified across a number of counterparties.
The Depositary is liable for restitution for the loss of financial
instruments held in custody unless able to demonstrate the loss was
a result of an event beyond its reasonable control. |
Investment
performance
The returns achieved are reliant primarily upon the performance of
the portfolio.
The Board is responsible for:
· deciding the investment
strategy to fulfil the Company’s objective; and
· monitoring the
performance of the Investment Manager and the implementation of the
investment strategy.
An inappropriate investment policy may lead to:
· underperformance
compared to the reference index;
· a reduction or
permanent loss of capital; and
· dissatisfied
shareholders and reputational damage. |
To manage this risk the Board:
· regularly reviews the
Company’s investment mandate and long-term strategy;
· has set investment
restrictions and guidelines which the Investment Manager monitors
and regularly reports on;
· receives from the Investment Manager a
regular explanation of stock selection decisions, portfolio
exposure, gearing and any changes in gearing, and the rationale for
the composition of the investment portfolio;
· oversees the
maintenance of an adequate spread of investments in order to
minimise the risks associated with particular countries or factors
specific to particular sectors, based on the diversification
requirements inherent in the investment policy; and
· receives and reviews
regular reports showing an analysis of the Company’s performance
against other indices, including the performance of major companies
in the sector. |
| The Board is also cognisant of the
long-term risk to performance from inadequate attention to ESG
issues and in particular the impact of climate change. |
ESG analysis is integrated into the
Manager’s investment process as set out in the Annual Report and
Financial Statements. This is overseen by the Board. |
Legal and regulatory
compliance
The Company has been approved by HM Revenue & Customs as an
investment trust, subject to continuing to meet the relevant
eligibility conditions, and operates as an investment trust in
accordance with Chapter 4 of Part 24 of the Corporation Tax Act
2010. As such, the Company is exempt from corporation tax on
capital gains tax on the profits realised from the sale of its
investments.
Any breach of the relevant eligibility conditions could lead to the
Company losing investment trust status and being subject to
corporation tax on capital gains realised within the Company’s
portfolio. In such event, the investment returns of the Company may
be adversely affected.
A serious breach could result in the Company and/or the Directors
being fined or the subject of criminal proceedings or the
suspension of the Company’s shares which would in turn lead to a
breach of the Corporation Tax Act 2010.
Amongst other relevant laws, the Company is required to comply with
the provisions of the Companies Act 2006, the Alternative
Investment Fund Managers’ Directive as implemented, retained and
onshored in the UK (AIFMD), the UK Listing Rules, Disclosure
Guidance and Transparency Rules and the Market Abuse Regulation (as
retained and onshored in the UK). |
The Investment Manager monitors investment movements, the level and
type of forecast income and expenditure and the amount of proposed
dividends to ensure that the provisions of Chapter 4 of Part 24 of
the Corporation Tax Act 2010 are not breached. The results are
reported to the Board at each meeting.
Compliance with the accounting rules affecting investment trusts is
also carefully and regularly monitored.
The Company Secretary, Manager and the Company’s professional
advisers provide regular reports to the Board in respect of
compliance with all applicable rules and regulations. The Board and
the Manager also monitor changes in government policy and
legislation which may have an impact on the Company.
The Company’s Investment Manager, BlackRock, at all times complies
with the sanctions administered by the UK Office of Financial
Sanctions Implementation, the United States Treasury’s Office of
Foreign Assets Control, the United Nations, European Union member
states and any other applicable regimes. |
Market
Market risk arises from volatility in the prices of the Company’s
investments. It represents the potential loss the Company might
suffer through realising investments in the face of negative market
movements.
Changes in general economic and market conditions, such as currency
exchange rates, interest rates, rates of inflation, industry
conditions, tax laws, political events and trends, can also
substantially and adversely affect the securities and, as a
consequence, the Company’s prospects and share price.
Market risk includes the potential impact of events which are
outside the Company’s control, including (but not limited to)
heightened geo-political tensions and military conflict, a global
pandemic and high inflation.
Companies operating in the sectors in which the Company invests may
be impacted by new legislation governing climate change and
environmental issues, which may have a negative impact on their
valuation and share price. |
The Board considers the diversification of the portfolio, asset
allocation, stock selection and levels of gearing on a regular
basis and has set investment restrictions and guidelines which are
monitored and reported on by the Investment Manager.
The Board monitors the implementation and results of the investment
process with the Investment Manager.
The Board also recognises the benefits of a closed-end fund
structure in extremely volatile markets such as those experienced
as a consequence of the COVID-19 pandemic and the Russia/Ukraine
conflict. Unlike open-ended counterparts, closed-end funds are not
obliged to sell-down portfolio holdings at low valuations to meet
liquidity requirements for redemptions. During times of elevated
volatility and market stress, the ability of a closed-end fund
structure to remain invested for the long term enables the
Investment Manager to adhere to disciplined fundamental analysis
from a bottom-up perspective and be ready to respond to
dislocations in the market as opportunities present themselves.
The Investment Manager seeks to understand the Environmental,
Social and Governance (ESG) risks and opportunities facing
companies and industries in the portfolio. The Company has not
adopted an ESG investment strategy and does not exclude investment
in stocks based on ESG criteria, but the Investment Manager
considers ESG information when conducting research and due
diligence on new investments and again when monitoring investments
in the portfolio. Further information on BlackRock’s approach to
ESG integration can be found in the Annual Report and Financial
Statements. |
Operational
In common with most other investment trust companies, the Company
has no employees. The Company therefore relies on the services
provided by third-parties and is dependent on the control systems
of the Manager, the Depositary and Fund Accountant which maintain
the Company’s assets, dealing procedures and accounting
records.
The security of the Company’s assets, dealing procedures,
accounting records and adherence to regulatory and legal
requirements depend on the effective operation of the systems of
these third-party service providers. There is a risk that a major
disaster, such as floods, fire, a global pandemic, or terrorist
activity, renders the Company’s service providers unable to conduct
business at normal operating effectiveness.
Failure by any service provider to carry out its obligations to the
Company could have a material adverse effect on the Company’s
performance. Disruption to the accounting, payment systems or
custody records (including cyber security risk) could prevent the
accurate reporting and monitoring of the Company’s financial
position. |
Due diligence is undertaken before contracts are entered into with
third-party service providers. Thereafter, the performance of the
provider is subject to regular review and reported to the
Board.
The Board reviews on a regular basis an assessment of the fraud
risks that the Company could potentially be exposed to and also a
summary of the controls put in place by the Manager, Depositary,
Custodian, Fund Accountant and Registrar specifically to mitigate
these risks.
Most third-party service providers produce Service Organisation
Control (SOC 1) reports to provide assurance regarding the
effective operation of internal controls as reported on by their
reporting accountants. These reports are provided to the Audit
Committee for review. The Committee would seek further
representations from service providers if not satisfied with the
effectiveness of their control environment.
The Company’s financial instruments held in custody are subject to
a strict liability regime and, in the event of a loss of such
financial instruments, the Depositary must return financial assets
of an identical type or the corresponding amount, unless able to
demonstrate the loss was a result of an event beyond its reasonable
control.
The Board reviews the overall performance of the Manager,
Investment Manager and all other third-party service providers on a
regular basis and compliance with the Investment Management
Agreement annually.
The Board also considers the business continuity arrangements of
the Company’s key service providers on an ongoing basis and reviews
these as part of its review of the Company’s risk register. In
respect of the risks which were posed by the COVID-19 pandemic in
terms of the ability of service providers to function effectively,
the Board received reports from key service providers setting out
the measures that they had put in place to address the crisis, in
addition to their existing business continuity framework. Having
considered these arrangements and reviewed service levels, the
Board is confident that a good level of service has been and will
be maintained. |
Financial
The Company’s investment activities expose it to a variety of
financial risks which include market risk, counterparty credit
risk, liquidity risk and the valuation of financial
instruments. |
Details of these risks are disclosed in note 18 to the Financial
Statements in the Annual Report and Financial Statements, together
with a summary of the policies for managing these risks. |
In the view of the Board, there have not been any changes to the
fundamental nature of these risks and these principal risks and
uncertainties are equally applicable for the current financial
year.
Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance
Code, the Directors have assessed the prospects of the Company over
a longer period than the twelve months referred to by the ‘Going
Concern’ guidelines. The Company is an investment trust with the
objective of providing an attractive level of income return
together with capital appreciation over the long term.
The Directors expect the Company to continue for the foreseeable
future and have therefore conducted this review for a period up to
the Annual General Meeting in 2026. The Directors assess viability
over a rolling three-year period as they believe it best balances
the Company’s long-term objective, its financial flexibility and
scope, with the difficulty in forecasting economic conditions which
could affect both the Company and its shareholders. The Company
also undertakes a continuation vote every year with the next one
taking place at the forthcoming Annual General Meeting.
In making an assessment on the viability of the Company, the
Board has considered the following:
· the impact of a
significant fall in commodity markets on the value of the Company’s
investment portfolio;
· the ongoing
relevance of the Company’s investment objective, business model and
investment policy in the prevailing market;
· the principal and
emerging risks and uncertainties, as set out above, and their
potential impact;
· the level of ongoing
demand for the Company’s shares;
· the Company’s share
price discount/premium to NAV;
· the liquidity of the
Company’s portfolio; and
· the level of income
generated by the Company and future income and expenditure
forecasts.
The Directors have concluded that there is a reasonable
expectation that the Company will continue in operation and meet
its liabilities as they fall due over the period of their
assessment based on the following considerations:
· the Investment
Manager’s compliance with the investment objective and policy, its
investment strategy and asset allocation;
· the portfolio is
liquid and mainly comprises readily realisable assets which
continue to offer a range of investment opportunities for
shareholders as part of a balanced investment portfolio;
· the operational
resilience of the Company and its key service providers and their
ability to continue to provide a good level of service for the
foreseeable future;
· the effectiveness of
business continuity plans in place for the Company and its key
service providers;
· the ongoing
processes for monitoring operating costs and income which are
considered to be reasonable in comparison to the Company’s total
assets;
· the Board’s discount
management policy; and
· the Company is a
closed-end investment company and therefore does not suffer from
the liquidity issues arising from unexpected redemptions.
In addition, the Board’s assessment of the Company’s ability to
operate in the foreseeable future is included in the Going Concern
Statement which can be found in the Directors’ Report in the Annual
Report and Financial Statements.
Section 172 statement: Promoting the success of the
Company
The Companies (Miscellaneous Reporting) Regulations 2018 require
directors of large companies to explain more fully how they have
discharged their duties under Section 172(1) of the Companies Act
2006 in promoting the success of their companies for the benefit of
members as a whole. This includes the likely consequences of their
decisions in the longer term and how they have taken wider
stakeholders’ needs into account.
The disclosure that follows covers how the Board has engaged
with and understands the views of stakeholders and how
stakeholders’ needs have been taken into account, the outcome of
this engagement and the impact that it has had on the Board’s
decisions. The Board considers the main stakeholders in the Company
to be the Manager, Investment Manager and the shareholders. In
addition to this, the Board considers investee companies and key
service providers of the Company to be stakeholders; the latter
comprise the Company’s Depositary, Registrar, Fund Accountants and
Brokers.
|
Stakeholders |
| Shareholders |
Manager and Investment
Manager |
Other key service
providers |
Investee companies |
| Continued shareholder support and
engagement are critical to the continued existence of the Company
and the successful delivery of its long-term strategy. The Board is
focused on fostering good working relationships with shareholders
and on understanding the views of shareholders in order to
incorporate them into the Board’s strategy and objective in
maximising total returns to shareholders through a worldwide
portfolio of mining and metal securities. |
The Board’s main working
relationship is with the Manager, who is responsible for the
Company’s portfolio management (including asset allocation, stock
and sector selection) and risk management, as well as ancillary
functions such as administration, secretarial, accounting and
marketing services. The Manager has sub-delegated portfolio
management to the Investment Manager. Successful management of
shareholders’ assets by the Investment Manager is critical for the
Company to successfully deliver its investment strategy and meet
its objective. The Company is also reliant on the Manager as AIFM
to provide support in meeting relevant regulatory obligations under
the AIFMD and other relevant legislation. |
In order for the Company to function
as an investment trust with a listing on the premium segment of the
official list of the Financial Conduct Authority (FCA) and trade on
the London Stock Exchange’s (LSE) main market for listed
securities, the Board relies on a diverse range of advisors for
support in meeting relevant obligations and safeguarding the
Company’s assets. For this reason, the Board considers the
Company’s Depositary, Registrar, Fund Accountants and Brokers to be
stakeholders. The Board maintains regular contact with its key
external service providers and receives regular reporting from them
through the Board and Committee meetings, as well as outside of the
regular meeting cycle. |
Portfolio holdings are ultimately
shareholders’ assets and the Board recognises the importance of
good stewardship and communication with investee companies in
meeting the Company’s investment objective and strategy. The Board
monitors the Manager’s stewardship arrangements and receives
regular feedback from the Manager in respect of meetings with the
management of investee companies. |
A summary of the key areas of engagement undertaken by the Board
with its key stakeholders in the year under review and how
Directors have acted upon this to promote the long-term success of
the Company are set out in the table below.
| Area of Engagement |
Issue |
Engagement |
Impact |
| Investment mandate and
objective |
The Board is committed
to promoting the role and success of the Company in delivering on
its investment mandate to shareholders over the long term.
