TIDMBSRT
RNS Number : 0886Z
Baker Steel Resources Trust Ltd
16 September 2020
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the
provisions of The Companies (Guernsey) Law, 2008 as amended)
16 September 2020
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
Half-Yearly Report and Unaudited Condensed Interim Financial
Statements
For the period from 1 January 2020 to 30 June 2020
The Company has today, in accordance with DTR 6.3.5, released
its Half-Yearly Report and Unaudited Condensed Interim Financial
Statements for the period ended 30 June 2020. 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 + 44 (0)1481 717 852
Company Secretary
DIRECTORS: Howard Myles (Chairman)
Charles Hansard
Clive Newall (resigned 15 September 2020)
Fiona Perrott-Humphrey (appointed 15 September 2020)
David Staples
(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
STOCKBROKERS: 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.
HSBC
Securities
Services
SUB-ADMINISTRATOR TO THE COMPANY: (Ireland) DAC
1 Grand Canal
Square
Grand Canal
Harbour
Dublin 2
Ireland
HSBC France,
CUSTODIAN TO THE COMPANY: Dublin Branch
1 Grand Canal
Square
Grand Canal
Harbour
Dublin 2
Ireland
SAFEKEEPING
AND HSBC France,
MONITORING Dublin
AGENT: Branch
1 Grand Canal
Square
Grand Canal
Harbour
Dublin 2
Ireland
AUDITOR: BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter
Port
Guernsey GY1
3LL
Channel
Islands
REGISTRAR: Computershare
Investor
Services
(Jersey)
Limited
Queensway
House
Hilgrove
Street
St Helier
JE11ES
Jersey
UK PAYING AGENT AND TRANSFER AGENT: Computershare
Investor
Services
(Jersey)
Limited
Queensway
House
Hilgrove
Street
St Helier
JE11ES
Jersey
RECEIVING AGENT: Computershare
Investor
Services
(Jersey)
Limited
Queensway
House
Hilgrove
Street
St Helier
JE11ES
Jersey
PRINCIPAL BANKER: HSBC Bank plc
8 Canada
Square
London E14
5HQ
United
Kingdom
CHAIRMAN'S STATEMENT
For the period from 1 January 2020 to 30 June 2020
During the first six months of 2020, the unaudited net asset
value per share rose 4.5% to 77.2p. The market for mining shares
was extremely volatile during the period, falling sharply in March
2020 along with the rest of the markets and then recovering
strongly in the second quarter with the EMIX Global Mining Index
rising 5.8% in Sterling terms during the half year.
COVID-19
The first half of the year was dominated by the COVID-19
pandemic and commodities and mining both experienced high levels of
volatility. After an initial fall, they rebounded strongly as the
market reacted to the potential inflationary risks that might arise
as a result of high spending and borrowing from governments around
the world and the positive effect this would have on real assets
such as commodities. The rise has been led by gold which is often a
lead indicator but base metals such as copper and tin have also
recently participated in this bullish environment recovering
strongly ahead of potential government spending on infrastructure
in particular where it involves electrification projects.
Generally, producing mines in most parts of the world were not
overly impacted by the spread of the disease as most modern mines
are highly mechanised and able to continue operations under social
distancing rules. The Investment Manager comments in their report
on the effects of COVID-19 on individual investee companies'
operations, but most of the investments are not yet in operation
and so have not been greatly affected. During this period the
Company has not made any new investments but sought to ensure that
its existing portfolio had sufficient working capital to continue
progressing projects.
The Company has been able to operate efficiently during the
global lockdown with the full use of video conferencing and other
electronic media. The main issue has been the Investment Manager's
inability to visit potential and existing operations due to travel
restrictions. However, as the Company is currently fully invested
there is no urgency to visit new prospects and in the meantime, the
Investment Manager has continued to keep in close contact with the
management of all the Company's investments.
Liquidity Diversification
During May 2020, the Company decided to diversify the liquid
portion (listed securities) of its portfolio in the light of the
prevailing volatile markets. The Company's relatively large
holdings in Polymetal International Plc and Ivanhoe Mines Ltd were
reduced and the cash generated from these sales was reinvested in a
spread of listed gold and silver shares utilising the research and
expertise of the Investment Manager's highly rated gold and
precious metals team. Although the primary aim of this strategy has
been to diversify risk whilst maintaining liquidity to provide
working capital until the funds are required for reinvestment in
the Company's core strategy, it has also proved to be a financially
rewarding exercise with the listed precious metals part of the
portfolio rising approximately [42%] from 31 May 2020 to 30 August
2020. This has added approximately 2.2.% to the Company's NAV
during this period.
Board Succession
As discussed in the Chairman's report within the 31 December
2019 annual audited financial statements, the Board has put in
place a succession plan to "refresh" the Board whilst maintaining
continuity. We are pleased to announce that Fiona Perrott-Humphrey
has now joined the Board. Fiona was formerly Head of Mining
Research for Europe and South Africa at Citigroup. She is now a
director of AIM Mining Research and founding director of a
strategic mining consulting business, and an Adviser on the mining
sector to Rothschild and Co. She replaces Clive Newall, and I want
to thank Clive for his invaluable contribution to the Company since
its formation.
Outlook
The second half of 2020 promises to be eventful with Bilboes
Gold and Nussir both seeking finance or a partner to fund the
development of their gold and copper projects respectively after
completing positive Definitive Feasibility Studies earlier this
year. Generally, there remain significant uncertainties as a result
of actual and potential measures introduced to combat the Covid
pandemic. However, with the gold price having risen to over $2,000
per ounce during late July, exceeding its previous high reached in
2011 and currently still close to that level, and with a recent
increase in the copper price, it may be an opportune time to bring
these companies to the market. If the recent recovery in commodity
prices continues, especially gold and silver, and with long term
low or negative real interest rates, a rapid expansion of debt,
historically high levels of economic stimulus and the potential for
growing inflationary pressures, real assets such as commodities and
mining should become increasingly attractive.
Howard Myles
Chairman
15 September 2020
INVESTMENT MANAGER'S REPORT
For the period from 1 January 2020 to 30 June 2020
Financial Performance
The unaudited Net Asset Value per Ordinary Share ("NAV") as at
30 June 2020 was 77.2 pence, an increase of 4.5% in the period but
a decrease of 21.1% from the Company's first NAV calculated on 30
April 2010. During the period the EMIX Global Mining Index was up
5.8% (up 5.3% since 30 April 2010) in Sterling terms.
For the purpose of calculating the NAV per share, unquoted
investments were carried at fair value as at 30 June 2020 as
determined by the Directors and quoted investments were carried at
their quoted prices as at 30 June 2020.
