TIDMBSRT
RNS Number : 6788V
Baker Steel Resources Trust Ltd
10 April 2019
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the
provisions of The Companies (Guernsey) Law, 2008 as amended)
10 April 2019
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
Annual Report and Audited Financial Statements
For the year ended 31 December 2018
The Company has today, in accordance with DTR 6.3.5, released
its Annual Audited Financial Report for the year ended 31 December
2018. The Report is available via www.bakersteelresourcestrust.com
and will shortly be submitted to the National Storage
Mechanism.
Further details of the Company and its investments are available
on the Company's website www.bakersteelresourcestrust.com
Enquiries:
Baker Steel Resources Trust Limited +44 20 7389 8237
Francis Johnstone
Trevor Steel
Numis Securities Limited +44 20 7260 1000
David Benda (Corporate)
James Glass (sales)
HSBC Securities Services (Guernsey) Limited
Company Secretary + 44 (0)1481 717 852
DIRECTORS: Howard Myles (Chairman)
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, GY1 3NF
Channel Islands
MANAGER: Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
INVESTMENT MANAGER: Baker Steel Capital Managers LLP*
34 Dover Street
London W1S 4NG
United Kingdom
STOCK BROKERS: Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
SOLICITORS TO THE COMPANY: Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London SE1 2AQ
United Kingdom
ADVOCATES TO THE COMPANY: Ogier
(as to Guernsey law) Redwood House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 1WA
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY: HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
* The Investment Manager was authorised as an Alternative
Investment Fund Manager ("AIFM") for the purpose of the Alternative
Investment Fund Managers Directive ("AIFMD") on 22 July 2014.
SUB-ADMINISTRATOR TO THE COMPANY: HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE COMPANY: HSBC Institutional Trust Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
SAFEKEEPING AND MONITORING AGENT: HSBC Institutional Trust Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
AUDITOR: BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter Port
Guernsey GY1 3LL
Channel Islands
REGISTRAR: Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey GY2 4LH
Channel Islands
UK PAYING AGENT AND TRANSFER AGENT: Link Asset Services (Holdings) Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
RECEIVING AGENT: Link Asset Services (Holdings) Limited
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
CHAIRMAN'S STATEMENT
For the year ended 31 December 2018
2018 was a year in which the recovery in the mining market
paused for breath. Commodity prices were generally weaker and the
market for mining shares followed suit with the EMIX Global Mining
Index down 5.9% over the year in Sterling terms. Against this
background, the Company increased its Net Asset Value by 0.2%,
largely due to the successful completion of the sale of our
investment in the Prognoz silver project to Polymetal International
plc.
This pause in the upward momentum has actually been welcome as
it has given the Investment Manager the opportunity to generate
opportunities to recycle the proceeds of the Prognoz sale. One of
the realities of investing in private companies is that it often
requires extensive legal and technical due diligence to be
undertaken and if an issue needs addressing before investment, this
can mean it can take several months and sometimes more than a year
before completion. The Investment Manager is currently working
actively on a number of new opportunities and since the year end
the Company has made follow-up investments in Futura Resources and
Anglo Saxony Mining as well as one new investment into Azarga
Metals.
Investing in mining has numerous technical risks but also
geo-political risk which can significantly diminish the value of an
otherwise profitable project. Political risk does not just mean the
risk of expropriation of a project by a rogue government of a
developing nation (which is in fact relatively rare and may be
reversed through international arbitration). Just as damaging can
be increasingly protracted timetables and licencing issues which
are at least as challenging in the developed world. For this
reason, the Company will continue to seek to diversify its
portfolio not just by way of commodity but also geographically as
well, and to seek high returns to compensate for the risks
involved.
As well as discovering new attractively priced propositions that
have not yet been identified by the wider market, investing in
private situations gives more opportunity to structure transactions
such as through the use of convertible debt which provides a
measure of downside protection whilst maintaining the upside.
Typically investment risk is reduced the closer the investment can
be to the revenue stream, a feature of royalties, and we will be
seeking to add attractively priced royalties to the portfolio,
particularly when exploration and reserve upside is considered to
be good. In 2018, the Company maintained an interest in the Prognoz
silver mine through Polar Acquisition Limited retaining a royalty.
In early 2019, the Company acquired a royalty over the coking coal
mines of Futura Resources and also received an option to acquire a
royalty over Azarga Metals' copper/silver project as part of a
financing agreement which included investment in a convertible
loan.
Notwithstanding that the current mining market environment is
attractive for investing in new mining opportunities, in 2015 the
Board introduced a capital returns policy whereby it will allocate
cash for distributions to shareholders calculated as being no less
than 15% of the aggregate net realised cash gains in the previous
financial year following audit. The sale of the majority of the
Company's interest in the Prognoz silver project provides the first
opportunity to deliver on this policy. Although the majority of the
proceeds are still held in Polymetal International plc shares, the
Board considers these to be sufficiently liquid as to be considered
as cash for the purposes of the policy.
Having considered the alternatives, the Board believes the
appropriate way to implement their policy is through a tender
offer. Shareholders will receive a tender offer document in May
2019 inviting them to vote on the details. These are likely to
include a tender of GBP4 - GBP5million representing approximately
25% of the realised gains on Prognoz during the year. The aim is to
make the exercise NAV enhancing and to ensure that shareholders who
do not take up the offer are not prejudiced. It will also provide a
useful liquidity point for shareholders who might otherwise find it
difficult to sell shares due to the low liquidity in the Company's
shares. The remaining 75% of the gains will be reinvested in
accordance with the Company's investment policy.
It is hoped that the opportunity to receive a direct share of
the proceeds of a successful realisation will encourage existing
shareholders to maintain their holdings in the Company and attract
new investors appreciative of the clear visibility of likely future
returns from its investment activities, which in turn may help
reduce the discount and improve share liquidity. In addition to the
capital returns policy, it is hoped that over time the income to be
received from royalties, interest on convertible loans and future
dividend payments received from investee companies can support a
regular dividend or liquidity event by the Company.
Taking into account the latest corporate governance
requirements, the Board has put in place a succession plan to
refresh its membership while maintaining a degree of continuity.
The first director who will step down is Mr Chris Sherwell who will
retire at this year's Annual General Meeting ("AGM"). As in
previous years all the directors, other than Mr Sherwell, will be
subject to re-election at the forthcoming AGM, as now required by
the UK Corporate Governance Code. I would like to thank Chris for
his significant contribution to the Company since formation. The
process to appoint a replacement for Chris is underway and is
expected to be completed before the AGM.
Howard Myles
Chairman
9 April 2019
INVESTMENT MANAGER'S REPORT
For the year ended 31 December 2018
Financial Performance
The audited undiluted Net Asset Value per Ordinary Share ("NAV")
as at 31 December 2018 was 56.9 pence, an increase of 0.2% in the
year but a decrease of 41.9% from the Company's first NAV
calculated on 30 April 2010. During the year the EMIX Global Mining
Index was down 5.9% (down 18.9% since 30 April 2010).
For the purpose of calculating the NAV per share, unquoted
investments are carried at fair value as at 31 December 2018 as
determined by the Directors and quoted investments are carried at
last quoted price as at 31 December 2018.
Net assets at 31 December 2018 comprised the following:
GBPm % net assets
Unquoted Investments 40.9 62.0
Quoted Investments 21.1 32.0
Cash and other net assets 4.0 6.0
------------- -----------------------
66.0 100.0
Investment Update
Largest 10 Holdings - 31 December 2018 % of NAV
Polymetal International Plc 28.9%
Bilboes Gold Limited 11.9%
Cemos Group Plc 10.5%
Futura Resources Limited (formerly Queensland
Coal Investment Holdings Ltd) 10.3%
Polar Acquisition Limited 9.3%
Sarmin Minerals Exploration (formerly Sarmin
Minerals Exploration Inc) 5.3%
Black Pearl Limited Partnership 4.2%
Nussir ASA 3.4%
Ivanhoe Mines Limited 2.3%
PRISM Diversified Limited (formerly Ironstone
Resources Limited) 2.2%
88.3%
Other Investments 5.7%
Cash and other net assets 6.0%
---------
100.0%
=========
Largest 10 Holdings - 31 December 2017 % of NAV
Polar Acquisition Limited 37.4%
Bilboes Gold Limited 12.6%
Ivanhoe Mines Limited 11.3%
Cemos Group Plc 9.1%
Metals Exploration Plc 6.8%
Sarmin Minerals Exploration Inc 4.5%
Queensland Coal Investment Holdings Ltd 4.4%
Black Pearl Limited Partnership 3.9%
Ironstone Resources Limited 3.8%
Nussir ASA 3.1%
---------
96.9%
Other Investments 1.8%
Cash and other net assets 1.3%
---------
100.0%
=========
Investment Update
At the year end, the Company was 94% invested, holding 16
investments of which the top 10 holdings comprised 88% of the
portfolio by value. The portfolio is well diversified both in terms
of commodity and the geographical location of the projects. In
terms of commodity the portfolio is concentrated on the large
liquid markets of gold, silver, metallurgical coal, potash, iron,
copper, platinum group metals and nickel. Its projects are located
in Australia, Canada, Democratic Republic of Congo, Germany,
Indonesia, Madagascar, Mongolia, Morocco, Norway, the Philippines,
Republic of Congo, Russia, South Africa and Zimbabwe.
During the first half of 2018, the mining market was flat and
then fell back in the second half with the EMIX Global Mining Index
down 5.9% over the year in Sterling terms. This reflected weaker
commodity prices with silver down 8.5%, gold down 1.6%, iron ore
down 1.5%, coking coal down 15.4% and copper down 17.5% during 2018
(all in US dollars).
The first half of 2018 saw the culmination of the two-year
reorganisation of the Company's indirect interest in the Tier 1
Prognoz silver project and its sale to Polymetal International Plc
("Polymetal"). This resulted in the Company holding Polymetal
shares whilst retaining an interest in the Prognoz project through
a 0.9%-1.8% net smelter royalty held by Polar Acquisition Limited
("PAL"). Overall the Company invested US$15.7 million in Prognoz,
and as at 31 December 2018 had realised US$14.1 million in cash and
held 2,324,000 Polymetal shares valued at US$24.3 million and 47.8%
of PAL valued at US$7.8 million.
Most of the Polymetal shares were initially subject to lock-up
and although the lock-up expired in October 2018, the Company has
retained the majority of the shares to retain exposure to the
market. Operationally, Polymetal has continued to perform well,
producing 1,562,000 gold equivalent ounces, exceeding its
production guidance for 2018 largely due to the ramp-up of its new
Kyzyl gold mine ahead of schedule. It also has a progressive
dividend policy whereby 50% of underlying earnings are paid out as
dividends resulting in a current dividend yield of approximately
4%. Notwithstanding the high concentration of Polymetal in the
portfolio is recognised and holding a large proportion of the
assets in quoted mining stocks does not fall strictly within the
Company's long term investment strategy. Polymetal is however
highly liquid and the shareholding will be sold down as and when
the Company requires funds for new investments or if the Investment
Manager believes that the shares in Polymetal have become
overvalued. Since the year end the shareholding in Polymetal has
been sold down such that it represented approximately 21.6% of NAV
as at 31 March 2019.
The Company's second largest investment, Bilboes Gold Limited
("Bilboes") completed a pre-feasibility study ("PFS") on its 4.8
million ounce Isabella-McCays-Bubi gold project in Matabeleland,
Zimbabwe during 2017. In 2018, Bilboes launched the definitive
feasibility study ("DFS"). Infill drilling and a pilot plant
programme were both completed successfully during the year and
detailed engineering and costing is currently in progress with the
aim of completing the DFS in mid-2019. It is anticipated that the
mine will initially produce approximately 100,000 ounces of gold
per annum from the Isabella and McCays pits, increasing to 200,000
ounces per annum once the Bubi pit is brought into production. The
PFS forecast average cash costs for the twelve year mine life of
US$703/ounce gold with the economic model giving an NPV (10%) of
US$167 million with an internal rate of return of 34%.
In December 2017 and February 2018, the Company made its first
significant new investment for some time with the investment of
A$10 million in convertible loan notes in Futura Resources Limited.
Futura owns the Wilton and Fairhill coking coal projects in the
Bowen Basin in Queensland, Australia, which is well known for its
high quality coking coal mines. In May 2018 it was announced that
Japanese trading house Sojitz Corporation ("Sojitz") had agreed to
acquire the nearby Gregory Crinum mine. This was an important
milestone for Futura as it has an in principle agreement with
Sojitz to process coal produced by Wilton and Fairhill through the
coal washing plant at Gregory Crinum which will allow Futura to
commence production from Wilton during 2019. Production from
Fairhill is then scheduled to commence in 2020 with aggregate coal
production ramping-up to a targeted sustainable level of 2.5
million tonnes of coal per annum of saleable processed coal by
2021/2 for at least 25 years. Following the year end the Company
acquired a 0.75% Gross Revenue Royalty ("GRR") on
production from Wilton and Fairhill for A$6 million, together
with the option to acquire an additional 0.25% GRR for a further
A$2 million.
During 2018, CEMOS Group Plc completed the construction of a
cement plant at its Tarfaya project in Morocco albeit delayed by
six months. The cement plant commenced production in December 2018
and reported a positive reception by its customers to the quality
of cement being produced. At full capacity for the initial Phase 1,
targeted to be achieved by the end of 2019, the operation is
anticipated to generate over EUR10m in EBITDA per annum.
In September 2018, Sarmin completed a PFS on the Kanga potash
project, which is located 50km from Pointe-Noire in the Republic of
the Congo (Brazzaville). The PFS adopted a phased approach to the
development of Kanga employing solution mining, which will commence
with a 400,000 tonne per annum operation with a peak capital cost
of US$410 million, rising to 2.4 million tonnes per annum with
further capex. The exceptional mining widths of over 210 metres
should result in one of the lowest operating costs per tonne
globally with a forecast FOB cost per tonne of Muriate of Potash
("MOP") of US$53/tonne at full production. Sarmin is currently
marketing the project with a view to bringing in a development
partner or an outright sale
The main disappointment in the portfolio has been the
performance of Metals Exploration plc's Runruno gold mine in the
Philippines which produced a total of 46,000 ounces of gold during
the year against a target of approximately 100,000 ounces of gold.
A new Chief Executive was appointed at the beginning of 2019, who
has refreshed the operating team at the mine and it remains to be
seen if it will be able to turn the mine around and achieve the
desired production level.
During the year the Company also invested GBP1 million in a
convertible loan to Anglo Saxony Mining Limited ("ASM"), which
holds the rights to a previously producing tin mine in Germany.
This investment funded a metallurgical testwork programme to
demonstrate whether a saleable concentrate could be produced from
the mine. This programme was successful which led to the Company
triggering its option to subscribe for a further GBP1 million
convertible loan to ASM in February 2019 and will be used to fund a
Pre-Feasibility Study ("PFS") into the project.
Elsewhere in the portfolio Nussir is well advanced with the
definitive feasibility study ("DFS") on its Nussir/Ulveryggen
copper project in Norway following the positive pre-feasibility
study at the end of 2016 and the award of its Mining Licence in
February 2019. The Definitive Feasibility Study is expected to be
completed in the third quarter of 2019. In the iron ore sector,
Black Pearl continued discussions in China regarding the use of its
mine as the basis for a new steel plant in Indonesia and Ironstone
continued its policy of moving away from a pure iron ore developer
towards a greater focus on process and technology innovation.
Ivanhoe Mines has continued to record excellent drilling results
from it Kamoa-Kakula project in the Democratic Republic of Congo
and in early 2019 announced a positive PFS for a 6 million tonne
per year mine at Kakula together with an updated preliminary
economic assessment for an expanded Kakula-Kamoa operation at a
rate of 18 million tonnes per year.
