BlackRock World Mining Trust Plc – Final Results
PR News Cable
LONDON, UK, March 7
BlackRock World Mining Trust plc
LEI: LNFFPBEUZJBOSR6PW155
Annual Report and Financial Statements December 31, 2023
Performance Review
As of December 31, 2023
As of December 31, 2022
Net (in thousands of pounds)¹
1 051
1 299 285
Net asset price consistent with a non-unusual percentage consistent with (NAV) (pennies)
606. 78
688,35
Common Percentage Value (Mid-Market) (pence)
587,00
697,00
Benchmark2: Net Total Return
6 002,54
5 863,32
(Settlement)/Net Asset Value Premium3
(3,3)%
1,3%
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Ended December 31, 2023
For the ended December 31, 2022
Yield (reinvested dividends)
Net Asset Value (NAV) consistent with the stock3
-6,2%
17,7%
Common Stock Price3
-10,4%
26,0%
Benchmark2
2,4%
11,5%
—————
—————
Return from the start (dividends reinvested)
Net Asset Value (NAV) consistent with the stock3
1 319,4%
1 413,6%
Common Stock Price3
1 365,9%
1 535,8%
Benchmark2
1 005,2%
979,6%
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Ended December 31, 2023
For the ended December 31, 2022
Change %
Income
Net profit after tax (in thousands of pounds sterling)
64 691
76 013
-14,9
Return on earnings consistent with not unusual consistent with percentage (pence)4
33,95
40,68
-16,6
—————
—————
—————
Consistent Dividends with Consistent Percentage (Pence)
– 1st Interim
5,50
5,50
–
– 2nd Interim
5,50
5,50
–
-Acting
5,50
5,50
–
-Final
5:00 pm.
11:50 p. m.
-27,7
—————
—————
—————
Total dividends paid and payable
33. 50
40:00 p. m.
-16,3
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1 The change in net assets reflects portfolio movements, the percentage of reissues and dividends paid during the year.
2 MSCI ACWI Metals Index
3 Alternative measures, see Glossary in the Annual Report and Financial Statements.
4 More main points can be found in the Glossary of Accounts for the Annual Report and Financial Statements.
Statement by the President
Strengths
· NAV consistent with percentage -6. 2%1 (reinvested dividends)
· Share Value -10. 4%1 (dividends reinvested)
· Total dividend of 33. 50 pence consistent with the share
OverviewAfter a strong year of functionality in 2022, the last 12 months to December 31, 2023 have been more challenging for the mining sector. The sector performed strongly at the start of the year, with mining commodity costs emerging almost everywhere, supported by the speed of China’s reopening from COVID-19 and expectations of a recovery in demand. However, the mining sector temporarily pulled back as the improvement in Chinese economic knowledge was slower than expected and as we progressed through the year, concerns about the call also emerged. for the outlook in the major Western economies. Elevated geopolitical tensions in the Middle East and expectations that peak interest rates would persist for longer than expected have also contributed to making the sector challenging. As we entered the final component of the Company’s fiscal year, symptoms of subdued inflation and interest rate expectations generated positive market sentiment for both the mining sector and the broader stock markets.
Performance For the twelve months ended December 31, 2023, the Company’s net assets consistent with the constant percentage (NAV) returned -6. 2%1 and the percentage value consistent with a return of -10. 4%1. By comparison, over the same consistent period, the Company’s benchmark, the MSCI ACWI Metals Index
Our portfolio managers provide a more detailed explanation of the firm’s functionality and the points that contributed or subtracted functionality from the functionality during the year in their next Investment Manager Report. They also give more data on the positioning of the portfolio and their vision on the outlook for the coming years. year.
The company’s earnings are consistent with a percentage yield for the year of 33. 95 pence, down 16. 6% from last year’s earnings yield of 40. 68 pence. Lower commodity prices, emerging overhead costs, and a weak U. S. dollar (as many dividends from commodity corporations are paid in U. S. dollars) have all contributed to earnings relief, leading to a decline consistent with shareholder returns.
During the year, three quarterly interim dividends of 5. 50 pence were paid according to the consistent percentage on 5 May 2023, 6 October 2023 and 24 November 2023. The Board proposes a final dividend payment of 17. 00 pence in line with the consistent percentage for the year ended December. December 31, 2023. , with quarterly interim dividends, totals 33. 50 pence on a percentage basis (2022: 40. 00 pence on a percentage basis), a 16. 3% cut to expenses incurred in the previous year.
As in previous years, all dividends are fully covered through income. In accordance with the policy established by the Board, general dividends constitute substantially all of the profits to be earned during the year.
Subject to approval by the Annual General Meeting, the balance of the dividend will be paid on May 14, 2024 to shareholders of record on March 22, 2024, with the ex-dividend date being March 21, 2024. The Commission’s objective remains to try to distribute a really large portion of all the Corporation’s expendable income on future terms.
Leverage The Company has a flexible borrowing policy that depends on market conditions. The Company could possibly borrow up to 25% of the Group’s net assets. The maximum leverage point used for the year is 14. 6% and the leverage point as of December 31, 2023 is 11. 9%. The average leverage for the year as of December 31, 2023 was 11. 9%. For calculations, consult the Glossary of Accounts of the Annual Report and Financial Statements.
The Directors recognize the importance to investors that the market value of the Company’s percentages does not result in a significant premium or reduction in the value of the underlying net assets. Accordingly, under general market conditions, the Board would possibly use the Company’s percentage buyback strength or otherwise refactor cash percentages or factor new percentages (at a premium to net asset value) to ensure that the percentage value is broadly in line with the underlying net asset value, if this is deemed to be in the best interests of the Company.