Net assets at 30 June 2020 comprised the following:
GBPm % of net assets
Unquoted Investments 75.9 92.4
Quoted Investments 5.0 6.0
Cash and other net assets 1.3 1.6
------- ------------------
82.2 100.0
Investment Update
Largest 10 Holdings - 30 June 2020 % of NAV
Bilboes Gold Limited 21.5
Futura Resources Limited 16.2
Polar Acquisition Limited 11.4
Cemos Group Plc 8.9
Tungsten West Limited 8.0
Azarga Metals Corporation 4.9
Anglo Saxony Mining Limited 4.3
Mines & Metals Trading (Peru) Plc 4.1
Nussir ASA 3.9
Black Pearl Limited Partnership 3.4
---------
86.6
Other Investments 11.8
Cash and other net assets 1.6
100.0
=========
Largest 10 Holdings - 31 December 2019 % of NAV
Bilboes Gold Limited 15.9
Futura Resources Limited 15.0
Polar Acquisition Limited 11.3
Cemos Group Plc 10.0
Tungsten West Limited 8.0
Polymetal International Plc 6.1
Anglo Saxony Mining Limited 4.6
Mines & Metals Trading (Peru) Plc 4.4
Nussir ASA 4.1
Sarmin Minerals Exploration 3.7
83.1
Other Investments 14.6
Cash and other net assets 2.3
---------
100.0
=========
Review
At the end of June 2020, Baker Steel Resources Trust Limited
(the "Company", "BSRT") was fully invested. During the first half
of 2020 the Company did not make any new core investments though it
did decide to diversify its holdings of Polymetal and Ivanhoe Mines
into a broader base of highly liquid listed precious metals shares.
As a result of the significant uncertainty brought about by the
COVID-19 pandemic, it was decided to diversify the liquid holdings
in the portfolio in order to ensure the availability of funds if
necessary to help the Company's existing investments to weather any
difficulties suffered as a result of the pandemic and keep their
projects moving forward. In accordance with this strategy, the
Company made top-up investments in Nussir, Futura, Mines and Metals
Trading (Peru), PRISM, Azarga Metals Corp and Anglo Saxony
Mining.
During the first half of 2020, commodities were generally
volatile initially falling in March 2020 (as the scale of the
COVID-19 pandemic became apparent) but then rapidly recovering led
by gold (up 17.4%) as the market considered the consequences of
global governments' substantial borrowing to alleviate the
lockdowns in their economies. The main exception to this recovery
was coking coal which fell 23% during the first half of the year.
As a result, Futura has delayed the start-up of its Wilton and
Fairhill metallurgical coal mines in Queensland until the market
for its product stabilises. The price of iron ore, the other main
component for producing steel, has remained strong (up 8% during
the first 6 months of 2020) which suggests that demand for coking
coal will recover later this year.
The Company's largest investment, Bilboes Gold Limited released
the results of its Definitive Feasibility Study ("DFS") on its
Isabella/McCays/Bubi gold project in Zimbabwe at the end of January
2020. The DFS defined an open pit gold mine with a peak production
rate of 203,000 ounces of gold per year averaging 170,000 ounces of
gold over a ten year mine life. There remains significant
exploration upside potential at the project to extend this life
further. The peak funding requirement for the project is US$231
million with cash operating costs of US$691 per ounce of gold and
All-in Sustaining Costs of US$790 per ounce of gold. At a gold
price of US$1,500 per ounce, the project economics show an after
tax NPV (10%) of US$236 million with an internal rate of return of
33% and a payback on investment of just over one year. With the
gold price having recently peaked over US$2,000 per ounce, this
would add approximately US$85 million of revenue per annum to the
project. Bilboes has engaged London based resource specialist
investment bank, Hannam & Partners, as its advisor to raise the
finance to fund the development of the mine or potentially for its
sale. To date there has been significant interest in the project
from both financiers and industry and it is hoped that the position
will be resolved prior to the year end. The main potential
difficulty to this timetable will be the ability of interested
parties to visit the mine due to the current requirement for
quarantine on visiting Zimbabwe.
The Company continues to hold a royalty interest in the Prognoz
silver project in far east Russia, which Polymetal has suggested
will produce approximately 20 million ounces of silver per annum
over an 18 year period. The results of a pre-feasibility study on
the project are due to be released this year. If the recent strong
performance of the silver price is maintained this royalty could
become an important income stream for the Company.
Despite the COVID-19 pandemic, Cemos Group PLC achieved a new
monthly sales record of 22,912 tonnes (t) of cement in June 2020,
representing 92% of installed capacity at its Tarfaya plant in
Morocco. In addition, June quarter sales of 51,484t of cement beat
the previous quarterly record. To date Cemos' operations have been
largely unaffected by the COVID-19 pandemic with no cases recorded
amongst its staff, subcontractors or clients. However, in the light
of recent increases in the reported infection levels in the Saharan
regions of Morocco, Cemos has implemented protocols aimed at
minimising the COVID-19 risk. Cemos is targeting 200,000t in cement
sales and approximately EUR25 million revenue for 2020, an increase
of more than 60% over 2019. It is continuing its investment program
with the installation of two additional 150t capacity cement silos
in July which will allow it to expand its product range to
differing strength cements, as well as preparations for the
installation of a second bag-packing unit, and expansion of the
cement grinding capacity.
During June 2020, Tungsten West Ltd completed a technical and
economic update on its Hemerdon tungsten mine in Devon, UK. The
technical update supported a financial model for a mine producing a
post-tax NPV (5%) of GBP306m, based on capital costs to restart the
mine of GBP35m and a project IRR of 111%. The project has a mine
life of 23 years with the potential for this to be extended, which
produces an estimated EBITDA of GBP35 million per annum with a
project breakeven price of US$135/metric tonne unit APT (ammonium
paratungstate) which would position it in the lowest cost quartile
of tungsten mines globally. Tungsten West is currently progressing
a Definitive Feasibility Study planned for the first half of next
year.
The Company's investment most affected by the COVID-19 pandemic
was Mines & Metals Trading (Peru) PLC (MMTP), which owns the
Recuperada silver/lead/zinc mine in Peru. Initially, the government
of Peru closed down all mines and when MMTP was able to restart its
operations it was only able to do so on a limited basis, albeit
with the rise in the price of silver and the recovery in the prices
of lead and zinc, the operations are still able to generate
positive cashflow. In March 2020, the Company increased its loans
to MMTP by US$1 million to provide it with additional working
capital.
