BlackRock World Mining Trust Plc - Portfolio Update

BLACKROCK WORLD MINING TRUST plc  (LEI - LNFFPBEUZJBOSR6PW155)

All information is at 28 February 2019 and unaudited.

Performance at month end with net income reinvested

Sources: BlackRock, EMIX Global Mining Index, Datastream

² Discount to NAV including income.
³ Based on quarterly interim dividends of 3.00p per share declared on 25 April 2018, 16 August 2018 and 8 November 2018 and a final dividend of 9.00p per share announced on 28 February 2019 in respect of the year ended 31 December 2018.
⁴ Calculated as a percentage of average net assets and using expenses, excluding finance costs, for the year ended 31 December 2018.

Commenting on the markets, Evy Hambro and Olivia Markham, representing the Investment Manager noted:

The Company’s NAV increased by 0.2%¹ in February, underperforming its reference index, the EMIX Global Mining Index (net return), which increased by 0.8%². 

Global equity markets continued to climb in February, as displayed by the MSCI World Index rising  by 2.8% (in USD terms), following confirmation from the US that the additional tariffs on Chinese goods would not be implemented. In addition, Federal Reserve minutes also confirmed a patient approach to further rate increases, which was viewed as supportive for equity markets.  Economic data was however mixed, with a positive surprise from the Eurozone Purchasing Managers’ Index (PMI), whilst US retail sales disappointed and showed a decline.

Within the mining sector, the iron ore (62% fe) price remained elevated, finishing the month at a price of $85/tonne on the back of Vale’s suspension of production. Base metals were also up with copper, zinc and nickel prices rising by 6.6%, 3.1% and 4.5% respectively. Copper’s strong performance was based on falling inventories, equating to a speculative perception that there was a shortage of metal in the market (returns shown in USD).

The Company’s position in Ero Copper was the largest contributor to performance. The company performed well on the back of the strong copper price performance, as well as continued exploration success.

On the other hand, our position in Teck Resources detracted from relative performance. The company issued a fourth quarter profit warning at the beginning of the month, referencing the very low Canadian oil prices in the fourth quarter. Later in the month, they announced their 2019 outlook, disappointing the market by reporting that capex and costs for their metallurgical coal business will rise.

During the month, we increased our existing holding in the Vale Debentures.  The Debentures consist of a 1.8% net revenue royalty over Vale’s Northern System and Southeastern System iron ore assets in Brazil, as well as a 1.25% royalty over the Sossego copper mine. The iron ore assets are world-class given their grade, cost position, infrastructure and resource life which is well in excess of 50 years. As at the end of February, the Vale Debentures represented 2.6% of the Company’s NAV.

Strategy and Outlook

We recognise that finding a resolution to the US/China trade war will be difficult. There appears to be bipartisan support in the US for a tough stance on China and it is unclear how the technology transfer issue can be resolved. However, our view is that the market may be overestimating the impact these trade tensions would have on global economic growth. Should we see even gradual improvements in relations between the two countries, we would expect mined commodity prices to improve. Meanwhile, our overall base case for China is that it has the tools to successfully manage a gradual slowdown and we do not anticipate a hard landing type event.

Supply and demand is tight in most mined commodity markets today and, given the cuts in mining sector spending since 2012 (down ~66%), we expect it to remain so. Our base case is therefore, barring an economic slowdown, mined commodity prices to be stable to rising through 2019. Meanwhile, we believe the shares are pricing in a materially worse commodity price environment. We see the risk-reward opportunity in mining as attractive given the improvements in balance sheets over the last 2-3 years and given many of the large diversified miners are trading on free cash flow yields of above 10%.

All data points are in GBP terms unless stated otherwise.

¹Source: BlackRock as at 28 February 2019
² Source: EMIX Global Mining Index as at 28 February 2019

21 March 2019

Latest information is available by typing www.blackrock.co.uk/brwm on the internet. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.