TIDMBSRT
RNS Number : 7964E
Baker Steel Resources Trust Ltd
15 April 2014
BAKER STEEL RESOURCES TRUST LIMITED
Annual Report and Audited Financial Statements
For the year ended 31 December 2013
CONTENTS PAGE
Management and Administration 1-2
Investment Objectives & Policies 3-4
Chairman's Statement 5
Investment Manager's Report 6-10
Directors' Report 11-16
Audit Committee Report 17-19
Board of Directors 20
Portfolio Statement 21-22
Independent Auditor's Report 23-24
Statement of Financial Position 25
Statement of Comprehensive Income 26-27
Statement of Changes in Equity 28
Statement of Cash Flows 29
Notes to the Financial Statements 30-46
Glossary of Terms 47
MANAGEMENT AND ADMINISTRATION
DIRECTORS: Howard Myles (Chairman)
Edward Flood
Charles Hansard
Clive Newall
Christopher Sherwell
(all of whom are non-executive and independent)
REGISTERED OFFICE: Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey
Channel Islands
MANAGER: Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
INVESTMENT MANAGER: Baker Steel Capital Managers LLP
86 Jermyn Street
London SW1Y 6JD
England
United Kingdom
STOCKBROKERS: Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
SOLICITORS TO THE COMPANY: Simmons & Simmons
(as to English law) CityPoint
One Ropemaker Street
London EC2Y 9SS
United Kingdom
ADVOCATES TO THE COMPANY: Ogier
(as to Guernsey law) Ogier House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 1WA
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY: HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
SUB-ADMINISTRATOR TO THE COMPANY: HSBC Securities Services (Ireland) Limited
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE COMPANY: HSBC Institutional Trust Services (Ireland) Limited
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
AUDITOR: Ernst & Young LLP
Royal Chambers
St. Julian's Avenue
St. Peter Port
Guernsey GY1 4AF
Channel Islands
REGISTRAR: Capita Registrars (Guernsey) Limited
Longue Hougue House
St. Sampson
Guernsey GY2 4JN
Channel Islands
UK PAYING AGENT AND TRANSFER AGENT: Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
RECEIVING AGENT Capita Registrars
Corporate Actions
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
PRINCIPAL BANKER: HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
INVESTMENT OBJECTIVES AND POLICIES
Investment objective
The investment objective of Baker Steel Resources Trust Limited
(the "Company") is to seek capital growth over the long-term
through a focused, global portfolio consisting principally of the
equities, or related instruments, of natural resources companies.
The Company invests predominantly in unlisted companies (i.e. those
companies that have not yet made an initial public offering
("IPO")) but also in listed securities (including special
situations opportunities and less liquid securities) with a view to
exploiting value inherent in market inefficiencies and pricing
anomalies.
Investment policy
The core of the Company's strategy is to invest in natural
resources companies, predominantly unlisted, that the Investment
Manager considers to be undervalued and have strong fundamentals
and attractive growth prospects. Natural resources companies, for
the purposes of the investment policy, are those involved in the
exploration for and production of base metals, precious metals,
bulk commodities, thermal and metallurgical coals, industrial
minerals, energy and uranium, and include single-asset as well as
diversified natural resources companies.
It is intended that unlisted investments be realised through an
IPO, trade sale, management repurchase or other methods.
The Company focuses primarily on making investments in companies
with producing and/or tangible assets such as resources and
reserves that have been verified under internationally recognised
standards for reporting, such as those of the Australasian Joint
Ore Reserves Committee ("JORC"). The Company may also invest from
time to time in exploration companies whose activities are
speculative by nature.
The Company has flexibility to invest in a wide range of
investments in addition to unlisted and listed equities and
equity-related securities, including but not limited to
commodities, convertible bonds, debt securities, royalties,
options, warrants and futures. Derivatives may be used for
efficient portfolio management, hedging and for the purposes of
obtaining investment exposure. The Company may also have exposure
from time to time to other companies within the wider resources and
materials sector, including services companies, transport and
infrastructure companies, utilities and downstream processing
companies.
The Company may take legal or management control of a company
from time to time. The Company may invest in other investment funds
or vehicles, including any managed by the Manager or Investment
Manager, where such investment would be complementary to the
Company's investment objective and policy.
There are no fixed limits on the allocation between unlisted and
listed equities or equity-related securities and cash although, as
a guideline, typically the Investment Manager will aim for the
Company to be invested over the long-term as follows:
-- between 40 and 100 per cent of the value of its gross assets
in unlisted equities or equity-related securities;
-- up to 50 per cent of the value of its gross assets in listed
equities or equity-related securities;
-- up to 10 per cent of the value of its gross assets in cash or cash-like holdings; and
-- typically in 10 to 15 core positions to provide adequate
diversification whilst retaining a focused core approach. Core
positions will typically be between 5 per cent and 15 per cent of
net asset value ("NAV") as at the date of acquisition.
The actual percentage of the Company's gross assets invested in
listed and unlisted equities and equity-related securities and cash
and cash-like holdings and the number of positions held may fall
outside these ranges from time to time. For example, listed
securities might exceed the above guideline following a significant
number of IPOs or in certain market conditions and likewise cash
balances may exceed the above guideline following the realisation
of one or more investments or following the issue of new equity in
the Company, pending investment of the proceeds.
The investment policy has the following limits:
-- Save in respect of cash and cash-like holdings awaiting
investment, the Company will invest or lend no more than 20 per
cent in aggregate of the value of its gross assets in or to any one
particular company or group of companies, as at the date of the
relevant transaction.
-- No more than 10 per cent in aggregate of the value of the
gross assets of the Company may be invested in other listed
closed-ended investment funds, except for those which themselves
have stated investment strategies to invest no more than 15 per
cent of their gross assets in other listed closed-ended investment
funds.
Investment policy (continued)
Where derivatives are used for investment exposure, these limits
will be applied in respect of the investment exposures so
obtained.
The Company will avoid (a) cross-financing between the
businesses forming part of its investment portfolio and (b) the
operation of common treasury functions between it and the investee
companies.
When deemed appropriate, the Company may borrow up to 10 per
cent of NAV for temporary purposes such as settlement mis-matches.
Borrowings will not however be incurred for the purposes of any
Share repurchases.
The Investment Manager will not normally hedge the exposure of
the Company to currency fluctuations.
Any material change in the investment objective, investment
policy or borrowing policy will only be made with the prior
approval of holders of Ordinary Shares by Ordinary Resolution.
INVESTMENT MANAGER'S REPORT
For the year ended 31 December 2013
2013 was a challenging year for the mining industry and its
investors, as demonstrated by the Euromoney Mining 100 Index
falling 25.7% and the FTSE Gold Mines Index falling 54.1% in
Sterling terms. The difficult market conditions were exacerbated as
the Company's investments are focused on development stage assets
which require continuing funding in order to make progress and they
have typically found it testing to find new sources of finance.
Unsurprisingly, against this market background, none of the
Company's private investee companies felt conditions were
appropriate for them to list through an Initial Public Offering, an
important means for the Company to realise latent value in its
holdings. The Company's NAV fell 43.2% during the year. Much of
this fall was due to the 62.6% decrease in the market value of the
Company's largest investment, Ivanhoe Mines Limited, on the Toronto
Stock Exchange despite it making good progress on all three of its
main projects.
The lack of transactions meant that the Company reflected the
falls in comparable publicly listed shares when arriving at the
value of its unlisted equities and this resulted in write downs to
Ferrous Resources, Gobi Coal & Energy and Bilboes Gold during
the year. The investments in the portfolio that best retained their
value were those where the Company had invested in a structured way
such as through convertible debt as in Polar Silver and Black
Pearl. These structured products give more security than pure
equity investment, whilst retaining the equity upside through the
conversion rights.
I commented in my Chairman's Statement last year on the issue of
"resource nationalism" whereby countries are seeking an even
greater slice of the mining pie from royalties, "indigenisation"
and/or direct stakes. Another issue facing the mining industry in
emerging markets is the desire of governments to have more of the
refining and addition of value to the products from mining
undertaken within the country in order to promote local skills and
jobs. Although this might be a reasonable policy in the long term,
factors such as size and quality of deposits as well as available
infrastructure, can make local dedicated smelting and refining
uneconomic. This could effectively sterilise certain, otherwise
viable, mining projects for a significant period and is an issue
that the Company will need to take into account when considering
new investments in emerging nations.
I would again like to thank all our shareholders for their
continuing support of the Company and am confident that, in time,
the latent value of the Company's investments will be realised. The
falling markets of the past two years have not only meant that
prices for mining companies are very low when valued over the
longer term but, as the sector has been starved of capital to
develop new projects, these have created a greater number of
opportunities for the suppliers of capital, such as the Company, to
negotiate the manner in which investments are structured to give
greater protection on the downside. The Board continues to explore
ways in which the Company can raise new funds to invest at this
opportune time.
Howard Myles
Chairman
Date
Financial Performance
The audited undiluted Net Asset Value per Ordinary Share as at
31 December 2013 was 62.0 pence, a decrease of 43.2% in the year
and a decrease of 36.7% from the Company's first net asset value
("NAV") calculated on 30 April 2010. During the year the Euromoney
Global Mining 100 Index was down 25.7% (down 37.8% since 30 April
2010).
For the purpose of calculating the net asset value per share,
unquoted investments are carried at fair value as at 31 December
2013 as determined by the Directors and quoted investments are
carried at last quoted price as at 31 December 2013.
Net assets at 31 December 2013 comprised the following:
GBPm % net assets
Unquoted Investments 26.7 65.1
Quoted Investments 13.9 34.1
Net Cash Equivalents and
Accruals 0.3 0.8
----- -------------
40.9 100.0
Investment Update
Largest 10 Investments - 31 December 2013
Ivanhoe Mines Limited (formerly Ivanplats
Limited) 18.9%
Black Pearl Limited Partnership 13.3%
Ironstone Resources Limited 12.6%
Gobi Coal & Energy Limited 12.5%
Bilboes Gold Limited 10.1%
Polar Silver Resources Ltd/Argentum 8.7%
China Polymetallic Mining Company Limited 7.1%
Ferrous Resources Limited 6.3%
Metals Exploration plc 5.9%
South American Ferro Metals Limited 1.5%
Other Investments 2.3%
Net Cash, Equivalents and Accruals 0.8%
Largest 10 Investments - 31 December 2012
Ivanplats Limited* 37.7%
Gobi Coal & Energy Limited 14.5%
China Polymetallic Mining Company Limited 9.0%
Bilboes Gold Limited 8.4%
Ironstone Resources Limited 7.5%
Black Pearl Limited Partnership 6.8%
Ferrous Resources Limited 6.1%
Polar Silver Resources Ltd/Argentum 5.1%
Metals Exploration plc 3.5%
Copperbelt Minerals Limited 2.2%
Other Investments 3.6%
Net Cash, Equivalents and Accruals (4.4%)
* represented less than 20% in aggregate of the value of gross
assets as at the date of the last relevant acquisition
Investment Update
At the year end, the Company was fully invested, holding 15
investments of which the top 10 holdings comprised 96.9% of the
portfolio by value. The portfolio is well diversified both in terms
of commodity and geographical location of the deposits. In terms of
commodity the portfolio is concentrated on the large liquid markets
of iron ore, coal, copper, platinum group metals, nickel, silver
and gold. Its projects are located in South Africa, Democratic
Republic of Congo, Indonesia, Canada, Mongolia, Zimbabwe, Russia,
China, Brazil and the Philippines.
2013 was a challenging year for the mining sector with the
Euromoney Mining 100 Index falling 25.7% and the FTSE Gold Mines
Index falling 54.1%. The Company's investments were not immune to
this headwind, with the NAV falling 43.2% during the year. A
significant portion of this fall reflects the Company's valuation
policy which takes into consideration the price movements of
comparable publicly listed shares when arriving at the value of the
unlisted equities at the half and full year, where there has not
been a relevant pricing transaction in the previous 6 months. At 30
June 2013, Ferrous Resources and Gobi Coal & Energy Ltd were
written down by 40% and 50% respectively and at 31 December 2013,
the carrying value of Bilboes Gold Ltd ("Bilboes") was reduced by
25%.
At the beginning of the year, the Company was fully invested and
a consequence of the weak market for mining shares was that none of
the private companies in the portfolio considered conditions to be
attractive to undertake an Initial Public Offering ("IPO"). As a
result, apart from the completion of the sale of Copperbelt
Minerals in January 2013 and the sale of some of Ivanhoe Mines
Limited ("Ivanhoe") as the lock-up arrangements partially expired
there were no significant realisations or new investments made
during the year. The Investment Manager's endeavours were therefore
concentrated on husbanding the existing core portfolio.
Despite the weak backdrop, the majority of the Company's
investments made good operational progress on their projects
including the Company's largest position, Ivanhoe, which made
progress on all three of its main projects. In February 2013,
Ivanhoe announced a significant upgrade to the independent resource
estimate at its Platreef project in South Africa. Using a 2 grams
per tonne (g/t) cut-off grade, total contained 4PE (platinum,
palladium, rhodium and gold) almost doubled to 73.2 million ounces
4PE, which included for the first time mineral resources in the
"Indicated" category. Indicated Mineral Resources were estimated at
223 million tonnes grading 4.1 g/t 4PE, 0.34% nickel and 0.16%
copper, at a 2.0 g/t 4PE cut-off grade. Inferred Mineral Resources
totalled 410 million tonnes grading 3.3 g/t 4PE, 0.32% nickel. The
main competitive advantage of the Platreef project is that its
average true thickness of 24 metres and flat lying geometry of the
reef means Ivanhoe can utilise highly mechanised mining techniques
as opposed to the thin dipping reefs currently being mined in South
Africa which require a highly labour-intensive mining method.