In March 2020, Nussir completed a positive definitive
feasibility study into its Nussir/Ulveryggen in northern Norway.
The DFS was based on a mine producing approximately 15,000 tonnes
of copper per annum with a pre-production capital cost of US$76.1
million. At a long term copper price of US$6,500 per tonne the
economic model gave an NPV (6%) of US$132.6 million with an IRR of
23%. Nussir is fully licenced and is currently examining its
options as to the best way to fund the mine development and realise
the value of the project as well as investigating the potential for
developing the mine on a fully electric basis.
Elsewhere in the Company's portfolio, TSXV listed Azarga Metals
reported positive results of the 2019-2020 Phase 2 drilling program
on its Unkur Copper-Silver Project in Eastern Russia which
demonstrated that the copper-silver mineralization is confirmed
over a strike length of 5.5 kilometres - an extension of 2.1
kilometres over the previous strike. A revised mineral resource
statement is expected in the second half of this year. Anglo Saxony
Mining completed a pre-feasibility study on its Tellerhauser tin
project in Saxony, Germany in April 2020. The study provided a Base
Case that suggests a positive pre-tax cash flow of EUR93 million
over a 12-year mine life with a NPV (5%) of EUR35 million and an
IRR of 10.8% using a US$20,500/t tin price. The project is very
sensitive to the tin price but with tin forecast to be one of the
main beneficiaries of the electrification process, a significant
tin mine in Europe is likely to be of strategic importance. The
COVID-19 pandemic has resulted in a two months delay in Sarmin's
feasibility study for its Kanga Potash Project in the Republic of
Congo, which is now due for completion in September 2020.
During May 2020, the Company decided to diversify the liquid
portion of its portfolio which it considered to be prudent
particularly in the light of current volatile markets. Accordingly,
the majority of the Company's holdings in Polymetal International
Plc and Ivanhoe Mines Ltd were sold and the cash generated from
these sales was reinvested in a spread of listed precious metal
shares. The timing of this has been opportune with the listed
precious metal portfolio rising approximately 42% between 31 May
2020 and the end of August adding approximately 2.2% to the
Company's NAV over this period.
At 30 June 2020 Price / Index % Change in % Change from
Level Six Months Inception
Net Asset Value (pence/share) 77.2 +4.5% -21.1%*
-------------- ------------ --------------
Ordinary Share Price (pence/share) 55.0 +0.9% -45.0%**
-------------- ------------ --------------
EMIX Global Mining Index (GBP) 907.43 +5.8% +5.3%
-------------- ------------ --------------
Chinese Import Iron Ore Fines 62%
Fe spot (US$) 98.45 +8.3% -44.3%
-------------- ------------ --------------
Copper (US$/t) 6,004 -2.3% -19.4%
-------------- ------------ --------------
Gold (US$/oz) 1,781 +17.4% +52.5%
-------------- ------------ --------------
Silver (US$/oz) 18.21 +2.0% +0.2%
-------------- ------------ --------------
Source: Bloomberg closing 27/4/10, **Issue price 28/4/10, * NAV
30/4/10
It is not expected that there will be any significant effect on
the operations of the Company should there be a disorderly
departure by the UK from the European Union with service providers
expecting to able to continue providing the same level of service
post Brexit. In the event of a fall in the value of Sterling
against other major currencies, this would be expected to result in
an increase in the net asset value of the Company in Sterling terms
as the majority of the Company's investments are denominated in
currencies other than Sterling and the underlying commodities of
the projects in which the Company is invested are generally traded
in US Dollars. Conversely a rise in the value of Sterling would
have a negative effect. Other than Tungsten West Ltd almost all the
operations of the Company's investments are outside the UK and
therefore would not be directly affected.
Baker Steel Capital Managers LLP
Investment Manager
September 2020
DIRECTORS' REPORT
For the period from 1 January 2020 to 30 June 2020
The Directors of the Company present the Half-Yearly Report and
Unaudited Condensed Interim Financial Statements for the six months
ended 30 June 2020.
The Directors' Report contains information that covers this
period and the period up to the date of publication of this Report.
Please note that more up to date information is available on the
Company's website www.bakersteelresourcestrust.com .
Principal activity and business review
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
on 9 March 2010 in Guernsey under the Companies (Guernsey) Law,
2008 with registration number 51576. The Company is a registered
closed-ended investment scheme registered pursuant to the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended ("POI Law") and the Registered Collective Investment Scheme
Rules 2015 issued by the Guernsey Financial Services Commission
("GFSC"). On 28 April 2010 the Ordinary Shares and Subscription
Shares of the Company were admitted to the Official List of the UK
Listing Authority and to trading on the Main Market of the London
Stock Exchange, Premium Segment.
Investment Objective
The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting
principally of the equities, loans or related instruments of
natural resources companies. The Company invests predominantly in
unlisted companies (i.e. those companies that have not yet made an
initial public offering ("IPO")) but also in listed securities
(including special situations opportunities and less liquid
securities) with a view to making attractive investment returns
through the uplift in value resulting from the development
progression of the investee companies' projects and through
exploiting value inherent in market inefficiencies and pricing
anomalies.
Performance
During the period ended 30 June 2020, the Company's NAV per
Ordinary Share increased by 4.5% and the share price increased 0.5p
on the London Stock Exchange. This compares with a rise in the EMIX
Global Mining Index (capital return in Sterling terms) of 5.8%%. A
more detailed explanation of the performance of the Company is
provided within the Investment Manager's Report on pages 4 to
6.
The results for the period are shown in the Statement of
Comprehensive Income on pages 14 and 15 and the Company's financial
position at the end of the period is shown in the Statement of
Financial Position on page 13.
Dividend and distribution policy
During the year ended 31 December 2015 the Board introduced a
capital returns policy whereby, subject to applicable laws and
regulations, it will allocate cash for distributions to
shareholders. The amount to be distributed will be calculated and
paid following publication of the Company's audited financial
statements for each year and will be no less than 15% of the
aggregate net realised cash gains (after deducting losses) in that
financial year. The Board will retain discretion for determining
the most appropriate manner to make such distribution which may
include share buybacks, tender offers and dividend payments.
Directors and their interests
The Directors of the Company who served during the period and up
until the date of signing of the financial statements are:
Howard Myles (Chairman)
Charles Hansard
Clive Newall (resigned 15 September 2020)
Fiona Perrott-Humphrey (appointed 15 September 2020)
David Staples
Biographical details of each of the Directors who were on the
Board of the Company at the time of signing the annual report and
financial statements for the year ended 31 December 2019 ("the
Annual Report") are presented on page 17 of that report.
