TIDMBSRT
RNS Number : 4304W
Baker Steel Resources Trust Ltd
23 April 2021
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the
provisions of The Companies (Guernsey) Law, 2008 as amended)
23 April 2021
BAKER STEEL RESOURCES TRUST LTD
(the "Company")
Annual Report and Audited Financial Statements
For the year ended 31 December 2020
The Company has today, in accordance with DTR 6.3.5, released
its Annual Audited Financial Report for the year ended 31 December
2020. The Report is available via www.bakersteelresourcestrust.com
and will shortly be submitted to the National Storage
Mechanism.
Further details of the Company and its investments are available
on the Company's website www.bakersteelresourcestrust.com
Enquiries:
Baker Steel Resources Trust Limited: +44 20 7389 8237
Francis Johnstone
Trevor Steel
Numis Securities Limited: +44 20 7260 1000
David Benda (Corporate)
James Glass (sales)
HSBC Securities Services (Guernsey) Limited
Company Secretary: +44 1481 717 852
MANAGEMENT AND ADMINISTRATION
DIRECTORS: Howard Myles (Chairman)
Charles Hansard
Clive Newall (resigned 15 September 2020)
Fiona Perrott-Humphrey (appointed 15 September 2020)
David Staples
(all of whom are non-executive and independent)
REGISTERED OFFICE: Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
MANAGER: Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
INVESTMENT MANAGER: Baker Steel Capital Managers LLP*
34 Dover Street
London W1S 4NG
United Kingdom
STOCK BROKERS: Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
SOLICITORS TO THE COMPANY: Norton Rose Fulbright LLP
(as to English law) 3 More London Riverside
London SE1 2AQ
United Kingdom
ADVOCATES TO THE COMPANY: Ogier
(as to Guernsey law) Redwood House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 1WA
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY: HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
* The Investment Manager was authorised as an Alternative
Investment Fund Manager ("AIFM") for the purpose of the Alternative
Investment Fund Managers Directive ("AIFMD") on 22 July 2014.
SUB-ADMINISTRATOR TO THE COMPANY: HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE COMPANY: HSBC Continental Europe*
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
SAFEKEEPING AND MONITORING AGENT: HSBC Continental Europe *
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
AUDITOR: BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter Port
Guernsey GY1 3LL
Channel Islands
REGISTRAR: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
UK PAYING AGENT AND TRANSFER AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
RECEIVING AGENT: Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
PRINCIPAL BANKER: HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
* HSBC France, Dublin Branch changed its name to HSBC
Continental Europe with effect from 1 December 2020.
CHAIRMAN'S STATEMENT
For the year ended 31 December 2020.
2020 was a year of great uncertainty and market volatility as
the world came to grips with the consequences of the Covid-19
pandemic. Initial investor reaction saw a sharp sell-off in global
equity markets including metals and mining shares but this proved
short lived as sentiment recovered when it became evident that
governments would support economies with unprecedented fiscal
measures. The future inflationary risk of this massive government
borrowing propelled the gold price to all-time highs. This was then
followed by increases in base metal prices with increased expected
demand from government stimulus packages including resource
intensive infrastructure projects to kick start their
economies.
This backdrop has a been a positive one for the Company with the
NAV rising 31.5% over the year to 31 December 2020 and the
Company's share price increasing by 35.8%, while the EMIX Global
Mining Index ro by 22.2% in Sterling terms .
During the year the Company concentrated its resources on
ensuring that our existing investee companies were able to progress
their projects in the prevailing difficult operating and market
conditions. To this end, supplemental investments were made in
Futura Resources, Anglo Saxony Mining, Azarga Metals, Nussir, and
Mines & Metals Peru PLC (MMTP). The market for junior mining
development companies to raise funds then opened up in the final
quarter of 2020 and MMTP was able to raise equity from new
shareholders at the end of the year, following this up with a
listing via a merger with TSX-V listed Oro X and raising a further
C$14 million to create Silver X. Likewise since the year end Anglo
Saxony has been able to raise GBP5 million at a higher price than
we were carrying it at ahead of an anticipated IPO later this year.