In November 2013 Ivanhoe reported the findings of a Preliminary
Economic Assessment ("PEA") of its Kamoa copper discovery in the
Democratic Republic of Congo. The PEA, which conforms to the
requirements of Canada's National Instrument 43-101 ("NI-43-101")
reflects a two-phased approach to the development of Kamoa. The
first phase of mining will target high-grade copper mineralisation
from shallow, underground resources mining at a rate of 3 million
tonnes per annum to yield a high-value concentrate and generate
early cashflows. The second phase will entail an expansion of the
mine and mill to 11 million tonnes per annum and construction of a
smelter with a capacity to produce 300,000 tonnes per annum of
blister copper. The two-phased approach has the advantage of
reducing pre-production capex requirements to US$1.4 billion.
In December 2013, Ivanhoe announced that its de-watering
programme at the historic, high-grade Kipushi
copper-zinc-germanium-lead mine in the Democratic Republic of Congo
had achieved its key initial objective of restoring access to the
main underground working level, enabling it to commence a 100 hole,
20,000-metre, underground diamond-drilling programme, designed to
confirm the mine's estimated, remaining high-grade resources and to
seek to further expand the resources on strike and at depth.
Despite the good advances made on its three main projects, the
share price of Ivanhoe on the Toronto Stock Exchange fell by 62.6%
as investors appeared to be concerned about how these large
projects would be financed.
On the development side Black Pearl constructed its facilities
to mine its iron sands project in Indonesia and is on course to
produce 5 million tonnes of iron ore concentrate in 2014, with
plans for this to be rapidly expanded in 2015. During the year,
Bilboes successfully brought its previously producing heap leach
oxide operations back on stream and plans to produce 12,000 ounces
of gold in 2014. During 2014 Bilboes is scheduled to complete its
pre-feasibility study to develop a mine producing over 100,000
ounces per annum, initially from open pit, from the underlying 4
million ounce sulphide gold resource. In 2013, Metals Exploration
plc commenced development of its 100,000oz per annum Runruno gold
mine which is scheduled for first gold pour at the end of 2014. At
31 January 2014, construction was 46% complete and remained on
schedule and within budget.
Ferrous Resources Limited ("Ferrous") continued to deliver on
the new management team's targets, achieving production in advance
of guidance at 5.1 million tonnes of iron ore product during the
year, a 60% increase in 2013. It also completed a positive
feasibility study to increase production from its Viga Mine from
3.4 million tonnes per annum to 15 million tonnes per annum.
Further details of each of these investments and the Company's
other significant holdings are provided below.
Description of Largest Investments (as at 31 December 2013)
Ivanhoe Mines Limited (formerly Ivanplats Limited)
("Ivanhoe")
Ivanhoe is a company listed on the Toronto Stock Exchange which
holds the Kamoa copper project (95% owned) and Kipushi zinc mine
(68% owned) both in the Democratic Republic of Congo ("DRC") and
the Platreef nickel, platinum, palladium, copper and gold project
(90% owned) in South Africa.
At Kamoa, Indicated Mineral Resources are estimated at 739
million tonnes grading 2.67% copper containing 19.7 million tonnes
of copper together with 4.4 million tonnes of copper in Inferred
Mineral Resources. A Preliminary Economic Assessment ("PEA")
released in September 2013 reflects a two-phased approach to the
development of Kamoa. The first phase of mining will target
high-grade copper mineralisation from shallow, underground
resources mining at a rate of 3 million tonnes per annum to yield a
high-value concentrate and generate early cashflows. The second
phase will entail an expansion of the mine and mill to 11 million
tonnes per annum and construction of a smelter with a capacity to
produce 300,000 tonnes per annum of blister copper.
The Platreef Project has Indicated Mineral Resources estimated
at 223 million tonnes grading 4.1 grams per tonne (g/t) 4PE
(platinum, palladium, gold and rhodium), 0.34% nickel and 0.16%
copper, at a 2.0 g/t 4PE cut-off grade and at a cumulative, average
true thickness of 24.3 metres. In addition, there are Inferred
Mineral Resources of 410 million tonnes grading 3.3 g/t 4PE, 0.32%
nickel and 0.18% copper, at an average true thickness of 18.0
metres. The combined Indicated and Inferred Resources contains 73.2
million ounces of 4PE. An independent PEA on Platreef released in
March 2014 envisaged a large mechanised underground mine developed
also on a phased approach. An initial 4 million tonnes per annum
(Mtpa) scenario would establish an operating platform at 455,000
ounces 4PE per annum which would immediately be followed by an
expansion to 8 Mtpa producing 785,000 ounces 4PE as the base case.
There are plans for a further expansion to 12 Mtpa (1.1 million
ounces 4PE).
The Kipushi zinc/polymetallic mine in the DRC previously
produced 60 million tonnes of ore at 11% zinc and 6% copper
together with 120 tonnes of germanium from 1925-1993. The shaft has
been de-watered to allow access to the main underground working
level and a 100 hole, 20,000 metre, underground diamond-drilling
programme is underway, designed to confirm the mine's estimated,
remaining high-grade resources and to seek to further expand the
resources on strike and at depth.
Black Pearl Limited Partnership ("Black Pearl")
Black Pearl is a special purpose vehicle formed to invest in the
Black Pearl beach placer iron sands project in West Java,
Indonesia. The Black Pearl concession area is 15,000 ha of which
1,600 ha has been drilled. JORC compliant Mineral Resources stand
at 572 million tonnes grading 11% Fe.
The mine is expected to produce 5 million tonnes of iron ore
concentrate grading 58-60% Fe in 2014 and plans are in place for
the production rate to be rapidly expanded to 20 million tonnes per
annum in 2015. Off-take agreements have been signed with a number
of Chinese steel mills for the full planned production of 20
million tonnes.
Ironstone Resources Limited ("Ironstone")
Ironstone is a private Canadian company which owns the Clear
Hills Iron Ore/Vanadium Project ("Clear Hills") in Alberta, Canada.
Clear Hills currently has Indicated Resources of 557.7 million
tonnes at 33.3% iron and 0.2% vanadium and an Inferred Resource of
94.7 million tonnes at 34.1% iron.
In conjunction with pyrotechnology experts HATCH of Toronto,
Ironstone is making good progress on developing a proprietary
metallurgical process to refine the ore into direct reduced iron.
Once proven, this process could be applied not only to Clear Hills
but also to other significant iron ore deposits globally.
Gobi Coal & Energy Limited ("Gobi")
Gobi is an emerging coking coal producer based in Mongolia. Gobi
owns 100% of three open cut coal development projects in
southwestern Mongolia. The company's projects contain approximately
322 million tonnes of JORC resources and include more than 500,000
hectares of tenements.
Gobi's first project, Shinejinst, contains approximately 95
million tonnes of JORC reserves and 229 million tonnes of JORC
resources and has completed site works in anticipation of the start
of production which will depend on a recovery of the price of
coking coal delivered to the Mongolian/Chinese border. At full
production, Shinejinst is planned to produce approximately 5
million tonnes per annum of high quality, semi-soft coking coal
product.
Description of Largest Investments (continued)
Bilboes Gold Limited ("Bilboes")
Bilboes is a private Zimbabwean based gold mining company which
owns four previously producing oxide mines in Zimbabwe. The oxide
mines were restarted in 2013 and are scheduled to produce
approximately 12,000 ounces of gold in 2014.
In addition Bilboes has JORC compliant Indicated Mineral
Resources of 29.3 million tonnes grading 2.12 g/t in the underlying
sulphide mineralisation and Inferred Mineral Resources of 30.0
million tonnes grading 2.03 g/t. Contained gold in the combined
Indicated and Inferred sulphide resources totals 3,964,000 ounces.
The mineralisation is open along strike and at depth so there is
good potential for these mineral resources to be increased. A
pre-feasibility study to investigate a mine producing 100,000 to
200,000 ounces per annum, initially from open pit, is planned to be
completed in the the third quarter of 2014.
Polar Silver Resources Limited ("Polar Silver")
Polar Silver is a private company which holds a 50% indirect
interest in the Prognoz silver project, 444km north of Yakutsk in
Russia ("Prognoz"). A NI 43-101 compliant report by independent
consultant Micon International Limited ("Micon") of July 2009,
estimated an Indicated Resource of 5.86 million tonnes of ore
grading 773 g/t silver containing 146 million ounces of silver and
Inferred Resources of 9.64 million tonnes of ore grading 473 g/t
silver containing 147 million ounces of silver at Prognoz. A NI
43-101 compliant PEA by Micon envisages a mine producing an average
of 13 million ounces of silver per annum over a 16 year mine
life.
China Polymetallic Mining Limited ("CPM")
CPM is an emerging Chinese mining company listed on the Hong
Kong Stock Exchange. BSRT's investment is via a special purpose
vehicle Five Stars B.S. Limited Partnership. CPM has a number of
development projects in Yunan province of China, the first of
these, the Shizishan lead-zinc-silver mine started production in
2011 and reached its full production rate of 2,000 tonnes per day
in December 2012. The Shizishan Mine has JORC compliant resources
totalling 9.3 million tonnes grading 249g/t silver, 9.3% lead and
6.0% zinc for contained metal of 77 million ounces silver, 878,500
tonnes lead and 563,000 tonnes zinc. It is targeted to produce an
average of 5 million ounces of silver, 57,000 tonnes lead and
35,000 tonnes zinc per annum over an expected mine life of 15
years. During 2013 Shizishan produced 1.74 million ounces of silver
(2012 1.4Moz), 23,500 tonnes of lead (20,300t), and 17,900 tonnes
of zinc (16,500t).
CPM's second project, the Dakuangshan silver lead-zinc mine
started commercial production in December 2012 and attained full
production of 600 tonnes per day in September 2013. CPM is also
developing the Liziping Mine, a large-scale lead-zinc project and
the Menghu Mine, a high-grade oxidized lead mine. It has also
secured exclusive long-term, low-cost polymetallic raw ore supply
from Lushan, a tungsten-tin mine.
Ferrous Resources Limited ("Ferrous")
Ferrous is a private company with five iron-ore projects in the
iron quadrilateral region in Minas Gerais state and one in Bahia
state in Brazil. It has JORC resources of 5.1 billion tonnes of
iron ore.
During 2013, Ferrous' Viga Mine produced 3.40 million tonnes and
the Esperança Mine produced 1.73 million tonnes to give a total
5.13 million tonnes of iron ore product for the year, a 60%
increase from 2012. In July 2013 Ferrous completed a positive
feasibility to expand the production at Viga to 15 million tonnes
per annum.
Metals Exploration plc ("Metals Exploration")
Metals Exploration is an AIM listed company which owns the
Runruno gold project in the Philippines. Work to date has a defined
mineral resource of 1.39 million ounces of gold, and 25.6 million
pounds of molybdenum with 1,050,000oz gold reporting to the
Measured and Indicated categories and 900,000oz gold within the
Mining Proven & Probable Reserve category. Site works for a
mine producing approximately 100,000 ounces of gold per annum at
Runruno commenced during 2012, full development commenced mid-2013
and construction is on track for the project to commence production
towards the end of 2014.
South American Ferro Metals Limited ("SAFM")
SAFM is a company listed on the Australian Stock Exchange whose
main asset is the Ponto Verde iron ore project in Minas Gerais in
Brazil. The property contains a JORC compliant mineral resource
estimated at 301.6 million tonnes ore grading 40.7% Fe.
During 2013 Ponto Verde mined 1.5 million tonnes run of mine ore
for the year and produced 744,000 tonnes of beneficiated product.
SAFM is undertaking a feasibility study to increase the mining rate
to 8 million tonnes of ore per annum which is expected to be
completed during the third quarter of 2014.
DIRECTORS' REPORT
For the year ended 31 December 2013
The Directors of the Company present their fourth annual report
and the audited financial statements for the year ended 31 December
2013.
Principal activity and business review
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
on 9 March 2010 in Guernsey under the Companies (Guernsey) Law,
2008 with registration number 51576. The Company is a registered
closed-ended investment scheme registered pursuant to the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended ("POI Law") and the Registered Collective Investment Scheme
Rules 2008 issued by the Guernsey Financial Services Commission
(GFSC). On 28 April 2010 the Ordinary Shares and Subscription
Shares of the Company were admitted to the Official List of the UK
Listing Authority and to trading on the Main Market of the London
Stock Exchange.
The Ordinary Shares are currently admitted to the Premium
Listing segment of the Official List. Following the expiry of the
Transitional Provision contained in Listing, Prospectus, Disclosure
and Transparency Rules 7 of the Listing Rules, effect 1 June 2012,
Subscription Shares of no par value were assigned to the Standard
Segment of the Official list, but following the final exercise date
for the Subscription Shares on 2 April 2013, as no Subscription
Shares were exercised at this time, all Subscription Shares were
subsequently cancelled.
The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting
principally of the equities, or related instruments, of natural
resources companies. The Company will invest predominantly in
unlisted companies (i.e. those companies that have not yet made an
initial public offering ("IPO")) but also in listed securities
(including special situations opportunities and less liquid
securities) with a view to exploiting value inherent in market
inefficiencies and pricing anomalies.
The Company's investment policy is detailed on pages 3 and
4.
Portfolio analysis
A detailed analysis of the Portfolio has been provided on pages
21 and 22.
The Investment Manager's report on pages 6 to 10 includes a
review of the main developments during the year together with
information on investment activity within the Company's Portfolio
and on the market outlook.
Performance
In the year to 31 December 2013, the Company's undiluted NAV per
Ordinary Share decreased by 43.2% (2012: decrease of 16.9%). This
compares with a fall in the Euromoney Mining 100 Index (capital
return in Sterling terms) of 25.7% (2012: fall of 4.6%).
Results and dividends
The results for the year are shown in the Statement of
Comprehensive Income on page 26 and the Company's financial
position at the end of the year is shown in the Statement of
Financial Position on page 25.