Fiona Perrot-Humphrey was formerly Head of Mining Research for
Europe and South Africa at Citigroup. She is now a director of AIM
Mining Research and founding director of a mining strategic
consulting business, and an Adviser on the mining sector to
Rothschild and Co.
Each of the Directors is considered to be independent in
character and judgement.
The Directors' interests in the share capital of the Company
were:
Number of Number of
Ordinary Shares Ordinary Shares
30 June 2020 31 December 2019
Clive Newall 25,000 25,000
Attendance at the Board and Audit Committee meetings during the
period was as follows:
Audit Committee
Board Meetings Meetings
He Held Attended Held Attended
Howard Myles 2 2 2 2
Clive Newall 2 2 2 2
Charles Hansard 2 2 2 N/A
David Staples 2 2 2 2
In addition to the quarterly meetings, ad hoc Board and
committee meetings are convened as required. All Directors
contribute to a significant ad hoc exchange of views between the
Directors and the Investment Manager on specific matters, in
particular in relation to valuation and 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 period ended 30 June 2020 the total remuneration of the
Directors was GBP57,500 (30 June 2019: GBP57,500), with GBP28,750
payable at 30 June 2020 (31 December 2019: GBP28,750).
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.
Shares in issue
The Company was admitted to trading on the London Stock Exchange
on 28 April 2010. The Company had a total of 106,453,335 Ordinary
and 9,167 Management Ordinary Shares totalling 106,462,502 Ordinary
Shares in issue as at 30 June 2020, of which 700,000 Ordinary
Shares were held in Treasury.
Going concern
Having reassessed the principal and emerging risks described on
pages 14 and 15 of the 31 December 2019 Annual Report, and the
other matters discussed in connection with the viability statement
as set out on pages 15 and 16 of the said report, the Directors
consider it is appropriate to adopt the going concern basis in
preparing these interim Financial Statements. As at 30 June 2020,
approximately 7.6% of the Company's assets were represented by cash
and unrestricted listed and quoted investments which are readily
realisable. This is well over three times the Company's annual
total expense ratio.
Related party transactions
Transactions with related parties are based on terms equivalent
to those that prevail in an arm's length transaction and are
disclosed in Note 9.
Principal and emerging risks
The principal and emerging risks facing the Company, which
include market and financial risk and portfolio management and
performance risk, are considered in details, on pages 14 and 15 of
the 31 December 2019 Annual Report which is available on the
Company's website www.bakersteelresourcestrust.com. The Directors
do not consider that these risks have materially changed during the
period ended 30 June 2020 and do not expect any changes in the
second half of 2020.
Directors' responsibility statement
The Directors confirm that to the best of their knowledge:
- the condensed set of 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; and
- the Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the FCA's Disclosure
and Transparency Rules.
Corporate governance compliance
As described in the Company's Annual Report, the Board has
considered the principles and recommendations set out in UK
Corporate Governance Code that was revised in 2018 and is effective
for periods commencing on or after 1 January 2019 (the "UK Code")
issued by the Financial Reporting Council (the "FRC"). Page 21 of
the 31 December 2019 Annual Report presents and explains those
matters where the Company has not complied with the UK Code. There
is no change in compliance since the Annual Report.
Signed for and on behalf of the Directors:
Howard Myles
Chairman
15 September 2020
UNAUDITED PORTFOLIO STATEMENT
AS AT 30 JUNE 2020
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Listed equity shares
Australian Dollars
199,000 Regis Resources Limited 579,254 0.70
1,440,000 Resolute Mining Limited 911,388 1.11
Australian Dollars Total 1,490,642 1.81
--------------- ---------
Canadian Dollars
3,604,726 Azarga Metals Corporation 203,339 0.25
30,000 Endeavour Mining Corporation 585,170 0.71
Canadian Dollars Total 788,509 0.96
--------------- ---------
Great Britain Pounds
46,000 Fresnillo Plc 387,044 0.47
32,000 Polymetal International Plc 516,000 0.63
Great Britain Pounds Total 903,044 1.10
--------------- ---------
United States Dollars
345,000 Harmony Gold Mining Company Limited 1,161,982 1.41
197,000 Iamgold Corporation 628,503 0.77
United States Dollars Total 1,790,485 2.18
--------------- ---------
Total investment in listed equity
shares 4,972,680 6.05
--------------- ---------
Debt instruments
Australian Dollars
200 Futura Resources Limited 7,360,698 8.96
Australian Dollars Total 7,360,698 8.96
--------------- ---------
Canadian Dollars
PRISM Diversified Limited Loan Note
305,000 1 134,278 0.16
PRISM Diversified Limited Loan Note
250,500 2 427,843 0.52
Canadian Dollars Total 562,121 0.68
--------------- ---------
Euro
987 Cemos Group 4,228,984 5.15
Euro Total 4,228,984 5.15
--------------- ---------
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Debt instruments (Continued)
Great Britain Pounds
2,000,000 Anglo Saxony Mining Limited 2,996,124 3.65
Tungsten West Limited Convertible
16,666,667 Loan Note 5,134,844 6.25
Great Britain Pounds Total 8,130,968 9.90
--------------- -----------
United States Dollars
Azarga Metals Secured Convertible
3,500,000 Loan Note 3,541,554 4.31
Bilboes Holdings Convertible Loan
440,000 Note 2,204,656 2.68
220,000 Bilboes Holdings Loan Note 193,252 0.24
7,009,332 Black Pearl Limited Partnership 2,826,912 3.44
5,000,000 Mines & Metals Trading (Peru) Plc 3,231,520 3.93
United States Dollars Total 11,997,894 14.60
--------------- -----------
Total investments in debt instruments 32,280,665 39.29
--------------- -----------
Unlisted equity shares, warrants and
royalties
Australian Dollars
7,800,000 Futura Gross Revenue Royalty 5,180,370 6.31
1,018,030 Futura Resources Limited 749,341 0.91
56,011,015 Indian Pacific Resources Limited 331,073 0.40
Australian Dollars Total 6,260,784 7.62
--------------- -----------
Canadian Dollars
Azarga Metals Convertible Loan Note
13,490,414 Warrants 12/04/2021 292,842 0.36
13,083,936 PRISM Diversified Ltd 1,033,119 1.26
PRISM Diversified Limited Warrants
1,000,000 31/12/2023 33,518 0.04
Canadian Dollars Total 1,359,479 1.66
--------------- -----------
Great Britain Pounds
6,425,001 Anglo Saxony Mining Limited 514,000 0.63
1,594,646 Celadon Mining Limited 15,946 0.02
24,004,167 Cemos Group plc 3,068,237 3.73
122,760,000 Metals Exploration Plc (suspended) 613,800 0.75
7,869,319 Tungsten West Limited 1,514,844 1.84
Great Britain Pounds Total 5,726,827 6.97
--------------- -----------
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Unlisted equity shares, warrants and
royalties (continued)
Norwegian Krone
12,785,361 Nussir ASA 3,208,313 3.91
Norwegian Krone Total 3,208,313 3.91
--------------- ---------
United States Dollars
451,445 Bilboes Gold Limited 15,240,096 18.55
4,244,550 Gobi Coal & Energy Limited 161,129 0.20
15,349 Mines & Metals Trading (Peru) Plc 117,843 0.14
