TIDMBRWM
BlackRock World Mining Trust plc LEI - LNFFPBEUZJBOSR6PW155
Annual Results Announcement (Article 4 Transparency Directive, DTR 4.1)
for the year ended 31 December 2020
Performance record
31 December 31 December
2020 2019
Net assets (£'000)¹ 930,825 757,110
Net asset value per ordinary share (NAV) (pence) 536.34 433.17
Ordinary share price (mid-market) (pence) 522.00 383.00
Reference Index4 - net total return 4,566.93 3,786.17
Discount to net asset value2,3 2.7% 11.6%
Performance
Net asset value per share (with dividends reinvested)3 +31.8% +17.2%
Ordinary share price (with dividends reinvested)3 +46.7% +19.4%
Reference Index4 +20.6% +15.3%
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1 The change in net assets reflects market movements, dividends paid and the
buyback of ordinary shares into treasury during the year.
2 This is the difference between the share price and NAV per share with
debt at par. Further details of the calculation of the discount are given in
the Glossary in the Annual Report and Financial Statements.
3 Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements. Performance figures are calculated in sterling terms with
dividends reinvested.
4 MSCI ACWI Metals and Mining 30% Buffer 10/40 Index (net total return).
Year ended Year ended
31 December 31 December Change
2020 2019 %
Revenue
Net revenue profit after taxation (£'000) 35,451 39,561 -10.4
Revenue return per ordinary share (pence) 20.40 22.46 -9.2
Dividend per ordinary share (pence)
- 1st interim 4.00 4.00 -
- 2nd interim 4.00 4.00 -
- 3rd interim 4.00 4.00 -
- Final 8.30 10.00 -17.0
Total dividends paid and payable 20.30 22.00 -7.7
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Chairman's Statement
HIGHLIGHTS
* NAV per share +31.8%1 (with dividends reinvested)
* Share price +46.7%1 (with dividends reinvested)
* Dividend -7.7%
I am pleased to present the Annual Financial Report for the year ended 31
December 2020.
PERFORMANCE
It is very pleasing to report that over the twelve months to 31 December 2020,
the Company's net asset value per share (NAV) returned +31.8%1 and the share
price +46.7%1. In comparison, over the same period the Company's Reference
Index, the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return),
returned +20.6%, our previous reference index, the EMIX Global Mining Index,
returned +21.8%, the FTSE All-Share Index returned -9.8% and the UK Consumer
Price Index (CPI) increased by 0.6%.
This is an excellent achievement given that our Portfolio Managers have had to
navigate the exceptional global economic and social upheaval following the
outbreak of COVID-19 and the ensuing pandemic. A detailed commentary on the
portfolio's performance, its positioning, ESG factors and their importance in
portfolio construction together with the investment outlook for the forthcoming
year can be found in the Investment Manager's Report. Since the year end and up
until the close of business on 1 March 2021, the Company's NAV has increased by
8.5%.
1 Alternative Performance Measures. All percentages calculated in sterling
terms with dividends reinvested. Further details of the calculation of
performance with dividends reinvested are given in the Glossary in the Annual
Report and Financial Statements.
OVERVIEW
The year ended 31 December 2020 saw enormous disruption brought on by the
global pandemic, which led to the partial shutdown of many economies across the
world for much of the period. The nature and scale of the disruption was
unparalleled but the significant fiscal and monetary response was also
unprecedented. This response played an important part in markets rebounding
from their March lows. It has also ensured that economies would not suffer
large scale or permanent demand destruction outside a few specific industries.
Throughout the COVID-19 outbreak, the Board has had to adjust its mode of
operation to minimise the risk the virus has posed to the health and wellbeing
of those working on the management and administration of the Company. The Board
has continued to meet regularly and since April all scheduled meetings have
been held by video conference. The Board has also worked closely with its
Manager to ensure that the Company's operations have not been adversely
impacted, that BlackRock and key service providers have established business
continuity plans and a good level of service has continued to be maintained.
Unfortunately, however, the arrangements for last year's Annual General Meeting
were disrupted as a result of COVID-19 related restrictions and, with the
current lockdowns in place, this may well be the case again for the forthcoming
Annual General Meeting. The proposed Annual General Meeting arrangements are
set out below.
REVENUE RETURN AND DIVIDS
The Company's revenue return per share for the year amounted to 20.40p compared
with 22.46p for the previous year, representing a decrease of 9.2%. The main
difference was a fall in special dividends received from our investee
companies, although the Company benefited from the positive outcome on a tax
ruling which was explained in my Interim Statement to shareholders. In August
2020, HM Revenue & Customs accepted that the Company was entitled to claim
double tax relief in relation to underlying tax suffered on dividends received
from non-UK companies in a number of past accounting periods and subsequently
the Company received a corporation tax refund including interest of £2,980,000.
During the year, three quarterly interim dividends each of 4.00p per share were
paid on 26 June 2020, 25 September 2020 and 18 December 2020. The Board is
proposing a final dividend payment of 8.30p per share for the year ended 31
December 2020. This, together with the quarterly interim dividends, makes a
total of 20.30p per share (2019: 22.00p per share) representing a decrease of
7.7% on payments made in the previous financial year and, as in past years, all
dividends are fully covered by income. In accordance with the Board's stated
policy, the total dividends represent substantially all of the year's available
income.
Subject to approval at the Annual General Meeting, the final dividend will be
paid on 6 May 2021 to shareholders on the Company's register on 19 March 2021,
the ex-dividend date being 18 March 2021. It remains the Board's intention to
seek to distribute substantially all of the Company's available income along
similar lines in the future.
DISCOUNT CONTROL
The Board recognises the importance to investors that the market price of the
Company's shares should not trade at a significant discount to the underlying
NAV. Accordingly, the Board monitors the Company's discount to NAV and will
look to buy back shares in normal market conditions if it is deemed to be in
shareholders' interests. During the year, a total of 1,233,913 shares were
purchased at an average price of 373.53p per share for a total gross
consideration of £4,609,000. All shares have been placed in treasury.
I am pleased to report that the Company's discount narrowed considerably during
December and, at the year end, stood at 2.7%. Accordingly, no further shares
have been purchased since the year end, up to and including the date of this
report. Subsequent to the year end, the Company's shares have traded at a
premium to the underlying NAV and 3,720,000 shares have been reissued from
treasury at an average price of 588.59p per share and an average premium to the
estimated NAV of 1.2% for a total gross consideration of £21,896,000. As at 1
March 2021 the premium stood at 1.4%.
Resolutions to renew the authorities to issue and buy back shares will be put
to shareholders at the forthcoming Annual General Meeting.
ESG AND SOCIALLY RESPONSIBLE INVESTMENT
As a Board we are conscious that Environmental, Social and Governance (ESG)
criteria are increasingly at the forefront of investors' minds. Given the
nature of mining as an industry, your Board has a strong focus on ESG and
believes that it is important that our Company's investee companies operate in
a responsible and sustainable way having regard to the interests of all their
stakeholders, whether these are shareholders, employees, customers, regulators
or suppliers. The Board is also aware that ESG must be considered when
investing in the Natural Resources sector and, as a general approach, the
Company will not invest in companies which have high ESG risks and no plans to
address existing deficiencies. Our Manager, BlackRock, has an Investment
Stewardship team which is responsible for protecting and enhancing the value of
your Company's investments through engagement with companies to encourage
business and management practices that support sustainable financial
performance over the long term.
Climate change is one of the most significant global risks and companies,
governments and investors reacted positively during 2020, with firm policy
commitments to achieve net zero emissions across many of the major world
economies. We expect momentum to build and accelerate in 2021, with profound
implications for the global economy. BlackRock believes that its clients are
best served by being at the forefront of the transition to 'net zero' and in
January 2021 announced key actions to help investors prepare for a net zero
world, an approach fully supported by your Board. Further information can be
found in the Strategic Report below.
ARTICLES OF ASSOCIATION
In light of the circumstances created by the outbreak of the COVID-19 pandemic,
the Board is proposing to make amendments to the Articles of Association (the
Articles) to enable the Company to hold general meetings (wholly or partially)
by electronic means and to give additional powers in respect of postponing or
adjourning meetings in appropriate circumstances. The amendments are being
sought in response to challenges posed by government restrictions on social
interactions as a result of the COVID-19 pandemic, which have made it
impossible for shareholders to attend physical general meetings.
The Board's objective in introducing these changes is to make it easier for
shareholders to participate in general meetings through introducing electronic
access for those unable to travel and also to ensure appropriate security
measures are in place for the protection and wellbeing of shareholders. I
should make it clear that these powers would only be used if the specific
circumstances or applicable law and regulation required it and the Board's
intention is to always hold a physical Annual General Meeting provided it is
both safe and practical to do so. The safety of shareholders and the Company's
third-party service providers must of course remain paramount.
The principal changes proposed to be introduced in the Articles, and their
effect, are set out in more detail in the Directors' Report in the Annual
Report and Financial Statements.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at the offices of BlackRock
at 12 Throgmorton Avenue, London EC2N 2DL on Thursday, 29 April 2021 at 11.30
a.m. Details of the business of the meeting are set out in the Notice of
Meeting in the Annual Report and Financial Statements.
At the time of writing, guidance has been issued by the UK, Scottish and Welsh
governments, regarding measures to reduce the transmission of COVID-19 in the
UK. These measures are, and will continue to be, subject to periodic amendment
and currently impose rules on social distancing and limitations on, among other
things, public gatherings.
Accordingly, in view of this guidance, the Board is changing the format of the
Annual General Meeting again this year to follow the minimum legal requirements
for an Annual General Meeting. Only the formal business set out in the Notice
will be considered. In line with this guidance, shareholders are strongly
discouraged from attending the meeting and indeed entry will be refused if
current UK Government guidance is unchanged. Shareholders are encouraged to
check the Manager's website at blackrock.com/uk/brwm for updates to the Annual
General Meeting arrangements, as changes may well be required to comply with
new guidance and/or government measures.
The Board is aware that many shareholders look forward to hearing the views of
the Portfolio Managers and may have questions for them and the Board.
Accordingly, the Annual General Meeting will be followed by a webinar to
include an introduction from the Chairman and a presentation by the Portfolio
Managers, followed by a question and answer session. Shareholders are invited
to join the webinar and address any questions they have either by submitting
questions during the webinar or in advance by writing to the Company Secretary
at cosec@blackrock.com. Details of the exact timing and how to register for
this event will be uploaded to the Manager's website at blackrock.com/uk/brwm.
Notwithstanding these difficult circumstances, the Board looks forward to
offering opportunities for shareholders to meet the Portfolio Managers in the
future once it becomes safe for all.
OUTLOOK
World equities appear to be on a firmer footing and there is increased optimism
now that the uncertainty of the US election has been resolved and the
distribution of COVID-19 vaccines provides hope for some return to normality.
However, at the time of writing, the full extent of the economic and social
impact of the pandemic and the likely duration of the current national
lockdowns remain unclear. There are still challenges in the very near term with
a resurgence of cases and the emergence of new mutations of the virus. Ongoing
policy support from central banks, alongside fiscal stimulus, is therefore
vital to limit any permanent economic scarring. Widely administered, effective
vaccinations should, however, provide more clarity for governments, businesses
and households about the timescale to revive the post COVID-19 economy.
Mined commodity prices performed well during 2020 aided by China's swift post
pandemic recovery and significant government investment in infrastructure. In
other regions, risks of pandemic-related supply disruptions and slower than
forecast economic recovery may linger into next year but their impact on the
sector should be relatively moderate and the dominance of China in determining
overall demand growth for industrial metals will remain. The restrained
approach to capital spending in the sector in recent years should also cap the
rapid emergence of new supply, underpinning the current attractive margins for
some time. Your Portfolio Managers therefore believe that the commodity demand
and pricing outlook is strong, and they will remain focused on high quality
companies with, alongside engagement on ESG matters, strong balance sheets and
lower costs, an approach fully supported by the Board.
DAVID CHEYNE
Chairman
4 March 2021
Investment manager's report
PORTFOLIO PERFORMANCE
We are delighted to report that 2020 delivered another strong year for our
Company despite the headwinds caused by the COVID-19 pandemic. Normally when
global Gross Domestic Product (GDP) collapses, unemployment rates surge and
equity market volatility explodes, the mining sector is one of the worst
performing places to be invested but this time things were very different. The
years of balance sheet repair, rigid capital discipline and sensible growth
plans left the companies well placed to navigate the challenges brought about
by the global pandemic.
The table below highlights the Company's results versus the broader mix of
comparators that the Board uses to assess performance. Not only has the share
price return been positive for four out of the last five years, but the total
share price return moved to a new all-time high on 31 December 2020. In
addition, the share price has benefited from a narrowing of the discount
especially during the last quarter of 2020. Revenues for the Company have been
robust as strong balance sheets have allowed mining companies to continue
returning surplus cash to shareholders. However, the decrease in special
dividends has meant that this year the Company's total dividend payment to
shareholders could not match last year's record payment level.
2020 Price 2020 Total 3 Year Total 5 Year Total
Change % Return % Return % Return %
Share price 36.3 46.7 56.3 289.5
NAV per share 23.8 31.8 36.7 227.1
MSCI ACWI Metals & Mining 30% 17.5 20.6 22.8 186.2
Buffer 10/40 Index
FTSE 100 Index -14.3 -11.5 -5.3 26.2
FTSE All-Share Index -12.5 -9.8 -2.7 28.5
UK CPI 0.6 0.6 4.0 8.8
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All performance figures in sterling with dividends reinvested.
Source: BlackRock.
Looking back on 2020 it is hard to know where to start given all the events
that influenced returns. Obviously, the key factor was the outbreak of COVID-19
leading to a global pandemic being declared. The huge impact of the virus on
people's physical health during the year varied across the globe. Initially the
virus outbreak affected China but by March it had spread to Europe leading to
mass lockdowns across the continent. After rapidly moving through Europe, the
virus impacted Africa and South America and reached North America in early
summer, again leading to lockdowns to prevent it escalating to a level that
would put the health service at risk. By late summer data suggested that the
measures put into place to bring the virus under control had delivered the
hoped-for results and restrictions were gradually lifted across the world,
especially as research evidence suggested an effective vaccine was imminent.
However, this positive momentum was short lived, as by early autumn the virus
was spreading rapidly once again and new mutated strains, feared to be more
contagious than the original ones, were causing record high rates of infections
in Europe and the United States (US). Governments once again acted by bringing
lockdowns back into play just as the year end festive season got under way. At
the time of writing, it is clear that these new measures are likely to be in
place for several months until confidence that the vaccine roll-out has had the
desired effect in controlling the virus.
Outside of the health risks, the virus obviously had a huge impact on economic
activity. With large parts of the world in complete lockdown, many industries
have been severely impacted including travel, tourism, hotels, leisure and
entertainment, whilst others have thrived, the digital economy being the major
beneficiary. Anything that could be bought online and delivered to your home
saw a massive recovery from the lows in March and many companies have enjoyed
staggering share price rallies leaving them at new all-time highs by the year
end. Governments have sought to protect as much of the economy and workforce as
possible by putting in place financial support packages to protect jobs and
support businesses during the lockdown periods. These measures were meant to be
short lived, but as the virus has continued to thrive, the economic life
support that governments provided has been extended for far longer than
originally expected. This has left central bank balance sheets with record
levels of debt following this sharp increase in government spending and equally
sharp drop in interest rates with many falling to zero or below.
Whilst the pandemic has been the biggest factor during the year, other issues
that had been expected to dominate events seem to have passed with only limited
impact. In the US, President Trump lost his battle for a second term and now it
seems that the Biden administration is likely to deliver sweeping changes on
the environment, large increases to government spending and probably a less
aggressive tone on Chinese trade, whilst still being tough on human rights and
technology. Key for the resources sector will be the policy on spending and the
environment. The combination of these two areas seems likely to result in a
significant increase in investment to support the transition to a lower carbon
economy, which is likely to be associated with an increase in commodity demand,
especially for key metals such as copper. The focus on climate will likely see
further pressure on fossil fuels and, over time, impact demand for them.
Outside of the US, tensions related to Brexit have been high in Europe and
between China and Australia on trade. As the year drew to a close, Brexit terms
were finally agreed between the UK and Europe removing a key policy overhang
for both economies. The likely outcome is for both economic areas to increase
spending to support a recovery from the pandemic and limit the economic fallout
from the UK leaving the European Union. In Australia it seems that China is
doing everything it can to impact trade between the two countries with bans put
in place on a whole range of goods from wine to coal. Should the situation
continue to worsen, one key risk for the portfolio is Chinese demand for iron
ore given its dominance in the seaborne market. Whilst iron ore is seen as
unlikely to be brought into the fight, it is something we watch very closely
given the large exposure within the portfolio.
Positives over the last twelve months are that miners have generally benefited
from a lack of cost inflation driven by weaker currencies in the first half of
the year and the huge fall in the price of oil. In addition, the lack of
growth-related spending means that labour costs have seen little upwards
pressure from rising demand, as have prices for equipment. Looking into 2021,
we expect these trends to reverse given weakness in the US dollar, the recovery
in oil prices and a catch up in mining company capital expenditure, whilst
labour cost inflation should be manageable given the high rates of unemployment
across the world.
After a year that has been disrupted in such a major way, it is very
encouraging to see the long-term return and dividend trend for the Company
remaining resolute. Many sectors and companies have been unable to pay
dividends to shareholders during 2020 and the outlook for recovery in these
areas remains uncertain to say the least. It is our hope that investors
recognise the value of stable income from resource companies in a world where
yields are now so low. Perhaps we will see a rotation of capital into mining
companies during 2021?
Since the Initial Public Offering of the Company in 1993 at 100p per share, the
shares have delivered a NAV total return of 959.9%. On an annualised basis, the
Company's NAV has returned 9.1% since launch compared to 6.2% and 6.7% for the
FTSE 100 Index and FTSE All-Share Index respectively.
MINING SECTOR OVERVIEW
As discussed earlier, the influence of the pandemic has been significant in
driving company performance during the year given the scale of government
enforced lockdowns and the corresponding impact they had on economic activity.
Companies operating in the most affected sectors such as travel, leisure,
fitness studios, tourism, high street retail and entertainment saw revenues
reduce radically and share prices collapse. On the other side of the equation,
beneficiaries saw trends in place prior to the pandemic accelerate in their
favour. Digital retail revenues exploded, home media entertainment soared,
online grocery deliveries grew market share and at home, fitness services
displaced gyms. These swings in economic fortune were reflected in the stock
market with a massive divergence in performance by sector. We are pleased to
say that despite all of the volatility, for the mining sector the outcome over
the twelve month period was not only better than feared but actually extremely
positive.
Mining companies were well-positioned to see out the immediate volatility due
to the robustness of their businesses. Strong revenues, rock solid balance
sheets and long duration debt maturities softened the blow from lockdowns. In
addition, immediate closure of capacity in response to virus outbreaks meant
that inventories did not build into a supply overhang so that when demand
restarted prices were able to react positively to the recovering activity.
Finally, with limited amounts of new supply coming onstream, this has left the
market looking 'short' compared to the likely ongoing demand recovery during
2021. The chart on page 11 of the Annual Report and Financial Statements
highlights the sensitivity of 'basic resources' to world GDP and no sector is
better placed to benefit than the miners.
Despite all of the positives, mining companies in the portfolio were rightly
cautious during the initial virus outbreak and, given the timing, this resulted
in lower than expected dividend payments to shareholders during the year. This
was most acutely reflected in the low level of special dividends paid by the
diversified majors whose balance sheets now hold significant levels of excess
cash. Shareholders are expecting 2021 to be a year of significant distributions
of excess cash, as most companies now have gearing well below the bottom end of
guidance levels. For the Company, special dividends accounted for 0.30p per
share in 2020 versus 3.80p in 2019, but looking forward this area could
potentially be a very supportive factor for income in 2021.
During the year the Company maintained large holdings in key producers of iron
ore given the ongoing supply issues and resultant better than expected prices.