Dividend policy
It is not currently envisaged that any income or gains will be
distributed by the Company by way of dividend. This does not
preclude the Directors from declaring a dividend at any time in the
future if they consider it appropriate to do so. To the extent that
any dividends are paid they will be paid in accordance with any
applicable laws and the regulations of the UK Listing
Authority.
Directors
The Directors of the Company who served during the year
were:
Howard Myles (Chairman)
Edward Flood
Charles Hansard
Clive Newall
Christopher Sherwell
Attendance at the Board and Audit Committee meetings during the
year was as follows;
Board Meetings Audit Committee Ad hoc Committee
Meetings Meetings
Held Attended Held Attended Held Attended
Howard Myles 4 4 3 3 3 1
Christopher
Sherwell 4 4 3 3 3 3
Charles Hansard 4 4 N/A N/A 3 0
Clive Newall 4 2 3 2 3 0
Edward Flood 4 2 N/A N/A 3 2
In addition to formal meetings, all Directors contribute to a
significant ad hoc exchange of views between the Directors and the
Investment Manager on specific matters, in particular in relation
to developments in the portfolio.
The Directors are remunerated for their services at such rate as
the Directors determine provided that the aggregate amount of such
fees may not exceed GBP200,000 per annum (or such sum as the
Company in general meeting shall from time to time determine).
For the year ended 31 December 2013 the total remuneration of
the Directors was GBP140,000 (2012: GBP140,000), with GBP36,000
(2012: GBP36,000) payable at year end.
The Directors' interests in the share capital of the Company at
31 December 2013 are:
Number of
Ordinary Shares
Edward Flood 65,000
Christopher Sherwell 25,000
Clive Newall 25,000
The Directors' interests in the share capital of the Company at
31 December 2012 were:
Number of Number of
Ordinary Shares Subscription Shares
Edward Flood 65,000 13,000
Christopher Sherwell 25,000 5,000
Clive Newall 25,000 5,000
Mr Sherwell also has an indirect interest in the shares of the
Company through an investment in another fund managed by the
Manager.
Significant Shareholdings
The significant shareholdings in the Company at 31 December 2013
were:
Number of % of Total
Ordinary Shareholder Ordinary Shares Shares in issue
The Bank of New York (Nominees) Limited* 24,417,501 36.92
HSBC Global Custody Nominees Limited* 7,407,119 11.20
* Custodian accounts held on behalf of individual shareholders.
These holdings are aggregated.
CF Ruffer Baker Steel Gold Fund ("CFRBSGF") had an interest in
6,080,000 Ordinary Shares in the Company at 31 December 2013. These
shares are held in a custodian account with The Bank of New York
(Nominees) Limited. CFRBSGF shares a common Investment Manager with
the Company.
The Manager, Baker Steel Capital Managers (Cayman) Limited, had
an interest in 504,832 Ordinary Shares at 31 December 2013. The
Investment Manager, Baker Steel Capital Managers LLP, had an
interest in 10,000 Management Ordinary Shares at 31 December
2013.
Authorised and Issued Share Capital
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both. The Company raised GBP30,468,865 (before costs) through the
issue of 30,468,865 Ordinary Shares and 6,093,772 Subscription
Shares via a Placing and Offer. In addition, the Company issued
35,554,224 Ordinary Shares and 7,110,822 Subscription Shares to the
holders of shares in Genus Capital Fund pursuant to a scheme of
reorganisation of Genus Capital Fund, in exchange for substantially
all the non-cash assets of Genus Capital Fund. With effect from 30
September 2010, 7,543 Ordinary Shares were issued as a result of
the exercise of Subscription Shares. With effect from 31 March
2011, 2,429 Ordinary Shares were issued as a result of the exercise
of Subscription Shares. With effect from 2 April 2012, 107,549
Ordinary Shares were issued as a result of the exercise of
Subscription Shares. With effect from 1 October 2012, 1,923
Ordinary Shares were issued as a result of the exercise of
Subscription Shares. On 2 April 2013, all unexercised Subscription
Shares were cancelled, having expired.
Issue of Shares
The Company was admitted to trading on the London Stock Exchange
on 28 April 2010. On that date, 30,468,865 Ordinary Shares and
6,093,772 Subscription Shares were issued pursuant to a placing and
offer for subscription and 35,554,224 Ordinary Shares and 7,110,822
Subscription Shares were issued pursuant to a Scheme of
Reorganisation of Genus Capital Fund.
In addition 10,000 Management Ordinary Shares were issued.
Following the exercise of Subscription Shares at the end of
September 2010, March 2011, March 2012, June 2012 and September
2012 a total of 119,444 Ordinary Shares were issued and as a
result, the Company has a total of 66,142,533 Ordinary and 10,000
Management Shares in issue.
The final exercise date for the Subscription Shares was 2 April
2013. No Subscription Shares were exercised at this time and all
Subscription Shares were subsequently cancelled.
Going Concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that it has the
resources to continue in business for the foreseeable future. There
is sufficient cash at 31 December 2013 to settle the current
payables. The Company holds listed securities that can be realised
to meet liabilities as they become due; as at 31 December 2013,
approximately 15% of the Company's assets were represented by cash
and unrestricted listed and quoted investments. The Directors are
not aware of any material uncertainties that may cast significant
doubt upon the Company's ability to continue as a going concern.
Therefore, the financial statements have been prepared on a going
concern basis.
Corporate Governance Compliance
The Company is committed to maintaining high standards of
corporate governance. The Board has put in place a framework for
corporate governance which it believes is suitable for an
investment company and which enables the Company to comply with the
relevant provisions of the UK Corporate Governance Code released in
September 2012 which became effective 1 January 2013.
The Board has made the appropriate disclosures in this report to
ensure that the Company meets its continuing obligations. The
Company considers that it has complied with the provisions of the
UK Corporate Governance Code throughout the accounting year, except
where disclosed below.
Information and training
The Board receives full details of the Company's assets,
liabilities and other relevant information in advance of Board
meetings. Typically, the Board meets formally four times a year;
however, the Investment Manager and Company Secretary stay in more
regular, less formal contact with the Directors. Individual
Directors have direct access to the Company Secretary and may, at
the expense of the Company, seek independent professional advice on
any matter that concerns them in the furtherance of their duties.
New Directors will receive an induction from the Investment Manager
and Company Secretary on joining the Board, and all Directors
receive other relevant training as necessary.
Corporate Governance Compliance (continued)
Independence
The Board consists solely of independent non-executive Directors
of whom Howard Myles is Chairman.
Senior Independent Director
In view of its non-executive nature, the Board considers that it
is not appropriate for a Senior Independent Director to be
appointed.
Appointment and re-election
All the Directors are responsible for reviewing the size,
structure and skills of the Board and considering whether any
changes are required or new appointments are necessary to meet the
requirements of the Company's business or to maintain a balanced
Board. The Directors are not required to retire by rotation at each
annual general meeting of the Company. The Board's policy on tenure
is that continuity and experience are considered to add
significantly to the strength of the Board and, as such, no limit
on the overall length of service of any of the Company's Directors,
including the Chairman, has been imposed.
Performance appraisal
The performance of the Board and the Audit Committee are
evaluated through an assessment process led by the Chairman. The
performance of the Chairman is evaluated by the other
Directors.
Audit committee
The Board has established an Audit Committee. The Audit
Committee meets at least twice a year and is responsible for
ensuring that the financial performance of the Company is properly
reported on and monitored and provides a forum through which the
Company's external auditor may report to the Board. The Audit
Committee operates within established terms of reference. These are
available on the Company's website
www.bakersteelresourcestrust.com. The Directors consider there is
no need for an internal audit function because the Company operates
through service providers and the Directors receive control reports
on service providers.
Christopher Sherwell is Chairman of the Audit Committee.
Nomination, Remuneration and Management Engagement
Committees
Given the size and nature of the Company and the fact that all
the Directors are independent and non-executive it is not deemed
necessary to form separate Nomination, Remuneration, and Management
Engagement Committees. The Board, as a whole, will consider new
Board appointments, remuneration and the engagement of service
providers. The Directors recognise the benefits of diversity in
terms of gender and ethnicity and will take these into account when
considering future appointments to the Board. However their
principal criteria will remain skills and experience with the
objective of maximising shareholder value.
Board meetings
The Board generally meets at least four times a year, at which
time the Directors review the management of the Company's assets
and all other significant matters so as to ensure that the
Directors maintain overall control and supervision of the Company's
affairs. The Board is responsible for the appointment and
monitoring of all service providers to the Company. Between these
quarterly meetings there is regular contact with the Investment
Manager. The Directors are kept fully informed of investment and
financial controls and other matters which are relevant to the
business of the Company and which should be brought to the
attention of the Directors. The Directors also have access to the
Company Secretary (through its appointed representatives who are
responsible for ensuring that Board procedures are followed and
that applicable rules and regulations are complied with) and, where
necessary in the furtherance of their duties, to independent
professional advice at the expense of the Company.
Internal Controls
The Board recognises the need for effective high-level internal
controls. The principal controls to address financial, operational
and compliance risks are embedded in the operational procedures of
the Investment Manager, the Administrator and the Custodian.
High-level controls in operation in relation to the Company
include segregation of duties between relevant functions and
departments within the Administrator and the Investment Manager. At
every quarterly meeting, the Board considers the compliance
reports, administration reports, and portfolio valuations provided
by the Administrator, and the Investment Manager's reports and
analyses.
Corporate Governance Compliance (continued)
Internal Controls (continued)
The Administrator has a number of internal control functions
including a dedicated Compliance Officer who is appointed as a
statutory requirement and whose role is determined by the Guernsey
Financial Services Commission which includes the maintenance of a
log of errors and breaches which are reported to the Board at each
quarterly Board meeting. The Administrator also undertakes an
independent annual review of its internal control functions in
accordance with International Standard on Assurance Engagements
3402, "Assurance Reports on Controls at a Service Organisation",
issued by the International Auditing and Assurance Standards Board.
The Administrator makes this report available to the Board for
review and assessment of the control objectives and activities in
place.
The Board reviews the effectiveness of the Company's internal
control systems on an ongoing basis. Procedures are in place to
ensure that necessary action is taken to address any significant
weaknesses identified in the control framework. The Board is not
aware of any significant failings or weaknesses in the Company's
internal controls in the year under review. The Board recognises
that the internal controls framework is designed to manage rather
than to eliminate relevant risks. The key risks faced by the
Company are set out below. The Board reviews the policies for
managing each of these principal risks as summarised below. Please
also refer to note 5 on pages 38 to 42.
Investment Manager Assessment
The Investment Manager prepares regular reports to the Board to
allow it to review and assess the Company's activities and
performance on an ongoing basis. The Board and the Investment
Manager have agreed clearly defined investment criteria, exposure
limits and specified levels of authority. Regular reports on these
matters, including performance information and portfolio
valuations, are submitted to the Board at each meeting.
Relations with Shareholders
The Board believes that the maintenance of good relations with
shareholders is vital for the long-term prospects of the Company.
The Board receives feedback on the views of shareholders from the
Company's stockbrokers, Numis Securities Limited, and from the
Investment Manager.
General Meetings
All general meetings of the Company are held in Guernsey. The
Company holds an Annual General Meeting each year.
Principal risks & uncertainties
Performance risk
The Board is responsible for determining the investment strategy
to allow the Company to fulfil its objectives and also for
monitoring the performance of the Investment Manager which has been
delegated day-to-day discretionary management of the Company's
portfolio. An inappropriate strategy may lead to poor performance.
The investment policy of the Company is for a highly focused
portfolio which can lead to a concentration of risk. To manage this
risk the Investment Manager provides to the Board, on an ongoing
basis, an explanation of the significant stock selection
recommendations and the rationale for the composition of the
investment portfolio. The Board mandates and monitors an adequate
diversification of investments, both geographically and sectorally,
in order to reduce the risks associated with particular sectors,
based on the diversification requirements inherent in the Company's
investment policy.
Market risk
Market risk arises from volatility in the prices of the
Company's underlying investments which, in view of the Company's
investment objectives, in turn are particularly sensitive to
commodity prices. Market risk represents the potential loss the
Company might suffer through holding investments in the face of
negative market movements. The Board has set investment
restrictions and guidelines which are monitored and reported on by
the Investment Manager on a regular basis.
Financial risk
The Company's investment activities expose it to a variety of
financial risks that include foreign currency risk and interest
rate risk. Further details are disclosed in note 5 on pages 38 to
42.
Operational risk
In common with most other investment vehicles, the Company has
no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems
of the Investment Manager and the Company's other service
providers. For example, the security of the Company's assets, the
valuation advice related to those assets, dealing procedures,
accounting records and compliance with regulatory and legal
requirements depend on the effective operation of these third party
control systems.
Corporate Governance Compliance (continued)
Business/Other risks
The Company invests in companies whose projects are located in
emerging markets. In such countries governments can exercise
substantial influence over the private sector and political risk
can be a significant factor. In adverse social and political
circumstances, governments have been involved in policies of
expropriation, confiscatory taxation, nationalisation, intervention
in the securities markets and imposition of foreign exchange
controls and investment restrictions. The Investment Manager and
the Board take into account specific political risks when entering
into an investment and seek to mitigate them by diversifying
geographically.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the financial
statements in accordance with applicable Guernsey law and generally
accepted accounting principles.
The Guernsey Company Law requires the Directors to prepare
financial statements for each financial year which give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that year. In preparing these
consolidated financial statements the Directors should:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business;
- confirm that there is no relevant audit information of which
the Company's auditor is unaware; and
- confirm that they have taken reasonable steps they ought to
have taken as directors to make themselves aware of any relevant
audit information and to establish that the Company's auditor is
aware of that information.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and which enable the Directors to
ensure that the financial statements comply with the Companies
(Guernsey) Law, 2008. The Directors are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors confirm that to the best of their knowledge:
- the financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union (EU);
- the financial statements have been prepared in accordance with
the applicable set of accounting standards and give a true and fair
view of the assets, liabilities and financial position and profit
or loss of the Company;
- the Annual Report includes a fair review of the development
and performance of the business and position of the Company
together with the description of the principal risks and
uncertainties that the Company faces, as required by the Disclosure
and Transparency Rules of the UK Listing Authority;
- the Directors confirm that the Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company's performance and strategy; and
- so far as each of the Directors is aware, there is no relevant
audit information of which the Company's auditor is unaware and
each Director has taken all the reasonable steps he ought to have
taken as a director to make himself aware of any relevant audit
information and to establish that the Company's auditor is aware of
that information.