Futura continued to progress its coking coal projects towards
production but decided to push back the planned start-up of
operations until more stability and transparency in coking coal
markets prevails. The investment in CEMOS was particularly
rewarding, especially given initial Covid-related problems, as it
ramped up production and sales to full capacity at its cement plant
in Morocco and posted record financial results.
The Company is well placed to benefit from the improved investor
sentiment towards metals and mining with several of our investee
companies such as Bilboes, Futura, Tungsten West and Nussir having
reached a stage where they need and are seeking significant amounts
of capital to develop their mines. In the case of Bilboes a
comprehensive process was undertaken during 2020 to investigate the
options for financing the mine, including merging with another gold
mining company or a sale for cash. In the end, it was decided that
a sale for cash was the most attractive option and negotiations are
continuing with a major gold company to sell the Company's interest
in Bilboes for approximately GBP20 million subject to regulatory
approvals. This would represent a return of around four times our
investment in Bilboes. In accordance with our commitment to
shareholders, at least 15% of realised gains will be distributed to
shareholders. Further details of the size, method and timing of
such distribution will be sent to shareholders following completion
and once the consideration has been finalised and received.
Although the listed market has shown an increased willingness to
finance mining projects, most institutional investors are unable or
unwilling to invest in private companies. This provides a
continuing opportunity for the Company, particularly as private
companies are currently keen to raise finance to progress
themselves to a sufficiently advanced stage to seek a stock
exchange listing. The Company intends to reinvest a major portion
of the proceeds from the sale of Bilboes into advanced pre-IPO
opportunities and we are currently analysing a number of attractive
propositions.
The mining industry has generally coped well with the Covid-19
pandemic as mines are usually in isolated locations and most mining
companies have been able to put in place protocols which have
enabled them to continue operating. Furthermore, most of the
Company's investments are not yet in operation so they have been
relatively less affected than some, other than through some slowing
down of progress. The Company's policy of investing through
convertible bonds has meant we have at least accrued interest on
those loans during these delays, and our husbanding of our
investments by ensuring they had sufficient working capital when
times were most difficult, as mentioned above, means our
investments are in a strong position as the world starts to emerge
from the pandemic.
During the year we welcomed Fiona Perrott-Humphrey, who has over
30 years' experience in mining finance, to the Board. She replaced
Clive Newall, whom I would like to thank for his invaluable
insights on the mining industry and contribution to the Company
since its formation.
Howard Myles
Chairman
22 April 2021
INVESTMENT MANAGER'S REPORT
For the year ended 31 December 2020
Financial Performance
The audited Net Asset Value per Ordinary Share ("NAV") as at 31
December 2020 was 97.2 pence, an increase of 31.5% in the year
compared with the increase in the EMIX Global Mining Index of 22.2%
in Sterling terms.
For the purpose of calculating the NAV per share, unquoted
investments were carried at fair value as at 31 December 2020 as
determined by the Directors and quoted investments were carried at
their quoted prices as that date.