The Board also has responsibility to shareholders to ensure that
the Company’s portfolio of assets is invested in line with the
stated investment objective and in a way that ensures an
appropriate balance between spread of risk and portfolio
returns. |
The Board worked closely with the
Investment Manager throughout the year in further developing
investment strategy and underlying policies, not simply for the
purpose of achieving the Company’s investment objective but in the
interests of shareholders and future investors. In addition the
Company continues to seek out new unquoted investments which could
add long-term value. |
The portfolio
activities undertaken by the Investment Manager can be found in
their Report above. The Investment Manager continues to actively
look for opportunities to grow royalty exposure given it is a key
differentiator of the Company and an effective mechanism to lock-in
long-term income which further diversifies the Company’s
revenues.
Details regarding the Company’s NAV and share price performance can
be found in the Chairman’s Statement above and in this Strategic
Report. |
| Responsible
investing |
More than ever, the importance of
good governance and sustainability practices are key factors in
making investment decisions. Climate change is becoming a defining
factor in companies’ long-term prospects across the investment
spectrum with significant and lasting implications for economic
growth and prosperity. The mining industries in which the Company’s
investment universe operate are facing ethical and sustainability
issues that cannot be ignored by asset managers and investment
companies alike. |
The Board works closely
with the Investment Manager to regularly review the Company’s
performance, investment policy and strategy to seek to ensure that
the Company’s investment objective continues to be met in an
effective and responsible way in the interests of shareholders and
future investors. The Company has not adopted an ESG investment
strategy and does not exclude investment in stocks based on ESG
criteria, but the Board believes that responsible investment and
sustainability are integral to the longer-term delivery of the
Company’s success.
The Investment Manager’s approach to the consideration of ESG
factors in respect of the Company’s portfolio, as well as the
Investment Manager’s engagement with investee companies to
encourage sound corporate governance practices, are kept under
review by the Board. The Board also expects to be informed by the
Investment Manager of any sensitive voting issues involving the
Company’s investments.
The Investment Manager reports to the Board in respect of its
approach to ESG integration; a summary of BlackRock’s approach to
ESG integration is set out in the Annual Report and Financial
Statements. The Investment Manager’s approach to engagement with
investee companies and voting guidelines is summarised in the
Annual Report and Financial Statements and further detail is
available on the BlackRock website. |
The Board and the
Investment Manager believe there is likely to be a positive
correlation between strong ESG practices and investment performance
over time. This is especially important in mining given the long
investment cycle and the impact of ESG practices on the ability of
a mining company to maintain its social licence to operate. ESG is
one of the many factors that we look at and site visits to
companies’ operations (when circumstances permit) provide valuable
insights into their ESG practices. The Investment Manager has
continued to engage with investee companies virtually and has,
where necessary, conducted virtual site visits.
In 2020, BlackRock exited its active public debt and equity
investment in businesses generating greater than 25% of their
revenue from thermal coal production due to the heightened risks
associated with their economic activity. During the year under
review, the Company has had no exposure to companies whose
principal activity is the extraction of thermal coal.
Within the parameters of the Company’s existing investment policy,
the Investment Manager is continuing to look for opportunities to
deploy capital in growth investments that should benefit from the
energy transition. It is likely that this area will become a more
significant part of the portfolio. |
| Shareholders |
Continued shareholder support and
engagement are critical to the continued existence of the Company
and the successful delivery of its long-term strategy. |
The Board is committed
to maintaining open channels of communication and to engage with
shareholders. The Company welcomes and encourages attendance and
participation from shareholders at its Annual General Meetings.
Shareholders will have the opportunity to meet the Directors and
Investment Manager and to address questions to them directly. The
Investment Manager will also provide a presentation on the
Company’s performance and the outlook for the mining sector.
The Annual Report and Half Yearly Financial Report are available on
the BlackRock website and are also circulated to shareholders
either in printed copy or via electronic communications. In
addition, regular updates on performance, monthly factsheets, the
daily NAV and other information are also published on the website
at www.blackrock.com/uk/brwm.
The Board also works closely with the Manager to develop the
Company’s marketing strategy with the aim of ensuring effective
communication with shareholders.
Unlike trading companies, one-to-one shareholder meetings normally
take the form of a meeting with the Investment Manager as opposed
to members of the Board. The Company’s willingness to enter into
discussions with institutional shareholders is also demonstrated by
the programmes of institutional presentations by the Investment
Manager.
If shareholders wish to raise issues or concerns with the Board,
they are welcome to do so at any time. The Chairman is available to
meet directly with shareholders periodically to understand their
views on governance and the Company’s performance where they wish
to do so. He may be contacted via the Company Secretary whose
details are given in the Annual Report and Financial
Statements. |
The Board values any
feedback and questions from shareholders ahead of and during Annual
General Meetings in order to gain an understanding of their views
and will take action when and as appropriate. Feedback and
questions will also help the Company evolve its reporting, aiming
to make reports more transparent and understandable.
Feedback from all substantive meetings between the Investment
Manager and shareholders will be shared with the Board. The
Directors will also receive updates from the Company’s broker and
Kepler, marketing consultants, on any feedback from shareholders,
as well as share trading activity, share price performance and an
update from the Investment Manager.
The portfolio management team attended a number of professional
investor meetings (many by video conference) and held discussions
with a number of wealth management desks and offices in respect of
the Company during the year under review.
Portfolio holdings are ultimately shareholders’ assets and the
Board recognises the importance of good stewardship and
communication with investee companies in meeting the Company’s
investment objective and strategy. The Board monitors the Manager’s
stewardship arrangements and receives regular feedback from the
Investment Manager in respect of meetings with the management of
portfolio companies. |
| Management for share
rating |
The Board recognises the importance
to shareholders that the market price of the Company’s shares
should not trade at either a significant discount or premium to
their prevailing NAV. The Board believes this may be achieved by
the use of share buyback powers and the issue of shares. |
The Board monitors the
Company’s discount on an ongoing basis and receives regular updates
from the Manager and the Company’s Brokers regarding the level of
discount. The Board believes that the best way of maintaining the
share rating at an optimal level over the long term is to create
demand for the shares in the secondary market. To this end, the
Investment Manager is devoting considerable effort to broadening
the awareness of the Company, particularly to wealth managers and
to the wider retail market.
In addition, the Board has worked closely with the Manager to
develop the Company’s marketing strategy, with the aim of ensuring
effective communication with existing shareholders and to attract
new shareholders to the Company in order to improve liquidity in
the Company’s shares and to sustain the share rating of the
Company. |
The Board continues to
monitor the Company’s premium/discount to NAV and will look to
issue or buy back shares if it is deemed to be in the interests of
shareholders as a whole. The Company participates in a focused
investment trust sales and marketing initiative operated by the
Manager on behalf of the investment trusts under its management.
Further details are set out in the Annual Report and Financial
Statements.
During the financial year the Company reissued 5,071,920 shares
from treasury. A further 150,000 shares have been reissued from
treasury since the year end. As at 28 February 2023 the Company’s
shares were trading at a discount of 0.2% to the cum income
NAV. |
| Service levels of third-party
providers |
The Board acknowledges the
importance of ensuring that the Company’s principal suppliers are
providing a suitable level of service, including the Investment
Manager in respect of investment performance and delivering on the
Company’s investment mandate; the Custodian and Depositary in
respect of their duties towards safeguarding the Company’s assets;
the Registrar in its maintenance of the Company’s share register
and dealing with investor queries; and the Company’s Brokers in
respect of the provision of advice and acting as a market maker for
the Company’s shares. |
The Manager reports to
the Board on the Company’s performance on a regular basis. The
Board carries out a robust annual evaluation of the Manager’s
performance, their commitment and available resources.
The Board performs an annual review of the service levels of all
third-party service providers and concludes on their suitability to
continue in their role. The Board receives regular updates from the
AIFM, Depositary, Registrar and Brokers on an ongoing basis.
The Board has also worked closely with the Manager to gain comfort
that relevant business continuity plans are operating effectively
for all of the Company’s key service providers. |
All performance
evaluations were performed on a timely basis and the Board
concluded that all third-party service providers, including the
Manager and Investment Manager, were operating effectively and
providing a good level of service.
The Board has received updates in respect of business continuity
planning from the Company’s Manager, Custodian, Depositary, Fund
Accountant, Registrar and Printer and is confident that
arrangements are in place to ensure a good level of service will
continue to be provided and that measures are in place so that
working remotely, which occurred during the COVID-19 pandemic, can
be reinstated. |
| Board composition |
The Board is committed to ensuring
that its own composition brings an appropriate balance of
knowledge, experience and skills, and that it is compliant with
best corporate governance practice under the UK Code, including
guidance on tenure and the composition of the Board’s
committees. |
All Directors are
subject to a formal evaluation process on an annual basis (more
details and the conclusions of the 2022 evaluation process are
given in the Annual Report and Financial Statements). All Directors
stand for re-election by shareholders annually.
Shareholders may attend the Annual General Meeting and raise any
queries in respect of Board composition or individual Directors in
person or may contact the Company Secretary or the Chairman using
the details provided in the Annual Report and Financial Statements
with any issues. |
As at the date of this
report, the Board was comprised of three men and two women. Under
the AIC Code the tenure of a director who is elevated to Chairman
may be extended by three years. The Board has decided that this
extension should apply to Mr Cheyne’s tenure which will therefore
be extended until the Annual General Meeting in the Spring of 2024.
Mr Edey, who will be reaching his nine year tenure in May, will not
be seeking re-election at the forthcoming Annual General Meeting.
The Board is currently undertaking a review of succession planning
arrangements having identified the need for a new Director when Mr
Edey retires. Details of each Director’s contribution to the
success and promotion of the Company are set out in the Directors’
Report in the Annual Report and Financial Statements and details of
the Directors’ biographies can be found in the Annual Report and
Financial Statements.
The Directors are not aware of any issues that have been raised
directly by shareholders in respect of Board composition in the
year under review. Details for the proxy voting results in favour
and against individual Directors’ re-election at the 2022 Annual
General Meeting are given on the Manager’s website at
www.blackrock.com/uk/brwm. |
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES AND
APPROACH
The Board’s approach
Environmental, Social and Governance (ESG) issues can present both
opportunities and threats to long term investment performance. The
Company’s investment universe comprises sectors that are undergoing
significant structural change and are likely to be highly impacted
by increasing regulation as a result of climate change and other
social and governance factors. Your Board is committed to ensuring
that we have appointed a Manager that integrates ESG considerations
into its investment process, and has the skill to navigate the
structural transition that the Company’s investment universe is
undergoing. The Board believes effective engagement with company
management is, in most cases, the most effective way of driving
meaningful change in the behaviour of investee company management.
While the Company does not have an ESG or impact focused investment
strategy or apply exclusionary screens, as a general approach the
Company will not invest in companies which have high ESG risks and
no plans to address existing deficiencies. Where the Board is not
satisfied that an investee company is taking steps to address
matters of an ESG nature, it may discuss with the Manager how this
situation might be resolved, including potentially by a full
disposal of shares.
ESG integration does not change the Company’s investment
objective or constrain the Investment Manager’s investable
universe, and does not mean that an ESG or impact focused
investment strategy or any exclusionary screens have been or will
be adopted by the Company. Similarly, ESG integration does not
determine the extent to which the Company may be impacted by
sustainability risks. More information on BlackRock’s global
approach to ESG integration, as well as activity specific to the
BlackRock World Mining Trust plc portfolio is set out below.
The Company does not meet the criteria for Article 8 or 9
products under the EU Sustainable Finance Disclosure Regulation
(SFDR) and the investments underlying this financial product do not
take into account the EU criteria for environmentally sustainable
economic activities. The Investment Manager has access to a range
of data sources, including principal adverse indicator (PAI) data,
when making decisions on the selection of investments. However,
whilst BlackRock considers ESG risks for all portfolios and these
risks may coincide with environmental or social themes associated
with the PAIs, the Company does not commit to considering PAIs in
driving the selection of its investments. Additional information on
ESG integration, sustainability risk and SFDR is set out in the
AIFMD Fund Disclosures available on the Company's website.
BlackRock World Mining Trust plc – BlackRock Investment
Stewardship engagement with portfolio companies in 2022
Given the Board’s belief in the importance of engagement and
communication with portfolio companies, they receive regular
updates from the Investment Manager in respect of activity
undertaken for the year under review. The Investment Manager
engages with company management teams and undertakes company
meetings to identify the best management teams with the ability to
create value for shareholders over the long term. In addition,
BlackRock also has a separate BlackRock Investment Stewardship
(BIS) team. Consistent with BlackRock’s fiduciary duty as an asset
manager, BIS seeks to support investee companies in their efforts
to deliver long-term durable financial performance on behalf of
BlackRock’s clients. BIS engages with investee companies to build
its understanding of these companies’ approach to addressing
material risks and opportunities. The Board notes that over the
year to 31 December 2022, 58 total
company engagements were held with the management teams of 37
portfolio companies representing 55% of the portfolio by value at
31 December 2022. To put this into
context, there were 69 companies in the BlackRock World Mining
Trust plc portfolio at 31 December
2022. Additional information is set out in the table below
and charts in the Annual Report and Financial Statements as well as
the key engagement themes for the meetings held in respect of the
Company’s portfolio holdings.
|
Year
ended
31 December
2022 |
| Number of engagements held |
58 |
| Number of companies met |
37 |
| % of equity investments covered |
55 |
| Shareholder meetings voted at |
61 |
| Number of proposals voted on |
648 |
| Number of votes against
management |
36 |
| % of total votes represented by
votes against management |
5.2 |
|
========= |
Source: Institutional Shareholder Services as at 31 December 2022.