16,352 Polar Acquisition Limited 9,360,454 11.39
56,042 Sarmin Minerals Exploration 2,179,034 2.65
United States Dollars Total 27,058,556 32.93
--------------- ---------
Total Unlisted equity shares and warrants 43,613,959 53.09
--------------- ---------
Financial assets held at fair value
through profit or loss 80,867,304 98.43
--------------- ---------
Other Assets & Liabilities 1,288,508 1.57
--------------- ---------
Total Equity 82,155,812 100.00
--------------- ---------
UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Unaudited Audited
30 June 31 December
2020 2019
Notes GBP GBP
Assets
Cash and cash equivalents 493,274 659,757
Interest receivables 988,449 1,266,886
Other receivables 24,788 17,284
Financial assets held at fair value through
profit or loss 3 80,867,304 76,932,117
Total assets 82,373,815 78,876,044
------------ -------------
Equity and Liabilities
Liabilities
Directors' fees payable 9 28,750 28,750
Management fees payable 7,9 85,215 85,447
Administration fees payable 67,676 42,447
Audit fees payable 24,500 49,000
Custodian fees payable 6,583 6,338
Other payables 5,279 752
Total liabilities 218,003 212,734
------------ -------------
Equity
Management Ordinary Shares 8 9,167 9,167
Ordinary Shares 8 75,972,688 75,972,688
Retained reserves 6,173,957 2,681,455
Total equity 82,155,812 78,663,310
------------ -------------
Total equity and liabilities 82,373,815 78,876,044
============ =============
Net Asset Value per Ordinary Share (in
Pence) - Basic and Diluted 5 77.2 73.9
These unaudited condensed financial statements on pages 13 to 29 were
approved by the Board of Directors on 15 September 2020 and signed
on its behalf by:
Howard Myles
UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
Unaudited Unaudited Unaudited
period ended period ended period ended
30 June 30 June 30 June
2020 2020 2020
Revenue Capital Total
Notes GBP GBP GBP
Income
Loan guarantee income 2(e) - - -
Interest Income 684,545 - 684,545
Dividend Income 2(g) 117,212 - 117,212
Net gain on financial assets at
fair value through profit or loss 3 - 3,420,604 3,420,604
Net foreign exchange gain - 33,349 33,349
Net income 801,757 3,453,953 4,255,710
-------------- -------------- --------------
Expenses
Management fees 7,9 494,503 - 494,503
Directors' fees 9 57,500 - 57,500
Administration fees 53,960 - 53,960
Other expenses 50,474 - 50,474
Custody fees 40,276 - 40,276
Audit fees 28,450 - 28,450
Broker fees 26,003 - 26,003
Directors' expenses 7,511 - 7,511
Legal fees 4,531 - 4,531
Total expenses 763,208 - 763,208
-------------- -------------- --------------
Net gain for the period 38,549 3,453,953 3,492,502
============== ============== ==============
Net gain for the period per Ordinary
Share:
Basic and Diluted (in pence) 5 0.04 3.24 3.28
In the period ended 30 June 2020 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.
UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2019 TO 30 JUNE 2019
Unaudited Unaudited Unaudited
period ended period ended period ended
30 June 30 June 30 June
2019 2019 2019
Revenue Capital Total
Notes GBP GBP GBP
Income
Loan guarantee income 2(e) 193,577 - 193,577
Interest Income 917,890 - 917,890
Dividend Income 2(g) 392,902 - 392,902
Net gain on financial assets at
fair value through profit or loss 3 - 9,375,615 9,375,615
Net foreign exchange loss - (40,385) (40,385)
Net income 1,504,369 9,335,230 10,839,599
-------------- -------------- --------------
Expenses
Management fees 7,9 463,784 - 463,784
Directors' fees 9 52,021 - 52,021
Administration fees 57,500 - 57,500
Other expenses 50,636 - 50,636
Custody fees 36,901 - 36,901
Audit fees 22,500 - 22,500
Broker fees 19,688 - 19,688
Directors' expenses 11,620 - 11,620
Legal fees 9,388 - 9,388
Total expenses 724,038 - 724,038
-------------- -------------- --------------
Net gain for the period 780,331 9,335,230 10,115,561
============== ============== ==============
Net gain for the period per Ordinary
Share:
Basic and Diluted (in pence) 5 0.70 8.20 8.90
In the period ended 30 June 2019 there were no other gains or losses than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Income Statement follows the recommendations of the AIC Statement of Recommended
Practice.
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
Management Retained Profit
Ordinary Ordinary Treasury revenue and loss
Shares Shares Shares reserve account Period
(Capital) end
GBP GBP GBP GBP GBP GBP
Balance as at 1 January
2020 9,167 76,113,180 (140,492) 10,808,636 (8,127,181) 78,663,310
Net gain for the
period - - - 38,549 3,453,953 3,492,502
Balance as at 30
June 2020 9,167 76,113,180 (140,492) 10,847,185 (4,673,228) 82,155,812
============= =========== =========== =========== ============ ===========
Note: 8 8
UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 1 JANUARY 2019 TO 30 JUNE 2019
Management Profit Profit
Ordinary Ordinary Treasury and loss and loss
Shares Shares Shares account account Period
(Revenue) (Capital) end
GBP GBP GBP GBP GBP GBP
Balance as at 1 January
2019 10,000 81,165,017 (140,492) 10,104,409 (25,111,150) 66,027,784
Redemption of Ordinary
Shares (833) (4,934,681) - - - (4,935,514)
Expenses related
to Tender offer - (90,688) - - - (90,688)
Net gain for the
period - - - 780,331 9,335,230 10,115,561
Balance as at 30
June 2019 9,167 76,139,648 (140,492) 10,884,740 (15,775,920) 71,117,143
============= ============ =========== ============ ============= ============
UNAUDITED CONDENSED INTERIM STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
Unaudited Unaudited
Period Period
ended ended
30 June 30 June
2020 2019
GBP GBP
Cash flows from operating activities
Net gain for the period 3,492,502 10,115,561
Adjustments to reconcile net gain for the period
to net cash used in operating activities:
Interest income (684,545) (917,890)
Dividend income (117,212) (392,902)
Net gain on financial assets at fair value through
profit or loss 3 (3,420,604) (9,375,615)
Net (increase)/decrease in other receivables (7,504) 10,160
Net increase/(decrease) in payables 5,269 (19,850)
------------- ------------
(732,094) (580,536)
Interest received 962,982 158,077
Dividend received 117,212 392,902
------------- ------------
Net cash provided by/(used in) operating activities 348,100 (29,557)
------------- ------------
Cash flows from investing activities
Purchase of financial assets at fair value through
profit or loss (7,462,339) (9,132,502)
Sale of financial assets at fair value through
profit or loss 6,947,756 10,873,333
Net cash (used in)/provided by investing activities (514,583) 1,740,831
------------- ------------
Cash flows from financing activities
Expenses related to the tender offer - (90,688)
Payments for redemption of shares - (4,935,514)
------------- ------------
Net cash used in financing activities - (5,026,202)
------------- ------------
Net decrease in cash and cash equivalents (166,483) (3,314,928)
Cash and cash equivalents at the beginning of
the period 659,757 3,811,921
Cash and cash equivalents at the end of the
period 493,274 496,993
============= ============
NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL
STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2020 TO 30 JUNE 2020
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.