The Company’s consistent percentages commenced the year under review at a premium and I am pleased to announce that the year in which the Company reissued 2,430,000 ordinary consistent percentages from the treasury for a total gross attention of £15,658,000, at an average value of 644. 37 pence consistent with consistent percentages and an average premium of 1. 4% over the NAV. The Company has not repurchased any consistent percentages and, since the end of the year, no other consistent percentage has been reissued. The reduction at the end of the year was 3. 3% and on March 5, 2024 (last date before the approval of this Annual Report) it was 6. 5%.
At the next Annual General Meeting, resolutions will be proposed to shareholders to renew factoring and share buyback authorizations.
As discussed in the semi-annual monetary report, the Board is pleased to welcome Charles (Chip) Goodyear as a non-executive director. I also informed at the time that I would be stepping down as President after the next Annual General Meeting (AGM). and that Chip would succeed me as president. It has been a privilege to serve as president of the society for the next five years. I must thank all shareholders for their support, as well as my colleagues on the board of directors and BlackRock. I would like to thank the team for making my tenure as President as rewarding and fun as it has undoubtedly been. With Chip’s extensive experience working with leading mining companies, I leave the company in the capable hands of the Board of Directors and the Investment Manager and wish each and every one of them good luck in the future. “
The Board has announced a search to identify a new director in early 2024, with the help of an external recruitment firm, Fletcher Jones. The successful candidate will be appointed as a director at the conclusion of the Annual General Meeting on May 9, 2024.
30th Anniversary To celebrate the Company’s 30th anniversary, the Board of Directors agreed to make an annual donation of US$15,000 for 3 years to the Julian Baring Scholarship Fund (the Fund). The Fund was established in 2000 at the call for the Company’s first fund. The Fund’s advisors, along with industry, offer annual scholarships to talented but financially disadvantaged academics in Africa and South America to enhance their education and pursue careers in the mining industry. The Fund has helped more than 150 people since its inception in mining-related faculties.
Following Chip Goodyear’s appointment last August, he sought approval to waive his reimbursement rights similar to his role as a director of the Company. This repeal was on his initiative and at his request. The Board discussed the matter and made the decision that it was appropriate to give a contribution of an amount equivalent to the Chip Director’s fees each year, in addition to the $15,000 discussed above. On the occasion of the Society’s 25th anniversary, the Fund was able to expand its success from Africa to South America. The Board of Directors receives regular updates from the Fund’s Trustees on beyond and provides scholars and their progress and Justin Baring, Chair of the Fund. , will provide a brief introduction to shareholders at the next Annual General Meeting.
Terms and Conditions of the Annual General Meeting The Company’s Annual General Meeting will be held at BlackRock’s offices at 12 Throgmorton Avenue, London EC2N 2DL, on Thursday 9 May 2024 at 11:30 a. m. m. Details of the meeting schedule are set forth in the Notice of Meeting on pages 156 to 159 of the Annual Report and Financial Statements. The Board looks forward to meeting with shareholders and answering any questions you may have that day.
To gain advantages for shareholders who are unable to attend this year’s Annual General Meeting in person, we have arranged for the viewing of the proceedings in a webinar. You can register to view the Annual General Meeting by scanning the QR code located inside the cover of the annual report. or by visiting our online page at www. blackrock. com/uk/brwm and clicking on the registration banner.
Please note that it is not conceivable to speak or vote at the Annual General Meeting through this medium and joining the webinar does not constitute participation in the Annual General Meeting. Shareholders who wish to exercise their right to attend, speak and vote at the Annual General Meeting must attend or exercise their right to appoint a proxy to do so on their behalf.
OutlookHigher interest rates and increased volatility have led to a peak of uncertainty in markets and a notable dispersion in commodity price returns in 2023. There has also been a complicated geopolitical context with little end in sight to the conflicts in Eastern Europe and the Middle East. as well as a structural festival between the United States and China. The number of volatile conditions around the world is the highest in decades and 2024 is expected to be the peak election year, with more than a portion of the world’s population voting.
However, against this backdrop, inflationary pressures are easing in the US. Inflation is expected to return to target in 2024. The source disruptions that persist during the time of the COVID-19 pandemic are also fading, and the Chinese government has implemented a series of stimulus measures to reverse its suffering economy, which deserve to help the demand for raw fabrics. The energy transition to a low-carbon economy is also expected to increase the demand for fabrics in the low-carbon supply chain. carbon technologies, adding copper, metal and lithium, which is a tailwind for parts of the mining sector.
DAVID CHEYNECrésidentMarch 7, 2024
1 Alternative measures of functionality. All percentages are calculated in British pounds, dividends are reinvested. You can find more main points about the calculation of the reinvested dividends functionality in the annual report and annual accounts.
Investment Manager’s Report
Summary 2023 has been a year marked by massive fluctuations in the functionality of the industry as a whole and markets in general. Although 2022 ended with solid gains across the sector, this increase is largely due to the rebound in the fourth quarter. of 2022, with the expectation that China’s reopening, after its zero-COVID-19 policy, would drive expansion in 2023. Unfortunately, the momentum wasn’t as strong at the end of January due to the complex set of offset points that drove the moves. Financial aspects such as interest rates and inflation, combined with a weaker-than-expected expansion in China and geopolitical events, created uncertainty among investors, leading to significant dispersion of yields.
Commodity price returns have been similarly mixed across the board. This diversity, from iron ore values, far exceeded estimates to no fall, while lithium fell sharply, ending the year well below even the most conservative forecasts. Precious metals also moved in other directions, with gold rising, while platinum organization metals fell. Percentage values of mining companies declined over the course of the year as investors, fearful of weak Chinese demand, exited the market. either to tap into higher-yielding money or to gain exposure to the “Magnificent 7” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla). This has left the sector trading at low multiples for several decades, representing an opportunity for the company.
