BlackRock World Mining 23 June 2023

BlackRock World Mining (BRWM) offers a unique and simple way for investors to get a broad exposure to the mining and metals industry. As well as benefitting from the long experience of the BlackRock natural resources team, the managers’ strategy harnesses many of the structural levers that investment trusts offer to enhance the balance of risk and return for shareholders.

The team’s high-conviction investment approach is enabled by the trust’s structure, which also allows the team to invest in less liquid and private investments, such as pre-IPO opportunities and private market royalty and debenture investments. As we discuss in the Performance section, these have been a particular driver of strong returns during 2022.

A long-running theme which the managers identified several years ago is that large diversified miners have maintained disciplined capital expenditure and cost structures, and they have specifically aimed to return surplus capital to investors through dividends, share buybacks and capital returns. As a result, a high dividend is one of the key attractions of BRWM, which currently yields 6.3% on a historical basis. As we discuss in the Dividend section, after two exceptional years in terms of revenue generation, dividend expectations for the year ahead need to be moderated, given that the board does not have a progressive dividend policy. Aside from declines in commodity prices, it is expected that some mining companies’ focus may shift this year towards share buybacks, rather than outright dividend payouts.

Good performance and strong dividend growth have contributed to the fact that BRWM now trades around par, i.e. 0% discount, and the board has recently been issuing shares.

BRWM’s managers, Evy Hambro and Olivia Markham, have a relatively unrestricted mandate, which allows them to take views on specific commodities and invest in those companies which best reflect these views. In this way, BRWM can be seen as a virtual mining company, but one that has huge flexibility to quickly shift allocations between commodities, unlike a mining company which needs to make physical infrastructure investments and divestments that have very long lead times.

As we discuss in the Portfolio section, BRWM seems well positioned to benefit if the managers’ long-running thesis of capital discipline within the mining sector, and a secular growth story underpinned by the energy transition, come to pass. Whilst there are short-term worries on the horizon, and Olivia accepts there is no getting away from the short-term cyclicality of commodity markets, she remains positive and cautiously optimistic.

Dividends are likely to remain an attractive feature for shareholders of BRWM, but as we caution in the Dividend section, whilst dividend levels will likely remain attractive, shareholders should not expect payouts to remain at historical levels. BRWM shares are in demand and the resulting share issuance, in our view, is to be welcomed. This is because it results in a more liquid investment vehicle, as well as contributing to a larger overall asset base, which should result in proportionately lower ongoing charges overall. We think BRWM remains an attractive one-stop-shop, thanks to the team’s track record of generating alpha and being well-positioned to exploit the many opportunities that exist in the mining sector.