The importance and challenges of
considering ESG when investing in the Natural Resources Sector and
Blackrock’s approach to ESG integration
|
Environmental |
Social |
Corporate Governance |
| Impact |
As well as the
longer-term contribution to carbon emissions and the impact on the
environment, the activities undertaken by many companies in the
portfolio such as digging mines will inevitably have an impact on
local surroundings. It is important how companies manage this
process and ensure that an appropriate risk oversight framework is
in place, with consideration given to all stakeholders. The
significant fall in the market cap of companies like Vale, after
the Brumadinho dam collapse, highlights the key role that ESG has
on share price performance.
BlackRock’s approach to climate risk and opportunities and the
global energy transition is based on our role as a fiduciary to our
clients. As the world works toward a transition to a low-carbon
economy, we are interested in hearing from companies about their
strategies and plans for responding to the challenges and capturing
the opportunities that this transition creates. When companies
consider climate-related risks, it is likely that they will also
assess their impact and dependence on natural capital. |
BlackRock believes it
is vital that natural resources companies maintain their social
licence to operate. BIS’ Global Principles underscore our belief
that companies are best placed to deliver value for long-term
shareholders like BlackRock’s clients when they also consider the
interests of their other key stakeholders, which generally will
include workers, business partners (such as suppliers and
distributors), clients and consumers, government and the
communities in which they operate.
In our experience, companies that build strong relationships with
their stakeholders are more likely to meet their own strategic
objectives, while poor relationships may create adverse impacts
that expose a company to legal, regulatory, operational and
reputational risks and jeopardise their ability to deliver
sustainable, long-term financial performance. |
As with all companies,
good corporate governance is especially critical for natural
resources companies. The performance and effectiveness of the board
is critical to the success of a company, the protection of
shareholders’ interests, and long-term shareholder value creation.
Governance issues, including the management of material
sustainability issues that have a significant impact for natural
resources companies, all require effective leadership and oversight
from a company’s board.
We believe companies with experienced, engaged and diverse
directors, who are effective in actively advising and overseeing
management as a board, are well-positioned to deliver long-term
value creation. |
BIS held 3,693 engagements with 2,464 unique companies globally
between 1 July 2021 and 30 June 2022. Globally, BIS voted on behalf
of those clients who authorised us to do so, at more than 18,000
shareholder meetings on more than 173,000 proposals. Similar to
previous years, shareholder proposals represented less than 1% of
the total proposals BIS voted on during in the year to 30 June 2022. More detail can be found at:
www.blackrock.com/corporate/literature/publication/2022-investment-stewardship-voting-spotlight.pdf
|
Environmental |
Social |
Corporate Governance |
BIS – Examples of approach to
voting and engagement across ESG categories
(year ended 30 June 2022)1 |
BIS held 2,058
engagements on climate and natural capital topics.
BIS voted to signal concerns about climate action or disclosure at
234 companies (321 last year). BIS did not support the election of
176 directors for climate-related concerns (254 last year).
In the year to 30 June 2022, BIS continued to focus its stewardship
efforts where the energy transition is likely to materially impact
a company’s performance. To that end, the BIS Climate Focus
Universe, which includes over 1,000 carbon-intensive public
companies, represents nearly 90% of the global scope 1 and 2 GHG
emissions of the companies in which BlackRock invests on behalf of
our clients. More detail can be found at
www.blackrock.com/corporate/literature/publication/blk-climate-focus-universe.pdf. |
BIS held 1,283
engagements related to company impacts on people.
In the year to 30 June 2022, BIS voted on 200 shareholder proposals
related to social issues. BIS supported 38 shareholder proposals
relating to company impacts on people (social-related proposals)
out of 200, i.e., approximately 19%. |
BIS centers our
stewardship work in corporate governance. That is why board quality
and effectiveness remain a top engagement priority, and a key
factor in the majority of votes cast on behalf of clients.
BIS held 2,326 engagements on board quality and effectiveness;
2,115 focused on strategy, purpose and financial resilience; and
1,352 on incentives aligned with value creation.
Like last year, the leading reasons for BIS not supporting director
elections in the year to 30 June 2022 – and management proposals
more broadly – were governance-related: 1) lack of board
independence, 2) lack of board diversity, 3) directors having too
many board commitments and 4) executive compensation that was not
aligned with company strategy or long-term performance.
BIS did not support 1,521 companies globally over concerns about
board independence.
BIS did not support 936 companies globally for concerns related to
board diversity.
BIS did not support 661 companies globally for concerns related to
overcommitment.
BIS did not support 576 companies due to concerns over
compensation. |
1 The data in this table
applies to BIS’ engagements globally. Most engagement conversations
cover multiple topics. BIS’ engagement statistics reflect the
primary topics discussed during the meeting. More detail can be
found at:
www.blackrock.com/corporate/literature/publication/2022-investment-stewardship-voting-spotlight.pdf
BlackRock’s approach to ESG integration
BlackRock believes that sustainability risk – and climate risk in
particular – now equates to investment risk, and this will drive a
profound reassessment of risk and asset values as investors seek to
react to the impact of climate policy changes. This in turn (in
BlackRock’s view) is likely to drive a significant reallocation of
capital away from traditional carbon intensive industries over the
next decade. BlackRock believes that carbon-intensive companies
will play an integral role in unlocking the full potential of the
energy transition, and to do this, they must be prepared to adapt,
innovate and pivot their strategies towards a low carbon
economy.
As part of BlackRock’s structured investment process, ESG risks
and opportunities (including sustainability/climate risk) are
considered within the portfolio management team’s fundamental
analysis of companies and industries. ESG factors are an important
consideration of the BlackRock Natural Resources Team’s investment
process and the Company’s portfolio managers work closely with BIS
to assess the governance quality of companies and understand any
potential issues, risks or opportunities.
As part of their approach to ESG integration, the portfolio
managers use ESG information when conducting research and due
diligence on new investments and again when monitoring investments
in the portfolio. In particular, portfolio managers now have access
to 1,200 key ESG performance indicators in Aladdin (BlackRock’s
proprietary trading system) from third-party data providers.
BlackRock’s internal sustainability research framework scoring is
also available alongside third-party ESG scores in core portfolio
management tools. BlackRock’s analysts’ sector expertise and local
market knowledge allows it to engage with companies through direct
interaction with management teams and conducting site visits. In
conjunction with the portfolio management team, BIS meets with
boards of companies frequently to evaluate how they are
strategically managing their longer-term issues, including those
surrounding ESG and the potential impact these may have on company
financials. BIS’s and the portfolio management team’s understanding
of ESG issues is further supported by BlackRock’s Sustainable and
Transition Solutions (STS) function. STS looks to advance ESG
research and integration, active engagement and the development of
sustainable investment solutions across the firm.
Investment stewardship
Consistent with BlackRock’s fiduciary duty as an asset manager, BIS
seeks to support investee companies in their efforts to deliver
long-term durable financial performance on behalf of our clients.
These clients include public and private pension plans,
governments, insurance companies, endowments, universities,
charities and, ultimately, individual investors, among others. BIS
serves as an important link between BlackRock’s clients and the
companies they invest in. Clients depend on BlackRock to help them
meet their investment goals; the business and governance decisions
that companies make will have a direct impact on BlackRock’s
clients’ long-term investment outcomes and financial
well-being.
Global principles
BlackRock’s approach to corporate governance and stewardship is
comprised in BIS’ Global Principles and market-specific voting
guidelines. BIS’ policies set out the core elements of corporate
governance that guide its investment stewardship activities
globally and within each regional market, including when voting at
shareholder meetings for those clients who have authorised BIS to
vote on their behalf. Each year, BIS reviews its policies and
updates them as necessary to reflect changes in market standards
and regulations, insights gained over the year through third-party
and its own research, and feedback from clients and companies. BIS’
Global Principles are available on its website at
www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf
Market-specific proxy voting guidelines
BIS’ voting guidelines are intended to help clients and companies
understand its thinking on key governance matters. They are the
benchmark against which it assesses a company’s approach to
corporate governance and the items on the agenda to be voted on at
a shareholder meeting. BIS applies its guidelines pragmatically,
taking into account a company’s unique circumstances where
relevant. BlackRock informs voting decisions through research and
engages as necessary. BIS reviews its voting guidelines annually
and updates them as necessary to reflect changes in market
standards, evolving governance practice and insights gained from
engagement over the prior year.
BIS’ market-specific voting guidelines are available on its
website at
www.blackrock.com/corporate/about-us/investment-stewardship#stewardship-policies
BlackRock is committed to transparency in terms of disclosure on
its stewardship activities on behalf of clients. BIS publishes its
stewardship policies – such as the Global Principles, engagement
priorities, and voting guidelines – to help BlackRock’s clients
understand its work to advance their interests as long-term
investors in public companies. Additionally, BIS published both
annual and quarterly reports detailing its stewardship activities,
as well as vote bulletins that describe its rationale for certain
votes at high profile shareholder meetings.
More detail in respect of BIS reporting can be found at
www.blackrock.com/corporate/about-us/investment-stewardship
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the
Sustainability Accounting Standards Board provides a clear set of
standards for reporting sustainability information across a wide
range of issues, from labour practices to data privacy to business
ethics. For evaluating and reporting climate-related risks, as well
as the related governance issues that are essential to managing
them, the Task Force on Climate-related Financial Disclosures
(TCFD) provides a valuable framework. BlackRock recognises that
reporting to these standards requires significant time, analysis,
and effort. BlackRock’s 2021 TCFD report can be found at
www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2021-blkinc.pdf
BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
2 March 2023
RELATED PARTY TRANSACTIONS
The Board currently consists of five non-executive Directors all
of whom are considered to be independent by the Board. None of the
Directors has a service contract with the Company. The Chairman
receives an annual fee of £49,350, the Chairman of the Audit
Committee/Senior Independent Director receives an annual fee of
£41,475, and each other Director receives an annual fee of £33,600.
All five members of the Board hold shares in the Company. Mr Cheyne
holds 35,000 ordinary shares, Mr Edey holds 20,000 ordinary shares,
Ms Lewis holds 5,362 ordinary shares, Ms Mosely holds 7,400
ordinary shares and Mr Venkatakrishnan holds 1,000 ordinary shares.
The amount of Directors’ fees outstanding at 31 December 2022 was £16,000 (2021: £14,375).
STATEMENT OF DIRECTORS'
RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law, the
Directors are required to prepare the financial statements in
accordance with UK-adopted International Accounting Standards
(IAS).
Under Company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group for that period. In preparing those
financial statements, the Directors are required to:
· present fairly the
financial position, financial performance and cash flows of the
Group and Company;
· select suitable
accounting policies in accordance with IAS 8: Accounting Policies,
Changes in Accounting Estimates and Errors and then apply them
consistently;
· present information,
including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information;
· make judgements and
estimates that are reasonable and prudent;
· state whether the
financial statements have been prepared in accordance with
UK-adopted IAS, subject to any material departures disclosed and
explained in the financial statements;
· provide additional
disclosures when compliance with the specific requirements in
accordance with UK-adopted IAS is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group’s and Company’s financial position and
financial performance; and
· prepare the
financial statements on the going concern basis unless it is
inappropriate to presume that the Group and Company will continue
in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements comply with the
Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic
Report, Directors’ Report, the Directors’ Remuneration Report, the
Corporate Governance Statement and the Report of the Audit
Committee in accordance with the Companies Act 2006 and applicable
regulations, including the requirements of the Listing Rules and
the Disclosure Guidance and Transparency Rules. The Directors have
delegated responsibility to the Manager for the maintenance and
integrity of the Company’s corporate and financial information
included on the BlackRock website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Each of the Directors, whose names are listed in the Annual
Report and Financial Statements, confirm to the best of their
knowledge that:
· the financial
statements, which have been prepared in accordance with UK-adopted
IAS, give a true and fair view of the assets, liabilities,
financial position and net return of the Group and Company; and
· the Strategic Report
contained in the Annual Report and Financial Statements includes a
fair review of the development and performance of the business and
the position of the Group and Company, together with a description
of the principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code also requires Directors to
ensure that the Annual Report and Financial Statements are fair,
balanced and understandable. In order to reach a conclusion on this
matter, the Board has requested that the Audit Committee advise on
whether it considers that the Annual Report and Financial
Statements fulfil these requirements. The process by which the
Committee has reached these conclusions is set out in the Audit
Committee’s Report in the Annual Report and Financial Statements.