Net assets at 31 December 2020 comprised the following:
GBPm % net assets
Unquoted Investments 95.4 92.2
Quoted Investments 7.2 6.9
Cash and other net assets 0.9 0.9
-------------- -----------------------
103.5 100.0
Investment Update
Largest 10 Holdings - 31 December 2020 % of NAV
Bilboes Gold Limited 19.5
Futura Resources Limited 16.2
Cemos Group Plc 14.5
Tungsten West Limited 13.2
Polar Acquisition Limited 8.9
Mines & Metals Trading (Peru) Plc 4.4
Anglo Saxony Mining Limited 3.9
Nussir ASA 3.4
Azarga Metals Corporation 2.7
Sarmin Minerals Exploration 2.7
89.4
Other Investments 9.7
Cash and other net assets 0.9
--------------------------
100.0
==========================
Largest 10 Holdings - 31 December 2019 % of NAV
Bilboes Gold Limited 15.9
Futura Resources Limited 15.0
Polar Acquisition Limited 11.3
Cemos Group Plc 10.0
Tungsten West Limited 8.0
Polymetal International Plc 6.1
Anglo Saxony Mining Limited 4.6
Mines & Metals Trading (Peru) Plc 4.4
Nussir ASA 4.1
Sarmin Minerals Exploration 3.7
83.1
Other Investments 14.6
Cash and other net assets 2.3
---------
100.0
=========
Review
At the year end the Company was fully invested, holding 28
investments of which the top 10 holdings comprised 90% of the
portfolio by value. The portfolio is well diversified both in terms
of commodity and the geographical location of the projects. In
terms of commodity the portfolio has exposure to gold, silver,
metallurgical coal, cement, tungsten, copper, tin, iron, lead and
zinc. Its projects are located in Australia, Canada, Germany,
Indonesia, Madagascar, Mongolia, Morocco, Norway, Peru, the
Philippines, Republic of Congo, Russia, the UK and Zimbabwe.
During the year, the mining market continued the recovery which
commenced in 2019 albeit with much greater volatility as a result
of the Covid-19 pandemic, with the EMIX Global Mining Index ending
the year up 22.2% in Sterling terms, despite being down at one
point by around 30% in March 2020. The gains were initially led by
precious metals with gold up 25% and silver up 48% in US Dollars
but in the second half were followed by other commodities to which
the Company is exposed, with iron ore up 74%, copper up 26%, tin up
20% and lead up 3% for the year (all in US dollars). The weakest
performing commodity in which the Company is invested was coking
coal which was down 31% due to an unofficial embargo on coal
imports from Australia by China, although the price has recovered
somewhat so far in 2021.
Whereas in 2019, the movements to the carrying values of the
Company's portfolio were largely driven by general market movements
(as represented by the Company's IndexVal models), the increased
activity in the sector meant that at the end of 2020 the majority
of the unlisted holdings were valued on the basis of recent events,
being either external fund raises or transactions. In all cases the
valuations reflect consideration as to whether there has been any
changes since the transaction that would indicate the price is no
longer fair value. During the year, the Company also reviewed the
liquid portion (listed securities) of its portfolio in the light of
volatile markets with the holdings in Polymetal International Plc
and Ivanhoe Mines Ltd being diversified into a spread of listed
precious metal shares.
The Company did not make any new core investments during the
year, partly due to our inability to visit projects due to travel
restrictions but also due to a decision to concentrate our
resources on ensuring that our existing investments had sufficient
working capital to survive the difficult trading conditions as a
result of the Covid-19 pandemic. To this end follow-up investments
were made in Futura Resources Ltd, Mines & Metals Trading Peru
PLC, Anglo Saxony Mining Limited and Azarga Metals Corporation.
The Company's largest investment, Bilboes Gold Limited
("Bilboes") completed its Definitive Feasibility Study ("DFS") on
its forecast 170,000 ounce per annum gold mine,
Isabella-McCays-Bubi in Matabeleland, Zimbabwe, early in 2020.
Bilboes shareholders undertook a formal process to examine the best
way to realise the project's value with all options including an
IPO, private development funding, a merger with another gold
producer or outright sale considered. It was decided that the
Company and the other financial investor would sell their shares
for cash whilst the local management would retain their interest
with the buyer committing to finance the development of the mine.
The details of the transaction are still being negotiated and are
subject to signing binding contracts and regulatory approvals but
assuming it completes, the Company would realise approximately
GBP20 million in cash which equates to approximately four times its
investment.
Progress at Futura's Wilton and Fairhill coking coal projects
was slow during 2020 partly due to the lengthy licencing processes
which have now been worked through, and partly because the
unofficial ban on Australian coal imports by China led to
disruption of the market and as a result delayed Futura's financing
of the mine. It is hoped Futura will be able to raise the necessary
finance in the second quarter of 2021 and commence production in
the second half of this year. This is an example of where the
Company's structuring of its investments through convertibles has
been important in mitigating risk. Due to the delays, Futura was
unable to meet certain milestones in the convertible agreement and
as a result the conversion price of the loan was reduced by 50%.
