TIDMBSRT
RNS Number : 1208X
Baker Steel Resources Trust Ltd
24 April 2023
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the
provisions of The Companies (Guernsey) Law, 2008 as amended)
24 April 2023
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
LEI: 213800JUXEVF1QLKCC27
Annual Report and Audited Financial Statements
For the year ended 31 December 2022
The Company has today, in accordance with DTR 6.3.5, released
its Annual Audited Financial Report for the year ended 31 December
2022. The Report is available via www.bakersteelresourcestrust.com
and will shortly be submitted to the National Storage
Mechanism.
Further details of the Company and its investments are available
on the Company's website www.bakersteelresourcestrust.com
Enquiries:
Baker Steel Resources Trust Limited: +44 20 7389 8237
Francis Johnstone
Trevor Steel
Numis Securities Limited: +44 20 7260 1000
David Benda (Corporate)
James Glass (sales)
HSBC Securities Services (Guernsey) Limited
Company Secretary: +44 1481 717 852
MANAGEMENT AND ADMINISTRATION
DIRECTORS: Howard Myles (Chairman)
Charles Hansard
Fiona Perrott-Humphrey
David Staples (retired 31 December 2022)
John Falla (appointed 13 October 2022)
(all of whom are non-executive and independent)
REGISTERED OFFICE: Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
MANAGER: Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
INVESTMENT MANAGER: Baker Steel Capital Managers LLP*
34 Dover Street
London W1S 4NG
United Kingdom
STOCKBROKERS: Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
SOLICITORS TO THE COMPANY: Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London SE1 2AQ
United Kingdom
ADVOCATES TO THE COMPANY: Mourant Ozanne
(as to Guernsey law) Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY: HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
* The Investment Manager was authorised as an Alternative
Investment Fund Manager ("AIFM") for the purpose of the Alternative
Investment Fund Managers Directive ("AIFMD") on 22 July 2014.
SUB-ADMINISTRATOR TO THE COMPANY: HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE COMPANY: HSBC Continental Europe
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
SAFEKEEPING AND MONITORING AGENT: HSBC Continental Europe
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
AUDITOR: BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter Port
Guernsey GY1 3LL
Channel Islands
REGISTRAR: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
UK PAYING AGENT AND TRANSFER AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
RECEIVING AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
PRINCIPAL BANKER: HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
CHAIRMAN'S STATEMENT
For the year ended 31 December 2022
2022 was a difficult year for your Company with the NAV per
share falling by 19.3% to 79.4 pence, versus a 10.2% rise in the
EMIX Global Mining Index in Sterling terms. This divergence in
performance can be explained mainly by the difficulty experienced
in financing new projects for junior mining development companies
and the consequent effect on their valuations, as opposed to the
EMIX Index which is dominated by much larger producers. Following
the invasion of Ukraine by Russia in February 2022, potential
investors in mining companies became increasingly risk averse with
regard to committing capital to the construction of new projects
whilst existing producers benefitted from strong commodity prices
largely as a result of supply chain-related disruption to
supply.
One bright point during 2022 was the sale of Bilboes Gold to AIM
listed gold producer Caledonia Mining. The consideration comprised
a combination of equity and a royalty stream, which was signed in
July 2022 and completed on 6 January 2023. Caledonia's technical
team has demonstrated its ability to operate successfully in
Zimbabwe having recently increased the production capacity at its
Blanket mine from 50,000 ounces to 80,000 ounces gold per annum.
The two teams have already shown their ability to work together
with the restart of oxide heap leach operations at Bilboes whilst
Caledonia implements its plan to bring the larger sulphide ore
reserve into production. Caledonia's recent acquisition of the much
earlier stage Motapa exploration project, which is contiguous to
Bilboes, has the potential to double the resources of a combined
project and to create a 300,000 ounce per annum gold operation in
due course. The financial structure of the acquisition by Caledonia
has allowed your Company to maintain its exposure to the Bilboes
project through its shareholding in Caledonia and the royalty,
which together with the other royalties in the portfolio should
form the basis of regular income stream in the future.
Futura Resources received its Mining Licences from the
Queensland Government in November 2022 but the financing of the
development has taken longer than anticipated which is particularly
frustrating at a time of high steel-making coal prices. When
operating at full capacity, Futura's two mines are projected to
produce around 2 million tonnes of saleable product after washing
and processing. Given a margin of some US$150 per tonne at current
prices, this would mean the start-up capex of around US$35 million
could be repaid in under a year.
CEMOS achieved its third year of profitable cement making
operations in Morocco since commencing production. It has now
acquired a second grinding line which will enable it to double
production with ramp up expected in 2025. Technical and financial
studies were also undertaken with a view to constructing a clinker
making facility sufficient to meet CEMOS's internal requirements,
which it is anticipated could significantly reduce current clinker
costs from third party suppliers and thus enhance margins. A
decision is likely in 2023.
Tungsten West Plc successfully raised GBP35 million at its IPO
in October 2021. Having signed a term sheet for a royalty sale,
which together with the funds raised from the IPO should have
provided it with sufficient capital to redevelop the Hemerdon
tungsten mine in Devon, it nevertheless had to pause the
redevelopment in the face of soaring energy prices. In the
circumstances it therefore reconfigured its ore processing design
to consume significantly less energy and lower both operating and
capital requirements. This has culminated in a revised Feasibility
Study the results of which were released in January 2023. The
economics of the new study demonstrated an acceptable post-tax Net
Present Value (NPV5%) of GBP297 million with an Internal Rate of
Return (IRR) of 25%. However, during the delay, the share price of
Tungsten West fell substantially such that raising finance for the
redevelopment of Hemerdon has become increasingly difficult. The
Company is therefore planning to support an interim financing
announced in early April 2023 to provide time to put together the
full financing package
In April 2022, First Tin PLC completed a successful IPO, raising
the GBP20 million needed to undertake feasibility studies on both
its two key tin projects Tellerhäuser in Germany and Taronga in
Australia. These studies are expected to be completed in late
2023/early 2024 at which point we will have a much better
indication of which of the two projects should be prioritised.
Although world tin prices and the performance of First Tin shares
have been disappointing, there is significant optionality built
into these projects to capitalise on an improvement in market
sentiment should it occur. We recognise the commodity's attractions
given its critical requirement as solder in the structural
electrification trend.
During 2022, Nussir also sought to raise the finance to develop
its fully electrified copper project in northern Norway. Although
good interest was generated, Nussir ran into the same difficulty in
completing the financing that other single project junior companies
have experienced as discussed above. It has therefore engaged an
investment bank to investigate a sale or merger of the company with
an existing producer. We would hope that any transaction would be
similar to that of Bilboes and that we can therefore retain some
exposure to the project.
Although the current risk aversion of banks and other financiers
to providing capital for the development of mining assets is
proving challenging in terms of value realisation for the Company,
experience suggests that these periods are usually transitory. We
believe that in due course the global economy will need these
minerals in large quantities and in order to satisfy this demand
new mines will have to be discovered, developed and brought into
production. It is therefore important to adopt a careful and
measured approach during these periods in order to seek to ensure
that the latent value in the projects in which we are invested is
maintained.
Outlook
The outlook for 2023 for mining is expected to remain
challenging with uncertainty about the macro-economic and global
geopolitical situation continuing to encourage investors to remain
risk averse and thus creating a difficult environment for raising
development capital. However, we are beginning to see major mining
companies building up mergers and acquisition teams which may lead
to increased activity in the junior space. The structural case for
those metals and commodities essential for the electrification and
decarbonisation trends continues to strengthen and was considerably
boosted by the Inflation Reduction Act under the Biden
Administration. The longer-term and geopolitical consequences of
the war in Ukraine as yet remain unclear; however, deglobalisation
and security of-supply themes are likely to gain traction and
underpin commodity prices in the longer term.
At the year end, your Company's portfolio consisted of 19.2% (31
December 2021: 18.0%) listed equity, 63.1% (31 December 2021:
65.2%) unlisted equity and convertible loans and 17.5% (31 December
2021: 15.7%) royalty interests with 0.2%(31 December 2021: 1.1%)
net cash and receivables with no gearing. The listed equity and
royalty interests have since been increased by the conversion of
Bilboes Gold into listed Caledonia Mining and the royalty. On 31st
December 2022, the share price traded at a 44% discount to the NAV
at that date and continues to be monitored by the Board. It is
hoped that dividends generated from the regular income to be
provided by the royalties will help to reduce this discount in the
future.
On 31st December 2022, David Staples retired as a director and I
would like to reiterate my thanks for his invaluable contribution
to the Board. We welcomed John Falla to the Board as a
non-executive director in October 2022. John qualified as a
chartered accountant with Ernst and Young in London, before
transferring to its Corporate Finance Department. His specialist
knowledge in the valuation of unquoted securities will be of
particular value as Chairman of the Audit Committee.
Howard Myles
Chairman
21 April 2023
INVESTMENT MANAGER'S REPORT
For the year ended 31 December 2022
Financial Performance
The audited Net Asset Value per Ordinary Share ("NAV") as at 31
December 2022 was 79.4 pence, a decrease of 19.3% in the year
compared with the increase in the EMIX Global Mining Index of 10.2%
in Sterling terms.
For the purpose of calculating the NAV per share, unquoted
investments were carried at fair value as at 31 December 2022 as
determined by the Directors and quoted investments were carried at
their quoted prices as that date.
Net assets at 31 December 2022 comprised the following:
% net
GBPm assets
Unquoted Investments 68.1 80.6
Quoted Investments 16.2 19.2
Cash and other net assets 0.2 0.2
------------- --------------
84.5 100.0
Investment Update
Largest 10 Holdings - 31 December 2022 % of NAV
Futura Resources Limited 27.7
Cemos Group Plc 22.8
Bilboes Gold Limited 16.2
Kanga Investments Limited 5.7
Tungsten West Plc 5.4
Silver X Mining Corporation 5.4
First Tin Plc 4.8
Nussir ASA 4.1
Metals Exploration plc 1.7
PRISM Diversified Limited 1.5
95.3
Other Investments 4.5
Cash and other net assets 0.2
-------------
100.0
=============
Largest 10 Holdings - 31 December 2021 % of NAV
Cemos Group Plc 18.6
Futura Resources Limited 18.1
Tungsten West Plc 14.7
Bilboes Gold Limited 13.0
First Tin Limited (previously Anglo Saxony
Mining Limited) 7.7
Polar Acquisition Limited 7.5
Kanga Potash (previously Sarmin Minerals Exploration) 4.1
Nussir ASA 3.6
Silver X Mining Corporation (previously Mines
& Metals Trading (Peru) Plc 2.8
Azarga Metals Corporation 2.4
92.5
Other Investments 6.4
Cash and other net assets 1.1
---------
100.0
=========
Review
At the year end, the Company was fully invested, holding 20
investments of which the top 10 holdings comprised 95% of the
portfolio by value. The portfolio is well diversified both in terms
of commodity and the geographical location of the projects. In
terms of commodity the portfolio has exposure to cement, copper,
gold, iron, lead, lithium, potash, silver, steel making coal, tin,
tungsten, vanadium, and zinc. Its projects are located in
Australia, Canada, Germany, Indonesia, Madagascar, Morocco, Norway,
Peru, the Philippines, Republic of Congo, Russia, South Africa, the
UK and Zimbabwe.
During the year, mining market performance showed significant
diversity by commodity with overall the EMIX Global Mining Index
ending the year up 10.2% in Sterling terms. Precious metals were
volatile but were flat over the year with gold down 0.3% and silver
up 2.8% in US Dollars. After a strong 2021, metals required for the
electrification of the world's infrastructure fell back on global
recessionary concerns with copper falling 14.1% during the year and
tin falling 37.1% having almost doubled in 2020 (all in US
dollars). Steel making coal gave back some of its 252% gain in
2021, falling 17.6% with iron ore also falling some 7.4% during
2022. Likewise, potash fell back 39.8% but still remained almost
double the price at the end of 2020.
The Company's NAV fell 19.3% during the year primarily due to
the reduction in carrying value of Polar Acquisition Limited
following the invasion of Ukraine and falls in the quoted prices of
Tungsten West, First Tin and Azarga Metals Corporation.
The Company's main investments at the year-end:
Futura Resources Ltd ("Futura")
Futura owns the Wilton and Fairhill steel making coal projects
in the Bowen Basin in Queensland, Australia which hold Measured and
Indicated resources of 843 million tonnes of coal.
Investment: 11,309,005 ordinary shares (26.9%) valued at GBP9.6 million
1.5% Gross Revenue Royalty valued at GBP13.7 million
A$300,000 million bridging loan valued at GBP0.14 million
During the year Futura sought to finance the start-up of its two
steel making coal mines Wilton and Fairhill to take advantage of
historically high coal prices. This was not assisted by the
Queensland government unexpectedly introducing higher royalties at
high coal prices. The effect of these additional royalties is not
material to asset valuation at the long-term consensus pricing used
in Futura's economic model but it was a sufficient shock to the
market for potential investors to pause the process. A
pre-condition of all the financing proposals being discussed was
receipt of the mining licences for both projects which were awarded
on 23 November 2022. Financing discussions are continuing, with
mining able to commence approximately three months following
closing given the existing agreement in place for the coal to be
processed at the nearby Gregory Crinum wash plant. Once in full
production the mines are scheduled to produce around 2 million
tonnes of coal per year at a cost of around US$70 per tonne. During
the year the Company converted a bridging loan it had extended to
Futura, thereby increasing its gross revenue royalties over both
mines from 1% to 1.5% in addition to its ownership of approximately
27% of Futura.
Cemos Group plc ("Cemos")
Cemos is a private cement producer at Tarfaya in Morocco.
Investment: 24,004,167 ordinary shares (24.6%) valued at GBP9.2 million
1,045 Convertible Loan Units valued at GBP10.1 million
Percentage of Company owned at full conversion 31.6%
During 2022, Cemos Group PLC continued profitable operations
selling 202,000 tonnes of cement from its cement plant in Morocco.
This was approximately 14% lower than the previous year due to
difficulty in sourcing local clinker earlier in the year together
with lower demand in the local market later in the year. Unaudited
EBITDA for 2022 was still estimated at a healthy EUR8 million
albeit around 14% lower than 2021. After successful establishment
of its first cement plant Cemos is planning an expansion and has
acquired a second grinding plant identical to the existing
operation which will allow it to double its production. It is also
undertaking a feasibility study into the production of its own
clinker, the main raw material in cement production, which will not
only provide security of supply but has the potential to further
increase margins. Cemos is also testing potential for manufacture
of 'green cement' products by replacing some clinker in the
production process with more environmentally friendly supplementary
cementitious materials such as pozzolan which would not only reduce
the CO 2 footprint of the operation but may also have a positive
impact on costs.
Bilboes Gold Limited ("Bilboes")
The Bilboes' gold project in Zimbabwe has a JORC compliant
Proved and Probable Reserve containing 1.8 million ounces of gold
out of a total Mineral Resource of 3.8 million ounces of gold.
Following its acquisition in January 2023, Bilboes is a subsidiary
of Caledonia Mining Corporation Plc.
Investment: 535,943 ordinary shares (24.2%) valued at GBP13.7 million
In July 2022, the Company announced the sale of Bilboes Gold to
Caledonia Mining Corporation Plc which is a NYSE, AIM and Victoria
Falls Exchange listed gold producer whose primary asset is the
Blanket Mine in Zimbabwe currently producing at the rate of 80,000
ounces of gold per annum. The transaction closed on 6 January 2023
so the investment is still shown as Bilboes Gold at the year-end
though the Company now holds a 1% Net Smelter Royalty over the
Bilboes properties together with shares in Caledonia. Caledonia has
indicated that it will re-engineer the Bilboes feasibility study
which outlined production of an average of 168,000 ounces per annum
over 10 years, to a phased development approach which would lower
up-front capital. It has already moved forward with recommencing
gold production at Bilboes from near surface oxide ores which
should not only generate additional cash but will have the benefit
of pre-stripping for the underlying sulphide project, thus
accelerating its development. The recent acquisition by Caledonia
of the Motapa exploration ground, contiguous to Bilboes's
properties, is an important strategic addition to the project. It
had been tracked by the Bilboes management team for some time as
initial exploration on Motapa was undertaken by Anglo American when
it owned Bilboes and additional resources at Motapa could both
expand and extend the life of the Bilboes project.
Kanga Investments Ltd ("Kanga")
Kanga is a private company which holds the Kanga potash project,
in the Republic of the Congo .
Investment: 56,042 ordinary shares (6.6%) valued at GBP4.8 million
Kanga Investments Ltd ("Kanga") completed a positive Definitive
Feasibility Study ("DFS") in 2020 on its Kanga Potash project in
the Republic of Congo for a mine producing 600,000 tonnes per annum
of Muriate of Phosphate ("MOP"). The DFS economic model gave a Net
Present Value at a 10% discount rate (NPV10) of US$511 million with
an IRR of 22% based on an MOP price of US$282 per tonne compared to
the current price of around US$500 per tonne. In addition, there is
potential for the mine to be expanded on a modular basis up to 2.4m
tonnes per annum over 30 years as set out in the DFS. Kanga
continues to have advanced discussions regarding the financing or
sale of the project. In the second half of 2022 the government
published a decree awarding the Kanga Exploitation/Mining Licence
to Kanga, a key condition of the potential acquirors.
Silver X Mining Corporation ("Silver X")
Silver X is a TSX-V listed company whose Recuperada project in
Peru comprises 11,261 Ha of mining concessions centred around a 600
tonne per day processing plant.
Investment: 19,502,695 ordinary shares (12.5%) valued at GBP4.5 million
During 2022, the Company's convertible loan to Mines and Metals
Trading Peru PLC was converted into equity of Silver X Mining
Corporation, listed on the TSX-V exchange, and as a result became
its largest shareholder. In the second half of the year Silver X
successfully ramped up production to 673,458 ounces of silver
equivalent at its Nueva Recuperada Silver mine in Peru, with the
operation turning cashflow positive. In February 2023 Silver X
released the results of a Preliminary Economic Assessment ("PEA")
under Canadian National Instrument 43-101 Standards for the
expansion of the Tangana Mining Unit at Nueva Recuperada. The PEA
outlined the potential to treble annual production to 4.2 million
ounces silver equivalent by constructing an additional recovery
plant at a capital cost of US$61 million to give a post-tax NPV10
of US$175 million.
.
Tungsten West Plc ("Tungsten West")
Tungsten West owns the Hemerdon Mine in Devon, United Kingdom
and is quoted on the AIM market of the London Stock Exchange.