Overall, however, it was a disappointing year for the company, as several key stocks failed to generate returns due to a variety of factors. Examples include: First Quantum Minerals, where the Panamanian government forced the closure of the company’s largest asset due to a populist agenda; Chalice Mining has set unrealistic allocation parameters; low lithium costs have affected the valuations of the Company’s holdings, but the opposite was true for the South Korean metallurgical company POSCO, whose shares changed in price based on its exposure; and mid-sized copper expansion stocks declined sharply during the year. The cumulative effect of this scenario has caused the Company’s net asset price to underperform the benchmark (MSCI ACWI Metals Index).
For the year as a whole, the Company’s NAV was down 6. 2% with the revenue source reinvested and overall inventory recovery was -10. 4% due to a slight drawdown that widened over the course of the year. This compares with an increase in the FTSE. cien of 7. 7%, the Consumer Price Index (CPI) of 4. 0% and the core index of 2. 4% (all figures in sterling). Despite this poor one-year performance, the Company’s three- and five-year track record remains. solidly intact.
The seismic shifts of 2023 came with a wide diversity of expectations. How much higher would interest rates go?Would inflation persist or begin to fade?Should companies manage their margins? These problems were intertwined with slowing growth, bank bailouts (Silicon Valley Bank, First Republic, and Credit Suisse), standoff in the Middle East, and a much slower reopening of industry in China. mentioned above, it is unexpected to have ended the year with such positive returns for the equity markets (S-Index
For the mining sector, medium-term fundamentals remained firm. Growth in demand for raw materials related to the energy transition remains strong. Sales of electric vehicles (EVs) broke new records in terms of total number and market share. The installation of renewable energy infrastructure also broke records with massive amounts built during the year and a commercial sales pipeline for long-term projects as comprehensive as one might expect.
On the source side, copper production figures for 2023 and beyond appear to be lower than expected as mines have not been able to ramp up on time or to expected levels. Capital expenditures for new allocations continue to exceed expectations, making allocation progression less likely. Metals inventories declined throughout the year, leaving them at multi-year lows, keeping markets tense. Resource nationalism remains a pervasive risk and poses dangers in many countries around the world and some mines have been forced to close, Panama’s Cobre added. With sources becoming increasingly cost-inelastic in the short to medium term, it turns out that room for manoeuvre is limited if shocks worsen in 2024.
Despite those tailwinds, the sector has failed to generate enough momentum to attract widespread investor interest and the alternative, such as 5% cash deposits in the market, has captured much of the savings flow. Mining stocks have been particularly underperforming across markets as valuations have hit multiple-decade lows. This is in stark contrast to 2022, when the sector, along with oil, will be one of the most productive to be exposed.
Mergers and acquisitions activities (M
In the U. S. , Newmont Corporation agreed to the terms of acquisition of Newcrest Mining and the transaction was completed in the last quarter of the year. Steel also announced the terms of a deal that could result in its sale to Nippon Steel if the deal is approved by U. S. regulators, labor unions and, of course, shareholders.
ESG (environmental, social and governance) issues are highly applicable to the mining sector and we seek to perceive the ESG dangers and potential related opportunities they face across corporations and portfolio sectors. As an extractive industry, the mining sector naturally faces a number of demanding ESG situations given its dependence on water, carbon emissions, and the geographic location of its assets. However, we know that the sector can provide critical infrastructure, taxes and jobs to local communities, as well as fabrics that are essential. We have for technological development, enabling the carbon transition through the production of the metals necessary for the generation that sustains this transition.
We take ESG data and data, aggregating sustainability risks, into all data contained in our research process and determine the materiality of such data as a component of the investment process used to build and manage the portfolio. ESG data is not the only option for investment decisions but, in most cases, the Company will not invest in corporations that have high ESG risks (dangers to a company’s monetary condition or operating performance) and that do not have a plan to address existing deficiencies or controversies in an appropriate manner.
· We take a long-term approach, focused on engaging executives and corporate portfolio forums to perceive threats and money pricing points in companies’ business models, adding sustainability threats and opportunities, where appropriate.
· There will be cases where a serious event will occur, for example, a twist of fate at a mine and in this case we will assess whether the relevant portfolio company is taking appropriate action before deciding what to do.
· There will be companies that have been downgraded (the downward adjustment of multiples) as a result of an adverse ESG occasion or due to poor ESG practices and where there would possibly be opportunities to invest at a discounted price. However, the Company will only invest in those values-based opportunities if we are pleased that there is genuine evidence that the relevant company culture has been replaced and that best operational practices have been implemented.
Given the activities carried out through mining companies, it is not unexpected that there are events that happen within a calendar year. 2023 was a year in which there were fewer events for the Company, which means that the engagement has focused mainly on the technique of our participations. to the energy transition and how they plan to not only seize opportunities, but also how they plan to decarbonize their own operations.
Throughout the year, key focus spaces went beyond ESG issues such as Vale and governance in relation to the day-to-day fiduciary duties of the Board of Directors. Vale continued to advance its journey to raise its ESG profile in the wake of the tragic tailings events of the last decade. The company paid $55. 9 million in March 2023 to settle charges similar to misleading data related to the Brumadinho dam. On the governance side, changes were made to the Board of Directors with the arrival of new independent foreign directors. Vale also announced plans to spin off its base metals department and raised capital for this process. BlackRock analysts traveled to Brazil to review remediation paints done around tailings ruptures and paints with local communities affected by those initiatives. It was great to see how the ESG rating agencies reflect the work the company has done to get better ratings.
Low values overallLike last year, average values decreased across the range, with the exception of gold and silver. However, this masks intra-year volatility, which has been higher than in recent times. For example, the value of copper during the year remained broadly stable, but this belies the fact that at one point it had fallen by 17% from the high to the low. This trend manifested itself in the metals universe, and without the year-end rally, the peak would have ended in 2023. well below the levels seen at the beginning of the year.
Despite the overall negative tone of price movements, the most notable feature was iron ore, which was up 20. 3% for the year. More importantly, the average value has remained stable, which may not seem like a win, but a sharp drop is estimated. have had a significant effect on margins.