Our holdings in key beneficiaries such as Vale, Rio Tinto, BHP and Fortescue
Metals Group, together with the iron royalty exposures in Vale Debentures and
Labrador Iron Ore, all helped to increase the Company's NAV during the year.
Exposure to gold producers in the first half delivered excellent capital
growth, as gold prices moved to new record levels on the back of the expansion
of central bank balance sheets and collapse in interest rates. Gold shares
enjoyed huge share price rallies, as the absence of cost inflation allowed them
to capture the higher prices in margins. Also, in precious metals, the platinum
group metals (PGM) sector enjoyed equally spectacular returns, with the PGM
basket rising to new all-time highs, initially driven by palladium and then
taken higher by rhodium during the second half of the year.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ISSUES
The focus on ESG continues to intensify with society increasingly aware of the
climate risks facing civilisation. Sustainability is at the forefront of
decision making for governments and regulators, climate risk is being embedded
into corporate strategy, society is demanding change and there is a growing
recognition from the financial community that ESG is a key driver of long-term
growth.
We are also challenging the executives of the portfolio companies in which we
invest to set out how their current business plans are compatible with
achieving a net zero carbon emissions economy by 2050. We are also supporting
the adoption of the Task Force on Climate-related Financial Disclosures (TCFD)
and the Sustainability Accounting Standards Board (SASB) disclosures to help
bring greater focus on climate risk and broader sustainability issues.
The commitment to sustainability was put to test in 2020 with COVID-19
providing an opportunity for targets to be delayed. Encouragingly, we have seen
numerous companies reconfirm and increase commitments around carbon emissions,
using more sustainable packaging and increasing recycling rates highlighting
the importance placed on this theme. Governments have centred stimulus packages
around sustainability with a focus on renewable energy, electric vehicles and
sustainable building materials, with investors rewarding companies that are
embracing and benefiting from sustainability themes in the market.
During the year a number of governments committed to carbon neutrality, most
notably China, which is targeting to become carbon neutral by 2060. The scale
of investment required to meet this goal is enormous and will be a key driver
of China's GDP growth and commodity demand for decades to come. We view copper
and other sustainable materials such as nickel, lithium and cobalt as the clear
winners from this transition. Substantial investment will be required into
these commodities with the mining sector a clear beneficiary of the energy
transition. On the flip side, thermal coal faces increasing regulatory and
societal pressure with demand expected to decline as cleaner and cheaper
sources of renewable power become available. The Company is well-positioned to
benefit from these trends and we expect to build exposure to metals that will
benefit from this transition in years ahead.
Within the portfolio, a number of the larger companies provided clarity on
their long-term carbon emission targets. Companies such as Anglo American and
BHP have committed to reduce their scope 1 & 2 emissions by 30% by 2030 and are
looking to achieve carbon neutrality for their own operations by 2040 and 2050
respectively. These commitments will be a key driver of investment going
forward with the sector focused on replacing diesel with renewable power
sources, investing in technology to reduce their own and their customers
emissions and exiting businesses with a high carbon intensity. As at the end of
the year, the Company has no exposure to pure-play thermal coal companies.
ESG is a broad and rapidly evolving area and is of critical importance to the
mining sector. As investment managers we spend a considerable amount of time
understanding the ESG risks and opportunities facing companies and industries
in the portfolio. As an extractive industry, the mining sector naturally faces
a number of ESG challenges given its dependence on water, its carbon emissions
and the geographical location of assets. However, we feel the sector
under-emphasises the many positive ESG benefits it provides to society through
the provision of critical infrastructure, taxes and employment to local
communities, providing materials essential to human progress, enabling the
carbon transition through the production of sustainable metals and continuing
to improve health and safety standards across the industry.
While the majority of the Company's holdings have advanced their ESG
credentials during the year, particularly around climate change and COVID-19
support provided to their host communities and employees, there have sadly also
been some ESG controversies. The most notable was the destruction of historical
caves at Juukan Gorge on the land of the Puutu Kunti Kurrama and Pinikura
people (PKKP) in the Pilbara region of Western Australia. This tragic incident
has cast a dim light over Rio Tinto's ESG practices which ultimately saw the
removal of the CEO and a number of other key executives. Following the
Australian parliamentary inquiry into Juukan Gorge and a review of the Native
Title Act, we expect increased scrutiny over land access and regulatory
approval for future projects which adds uncertainty to Australian iron ore
supply longer term.
Norilsk Nickel has been under significant scrutiny following an oil spill which
saw circa 21,000t of diesel spilled into the Arctic region. Norilsk has been
ordered to pay US$1.9 billion in fines and damages.
Vale has been under ESG scrutiny following the tailings dam incidents at
Samarco in 2015 and Brumadinho in 2019. Both events have been extremely tragic
and resulted in a heavy focus on tailings dam management across the sector.
Vale is committed to restoring Brumadinho and continues to make good progress
rebuilding its pact with society. Vale has implemented a number of changes to
its tailings dam management process following an independent review to ensure
it is aligned with the highest level of international practices. As confidence
increases in the improved ESG credentials of the company, we would expect the
shares to re-rate higher to reflect the reduced ESG risk.
ESG is an integral element of the investment process used to build and manage
the portfolio. As a general approach the Company will not invest in companies
which have high ESG risks and which have no plans to address existing
deficiencies.
We are also challenging the executives of the portfolio companies in which we
invest to set out how their current business plans are compatible with
achieving a net zero carbon emissions economy by 2050. We are also supporting
the adoption of the Task Force on Climate-related Financial Disclosures (TCFD)
and the Sustainability Accounting Standards Board (SASB) disclosures to help
bring greater focus on climate risk and broader sustainability issues.
There will be cases where a serious event has occurred and in that case we will
assess whether the company is taking appropriate action to resolve matters
before deciding what to do. Depending on our assessment of the reaction of the
Board and management to the event, we will take appropriate measures, which
may include the full disposal of shares.
In addition there will be companies which have derated on the back of an ESG
event or generally poor ESG practices and there may be opportunities to invest
at a discounted price. However we will only invest in these value-based
opportunities if we are satisfied that there is real evidence that the
company's culture has changed and that better operating practices have been put
in place. In these cases, we will actively engage with management and closely
monitor their remedial programmes.
Should a company achieve such a change, the shares can go from trading at an
ESG discount to more normal multiples or even an ESG premium which will be to
the benefit of the Company and all stakeholders.
SHAREHOLDER RETURNS
Despite 2020 being a slightly lower year for income compared to the record of
2019, compared with other sectors it was an outstanding result. Only a handful
of companies either cancelled dividend payments or deferred them until later in
the year which is remarkable given the scale of economic impact caused by
global lockdowns. The principal difference between the two years was the lower
level of special dividends in 2020 which was mostly in response to cautiousness
rather than an inability to pay. What was most pleasing was the adherence to
policy on shareholder returns, as normally companies would have been forced
into change during recessions. Dividends generally remained robust in absolute
terms as shown in the chart on page 14 of the Annual Report and Financial
Statements. Within the data the growth seen from gold companies has been
spectacular.
A number of gold producers announced 100% increases in dividends, admittedly
from low levels, and a handful did this not once but twice during the year.
Newmont Corporation enhanced its returns policy by committing to a new gold
price linked dividend payment policy which at current prices should lead to
further increases in payments. In general, the year was far better than feared
and the outlook for 2021 looks particularly promising.
GROWTH AND RESOURCE REPLENISHMENT
Just as in prior years this theme is the hardest to capture, especially when it
comes to production growth, as companies have remained disciplined in
allocating capital to new projects. Whilst this is challenging in terms of
identifying exposure to growth, it is extremely positive for commodity prices
due to the lack of new supply and even more so when the demand outlook is as
positive as it now appears.
Within the portfolio, Anglo American remains the major contributor with the
highest rate of production growth amongst the diversified miners, driven by new
copper production coming from the Quellaveco project in Peru and longer term
the Woodsmith polyhalite mine in Yorkshire. In copper, First Quantum Minerals
has ramped-up its new Cobre Panama mine and is now able to use cash flow from
higher production and better prices to reduce debt to more manageable levels.
Ivanhoe Mines is on track to bring its new Kamoa-Kakula mine into production by
the end of the year and ramp-up to capacity during 2022. Nevada Copper was the
biggest detractor from performance within the growth area, as the company was
forced to delay their ramp-up in capacity due to COVID-19 and, as a result,
needed to raise additional debt at expensive rates and highly dilutive share
issuance. Finally, the Company continued to support Nickel Mines as it raised
capital to further grow production through exposure to additional production
lines in Indonesia. Since the Company first supported Nickel Mines at its IPO
in August 2018, the shares have risen by 2.5x and, in addition, the company
paid an inaugural dividend in July 2020.
The other source of growth for companies is mergers and acquisitions (M&A)
activity, but this has also been constrained by the sector's focus on capital
discipline. Gold has been the busiest area over the last few years and this
continued in 2020 where the largest transaction was the merger between Northern
Star Resources and Saracen Mineral Holdings. Key to this deal was the fact that
each company bought a fifty percent stake in the Australian 'Super Pit' in
Kalgoorlie from Newmont Corporation and Barrick Gold back in 2019. Simplifying
the ownership structure should allow cost saving synergies to be captured,
significant tax savings and the fast tracking of value-added investment
decisions. Also, in gold, SSR Mining and Alacer Gold combined in a merger of
equals, once again driven by cost synergies and increasing the diversity of the
asset base. For the Company, the most beneficial deal was the announced
purchase of Teranga Gold by Endeavour Mining. The Company bought its exposure
in Teranga Gold in December 2019 when the business sought finance for the
purchase of the Massawa gold project from Barrick Gold. Since then, the shares
have risen almost threefold and the ability to retain ongoing exposure to the
assets through a holding in Endeavour Mining means additional value can accrue
to the Company over time.
Outside of gold there were some smaller deals that impacted the portfolio.
First, the sell down by Sheffield Resources in its Thunderbird Mineral Sands
Project to Yansteel. This should see the project move forward by unblocking the
financing hurdle that faced Sheffield Resources. Also, in Australia, Iluka
Resources completed the demerger of its MAC iron ore royalty into a new listed
company. It is believed that by placing the royalty into a separately listed
company it will allow the new group, called Deterra Royalties, to diversify
into other royalties. Lastly, Independence Group announced the purchase of a
stake in the Greenbushes Lithium Mine via a holding in the joint venture that
owns half the operation. The Company managed to buy into the deal during the
capital raise to fund the transaction and the shares have risen significantly
as the market rerates the combined business more akin to a higher multiple used
for valuing ESG sustainable companies from the lower multiples normally
applying to mining companies.
BASE METALS
The rerating of base metal prices since the virus-hit lows of March has been
exceptional, with all base metal prices finishing the year higher. However,
with the exception of copper, it is worth noting that average prices were
actually lower on a year-on-year basis reflecting the steep COVID-19 drawdown
in March. As we have seen in similar demand shock periods, financial investors
used the base metals forward markets to express a negative view on the global
economy. Much of the price rally can be explained by the broad-based pick-up in
end demand. However, there were a number of other factors which intensified the
rally such as COVID-19 related supply impacts, a collapse in scrap collection,
speculative inflow into commodities and green related stimulus packages
benefiting copper in particular.
Selected commodity price changes during 2020
Price % % Change
31/12/ Change Avg
2020 12 2020 vs.
month 2019
Precious Metals US$/oz
Silver 26.5 47.2 26.6
Gold 1,897.8 24.8 27.1
Platinum 1,075.0 10.7 2.4
Palladium 2,370.0 23.4 42.5
Base Metals US$/lb
Tin 9.3 19.6 -8.0
Zinc 1.2 19.7 -11.0
Lead 0.9 10.8 -8.6
Aluminium 0.9 10.8 -5.0
Copper 3.5 26.0 2.9
Nickel 7.5 18.7 -0.7
Industrial Commodities
Coking Coal US$/t 101.4 -25.4 -29.5
Thermal Coal US$/t Newcastle 80.5 18.9 -22.8
Iron Ore - fines 62% Fe China Import US$/t 161.0 73.1 16.3
Uranium US$/lb 30.0 20.0 13.6
Lithium Carbonate CIF to China spot 99% US$/t 7,430.4 31.0 -36.6
======== ======== ========
Sources: Datastream and Bloomberg.
Copper, the standout base metal in 2020, led the recovery. Its price bottomed
at US$2.10/lb in March but subsequently rallied circa 70% to finish the year at
US$3.53/lb, a price level not seen since 2013, with the market benefiting from
strong Chinese imports for investment into the state grid, property and
strategic stockpiling, a feature we have not seen in the market for a number of
years. This surge in demand saw the copper market move into a deficit by year
end, with investors beginning to reassess the longer-term demand picture as
governments prioritise 'green-related' stimulus into renewables, electric
vehicles and the grid which has the potential to see medium-term copper demand
increase by 3% to 5% per annum. We view copper as a clear beneficiary from
decarbonisation spending, which is a key multi-decade theme for the sector.
Copper supply fundamentals also remain supportive with production impacted in
key regions such as Peru and Chile, growth projects delayed by 12 to 24 months
and scrap underperforming. We have previously talked about the long-term supply
challenges the copper industry faces and, given the acceleration in
green-related demand, we continue to remain positive on the commodity.
The Company has a very large exposure to copper which represented 19.2% of the
portfolio at the year-end and was the key driver of performance in 2020.
Standout performers included Freeport-McMoRan which has seen a sharp inflection
in free cash flow as the Grasberg underground mine ramps-up, First Quantum
Minerals which is rapidly deleveraging as its flagship Cobre Panama mine
increases production and OZ Minerals which has exceeded expectations at its
newest asset Carrapateena and continues to extract value at Prominent Hill. As
we look into 2021, Ivanhoe Mines will move from developer to producer at the
world-class Kamoa-Kakula project and we are set to receive higher dividend
payments from Cerro Verde.
The other base metal that the Company has significant exposure to is nickel
which saw its price rise by 18.7% in 2020. The nickel market has been in
surplus for much of 2020. However, it tightened in Q4 as Chinese stainless
steel demand recovered along with the rest of the world. A striking feature of
the nickel market has been the rapid growth in nickel pig iron (NPI) production
from Indonesia, which has overtaken China as the largest producer of NPI
globally. The Company has directly benefited from this via its investment in
Nickel Mines, an Australian listed nickel producer, that owns three nickel
projects in Indonesia which are operated under an agreement with Tsingshan.
Nickel Mines has been a remarkable investment for the Company with attributable
production to grow from zero to circa 50ktpa Ni in under five years since the
IPO of the company in 2018.
BULK COMMODITIES
Iron ore was the standout commodity during 2020, with the price rallying more
than 70% to finish the year at US$161/t. It was a perfect storm for the iron
ore market which saw record steel demand in China, coupled with ongoing supply
issues in Brazil. Following the tragic Brumadinho tailings dam incident at the
beginning of 2019, the iron ore market has significantly tightened with the
price more than doubling. This tightness was intensified during 2020 with China
surpassing expectations in ramping its steel production back above pre-COVID-19
levels by the middle of the year, as the government increased infrastructure
investment and eased the property sector in an effort to support the economy.
China's overall steel output grew by 5% in 2020 to 1.05Bt and is poised to
remain strong during 2021, underpinned by existing infrastructure projects. We
would expect to see a moderation in steel demand during the second half of 2021
as policy stimulus is phased out. However, we still expect China's steel output
to remain strong with the iron ore market to be in deficit again in 2021.
Supply disruption was a key feature of the iron ore market in 2020. This was
largely centred on Brazil which saw Vale miss the mid-point of its original
2020 guidance by over 40Mt, as operations were initially hampered by excessive
rainfall and then by COVID-19. The Australian iron ore producers performed far
better with BHP, Rio Tinto and Fortescue Metals Group seeing minimal
operational impact from COVID-19. However, supply risks have risen following
the Australian parliamentary inquiry into the destruction of Juukan Gorge and
the review of the Native Title Act in Australia. This has the potential to
force changes to current and future mine approvals, consequently impacting
production and capital expenditure for the Australian iron ore producers.
We would expect supply tightness to begin to ease from the end of 2021, as Vale
continues to bring tonnes into the market and China looks to increase its use
of scrap steel. Market commentators have talked about a 'stronger for longer'
iron ore market which seems plausible and underpins a strong dividend outlook
for the major producers. However, the last two years of elevated iron ore
prices have incentivised new production into the market. The world class
Simandou iron ore project has received approval from the Guinean government to
be developed by a China led consortium. Despite the high capital intensity of
the asset due to the associated infrastructure development, Simandou offers
strategic benefits to China reducing their dependency on Australian iron ore
and also providing them with another source of high-grade supply. The ultimate
outcome of these additional projects coming to the market is likely to result
in a larger oversupply of iron ore once China's steel production starts to
moderate longer term.
The Company has benefited from the high level of iron ore prices during 2020
through its exposure to BHP, Rio Tinto, Vale (both equity and the Debentures),
Fortescue Metals Group and Labrador Iron. These producers are enjoying record
margins given the decline in their operating cost base since the last peak in
the iron ore price and have returned a significant proportion of free cash flow
in dividends. Given our expectation of another robust year for the iron ore
market, we expect another strong year for shareholder returns in 2021.
Coking coal is another key steel raw material but unlike iron ore the price was
down 25% in 2020. Coking coal has been a casualty of the Australia-China trade
dispute, with China placing an informal ban on Australian coal imports leaving
circa 30% of Australia's metallurgical coking coal looking for a new home. A
two-tier market has developed between the landed China seaborne price which is
trading at a US$75/t premium to the equivalent quality of coking coal from
Australia. While there has been some rebalancing of trade flows with Canada and
Russia looking to fill the supply void, however, given the scale of the
deficit, we would expect that China will allow imports from Australia again
over the course of 2021.
The Company's coking coal holdings include Teck Resources and BHP. Teck
Resources has lagged the sector year-to-date given reduced coking coal demand
in Europe, as well as the dramatic fall in the oil price which has impacted
Fort Hills, its Canadian oil sands asset. With Teck Resources able to take
advantage of the strong coking coal price in China and the better oil price
outlook, we are looking for improved performance in 2021.
PRECIOUS METALS
2020 was a stellar year for the precious metals with a new all-time high gold
price set at US$2,064/oz in August. Gold and silver prices were up 25% and 47%
respectively which follows strong performance for both commodities in 2019. The
huge expansion in central bank balance sheets, as governments adopted a
'whatever it takes' approach in response to COVID-19, has seen a collapse in
rates globally with the US 10 year real rate moving into negative territory in
2020. This, combined with the US Federal Reserve moving to an average inflation
target and willing to tolerate periods of higher inflation, we believe has
opened the door for real rates to reach never previously seen low levels and a
new higher trading range to be established for gold.
An encouraging feature of the gold equity market in recent years has been the
increased focus on shareholder returns, with higher gold prices translating
into higher margins and dividends. The gold sector has generated decent returns
in recent years with balance sheets deleveraged and growth projects
rationalised, which has seen several companies materially raise dividends
during 2020. Key dividend increases for the Company include Newmont Corporation
with a 79% dividend increase announced at the beginning of the year which was
supplemented by a new gold-linked dividend policy, Barrick Gold increasing its
quarterly dividend by 80% and B2Gold by 100%. Given the continued strength in
the gold price and the increased dividend commitment from the sector, we look
forward to further dividend growth in 2021.
The last few years have been a busy period for M&A in the gold sector. The end
of 2018 saw the merger of Barrick Gold and Randgold Resources followed quickly
by the takeover of Goldcorp by Newmont Corporation. This was then followed by
the merger of Barrick Gold and Newmont Corporation's Nevada gold assets to
create a massive market-leading US gold business. The gold M&A market has been
more subdued in 2020, the most notable transaction being the merger between
Northern Star Resources and Saracen Mineral Holdings, its Joint Venture partner
in the Kalgoorlie 'Super Pit'. Northern Star Resources has a proven track
record of value creation from M&A where it has grown from a single asset,
100koz producer in 2010, to today being over a 1Moz producer.