Investment: 28,846,515 ordinary shares (16.1%) valued at GBP4.3 million
1,657,195 second options valued at GBP0.1 million
1,657,195 third options valued at GBP0.1 million
On 16 January 2023 Tungsten West announced the results of its
updated feasibility study on the Hemerdon tungsten and tin mine in
Devon. The feasibility study detailed a mine with average annual
production of 2,900 tonnes of tungsten (WO(3) ) and 310 tonnes of
tin in concentrate over 27 years. The economics showed a post-tax
NPV5 of GBP297 million with an Internal Rate of Return (IRR) of
25%. It also highlighted an Upside Case post-tax NPV5 of GBP416
million with an IRR of 32%. Total pre-production capex, corporate
commitments and working capital was estimated at GBP54.9 million.
Key to the improved economics, following a reworking of the
development plan due to higher energy costs, has been a complete
redesign of the front-end crushing circuit which has considerably
reduced capex. Optimisation of ore-sorting parameters has
significantly reduced opex by allowing the re-purposing of the
dense media separation circuits and the removal of the refinery
kiln from the circuit reducing diesel consumption by 1.3 million
litres per annum. Tungsten West is in the process of raising up to
GBP8.95 million in convertible debt and equity whilst it finalises
the finance for the redevelopment of Hemerdon.
First Tin PLC ("First Tin")
First Tin is a company listed on the London Stock Exchange which
owns the Tellerhäuser and Gottesburg tin projects in Germany and
the Taronga tin project in Australia. Combined contained tin for
the three projects totals 143,000 tonnes.
Investment: 37,128,014 ordinary shares (14.0%) valued at GBP4.1 million
In April 2022 First Tin PLC completed a successful IPO, raising
the GBP20 million required to undertake feasibility studies on both
its two key tin projects, Tellerhäuser in Germany and Taronga in
Australia. Progress at Taronga is particularly promising with
drilling outlining a 350 metre extension to the current resource
area. This will be followed up by First Tin and has the potential
to increase the previously suggested production rate at Taronga
once incorporated in the Feasibility Study on the project. The
price of tin has been extremely volatile over the past 12 months
though consensus analysis suggests strong future demand given that
tin will be an important component of the global trend towards
electrification. At the time of listing the economic models in the
pre-feasibility studies, using a US$30,000 per tonne price
assumption for tin on the two projects, together totalled a pre-tax
NPV8 of US$433 million. The price of tin during 2022 was volatile,
ranging between US$18,000/tonne and US$46,000/tonne. The
Feasibility Study on Taronga due to be completed before the end of
2023 and that on Tellerhäuser in 2024 will provide a more accurate
and up to date reflection of value.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the
Nussir copper project in Northern Norway.
Investment: 12,785,361 ordinary shares (12.1%) valued at GBP3.5 million
In early 2022 Nussir reconfigured its 2021 DFS on its Nussir
copper project in northern Norway to a fully electrified mine
producing around 14,000 tonnes of copper per year over a 14-year
mine life. This has since been reoptimized and updated and is
expected to be completed in the second quarter of 2023. Following
this Nussir will seek to attract an industry partner to assist with
financing the development of the mine.
Metals Exploration plc ("Metals Exploration")
Metals Exploration is an AIM listed company which owns the
Runruno gold mine in the Philippines.
Investment: 112,510,000 ordinary shares (5.4%) valued at GBP1.4 million
Metals Exploration plc produced 72,537 ounces of gold in 2022
from its Runruno gold mine in the Philippines and paid off its
senior debt which allowed for conversion of its remaining high
interest mezzanine debt into new lower interest senior debt.
Polar Acquisition Limited ("PAL")
PAL is a private company which holds a 1.8% to 0.9% (reducing
over 10 years) net smelter royalty over the Prognoz silver project
("Prognoz"), 444km north of Yakutsk in Russia, owned by Polymetal.
Prognoz has a 267-million-ounce silver equivalent Indicated and
Inferred Mineral Resource at a grade of 755 g/t silver
equivalent.
Investment: 16,352 ordinary shares (49.99%) valued at GBP1.1 million
Polymetal International PLC, the owner of the Prognoz silver
project net smelter royalty, advised in January 2023 that the mine
development was progressing on schedule with mining due to commence
in late 2023 with ore to be shipped to Polymetal's Nezhda mine
concentrator on the winter road during the first half of 2024. As a
result of the invasion of Ukraine by Russia in February 2022 the
carrying value of PAL has been reduced by 86.2%. Although none of
the parties are presently sanctioned and legal advice is that PAL
is currently able to receive the royalty, the Company is cognisant
of the issues surrounding political sanctions affecting Russian
investments and appreciates that the situation is continually
changing. Despite the underlying Russian operating company
acknowledging that it has a contractual obligation to pay the
royalty, the sanctions regime may also change and there is a risk
that financial institutions may not be willing to process bank
transfers with contractual parties. It is therefore possible that
the royalty stream might be delayed, frozen, or never received.
Outlook
The invasion of Ukraine by Russia during 2022 led to higher
energy prices, inflation and the advent of rising interest rates,
which have impacted the mining industry during 2022. The consequent
disruption in availability of financing particularly impacted
junior companies with development projects. Inflationary increases
in key energy price costs have also meant companies have had to
refresh their feasibility studies as they have quickly become
outdated. Higher interest rates have increased the discount rates
that investors apply when evaluating new mining projects thereby
reducing valuations. Although we expect inflation and interest
rates are likely to peak in 2023, economic and geopolitical
uncertainties may well persist and continue to weigh on investor
confidence during the year and possibly beyond. More
optimistically, the hiatus in new mine developments is likely to
lead to sustained higher commodity prices as the world will require
the metals to meet the considerable demands of the global energy
transition and potential rebuilding of Ukraine. This will be
against the possible backdrop of some government stockpiling of
strategic metals in a deglobalising world where security of supply
chains has become of national interest.
Baker Steel Capital Managers LLP
Investment Manager
April 2023
PORTFOLIO STATEMENT
AS AT 31 DECEMBER 2022
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Listed equity shares
Australian Dollars
4,091,910 Akora Resources Limited 380,826 0.45
4,170,600 Resolute Mining Limited 470,484 0.56
409,000 St Barbara Limited 178,789 0.21
Australian Dollars Total 1,030,099 1.22
--------------- ---------
Canadian Dollars
65,193,952 Azarga Metals Corporation 749,655 0.89
19,502,695 Silver X Mining Corporation 4,544,972 5.38
Canadian Dollars Total 5,294,627 6.27
--------------- ---------
Great Britain Pounds
37,128,014 First Tin Plc 4,054,778 4.80
112,510,000 Metals Exploration plc 1,434,503 1.70
17,000 Polymetal International Plc 41,735 0.05
28,846,515 Tungsten West Plc 4,326,977 5.12
Great Britain Pounds Total 9,857,993 11.67
--------------- ---------
Total investment in listed equity
shares 16,182,719 19.16
--------------- ---------
Debt instruments
Australian Dollars
Futura Resources Limited - Bridging
300,000 Loan 137,764 0.16
Australian Dollars Total 137,764 0.16
--------------- ---------
Canadian Dollars
PRISM Diversified Limited Loan Note
305,000 1 92,457 0.11
PRISM Diversified Limited Loan Note
250,500 2 294,592 0.35
Canadian Dollars Total 387,049 0.46
--------------- ---------
Euro
1,045 Cemos Group Plc 10,088,046 11.94
Euros Total 10,088,046 11.94
--------------- ---------
United States Dollars
26,301 Bilboes Gold Limited 25,090 0.03
7,028,352 Black Pearl Limited Partnership 726,171 0.86
United States Dollars Total 751,261 0.89
--------------- ---------
Total investments in debt instruments 11,364,120 13.45
--------------- ---------
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Unlisted equity shares, warrants
and royalties
Australian Dollars
10,100,000 Futura Gross Revenue Royalty 13,700,733 16.22
11,309,005 Futura Resources Limited 9,568,238 11.33
Australian Dollars Total 23,268,971 27.55
--------------- ---------
Canadian Dollars
6,666,666 Azarga Metals Warrants 09/05/2025 12,692 0.02
13,083,936 PRISM Diversified Limited 802,401 0.95
40,000 PRISM Diversified Limited - Royalty 24,531 0.03
PRISM Diversified Limited Warrants
1,000,000 31/12/2023 23,261 0.03
324,000 Unkur Option Warrants 12/31/2023 198,700 0.24
Canadian Dollars Total 1,061,585 1.27
--------------- ---------
Great Britain Pounds
1,594,646 Celadon Mining Limited 15,945 0.02
24,004,167 Cemos Group Plc 9,201,855 10.89
Tungsten West Plc Second Option Share
1,657,195 Warrants 18/10/2026 129,261 0.15
Tungsten West Plc Third Option Share
1,657,195 Warrants 18/10/2026 77,557 0.09
Great Britain Pounds Total 9,424,618 11.15
--------------- ---------
Norwegian Krone
12,785,361 Nussir ASA 3,499,979 4.14
Norwegian Krone Total 3,499,979 4.14
--------------- ---------
United States Dollars
535,943 Bilboes Gold Limited 13,650,910 16.16
56,042 Kanga Investments Limited 4,775,628 5.65
16,352 Polar Acquisition Limited 1,083,425 1.28
United States Dollars Total 19,509,963 23.09
--------------- ---------
Total Unlisted equity shares, warrants
and royalties 56,765,116 67.20
--------------- ---------
Financial assets held at fair value
through profit or loss 84,311,955 99.81
--------------- ---------
Other Assets & Liabilities 170,893 0.19
--------------- ---------
Total Equity 84,482,848 100.00
--------------- ---------
STRATEGIC REPORT
Company Structure
The Company is a registered closed-ended investment scheme
registered pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law, 2020 ("POI Law") and the Registered Collective
Investment Scheme Rules and Guidance, 2021 issued by the Guernsey
Financial Services Commission ("GFSC"). The Company is not
authorised or regulated as a collective investment scheme by the
Financial Conduct Authority. The Company is subject to the Listing
Rules and the Disclosure and Transparency Rules of the UK Listing
Authority.
The Articles of the Company contain provisions as to the life of
the Company. At the Annual General Meeting ("AGM") falling in 2018
and at each third AGM convened by the Board thereafter, the Board
will propose a special resolution to discontinue (the Company)
which if passed will require the Directors, within 6 months of the
passing of the special resolution, to submit proposals to
shareholders that will provide shareholders with an opportunity to
realise the value of their Ordinary Shares. Shareholders voted
against discontinuing the Company at the 2021 AGM and the next
discontinuation vote will be held at the AGM in 2024 which is
expected to be held in the third quarter of that year.
Company Purpose and Values
The purpose of the Company is to carry out business as an
investment company and to provide returns to shareholders through
achieving its investment objective as described on page 13.
The values of the Company are discussed and agreed upon by the
Board. The Board seeks to run the Company with a culture of
openness, high integrity and accountability. It aims to demonstrate
these values through its behaviour both within itself and its
dealings with its stakeholders. It seeks to act in the spirit of
mutual respect, trust and fairness. The Board is robust in its
challenge of the Investment Manager and other service providers but
tries always to be constructive and collegiate. The Board expects
its members to exhibit an independence of mind and not to be wary
of asking difficult questions. Moreover, it expects and encourages
its key service providers to exhibit similar values.
Role and Composition of the Board
The Board is the Company's governing body; it sets the Company's
strategy and is collectively responsible for its long-term
performance. The Board, which is comprised entirely of independent
Non-Executive Directors, is responsible for appointing and
subsequently monitoring the activities of the Manager and other
service providers to ensure that the investment objectives of the
Company continue to be met. The Board also ensures that the Manager
adheres to the investment restrictions described in the Company's
Prospectus and acts within the parameters set by it in any other
respect. It also identifies and monitors the key risks facing the
Company.
Investment activities are predominantly monitored through
quarterly Board meetings at which the Board receives detailed
reports and updates from the Investment Manager, who attends each
Board meeting. Services from other key service providers are
reviewed as appropriate.
Subject to meeting solvency requirements, if the Ordinary Shares
trade at a discount in excess of 15 per cent to their NAV, the
Board will consider whether the Company should buy back its own
Ordinary Shares, taking into account the Company's liquidity,
conditions in the stock market and mining markets. At the year-end
the Company's Ordinary shares traded at a discount to NAV of 44%,
however the Directors consider that the Company does not currently
have sufficient surplus funds to buy back shares, irrespective of
other considerations such as long term market liquidity and the
effect on its Ongoing Charges Ratio.
The Board continues to review the Company's expenditure to
ensure that the total costs incurred in the running of the Company
remain competitive. An analysis of the Company's costs, including
management fees (which are based on the market capitalisation of
the Company), Directors' fees and general expenses, is submitted to
each Board meeting.
As at 31 December 2022, the Board comprised four Directors
(2021: four), excluding David Staples who retired from the Board on
31 December 2022.
Investment Management
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the Management Agreement).
Under the Management Agreement, the Manager acts as manager of the
Company, subject to the overall control and supervision of the
Directors and was authorised to appoint the Investment Manager to
manage and invest the assets of the Company. The Manager is
responsible for the payment of the fees of the Investment Manager.
The Manager is a company incorporated in the Cayman Islands on 10
April 2002 with registration number 117030 and is an affiliate of
the Investment Manager.
Baker Steel Capital Managers LLP acts as Investment Manager of
the Company and was constituted in England and Wales on 19 December
2001. It is authorised and regulated by the Financial Conduct
Authority in the United Kingdom. The Investment Manager is a
limited liability partnership with registration number OC301191 and
is an affiliate of the Manager. The Investment Manager has been
appointed by the Company to act as its Alternative Investment Fund
Manager ("AIFM") and is responsible for the portfolio management
and investment risk management of the Company. The Investment
Manager manages the Company in accordance with the Alternative
Investment Fund Managers Directives ("AIFMD"). The Investment
Manager is a specialist natural resources asset management and
advisory firm operating from its head office in London and its
branch office in Sydney.
Investment Management (continued)
It has an experienced team of fund managers covering the
precious metals, base metals and minerals sectors worldwide, both
in relation to commodity equities and the commodities
themselves.
The Directors formally review the performance of the Investment
Manager on an annual basis and remain satisfied that the Investment
Manager has the appropriate resources and expertise to manage the
portfolio of the Company in the best interests of the Company and
its shareholders.
Investment Objective
The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting
principally of the equities, loans or related instruments of
natural resources companies. The Company invests predominantly in
unlisted companies (i.e. those companies that have not yet made an
initial public offering ("IPO") but also in listed securities
(including special situations opportunities and less liquid
securities) with a view to making attractive investment returns
through the uplift in value resulting from the development
progression of the investee companies' projects and through
exploiting value inherent in market inefficiencies and pricing
anomalies.
Investment Policy
The core of the Company's strategy is to invest in natural
resources companies, predominantly unlisted, that the Investment
Manager considers to be undervalued and that have strong
fundamentals and attractive growth prospects. Natural resources
companies, for the purposes of the investment policy, are those
involved in the exploration for and production of base metals,
precious metals, bulk commodities, thermal and metallurgical coals,
industrial minerals and energy, and include single-asset as well as
diversified natural resources companies.
It is intended that unlisted investments be realised through an
IPO, trade sale, management repurchase or other methods.
The Company focuses primarily on making investments in companies
with producing and/or tangible assets such as resources and
reserves that have been verified under internationally recognised
standards for reporting, such as those of the Australasian Joint
Ore Reserves Committee ("JORC"). The Company may also invest from
time to time in exploration companies whose activities are
speculative by nature.
The Company has flexibility to invest in a wide range of
investments in addition to unlisted and listed equities and
equity-related securities, including but not limited to
commodities, convertible bonds, debt securities, royalties,
options, warrants and futures. Derivatives may be used for
efficient portfolio management, hedging and for the purposes of
obtaining investment exposure. The Company may also have exposure
from time to time to other companies within the wider resources and
materials sector, including services companies, transport and
infrastructure companies, utilities and downstream processing
companies.
The Company may take legal or management control of a company
from time to time. The Company may invest in other investment funds
or vehicles, including any managed by the Manager or Investment
Manager, where such investment would be complementary to the
Company's investment objective and policy.
Borrowing and Leverage
The Company may, at the discretion of the Investment Manager and
within limits set by the Board, incur leverage for liquidity
purposes by borrowing funds from banks, broker-dealers or other
financial institutions or entities. The costs and impact of
leverage, positive and negative, will affect the operating results
of the Company.
During the current and prior year, no leverage was used by the
Company.
Investment Restrictions
There are no fixed limits on the allocation between unlisted and
listed equities or equity-related securities and cash although, as
a guideline, typically the Investment Manager will aim for the
Company to be invested over the long-term as follows:
-- between 40 and 100 per cent of the value of its gross assets
in unlisted equities or equity-related securities;
-- up to 50 per cent of the value of its gross assets in listed
equities or equity-related securities;
-- up to 10 per cent of the value of its gross assets in cash or cash-like holdings; and
-- in 10 to 20 core positions to provide adequate
diversification whilst retaining a focused core approach. Core
positions will be between 5 per cent and 15 per cent of NAV as at
the date of acquisition.
The actual percentage of the Company's gross assets invested in
listed and unlisted equities and equity-related securities and cash
and cash-like holdings and the number of positions held may fall
outside these ranges from time to time. The portfolio may become
focussed on fewer holdings as certain investments mature and
increase in value. Once such investments are realised it is
intended that the consideration will be reinvested in several new
investments thereby diversifying the portfolio.
Investment Restrictions (continued)
Listed securities might exceed the above guideline following a
significant number of IPOs or in certain market conditions and
likewise cash balances may exceed the above guideline following the
realisation of one or more investments or following the issue of
new equity in the Company, pending investment or distribution of
the proceeds.
The investment policy has the following limits:
-- Save in respect of cash and cash-like holdings awaiting
investment, and except as set out below, the Company will invest or
lend no more than 20 per cent in aggregate of the value of its
gross assets in or to any one particular company or group of
companies, as at the date of the relevant transaction.
-- The Company's investment in Futura Resources Limited
("Futura") may exceed the limit set out above provided that the
Company will not invest or lend more than 35 per cent in aggregate
of the value of its gross assets in Futura as at the date of the
relevant transaction.
-- No more than 10 per cent in aggregate of the value of the
gross assets of the Company may be invested in other listed
closed-ended investment funds, except for those which themselves
have stated investment strategies to invest no more than 15 per
cent of their gross assets in other listed closed-ended investment
funds.
Where derivatives are used for investment exposure, these limits
will be applied in respect of the investment exposures so
obtained.
The Company will avoid (a) cross-financing between the
businesses forming part of its investment portfolio and (b) the
operation of common treasury functions between it and the investee
companies. When deemed appropriate, the Company may borrow up to 10
per cent of NAV for temporary purposes such as settlement of
mis-matches. Borrowings will not however be incurred for the
purposes of any Share repurchases. Any material change in the
investment objective, investment policy or borrowing policy will
only be made with the prior approval of holders of Ordinary Shares
by Ordinary Resolution. In the event of any breach of the
investment restrictions the Investment Manager would report the
breach to the Board and shareholders would be informed of any
corrective action required.