The outlook for mining and metals continues to be uncertain with
the limited recovery seen in 2016 and 2017 seemingly having paused
in 2018. This has constrained the number of new mines being brought
into production and correspondingly the amount of exploration to
discover and define new ore bodies. The limited amount of capital
prepared to invest in mining has provided the Company with some
excellent opportunities to recycle the proceeds from the sale of
Prognoz into attractive projects at realistic prices using
structures that give some downside protection. Since the year end
the Company has acquired the royalty in the Futura mines, increased
its convertible loan in Anglo Saxony Mining and agreed to invest in
a convertible loan in Azarga Metals, which has a copper/silver
project in Russia. The Investment Manager is currently
investigating a number of other advanced opportunities.
Further details of each of these investments and the Company's
other significant holdings are provided below.
Description of Largest Investments at 31 December 2018
Polymetal International plc ("Polymetal")
Polymetal is a leading precious metals mining group operating in
Russia and Kazakhstan listed on the London Stock Exchange and
Moscow Stock Exchange. The company is a member of FTSE 250, FTSE
Gold Mines and MSCI Russia. Polymetal has a portfolio of nine
producing gold and silver mines which in 2018 produced 1,562,000
gold equivalent ounces and a pipeline of future growth
projects.
Bilboes Gold Limited ("Bilboes")
Bilboes is a private Zimbabwean based gold mining company which
has a JORC compliant Indicated Mineral Resources of 48 million
tonnes grading 2.42 g/t gold and an Inferred Mineral Resource of
10.6 million tonnes grading 2.55 g/t gold containing 3.7 million
ounces of gold and a further 1.1 million ounces in Inferred Mineral
Resources. A positive pre-feasibility study into a mine producing
up to 200,000 ounces per annum was completed in 2017, and a
definitive feasibility is due for completion mid-2019.
Futura Resources Ltd (formerly Queensland Coal Investment
Holdings Limited) ("Futura")
Futura owns the Wilton and Fairhill coking coal projects in the
Bowen Basin in Queensland, Australia which hold Measured and
Indicated resources of 843 million tonnes of coal. Production is
targeted to commence at Wilton in 2019 and at Fairhill in 2020, for
a targeted combined sustainable level of 2.5 million tonnes of coal
per annum of saleable processed coal by 2021/2 for at least 25
years.
Cemos Group plc ("Cemos")
Cemos is a private cement producer and oil shale explorer and
developer whose key asset is the Tarfaya project in Morocco
containing JORC compliant measured resources of 308 million barrels
of shale oil. As a first step for development, Cemos completed the
construction of a cement plant at Tarfaya in December 2018 with a
capacity of up to 270,000 tonnes cement per annum.
Polar Acquisition Limited ("PAL")
PAL is a private company which holds a 0.9% to 1.8% royalty over
the Prognoz silver project ("Prognoz"), 444km north of Yakutsk in
Russia, owned by Polymetal. Prognoz has a 256 million ounce silver
equivalent Indicated and Inferred Mineral Resource at a grade of
789 g/t silver equivalent. A pre-feasibility study is being
undertaken by Polymetal International plc and is expected to be
completed in the first half of 2020.
Sarmin Minerals Exploration Inc ("Sarmin")
Sarmin is a private company which holds the Kanga potash
project, in the Republic of the Congo which has an Indicated
Mineral Resource of 4,730 million tonnes grading 17.1% Potassium
Chloride ("KCl") containing 810 million tonnes KCl and an Inferred
Mineral Resource of 7,160 million tonnes grading 16.7% KCl
containing 1,197 million tonnes KCl. A positive pre-feasibility
study, completed in September 2018 outlined a phased project
employing solution mining, which will commence with a 400,000 tonne
KCl per annum operation with a peak capital cost of US$410 million,
rising to 2.4 million KCl tonnes per annum with further capex.
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 hectares of
which 1,600 hectares has been drilled. JORC compliant Mineral
Resources stand at 572 million tonnes grading 10% Fe. Due to mining
regulations brought into force in January 2014, the future for the
project requires the further beneficiation of the product within
Indonesia. Negotiations are ongoing for the Black Pearl project to
form the base production for an integrated steel production
facility.
PRISM Consolidated Limited ("PRISM")
PRISM is a private Canadian company which owns the Clear Hills
Iron Ore/Vanadium Project ("Clear Hills") in Alberta, Canada. Clear
Hills currently has Indicated Resources of 557.7 million tonnes at
33.3% iron and 0.2% vanadium and an Inferred Resource of 94.7
million tonnes at 34.1% iron.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the
Nussir and Ulveryggen copper project in Northern Norway. A JORC
compliant report estimated Indicated Mineral Resources at 21.3
million tonnes grading 1.14% copper containing 243,000 tonnes of
copper. The resource statement also included 574,000 million tonnes
of copper in Inferred Mineral Resources providing combined
contained copper of 817,000 tonnes. A pre-feasibility study into a
mine producing up to 20,000 tonnes of copper per annum was
completed at the end of 2016 with a definitive feasibility study
due in the second half of 2019.
Ivanhoe Mines Limited ("Ivanhoe")
Ivanhoe is a company listed on the Toronto Stock Exchange which
holds the Kamoa-Kakula copper project (39.6% owned) and Kipushi
zinc mine (68% owned) both in the Democratic Republic of Congo
("DRC") and the Platreef nickel, platinum, palladium, copper and
gold project (64% owned) in South Africa.
Metals Exploration plc ("Metals Exploration")
Metals Exploration is an AIM listed company which owns the
Runruno gold mine in the Philippines. The Runruno mine produced
46,000 ounces of gold in 2018 and is in the process of ramping up
towards full production of approximately 100,000 ounces of gold per
annum.
Baker Steel Capital Managers LLP
Investment Manager
PORTFOLIO STATEMENT
AS AT 31 DECEMBER 2018
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Listed equity shares
Canadian Dollars
1,115,000 Ivanhoe Mines Limited 1,519,301 2.30
Canadian Dollars Total 1,519,301 2.30
--------------- ---------
Great Britain Pounds
122,760,000 Metals Exploration Plc 491,040 0.74
2,324,000 Polymetal International Plc 19,103,280 28.93
Great Britain Pounds Total 19,594,320 29.67
--------------- ---------
Total investment in listed equity
shares 21,113,621 31.97
--------------- ---------
Debt Instruments
Australian Dollars
Indian Pacific Resources Limited Convertible
200,000 Loan Note 180,880 0.27
Futura Resources Limited Convertible
200 Loan Note 6,792,319 10.29
Australian Dollars Total 6,973,199 10.56
--------------- ---------
Canadian Dollars
PRISM Diversified Limited Loan Note
250,500 31/12/2018 295,870 0.45
125,000 PRISM Diversified Limited Loan Note 43,660 0.07
Canadian Dollars Total 339,530 0.52
--------------- ---------
Euro
807 Cemos Group Plc Convertible Loan Note 3,632,962 5.50
Euro Total 3,632,962 5.50
--------------- ---------
Great Britain Pounds
Anglo Saxony Mining Limited Convertible
1,000,000 Loan Note 1,007,756 1.53
Great Britain Pounds Total 1,007,756 1.53
--------------- ---------
United States Dollars
Bilboes Holdings Convertible Loan
440,000 Note 946,353 1.43
220,000 Bilboes Holdings Loan Note 168,781 0.26
Black Pearl Limited Partnership Loan
7,009,332 Note 2,749,620 4.16
United States Dollars Total 3,864,754 5.85
--------------- ---------
Total investments in debt instruments 15,818,201 23.96
--------------- ---------
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Unlisted equity shares and warrants
Australian Dollars
20,011,015 Indian Pacific Resources Limited 193,642 0.29
Australian Dollars Total 193,642 0.29
--------------- ---------
Canadian Dollars
PRISM Diversified Limited Warrants
1,000,000 31/12/2023 30,044 0.05
13,083,936 PRISM Diversified Limited 1,474,399 2.23
Canadian Dollars Total 1,504,443 2.28
--------------- ---------
Great Britain Pounds
2,000,000 Anglo Saxony Mining Limited 200,000 0.30
1,594,646 Celadon Mining Limited 15,947 0.02
24,004,167 Cemos Group Plc 3,324,577 5.04
Great Britain Pounds Total 3,540,524 5.36
--------------- ---------
Norwegian Krone
12,267,628 Nussir ASA 2,220,894 3.36
Norwegian Krone Total 2,220,894 3.36
--------------- ---------
United States Dollars
17,151,567 Archipelago Metals Limited - -
451,445 Bilboes Gold Limited 7,880,630 11.94
4,244,550 Gobi Coal & Energy Limited 66,602 0.10
1,000,000 Midway Resources International 39,228 0.06
15,531 Polar Acquisition Limited 6,163,793 9.34
55,419 Sarmin Minerals Exploration 3,478,362 5.27
United States Dollars Total 17,628,615 26.71
--------------- ---------
Total Unlisted equity shares and warrants 25,088,118 38.00
--------------- ---------
Financial assets held at fair value
through profit or loss 62,019,940 93.93
--------------- ---------
Other Assets & Liabilities 4,007,844 6.07
--------------- ---------
Total Equity 66,027,784 100.00
--------------- ---------
STRATEGIC REPORT
Company Structure
The Company is a registered closed-ended investment scheme
registered pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended ("POI Law") and the Registered
Collective Investment Scheme Rules 2018 issued by the Guernsey
Financial Services Commission ("GFSC"). The Company is not
authorised or regulated as a collective investment scheme by the
Financial Conduct Authority. The Company is subject to the Listing
Rules and the Disclosure and Transparency Rules of the UK Listing
Authority. The Articles of the Company contain provisions as to the
life of the Company. At the Annual General Meeting ("AGM") falling
in 2018 and at each third AGM convened by the Board thereafter, the
Board will propose a special resolution to discontinue (the
Company) which if passed will require the Directors, within 6
months of the passing of the special resolution, to submit
proposals to shareholders that will provide shareholders with an
opportunity to realise the value of their Ordinary Shares.
Shareholders voted against discontinuing the Company at the 2018
AGM, the next discontinuation vote will be held in 2021.
Role and Composition of the Board
The Board is the Company's governing body; it sets the Company's
strategy and is collectively responsible to shareholders for its
long-term success. The Board, which is comprised entirely of
independent Non-Executive Directors, is responsible for appointing
and subsequently monitoring the activities of the Manager and other
service providers to ensure that the investment objectives of the
Company continue to be met. The Board also ensures that the Manager
adheres to the investment restrictions described in the Company's
Prospectus and acts within the parameters set by it in any other
respect. It also identifies and monitors the key risks facing the
Company.
Investment activities are predominantly monitored through
quarterly Board meetings at which the Board receives detailed
reports and updates from the Investment Manager, who attends each
Board meeting. Services from other key service providers are
reviewed as appropriate.
Subject to meeting solvency requirements, if the Ordinary Shares
trade at a discount in excess of 15 per cent to their NAV, the
Board will consider whether the Company should buy back its own
Ordinary Shares, taking into account conditions in the stock market
and mining markets.
The Board continues to review the Company's ongoing charges to
ensure that the total costs incurred by shareholders in the running
of the Company remain competitive when measured against peers. An
analysis of the Company's costs, including management fees (which
are based on the market capitalisation of the Company), Directors'
fees and general expenses, is submitted to each Board meeting.
As at 31 December 2018, the Board comprised of four Directors
(2017: four Directors).
Investment Management
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the Management Agreement).
Under the Management Agreement, the Manager acts as manager of the
Company, subject to the overall control and supervision of the
Directors and was authorised to appoint the Investment Manager to
manage and invest the assets of the Company. The Manager is
responsible for the payment of the fees of the Investment Manager.
The Manager is a company incorporated in the Cayman Islands on 10
April 2002 with registration number 117030 and is an affiliate of
the Investment Manager.
Baker Steel Capital Managers LLP acts as Investment Manager of
the Company and was incorporated in England and Wales on 19
December 2001. It is authorised and regulated by the Financial
Conduct Authority in the United Kingdom. The Investment Manager is
a limited liability partnership with registration number OC301191
and is an affiliate of the Manager. The Investment Manager has been
appointed by the Company to act as its Alternative Investment Fund
Manager ("AIFM") and is responsible for the portfolio management
and risk management of the Company. The Investment Manager manages
the Company in accordance with the Alternative Investment Fund
Managers Directives ("AIFMD"). The Investment Manager is a
specialist natural resources asset management and advisory firm
operating from its head office in London and its branch office in
Sydney. It has an experienced team of fund managers covering the
precious metals, base metals and minerals sectors worldwide, both
in relation to commodity equities and the commodities
themselves.
The Directors formally review the performance of the Investment
Manager on an annual basis and remain satisfied that the Investment
Manager has the appropriate resources and expertise to manage the
portfolio of the Company in the best interests of the Company and
its shareholders.
Investment Objective
The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting
principally of the equities, loans or related instruments of
natural resources companies. The Company invests predominantly in
unlisted companies [i.e. those companies that have not yet made an
initial public offering ("IPO")] but also in listed securities
(including special situations opportunities and less liquid
securities) with a view to making attractive investment returns
through uplift in value resulting from the development progression
of the investee companies' projects and through exploiting value
inherent in market inefficiencies and pricing anomalies.
Investment Policy
The core of the Company's strategy is to invest in natural
resources companies, predominantly unlisted, that the Investment
Manager considers to be undervalued and that have strong
fundamentals and attractive growth prospects. Natural resources
companies, for the purposes of the investment policy, are those
involved in the exploration for and production of base metals,
precious metals, bulk commodities, thermal and metallurgical coals,
industrial minerals, energy and uranium, and include single-asset
as well as diversified natural resources companies.
It is intended that unlisted investments be realised through an
IPO, trade sale, management repurchase or other methods.
The Company focuses primarily on making investments in companies
with producing and/or tangible assets such as resources and
reserves that have been verified under internationally recognised
standards for reporting, such as those of the Australasian Joint
Ore Reserves Committee ("JORC"). The Company may also invest from
time to time in exploration companies whose activities are
speculative by nature.
The Company has flexibility to invest in a wide range of
investments in addition to unlisted and listed equities and
equity-related securities, including but not limited to
commodities, convertible bonds, debt securities, royalties,
options, warrants and futures. Derivatives may be used for
efficient portfolio management, hedging and for the purposes of
obtaining investment exposure. The Company may also have exposure
from time to time to other companies within the wider resources and
materials sector, including services companies, transport and
infrastructure companies, utilities and downstream processing
companies.
The Company may take legal or management control of a company
from time to time. The Company may invest in other investment funds
or vehicles, including any managed by the Manager or Investment
Manager, where such investment would be complementary to the
Company's investment objective and policy.
Borrowing and Leverage
The Company may, at the discretion of the Investment Manager,
and within limits set by the Board, incur leverage for liquidity
purposes by borrowing funds from banks, broker-dealers or other
financial institutions or entities. The costs of leverage will
affect the operating results of the Company.
During the current and prior year, no leverage was used by the
Company.
Investment Restrictions
There are no fixed limits on the allocation between unlisted and
listed equities or equity-related securities and cash although, as
a guideline, typically the Investment Manager will aim for the
Company to be invested over the long-term as follows:
-- between 40 and 100 per cent of the value of its gross assets
in unlisted equities or equity-related securities;
-- up to 50 per cent of the value of its gross assets in listed
equities or equity-related securities;
-- up to 10 per cent of the value of its gross assets in cash or cash-like holdings; and
-- typically in 10 to 20 core positions to provide adequate
diversification whilst retaining a focused core approach. Core
positions will be between 5 per cent and 15 per cent of NAV as at
the date of acquisition.