Other notable contributors to performance this year include Newmont Corporation
which offers the most attractive dividend yield of the senior producers,
Wheaton Precious Metals which benefited from the strong increase in the silver
price which is seeing rising industrial demand via increased solar investment
and our exposure to the Russian gold producers, Polyus and Polymetal
International.
The PGMs continued their strong performance in 2020 with the palladium and
platinum price up 23% and 11% respectively. We continue to remain positive on
the PGM space and believe the PGM basket will remain high relative to history
given limited new supply projects, increasing PGM loadings for auto catalysts
to meet emissions standards and a sustained global auto recovery. In terms of
supply, a combination of Anglo American Platinum's converter failure and South
Africa's COVID-19 lockdowns, saw 2020 refined platinum and palladium supply
fall by 22% and 24% respectively. In the year ahead, the PGMs we see as
particularly strong are palladium, with the market forecast to remain in
deficit in 2021 and rhodium the less talked about PGM which is seeing
increasing demand to meet Nitrogen Oxide (NOx) emission standards. The move in
the rhodium price in 2020 has been nothing short of spectacular at +280%. The
Company has continued to increase its pure play PGM exposure via its holdings
in Impala Platinum, Northam Platinum and Sibanye Stillwater, which combined
equated to 4.7% of the portfolio at the end of December. In addition, the
Company also has exposure to PGMs via its holding in Anglo American (7.2% of
the portfolio) which owns 79% of Anglo American Platinum and Norilsk Nickel
(1.1% of the portfolio).
ROYALTIES AND ILLIQUID INVESTMENTS
The Company currently has one unquoted investment, the OZ Minerals Brazil
Royalty, representing 1.9% of the portfolio as at the end of December 2020. The
Company has an additional royalty investment, Vale Shareholder Debentures,
representing 4.1% of the portfolio. The latter is technically listed in Brazil
but due to the limited liquidity it is covered in this section. Together the
two royalty investments make up 6.0% of the portfolio. These, and any future
investments, will be managed in line with the guidelines set by the Board as
outlined to shareholders in the Strategic Report.
OZ MINERALS BRAZIL ROYALTY CONTRACT (1.9% OF THE PORTFOLIO)
In July 2014 the Company signed a binding royalty agreement with Avanco
Minerals. The Company provided US$12 million in return for a Net Smelter Return
(net revenue after deductions for freight, smelter and refining charges)
royalty payments comprising 2% on copper, 25% on gold and 2% on all other
metals produced from mines built on Avanco's Antas North and Pedra Branca
licences. In addition, there is a flat 2% royalty over all metals produced from
any other discoveries within Avanco's licence area as at the time of the
agreement.
In 2018 Avanco was acquired by OZ Minerals an Australian based copper and gold
producer for A$418 million, with the royalty now assumed by OZ Minerals. Since
our initial US$12 million investment was made, we have received US$15.1 million
in royalty payments, with the royalty achieving full payback on the initial
investment. As at the end of December 2020, the royalty was valued at £19.8m
(1.9% of the portfolio) which equates to a 251.1% total return since our
investment.
In November 2019 OZ Minerals approved the development of the Pedra Branca
underground mine and released a feasibility study and mine plan detailing an
eight-year life of mine. This is OZ Minerals' second operating asset in Brazil
and is expected to produce more than twice the amount of copper and gold
production per year than the existing Antas Mine. Mining at Antas is scheduled
to cease during 2021, after which ore from Pedra Branca will be processed
through the existing facilities, making Pedra Branca a lower risk, capital
light development project. Despite the challenges of operating in Brazil during
COVID-19, we are pleased to report that the first development ore from Pedra
Branca was trucked to the Carajas Antas hub during the September quarter,
leaving the asset well-positioned to ramp-up production during the first half
of 2021.
From a valuation perspective, the discount rate applied to Pedra Branca has
been moved to a level that reflects the project moving from development status
to production. In addition, with the increasing amount of royalty revenue being
generated from gold in line with the increase in the gold price, we have in
part reflected a lower discount rate applied to gold royalties, in line with
how the market prices precious metals royalties. This, in addition to minor
changes to commodity prices, has resulted in a valuation of £19.8 million for
the royalty which has been approved by the Directors after considering the
independent valuation of the Royalty carried out by SRK Consulting (UK)
Limited.
VALE SHAREHOLDER DEBENTURES
In early 2019 the Company completed a transaction to increase its holding in
the Vale Shareholder Debentures. The Vale Debentures consist of a 1.8% net
revenue royalty over Vale's Northern System and Southeastern System iron ore
assets in Brazil, as well as a 1.25% royalty over the Sossego copper mine. The
iron ore assets are world class given their grade, cost position,
infrastructure and resource life which is well in excess of 50 years. Prior to
this transaction, the Company had a 0.5% position in these securities versus
the current level of 4.1%.
The iron ore market has significantly tightened since Vale's tragic tailings
dam accident at the beginning of 2019 which saw the iron ore price rally over
30%. This was further intensified in 2020, with Vale failing to meet its annual
production guidance due to severe rains in the first half of the year, as well
as COVID-19 related operating challenges. These supply issues combined with
record steel demand in China, saw the iron ore price increase by more than 70%
in 2020. The Debentures have directly benefited from the move higher in the
iron ore price with the Company enjoying increasing distributions as shown in
the chart on page 20 of the Annual Report and Financial Statements. Vale is
expected to spend US$13 billion restoring the communities and environment
impacted by the Brumadinho incident between 2019 and 2030. However, it is
important to note that this cost is not borne by the Debentures as they are a
revenue royalty with payments directly linked to the iron ore price which
appreciated during the first half of 2020. It is also important to highlight
that the operations impacted by the incident are in the Southern and
Southeastern System, with the Vale Debentures currently only making royalty
payments from the Northern System.
The chart on page 20 of the Annual Report and Financial Statements shows the
historic distributions paid by Vale to the owners of the Debentures and in 2020
this amounted to US$2.3 million for the Company. The payments are expected to
grow further once royalty payments commence on the Southeastern System in 2024
and volumes from the newly commissioned iron ore project S11D continue to
ramp-up. Vale is looking to further increase production from the Northern
System from 206mtpa today to 260mtpa longer term which provides additional
upside to our original expectations for the Debentures.
Whilst the Vale Debentures are a royalty, they are also a listed security on
the Brazilian National Debentures System. However, shareholders should be aware
that historically there has been a low level of liquidity in the Debentures and
price volatility is to be expected. Since the acquisition in February 2019 the
Debentures have paid out a total of R4.56/debenture resulting in a 20%
distribution return in two years. The securities were priced at R48.2/debenture
at the end of 2020 versus a price of R23 when the holding was last added to.
We continue to actively look for opportunities to grow royalty exposure given
it is a key differentiator of the Company and an effective mechanism to lock-in
long-term income, which further diversifies the Company's revenues.
FIXED INCOME SECURITIES
The Company continues to have a small but decreasing proportion of the
portfolio allocated to fixed income securities, due to the ongoing decline in
interest rates leaving the arbitrage return net of tax less attractive than
alternative investments. At the end of the year 4.2% of the portfolio was
invested in fixed income securities. Outside of the decline in interest rates,
the ongoing improvement in corporate balance sheets meant both repayment of
expiring bonds and limited new issuance further reduced the opportunities
available in the market. If current conditions continue then revenue from this
area will decline further, but it is hoped that this will be covered by
increases from other areas such as ordinary dividends. During the year one new
holding was added to this part of the portfolio, ArcelorMittal Mandatory
Convertible Notes (MCNs) purchased as part of a capital raising during the
summer. Returns on this investment have been spectacular so far given the
recovery in steel markets and it is hoped that, with the underlying company now
committed to stepping up shareholder returns, income from the MCNs will rise in
2021. As ever, we continue to look for new deals but with a very strict focus
on return versus quality.
DERIVATIVES ACTIVITY
The Company from time to time enters into derivatives contracts, mostly
involving the sale of 'puts' and 'calls'. These are taken to revenue and are
subject to strict Board guidelines which limit their magnitude to an aggregate
10% of the portfolio. During 2020 income generated from options was £8.8
million net of contracts repurchased. This is higher than in the last couple of
years, as the spike in volatility during the peak of the pandemic presented a
range of great opportunities to monetise premiums. The majority of options
expired out of the money as options were written with short lives and share
prices rapidly recovered from the pandemic low point. Given the spike in
volatility during the year, it is unlikely that this will be repeated in 2021
and therefore income from options is likely to be lower. At the end of 2020 the
Company had 2.6% of the net assets exposed to derivatives.
GEARING
Debt, which can be drawn down or repaid at any time, is used in the portfolio
to take tactical advantage of market volatility and opportunities, as well as
enhance overall returns over the medium to long term. At 31 December 2020, the
Company had debt net of group cash amounting £114.8 million representing
gearing of 12.3%. Over the last few years, the amount of gearing allocated
against higher yielding mining company corporate bonds has declined due to
increased returns available through the equities as well as reduced
availability of bonds that meet our valuation criteria. For 2020 the majority
of the Company's debt was once again hedged against the fixed income portfolio
and royalty positions.
OUTLOOK AND STRATEGY FOR 2021
This time last year we made the following bold statement: 'After the strong
returns generated during the year it might seem foolish to expect another year
of competitive total returns for the mining sector in 2020 but with macro risks
seemingly on the turn for the better this might easily play out'. With the
benefit of hindsight, it is clear that whilst our forecast of strong returns
played out, we never expected the scale of disruption caused by the COVID-19
pandemic. This leads us to the often used quote from Mark Twain 'it is
difficult to make predictions, particularly about the future' so this year we
will limit our forecast to that of another strong year of expected returns
without linking it to seemingly unforecastable macro events.
Our confidence on returns comes from two areas: strong corporate outlook and
commodity market imbalances. The former is based on the robust balance sheets,
higher profit margins and five-year track record of shareholder return
discipline. The combination of all of these gives us conviction when expecting
companies to do the right thing for shareholders when faced with windfall gains
from better than expected market conditions. With regard to the latter, as
mentioned earlier in the report, the expected pick-up in fiscal spending around
the world is set to drive commodity demand growth to levels above that of the
last decade or longer. In addition, the underinvestment into supply over the
last five years or more means that industrial commodity prices should be well
supported in 2021.
As always there are risks to the outlook and we are well aware that margins are
elevated, especially for producers of iron ore where these are well above
historic levels. Given the mean reverting nature of commodity markets, these
will at some point contract despite ongoing supply side issues and better than
expected demand from steel producers. In addition, the pressure on management
to spend money on growth projects is at its greatest when balance sheets are
strong, metal prices are high and demand is rising. We hope that any investment
decisions are thoroughly reviewed to limit the chances of value destroying
history repeating itself.
In summary, we believe that with the demand outlook so strong there could be a
few years of positive total returns ahead given how long it takes for new
supply to come into production. The goal for the Company continues to be to
deliver a superior total return for shareholders through the cycle from a
combination of capital growth and a premium yield to that generally available
from the mining sector and to keep generating competitive returns compared to
world markets.
EVY HAMBRO AND OLIVIA MARKHAM
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
4 March 2021
TEN LARGEST INVESTMENTS
1 + Vale1, 2 (2019: 3rd)
Diversified mining group
Market value: £114,280,000
Share of investments: 10.9% (2019: 8.6%)
One of the largest mining groups in the world, with operations in 30 countries.
Vale is the world's largest producer of iron ore and iron ore pellets, and the
world's largest producer of nickel. The group also produces manganese ore,
ferroalloys, metallurgical coal, copper, platinum group metals, gold, silver
and cobalt.
2 - BHP3 (2019: 1st)
Diversified mining group
Market value: £79,817,000
Share of investments: 7.6% (2019: 9.7%)
The world's largest diversified mining group by market capitalisation. The
group is an important global player in a number of commodities including iron
ore, copper, metallurgical coal, manganese, nickel, silver and diamonds. The
group also has significant interests in oil, gas and liquefied natural gas.
3 - Rio Tinto3 (2019: 2nd)
Diversified mining group
Market value: £77,724,000
Share of investments: 7.5% (2019: 9.3%)
One of the world's leading mining groups. The group's primary product is iron
ore, but it also produces aluminium, copper, diamonds, gold, industrial
minerals and energy products.
4 = Anglo American (2019: 4th)
Diversified mining group
Market value: £75,031,000
Share of investments: 7.2% (2019: 6.1%)
A global mining group. The group's mining portfolio includes bulk commodities
including iron ore, manganese, and metallurgical coal, base metals including
copper and nickel and precious metals and minerals including platinum and
diamonds. The group has mining operations globally, with significant assets in
Africa and South America.
5 + Freeport-McMoRan (2019: 16th)
Copper producer
Market value: £54,595,000
Share of investments: 5.2% (2019: 2.2%)
A global mining group which operates large, long-lived, geographically diverse
assets with significant proven and probable reserves of copper, gold and
molybdenum.
6 = Newmont Corporation (2019: 6th)
Gold producer
Market value: £46,903,000
Share of investments: 4.5% (2019: 4.4%)
Following the acquisition of Goldcorp in the first half of 2019, Newmont is the
world's largest gold producer by market capitalisation. The group has gold and
copper operations on five continents, with active gold mines in Nevada,
Australia, Ghana, Peru and Suriname.
7 - Barrick Gold (2019: 5th)
Gold producer
Market value: £43,339,000
Share of investments: 4.1% (2019: 4.4%)
Following the merger with Randgold Resources in 2018, Barrick Gold is the
second largest gold producer by market capitalisation and has operations and
projects in 15 countries across the world. In 2019, the group successfully
established a joint venture with Newmont across their Nevada assets to maximize
the synergies across both sets of assets.
8 + Wheaton Precious Metals (2019: 9th)
Precious metals streaming group
Market value: £34,374,000
Share of investments: 3.3% (2019: 3.7%)
A precious metals streaming group. The group purchases silver and gold
production from mines that it does not own and operate. The group has streaming
agreements with 22 operating mines worldwide including Newmont's Penasquito,
HudBay's Constancia and Vale's Salobo and Sudbury mines.
9 + OZ Minerals2,4 (2019: 10th)
Copper producer
Market value: £33,544,000
Share of investments: 3.2% (2019: 3.3%)
An Australian based mining company, with a primary focus on copper. The company
owns and operates the high quality Prominent Hill copper-gold mine and the
Carrapateena copper-gold project, both situated in South Australia. In 2018 OZ
Minerals successfully acquired Avanco Resources, with the Company's royalty
assumed by OZ Minerals.
10 - First Quantum Minerals1 (2019: 7th)
Copper producer
Market value: £29,954,000
Share of investments: 2.9% (2019: 4.2%)
An established growing copper mining group operating seven mines including the
ramp-up of their newest mine, Cobre Panama, which declared commercial
production in September 2019. The group is a significant copper producer and
also produces nickel, gold and zinc.
1 Includes fixed income securities.
2 Includes investments held at Directors' valuation.
3 Includes options.
4 Includes mining royalty contract.
All percentages reflect the value of the holding as a percentage of total
investments. For this purpose, where more than one class of securities is held,
these have been aggregated.
Together, the ten largest investments represented 56.4% of total investments of
the Company's portfolio as at 31 December 2020 (ten largest investments as at
31 December 2019: 57.4%).
INVESTMENTS AS AT 31 DECEMBER 2020
Main Market
geographical value % of
exposure £'000 investments
Diversified
Vale Global 70,917 6.8
Vale 0% Debentures*# Global 43,363 4.1
BHP Global 79,980 7.6
BHP Put Option 15/01/21 £19 Global (163) -
Rio Tinto Global 78,148 7.5
Rio Tinto Call Option 15/01/21 £54 Global (424) -
Anglo American Global 75,031 7.2
Teck Resources Global 23,077 2.2
Glencore Global 17,540 1.7
Independence Group Australasia 1,006 0.1
-------------- --------------
388,475 37.2
======== ========
Gold
Newmont Corporation Global 46,903 4.5
Barrick Gold Global 43,339 4.1
Wheaton Precious Metals Global 34,374 3.3
Northern Star Resources Australasia 22,504 2.2
Franco-Nevada Global 21,992 2.1
Kinross Gold Global 13,521 1.3
Polymetal International United 13,289 1.3
Kingdom
Polyus Russia 11,462 1.1
Teranga Gold Canada 8,934 0.9
Agnico Eagle Mines Canada 8,175 0.8
B2Gold Canada 7,812 0.7
Kirkland Lake Gold Australasia 6,041 0.6
Gold Fields South Africa 5,654 0.5
Alamos Gold Latin 4,805 0.5
America
Evolution Mining Global 3,524 0.3
Shanta Gold Convertible* Other Africa 1,313 0.1
-------------- --------------
253,642 24.3
======== ========
Copper
Freeport-McMoRan Global 54,595 5.2
OZ Minerals Brazil Royalty# Latin 19,753 1.9
America
OZ Minerals Australasia 13,791 1.3
First Quantum Minerals* Global 29,954 2.9
Sociedad Minera Cerro Verde Latin 23,358 2.2
America
Lundin Mining Global 16,496 1.6
Ivanhoe Mines Other Africa 15,204 1.5
Antofagasta Latin 9,446 0.9
America
Ero Copper Latin 9,372 0.9
America
SolGold Latin 4,298 0.4
America
Nevada Copper United 2,463 0.2
States
Solaris Resources# Latin 2,405 0.2
America
-------------- --------------
201,135 19.2
======== ========
Iron Ore
Fortescue Metals Group Australasia 28,793 2.8
Labrador Iron Canada 28,738 2.7
Deterra Royalties Australasia 5,424 0.5
Equatorial Resources Other Africa 499 -
-------------- --------------
63,454 6.0
======= ========
Platinum Group Metals
Northam Platinum South Africa 17,032 1.6
Impala Platinum South Africa 16,966 1.6
Sibanye Stillwater South Africa 15,255 1.5
-------------- --------------
49,253 4.7
======== ========
Steel
ArcelorMittal* Global 25,770 2.5
Steel Dynamics United 9,286 0.9
States
-------------- --------------
35,056 3.4
======== ========
Nickel
Nickel Mines Indonesia 16,223 1.6
Norilsk Nickel United 11,163 1.1
Kingdom
Bindura Nickel Other Africa 106 -
-------------- --------------
27,492 2.7
======== ========
Industrial Minerals
Lynas Corporation Australasia 7,823 0.7
Iluka Resources Australasia 7,369 0.7
Sheffield Resources Australasia 4,203 0.4
-------------- --------------
19,395 1.8
======== ========
Zinc
Titan Mining+# United 3,396 0.3
States
-------------- --------------
3,396 0.3
======== ========
Silver & Diamonds
Sierra Metals Latin 3,325 0.3
America
-------------- --------------
3,325 0.3
======== ========
Aluminium
Metro Mining Australasia 608 0.1
-------------- --------------
608 0.1
======== ========
1,045,231 100.0
======== ========
Comprising
- Investments 1,045,818 100.1
- Written options (587) (0.1)
======== ========
1,045,231 100.0
======== ========
* Includes fixed income securities.
# Includes investments held at Directors' valuation.
Mining royalty contract.
+ Includes warrant investments.
All investments are in equity shares unless otherwise stated. The total number
of investments as at 31 December 2020 (including options classified as
liabilities on the balance sheet) was 56 (31 December 2019: 65).
As at 31 December 2020 the Company held equity interests in two companies
comprising more than 3% of a company's share capital as follows: Sheffield
Resources and Titan Mining.