Commodity Value Movements
December 31, 2023
% in 2023
% Change in Average 2023 vs 2022
Wares
Gold US$/oz (oz)
2 065
13,8%
7,8%
Silver US$/oz
12h25
2,1%
7,3%
Platinum US$/oz
1 006
-2,4%
0,6%
Palladium US$/oz
1 119
-37,0%
-36,4%
Copper US$/lb (lb)
3,84
1,2%
-3,9%
Nickel US$/lb
7. 43
-45,2%
-17,9%
Aluminum $US/lbs.
1. 06
-0,2%
-16,6%
Zinc US$/lb
1. 2
-12,1%
-23,9%
Lead US$/lb
0,92
-12,9%
-0,7%
Tin US$/lb
11:42 a. m.
1,7%
-17,3%
Baltic Freight Rate
2 094
38,2%
-27,9%
West Texas Intermediate (Cushing) Petroleum/bbl
71,9
-10,4%
-18,2%
Iron ore (China 62% fine) USD/ton
142
20,3%
-0,9%
Thermal coal US$/ton
146,4
-62,4%
-47,7%
Coking coal US$/ton
323,8
9,9%
-19,1%
Lithium $US/lb
108,7
-43,2%
-32,9%
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Sources: Datastream and Bloomberg, December 2023.
RevenueAs highlighted in last year’s report, the Company’s revenue has exceeded expectations for several consecutive years. This is due to higher absolute payout levels for dividends, more dividend-paying securities in the portfolio, greater capital field in the corporate component, and sometimes more strong balance sheets. In hindsight, the peak seems to have been reached in 2021, largely followed by last year.
This year, profits have fallen due to declining gross costs and rising costs, which has reduced profitability, which means less return for shareholders. Also, as is clear from last year’s report, companies have been pouring more leftover money into percentage buybacks, which bodes well for the future, but in the short term they have extra reduced dividend payouts. It’s remarkable how the number of percentages has temporarily decreased as a result of those buybacks. For example, ArcelorMittal’s and Glencore’s notable percentages declined by 8% and 5%, respectively, with a combined total of $2. 9 billion used to buy back the percentages.
Looking ahead, we don’t see any explanation as to why companies are not meeting their capital allocation plans and therefore with commodity prices lower than in 2023, bills could in turn be lower than last year. However, at the time of writing, iron ore, the top commodity for dividends, is far exceeding market forecasts, meaning there is room for improvement in dividend estimates.
The energy transition As mentioned above, the energy transition continues to accelerate. Electric cars are gaining market share from combustion engine cars to degrees well above expectations. The deployment of renewable energy projects and related infrastructure is progressing much faster than expected. This is partly due to European countries’ preference to diversify away from fossil fuels provided through Russia and the fact that with fossil fuel costs so high, renewable energy is significantly more cost-effective, not to mention helping countries/companies meet their needs. Zero compromises.
It is clear that we are still very close to the start of the energy transition cycle, given the scale of investments that will be needed in the coming decades. If we look at the knowledge of renewable energy, it becomes clear how much more intensive these resources will be. Energy is. In addition, there will also be a demand for raw materials related to the need for battery storage and the advancement of the hydrogen economy.
It’s also that mining companies accept the need to decarbonize their own operations, as long-term demand will likely look to source from companies that not only offer some quality, but also have green credentials. This shift from “brown to green” presents a diversity of investment opportunities for society, whether seeking to reduce the maximum reduction rates implemented in carbon-intensive production techniques, as well as new technologies that can solve some of the most damaging old processes.
Base metals It’s been a challenging year for base metals, with average costs falling across the board, as considerations about global growth, emerging interest rates, and China’s asset sector have led to a significant reduction in metals stockpiles that has driven costs down. Higher costs (albeit at a slower pace than in 2022), producer margins have also declined, cutting into money generation and dividends. Encouragingly, as we end the year, expectations of lower interest rates in the U. S. are rising. U. S. and stabilization signs demand and stimulus in China have supported costs.
Copper, our favorite base metal, ended the year unchanged as macroeconomic considerations offset fundamentals, especially on the sources side. Despite headwinds in China’s asset market, Chinese demand for copper remained healthy, with demand obviously up 12% year-on-year. China’s focus on “green” investments in renewables, electric vehicles and the grid has offset pressure on copper demand from the real estate sector.
The most attractive aspect of the copper market this year has been the increasing disruption of copper supply as we approach the end of the year. 2024 was widely expected to see notable supply growth as assets recovered from COVID-19 and new assets such as Anglo, American’s Quelleveco mine and Teck’s Quebrada Blanca Phase 2 (QB2) allocation in Chile began to ramp up. However, we now expect the source of copper concentrate to decline in 2024 compared to 2023.
The most impactful surprise is the closure of First Quantum Minerals’ Cobre Panama mine, which is now in the care and maintenance phase. Cobre Panama has the capacity to produce approximately 400 ktpa of copper and there is a high degree of uncertainty regarding the restart of this mine. We have also noticed a significant deterioration in production at Anglo American, which has reduced its copper production direction from 180 kt to 210 kt in 2024; Southern Copper, Vale and Rio Tinto have all lowered their forecasts for copper sources in 2024 and we expect the threat to increase for Teck QB2 in 2024. Given the low point of copper inventories, the lack of investment in new mining capacity, and the demanding operating structure for many copper mines, costs are poised to recede once the outlook improves.