The actual percentage of the Company's gross assets invested in
listed and unlisted equities and equity-related securities and cash
and cash-like holdings and the number of positions held may fall
outside these ranges from time to time. For example, listed
securities might exceed the above guideline following a significant
number of IPOs or in certain market conditions and likewise cash
balances may exceed the above guideline following the realisation
of one or more investments or following the issue of new equity in
the Company, pending investment of the proceeds.
The investment policy has the following limits:
-- Save in respect of cash and cash-like holdings awaiting
investment, and except as set out below, the Company will invest or
lend no more than 20 per cent in aggregate of the value of its
gross assets in or to any one particular company or group of
companies, as at the date of the relevant transaction.
-- The Company's investment in Polar Silver Resources Limited
and/or any company within its group (the Polar Silver Group) may
exceed the limit set out above provided that the Company will not
invest or lend more than 35 per cent in aggregate of the value of
its gross assets in the Polar Silver Group as at the date of the
relevant transaction.
-- No more than 10 per cent in aggregate of the value of the
gross assets of the Company may be invested in other listed
closed-ended investment funds, except for those which themselves
have stated investment strategies to invest no more than 15 per
cent of their gross assets in other listed closed-ended investment
funds.
Where derivatives are used for investment exposure, these limits
will be applied in respect of the investment exposures so
obtained.
The Company will avoid (a) cross-financing between the
businesses forming part of its investment portfolio and (b) the
operation of common treasury functions between it and the investee
companies. When deemed appropriate, the Company may borrow up to 10
per cent of NAV for temporary purposes such as settlement of
mis-matches. Borrowings will not however be incurred for the
purposes of any Share repurchases. 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. In
the event of any breach of the investment restrictions the
Investment Manager would report the breach to the Board and
shareholders would be informed of any corrective action required.
No breaches of investment restrictions occurred during the year
ended 31 December 2018.
Performance
The Company monitors NAV as a key performance indicator. An
outline of performance, market background, investment activity and
portfolio strategy during the year under review, as well as
outlook, is provided in the Chairman's Statement on page 3 and the
Investment Manager's Report on pages 4 to 7.
Principal risks and uncertainties
A summary of the principal risks and uncertainties faced by the
Company is set out below. These have remained unchanged throughout
the year.
Market and financial risks
Market risk arises from volatility in the prices of the
Company's underlying investments which, in view of the Company's
investment policy, are in turn particularly sensitive to commodity
prices. Market risk represents the potential loss the Company might
suffer through holding investments in the face of negative market
movements. The Board has set investment restrictions and guidelines
to help mitigate this risk. These are monitored and reported on by
the Investment Manager on a regular basis. Further details are
disclosed in note 4 on pages 45 to 51.
The Company's investment activities also expose it to a variety
of financial risks including in particular foreign currency risk.
The foreign exchange risk can be affected by Brexit, but the impact
of Brexit, hard or soft, is not quantifiable at the time of
publication of these financial statements. A sensitivity to foreign
exchange is presented on pages 46 to 47.
Portfolio management and Performance risks
The Board is responsible for determining the investment strategy
to allow the Company to fulfil its objectives and also for
monitoring the performance of the Investment Manager which has been
delegated day to day discretionary management of the Company's
portfolio. An inappropriate strategy may lead to poor performance.
The investment policy of the Company allows for a highly focused
portfolio which can lead to a concentration of risk. To manage this
risk the Investment Manager provides to the Board, on an ongoing
basis, an explanation of the significant stock selection
recommendations and the rationale for the composition of the
investment portfolio. The Board mandates and monitors an adequate
diversification of investments, both geographically and by
commodity, in order to reduce the risks associated with particular
sectors, based on the diversification requirements inherent in the
Company's investment policy.
The Company invests in companies whose projects are located in
emerging markets. In such countries governments can exercise
substantial influence over the private sector and political risk
can be a significant factor. In adverse social and political
circumstances, governments have been involved in policies of
expropriation, confiscatory taxation, nationalisation, intervention
in the securities markets and imposition of foreign exchange
controls and investment restrictions. The Investment Manager and
the Board take into account specific political risks when entering
into an investment and seek to mitigate them by diversifying
geographically.
The Company's ability to implement its investment policy depends
on the Investment Manager's ability to identify, analyse and invest
in investments that meet the Company's investment criteria. Failure
by the Investment Manager to find additional investment
opportunities meeting the Company's investment objectives and to
manage investments effectively could have a material adverse effect
on the Company's business, financial condition, and results of
operations. The Company has no employees and, subject to oversight
by the Board, is reliant on the Investment Manager, which has
significant discretion as to the implementation of the Company's
operating policies and strategies. The Company is subject to the
risk that the Investment Manager will cease to be involved in the
management of any part of the Company's assets and that no suitable
replacement will be found. The Board regularly monitors the
performance of the Investment Manager and the Company's NAV
performance.
There is the risk that the market capitalisation of the Company
(on which the Investment Manager's fee is calculated) falls to such
extent that it will no longer be viable for the Investment Manager
to provide the services that it currently provides.
Risk of a vote to wind-up the Company
The Articles contain provisions for a special resolution of
shareholders at the AGM in 2018 and every three years thereafter on
whether to discontinue the Company. Should there be a catastrophic
loss of value in the Company's assets, possibly as a result of the
risks above, or merely a change in sentiment towards the mining
sector generally by a sufficient proportion of investors, there is
the risk of shareholders voting to wind-up the Company at that
time. Because the Company's investments are largely unlisted it
could then take a protracted amount of time to realise them or they
may need to be sold at a discount to Fair Value if an accelerated
timetable is required.
The Board has conducted sensitivity tests of future income and
expenditure and the ability to realise assets should assets fall in
value by over 50% by 2021. The Board has selected 2021 as the
appropriate timeframe to conduct the analysis as this is when the
next discontinuation vote will take place. To understand the
requirements of the Company's major shareholders, the Investment
Manager regularly liaises with the Company's broker and meets major
shareholders. The Chairman is also available to meet with
shareholders as required.
In the event of a winding up of the Company, Shareholders will
rank behind any creditors of the Company.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code, published by the Financial Reporting Council
("FRC") in September 2014 (the "UK Code"), the Directors have
assessed the prospects of the Company over 3 years, being the
period until the discontinuation vote at the AGM in 2021 and one
year thereafter. The Directors consider that this is an appropriate
timeframe to assess the viability of the Company.
The Directors have considered each of the principal risks and
uncertainties detailed above individually and collectively and have
taken into account in particular the impact of the shareholder vote
on the viability of the Company.
The Company has previously seen pressures from the fall in
commodity prices and a move by its share price to a discount to its
NAV, which itself has fallen significantly, notwithstanding its
recovery in the past three years. These trends reflect the initial
failure of the world's major economies to recover strongly from the
global financial crisis of 2007-8 and the subsequent slowing of
growth of emerging markets.
Notwithstanding this, it is a feature of closed-ended investment
companies such as BSRT that the greatest risk to viability is that
the investments lose value to an extent where the Board cannot
ensure that assets continue to exceed liabilities or where expenses
become excessive or cannot be met as they fall due.
In the case of the Company, which has no gearing, the Board has
conducted stress and sensitivity tests of future income and
expenditure and the ability to realise assets, and has concluded
that based on the listed assets held, even in circumstances
representing a further deterioration in value in excess of 50% of
net assets, the Company can remain viable over the period to the
2021 AGM. The key factor in this assessment is that currently the
Company's greatest expense is the management fee which is
calculated on the market capitalisation of the Company. Should net
assets fall, market capitalisation would be expected to fall in
line, such that the costs of the Company would also fall.
As a result the Board of Directors have a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of their
assessment.
Future Developments
The future performance of the Company depends upon the success
of the Company's investment strategy and, as to its share price and
market rating, partly on investors' view of mining related
investments as an asset class. Further comments on the outlook for
the Company can be found in the Chairman's Statement on page 3 and
the Investment Manager's Report on pages 4 to 7.
Signed on behalf of the Board of Directors by:
Howard Myles Christopher Sherwell 9 April 2019
BOARD OF DIRECTORS
The Board of Directors is listed below. Mr Sherwell was
appointed on 9 March 2010; all other Directors were appointed on 12
March 2010. No limit on the overall length of service of any of the
Company's Directors, including the Chairman, has been imposed, but
taking into account the latest corporate governance requirements,
the Board has put in place a succession plan to refresh its
membership while maintaining a degree of continuity. The first
director who will step down is Mr Chris Sherwell who will retire at
this year's AGM.
Howard Myles (aged 69): Howard Myles currently acts as a
non-executive director of a number of investment companies. Howard
was a partner in Ernst & Young from 2001 until 2007 and was
responsible for the Investment Funds Corporate Advisory team. He
was previously with UBS Warburg from 1987 to 2001. Howard began his
career in stockbroking in 1971 as an equity salesman and joined
Touche Ross in 1975 where he qualified as a chartered accountant.
In 1978 he joined W. Greenwell & Co. in the corporate broking
team and in 1987 moved to SG Warburg Securities where he was
involved in a wide range of commercial and industrial transactions
in addition to leading UBS Warburg's corporate finance function for
investment funds. He is a fellow of the Institute of Chartered
Accountants and of The Chartered Institute for Securities and
Investments.
Howard is a member of the Company's Audit Committee.
Charles Hansard (aged 70): Charles Hansard has over 31 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 69): Clive Newall graduated from the Royal
School of Mines, University of London, England in 1971 with an
honours degree in Mining Geology, and was awarded an MBA from the
Scottish Business School at Strathclyde University. He has worked
in mining and exploration throughout his career, having held senior
management positions with Amax Exploration Inc. and the Robertson
Group plc. Clive has been a director of a number of public
companies in the United Kingdom and Canada. He is the founder of
First Quantum Minerals Ltd and has been its President and a
director since its incorporation.
Clive is a member of the Company's Audit Committee.
Christopher Sherwell (aged 71): Christopher Sherwell has worked
since 2004 as a senior Non-Executive Director based in Guernsey
with roles in the offshore finance industry. Prior to January 2004,
Christopher was 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.
Christopher is the Chairman of the Audit Committee of the
Company. As noted in the Chairman's Statement, as part of an
orderly succession plan, Christopher will not stand for re-election
at this year's AGM.
DIRECTORS' REPORT
For the year ended 31 December 2018
The Directors of the Company present their ninth annual report
and the audited financial statements for the year ended 31 December
2018.
Principal activity and business review
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
on 9 March 2010 in Guernsey under the Companies (Guernsey) Law,
2008 with registration number 51576. The Company is a registered
closed-ended investment scheme registered pursuant to the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended ("POI Law") and the Registered Collective Investment Scheme
Rules 2018 issued by the Guernsey Financial Services Commission
("GFSC"). On 28 April 2010 the Ordinary Shares and Subscription
Shares of the Company were admitted to the Official List of the UK
Listing Authority and to trading on the Main Market of the London
Stock Exchange.
Details of the Company's investment objectives and policies are
described in the Strategic Report.
Performance
In the year to 31 December 2018, the Company's NAV per Ordinary
Share increased by 0.2% (2017: 18.6%). This compares with a drop in
the EMIX Global Mining Index (capital return in Sterling terms) of
5.9% (2017: rise of 20.7%). A more detailed explanation of the
performance of the Company is provided within the Investment
Manager's Report on pages 4 to 7.
The results for the year are shown in the Statement of
Comprehensive Income on pages 32 and 33 and the Company's financial
position at the end of the year is shown in the Statement of
Financial Position on page 31.
Dividend and dividend policy
During the year ended 31 December 2015 the Board introduced a
capital returns policy whereby, subject to applicable laws and
regulations, it will allocate cash for distributions to
shareholders. The amount to be distributed will be calculated
following publication of the Company's audited financial statements
for each year and will be no less than 15% of the aggregate net
realised cash gains (after deducting losses) in that financial
year. The Board will retain discretion for determining the most
appropriate manner to make such distribution which may include
share buybacks, tender offers and dividend payments. The Company
has a realised net gain per the Statement of Comprehensive Income
and realised an aggregate cash gain for the year ended 31 December
2018.
As a result of the reorganisation of Polar Acquisition Limited
during the year, the Company received cash and share dividends of
Polymetal International Plc ("Polymetal") shares totalling GBP20.4
million. The Board considers the Polymetal shares to be
sufficiently liquid so as to be considered in the calculation of
net realised cash gains in the spirit of the policy and therefore
is recommending to shareholders a distribution of GBP4 -
GBP5million being approximately 25% of the net realised gain to be
made via a tender offer. Details of the proposed tender offer are
expected to be posted to shareholders in May 2019.
Directors and their interests
The Directors of the Company who served during the year and up
until the date of signing of the financial statements were:
Howard Myles (Chairman)
Charles Hansard
Clive Newall
Christopher Sherwell
Biographical details of each of the Directors are presented on
page 15.
Each of the Directors is considered to be independent in
character and judgement, notwithstanding that they have each served
on the Board since the inception of the Company.
The Directors' interests in the share capital of the Company up
until the date of signing were:
Number of Number of
Ordinary Shares Ordinary Shares
2018 2017
Christopher Sherwell 104,198 104,198
Clive Newall 25,000 25,000
Each Director is asked to declare his interests at each Board
Meeting. No Director has any material interest in any other
contract which is significant to the Company's business.
Authorised Share Capital
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
Issue of Shares
The Company was admitted to trading on the London Stock Exchange
on 28 April 2010. On that date, 30,468,865 Ordinary Shares and
6,093,772 Subscription Shares were issued pursuant to a placing and
offer for subscription and 35,554,224 Ordinary Shares and 7,110,822
Subscription Shares were issued pursuant to a Scheme of
Reorganisation of Genus Capital Fund.
In addition 10,000 Management Ordinary Shares were issued.
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. The final
exercise date for the Subscription Shares was 2 April 2013. No
Subscription Shares were exercised at this time and all residual
Subscription Shares were subsequently cancelled.
Following in specie transactions on 28 June 2014 and 1 July
2014, a total of 5,561,243 Ordinary Shares were issued.
Following in specie transactions on 25 February 2015 and 4 March
2015, 40,196,071 Ordinary Shares were issued. In addition the
Company issued a total of 3,368,488 Ordinary Shares on 4 March 2015
Shares under an open offer.
Following an in specie transaction on 22 September 2016,
1,561,645 Ordinary Shares were issued.
Details of these transactions are included within Note 10 of
these financial statements.
On 14 August 2015 and 20 August 2015 the Company bought back
200,000 and 500,000 Ordinary Shares respectively, both at an
average price of 20 pence per share. The repurchased Ordinary
Shares are held in Treasury.
Following the transactions noted above the Company has a total
of 116,129,980 Ordinary and 10,000 Management Shares in issue as at
31 December 2018, of which 700,000 Ordinary Shares are held in
Treasury.
Significant Shareholdings
As at 31 December 2018, the Company had received notifications
in accordance with the FCA's Disclosure and Transparency Rule 5.1.2
R of the following interests in 3% or more of the voting rights
attaching to the Company's issued share capital.
Number of
Ordinary Shares % of Total
Ordinary Shareholder 000's Shares in issue
Bank of New York Nominees Limited* 22,549 19.30
Vidacos Nominees Limited* 22,404 19.18
Citibank Nominees Limited* 14,353 12.29
Harewood Nominees Limited* 14,171 12.13
Nortrust Nominees Limited* 12,119 10.37
BNY Nominees Limited* 7,670 6.57
Rock Nominees Limited* 3,677 3.15
* Custodian accounts held on behalf of individual shareholders,
the majority of whom retained the associated voting rights. These
holdings are aggregated.