As a result, the Board has concluded that the Annual Report and
Financial Statements for the year ended 31
December 2022, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Group’s and Company’s position,
performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
DAVID CHEYNE
Chairman
2 March 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR
THE YEAR ENDED 31 DECEMBER 2022
|
|
2022 |
2021 |
|
Notes |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
| Income from investments held at fair
value through profit or loss |
3 |
78,087 |
811 |
78,898 |
80,558 |
– |
80,558 |
| Other income |
3 |
7,909 |
– |
7,909 |
7,118 |
– |
7,118 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total revenue |
|
85,996 |
811 |
86,807 |
87,676 |
– |
87,676 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
| Net profit on investments held at
fair value through profit or loss |
|
– |
152,937 |
152,937 |
– |
122,374 |
122,374 |
| Net loss on foreign exchange |
|
– |
(17,645) |
(17,645) |
– |
(1,696) |
(1,696) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total |
|
85,996 |
136,103 |
222,099 |
87,676 |
120,678 |
208,354 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
| Expenses |
|
|
|
|
|
|
|
| Investment management fee |
4 |
(2,615) |
(8,031) |
(10,646) |
(2,252) |
(6,978) |
(9,230) |
| Other operating expenses |
5 |
(1,037) |
(28) |
(1,065) |
(1,034) |
(9) |
(1,043) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total operating expenses |
|
(3,652) |
(8,059) |
(11,711) |
(3,286) |
(6,987) |
(10,273) |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
| Net profit on ordinary activities
before finance costs and taxation |
|
82,344 |
128,044 |
210,388 |
84,390 |
113,691 |
198,081 |
| Finance costs |
6 |
(1,182) |
(3,520) |
(4,702) |
(374) |
(1,117) |
(1,491) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Net profit on ordinary activities
before taxation |
|
81,162 |
124,524 |
205,686 |
84,016 |
112,574 |
196,590 |
| Taxation (charge)/credit |
|
(5,149) |
1,883 |
(3,266) |
(5,106) |
986 |
(4,120) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Net profit on ordinary activities
after taxation |
|
76,013 |
126,407 |
202,420 |
78,910 |
113,560 |
192,470 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
| Earnings per ordinary share
(pence) – basic and diluted |
8 |
40.68 |
67.64 |
108.32 |
43.59 |
62.73 |
106.32 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
The total column of this statement represents the Group’s
Statement of Comprehensive Income, prepared in accordance with
UK-adopted International Accounting Standards (IASs). The
supplementary revenue and capital accounts are both prepared under
guidance published by the Association of Investment Companies
(AIC). All items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the
year. All income is attributable to the equity holders of the
Group.
The Group does not have any other comprehensive income (2021:
£nil). The net profit for the year disclosed above represents the
Group’s total comprehensive income.
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022
Group |
Notes |
Called
up share
capital
£’000 |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserves
£’000 |
Revenue
reserve
£’000 |
Total
£’000 |
| For the year ended 31 December
2022 |
|
|
|
|
|
|
|
|
| At 31 December 2021 |
|
9,651 |
138,818 |
22,779 |
155,123 |
742,430 |
74,073 |
1,142,874 |
| Total comprehensive income: |
|
|
|
|
|
|
|
|
| Net profit for the year |
|
– |
– |
– |
– |
126,407 |
76,013 |
202,420 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
9,10 |
– |
9,289 |
– |
25,683 |
– |
– |
34,972 |
| Share reissue costs |
9,10 |
– |
– |
– |
(70) |
– |
– |
(70) |
| Dividends paid1 |
7 |
– |
– |
– |
– |
– |
(80,911) |
(80,911) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December 2022 |
|
9,651 |
148,107 |
22,779 |
180,736 |
868,837 |
69,175 |
1,299,285 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
========= |
| For the year ended 31 December
2021 |
|
|
|
|
|
|
|
|
| At 31 December 2020 |
|
9,651 |
127,155 |
22,779 |
103,992 |
628,870 |
38,378 |
930,825 |
| Total comprehensive income: |
|
|
|
|
|
|
|
|
| Net profit for the year |
|
– |
– |
– |
– |
113,560 |
78,910 |
192,470 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
|
– |
11,663 |
– |
51,651 |
– |
– |
63,314 |
| Share reissue costs |
|
– |
– |
– |
(127) |
– |
– |
(127) |
| Ordinary shares purchased into
treasury |
|
– |
– |
– |
(390) |
– |
– |
(390) |
| Share purchase costs |
|
– |
– |
– |
(3) |
– |
– |
(3) |
| Dividends paid2 |
7 |
– |
– |
– |
– |
– |
(43,215) |
(43,215) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December 2021 |
|
9,651 |
138,818 |
22,779 |
155,123 |
742,430 |
74,073 |
1,142,874 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
========= |
1 The final dividend of
27.00p per share for the year ended 31
December 2021, declared on 8 March
2022 and paid on 19 May 2022;
1st interim dividend of 5.50p per share for the year ended
31 December 2022, declared on
6 May 2022 and paid on 30 June 2022; 2nd interim dividend of 5.50p per
share for the year ended 31 December
2022, declared on 23 August
2022 and paid on 30 September
2022 and 3rd interim dividend of 5.50p per share for the
year ended 31 December 2022, declared
on 16 November 2022 and paid on
22 December 2022.
2 The final dividend of 8.30p
per share for the year ended 31 December
2020, declared on 4 March 2021
and paid on 6 May 2021; 1st interim
dividend of 4.50p per share for the year ended 31 December 2021, declared on 29 April 2021 and paid on 25 June 2021; 2nd interim dividend of 5.50p per
share for the year ended 31 December
2021, declared on 19 August
2021 and paid on 24 September
2021 and 3rd interim dividend of 5.50p per share for the
year ended 31 December 2021, declared
on 18 November 2021 and paid on
24 December 2021.
For information on the Company’s distributable reserves please
refer to note 10 below.
PARENT COMPANY STATEMENT OF CHANGES IN
EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022
Company |
Notes |
Called
up share
capital
£’000 |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserves
£’000 |
Revenue
reserve
£’000 |
Total
£’000 |
| For the year ended 31 December
2022 |
|
|
|
|
|
|
|
|
| At 31 December 2021 |
|
9,651 |
138,818 |
22,779 |
155,123 |
748,107 |
68,396 |
1,142,874 |
| Total comprehensive income: |
|
|
|
|
|
|
|
|
| Net profit for the year |
|
– |
– |
– |
– |
126,460 |
75,960 |
202,420 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
9,10 |
– |
9,289 |
– |
25,683 |
– |
– |
34,972 |
| Share reissue costs |
9,10 |
– |
– |
– |
(70) |
– |
– |
(70) |
| Dividends paid1 |
7 |
– |
– |
– |
– |
– |
(80,911) |
(80,911) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December 2022 |
|
9,651 |
148,107 |
22,779 |
180,736 |
874,567 |
63,445 |
1,299,285 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
========= |
| For the year ended 31 December
2021 |
|
|
|
|
|
|
|
|
| At 31 December 2020 |
|
9,651 |
127,155 |
22,779 |
103,992 |
634,547 |
32,701 |
930,825 |
| Total comprehensive income: |
|
|
|
|
|
|
|
|
| Net profit for the year |
|
– |
– |
– |
– |
113,560 |
78,910 |
192,470 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
|
– |
11,663 |
– |
51,651 |
– |
– |
63,314 |
| Share reissue costs |
|
– |
– |
– |
(127) |
– |
– |
(127) |
| Ordinary shares purchased into
treasury |
|
– |
– |
– |
(390) |
– |
– |
(390) |
| Share purchase costs |
|
– |
– |
– |
(3) |
– |
– |
(3) |
| Dividends paid2 |
7 |
– |
– |
– |
– |
– |
(43,215) |
(43,215) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December 2021 |
|
9,651 |
138,818 |
22,779 |
155,123 |
748,107 |
68,396 |
1,142,874 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
========= |
1 The final dividend of
27.00p per share for the year ended 31
December 2021, declared on 8 March
2022 and paid on 19 May 2022;
1st interim dividend of 5.50p per share for the year ended
31 December 2022, declared on
6 May 2022 and paid on 30 June 2022; 2nd interim dividend of 5.50p per
share for the year ended 31 December
2022, declared on 23 August
2022 and paid on 30 September
2022 and 3rd interim dividend of 5.50p per share for the
year ended 31 December 2022, declared
on 16 November 2022 and paid on
22 December 2022.
2 The final dividend of 8.30p
per share for the year ended 31 December
2020, declared on 4 March 2021
and paid on 6 May 2021; 1st interim
dividend of 4.50p per share for the year ended 31 December 2021, declared on 29 April 2021 and paid on 25 June 2021; 2nd interim dividend of 5.50p per
share for the year ended 31 December
2021, declared on 19 August
2021 and paid on 24 September
2021 and 3rd interim dividend of 5.50p per share for the
year ended 31 December 2021, declared
on 18 November 2021 and paid on
24 December 2021.
For information on the Company’s distributable reserves please
refer to note 10 below.
CONSOLIDATED AND PARENT COMPANY
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2022
|
|
31
December 2022 |
31
December 2021 |
|
Notes |
Group
£’000 |
Company
£’000 |
Group
£’000 |
Company
£’000 |
| Non current assets |
|
|
|
|
|
| Investments held at fair value
through profit or loss |
|
1,424,844 |
1,432,075 |
1,256,801 |
1,263,979 |
| Current assets |
|
|
|
|
|
| Current tax asset |
|
821 |
821 |
85 |
85 |
| Other receivables |
|
4,431 |
4,431 |
5,209 |
5,209 |
| Cash collateral held with
brokers |
|
6,795 |
6,795 |
580 |
580 |
| Cash and cash equivalents |
|
29,492 |
23,317 |
26,332 |
20,222 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total current assets |
|
41,539 |
35,364 |
32,206 |
26,096 |
|
|
========= |
========= |
========= |
========= |
| Total assets |
|
1,466,383 |
1,467,439 |
1,289,007 |
1,290,075 |
|
|
========= |
========= |
========= |
========= |
| Current liabilities |
|
|
|
|
|
| Current tax liability |
|
(373) |
(361) |
(427) |
(427) |
| Other payables |
|
(6,155) |
(7,223) |
(5,183) |
(6,251) |
| Derivative financial liabilities
held at fair value through profit or loss |
|
(1,227) |
(1,227) |
(667) |
(667) |
| Bank overdraft |
|
– |
– |
(356) |
(356) |
| Bank loans |
|
(158,783) |
(158,783) |
(138,867) |
(138,867) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total current
liabilities |
|
(166,538) |
(167,594) |
(145,500) |
(146,568) |
|
|
========= |
========= |
========= |
========= |
| Total assets less current
liabilities |
|
1,299,845 |
1,299,845 |
1,143,507 |
1,143,507 |
|
|
========= |
========= |
========= |
========= |
| Non current liabilities |
|
|
|
|
|
| Deferred taxation liability |
|
(560) |
(560) |
(633) |
(633) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
| Net assets |
|
1,299,285 |
1,299,285 |
1,142,874 |
1,142,874 |
|
|
========= |
========= |
========= |
========= |
| Equity attributable to equity
holders |
|
|
|
|
|
| Called up share capital |
9 |
9,651 |
9,651 |
9,651 |
9,651 |
| Share premium account |
10 |
148,107 |
148,107 |
138,818 |
138,818 |
| Capital redemption reserve |
10 |
22,779 |
22,779 |
22,779 |
22,779 |
| Special reserve |
10 |
180,736 |
180,736 |
155,123 |
155,123 |
| Capital reserves: |
|
|
|
|
|
| At 1 January |
|
742,430 |
748,107 |
628,870 |
634,547 |
| Net profit for the year |
|
126,407 |
126,460 |
113,560 |
113,560 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December |
10 |
868,837 |
874,567 |
742,430 |
748,107 |
| Revenue reserve: |
|
|
|
|
|
| At 1 January |
|
74,073 |
68,396 |
38,378 |
32,701 |
| Net profit for the year |
|
76,013 |
75,960 |
78,910 |
78,910 |
| Dividends paid |
|
(80,911) |
(80,911) |
(43,215) |
(43,215) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December |
10 |
69,175 |
63,445 |
74,073 |
68,396 |
| Total equity |
|
1,299,285 |
1,299,285 |
1,142,874 |
1,142,874 |
|
|
========= |
========= |
========= |
========= |
| Net asset value per ordinary
share (pence) |
8 |
688.35 |
688.35 |
622.21 |
622.21 |
|
|
========= |
========= |
========= |
========= |
CONSOLIDATED AND PARENT COMPANY CASH
FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022
|
31
December 2022 |
31
December 2021 |
|
Group
£’000 |
Company
£’000 |
Group
£’000 |
Company
£’000 |
| Operating activities |
|
|
|
|
| Net profit before taxation |
205,686 |
205,686 |
196,590 |
196,590 |
| Add back finance costs |
4,702 |
4,702 |
1,491 |
1,491 |
| Net profit on investments held at
fair value through profit or loss (including transaction
costs) |
(152,937) |
(152,990) |
(122,374) |
(122,374) |
| Net loss on foreign exchange |
17,645 |
17,645 |
1,696 |
1,696 |
| Sales of investments held at fair
value through profit or loss |
489,236 |
489,236 |
354,182 |
354,182 |
| Purchases of investments held at
fair value through profit or loss |
(503,782) |
(503,782) |
(442,711) |
(442,711) |
| Decrease/(increase) in other
receivables |
13 |
13 |
(1,233) |
(1,233) |
| Increase in other payables |
1,025 |
1,013 |
2,571 |
2,571 |
| Decrease in amounts due from
brokers |
243 |
243 |
2,776 |
2,776 |
| Decrease in amounts due to
brokers |
– |
– |
(2,473) |
(2,473) |
| Net movement in cash collateral held
with brokers |
(6,215) |
(6,215) |
2,363 |
2,363 |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Net cash inflow/(outflow) from
operating activities before taxation |
55,616 |
55,551 |
(7,122) |
(7,122) |
|
========= |
========= |
========= |
========= |
| Taxation paid |
(432) |
(432) |
(484) |
(484) |
| Taxation on investment income
included within gross income |
(3,210) |
(3,210) |
(3,303) |
(3,303) |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Net cash inflow/(outflow) from
operating activities |
51,974 |
51,909 |
(10,909) |
(10,909) |
|
========= |
========= |
========= |
========= |
| Financing activities |
|
|
|
|
| Drawdown of loans |
2,359 |
2,359 |
35,020 |
35,020 |
| Interest paid |
(4,720) |
(4,720) |
(1,439) |
(1,439) |
| Shares purchased into treasury |
– |
– |
(390) |
(390) |
| Share purchase costs paid |
– |
– |
(3) |
(3) |
| Net proceeds from ordinary shares
reissued from treasury |
34,902 |
34,902 |
63,187 |
63,187 |
| Dividends paid |
(80,911) |
(80,911) |
(43,215) |
(43,215) |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Net cash (outflow)/inflow from
financing activities |
(48,370) |
(48,370) |
53,160 |
53,160 |
|
========= |
========= |
========= |
========= |
| Increase in cash and cash
equivalents |
3,604 |
3,539 |
42,251 |
42,251 |
| Cash and cash equivalents at start
of the year |
25,976 |
19,866 |
(16,008) |
(22,118) |
| Effect of foreign exchange rate
changes |
(88) |
(88) |
(267) |
(267) |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Cash and cash equivalents at end
of year |
29,492 |
23,317 |
25,976 |
19,866 |
|
========= |
========= |
========= |
========= |
| Comprised of: |
|
|
|
|
| Cash and cash equivalents |
29,492 |
23,317 |
26,332 |
20,222 |
| Bank overdraft |
– |
– |
(356) |
(356) |
|
--------------- |
--------------- |
--------------- |
--------------- |
|
29,492 |
23,317 |
25,976 |
19,866 |
|
========= |
========= |
========= |
========= |
NOTES TO THE FINANCIAL STATEMENTS FOR
THE YEAR ENDED 31 DECEMBER 2022
1. Principal activity
The principal activity of the Company is that of an investment
trust company within the meaning of Section 1158 of the Corporation
Tax Act 2010. The Company was incorporated in England on 28 October
1993 and this is the 29th Annual Report.