No breaches of investment restrictions occurred during the year
ended 31 December 2022.
Hedging
The Investment Manager will not normally hedge the exposure of
the Company to currency fluctuations.
Performance
The Company monitors NAV against the EMIX Global Mining Index as
a key performance indicator. An outline of performance, market
background, investment activity and portfolio strategy during the
year under review, as well as outlook, is provided in the
Chairman's Statement on page 3 to 4 and the Investment Manager's
Report on pages 5 to 9.
Principal risk and uncertainties
The Board is responsible for the Company's system of risk
management and internal control and for reviewing its
effectiveness.
The Board has adopted a detailed matrix of principal risks
affecting the Company's business as an investment company and has
established associated policies and processes designed to manage
and, where possible, mitigate those risks, which are monitored by
the Audit Committee on an ongoing basis. This system assists the
board in determining the nature and extent of the risks it is
willing to take in achieving the Company's strategic
objectives.
Although the Board believes that it has a robust framework of
internal controls in place this can provide only reasonable, and
not absolute, assurance against material financial misstatement or
loss and is designed to manage, not eliminate, risk. Actions taken
by the Board and, where appropriate, its committees, to manage and
mitigate the Company's principal risks and uncertainties are
discussed in more detail below.
Emerging Risks and Uncertainties
During the year, the Board also discussed and monitored a number
of risks that could potentially impact the Company's ability
to meet its strategic objectives. The principal emerging risk
continues to be climate change. Climate change risk includes how
climate change could affect the Company's investments, and
potentially shareholder returns. The Board has implemented an ESG
policy which has been developed from the Manager's own ESG policy.
The Company's ESG policy is available on its website.
The Board will continue to monitor the growing risks identified
by ESG and the resulting pressures on its investments.
The invasion of Ukraine and resulting sanctions on Russia, has
increased the risk of investing in companies with interests in
Russia. It has also increased the uncertainty around previous
projections made by those companies, in the face of growing
financial and operational constraints. As a result, the Company
reduced its carrying values of PAL to reflect the risk that
Polymetal may not be able to pay the royalty when due and the
question of whether PAL is able to receive payments owing due to
potential sanctions. There is also a growing risk that rising
energy prices and disrupted supply chains could further fuel
inflationary pressures. This, plus more aggressive monetary
tightening that might be undertaken by central banks to curb
inflation, raises the risk of a global recession.
There is a growing risk that measures imposed by Governments in
response to cost of living challenges will impact on the Company's
investments, specifically price caps imposed by Governments may
have implications on sales prices that the investee companies can
achieve.
Market and financial risks
Market risk arises from volatility in the prices of the
Company's underlying investments which, in view of the Company's
investment policy, are in turn particularly sensitive to commodity
prices. Market risk represents the potential loss the Company might
suffer through holding investments in the face of negative market
movements. The Board has set investment restrictions and guidelines
to help mitigate this risk. These are monitored and reported on by
the Investment Manager on a regular basis. Further details are
disclosed in note 4 on pages 54 to 59.
The Company's investment activities also expose it to a variety
of financial risks including in particular foreign currency risk.
An analysis of sensitivity to foreign exchange is presented on
pages 54-55.
Portfolio management and Performance risks
The Board is responsible for determining the investment strategy
to allow the Company to fulfil its objectives and also for
monitoring the performance of the Investment Manager to which has
been delegated day to day discretionary management of the Company's
portfolio. An inappropriate strategy may lead to poor performance.
The investment policy of the Company allows for a highly focused
portfolio which can lead to a concentration of risk. To manage this
risk, the Investment Manager provides to the Board, on an ongoing
basis, an explanation of the significant stock selection
recommendations and the rationale for the composition of the
investment portfolio. The Board mandates and monitors an adequate
diversification of investments, both geographically and by
commodity, in order to reduce the risks associated with particular
sectors, based on the diversification requirements inherent in the
Company's investment policy. The nature of the investment strategy
means that portfolio diversification cannot be rebalanced on a
short term
basis.
The Company invests in certain companies whose projects are
located in emerging markets. In such countries governments can
exercise substantial influence over the private sector and
political risk can be a significant factor. In adverse social and
political circumstances, governments have been involved in policies
of expropriation, confiscatory taxation, nationalisation,
intervention in the securities markets and imposition of foreign
exchange controls and investment restrictions. The Investment
Manager and the Board take into account specific political and
other such risks through its approach to pricing when entering into
an investment, and seek to mitigate them by diversifying
geographically.
The Company's ability to implement its investment policy depends
on the Investment Manager's ability to identify, analyse and invest
in investments that meet the Company's investment criteria. Failure
by the Investment Manager to find additional investment
opportunities meeting the Company's investment objectives and to
manage investments effectively could have a material adverse effect
on the Company's business, financial condition, and results of
operations. The Company has no employees and, subject to oversight
by the Board, is reliant on the Investment Manager, which has
significant discretion as to the implementation of the Company's
operating policies and strategies. The Company is subject to the
risk that the Investment Manager or its key investment
professionals will cease to be involved in the management of any
part of the Company's assets and that no suitable replacement will
be found. The Board regularly monitors the performance and
capabilities of the Investment Manager and its key man risk
plans.
There is the risk that the market capitalisation of the Company
(on which the Investment Manager's fee is calculated) falls to such
an extent that it will no longer be viable for the Investment
Manager to provide the services that it currently provides. The
Board monitors this possibility and, should it start to become an
issue, would review it with the Investment Manager.
Risk of a vote to wind-up the Company
The Articles contain provisions for a special resolution of
shareholders at the AGM in 2018 and every three years thereafter on
whether to discontinue the Company. Should there be a catastrophic
loss of value in the Company's assets, possibly as a result of the
risks above, or merely a change in sentiment towards the mining
sector generally by a sufficient proportion of investors, there is
the risk of shareholders voting to wind-up the Company at that
time. Because the Company's investments are largely unlisted it
could then take a protracted amount of time to realise them or they
may need to be sold at a discount to Fair Value if an accelerated
timetable is required.
To be passed the discontinuation vote would require a majority
of 75% of those shareholders voting. To understand the requirements
of the Company's major shareholders, the Investment Manager
regularly liaises with the Company's broker and meets major
shareholders. The Chairman is also available to meet with
shareholders as required.
In the event of a winding up of the Company, Shareholders will
rank behind any creditors of the Company.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code, published by the Financial Reporting Council ("FRC") in July
2018 (the "UK Code"), the Directors, as advised by the Audit
Committee, have assessed the prospects of the Company over 3 years.
The Board considers that this is an appropriate timeframe to assess
the viability of the Company as, in relation to the types of
investments the Company makes, three years generally provides
sufficient time for major milestones to be reached on mining
projects together with some realisations and new investments to be
made by the Company. Beyond three years, the Board considers the
mining and minerals markets to be too difficult to predict to be
sufficiently helpful.
The Company has previously seen pressures from falls in
commodity prices and a move by its share price to an increased
discount to its NAV. The mining market is inherently cyclical and
dependent on world economic output. Notwithstanding this, it is a
feature of closed-ended investment companies such as BSRT that the
greatest risk to viability is that the investments lose value to an
extent where the expense ratio becomes excessive such that the
Company becomes an unattractive investment proposition. In such
conditions, it may also be a risk that liquidity (i.e. the ability
to sell or realise cash from the portfolio, or raise borrowings
should that be necessary) is insufficiently available to meet
liabilities.
In the case of the Company, which has no gearing, the Investment
Manager has conducted stress and sensitivity tests of future income
and expenditure and the ability to realise assets, and it and the
Board have concluded that, even in circumstances representing a
deterioration in value of 50% of net assets and a complete
inability to sell any of the unlisted assets in the portfolio, the
Company should remain viable over a three-year period. The key
factor in this assessment is that currently the Company's greatest
expense is the management fee which is calculated on the market
capitalisation of the Company. Should net assets fall, market
capitalisation would be expected to fall in line or at a higher
rate, such that the costs of the Company would also fall. It is
also assumed that the liquidity required over the three-year period
and under the highly stressed conditions modelled, is largely
provided by regular realisations of the Company's listed equities.
The Directors believe this to be reasonable given that the majority
of these equities are traded at sufficient volumes in the context
of the positions the Company's holdings represent.
As a result, the Board has a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the period of their
assessment.
Environmental, Social and Governance
The Company believes that monitoring environmental, social and
governance ("ESG") factors is important not only to support
sustainable and ethical investment but because ESG considerations
are key for creating and maintaining shareholder value. The Company
has developed an ESG Investment Policy which draws from
international best practice and builds upon the principles and
processes outlined in the United Nations Principles for Responsible
Investment, of which the Investment Manager is a signatory. A copy
of the Company's ESG policy is available on the Company's
website.
ESG considerations are considered as an enhanced risk management
tool and, as such, are incorporated into the Investment Manager's
investment decision process at multiple levels during stock
screening and company analysis, as well as being directly addressed
with company management during meetings and on-site visits. The
Company is an active investor and will use its voting rights to
influence company direction in a sustainable way where deemed
appropriate. The Company considers that social and environmental
responsibility, along with good governance, are an integral element
of running a successful mining company. For example, the Nussir
copper project in Norway aims to become the first zero carbon mine
globally through being fully electric with the electricity
generated from entirely renewable sources . The Company has used
its representation on the Board of Nussir to actively promote this
evolution to electrification.
Non-Mainstream Pooled Investment
The Directors intend to operate the Company in such a manner
that its shares are not categorised as non-mainstream pooled
investments.
Stakeholder Engagement
During the year-ending 31 December 2022, the Board sought to
voluntarily comply with the requirements of Section 172 of the
Companies Act 2006 to promote the success of the Company for the
benefit of its members as a whole, having regard to the interests
of all stakeholders.
Identification of key stakeholders
As an externally managed investment company, the Company has no
employees, operations or premises. The Board has identified its key
stakeholders as the Company's shareholders, the Investment Manager,
other service providers and the Investee Companies,
Engagement with stakeholders
The table below explains how the Board have engaged with all
stakeholders.
Stakeholder Engagement
Shareholders The Board seeks an open and constructive engagement
with shareholders who have the opportunity to vote at
and to attend the Company's AGM.
The annual and half year results are available on the
Company's website with the results and monthly updates
also announced via a regulatory news service.
The Board receives regular updates on the shareholder
register and any trading activity and feedback received
from investor meetings and briefings conducted by the
Investment Manager, the Broker and research analysts.
-----------------------------------------------------------------
Investment Manager Open and collaborative dialogue is maintained between
the Board and the Investment Manager.
The Investment Manager is invited to all Board and Audit
Committee meetings and provides regular reports on the
performance of the investments and any potential issues
the Board needs to be aware of.
-----------------------------------------------------------------
Other Service The Board receive reports from all service providers
Providers at each meeting
The Administrator attends all Board and Committee meetings
During 2022 the Administrator provided the Board a presentation
on the Cyber controls in place.
The Board conducted a market review of the Depositary
during 2022.
-----------------------------------------------------------------
Investee Companies The Board receives detailed updates on operating performance
of material investee companies provided at each meeting.
Additionally, the Board receives details of projects
being undertaken by the investee companies, including
where these may require the Company to consider providing
financial support. Though its investments and board
positions on investee companies, the Company seeks to
promote good ESG practise, with particular attention
to Health and Safety of employees at investee companies.
-----------------------------------------------------------------
Key Decisions
Key decisions are those that are material or of strategic
importance to any of the Company's key stakeholders as described
above. An example of a key decisions made during the year was the
sale of Bilboes as described in more detail in the Chairman's
Report,
Future Developments
The future performance of the Company depends upon the success
of the Company's investment strategy and, as to its share price and
market rating, partly on investors' view of mining related
investments as an asset class. Further comments on the outlook for
the Company can be found in the Chairman's Statement on pages 3 and
4 and the Investment Manager's Report on pages 5 to 9.
Signed on behalf of the Board of Directors by:
John Falla
21 April 2023
BOARD OF DIRECTORS
The Board of Directors is listed below. In 2018 the Board put in
place a succession plan to refresh its membership while maintaining
a degree of continuity. No limit on the overall length of service
of any of the Company's Directors, including the Chairman, has been
imposed, as the Board believes that any decisions regarding tenure
should consider the balance between the need for continuity of
knowledge and experience, and the need periodically to refresh the
Board's composition in terms of skills, diversity and length of
service.
Howard Myles: Howard Myles currently acts as a non-executive
director of a number of investment companies. Howard was a partner
in Ernst & Young from 2001 until 2007 and was responsible for
the Investment Funds Corporate Advisory team. He was previously
with UBS Warburg from 1987 to 2001. Howard began his career in
stockbroking in 1971 as an equity salesman and joined Touche Ross
in 1975 where he qualified as a chartered accountant. In 1978 he
joined W. Greenwell & Co. in the corporate broking team and in
1987 moved to SG Warburg Securities where he was involved in a wide
range of commercial and industrial transactions in addition to
leading UBS Warburg's corporate finance function for investment
funds. He is a Fellow of the Institute of Chartered Accountants and
of The Chartered Institute for Securities and Investments. Howard
is a director of abrdn Latin American Income Fund Limited, and
Chelverton UK Dividend Trust plc both of which are listed on the
London Stock Exchange.
Howard is a member of the Company's Audit Committee.
Notwithstanding that Howard's tenure extends beyond eleven years,
the Board is satisfied that he continues to demonstrate
independence of the Investment Manager.
Charles Hansard: Charles Hansard has over 40 years' experience
in the investment industry as a professional and in a non-executive
capacity. He currently serves as a non-executive director on a
number of boards which include JJJ Moore part of the Moore Capital
group of funds of which he was a director for 25 years. He is a
director of NYSE listed Los Gatos Silver Inc and Electrum Ltd., a
privately owned US gold exploration company. He formerly served as
a director of Apex Silver Mines Ltd., where he chaired the finance
committee during its capital raising phase and as chairman of the
board of African Platinum Plc, which he led through reorganisation
and feasibility prior to its sale to Impala Platinum. He commenced
his career in South Africa with Anglo American Corporation and
Fleming Martin as a mining analyst. He subsequently worked in New
York as an investment banker for Hambros before returning to the UK
to co-found IFM Ltd., one of the earliest European hedge fund
managers. Charles holds a B.B.S. from Trinity College Dublin.
Notwithstanding that Charles's tenure extends beyond eleven
years, the Board is satisfied that he continues to demonstrate
independence of the Investment Manager.
Fiona Perrott-Humphrey: Fiona Perrott-Humphrey has over 30
years' experience in the mining finance industry in London. She
moved to the UK in 1987 after a period in academia in South Africa,
and over the next 15 years, was a rated mining analyst for a number
of stockbroking firms including James Capel, Cazenove and Citigroup
(the latter as head of European Mining Research). After leaving
full time broking, Fiona has had a portfolio of roles drawing on
her experience of covering the global mining sector. She is a
founder of a mining strategic consulting business, and director of
AIM Mining Research and in 2007 published a book entitled
Understanding Junior Miners. In 2004, she was appointed Adviser to
the Mining team at Rothschild and Co. Fiona was a non-executive
director of Dominion Diamonds, located in northern Canada, for two
years from 2014. She is invited to present regularly at global
mining conferences.
Fiona is a member of the Company's audit committee.
David Staples: David Staples worked for PWC in London for 25
years, including 13 years as Partner. He has many years' experience
serving on boards of listed and private companies as a
non-executive director, including as chairman of listed investment
companies. David has a BSc in Economics and Accounting, is a Fellow
Chartered Accountant, a Chartered Tax Adviser and a holder of the
Institute of Directors' Certificate in Company Direction. He is a
Director of NB Global Monthly Income Fund, which is listed on the
London Stock Exchange. He is also chairman of the general partner
companies of private equity funds advised by Apax Partners.
David was the Chairman of the Audit Committee until his
retirement from the Board on 31 December 2022
John Falla : John qualified as a chartered accountant with Ernst
and Young in London, before transferring to its Corporate Finance
Department, specialising in the valuation of unquoted shares and
securities. On his return to Guernsey in 1996 he worked for an
international bank before joining The International Stock Exchange
(formerly the Channel Islands Stock Exchange) on its launch in 1998
as a member of the Market Authority . In 2000 Mr Falla joined the
Edmond de Rothschild Group, where he provided corporate finance
advice to international clients including open and closed-ended
funds, and institutions with significant property interests. He was
a director of a number of Edmond de Rothschild operating and
investment entities, retiring in 2015.
Mr Falla has been a non-executive director of London listed
companies for over 10 years and is an experienced audit committee
chair. He is currently a director and audit committee chair of NB
Private Equity Partners Limited and of Marble Point Loan Financing
Limited.
John has been appointed as Chairman of the Audit Committee
following the retirement of David Staples
DIRECTORS' REPORT
For the year ended 31 December 2022
The Directors of the Company present their eleventh annual
report and the audited financial statements (the "Annual Report")
for the year ended 31 December 2022.
The Directors' Report contains information that covers this
period and the period up to the date of publication of this Report.
Please note that more up to date information is available on the
Company's website www.bakersteelresourcestrust.com .
Status
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
on 9 March 2010 in Guernsey under the Companies (Guernsey) Law,
2008 with registration number 51576. The Company is a registered
closed-ended investment scheme registered pursuant to the
Protection of Investors (Bailiwick of Guernsey) Law, 2020, ("POI
Law") and the Registered Collective Investment Scheme Rules and
Guidance, 2021 issued by the Guernsey Financial Services Commission
("GFSC"). On 28 April 2010 the Ordinary Shares and Subscription
Shares of the Company were admitted to the Official List of the UK
Listing Authority and to trading on the Main Market of the London
Stock Exchange, Premium Segment.
Investment Objective
Details of the Company's investment objectives and policies are
described in the Strategic Report on page 13.
Performance
In the year to 31 December 2022, the Company's NAV per Ordinary
Share decreased by 19.3% (2021: 1.2%). This compares with a rise in
the EMIX Global Mining Index (capital return in Sterling terms) of
10.2% (2021: 5.0%). A more detailed explanation of the performance
of the Company is provided within the Investment Manager's Report
on pages 5 to 9.
The results for the year are shown in the Statement of
Comprehensive Income on pages 38 and 39 and the Company's financial
position at the end of the year is shown in the Statement of
Financial Position on page 37.