The Investment Manager, Baker Steel Capital Managers LLP had an
interest in 10,000 Management Ordinary Shares at 31 December 2018
(31 December 2017: 10,000).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest in 7,469,609 Ordinary Shares in the
Company at 31 December 2018 (2017: 7,469,609). These shares are
included in Vidacos Nominees Limited above. Precious Metals Fund
has the same Investment Manager as the Company.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and financial statements in accordance with applicable Guernsey
law, Listing Rules, Disclosures and Transparency Rules, UK
Corporate Governance Code and generally accepted accounting
principles.
Guernsey company law requires the Directors to prepare financial
statements for each financial year which give a true and fair view
of the state of affairs of the Company and of the profit or loss of
the Company for that year. In preparing these financial statements
the Directors should:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and which enable the Directors to
ensure that the financial statements comply with the Companies
(Guernsey) Law, 2008. The Directors are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors confirm that to the best of their knowledge:
- the financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU") and give a true and fair view of the
assets, liabilities and financial position and profit or loss of
the Company;
- the Annual Report includes a fair review of the 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; and
- 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, business model and strategy.
- The Directors confirm that they have carried out a robust
assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency or liquidity.
Auditor Information
The Directors at the date of approval of this Report confirm
that, so far as each of the Directors is aware, there is no
relevant audit information of which the Company's auditor is
unaware and each Director has taken all the reasonable steps he
ought to have taken as a director to make himself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Going Concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and consider it appropriate to adopt
the going concern basis of account. The Board is satisfied that it
has the resources to continue in business for at least 12 months
following the signing of these financial statements. As at 31
December 2018, approximately 38% 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.
Corporate Governance Compliance
The Guernsey Financial Services Commission's Finance Sector Code
of Corporate Governance (the "GFSC Code") provides a framework
which applies to all companies in the regulated finance sector in
Guernsey. The Company reports against the UK Corporate Governance
Code (the "Code"), which meets the requirements of the GFSC Code.
The Board is committed to high standards of corporate governance
and has implemented a framework for corporate governance that it
considers to be appropriate for an investment company in order to
comply with the principles of the Code. The Code is available on
the FRCs website www.frc.org.uk and the Company has made its
corporate governance practices publicly available and these can be
found at www.bakersteelresourcestrust.com. The disclosures in this
statement report against the provisions of the Code, as revised in
2016.
The Board has noted the publication of a further revised UK
Corporate Governance Code in July 2018, which applies to financial
years beginning on or after 1 January 2019, and is considering the
Company's governance framework in light of the new provisions.
Throughout the year ended 31 December 2018, the Company has
complied with the recommendations of the Code except as set out
below.
The Code includes provisions relating to:
-- The role of the Chief Executive,
-- Executive Directors' remuneration
-- The requirement for a senior Independent Director
-- Nomination, Remuneration and Management Engagement Committees
-- The requirement for an internal audit function
The Board considers these provisions are not relevant for the
Company as it is an externally managed investment entity. The
Company has therefore not reported further in respect of these
provisions. The Directors are all independent and non-executive and
the Company does not have employees, hence no Chief Executive is
required for the Company. The Board is satisfied that any relevant
issues can be properly considered by the Board.
There have been no other instances of non-compliance, other than
those noted above.
Operation and composition of the Board
-- Composition
The Board has no executive directors and has contractually
delegated responsibility for the management of the Company's
investment portfolio, the arrangement of custodial and cash flow
monitoring and oversight services and the provision of accounting
and company secretarial services. The Company has no employees.
-- Independence
The Board consists entirely of independent non-executive
Directors, of whom Howard Myles is the Chairman. Each of the
Directors confirms that they have no other significant commitments
that impact on their ability to act for the Company and its
shareholders, and that they have sufficient time to fulfil their
obligations to the Company.
-- Senior Independent Director
In view of its non-executive nature, the Board considers that it
is not necessary for a Senior Independent Director to be
appointed.
-- Appointment and re-election
The Company has a transparent procedure for the appointment and
re-election of the Directors. There are no service contracts in
place for the Directors.
The Directors are not required to retire by rotation; instead
each director puts himself forward for re-election on an annual
basis at the AGM. The AGM also includes a resolution whereby
shareholders are able to approve the maximum cumulative
remuneration for the Board.
All the Directors are responsible for reviewing the size,
structure and skills of the Board and considering whether any
changes are required or new appointments are necessary to meet the
requirements of the Company's business or to maintain a balanced
Board.
-- Information 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.
-- Performance appraisal
The performance of the Board and the Audit Committee is
evaluated through a formal and rigorous assessment process led by
the Chairman. The performance of the Chairman is evaluated by the
other Directors.
-- Investment Manager assessment
The Investment Manager was appointed pursuant to an investment
management agreement with the Manager dated 31 March 2010 and which
was amended and restated, with the Company joining as a party, on
14 November 2014 (the Investment Management Agreement). The
Investment Manager is paid by the Manager and is not separately
remunerated by the Company. The Investment Management Agreement
pursuant to which the Company and the Manager have appointed the
Investment Manager is terminable by any party giving the other
parties not less than 12 months' written notice.
The Investment Manager prepares regular reports to the Board to
allow it to review and assess the Company's activities and
performance on an ongoing basis. The Board and the Investment
Manager have agreed clearly defined investment criteria, exposure
limits and specified levels of authority. The Board completes a
formal assessment of the Investment Manager on an annual basis. The
assessment covers such matters as the performance of the Company
relative to its peers and sector, the management of investment
relations and the reasonableness of fee arrangements. Based on its
assessment it is the opinion of the Board that the continuation of
the appointment of the Investment Manager is in the best interests
of shareholders of the Company.
-- Board meetings
The Board generally meets at least four times a year, at which
time the Directors review the management of the Company's assets
and all other significant matters so as to ensure that the
Directors maintain overall control and supervision of the Company's
affairs. The Board is responsible for the appointment and
monitoring of all service providers to the Company. Between these
quarterly meetings there is regular contact with the Investment
Manager. 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.
Attendance at the Board and Audit Committee meetings during the
year was as follows:
Audit Committee
Board Meetings Meetings
Held Attended Held Attended
Howard Myles 4 4 4 4
Christopher Sherwell 4 4 4 4
Charles Hansard 4 4 4 N/A
Clive Newall 4 4 4 4
In addition to formal meetings, all Directors contribute to a
significant ad hoc exchange of views with 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 2018 the total remuneration of
the Directors was GBP115,000 (2017: GBP115,000), with GBP28,750
(2017: GBP28,750) payable at year end.
-- Relations with Shareholders
The Board believes that the maintenance of good relations with
shareholders is vital for the long-term prospects of the Company.
The Company's stockbrokers, Numis Securities Limited, and
Investment Manager are responsible for managing relationships with
shareholders and each provides the Board with feedback on a regular
basis that includes a shareholder contact report and any concerns
the shareholder has raised. The Chairman and the Board are also
available to meet with shareholders at the Company's Annual General
Meeting or otherwise.
Committees
The Committees of the Board have formal Terms of Reference which
are available on the Company's webpage
http://bakersteelresourcestrust.com/corporate-governance/.
-- Audit Committee
The Board has established an Audit Committee. The Audit
Committee meets at least three times a year and is responsible for
ensuring that the financial performance of the Company is properly
reported on and monitored and provides a forum through which the
Company's external auditor may report to the Board. The Audit
Committee operates within established terms of reference. The
Directors consider there is no need for an internal audit function
because the Company operates through service providers and the
Directors receive control reports on key 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.
The remuneration for the non- executive directors is capped by
shareholder resolution at the AGM. There is no differential for
payments of the non-executive directors except that the Chairman of
the Board and the Chairman of the Audit Committee each receive
additional payments for these roles.
Internal Controls
The Board has delegated the day to day responsibilities for the
management of the Company's investment portfolio, the provision of
depositary services and administration, registrar and corporate
secretarial functions including the independent calculation of the
Company's NAV and the production of the Annual Report and Financial
Statements which are independently audited.
Formal contractual agreements have been put in place between the
Company and providers of these services.
Even though the Board has delegated responsibility for these
functions, it retains accountability for them and is responsible
for the systems of internal control. At each quarterly Board
meeting, compliance reports are provided by the Administrator and
Investment Manager.
The Company's risk matrix continues to be the core element of
the Company's risk management process in establishing the Company's
system of internal financial and reporting control. The risk matrix
is prepared and maintained by the Manager and reviewed regularly by
the Board which initially identifies the risks facing the Company
and then collectively assesses the likelihood of each risk, the
impact of those risks and the strength of the controls operating
over each risk. The system of internal financial and operating
control is designed to manage rather than to eliminate the risk of
failure to achieve business objectives and by its nature can only
provide reasonable and not absolute assurance against misstatement
and loss.
These controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the
Company.
This process has been in place for the year under review and up
to the date of approval of this Annual Report and Audited Financial
Statements and is reviewed by the Board and is in accordance with
the Internal Controls: Revised Guidance for Directors on the
Combined Code issued by the FRC.
The Board therefore believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the
risks to which it is exposed.
Internal Audit
The Company does not have an internal audit function; it
delegates to third parties most of its operations and does not
employ any staff. The Board will continue to review whether a
function equivalent to internal audit is needed.
Subsequent Events
Since 31 December 2018 the Company has acquired a 0.75% gross
revenue royalty over Futura Resources Limited's two coking coal
projects in Australia for A$6 million; subscribed for a further
GBP1 million convertible loan notes in Anglo Saxony Mining; and
agreed to subscribe US$3 million in convertible loan notes in
Azarga Metals Corp.
There were no other events subsequent to the year-end that
materially impacted on the Company.
Signed on behalf of the Board of Directors by:
Howard Myles Christopher Sherwell 9 April 2019
Report of the Audit CommitteE
For the year ended 31 December 2018
The function of the Audit Committee as described in its Terms of
Reference is to ensure that the Company maintains high standards of
integrity in its financial reporting and internal controls.
The Board, as a whole, including the Audit Committee members,
considers the nature and extent of the Company's risk management
framework and the risk profile that is acceptable in order to
achieve the Company's strategic objectives. As a result, it is
considered that the Board has fulfilled its obligations under the
UK Code.
The Audit Committee continues to be responsible for reviewing
the adequacy and effectiveness of the Company's on-going risk
management systems and processes. The Company's system of internal
controls, along with its design and operating effectiveness, is
subject to review by the Audit Committee through reports received
from all service providers.
In the event of any deficiencies or breaches reported, the Board
would consider the actions required to remedy and prevent
significant failings or weaknesses.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery and
corruption policies of the Company. The Board receives a
confirmation from all service providers that there have been no
instances of fraud or bribery.
The Audit Committee considers the adequacy and security of its
arrangements for the employees of its service providers to raise
concerns, in confidence, about possible wrongdoing in financial
reporting or other matters. The Audit Committee is satisfied it has
the ability and resources to investigate any such matters which may
arise and to follow up on any conclusion reached by such
investigation.
The Audit Committee is appointed by the Board and all members
are considered to be independent both of the Investment Manager and
the external auditor. The Audit Committee meets a minimum of three
times a year to discuss the Interim and Annual Report and Audited
Financial Statements, the audit plan and engagement letter, and the
Company's risks, via discussion of its risk matrix. The Board is
satisfied that the Audit Committee is properly constituted with
members having recent and relevant financial experience, including
one member who is a chartered accountant.
Primary Areas of Judgement
As part of its review of the Company's financial statements, the
Audit Committee takes account of the most significant issues and
risks, both operational and financial, likely to impact on the
financial statements and the mitigating controls to address these
risks. The Audit Committee has determined that the key risk of
misstatement is the valuation of investments for which there is no
readily observable market price. Such investments are recorded at
fair value which is the price that would be expected to be received
to sell an asset in an orderly transaction between market
participants at the measurement date. Significant judgements are
required in respect of the valuation of the Company's investments
for which there is no observable market price. Further information
on the Company's methodologies is provided in Note 3 to the
financial statements.
The risk is mitigated through the review by the Board of
detailed reports prepared by the Investment Manager on portfolio
valuation including valuation methodology, the underlying
assumptions and the valuation process.
The Investment Manager also provides information to the Board on
relevant market indices, recent transactions in similar assets and
other relevant information to allow an assessment of appropriate
carrying value having regard to the relevant factors.
The responsibility for ensuring that investments are carried at
fair value lies with the Board.
Through its meetings during the year ended 31 December 2018 and
its review of the Company's Annual Report and Audited Financial
Statements, the Audit Committee considered the following
significant risks as well as the principal risks and uncertainties
described on pages 12 and 13.
Risk Considered How addressed
The accuracy of the Company's Annual Review of the Annual Report and Audited
Report and Financial Statements Financial Statements, discussions
with the external auditor and meetings
with the auditor to understand the
audit approach and findings.
Adequacy of the Company's accounting Consideration of the Company's risk
and internal controls systems matrix, taking account of the relevant
risks, the potential impact to the
Company and the mitigating controls
in place.
Valuation of the Company's investments, Reports received from the Investment
in particular the valuation of unquoted Manager providing background to the
investments investment valuations. The Investment
Manager reporting is then supported
by the independent auditor's review
of the investment valuations.
The effectiveness and independence The Audit Committee has regular dialogue
of the external audit process with the external auditor both before
and during the audit process. The
auditor presents to the Audit Committee
at both the engagement and audit
review stage, and confirms its independence
at each stage. The Audit Committee
receives feedback from the Investment
Manager on the audit process and
any concerns or challenges faced.
The Audit Committee also provides a forum through which the
Company's auditor reports to the Board. The Board, not the Audit
Committee, approves all non-audit work carried out by the auditor
in advance and the fees paid to the auditor in this respect.
External Audit
The Company's external auditor is BDO Limited ("BDO").
During 2017, the Audit Committee on behalf of the Board of
Directors undertook a review of the Company's audit arrangement.
Following a tender process, BDO were appointed as the Company's
independent external auditor. The appointment was effective 5
September 2017.
The fees due to auditors during the year were as follows:
2018 2017
GBP GBP
Audit Fees Audit Fees 45,000 45,000
Non audit Fees Agreed Upon Procedures 7,500 *7,500
Total Fees 52,500 52,500
================== =======
*Paid to Ernst and Young LLP
The external auditor provided an audit planning report in
advance of the annual audit. The Audit Committee has the
opportunity to question and challenge the auditor in respect of
their work. Based on levels of interaction with the auditor, and
the assessment of auditor reporting, the Audit Committee is
satisfied that the reappointment of the external auditor should be
proposed at the Annual General Meeting of the Company.
In conclusion, the Audit Committee is satisfied that the
external auditor is independent. The Audit Committee continues to
assess the effectiveness of the external auditor, considering the
audit planning, adherence to audit standards, competence of the
audit team and feedback from the Investment Manager and following
the completion of the audit the Audit Committee will make a
recommendation regarding the continued appointment of BDO.
Internal Audit
The Audit Committee believes that the Company does not require
an internal audit function because it delegates its day to day
functions to third party service providers, although the Audit
Committee oversees these operations and receives regular reports in
this respect.
Risk Management and Internal Controls
The Board is responsible for the Company's system of internal
controls and risk management. The Audit Committee has been
delegated the responsibility for reviewing the ongoing
effectiveness of the Company's internal controls and it discharges
its duties in this area by assessing the nature and extent of the
significant risks 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
and therefore 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 Strategic Report outlines
the principal risks and uncertainties affecting the Company.