While the long-term fundamentals of the copper market remain strong, i. e. the role of copper in the energy transition, we remain definitely exposed to copper manufacturers within the Company. This is a mixed result among companies with strong stock market functionality, particularly Foran Mining (0. 9% of the portfolio). Foran Mining has also produced interesting exploration spin-offs at McIlvenna Bay and its Tesla Discovery site in Canada, which could potentially increase production rates in the future. Lundin Mining (1. 2% of the portfolio) also performed well, improving its operational functionality and obtaining a 51% stake in the Casserone copper mine in Chile. Ivanhoe Mines (1. 9% of the portfolio) continues to generate spin-offs as its Komoa-Kakula asset in the Democratic Republic of the Congo accelerates and has also announced exciting exploration spin-offs in its top-tier onshore progression from the Western Forelands. The biggest sadness of the year is the functionality of First Quantum Minerals (1. 5% of the portfolio), which saw its percentage value fall around 60% when the government of Panama requested the closure of the Cobre PanamáArray mine.
The value of aluminum closed the year unchanged compared to 2022. However, this masks the 17% drop in the average value in one year. Aluminum prices have fallen especially in the last two years, driven by falling energy prices, which are the biggest burden on aluminum production. China’s aluminum demand has been particularly boosted by the deployment of solar energy, as have its production levels, which have left the Chinese market largely balanced. China’s overseas demand declined by around 1% in 2023, largely due to reduced inventories and limited entry of new sources into China’s overseas market. Longer term, we expect aluminum prices to rise as carbon rates begin to value. Demand for “green” or “low carbon” aluminum continues to grow, and those products are worth more than classic London Metal Exchange quality aluminum. The company’s largest exposure to aluminum is through Hydro (2. 6% of the portfolio), which is one of the lowest carbon aluminum manufacturers due to its access to hydropower in Norway. Hydro is continuing its strategy to expand its diversity of low-carbon products through recycling and investing in renewable energy, with the company announcing an investment in its renewable energy business Hydro Rein through Macquarie Asset Management, which acquired a 49. 9% stake for $332 million. fourth. year.
The nickel market was particularly difficult in 2023, with the nickel price ending the year down 45% and the average value down 18% year-on-year. The significant expansion of Indonesia’s nickel source has structurally altered the nickel market in recent years and nickel smelting manufacturers (NPI) have increased production and adapted their facilities to allow the production of nickel and nickel matte. other intermediate products. This allows them to sell Class 1 battery grade nickel into the market, demand for which is expected to increase throughout the expansion of electric vehicles. A key question for the nickel market is whether we are seeing differential nickel pricing based on the carbon intensity of production, which is important for many Indonesian brands given their reliance on thermal coal. The Company has two natural exposures to nickel: first Nickel Industries (0. 5% of the portfolio), now an NPI manufacturer that is transitioning to LME grade nickel production, which will improve its profits and margins. The current investment was made through a “PIPE” agreement in 2022 in Lifezone Metals, which has been listed since the end of June 2023. Lifezone Metals, in collaboration with BHP, owns the Kabanga allocation in Tanzania, one of the largest of the world. the largest unexploited nickel sulfide deposits.
Bulk & SteelThe iron ore market was a dominance of strength in 2023, with value up 20% and a strong year-over-year average value. Given the depressed outlook for China’s asset sector, commodity analysts expected values to decline in 2023 along with a decline. The iron ore market benefited from better-than-expected Chinese metals production in 2023, an increase in blast furnace production at the expense of a decrease in the production of scrap-fed electric arc furnaces, and an increase in metals production in China. metal exports, up 40% year-on-year. With metals margins in China under pressure, the premium for premium fabrics has declined. However, we remain positive about long-term customers for higher-quality iron ore, especially as the metal industry seeks to reduce its carbon intensity.
The iron ore market remains highly concentrated, with the four largest manufacturers accounting for around 70% of the offshore market. We have noted that the industry remains disciplined from a source perspective, with limited source expansion by primary manufacturers, despite strong money generation from their existing iron ore assets. We expect this to remain the case for years to come as manufacturers continue to prioritize price over volume and decarbonize their operations.
The company’s exposure to iron ore occurs primarily through large diversified companies BHP, Vale and Rio Tinto. These corporations tend to generate strong margins and loose cash flows from the iron ore business, which underpins the high dividend yield at which they operate. Higher than expected iron ore costs in 2023, iron ore manufacturers’ dividends may increase. In addition, the Company has exposure to two natural manufacturers of high-quality iron ore, Champion Iron and Labrador Iron. Champion Iron is ramping up its operations in Bloom Lake, Canada, targeting the production of high-quality iron ore (69% Fe), a key component of low-carbon metal production.
In 2023, we saw notable differences in the functionality of metal margins and inventory costs for each of the major metal-producing regions. The U. S. remained a strong point in the global metal market, supported by increased investment in infrastructure and reshoring, as well as source field through producers. In Europe, metals costs and margins have been under pressure as commercial production in regions such as Germany has become depressed and emerging Chinese exports have weakened costs. China’s metals margins remained around break-even for much of the year, with metals largely tracking the evolution of its main inputs, iron ore and coking coal. We expected metals production in China to slow in the second part of 2023, in line with the government’s goal of reducing metal production year-on-year. , this has not been able to keep up with iron ore costs.
From an equity perspective, Asian metals manufacturers (excluding China) performed better in 2023, hurting the company’s relative functionality given their lack of exposure. Korea-listed POSCO performed well in 2023 following the announcement of its battery fabric projects, while Japan-listed Nippon. Steel also performed well with renewed interest in Japan-listed stocks. The company’s exposure to the metal focuses on corporations with a track record of returning capital through percentage buybacks and dividends, as well as disciplined expansion and a cutting-edge technique for decarbonization. Our preference at the Company is to be exposed to low-carbon manufacturers, such as U. S. electric arc furnace manufacturers Nucor and Steel Dynamics, or to invest in manufacturers that are potentially carbon-intensive but have credible plans to decarbonize their production, as is the case with Arcelor Mittal.