Retail Distribution of Unregulated Collective Investment
Schemes
The Board of BSRT notes the changes to the FCA rules relating to
the restrictions on the retail distribution of unregulated
collective investment schemes and close substitutes which came into
effect on 1 January 2014. The Company conducts its affairs so that
the shares issued by the Company can be promoted by authorised
persons to ordinary retail investors in accordance with the FCA's
rules in relation to non-mainstream investment products and intends
to continue to do so for the foreseeable future. Following the
receipt of legal advice, the Board confirms that it conducts the
Company's affairs, and intends to continue to conduct the Company's
affairs, such that the Company would qualify for approval as an
investment trust if it were resident and listed in the United
Kingdom.
Signed on behalf of the Board of Directors by:
Howard Myles Christopher Sherwell 15 April 2014
Report of the Audit Committee
For the year ended 31 December 2013
The Audit Committee's main function is to ensure that the
Company maintains high standards of integrity in its financial
reporting and internal controls. The Audit Committee is appointed
by the Board and it meets at least twice a year when the Company's
interim and final financial statements to shareholders are to be
considered by the Board. The Audit Committee is chaired by
Christopher Sherwell and it operates within clearly defined terms
of reference which are available on the Company's website. Its
other members are Howard Myles and Clive Newall. Only independent
directors can serve on the Audit Committee and members of the Audit
Committee must have no links with the Company's external auditor
and must be independent of the Investment Manager.
The Board is satisfied that the Audit Committee is properly
constituted with members having recent and relevant financial
experience, and in particular, one member having a background as a
chartered accountant.
Responsibilities
The main duties of the Audit Committee are:
(a) monitoring the integrity of the Company's financial
statements and any other financial information published by the
Company;
(b) reviewing the Company's investments, and in particular, the
valuation of its unquoted investments. The Audit Committee
carefully assesses the recommendations of the Investment Manager in
this respect;
(c) meeting the external auditor to review its proposed audit
programme, reviewing its annual report and discussing any matters
arising from its audit, assessing the effectiveness of the overall
audit process and reviewing the levels of fees paid to the auditor
in respect of its audit and non-audit work;
(d) monitoring the Company's accounting and internal control
systems and making recommendations on any improvement to such
systems; and
(e) monitoring the Company's procedures for ensuring compliance
with statutory, regulatory and other financial reporting
requirements and its relationship with the relevant regulatory
authorities.
The Audit Committee has the opportunity to meet the external
auditor at least twice a year without the Manager or Investment
Manager present. The Chairman of the Audit Committee has access to
the audit partner at any meeting if he so requires. After each
audit, the Audit Committee reviews the audit process and considers
its effectiveness.
The Audit Committee also provides a forum through which the
Company's auditor reports to the Board. The objectivity and
independence of the auditor are reviewed by the Audit Committee.
The Board approves all non-audit work carried out by the auditor in
advance and the fees paid to the auditor in this respect.
External Audit
The Company's external auditor is Ernst & Young LLP ("EY").
EY has been the Company's auditor since its incorporation in
2010.
The Company's auditor is advised of the timing of Audit
Committee meetings to consider the Company's annual and semi-annual
accounts.
During 2013 the Audit Committee reviewed the services provided
by the auditor, and the related fees, and concluded that it was not
necessary to conduct a competitive tender at that stage. However,
the Audit Committee does keep this matter under consideration.
The fees for audit services during the year were: GBP43,875
(2012: GBP37,500) plus an additional one-off fee in 2013 of
GBP6,000 for ISA700 preparatory work.
The cost of non-audit services carried out by the auditor for
the financial year ended 31 December 2013 was GBP7,000 (2012:
GBP6,600). This comprised 'Agreed Upon Procedures' in relation to
the interim financial statements principally comprising the
checking of disclosures in the interim report not subject to
statutory audit. These non-audit services were assurance related
and the Audit Committee believes that EY are best placed to provide
them on a cost effective basis.
External Audit (continued)
The Audit Committee confirms that it has reviewed the non-audit
services provided by EY and is satisfied that they do not
compromise EY's independence or objectivity. The Audit Committee is
also satisfied that fees for non-audit services are proportionate
in relation to the fees for audit services. In conclusion, the
Audit Committee is satisfied that EY remains independent.
Internal Audit
The Audit Committee believes that the Company does not require
an internal audit function because it delegates its day-to-day
functions to third party service providers although the Audit
Committee oversees these operations and receives regular reports in
this respect.
Risk Management and Internal Controls
The Board is responsible for the Company's system of internal
controls and risk management. The Audit Committee has been
delegated the responsibility for reviewing the effectiveness of the
Company's internal controls on an ongoing basis and it discharges
its duties in this area by determining the nature and extent of the
significant risks it is willing to accept in achieving the
Company's objectives and ensuring that effective systems of risk
identification, assessment and mitigation have been
implemented.
The Company delegates its day to day operations to third parties
therefore it relies on the internal control arrangements of its
outsourced service providers in respect of a number of key
controls. It is the Audit Committee's responsibility to ensure that
suitable internal control systems are implemented by the Company's
third party service providers and to review the effectiveness of
these controls on an ongoing basis.
The key risks faced by the Company, and the controls in place to
mitigate such risks, are set out in a Risk Matrix which is
regularly reviewed by the Board. The Risk Matrix identifies the
likelihood and severity of the impact of each identified risk
factor and the mitigating controls in place to minimise the
probability of such risks occurring.
The Audit Committee considers that valuation of the Company's
unquoted investments at fair value through profit or loss is a key
risk, in the context of the judgements necessary to determine the
fair values of these holdings as there is no observable market
price.
By their nature, the control mechanisms can only provide
reasonable rather than absolute assurance against misstatement or
loss. The Board seeks continual improvement of its internal
controls mechanisms. The Audit Committee is not aware of any
significant failings or weaknesses in the Company's internal
controls in the year under review.
Financial Reporting
The primary role of the Audit Committee in relation to financial
reporting is to review the annual accounts with the Administrator
and the Investment Manager and assess their appropriateness. It
focuses in this respect, amongst other matters, on:
-- the clarity of the disclosures in the financial reporting and
compliance with statutory, regulatory and other financial reporting
requirements;
-- the quality and acceptability of accounting policies and practices;
-- material areas where significant judgements have been applied
or where there has been discussion with the auditor; and
-- taken as a whole, whether the financial statements are fair,
balanced and understandable and provide shareholders with the
necessary information to assess the Company's performance and
strategy although the Board retains overall responsibility in this
respect.
Primary Areas of Judgement
As part of its review, the Audit Committee takes account of the
most significant issues and risks, both operational and financial,
likely to impact on the Company's financial statements and the
mitigating controls to address these risks. The Audit Committee has
determined that the key risk of misstatement of the Company's
financial statements is valuation of investments for which there is
no readily observable market price. Such investments are recorded
at fair value which is the price that would be received to sell an
asset in an orderly transaction between market participants at the
measurement date. Significant judgements are required in respect of
the valuation of the Company's investments for which there is no
observable market price. The Company bases most of its valuations
on the most recent observable transactions for each investment and
adjusts these for changes in company specific performance and
comparable company performance for which there is observable data.
This performance information, by its nature, takes into account
market expectations of future commodity prices. Further information
on the Company's methodologies is provided in Note 3 to the
financial statements.
The risk is mitigated through the review by the Board of
detailed reports prepared by the Investment Manager on portfolio
valuation including valuation methodology, the underlying
assumptions and the valuation process.
The Investment Manager also provides information to the Board on
relevant market indices, recent transactions in similar assets and
other relevant information to allow an assessment of appropriate
carrying value having regard to the relevant factors.
The responsibility for ensuring that investments are carried at
fair value lies with the Board.
Going Concern
The Audit Committee has made an assessment of the Company's
ability to continue as a going concern. Particular regard has been
given to the factors described below:
-- There was sufficient cash at 31 December 2013 to settle all current liabilities.
-- The Company holds listed securities that can if necessary be
realised to meet liabilities as they become due; as at 31 December
2013, approximately 15% of the Company's assets were represented by
cash and unrestricted listed and quoted investments.
On the basis of its review, the Audit Committee is satisfied
that the Company has the resources to continue in business for the
foreseeable future and it is not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern. The Audit Committee is of
the opinion that the financial statements should be prepared on a
going concern basis and has accordingly recommended its opinion to
the Board.
Christopher Sherwell
Audit Committee Chairman
BOARD OF DIRECTORS
Howard Myles (aged 64): Howard Myles currently acts as a
non-executive director of a number of investment companies. Howard
was a partner in Ernst & Young from 2001 until 2007 and was
responsible for the Investment Funds Corporate Advisory team. He
was previously with UBS Warburg from 1987 to 2001. Howard began his
career in stockbroking in 1971 as an equity salesman and joined
Touche Ross in 1975 where he qualified as a chartered accountant.
In 1978 he joined W. Greenwell & Co. in the corporate broking
team and in 1987 moved to SG Warburg Securities where he was
involved in a wide range of commercial and industrial transactions
in addition to leading UBS Warburg's corporate finance function for
investment funds. He is a fellow of the Institute of Chartered
Accountants and of The Chartered Institute for Securities and
Investments.
R. Edward Flood (aged 68): In March 2007, Edward Flood was
appointed Managing Director of Investment Banking at Haywood
Securities (UK) Limited. Following graduation from university
Edward enjoyed a career as an economic geologist with several
different companies in the mining industry over a 20-year period.
At Nerco Minerals he was head of the Company's acquisition team
during a period of rapid growth fuelled by the purchase of a number
of operating precious metal mines. This experience enabled him to
make a transition to the financial community as a principal at
Robertson Stephens investment bank in San Francisco in 1992. He
initially worked as a securities analyst following the gold mining
industry before becoming a member of the firm's investment
management team for the Contrarian Fund, a public mutual fund
concentrated on natural resource opportunities in emerging markets
around the world and the Orphan Fund, a similarly structured hedge
fund. The funds managed a portfolio of approximately US$2 billion.
Between 1999 and 2001, Edward held the position of senior mining
analyst with Haywood Securities in Vancouver before returning to
Ivanhoe Mines as deputy chairman, a position held until joining
Haywood Securities (UK) Limited in March 2007. He is also the
Chairman of Western Uranium Corporation and a director of several
mineral exploration and development companies. Edward holds a
Masters of Science (Geology) degree from the University of Montana
and is a member of the Geological Society of London.
Charles Hansard (aged 66): Charles Hansard has over 30 years'
experience in the investment industry as a professional and in a
non-executive capacity. He currently serves as a non-executive
director on a number of boards which include the Moore Capital
group of funds, AAA- rated Deutsche Bank Global Liquidity Fund, and
Electrum Ltd., a privately owned gold exploration company. He
formerly served as a director of Apex Silver Mines Ltd., where he
chaired the finance committee during its capital raising phase and
as chairman of the board of African Platinum Plc, which he led
through reorganisation and feasibility prior to its sale to Impala
Platinum. He commenced his career in South Africa with Anglo
American Corporation and Fleming Martin as a mining analyst. He
subsequently worked in New York as an investment banker for Hambros
before returning to the UK to co-found IFM Ltd., one of the
earliest European hedge fund managers. Charles holds a B.B.S. from
Trinity College Dublin.
Clive Newall (aged 64): Clive Newall graduated from the Royal
School of Mines, University of London, England in 1971 with an
honours degree in Mining Geology, and was awarded an MBA from the
Scottish Business School at Strathclyde University. He has worked
in mining and exploration throughout his career, having held senior
management positions with Amax Exploration Inc. and the Robertson
Group plc. Clive has been a director of a number of public
companies in the United Kingdom and Canada.
Christopher Sherwell (aged 66): Christopher Sherwell has worked
since 2004 as a senior Non-Executive Director based in Guernsey
with roles in the offshore finance industry and is a director of a
number of listed investment companies. Prior to January 2004,
Christopher was a Managing Director of Schroders' offshore
investment and private banking operations in the Channel Islands.
Christopher was previously Investment Director from 1993-2000 and
also served on the boards of various Schroder group companies and
funds during his period there. Prior to Schroders he worked at
Smith New Court as a research analyst specialising in asset
allocation for Asian markets. Christopher is a Rhodes Scholar with
degrees in science and in economics and politics. He has worked as
a university lecturer and was for sixteen years a journalist, most
of them working for the Financial Times.
