Results analysis: BlackRock World Mining

• BlackRock World Mining (BRWM) recently published its annual report and accounts, covering the twelve-month period to 31 December 2021, over which the NAV total return was +20.7%, and the share price +17.5%. In comparison, over the same period the Company’s Reference Index, the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index returned +15.1%, the FTSE All-Share Index returned +18.3% and the UK Consumer Price Index (CPI) increased by 5.4%.
• BRWM’s revenue return per share was 43.59p, compared with 20.40p for the previous year, representing an increase of 113.7%. The Board is proposing a final dividend payment to make a total of 42.50p per share (2020: 20.30p per share) representing an increase of 109.4%. As in past years, all dividends are fully covered by income. The final dividend of 27p will be paid on 19 May 2022 with an ex-dividend date being 17 March 2022.
• During the year, shares worth £0.4m were repurchased at a discount, and £63.1m issued at an average 0.9% premium to NAV.  At 31 December 2021, BRWM had £113.3 million of net debt, with a gearing level of 9.9% of net assets.

Kepler View

Since the year end to 8 March 2022, BlackRock World Mining’s (BRWM) NAV has increased by 20.9% and the share price has increased by 30.4%. 2021 was clearly a strong year for the trust, but performance so far during 2022 is eye opening, given the MSCI World Index is -10% at the time of writing.

The managers have long held that dividend prospects for their underlying companies were moving towards a sweet spot, and 2021 shows just how right the team were. That said, the managers’ comment that “shareholders should see further years of strong income but probably not the records seen in 2021, especially if the focus [of underlying companies] moves to share buybacks rather than dividends.” With the shares trading on a dividend yield of 5.5%, the trust looks an attractive source of income. That said, we would caution that the dividend could fall next year – it is the board’s policy to link the dividend fairly directly to income each year, implying there will be little attempt at smoothing.

The conviction level of a manager is often shown in the gearing level of a trust. Whilst gearing has remained around 10% for quite some time, the managers comment that with fixed income returns very low, they have “sought to maximise the use of gearing against the equity holdings rather than debt securities”. They rationalise that given the underlying holdings have strong balance sheets, and have been deleveraging, they are “not adding debt to holdings that were already heavily leveraged themselves”. Gearing remains very low cost and flexible, and has clearly enhanced returns over 2021 and so far in 2022, although we note that it can exacerbate losses in periods of negative returns.

The managers remain convinced that the fundamentals for the mining sector are underpinned. They observe that “strong capital discipline has limited new supply at a time when government stimulus, including through infrastructure spending in the US and Europe, has boosted demand.” Furthermore, the team believe that “obstacles to bringing on new supply have increased”, including ESG considerations which mean “greater focus on the environmental and social impact of new mining activity”. On the demand side, they believe that the world economy’s pressing need to decarbonise will mean increasing demand on commodities associated with the electrification of energy production and transportation, such as copper, nickel, lithium and cobalt.

BRWM’s share price premium to NAV of c. 2% reflects the interesting exposure the trust gives to investors at this juncture. According to BlackRock, the mining sector has traditionally performed well on a relative basis in periods of rising inflation and/or rising interest rates. BRWM’s closed-end structure affords the use of gearing and exposure to unquoted investment opportunities, which means it will have unique attractions for some investors.

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