PORTFOLIO ANALYSIS AS AT 31 DECEMBER 2020
COMMODITY EXPOSURE1
2020 2019# 2020
Company portfolio Company portfolio Reference Index*
Other 0.0% 2.0% 0.3%
Coal 0.0% 0.5% 0.0%
Aluminium 0.1% 0.2% 2.1%
Silver & Diamonds 0.3% 5.8% 1.8%
Zinc 0.3% 0.1% 0.4%
Industrial 1.8% 4.6% 0.3%
Minerals
Nickel 2.7% 2.6% 2.3%
Platinum Group 4.7% 0.0% 2.2%
Metals
Steel 3.4% 0.0% 15.6%
Iron Ore 6.0% 1.2% 4.2%
Copper 19.2% 17.9% 10.0%
Gold 24.3% 23.2% 28.6%
Diversified 37.2% 41.9% 32.2%
1 Based on index classifications.
# Represents exposure at 31 December 2019.
* MSCI ACWI Metals & Mining 30% Buffer 10/40 Index.
GEOGRAPHIC EXPOSURE2
2020
Global 64.9%
Australasia 9.4%
Latin America 7.3%
Other3 6.5%
South Africa 5.2%
Canada 5.1%
Other Africa (ex South 1.6%
Africa)
2019
Global 63.8%
Latin America 13.0%
Canada 7.3%
Australasia 6.5%
Other4 5.4%
South Africa 2.2%
Other Africa (ex South 1.8%
Africa)
2 Based on the principal commodity exposure and place of operation of
each investment.
3 Consists of Indonesia, Russia, United Kingdom and United States.
4 Consists of Indonesia, Kazakhstan, Russia, Sweden, United Kingdom and
United States.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31
December 2020. The aim of the Strategic Report is to provide shareholders with
the information to assess how the Directors have performed their duty to
promote the success of the Company for the collective benefit of shareholders.
The Chairman's Statement together with the Investment Manager's Report form
part of this Strategic Report. The Strategic Report was approved by the Board
at its meeting on 4 March 2021.
PRINCIPAL ACTIVITIES
The Company carries on business as an investment trust and has a premium
listing on the London Stock Exchange. Its principal activity is portfolio
investment and that of its subsidiary, BlackRock World Mining Investment
Company Limited (together the Group), is investment dealing.
Investment trusts are pooled investment vehicles which allow exposure to a
diversified range of assets through a single investment, thus spreading
investment risk.
OBJECTIVE
The Company's objective is to maximise total returns to shareholders through a
worldwide portfolio of mining and metal securities. The Board recognises the
importance of dividends to shareholders in achieving that objective, in
addition to capital returns.
STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Strategy
The Company invests in accordance with the objective given above. The Board is
collectively responsible to shareholders for the long-term success of the
Company and is its governing body. There is a clear division of responsibility
between the Board and BlackRock Fund Managers Limited (the Manager). Matters
reserved for the Board include setting the Company's strategy, including its
investment objective and policy, setting limits on gearing (both bank
borrowings and the effect of derivatives), capital structure, governance and
appointing and monitoring of the performance of service providers, including
the Manager.
Business model
The Company's business model follows that of an externally managed investment
trust. Therefore, the Company does not have any employees and outsources its
activities to third-party service providers including the Manager who is the
principal service provider. In accordance with the Alternative Investment Fund
Managers' Directive (AIFMD) the Company is an Alternative Investment Fund
(AIF). BlackRock Fund Managers Limited is the Company's Alternative Investment
Fund Manager.
The management of the investment portfolio and the administration of the
Company have been contractually delegated to the Manager who in turn (with the
permission of the Company) has delegated certain investment management and
other ancillary services to BlackRock Investment Management (UK) Limited (the
Investment Manager). The Manager, operating under guidelines determined by the
Board, has direct responsibility for the decisions relating to the day-to-day
running of the Company and is accountable to the Board for the investment,
financial and operating performance of the Company.
The Company delegates fund accounting services to the Investment Manager, which
in turn sub-delegates these services to The Bank of New York Mellon
(International) Limited (BNYM) (the Fund Accountant) and also sub-delegates
registration services to the Registrar, Computershare Investor Services PLC.
Other service providers include the Depositary (also BNYM). Details of the
contractual terms with these service providers and more details of
sub-delegation arrangements in place governing custody services are set out in
the Directors' Report in the Annual Report and Financial Statements.
Investment policy
The Company's investment policy is to provide a diversified investment in
mining and metal securities worldwide. While the policy is to invest
principally in quoted securities, the Company's investment policy includes
investing in royalties derived from the production of metals and minerals as
well as physical metals. Up to 10% of gross assets may be held in physical
metals.
In order to achieve its objective, it is intended that the Group will normally
be fully invested, which means at least 90% of the gross assets of the Company
and its subsidiary will be invested in stocks, shares, royalties and physical
metals. However, if such investments are deemed to be overvalued, or if the
Manager finds it difficult to identify attractively priced opportunities for
investment, then up to 25% of the Group's assets may be held in cash or cash
equivalents. Risk is spread by investing in a number of holdings, many of which
themselves are diversified businesses.
The Group may occasionally utilise derivative instruments such as options,
futures and contracts for difference, if it is deemed that these will, at a
particular time or for a particular period, enhance the performance of the
Group in the pursuit of its objectives. The Company is also permitted to enter
into stock lending arrangements.
As approved by shareholders in August 2013, the Group may invest in any single
holding of quoted or unquoted investments that would represent up to 20% of
gross assets at the time of acquisition. Although investments are principally
in companies listed on recognised stock exchanges, the Company may invest up to
20% of the Group's gross assets in investments other than quoted securities.
Such investments include unquoted royalties, equities or bonds. In order to
afford the Company the flexibility of obtaining exposure to metal and mining
related royalties, it is possible that, in order to diversify risk, all or part
of such exposure may be obtained directly or indirectly through a holding
company, a fund or another investment or special purpose vehicle, which may be
quoted or unquoted. The Board will seek the prior approval of shareholders to
any unquoted investment in a single company, fund or special purpose vehicle or
any single royalty which represents more than 10% of the Group's assets at the
time of acquisition.
In March 2015 the Board refined the guidelines associated with the Company's
royalty strategy and proposed to maintain the 20% maximum exposure to royalties
but the royalty/unquoted portfolio should itself deliver diversification across
operator, country and commodity. To this end, new investments into individual
royalties/unquoted investments should not exceed circa 3% of gross assets at
the time of investment. Total exposure to any single operator, including other
issued securities such as debt and/or equity, where greater than 30% of that
operator's revenues come from the mine over which the royalty lies, must also
not be greater than 3% at the time of investment. In addition, the guidelines
require that the Investment Manager must, at the time of investment, manage
total exposure to a single operator, via reducing exposure to listed securities
if they are also held in the portfolio, in a timely manner where royalties/
unquoted investments are revalued upwards. In the jurisdictions where statutory
royalties are possible (in countries where mineral rights are privately owned)
these will be preferred and in respect of contractual royalties (a contractual
obligation entered into by the operator and typically unsecured) the valuation
must take into account the higher credit risk involved. Board approval will
continue to be required for all royalty/unquoted investments.
While the Company may hold shares in other listed investment companies
(including investment trusts), the Company will not invest more than 15% of the
Group's gross assets in other UK listed investment companies.
The Group's financial statements are maintained in sterling. Although many
investments are denominated and quoted in currencies other than sterling, the
Board does not intend to employ a hedging strategy against fluctuations in
exchange rates.
No material change will be made to the investment policy without shareholder
approval.
Gearing
The Investment Manager believes that tactical use of gearing can add value from
time to time. This gearing is typically in the form of an overdraft or
short-term loan facility, which can be repaid at any time or matched by cash.
The level and benefit of gearing is discussed and agreed with the Board
regularly. The Company may borrow up to 25% of the Group's net assets. The
maximum level of gearing used during the year was 15.6% and, at the financial
reporting date, net gearing (calculated as borrowings less cash and cash
equivalents as a percentage of net assets) stood at 12.3% of shareholders'
funds (2019: 11.7%). For further details on borrowings refer to note 14 in the
Financial Statements and the Alternative Performance Measure in the Glossary in
the Annual Report and Financial Statements.
Portfolio analysis
Information regarding the Company's investment exposures is contained within
the ten largest investments, the investments listed and portfolio analysis all
detailed above. Further information regarding investment risk and activity
throughout the year can be found in the Investment Manager's Report above.
As at 31 December 2020, the investment in the OZ Minerals Brazil Royalty was
held at Directors' valuation, representing a total of £19,753,000
(US$27,002,000) (2019: £15,790,000 (US$20,918,000)). Unquoted investments can
prove to be more risky than listed investments.
Continuation vote
As agreed by shareholders in 1998, an ordinary resolution for the continuation
of the Company is proposed at each Annual General Meeting. Despite the turmoil
in markets due to the COVID-19 pandemic, 2020 was a solid year with mining
companies continuing down the path of capital discipline, balance sheets in
strong shape and earnings and dividends rising. The Directors remain confident
on the value available in the sector and therefore recommend that shareholders
vote in support of the Company's continuation.
Performance
Details of the Company's performance for the year are given in the Chairman's
Statement above. The Investment Manager's Report includes a review of the main
developments during the year, together with information on investment activity
within the Company's portfolio.
Results and dividends
The results for the Company are set out in the Consolidated Statement of
Comprehensive Income. The total profit for the year, after taxation, was £
216,515,000 (2019: £114,066,000) of which £35,451,000 (2019: £39,561,000) is
revenue profit.
It is the Board's intention to distribute substantially all of the Company's
available income. The Directors recommend the payment of a final dividend as
set out in the Chairman's Statement. Dividend payments/payable for the year
ended 31 December 2020 amounted to £35,543,000 (2019: £38,496,000).
Future prospects
The Board's main focus is to maximise total returns over the longer term
through investment in mining and metal assets. The outlook for the Company is
discussed in both the Chairman's Statement and the Investment Manager's Report.
Social, community and human rights issues
As an investment trust with no employees, the Company has no direct social or
community responsibilities or impact on the environment. However, the Company
believes that it is in shareholders' interests to consider human rights issues
and environmental, social and governance factors when selecting and retaining
investments. Details of the Company's policy on socially responsible investment
are set out in the Annual Report and Financial Statements.
Modern slavery act
As an investment vehicle the Company does not provide goods or services in the
normal course of business and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015. In any event,
the Board considers the Company's supply chains, dealing predominantly with
professional advisers and service providers in the financial services industry,
to be low risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company are set out in the Directors' Biographies in the
Annual Report and Financial Statements. The Board consists of three male
Directors and two female Directors. The Company does not have any executive
employees.
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. The key
performance indicators (KPIs) used to measure the progress and performance of
the Company over time and which are comparable to other investment trusts are
set out below. As indicated in the footnote to the table, some of these KPIs
fall within the definition of 'Alternative Performance Measures' under guidance
issued by the European Securities and Markets Authority (ESMA) and additional
information explaining how these are calculated is set out in the Glossary in
the Annual Report and Financial Statements.
Additionally, the Board regularly reviews the performance of the portfolio, as
well as the net asset value and share price of the Company and compares this
against various companies and indices. Information on the Company's performance
is given in the Chairman's Statement.
Year Year ended
ended 31
31 December
December 2019
2020
Net asset value total return1, 2 31.8% 17.2%
Share price total return1, 2 46.7% 19.4%
Discount to net asset value2 2.7% 11.6%
Revenue earnings per share 20.40p 22.46p
Total dividends per share 20.30p 22.00p
Ongoing charges2, 3 0.99% 1.02%
Ongoing charges on gross assets2, 4 0.87% 0.89%
======== ========
1 This measures the Company's NAV and share price total return, which
assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements.
3 Ongoing charges represent the management fee and all other operating
expenses, excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation and certain non-recurring items,
as a % of average daily net assets.
4 Ongoing charges based on gross assets represent the management fee and
all other operating expenses, excluding finance costs, direct transaction
costs, custody transaction charges, VAT recovered, taxation and certain
non-recurring items, as a % of average daily gross assets. Gross assets are
calculated based on net assets during the year before the deduction of the bank
overdraft and loans. Ongoing charges based on gross assets are considered to be
an appropriate performance measure as management fees are payable on gross
assets only in the event of an increase in NAV on a quarter-on-quarter basis.
Principal risks
The Company is exposed to a variety of risks and uncertainties. As required by
the 2018 UK Corporate Governance Code (the UK Code), the Board has put in place
a robust ongoing process to identify, assess and monitor the principal risks
and emerging risks. A core element of this process is the Company's risk
register which identifies the risks facing the Company and assesses the
likelihood and potential impact of each risk and the quality of controls
operating to mitigate it. A residual risk rating is then calculated for each
risk based on the outcome of the assessment.
The risk register, its method of preparation and the operation of key controls
in BlackRock's and other third-party service providers' systems of internal
control, are reviewed on a regular basis by the Audit & Management Engagement
Committee. In order to gain a more comprehensive understanding of BlackRock's
and other third-party service providers' risk management processes and how
these apply to the Company's business, BlackRock's internal audit department
provides an annual presentation to the Audit Committee chairmen of the
BlackRock investment trusts setting out the results of testing performed in
relation to BlackRock's internal control processes. The Audit & Management
Engagement Committee also periodically receives and reviews internal control
reports from BlackRock and the Company's service providers.
The Board has undertaken a robust assessment of both the principal and emerging
risks facing the Company, including those that would threaten its business
model, future performance, solvency or liquidity. The COVID-19 pandemic has
given rise to unprecedented challenges for businesses across the globe and the
Board has taken into consideration the risks posed to the Company by the crisis
and incorporated these into the Company's risk register. The threat of climate
change has also reinforced the importance of more sustainable practices and
environmental responsibility.
Emerging risks are considered by the Board as they come into view and are
incorporated into the existing review of the Company's risk register. They were
also considered as part of the annual evaluation process. Additionally, the
Manager considers emerging risks in numerous forums and the Risk and
Quantitative Analysis team produces an annual risk survey. Any material risks
of relevance to the Company through the annual risk survey will be communicated
to the Board.
The Board will continue to assess these risks on an ongoing basis. In relation
to the UK Code, the Board is confident that the procedures that the Company has
put in place are sufficient to ensure that the necessary monitoring of risks
and controls has been carried out throughout the reporting period.
The principal risks and uncertainties faced by the Company during the financial
year, together with the potential effects, controls and mitigating factors, are
set out in the following table.
Principal Risk Mitigation/Control
Counterparty
The potential loss that the Company could Due diligence is undertaken before
incur if a counterparty is unable (or contracts are entered into and exposures
unwilling) to perform on its commitments. are diversified across a number of
counterparties.
The Depositary is liable for restitution
for the loss of financial instruments held
in custody unless able to demonstrate the
loss was a result of an event beyond its
reasonable control.
Investment performance
The returns achieved are reliant primarily To manage this risk the Board:
upon the performance of the portfolio.
· regularly reviews the Company's
The Board is responsible for: investment mandate and long-term strategy;
· has set investment restrictions
· deciding the investment strategy and guidelines which the Investment Manager
to fulfil the Company's objective; and monitors and regularly reports on;
· monitoring the performance of the · receives from the Investment
Investment Manager and the implementation Manager a regular explanation of stock
of the investment strategy. selection decisions, portfolio exposure,
gearing and any changes in gearing, and the
An inappropriate investment policy may lead rationale for the composition of the
to: investment portfolio;
· monitors and maintains an adequate
· underperformance compared to the spread of investments in order to minimise
reference index; the risks associated with particular
· a reduction or permanent loss of countries or factors specific to particular
capital; and sectors, based on the diversification
· dissatisfied shareholders and requirements inherent in the investment
reputational damage. policy;
· receives and reviews regular
reports showing an analysis of the
Company's performance against other
indices, including the performance of major
companies in the sector; and
· has been assured that the
Investment Manager has training and
development programmes in place for its
employees and its recruitment and
remuneration packages are developed in
order to retain key staff.
Legal and regulatory compliance
The Company has been approved by HM Revenue The Investment Manager monitors investment
& Customs as an investment trust, subject movements, the level and type of forecast
to continuing to meet the relevant income and expenditure and the amount of
eligibility conditions, and operates as an proposed dividends to ensure that the
investment trust in accordance with Chapter provisions of Chapter 4 of Part 24 of the
4 of Part 24 of the Corporation Tax Act Corporation Tax Act 2010 are not breached.
2010. As such, the Company is exempt from The results are reported to the Board at
capital gains tax on the profits realised each meeting.
from the sale of its investments.
Compliance with the accounting rules
Any breach of the relevant eligibility affecting investment trusts are also
conditions could lead to the Company losing carefully and regularly monitored.
investment trust status and being subject
to corporation tax on capital gains The Company Secretary, Manager and the
realised within the Company's portfolio. In Company's professional advisers provide
such event, the investment returns of the regular reports to the Board in respect of
Company may be adversely affected. compliance with all applicable rules and
regulations. The Board and the Manager also
Any serious breach could result in the monitor changes in government policy and
Company and/or the Directors being fined or legislation which may have an impact on the
the subject of criminal proceedings or the Company.
suspension of the Company's shares which
would in turn lead to a breach of the
Corporation Tax Act 2010.
Amongst other relevant laws, the Company is
required to comply with the provisions of
the Companies Act 2006, the Alternative
Investment Fund Managers' Directive, the UK
Listing Rules, Disclosure Guidance and
Transparency Rules and the Market Abuse
Regulation.
Market
Market risk arises from volatility in the The Board considers the diversification of
prices of the Company's investments. It the portfolio, asset allocation, stock
represents the potential loss the Company selection and levels of gearing on a
might suffer through realising investments regular basis and has set investment
in the face of negative market movements. restrictions and guidelines which are
monitored and reported on by the Investment
Changes in general economic and market Manager.
conditions, such as currency exchange
rates, interest rates, rates of inflation, The Board monitors the implementation and
industry conditions, tax laws, political results of the investment process with the
events and trends, can also substantially Investment Manager.
and adversely affect the securities and, as
a consequence, the Company's prospects and The Board also recognises the benefits of a
share price. closed-end fund structure in extremely
volatile markets such as those experienced
Market risk includes the potential impact with the COVID-19 pandemic. Unlike
of events which are outside the Company's open-ended counterparts, closed-end funds
control, such as the COVID-19 pandemic. are not obliged to sell-down portfolio
holdings at low valuations to meet
Companies operating in the sectors in which liquidity requirements for redemptions.
the Company invests may be impacted by new During times of elevated volatility and
legislation governing climate change and market stress, the ability of a closed-end
environmental issues, which may have a fund structure to remain invested for the
negative impact on their valuation and long term enables the Portfolio Managers to
share price. adhere to disciplined fundamental analysis
from a bottom-up perspective and be ready
to respond to dislocations in the market as
opportunities present themselves.
The Portfolio Managers spend a considerable
amount of time understanding the
environmental, social and governance (ESG)
risks and opportunities facing companies
and industries in the portfolio. They use
ESG information when conducting research
and due diligence on new investments and
again when monitoring investments in the
portfolio.
Operational
In common with most other investment trust Due diligence is undertaken before
companies, the Company has no employees. contracts are entered into with third-party
The Company therefore relies on the service providers. Thereafter, the
services provided by third parties and is performance of the provider is subject to
dependent on the control systems of the regular review and reported to the Board.
Manager and BNYM (the Depositary, Custodian
and Fund Accountant) which maintain the The Board reviews on a regular basis an
Company's assets, dealing procedures and assessment of the fraud risks that the
accounting records. Company could potentially be exposed to and
also a summary of the controls put in place
The security of the Company's assets, by the Manager, Depositary, Custodian, Fund
dealing procedures, accounting records and Accountant and Registrar specifically to
adherence to regulatory and legal mitigate these risks.
requirements depend on the effective
operation of the systems of these Most third-party service providers produce
third-party service providers. There is a internal control reports to provide
risk that a major disaster, such as floods, assurance regarding the effective operation
fire, a global pandemic, or terrorist of internal controls as reported on by
activity, renders the Company's service their reporting accountants. These reports
providers unable to conduct business at are provided to the Audit & Management
normal operating effectiveness. Engagement Committee for review. The
Committee would seek further
Failure by any service provider to carry representations from service providers if
out its obligations to the Company could not satisfied with the effectiveness of
have a material adverse effect on the their control environment.