Dividends and distribution policy
During the year ended 31 December 2015 the Board introduced a
capital returns policy whereby, subject to applicable laws and
regulations, it will allocate cash for distributions to
shareholders. The amount to be distributed will be calculated and
paid following publication of the Company's audited financial
statements for each year and will be no less than 15% of the
aggregate net realised cash gains (after deducting losses) in that
financial year. The Board will retain discretion for determining
the most appropriate manner to make such distribution which may
include share buybacks, tender offers and dividend payments. In the
longer term the Board intends to formulate a more regular dividend
policy once it starts to receive significant income from its
royalty interests. As there was no net realised cash gain during
the year, the Board has determined that there will not be any
distribution in respect of the year ended 31 December 2022.
Directors and their interests
The Directors of the Company who served during the year and up
until the date of signing of the financial statements are:
Howard Myles (Chairman)
Charles Hansard
Fiona Perrott-Humphrey
David Staples (retired 31 December 2022)
John Falla (appointed 13 October 2022)
Biographical details of each of the Directors who were on the
Board of the Company at the time of signing The Annual Report are
presented on page 18 of the Annual Report.
Each of the Directors is considered to be independent in
character and judgement.
Each Director is asked to declare his interests at each Board
Meeting. No Director has any material interest in any other
contract which is significant to the Company's business.
On 10 November 2022, John Falla purchased 60,000 shares in the
Company. No other Director has a beneficial interest in the Company
or any of its investee companies.
Authorised Share Capital
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
Shares in issue
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
The Company has a total of 106,453,335 (2021: 106,453,335)
Ordinary Shares outstanding with an additional 700,000 (2021:
700,000) held in treasury. The Company has 9,167 (2021: 9,167)
Management Ordinary Shares in issue, which are held by the
Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment
of the Official List of the London Stock Exchange.
Significant Shareholdings
As at 31 December 2022, the Company had received notifications
in accordance with the FCA's Disclosure and Transparency Rule 5.1.2
R of the following interests in 3% or more of the voting rights
attaching to the Company's issued share capital.
Number of % of Total
Ordinary Shareholder Ordinary Shares Shares in issue
The Sonya Trust 12,637,350 11.87
Northcliffe Holdings Pty Limited 12,452,177 11.70
Overseas Asset Management 12,435,915 11.68
Premier Miton Investors 9,250,000 8.69
RIT Capital Partners 7,766,803 7.30
Armstrong Investments 7,600,000 7.14
Baker Steel Capital Managers 4,922,877 4.62
Interactive Investor 4,138,994 3.89
Hargreaves Lansdown Asset Management 4,010,686 3.77
Jarvis Investment Manager 3,208,131 3.01
The Investment Manager, Baker Steel Capital Managers LLP had an
interest in 9,167 Management Ordinary Shares at 31 December 2022
(31 December 2021: 9,167).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest in 4,922,877 Ordinary Shares in the
Company at 31 December 2022 (2021: 4,922,877). Precious Metals Fund
has the same Investment Manager as the Company.
David Baker and Trevor Steel, Directors of the Manager, are
interested in the shares held by Northcliffe Holdings Pty Limited
and The Sonya Trust respectively.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and financial statements in accordance with applicable Guernsey
law, Listing Rules, Disclosures and Transparency Rules, UK
Corporate Governance Code and generally accepted accounting
principles.
Guernsey company law requires the Directors to prepare financial
statements for each financial year which give a true and fair view
of the state of affairs of the Company and of the profit or loss of
the Company for that year. In preparing these financial statements
the Directors should:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and which enable the Directors to
ensure that the financial statements comply with the Companies
(Guernsey) Law, 2008. The Directors are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors confirm that to the best of their knowledge:
- the financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU") and give a true and fair view of the
assets, liabilities and financial position and profit or loss of
the Company;
- the Annual Report includes a fair review of the position and
performance of the business of the Company together with the
description of the principal risks and uncertainties that the
Company faces, as required by the Disclosure and Transparency Rules
of the UK Listing Authority;
- the Annual Report and Financial Statements, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy; and
- they have carried out a robust assessment of the emerging and
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity.
Auditor Information
The Directors at the date of approval of this Report confirm
that, so far as each of the Directors is aware, there is no
relevant audit information of which the Company's auditor is
unaware and each Director has taken all the reasonable steps he
ought to have taken as a director to make himself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Going Concern
The Directors, as advised by the Audit Committee, have made an
assessment of the Company's ability to continue as a going concern
and consider it appropriate to adopt the going concern basis of
accounting. The discontinuation vote in 2021 was not passed and the
next vote is in 2024. To be passed, the discontinuation vote
requires 75% of shareholders to vote to discontinue. The Directors
have received no indication that the resolution will be passed. The
Board are satisfied that the Company has the resources to continue
in business for at least 12 months following the signing of these
financial statements. As at 31 December 2022, approximately 13.8%
of the Company's assets were represented by cash and unrestricted
listed and quoted investments which are readily realisable.
Although the continuing Russian invasion of Ukraine has resulted in
a reduction in the carrying value of investments with a Russian
nexus it is not expected that it will affect the Company's ability
to operate on a normal basis. Neither of the two affected
investments PAL and Azarga were expected to be a material source of
revenue in the next two years. The Directors are not aware of any
material uncertainties that may cast significant doubt upon the
Company's ability to continue as a going concern.
Related party transactions
Transactions with related parties are based on terms equivalent
to those that prevail in an arm's length transaction and are
disclosed in Note 11.
Corporate Governance Compliance
The Company is a member of the Association of Investment
Companies.
The Board has therefore considered the Principles and Provisions
of the AIC Code of Corporate Governance (AIC Code). The AIC Code
addresses the Principles and Provisions set out in the UK Corporate
Governance Code (the UK Code), as well as setting out additional
Provisions on issues that are of specific relevance to the
Company.
The Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the
Financial Reporting Council and the Guernsey Financial Services
Commission, provides more relevant information to shareholders.
The Company has complied with the Principles and Provisions of
the AIC Code and therefore the UK Code except as where explained in
the Annual Report on pages 22 to 24.
The AIC Code is available on the AIC website ( www
.theaic.co.uk) . It includes an explanation of how the AIC Code
adapts the Principles and Provisions set out in the UK Code to make
them relevant for investment companies.
The Code includes provisions relating to:
-- The role of the Chief Executive
-- Executive Directors' remuneration
-- The requirement for a senior Independent Director
-- Nomination and Remuneration Committees
-- The requirement for an internal audit function
The Board considers these provisions are not relevant for the
Company as it is an externally managed investment entity. The
Company has therefore not reported further in respect of these
provisions. The Directors are all independent and non-executive and
the Company does not have employees, hence no Chief Executive is
required for the Company. The Board is satisfied that any relevant
issues can be properly considered by the Board as explained further
on the following pages.
There have been no other instances of non-compliance, other than
those noted above.
Operation and composition of the Board
-- Composition and Independence
The Board has no executive directors and has contractually
delegated responsibility to service providers for the management of
the Company's investment portfolio, the arrangement of custodial
and cash flow monitoring and oversight services and the provision
of accounting and company secretarial services. The Company has no
employees.
The Board consists entirely of independent non-executive
Directors, of whom Howard Myles is the Chairman. Each of the
Directors confirms that they have no other significant commitments
that adversely impact on their ability to act for the Company and
its shareholders, and that they have sufficient time to fulfil
their obligations to the Company.
There is no formal policy in respect of the tenure of the
Chairman. The Board have initiated a process of refreshing its
membership and in recent years thee directors have retired with new
appointments made. It is envisaged the Chairman will retire as part
of this succession programme within the next two years.
-- Senior Independent Director
In view of its non-executive nature and small size, the Board
considers that it is not necessary for a Senior Independent
Director to be appointed.
-- Appointment and re-election
The Company has a transparent procedure for the appointment and
re-election of the Directors and independent recruitment
consultants may be used where appropriate as was the case in 2022
when OSA assisted in the recruitment of Mr Falla. There are no
service contracts in place for the Directors. The Directors are not
required to retire by rotation. Instead each director puts himself
forward for re-election on an annual basis at the AGM. The AGM also
includes a resolution whereby shareholders are able to approve the
maximum cumulative remuneration for the Board.
All the Directors are responsible for reviewing the size,
structure and skills of the Board and considering whether any
changes are required or new appointments are necessary to meet the
requirements of the Company's business or to maintain a balanced
Board. The Board will seek the assistance of recruitment
specialists to identify suitable candidates for the Board to
consider.
Howard Myles and Charles Hansard have served as Directors for
more than 9 years. The Board believes that both these directors
continue to demonstrate independence of the Manager and to make a
valuable contribution to the Company, and therefore recommends that
shareholders vote in favour of their reappointment. The Board has a
succession plan under which its membership will be refreshed over
time. Specialists will be engaged as the Board consider necessary
to assist with future appointments.
-- Information
The Board receives full details of the Company's performance,
assets, liabilities and other relevant information in advance of
Board meetings, including information on regulatory and accounting
developments.
-- Performance appraisal
The performance of the Board and the Audit Committee is
evaluated through a formal and rigorous assessment process led by
the Chairman and facilitated by the Company Secretary. The
performance of the Chairman is evaluated by the other
Directors.
-- Investment Manager assessment
The Investment Manager was appointed pursuant to an investment
management agreement with the Manager dated 31 March 2010 and which
was amended and restated, with the Company joining as a party, on
14 November 2014 (the Investment Management Agreement). The
Investment Manager is paid by the Manager and is not separately
remunerated by the Company. The Investment Management Agreement
pursuant to which the Company and the Manager have appointed the
Investment Manager is terminable by any party giving the other
parties not less than 12 months' written notice.
The Investment Manager prepares regular reports to the Board to
allow it to review and assess the Company's activities and
performance on an ongoing basis. The Board and the Investment
Manager have agreed clearly defined investment criteria, exposure
limits and specified levels of authority. The Board completes a
formal assessment of the Investment Manager on an annual basis. The
assessment covers such matters as the performance of the Company
relative to its peers and sector, the management of investor
relations and the reasonableness of fee arrangements. Based on its
assessment it is the opinion of the Board that the continuation of
the appointment of the Investment Manager is in the best interests
of shareholders of the Company.
-- Board meetings
The Board generally meets at least four times a year, at which
time the Directors review the management and performance of the
Company's assets and all other significant matters so as to ensure
that the Directors maintain overall control and supervision of the
Company's affairs. The Board is responsible for the appointment and
monitoring of all service providers to the Company. Between these
quarterly meetings there is regular contact with the Investment
Manager and Company Secretary. The Directors are kept fully
informed of investment and financial controls and other matters
which are relevant to the business of the Company and which should
be brought to the attention of the Directors. The Directors also
have direct access to the Company Secretary (through its appointed
representatives who are responsible for ensuring that Board
procedures are followed and that applicable rules and regulations
are complied with) and, where necessary in the furtherance of their
duties, to independent professional advice at the expense of the
Company.
Attendance at the quarterly Board and Audit Committee meetings
during the year was as follows:
Audit Committee
Board Meetings Meetings
Held Attended Held Attended
Howard Myles 4 4 4 4
Charles Hansard 4 4 n/a n/a
Fiona Perrott-Humphrey 4 4 4 4
David Staples (retired 31 December
2022) 4 4 4 4
John Falla (appointed 13 October
2022) 1* 1 1* 1
*Held since appointment
In addition to the quarterly meetings, adhoc Board and committee
meetings are convened as required. All Directors contribute to a
significant exchange of views with the Investment Manager on
specific matters, in particular in relation to developments in the
portfolio.
-- Relations with Shareholders
The Board believes that the maintenance of good relations with
shareholders is vital for the long-term prospects of the Company.
The Company's stockbrokers, Numis Securities Limited, and the
Investment Manager are responsible for managing relationships with
shareholders and each provides the Board with feedback on a regular
basis that includes a shareholder contact report and any concerns
the shareholder has raised. The Chairman and the Board are also
available to meet with shareholders at the Company's Annual General
Meeting or otherwise.
-- Engagement with key Stakeholders
The Board considers its key stakeholders, along with its
shareholders, to be the Company's Investment Manager,
Administrator, Company Secretary and Stockbroker. Engagement with
each Stakeholder is formalised by quarterly reporting at the Board
Meetings but outside of the formal meetings, is continuous as
required by the operations of the Company. The Board is very aware
of the importance to the success of the Company of these key
stakeholders and encourages open and frequent dialogue to
facilitate improvements to the way that the Company functions. The
engagement with stakeholders is covered in more detail in the
Strategic Report on page 17.
-- Principal and Emerging Risks
The Board has delegated responsibility for the assessment of its
key risks to the Audit Committee. The Audit Committee has
documented the key risks and controls in a detailed risk matrix and
meets on a quarterly basis to update it and to assesses the
adequacy and completeness of the controls. As the Audit Committee
identifies changes that affect the risk profile of the Company it
will recommend to the Board any actions required to effectively
manage risk. More details on the Principal and Emerging Risks are
presented in the Strategic Report.
-- Diversity
The Board has no formal policy on diversity but is cognizant of
the need to maintain a Board with a spectrum of backgrounds and
skills appropriate for the specifics of the Company. Due to the
small size of the Board, there are no plans to implement targets
for diversity metrics however recruitment agencies who assist with
identifying candidates for Board appointments are instructed to do
so with diversity in mind.
Committees
The Audit Committee is the sole committee of the Board. Terms of
Reference for the Audit Committee are available on the Company's
webpage http://bakersteelresourcestrust.com/corporate-governance/
.
-- Audit Committee
The Board has established an Audit Committee. The Audit
Committee meets at least three times a year and is responsible for
ensuring that the financial performance of the Company is properly
reported on and monitored and provides a forum through which the
Company's external auditor may report to the Board. The Audit
Committee operates within established terms of reference. The
Directors consider there is no need for an internal audit function
because the Company operates through service providers and the
Directors receive control reports on its key service providers.
David Staples was Chairman of the Audit Committee until 31
December 2022, with Fiona Perrott-Humphrey, Howard Myles and
(effective 13 October 2022) John Falla as the other members. As
Chairman of the Board, Howard Myles will not Chair the Audit
Committee but is considered independent and therefore sits as a
committee member. Following David Staples retirement from the Board
on 31 December 2022 John Falla assumed the role of Chairman of the
Audit Committee.
-- Nomination, Remuneration and Management Engagement Committees
Given the size and nature of the Company and the fact that all
the Directors are independent and non-executive it is not deemed
necessary to form separate Nomination, Remuneration, and Management
Engagement Committees. The Board itself considers new Board
appointments, remuneration and the engagement of service
providers.
Internal Controls
The Board has delegated to service providers the day to day
responsibilities for the management of the Company's investment
portfolio, the provision of depositary services and administration,
registrar and corporate secretarial functions including the
independent calculation of the Company's NAV and the production of
the Annual Report and Financial Statements which are independently
audited.
Formal contractual agreements have been put in place between the
Company and providers of these services.
Even though the Board has delegated responsibility for these
functions, it retains accountability for them and is responsible
for the systems of internal control. However, it has delegated the
regular review and oversight of the systems of internal control to
the Audit Committee which reports back to the Board following each
Audit Committee meeting. At each quarterly Board meeting,
compliance reports are provided by the Administrator and Investment
Manager.
The Company's risk matrix continues to be the core element of
the Company's risk management process in establishing the Company's
system of internal financial and reporting control. The risk matrix
is prepared and maintained by the Investment Manager and reviewed
regularly by the Audit Committee which initially identifies the
risks facing the Company and then collectively assesses the
likelihood of each risk, the impact of those risks and the strength
of the controls mitigating each risk. The system of internal
financial and operating control is designed to manage rather than
to eliminate the risk of failure to achieve business objectives and
by its nature can only provide reasonable and not absolute
assurance against misstatement and loss. These controls aim to
ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for
publication is reliable. The Audit Committee confirms to the Board
that there is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Company.
This process has been in place for the year under review and up
to the date of approval of this Annual Report and Audited Financial
Statements and is reviewed by the Board by way of reporting from
the Audit Committee.
The Board therefore believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the
risks to which it is exposed.
Director's Remuneration Policy
All Directors are non-executive and in view of the relatively
small size of the Board a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the
Directors' remuneration. No advice or services were provided by any
external person in respect of its consideration of the Directors'
remuneration.
The Company's policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company's
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate directors who have the
experience and qualities required to run the Company successfully.
The Chairs of the Board and the Audit Committee are paid a higher
fee in recognition of their additional responsibilities. The fee
levels are reviewed annually. Effective 1 October 2022 the Board,
recognising the Board remuneration was below market rates having
not changed since the Company's flotation in 2010, resolved to
increase their remuneration to GBP32,500 per annum for each
Director. The Chairman will receive a supplement of GBP10,000 per
annum and the Chairman of the Audit Committee a supplement of
GBP5,000 per annum.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors. No Director has a
service contract with the Company but each of the Directors is
appointed by a letter of appointment which sets out the main terms
of their appointment. Directors hold office until they retire or
cease to be a director in accordance with the Articles of
Incorporation or by operation of law.
The Directors recognise the benefits of diversity in terms of
gender and ethnicity and will take these into account when
considering future appointments to the Board. However, their
principal criteria will remain the skills and experience of new
directors and the Board will select the candidates whom it believes
will add most value.
The Directors are remunerated for their services at such rate as
the Directors determine provided that the aggregate amount of such
fees may not exceed GBP200,000 per annum (or such sum as the
Company in general meeting shall from time to time determine).
For the year ended 31 December 2022, the total remuneration of
the Directors was GBP129,489 (2021: GBP115,000). There were no
director fees payable at the year-end (2021: GBP28,750).
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally. The fees paid to each
Director in respect of the years ended 31 December 2022 and 31
December 2021 are shown below.
2022 2021
GBP GBP
Howard Myles 36,875 35,000
David Staples 31,875 30,000
Charles Hansard 26,875 25,000
Fiona Perrott-Humphrey 26,875 25,000
John Falla 6,989 -
Independent Auditors
The auditors, BDO Limited, have indicated their willingness to
continue in office and a resolution for their re-appointment will
be proposed at the Annual General Meeting.
Subsequent Events
Please refer to Note 14 of the financial statements on page
63.
Signed on behalf of the Board of Directors by:
John Falla
21 April 2023
Report of the Audit CommitteE
For the year ended 31 December 2022
The function of the Audit Committee as described in its Terms of
Reference is to ensure that the Company maintains high standards of
integrity in its financial reporting and internal controls. David
Staples was Chairman of the Audit Committee until 31 December 2022
when he was replaced by John Falla. Fiona Perrott-Humphrey and
Howard Myles are the other members of the Audit Committee. As
Chairman of the Board, Howard Myles will not Chair the Audit
Committee but is considered independent and therefore sits as a
committee member.
