BlackRock World Mining Trust Plc - Portfolio Update

BLACKROCK WORLD MINING TRUST plc  (LEI - LNFFPBEUZJBOSR6PW155)
All information is at 31 August 2018 and unaudited.
Performance at month end with net income reinvested
		One		Three			One	Three		Five
		Month		Months			Year	Years		Years
Net asset value		-9.8%		-11.1%			-5.4%	88.6%		0.2%
Share price		-6.7%		-10.4%			-4.1%	90.6%		-0.7%
EMIX Global Mining Index (Gross)		-8.4%		-9.3%			-5.9%	84.2%		14.6%
EMIX Global Mining Index (Net)*		-8.4%		-9.4%			-6.4%	81.6%		11.6%
(Total return)
Sources: BlackRock, EMIX Global Mining Index, Datastream
* The Company’s performance benchmark (the EMIX Global Mining Total Return Index) may be calculated on either a Gross or a Net return basis.  Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a Gross basis.  As the Company is subject to the same withholding tax rates for the countries in which it invests, the NR basis is felt to be the most accurate, appropriate, consistent and fair comparison for the Company.  Historically the benchmark data for the Company has always been stated on a Gross basis, and therefore for transparency both sets of benchmark data are provided in the table above.  Going forward it is the Board’s intention to monitor the Company’s performance with reference to the NR version of the benchmark.
At month end
Net asset value including income1:						403.83p
Net asset value capital only:						396.81p
1 Includes net revenue of 7.02p
Share price:						357.50p
Discount to NAV2:						11.5%
Total assets:						£827.5m
Net yield3:						4.4%
Net gearing:						16.5%
Ordinary shares in issue:						176,455,242
Ordinary shares held in treasury:						16,556,600
Ongoing charges4:						1.00%
2 Discount to NAV including income. 3 Based on quarterly interim dividends of 3.00p per share declared on 25 April 2018 and 16 August 2018 in respect of the year ending 31 December 2018 and a quarterly interim dividend of 3.00p per share declared on 10 November 2017 and a final dividend of 6.60p per share in respect of the year ended 31 December 2017. 4 Calculated as a percentage of average net assets and using expenses, excluding finance costs, for the year ended 31 December 2017.
Sector	% Total				Country Analysis				% Total
	Assets								Assets
Diversified	47.8				Global				61.4
Copper	21.1				Latin America				11.0
Gold	13.7				Australasia				10.7
Silver & Diamonds	7.7				Canada				6.9
Industrial Minerals	7.1				Other Africa				6.4
Steel	1.0				USA				1.4
Zinc	0.9				South Africa				0.6
Nickel	0.5				Kazakhstan				0.5
Aluminium	0.4				Indonesia				0.5
Iron Ore	0.1				Russia				0.4
Current Liabilities	-0.3				Peru				0.3
	-----				Argentina				0.1
	100.0				Mexico				0.1
	=====				Current Liabilities				-0.3
									-----
									100.0
									=====

Ten Largest Investments

Company	% Total Assets
BHP	10.5
Rio Tinto	9.3
Vale	9.0
Glencore	8.0
First Quantum Minerals	7.0
Teck Resources	5.2
Sociedad Minera Cerro Verde	3.3
Mountain Province Diamonds	3.0
Lundin Mining	2.7
Avanco Resources - royalty	2.5

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

The Company’s NAV decreased by 9.8% in August, underperforming its benchmark, the EMIX Global Mining Index (net return), which declined by 8.4%.

At a macroeconomic level, continued noise around trade wars, weakening data out of China and Emerging Market volatility, weighed on the commodity complex generally. During the month, the US announced sanctions on Turkey, with the country experiencing currency weakness and accelerating inflation levels. This weakness rippled through global currency markets, spilling into other emerging markets, including Argentina and Brazil.

Mined commodity prices were impacted largely on the back of continued US dollar strength, reiterating that the inverse relationship between metals and the US dollar remains true. However, the commodity price movements seemed to be disproportionate given that we are in an environment of very few supply additions and physical markets remained reasonably tight.  Within the base metals, copper, nickel and zinc prices fell by 5.0%, 8.8% and 8.0% respectively. For the precious metals, gold, silver and platinum prices declined by 2.0%, 6.7% and 4.7% respectively. The fact that gold declined during the month points to the movements also being very dollar related, as mining and precious metals both selling off does not signal a true risk-off trade. (Commodity price returns in USD)

Within the Company’s portfolio, our higher beta names underperformed in a downmarket, with our position in First Quantum being amongst the largest detractors from relative performance in August. In addition, despite Iluka Resources reporting a 47% increase in Zircon pricing compared to the first half of 2017, the company announced unexpected cost increases at its rutile project in Sierra Leone. As a result, the share price came under pressure, with our position in the company detracting from relative performance.

Strategy and Outlook

After two strong years, investors that have not been exposed to mining may now be questioning if they have missed the opportunity. We are, however, still a long way below the peak in 2011 and the sector continues to trade at a valuation discount to broader equity markets. Meanwhile, free cash flow in the sector is close to the highest it has ever been. That said, we believe most mined commodities look reasonably fairly priced and so our base case is that they remain range-bound at current levels. Crucially, however, mining equities are still pricing in commodity prices well below current spot prices and, as such, we are constructive on the shares but fairly neutral on the commodities themselves. Many still distrust the miners, expecting them to make the same mistakes of the past in terms of poor capital discipline. Our view though is that the pain of the recent down-cycle is still too fresh in the minds of management teams for this to become a widespread issue in the near-term. We have begun to see moderate increases in sustaining capex announced but we believe for the most part these have been necessary increases rather than indicative of a widespread return to poor capital discipline.

All data points are in GBP terms unless stated otherwise.

19 September 2018

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.

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