Company's performance. Disruption to the
accounting, payment systems or custody The Company's assets are subject to a
records (including cyber security risk) strict liability regime and, in the event
could prevent the accurate reporting and of a loss of assets, the Depositary must
monitoring of the Company's financial return assets of an identical type or the
position. corresponding amount, unless able to
demonstrate the loss was a result of an
event beyond its reasonable control.
The Board reviews the overall performance
of the Manager, Investment Manager and all
other third-party service providers on a
regular basis and compliance with the
Investment Management Agreement annually.
The Board also considers the business
continuity arrangements of the Company's
key service providers on an ongoing basis
and reviews these as part of its review of
the Company's risk register. In respect of
the unprecedented and emerging risks posed
by the COVID-19 pandemic in terms of the
ability of service providers to function
effectively, the Board has received reports
from key service providers setting out the
measures that they have put in place to
address the crisis, in addition to their
existing business continuity framework.
Having considered these arrangements and
reviewed service levels since the crisis
has evolved, the Board is confident that a
good level of service has and will be
maintained.
Financial
The Company's investment activities expose Details of these risks are disclosed in
it to a variety of financial risks which note 18 to the Financial Statements in the
include market risk, counterparty credit Annual Report and Financial Statements,
risk, liquidity risk and the valuation of together with a summary of the policies for
financial instruments. managing these risks.
In the view of the Board, there have not been any changes to the fundamental
nature of these risks and these principal risks and uncertainties are equally
applicable for the current financial year.
Viability statement
In accordance with Provision 31 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the twelve months referred to by the 'Going Concern' guidelines.
The Board is cognisant of the uncertainty surrounding the potential duration of
the COVID-19 pandemic, its impact on the global economy and the prospects for
many of the Company's portfolio holdings. Notwithstanding this crisis, and
given the factors stated below, the Board expects the Company to continue for
the foreseeable future and has therefore conducted this review for a period of
three years. This is generally the investment holding period investors consider
while investing in the mining sector.
In its assessment of the viability of the Company, the Directors have noted
that:
· the Company invests predominantly in highly liquid, large listed
companies so its assets are readily realisable and provide a level of cash
receipts in the form of interest and dividends;
· the Company invests in mining companies with long life assets;
· the Company continues to meet its financial covenants in respect of
its borrowing facilities;
· the Company's forecasts for revenues, expenses and liabilities are
relatively stable and it has largely fixed overheads which comprise a small
percentage of net assets (0.99%); and
· the business model should remain attractive for much longer than three
years, unless there is significant economic or regulatory change.
The Company will undertake its annual continuation vote at the forthcoming
Annual General Meeting and the Board has reviewed the potential impact that
this may have on the Company's viability. The Board is confident that the
continuation vote will be passed and have prepared the viability statement
under this assumption.
The Directors have also reviewed:
· the impact of a significant fall in commodity markets on the value of
the Company's investment portfolio, factoring in the impact of the recent
volatility related to the COVID-19 pandemic;
· the ongoing relevance of the Company's investment objective, business
model and investment policy in the current environment; and
· the level of demand for the Company's shares.
The Board has also considered a number of other factors, including:
· portfolio liquidity in light of the COVID-19 pandemic on global market
liquidity. As at 1 March 2021, 97.5% of the portfolio was estimated as being
capable of being liquidated within three to five days;
· the Company's revenue and expense forecasts in light of the COVID-19
pandemic and its anticipated impact on dividend income and market valuations.
The Board is confident that the Company's business model remains viable and
that there are sufficient resources to meet all liabilities as they fall due
for the period under review;
· the principal risks and uncertainties as set out above and is
confident that the Company has appropriate controls and processes in place to
manage these and to maintain its operating model, even given the challenges
posed by COVID-19;
· the operational resilience of the Company and its key service
providers and their ability to continue to provide a good level of service for
the foreseeable future;
· the effectiveness of business continuity plans in place for the
Company and key service providers; and
· the level of income generated by the Company and future income
forecasts.
Based on the results of their analysis, the Directors have concluded that there
is a reasonable expectation that the Company will continue in operation and
meet its liabilities as they fall due over the period of their assessment.
Section 172 statement: Promoting the success of the Company
New regulations (The Companies (Miscellaneous Reporting) Regulations) require
directors of large companies to explain more fully how they have discharged
their duties under section 172(1) of the Companies Act 2006 in promoting the
success of their companies for the benefit of members as a whole. This includes
the likely consequences of their decisions in the longer term and how they have
taken wider stakeholders' needs into account.
The enhanced disclosure that follows covers how the Board has engaged with and
understands the views of stakeholders and how stakeholders' needs have been
taken into account, the outcome of this engagement and the impact that it has
had on the Board's decisions. The Board considers the main stakeholders in the
Company to be the Manager, Investment Manager and the shareholders. In addition
to this, the Board considers investee companies and key service providers of
the Company to be stakeholders; the latter comprise the Company's Custodian,
Depositary, Registrar and Broker.
Stakeholders
Shareholders Manager and Other key service Investee companies
Investment Manager providers
Continued shareholder The Board's main In order for the Portfolio holdings
support and working relationship Company to function are ultimately
engagement are is with the Manager, as an investment shareholders' assets
critical to the who is responsible trust with a listing and the Board
continued existence for the Company's on the premium recognise the
of the Company and portfolio management segment of the importance of good
the successful (including asset official list of the stewardship and
delivery of its allocation, stock and Financial Conduct communication with
long-term strategy. sector selection) and Authority (FCA) and investee companies in
The Board is focused risk management, as trade on the London meeting the Company's
on fostering good well as ancillary Stock Exchange's investment objective
working relationships functions such as (LSE) main market for and strategy. The
with shareholders and administration, listed securities, Board monitors the
on understanding the secretarial, the Board relies on a Manager's stewardship
views of shareholders accounting and diverse range of arrangements and
in order to marketing services. advisors for support receives regular
incorporate them into The Manager has in meeting relevant feedback from the
the Board's strategy sub-delegated obligations and Manager in respect of
and objective in portfolio management safeguarding the meetings with the
maximising total to the Investment Company's assets. For management of
returns to Manager. Successful this reason, the investee companies.
shareholders through management of Board consider the
a worldwide portfolio shareholders' assets Company's Custodian,
of mining and metal by the Investment Depositary, Registrar
securities. Manager is critical and Broker to be
for the Company to stakeholders. The
successfully deliver Board maintains
its investment regular contact with
strategy and meet its its key external
objective. The service providers and
Company is also receives regular
reliant on the reporting from them
Manager as AIFM to through the Board and
provide support in Committee meetings,
meeting relevant as well as outside of
regulatory the regular meeting
obligations under the cycle.
AIFMD and other
relevant legislation.
Area of Engagement Issue Engagement Impact
Investment mandate The Board has The Board worked The portfolio
and objective responsibility to closely with the activities undertaken
shareholders to Investment Manager by the Investment
ensure that the throughout the year Manager can be found
Company's portfolio in further developing in their Report. The
of assets is invested investment strategy Company has been
in line with the and underlying building exposure to
stated investment policies, not simply longer dated growth
objective and in a for the purpose of opportunities that
way that ensures an achieving the have significant
appropriate balance Company's investment potential, as well as
between spread of objective but in the quality growth
risk and portfolio interests of companies where that
returns. shareholders and growth translates
future investors. into growth on a
value per share
basis.
Responsible ownership More than ever, the The Board believes The Board and the
importance of good that responsible Investment Manager
governance and investment and believes there is
sustainability sustainability are likely to be a
practices are key integral to the positive correlation
factors in making longer-term delivery between strong ESG
investment decisions. of the Company's practices and
Climate change is success. The Board investment
becoming a defining works closely with performance over
factor in companies' the Investment time. It is
long-term prospects Manager to regularly especially vital in
across the investment review the Company's mining given the long
spectrum with performance, investment cycle and
significant and investment strategy its ability to impact
lasting implications and underlying a company maintaining
for economic growth policies to ensure its social licence to
and prosperity. The that the Company's operate. ESG is one
mining industries in investment objective of the many factors
which the Company's continues to be met that we look at and
investment universe in an effective, site visits to
operate are facing responsible and companies' mines
ethical and sustainable way in provide valuable
sustainability issues the interests of insights into their
that cannot be shareholders and ESG practices.
ignored by asset future investors.
managers and BlackRock has stated
investment companies The Investment that, as part of its
alike. Manager's approach to commitment to
the consideration of sustainability, it
ESG factors in will divest any
respect of the investment in
Company's portfolio, companies that derive
as well as the more than 25% of
Investment Manager's revenues from thermal
engagement with coal production from
investee companies to all discretionary
encourage the active investment
adoption of portfolios. During
sustainable business the year under
practices which review, the Company
support long-term has had minimal
value creation, are exposure to companies
kept under review by whose principal
the Board. The Board activity is the
also expects to be extraction of thermal
informed by the coal.
Investment Manager of
any sensitive voting Within the parameters
issues involving the of the Company's
Company's existing investment
investments. policy, the
Environmental issues Investment Manager is
were prominent in the continuing to look
engagement, as was for opportunities to
executive pay and the deploy capital in
re-election of growth investments
directors in that should benefit
portfolio companies. from the demand for
'green' materials. It
The Investment is likely that this
Manager reports to area will become a
the Board in respect more significant part
of its ESG policies of the portfolio.
and how these are
integrated into the
investment process; a
summary of
BlackRock's approach
to ESG and
sustainability is set
out in the Annual
Report and Financial
Statements. The
Investment Manager's
engagement and voting
policy is detailed in
the Annual Report and
Financial Statements
and on the BlackRock
website.
Shareholders Continued shareholder The Board is The Board values any
support and committed to feedback and
engagement are maintaining open questions from
critical to the channels of shareholders ahead of
continued existence communication and to and during Annual
of the Company and engage with General Meetings in
the successful shareholders. The order to gain an
delivery of its Company welcomes and understanding of
long-term strategy. encourages attendance their views and will
and participation take action when and
from shareholders at as appropriate.
its Annual General Feedback and
Meetings. questions will also
Shareholders will help the Company
have the opportunity evolve its reporting,
to meet the Directors aiming to make
and Investment reports more
Manager and to transparent and
address questions to understandable.
them directly. The
Investment Manager Feedback from all
will also provide a substantive meetings
presentation on the between the
Company's performance Investment Manager
and the outlook for and shareholders will
the mining sector. be shared with the
Board. The Directors
The Annual Report and will also receive
Half Yearly Financial updates from the
Report are available Company's broker and
on the BlackRock Kepler, marketing
website and are also consultants, on any
circulated to feedback from
shareholders either shareholders, as well
in printed copy or as share trading
via electronic activity, share price
communications. In performance and an
addition, regular update from the
updates on Investment Manager.
performance, monthly
factsheets, the daily Portfolio holdings
NAV and other are ultimately
information are also shareholders' assets
published on the and the Board
website at recognise the
blackrock.com/uk/ importance of good
brwm. stewardship and
communication with
Unlike trading investee companies in
companies, one-to-one meeting the Company's
shareholder meetings investment objective
normally take the and strategy. The
form of a meeting Board monitors the
with the Investment Manager's stewardship
Manager as opposed to arrangements and
members of the Board. receives regular
The Company's feedback from the
willingness to enter Investment Manager in
into discussions with respect of meetings
institutional with the management
shareholders is also of portfolio
demonstrated by the companies.
programmes of
institutional
presentations by the
Investment Manager.
If shareholders wish
to raise issues or
concerns with the
Board, they are
welcome to do so at
any time. The
Chairman is available
to meet directly with
shareholders
periodically to
understand their
views on governance
and the Company's
performance where
they wish to do so.
He may be contacted
via the Company
Secretary whose
details are given in
the Annual Report and
Financial Statements.
Discount management The Board recognises The Board monitors The Board continues
the importance to the Company's to monitor the
shareholders that the discount on an Company's discount to
market price of the ongoing basis and NAV and will look to
Company's shares receives regular buy back shares if it
should not trade at updates from the is deemed to be in
either a significant Manager and the the interests of
discount or premium Company's Broker shareholders as a
to the NAV. regarding the level whole. The Company
of discount. The participates in a
Board believes that focused investment
the best way of trust sales and
maintaining the share marketing initiative
rating at an optimal operated by the
level over the long Manager on behalf of
term is to create the investment trusts
demand for the shares under its management.
in the secondary Further details are
market. To this end, set out in the Annual
the Investment Report and Financial
Manager is devoting Statements.
considerable effort
to broadening the During the year, the
awareness of the Company's discount
Company, particularly narrowed
to wealth managers significantly. The
and to the wider Company's average
retail market. discount for the year
to 31 December 2020
In addition, the was 11.3% and, since
Board has worked February 2021, the
closely with the shares have been
Manager to develop trading at a premium
the Company's to NAV.
marketing strategy,
with the aim of
ensuring effective
communication with
existing shareholders
and to attract new
shareholders to the
Company in order to
improve liquidity in
the Company's shares
and to sustain the
share rating of the
Company.
Service levels of The Board The Manager reports All performance
third-party providers acknowledges the to the Board on the evaluations were
importance of Company's performance performed on a timely
ensuring that the on a regular basis. basis and the Board
Company's principal The Board carries out concluded that all
suppliers are a robust annual third-party service
providing a suitable evaluation of the providers, including
level of service, Manager's the Manager and
including the performance, their Investment Manager,
Investment Manager in commitment and were operating
respect of investment available resources. effectively and
performance and providing a good
delivering on the The Board performs an level of service.
Company's investment annual review of the
mandate; the service levels of all The Board has
Custodian and third-party service received updates in
Depositary in respect providers and respect of business
of their duties concludes on their continuity planning
towards safeguarding suitability to from the Company's
the Company's assets; continue in their Manager, Custodian,
the Registrar in its role. The Board Depositary, Fund
maintenance of the receives regular Accountant, Registrar
Company's share updates from the and Printer and is
register and dealing AIFM, Depositary, confident that
with investor Registrar and Brokers arrangements are in
queries; and the on an ongoing basis. place to ensure a
Company's Brokers in good level of service
respect of the In light of the will continue to be
provision of advice challenges presented provided despite the
and acting as a by the COVID-19 impact of the
market maker for the pandemic to the COVID-19 pandemic.
Company's shares. operation of
businesses across the
globe, the Board has
worked closely with
the Manager to gain
comfort that relevant
business continuity
plans are operating
effectively for all
of the Company's key
service providers.
Board composition The Board is All Directors are As at the date of
committed to ensuring subject to a formal this report, the
that its own evaluation process on Board was comprised
composition brings an an annual basis (more of three men and two
appropriate balance details and the women. No Director
of knowledge, conclusions of the has a tenure in
experience and 2020 evaluation excess of nine years.
skills, and that it process are given in Details of each
is compliant with the Annual Report and Directors'
best corporate Financial contribution to the
governance practice Statements). All success and promotion
under the UK Code, Directors stand for of the Company are
including guidance on re-election by set out in the
tenure and the shareholders Directors' Report in
composition of the annually. the Annual Report and
Board's committees. Financial Statements
Shareholders may and details of the
attend the Annual Directors'
General Meeting and biographies can be
raise any queries in found in the Annual
respect of Board Report and Financial
composition or Statements.
individual Directors
in person or may The Directors are not
contact the Company aware of any issues
Secretary or the that have been raised
Chairman using the directly by
details provided in shareholders in
the Annual Report and respect of Board
Financial Statements composition in the
with any issues. year under review.
The Board undertook a The Board appointed
review of succession Ollie Oliveira as a
planning arrangements Director of the
and identified the Company with effect
need for a new from 3 February 2020.
Director. The Colin Buchan retired
Nomination Committee as a Director on 30
agreed the selection April 2020.
criteria and the
method of selection,
recruitment and
appointment, Board
diversity, including
gender, were
carefully considered
when establishing the
criteria. The
services of an
external search
consultant, Norman
Broadbent Group PLC,
as well as the
Directors' range of
contacts, were used
to identify potential
candidates.
Sustainability and our ESG policies
The importance of considering ESG when investing in the Natural Resources
Sector
Environmental Social Corporate governance
Mines will inevitably have BlackRock believes it is As with all companies, good
an impact on the local vital that natural resources corporate governance is
environment. Key is how companies maintain their critical for natural
companies manage this social licence to operate. By resources companies. In
process ensuring the this, BlackRock means that conjunction with the
benefits are appropriately companies maintain broad BlackRock Investment
shared amongst all acceptance from their Stewardship team, the
stakeholders. The negative employees, stakeholders, portfolio management team
impact on the market local communities and the actively engages with
capitalisation of companies national government. The companies on a wide range of
such as BHP and Vale, after portfolio management team's governance issues including
the Samarco and Brumadinho site visits to companies' board independence,
tailings dam failures, assets provide them with executive compensation,
highlights the key role that valuable insight into these shareholder protection and
ESG has on share price issues which often cannot be timely disclosure.
performance. properly understood from
company reports.
As set out in more detail
below, BlackRock will be
aligning its engagement and
stewardship priorities to UN
Sustainable Development
Goals and is committed to
voting against management to
the extent that they have
not demonstrated sufficient
progress in how they manage
these environmental impacts
and operating events.
The Board's approach
Environmental, social and governance (ESG) issues can present both
opportunities and threats to long-term investment performance. The Company's
investment universe comprises sectors that are likely to be highly impacted by
increasing regulation as a result of climate change and other social and
governance factors. These ethical and sustainability issues cannot be ignored
and your Board has appointed a Manager that applies the highest standards of
ESG practice. Effective engagement with management is, in most cases, the most
constructive way of driving meaningful change in the behaviour of investee
company management. However, as a general approach the Company will not invest
in companies which have high ESG risks and no plans to address existing
deficiencies. Where the Board is not satisfied that an investee company is
taking steps to address matters of an ESG nature, it may discuss with the
Manager how this situation might be resolved, including potentially by a full
disposal of shares.
BlackRock's approach to sustainable investing
Sustainability is BlackRock's standard for investing, based on the investment
conviction that integrating sustainability can help investors build more
resilient portfolios and achieve better long term, risk-adjusted returns.
BlackRock believes that climate change is now a defining factor in companies'
long-term prospects and that it will have a significant and lasting impact on
economic growth and prosperity. BlackRock believes that climate risk now
equates to investment risk and this will drive a profound reassessment of risk
and asset values as investors seek to react to the impact of climate policy
changes. This in turn is likely to drive a significant reallocation of capital
away from traditional carbon intensive industries over the next decade.
In January 2020, with this transition in mind, BlackRock outlined how it was
making sustainability integral to the way BlackRock manage risk, generate
alpha, build portfolios and pursue investment stewardship, in order to help
improve investment outcomes for clients.
By December 2020, BlackRock announced that the following key achievements had
been made in progress towards its goals, including:
· Ensuring that 100% of active portfolios are ESG-integrated;
· Launching a new database (Aladdin Climate) to set a new standard for
climate data and analytics;
· Intensifying the investment stewardship focus on sustainability;
· Joining Climate Action 100+, a natural progression in BlackRock's work
to advance sustainable business practices aligned with the Task Force on
Climate-related Financial Disclosures (TCFD); and
· Establishing nearly a hundred new sustainable BlackRock funds in 2020,
helping to increase access and provide investors with greater choice.
A detailed summary of the actions taken by BlackRock in 2020 on making
sustainability the new standard for investing can be found at https://
www.blackrock.com/corporate/ literature/publication/
our-2020-sustainability-actions.pdf
BlackRock also announced in January 2021 that it was committed to supporting
the goal of 'net zero' (building an economy that emits no more carbon dioxide
than it removes from the atmosphere) by 2050 (the scientifically-established
threshold necessary to keep global warming well below 2ºC). BlackRock is taking
a number of steps to help investors prepare their portfolios for a net zero
world, including capturing opportunities created by the net zero transition.