The Audit Committee is appointed by the Board and all members
are considered to be independent both of the Investment Manager and
the external auditor. The Audit Committee typically meets four
times a year, aligned to Board Meeting dates, to discuss the
Interim and Annual Report and Audited Financial Statements, the
audit plan and engagement letter, and the Company's risks and
controls, via discussion of its risk matrix. The Board is satisfied
that the Audit Committee is properly constituted with members
having recent and relevant financial experience, including two
members who are chartered accountants.
The Board, advised by the Audit Committee considers the nature
and extent of the Company's risk management framework and the risk
profile that is acceptable in order to achieve the Company's
strategic objectives. As a result, it is considered that the Board
has fulfilled its obligations under the AIC Code and the UK
Code.
The Audit Committee continues to be responsible for reviewing
the adequacy and effectiveness of the Company's on-going risk
management systems and processes. The Company's system of internal
controls, along with its design and operating effectiveness, is
subject to review by the Audit Committee through reports received
from all key service providers.
In the event of any deficiencies or breaches being reported, the
Board would consider the actions required to remedy and prevent
significant failings or weaknesses. During the year ended 31
December 2022, no significant weaknesses or failings were
identified.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery and
corruption policies of the Company. The Board receives a
confirmation from all service providers that they are not aware of
any instances of fraud or bribery.
The Audit Committee considers the adequacy and security of the
arrangements for the employees of its service providers to raise
concerns, in confidence, about possible wrongdoing in financial
reporting or other matters. The Audit Committee is satisfied it has
the ability and resources to investigate any matters that are
brought to its attention and to follow up on any conclusion reached
by such investigation.
Primary Areas of Judgement
As part of its review of the Company's financial statements, the
Audit Committee takes account of the most significant issues and
risks, both operational and financial, likely to impact on the
financial statements and the mitigating controls to address these
risks. The Audit Committee has determined that the key risk of
misstatement is the valuation of investments for which there is no
readily observable market price. Such investments are recorded at
fair value which is the price that would be expected to be received
to sell an asset in an orderly transaction between market
participants at the measurement date. Significant judgements are
required in respect of the valuation of the Company's investments
for which there is no observable market price. Further information
on the Company's methodologies is provided in Note 3 to the
financial statements.
The risk is mitigated through the review by the Audit Committee
and Board of detailed reports prepared by the Investment Manager on
portfolio valuation including valuation methodology, the underlying
assumptions and the valuation process.
The Investment Manager also provides information to the Audit
Committee and Board on relevant market indices, recent transactions
in similar assets and other relevant information to allow an
assessment of appropriate carrying value having regard to the
relevant factors.
The ultimate responsibility for ensuring that investments are
carried at fair value lies with the Board.
Through its meetings during the year ended 31 December 2022 and
its review of the Company's Annual Report and Audited Financial
Statements, the Audit Committee considered the following
significant risks as well as the principal risks and uncertainties
described on pages 14-15.
Risk Considered How addressed
The accuracy of the Company's Annual Review of the Annual Report and
Report and Financial Statements Audited Financial Statements, discussions
with the external auditor and meetings
with the auditor to understand the
audit approach and findings having
regard to the level of materiality
agreed with it.
Adequacy of the Company's accounting Consideration of the Company's risk
and internal controls systems matrix, taking account of the relevant
risks, the potential impact to the
Company and the mitigating controls
in place. The Committee also reviews
control and compliance reports in
this respect and receives explanations
of any breaches and how any control
weaknesses have been addressed.
Valuation of the Company's investments, Reports received from and discussed
in particular the valuation of unquoted in depth with the Investment Manager
investments providing support for the investment
valuations. The Investment Manager
reporting is then challenged and
reconciled to the independent auditor's
review of the investment valuations.
The effectiveness and independence The Audit Committee has regular
of the external audit process dialogue with the external auditor
both before and during the audit
process. The auditor presents to
the Audit Committee at both the
planning and audit review stage,
and confirms its independence at
each stage. The Audit Committee
receives feedback from the Investment
Manager on the audit process and
any concerns or challenges faced.
Emerging risks The Audit Committee discusses the
Company's risk matrix each time
it meets. Through these discussions
emerging risks such as those caused
by the Russian invasion of Ukraine
are assessed. The matrix also documents
long term implications for the sector
from secular trends such as climate
change.
The Audit Committee also provides a forum through which the
Company's auditor reports to the Board. The Board, advised by the
Audit Committee, approves all non-audit work carried out by the
auditor in advance and the fees paid to the auditor in this
respect.
External Audit
The Company's external auditor is BDO Limited ("BDO").
The fees due to the auditor during the year were as follows:
2022 2021
GBP GBP
Audit fees Audit Fees 70,000 58,500
Agreed Upon Procedures
relating to the review
of the Company's half year
Non-audit fees report 9,625 8,750
Total Fees 79,625 67,250
================== =======
The external auditor provides an audit planning report in
advance of the annual audit. The Audit Committee has the
opportunity to question and challenge the auditor in respect of
their work. Based on levels of interaction with the auditor, and
the assessment of auditor reporting, the audit planning, adherence
to audit standards, competence of the audit team and feedback from
the Investment Manager, the Audit Committee and the Board are
satisfied that the reappointment of the external auditor should be
proposed at the Annual General Meeting of the Company.
The Audit Committee has reviewed the effectiveness of the
auditor including:
-- Independence: The auditor discusses with the Audit Committee,
at least annually, the steps it takes to ensure independence and
confirms the same to the Audit Committee. The audit fees paid to
BDO are presented on Page 28 of the Annual Report. The only
non-audit fees paid to BDO are in relation to the Agreed Upon
Procedures work completed on the Interim Report and Accounts. The
audit director will rotate after 5 years; this is the third year of
the current audit director.
-- Quality of Audit Work: The Audit Committee assess the
completion of the audit versus the plan and will seek feedback from
the Investment Manager and the Administrator on any issues
experienced through the Audit. The Chairman of the Audit Committee
will separately engage with the audit director to discuss progress
and issues with the audit.
Internal Audit
The Audit Committee believes that the Company does not require
an internal audit function because it delegates its day to day
functions to market leading third party service providers, although
the Audit Committee oversees these operations and receives regular
control reports in this respect.
Risk Management and Internal Controls
The Board is responsible for the Company's system of internal
controls and risk management. The Audit Committee has been
delegated the responsibility for reviewing the ongoing
effectiveness of the Company's internal controls and it discharges
its duties in this area by assessing the nature and extent of the
significant risks the Company is willing to accept in achieving the
Company's objectives, and ensuring that effective systems of risk
identification, assessment and mitigation have been implemented.
The Strategic Report on pages 12 to 17 outlines the principal risks
and uncertainties affecting the Company and the section on Internal
Controls in the Directors Report on pages 19 to 26 gives details of
the work performed by the Audit Committee in this area.
By their nature, the control mechanisms can only provide
reasonable rather than absolute assurance against misstatement or
loss. The Audit Committee seeks continual improvement in the
Company's internal control mechanisms. The Audit Committee is not
aware of any significant failings or weaknesses in the Company's
internal controls in the year under review nor up to the date of
this report.
Financial Reporting
The primary role of the Audit Committee in relation to financial
reporting is to review the Annual Report and Financial Statements
and the Half Year Report with the Administrator and the Investment
Manager and assess their appropriateness. It focuses in this
respect, amongst other matters, on:
-- the clarity of the disclosures in the financial reporting and
compliance with statutory, regulatory and other financial reporting
requirements;
-- the quality and acceptability of accounting policies and practices;
-- material areas where significant judgements and estimates
have been applied or where there has been discussion with the
auditor; and
-- taken as a whole, whether the financial statements are fair,
balanced and understandable and provide shareholders with the
necessary information to assess the Company's performance and
strategy, reporting to the Board in this respect.
Going Concern and Viability
The Audit Committee has made an assessment of the Company's
ability to continue as a going concern and of its viability, see
pages 16 and 21 and has advised the Board accordingly.
John Falla
Audit Committee Chairman
21 April 2023
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF BAKER STEEL
RESOURCES TRUST LIMITED
Opinion on the financial statements
In our opinion, the financial statements of Baker Steel
Resources Trust Limited ("the Company"):
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2022 and of its loss for the year then
ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union;
and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of the Company for the
year ended 31 December 2022 which comprise the Statement of
Financial Position, the Statement of Comprehensive Income, the
Statement of Changes in Equity, the Statement of Cash Flows and
notes to the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion. Our audit opinion is consistent with the
additional report to the audit committee.
Independence
We remain independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC's Ethical
Standard as applied to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with these
requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Directors' assessment of Company's ability
to continue to adopt the going concern basis of accounting
included:
-- Obtaining the paper prepared by those charged with governance
and management in respect of going concern and discussing this with
both the Directors and management;
-- Challenging the Directors' cash flow forecasts for the twelve
months from the approval of these financial statements by stress
testing future income and expenditure, the ability to realise the
Company's assets and the impact on the going concern
assessment;
-- Challenging the key inputs into the cash flow forecasts by
comparing these to historic results of the Company and whether they
were consistent with our understanding of the company;
-- Challenging the Directors around the 2024 discontinuation
vote and its possible impact on the going concern status of the
company by considering the related party shareholders; and
-- Reviewing the minutes of the Directors, the RNS announcements
and the compliance reports for any indicators of concerns in
respect of going concern.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
In relation to the Company's reporting on how it has applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors' statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
2022 2021
Valuation of unlisted Yes Yes
investments and
Key audit matters listed investments subject
to a lock up period
Financial statements as a whole
Materiality
GBP1.54m (2021: GBP1.84m) based on 1.75%
(2021: 1.75%) of total assets.
---------------------------------------------
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the
Company and its environment, including the Company's system of
internal control, and assessing the risks of material misstatement
in the financial statements. We also addressed the risk of
management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
We tailored the scope of our audit taking into account the
nature of the Company's investment, involvement of the Manager and
the Company's Administrator, the accounting and reporting
environment and the industry in which the Company operates.
This assessment took into account the likelihood, nature and
potential magnitude of any misstatement. As part of this risk
assessment, we considered the Company's interaction with the
Manager and the Company's Administrator. We considered the control
environment in place at the Manager and the Company's Administrator
to the extent that it was relevant to our audit. Following this
assessment, we applied professional judgement to determine the
extent of testing required over each balance in the financial
statement.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How the scope of our audit addressed
the key audit matter
Valuation of unlisted investments Our procedures included the following:
and listed investments subject
to a lock up period. For all unlisted investments:
Refer to the accounting policies * We considered the processes, policies and
set out in Note 2 and Note 3 to methodologies used by management for determining the
the Financial Statements. fair value of unlisted investments held by the
Company;
The valuations are subjective,
with a high level of judgment
and estimation linked to the determination
of fair value with limited third-party * Agreed the Manager's application of valuation
pricing information available. techniques as appropriate to the circumstances of the
investment and the accounting policies applied; and
As a result of the subjectivity,
there is a risk of an inappropriate
valuation model being applied,
together with the risk of inappropriate * Agreed the valuation per the models to the financial
inputs to the model being used statements.
which could significantly impact
the valuation output.
The valuation of these investments In respect of the investments using
is a key driver of the Company's a valuation model, we: -
net asset value and total return.
Accordingly, incorrect valuations * Obtained and challenged, through discussion and
of these investments could have corroboration to external sources, the inputs and
a signi cant impact on the net assumptions used in management's model based on our
asset value of the Company and understanding of the investment.
therefore the return generated
for shareholders. We therefore
consider this to be a key audit
matter. * Agreed the inputs, for example volatility, resource
prices, and tax rates, into the models to independent
sources;
* Evaluated whether all key terms of the underlying
agreements had been considered within the models;
* Performed an independent sensitivity analysis of
certain inputs to identify and challenge, through
discussion and corroboration to third party sources,
in more detail, those which have the largest impact
on the valuation; and
* Tested the mathematical accuracy of the models.
For investments valued on an index
valuation, we recalculated, using
independently obtained information,
management's applied basket of indices
for each investment.
For those investments which used
recent Investment as a basis, we
considered if there were any material
changes in
the market or changes in the performance
of the investee company affecting
the fair value of the investment
at year end.
For listed investments subject to
a lock up period we: -
* Obtained management's calculation of the appropriate
discount to apply to the market price and the
underlying model prepared to support this;
* Challenged the appropriateness of the model, based on
standard practice valuation methods for investments
subject to a lockup;
* Calculated our own discount, utilising an appropriate
valuation model and external data sources obtained
independently and compared with that of management;
and
* Agreed the listed price to a third-party data source
and reperformed the discount adjustment.
Key observation:
Based on the procedures performed,
we are satisfied that judgements
applied in valuing the unlisted
investments and listed investments
subject to a lock up period are
appropriate.
--------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Company financial statements
2022 2021
------------------------------- -------------
Materiality GBP1.48m GBP1.84m
------------------------------- -------------
Basis for determining materiality 1.75% of total assets
----------------------------------------------
Rationale for the benchmark Due to it being an investment fund
applied with the objective of long-term capital
growth, with investment values being
a key focus of users of the financial
statements.
----------------------------------------------
Performance materiality GBP0.97m GBP1.19m
------------------------------- -------------
Basis for determining performance 65% of materiality
materiality
This was determined using our professional
judgement and considered the complexity
and our knowledge of the engagement,
together with history of minimal
historical errors and adjustments.
----------------------------------------------
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP44,000 (2021:
GBP55,140). We also agreed to report differences below this
threshold that, in our view, warranted reporting on qualitative
grounds.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the Annual
Report and Audited Financial Statements, other than the financial
statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Company's
compliance with the provisions of the UK Corporate Governance
Statement specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit.
Going concern and
longer-term viability * The Directors' statement with regards the
appropriateness of adopting the going concern basis
of accounting and any material uncertainties
identified set out on page 21 and
* The Directors' explanation as to its assessment of
the entity's prospects, the period this assessment
covers and why the period is appropriate set out on
page 16.
Other Code provisions
* Directors' statement on fair, balanced and
understandable set out on page 21;
* Board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set
out on pages 14-15 and 24;
* The section of the annual report that describes the
review of effectiveness of risk management and
internal control systems set out on page 29; and
* The section describing the work of the Audit
Committee set out on page 24 and pages 27 to 29.
----------------------------------------------------------------------
Other Companies (Guernsey) Law, 2008 reporting
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- proper accounting records have not been kept by the Company; or
-- the financial statements are not in agreement with the accounting records; or
-- we have failed to obtain all the information and explanations
which, to the best of our knowledge and belief, are necessary for
the purposes of our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors'
Responsibilities within the Directors' Report the Directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and have a direct
impact on the preparation of the financial statements. We
determined that the most significant frameworks which are directly
relevant to specific assertions in the financial statements are
those that relate to the reporting framework such as IFRSs and the
Companies (Guernsey) Law, 2008. We evaluated management's
incentives and opportunities for fraudulent manipulation of the
financial statements (including the risk of management override of
controls) and determined that the principal risks were related to
revenue recognition on the Company's investments and the management
bias and judgement involved in accounting estimates, specifically
in relation to the valuation of investments (the response to which
is detailed in our key audit matter above).
We communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members who were all
deemed to have appropriate competence and capabilities and remained
alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Audit procedures performed by the engagement team to respond to
the risks identified included:
-- Discussion with and enquiry of management and those charged
with governance concerning known or suspected instances of
non-compliance with laws and regulations or fraud;
-- Reading minutes of meetings of those charged with governance,
correspondence with the Guernsey Financial Services Commission,
internal compliance reports, complaint registers and breach
registers to identify and consider any known or suspected instances
of non-compliance with laws and regulations or fraud;
-- Performing analytical procedures of the mid-year net asset
valuations, with a focus on reviewing and corroborating movements
over a set threshold.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
https://www.frc.org.uk/auditorsresponsibilities . This description
forms part of our auditor's report.
The engagement director on the audit resulting in this
independent auditor's opinion is Justin Hallett.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members, as a body, for our audit work, for this report, or for the
opinions we have formed.