Higher-than-expected demand for metals and increasing use of blast furnaces also benefited coking coal prices, which averaged US$295. 5/tonne over the year. China’s coking coal imports remained healthy, with domestic sources hit by injuries and building protection inspections. India, the world’s fastest developing metals market, has continued to increase its imports of coking coal and is expected to increase its demand for coking coal by around 50 million tonnes by the end of the decade, an amount equivalent to current demand from Japan. for coking coal. Combined with limited source growth, we expect a “stronger for longer” price environment to persist in the medium term. Throughout the year we have seen mergers and acquisitions in this sector, with Glencore taking a 77% stake in Teck’s coking coal business for $6. 9 billion, with the transaction expected to close in the third quarter of 2024 BHP sold its Blackwater and Daunia coking coal. mines in Queensland to Whitehaven for a cash investment of up to $4. 1 billion. The Company’s exposure to metallurgical coal remains with the two largest producers, BHP and Teck Resources, which have been able to generate very high levels of cash flow from their coking coal operations to aid returns. for shareholders in recent years.
After record thermal coal prices in 2022 as a result of the European energy crisis, prices fell especially in 2023 but ended up above market expectations. China ruled coal expansion demand in 2023, with higher thermal power generation in 2023, with coal imports and domestic coal production higher year-over-year. This peak in demand was largely met by increased coal exports from Indonesia, as well as increased exports of Australian-sourced coal, which have been hampered in recent years by strong coal exports. We saw fewer disruptions to fountains in Australia in 2023, which helped stabilise demand.
The company’s exposure to thermal coal is through our 8. 3% position in Glencore, which has used higher thermal coal costs in recent years to deleverage the business and buy back shares. Later in the year, Glencore proposed to Teck to merge its two businesses and then spin off the combined coal business to create two separate companies: a metals business and a coal business. This proposal was not accepted by Teck’s board of directors and instead opted to sell its acquired coking coal business through Glencore. Glencore said it would gradually separate coal from the rest of its business. As a reminder, the Company has no exposure to exclusive thermal coal producers.
Precious Metals Precious metals have been a domain of strength in 2023, with a 14% increase in the value of gold and an 8% year-over-year increase in average value. The value of gold benefited from the increased geopolitical issues during the year, large central bank purchases and year-end technique, as well as the expectation of interest rate cuts by the Federal Reserve, which would lead to a decline in real yields. The central bank’s net gold purchases in 2023 of 1,037 tonnes almost equalled the 2022 record, with a deficit of just forty-five tonnes. Central bank purchases have been governed through China, which continues to accumulate gold reserves.
Another attractive feature of the gold market in recent years is the disconnect between the value of gold and real returns. Historically, gold has performed well in an environment of low real yields, as gold is a non-yielding asset. of genuine emerging market yields, the attractiveness of other “safe-haven” assets, such as money and government bonds, regularly weighs on gold, improves. The growing physical demand for gold by central banks and the increased geopolitical threat are partly due to gold’s strong functionality in despite high real yields in 2023. As we neared the end of 2023 and the market began to price in rate cuts, we saw an uptick in the price of gold, more in line with the classic correlation between gold and rates.
The value of silver has underperformed that of gold when considering average values in 2023 compared to the same period last year. Industrial demand for silver was strong in 2023, with solar installations exceeding expectations overall. With silver inventories declining in recent years and supply issues. In the world’s largest silver producer, Mexico, the physical silver market is expected to tighten further, especially if solar installations continue to increase.
The Company increased its exposure to gold manufacturers during the year in light of the improved outlook for the gold price. However, we have maintained our strategy of focusing on high-quality manufacturers with a large operating margin and a strong production profile and resource base. Typically, gold royalty corporations offer exposure to higher-quality, lower-risk gold because they don’t face operating charges or capital inflation. Unfortunately, Franco-Nevada’s exposure (1. 4% of the portfolio) to First Quantum Minerals’ Cobre Panama mine, which was placed in the care and maintenance phase towards the end of the year, the stock ended the year down 19% in US dollar terms. 2023 marked another year of consolidation in the gold industry with the successful acquisition of Australian-listed Newcrest Mining. through Newmont Corporation (3. 6% of the portfolio) to create the world’s largest gold producer.
Energy transition metals Battery electric vehicle (BEV) sales continued to grow in 2023, with estimates that sales would reach more than 14 million sets of battery electric vehicles. This expansion was primarily driven through China, where BEV sales totaled 8. 8 million games, an increase of 38%. year after year, according to the China Passenger Car Association. Globally, the festival has led to a decline in EV prices, which has supported volumes. However, this affected profitability and led to a loss of investor confidence, as some primary appliance manufacturers, specifically in the US, were unable to sell their own devices. In the U. S. , they slowed down their investment plans by prioritizing profitability.
The legislation continued to evolve, and it should be noted in particular that the United States sought to exclude companies owned by foreign interest entities (FEOCs) from eligibility for electric vehicle incentives under the Inflation Reduction Act. Beginning in 2024, an eligible white vehicle would possibly not involve any battery parts manufactured through an OEDF, and as of 2025, an eligible blank vehicle would possibly not include any critical minerals mined, processed, or recycled through an OEWF. This scenario is disruptive because it will exclude many Chinese corporations from the U. S. home chain. U. S.
The company is exposed to raw materials that are used in batteries and electric motors. Lithium is a must-have component of an EV battery, and while demand for lithium has been strong this year, prices have fallen by 43%. The sector has experienced a reduction in inventories and an increase in supply. The Company’s holdings in lithium manufacturers such as Albemarle and SQM are profitable. The position in Sigma Lithium is an exception, with a modest increase of 6. 6% over the year. The company began generating lithium concentrate from its Brazilian allocation during the year and announced that a strategic review was underway.
An essential component of the electric car is also the electric motor, which uses at most one magnet of praseodymium-neodymium (NdPr), an alloy of two rare earth elements (REE). REEs are commonly mined and processed in China and are believed to be of strategic importance throughout Europe and the United States. The company has exposure to REE through Lynas Rare Earths (Lynas), an REE miner and processor founded primarily in Malaysia and Australia. In 2023, Lynas stock fell 13. 4% over a generation. This year, the company successfully commissioned its cracking and leach plant in Australia and complexified its plant in the United States by securing a site in Texas.