Since the year end, the Company completed conversion of the loan so
we now hold approximately 27% of the shares of Futura
During the second half of 2020, Cemos Group PLC achieved full
production at its cement plant in Morocco and is now generating
approximately EUR1 million per month in EBITDA. Therefore, it was
moved from an indexation based valuation to a maintainable earnings
multiple approach. At the year end Cemos was as a result revalued
at EUR50 million of which the Company holds approximately 32.4%
assuming conversion of all the Convertible Unlisted Loan
Securities. Following the year end Cemos made a decision to double
its capacity by constructing a second production line, to be
financed out of cashflow from current operations, which is expected
to be in place at the end of 2021.
Towards the end of 2019, the Company invested GBP5 million in
secured convertible loan notes in Tungsten West which owns the
Hemerdon Tungsten Mine, 7 miles northeast of Plymouth in Devon,
England. This was a previously producing mine which encountered
processing problems at a time of low tungsten prices and was forced
to close before being acquired by Tungsten West. During 2020
Tungsten West undertook extensive mineralogical and metallurgical
test work and in March 2021 completed a Bankable Feasibility Study
to reopen the mine. This showed a robust project operating for over
20 years with economics showing a post-tax NPV of GBP272 million
and IRR of 33% on the basis of an upfront capital requirement for
the restart of GBP45 million.
During the year, Polymetal International released details of a
pre-feasibility study ("PFS") it completed on the Prognoz silver
project in the Republic of Sakha (Yakutia), Russia over which Polar
Acquisition Limited ("PAL") holds a 1.8% to 0.9% net smelter
royalty. The PFS demonstrated the Prognoz project to be robust at a
silver price of US$15 per ounce (Spot price US$24 per ounce as at
31 March 2021) based on an open pit mine producing 13.5 million
ounces of payable silver per annum at an all-in-sustaining cost of
US$8-9 /ounce of silver. This excluded a further 100 million ounces
of silver in mineral resources which are likely to be more amenable
to underground mining as well as by-product revenue in particular
lead which is also the subject of PAL's royalty. Polymetal is
expected to make a production decision on Prognoz in the fourth
quarter of 2021.
The Company's investment most affected by the Covid-19 pandemic
was Mines & Metals Trading (Peru) PLC (MMTP), which owns the
Recuperada silver/lead/zinc mine in Peru, with the government of
Peru closing down all mines in the middle of 2020. In the fourth
quarter MMTP was able to move back into full production and since
the year end, has announced an agreement to merge with TSX-V listed
Peruvian explorer Oro-X and raise a minimum C$14 million. The
combined company will be renamed Silver X to create a
growth-focused listed producer well positioned to consolidate the
fragmented Peruvian silver mining industry.
Anglo Saxony completed a PFS on its Tellerhauser tin project in
Saxony, Germany, in April 2020. The study base case economics were
positive although an IRR of 10.8% suggested that the project needed
further optimisation or a higher tin price than the US$20,500/tonne
used in the study, for it to be financeable. Tin has long been
identified as one of the principal beneficiaries of the global move
towards electrification due to its use as solder for electrical
connections, and a tin mine in the heart of Europe is likely to be
of strategic importance. Since the year end, the tin price has
moved ahead strongly and closed at US$27,539 /tonne at 31 March
2021. The renewed interest in tin meant that Anglo Saxony was able
to raise GBP6 million in March 2021 at an 87.5% premium to the
Company's carrying value at 31 December 2020. This funding will
allow Anglo Saxony to perform further resource drilling and
optimisation work ahead of an IPO planned for later this year.