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
21 April 2023
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022 2021
Notes GBP GBP
Assets
Cash and cash equivalents 9 254,140 1,077,482
Interest receivable 2(c)(i) 57,917 249,445
Other receivables 17,899 22,132
Financial assets held at fair value through
profit or loss 3 84,311,955 103,685,593
Total assets 84,641,911 105,034,652
------------ -------------
Equity and Liabilities
Liabilities
Directors' fees payable 11 - 28,750
Management fees payable 7,11 69,854 122,894
Administration fees payable 6 9,659 10,638
Audit fees payable 70,000 58,500
Custodian fees payable 7,158 8,443
Other payables 2,392 6,471
Total liabilities 159,063 235,696
------------ -------------
Equity
Management Ordinary Shares 10 9,167 9,167
Ordinary Shares 10 75,972,688 75,972,688
Revenue Reserves 8,771,186 10,047,160
Capital Reserves (270,193) 18,769,941
Total equity 84,482,848 104,798,956
------------ -------------
Total equity and liabilities 84,641,911 105,034,652
============ =============
Net Asset Value per Ordinary Share (in Pence)
- Basic and Diluted 12 79.4 98.4
The financial statements on pages 37 to 63 were approved and authorised
for issue by the Board of Directors on
21 April 2023 and signed on its behalf by:
John Falla
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2022
Year ended Year ended Year ended
2022 2022 2022
Revenue Capital Total
Notes GBP GBP GBP
Income
Interest income 2(i) 549,607 - 549,607
Dividend income 2(j) 9,356 - 9,356
Net loss on financial assets at
fair value through profit or loss 3 - (19,038,918) (19,038,918)
Net foreign exchange loss - (1,216) (1,216)
------------ ------------- -------------
Net income / (loss) 558,963 (19,040,134) (18,481,171)
------------ ------------- -------------
Expenses
Management fees 7,11 1,160,507 - 1,160,507
Directors' fees 11 129,489 - 129,489
Administration fees 6 118,002 - 118,002
Other expenses 8 130,321 - 130,321
Depositary fees 36,942 - 36,942
Custody fees 58,918 - 58,918
Broker fees 35,000 - 35,000
Audit fees 79,625 - 79,625
Directors' insurance 6,000 - 6,000
Directors' expenses 3,344 - 3,344
Legal fees 76,789 - 76,789
Total expenses 1,834,937 1,834,937
------------ ------------- -------------
Net loss for the year (1,275,974) (19,040,134) (20,316,108)
============ ============= =============
Net loss for the year per Ordinary
Share:
Basic and Diluted (in pence) 12 (1.20) (17.88) (19.08)
In the year ended 31 December 2022 there were no gains or losses other than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice and is provided for information purposes.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2021
Year ended Year ended Year ended
2021 2021 2021
Revenue Capital Total
Notes GBP GBP GBP
Income
Interest income 2(i) 1,228,691 - 1,228,691
Dividend income 2(j) 45,880 - 45,880
Net gain on financial assets at
fair value through profit or loss 3 - 2,254,094 2,254,094
Net foreign exchange loss - (21,728) (21,728)
----------- ----------- -----------
Net income 1,274,571 2,232,366 3,506,937
----------- ----------- -----------
Expenses
Management fees 7,11 1,587,121 - 1,587,121
Directors' fees 11 115,000 - 115,000
Administration fees 6 126,876 - 126,876
Other expenses 8 103,389 - 103,389
Depositary fees 41,336 - 41,336
Custody fees 62,628 - 62,628
Broker fees 35,000 - 35,000
Audit fees 67,250 - 67,250
Directors' Insurance 15,750 - 15,750
Directors' expenses 515 - 515
Legal fees 44,515 - 44,515
Total expenses 2,199,380 - 2,199,380
----------- ----------- -----------
Net (loss)/gain for the year (924,809) 2,232,366 1,307,557
=========== =========== ===========
Net (loss)/gain for the year per
Ordinary Share:
Basic and Diluted (in pence) 12 (0.87) 2.10 1.23
In the year ended 31 December 2021 there were no gains or losses other than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice and is provided for information purposes.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2022
Management
Ordinary Ordinary Treasury Revenue Capital Total
Shares Shares Shares reserves reserves equity
GBP GBP GBP GBP GBP GBP
Balance as at
1 January
2021 9,167 76,113,180 (140,492) 10,971,969 16,537,575 103,491,399
Net
(loss)/gain
for
the year - - - (924,809) 2,232,366 1,307,557
Balance as at
31
December
2021 9,167 76,113,180 (140,492) 10,047,160 18,769,941 104,798,956
Net loss for
the
year - - - (1,275,974) (19,040,134) (20,316,108)
------------------- ------------------- ---------------- ------------ ------------- -------------
Balance as at
31
December
2022 9,167 76,113,180 (140,492) 8,771,186 (270,193) 84,482,848
=================== =================== ================ ============ ============= =============
Note 10 10 10
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
Year ended Year ended
2022 2021
GBP GBP
Notes
Cash flows from operating activities
Net (loss)/gain for the year (20,316,108) 1,307,557
Adjustments to reconcile net (loss) /gain for
the year to net cash used in operating activities:
Interest income (549,607) (1,228,691)
Dividend income (9,356) (45,880)
Net loss/(gain) on financial assets at fair
value through profit or loss 3 19,038,918 (2,254,094)
Net decrease/(increase) in receivables 4,233 (2,504)
Net decrease in payables (76,633) (8,804)
------------- -------------
(1,908,553) (2,232,416)
Interest received 741,135 903,607
Dividend received 9,356 45,880
Net cash used in operating activities (1,158,062) (1,282,929)
------------- -------------
Cash flows from investing activities
Purchase of financial assets at fair value through
profit or loss (1,882,060) (1,776,426)
Sale of financial assets at fair value through
profit or loss 2,216,780 3,712,697
------------- -------------
Net cash provided by investing activities 334,720 1,936,271
------------- -------------
Net (decrease)/increase in cash and cash equivalents (823,342) 653,342
Cash and cash equivalents at the beginning of
the year 1,077,482 424,140
Cash and cash equivalents at the end of the
year 9 254,140 1,077,482
============= =============
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2022
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
and domiciled on 9 March 2010 in Guernsey under the Companies
(Guernsey) Law, 2008 with registration number 51576. The Company is
a registered closed-ended investment scheme registered pursuant to
the Protection of Investors (Bailiwick of Guernsey) Law, 2020 and
the Registered Collective Investment Scheme Rules and Guidance,
2021 issued by the Guernsey Financial Services Commission ("GFSC").
On 28 April 2010 the Ordinary Shares and Subscription Shares of the
Company were admitted to the Official List of the UK Listing
Authority and to trading on the Main Market of the London Stock
Exchange. The Company's Ordinary and Subscription Shares were
admitted to the Premium Listing Segment of the Official List on 28
April 2010.
The final exercise date for the Subscription Shares was 2 April
2013. No Subscription Shares were exercised at this time and all
residual/unexercised Subscription Shares were subsequently
cancelled.
The Company's portfolio is managed by Baker Steel Capital
Managers (Cayman) Limited (the "Manager"). The Manager has
appointed Baker Steel Capital Managers LLP (the "Investment
Manager") as the Investment Manager to carry out certain duties.
The Company's investment objective is to seek capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities, or related instruments, of natural
resources companies. The Company invests predominantly in unlisted
companies (i.e. those companies which have not yet made an Initial
Public Offering ("IPO")) and also in listed securities (including
special situations opportunities and less liquid securities) with a
view to exploiting value inherent in market inefficiencies and
pricing anomalies.
Baker Steel Capital Managers LLP was authorised to act as an
Alternative Investment Fund Manager ("AIFM") of Alternative
Investment Funds ("AIFs") on 22 July 2014. On 14 November 2014, the
Investment Manager signed an amended Investment Management
Agreement with the Company, to take into account AIFM regulations.
AIFMD focuses on regulating the AIFM rather than the AIFs
themselves, so the impact on the Company is limited.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a historical cost
basis except for Financial Instruments at Fair Value Through Profit
or Loss ("FVTPL") in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union. The
financial statements have been prepared on a going concern
basis.
The Company's functional currency is the Great Britain pound
Sterling ("GBP"), being the currency in which its Ordinary Shares
are issued and in which returns are made to shareholders. The
presentation currency is the same as the functional currency. The
financial statements have been rounded to the nearest GBP. The
Company invests in companies around the world whose shares are
denominated in various currencies.
Income encompasses both revenue and capital gains/losses. For a
listed investment company, it is best practice to distinguish
revenue from capital. Revenue includes items such as dividends,
interest, fees and other equivalent items. Capital is the return,
positive or negative, from holding investments other than that part
of the return that is revenue. The format of the Statement of
Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice.
Assets and liabilities are presented in order of liquidity.
Their maturities are disclosed in Note 4(b).
New standards, amendments and interpretations to existing
standards which are not yet effective for the current year
A number of new standards are effective for annual periods
beginning after 1 January 2023 and earlier application is
permitted, however the Company has not early adopted the new or
amended standards in preparing these financial statements.
The following amended standards and interpretations are not
expected to have a material impact on the Company's financial
statements:
- Disclosure of Accounting Policies - Amendments to IAS 1 and
IFRS Practice Statement 2 (effective for periods starting on or
after 1 January 2023).
- Definition of Accounting Estimates - Amendments to IAS 8
(effective for periods starting on or after 1 January 2023).
- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction - Amendments to IAS 12 (effective for periods
starting on or after 1 January 2023).
- IFRS 17 Insurance Contracts (effective for periods starting on
or after 1 January 2023).
- Classification of Liabilities as Current or Non-current -
Amendments to IAS 1 (effective for periods starting on or after 1
January 2023).
New standards, amendments and interpretations to existing
standards which are effective for the current year
There are a number of new standards, amendments to standards and
interpretations that are effective for annual periods beginning
after 1 January 2022 and were adopted from their effective date.
These amendments did not have a material impact on the Company's
financial statements.
- Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16 (effective for periods starting on or after 1
January 2022).
- Reference to the Conceptual Framework - Amendments to IFRS 3
(effective for periods starting on or after 1 January 2022).
- Onerous Contracts - Cost of Fulfilling a Contract (Amendments
to IAS 37) (effective for periods starting on or after 1 January
2022).
- IFRS 9 Financial Instruments - Fees in the '10 per cent' test
for derecognition of financial liabilities (effective for periods
starting on or after 1 January 2022).
b) IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy
or sell non-financial items.
Classification and measurement of financial assets and financial
liabilities
A financial asset or liability is measured at amortised cost if
it meets both of the following conditions and are not
designated
as at FVTPL:
Ø it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
Ø its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
All financial assets of the Company are measured at FVTPL,
except for cash and cash equivalents which are measured at
amortised cost.
All financial liabilities of the Company are measured at
amortised cost.
Impairment of financial assets
Under IFRS 9 for trade receivables the Company has applied the
simplified model. Under the simplified approach the requirement is
to always recognise lifetime expected credit loss ("ECL"). Under
the simplified approach there is no need to monitor significant
increases in credit risk and measure lifetime ECLs at all times.
The interest receivable is in respect of the Convertible loan
notes, a list of which is presented in Note 4(c) on Page 58 of the
Annual Report, and no provision has been made for credit losses.
This is on the basis that the fair value of the underlying asset
supports the convertible receivable.
For other receivables, the Directors have concluded that any ECL
on these receivables would be highly immaterial.
c) Significant accounting judgements and estimates
The preparation of the Company's financial statements requires
the Directors to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements
and disclosure of contingent liabilities. However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability in future periods.
(i) Judgements
In the process of applying the Company's accounting policies,
the Directors have made the following judgements, which have had
the most significant effect on the amounts recognised in the
financial statements:
Going Concern
The Directors, as advised by the Audit Committee, have made an
assessment of the Company's ability to continue as a going concern
and consider it appropriate to adopt the going concern basis of
accounting. The discontinuation vote in 2021 was not passed and the
next vote is in 2024. To be passed, the discontinuation vote
requires 75% of shareholders to vote to discontinue. The Directors
have received no indication that the resolution will be passed. The
Board are satisfied that the Company has the resources to continue
in business for at least 12 months following the signing of these
financial statements. As at 31 December 2022, approximately 13.8%
of the Company's assets were represented by cash and unrestricted
listed and quoted investments which are readily realisable.
Although the continuing Russian invasion of Ukraine has resulted in
a reduction in the carrying value of investments with a Russian
nexus it is not expected that it will affect the Company's ability
to operate on a normal basis. Neither of the two affected
investments PAL and Azarga were expected to be a material source of
revenue in the next two years. The Directors are not aware of any
material uncertainties that may cast significant doubt upon the
Company's ability to continue as a going concern.
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources
of uncertainty at the reporting date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year, are discussed
below. The Company based its assumptions and estimates on
parameters available when the financial statements were prepared.
However, existing circumstances and assumptions about future
developments may change due to market changes or circumstances
arising beyond the control of the Company. Such changes are
reflected in the assumptions when they occur. Please refer to Note
3 for further information.
(iii) Fair value of financial instruments
When the fair values of financial assets and financial
liabilities recorded in the Statement of Financial Position cannot
be derived from active markets, their fair value is determined
using a variety of valuation techniques that include the use of
valuation models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible,
estimation is required in establishing fair values. The estimates
include considerations of liquidity and model inputs related to
items such as credit risk, correlation and volatility. Changes in
assumptions about these factors could affect the reported fair
value of financial instruments in the Statement of Financial
Position and the level where the instruments are disclosed in the
fair value hierarchy. To assess the significance of a particular
input to the entire measurement, the Company performs sensitivity
analysis or stress testing techniques. Please refer to Note 3 for
further information. Investments in associates are carried at fair
value as they are held as part of the investment portfolio which is
valued on a fair value basis.
d) Interest income and expense
Bank interest income and interest expense are recognised on an
accruals basis using the effective interest method.
e) Expenses
All expenses are recognised on an accruals basis.
f) Translation of foreign currencies
Foreign currency transactions during the year are translated
into Sterling at the rate of exchange ruling at the date of the
transaction. Assets and liabilities denominated in foreign
currencies are translated into Sterling at the rate of exchange
ruling at the Statement of Financial Position date. Exchange
differences including those arising from adjustment to fair value
of financial instruments during the year, are included in the
Statement of Comprehensive Income. The foreign exchange movements
relating to financial assets form part of the fair value movement
in the Statement of Comprehensive Income.
g) Segment information
The Directors are of the opinion that the Company is engaged in
a single segment of business: investing in natural resources
companies.
h) Net asset value per share
Net Asset Value per Ordinary Share disclosed on the face of the
Statement of Financial Position is calculated in accordance with
the Company's Prospectus by dividing the net assets of the Company
on the Statement of Financial Position date by the number of
Ordinary Shares (including the Management Ordinary Shares)
outstanding at that date. Treasury Shares are excluded from the Net
Asset Value per Ordinary Share calculation.
i) Interest on investments
These comprise of interest accrued and interest received from
convertible loans where interest is payable throughout the life of
the instrument which are accounted for on an accruals basis and
recognised in the Statement of Comprehensive Income.
j) Dividend income
Dividend income is accrued on an ex-dividend basis and
recognised in the Statement of Comprehensive Income and is
presented net of withholding tax. No withholding taxes were
suffered during the year (2021: GBPNil).
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year
Investment Summary: Year ended ended
2022 2021
GBP GBP
Opening book cost 82,910,887 81,003,041
Purchases at cost 1,882,060 2,536,249
Proceeds on sale of investments (2,216,780) (3,712,697)
Net realised (losses)/gains (6,866,885) 3,084,294
------------ ------------
Closing cost 75,709,282 82,910,887
Net unrealised gains 8,602,673 20,774,706
------------ ------------
Financial assets held at fair value through profit
or loss 84,311,955 103,685,593
============ ============
The following table analyses net gains on financial assets at
fair value through profit or loss for the years ended
31 December 2022 and 31 December 2021.
Year ended Year ended
2022 2021
GBP GBP
Financial assets at fair value through profit
or loss
Realised (losses)/gains on:
- Listed equity shares (1,438,318) (792,604)
- Unlisted equity shares (5,118,472) -
- Debt instruments (296,970) 3,893,470
- Warrants (13,125) (16,572)
(6,866,885) 3,084,294
Movement in unrealised (losses)/gains on:
- Listed equity shares (13,716,492) 4,589,432
- Unlisted equity shares 7,893,046 1,571,711
- Royalties (2,763,850) 1,943,286
- Debt instruments (2,675,240) (10,157,233)
- Warrants (909,497) 1,222,604
------------- -------------
(12,172,033) (830,200)
------------- -------------
Net (loss)/gain on financial assets at fair value
through profit or loss (19,038,918) 2,254,094
============= =============
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2022.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at
fair value through profit
or loss
Listed equity shares 11,378,285 4,804,434 - 16,182,719
Unlisted equity shares - - 41,514,956 41,514,956
Royalties - - 14,808.689 14,808,689
Warrants - - 441,471 441,471
Debt instruments - - 11,364,120 11,364,120
------------- ------------------ ------------ ----------
11,378,285 4,804,434 68,129,236 84,311,955
============= ================== ============ ==========
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2021.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at
fair value through profit
or loss
Listed equity shares 4,879,486 14,064,224 - 18,943,710
Unlisted equity shares - - 46,971,239 46,971,239
Royalties - - 16,479,049 16,479,049
Warrants - - 1,364,093 1,364,093
Debt instruments - - 19,927,502 19,927,502
------------- ------------------ ------------ ------------
4,879,486 14,064,224 84,741,883 103,685,593
============= ================== ============ ============
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in net gain on financial
assets and liabilities at fair value through profit or loss held at
31 December 2022.
Unlisted Debt
31 December 2022 Equities Royalties instruments Warrants Total
GBP GBP GBP GBP GBP
Opening balance 1 January
2022 46,971,239 16,479,048 19,927,503 1,364,093 84,741,883
Purchases of investments - - 189,649 - 189,649
Conversion - 1,093,491 (1,093,491) - -
Sales of investments (178,554) - - - (178,554)
Transfer out of Level
3 (8,052,304) - (4,687,331) - (12,739,635)
Change in net unrealised
gains/(losses) 7,893,046 (2,763,850) (2,675,240) (909,497) 1,544,459
Realised losses (5,118,471) - (296,970) (13,125) (5,428,566)
Closing balance 31 December
2022 41,514,956 14,808,689 11,364,120 441,471 68,129,236
------------ ------------ ------------ ---------- -------------
Unrealised gains on investments
still held at 31 December
2022 10,549,611 1,905,220 1,675,718 441,471 14,592,020
============ ============ ============ ========== =============
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in net gain on financial
assets and liabilities at fair value through profit or loss held at
31 December 2021.
Unlisted Debt
31 December 2021 Equities Royalties instruments Warrants Total
GBP GBP GBP GBP GBP
Opening balance 1 January
2021 36,987,733 14,512,762 43,780,112 141,489 95,422,096
Purchases of investments 300,143 23,000 541,140 - 864,283
Sales of investments - - (399,576) 16,572 (383,004)
Conversion* 11,987,827 - (12,730,410) - (742,583)
Transfer out of Level
3 (3,876,175) - (5,000,000) - (8,876,175)
Change in net unrealised
gains/losses 1,571,711 1,943,286 (10,157,233) 1,222,604 (5,419,632)
Realised gains - - 3,893,470 (16,572) 3,876,898
------------- ----------- ------------- ----------- ------------
Closing balance 31 December
2021 46,971,239 16,479,048 19,927,503 1,364,093 84,741,883
------------- ----------- ------------- ----------- ------------
Unrealised gains on investments
still held at 31 December
2021 7,686,978 4,689,071 2,948,246 1,350,968 16,675,263
============= =========== ============= =========== ============
*Conversion of Futura and Anglo Saxony debt into Level 3 equity
positions and Mines & Metal Trading into Silver X and therefore
a Level 1 investment
It is the Company's policy to recognise a change in hierarchy
level when there is a change in the status of the investment, for
example when a listed company delists or vice versa, or when shares
previously subject to a restriction have that restriction released.
The transfers between levels are recorded either on the value of
the investment immediately after the event or the carrying value of
the investment at the beginning of the financial year.
The following transfers from Level 3 have taken place during the
year ended 31 December 2022:
On 8 April 2022 First Tin listed on the London Stock Exchange.
The shares held by the Company are locked up until 8 April 2023 and
are therefore held at a discount to the market price and
accordingly the investment has been transferred from Level 3 to
Level 2 in these financial statements.
On 15 June 2022 the Company converted its convertible loan to
Azarga into Equity. The Company holds over 30% of Azarga and the
investment is therefore carried at a discount to the market prices
as it is considered unlikely the quoted price could be achieved if
the Company decided to sell its investment. Accordingly, the
investment has been transferred from Level 3 to Level 2 in these
financial statements.
On 8 June 2022 the Company converted its US$4m convertible
debenture into Silver X shares. This resulted in a transfer from
level 3 to level 1 of the investment.
The following transfer from Level 2 has taken place during the
year ended 31 December 2022:
On 21 October 2022, the lock-up relating to the shares held in
Tungsten West Plc expired and accordingly the investment has been
transferred from Level 2 to Level 1.
In determining an investment's position within the fair value
hierarchy, the Directors take into consideration the following
factors :
Investments whose values are based on quoted market prices in
active markets are classified within Level 1. These include listed
equities with observable market prices. The Directors do not adjust
the quoted price for such instruments, even in situations where the
Company holds a large position and a sale could reasonably impact
the quoted price. The Company does not and neither did it during
the year hold a sufficiently large position in any listed company
classified as Level 1 that it could impact the quoted price via a
sale of its investment.