The year 2023 saw an immediate resurgence of interest in uranium, built up at the 28th United Nations Climate Change Conference (COP28), which identified the key role of nuclear force in achieving net 0 with a declaration to triple nuclear force capability by 2050. Uranium production has increased significantly over the course of the year and Ux Consulting’s weekly spot value increased by 82. 3%. The company’s stake in uranium manufacturer Cameco increased to 81% in the year, benefiting from higher stocks. They also completed the acquisition of 49% of Westinghouse, an original equipment manufacturer and provider of nuclear reactor technology services, further integrating them into the nuclear power supply chain.
During the year, the Company evaluated several new personal equity transactions but ultimately declined to participate for reasons. As discussed in previous reports, the goal of unlisted investments is to generate capital and a source of income expansion to achieve the portfolio’s overall return target.
We continue to actively pursue opportunities to increase royalty exposure, as it is a key differentiator of the Company and an effective mechanism to secure long-term revenues that further diversify the Company’s revenues.
In 2023, several of the newly indexed stocks made additional gains in their allocations. Bravo Mining announced perfect drilling effects, an updated resource for its Luanga assignment and finalized financing covering them for the next two years. Ivanhoe Electric reported perfect drilling effects and completed significant capital accumulation during the period.
At the end of 2023, unlisted investments in the portfolio accounted for 6. 7% of the portfolio and consist of royalties from BHP Brazil, Vale bonds, Jetti Resources and MCC Mining. These investments, as well as any long-term investments, will be monitored in accordance with the rules set by the Board of Directors described to shareholders in the strategic report of this annual report.
BHP Brazil Royalty Agreement (1. 4% of Portfolio) In July 2014, the Company signed a binding royalty agreement with Avanco Minerals (Avanco). The Company provided US$12 million in exchange for royalties on the net return from the smelter (net source of revenue after deduction of transportation, smelting and refining costs) comprising 2% on copper, 25% on gold and 2% on all other metals produced in the mines built under Avanco’s Antas North and Pedra Branca licenses. In addition, there is a fixed 2% royalty on all metals produced from any other discoveries in Avanco’s licensed domain at the time of the agreement.
In 2018, we are pleased to announce that Avanco Minerals was acquired through OZ Minerals, an Australian copper and gold producer, for A$418 million. We are also pleased to announce that OZ Minerals was acquired in early 2023 through BHP, the world’s largest company. mining company and now operating the assets underlying the royalty. Since our initial investment of $12 million was made, we have earned $27. 4 million in royalties, with royalties fully amortized on the initial investment in 3 1/2 years. At the end of December 2023, the royalty was valued at £18. 4 million (1. 4% of the portfolio), equating to a cash return of 329. 6% on the US$12 million initially invested.
In August, the Pedra Branca mine experienced a geotechnical event that suspended operations in accordance with BHP’s global protection standards. The mine resumed operations in October and is targeting overall production levels in early 2024. This has reduced 2023 production levels and related royalty payments, yet is not expected to have an effect on overall reserves and resources or production rates in the long term. BHP has implemented adjustments to the mine design and extraction method, as well as additional tracking systems to lessen the threat of long-term events.
Vale Debentures (2. 8% of the portfolio) In early 2019, the Company completed a significant transaction to increase its stake in Vale’s Debentures. The Debentures come with a 1. 8% net earnings royalty on Vale’s northern and southeastern iron ore assets in Brazil, as well as a 1. 25% royalty on the Sossego copper mine. Iron ore assets are world-class given their grade, load position, infrastructure and resource life, which exceeds 50 years.
Dividend payments are expected to increase once royalty payments begin with the Southeastern formula in 2025 and volumes at S11D and Serra Norte increase. At Vale’s financial markets day in December, the company reported 50 million tonnes of iron ore expansion through 2026, of which S11D is the largest component, as well as a combination of improved quality that will gain advantages in royalty.
The bonds will offer a yield of more than 10% on the annualized dividend for the first half of 2023. This is an interesting return for a royalty investment, with this pricing opportunity identified through other indexed royalty producers, Franco-Nevada and Sandstorm Gold Royalties, either of which acquired interest in the debentures in 2021.
While Vale’s bonds are a royalty, they are also an indexed value in Brazil’s national bond system. As we have highlighted in previous reports, shareholders deserve to be aware that historically, the liquidity point of bonds has been low and the volatility of value must be As expected, the scenario is improving after the April 2021 crash.
Jetti Resources (2. 1% of the portfolio) In early 2022, the Company invested in mining generation company Jetti Resources (Jetti), which has developed a novel catalyst that enhances copper recovery from major copper sulphides (particularly copper contained in chalcopyrite, which is not economical) under traditional leaching conditions. Jetti is lately testing its generation at several mines where they will look to integrate their catalyst into existing SX-EW heap leach mines to improve recoveries with a low capital cost. Generation has been shown to operate at scale at Capstone’s Pinto Valley copper mine, as well as Freeport-McMoRan’s Baghdad and El Abra operations. If Jetti’s generation continues to operate at scale, we expect an upward valuation, and Jetti will share the savings from the additional volumes of copper recovered through the application of its Catalyst.
In the second half of 2022, we are pleased to announce that Jetti completed its Series D investment to raise $100 million at a particularly higher valuation than when our investment ended in early 2022. This allows the company to be fully funded to execute its Project. Growth plans expected in the coming years.
MCC Mining (0. 4% of portfolio) MCC Mining is a privately held copper exploration company in Colombia. It is conducting early-stage exploration and has a strong geological outlook to host several world-class porphyry deposits. Shareholders come from other medium and large companies to limit copper mining companies, which is another indication of the company’s strategic value. Following new regulations in Colombia allowing exploratory drilling in the forest reserve, the company began drilling in its Comita and Pantanos deposits in 2023. The initial effects of the drilling were very encouraging. confirming two porphyry deposits at Comita and Pantanos. The company’s valuation is based on the fair value of $170. 7 million implied by the April 2022 capital increase. The company’s goal is to continue exploration until 2024.