The principal activity of the subsidiary, BlackRock World Mining
Investment Company Limited, is investment dealing.
2. Accounting policies
The principal accounting policies adopted by the Group and Company
have been applied consistently, other than where new policies have
been adopted and are set out below.
(a) Basis of preparation
On 31 December 2020, International
Financial Reporting Standards (IFRS) as adopted by the European
Union at that date was brought into UK law and became UK-adopted
International Accounting Standards (IASs), with future changes
being subject to endorsement by the UK Endorsement Board and with
the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards. The Company transitioned
to IASs in its consolidated financial statements with effect from
1 January 2021. There was no impact
or changes in accounting policies from the transition.
The Group and Company financial statements have been prepared
under the historic cost convention modified by the revaluation of
certain financial assets and financial liabilities held at fair
value through profit or loss and in accordance with IASs. The
Company has taken advantage of the exemption provided under Section
408 of the Companies Act 2006 not to publish its individual
Statement of Comprehensive Income and related notes. All of the
Group’s operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for
investment trust companies and venture capital trusts, issued by
the Association of Investment Companies (AIC) in October 2019 and updated in July 2022, is compatible with IASs, the financial
statements have been prepared in accordance with guidance set out
in the SORP.
Substantially all of the assets of the Group consist of
securities that are readily realisable and, accordingly, the
Directors believe that the Group has adequate resources to continue
in operational existence for the foreseeable future for the period
to 31 March 2024, being a period of
at least twelve months from the date of approval of the financial
statements and therefore consider the going concern assumption to
be appropriate. The Directors have reviewed compliance with the
covenants associated with the bank overdraft facility, loan
facility, income and expense projections and the liquidity of the
investment portfolio in making their assessment.
The Directors have considered the impact of climate change on
the value of the investments included in the Financial Statements
and have concluded that:
· there was no further
impact of climate change to be considered as the investments are
valued based on market pricing as required by IFRS 13; and
· the risk is
adequately captured in the assumptions and inputs used in
measurement of Level 3 assets, as noted in note 18 of the Financial
Statements in the Annual Report and Financial Statements.
None of the Group's other assets and liabilities were considered
to be potentially impacted by climate change.
The Group’s financial statements are presented in sterling,
which is the currency of the primary economic environment in which
the Group operates. All values are rounded to the nearest thousand
pounds (£’000) except where otherwise indicated.
Relevant International Accounting Standards that have yet to
be adopted:
IFRS 17 – Insurance contracts (effective 1 January 2023). This standard replaces IFRS 4,
which currently permits a wide range of accounting practices in
accounting for insurance contracts. IFRS 17 will fundamentally
change the accounting by all entities that issue insurance
contracts and investment contracts with discretionary participation
features.
This standard is unlikely to have any impact on the Company as
it has no insurance contracts.
IAS 12 – Deferred tax related to assets and liabilities
arising from a single transaction (effective 1 January 2023). The International Accounting
Standards Board (IASB) has amended IAS 12 Income Taxes to require
companies to recognise deferred tax on particular transactions
that, on initial recognition, give rise to equal amounts of taxable
and deductible temporary differences. According to the amended
guidance, a temporary difference that arises on initial recognition
of an asset or liability is not subject to the initial recognition
exemption if that transaction gave rise to equal amounts of taxable
and deductible temporary differences. These amendments might have a
significant impact on the preparation of financial statements by
companies that have substantial balances of right-of-use assets,
lease liabilities, decommissioning, restoration and similar
liabilities. The impact for those affected would be the recognition
of additional deferred tax assets and liabilities.
The amendment of this standard is unlikely to have any
significant impact on the Group.
None of the standards that have been issued, but are not yet
effective, are expected to have a material impact on the
Company.
(b) Basis of consolidation
The Group’s financial statements are made up to 31 December each
year and consolidate the financial statements of the Company and
its wholly owned subsidiary, which is registered and operates in
England and Wales, BlackRock World Mining Investment
Company Limited (together ‘the Group’). The subsidiary company is
not considered an investment entity. In the financial statements of
the Parent Company, the investment in the subsidiary company is
held at fair value.
Subsidiaries are consolidated from the date of their
acquisition, being the date on which the Company obtains control,
and continue to be consolidated until the date that such control
ceases. The financial statements of subsidiaries used in the
preparation of the consolidated financial statements are based on
consistent accounting policies. All intra-group balances and
transactions, including unrealised profits arising therefrom, are
eliminated.
(c) Presentation of the Statement of Comprehensive
Income
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Consolidated Statement
of Comprehensive Income between items of a revenue and a capital
nature has been presented alongside the Consolidated Statement of
Comprehensive Income.
(d) Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business being investment business.
(e) Income
Dividends receivable on equity shares are recognised as revenue for
the year on an ex-dividend basis. Where no ex-dividend date is
available, dividends receivable on or before the year end are
treated as revenue for the year. Provision is made for any
dividends and interest income not expected to be received. Special
dividends, if any, are treated as a capital or a revenue receipt
depending on the facts or circumstances of each particular case.
The return on a debt security is recognised on a time apportionment
basis so as to reflect the effective yield on the debt security.
Interest income and deposit interest is accounted for on an
accruals basis.
Options may be purchased or written over securities held in the
portfolio for generating or protecting capital returns, or for
generating or maintaining revenue returns. Where the purpose of the
option is the generation of income, the premium is treated as a
revenue item. Where the purpose of the option is the maintenance of
capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the
life of the option contract and included in the revenue account of
the Consolidated Statement of Comprehensive Income unless the
option has been written for the maintenance and enhancement of the
Group’s investment portfolio and represents an incidental part of a
larger capital transaction, in which case any premia arising are
allocated to the capital account of the Consolidated Statement of
Comprehensive Income.
Royalty income from contractual rights is measured at the fair
value of the consideration received or receivable where the
Investment Manager can reliably estimate the amount, pursuant to
the terms of the agreement. Royalty income from contractual rights
received comprises of a return of income and a return of capital
based on the underlying cost of the contract and, accordingly, the
return of income element is taken to the revenue account and the
return of capital element is taken to the capital account. These
amounts are disclosed in the Consolidated Statement of
Comprehensive Income within income from investments and net profit
on investments held at fair value through profit or loss,
respectively.
The useful life of the contractual rights will be determined by
reference to the contractual arrangements, the planned mine life on
commencement of mining and the underlying cost of the contractual
rights will be revalued on a systematic basis using the units of
production method over the life of the contractual rights which is
estimated using available estimated proved and probable reserves
specifically associated with the mine. The Investment Manager
relies on public disclosures for information on proven and probable
reserves from the operators of the mine. Amortisation rates are
adjusted on a prospective basis for all changes to estimates of the
life of contractual rights and iron ore reserves. These are
disclosed in the Consolidated Statement of Comprehensive Income
within net profit on investments held at fair value through profit
or loss.
Where the Group has elected to receive its dividends in the form
of additional shares rather than in cash, the cash equivalent of
the dividend is recognised as income. Any excess in the value of
the shares received over the amount of the cash dividend is
recognised in capital.
Underwriting commission receivable is taken into account on an
accruals basis.
(f) Expenses
All expenses, including finance costs, are accounted for on an
accruals basis. Expenses have been charged wholly to the revenue
account of the Consolidated Statement of Comprehensive Income,
except as follows:
· expenses which are
incidental to the acquisition or sale of an investment are charged
to the capital account of the Consolidated Statement of
Comprehensive Income. Details of transaction costs on the purchases
and sales of investments are disclosed within note 10 to the
financial statements in the Annual Report and Financial
Statements;
· expenses are treated
as capital where a connection with the maintenance or enhancement
of the value of the investments can be demonstrated; and
· the investment
management fee and finance costs have been allocated 75% to the
capital account and 25% to the revenue account of the Consolidated
Statement of Comprehensive Income in line with the Board’s
expectations of the long-term split of returns, in the form of
capital gains and income, respectively, from the investment
portfolio.
(g) Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax. The tax currently payable is based on the taxable
profit for the year. Taxable profit differs from net profit as
reported in the Consolidated Statement of Comprehensive Income
because it excludes items of income or expenses that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Group’s liability for current tax
is calculated using tax rates that were applicable at the balance
sheet date.
Where expenses are allocated between capital and revenue
accounts, any tax relief in respect of the expenses is allocated
between capital and revenue returns on the marginal basis using the
Company’s effective rate of corporation tax for the accounting
period.
Deferred taxation is recognised in respect of all temporary
differences that have originated but not reversed at the financial
reporting date, where transactions or events that result in an
obligation to pay more taxation in the future or right to pay less
taxation in the future have occurred at the financial reporting
date. This is subject to deferred taxation assets only being
recognised if it is considered more likely than not that there will
be suitable profits from which the future reversal of the temporary
differences can be deducted. Deferred taxation assets and
liabilities are measured at the rates applicable to the legal
jurisdictions in which they arise.
(h) Investments held at fair value through profit or
loss
In accordance with IFRS 9, the Group classifies its investments at
initial recognition as held at fair value through profit or loss
and are managed and evaluated on a fair value basis in accordance
with its investment strategy and business model.
All investments, including contractual rights, are measured
initially and subsequently at fair value through profit or loss.
Purchases of investments are recognised on a trade date basis.
Contractual rights are recognised on the completion date, where a
purchase of the rights is under a contract, and are initially
measured at fair value excluding transaction costs. Sales of
investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their
quoted bid price at the financial reporting date, without deduction
for the estimated future selling costs. This policy applies to all
current and non-current asset investments held by the Group.
The gains and losses from changes in fair value of contractual
rights are taken to the Consolidated Statement of Comprehensive
Income and arise as a result of the revaluation of the underlying
cost of the contractual rights, changes in commodity prices and
changes in estimates of proven and probable reserves specifically
associated with the mine.
Under IASs, the investment in the subsidiary in the Company’s
Statement of Financial Position is fair valued which is deemed to
be the net asset value of the subsidiary.
Changes in the value of investments held at fair value through
profit or loss and gains and losses on disposal are recognised in
the Consolidated Statement of Comprehensive Income as ‘Net profit
on investments held at fair value through profit or loss’. Also
included within the heading are transaction costs in relation to
the purchase or sale of investments.
For all financial instruments not traded in an active market,
the fair value is determined by using various valuation techniques.
Valuation techniques include market approach (i.e., using recent
arm’s length market transactions adjusted as necessary and
reference to the current market value of another instrument that is
substantially the same) and the income approach (i.e., discounted
cash flow analysis and option pricing models making as much use of
available and supportable market data where possible). See note
2(q) below.
(i) Options
Options are held at fair value through profit or loss based on the
bid/offer prices of the options written to which the Group is
exposed. The value of the option is subsequently marked-to-market
to reflect the fair value through profit or loss of the option
based on traded prices. Where the premium is taken to the revenue
account, an appropriate amount is shown as capital return such that
the total return reflects the overall change in the fair value of
the option. When an option is exercised, the gain or loss is
accounted for as a capital gain or loss. Any cost on closing out an
option is transferred to the revenue account along with any
remaining unamortised premium.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest and
are short-term in nature and are accordingly stated on an amortised
cost basis.