During 2020 Nussir completed the DFS on its Nussir/Ulveryggen
copper project in northern Norway. Although this showed a robust
project Nussir took the decision to revise the operating plan such
that the whole operation is fully electric which will open up the
opportunity for certain grants and reduce the cost of financing the
development as a zero-carbon business. In addition, towards the end
of 2020, Nussir raised a further NOK41 million in equity from
northern Norwegian investors which has increased the local
participation in the project. The revised DFS is due in the second
half of 2021.
In September 2020, Sarmin Mineral Exploration completed a
positive DFS on its Kanga Potash project in the Republic of Congo
for a mine producing 600,000 tonnes per annum of Muriate of
Phosphate ("MOP"). The Kanga project's key advantages (in addition
to its exceptional geological characteristics) are its proximity to
the coast, minimising the cost of product transport as well as
access to long term, competitively priced natural gas. This results
in both capital and operating costs in the lowest part of the
industry cost curve making Kanga one of the most competitive MOP
projects globally. It also has the potential to be expanded on a
modular basis up to 2.4M tpa over 30 years. Sarmin is currently
seeking partners to finance the construction of the project.
Amongst the smaller investments in the portfolio Azarga Metals
Corp. completed a further drilling campaign on its Unkur
copper/silver project in far eastern Russia and is currently
undertaking a revised Preliminary Economic Assessment. Metals
Exploration plc completed a debt restructuring and relisted on AIM
in the fourth quarter and continued to improve the production rate
from its Runruno gold mine in the Philippines. Black Pearl
continued discussions with Chinese partners regarding the use of
its mine as the basis for a new steel plant in Indonesia albeit
that due to the continuing slow progress, the Company decided to
reduce its carrying value of Black Pearl by a further 50%. Prism
Diversified is currently in discussions which could lead to
bringing in a new partner to acquire a majority stake in the
company and Akora Resources Ltd (formerly Indian Pacific Resources
Ltd), completed a successful IPO on the Australian Stock Exchange
during December 2020.
We are cautiously optimistic on the outlook for mining and
metals with some commentators suggesting the start of a new
"supercycle" for commodities though we expect markets to remain
volatile as the world continues to react to the implications of the
Covid-19 pandemic. Should the sale of Bilboes complete, the
consideration will provide the Company with the resources to invest
in new projects at an opportune point in the cycle as well as
fulfilling our commitment to return a portion of profits on
disposals to shareholders.
Further details of each of these investments are provided
below.
Bilboes Gold Limited ("Bilboes")
Bilboes is a private Zimbabwean based gold mining company which
has a JORC compliant Proved and Probable Reserves containing 1.8
million ounces of gold out of a total Mineral Resource of 3.8
million ounces of gold. A positive definitive feasibility study
into a mine producing an average of 170,000 ounces of gold per
annum was completed in 2020.
Futura Resources Ltd ("Futura")
Futura owns the Wilton and Fairhill coking coal projects in the
Bowen Basin in Queensland, Australia which hold Measured and
Indicated resources of 843 million tonnes of coal. Production is
targeted to commence during 2021, for a targeted combined
sustainable level of 2.3 million tonnes per annum of saleable
processed coal in 2022 for at least 25 years once in full
production.
Cemos Group plc ("Cemos")
Cemos is a private cement producer at Tarfaya in Morocco. Cemos
completed the construction of a cement plant at Tarfaya in December
2018 and reached full production rate of 270,000 tonnes cement per
annum during 2020. It has announced plans to double its plant
capacity by the end of 2021.
Tungsten West Limited ("Tungsten West")
Tungsten West is a private company which owns the Hemerdon Mine
in Devon, United Kingdom. A feasibility study into a mine producing
approximately 350,000 mtu tungsten per annum over 25 years was
completed in March 2021.
Polar Acquisition Limited ("PAL")
PAL is a private company which holds a 0.9% to 1.8% royalty over
the Prognoz silver project ("Prognoz"), 444km north of Yakutsk in
Russia, owned by Polymetal. Prognoz has a 267-million-ounce silver
equivalent Indicated and Inferred Mineral Resource at a grade of
755 g/t silver equivalent. A pre-feasibility study was undertaken
by Polymetal International plc in 2020 and a development decision
is expected to be taken in the second half of 2021.