PORTFOLIO STATEMENT
AT 31 DECEMBER 2013
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Listed equity shares
Australian Dollars
20,560,122 South American Ferro Metals Limited 610,481 1.49
Australian Dollars Total 610,481 1.49
--------------- ---------
Canadian Dollars
3,383,333 BacTech Environmental Corporation 76,881 0.19
1,100,000 Forbes & Manhattan Coal Corporation 96,859 0.23
7,438,498 Ivanhoe Mines Limited (restricted)* 7,427,974 18.12
302,999 Ivanhoe Mines Limited 321,883 0.79
1,931,667 REBgold Corporation 93,275 0.23
Canadian Dollars Total 8,016,872 19.56
--------------- ---------
Great Britain Pounds
48,202,024 Metals Exploration Plc 2,410,101 5.88
Great Britain Pounds Total 2,410,101 5.88
--------------- ---------
United States Dollars
6,576,192 China Polymetallic Mining Company Limited* 2,924,086 7.13
United States Dollars Total 2,924,086 7.13
--------------- ---------
Total investment in listed equity shares 13,961,540 34.06
--------------- ---------
Convertible debt instruments
Canadian Dollars
Ironstone Resources Limited Convertible
250,500 Note 142,306 0.35
REBgold Corporation Unsecured Convertible
150,000 Debenture 85,213 0.21
Canadian Dollars Total 227,519 0.56
--------------- ---------
United States Dollars
5,100,000 Argentum Convertible Note 3,078,037 7.51
7,000,000 Black Pearl Limited Partnership 5,449,451 13.29
830,000 Polar Silver Convertible Notes 500,936 1.22
United States Dollars Total 9,028,424 22.02
--------------- ---------
Total investments in Convertible debt instruments 9,255,943 22.58
--------------- ---------
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Unlisted equity shares and warrants
Canadian Dollars
6,282,341 Ironstone Resources Limited 4,996,492 12.19
3,036,605 Ironstone Resources Limited Warrants 31/03/2014 16,753 0.04
143,143 Ironstone Resources Limited Warrants 22/02/2018 24,623 0.06
10,250,000 REBgold Corporation Warrants 17/06/2015 - -
2,400,000 REBgold Corporation Warrants 10/11/2016 1 -
Canadian Dollars Total 5,037,869 12.29
--------------- ---------
Great Britain Pounds
1,594,646 Celadon Mining Limited 143,518 0.35
Great Britain Pounds Total 143,518 0.35
--------------- ---------
United States Dollars
3,034,734 Archipelago Metals Limited 412,104 1.01
451,445 Bilboes Gold Limited 4,135,998 10.09
5,713,642 Ferrous Resources Limited 2,586,295 6.31
4,244,550 Gobi Coal and Energy Limited 5,123,484 12.50
1,186 Polar Silver Resources Limited 716 -
United States Dollars Total 12,258,597 29.91
--------------- ---------
Total unlisted equity shares and warrants 17,439,984 42.55
--------------- ---------
Financial assets held at fair value through
profit or loss 40,657,467 99.19
--------------- ---------
Other assets & liabilities 333,238 0.81
--------------- ---------
Total equity 40,990,705 100.00
--------------- ---------
*Classified as Level 2 (Refer Note 3)
INDEPENDENT AUDITOR'S REPORT
For the year ended 31 December 2013
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BAKER STEEL
RESOURCES TRUST LIMITED
We have audited the financial statements of Baker Steel
Resources Trust Limited for the year ended 31 December 2013 which
comprise the Statement of Financial Position, Statement of
Comprehensive Income, Statement of Changes in Equity, Statement of
Cash Flows, and the related notes 1 to 14. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards as adopted by
the European Union.
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on page 16 of the Directors' Report, the
directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
-- In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2013, and of its comprehensive loss for
the year then ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union;
and
-- have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
Our Assessment of material risks of misstatement
We identified the following risk that had the greatest effect on
the overall audit strategy and scope and allocation of
resources:
-- valuation of the Company's investments other than those
classified as level 1 in the fair value hierarchy.
Our Application of materiality
When establishing our overall audit strategy, we determined
materiality for the Company to be GBP820k which is approximately 2%
of total equity. This provided a basis for determining nature,
timing and extent of risk assessment procedures, identifying and
assessing the risk of material misstatement and determining the
nature, timing and extent of further audit procedures.
On the basis of our risk assessment, together with our
assessment of the Company's overall control environment, our
judgement was that overall performance materiality (i.e. our
tolerance for misstatement in an individual account or balance) for
the Company should be 50 per cent of materiality, namely GBP410k.
Our objective in adopting this approach was to ensure that total
uncorrected and undetected audit differences in the financial
statements did not exceed our materiality level.
We have reported to the Audit Committee all audit differences in
excess of GBP41k, as well as differences below that threshold that,
in our view warranted reporting on qualitative grounds.
An overview of the scope of our audit
We have audited the financial statement balances using our
materiality. In assessing the risk of material misstatement to the
consolidated financial statements, our audit scope focused on the
fair value of investments at fair value through profit and loss,
other than those classified as level 1 in the fair value hierarchy.
Our response included the following procedures:
-- we considered the appropriateness of the valuation techniques
applied to unlisted investments. We used an internal valuation
specialist to assist us in our considerations and we assessed their
competence and objectivity;
-- we obtained independent evidence to corroborate the inputs
into the valuation models that formed part of the valuation
techniques; and
-- we tested the arithmetical accuracy of the valuation models.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to
you if, in our opinion, information in the Director's Report
is:
materially inconsistent with the information in the audited
financial statements; or
apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Company; or
is otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the directors' statement that they consider
the annual report is fair, balanced and understandable and whether
the annual report appropriately discloses those matters that we
communicated to the Audit Committee which we consider should have
been disclosed.
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
proper accounting records have not been kept; or
the financial statements are not in agreement with the
accounting records; or
we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the UK Corporate Governance
Code specified for our review.
Michael Bane
For and on behalf of Ernst & Young LLP
Recognised Auditors
Guernsey, Channel Islands
15 April 2014
Insofar as the financial statements are published on the company
website, the maintenance and integrity of the Baker Steel Resources
Trust Limited website is the responsibility of the directors; the
work carried out by the auditor does not involve consideration of
these matters and, accordingly, the auditor accepts no
responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the
website.
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2013
2013 2012
Notes GBP GBP
Assets
Cash and cash equivalents 10 477,495 601,174
Other receivables 26,746 57,671
Financial assets held at fair value through
profit or loss
(Cost: GBP60,117,893 (2012: GBP64,336,833)) 3 40,657,467 75,359,488
Total assets 41,161,708 76,018,333
------------- -------------
Equity and Liabilities
Liabilities
Performance fees payable 8 - 3,651,275
Management fees payable 8 42,297 79,317
Directors' fees payable 36,000 36,000
Audit fees payable 38,625 29,736
Administration fees payable 7 13,671 7,889
Other payables 40,410 14,461
Total liabilities 171,003 3,818,678
------------- -------------
Equity
Management Ordinary Shares 11 10,000 10,000
Ordinary Shares 64,767,056 64,767,056
Profit and loss account (23,786,351) 7,422,599
Total equity 40,990,705 72,199,655
------------- -------------
Total equity and liabilities 41,161,708 76,018,333
============= =============
Ordinary Shares in issue 11 66,152,533 66,152,533
Net asset value per Ordinary Share (in Pence)
- Basic 4 62.0 109.1
These financial statements were approved by the Board of Directors
on 15 April 2014 and signed on its behalf by:
Howard Myles Christopher Sherwell
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013
Year ended Year ended Year ended
2013 2013 2013
Revenue Capital Total
Notes GBP GBP GBP
Income
Interest income 13,194 - 13,194
Net loss on financial assets and
liabilities at fair value through
profit or loss 3 - (29,934,397) (29,934,397)
Net foreign exchange loss - (24,368) (24,368)
Other income 8,028 - 8,028
Net income/(loss) 21,222 (29,958,765) (29,937,543)
------------ ------------- --------------
Expenses
Management fees 8 740,205 - 740,205
Directors' fees 140,000 - 140,000
Director's expenses 6,731 - 6,731
Audit fees 42,052 - 42,052
Administration fees 7 94,618 - 94,618
Custody fees 37,609 - 37,609
Other expenses 9 210,192 - 210,192
Total expenses 1,271,407 - 1,271,407
------------ ------------- --------------
Total comprehensive loss for the
year (1,250,185) (29,958,765) (31,208,950)
============ ============= ==============
Net loss for the year per Ordinary
Share:
Basic (in pence) 4 (1.9) (45.3) (47.2)
Weighted Average Number of Ordinary
Shares Outstanding:
Basic 4 66,152,533
In the year ended 31 December 2013 there were no gains or losses other than those recognised
above.
The Directors consider all results to derive from continuing activities.
Year ended Year ended Year ended
2012 2012 2012
Revenue Capital Total
Notes GBP GBP GBP
Income
Interest income 43,152 - 43,152
Net loss on financial assets and
liabilities at fair value through
profit or loss 3 - (12,982,283) (12,982,283)
Net foreign exchange loss - (24,836) (24,836)
Net income/(loss) 43,152 (13,007,119) (12,963,967)
------------ ------------- -------------
Expenses
Management fees 8 1,109,630 - 1,109,630
Directors' fees 140,000 - 140,000
Director's expenses 4,194 - 4,194
Audit fees 40,000 - 40,000
Administration fees 7 99,211 - 99,211
Custody fees 62,821 - 62,821
Other expenses 9 213,644 - 213,644
Total expenses 1,669,500 - 1,669,500
------------ ------------- -------------
Total comprehensive loss for the
year (1,626,348) (13,007,119) (14,633,467)
============ ============= =============
Net loss for the year per Ordinary
Share:
Basic and diluted (in pence) 4 (2.4) (19.7) (22.1)
Weighted Average Number of Ordinary
Shares Outstanding:
Basic and diluted 4 66,124,204
In the year ended 31 December 2012 there were no gains or losses other than those recognised
above.
The Directors consider all results to derive from continuing activities.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2013
Management
Ordinary Ordinary Profit and Year ended
Shares Shares loss account 2013
GBP GBP GBP GBP
Balance as at 1 January
2013 10,000 64,767,056 7,422,599 72,199,655
Net loss for the year - - (31,208,950) (31,208,950)
Balance as at 31 December
2013 10,000 64,767,056 (23,786,351) 40,990,705
=========== =========== =============== =============
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2012
Management
Ordinary Ordinary Profit and Year ended
Shares Shares loss account 2012
GBP GBP GBP GBP
Balance as at 1 January
2012 10,000 64,657,584 22,056,066 86,723,650
Proceeds on issue of Ordinary
Shares - 109,472 - 109,472
Net loss for the year - - (14,633,467) (14,633,467)
Balance as at 31 December
2012 10,000 64,767,056 7,422,599 72,199,655
=========== =========== =============== =============
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 31 DECEMBER 2013
Year ended Year ended
2013 2012
Notes GBP GBP
Cash flows from operating activities
Net loss for the year (31,208,950) (14,633,467)
Adjustments to reconcile income for the year
to net cash used in operating activities:
Net change in fair value of financial assets
at fair value through profit or loss 3 29,934,397 12,982,283
Net decrease in other receivables 30,925 1,357,082
Net decrease in other payables (3,647,675) (41,953)
------------- -------------
Net cash used in operating activities (4,891,303) (336,055)
------------- -------------
Cash flows from investing activities
Purchase of financial assets at fair value through
profit or loss (1,655,154) (801,287)
Sale of financial assets at fair value through
profit or loss 6,422,778 -
------------- -------------
Net cash provided by/(used in) investing activities 4,767,624 (801,287)
------------- -------------
Cash flows from financing activities
Proceeds from shares issued 11 - 109,472
Net cash provided by financing activities - 109,472
------------- -------------
Net decrease in cash and cash equivalents (123,679) (1,027,870)
Cash and cash equivalents at the beginning of
the year 601,174 1,629,044
Cash and cash equivalents at the end of the
year 10 477,495 601,174
============= =============
Represented by:
Cash and cash equivalents 477,495 601,174
Cash and cash equivalents at the end of the
year 10 477,495 601,174
============= =============
.
NOTES TO THE FINANCIAL STAYEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
on 9 March 2010 in Guernsey under the Companies (Guernsey) Law,
2008 with registration number 51576. The Company is a registered
closed-ended investment scheme registered pursuant to the POI Law
and the Registered Collective Investment Scheme Rules 2008 issued
by the Guernsey Financial Services Commission ("GFSC"). On 28 April
2010 the Ordinary Shares and Subscription Shares of the Company
were admitted to the Official List of the UK Listing Authority and
to trading on the Main Market of the London Stock Exchange. The
Company's Ordinary and Subscription Shares were admitted to the
Premium Listing Segment of the Official List on 28 April 2010.
Effective 1 June 2012 the Subscription Shares were assigned to the
Standard Segment of the Official List.
The final exercise date for the Subscription Shares was 2 April
2013. No Subscription Shares were exercised at this time and all
Subscription Shares were subsequently cancelled.
The Company's portfolio is managed by Baker Steel Capital
Managers (Cayman) Limited (the "Manager"). The Manager has
appointed Baker Steel Capital Managers LLP (the "Investment
Manager") as the Investment Manager to carry out certain duties.
The Company's investment objective is to seek capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities, or related instruments, of natural
resources companies. The Company invests predominantly in unlisted
companies (i.e. those companies which have not yet made an Initial
Public Offering ("IPO")) and also in listed securities (including
special situations opportunities and less liquid securities) with a
view to exploiting value inherent in market inefficiencies and
pricing anomalies.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a historic cost
basis except for financial assets at fair value through profit or
loss, which are designated at fair value through profit or
loss.
The Company's functional currency is the Great Britain pound
sterling ("GBP"), being the currency in which its Ordinary Shares
and Subscription Shares are issued and in which returns are made to
shareholders. The presentation currency is the same as the
functional currency. The Company invests in companies around the
world whose shares are denominated in various currencies. Currently
the majority of the portfolio is denominated in US Dollars but this
will not necessarily remain the case as the portfolio develops.
The Statement of Comprehensive Income is presented in accordance
with the Statement of Recommended Practice ("SORP") 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' issued in January 2009 by the Association of Investment
Companies, to the extent that it does not conflict with
International Financial Reporting Standards as adopted by the
European Union ("IFRS").
Income encompasses both revenue and capital gains/losses. For a
listed investment company it is necessary to distinguish revenue
from capital for the purpose of determining the distribution.
Revenue includes items such as dividends, interests, fees, rent and
other equivalent items. Capital is the return, positive or
negative, from holding investments other than that part of the
return that is revenue. SORP provides guidance on the items that
should be recognised as capital/revenue. Where specific guidance is
not given an item is recognised in accordance with its economic
substance.