Derivatives BusinessThe Company periodically enters into derivative contracts, which basically involve the sale of “put” and “call”. These are identified as a source of income and are subject to strict Board rules that restrict their duration to a total of 10% of the portfolio. In 2023, the option revenue stream was £6. 0 million, in line with contributions from previous periods. Over the course of the year, implied volatility was at times lower than in previous years, making overall opportunities less attractive. In addition, transaction prices should be considered in the context of higher interest rates, given that borrowing capacity is commonly used for such transactions. Despite this, enough opportunities have been discovered to generate revenue streams almost in line with previous years without having to take too much risk. At the end of the year, the Company had 0. 1% of net assets exposed to derivatives and the average derivatives exposure for the year was less than 5% of net assets.
Gearing As of December 31, 2023, the Company had a net debt of £149. 8 million, with an equity point of 11. 9%. Debt is held primarily in the form of short-term loans in U. S. dollars and is controlled based on the price of the Company’s debt securities. and high-yield royalty positions. As in recent years, the Company sought to maximize the use of equity debt rather than debt securities. This is due to the relative price of the threat in stocks whose dividend yields were particularly higher than coupons. paid in bonds. Since corporations also have strong balance sheets, it was timely for the company’s stock portfolio, as we weren’t adding debt to securities that were themselves highly leveraged. However, in 2023, the debt charge was higher, which meant that the absolute debt ratio was maintained in previous years to minimize the interest charge.
OutlookThe dominant story for 2023 was that of interest rates versus inflation. The transition to higher rates has been far from easy, as short-term expectations have driven markets, creating a bumpy path for investors. However, it is now very likely that inflationary pressures have peaked and there is a growing consensus that rates will not rise. It’s worth remembering that the post-global currency crisis and the zero-interest era of Covid are an exception to the hitale and as such, the new general deserves to anchor around existing degrees rather than revert to such excessively low degrees.
At the time of writing, we seem to be seeing a shift in demand for raw materials from China, with significant increased investment in renewable infrastructure, manufacturing, and electric vehicles, while demand for more traditional commodities, such as genuine ones, has increased. Global spending on energy transition continues to drive increased demand for raw materials, and with sources increasing in various commodities, markets are constrained and expected to tighten further in the coming years, which bodes well for prices.
For mining corporations with strong balance sheets and control groups anchored in disciplined capital allocation frameworks, the challenge will be to find a balance between a preference for investing in decarbonization or expansion and returning capital to shareholders. Given the peak of capital intensity when it comes to building new capacity, those who have the flexibility to buy back inventory take advantage of low existing valuations, given that it is sometimes less expensive to buy existing capacity than to build it.
In summary, the short-term remains volatile as always, but with strong demands and fundamentals from medium-term sources, the Company is well placed to take advantage of this imbalance. Meanwhile, dividend payouts, while lower than the peak of a few years ago, remain competitive with opportunities such as bonuses and cash, meaning shareholders are paid to wait for the positive outlook to be reflected in stock prices.
EVY HAMBRO & OLIVIA MARKHAMBLACKROCK INVESTMENT MANAGEMENT (UK) March LIMITED7, 2024
Top Ten Investments
Collectively, the ten most sensible investments accounted for 54. 8% of the Company’s total investment portfolio as of December 31, 2023 (2022: 54. 3%).
1 ? BHP1. 2 (2022: 1st) Diversified Mining Group Market Value: £130,674,000 Investment share: 10. 1% comprising 8. 7% and mining royalties of 1. 4% (2022: 9. 5%)
The world’s largest diversified mining organization through market capitalization. The organization is a global player in a number of commodities, including iron ore, copper, thermal and metallurgical coal, manganese, nickel, silver, and diamonds.
2 ? Vale2,3,4(2022: 2nd)Diversified Mining Group Market Value: £124,601,000 Investment share: 9. 6% comprised of 6. 9% equity, 2. 8% bonds and (0. 1)% (2022: 9. 1%)
One of the largest mining equipment in the world, it operates in 30 countries. Vale is the world’s largest manufacturer of iron ore and iron ore pellets, as well as the world’s largest manufacturer of nickel. The organization also produces manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum organization metals, gold, silver, and cobalt.
3 ? Glencore (2022: 3rd) Diversified Mining Group Market Value: £108,173,000 Investment Share: 8. 3% (2022: 7. 7%)
One of the largest diversified herbal resource groups in the world. The group’s operations include approximately 150 mining and metallurgical sites and oil production assets. Glencore’s exposure to mining products includes copper, cobalt, nickel, zinc, lead, ferroalloys, aluminium, thermal coal, iron ore, gold and silver.
4 ? Rio Tinto (2022: 5th) Diversified mining group Market value: £94,600,000 Investment share: 7. 3% (2022: 4. 5%)
One of the world’s leading mining groups. The group’s main product is iron ore, although it also produces aluminum, copper, diamonds, gold, commercial minerals and energy products.
5 ? Freeport-McMoRan (2022: 8th) Copper Producer Market value: £65,125,000 Investment share: 5. 0% (2022: 4. 0%)
A global mining organization that operates large, long-term, geographically diversified assets with proven and probable reserves of copper, gold, and molybdenum.
6 ? Newmont Corporation4 (2022: 18th) Gold Producer Market Value: £44,450,000 Investment share: 3. 6% (2022: 1. 9%)
Following the acquisition of Goldcorp in the first part of 2019, Newmont Corporation is the world’s largest gold manufacturer by market capitalization. The organization has gold and copper operations on five continents, with active gold mines in Nevada, Australia, Ghana, Peru and Suriname.