Anglo Saxony ("Anglo Saxony")
Anglo Saxony is a private company which holds the Tellerhäuser,
operations in Germany. Total mineral resources for the project have
been estimated at 22.1 million tonnes of ore grading 0.46% tin. A
pre-feasibility study was completed in March 2020.
Mines & Metals Trading Peru PLC ("MMTP")
MMTP is a private company with operations in Peru. Total mineral
resources for the project have been estimated at 7,336,633 of ore
grading 4.77oz silver per tonne, 3.91% lead, and 2.53% zinc for the
54 vein systems identified. It has announced an agreement to merge
with TSX-V listed Peruvian explorer Oro-X.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the
Nussir/Ulveryggen copper project in Northern Norway. A definitive
feasibility study into a mine producing approximately 14,000 tonnes
of copper per annum was completed in March 2020.
Azarga Metals Corp. ("Azarga")
Azarga is a TSX-V listed company which holds the Unkur
copper/silver project in far eastern Russia with Inferred Mineral
Resources estimated at 62 million tonnes at 0.53% copper and
38.6g/t silver, containing 328,600 tonnes of copper and 76.8
million troy ounces of silver (0.56 Mt of copper equivalent).
Sarmin Minerals Exploration Inc ("Sarmin")
Sarmin is private company which holds the Kanga potash project,
in the Republic of the Congo. A feasibility study producing 600,000
tonnes per annum of Muriate of Phosphate was completed in September
2020.
Metals Exploration plc ("Metals Exploration")
Metals Exploration is an AIM listed company which owns the
Runruno gold mine in the Philippines. The Runruno mine produced
67,552 ounces of gold in 2020.
Black Pearl Limited Partnership ("Black Pearl")
Black Pearl is a special purpose vehicle formed to invest in the
Black Pearl beach placer iron sands project in West Java,
Indonesia. Negotiations are ongoing for the Black Pearl project to
form the base production for an integrated steel production
facility.
PRISM Consolidated Limited ("PRISM")
PRISM is a private Canadian company which owns the Clear Hills
Iron Ore/Vanadium Project ("Clear Hills") in Alberta, Canada. Clear
Hills currently has Indicated Resources of 557.7 million tonnes at
33.3% iron and 0.2% vanadium and an Inferred Resource of 94.7
million tonnes at 34.1% iron.
Akora Resources Ltd (previously Indian Pacific Resources Ltd)
("Akora")
Akora is an Australian Stock Exchange Listed mineral exploration
company with three prospective exploration target areas comprising
some 308 km2 of iron ore tenements in Madagascar.
Baker Steel Capital Managers LLP
Investment Manager
April 2021
PORTFOLIO STATEMENT
AS AT 31 DECEMBER 2020
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Listed equity shares
Australian Dollars
Akora Resources Limited (formerly
5,091,910 Indian Pacific Resources Limited) 1,006,887 0.97
1,705,000 Resolute Mining Limited 765,814 0.74
Australian Dollars Total 1,772,701 1.71
--------------- ---------
Canadian Dollars
6,352,301 Azarga Metals Corporation 219,063 0.21
20,000 Endeavour Mining Corporation 340,488 0.33
Canadian Dollars Total 559,551 0.54
--------------- ---------
Great Britain Pounds
31,000 Fresnillo Plc 350,145 0.34
122,760,000 Metals Exploration Plc 1,964,160 1.90
28,700 Polymetal International Plc 483,452 0.47
Great Britain Pounds Total 2,797,757 2.71
--------------- ---------
United States Dollars
21,000 Anglo Gold Ashanti Limited 347,885 0.34
101,000 Coeur Mining Inc 765,572 0.74
104,000 Harmony Gold Mining Company Limited 356,454 0.34