Statement of Compliance
These financial statements have been prepared in accordance with
IFRS as adopted by the European Union.
b) Significant accounting judgements and estimates
The preparation of the Company's financial statements requires
the Directors to make judgements, estimates and assumptions that
affect the amounts recognised in the financial statements. However,
uncertainty about these assumptions and estimates could result in
outcomes that could require a material adjustment to the carrying
amount of the asset or liability affected in the future. The most
significant judgement relates to the valuation of the Company's
unlisted investments which are valued by the Board at fair value in
accordance with IFRS having regard to such factors as they deem
relevant. This may include information received from market and
other sources as to trading on unofficial or "grey" markets
requiring a judgement on whether a particular transaction
represents fair value and the appropriate timing for recognising
fair value changes when information about a transaction is
incomplete or unclear. It may also include using industry specific
models which require judgement about the investee company's
resources, reserve estimates and associated operating and cost
projections. Judgement is also required regarding the long term
market prices for relevant commodities produced and comparison with
comparable transactions and listed company multiples.
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) Financial assets at fair value through profit or loss
The Company designates its investments, other than derivatives,
as at fair value through profit or loss, at initial recognition.
All derivatives are classified as held for trading and are included
in financial assets at fair value through profit or loss.
Recognition and derecognition
The Company recognises financial assets and financial
liabilities on the date it becomes a party to the contractual
provisions of the instruments. Routine purchases and sales of
investments are accounted for on the trade date.
Financial assets at fair value through profit or loss are
initially recognised at fair value. Transaction costs are expensed
in the Statement of Comprehensive Income. Subsequent to initial
recognition, all financial assets at fair value through profit or
loss are re-measured at fair value. Gains and losses arising from
changes in fair value are recognised in the Statement of
Comprehensive Income in the year in which they arise.
A financial asset is derecognised when the Company no longer has
control over the contractual rights that comprise that asset. This
occurs when the rights are realised, expired or are surrendered. A
financial liability is derecognised when it is extinguished or when
the obligation specified in the contract is discharged, cancelled
or expired.
Basis of designation of fair value
Designation of the investments in this way is consistent with
the Company's documented risk management policy and investment
strategy, and information about the investments is provided to the
Board on this basis.
After initial recognition, investments are measured at fair
value, with unrealised gains and losses on investments recognised
in the Statement of Comprehensive Income. Investments are
derecognised on sale. Gains and losses on sale of investments are
recognised in the Statement of Comprehensive Income.
Determination of fair value
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The fair value for financial instruments traded in active
markets at the reporting date is based on their last quoted price
or binding dealer price quotations (bid price for long positions
and ask price for short positions), without any deduction for
transaction costs.
For all other financial instruments not traded in an active
market, fair value is determined by using appropriate valuation
techniques. Valuation techniques include: using recent arm's length
market transactions; reference to the current market value of
another instrument that is substantially the same; discounted cash
flow analysis and option pricing models making as much use of
available and supportable market data as possible. An analysis of
fair values of financial instruments and further details as to how
they are measured are provided in Note 3.
d) Interest income and expense
Bank interest income, convertible debt instruments interest and
interest expense are recognised on an accruals basis based on the
effective interest method.
e) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position
comprise cash balances held at banks.
f) Expenses
All expenses are recognised on an accruals basis.
g) Translation of foreign currencies
Foreign currency transactions during the year are translated
into sterling at the rate of exchange ruling at the date of the
transaction. Assets and liabilities denominated in foreign
currencies are translated into sterling at the rate of exchange
ruling at the Statement of Financial Position date. Exchange
differences including those arising from adjustment to fair value
of financial instruments during the year, are included in the
Statement of Comprehensive Income.
h) Segment information
The Directors are of the opinion that the Company is engaged in
a single segment of business, being investing in natural resources
companies.
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
i) Net asset value per share
Net Asset Value per share disclosed on the face of the Statement
of Financial Position is calculated in accordance with the
Company's Prospectus by dividing the net assets of the Company on
the Statement of Financial Position date by the number of Ordinary
Shares outstanding at that date.
j) New accounting pronouncements
The following standards, amendments and interpretations are
effective for the current year:
IFRS 13 is effective for periods beginning on or after 1 January
2013, and has been adopted by the Company. The standard improves
consistency and reduces complexity by introducing a precise
definition of fair value and a single source of fair value
measurement and disclosure requirements for use across IFRS. The
requirements do not extend the use of fair value accounting but
provide guidance on how it should be applied where its use is
already required or permitted by other standards within IFRS. If an
asset or liability measured at fair value has a bid price and an
ask price, the standard requires valuation to be based on a price
within the bid-ask spread that is most representative of fair value
and allows the use of mid-market pricing or other pricing
conventions that are used by market participants as a practical
expedient for fair value measurement within a bid-ask spread. On
adoption of the standard the Company reviewed its valuation methods
for listed financial assets and liabilities and continues to use
last quoted prices where the Directors consider this represents
fair value, being the price for which shares can be sold. This is
consistent with the methods prescribed in the Company's offering
document for the calculation of its Net Asset Value. The use of
last traded prices is recognised as a standard pricing convention
within the industry and the Directors consider that it is,
generally, most representative of fair value. Last traded prices
may be adjusted, if appropriate, for various factors including
liquidity, bid-ask spread and credit considerations, where the
Directors consider this to be a better representation of fair
value. Such adjustments are generally based on available market
evidence. With respect to unlisted and unquoted investments, the
Directors consider that the adoption of IFRS 13 does not affect the
measurement of fair value which is further described in Note 3.
In December 2011, the IASB amended IFRS 7 'Financial
Instruments: Disclosures' to include offsetting requirements for
financial assets and liabilities. Simultaneously the IASB made
amendments to IAS 32 'Financial Instruments: Presentation' to
clarify the criteria for offsetting for entities and also to
address inconsistencies in their application. The amendments affect
all entities that have financial assets and liabilities that are
either (1) offset or (2) subject to an enforceable master netting
arrangement or similar agreement. This includes payables and
receivables, which may consist of broker balances, cash balances,
loans and customer deposits in the same institution. Entities will
be required to disclose both gross information and net information
about such derivative instruments to enable users of its financial
statements to understand the effect of those arrangements on its
financial position.
The amendments to IAS 32 are effective for annual periods
beginning on or after 1 January 2014, and interim periods within
those annual periods. These amendments are not expected to have a
significant impact on the Company's financial position or
performance.
The amendments to IFRS 7 are effective for annual periods
beginning on or after 1 January 2013, and interim periods within
those annual periods.
The Company has early adopted IFRS 10 'Consolidated financial
statements', IFRS 11 'Joint arrangements', IFRS 12 'Disclosure of
interests in other entities', IAS 27 (revised 2011) 'Separate
financial statements', IAS 28 (revised 2011) 'Investments in
associates and joint ventures' and the transition guidance
amendments to IFRS 10, 11 and 12, together with the Investment
Entities amendments to IFRS 10, IFRS 12 and IAS 27 (the "Investment
Entities Amendment") with effect from 1 August 2012.
IFRS 10 establishes principles for the presentation and
preparation of consolidated financial statements when an entity
controls one or more other entities. The Investment Entities
Amendment to IFRS 10 defines an investment entity and introduces an
exception from the consolidation requirements for investment
entities. On adoption of IFRS 10 and the Investment Entities
Amendment to IFRS 10, the Company has determined that it meets the
definition of an investment entity. These amendments have not had
any impact on the Company's financial position or performance.
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k) New accounting pronouncements not yet effective
At the date of authorisation of these financial statements, the
following standards and interpretations, which have not been
applied, were in issue but not yet effective:
IFRS 9, 'Financial Instruments' (effective date has been
tentatively set at 1 January 2018 by IASB): the IASB has issued
IFRS 9 as a first step in its project to replace IAS 39, 'Financial
Instruments recognition and measurements'. IFRS 9 introduces a new
requirement for classifying and measuring financial assets and
liabilities, including some hybrid contracts. The standard improves
and simplifies the approach for classification and measurement of
financial assets compared with the requirements of IAS 39. Most of
the requirements of IAS 39 for classification and measurement of
financial liabilities were carried forward unchanged. The standard
applies a constant approach to classifying financial assets and
replaces the numerous categories of financial assets in IAS 39,
each of which had its own classification criteria. The Company does
not expect the measurement and classification requirements to have
a significant impact on its financial statements.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Listed equity Convertible debt
31 December 2013 shares Unlisted equity shares instruments Warrants Total
GBP GBP GBP GBP GBP
Financial assets at fair
value through profit or
loss
Cost 23,391,498 28,192,871 8,533,524 - 60,117,893
Unrealised (loss)/gain (9,429,958) (10,794,264) 722,419 41,377 (19,460,426)
Market value at 31
December 2013 13,961,540 17,398,607 9,255,943 41,377 40,657,467
============= ====================== ========================== ======== =============
Listed equity Convertible debt
31 December 2012 shares Unlisted equity shares instruments Warrants Total
GBP GBP GBP GBP GBP
Financial assets at fair
value through profit or loss
Cost 24,353,651 31,100,605 8,882,577 - 64,336,833
Unrealised gain/(loss) 13,860,840 (3,127,836) 269,947 19,704 11,022,655
Market value at 31 December
2012 38,214,491 27,972,769 9,152,524 19,704 75,359,488
============= ====================== =========================== ======== ==========
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The following table analyses net (losses)/gains on financial
assets at fair value through profit or loss for the year ended 31
December 2013 and 31 December 2012.
Year ended Year ended
2013 2012
GBP GBP
Financial assets at fair value through profit
or loss
Realised gains on:
- Listed equity shares 296,988 -
- Unlisted equity shares 240,541 -
- Convertible debt instruments 11,155 -
------------- -------------
548,684 -
Movement in unrealised (losses)/gains on:
- Listed equity shares (23,290,798) (1,168,637)
- Unlisted equity shares (7,666,428) (17,031,439)
- Investments transferred from unlisted to
listed - 5,185,767
- Convertible debt instruments 452,472 213,434
- Warrants 21,673 (181,408)
------------- -------------
(30,483,081) (12,982,283)
Net loss on financial assets and liabilities
at fair value through profit or loss (29,934,397) (12,982,283)
============= =============
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2013.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at
fair value through
profit or loss
Listed equity shares 3,609,480 10,352,060 - 13,961,540
Unlisted equity shares - - 17,398,607 17,398,607
Warrants - - 41,377 41,377
Convertible debt instruments - - 9,255,943 9,255,943
------------- ------------------ ------------ -----------
3,609,480 10,352,060 26,695,927 40,657,467
============= ================== ============ ===========
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2012.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at
fair value through
profit or loss
Listed equity shares 4,560,241 33,654,250 - 38,214,491
Unlisted equity shares - - 28,107,083 28,107,083
Warrants - - 19,704 19,704
Convertible debt instruments - - 9,018,210 9,018,210
------------- ------------------ ------------ ----------
4,560,241 33,654,250 37,144,997 75,359,488
============= ================== ============ ==========
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in earnings attributable to
the change in unrealised gains or losses relating to assets and
liabilities held at 31 December 2013.
Convertible
debt
Total Equities instruments Warrants
GBP GBP GBP GBP
Opening balance 1 January
2013 37,144,997 28,107,083 9,018,210 19,704
Purchases of investments 256,669 - 256,669 -
Sales of investments (3,765,149) (3,282,586) (482,563) -
Change in net unrealised
(losses)/gains (7,192,286) (7,666,431) 452,472 21,673
Realised gains 251,696 240,541 11,155 -
------------- ------------- ------------ ---------
Closing balance 31 December
2013 26,695,927 17,398,607 9,255,943 41,377
============= ============= ============ =========
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in earnings attributable to
the change in unrealised gains or losses relating to assets and
liabilities held at 31 December 2012.
Convertible
debt
Total Equities instruments Warrants
GBP GBP GBP GBP
Opening balance 1 January
2012 79,407,912 71,249,134 7,957,666 201,112
Purchases of investments 1,069,914 222,803 847,111 -
Transfer out of Level
3 (15,347,517) (15,347,517) - -
Change in net unrealised
losses (27,985,313) (28,017,337) 213,432 (181,408)
Closing balance 31 December
2012 37,144,997 28,107,083 9,018,210 19,704
============= ============= ============ ==========
In determining an investment's position within the fair value
hierarchy, the Directors take into consideration the following
factors:
Investments whose values are based on quoted market prices in
active markets are classified within Level 1. These include listed
equities with observable market prices. The Directors do not adjust
the quoted price for such instruments, even in situations where the
Company holds a large position and a sale could reasonably impact
the quoted price.
Investments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer
quotations or alternative pricing sources supported by observable
inputs, are classified within Level 2. These include certain less
liquid listed equities. As Level 2 investments include positions
that are not traded in active markets and/or are subject to
transfer restrictions, valuations may be adjusted to reflect
illiquidity and/or non-transferability, which are generally based
on available market information. The Company held such investments
at 31 December 2013 amounting to GBP10,352,060 (31 December 2012:
GBP33,654,250).
Investments classified within Level 3 have significant
unobservable inputs. They include unlisted convertible debt
instruments, unlisted equity shares and warrants. Level 3
investments are valued using valuation techniques explained in the
Company's accounting policies. The inputs used by the Directors in
estimating the value of Level 3 investments include the original
transaction price, recent transactions in the same or similar
instruments if representative in volume and nature, completed or
pending third-party transactions in the underlying investment of
comparable issuers, subsequent rounds of financing,
recapitalisations and other transactions across the capital
structure, offerings in the equity or debt capital markets, and
changes in financial ratios or cash flows. Level 3 investments may
also be adjusted to reflect illiquidity and/or non-transferability,
with the amount of such discount estimated by the Directors in the
absence of market information.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The Company has not disclosed the fair values for financial
assets such as cash and cash equivalents and short-term receivables
and payables, because their carrying amounts are a reasonable
approximate of fair values.