Key actions targeted by BlackRock for 2021 include:
Measurement and Transparency
· Publishing the proportion of BlackRock assets under management that
are currently aligned to net zero, and announcing an interim target on the
proportion of BlackRock assets under management that will be aligned to net
zero in 2030, for markets with sufficiently reliable data; and
· Through Aladdin Climate, helping more investors manage and meet their
climate objectives by tracking investment portfolios' trajectories toward net
zero, and helping to catalyse increasingly robust and standardised climate data
and metrics to better serve the industry.
Investment Management
· Incorporating the impacts of climate change into BlackRock's capital
market assumptions, the cornerstone for portfolio construction at BlackRock;
· Implementing a 'heightened-scrutiny model' in BlackRock's active
portfolios as a framework and for managing securities that pose significant
climate risk; and
· Helping BlackRock's clients benefit from opportunities created by the
energy transition, from investments in electric cars to clean energy to
energy-efficient housing.
Stewardship
· Using investment stewardship to ensure the companies that BlackRock
invests in on behalf of clients are mitigating climate risk and considering the
opportunities presented by the net zero transition;
· Asking companies to disclose a business plan aligned with the goal of
limiting global warming to well below 2ºC, consistent with achieving net zero
global greenhouse gas emissions by 2050; and
· Increasing the role of votes on shareholder proposals in BlackRock's
stewardship efforts around sustainability.
Integration of ESG into BlackRock's investment management process
As well as the initiatives set out above, as part of BlackRock's structured
investment process, ESG risks and opportunities are considered within the
portfolio management team's fundamental analysis of companies and industries.
The team aims to assess financial materiality in relation to ESG via data
insights integrated into the team's standard research templates shown in the
BlackRock ESG Risk Window. The Risk Window, using MSCI data, flags any
stock-specific concerns allowing investors to investigate them further. It
screens for ESG metrics through over 400 single data points and ranks potential
risks from High to Managed. BlackRock's portfolio management teams also have
access to other data sources such as RepRisk or SustainAnalytics to complement
the Risk Window. BlackRock's unparalleled access to company management allows
it to engage on these issues through questioning management teams and
conducting site visits. BlackRock looks to understand how management approaches
ESG risks and opportunities and the potential impact this may have on company
financials.
The BlackRock Investment Stewardship team (BIS) promotes sound corporate
governance and sustainable business practices to help maximize long-termshareholder value for BlackRock's clients. BIS does this in three ways:
engaging with companies, using BlackRock's vote, and promoting thought
leadership. Through this combination of quantitative and qualitative
assessment, BlackRock ensures that its understanding of the portfolio's
investments is thorough, reliable and up to date. The portfolio management
team's understanding of ESG issues is further supported by BlackRock's
Sustainable Investment team (BSI). BSI looks to advance ESG research and
integration, active engagement and the development of sustainable investment
solutions across the firm. BlackRock believes ESG issues have important
financial impacts over the long term.
The sustainable investing effort is embedded into BlackRock's culture from the
top down through the belief that a company's ability to manage ESG matters
demonstrate the leadership and good governance that is essential to
sustainable, long-term growth.
Investment stewardship
BIS plays a fundamental role in the activation of BlackRock's purpose of
helping more and more people experience financial well-being. As a fiduciary,
BlackRock has a responsibility to its clients to make sure companies are
adequately managing and disclosing ESG risks and opportunities that can impact
their ability to generate long-term financial performance and to hold them
accountable through BlackRock's vote if they are not.
BlackRock's BIS team has been focusing on sustainability issues for years. Each
year, the BIS team prioritises its work around several engagement themes that
it believes will encourage sound governance practices and deliver sustainable
long-term financial performance for BlackRock clients. For each engagement
priority, BIS provides a high level, globally relevant 'Key Performance
Indicator' (KPI) so companies are aware of BlackRock's expectations.
In 2020, BIS put an increased focus on ESG-related issues and relevant
disclosures, given the growing impact of these issues on long-term value
creation. To that end, BIS made an explicit ask that companies align their
disclosures to the TCFD framework and the Sustainability Accounting Standards
Board (SASB) standards. This includes each investee company's plan for
operating under a scenario where the Paris Agreement's goal of limiting global
warming to less than two degrees is fully realised, as expressed by the TCFD
guidelines. BlackRock is greatly encouraged by the progress it has seen over
the past year - a 363% increase in SASB disclosures and more than 1,700
organisations expressing support for the TCFD.
As reported in the BIS 2020 annual report, in the year from 1 July 2019 to 30
June 2020, BIS held over 3,000 engagements globally with over 2,000 companies
covering 61% by value of BlackRock's clients' equity investments. In terms of
voting, BIS voted at approximately 16,200 shareholder meetings and on 153,000
proposals. Voting is how BIS holds companies accountable when they fall short
of expectations. BIS might vote against directors or other management proposals
or might vote to support a shareholder proposal. BIS views holding directors
accountable as one of the most effective ways to encourage change at a company.
Given the groundwork already laid through past engagements and the growing
investment risks surrounding sustainability, BIS will be increasingly disposed
to vote against the re-election of directors when companies have not made
sufficient progress. In the year to 30 June 2020, BIS opposed the re-election
of over 5,100 directors, more than ever before, sending a strong signal of
concern when companies did not make sufficient progress on issues that are
central to long-term value creation. BIS raised questions on board quality,
taking voting action against directors for lack of independence on the board,
insufficient board diversity and overcommitment. BIS also held directors to
account for not meeting expectations on climate risk management or disclosures
and for management and compensation policies inconsistent with sustainable
long-term financial performance. BIS also sees voting on shareholder proposals
playing an increasingly important role in BlackRock's stewardship efforts
around sustainability. Accordingly, where BIS agrees with the intent of a
shareholder proposal addressing a material business risk, and if BIS determines
that management could do better in managing and disclosing that risk, BIS will
support the proposal. BIS may also support a proposal if management is on track
but BIS believes that voting in favour might accelerate their progress. As a
long-term investor, BIS has historically engaged to explain its views on an
issue and given management ample time to address it. However, given the need
for urgent action on many business relevant sustainability issues, BIS will be
more likely to support a shareholder proposal without waiting to assess the
effectiveness of engagement.
As the past year has only intensified BlackRock's conviction that
sustainability risk, and climate risk in particular, is investment risk, BIS is
continuing to increase its focus on how sustainability-related factors are
impacting a company's ability to generate shareholder returns. As detailed in
the 2021 BIS Stewardship Expectations report and the BIS commentary on Climate
Risk and Transition to a Low-Carbon Economy, BIS expects companies to disclose
a business plan aligned with the goal of limiting global warming to well below
2ºC, consistent with achieving net zero global greenhouse gas (GHG) emissions
by 2050. These disclosures are essential to helping investors assess a
company's ability to transition its business to a low-carbon world and to
capture value-creation opportunities created by the climate transition. This
report can be found at https://www.blackrock.com/corporate/literature/
publication/our-2021-stewardship-expectations.pdf.
BlackRock is also committed to transparency in terms of disclosure on its
engagement with companies and voting rationales. More details about BlackRock
Investment Stewardship can be found on BlackRock's website at www.blackrock.com
/corporate/about-us/investment-stewardship. In terms of its own reporting,
BlackRock believes that the SASB provides a clear set of standards for
reporting sustainability information across a wide range of issues, from labour
practices to data privacy to business ethics. For evaluating and reporting
climate-related risks, as well as the related governance issues that are
essential to managing them, the TCFD provides a valuable framework.
BlackRock recognises that reporting to these standards requires significant
time, analysis, and effort. BlackRock's own SASB-aligned disclosure is
available on its website at www.blackrock.com/corporate/literature/
continuousdisclosure-and-important-information/
blackrock-2019-sasb-disclosure.pdf and BlackRock published a detailed
TCFD-aligned report on its 2020 activities. More information on BlackRock's
policies on Corporate Sustainability can be found on BlackRock's website at
www.blackrock.com/corporate/sustainability.
BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
4 March 2021
TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months'
notice. BFM has (with the Company's consent) delegated certain portfolio and
risk management services, and other ancillary services to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment
management contract are disclosed in the Directors' Report in the Annual Report
and Financial Statements.
The investment management fee due for the year ended 31 December 2020 amounted
to £6,405,000 (2019: £6,480,000). At the year end, £2,064,000 (2019: £
1,714,000) was outstanding in respect of management fees.
In addition to the above services, BlackRock has provided the Group with
marketing services. The total fees paid or payable for these services for the
year ended 31 December 2020 amounted to £152,000 excluding VAT (2019: £159,000
excluding VAT). Marketing fees of £55,000 were outstanding as at 31 December
2020 (2019: £50,000).
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC
Financial Services Group, Inc. (PNC) was a substantial shareholder in
BlackRock, Inc. PNC did not provide any services to the Company during the
financial year ended 31 December 2019 and the period up to 11 May 2020, when
PNC announced its intent to sell its investment in BlackRock, Inc. through a
registered offering and related buyback by BlackRock, Inc.
RELATED PARTY TRANSACTIONS
The Board consists of five non-executive Directors all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. The Chairman receives an annual fee of £45,000, the Chairman
of the Audit & Management Engagement Committee/Senior Independent Director
receives an annual fee of £37,500, and each other Director receives an annual
fee of £30,000. All five members of the Board hold shares in the Company. Mr
Cheyne 24,000 ordinary shares, Mr Edey 20,000 ordinary shares, Ms Lewis 5,362
ordinary shares, Ms Mosely 7,400 ordinary shares and Mr Oliveira 18,000
ordinary shares. The amount of Directors' fees outstanding at 31 December 2020
was £14,375 (2019: £14,375).
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial year.
Under that law, the Directors are required to prepare the financial statements
in accordance with International Financial Reporting Standards (IFRS) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
and in conformity with the requirements of the Companies Act 2006.
Under Company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the Group for
that period. In preparing those financial statements, the Directors are
required to:
· present fairly the financial position, financial performance and cash
flows of the Group and Company;
· select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and then apply
them consistently;
· present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· state whether the financial statements have been prepared in
accordance with IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and in conformity with the requirements of the
Companies Act 2006, subject to any material departures disclosed and explained
in the financial statements;
· provide additional disclosures when compliance with the specific
requirements in accordance with IFRS adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union and in conformity with the
requirements of the Companies Act 2006 is insufficient to enable users to
understand the impact of particular transactions, other events and conditions
on the Group's and Company's financial position and financial performance; and
· prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements
comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are also responsible for preparing the Strategic Report,
Directors' Report, the Directors' Remuneration Report, the Corporate Governance
Statement and the Report of the Audit & Management Engagement Committee in
accordance with the Companies Act 2006 and applicable regulations, including
the requirements of the Listing Rules and the Disclosure Guidance and
Transparency Rules. The Directors have delegated responsibility to the Manager
for the maintenance and integrity of the Company's corporate and financial
information included on the BlackRock website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed in the Annual Report and
Financial Statements, confirm to the best of their knowledge that:
· the financial statements, which have been prepared in accordance with
IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and in conformity with the requirements of the Companies Act
2006, give a true and fair view of the assets, liabilities, financial position
and net return of the Group and Company; and
· the Strategic Report contained in the Annual Report and Financial
Statements includes a fair review of the development and performance of the
business and the position of the Group and Company, together with a description
of the principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter, the Board has
requested that the Audit & Management Engagement Committee advise on whether it
considers that the Annual Report and Financial Statements fulfil these
requirements. The process by which the Committee has reached these conclusions
is set out in the Audit & Management Engagement Committee's Report in the
Annual Report and Financial Statements. As a result, the Board has concluded
that the Annual Report and Financial Statements for the year ended 31 December
2020, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Group's and Company's
position, performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
DAVID CHEYNE
Chairman
4 March 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARED 31 DECEMBER
2020
Revenue Revenue Capital Capital Total Total
2020 2019 2020 2019 2020 2019
Notes £'000 £'000 £'000 £'000 £'000 £'000
Income from investments 3 31,507 40,880 - - 31,507 40,880
held at fair value through
profit or loss
Other income 3 7,964 5,634 - - 7,964 5,634
-------------- -------------- -------------- -------------- -------------- --------------
Total revenue 39,471 46,514 - - 39,471 46,514
======== ======== ======== ======== ======== ========
Net profit on investments - - 183,667 77,517 183,667 77,517
held at fair value through
profit or loss
Net profit on foreign - - 2,431 3,230 2,431 3,230
exchange
-------------- -------------- -------------- -------------- -------------- --------------
Total 39,471 46,514 186,098 80,747 225,569 127,261
======== ======== ======== ======== ======== ========
Expenses
Investment management fee 4 (1,546) (1,564) (4,859) (4,916) (6,405) (6,480)
Other operating expenses 5 (997) (1,030) (18) (20) (1,015) (1,050)
-------------- -------------- -------------- -------------- -------------- --------------
Total operating expenses (2,543) (2,594) (4,877) (4,936) (7,420) (7,530)
======== ======== ======== ======== ======== ========
Net profit on ordinary 36,928 43,920 181,221 75,811 218,149 119,731
activities before finance
costs and taxation
Finance costs 6 (424) (896) (1,272) (2,683) (1,696) (3,579)
-------------- -------------- -------------- -------------- -------------- --------------
Net profit on ordinary 36,504 43,024 179,949 73,128 216,453 116,152
activities before taxation
======== ======== ======== ======== ======== ========
Taxation (1,053) (3,463) 1,115 1,377 62 (2,086)
Profit for the year 35,451 39,561 181,064 74,505 216,515 114,066
-------------- -------------- -------------- -------------- -------------- --------------
Earnings per ordinary 8 20.40 22.46 104.22 42.30 124.62 64.76
share (pence)
======== ======== ======== ======== ======== ========
The total column of this statement represents the Group's Statement of
Comprehensive Income, prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006. The
supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies (AIC). All items in the
above statement derive from continuing operations. No operations were acquired
or discontinued during the year. All income is attributable to the equity
holders of the Group.
The Group does not have any other comprehensive income. The profit for the year
disclosed above represents the Group's total comprehensive income.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARED 31 DECEMBER 2020
Called Share Capital
up share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Group Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000
For the year ended 31
December 2020
At 31 December 2019 9,651 127,155 22,779 108,601 447,806 41,118 757,110
Total comprehensive
income:
Net profit for the year - - - - 181,064 35,451 216,515
Transactions with
owners, recorded
directly to equity:
Ordinary shares 9,10 - - - (4,573) - - (4,573)
purchased into treasury
Share purchase costs 9,10 - - - (36) - - (36)
Dividends paid1 7 - - - - - (38,191) (38,191)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2020 9,651 127,155 22,779 103,992 628,870 38,378 930,825
======== ======== ======== ======== ======== ======== ========
For the year ended 31
December 2019
At 31 December 2018 9,651 127,155 22,779 114,147 373,301 38,562 685,595
Total comprehensive
income:
Net profit for the year - - - - 74,505 39,561 114,066
Transactions with
owners, recorded
directly to equity:
Ordinary shares - - - (5,512) - - (5,512)
purchased into treasury
Share purchase costs - - - (34) - - (34)
Dividends paid2 7 - - - - - (37,005) (37,005)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2019 9,651 127,155 22,779 108,601 447,806 41,118 757,110
======== ======== ======== ======== ======== ======== ========
1 The final dividend of 10.00p per share for the year ended 31 December
2019, declared on 27 February 2020 and paid on 7 May 2020; 1st interim dividend
of 4.00p per share for the year ended 31 December 2020, declared on 30 April
2020 and paid on 26 June 2020; 2nd interim dividend of 4.00p per share for the
year ended 31 December 2020, declared on 19 August 2020 and paid on 25
September 2020 and 3rd interim dividend of 4.00p per share for the year ended
31 December 2020, declared on 12 November 2020 and paid on 18 December 2020.
2 The final dividend of 9.00p per share for the year ended 31 December
2018, declared on 28 February 2019 and paid on 10 May 2019; 1st interim
dividend of 4.00p per share for the year ended 31 December 2019, declared on 2
May 2019 and paid on 28 June 2019; 2nd interim dividend of 4.00p per share for
the year ended 31 December 2019, declared on 20 August 2019 and paid on 1
October 2019 and 3rd interim dividend of 4.00p per share for the year ended 31
December 2019, declared on 14 November 2019 and paid on 20 December 2019.
For information on the Company's distributable reserves, please refer to note
17 in the Annual Report and Financial Statements.
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEARED 31 DECEMBER
2020
Called Share Capital
up share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Company Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000
For the year ended 31
December 2020
At 31 December 2019 9,651 127,155 22,779 108,601 454,613 34,311 757,110
Total comprehensive
income:
Net profit for the year - - - - 179,934 36,581 216,515
Transactions with
owners, recorded
directly to equity:
Ordinary shares 9,10 - - - (4,573) - - (4,573)
purchased into treasury
Share purchase costs 9,10 - - - (36) - - (36)
Dividends paid1 7 - - - - - (38,191) (38,191)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2020 9,651 127,155 22,779 103,992 634,547 32,701 930,825
======== ======== ======== ======== ======== ======== ========
For the year ended 31
December 2019
At 31 December 2018 9,651 127,155 22,779 114,147 380,486 31,377 685,595
Total comprehensive
income:
Net profit for the year - - - - 74,127 39,939 114,066
Transactions with
owners, recorded
directly to equity:
Ordinary shares - - - (5,512) - - (5,512)
purchased into treasury
Share purchase costs - - - (34) - - (34)
Dividends paid2 7 - - - - - (37,005) (37,005)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2019 9,651 127,155 22,779 108,601 454,613 34,311 757,110
======== ======== ======== ======== ======== ======== ========
1 The final dividend of 10.00p per share for the year ended 31 December
2019, declared on 27 February 2020 and paid on 7 May 2020; 1st interim dividend
of 4.00p per share for the year ended 31 December 2020, declared on 30 April
2020 and paid on 26 June 2020; 2nd interim dividend of 4.00p per share for the
year ended 31 December 2020, declared on 19 August 2020 and paid on 25
September 2020 and 3rd interim dividend of 4.00p per share for the year ended
31 December 2020, declared on 12 November 2020 and paid on 18 December 2020.
2 The final dividend of 9.00p per share for the year ended 31 December
2018, declared on 28 February 2019 and paid on 10 May 2019; 1st interim
dividend of 4.00p per share for the year ended 31 December 2019, declared on 2
May 2019 and paid on 28 June 2019; 2nd interim dividend of 4.00p per share for
the year ended 31 December 2019, declared on 20 August 2019 and paid on 1
October 2019 and 3rd interim dividend of 4.00p per share for the year ended 31
December 2019, declared on 14 November 2019 and paid on 20 December 2019.
For information on the Company's distributable reserves, please refer to note
17 in the Annual Report and Financial Statements.