Investments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer
quotations or alternative pricing sources supported by observable
inputs, are classified within Level 2. These include certain
less-liquid listed equities. Level 2 investments are valued with
reference to the listed price of the shares should they be freely
tradable after applying a discount for liquidity if relevant. As
Level 2 investments include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information. The
Company had two Level 2 investments at 31 December 2022 (31
December 2021: one).
Investments classified within Level 3 have significant
unobservable inputs. They include unlisted debt instruments,
unlisted equity shares and warrants. Level 3 investments are valued
using valuation techniques explained below. The inputs used by the
Directors in estimating the value of Level 3 investments include
the original transaction price, recent transactions in the same or
similar instruments if representative in volume and nature,
completed or pending third-party transactions in the underlying
investment of comparable issuers, subsequent rounds of financing,
recapitalisations and other transactions across the capital
structure, offerings in the equity or debt capital markets, and
changes in financial ratios or cash flows. Level 3 investments may
also be adjusted with a discount to reflect illiquidity and/or
non-transferability in the absence of market information.
Valuation methodology of Level 3 investments
The primary valuation technique is of "Latest Recent
Transaction" being either recent external fund raises or
transactions. In all cases the valuation considers whether there
has been any change since the transaction that would indicate the
price is no longer fair value. Where an unquoted investment has
been acquired or where there has been a material arm's length
transaction during the past six months it will be carried at
transaction value, having taken into account any change in market
conditions and the performance of the investee company between the
transaction date and the valuation date. If it is assessed that a
recent transaction is not at an arm's length or there are other
indicators that it has not been executed at a price that is
representative of fair value then the transaction value will not be
used as the carrying value of the investment. Where there has been
no Latest Recent Transaction the primary valuation driver is
IndexVal. For each core unlisted investment, the Company maintains
a weighted average basket of listed companies which are comparable
to the investment in terms of commodity, stage of development and
location ("IndexVal"). IndexVal is used as an indication of how an
investment's share price might have moved had it been listed.
Movements in commodity prices are deemed to have been taken into
account by the movement of IndexVal.
A secondary tool used by Management to evaluate potential
investments as well as to provide underlying valuation references
for the Fair Value already established is Development Risk Adjusted
Value ("DRAV"). DRAVs are not a primary determinant of Fair Value.
The Investment Manager prepares discounted cash flow models for the
Company's core investments annually taking into account significant
new information, and for decision making purposes when required.
From these, DRAVs are derived. The computations are based on
consensus forecasts for long term commodity prices and investee
company management estimates of operating and capital costs. The
Investment Manager takes account of market, country and development
risks in its discount factors. Some market analysts incorporate
development risk into the discount rate in arriving at a net
present value ("NPV") rather than establishing an NPV discounted
purely for cost of capital and country risk and then applying a
further overall discount to the project economics dependent on
where such project sits on the development curve per the DRAV
calculations.
The valuation techniques for Level 3 investments can be divided
into six groups:
i. Transactions & Offers
Where there have been transactions within the past 6 months
either through a capital raising by the investee company or known
secondary market transactions, representative in volume and nature
and conducted on an arm's length basis, this is taken as the
primary driver for valuing Level 3 investments, having taken into
account of any change in market conditions and the performance of
the investee company between the transaction date and the valuation
date. This includes offers, binding or otherwise from third parties
around the year end which may not have completed prior to the
year-end but have a high chance of success and are considered to
represent the situation at year end.
ii. IndexVal
Where there have been no known transactions for 6 months, at the
Company's half year and year end, movements in IndexVal will
generally be taken into account in assessing Fair Value where there
has been at least a 10% movement in IndexVal over at least a
six-month period. The IndexVal results are used as an indication of
trend and are viewed in the context of investee company progress
and any requirement for finance in the short term for further
progression.
iii. Royalty Valuation Model
The rights to receive royalties are valued on projected
cashflows taking into account expected time to production and
development risk and adjusted for movement in commodity prices.
iv. EBITDA Multiple
In the case of Cemos Group plc, which moved to full production
during 2020 and so could reflect maintainable earnings, its main
asset is a cement plant with no defined life like a mining project
and therefore has been valued on the basis of a multiple of a blend
of historical and forecast earnings before interest, tax,
depreciation and amortisation ("EBITDA") when compared to listed
comparable cement producers.
v. Warrants
Warrants are valued using a simplified Black Scholes model
taking into account time to expiry, exercise price and volatility.
Where there is no established market for the underlying shares the
average volatility of the companies in that investment's basket of
IndexVal comparables is utilised in the Black Scholes model.
vi. Convertible loans
Convertible loans are valued at fair value through profit or
loss, taking into account credit risk and the value of the
conversion aspect.
Quantitative information of significant unobservable inputs -
Level 3
Range of
unobservable
input
2022 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 28,797,176 Transactions Private transactions n/a
Unlisted Equity 3,499,979 IndexVal Change in index n/a
Unlisted Equity 9,201,855 EBITDA Multiple EBITDA Multiple n/a
Royalties 14,808,689 Royalty Valuation Commodity price n/a
model and discount
rate risk
Unlisted Equity 15,946 Other Exploration n/a
results, study
results, financing
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 726,171 estimated recovery range +/-50%
Valued at fair
Other Convertible value with reference Rate of Credit
Debentures/Loans 10,637,949 to credit risk Risk 20%-40%
Simplified Black
Warrants 242,771 Scholes Model Volatilities 50%
Warrants 198,700 External valuation
Range of
unobservable
input
2021 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 20,914,006 Transactions Private transactions n/a
Unlisted Equity 16,587,037 IndexVal Change in index n/a
Unlisted Equity 9,306,914 EBITDA Multiple EBITDA Multiple n/a
Royalties 16,479,048 Royalty Valuation Commodity price n/a
model and discount
rate risk
Unlisted Equity 163,284 Other Exploration n/a
results, study
results, financing
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 1,292,467 estimated recovery range +/-50%
Other Convertible 2,157,657 IndexVal Change in Index n/a
Debentures/Loans
Valued at fair
Other Convertible value with reference Rate of Credit
Debentures/Loans 16,477,378 to credit risk Risk 20%-40%
Simplified Black
Warrants 1,364,093 Scholes Model Volatilities 50%
Information on third party transactions in unlisted equities is
derived from the Investment Manager's market contacts. The change
in IndexVal for each particular unlisted equity is derived from the
weighted average movements of the individual baskets for that
equity so it is not possible to quantify the range of such
inputs.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 investments
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2022 are as shown below:
Description Input Sensitivity Effect on Fair
used Value (GBP)
Transactions & Expected
Unlisted Equity Transactions +/- 20% +/-5,759,434
Unlisted Equity Change in IndexVal +44%/-79%* +1,539,991/-2,764,984
Unlisted Equity EBITDA Multiple +/- 20% +/-1,840,371
Royalties Commodity Price +/-20% +/-2,956,853
Royalties Discount Rate +/-20% -1,597,086/+1,939,463
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/- 239,627
Others/Loans Risk discount rate +/-20% -1,160,677/+227,963
Convertibles /Loans Volatility of Index Basket +/-40% +206,177/-1,656
Warrants Volatility of Index Basket +/-40% +21,662/-18,733
* The sensitivity analysis refers to a percentage amount added
or deducted from the input and the effect this has on the fair
value. The +44%/-79% sensitivity was used as this was the range of
movements of the constituents in the IndexVal baskets for
Nussir
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 investments
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2021 are as shown below:
Description Input Sensitivity Effect on Fair
used Value (GBP)
Transactions & Expected
Unlisted Equity Transactions +/- 10% +/- 2,091,401
Unlisted Equity Change in IndexVal +101%/-57%* + 16,752,907/-9,454,611
Unlisted Equity EBITDA Multiple +/- 20% +/-1,861,383
Royalties Commodity Price +/-20% +/- 3,291,141
Royalties Discount Rate +/-20% +/- 4,788,365
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/- 426,514
Others/Loans Risk discount rate +/-20% -2,417,009/+1,292,006
Convertibles
/Loans Volatility +/-40% +704,696/-262,075
Warrants Volatility +/-40% -36,769,+56,488
* The sensitivity analysis refers to a percentage amount added
or deducted from the input and the effect this has on the fair
value. The +101%/-57% sensitivity was used as this was the range of
movements of the constituents in the IndexVal baskets for Bilboes
Gold, Kanga Potash and Prism
The Company has not disclosed the fair value for financial
assets such as cash and cash equivalents and short-term receivables
and payables, because their carrying amounts are a reasonable
approximation of fair values.
4. RISK MANAGEMENT POLICIES AND DISCLOSURES
The Company's principal financial instruments comprise financial
assets, primarily unlisted equity investments and loans in natural
resources companies. The portfolio is concentrated on projects on
the large liquid commodity markets and diversified in terms of
geography. These investments reflect the core of the Company's
investment strategy.
The Company manages its exposure to key financial risks
primarily through diversification of geography and commodity, and
through technical and legal due diligence. The objective of the
policy is to support the delivery of the Company's core investment
objective whilst maintaining future financial security. The main
risks that could adversely affect the Company's financial assets or
future cash flows are market risk (comprising market price risk,
currency risk and interest rate risk), commodity price risk,
liquidity risk, concentration risk and credit risk.
The Company's financial liabilities principally comprise fees
payable to various parties and arise directly from its
operations.
Risk exposures and responses
The Company's Board of Directors oversees the management of
financial risks, each of which is summarised below.
a) Market risk
Market risk is the risk that the fair value of a financial
instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: market price risk,
currency risk and interest rate risk.
i. Market price risk
Market price risk is the risk that the fair value of future cash
flows will fluctuate because of changes in the market prices of the
Company's investment portfolio.
The sensitivity analysis on the previous page illustrates the
sensitivity of the key inputs into the market valuation and the
resulting impact of the fair values. The level of change is
considered to be reasonably possible. The sensitivity analysis
assumes all other variables are held constant.
ii. Currency risk
At 31 December 2022, the largest non-Sterling portion of the
Company's financial assets and liabilities was denominated in
Australian Dollars. The functional currency of the Company is
Sterling. Currency risk is the risk that the value of non-Sterling
denominated financial instruments will fluctuate due to changes in
foreign exchange rates. The tables below show the currencies and
amounts the Company was exposed to at 31 December 2022 and 31
December 2021.
31 December 2022
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 43,324,009 0.5640 24,436,834 28.93%
CAD 10,995,550 0.6133 6,743,260 7.98%
EUR 11,430,526 0.8868 10,136,120 12.00%
GBP 19,408,238 1.0000 19,408,238 22.97%
NOK 41,552,423 0.0842 3,499,979 4.14%
USD 24,410,380 0.8299 20,258,417 23.98%
84,482,848 100.00%
----------- ---------------
31 December 2021
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 38,079,806 0.5371 20,451,724 19.52%
CAD 3,850,097 0.5837 2,247,114 2.14%
EUR 12,176,338 0.8401 10,229,833 9.76%
GBP 35,626,057 1.0000 35,626,057 33.99%
NOK 44,748,764 0.0838 3,751,021 3.58%
USD 43,995,802 0.7386 32,493,207 31.01%
104,798,956 100.00%
------------ ---------------
Analysis has been completed to assess what movements in currency
rates are reasonably possible. This analysis has considered the
variance between the highest and lowest conversion rates in 2022
and 2021 for each of the currencies in the table below. The table
shows the potential movements in the Company's net assets as a
result of such foreign exchange movements.
Reasonably 2022 2021
Currency possible Value Value
move GBP GBP
AUD 10% 2,443,683 2,045,172
CAD 11% 741,759 247,183
EUR 13% 1,317,696 1,329,878
NOK 20% 699,996 750,204
USD 16% 3,241,347 5,198,913
---------- ----------
8,444,481 9,571,350
========== ==========
The estimated movement is based on management's determination of
a reasonably possible change in foreign exchange rates. In
practice, the actual results may differ from the sensitivity
analysis above and the difference could be material.
iii. Interest rate risk
Although the Company's financial assets and liabilities expose
it indirectly to risks associated with the effects of fluctuations
in the prevailing levels of market interest rates on its financial
position and fair value, it is subject to little direct exposure to
interest rate fluctuations as the majority of the financial assets
are equity investments or similar investments which do not pay
interest. For valuation purposes convertible loans all have fixed
interest rates and are treated more like quasi equity albeit with
higher ranking than equity. As such they are not directly exposed
to interest rates from a cash flow perspective. Any excess cash and
cash equivalents are invested at short-term market interest rates
which expose the Company, to a limited extent, to interest rate
risk and corresponding gains/losses from a change in the fair value
of these financial instruments.
The table below summarises the Company's exposure to interest
rate risk. It includes the Company's assets and liabilities at fair
values, categorised by the earlier of contractual re-pricing or
maturity dates.
At 31 December 2022 Less than More than Non-interest
6 months 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 254,140 - - 254,140
Financial assets held at fair value through profit or loss* 524,813 10,839,306 72,947,836 84,311,955
Other receivables - - 17,899 17,899
Interest receivable* 57,917 - - 57,917
--------- ---------- ------------ ----------
Total Assets 836,870 10,839,306 72,965,735 84,641,911
========= ========== ============ ==========
Liabilities
Other liabilities - - 159,063 159,063
Total Liabilities - - 159,063 159,063
========= ========== ============ ==========
Interest rate sensitivity gap 836,870 10,839,306
========= ==========
*The interest rate risks on these items are considered as part
of overall price risk in valuing the convertibles.
At 31 December 2021 Less than More than Non-interest
6 months 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 1,077,482 - - 1,077,482
Financial assets held at fair value through profit or loss* 1,235,273 16,237,843 86,212,477 103,685,593
Other receivables - - 22,132 22,132
Interest receivable* 249,445 - - 249,445
---------- ----------- ------------ ------------
Total Assets 2,562,200 16,237,843 86,234,609 105,034,652
========== =========== ============ ============
Liabilities
Other liabilities - - 235,696 235,696
Total Liabilities - - 235,696 235,696
========== =========== ============ ============
Interest rate sensitivity gap 2,562,200 16,237,843
========== ===========
*The interest rate risks on these items are considered as part
of overall price risk in valuing the convertibles.
Interest rate sensitivity
It is the opinion of the Directors that the Company is not
materially exposed to interest rate risk and accordingly no
interest rate sensitivity calculation has been provided in these
financial statements.
b) Liquidity risk
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations as they fall due. The
Company invests in unlisted equities for which there may not be an
immediate market. The Company seeks to mitigate this risk by
maintaining cash and readily realisable listed equity positions
which will cover its ongoing operational expenses.
The Company has the ability to incur borrowings of up to 10% of
its NAV but the Company's policy is to restrict any such borrowings
to temporary purposes only, such as settlement mis-matches.
The table below analyses the Company's financial assets and
liabilities into relevant maturity groupings based on the remaining
period at the Statement of Financial Position date to the
contractual maturity date. The amounts in the table are the
contractual cash flows.
At 31 December 2022 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 254,140 - - - - 254,140
Financial assets held at fair value
through profit
or loss - 524,813 10,088,045 491,092 73,208,005 84,311,955
Receivables 64,364 11,452 - 75,816
--------- ---------- ----------- --------- -------------- ----------
Total Assets 318,504 536,265 10,088,045 491,092 73,208,005 84,641,911
========= ========== =========== ========= ============== ==========
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 84,896 - 74,167 - - 159,063
--------- ---------- ----------- --------- -------------- ----------
Total Liabilities 84,896 - 74,167 - - 159,063
========= ========== =========== ========= ============== ==========
Net assets attributable to shareholders 84,482,848
==========
The table below analyses the Company's financial assets and
liabilities into relevant maturity groupings based on the remaining
period at the Statement of Financial Position date to the
contractual maturity date. The amounts in the table are the
contractual cash flows.
At 31 December 2021 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 1,077,482 - - - - 1,077,482
Financial assets held at fair value
through profit
or loss - 1,235,273 4,721,075 11,516,768 86,212,477 103,685,593
Receivables 249,445 16,132 6,000 - - 271,577
---------- ---------- ----------- ----------- -------------- ------------
Total Assets 1,326,927 1,251,405 4,727,075 11,516,768 86,212,477 105,034,652
========== ========== =========== =========== ============== ============
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 28,750 144,279 62,667 - - 235,696
--------- ---------- ----------- --------- -------------- -----------
Total Liabilities 28,750 144,279 62,667 - - 235,696
========= ========== =========== ========= ============== ===========
Net assets attributable to shareholders 104,798,956
===========
The value of the cash and level 1 listed equity positions held
by the Company at the year-end was GBP11,632,425 (2021:
GBP5,956,968 ) with the total liabilities at the year-end at
GBP159,063 (2021: GBP235,696).
c) Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full as they fall due. The Company has exposure to
credit risk in relation to its cash balances, debt instruments,
loan and loan notes as stated in the Statement of Financial
Position.
The Company seeks to mitigate this risk by lending to companies
with projects which have significant value over and above the value
of the debt in such company so that there is a significant equity
"buffer". The maximum credit risk on debt instruments for the
Company is GBP11,364,120 (2021: GBP19,950,848).
The Company's financial assets are exposed to credit risk, which
amounted to the following at the Statement of Financial Position
date:
2022 2021
GBP GBP
Assets
Cash and cash equivalents 254,140 1,077,482
Interest receivable 57,917 249,445
Other receivables 17,899 22,132
Financial assets held at fair value through
profit or loss 84,311,955 103,685,593
Total assets 84,641,911 105,034,652
----------- -------------
As at 31 December 2022, the Company's non-equity financial
assets exposed to credit risk were held with the following
ratings:
Financial Assets Counterparty **Credit 2022
Rating % of net assets
-Convertible Loan Note Bilboes Gold Limited NR* 0.03
-Convertible Loan Note Black Pearl Limited Partnership NR* 0.86
-Convertible Loan Note Futura Resources Limited NR* 0.16
-Loan Note Cemos Group Plc NR* 11.94
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.11
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.35
Cash and cash equivalents HSBC Bank plc A+ 0.30
Total 13.75
===============
As at 31 December 2021, the Company's non-equity financial
assets exposed to credit risk were held with the following
ratings:
Financial Assets Counterparty **Credit 2021
Rating % of net assets
-Convertible Loan & Loan Note Azarga Metals NR* 2.11
-Convertible Loan & Loan Note Bilboes Holdings Loan Note 1 NR* 1.72
-Convertible Loan & Loan Note Bilboes Holdings Loan Note 2 NR* 0.33
Silver X Mining Corporation (Previously known as
-Convertible Loan & Loan Note Mines & Metals Trading (Peru) Plc) NR* 2.37
-Convertible Loan Note Black Pearl Limited Partnership NR* 1.23
-Convertible Unsecured Loan Security Futura Resources Limited NR* 1.18
-Loan Note Cemos Group Plc NR* 9.72
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.08
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.27
Cash and cash equivalents HSBC Bank plc AA- 1.03
Total 20.04
===============
* No rating available
**As per S&P
d) Concentration risk
The Company's investment policy is to invest in natural
resources companies, both listed and unlisted, that the Investment
Manager considers to be undervalued and that have strong
fundamentals and attractive growth prospects which means that the
Company has significant concentration risk relating to natural
resources companies.