The AIFMD focuses on regulating the AIFM rather than the AIFs
themselves, so the impact on the Company is limited.
The Half-Yearly financial report has not been audited or
reviewed by the auditors pursuant to the Auditing Practices
Board
Guidance on review of Interim Financial Information. However,
the Board did procure the independent external auditor to undertake
certain agreed upon procedures to assist the Audit Committee and
Board with its review of this report.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of these
unaudited condensed interim financial statements have been
consistently applied during the period, unless otherwise
stated.
a) Statement of compliance
The unaudited condensed interim financial statements of the
Company for the period 1 January 2020 to 30 June 2020 have been
prepared in accordance with IAS 34, "Interim Financial Reporting"
as adopted in the EU, together with applicable legal and regulatory
requirements of The Companies (Guernsey) Law, 2008 and the Listing
Rules of the London Stock Exchange's Main Market. The unaudited
condensed interim financial statements do not include all the
information and disclosure required in the annual financial
statements and should be read in conjunction with the annual report
and audited financial statements for the year ended 31 December
2019.
b) Basis of preparation
The unaudited condensed interim financial statements have been
prepared under the historical cost basis, modified by the
revaluation of certain financial instruments designated at Fair
value through Profit or Loss ("FVTPL"). The accounting policies
adopted in the preparation of these unaudited condensed interim
financial statements have been consistent with the accounting
policies stated in Note 2 of the annual financial statements for
the year ended 31 December 2019. The preparation of unaudited
condensed interim financial statements in conformity with IAS 34,
"Interim Financial Reporting", requires the Company to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the unaudited condensed
interim financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
The Company's functional currency is 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 and debt are denominated in
various currencies.
c) 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.
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 14 of the Annual Report. 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.
Going Concern
As stated in the Directors' Report the Directors have assessed
the principal risks and uncertainties (as described in pages 14
and 15 of the 31 December 2019 Annual Report) and the other
matters discussed in connection with the viability statement as set
out on pages 15 and 16 of the said report. The Directors consider
it is appropriate to adopt the going concern basis in preparing
these interim financial statements.
(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
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.
c) Significant accounting judgements and estimates
(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.
(d) IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy
or sell non-financial items.
Classification and measurement of financial assets and financial
liabilities
A financial asset or liability is measured at amortised cost if
it meets both of the following conditions and are not
designated
as at FVTPL:
Ø it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
Ø its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
All financial assets of the Company are measured at FVTPL,
except for cash and cash equivalents which are measured at
amortised cost.
All financial liabilities of the Company are measured at
amortised cost.
Impairment of financial assets
Under IFRS 9 for trade receivables the Company has applied the
simplified model. Under the simplified approach the requirement is
to always recognise lifetime expected credit loss ("ECL"). Under
the simplified approach there is no need to monitor significant
increases in credit risk and measure lifetime ECLs at all times.
The interest receivable is in respect of the Convertible loan notes
and no provision has been made for credit losses. This is on the
basis that the fair value of the underlying asset supports the
convertible receivable.
For other receivables, the Directors have concluded that any ECL
on these receivables would be highly immaterial.
(e) Loan guarantee income
These are guarantee fees receivable in respect of shareholder
guarantees given over certain facilities of Cemos Group plc which
are accounted for on an accruals basis.
(f) Interest on investments
These comprise of interest accrued and interest received from
convertible loans which are accounted for on an accruals basis and
recognised in the Statement of Comprehensive Income.
(g) Dividend Income
Dividend income is accrued on an ex-dividend basis and
recognised in the Statement of Comprehensive Income.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Period ended Year ended
30 June 31 December
Investment Summary: 2020 2019
GBP GBP
Opening book cost 74,539,152 70,753,693
Purchases at cost 7,462,339 16,601,793
Proceeds on sale of investments (6,947,756) (18,777,778)
Realised gains 4,117,283 5,961,444
------------- -------------
Closing cost 79,171,018 74,539,152
Unrealised gains 1,696,286 2,392,965
------------- -------------
Financial assets held at fair value through profit
or loss 80,867,304 76,932,117
============= =============
The following table analyses net gains on financial assets at
fair value through profit or loss for the period/year ended 30 June
2020 and 31 December 2019.