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION AS AT 31
DECEMBER 2020
31 December 2020 31 December 2019
Group Company Group Company
Notes £'000 £'000 £'000 £'000
Non current assets
Investments held at fair value through 1,045,818 1,052,996 845,777 851,732
profit or loss
Current assets
Other receivables 6,837 6,837 4,626 4,626
Cash collateral held with brokers 2,943 2,943 431 431
Cash and cash equivalents 309 309 1,399 39
-------------- -------------- -------------- --------------
Total current assets 10,089 10,089 6,456 5,096
======== ======== ======== ========
Total assets 1,055,907 1,063,085 852,233 856,828
======== ======== ======== ========
Current liabilities
Other payables (5,545) (6,613) (4,003) (5,071)
Derivative financial liabilities held at (587) (587) (314) (314)
fair value through profit or loss
Bank overdraft (16,317) (22,427) (99) (3,626)
Bank loans (102,418) (102,418) (90,583) (90,583)
-------------- -------------- -------------- --------------
Total current liabilities (124,867) (132,045) (94,999) (99,594)
-------------- -------------- -------------- --------------
Total assets less current liabilities 931,040 931,040 757,234 757,234
======== ======== ======== ========
Non current liabilities
Deferred taxation liability (215) (215) (124) (124)
-------------- -------------- -------------- --------------
Net assets 930,825 930,825 757,110 757,110
======== ======== ======== ========
Equity attributable to equity holders
Called up share capital 9 9,651 9,651 9,651 9,651
Share premium account 10 127,155 127,155 127,155 127,155
Capital redemption reserve 10 22,779 22,779 22,779 22,779
Special reserve 10 103,992 103,992 108,601 108,601
Capital reserves:
At 1 January 447,806 454,613 373,301 380,486
Net profit for the year 181,064 179,934 74,505 74,127
10 628,870 634,547 447,806 454,613
Revenue reserve:
At 1 January 41,118 34,311 38,562 31,377
Net profit for the year 35,451 36,581 39,561 39,939
Dividends paid (38,191) (38,191) (37,005) (37,005)
10 38,378 32,701 41,118 34,311
-------------- -------------- -------------- --------------
Total equity 930,825 930,825 757,110 757,110
======== ======== ======== ========
Net asset value per ordinary share (pence) 8 536.34 536.34 433.17 433.17
======== ======== ======== ========
CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS FOR THE YEARED 31
DECEMBER 2020
31 December 2020 31 December 2019
Group Company Group Company
£'000 £'000 £'000 £'000
Operating activities
Net profit before taxation 216,453 216,453 116,152 116,152
Add back finance costs 1,696 1,696 3,579 3,579
Net profit on investments held at fair (182,539) (182,536) (76,960) (77,141)
value through profit or loss (including
transaction costs)
Net profit on foreign exchange (2,431) (2,431) (3,230) (3,230)
Sales of investments held at fair value 360,288 359,062 377,210 377,210
through profit or loss
Purchases of investments held at fair value (377,517) (377,517) (367,499) (367,499)
through profit or loss
Decrease/(increase) in other receivables 618 618 (2,058) (2,058)
Increase in other payables 268 268 268 270
Increase in amounts due from brokers (2,902) (2,902) (118) (118)
Increase/(decrease) in amounts due to 2,473 2,473 (13,713) (13,713)
brokers
Net movement in cash collateral held with (2,512) (2,512) 219 219
brokers
======== ======== ======== ========
Net cash inflow from operating activities 13,895 12,672 33,850 33,671
before taxation
======== ======== ======== ========
Taxation paid (1,038) (1,038) (2,035) (2,035)
Taxation on investment income included (1,664) (1,664) (124) (124)
within gross income
Prior year corporation tax refund 2,687 2,687 - -
======== ======== ======== ========
Net cash inflow from operating activities 13,880 12,657 31,691 31,512
======== ======== ======== ========
Financing activities
Drawdown/(repayment) of loans 15,016 15,016 (20,000) (20,000)
Interest paid (1,772) (1,772) (3,815) (3,815)
Payments for ordinary shares purchased into (5,455) (5,455) (4,632) (4,632)
treasury
Share purchase costs paid (36) (36) (32) (32)
Dividends paid (38,191) (38,191) (37,005) (37,005)
======== ======== ======== ========
Net cash outflow from financing activities (30,438) (30,438) (65,484) (65,484)
======== ======== ======== ========
Decrease in cash and cash equivalents (16,558) (17,781) (33,793) (33,972)
Cash and cash equivalents at start of the 1,300 (3,587) 35,501 30,793
year
Effect of foreign exchange rate changes (750) (750) (408) (408)
-------------- -------------- -------------- --------------
Cash and cash equivalents at end of year (16,008) (22,118) 1,300 (3,587)
======== ======== ======== ========
Comprised of:
Cash and cash equivalents 309 309 1,399 39
Bank overdraft (16,317) (22,427) (99) (3,626)
-------------- -------------- -------------- --------------
(16,008) (22,118) 1,300 (3,587)
======== ======== ======== ========
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER 2020
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010. The Company
was incorporated on 28 October 1993 and this is the 27th Annual Report.
The principal activity of the subsidiary, BlackRock World Mining Investment
Company Limited, is investment dealing.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Group and Company have been
applied consistently, other than where new policies have been adopted and are
set out below.
(a) Basis of preparation
The Group and Parent Company financial statements have been prepared under the
historic cost convention modified by the revaluation of certain financial
assets and financial liabilities held at fair value through profit or loss and
in accordance with International Financial Reporting Standards (IFRS) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
and in conformity with the requirements of the Companies Act 2006. The Company
has taken advantage of the exemption provided under section 408 of the
Companies Act 2006 not to publish its individual Statement of Comprehensive
Income and related notes. All of the Group's operations are of a continuing
nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts issued by the Association of Investment
Companies (AIC) in October 2019, is compatible with IFRS adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union and in
conformity with the requirements of the Companies Act 2006, the financial
statements have been prepared in accordance with guidance set out in the SORP.
Substantially all of the assets of the Group consist of securities that are
readily realisable and, accordingly, the Directors believe that the Group has
adequate resources to continue in operational existence for the foreseeable
future. Consequently, the Directors have determined that it is appropriate for
the financial statements to be prepared on a going concern basis. The Directors
have considered any potential impact of the COVID-19 pandemic and the
mitigation measures which key service providers, including the Manager, have in
place to maintain operational resilience on the going concern of the Company.
The Directors have reviewed compliance with the covenants associated with the
bank overdraft facility, loan facility, income and expense projections and the
liquidity of the investment portfolio in making their assessment.
The Group's financial statements are presented in sterling, which is the
functional currency of the Group and the currency of the primary economic
environment in which the Group operates. All values are rounded to the nearest
thousand pounds (£'000) except where otherwise indicated.
IFRS standards that have recently been adopted:
Amendments to IFRS 3 - definition of a business (effective 1 January 2020).
This amendment revises the definition of a business. According to feedback
received by the International Accounting Standards Board, application of the
current guidance is commonly thought to be too complex and it results in too
many transactions qualifying as business combinations. The standard has been
endorsed by the EU. The adoption of this standard has had no impact on the
financial statements of the Group.
Amendments to IAS 1 and IAS 8 - definition of material (effective 1 January
2020). The amendments to IAS 1, 'Presentation of Financial Statements', and IAS
8, 'Accounting Policies, Changes in Accounting Estimates and Errors', and
consequential amendments to other IFRSs require companies to:
(i) use a consistent definition of materiality throughout IFRSs and the
Conceptual Framework for Financial Reporting;
(ii) clarify the explanation of the definition of material; and
(iii) incorporate some of the guidance of IAS 1 about immaterial
information.
This standard has been endorsed by the EU. The adoption of this standard has
had no impact on the financial statements of the Group.
Amendments to IFRS 9, IAS 39 and IFRS 7 - interest rate benchmark reform
(effective 1 January 2020). These amendments provide certain reliefs in
connection with the interest rate benchmark reform. The reliefs relate to hedge
accounting and have the effect that the Inter Bank Offer Rate (IBOR) reform
should not generally cause hedge accounting to terminate. However, any hedge
ineffectiveness should continue to be recorded in the income statement. Given
the pervasive nature of hedges involving IBOR based contracts, the reliefs will
affect companies in all industries.
This standard has been endorsed by the EU. The adoption of this standard has
had no impact on the financial statements of the Group as it does not hedge.
IFRS standards that have yet to be adopted:
A number of new standards, amendments to standards and interpretations are
effective for the annual periods beginning on or after 1 January 2021 and have
not been adopted early in preparing these financial statements (major changes
and new standards issued are detailed below), as these are not expected to have
any effect on the measurement of the amounts recognised in the financial
statements of the Group.
IFRS 17 - insurance contracts (effective 1 January 2021). This standard
replaces IFRS 4, which currently permits a wide variety of practices in
accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features. The standard has not been
endorsed by the EU. This standard is unlikely to have any impact on the Group
as it has no insurance contracts.
(b) Basis of consolidation
The Group's financial statements are made up to 31 December each year and
consolidate the financial statements of the Company and its wholly owned
subsidiary, which is registered and operates in England and Wales, BlackRock
World Mining Investment Company Limited (together 'the Group'). The subsidiary
company is not considered an investment entity.
Subsidiaries are consolidated from the date of their acquisition, being the
date on which the Company obtains control, and continue to be consolidated
until the date that such control ceases. The financial statements of
subsidiaries used in the preparation of the consolidated financial statements
are based on consistent accounting policies. All intra-group balances and
transactions, including unrealised profits arising therefrom, are eliminated.
(c) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Consolidated Statement of Comprehensive Income between items of a
revenue and a capital nature has been presented alongside the Consolidated
Statement of Comprehensive Income.
(d) Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business being investment business.
(e) Income
Dividends receivable on equity shares are recognised as revenue for the year on
an ex-dividend basis. Where no ex-dividend date is available, dividends
receivable on or before the year end are treated as revenue for the year.
Provision is made for any dividends and interest income not expected to be
received. Special dividends, if any, are treated as a capital or a revenue
receipt depending on the facts or circumstances of each particular case. The
return on a debt security is recognised on a time apportionment basis so as to
reflect the effective yield on the debt security. Interest income and deposit
interest is accounted for on an accruals basis.
Options may be purchased or written over securities held in the portfolio for
generating or protecting capital returns, or for generating or maintaining
revenue returns. Where the purpose of the option is the generation of income,
the premium is treated as a revenue item. Where the purpose of the option is
the maintenance of capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the life of the
option contract and included in the revenue column of the Consolidated
Statement of Comprehensive Income unless the option has been written for the
maintenance and enhancement of the Group's investment portfolio and represents
an incidental part of a larger capital transaction, in which case any premia
arising are allocated to the capital column of the Consolidated Statement of
Comprehensive Income.
Royalty income from contractual rights is measured at the fair value of the
consideration received or receivable where the Investment Manager can reliably
estimate the amount, pursuant to the terms of the agreement. Royalty income
from contractual rights received comprise of a return of income and a return of
capital based on the underlying cost of the contract and, accordingly, the
return of income element is taken to the revenue account and the return of
capital element is taken to the capital account. These amounts are disclosed in
the Consolidated Statement of Comprehensive Income within income from
investments and gains/losses on investments held at fair value through profit
or loss, respectively.
The useful life of the contractual rights will be determined by reference to
the contractual arrangements, the planned mine life on commencement of mining
and the underlying cost of the contractual rights will be revalued on a
systematic basis using the units of production method over the life of the
contractual rights which is estimated using available estimated proved and
probable reserves specifically associated with the mine. The Investment Manager
relies on public disclosures for information on proven and probable reserves
from the operators of the mine. Amortisation rates are adjusted on a
prospective basis for all changes to estimates of the life of contractual
rights and iron ore reserves. These are disclosed in the Consolidated Statement
of Comprehensive Income within gains/losses on investments held at fair value
through profit or loss.
Where the Group has elected to receive its dividends in the form of additional
shares rather than in cash, the cash equivalent of the dividend is recognised
as income. Any excess in the value of the shares received over the amount of
the cash dividend is recognised in capital.
Underwriting commission receivable is taken into account on an accruals basis.
(f) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue column of the Consolidated
Statement of Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an
investment are charged to the capital column of the Consolidated Statement of
Comprehensive Income. Details of transaction costs on the purchases and sales
of investments are disclosed within note 10 to the financial statements in the
Annual Report and Financial Statements;
· expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be demonstrated;
and
· the investment management fee and finance costs have been allocated
75% to the capital column and 25% to the revenue column of the Consolidated
Statement of Comprehensive Income in line with the Board's expectations of the
long term split of returns, in the form of capital gains and income,
respectively, from the investment portfolio.
(g) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Consolidated
Statement of Comprehensive Income because it excludes items of income or
expenses that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Group's liability for current
tax is calculated using tax rates that were applicable at the balance sheet
date.
Where expenses are allocated between capital and revenue, any tax relief in
respect of the expenses is allocated between capital and revenue returns on the
marginal basis using the Company's effective rate of corporation tax for the
accounting period.
Deferred taxation is recognised in respect of all temporary differences that
have originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the financial
reporting date. This is subject to deferred taxation assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of the temporary differences can be
deducted. Deferred taxation assets and liabilities are measured at the rates
applicable to the legal jurisdictions in which they arise.
(h) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Group classifies its investments at initial
recognition as held at fair value through profit or loss and are managed and
evaluated on a fair value basis in accordance with its investment strategy and
business model.
All investments, including contractual rights, are initially and subsequently
measured at fair value through profit or loss. Purchases of investments are
recognised on a trade date basis. Contractual rights are recognised on the
completion date, where a purchase of the rights is under a contract, and are
initially measured at fair value excluding transaction costs. Sales of
investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price
at the financial reporting date, without deduction for the estimated future
selling costs. This policy applies to all current and non current asset
investments held by the Group.
The gains and losses from changes in fair value of contractual rights are taken
to the Consolidated Statement of Comprehensive Income and arise as a result of
the revaluation of the underlying cost of the contractual rights, changes in
commodity prices and changes in estimates of proven and probable reserves
specifically associated with the mine.
Under IFRS, the investment in the subsidiary in the Company's Statement of
Financial Position is fair valued which is deemed to be the net asset value of
the subsidiary. Changes in the value of investments held at fair value through
profit or loss and gains and losses on disposal are recognised in the
Consolidated Statement of Comprehensive Income as 'Net profits or losses on
investments held at fair value through profit or loss'. Also included within
the heading are transaction costs in relation to the purchase or sale of
investments.
For all financial instruments not traded in an active market, the fair value is
determined by using various valuation techniques. Valuation techniques include
market approach (i.e., using recent arm's length market transactions adjusted
as necessary and reference to the current market value of another instrument
that is substantially the same) and the income approach (i.e., discounted cash
flow analysis and option pricing models making as much use of available and
supportable market data as possible). Where no reliable fair value can be
estimated for such instruments, they are carried at cost subject to any
provision for impairment. See note 2(q) below.
(i) Options
Options are held at fair value based on the bid/offer prices of the options
written to which the Group is exposed. The value of the option is subsequently
marked-to-market to reflect the fair value of the option based on traded
prices. Where the premium is taken to revenue, an appropriate amount is shown
as capital return such that the total return reflects the overall change in the
fair value of the option. When an option is exercised the gain or loss is
accounted for as a capital gain or loss. Any cost on closing out an option is
transferred to revenue along with any remaining unamortised premium.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest and are
short-term in nature and are accordingly stated on an amortised cost basis.
(k) Dividends payable
Under IFRS, final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the financial reporting
date. Interim dividends should not be accrued in the financial statements
unless they have been paid.
Dividends payable to equity shareholders are recognised in the Consolidated and
Parent Company Statements of Changes in Equity.
(l) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at
the date of the transaction. Foreign currency monetary assets and liabilities
and non monetary assets held at fair value are translated into sterling at the
rate ruling on the financial reporting date. Foreign exchange differences
arising on translation are recognised in the Consolidated Statement of
Comprehensive Income as a revenue or capital item depending on the income or
expense to which they relate. For investment transactions and investments held
at the year end, denominated in a foreign currency, the resulting gains or
losses are included in the profit/(loss) on investments held at fair value
through profit or loss in the Consolidated Statement of Comprehensive Income.
(m) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand deposits. Cash
equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and that are subject to an insignificant
risk of changes in value. Bank overdrafts are shown separately on the
Consolidated and Parent Company Statements of Financial Position.
(n) Bank borrowings
Bank overdrafts and loans are recorded as the proceeds received. Finance
charges, including any premium payable on settlement or redemption and direct
issue costs, are accounted for on an accruals basis in the Consolidated
Statement of Comprehensive Income using the effective interest rate method and
are added to the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
(o) Offsetting
Financial assets and financial liabilities are offset and the net amount
reported in the Consolidated and Parent Company Statements of Financial
Position if there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
(p) Share repurchases and share reissues
Shares repurchased and subsequently cancelled - share capital is reduced by the
nominal value of the shares repurchased and the capital redemption reserve is
correspondingly increased in accordance with section 733 of the Companies Act
2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury - the full cost of the repurchase is
charged to the special reserve.
Where treasury shares are subsequently reissued:
· amounts received to the extent of the repurchase price are credited to
the special reserve; and
· any surplus received in excess of the repurchase price is taken to the
share premium account.
(q) Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates and assumptions will, by definition, seldom equal the
related actual results. Estimates and judgements are regularly evaluated and
are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. The
estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are addressed below.
Fair value of unquoted financial instruments
When the fair values of financial assets and financial liabilities recorded in
the Consolidated and Parent Company Statements of Financial Position cannot be
derived from active markets, their fair value is determined using a variety of
valuation techniques that include the use of valuation models.
(a) The fair value of the OZ Minerals contractual rights was assessed by an
independent valuer with a recognised and relevant professional qualification.
The inputs to these models are taken from observable markets where possible,
but where this is not feasible, estimation is required in establishing fair
values. The estimates include considerations of production profiles, commodity
prices, cash flows and discount rates. Changes in assumptions about these
factors could affect the reported fair value of financial instruments in the
Consolidated and Parent Company Statements of Financial Position and the level
where the instruments are disclosed in the fair value hierarchy. To assess the
significance of a particular input to the entire measurement, the external
valuer performs sensitivity analysis.
(b) The investment in the subsidiary company was valued based on the net
assets of the subsidiary company, which is considered appropriate based on the
nature and volume of transactions in the subsidiary company.
The key assumptions used to determine the fair value of the unquoted financial
instruments and sensitivity analyses are provided in note 18(d) in the Annual
Report and Financial Statements.
3. INCOME
2020 2019
£'000 £'000
Investment income:
UK dividends 12,328 11,817
UK special dividends - 4,402
Overseas dividends 12,133 11,394
Overseas special dividends 538 2,249
Income from contractual rights (OZ Minerals Royalty) 1,800 1,541
Income from Vale debentures 2,304 3,708
Income from fixed income investments 2,510 5,769
Less provision for doubtful debts (106) -
======== ========
31,507 40,880
======== ========
Other income:
Option premium income 8,765 6,008
Deposit interest 7 106
Interest on corporation tax refund 293 -
Stock lending income 27 77
Loss on investment dealing in the subsidiary (1,128) (557)
======== ========
7,964 5,634
======== ========
Total income 39,471 46,514
======== ========
During the year, the Group received option premium income in cash totalling £
8,821,000 (2019: £5,986,000) for writing put and covered call options for the
purposes of revenue generation. Option premium income is amortised evenly over
the life of the option contract and accordingly, during the year, option
premiums of £8,765,000 (2019: £6,008,000) were amortised to revenue. At 31
December 2020, there were two (2019: five) open positions with an associated
liability of £587,000 (2019: £314,000).
Dividends and interest received in cash during the year amounted to £25,363,000
and £3,421,000 (2019: £27,581,000 and £8,252,000) respectively.
Special dividends amounting to £34,000 (2019: £5,229,000) have been recognised
in capital during the year and included within investment gains.
4. INVESTMENT MANAGEMENT FEE
2020 2019
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 1,546 4,859 6,405 1,564 4,916 6,480
-------------- -------------- -------------- -------------- -------------- --------------
Total 1,546 4,859 6,405 1,564 4,916 6,480
======== ======== ======== ======== ======== ========
The investment management fee (which includes all services provided by
BlackRock) is 0.8% of the Company's net assets. However, in the event that the
NAV per share increases on a quarter-on-quarter basis, the fee will then be
paid on gross assets for the quarter. During the year £5,907,000 (2019: £
5,888,000) of the investment management fee was generated from net assets and £
498,000 (2019: £592,000) from the gearing effect on gross assets due to the
quarter-on-quarter increase in the NAV per share during the year as below:
Cum income Quarterly Gearing effect
NAV per share increase/ on
Quarter end (pence) (decrease) management fees
% (£'000)
31 December 2019 433.17 - -
31 March 2020 307.48 (29.0) -
30 June 2020 428.24 +39.3 113
30 September 2020 456.18 +6.5 183
31 December 2020 536.34 +17.6 202
======== ======== ========
The daily average of the net assets under management during the year ended 31
December 2020 was £748,853,000 (2019: £733,356,000). The fee is allocated 25%
to the revenue column and 75% to the capital column of the Consolidated
Statement of Comprehensive Income.
There is no additional fee for company secretarial and administration services.
