Baker Steel Resources Trust Ltd Notice of EGM (5248J)

TIDMBSRT

RNS Number : 5248J

Baker Steel Resources Trust Ltd

18 December 2015

BAKER STEEL RESOURCES TRUST LIMITED

(Incorporated in Guernsey with registered number 51576 under the provisions of The Companies (Guernsey) Law, 2008 as amended)

Proposed amendment of the Company's investment policy

Adoption of new Articles of Incorporation

Temporary Suspension of Discount Management Policy

Notice of Extraordinary General Meeting

Introduction

The Board today announces that, following consultation with a number of the Company's largest Shareholders, it is seeking approval from Shareholders for an amendment to the Company's investment policy (the Investment Policy Proposal). The amendment, if approved, will enable the Company to increase its existing investment in Polar Silver Resources Limited and/or any company within its group (the Polar Silver Group) so that such investment may represent up to 35 per cent. of the value of the Company's gross assets at the time of the relevant transaction.

As the Investment Policy Proposal involves a material amendment to the Company's existing investment policy, the approval of the holders of Ordinary Shares is required in accordance with the Listing Rules and the Investment Policy Proposal is therefore conditional on the passing of the Investment Policy Resolution, which will be proposed at the Extraordinary General Meeting of the Company as an ordinary resolution.

Separately, the Company's Existing Articles provide that a majority of the Directors shall be resident for tax purposes outside the United Kingdom and if as a result of the death or resignation of a Director, such majority no longer exists, one or more Directors who are resident in the United Kingdom must resign in order to restore such majority.

As announced by the Board on 19 October 2015, Mr Edward Flood, one of the Directors sadly passed away. As a result and following a recent change in UK tax legislation which for some UK tax purposes removes the need for non-UK alternative investment funds, such as the Company, to appoint local directors and hold their Board meetings outside the UK, the Board believes that it is appropriate for the Existing Articles to be amended to remove these requirements in order to provide the Company with additional flexibility with regard to the composition of the Board. A special resolution will therefore be proposed at the Extraordinary General Meeting to adopt new Articles of Incorporation which will not include any of the existing restrictions relating to UK resident directors (the New Articles Proposal).

The Investment Policy Proposal and the New Articles Proposal are not inter-conditional.

Background to and reasons for the Investment Policy Proposal

Following consultation with a number of the Company's largest Shareholders, the Board is seeking approval from the holders of Ordinary Shares to amend the Company's investment policy in order to enable the Company to increase its existing investment in the Polar Silver Group so that such investment may represent up to 35 per cent. of the value of the Company's gross assets at the time of the relevant transaction.

As at 30 November 2015, the Company had net assets of GBP45.7 million and a market capitalisation of approximately GBP21 million. The Company is fully invested with the top 10 investments representing approximately 96 per cent. of the Portfolio by value:

 
      Asset                    Sector             Location        % of Net Asset 
                                                                   Value 
---  -----------------------  -----------------  --------------  --------------- 
      Polar Silver Resources 
 1     Limited                 Silver             Russia          21.5 
---  -----------------------  -----------------  --------------  --------------- 
      Global Oil Shale Group                      Australia 
 2     plc                     Oil Shale/Cement    and Morocco    18.1 
---  -----------------------  -----------------  --------------  --------------- 
      Black Pearl Limited 
 3     Partnership             Iron Ore           Indonesia       16.1 
---  -----------------------  -----------------  --------------  --------------- 
 4    Bilboes Gold Limited     Gold               Zimbabwe        10.6 
---  -----------------------  -----------------  --------------  --------------- 
      Metals Exploration 
 5     plc                     Gold               Philippines     8.9 
---  -----------------------  -----------------  --------------  --------------- 
      Gobi Coal & Energy 
 6     Limited                 Coking Coal        Mongolia        6.2 
---  -----------------------  -----------------  --------------  --------------- 
                               Copper, Zinc,      Democratic 
                                Platinum Group     Republic of 
                                Metals and         Congo and 
 7    Ivanhoe Mines Limited     Nickel             South Africa   5.0 
---  -----------------------  -----------------  --------------  --------------- 
      Ironstone Resources 
 8     Limited                 Iron Ore           Canada          4.3 
---  -----------------------  -----------------  --------------  --------------- 
      China Polymetallic       Silver, Lead 
 9     Mining Limited           and Zinc          China           2.9 
---  -----------------------  -----------------  --------------  --------------- 
      Archipelago Metals 
 10    Limited                 Chrome             Vietnam         2.3 
---  -----------------------  -----------------  --------------  --------------- 
      Other Investments                                           3.0 
---  -----------------------  -----------------  --------------  --------------- 
      Net Cash, Equivalents 
       and Accruals                                               1.1 
---  -----------------------  -----------------  --------------  --------------- 
 