Period ended Year ended
30 June 31 December
2020 2019
GBP GBP
Financial assets at fair value through profit
or loss
Realised gains on:
- Listed equity shares 4,117,283 6,135,349
- Debt instruments - (173,905)
- Warrants - -
4,117,283 5,961,444
Movement in unrealised (losses)/gains on:
- Listed equity shares (3,510,145) 250,838
- Unlisted equity shares 1,349,473 5,134,808
- Royalties (400,286) 4,373,836
- Debt instruments 1,667,381 1,280,943
- Warrants 196,898 86,293
------------- -------------
(696,679) 11,126,718
------------- -------------
Net gain on financial assets at fair value through
profit or loss 3,420,604 17,088,162
------------- -------------
The following table analyses investments by type and by level
within the fair valuation hierarchy at 30 June 2020.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at fair
value through profit
or loss
Listed equity shares 4,972,680 - - 4,972,680
Unlisted equity shares - - 28,746,775 28,746,775
Royalties - - 14,540,824 14,540,824
Warrants - - 326,360 326,360
Debt instruments - - 32,280,665 32,280,665
------------- ------------------ ------------ -----------
4,972,680 - 75,894,624 80,867,304
============= ================== ============ ===========
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2019.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at fair
value through profit
or loss
Listed equity shares 8,722,030 - - 8,722,030
Unlisted equity shares - - 24,780,551 24,780,551
Royalties - - 14,019,975 14,019,975
Warrants - - 116,337 116,337
Debt instruments - - 29,293,224 29,293,224
------------- ------------------ ------------ -----------
8,722,030 - 68,210,087 76,932,117
============= ================== ============ ===========
The 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 period included in net gain on financial
assets and liabilities at fair value through profit or loss held at
30 June 2020.
Unlisted
30 June 2020 Equities Royalties Debt instruments Warrants Total
GBP GBP GBP GBP GBP
Opening balance 1 January
2020 24,780,551 14,019,975 29,293,224 116,337 68,210,087
Purchases of investments 1,205,011 921,135 1,320,060 13,125 3,459,331
Change in net unrealised
gains 1,349,473 (400,286) 1,667,381 196,898 2,813,466
Transfer in 1,411,740 - - - 1,411,740
------------ ----------- ----------------- --------- -----------
Closing balance 30 June
2020 28,746,775 14,540,824 32,280,665 326,360 75,894,624
------------ ----------- ----------------- --------- -----------
Unrealised (losses)/gains
on investments still
held at 30 June 2020 (5,192,461) 2,773,846 3,041,594 313,235 936,214
============ =========== ================= ========= ===========
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 loss on financial
assets and liabilities at fair value through profit or loss held at
31 December 2019.
31 December 2019 Unlisted Debt instruments Warrants Total
Equities Royalties
GBP GBP GBP GBP GBP
Opening balance 1 January
2019 18,894,281 6,163,793 15,818,201 30,044 40,906,319
Purchases of investments 751,462 3,482,346 12,367,985 - 16,601,793
Change in net unrealised
gains 5,134,808 4,373,836 1,280,943 86,293 10,875,880
Realised losses - - (173,905) - (173,905)
Closing balance 31 December
2019 24,780,551 14,019,975 29,293,224 116,337 68,210,087
------------ ----------- ----------------- --------- -----------
Unrealised (losses)/gains
on investments still
held at 31 December
2019 (1,455,715) 3,174,130 1,421,092 116,337 3,255,844
============ =========== ================= ========= ===========
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 at the carrying value
of the investment at the beginning of the financial year. Metal
Exploration Plc was transferred from Level 1 to Level 3 due to the
investment being suspended from trading. Metal Exploration Plc
remained at Level 3 as at 30 June 2020.
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 30 June 2020 (31 December
2019: none).
Investments classified within Level 3 have significant
unobservable inputs. They include unlisted debt instruments,
royalty rights, 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 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.
Valuation methodology of Level 3 investments (continued)
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
Value ("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. Some
market analysts incorporate development risk into the discount rate
in arriving at a net present value ("NPV"). Instead, the Investment
Manager establishes an NPV discounted purely for cost of capital
and country risk and then applies a further overall discount to the
project economics dependent on where such project sits on the
development curve per the DRAV calculations.
The valuation technique for Level 3 investments can be divided
into five groups:
i. Transactions
Where there have been transactions within the past 6 months
either through a capital raising by the investee company or known
secondary market transactions, representative in volume and nature
and conducted on an arm's length basis, this is taken as the
primary driver for valuing Level 3 investments.
ii. IndexVal
Where there have been no known transactions for 6 months, at the
Company's half year and year end, movements in IndexVal will
generally be taken into account in assessing Fair Value where there
has been at least a 10% movement in IndexVal over at least a six
month period. The IndexVal results are used as an indication of
trend and are viewed in the context of investee company progress
and any requirement for finance in the short term for further
progression.
iii. Royalty Valuation Model
Royalties are valued on discounted 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
comparables as utilised in the IndexVal.
v. Convertible loans
Convertible loans are valued at fair value through profit and
loss, taking into account credit risk and the value of the
conversion aspect.
Quantitative information on significant unobservable inputs -
Level 3
30 June Range
2020 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 4,218,355 Transactions Private transactions n/a
Unlisted Equity 23,898,674 IndexVal Change in IndexVal n/a
Royalties 14,540,824 Royalty Valuation Production n/a
model profile & development
risk adjustment
Unlisted Equity 629,746 Other Exploration n/a
results, study
results, financing
30 June Range
2020 Unobservable (weighted
Description GBP Valuation technique input average)
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 2,826,912 estimated recovery range +/-50%
Valued at fair
value with reference
to credit risk
Other Convertible and value of embedded Rate of Credit
Debentures/Loans 29,453,753 derivative Risk 20% - 40%
Simplified Black
Warrants 326,360 Scholes Model Volatilities 81% -116%
31 December Range
2019 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 5,661,710 Transaction Private transactions n/a
Unlisted Equity 19,102,895 IndexVal Change in IndexVal n/a
Royalties 14,019,975 Royalty Valuation Production n/a
model profile & development
risk adjustment
Unlisted Equity 15,946 Other Exploration n/a
results, study
results, financings
Debt Instruments
Black Pearl Limited Valued at mean estimated Estimated recovery
Partnership 2,643,205 recovery range +/- 50%
Valued at fair value
with reference to
credit risk and
Other Convertible value of embedded Rate of Credit
Debentures/Loans 26,650,019 derivative Risk 20% - 40%
Simplified Black
Warrants 116,337 Scholes Model Volatilities 50%
Information on third party transactions in unlisted equities is
derived from the Investment Manager's market contacts. The change
in IndexVal for each particular unlisted equity is derived from the
weighted average movements of the individual baskets for that
equity so it is not possible to quantify the range of such
inputs.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 investments
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 30 June
2020 are as shown below:
Description Input Sensitivity Effect on Fair
used* Value (GBP)
Unlisted Equity Change in IndexVal +/-43.5% +/-10,395,923
Royalty Valuation
models
development risk
Royalties discounts +/-20% +/-6,238,848
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/-932,881
Others/Loans Risk discount rate +/-20% +/-4,118,888
Volatility of Index
Warrants Basket +/-40% +122,519/-150,475
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2019 are as shown below:
Description Input Sensitivity Effect on Fair
used* Value (GBP)
Unlisted Equity Change in IndexVal +/-43.5%* +/-8,309,760
Royalty valuation
Royalties models +/-20% +/-2,803,995
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/-872,258
Others/Loans Risk discount rate +/-20% +/-4,747,375
Volatility of Index
Warrants Basket +/-40% +100,833/-61,601
*The sensitivity analysis refers to a percentage amount added or
deducted from the input and the effect this has on the fair value.