(k) Dividends payable
Under IASs, final dividends should not be accrued in the financial
statements unless they have been approved by shareholders before
the financial reporting date. Interim dividends should not be
recognised in the financial statements unless they have been
paid.
Dividends payable to equity shareholders are recognised in the
Consolidated and Parent Company Statements of Changes in
Equity.
(l) Foreign currency translation
Transactions involving foreign currencies are converted at the rate
ruling at the date of the transaction. Foreign currency monetary
assets and liabilities and non-monetary assets held at fair value
are translated into sterling at the rate ruling on the financial
reporting date. Foreign exchange differences arising on translation
are recognised in the Consolidated Statement of Comprehensive
Income as a revenue or capital item depending on the income or
expense to which they relate. For investment transactions and
investments held at the year end, denominated in a foreign
currency, the resulting gains or losses are included in the
profit/(loss) on investments held at fair value through profit or
loss in the Consolidated Statement of Comprehensive Income.
(m) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand
deposits. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash
and that are subject to an insignificant risk of changes in value.
Bank overdrafts are shown separately on the Consolidated and Parent
Company Statements of Financial Position.
(n) Bank borrowings
Bank overdrafts and loans are recorded at the net proceeds
received. Finance charges, including any premium payable on
settlement or redemption and direct issue costs, are accounted for
on an accruals basis in the Consolidated Statement of Comprehensive
Income using the effective interest rate method and are added to
the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
(o) Offsetting
Financial assets and financial liabilities are offset and the net
amount reported in the Consolidated and Parent Company Statements
of Financial Position if there is a currently enforceable legal
right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the asset and settle the
liability simultaneously.
(p) Share repurchases and share reissues
Shares repurchased and subsequently cancelled – share capital is
reduced by the nominal value of the shares repurchased and the
capital redemption reserve is correspondingly increased in
accordance with Section 733 of the Companies Act 2006. The full
cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the
repurchase is charged to the special reserve.
Where treasury shares are subsequently reissued:
- amounts received to the extent of
the repurchase price are credited to the special reserve and
capital reserves based on a weighted average basis of amounts
utilised from these reserves on repurchases; and
- any surplus received in excess of
the repurchase price is taken to the share premium account.
Where new shares are issued, amounts received to the extent of
any surplus received in excess of the par value are taken to the
share premium account.
Share issue costs are charged to the share premium account.
Costs on share reissues are charged to the special reserve and
capital reserves.
(q) Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates and assumptions will, by
definition, seldom equal the related actual results. Estimates and
judgements are regularly evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are addressed below.
Fair value of unquoted financial instruments
When the fair values of financial assets and financial liabilities
recorded in the Consolidated and Parent Company Statements of
Financial Position cannot be derived from active markets, their
fair value is determined using a variety of valuation techniques
that include the use of valuation models.
(a) The fair value of the OZ Minerals
contractual rights was assessed by an independent valuer with a
recognised and relevant professional qualification. The inputs to
these models are taken from observable markets where possible, but
where this is not feasible, estimation is required in establishing
fair values. The estimates include considerations of production
profiles, commodity prices, cash flows and discount rates. Changes
in assumptions about these factors could affect the reported fair
value of financial instruments in the Consolidated and Parent
Company Statements of Financial Position and the level where the
instruments are disclosed in the fair value hierarchy. To assess
the significance of a particular input to the entire measurement,
the external valuer performs sensitivity analysis.
(b) The fair value of the investment in
equity shares of Jetti Resources and MCC Mining were assessed by an
independent valuer with a recognised and relevant professional
qualification.
The valuation is carried out based on market approach using
earnings multiple and price of recent transactions. Changes in
assumptions about these factors could affect the reported fair
value of financial instruments in the Consolidated and Parent
Company Statements of Financial Position and the level where the
instruments are disclosed in the fair value hierarchy. To assess
the significance of a particular input to the entire measurement,
the external valuer performs sensitivity analysis.
(c) The investment in the subsidiary
company was valued based on the net assets of the subsidiary
company, which is considered appropriate based on the nature and
volume of transactions in the subsidiary company.
The key assumptions used to determine the fair value of the
unquoted financial instruments and sensitivity analyses are
provided in note 18(d) in the Annual Report and Financial
Statements.
3. Income
|
2022
£’000 |
2021
£’000 |
| Investment income: |
|
|
| UK dividends |
17,536 |
25,681 |
| UK special dividends |
2,167 |
5,507 |
| Overseas dividends |
45,094 |
36,624 |
| Overseas special dividends |
3,808 |
1,250 |
| Income from contractual rights (OZ
Minerals Royalty) |
3,096 |
2,562 |
| Income from Vale debentures |
3,863 |
6,971 |
| Income from fixed income
investments |
2,523 |
1,963 |
|
--------------- |
--------------- |
| Total investment income |
78,087 |
80,558 |
|
========= |
========= |
| Other income: |
|
|
| Option premium income |
7,297 |
7,065 |
| Deposit interest |
513 |
– |
| Broker interest received |
18 |
– |
| Stock lending income |
81 |
53 |
|
--------------- |
--------------- |
|
7,909 |
7,118 |
|
========= |
========= |
| Total income |
85,996 |
87,676 |
|
========= |
========= |
During the year, the Group received option premium income in
cash totalling £7,541,000 (2021: £6,745,000) for writing put and
covered call options for the purposes of revenue generation.
Option premium income is amortised evenly over the life of the
option contract and, accordingly, during the year, option premiums
of £7,297,000 (2021: £7,065,000) were amortised to revenue.
At 31 December 2022, there were
three open positions (2021: two) with an associated liability of
£1,227,000 (2021: £667,000).
Dividends and interest received in cash during the year amounted
to £68,630,000 and £5,918,000 (2021: £68,199,000 and
£5,186,000).
Special dividends of £811,000 have been recognised in capital
during the year (2021: £nil).
4. Investment management fee
|
2022 |
2021 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
| Investment management fee |
2,615 |
8,031 |
10,646 |
2,252 |
6,978 |
9,230 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total |
2,615 |
8,031 |
10,646 |
2,252 |
6,978 |
9,230 |
|
========= |
========= |
========= |
========= |
========= |
========= |
The investment management fee (which includes all services
provided by BlackRock) is 0.8% of the Company’s gross assets
(subject to certain adjustments). During the year, £9,848,000
(2021: £8,537,000) of the investment management fee was generated
from net assets and £798,000 (2021: £693,000) from the gearing
effect on gross assets due to the quarter–on– quarter increase in
the NAV per share for the year as set out below:
Quarter end |
Cum income
NAV per share
(pence) |
Quarterly
increase/
(decrease) % |
Gearing
effect
on management
fees (£’000) |
| 31 December 2021 |
622.21 |
– |
– |
| 31 March 2022 |
769.58 |
+23.7 |
267 |
| 30 June 2022 |
584.86 |
–24.0 |
– |
| 30 September 2022 |
602.56 |
+3.0 |
294 |
| 31 December 2022 |
688.35 |
+14.2 |
237 |
|
========= |
========= |
========= |
Quarter end |
Cum income
NAV per share
(pence) |
Quarterly
increase/
(decrease) % |
Gearing
effect
on management
fees (£’000) |
| 31 December 2020 |
536.34 |
– |
– |
| 31 March 2021 |
566.62 |
+5.6 |
243 |
| 30 June 2021 |
616.20 |
+8.8 |
224 |
| 30 September 2021 |
554.49 |
–10.0 |
– |
| 31 December 2021 |
622.21 |
+12.2 |
226 |
|
========= |
========= |
========= |
The daily average of the net assets under management during the
year ended 31 December 2022 was
£1,232,043,000 (2021: £1,085,438,000).
The fee is allocated 25% to the revenue account and 75% to the
capital account of the Consolidated Statement of Comprehensive
Income.
There is no additional fee for company secretarial and
administration services.
5. Other operating expenses
|
2022
£’000 |
2021
£’000 |
| Allocated to revenue: |
|
|
| Custody fee |
101 |
103 |
| Auditors’ remuneration: |
|
|
| – audit services |
51 |
41 |
| – non-audit
services1 |
9 |
9 |
| Registrar’s fee |
86 |
91 |
| Directors’
emoluments2 |
197 |
176 |
| AIC fees |
21 |
21 |
| Broker fees |
24 |
25 |
| Depositary fees |
116 |
101 |
| FCA fee |
30 |
24 |
| Directors' insurance |
23 |
19 |
| Marketing fees |
132 |
140 |
| Stock exchange fees |
37 |
26 |
| Legal and professional fees |
35 |
52 |
| Bank facility fees3 |
97 |
73 |
| Printing and postage fees |
47 |
37 |
| Write back of prior year
expenses4 |
(55) |
– |
| Other administrative costs |
86 |
96 |
|
--------------- |
--------------- |
|
1,037 |
1,034 |
|
========= |
========= |
| Allocated to capital: |
|
|
| Transaction charges5 |
28 |
9 |
|
--------------- |
--------------- |
|
1,065 |
1,043 |
|
========= |
========= |
|
2022 |
2021 |
| The Company’s ongoing
charges6, calculated as a percentage of average daily
net assets and using the management fee and all other operating
expenses, excluding finance costs, direct transaction costs,
transaction charges, VAT recovered, taxation, prior year expenses
written back and certain non-recurring items were: |
0.95% |
0.95% |
| The Company’s ongoing
charges6, calculated as a percentage of average daily
gross assets and using the management fee and all other operating
expenses, excluding finance costs, direct transaction costs,
transaction charges, VAT recovered, taxation, prior year expenses
written back and certain non-recurring items were: |
0.84% |
0.84% |
|
========= |
========= |
1 Fees paid to the auditor
for non-audit services of £8,925 excluding VAT (2021: £8,500)
relate to the review of the Condensed Half Yearly Financial
Report.
2 Details of the Directors’
emoluments can be found in the Directors’ Remuneration Report in
the Annual Report and Financial Statements. The Company has no
employees.
3 There is a 4 basis point
facility fee chargeable on the full loan facility whether drawn or
undrawn.
4 Relates to Directors’
expenses, miscellaneous fees, legal fees and professional services
fees written back during the year (2021: no accruals written
back).
5 For the year ended
31 December 2022, expenses of £28,000
(2021: £9,000) were charged to the capital account of the
Consolidated Statement of Comprehensive Income. These include
transaction costs charged by the custodian on sale and purchase
trades.
6 Alternative Performance
Measures, see Glossary in the Annual Report and Financial
Statements.
6. Finance costs
|
2022 |
2021 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
| Interest payable – bank loans |
1,177 |
3,505 |
4,682 |
365 |
1,097 |
1,462 |
| Interest payable – bank
overdraft |
5 |
15 |
20 |
9 |
20 |
29 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| Total |
1,182 |
3,520 |
4,702 |
374 |
1,117 |
1,491 |
|
========= |
========= |
========= |
========= |
========= |
========= |
7. Dividends
Dividends paid on equity shares:
|
Record date |
Payment date |
2022
£’000 |
2021
£’000 |
| Final dividend of 27.00p per share
for the year ended 31 December 2021 (2020: 8.30p) |
18 March
2022 |
19 May 2022 |
49,898 |
14,782 |
| 1st interim dividend of 5.50p per
share for the year ended 31 December 2022 (2021: 4.50p) |
27 May 2022 |
30 June
2022 |
10,251 |
8,224 |
| 2nd interim dividend of 5.50p per
share for the year ended 31 December 2022 (2021: 5.50p) |
2 September
2022 |
30 September
2022 |
10,381 |
10,106 |
| 3rd interim dividend of 5.50p per
share for the year ended 31 December 2022 (2021: 5.50p) |
25 November
2022 |
22 December
2022 |
10,381 |
10,103 |
|
|
|
--------------- |
--------------- |
|
|
|
80,911 |
43,215 |
|
|
|
========= |
========= |
The total dividends payable in respect of the year ended
31 December 2022 which form the basis
of Section 1158 of the Corporation Tax Act 2010 and Section 833 of
the Companies Act 2006, and the amounts declared, meet the relevant
requirements as set out in this legislation.
Dividends paid, or declared on equity
shares:
|
2022
£’000 |
2021
£’000 |
| 1st quarterly interim dividend of
5.50p per share for the year ended 31 December 2022 (2021:
4.50p) |
10,251 |
8,224 |
| 2nd quarterly interim dividend of
5.50p per share for the year ended 31 December 2022 (2021:
5.50p) |
10,381 |
10,106 |
| 3rd quarterly interim dividend of
5.50p per share for the year ended 31 December 2022 (2021:
5.50p) |
10,381 |
10,103 |
| Final dividend of 23.50p per share
for the year ended 31 December 2022 (2021: final dividend
27.00p)1 |
44,392 |
49,898 |
|
--------------- |
--------------- |
|
75,405 |
78,331 |
|
========= |
========= |
1 Based on 188,903,036
ordinary shares in issue on 2 March
2023.