The Company's largest investment is Polar Silver Resources Limited (Polar Silver) which is a private limited company incorporated in the British Virgin Islands that owns 100 per cent. of ZAO Argentum (Argentum), which is incorporated in Russia and in turn holds a 50 per cent. indirect interest in the Prognoz silver project, 444km north of Yakutsk in Russia (the Prognoz Asset). The Company's investment in the Polar Silver Group is in the form of shares in Polar Silver (the Polar Silver Shares), and loan notes in Argentum and Polar Silver (both of which are convertible into Polar Silver Shares). The Company currently owns 27.25 per cent. of the equity of Polar Silver and has lent US$14.835m in aggregate to Polar Silver and Argentum. The Company's Investment Manager, Baker Steel Capital Managers LLP, has advised the Board that there is a disagreement as to the strategy to develop the Prognoz Asset between one of the other major shareholders of Polar Silver (the Polar Shareholder) and the holder of the other 50 per cent. interest in the Prognoz Asset (the Prognoz Shareholder).

In order to remove the uncertainty and risk which this disagreement creates, the Investment Manager is proposing that the Company increases its interest in Polar Silver so that it can achieve a majority control position and undertake further work on the Prognoz Asset so that it can be developed for the benefit of the Shareholders. The effect of this increased interest in Polar Silver, if completed, would be to increase the percentage of the value of the Portfolio represented by the Company's investment in the Polar Silver Group from approximately 21 per cent. to approximately 28 per cent. (depending on the value of the Portfolio at the time and final terms of the proposed additional investment in Polar Silver).

The acquisition of the increased interest in Polar Silver would be made at a valuation which is at, or slightly above, the Company's current carrying value and therefore the acquisition is expected to have a minimal effect upon the Net Asset Value of the Company in the short term. This valuation is regarded by the Investment Manager as fundamentally attractive relative to what it considers to be the risk adjusted fair value of the Prognoz Asset and, accordingly, the Investment Manager believes that acquiring a further interest in the Prognoz Asset should be value enhancing for the Company in the medium to longer term.

The Board, as advised by the Investment Manager, believes that the Prognoz Asset is currently under-developed as a result of the disagreement between the Polar Shareholder and the Prognoz Shareholder and that the increase of the Company's indirect interest in the Prognoz Asset would enable the Company to progress the development of the Prognoz Asset and unlock significant value, whilst at the same time mitigating the risk to the value of its current investment associated with a protracted period of on-going disagreement between the Polar Shareholder and the Prognoz Shareholder. In common with mining assets generally, the Prognoz Asset is dependent on obtaining and maintaining appropriate governmental licences. A renewal of the terms of the Prognoz Asset's current mining licence is required by 31 December 2016. The terms of this mining licence were successfully renewed and extended by the owners of the Prognoz Asset in October 2013 and it is expected that another renewal and extension will be approved provided that a sufficient degree of technical work has been undertaken. However, the rate of progress of work on the Prognoz Asset has been hampered by the disagreement between the shareholders, and there is a risk that unless technical work is resumed, the relevant Russian governmental authorities will not grant another extension of this licence, which could have a material and adverse effect on the value of the Company's investment in the Polar Silver Group.

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December 18, 2015 02:04 ET (07:04 GMT)