By their nature, the control mechanisms can only provide
reasonable rather than absolute assurance against misstatement or
loss. The Board seeks continual improvement in its internal control
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 Financial Statements 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.
Going Concern
The Audit Committee has made an assessment of the Company's
ability to continue as a going concern. Particular regard has been
given to the fact that the Company holds listed securities that can
if necessary be realised to meet liabilities as they become due; as
at 31 December 2018, approximately 38% of the Company's assets were
represented by cash and unrestricted quoted investments.
On the basis of its review, the Audit Committee is satisfied
that the Company has the resources to continue in business for at
least 12 months from the date of signing these financial statements
and therefore is of the opinion that the financial statements
should be prepared on a going concern basis and has accordingly
recommended this opinion to the Board.
Christopher Sherwell
Audit Committee Chairman
9 April 2019
Independent Auditor's Report to MEMBERS of BAKER STEEL RESOURCES
TRUST LIMITED
Opinion
We have audited the financial statements of Baker Steel
Resources Trust Limited ("the Company") for the year ended 31
December 2018 which comprise the Statement of Financial Position,
the Statement of Comprehensive Income, the Statement of Changes in
Equity, the Statement of Cash Flows and notes to the financial
statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2018 and of its profit for the year then
ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Company
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to principal risks, going concern and
viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the ISAs
(UK) require us to report to you whether we have anything material
to add or draw attention to:
-- the disclosures in the annual report set out on pages 12 and
13 that describe the principal risks and explain how they are being
managed or mitigated;
-- the directors' confirmation on page 18 in the annual report
that they have carried out a robust assessment of the principal
risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity;
-- the directors' statement on page 18 in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the
financial statements and the directors' identification of any
material uncertainties to the Company's ability to continue to do
so over a period of at least twelve months from the date of
approval of the financial statements;
-- whether the directors' statement relating to going concern is
materially inconsistent with our knowledge obtained in the audit;
or
-- the directors' explanation set out on pages 13 and 14 in the
annual report as to how they have assessed the prospects of the
Company, over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified including those which had the greatest
effect on the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
In arriving at our audit opinion on the financial statements,
the key audit matter that had the greatest effect on our audit is
included in the table below. In addition, we have set out how we
tailored our audit to address this specific area in order to
provide an opinion on the financial statements as a whole. This is
not a complete list of all risks identified by our audit.
Key Audit Matter How we addressed the key audit matter
in the audit
Valuation of unlisted investments We considered the processes, policies
including unrealised gains/(losses) and methodologies used by management
for fair valuing quoted investments
Refer to the accounting policies held by the Company including reviewing
on pages 36 - 39 and Note 3 to the the hierarchy of application of
Financial Statements. valuation principles.
The majority (66.0%: 2018, 81.8%: We performed the following substantive
2017) of the carrying value of the procedures for all unlisted investments:
investments relates to the Company's
holdings in unquoted investments, * Agreed the manager's application of valuation
which are valued using different techniques as appropriate to the circumstances of the
valuation techniques as explained asset and the accounting policies applied:
in Note 3 (page 43).
The valuation is subjective, with * Agreed the inputs into the models to independent
a high level of judgment and estimation sources and evaluated whether all key terms of the
linked to the determination of fair agreements had been considered:
value with limited market information
available.
* Corroborated to independent sources market volatility
As a result of the subjectivity, rates used in each model:
there is a risk of an inappropriate
valuation model being applied, together
with the risk of inappropriate inputs * Recalculated management's applied basket of indices
to the model being used. for each investment which had an Index valuation:
The valuation of the unquoted investments
is the key driver of the Company's * For those investments which used recent Investment as
net asset value and total return. a basis for recalibrating inputs to the valuation
Incorrect valuation could have a model, we considered if there were any material
significant impact on the net asset changes in the market or changes in the performance
value of the Company and therefore of the Investee Company affecting the fair value of
the return generated for members. the investment at year end.
* Agreed the valuation per the models to the financial
statements.
Our work also included consideration
of events which occurred subsequent
to the year end until the date of
this audit report.
-------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
For planning, we considered materiality to be the level by which
misstatements individually or in aggregate, including omissions,
could influence the economic decisions of the relevant users. Based
on our professional judgment, we determined materiality for the
financial statements as a whole to be GBP1,187,000, which is based
on a level of 1.75% of total assets (2017 GBP1,073,000, which was
based on 1.75% of total assets). We considered total assets to be
the most appropriate benchmark due to the Company being an
investment fund with the objective of long-term capital growth.
We considered the application of materiality at the individual
account or balance level and set an amount to reduce to an
appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality. This
performance materiality has been set at GBP830,900 which is 70% of
materiality (2017: GBP643,800 which was 60% of materiality). This
has been set based upon the control environment in place, the
directors' assessment of risk and the fact that the main item on
the accounts being unlisted investments which involves high degree
of estimations and judgements.
International Standards on Auditing (UK) also allow the auditor
to set a lower materiality for particular classes of transaction,
balances or disclosures for which misstatements of lesser amounts
than materiality for the financial statements as a whole could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements. In this context, we
set a lower level of materiality to apply certain trading
activities, such as sensitive overhead expenses. Specific
materiality has been determined on the basis of 10% of materiality
being GBP118,700 (2017: 5% of materiality GBP53,650 given it was
the first year as our appointment as auditor).
We agreed with the Board of Directors that we would report all
audit differences in excess of GBP59,350 (2017: GBP37,555).
An overview of the scope of our audit
We tailored the scope of our audit taking into account the
nature of the Company's investments, involvement of the Manager and
the company Administrator, the accounting and reporting environment
and the industry in which the Company operates. In designing our
overall audit approach, we determined materiality and assessed the
risk of material misstatement in the financial statements.
This assessment took into account the likelihood, nature and
potential magnitude of any misstatement. As part of this risk
assessment we considered the Company's interaction with the Manager
and the company administrator. We considered the control
environment in place at the Manager and the company administrator
to the extent that it was relevant to our audit. Following this
assessment, we applied professional judgement to determine the
extent of testing required over each balance in the financial
statements.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to address specifically the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
-- Fair, balanced and understandable set out on page 18 - the
statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
-- Audit committee reporting set out on page 23 - the section
describing the work of the audit committee does not appropriately
address matters communicated by us to the audit committee; or
-- Directors' statement of compliance with the UK Corporate
Governance Code set out on page 18 - the parts of the Directors'
statement required under the Listing Rules relating to the
Company's compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate Governance
Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- proper accounting records have not been kept by the Company; or
-- the financial statements are not in agreement with the accounting records; or
-- we have failed to obtain all the information and explanations
which, to the best of our knowledge and belief, are necessary for
the purposes of our audit.
Responsibilities of Directors
As explained more fully in the directors' responsibilities
statement set out on page 18, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view and for such internal control
as the Directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at:
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Other matters which we have agreed to address
Following the recommendation of the Audit Committee, we were
appointed by the Board on 4 December 2017 to audit the financial
statements for the year ending 31 December 2018 and subsequent
financial periods. The period of total uninterrupted engagement is
2 years.
The non-audit services prohibited by the FRC's Ethical Standards
were not provided to the Company and we remain independent of the
Company in conducting our audit.
Our audit opinion is consistent with the additional report to
the Audit Committee.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Richard Michael Searle FCA
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
9 April 2019
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
2018 2017
Notes GBP GBP
Assets
Cash and cash equivalents 9 3,811,921 1,060,077
Other receivables 385,659 15,406
Financial assets held at fair value through
profit or loss 3 62,019,940 65,070,244
Total assets 66,217,520 66,145,727
-------------- -------------
Equity and Liabilities
Liabilities
Directors' fees payable 12 28,750 28,750
Management fees payable 7,12 75,370 74,679
Administration fees payable 6 16,731 54,221
Audit fees payable 45,050 45,050
Other payables 18,073 5,984
Custodian fees payable 5,762 5,587
Total liabilities 189,736 214,271
-------------- -------------
Equity
Management Ordinary Shares 10 10,000 10,000
Ordinary Shares 10 81,024,525 81,024,525
Profit and loss account (15,006,741) (15,103,069)
Total equity 66,027,784 65,931,456
-------------- -------------
Total equity and liabilities 66,217,520 66,145,727
============== =============
Net Asset Value per Ordinary Share (in Pence)
- Basic and diluted 13 56.9 56.8
The financial statements on pages 31 to 56 were approved and authorised
for issue by the Board of Directors on 9 April 2019 andd signed on
its behalf by:
Howard Myles Christopher Sherwell
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
Year ended Year ended Year ended
2018 2018 2018
Revenue Capital Total
Notes GBP GBP GBP
Income
Facility & Guarantee fee 11 358,951 - 358,951
Net gain on financial assets at fair
value through profit or loss 3 20,693,637 (19,614,324) 1,079,313
Foreign exchange gain - 65,492 65,492
Net income 21,052,588 (19,548,832) 1,503,756
----------- ------------- -----------
Expenses
Management fees 7,12 928,850 - 928,850
Directors' fees 12 115,000 - 115,000
Administration fees 6 100,111 - 100,111
Custody fees 71,639 - 71,639
Broker fees 38,236 - 38,236
Other expenses 8 80,444 - 80,444
Audit fees 52,500 - 52,500
Legal fees 4,408 - 4,408
Directors' expenses 16,240 - 16,240
Total expenses 1,407,428 - 1,407,428
----------- ------------- -----------
Net gain/(loss) for the year 19,645,160 (19,548,832) 96,328
=========== ============= ===========
Net gain for the year per Ordinary
Share:
Basic and diluted (in pence) 13 16.9 (16.8) 0.1
In the year ended 31 December 2018 there were no other gains or losses than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice. The Company follows this element of the AIC practice only.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2017
Year ended Year ended Year ended
2017 2017 2017
Revenue Capital Total
Notes GBP GBP GBP
Income
Other income 30,789 - 30,789
Net gain on financial assets at fair
value through profit or loss 3 - 11,491,606 11,491,606
Net foreign exchange gain - 87,966 87,966
Net income 30,789 11,579,572 11,610,361
------------ ----------- -----------
Expenses
Management fees 7,12 768,116 - 768,116
Directors' fees 12 115,000 - 115,000
Administration fees 6 96,711 - 96,711
Custody fees 69,537 - 69,537
Broker fees 60,641 - 60,641
Other expenses 8 57,950 - 57,950
Audit fees 52,500 - 52,500
Legal fees 44,560 - 44,560
Directors' expenses 15,229 - 15,229
Interest expenses 6,451 - 6,451
Total expenses 1,286,695 - 1,286,695
------------ ----------- -----------
Net (loss)/gain for the year (1,255,906) 11,579,572 10,323,666
============ =========== ===========
Net (loss)/gain for the year per Ordinary
Share:
Basic and diluted (in pence) 13 (1.1) 10.0 8.9
In the year ended 31 December 2017 there were no other gains or losses than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice. The Company follows this element of the AIC practice only.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2018
Management Profit Profit
Ordinary Ordinary Treasury and loss and loss
Shares Shares Shares account account
(Revenue) (Capital) Total
GBP GBP GBP GBP GBP GBP
Balance as at
1 January
2017 10,000 81,165,017 (140,492) (8,284,845) (17,141,890) 55,607,790
Net
(loss)/gain
for
the year - - - (1,255,906) 11,579,572 10,323,666
Balance as at
31 December
2017 10,000 81,165,017 (140,492) (9,540,751) (5,562,318) 65,931,456
Net
gain/(loss)
for
the year - - - 19,645,160 (19,548,832) 96,328
------------------- ------------------- ---------------- ------------ ------------- ------------
Balance as at
31 December
2018 10,000 81,165,017 (140,492) 10,104,409 (25,111,150) 66,027,784
=================== =================== ================ ============ ============= ============
Note 10 10 10
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2018
Year ended Year ended
2018 2017
Notes GBP GBP
Cash flows from operating activities
Net gain for the year 96,328 10,323,666
Adjustments to reconcile net gain for the year
to net cash used in operating activities:
Interest expense - 6,451
Net gain on financial assets at fair value through
profit or loss* 3 (1,079,313) (11,491,606)
Net (increase)/decrease in receivables (366,115) 101,754
Net (decrease)/increase in payables (24,535) 33,448
------------ -------------
(1,373,635) (1,026,287)
Interest received/(paid) 300,459 (177)
Dividend received 1,045,972 -
Net cash used in operating activities (27,204) (1,026,464)
------------ -------------
Cash flows from investing activities
Purchase of financial assets at fair value through
profit or loss (5,380,263) (9,542,851)
Sale of financial assets at fair value through
profit or loss 8,159,311 11,079,780
Net cash provided by investing activities 2,779,048 1,536,929
------------ -------------
Net increase in cash and cash equivalents 2,751,844 510,465
Cash and cash equivalents at the beginning of
the year 1,060,077 549,612
Cash and cash equivalents at the end of the year 9 3,811,921 1,060,077
============ =============
* The net gain includes GBP19,343,068 of dividend income which was received in specie through
the granting of shares in
Polymetal Plc.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2018
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
and domiciled on 9 March 2010 in Guernsey under the Companies
(Guernsey) Law, 2008 with registration number 51576. The Company is
a registered closed-ended investment scheme registered pursuant to
the Protection of Investors Law and the Registered Collective
Investment Scheme Rules 2018 issued by the Guernsey Financial
Services Commission ("GFSC"). On 28 April 2010 the Ordinary Shares
and Subscription Shares of the Company were admitted to the
Official List of the UK Listing Authority and to trading on the
Main Market of the London Stock Exchange. The Company's Ordinary
and Subscription Shares were admitted to the Premium Listing
Segment of the Official List on 28 April 2010.
The final exercise date for the Subscription Shares was 2 April
2013. No Subscription Shares were exercised at this time and all
residual/unexercised Subscription Shares were subsequently
cancelled.
The Company's portfolio is managed by Baker Steel Capital
Managers (Cayman) Limited (the "Manager"). The Manager has
appointed Baker Steel Capital Managers LLP (the "Investment
Manager") as the Investment Manager to carry out certain duties.
The Company's investment objective is to seek capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities, or related instruments, of natural
resources companies. The Company invests predominantly in unlisted
companies (i.e. those companies which have not yet made an Initial
Public Offering ("IPO")) and also in listed securities (including
special situations opportunities and less liquid securities) with a
view to exploiting value inherent in market inefficiencies and
pricing anomalies.
Baker Steel Capital Managers LLP was authorised to act as an
Alternative Investment Fund Manager ("AIFM") of Alternative
Investment Funds ("AIFs") on 22 July 2014. On 14 November 2014, the
Investment Manager signed an amended Investment Management
Agreement with the Company, to take into account AIFM regulations.
AIFMD focuses on regulating the AIFM rather than the AIFs
themselves, so the impact on the Company is limited.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a historic cost
basis except for Financial Instruments at Fair Value Through Profit
or Loss in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union. The financial
statements have been prepared on a going concern basis.
The Company's functional currency is the Great Britain pound
Sterling ("GBP"), being the currency in which its Ordinary Shares
are issued and in which returns are made to shareholders. The
presentation currency is the same as the functional currency. The
financial statements have been rounded to the nearest GBP. The
Company invests in companies around the world whose shares are
denominated in various currencies.
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 and other
equivalent items. Capital is the return, positive or negative, from
holding investments other than that part of the return that is
revenue.
Assets and liabilities are presented in order of liquidity.
Their maturities are disclosed in Note 4(c).
New Standards not yet effective
There are a number of new standards, amendments to standards and
interpretations that are effective for annual periods beginning
after 1 January 2019 which will be adopted from their effective
date. The Directors consider there to be no material impact to the
Company.
IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy
or sell non-financial items. This standard replaces the IAS 39
Financial Instruments: Recognition and Measurement.
Although the application of IFRS 9 has resulted in changes to
the classification of financial assets and liabilities, there has
been no impact on the carrying values of such financial
instruments.
The following table summarises the financial assets and
liabilities held by the Company, the treatment under IAS 39, the
new treatment under IFRS 9 and the impact on the financial
statements at 1 January 2018.
Original carrying
amount under New carrying
New classification IAS 39 at amount under
Original classification under 1 January IFRS 9 at 1
Financial Assets under IAS 39 IFRS 9 2018 January 2018
GBP GBP
Fair value through Fair value through
Investments profit or loss profit or loss 65,070,244 65,070,244
Other receivables Loans and receivables Amortised cost 15,406 15,406
Cash and cash
equivalents Loans and receivables Amortised cost 1,060,077 1,060,077
Financial Liabilities
Other payables Amortised cost Amortised cost 214,271 214,271
Classification and measurement of financial assets and financial
liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities.
However, it eliminates the previous IAS 39 categories for financial
assets of held to maturity, loans and receivables and available for
sale.
The adoption of IFRS 9 has not had a significant effect on the
Company's accounting policies related to financial liabilities. The
impact of IFRS 9 on the classification and measurement of financial
assets is set out below.
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at:
Ø Amortised cost;
Ø Fair value through other comprehensive income ("FVOCI") - debt
measurement;
Ø FVOCI - equity investment; or
Ø Fair value through profit or loss ("FVTPL")
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. The Company only has
financial assets that are classified as measured at amortised cost
and at FVTPL.
Financial assets held at amortised cost
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL:
Ø It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
Ø Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are initially measured at
fair value plus transaction costs that are directly attributed to
its acquisition, unless it is a trade receivable without a
significant financing component which is initially measured at its
transaction price.
These assets are subsequently measured at amortised cost using
the effective interest method. The amortised cost is reduced by
impairment losses as detailed below.
FVTPL
A financial asset at FVTPL is initially measured at fair value.
These assets are subsequently measured at fair value. Net gains and
losses, including any interest or dividend income, are recognised
in profit or loss.
Impairment of financial assets
IFRS 9 has introduced the expected credit loss ("ECL") model
which brings forward the timing of impairments. Under IFRS 9 for
trade receivables the Company has applied the simplified model.
Under the simplified approach the requirement is to always
recognise lifetime ECL. Under the simplified approach there is no
need to monitor significant increases in credit risk and measure
lifetime expected credit losses at all times.
As at 31 December 2017, there were no trade receivables, and
accordingly no change required to the opening retained earnings at
1 January 2018 on transition to IFRS 9.
For other receivables the Directors have concluded that any
expected credit loss on other receivables would be highly
immaterial on the basis that the other receivables will be settled
by way of conversion into a fixed number of convertible loan notes
within Cemos.
Financial liabilities
These comprise of payables and are classified at amortised cost,
and are initially measured at fair value, and subsequently stated
at amortised cost using the effective interest method.
b) Significant accounting judgements and estimates
The preparation of the Company's financial statements requires
the Directors to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements
and disclosure of contingent liabilities. However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability in future periods.
(i) Judgements
In the process of applying the Company's accounting policies,
the Directors have made the following judgements, which have had
the most significant effect on the amounts recognised in the
financial statements:
Assessment as Investment Entity
As per IFRS 10, an entity shall determine whether it is an
investment entity. An investment entity is an entity that fulfils
the following criteria:
Ø It obtains funds from one or more investors for the purpose of
providing those investors with investment services.
Ø It commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income or both.
Ø It measures and evaluates the performance of substantially all
of its investments on a fair value basis.
The Company meets the above criteria and is therefore considered
to be an investment entity and therefore does not consolidate its
subsidiaries.
In making their assessment the Directors have considered the
other income from the Cemos guarantee. As the guarantee was to
protect the investment in Cemos the income has been assessed as
being in the nature of the investment.
Subsidiaries
Entities in which the Company holds more than 50% of the voting
rights, and where the Company has appointed or has the right to
appoint the majority of directors or where the Company is otherwise
able to exercise control are considered as subsidiaries of the
Company. These are disclosed in Note 16 of these financial
statements. Investments in subsidiaries are carried at fair value
through profit or loss as they are held as part of the investment
portfolio which is evaluated on a fair value basis.
Associates
The Directors consider that entities over which the Company
exercises significant influence, including where it holds between
20% and 50% of the voting rights, or where there is a shareholders
agreement giving the Company the right to appoint a director and
the right to veto significant financial decisions should be
considered as associates of the Company. These are disclosed in
Note 15 of the financial statements. This also includes entities
where the Company has representation on the board and such
representation is considered to have significant influence over the
major decisions of such entity. Investments in associates are
carried at fair value as they are held as part of the investment
portfolio which is evaluated on a fair value basis.
Going Concern
As described in the Directors' Report the Directors have
assessed the financial position of the Company and are satisfied
that it can continue in operation for at least 12 months from the
date of signing the financial statements, accordingly the financial
statements have been prepared on a going concern basis.
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources
of uncertainty at the reporting date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year, are discussed
below. The Company based its assumptions and estimates on
parameters available when the financial statements were prepared.
However, existing circumstances and assumptions about future
developments may change due to market changes or circumstances
arising beyond the control of the Company. Such changes are
reflected in the assumptions when they occur. Please refer to Note
3 for further information.
(iii) Fair value of financial instruments
When the fair values of financial assets and financial
liabilities recorded in the Statement of Financial Position cannot
be derived from active markets, their fair value is determined
using a variety of valuation techniques that include the use of
valuation models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible,
estimation is required in establishing fair values. The estimates
include considerations of liquidity and model inputs related to
items such as credit risk, correlation and volatility. Changes in
assumptions about these factors could affect the reported fair
value of financial instruments in the Statement of Financial
Position and the level where the instruments are disclosed in the
fair value hierarchy. The models are tested for validity by
calibrating to prices from any observable current market
transactions in the same instrument (without modification or
repackaging) when available. To assess the significance of a
particular input to the entire measurement, the Company performs
sensitivity analysis or stress testing techniques. Please refer to
Note 3 for further information.
c) Interest income and expense
Bank interest income and interest expense are recognised on an
accruals basis.
d) Expenses
All expenses are recognised on an accruals basis.
e) Translation of foreign currencies
Foreign currency transactions during the year are translated
into Sterling at the rate of exchange ruling at the date of the
transaction. Assets and liabilities denominated in foreign
currencies are translated into Sterling at the rate of exchange
ruling at the Statement of Financial Position date. Exchange
differences including those arising from adjustment to fair value
of financial instruments during the year, are included in the
Statement of Comprehensive Income. The foreign exchange movements
relating to financial assets form part of the fair value movement
in the Statement of Comprehensive Income.
f) Segment information
The Directors are of the opinion that the Company is engaged in
a single segment of business: investing in natural resources
companies.
g) Net asset value per share
Net Asset Value per Ordinary Share disclosed on the face of the
Statement of Financial Position is calculated in accordance with
the Company's Prospectus by dividing the net assets of the Company
on the Statement of Financial Position date by the number of
Ordinary Shares (including the Management Ordinary Shares)
outstanding at that date.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended Year ended
Investment Summary: 2018 2017
GBP GBP
Opening book cost 50,780,732 54,964,732
Purchases at cost 24,723,331 9,542,851
Proceeds on sale of investments (8,159,311) (11,079,780)
Realised gains/(losses) 3,408,941 (2,647,071)
------------ -------------
Closing cost 70,753,693 50,780,732
Unrealised (losses)/gains (8,733,753) 14,289,512
------------ -------------
Financial assets held at fair value through profit
or loss 62,019,940 65,070,244
============ =============
The following table analyses net gains/ (losses) on financial
assets at fair value through profit or loss for the years ended 31
December 2018 and 31 December 2017.
Year ended Year ended
2018 2017
GBP GBP
Financial assets at fair value through profit or
loss
Realised gains/(losses) on:
- Listed equity shares 3,358,649 (2,446,616)
- Unlisted equity shares - (269,983)
- Debt instruments 72,118 69,528
- Warrants (21,826) -
3,408,941 (2,647,071)
Movement in unrealised gains/losses on:
- Listed equity shares (5,291,074) 4,286,190
- Unlisted equity shares (19,067,970) 9,805,381
- Debt instruments 1,284,890 51,428
- Warrants 50,889 (4,322)
------------- ------------
(23,023,265) 14,138,677
Net (loss)/gain on financial assets at fair value
through profit or loss (19,614,324) 11,491,606
Dividend income 20,693,637 -
------------- ------------
Total net gain on financial assets at fair value
through profit or loss 1,079,313 11,491,606
============= ============
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2018.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at
fair value through profit
or loss
Listed equity shares 21,113,621 - - 21,113,621
Unlisted equity shares - - 25,058,074 25,058,074
Warrants - - 30,044 30,044
Debt instruments - - 15,818,201 15,818,201
------------- ------------------ ------------ ----------
21,113,621 40,906,319 62,019,940
============= ================== ============ ==========
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2017.
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 11,862,289 - - 11,862,289
Unlisted equity shares - - 43,595,292 43,595,292
Warrants - - 981 981
Debt instruments - - 9,611,682 9,611,682
------------- ------------------ ------------ -----------
11,862,289 - 53,207,955 65,070,244
============= ================== ============ ===========
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in net gain on financial
assets and liabilities at fair value through profit or loss held at
31 December 2018.
Debt
31 December 2018 Unlisted instruments Warrants Total
Equities
GBP GBP GBP GBP
Opening balance 1 January
2018 43,595,292 9,611,682 981 53,207,955
Purchases of investments 530,752 4,849,511 - 5,380,263
Change in net unrealised
(losses)/gains (19,067,970) 1,284,890 50,889 (17,732,191)
Realised gains/(losses) - 72,118 (21,826) 50,292
Closing balance 31 December
2018 25,058,074 15,818,201 30,044 40,906,319
------------- ------------ --------- -------------
Unrealised (losses)/gains
on investments still held
at 31 December 2018 (7,790,230) 93,270 30,044 (7,666,916)
============= ============ ========= =============
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in net gain on financial
assets and liabilities at fair value through profit or loss held at
31 December 2017.
Debt
31 December 2017 Unlisted instruments Warrants Total
Equities
GBP GBP GBP GBP
Opening balance 1 January
2017 37,819,837 4,037,448 5,303 41,862,588
Purchases of investments 957,241 8,019,379 - 8,976,620
Sale of investments (4,717,184) (2,566,101) - (7,283,285)
Change in net unrealised
gains 9,805,381 51,428 (4,322) 9,852,487
Realised (losses)/gains (269,983) 69,528 - (200,455)
------------ ------------ --------- ------------
Closing balance 31 December
2017 43,595,292 9,611,682 981 53,207,955
------------ ------------ --------- ------------
Unrealised gains / (losses)
on investments still held
at 31 December 2017 11,277,740 (1,191,620) (20,845) 10,065,275
============ ============ ========= ============
It is the Company's policy to recognise a change in hierarchy
level when there is a change in the status of the investment, for
example when a listed company delists or vice versa, or when shares
previously subject to a restriction have that restriction released.
The transfers between levels are recorded either on the value of
the investment immediately after the event or the carrying value of
the investment at the beginning of the financial year.
In determining an investment's position within the fair value
hierarchy, the Directors take into consideration the following
factors:
Investments whose values are based on quoted market prices in
active markets are classified within Level 1. These include listed
equities with observable market prices. The Directors do not adjust
the quoted price for such instruments, even in situations where the
Company holds a large position and a sale could reasonably impact
the quoted price.
Investments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer
quotations or alternative pricing sources supported by observable
inputs, are classified within Level 2. These include certain
less-liquid listed equities. Level 2 investments are valued with
reference to the listed price of the shares should they be freely
tradable after applying a discount for liquidity if relevant. As
Level 2 investments include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information. The
Company held no Level 2 investments at 31 December 2018 (31
December 2017: none).
Investments classified within Level 3 have significant
unobservable inputs. They include unlisted debt instruments,
unlisted equity shares and warrants. Level 3 investments are valued
using valuation techniques explained below. The inputs used by the
Directors in estimating the value of Level 3 investments include
the original transaction price, recent transactions in the same or
similar instruments if representative in volume and nature,
completed or pending third-party transactions in the underlying
investment of comparable issuers, subsequent rounds of financing,
recapitalisations and other transactions across the capital
structure, offerings in the equity or debt capital markets, and
changes in financial ratios or cash flows. Level 3 investments may
also be adjusted with a discount to reflect illiquidity and/or
non-transferability in the absence of market information.
Valuation methodology of Level 3 investments
The default valuation technique is of "Latest Recent
Transaction". Where an unquoted investment has been acquired or
where there has been a material arm's length transaction during the
past six months it will be carried at transaction value, having
taken into account of any change in market conditions and the
performance of the investee company between the transaction date
and the valuation date. Where there has been no Latest Recent
Transaction the primary valuation driver is IndexVal. For each core
unlisted investment, the Company maintains a weighted average
basket of listed companies which are comparable to the investment
in terms of commodity, stage of development and location
("IndexVal"). IndexVal is used as an indication of how an
investment's share price might have moved had it been listed.
Movements in commodity prices are deemed to have been taken into
account by the movement of IndexVal.
A secondary tool used by Management to evaluate potential
investments as well as to provide underlying valuation references
for the Fair Value already established is Development Risk Adjusted
Values ("DRAV"). DRAVs are not a primary determinant of Fair Value.
The Investment Manager also prepares discounted cash flow models
for the Company's core investments annually and also for
significant new information and decision making purposes when
required. From these, DRAVs are derived. The computations are based
on consensus forecasts for long term commodity prices and investee
company management estimates of operating and capital costs. The
Investment Manager takes account of market, country and development
risks in its discount factors.
The valuation technique for Level 3 investments can be divided
into five groups:
i. Transaction
Where there have been transactions within the past 6 months
either through a capital raising by the investee company or known
secondary market transactions, representative in volume and nature
and conducted on an arm's length basis, this is taken as the
primary driver for valuing Level 3 investments, having taken into
account of any change in market conditions and the performance of
the investee company between the transaction date and the valuation
date.
ii. IndexVal
Where there have been no known transactions for 6 months, at the
Company's half year and year end, movements in IndexVal will
generally be taken into account in assessing Fair Value where there
has been at least a 10% movement in IndexVal over at least a six
month period. The IndexVal results are used as an indication of
trend and are viewed in the context of investee company progress
and any requirement for finance in the short term for further
progression.
iii. Royalty Valuation Model
Royalties are valued on projected cashflows taking into account
expected time to production and development risk and adjusted for
movement in commodity prices.
iv. Warrants
Warrants are valued using a simplified Black Scholes model
taking into account time to expiry, exercise price and volatility.
Where there is no established market for the underlying shares the
average volatility of the companies in that investment's basket of
IndexVal comparables is utilised in the Black Scholes model.
v. Convertible loans
Convertible loans are valued at fair value through profit or
loss, taking into account credit risk and the value of the
conversion aspect.