5. OTHER OPERATING EXPENSES
2020 2019
£'000 £'000
Allocated to revenue
Custody fee 105 114
Auditors' remuneration:
- audit services 39 36
- non-audit services1 8 7
Registrar's fee 86 88
Directors' emoluments2 183 190
Broker fees 24 24
Depositary fees 74 63
Marketing fees 152 159
Stock exchange fees 21 19
Legal and professional fees 40 43
Bank facility fees3 72 75
AIC Fees 17 22
FCA Fee 20 18
Directors' insurance 14 14
Directors' search fees 13 26
Printing and postage fees 41 45
Other administrative costs 106 87
Write back of prior year expenses4 (18) -
-------------- --------------
997 1,030
======== ========
Allocated to capital
Custody transaction charges5 18 20
-------------- --------------
1,015 1,050
======== ========
2020 2019
The Company's ongoing charges6, calculated as a percentage of average 0.99% 1.02%
daily net assets and using management fee and all other operating
expenses, excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation and certain non-recurring
items were:
======== ========
The Company's ongoing charges6, calculated as a percentage of average 0.87% 0.89%
daily gross assets and using management fee and all other operating
expenses, excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation and certain non-recurring
items were:
======== ========
1 Fees paid to the auditor for non-audit services of £7,540 excluding VAT
(2019: £6,580) relate to the review of the half yearly financial statements.
2 Details of the Directors' emoluments are given in the Directors'
Remuneration Report in the Annual Report and Financial Statements. Emoluments
include taxable benefits for reimbursement of expenses. The Company has no
employees.
3 There is a 4 basis point facility fee chargeable on the full loan
facility amount whether drawn or undrawn.
4 Relates to prior year accrual for broker fees written back during the
year.
5 These relate to costs charged by the custodian on sale and purchase
trades.
6 Alternative Performance Measures, see Glossary in the Annual Report and
Financial Statements.
6. FINANCE COSTS
2020 2019
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest on bank loans 409 1,229 1,638 889 2,662 3,551
Interest on bank overdraft 15 43 58 7 21 28
-------------- -------------- -------------- -------------- -------------- -------------
Total 424 1,272 1,696 896 2,683 3,579
======== ======== ======== ======== ======== ========
7. DIVIDS
2020 2019
Record date Payment date £'000 £'000
Final dividend of 10.00p per share for the 20 March 7 May 2020 17,361 15,870
year ended 31 December 2019 (2018: 9.00p) 2020
1st interim dividend of 4.00p per share for 29 May 2020 26 June 2020 6,944 7,053
the year ended 31 December 2020 (2019:
4.00p)
2nd interim dividend of 4.00p per share for 28 August 25 September 6,944 7,052
the year ended 31 December 2020 (2019: 2020 2020
4.00p)
3rd interim dividend of 4.00p per share for 20 November 18 December 6,942 7,030
the year ended 31 December 2020 (2019: 2020 2020
4.00p)
-------------- --------------
38,191 37,005
======== ========
The total dividends payable in respect of the year ended 31 December 2020 which
form the basis of section 1158 of the Corporation Tax Act 2010 and section 833
of the Companies Act 2006, and the amounts proposed, meet the relevant
requirements as set out in this legislation.
Dividends paid, proposed or declared on equity shares:
2020 2019
£'000 £'000
1st interim dividend of 4.00p per share for the year ended 31 December 6,944 7,053
2020 (2019: 4.00p)
2nd interim dividend of 4.00p per share for the year ended 31 December 6,944 7,052
2020 (2019: 4.00p)
3rd interim dividend of 4.00p per share for the year ended 31 December 6,942 7,030
2020 (2019: 4.00p)
Final interim dividend of 8.30p per share for the year ended 31 14,713 17,361
December 2020 (2019: final dividend 10.00p)1
-------------- --------------
35,543 38,496
======== ========
1 Based on 177,270,814 ordinary shares in issue on 4 March 2021.
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
2020 2019
Net revenue profit attributable to ordinary shareholders (£'000) 35,451 39,561
Net capital profit attributable to ordinary shareholders (£'000) 181,064 74,505
-------------- --------------
Total profit attributable to ordinary shareholders (£'000) 216,515 114,066
======== ========
Equity shareholders' funds (£'000) 930,825 757,110
The weighted average number of ordinary shares in issue during the 173,740,499 176,135,318
year, on which the earnings per ordinary share was calculated was:
The actual number of ordinary shares in issue at the year end, on 173,550,814 174,784,727
which the net asset value per ordinary share was calculated was:
Earnings per share
Revenue earnings per share (pence) 20.40 22.46
Capital profit per share (pence) 104.22 42.30
-------------- --------------
Total profit per share (pence) 124.62 64.76
======== ========
As at As at
31 31 December
December 2019
2020
Net asset value per ordinary share (pence) 536.34 433.17
Ordinary share price (pence) 522.00 383.00
======== ========
There were no dilutive securities at the year end.
9. CALLED UP SHARE CAPITAL
Number of Nominal
ordinary shares Treasury Total value
shares shares £'000
Allotted, called up and fully paid share capital
comprised:
Ordinary shares of 5p each
At 31 December 2019 174,784,727 18,227,115 193,011,842 9,651
Shares purchased into treasury (1,233,913) 1,233,913 - -
----------------- ----------------- ----------------- -----------------
At 31 December 2020 173,550,814 19,461,028 193,011,842 9,651
========== ========== ========== ==========
During the year 1,233,913 shares were bought back and transferred to treasury
for a total consideration of £4,609,000 (2019: 1,545,515 shares were bought
back and transferred to treasury for a total consideration of £5,546,000).
Since the year end, the Company has reissued 3,720,000 ordinary shares from
treasury for a total gross consideration of £21,896,000.
10. RESERVES
Capital
reserve
Capital arising on
reserve revaluation
Share Capital arising on of
premium redemption Special investments investments Revenue
account reserve reserve sold held reserve
Group £'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2019 127,155 22,779 108,601 281,550 166,256 41,118
Movement during the year:
Total comprehensive income:
Net capital (loss)/profit for the - - - (4,161) 185,225 -
year
Net revenue profit for the year - - - - - 35,451
Transactions with owners recorded
directly to equity:
Ordinary shares purchased into - - (4,573) - - -
treasury
Share purchase costs - - (36) - - -
Dividends paid - - - - - (38,191)
-------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2020 127,155 22,779 103,992 277,389 351,481 38,378
======== ======== ======== ======== ======== ========
Distributable reserves*
Capital
reserve
Capital arising on
reserve revaluation
Share Capital arising on of
premium redemption Special investments investments Revenue
account reserve reserve* sold* held* reserve*
Company £'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2019 127,155 22,779 108,601 280,610 174,003 34,311
Movement during the year:
Total comprehensive income:
Net capital (loss)/profit for the - - - (4,722) 184,656 -
year
Net revenue profit for the year - - - - - 36,581
Transactions with owners recorded
directly to equity:
Ordinary shares purchased into - - (4,573) - - -
treasury
Share purchase costs - - (36) - - -
Dividends paid - - - - - (38,191)
-------------- -------------- -------------- -------------- -------------- --------------
At 31 December 2020 127,155 22,779 103,992 275,888 358,659 32,701
======== ======== ======== ======== ======== ========
Pursuant to a resolution of the Company passed at an Extraordinary General
Meeting on 13 January 1998 and following the Company's application to the Court
for cancellation of its share premium account, the Court approval was received
on 27 January 1999 and £157,633,000 was transferred from the share premium
account to a special reserve which is a distributable reserve.
The share premium account and capital redemption reserve are not distributable
profits under the Companies Act 2006. In accordance with ICAEW Technical
Release 02/17BL on Guidance on Realised and Distributable Profits under the
Companies Act 2006, the special reserve and capital reserve (excluding capital
reserves of £9,601,000 on revaluation of unquoted investments and subsidiary)
may be used as distributable profits for all purposes and, in particular, the
repurchase by the Company of its ordinary shares and for payments as dividends.
In accordance with the Company's Articles of Association, net capital returns
may be distributed by way of dividend. The £358,659,000 of capital reserve
arising on the revaluation of investments is subject to fair value movements
and may not be readily realisable at short notice, as such it may not be
entirely distributable.
The reserves of the subsidiary company are not distributable until distributed
as a dividend to the Company.
11. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the
Consolidated and Parent Company Statements of Financial Position at their fair
value (investment and derivatives) or at an amount which is a reasonable
approximation of fair value (due from brokers, dividends and interest
receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS
13 requires the Group to classify fair value measurements using a fair value
hierarchy that reflects the significance of inputs used in making the
measurements. The valuation techniques used by the Group are explained in the
accounting policies note 2(h) to the Financial Statements in the Annual Report
and Financial Statements.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily available from an exchange, dealer, broker, industry group,
pricing service or regulatory agency and those prices represent actual and
regularly occurring market transactions on an arm's length basis. The Group
does not adjust the quoted price for these instruments.
Level 2 - Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less than active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants
making the maximum use of market inputs and relying as little as possible on
entity specific inputs.
Over-the-counter derivative option contracts have been classified as Level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts expose
the Group.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on observable market data and these inputs could have a
significant impact on the instrument's valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes 'observable' inputs
requires significant judgement by the Investment Manager.
Valuation process and techniques for Level 3 valuations
The Directors engage a mining consultant, an independent valuer with a
recognised and relevant professional qualification, to conduct a periodic
valuation of the contractual rights and the fair value of the contractual
rights is assessed with reference to relevant factors. At the reporting date
the income streams from contractual rights have been valued on the net present
value of the pre-tax cash flows discounted at a rate the external valuer
considers reflects the risk associated with the project. The valuation model
uses discounted cash flow analysis which incorporates both observable and
non-observable data. Observable inputs include assumptions regarding current
rates of interest and commodity prices. Unobservable inputs include assumptions
regarding production profiles, price realisations, cost of capital and discount
rates. In determining the discount rate to be applied, the external valuer
considers the country and sovereign risk associated with the project, together
with the time horizon to the commencement of production and the success or
failure of projects of a similar nature. To assess the significance of a
particular input to the entire measurement, the external valuer performs a
sensitivity analysis. The external valuer has undertaken an analysis of the
impact of using alternative discount rates on the fair value of contractual
rights.
This investment in contractual rights is reviewed regularly to ensure that the
initial classification remains correct given the asset's characteristics and
the Group's investment policies. The contractual rights are initially
recognised using the transaction price as the best evidence of fair value at
acquisition and are subsequently measured at fair value, taking into
consideration the relevant IFRS 13 requirements. In arriving at their estimates
of market values, the valuers have used their market knowledge and professional
judgement. The Group classifies the fair value of this investment as Level 3.
Valuations are the responsibility of the Directors of the Company. In arriving
at a final valuation, the Directors consider the independent valuer's report,
the significant assumptions used in the fair valuation and the review process
undertaken by BlackRock's Pricing Committee. The valuation of unquoted
investments is performed on a quarterly basis by the Portfolio Managers and
reviewed by the Pricing Committee of the Investment Manager. On a quarterly
basis the Portfolio Managers will review the valuation of the contractual
rights and inputs for significant changes. A valuation of contractual rights is
performed annually by an external valuer, SRK Consulting (UK) Limited, and
reviewed by the Pricing Committee of the Investment Manager. The valuations are
also subject to quality assurance procedures performed within the Pricing
Committee. On a semi-annual basis, after the checks above have been performed,
the Investment Manager presents the valuation results to the Directors. This
includes a discussion of the major assumptions used in the valuations. There
were no changes in valuation techniques during the year.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value through Level 1 Level 2 Level 3 Total
profit or loss at £'000 £'000 £'000 £'000
31 December 2020 - Group
Assets:
Equity investments 935,805 2,811 - 938,616
Fixed income securities 42,773 44,676 - 87,449
Investment in contractual rights - - 19,753 19,753
-------------- -------------- -------------- --------------
Total assets 978,578 47,487 19,753 1,045,818
-------------- -------------- -------------- --------------
Liabilities:
Derivative financial instruments - written options - (587) - (587)
-------------- -------------- -------------- --------------
Total 978,578 46,900 19,753 1,045,231
======== ======== ======== ========
Financial assets/(liabilities) at fair value through Level 1 Level 2 Level 3 Total
profit or loss at £'000 £'000 £'000 £'000
31 December 2019 - Group
Assets:
Equity investments 761,242 - - 761,242
Fixed income securities 38,646 30,099 - 68,745
Investment in contractual rights - - 15,790 15,790
-------------- -------------- -------------- --------------
Total assets 799,888 30,099 15,790 845,777
-------------- -------------- -------------- --------------
Liabilities:
Derivative financial instruments - written options - (314) - (314)
-------------- -------------- -------------- --------------
Total 799,888 29,785 15,790 845,463
======== ======== ======== ========
Financial assets/(liabilities) at fair value through Level 1 Level 2 Level 3 Total
profit or loss at £'000 £'000 £'000 £'000
31 December 2020 - Company
Assets:
Equity investments 935,805 2,811 7,178 945,794
Fixed income securities 42,773 44,676 - 87,449
Investment in contractual rights - - 19,753 19,753
-------------- -------------- -------------- --------------
Total assets 978,578 47,487 26,931 1,052,996
-------------- -------------- -------------- --------------
Liabilities:
Derivative financial instruments - written options - (587) - (587)
-------------- -------------- -------------- --------------
Total 978,578 46,900 26,931 1,052,409
======== ======== ======== ========
Financial assets/(liabilities) at fair value through Level 1 Level 2 Level 3 Total
profit or loss £'000 £'000 £'000 £'000
31 December 2019 - Company
Assets:
Equity investments 758,889 - 8,308 767,197
Fixed income securities 38,646 30,099 - 68,745
Investment in contractual rights - - 15,790 15,790
-------------- -------------- -------------- --------------
Total assets 797,535 30,099 24,098 851,732
-------------- -------------- -------------- --------------
Liabilities:
Derivative financial instruments - written options - (314) - (314)
-------------- -------------- -------------- --------------
Total 797,535 29,785 24,098 851,418
======== ======== ======== ========
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 Financial assets at fair value through profit or loss 2020 2019
At 31 December - Group £'000 £'000
Opening fair value 15,790 18,513
Total profit or loss included in net profit on investments in the
Consolidated Statement of Comprehensive Income:
- assets held at the end of the year 3,963 (2,723)
-------------- --------------
Closing balance 19,753 15,790
======== ========
Level 3 Financial assets at fair value through profit or loss 2020 2019
At 31 December - Company £'000 £'000
Opening fair value 24,098 27,199
Total profit or loss included in net profit on investments in the
Consolidated Statement of Comprehensive Income:
- assets held at the end of the year 2,833 (3,101)
-------------- --------------
Closing balance 26,931 24,098
======== ========
The Level 3 valuation process and techniques used are explained in the
accounting policies in note 2(h). A more detailed description of the techniques
is found in the Annual Report and Financial Statements under 'Valuation process
and techniques'.
Quantitative information of significant unobservable inputs - Level 3 - Group
and Company
2020 2019 Valuation Unobservable
Description £'000 £'000 technique input
OZ Minerals Brazil Royalty 19,753 15,790 Discounted Discounted
cash flows rate -
weighted
average
cost of
capital
Average gold
and
copper prices
Investment in subsidiary company 7,178 8,308 Net assets Net assets
======== ========
Sensitivity analysis to significant changes in unobservable inputs within Level
3 hierarchy
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy, together with an
estimated quantitative sensitivity analysis, as at 31 December 2020 are as
shown below.
Estimated Impact on
Description Input sensitivity fair value
used1
OZ Minerals Brazil Royalty Discount rate 2020 - 1% 2020 - £1.1m
- weighted
average cost
of capital 2019 - 1% 2019 - £0.8m
Average gold 2020 - 10% 2020 - £1.4m
and copper
prices 2019 - 10% 2019 - £2.2m
1 The sensitivity analysis refers to a percentage amount added or deducted
from the input and the effect this has on the fair value.
The sensitivity impact on fair value is calculated based on the sensitivity
estimates set out by the independent valuer in its report on the valuation of
contractual rights. Significant increases/(decreases) in estimated commodity
prices and discount rates in isolation would result in a significantly higher/
(lower) fair value measurement. Generally, a change in the assumption made for
the estimated value is accompanied by a directionally similar change in the
commodity prices and discount rates.
12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months'
notice. BFM has (with the Company's consent) delegated certain portfolio and
risk management services, and other ancillary services to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment
management contract are disclosed in the Directors' Report in the Annual Report
and Financial Statements.
The investment management fee due for the year ended 31 December 2020 amounted
to £6,405,000 (2019: £6,480,000). At the year end, £2,064,000 (2019: £
1,714,000) was outstanding in respect of management fees.
In addition to the above services, BlackRock has provided the Group with
marketing services. The total fees paid or payable for these services for the
year ended 31 December 2020 amounted to £152,000 excluding VAT (2019: £159,000
excluding VAT). Marketing fees of £55,000 were outstanding as at 31 December
2020 (2019: £50,000).
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC
Financial Services Group, Inc. (PNC) was a substantial shareholder in
BlackRock, Inc. PNC did not provide any services to the Company during the
financial year ended 31 December 2019 and the period up to 11 May 2020, when
PNC announced its intent to sell its investment in BlackRock, Inc. through a
registered offering and related buyback by BlackRock, Inc.
13. RELATED PARTY DISCLOSURE
Directors' emoluments
At the date of this report, the Board consists of five non-executive Directors,
all of whom are considered to be independent of the Manager by the Board.
Disclosures of the Directors' interests in the ordinary shares of the Company
and fees and expenses payable to the Directors are set out in the Directors'
Remuneration Report in the Annual Report and Financial Statements. As at 31
December 2020 £14,375 (2019: £14,375) was outstanding in respect of Directors'
fees.
Significant Holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock
Inc. ("Related BlackRock Funds") or
b. investors (other than those listed in (a) above) who held more than 20%
of the voting shares in issue in the Company and are as a result, considered to
be related parties to the Company ("Significant Investors").
As at 31 December 2020
Total % of shares held by Number of Significant
Total % of shares held by Significant Investors who are Investors who are not
Related BlackRock Funds not affiliates of BlackRock affiliates of BlackRock
Group or BlackRock, Inc. Group or BlackRock, Inc.
2.45 n/a n/a
As at 30 December 2019
Total % of shares held by Number of Significant
Total % of shares held by Significant Investors who are Investors who are not
Related BlackRock Funds not affiliates of BlackRock affiliates of BlackRock
Group or BlackRock, Inc. Group or BlackRock, Inc.
1.99 n/a n/a
14. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 2020 (2019: nil).
15. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The Annual Report and
Financial Statements for the year ended 31 December 2020 will be filed with the
Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the auditor, whose report
for the year ended 31 December 2020 contains no qualification or statement
under section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of
BlackRock World Mining Trust plc and its subsidiary for the year ended 31
December 2019, which have been filed with the Registrar of Companies. The
report of the auditor on those financial statements contained no qualification
or statement under section 498 of the Companies Act 2006.
16. ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Annual Report and Financial Statements will be published shortly
and will be available from the registered office, c/o The Secretary, BlackRock
World Mining Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
17. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Thursday, 29 April 2021 at 11.30 a.m.
ENDS
The Annual Report and Financial Statements will also be available on the
BlackRock website at www.blackrock.co.uk/brwm. Neither the contents of the
website nor the contents of any website accessible from hyperlinks on the
website (or any other website) is incorporated into, or forms part of, this
announcement.
For further information, please contact:
Simon White, Managing Director, Closed End Funds, BlackRock Investment
Management (UK) Limited - Tel: 020 7743 5284
Evy Hambro, Fund Manager, BlackRock Investment Management (UK) Limited - Tel:
020 7743 4511
Emma Phillips, Media & Communications, BlackRock Investment Management (UK)
Limited - Tel: 020 7743 2922
Press enquires:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
4 March 2021
12 Throgmorton Avenue
London EC2N 2DL
END
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