8. Consolidated earnings and net asset value per ordinary
share
Total revenue, capital earnings and net asset value per ordinary
share are shown below and have been calculated using the
following:
|
2022 |
2021 |
| Net revenue profit attributable to
ordinary shareholders (£’000) |
76,013 |
78,910 |
| Net capital profit attributable to
ordinary shareholders (£’000) |
126,407 |
113,560 |
|
--------------- |
--------------- |
| Total profit attributable to
ordinary shareholders (£’000) |
202,420 |
192,470 |
|
========= |
========= |
| Equity shareholders’ funds
(£’000) |
1,299,285 |
1,142,874 |
| The weighted average number of
ordinary shares in issue during the year on which the earnings per
ordinary share was calculated was: |
186,868,187 |
181,037,188 |
| The actual number of ordinary shares
in issue at the year end on which the net asset value per ordinary
share was calculated was: |
188,753,036 |
183,681,116 |
| Earnings per ordinary
share |
|
|
| Revenue earnings per share (pence) -
basic and diluted |
40.68 |
43.59 |
| Capital earnings per share (pence) -
basic and diluted |
67.64 |
62.73 |
|
--------------- |
--------------- |
| Total earnings per share (pence)
- basic and diluted |
108.32 |
106.32 |
|
========= |
========= |
|
As at
31 December
2022 |
As at
31 December
2021 |
| Net asset value per ordinary share
(pence) |
688.35 |
622.21 |
| Ordinary share price (pence) |
697.00 |
589.00 |
|
========= |
========= |
There were no dilutive securities at the year end.
9. Called up share capital
|
Ordinary
shares
in issue
number |
Treasury shares
number |
Total shares
number |
Nominal
value
£’000 |
| Allotted, called up and fully
paid share capital comprised: |
|
|
|
|
| Ordinary shares of 5p
each |
|
|
|
|
| At 31 December 2021 |
183,681,116 |
9,330,726 |
193,011,842 |
9,651 |
| Ordinary shares reissued from
treasury |
5,071,920 |
(5,071,920) |
– |
– |
|
---------------- |
---------------- |
---------------- |
---------------- |
| At 31 December 2022 |
188,753,036 |
4,258,806 |
193,011,842 |
9,651 |
|
========== |
========== |
========== |
========== |
During the year ended 31 December
2022 the Company:
– did not buy back shares
into treasury (2021: 69,698 shares bought back for a net
consideration after costs of £393,000);
– reissued 5,071,920 shares
(2021: 10,200,000 shares) from treasury for a net consideration
after costs of £34,902,000 (2021: £63,187,000).
Since the year end and up to 2 March
2023, the Company has reissued 150,000 ordinary shares from
treasury for a total consideration net of costs of £1,084,000.
10. Reserves
Group |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserve
arising on
investments
sold
£’000 |
Capital
reserve
arising on
revaluation
of
investments
held
£’000 |
Revenue
reserve
£’000 |
| At 31 December 2021 |
138,818 |
22,779 |
155,123 |
345,594 |
396,836 |
74,073 |
| Movement during the year: |
|
|
|
|
|
|
| Total comprehensive income: |
|
|
|
|
|
|
| Net profit for the year |
– |
– |
– |
82,729 |
43,678 |
76,013 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
9,289 |
– |
25,683 |
– |
– |
– |
| Share reissue costs |
– |
– |
(70) |
– |
– |
– |
| Dividends paid |
– |
– |
– |
– |
– |
(80,911) |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December 2022 |
148,107 |
22,779 |
180,736 |
428,323 |
440,514 |
69,175 |
|
========= |
========= |
========= |
========= |
========= |
========= |
|
|
|
Distributable reserves |
Company |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserve
arising on
investments
sold
£’000 |
Capital
reserve
arising on
revaluation
of
investments
held
£’000 |
Revenue
reserve
£’000 |
| At 31 December 2021 |
138,818 |
22,779 |
155,123 |
344,093 |
404,014 |
68,396 |
| Movement during the year: |
|
|
|
|
|
|
| Total comprehensive income: |
|
|
|
|
|
|
| Net profit for the year |
– |
– |
– |
82,729 |
43,731 |
75,960 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
9,289 |
– |
25,683 |
– |
– |
– |
| Share reissue costs |
– |
– |
(70) |
– |
– |
– |
| Dividends paid |
– |
– |
– |
– |
– |
(80,911) |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December 2022 |
148,107 |
22,779 |
180,736 |
426,822 |
447,745 |
63,445 |
|
========= |
========= |
========= |
========= |
========= |
========= |
Group |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserve
arising on
investments
sold
£’000 |
Capital
reserve
arising on
revaluation
of
investments
held
£’000 |
Revenue
reserve
£’000 |
| At 31 December 2020 |
127,155 |
22,779 |
103,992 |
277,389 |
351,481 |
38,378 |
| Movement during the year: |
|
|
|
|
|
|
| Total comprehensive income: |
|
|
|
|
|
|
| Net profit for the year |
– |
– |
– |
68,205 |
45,355 |
78,910 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
11,663 |
– |
51,651 |
– |
– |
– |
| Share reissue costs |
– |
– |
(127) |
– |
– |
– |
| Ordinary shares purchased into
treasury |
– |
– |
(390) |
– |
– |
– |
| Share purchase costs |
– |
– |
(3) |
– |
– |
– |
| Dividends paid |
– |
– |
– |
– |
– |
(43,215) |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December 2021 |
138,818 |
22,779 |
155,123 |
345,594 |
396,836 |
74,073 |
|
========= |
========= |
========= |
========= |
========= |
========= |
|
|
|
Distributable reserves |
Company |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserve
arising on
investments
sold
£’000 |
Capital
reserve
arising on
revaluation
of
investments
held
£’000 |
Revenue
reserve
£’000 |
| At 31 December 2020 |
127,155 |
22,779 |
103,992 |
275,888 |
358,659 |
32,701 |
| Movement during the year: |
|
|
|
|
|
|
| Total comprehensive income: |
|
|
|
|
|
|
| Net profit for the year |
– |
– |
– |
68,205 |
45,355 |
78,910 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
11,663 |
– |
51,651 |
– |
– |
– |
| Share reissue costs |
– |
– |
(127) |
– |
– |
– |
| Ordinary shares purchased into
treasury |
– |
– |
(390) |
– |
– |
– |
| Share purchase costs |
– |
– |
(3) |
– |
– |
– |
| Dividends paid |
– |
– |
– |
– |
– |
(43,215) |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
| At 31 December 2021 |
138,818 |
22,779 |
155,123 |
344,093 |
404,014 |
68,396 |
|
========= |
========= |
========= |
========= |
========= |
========= |
Pursuant to a resolution of the Company passed at an
Extraordinary General Meeting on 13 January
1998 and following the Company’s application to the Court
for cancellation of its share premium account, the Court approval
was received on 27 January 1999 and
£157,633,000 was transferred from the share premium account to a
special reserve which is a distributable reserve.
The share premium and capital redemption reserve are not
distributable profits under the Companies Act 2006. In accordance
with ICAEW Technical Release 02/17BL on Guidance on Realised and
Distributable Profits under the Companies Act 2006, the special
reserve and capital reserves of the Parent Company may be used as
distributable reserves for all purposes and, in particular, the
repurchase by the Parent Company of its ordinary shares and for
payments as dividends. In accordance with the Company’s Articles of
Association, the special reserve, capital reserves and the revenue
reserve may be distributed by way of dividend. The Parent Company’s
capital gains of £874,567,000 (2021: capital gain of £748,107,000)
comprise a gain on capital reserve arising on investments sold of
£426,822,000 (2021: gain of £344,093,000), a gain on capital
reserve arising on revaluation of listed investments of
£409,037,000 (2021: gain of £387,997,000) revaluation gains on
unquoted investments of £31,477,000 (2021: £8,839,000) and a
revaluation gain on the investment in the subsidiary of £7,231,000
(2021: gain of £7,178,000). The capital reserve arising on the
revaluation of listed investments of £391,896,000 (2021:
£387,997,000) is subject to fair value movements and may not be
readily realisable at short notice; as such it may not be entirely
distributable. The investments are subject to financial risks, as
such capital reserves (arising on investments sold) and the revenue
reserve may not be entirely distributable if a loss occurred during
the realisation of these investments. The reserves of the
subsidiary company are not distributable until distributed as a
dividend to the Parent Company.
11. Valuation of financial instruments
Financial assets and financial liabilities are either carried in
the Consolidated and Parent Company Statements of Financial
Position at their fair value (investment and derivatives) or at
amortised cost (due from brokers, dividends and interest
receivable, due to brokers, accruals, cash at bank and bank
overdrafts). IFRS 13 requires the Group to classify fair value
measurements using a fair value hierarchy that reflects the
significance of inputs used in making the measurements. The
valuation techniques used by the Group are explained in the
accounting policies note 2(h) to the Financial Statements
above.
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in
active markets
A financial instrument is regarded as quoted in an active market if
quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory
agency and those prices represent actual and regularly occurring
market transactions on an arm’s length basis. The Group does not
adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable
inputs
This category includes instruments valued using quoted prices for
similar instruments in markets that are considered less than
active, or other valuation techniques where all significant inputs
are directly or indirectly observable from market data.
Valuation techniques used for non-standardised financial
instruments such as options, currency swaps and other
over-the-counter derivatives include the use of comparable recent
arm’s length transactions, reference to other instruments that are
substantially the same, discounted cash flow analysis, option
pricing models and other valuation techniques commonly used by
market participants making the maximum use of market inputs and
relying as little as possible on entity specific inputs.
Over-the-counter derivative option contracts have been
classified as Level 2 investments as their valuation has been based
on market observable inputs represented by the underlying quoted
securities to which these contracts expose the Group.
Level 3 – Valuation techniques using significant unobservable
inputs
This category includes all instruments where the valuation
technique includes inputs not based on market data and these inputs
could have a significant impact on the instrument’s valuation.
This category also includes instruments that are valued based on
quoted prices for similar instruments where significant entity
determined adjustments or assumptions are required to reflect
differences between the instruments and instruments for which there
is no active market. The Investment Manager considers observable
data to be that market data that is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in
the relevant market.
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable
inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair
value measurement requires judgement, considering factors specific
to the asset or liability. The determination of what constitutes
‘observable’ inputs requires significant judgement by the
Investment Manager.
Valuation process and techniques for Level 3
valuations
(a) OZ Minerals Royalty
The Directors engage a mining consultant, an independent valuer
with a recognised and relevant professional qualification, to
conduct a periodic valuation of the contractual rights and the fair
value of the contractual rights is assessed with reference to
relevant factors. At the reporting date the income streams from
contractual rights have been valued on the net present value of the
pre-tax cash flows discounted at a rate the external valuer
considers reflects the risk associated with the project. The
valuation model uses discounted cash flow analysis which
incorporates both observable and non-observable data. Observable
inputs include assumptions regarding current rates of interest and
commodity prices. Unobservable inputs include assumptions regarding
production profiles, price realisations, cost of capital and
discount rates. In determining the discount rate to be applied, the
external valuer considers the country and sovereign risk associated
with the project, together with the time horizon to the
commencement of production and the success or failure of projects
of a similar nature. To assess the significance of a particular
input to the entire measurement, the external valuer performs a
sensitivity analysis. The external valuer has undertaken an
analysis of the impact of using alternative discount rates on the
fair value of contractual rights.
This investment in contractual rights is reviewed regularly to
ensure that the initial classification remains correct given the
asset’s characteristics and the Group’s investment policies. The
contractual rights are initially recognised using the transaction
price as it was indicative of the best evidence of fair value at
acquisition and are subsequently measured at fair value, taking
into consideration the relevant IFRS 13 requirements. In arriving
at their estimates of market values, the valuers have used their
market knowledge and professional judgement. The Group classifies
the fair value of this investment as Level 3.
Valuations are the responsibility of the Directors of the
Company. In arriving at a final valuation, the Directors consider
the independent valuer’s report, the significant assumptions used
in the fair valuation and the review process undertaken by
BlackRock’s Pricing Committee. The valuation of unquoted
investments is performed on a quarterly basis by the Investment
Manager and reviewed by the Pricing Committee of the Manager. On a
quarterly basis the Investment Manager will review the valuation of
the contractual rights and inputs for significant changes. A
valuation of contractual rights is performed annually by an
external valuer, SRK Consulting (UK) Limited, and reviewed by the
Pricing Committee of the Manager. The valuations are also subject
to quality assurance procedures performed within the Pricing
Committee. On a semi-annual basis, after the checks above have been
performed, the Investment Manager presents the valuation results to
the Directors. This includes a discussion of the major assumptions
used in the valuations. There were no changes in valuation
techniques during the year.
(b) Jetti Resources and MCC Mining equity shares
The fair value of the investment equity shares of Jetti Resources
and MCC Mining were assessed by an independent valuer with a
recognised and relevant professional qualification. The valuation
is carried out based on market approach using earnings multiple and
price of recent transactions. Changes in assumptions about these
factors could affect the reported fair value of financial
instruments in the Consolidated and Parent Company Statements of
Financial Position and the level where the instruments are
disclosed in the fair value hierarchy. To assess the significance
of a particular input to the entire measurement, the external
valuer performs a sensitivity analysis.
Fair values of financial assets and financial
liabilities
The table below sets out fair value measurements using the IFRS 13
fair value hierarchy.