Cash and cash equivalents include cash in hand, deposits held
with banks and other short-term investments in an active
market.
Other receivables include the contractual amounts for settlement
of trades and other obligations due to the Company. Amount due to
brokers, investment management fees payable, directors' fees
payable, audit fees payable, administration fees payable and other
payables represent the contractual amounts and obligations due by
the Company for settlement for trades and expenses.
Valuation methodology of Level 3 investments
Where an unquoted investment has been acquired during the past
six months it will be carried at cost unless there are changes or
events which suggest cost is not equivalent to fair value.
For each core unlisted investment, the Company maintains a
weighted average basket of listed companies which are comparable to
the investment in terms of commodity, stage of development and
location ("IndexVal"). IndexVal is used as an indication of how an
investment's share price might have moved had it been listed.
Movements in commodity prices are deemed to have been taken into
account by the movement of IndexVal.
The Investment Manager also prepares discounted cash flow models
for the Company's core investments annually and also for
significant new information and decision making purposes when
required. From these, Development Risk Adjusted Values ("DRAVs")
are derived. The computations are based on consensus forecasts for
long term commodity prices and investee company management
estimates of operating and capital costs. The Investment Manager
takes account of market, country and development risks in its
discount factors. The DRAVs are not a primary determinant of Fair
Value but is instead a tool that the Investment Manager uses to
evaluate potential investments as well as to provide underlying
valuation references for the Fair Value already established.
The valuation technique for Level 3 investments can be divided
into four groups:
i. Transactions
Where there have been transactions within the past 6 months
either through a capital raising by the investee company or known
secondary market transactions, representative in volume and nature
and conducted on an arm's length basis, then is taken as the
primary driver for valuing Level 3 investments.
ii. IndexVal
Where there have been no known transactions for 6 months, at the
Company's half year and year end, movements in IndexVal will
generally be taken into account in assessing Fair Value where there
has been at least a 10% movement in IndexVal over at least a six
month period. The IndexVal results are used as an indication of
trend and are viewed in the context of investee company
progress.
iii. Warrants
Warrants are valued using a simplified Black & Scholes model
taking into account time to expiry, exercise price and volatility.
Where there is no established market for the underlying shares an
assumed volatility of 40% is used.
iv. Convertible loans
Convertible loans are valued at par, taking into account credit
risk. When there is a clear path towards conditions for conversion
such as an IPO, the equity value of the investment on conversion is
taken into account when determining Fair Value.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Quantitative information of significant unobservable inputs -
Level 3
Unobservable Range (weighted
Description 2013 Valuation technique input average)
GBP
Transactions & Private transactions. n/a
Unlisted Equity 17,398,607 IndexVal Change in IndexVal
Convertible Debt Instruments
Valued at par with
Argentum Convertible reference to credit
& Polar Silver risk and value
Loan Notes 3,578,973 on conversion Credit Risk 0
Valued at par plus
interest accrued
with reference
Black Pearl Limited to credit risk
Partnership 5,449,451 and value on conversion Credit Risk 0
Other Convertible
Debentures/Loans 227,519 Valued at par Credit Risk 0
Simplified Black Volatilities
Warrants 41,377 & Scholes Model assumed 40%
Information on third party transactions in unlisted equities is
derived from the Investment Manager's market contacts. The change
in IndexVal for each particular unlisted equity is derived from the
weighted average movements of the individual baskets for that
equity so it is not possible to quantify the range of such inputs.
A sensitivity of 50% has been used in the analysis below as this
was the greatest amount that IndexVal moved for any single
investment during any six month period.
Sensitivityanalysis to significant changes in unobservable
inputs within Level 3 investments
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2013 are as shown below:
Description Input Sensitivity Effect on Fair
used* Value
Unlisted Equity Change in IndexVal 50% 8,699,304
Convertible Debt Instruments
Argentum Convertible
& Polar Silver
Loan Notes Credit Risk +20% -715,795
Black Pearl Limited
Partnership Credit Risk +20% -1,089,890
Other Convertible
Debentures/Loans Credit Risk +20% -44,504
Warrants Volatility of 40% assumed +/-20% +65,939 / -31,341
*The sensitivity analysis refers to a percentage amount added or
deducted from the input and the effect this has on the fair
value
4. NET ASSET VALUE PER SHARE AND EARNING PER SHARE
Basic net asset value per share is based on the net assets of
GBP40,990,705 (31 December 2012: GBP72,199,655) and 66,152,333 (31
December 2012: 66,152,333) Ordinary Shares, being the number of
shares in issue at the year end. The final exercise date for the
Subscription Shares was 2 April 2013. No Subscription Shares were
exercised at this time and all Subscription Shares were
subsequently cancelled. The Subscription Shares were entitled to be
converted to Ordinary Shares at 100p per share. The calculation for
basic net asset value is as below:
31 December 2013 31 December 2012
Ordinary Subscription Ordinary Subscription
Shares Shares Shares Shares
Net assets at the year end (GBP) 40,990,705 - 72,199,655 13,085,150
Number of shares 66,152,533 - 66,152,533 13,085,150
Basic net asset value per share
(in pence) 62.0 - 109.1 -
The basic expense per share for 2013 is based on the net loss
for the year of the Company of GBP31,208,950 and on 66,152,533
Ordinary Shares, being the weighted average number of Ordinary
Shares in issue during the year. As the Subscription Shares were
cancelled on 2 April 2013 no diluted calculation is required for
2013.
The basic and diluted expense per share for 2012 was based on
the net loss for the year of the Company of GBP14,633,467 and on
66,152,533 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year. In addition, the average
market share price during the year ended 31 December 2012 of 95.8p
was lower than the exercise price of 100p. For the year ended 31
December 2012, basic and diluted earnings per share were the same
due to the fact that the conversion of Subscription Shares to
Ordinary Shares would decrease the loss per share, hence
subscription shares are anti-dilutive. This calculation was
prepared in accordance with IFRS.
5. RISK MANAGEMENT POLICIES AND DISCLOSURES
The Company's principal financial instruments comprise financial
assets, primarily unlisted equity investments in natural resources
companies. These investments reflect the core of the Company's
investment strategy.
The Company's financial liabilities principally comprise fees
payable to various parties and arise directly from its
operations.
Risk exposures and responses
The Company manages its exposure to key financial risks in
accordance with the Company's financial risk management policy. The
objective of the policy is to support the delivery of the Company's
core investment objective whilst maintaining future financial
security. The main risks that could adversely affect the Company's
financial assets, or future cash flows are market risk (comprising
market price risk, currency risk and interest rate risk), commodity
price risk, liquidity risk and credit risk.
The Company's Board of Directors oversees the management of
financial risks, each of which is summarised below.
a) Market risk
Market risk is the risk that the fair value of a financial
instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: market price risk,
currency risk and interest rate risk.
i. Market price risk
Market price risk is the risk that the fair value of future cash
flows will fluctuate because of changes in the market prices of the
Company's investment portfolio.
The following illustrates the sensitivity of the income to an
increase or decrease of 10% in the fair value of the Company's
investment portfolio. The level of change is considered to be
reasonably possible based on observations of current market
conditions in 2013. The sensitivity analysis assumes all other
variables are held constant.
The impact of a 10% decrease in the value of investments on the
net assets and income of the Company as at 31 December 2013 would
have been a decrease of GBP4,065,747 (31 December 2012:
GBP7,535,949). An increase of 10% would increase the net asset
value by GBP4,065,747 (31 December 2012: GBP7,535,949). In
practice, the actual results may differ from the sensitivity
analysis above and the difference could be material.
5. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
Risk exposures and responses (continued)
ii. Currency risk
The majority of the Company's financial assets and liabilities
are denominated in US Dollars. The functional currency of the
Company is sterling. Currency risk is the risk that the value of
non-GBP denominated financial instruments will fluctuate due to
changes in foreign exchange rates. The table below shows the
currencies and amounts the Company was exposed to at 31 December
2013 and 31 December 2012.
31 December 2013
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 1,130,806 0.5399 610,481 1.49
CAD 23,388,725 0.5681 13,286,855 32.42
EUR (5,123) 1.2032 (6,164) (0.02)
GBP 2,888,426 1.0000 2,888,426 7.05
USD 40,115,383 0.6035 24,211,107 59.06
---------- ---------------
40,990,705 100.00
---------- ---------------
31 December 2012
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 2,035,452 0.6389 1,300,400 1.80
CAD 54,095,924 0.6175 33,402,613 46.26
EUR (9,958) 0.8113 (8,080) (0.01)
GBP (544,517) 1.0000 (544,517) (0.75)
USD 61,837,624 0.6153 38,049,240 52.70
---------- ---------------
72,199,656 100.00
---------- ---------------
At 31 December 2013 and 31 December 2012, had any foreign
currencies strengthened by 10% relative to sterling, with all other
variables held constant, total equity would have increased by the
amounts shown below.
2013 2012
Currency Value Value
GBP GBP
AUD 61,048 130,040
CAD 1,328,686 3,340,261
EUR (616) (808)
USD 2,421,111 3,804,924
3,810,229 7,274,417
--------- ---------
A 10% decrease in foreign currencies relative to sterling, with
all other variables held constant, would lead to a corresponding
decrease in the total equity by equal but opposite amounts as shown
in the above tables. The estimated movement is based on
management's determination of a reasonably possible change in
foreign exchange rates. In practice, the actual results may differ
from the sensitivity analysis above and the difference could be
material.
iii. Interest rate risk
Although the Company's interest-bearing financial assets and
liabilities expose it indirectly to risks associated with the
effects of fluctuations in the prevailing levels of market interest
rates on its financial position and cash flows, it is subject to
little direct exposure to interest rate fluctuations as the
majority of the financial assets are equity investments which do
not pay interest. Any excess cash and cash equivalents are invested
at short-term market interest rates which exposes the Company, to a
limited extent, to interest rate risk and corresponding
gains/losses from a change in the fair value of these financial
instruments.
5. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
Risk exposures and responses (continued)
iii. Interest rate risk (continued)
The table below summarises the Company's exposure to interest
rate risk. It includes the Company's assets and liabilities at fair
values, categorised by the earlier of contractual re-pricing or
maturity dates.
At 31 December 2013 Up to More than Non-interest
1 month 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 477,495 - - 477,495
Financial assets held at fair value through profit or loss - 8,755,007 31,902,460 40,657,467
Receivables - - 26,746 26,746
Total Assets 477,495 8,755,007 31,929,206 41,161,708
======== ========= ============ ===========
Liabilities
Other liabilities - - 171,003 171,003
Total Liabilities - - 171,003 171,003
======== ========= ============ ===========
Interest rate sensitivity gap 477,495 8,755,007
======== =========
At 31 December 2012 Up to More than Non-interest
1 month 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 601,174 - - 601,174
Financial assets held at fair value through profit or loss - 9,018,210 66,341,278 75,359,488
Receivables - - 57,671 57,671
Total Assets 601,174 9,018,210 66,398,949 76,018,333
======= ========= ============ ==========
Liabilities
Performance fees accrued - - 3,651,275 3,651,275
Other liabilities - - 167,403 167,403
Total Liabilities - - 3,818,678 3,818,678
======= ========= ============ ==========
Interest rate sensitivity gap 601,174 9,018,210
======= =========
Interest rate sensitivity
At 31 December 2013, should interest rates have fallen by 25
basis points with all other variables remaining constant, the
decrease in net assets attributable to holders of Ordinary Shares
for the year would amount to approximately GBP1,194 (2012:
GBP9,348) for assets up to 1 month respectively and GBP9,516 (2012:
GBP2,430) for assets more than 6 months respectively. If interest
rates had risen by 25 basis points it would have an equal but
opposite effect as the decrease.
The income on the Company's cash assets is positively correlated
to interest rates. As interest rates rise, the interest earned
would follow (rise) thus increasing the value of the Company.
The Board reviews and agrees policies for managing these risks.
The Investment Manager assesses the exposure to market risk when
making investment decisions and monitors the overall level of
market risk on the investment portfolio on an ongoing basis.
5. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
Risk exposures and responses (continued)
b) Commodity price risk
The Company is exposed to the risk of fluctuations in prevailing
market commodity prices through its investment portfolio. Commodity
price risk is beyond the Company's control but will be mitigated to
a certain extent as a result of the Company's diversified portfolio
as long as commodity prices remain uncorrelated. It is not possible
to quantify within reasonable ranges the impact of commodity price
changes on the valuation of the Company's investments. However, in
general long term commodity price increases should give rise to an
increase in fair value of the Company's investments.
c) Liquidity risk
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations on time or at a
reasonable price. The Company invests in unlisted equities for
which there may not be an immediate market. The Company seeks to
mitigate this risk by maintaining a cash and listed share position
which will cover its ongoing operational expenses.
The Company has the ability to incur borrowings of up to 10% of
its Net Asset Value but the Company's policy is to restrict any
such borrowings for temporary purposes only, such as settlement
mis-matches.
The table below analyses the Company's financial assets and
liabilities into relevant maturity groupings based on the remaining
period at the Statement of Financial Position date to the
contractual maturity date. The amounts in the table are the
contractual undiscounted cash flows.