Quantitative information of significant unobservable inputs -
Level 3
Range
2018 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 9,223,833 Transaction Private transactions n/a
Unlisted Equity 9,355,029 IndexVal Change in IndexVal n/a
Unlisted Equity 6,163,793 Royalty Valuation Exploration n/a
model results
Unlisted Equity 315,419 Other Exploration n/a
results, study
results, financings
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 2,749,620 estimated recovery range +/- 50%
Valued at fair
value with reference
to credit risk
Other Convertible and value of embedded Rate of Credit
Debentures/Loans 13,068,581 derivative Risk 20%-40%
Simplified Black
Warrants 30,044 Scholes Model Volatilities 50%
Range
2017 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 33,443,276 Transaction Private transactions n/a
Unlisted Equity 10,009,161 IndexVal Change in IndexVal n/a
Unlisted Equity 142,854 Other Exploration n/a
results, study
results, financings
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 2,589,715 estimated recovery range +/- 50%
Valued at fair
value with reference
to credit risk
Other Convertible and value of embedded Rate of Credit
Debentures/Loans 7,021,967 derivative Risk 20%-40%
Simplified Black
Warrants 981 Scholes Model Volatilities 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.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 investments
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2018 are as shown below:
Description Input Sensitivity Effect on Fair
used* Value (GBP)
Unlisted Equity Change in IndexVal +/-31% +/-2,900,059
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/- 915,320
Others/Loans Risk discount rate +/-20% +/- 2,241,196
Warrants Volatility of 40% +70/-50% +37,625/-30,044
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
2017 are as shown below:
Description Input Sensitivity Effect on Fair
used* Value (GBP)
Unlisted Equity Change in IndexVal +/-31% +/-3,102,840
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/-863,238
Others/Loans Risk discount rate +/-20% -244,066/+244,066
Warrants Volatility of 40% +/-20% +1,426/-703
*The sensitivity analysis refers to a percentage amount added or
deducted from the input and the effect this has on the fair value.
The 31% sensitivity was used as this was the highest movement
observed for IndexVal for the comparable baskets in the year
(2017:31%).
The Company has not disclosed the fair value for financial
assets such as cash and cash equivalents and short-term receivables
and payables, because their carrying amounts are a reasonable
approximation of fair values.
4. RISK MANAGEMENT POLICIES AND DISCLOSURES
The Company's principal financial instruments comprise financial
assets, primarily unlisted equity investments and loans in natural
resources companies. The portfolio is concentrated on projects on
the large liquid commodity markets and diversified in terms of
geography. These investments reflect the core of the Company's
investment strategy.
The Company manages its exposure to key financial risks
primarily through diversification of geography and commodity, and
through technical and legal due diligence. The objective of the
policy is to support the delivery of the Company's core investment
objective whilst maintaining future financial security. The main
risks that could adversely affect the Company's financial assets or
future cash flows are market risk (comprising market price risk,
currency risk and interest rate risk), commodity price risk,
liquidity risk, concentration risk and credit risk.
The Company's financial liabilities principally comprise fees
payable to various parties and arise directly from its
operations.
Risk exposures and responses
The Company's Board of Directors oversees the management of
financial risks, each of which is summarised below.
a) Market risk
Market risk is the risk that the fair value of a financial
instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: market price risk,
currency risk and interest rate risk.
i. Market price risk
Market price risk is the risk that the fair value of future cash
flows will fluctuate because of changes in the market prices of the
Company's investment portfolio.
The following illustrates the sensitivity of the income to an
increase or decrease of 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 2018. The sensitivity analysis assumes all other
variables are held constant.
The impact of a 10% decrease in the value of investments on the
financial assets at fair value of the Company as at 31 December
2018 would have been a decrease of GBP6,201,994 (31 December 2017:
GBP6,507,024). An increase of 10% would increase the NAV by
GBP6,201,994 (31 December 2017: GBP6,507,024). In practice, the
actual results may differ from the sensitivity analysis above and
the difference could be material.
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
2018.
31 December 2018
The table below shows the currencies and amounts the Company was
exposed to at 31 December 2018 and 31 December 2017.
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 12,960,918 0.5530 7,166,842 10.86
CAD 5,849,807 0.5749 3,363,273 5.09
EUR 4,439,852 0.8983 3,988,412 6.04
GBP 27,797,348 1.0000 27,797,348 42.10
NOK 24,535,256 0.0905 2,220,894 3.36
USD 27,392,449 0.7846 21,491,015 32.55
66,027,784 100.00
---------- ---------------
31 December 2017
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 5,744,337 0.5781 3,320,579 5.04
CAD 16,832,962 0.5900 9,931,443 15.06
EUR 3,031,459 0.8884 2,693,210 4.09
GBP 8,861,593 1.0000 8,861,593 13.44
NOK 22,915,256 0.0904 2,071,322 3.14
USD 52,780,548 0.7399 39,053,309 59.23
65,931,456 100.00
----------- ---------------
At 31 December 2018 and 31 December 2017, had any foreign
currencies strengthened or weakened by 10% relative to Sterling,
with all other variables held constant, total equity would have
increased or decreased by the amounts shown below.
2018 2017
Currency Value Value
GBP GBP
AUD 716,684 332,058
CAD 336,327 993,144
EUR 398,841 269,321
NOK 222,089 207,132
USD 2,149,102 3,905,331
3,823,043 5,706,986
--------- ---------
The estimated movement is based on management's determination of
a reasonably possible change in foreign exchange rates. In
practice, the actual results may differ from the sensitivity
analysis above and the difference could be material.
iii. Interest rate risk
Although the Company's financial assets and liabilities expose
it indirectly to risks associated with the effects of fluctuations
in the prevailing levels of market interest rates on its financial
position and fair value, it is subject to little direct exposure to
interest rate fluctuations as the majority of the financial assets
are equity investments or similar investments which do not pay
interest. For valuation purposes convertible loans all have fixed
interest rates and are treated more like quasi equity albeit with
higher ranking than equity. As such they are not directly exposed
to interest rates from a cash flow perspective. Any excess cash and
cash equivalents are invested at short-term market interest rates
which expose the Company, to a limited extent, to interest rate
risk and corresponding gains/losses from a change in the fair value
of these financial instruments.
The table below summarises the Company's exposure to interest
rate risk. It includes the Company's assets and liabilities at fair
values, categorised by the earlier of contractual re-pricing or
maturity dates.
At 31 December 2018 Up to More than Non-interest
1 month 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 3,811,921 - - 3,811,921
Financial assets held at fair value through profit or loss - 62,019,940 - 62,019,940
Other receivables - - 385,659 385,659
Total Assets 3,811,921 62,019,940 385,659 66,217,520
========= ========== ============ ==========
Liabilities
Other liabilities - - 189,736 189,736
Total Liabilities - - 189,736 189,736
========= ========== ============ ==========
Interest rate sensitivity gap 3,811,921 62,019,940
========= ==========
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 2017 Up to More than Non-interest
1 month 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 1,060,077 - - 1,060,077
Financial assets held at fair value through profit or loss - 9,611,682 55,458,562 65,070,244
Other receivables - - 15,406 15,406
Total Assets 1,060,077 9,611,682 55,473,968 66,145,727
========== ========= ============ ===========
Liabilities
Other liabilities - - 214,271 214,271
Total Liabilities - - 214,271 214,271
========== ========= ============ ===========
Interest rate sensitivity gap 1,060,077 9,611,682
========== =========
Interest rate sensitivity
It is the opinion of the Directors that the financial statements
of the Company are not materially exposed to interest rate risk and
accordingly no interest rate sensitivity calculation has been
provided in these financial statements.
b) Commodity price risk
The Company is exposed to the risk of fluctuations in prevailing
market commodity prices through its investment portfolio. Commodity
price risk is beyond the Company's control but will be mitigated to
a certain extent as a result of the Company's diversified portfolio
as long as commodity prices remain uncorrelated. It is not possible
to quantify within reasonable ranges the impact of commodity price
changes on the valuation of the Company's investments although it
will be reflected in the value of IndexVal and in the price of
financings within the investment and therefore be reflected in
carrying value. In general, long term commodity price increases
should give rise to an increase in fair value of the Company's
investments, and vice-versa.
c) Liquidity risk
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations 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 NAV but the Company's policy is to restrict any such borrowings
to temporary purposes only, such as settlement mis-matches.
The table below analyses the Company's financial assets and
liabilities into relevant maturity groupings based on the remaining
period at the Statement of Financial Position date to the
contractual maturity date. The amounts in the table are the
undiscounted contractual cash flows.
At 31 December 2018 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 3,811,921 - - - - 3,811,921
Financial assets held at fair value
through profit
or loss - - 295,870 14,544,619 47,179,451 62,019,940
Receivables 385,659 - - - - 385,659
--------- ---------- ----------- ---------- -------------- ----------
Total Assets 4,197,580 - 295,870 14,544,619 47,179,451 66,217,520
========= ========== =========== ========== ============== ==========
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 28,750 103,436 57,550 - - 189,736
--------- ---------- ----------- ---------- -------------- ----------
Total Liabilities 28,750 103,436 57,550 - - 189,736
========= ========== =========== ========== ============== ==========
Net assets attributable to shareholders 66,027,784
==========
At 31 December 2017 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 1,060,077 - - - - 1,060,077
Financial assets held at fair value
through profit
or loss - 981 - 9,611,682 55,457,581 65,070,244
Receivables 15,406 - - - - 15,406
--------- ---------- ----------- --------- -------------- -----------
Total Assets 1,075,483 981 - 9,611,682 55,457,581 66,145,727
========= ========== =========== ========= ============== ===========
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 28,750 88,251 97,270 - - 214,271
--------- ---------- ----------- --------- -------------- -----------
Total Liabilities 28,750 88,251 97,270 - - 214,271
========= ========== =========== ========= ============== ===========
Net assets attributable to shareholders 65,931,456
===========
The value of the cash and listed equity positions held by the
Company at the year end is GBP24,925,542 (2017: GBP12,922,366) with
the total liabilities at the year end at GBP189,736 (2017:
GBP214,271). The Company therefore has minimal liquidity risk
exposure.
d) Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full as they fall due. The Company has exposure to
credit risk in relation to its cash balances, debt instruments,
loan and loan notes as stated in the Statement of Financial
Position.
The Company seeks to mitigate this risk by lending to companies
with projects which have significant value over and above the value
of the debt in such company so that there is a significant equity
"buffer". The maximum credit risk for the Company is GBP19,630,122
(2017: GBP10,671,759).
As at 31 December 2018, the Company's financial assets exposed
to credit risk were held with the following ratings:
Financial Assets Counterparty **Credit 2018
Rating % of net assets
Debt instruments
-Convertible Loan Note Anglo Saxony Mines Limited NR* 1.53
-Convertible Loan & Loan Note Bilboes Gold Limited NR* 1.69
-Convertible Loan Note Black Pearl Limited Partnership NR* 4.16
-Convertible Loan Note Cemos Group Plc NR* 5.50
-Convertible Loan Note Indian Pacific Resources Limited NR* 0.27
-Loan Note 1 PRISM Diversified Limited NR* 0.45
-Loan Note 2 PRISM Diversified Limited NR* 0.07
-Convertible Loan Note Futura Resources Limited NR* 10.29
Cash and cash equivalents HSBC Bank Plc A** 5.77
Total 29.73
===============
As at 31 December 2017, the Company's financial assets exposed
to credit risk were held with the following weight:
Financial Assets Counterparty **Credit 2017
Rating % of net assets
Debt instruments
-Convertible Loan Note Black Pearl Limited Partnership NR* 3.93
-Convertible Loan & Loan Note Bilboes Gold Limited NR* 1.34
-Convertible Loan Note Cemos Group Plc NR* 4.10
-Convertible Loan Note Indian Pacific Resources Limited NR* 0.35
-Loan Note Ironstone Resources Limited NR* 0.48
-Convertible Loan Note Queensland Coal Investment Holdings NR* 4.38
Cash and cash equivalents HSBC Bank Plc AA-** 1.61
Total 16.19
===============
* No rating available
**As per S&P as at 31 December 2018 and 2017
e) Concentration risk
The Company's current investment policy is to invest in natural
resources companies, both listed and unlisted, that the Investment
Manager considers to be undervalued and that have strong
fundamentals and attractive growth prospects which means that the
Company has significant concentration risk relating to natural
resources companies.
Concentration risks include, but are not limited to natural
resources asset category (such as gold) and geography. The Company
may at certain times hold relatively few investments. The Company
could be subject to significant losses if it holds a large position
in a particular investment that declines in value or is otherwise
adversely affected, including by the default of the issuer. Such
risks potentially could have a material adverse effect on the
Company's financial position, results of operations, business
prospects and returns to investors. The Company's investments are
geographically diverse reducing this aspect of concentration risk.
In terms of commodity, the portfolio is likewise diversified in the
large liquid markets of silver, gold, iron ore, coal, copper,
platinum group metals, nickel and oil to mitigate this aspect of
concentration risk.
The Company's investment in Polymetal International Plc
("Polymetal") made up 28.91% of net assets at year end. Polymetal
whose shares are listed on the London Stock Exchange had a market
capitalisation of approximately GBP4 billion as at 31 December
2018. The Company's shares in Polymetal represented less than 3
days of Polymetal's average daily turnover in 2018.
5. 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 exemption fee of
GBP1,200 (2017: GBP1,200) has been paid.
6. ADMINISTRATION FEES
The Administrator, HSBC Securities Services (Guernsey) Limited,
is paid fees for acting as administrator of the Company at the rate
of 7 basis points of gross asset value up to US$250 million; the
rate reduces to 5 basis points of gross asset value above US$250
million. The Administrator is also reimbursed by the Company for
reasonable out-of-pocket expenses. These fees are calculated and
accrued as at the last business day of each month and paid monthly
in arrears.
The Administrator is also entitled to a fee for its provision of
corporate secretarial services provided to the Company on a time
spent basis and subject to a minimum annual fee of GBP40,000. The
Company is also responsible for any sub-administration fees as
agreed in writing from time to time, and reasonable out-of-pocket
expenses. The Administrator is also entitled to fees of EUR5,000
for preparation of the financial statements of the Company.
The administration fees payable for the year ended 31 December
2018 were GBP100,111 (2017: GBP96,711) of which GBP16,731 (2017:
GBP54,221) was payable at 31 December 2018. HSBC Securities
Services (Ireland) DAC, the sub-Administrator, is paid a portion of
these fees by the Administrator.
7. MANAGEMENT AND PERFORMANCE FEES
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the "Management Agreement").
The Company pays to the Manager a management fee which is equal to
1/12th of 1.75 per cent of the total average market capitalisation
of the Company during each month. The management fee is calculated
and accrued as at the last business day of each month and is paid
monthly in arrears. The Investment Manager's fees are paid by the
Manager.
The management fee for the year ended 31 December 2018 was
GBP928,850 (2017: GBP768,116) of which GBP75,370 (2017: GBP74,679)
was outstanding at the year end.
The Manager is also entitled to a performance fee. The
Performance Period is each 12 month period ending on 31 December in
each year (the "Performance Period"). The amount of the performance
fee is 15 per cent of the total increase in the NAV, if the Hurdle
has been met, at the end of the relevant Performance Period, over
the highest previously recorded NAV as at the end of a Performance
Period in respect of which a performance fee was last accrued,
having made adjustments for numbers of Ordinary Shares issued
and/or repurchased. In addition, the performance fee will only
become payable if there have been sufficient net realised
gains.
There were no performance fees for the current or prior
period.
If the Company wishes to terminate the Management Agreement
without cause it is required to give the Manager 12 months prior
notice or pay to the Manager an amount equal to: (a) the aggregate
investment management fee which would otherwise have been payable
during the 12 months following the date of such notice (such amount
to be calculated for the whole of such period by reference to the
Market Capitalisation prevailing on the Valuation Day on or
immediately prior to the date of such notice); and (b) any
performance fee accrued at the end of any Performance Period which
ended on or prior to termination and which remains unpaid at the
date of termination which shall be payable as soon as, and to the
extent that, sufficient cash or other liquid assets are available
to the Company (as determined in good faith by the Directors),
provided that such accrued performance fee shall be paid prior to
the Company making any new investment or settling any other
liabilities; and (c) where termination does not occur at 31
December in any year, any performance fee accrued at the date of
termination shall be payable as soon as and to the extent that
sufficient cash or other liquid assets are available to the Company
(as determined in good faith by the Directors), provided that such
accrued performance fee shall be paid prior to the Company making
any new investment or settling any other liabilities.