The 43.5% sensitivity was used as this was the highest movement
observed for IndexVal for any investment during 2019.
4. OTHER FINANCIAL INSTRUMENTS
The directors consider the carrying amount for financial
instruments such as cash and cash equivalents and short-term
receivables and payables, are a reasonable approximation of fair
values.
Cash and cash equivalents include cash in hand, deposits held
with banks and other short-term investments in an active
market.
Other assets include the contractual amounts for settlement of
the trades and other obligations due to the Company. Investment
management fees payable, directors' fees payable, audit fees
payable, administration fees payable and other payables represent
the contractual amounts and obligations due by the Company for
settlement for trades and expenses.
5. NET ASSET VALUE PER SHARE AND GAIN PER SHARE
Net asset value per share is based on the net assets of
GBP82,155,812 (31 December 2019: GBP78,663,310) and 106,462,502 (31
December 2019: 106,462,502) Ordinary Shares, being the number of
shares in issue at 30 June 2020. The calculation for basic and
diluted NAV per share is as below:
30 June 2020 31 December 2019
Ordinary Shares Ordinary Shares
Net assets at the period end (GBP) 82,155,812 78,663,310
Number of shares 106,462,502 106,462,502
Net asset value per share (in pence)
basic and diluted 77.2 73.9
Weighted average number of shares 106,462,502 109,688,328
The basic and diluted gain per share for the period ended 30
June 2020 is based on the net gain for the period of the Company of
GBP3,492,502 and on 106,462,502 being the weighted average number
of Ordinary Shares in issue during the period.
The basic and diluted gain per share for the period ended 30
June 2019 is based on the net gain for the period of the Company of
GBP10,115,561 and on 112,914,154 Ordinary Shares, being the
weighted average number of Ordinary Shares in issue during the
period.
6. TAXATION
The Company is a Guernsey Exempt Company and is therefore not
subject to taxation in Guernsey on its income under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989. An annual exemption fee
of GBP1,200 (2019: GBP1,200) has been paid. However, the Company
may be subject to foreign taxes, such as withholding and capital
taxes, on certain of its income and gains.
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 period ended 30 June 2020 was
GBP494,503 (30 June 2019: GBP 463,784) of which GBP85,215 (31
December 2019: GBP 85,447) was outstanding at the period end.
The Manager is also entitled to a performance fee. The
Performance Period is each 12-month period ending on 31 December
(the "Performance Period"). The amount of the performance fee is 15
per cent of the total increase in the NAV, if the Hurdle has been
met, at the end of the relevant Performance Period, over the
highest previously recorded NAV as at the end of a Performance
Period in respect of which a performance fee was last accrued,
having made adjustments for numbers of Ordinary Shares issued
and/or repurchased ("Highwater Mark"). In addition, the performance
fee will only become payable if there has been sufficient net
realised gains. As at 30 June 2020, the Highwater Mark was the
equivalent of approximately 94 pence per share with the relevant
Hurdle being the equivalent of approximately 135 pence per
share.
There were no earned 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. SHARE CAPITAL
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
The Company has a total of 106,453,335 (31 December 2019:
106,453,335) Ordinary Shares in issue with an additional 700,000
(31 December 2019: 700,000) held in treasury. In addition, the
Company has 9,167 (31 December 2019: 9,167) 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.
The details of issued share capital of the Company are as
follows:
30 June 2020 31 December 2019
Amount No. of shares** Amount No. of shares**
GBP GBP
Issued and fully paid share
capital
Ordinary Shares of no par
value*/*** 76,122,347 107,162,502 76,122,347 107,162,502
(including Management Ordinary
Shares)
Treasury Shares (140,492) (700,000) (140,492) (700,000)
* During 2019, 9,677,478 shares were repurchased and cancelled
following a tender offer totalling GBP4,935,514 excluding
expenses.
** Includes 9,167 (31 December 2019: 9,167) Management Ordinary
Shares.
*** The value reported for the ordinary shares represents the
net of subscriptions and redemptions (including any associated
expenses).
9. RELATED PARTY TRANSACTIONS
The Directors' interests in the share capital of the Company
were:
Number of Number of
Ordinary Shares Ordinary Shares
30 June 2020 31 December 2019
Clive Newall 25,000 25,000
The Directors' fees accrued for the period ended 30 June 2020
were GBP57,500 (30 June 2019: GBP57,500), of which GBP28,750 at 30
June 2020 (31 December 2019: GBP28,750) were payable at the period
end.
The Investment Manager, Baker Steel Capital Managers LLP, had an
interest in 9,167 Management Ordinary Shares at 30 June 2020 (31
December 2019: 9,167).
The Management fees paid and accrued for the year are disclosed
under Note 7.
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest of 5,622,877 Ordinary Shares in the
Company at 30 June 2020 (31 December 2019: 5,622,877). Precious
Metals Fund shares a common Investment Manager with the
Company.
10. SIGNIFICANT EVENTS
COVID-19 continues to impact global economic activity and
contributed to significant volatility in financial markets.
Depending on the severity and length of the outbreak, COVID-19
could present material uncertainty and risk with respect to the
operational performance and financial results of the entities in
which the Company invests, which may in turn impact the valuation
of the investments.
Generally, producing mines in most parts of the world were not
overly impacted by the spread of the disease as most modern mines
are highly mechanised and able to continue operations under social
distancing rules. The Investment Manager comments in their report
on the effects of COVID-19 on individual investee companies'
operations, but most of the investments are not yet in operation
and so have not been greatly affected.
In February 2020, the Company exercised its option to acquire a
further 0.25% gross royalty interest in Futura Resources' Wilton
and Fairhill metallurgical coal mines for A$1.8 million.
During the period ended 30 June 2020, the Company made purchases
of listed equities for GBP4,003,006 and sales of listed equities
for GBP6,947,756 as part of the Board's decision to diversify the
liquid part of the portfolio.
In March 2020, the Company entered into a further US$1 million
loan with Mines and Metals Trading (Peru) Limited. The Company
committed to a further US$500,000 loan to Azarga and renegotiated
the terms of its convertible loan.
11. SUBSEQUENT EVENTS
There were no events subsequent to the period end that
materially impacted on the Company
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END
IR QELFFBKLLBBF
(END) Dow Jones Newswires
September 16, 2020 02:00 ET (06:00 GMT)
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