Concentration risks include, but are not limited to natural
resources asset category (such as gold) and geography. The Company
may at certain times hold relatively few investments. The Company
could be subject to significant losses if it holds a large position
in a particular investment that declines in value or is otherwise
adversely affected, including by the default of the issuer. Such
risks potentially could have a material adverse effect on the
Company's financial position, results of operations, business
prospects and returns to investors. The Company's investments are
geographically diverse reducing this aspect of concentration risk.
In terms of commodity, the portfolio is likewise diversified in the
large liquid markets of silver, gold, iron ore, coal and copper to
mitigate this aspect of concentration risk.
4. TAXATION
The Company is a Guernsey Exempt Company and is therefore not
subject to taxation in Guernsey on its income under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989. An annual exemption fee
of GBP1,200 (2021: GBP1,200) has been paid. The Company may,
however, be exposed to taxes in certain other territories in which
it invests such as withholding taxes on interest payments and
dividends and on realisations of investments.
5. ADMINISTRATION FEES
The Administrator, HSBC Securities Services (Guernsey) Limited,
is paid fees for acting as administrator of the Company at the rate
of 7 basis points of gross asset value up to US$ 250 million; the
rate reduces to 5 basis points of gross asset value above US$ 250
million. The Administrator is also reimbursed by the Company for
reasonable out-of-pocket expenses. These fees are calculated and
accrued as at the last business day of each month and paid monthly
in arrears.
The Administrator is also entitled to a fee for its provision of
corporate secretarial services provided to the Company on a time
spent basis and subject to a minimum annual fee of GBP40,000. The
Company is also responsible for any sub-administration fees as
agreed in writing from time to time, and reasonable out-of-pocket
expenses. The Administrator is also entitled to fees of EUR5,000
for preparation of the financial statements of the Company.
The administration fees payable for the year ended 31 December
2022 were GBP118,002 (2021: GBP126,876) of which GBP9,659 (2021:
GBP10,638) was payable at 31 December 2022. HSBC Securities
Services (Ireland) DAC, the sub-Administrator, is paid a portion of
these fees by the Administrator.
6. MANAGEMENT AND PERFORMANCE FEES
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the "Management Agreement").
The Company pays to the Manager a management fee which is equal to
1/12th of 1.75 per cent of the total average market capitalisation
of the Company during each month. The management fee is calculated
and accrued as at the last business day of each month and is paid
monthly in arrears. The Investment Manager's fees are paid by the
Manager.
The management fee for the year ended 31 December 2022 was
GBP1,160,507 (2021: GBP1,587,121) of which GBP69,854 (2021:
GBP122,894) was outstanding at the year end.
The Manager is also entitled to a performance fee. The
Performance Period is each 12-month period ending on 31 December
(the "Performance Period"). The amount of the performance fee is 15
per cent of the total increase in the NAV, if the Hurdle has been
met, at the end of the relevant Performance Period, over the
highest previously recorded NAV as at the end of a Performance
Period in respect of which a performance fee was last accrued,
having made adjustments for numbers of Ordinary Shares issued
and/or repurchased ("Highwater Mark"). The Hurdle is the Issue
Price multiplied by the shares in issue, increased at a rate of 8%
per annum compounded to the end of the relevant Performance Period.
In addition, the performance fee will only become payable if there
has been sufficient net realised gains. As at 31 December 2022, the
Highwater Mark was the equivalent of approximately 94 pence per
share with the relevant Hurdle being the equivalent of
approximately 163 pence per share.
There were no earned performance fees payable for the current or
prior year.
If the Company wishes to terminate the Management Agreement
without cause it is required to give the Manager 12 months prior
notice or pay to the Manager an amount equal to: (a) the aggregate
investment management fee which would otherwise have been payable
during the 12 months following the date of such notice (such amount
to be calculated for the whole of such period by reference to the
Market Capitalisation prevailing on the Valuation Day on or
immediately prior to the date of such notice); and (b) any
performance fee accrued at the end of any Performance Period which
ended on or prior to termination and which remains unpaid at the
date of termination which shall be payable as soon as, and to the
extent that, sufficient cash or other liquid assets are available
to the Company (as determined in good faith by the Directors),
provided that such accrued performance fee shall be paid prior to
the Company making any new investment or settling any other
liabilities; and (c) where termination does not occur at 31
December in any year, any performance fee accrued at the date of
termination shall be payable as soon as and to the extent that
sufficient cash or other liquid assets are available to the Company
(as determined in good faith by the Directors), provided that such
accrued performance fee shall be paid prior to the Company making
any new investment or settling any other liabilities.
8. OTHER EXPENSES
2022 2021
GBP GBP
Research fees 35,356 33,910
Regulatory fees 31,286 30,970
Investor services fees 30,781 24,031
Public relation fees 11,520 10,080
Miscellaneous expenses 21,378 4,398
130,321 103,389
======== ========
9. CASH AND CASH EQUIVALENTS
2022 2021
GBP GBP
Cash at HSBC Bank plc 254,140 1,077,482
======== ==========
10. SHARE CAPITAL
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
The Company has a total of 106,453,335 (2021: 106,453,335)
Ordinary Shares outstanding with an additional 700,000 (2021:
700,000) held in treasury. The Company has 9,167 (2021: 9,167)
Management Ordinary Shares in issue, which are held by the
Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment
of the Official List of the London Stock Exchange. Holders of
Ordinary Shares have the right to receive notice of and to attend
and vote at general meetings of the Company.
Each holder of Ordinary Shares being present in person or by
proxy at a meeting will, upon a show of hands, have one vote and
upon a poll each such holder of Ordinary Shares present in person
or by proxy will have one vote for each Ordinary Share held.
Holders of Management Ordinary Shares have the right to receive
notice of and to attend and vote at general meetings of the
Company, except that the holders of Management Ordinary Shares are
not entitled to vote on any resolution relating to certain specific
matters, including a material change to the Company's investment
objective, investment policy or borrowing policy. Each holder of
Management Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll
each such holder of Management Ordinary Shares present in person or
by proxy will have one vote for each Management Ordinary Share
held. Holders of Ordinary Shares and Management Ordinary Shares are
entitled to receive, and participate in, any dividends or other
distributions out of the profits of the Company available for
dividend and resolved to be distributed in respect of any
accounting period or other income or right to participate
therein.
The details of issued share capital of the Company are as
follows:
2022 2021
No. of No. of
Amount shares* Amount shares*
GBP GBP
Issued and fully paid share
capital
Ordinary Shares of no par value** 76,122,347 107,162,502 76,122,347 107,162,502
(including Management Ordinary
Shares)
Treasury Shares (140,492) (700,000) (140,492) (700,000)
----------- ------------ ----------- ------------
Total Share Capital 75,981,855 106,462,502 75,981,855 106,462,502
----------- ------------ ----------- ------------
The outstanding Ordinary Shares as at the year ended 31 December
2022 are as follows:
Ordinary Shares Treasury Shares
No. of
Amount No. of shares* Amount shares
GBP GBP
Balance at 1 January 2022 &
31 December 2022 76,122,347 106,462,502 140,492 700,000
----------- --------------- ------------ ------------
The outstanding Ordinary Shares as at the year ended 31 December
2021 were as follows:
Ordinary Shares Treasury Shares
No. of
Amount No. of shares* Amount shares
GBP GBP
Balance at 31 December 2021 76,122,347 106,462,502 140,492 700,000
----------- --------------- ------------ ------------
* Includes 9,167 (2021: 9,167) Management Ordinary Shares.
** The value reported for the ordinary shares represents the net
of subscriptions and redemptions (including any associated
expenses)
Capital Management
The Company regards capital as comprising its issued Ordinary
Shares. The Company does not have any debt that might be regarded
as capital. The Company's objectives in managing capital are:
-- To safeguard its ability to continue as a going concern and
provide returns to shareholders in the form of capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities or related instruments of natural
resources companies;
-- To allocate capital to those assets that the Directors
consider are most likely to provide the above returns;
-- To manage, so far as is reasonably possible and when
desirable, any discount or premium between the Company's share
price and its NAV per Ordinary Share; and
-- To make distributions to shareholders when circumstances
permit in accordance with the Company's distribution policy.
The Company has continued to hold sufficient cash and liquid
listed assets to enable it to meet its obligations as they arise
and the Investment Manager provides the Directors with reporting on
the activities of the investments of the Company such that they can
be satisfied with the allocation of capital.
As discussed in the Strategic Report, in August 2015, the
Company introduced a share buyback programme with the objective of
managing the discount the Company's shares trade at compared with
its NAV. The Company has repurchased 700,000 shares at an average
price of 20 pence per share through this programme and the
repurchased shares are held in Treasury.
The Company has authority to make market purchases of up to
14.99 Per Cent of its own Ordinary Shares in issue. A renewal of
such authority is sought from Shareholders at each Annual General
Meeting of the Company or at a General Meeting of the Company, if
required. Any purchases of Ordinary Shares will be made within
internal guidelines established from time to time by the Board and
within applicable regulations.
As described in the Directors' Report on page 19, the Company
has a policy to distribute at least 15 per cent of net realised
cash gains after deducting losses during the financial year through
dividends, tender offers or otherwise.
The Company is not subject to any externally imposed capital
requirements.
Reserves
As at the year-end the Company had Revenue Reserves of
GBP8,771,186 (2021: GBP10,047,160) and Capital Reserves of
GBP(270,193) (2021: GBP18,769,941).
Under the Companies (Guernsey) Law 2008, the Company may buy
back its own shares, or pay dividends, out of any reserves, subject
to passing a solvency test. This test considers whether,
immediately after the payment, the Company's assets exceed its
liabilities and whether it will be able to pay its debts when they
fall due.
11. RELATED PARTY TRANSACTIONS
The Investment Manager, Baker Steel Capital Managers LLP, had an
interest in 9,167 Management Ordinary Shares at 31 December 2022
(31 December 2021: 9,167).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest in 4,922,877 Ordinary Shares in the
Company at 31 December 2022 (2021: 4,922,877). These shares are
held in a custodian account with Citibank N.A. London. Precious
Metals Fund shares a common Investment Manager with the
Company.
David Baker and Trevor Steel, Directors of the Manager, are
interested in the shares held by Northcliffe Holdings Limited and
The Sonya Trust respectively, which are therefore considered to be
Related Parties. Northcliffe Holdings Pty Limited holds 12,452,177
shares (2021: 12,452,177) and The Sonya Trust holds 12,637,350
shares (2021: 12,722,129).
John Falla purchased 60,000 shares in the Company on 10 November
2022.
The Company's associates are described in Note 13 to these
financial statements.
The Management fees and Directors' fees paid and accrued for the
year were:
2022 2021
GBP GBP
Management fees 1,160,507 1,587,121
Directors' fees 129,489 115,000
The Management fees and Directors' fees outstanding at the
year-end were:
2022 2021
GBP GBP
Management fees 69,854 122,894
Directors' fees - 28,750
12. NET ASSET VALUE PER SHARE AND GAIN PER SHARE
Net asset value per share is based on the net assets of
GBP84,482,848 (31 December 2021: GBP104,798,956) and 106,462,502
(31 December 2021: 106,462,502) Ordinary Shares, being the number
of shares in issue at the year-end excluding 700,000 shares which
are held in treasury. The calculation for basic and diluted NAV per
share is as below:
31 December 2022 31 December 2021
Ordinary Shares Ordinary Shares
Net assets at the year-end (GBP) 84,482,848 104,798,956
Number of shares 106,462,502 106,462,502
Net asset value per share (in pence)
basic and diluted 79.4 98.4
Weighted average number of shares 106,462,502 106,462,502
The basic and diluted loss per share for 2022 is based on the
net loss for the year of the Company of GBP20,316,108 and on
106,462,502 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year.
The basic and diluted gain per share for 2021 is based on the
net gain for the year of the Company of GBP1,307,557 and on
106,462,502 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year.
There are no outstanding instruments which could result in the
issue of new shares or dilute the issued share capital.
13. INVESTMENT IN ASSOCIATES
The interests in the below companies are for investment purposes
and they are deemed associates by virtue of the Company having
appointed a non-executive director ("NED") and/or holding in excess
of 20% of the voting rights of the relevant company. Investments in
associates are carried at fair value as they are held as part of
the investment portfolio which is valued on a fair value basis.
Investment Country of Incorporation Voting Rights held NED Appointed
Cemos Group Limited Jersey 24.59% Yes
Bilboes Gold Limited Mauritius 24.16% No*
Nussir ASA Norway 12.12% Yes
Futura Resources Australia 26.94% Yes
Tungsten West Plc England and Wales 16.10% No**
Silver X Mining Yes
Corporation Canada 12.46%
Polar Acquisition British Virgin Yes
Limited Islands 49.99%
Azarga Canada 31.33% No
Various Baker Steel representatives and their associates
received fees and incentives for their role as directors to these
companies. These fees are received in addition to the management
fees charged.
*Retired from the board on 6 January 2023
**Retired from the board on 13 March 2023
14. SUBSEQUENT EVENTS
On 6(th) January 2023, Caledonia Mining Corporation Plc acquired
all the shares of Bilboes Gold Limited. The Company received a 1%
net smelter royalty over future production from Bilboes' project
area and shares in Caledonia. The expected transaction was taken
into account in the valuation of Bilboes at 31 December 2022.
There were no further events subsequent to the period end, not
already disclosed in the Annual Report and Accounts, that
materially impacted on the Company that require disclosure or
adjustment to these financial statements.
15. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL
STATEMENTS
The Annual Report and Audited Financial Statements for the
year-ended 31 December 2022 were approved by the Board of Directors
on 21 April 2023.
Appendix - additional information (UnAUDITED)
REMUNERATION DETAILS FOR INVESTMENT MANAGER'S STAFF
As noted earlier, under AIFMD, the Investment Manager received
approval to act as a full scope UK AIFM to the Company as of 22
July 2014. Pursuant to Article 22(2)9e) and (f) of AIFMD, an AIFM
must, where appropriate for each AIF it manages, make an annual
report available to the AIF investors. The annual report must
contain, amongst other items, the total amount of remuneration paid
by the AIFM to its staff for the financial year, split into fixed
and variable remuneration including, where relevant, any carried
interest paid by the AIF, along with the aggregate remuneration
awarded to senior management and members of staff whose actions
have a material impact on the risk profile of the AIF.
For the year ended 31 December 2022 the LLP as Investment
Manager paid fixed remuneration to members and those identified as
AIF code staff of GBP437,346. Variable remuneration amounted to
GBP2,225,935. No carried interest was paid by the Company. These
figures represent the aggregate remuneration paid to members and
those identified as AIF code staff of the LLP as Investment Manager
for the year ended 31 December 2022. The total remuneration of the
individuals whose actions have a material impact upon the risk
profile of the AIF managed by the AIFM amounted to
GBP2,662,740.
The total AIFM remuneration attributable to senior management
was GBP2,662,740. No other staff were identified as material risk
takers in the year. The remuneration figures reflect an
approximation of the portion of AIFM remuneration reasonably
attributable to the AIF.
GLOSSARY OF TERMS
AIF - Alternative Investment Fund
AIFM - Alternative Investment Fund Manager
AIFMD - Alternative Investment Fund Managers Directive
BSRT - Baker Steel Resources Trust Limited
Commission - Guernsey Financial Services Commission
DRAVs - Development Risk Adjusted Values
DFS - A Definitive Feasibility Study is an evaluation of a
proposed mining project to determine whether the mineral resource
can be mined economically. A DFS is the basis for detailed design
and construction of a project and determines definitively whether
to proceed with the project. Detailed feasibility studies require a
significant amount of formal engineering work, with costings
accurate to within 10-15%. The definitive feasibility study will be
based on indicated and measured mineral resources.
EU - European Union
EGM - Extraordinary General Meeting
FCA - Financial Conduct Authority
FRC - Financial Reporting Council
FVO - Fair value option
FVOCI- Fair value through other comprehensive income
FVTPL - Fair value through profit or loss
GFSC - Guernsey Financial Services Commission
GFSC Code - Guernsey Financial Services Commission Code of
Corporate Governance
g/t - Grams per tonne
IAS - International Accounting Standards
ITG - IFRS Transition Resource Group of Impairment of Financial
Instruments
IFRS - International Financial Reporting Standards as adopted by
the European Union
IndexVal - Where there have been no known transactions for 6
months, at the Company's half year and year-end, movements in
IndexVal will generally be taken into account in assessing Fair
Value where there has been at least a 10% movement in IndexVal over
at least a six month period. The IndexVal results are used as an
indication of trend and are viewed in the context of investee
company progress.
IPO - Initial Public Offering (stock market launch)
JORC - AUSTRALASIAN JOINT ORE RESERVES COMMITTEE
The Code for Reporting of Mineral Resources and Ore Reserves
(the JORC Code) of the Australasian Joint Ore Reserves Committee
(JORC) is widely accepted as a standard for professional reporting
of mineral resources and ore reserves. Mineral resources are
classified as 'Inferred', 'Indicated' or 'Measured', while ore
reserves are either 'Probable' or 'Proven'.
Mt - million tonnes
NAV - Net Asset Value
NI 43 -101 - CANADIAN NATIONAL INSTRUMENT 43-101
Canadian National Instrument 43-101 is a mineral resource
classification instrument which dictates reporting and public
disclosure of information in Canada relating to mineral
properties.
NAV Discount - NAV to market price discount The Net Asset Value
("NAV") per share is the value of all the investment company's
assets, less any liabilities it has, divided by the number of
shares. However, because the Company's Ordinary Shares are traded
on the London Stock Exchange's Main Market, the share price may be
higher or lower than the NAV. The difference is known as a discount
or premium.
OCI - Other comprehensive income
PEA - Preliminary Economic Assessment
SORP - Statement of Recommended Practice issued by The
Association of Investment Companies dated November 2021
UK Code - UK Corporate Governance Code published by the
Financial Reporting Council in July 2018.
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END
FR SELFMFEDSEEL
(END) Dow Jones Newswires
April 24, 2023 02:00 ET (06:00 GMT)
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