8. OTHER EXPENSES
2018 2017
TOTAL TOTAL
GBP GBP
Registrar fees 36,739 22,291
Listing fees 10,398 10,971
Regulatory fees 13,854 7,908
Public relation fee expense 7,500 -
Income tax exemption 1,200 1,200
Website expenses 1,000 2,700
Miscellaneous expenses 9,753 12,880
-------
80,444 57,950
======= =======
9. CASH AND CASH EQUIVALENTS
2018 2017
GBP GBP
Cash at HSBC Bank plc 3,811,921 1,060,077
========== ==========
10. SHARE CAPITAL
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
The Company has a total of 116,129,980 (2017: 116,129,980)
Ordinary Shares in issue with additional 700,000 (2017: 700,000)
held in treasury. In addition, the Company has 10,000 (2017:
10,000) Management Ordinary Shares in issue, which are held by the
Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment
of the Official List of the London Stock Exchange. Holders of
Ordinary Shares have the right to receive notice of and to attend
and vote at general meetings of the Company.
Each holder of Ordinary Shares being present in person or by
proxy at a meeting will, upon a show of hands, have one vote and
upon a poll each such holder of Ordinary Shares present in person
or by proxy will have one vote for each Ordinary Share held by
him.
Holders of Management Ordinary Shares have the right to receive
notice of and to attend and vote at general meetings of the
Company, except that the holders of Management Ordinary Shares are
not entitled to vote on any resolution relating to certain specific
matters, including a material change to the Company's investment
objective, investment policy or borrowing policy. Each holder of
Management Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll
each such holder of Management Ordinary Shares present in person or
by proxy will have one vote for each Management Ordinary Share held
by him. Holders of Ordinary Shares and Management Ordinary Shares
are entitled to receive, and participate in, any dividends or other
distributions out of the profits of the Company available for
dividend and resolved to be distributed in respect of any
accounting period or other income or right to participate
therein.
The details of issued share capital of the Company are as
follows:
2018 2017
Amount No. of shares** Amount No. of shares**
GBP GBP
Issued and fully paid share
capital
Ordinary Shares of no par value* 81,175,017 116,839,980 81,175,017 116,839,980
(including Management Ordinary
Shares)
Treasury Shares (140,492) (700,000) (140,492) (700,000)
The outstanding Ordinary Shares during the year ended 31
December 2018 were as follows:
Ordinary Shares Treasury Shares
No. of
Amount No. of shares** Amount shares
GBP GBP
Balance at 1 January 2018 &
31 December 2018 81,175,017 116,139,980 140,492 700,000
----------- ---------------- ------------ ------------
The issue of Ordinary Shares during the year ended 31 December
2017 took place as follows:
Ordinary Shares Treasury Shares
No. of
Amount No. of shares** Amount shares
GBP GBP
Balance at 1 January 2017 &
31 December 2017 81,034,525 116,139,980 140,492 700,000
----------- ---------------- ------------------------ --------
* On 9 March 2010, 1 Management Ordinary Share was issued and on
26 March 2010, 9,999 Management Ordinary Shares were issued.
** Includes 10,000 Management Ordinary Shares
Capital Management
The Company regards capital as comprising its issued Ordinary
Shares. The Company does not have any debt that might be regarded
as capital. The Company's objectives in managing capital are:
-- To safeguard its ability to continue as a going concern and
provide returns to shareholders in the form of capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities or related instruments of natural
resources companies;
-- To allocate capital to those assets that the Directors
consider are most likely to provide the above returns; and
-- To manage, so far as is reasonably possible, any discount
between the Company's share price and its NAV per Ordinary
Share.
The Company has continued to hold sufficient cash and listed
assets positions to enable it to meet its obligations as they arise
and the Investment Manager provides the Directors with reporting on
the activities of the investments of the Company such that they can
be satisfied with the allocation of capital.
As discussed in the Strategic Report, in August 2015 the Company
introduced a share buyback programme with the objective of managing
the discount the Company's shares trade at as compared to its NAV.
The Company has repurchased 700,000 shares at an average price of
20 pence per share through this programme and the repurchased
shares are held in Treasury.
As described in the Directors' Report on page 17, the Company
has a policy to distribute at least 15 per cent of net realised
cash gains after deducting losses during the financial year through
dividends or otherwise. The Company has a realised net gain per the
Statement of Comprehensive Income and realised an aggregate cash
gain for the year ended 31 December 2018.
As a result of the reorganisation of Polar Acquisition Limited
during the year, the Company received cash and share dividends of
Polymetal International Plc ("Polymetal") shares totalling GBP20.4
million. The Board considers the Polymetal shares to be
sufficiently liquid so as to be considered in the calculation of
net realised cash gains in the spirit of the policy and therefore
is recommending to shareholders a distribution of GBP4 -
GBP5million being approximately 25% of the net realised gain, to be
made via a tender offer. Details of the proposed tender offer are
expected to be posted to shareholders shortly.
The Company has authority to make market purchases of up to
14.99 Per Cent of its own Ordinary Shares in issue. A renewal of
such authority is sought from Shareholders at each Annual General
Meeting of the Company or at a General Meeting of the Company, if
required. Any purchases of Ordinary Shares will be made within
internal guidelines established from time to time by the Board and
within applicable regulations.
The Company is not subject to any externally imposed capital
requirements.
11. COMMITMENTS
The Company has guaranteed EUR1.7 million of vendor financing
from Loesche GmbH to Cemos Group plc in relation to the development
of the Tarfaya project in Morocco. The Company has also provided a
letter of comfort regarding a EUR1.35 million overdraft facility
for Cemos with the Bank of Morocco. During 2018, the Company
accrued a fee of GBP346,744 in respect of the guarantee of the
Loesche vendor financing and of GBP12,207 in respect of the comfort
letter regarding the overdraft facility.
This fee has been recognised over time in accordance with IFRS
15. The terms of this agreement are that the Company will subscribe
for up to EUR2,125,000 convertible loan stock of Cemos Group Plc to
enable them to make their loan repayment and as such no financial
liability has been recognised within the financial statements.
12. RELATED PARTY TRANSACTIONS
The Directors' interests in the share capital of the Company
were:
Number of Number of
Ordinary Shares Ordinary Shares
2018 2017
Christopher Sherwell 104,198 104,198
Clive Newall 25,000 25,000
The Investment Manager, Baker Steel Capital Managers LLP had an
interest in 10,000 Management Ordinary Shares at 31 December 2018
(31 December 2017: 10,000).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest in 7,469,609 Ordinary Shares in the
Company at 31 December 2018 (2017: 7,469,609). These shares are
held in a custodian account with Citibank N.A. London. Precious
Metals Fund shares a common Investment Manager with the
Company.
As a result of the sale of PAL's 90% interest in Polar Silver to
Polymetal on 13 April 2018, the vesting of the shares issued under
a PAL long term incentive plan was accelerated. A total of 1,593
PAL shares (4.9% of PAL on a fully diluted basis) valued at GBP2.79
million based on the price of Polymetal shares on 12 April 2018
were issued to the four directors of PAL including to Mr Trevor
Steel. The shares issued to Mr Steel were allocated 48.3% to the
Company to reflect his investment management role, and BSRT's
percentage economic ownership of PAL, and the balance 51.7% to the
Manager, to reflect his role as executive chairman of PAL.
The Company's Associates and Subsidiaries are described in Note
15 and 16 to these financial statements.
The Management fees and Directors' fees payable and accrued for
the year were:
2018 2017
Management fees 928,850 768,116
Directors' fees 115,000 115,000
The Management fees and Directors' fees outstanding at the year
end were:
2018 2017
Management fees 75,370 74,679
Directors' fees 28,750 28,750
13. NET ASSET VALUE PER SHARE AND LOSS PER SHARE
Net asset value per share is based on the net assets of
GBP66,027,784 (31 December 2017: GBP65,931,456) and 116,139,980 (31
December 2017: 116,139,980) Ordinary Shares, being the number of
shares in issue at the year end. The calculation for basic and
diluted NAV per share is as below:
31 December 2018 31 December 2017
Ordinary Shares Ordinary Shares
Net assets at the year end (GBP) 66,027,784 65,931,456
Number of shares 116,139,980 116,139,980
Net asset value per share (in pence)
basic and diluted 56.9 56.8
Weighted average number of shares 116,139,980 116,139,980
The basic and diluted gain per share for 2018 is based on the
net gain for the year of the Company of GBP96,328 and on
116,139,980 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year.
The basic and diluted gain per share for 2017 is based on the
net gain for the year of the Company of GBP10,323,666 and on
116,139,980 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year.
14. NET ASSET VALUE
The following table reconciles the published Net Asset Value
("NAV") to the audited NAV shown in the financial statements for
the year ended 31 December 2018. The carrying value of Futura was
adjusted in the financial statements for the year ended 31 December
2018.
31 December 2018 31 December 2017
GBP GBP
Published NAV 67,681,014 65,931,456
Reduction in the value of Futura (1,653,395) -
Reduction in fees 165 -
----------------- -----------------
Audited NAV 66,027,784 65,931,456
================= =================
15. INVESTMENT IN ASSOCIATES
The interests in the below companies are for investment purposes
and they are deemed associates by virtue of the Company having
appointed a non-executive director ("NED") and/or holding in excess
of 20% of the voting rights of the relevant company. Investments in
associates are carried at fair value as they are held as part of
the investment portfolio which is evaluated on a fair value
basis.
Country of Incorporation
Investment Incorpo Incorpo Voting Rights held NED Appointed
Cemos Group Limited Jersey 25.70% Yes
Bilboes Gold Limited Mauritius 21.70% Yes
PRISM Diversified Canada Yes
Limited 16.40%
Nussir ASA Norway 14.10% Yes
India Pacific Resources Australia Yes
Limited 10.50%
Futura Resources Australia Convertible Loan Yes
Anglo Saxony Mining England and Wales Convertible Loan Yes
Polar Acquisition British Virgin Yes
Limited Islands 47.50%
16. SUBSIDIARY COMPANIES
At 31 December 2017, the Company held a 75.9% undiluted interest
which constituted control in PAL, a Company incorporated in the
British Virgin Islands. However, during the year a number of
options and convertible loans were exercised such that at 31
December 2018 the Company's undiluted and fully diluted interest
was 47.8%. Accordingly at 31 December 2018, PAL is no longer
regarded as a subsidiary.
17. SUBSEQUENT EVENTS
Since 31 December 2018, the Company has acquired a 0.75% gross
revenue royalty over Futura Resources Limited's two coking coal
projects in Australia for A$6 million; subscribed for a further
GBP1 million convertible loan notes in Anglo Saxony Mining; and
agreed to subscribe US$3 million in convertible loan notes in
Azarga Metals Corp.
There were no other events subsequent to the year-end that
materially impacted on the Company that require disclosure or
adjustment to these financial statements.
18. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL
STATEMENTS
The Annual Report and Audited Financial Statements for the
year-end 31 December 2018 were approved by the Board of Directors
on 8 April 2019.
Appendix - additional information (UnAUDITED)
REMUNERATION DETAILS FOR INVESTMENT MANAGER'S STAFF
As noted earlier, under AIFMD, the Investment Manager received
approval to act as a full scope UK AIFM to the Company as of 22
July 2014. Pursuant to Article 22(2)9e) and (f) of AIFMD, an AIFM
must, where appropriate for each AIF it manages, make an annual
report available to the AIF investors. The annual report must
contain, amongst other items, the total amount of remuneration paid
by the AIFM to its staff for the financial year, split into fixed
and variable remuneration including, where relevant, any carried
interest paid by the AIF, along with the aggregate remuneration
awarded to senior management and members of staff whose actions
have a material impact on the risk profile of the AIF.
For the year ended 31 December 2018 there was no fixed
remuneration paid to members of the LLP as Investment Manager.
Variable remuneration amounted to GBP346,264. No carried interest
was paid by the Company. These figures represent the aggregate
remuneration paid to members of the LLP as Investment Manager for
the year ended 31 December 2018. The total remuneration of the
individuals whose actions have a material impact upon the risk
profile of the AIF managed by the AIFM amounted to GBP283,094.
The total AIFM remuneration attributable to senior management
was GBP57,507, and amounts attributable to other Identified Staff
in the year was GBP37,457. The remuneration figures reflect an
approximation of the portion of AIFM remuneration reasonably
attributable to the AIF.
GLOSSARY OF TERMS
4PE - Platinum, Palladium, Gold and Rhodium
AIF - Alternative Investment Fund
AIFM - Alternative Investment Fund Manager
AIFMD - Alternative Investment Fund Managers Directive
BSRT - Baker Steel Resources Trust Limited
Commission - Guernsey Financial Services Commission
DRAVs - Development Risk Adjusted Values
DRC -- Democratic Republic of Congo
EU - European Union
EGM - Extraordinary General Meeting
FCA - Financial Conduct Authority
FRC - Financial Reporting Council
FVO - Fair value option
FVOCI- Fair value through other comprehensive income
FVTPL - Fair value through profit or loss
GFSC - Guernsey Financial Services Commission
GFSC Code - Guernsey Financial Services Commission Code of
Corporate Governance
g/t - Grams per tonne
IAS - International Accounting Standards
ITG - IFRS Transition Resource Group of Impairment of Financial
Instruments
IFRS - International Financial Reporting Standards as adopted by
the European Union
IndexVal - Where there have been no known transactions for 6
months, at the Company's half year and year-end, movements in
IndexVal will generally be taken into account in assessing Fair
Value where there has been at least a 10% movement in IndexVal over
at least a six month period. The IndexVal results are used as an
indication of trend and are viewed in the context of investee
company progress.
IPO - Initial Public Offering (stock market launch)
JORC - AUSTRALASIAN JOINT ORE RESERVES COMMITTEE
The Code for Reporting of Mineral Resources and Ore Reserves
(the JORC Code) of the Australasian Joint Ore Reserves Committee
(JORC) is widely accepted as a standard for professional reporting
of mineral resources and ore reserves. Mineral resources are
classified as 'Inferred', 'Indicated' or 'Measured', while ore
reserves are either 'Probable' or 'Proven'.
Mt - million tonnes
NAV - Net Asset Value
NI 43-101 - CANADIAN NATIONAL INSTRUMENT 43-101
Canadian National Instrument 43-101 is a mineral resource
classification instrument which dictates reporting and public
disclosure of information in Canada relating to mineral
properties.
NAV Discount - NAV to market price discount The Net Asset Value
("NAV") per share is the value of all the investment company's
assets, less any liabilities it has, divided by the number of
shares. However, because the Company's Ordinary Shares are traded
on the London Stock Exchange's Main Market, the share price may be
higher or lower than the NAV. The difference is known as a discount
or premium. The Company's discount is calculated by expressing the
difference between the period end dollar equivalent share price and
the period end NAV per share as a percentage of the NAV per share
(2018: 0.32%, 2017: 5.5%).
OCI - Other comprehensive income
PEA - Preliminary Economic Assessment
SORP - Statement of Recommended Practice issued by The
Association of Investments Companies dated November 2014
UK Code - UK Corporate Governance Code published by the
Financial Reporting Council in September 2014.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSEFMUFUSEEL
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