Financial assets/(liabilities) at
fair value through profit or loss at
31 December 2022 – Group |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
| Assets: |
|
|
|
|
| Equity investments |
1,250,984 |
9 |
35,692 |
1,286,685 |
| Fixed income securities |
68,894 |
48,066 |
– |
116,960 |
| Investment in contractual
rights |
– |
– |
21,199 |
21,199 |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total assets |
1,319,878 |
48,075 |
56,891 |
1,424,844 |
|
========= |
========= |
========= |
========= |
| Liabilities: |
|
|
|
|
| Derivative financial instruments –
written options |
– |
(1,227) |
– |
(1,227) |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total |
1,319,878 |
46,848 |
56,891 |
1,423,617 |
|
========= |
========= |
========= |
========= |
Financial assets/(liabilities) at
fair value through profit or loss at
31 December 2021 – Group |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
| Assets: |
|
|
|
|
| Equity investments |
1,114,430 |
8,955 |
1,846 |
1,125,231 |
| Fixed income securities |
59,108 |
40,895 |
13,405 |
113,408 |
| Investment in contractual
rights |
– |
– |
18,162 |
18,162 |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total assets |
1,173,538 |
49,850 |
33,413 |
1,256,801 |
|
========= |
========= |
========= |
========= |
| Liabilities: |
|
|
|
|
| Derivative financial instruments –
written options |
– |
(667) |
– |
(667) |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total |
1,173,538 |
49,183 |
33,413 |
1,256,134 |
|
========= |
========= |
========= |
========= |
Financial assets/(liabilities) at
fair value through profit or loss at
31 December 2022 – Company |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
| Assets: |
|
|
|
|
| Equity investments |
1,250,984 |
9 |
42,923 |
1,293,916 |
| Fixed income securities |
68,894 |
48,066 |
– |
116,960 |
| Investment in contractual
rights |
– |
– |
21,199 |
21,199 |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total assets |
1,319,878 |
48,075 |
64,122 |
1,432,075 |
|
========= |
========= |
========= |
========= |
| Liabilities: |
|
|
|
|
| Derivative financial instruments –
written options |
– |
(1,227) |
– |
(1,227) |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total |
1,319,878 |
46,848 |
64,122 |
1,430,848 |
|
========= |
========= |
========= |
========= |
Financial assets/(liabilities) at
fair value through profit or loss at
31 December 2021 – Company |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
| Assets: |
|
|
|
|
| Equity investments |
1,114,430 |
8,955 |
9,024 |
1,132,409 |
| Fixed income securities |
59,108 |
40,895 |
13,405 |
113,408 |
| Investment in contractual
rights |
– |
– |
18,162 |
18,162 |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total assets |
1,173,538 |
49,850 |
40,591 |
1,263,979 |
|
========= |
========= |
========= |
========= |
| Liabilities: |
|
|
|
|
| Derivative financial instruments –
written options |
– |
(667) |
– |
(667) |
|
--------------- |
--------------- |
--------------- |
--------------- |
| Total |
1,173,538 |
49,183 |
40,591 |
1,263,312 |
|
========= |
========= |
========= |
========= |
A reconciliation of fair value measurement in Level 3 is set out
below.
Level 3 Financial assets at fair value through profit or loss at 31
December – Group |
2022
£’000 |
2021
£’000 |
| Opening fair value |
33,413 |
19,753 |
| Return of capital – royalty |
(267) |
(267) |
| Additions at cost |
20,106 |
14,390 |
| Transfer of equities from Level 1 to
Level 3 |
2 |
– |
| Conversion of equity and transfer to
Level 1 |
(2,546) |
– |
| Conversion of convertible bond to
equity and transfer to Level 2 |
(10,160) |
– |
| Transfer of equities and convertible
bonds to Level 2 |
(19,305) |
– |
| Total profit or loss included in net
profit on investments in the Consolidated Statement of
Comprehensive Income: |
|
|
| – assets transferred to Level 1
during the period |
169 |
– |
| – assets transferred to Level 2
during the period |
14,212 |
– |
| – assets held at the end of the
period |
21,267 |
(463) |
|
--------------- |
--------------- |
| Closing balance |
56,891 |
33,413 |
|
========= |
========= |
Level 3 Financial assets at fair value through profit or loss at 31
December – Company |
2022
£’000 |
2021
£’000 |
| Opening fair value |
40,591 |
26,931 |
| Return of capital – royalty |
(267) |
(267) |
| Additions at cost |
20,106 |
14,390 |
| Transfer of equities from Level 1 to
Level 3 |
2 |
– |
| Conversion of equity and transfer to
Level 1 |
(2,546) |
– |
| Conversion of convertible bond to
equity and transfer to Level 2 |
(10,160) |
– |
| Transfer of equities and convertible
bonds to Level 2 |
(19,305) |
– |
| Total profit or loss included in net
profit on investments in the Consolidated Statement of
Comprehensive Income: |
|
|
| - assets transferred to Level 1
during the period |
169 |
– |
| - assets transferred to Level 2
during the period |
14,212 |
– |
| - assets held at the end of the
period |
21,320 |
(463) |
|
--------------- |
--------------- |
| Closing balance |
64,122 |
40,591 |
|
========= |
========= |
The Level 3 valuation process and techniques used are explained
in the accounting policies in note 2(h) above. A more detailed
description of the techniques is found in the Annual Report and
Financial Statements under ‘Valuation process and techniques’.
The Level 3 investments as at 31 December
2022 in the table below relate to the OZ Minerals Brazil
Royalty, convertible bonds and equity shares of Jetti Resources,
MCC Mining and Lifezone SPAC PIPE. In accordance with IFRS 13,
these investments were categorised as Level 3.
In arriving at the fair value of the OZ Minerals Brazil Royalty,
the key inputs are the underlying commodity prices and illiquidity
discount. In arriving at the fair value of Jetti Resources and MCC
Mining securities, the key inputs are shown below.
The Level 3 valuation process and techniques used by the Company
are explained in the accounting policies in notes 2(h) and 2(q)
above and a detailed explanation of the techniques is also
available in the Annual Report and Financial Statements under
'Valuation process and techniques'.
Quantitative information of significant unobservable inputs –
Level 3 – Group and Company
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy,
together with an estimated quantitative sensitivity analysis, as at
31 December 2022 and 31 December 2021 are as shown below.
Description |
As at
31 December
2022
£’000 |
Valuation
technique |
Unobservable
input |
Range of
weighted
average
inputs |
Reasonable
possible
shift¹ +/- |
Impact on
fair value |
OZ Minerals Brazil Royalty |
21,199 |
Discounted
cash flows |
Discounted
rate–
weighted
average cost
of capital |
5.0% - 8.0% |
1.0% |
£1.0m |
|
|
|
Average
gold prices |
US$1,400-
US$1,600
per ounce |
10.0% |
£1.5m |
|
|
|
Average
copper prices |
US$7,209-
US$8,510
per tonne |
10.0% |
£1.0m |
Jetti Resources |
29,873 |
Market
approach |
Earnings
multiple |
5.93x |
5.0% |
£0.6m |
MCC Mining |
5,819 |
Market
approach |
Price of
recent
transaction |
|
5.0% |
£0.3m |
| Lifezone commitment (see Note
14) |
– |
|
|
|
|
|
Polyus |
– |
Listing
suspended
– valued
at nominal
US$0.01 |
|
|
|
|
|
--------------- |
|
|
|
|
|
| Total |
56,891 |
|
|
|
|
|
|
========= |
|
|
|
|
|
1 The sensitivity analysis
refers to a percentage amount added or deducted from the input and
the effect this has on the fair value.
Description |
As at
31 December
2021
£’000 |
Valuation
technique |
Unobservable
input |
Range of
weighted
average
inputs |
Reasonable
possible
shift¹ +/- |
Impact on
fair value |
OZ Minerals Brazil Royalty |
18,162 |
Discounted
cash flows |
Discounted
rate–
weighted
average cost
of capital |
5.0% - 8.0% |
1.0% |
£1.0m |
|
|
|
Average
gold prices |
US$1,400-
US$1,600
per ounce |
10.0% |
£1.5m |
|
|
|
Average
copper prices |
US$7,209-
US$8,510
per tonne |
10.0% |
£1.0m |
Invanhoe Electric and I-Pulse securities |
15,251 |
Market
approach
and scenario
analysis for
convertible
notes |
Asset multiple |
0.75x - 1.25x |
25.0% |
£0.5m |
|
--------------- |
|
|
|
|
|
| Total |
33,413 |
|
|
|
|
|
|
========= |
|
|
|
|
|
1 The sensitivity analysis
refers to a percentage amount added or deducted from the input and
the effect this has on the fair value.
The sensitivity impact on fair value is calculated based on the
sensitivity estimates set out by the independent valuer in its
report on the valuation of contractual rights. Significant
increases/(decreases) in estimated commodity prices and discount
rates in isolation would result in a significantly higher/(lower)
fair value measurement. Generally, a change in the assumption made
for the estimated value is accompanied by a directionally similar
change in the commodity prices and discount rates.
For exchange listed equity investments, the quoted price is the
bid price. Substantially, all investments are valued based on
unadjusted quoted market prices. Where such quoted prices are
readily available in an active market, such prices are not required
to be assessed or adjusted for any business risks, including
climate change risk, in accordance with the fair value related
requirements of the Company's financial reporting framework.
12. Transactions with the Investment Manager and AIFM
BlackRock Fund Managers Limited (BFM) provides management and
administration services to the Company under a contract which is
terminable on six months’ notice. BFM has (with the Group’s
consent) delegated certain portfolio and risk management services,
and other ancillary services to BlackRock Investment Management
(UK) Limited (BIM (UK)). Further
details of the investment management contract are disclosed in the
Directors’ Report in the Annual Report and Financial
Statements.
The investment management fee due for the year ended
31 December 2022 amounted to
£10,646,000 (2021: £9,230,000). At the year end, £5,443,000 was
outstanding in respect of the management fee (2021:
£4,587,000).
In addition to the above services, BIM
(UK) has provided the Group with marketing services. The
total fees paid or payable for these services for the year ended
31 December 2022 amounted to £132,000
excluding VAT (2021: £140,000). Marketing fees of £62,000 were
outstanding as at 31 December 2022
(2021: £55,000).
The ultimate holding company of the Manager and the Investment
Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
13. Related party disclosure
Directors’ emoluments
At the date of this report, the Board consists of five
non-executive Directors, all of whom are considered to be
independent of the Manager by the Board.
Disclosures of the Directors’ interests in the ordinary shares
of the Company and fees and expenses payable to the Directors are
set out in the Directors’ Remuneration Report in the Annual Report
and Financial Statements. As at 31 December
2022, £16,000 (2021: £14,375) was outstanding in respect of
Directors’ fees.
Significant holdings
The following investors are:
a. funds managed by the BlackRock
Group or are affiliates of BlackRock Inc. (Related BlackRock
Funds); or
b. investors (other than those
listed in (a) above) who held more than 20% of the voting shares in
issue in the Company and are as a result, considered to be related
parties to the Company (Significant Investors).
As at 31
December 2022
Total % of shares held by Related
BlackRock Funds |
Total % of shares held by
Significant
Investors who are not affiliates of
BlackRock Group or BlackRock, Inc. |
Number of Significant Investors
who
are not affiliates of BlackRock Group or
BlackRock, Inc. |
| 2.27 |
n/a |
n/a |
As at 31
December 2021
Total % of shares held by Related
BlackRock Funds |
Total % of shares held by
Significant
Investors who are not affiliates of
BlackRock Group or BlackRock, Inc. |
Number of Significant Investors
who
are not affiliates of BlackRock Group or
BlackRock, Inc. |
| 1.77 |
n/a |
n/a |
14. Capital commitment
There was one capital commitment at 31
December 2022 (2021: nil). This was a US$10,000,000 commitment in relation to the SPAC
PIPE commitment for investment in Lifezone SPAC.
15. Publication of non statutory accounts
The financial information contained in this announcement does not
constitute statutory accounts as defined in the Companies Act 2006.
The Annual Report and Financial Statements for the year ended
31 December 2022 will be filed with
the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the
auditor, whose report for the year ended 31
December 2022 contains no qualification or statement under
Section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial
statements of BlackRock World Mining Trust plc and its subsidiary
for the year ended 31 December 2021,
which have been filed with the Registrar of Companies. The report
of the auditor on those financial statements contained no
qualification or statement under Section 498 of the Companies Act
2006.
16. Annual Report and Financial Statements
Copies of the Annual Report and Financial Statements will be
published shortly and will be available from the registered office,
c/o The Secretary, BlackRock World Mining Trust plc,
12 Throgmorton Avenue, London
EC2N 2DL.
17. Annual General Meeting
The Annual General Meeting of the Company will be held at 12
Throgmorton Avenue, London EC2N
2DL on Tuesday, 18 April 2023 at
11.30 a.m.
ENDS
The Annual Report and Financial Statements will also be
available on the BlackRock website at www.blackrock.com/uk/brwm.
Neither the contents of the website nor the contents of any website
accessible from hyperlinks on the website (or any other website) is
incorporated into, or forms part of, this announcement.
For further information, please contact:
Melissa Gallagher, Managing
Director, Closed End Funds, BlackRock Investment Management (UK)
Limited – Tel: 020 7743 3000
Evy Hambro, Fund Manager,
BlackRock Investment Management (UK) Limited – Tel: 020 7743
3000
Emma Phillips, Media &
Communications, BlackRock Investment Management (UK) Limited –
Tel: 020 7743 2922
Press enquires:
Ed Hooper, Lansons
Communications
Tel: 020 7294 3616
E-mail: BlackRockInvestmentTrusts@lansons.com or
EdH@lansons.com
2 March 2023
12 Throgmorton Avenue
London EC2N 2DL