At 31 December 2013 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 477,495 - - - - 477,495
Financial assets held at fair value
through profit
or loss - 16,753 5,591,757 3,688,810 31,360,147 40,657,467
Receivables 26,746 - - - - 26,746
--------- ---------- ----------- --------- -------------- --------------
Total Assets 504,241 16,753 5,591,757 3,688,810 31,360,147 41,161,708
========= ========== =========== ========= ============== ==============
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 91,968 40,410 38,625 - - 171,003
--------- ---------- ----------- --------- -------------- --------------
Total Liabilities 91,968 40,410 38,625 - - 171,003
========= ========== =========== ========= ============== ==============
Net assets attributable to shareholders 40,990,705
==============
5. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
Risk exposures and responses (continued)
c) Liquidity risk (continued)
At 31 December 2012 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 601,174 - - - 601,174
Financial assets held at fair value
through profit
or loss - - - 3,668,485 71,691,003 75,359,488
Receivables 57,671 - - - 57,671
--------- ---------- ----------- --------- -------------- ----------
Total Assets 658,845 - - 3,668,485 71,691,003 76,018,333
========= ========== =========== ========= ============== ==========
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 2,623,206 14,461 29,736 - 1,151,275 3,818,678
--------- ---------- ----------- --------- -------------- ----------
Total Liabilities 2,623,206 14,461 29,736 - 1,151,275 3,818,678
========= ========== =========== ========= ============== ==========
Net assets attributable to shareholders 72,199,655
==========
d) Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full as they fall due. The Company has exposure to
credit risk in relation to its cash balances, Convertible debt
instruments and trade receivables as stated in the Statement of
Financial Position.
As at 31 December 2013, the Company's financial assets were held
with the following weight:
Financial Assets Counterparty Credit 2013
Rating % of net assets
Convertible debt instruments
- Convertible Loan Note Black Pearl Limited Partnership NR 13.29
- Convertible Loan Note ZAO Argentum NR 7.51
- Convertible Loan Note Ironstone Resources Limited NR 0.35
- Convertible Loan Note Polar Silver Resources Limited NR 1.22
- Unsecured Convertible Debenture REBgold Corporation NR 0.21
Cash and cash equivalents HSBC Bank plc AA- 1.16
Total 23.74
===============
As at 31 December 2012, the Company's financial assets were held
with the following weight:
Financial Assets Counterparty Credit 2012
Rating % of net assets
Convertible debt instruments
- Convertible Loan Note Black Pearl Limited Partnership NR 6.80
- Convertible Loan Note ZAO Argentum NR 4.34
- Convertible Loan Note Bilboes Gold Limited NR 0.64
- Convertible Loan Note Polar Silver Resources Limited NR 0.71
Cash and cash equivalents HSBC Bank plc AA- 0.83
Total 13.32
===============
6. TAXATION
The Company is a Guernsey Exempt Company and is therefore not
subject to taxation on its income under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989. An annual exempt fee of GBP600
has been paid.
7. ADMINISTRATION FEES
The Administrator, HSBC Securities Services (Guernsey) Limited,
is paid fees for acting as administrator of the Company at the rate
of 7 basis points of gross asset value up to US$250 million; the
rate reduces to 5 basis points of gross asset value above US$250
million. The Administrator is also reimbursed by the Company for
reasonable out-of-pocket expenses. These fees accrue and are
calculated as at the last business day of each month and paid
monthly in arrears.
The Administrator is also entitled to a fee for its provision of
corporate secretarial services provided to the Company on a time
spent basis and subject to a minimum annual fee of GBP40,000. The
Company is also responsible for any sub-administration fees as
agreed in writing from time to time, and reasonable out-of-pocket
expenses. The Administrator is also entitled to fees of EUR5,000
for preparation of the financial statements of the Company.
The administration fees paid for the year ended 31 December 2013
were GBP94,618 (2012: GBP99,211) of which GBP13,671 (2012:
GBP7,889) was payable at 31 December 2013. HSBC Securities Services
(Ireland) Limited, the sub-Administrator, is paid a portion of
these fees by the Administrator.
8. MANAGEMENT AND PERFORMANCE FEES
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the "Management Agreement").
The Company pays to the Manager a management fee which is equal to
1/12th of 1.75 per cent of the total market capitalisation of the
Company per month. The management fee is calculated and accrued as
at the last business day of each month and is paid monthly in
arrears.
The Manager may in certain circumstances also be entitled to be
paid a performance fee if the Net Asset Value at the end of any
Performance Period exceeds the Hurdle as at the end of the
Performance Period. The Performance Period is each 12 month period
ending on 31 December in each year (the "Performance Period"). For
this purpose the "Hurdle" means an amount equal to the Issue Price
of GBP1 per Ordinary Share multiplied by the number of Shares in
issue as at Admission, as increased at a rate of 8 per cent per
annum compounded to the end of the relevant Performance Period. In
respect of any Performance Period which is less than a full 12
months, the Hurdle is applied pro rata. The performance fee is
subject to adjustments for any issue and/or repurchase of Ordinary
Shares.
The amount of the performance fee is 15 per cent of the total
increase in the Net Asset Value, if the Hurdle has been met, at the
end of the relevant Performance Period, over the highest previously
recorded Net Asset Value as at the end of a Performance Period in
respect of which a performance fee was last accrued, (or the Issue
Price multiplied by the number of shares in issue as at Admission,
if no performance fee has been so accrued) having made adjustments
for numbers of Ordinary Shares issued and/or repurchased as
described above. In addition, the performance fee will only become
payable if there have been sufficient net realised gains.
If the Company wishes to terminate the Management Agreement
without cause it is required to give the Manager 12 months' prior
notice or pay to the Manager an amount equal to: (a) the aggregate
investment management fee which would otherwise have been payable
during the 12 months following the date of such notice (such amount
to be calculated for the whole of such period by reference to the
Market Capitalisation prevailing on the Valuation Day on or
immediately prior to the date of such notice); and (b) any
performance fee accrued at the end of any Performance Period which
ended on or prior to termination and which remains unpaid at the
date of termination which shall be payable as soon as, and to the
extent that, sufficient cash or other liquid assets are available
to the Company (as determined in good faith by the Directors),
provided that such accrued performance fee shall be paid prior to
the Company making any new investment or settling any other
liabilities; and (c) where termination does not occur at 31
December in any year, any performance fee accrued at the date of
termination shall be payable as soon as and to the extent that
sufficient cash or other liquid assets are available to the Company
(as determined in good faith by the Directors), provided that such
accrued performance fee shall be paid prior to the Company making
any new investment or settling any other liabilities.
The performance fees accrued for the year ended 31 December 2013
were GBPNil (31 December 2012: GBPNil).
No further performance fee will be accrued or paid until the Net
Asset Value exceeds GBP87,704,481 (132.6p per share) as adjusted
for further issues and repurchases of shares.
The management fee for the year ending 31 December 2013 was
GBP740,205 (2012: GBP1,109,630) out of which GBP42,297 (2012:
GBP79,317) was outstanding at the year end.
2.
9. OTHER EXPENSES
2013 2012
TOTAL TOTAL
GBP GBP
Legal and professional fees 42,493 25,620
Brokerage fee 34,745 41,697
Marketing costs 30,855 32,557
Registrar fees 30,790 14,401
Board meeting expenses 17,990 12,767
Compliance fees 11,667 12,068
Listing fees 10,569 10,671
Consulting fees 10,000 34,836
Other regulatory fees 5,465 5,073
Guernsey regulatory fees 3,165 3,100
Website expenses 1,095 1,241
Insurance fees - 3,565
Miscellaneous expenses 11,358 16,048
--------
210,192 213,644
======== ========
10. CASH AND CASH EQUIVALENTS
2013 2012
GBP GBP
Deposits at HSBC Bank plc 477,495 601,174
======== ========
11. SHARE CAPITAL
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
The Company has a total of 66,142,533 Ordinary Shares in issue.
In addition, the Company has 10,000 Management Ordinary Shares in
issue, which are held by the Investment Manager.
The final exercise date for the Subscription Shares was 2 April
2013. No Subscription Shares were exercised at this time and all
Subscription Shares were subsequently cancelled.
The Ordinary Shares are currently admitted to the Premium
Listing segment of the Official List.
Holders of Ordinary Shares have the right to receive notice of
and to attend and vote at general meetings of the Company. Each
holder of Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll
each such holder of Ordinary Shares present in person or by proxy
will have one vote for each Ordinary Share held by him.
Holders of Management Ordinary Shares have the right to receive
notice of and to attend and vote at general meetings of the
Company, except that the holders of Management Ordinary Shares are
not entitled to vote on any resolution relating to certain specific
matters, including a material change to the Company's investment
objective, investment policy or borrowing policy. Each holder of
Management Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll
each such holder of Management Ordinary Shares present in person or
by proxy will have one vote for each Management Ordinary Share held
by him.
11. SHARE CAPITAL (CONTINUED)
Holders of Ordinary Shares and Management Ordinary Shares are
entitled to receive, and participate in, any dividends or other
distributions out of the profits of the Company available for
dividend and resolved to be distributed in respect of any
accounting period or other income or right to participate therein.
The Subscription Shares carried no right to any dividend or other
distribution by the Company.
The details of issued share capital of the Company are as
follows:
2013 2012
Issued and fully paid share capital
Ordinary Shares of no par value* 66,152,533 66,152,533
Subscription Shares of no par value - 13,085,150
=========== ===========
The issue of Ordinary Shares during the year ended 31 December
2013 took place as follows:
Subscription
Ordinary Shares Shares
Balance at 1 January 2013 66,152,533 13,085,150
Cancellation of Subscription Shares - (13,085,150)
Balance at 31 December 2013 66,152,533 -
================ =============
The issue of Ordinary Shares during the year ended 31 December
2012 took place as follows:
Subscription
Ordinary Shares Shares
Balance at 1 January 2012 66,043,061 13,194,622
Conversion of Subscription Shares 109,472 (109,472)
Balance at 31 December 2012 66,152,533 13,085,150
================ =============
* On 9 March 2010, 1 Management Ordinary Share was issued and on
26 March 2010, 9,999 Management Ordinary Shares were issued.
Capital Management
The Company regards capital as comprising its issued Ordinary
Shares. The Company does not have any debt that might be regarded
as capital. The Company's objectives in managing capital are:
-- To safeguard its ability to continue as a going concern and
provide returns to shareholders in the form of capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities or related instruments of natural
resources companies;
-- To allocate capital to those assets that the Directors
consider are most likely to provide the above returns; and
-- To manage, so far as is reasonably possible, the discount
between the Company's share price and its NAV per Ordinary
Share.
As described in the Directors' Report on page 11, the Company
does not currently intend to pay dividends or other distributions.
The Directors monitor the extent to which capital has been deployed
and the manner in which capital has been invested using, inter
alia, sectoral and geographic analyses. The Directors also consider
whether the Company should undertake further share issues or
arrange buy-backs or other capital management programmes consistent
with the above objectives although no such action has been taken so
far.
The Company has authority to make market purchases of up to
14.99% of its own Ordinary Shares in issue. A renewal of such
authority is sought from Shareholders at each Annual General
Meeting of the Company or at a General Meeting of the Company, if
required. Any purchases of Ordinary Shares will be made within
internal guidelines established from time to time by the Board and
within applicable regulations.
The Company is not subject to any externally imposed capital
requirements.
12. RELATED PARTY TRANSACTIONS
The Directors' interests in the share capital of the Company at
31 December 2013 were:
Number of
Ordinary Shares
Edward Flood 65,000
Christopher Sherwell 25,000
Clive Newall 25,000
The Directors' interests in the share capital of the Company at
31 December 2012 were:
Number of Number of
Ordinary Shares Subscription Shares
Edward Flood 65,000 13,000
Christopher Sherwell 25,000 5,000
Clive Newall 25,000 5,000
Mr Sherwell also has an indirect interest in the shares of the
Company through an investment in another fund managed by the
Manager.
The Manager, Baker Steel Capital Managers (Cayman) Limited, had
an interest in 504,832 Ordinary Shares at 31 December 2013.
The Investment Manager, Baker Steel Capital Managers LLP, had an
indirect interest in the Company through Ironman Investment Company
Limited, which during the period acquired 150,000 Ordinary Shares.
Ironman Investment Company Limited is a company set up by the
Investment Manager for co-investment purposes.
The Investment Manager, Baker Steel Capital Managers LLP, had an
interest in 10,000 Management Ordinary Shares at 31 December
2013.
13. SUBSEQUENT EVENTS
There is no subsequent event pertaining to year end.
14. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
The Annual Report and Audited Financial Statements for the year
end 31 December 2013 were approved by the Board of Directors on 15
April 2014.
GLOSSARY OF TERMS
4PE - Platinum, Palladium, Gold and Rhodium
CFRBSGF - CF Ruffer Baker Steel Gold Fund
DRAVs - Development Risk Adjusted Values
DRC -- Democratic Republic of Congo
GFSC - Guernsey Financial Services Commission
g/t - Grams per tonne
IFRS - International Financial Reporting Standards
IPO - Initial Public Offering (stock market launch)
JORC - AUSTRALASIAN JOINT ORE RESERVES COMMITTEE
The Code for Reporting of Mineral Resources and Ore Reserves
(the JORC Code) of the Australasian Joint Ore Reserves Committee
(JORC) is widely accepted as a standard for professional reporting
of mineral resources and ore reserves. Mineral resources are
classified as 'Inferred', 'Indicated' or 'Measured', while ore
reserves are either 'Probable' or 'Proven'.
MOz - million ounces
Mlb - million pounds
Mt - million tonnes
NI 43-101 - CANADIAN NATIONAL INSTRUMENT 43-101
Canadian National Instrument 43-101 is a mineral resource
classification instrument which dictates reporting and public
disclosure of information in Canada relating to mineral
properties.
PEA - Preliminary Economic Assessment
PGM - Platinum Group Metals - Platinum, Palladium, Rhodium,
Iridium, Ruthenium and Osmium
POI Law - Protection of Investors (Bailiwick of Guernsey) Law,
1987, as amended
ROM - Run of Mine - Uncrushed ore in its natural state
SORP - Statement of Recommended Practice
TSX - Toronto Stock Exchange
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR QKQDNQBKDOQD
Baker Steel Resources (LSE:BSRT)
Historical Stock Chart
From Jun 2024 to Jul 2024
Baker Steel Resources (LSE:BSRT)
Historical Stock Chart
From Jul 2023 to Jul 2024