218,000 Iamgold Corporation 585,931 0.57
United States Dollars Total 2,055,842 1.99
--------------- ---------
Total investment in listed equity
shares 7,185,851 6.95
--------------- ---------
Debt instruments
Australian Dollars
1,000,200 Futura Resources Limited 10,406,905 10.05
Australian Dollars Total 10,406,905 10.05
--------------- ---------
Canadian Dollars
PRISM Diversified Limited Loan Note
305,000 1 129,977 0.13
PRISM Diversified Limited Loan Note
250,500 2 414,138 0.40
Canadian Dollars Total 544,115 0.53
--------------- ---------
Euro
Cemos Group Plc Convertible Unsecured
1,045 Loan Security 7,697,632 7.44
460,603 Cemos Group Plc Loan Note 412,517 0.40
Euro Total 8,110,149 7.84
--------------- ---------
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Debt instruments (Continued)
Great Britain Pounds
Anglo Saxony Mining Limited Convertible
2,200,000 Loan Note 3,400,613 3.29
Tungsten West Limited Convertible
16,666,667 Loan Note 10,074,837 9.73
Great Britain Pounds Total 13,475,450 13.02
--------------- ---------
United States Dollars
Azarga Metals Secured Convertible
3,500,000 Loan Note 2,508,890 2.42
440,000 Bilboes Holdings Loan Note 1 2,667,091 2.58
220,000 Bilboes Holdings Loan Note 2 516,689 0.50
7,009,332 Black Pearl Limited Partnership 1,281,629 1.24
Mines & Metals Trading (Peru) Plc
4,000,000 Convertible Loan Note 3,683,307 3.56
1,000,000 Mines & Metals Trading (Peru) Plc 585,887 0.56
United States Dollars Total 11,243,493 10.86
--------------- ---------
Total investments in debt instruments 43,780,112 42.30
--------------- ---------
Unlisted equity shares and warrants
and royalties
Australian Dollars
7,800,000 Futura Gross Revenue Royalty 5,316,448 5.14
1,018,030 Futura Resources Limited 1,006,539 0.97
Australian Dollars Total 6,322,987 6.11
--------------- ---------
Canadian Dollars
Azarga Metals Convertible Loan Note
13,490,414 Warrants 31/12/2022 104,502 0.10
13,083,936 PRISM Diversified Limited 1,000,026 0.97
PRISM Diversified Limited Warrants
1,000,000 31/12/2023 36,987 0.04
Canadian Dollars Total 1,141,515 1.11
--------------- ---------
Great Britain Pounds
8,096,233 Anglo Saxony Mining Limited 647,699 0.62
1,594,646 Celadon Mining Limited 15,946 0.02
24,004,167 Cemos Group Plc 6,943,907 6.71
7,869,319 Tungsten West Limited 3,541,194 3.42
Great Britain Pounds Total 11,148,746 10.77
--------------- ---------
Norwegian Krone
12,785,361 Nussir ASA 3,550,538 3.43
Norwegian Krone Total 3,550,538 3.43
--------------- ---------
Shares Investments Fair value % of Net
/Warrants/ GBP equivalent assets
Nominal
Unlisted equity shares and warrants
and royalties (Continued)
United States Dollars
451,445 Bilboes Gold Limited 17,009,886 16.43
4,244,550 Gobi Coal & Energy Limited 146,101 0.14
30,698 Mines & Metals Trading (Peru) Plc 334,981 0.32
16,352 Polar Acquisition Limited 9,196,314 8.89
56,042 Sarmin Minerals Exploration 2,790,916 2.70
United States Dollars Total 29,478,198 28.48
--------------- ---------
Total unlisted equity shares, warrants
and royalties 51,641,984 49.90
--------------- ---------
Financial assets held at fair value
through profit or loss 102,607,947 99.15
--------------- ---------
Other Assets & Liabilities 883,452 0.85
--------------- ---------
Total Equity 103,491,399 100.00
--------------- ---------
STRATEGIC REPORT
Company Structure
The Company is a registered closed-ended investment scheme
registered pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended ("POI Law") and the Registered
Collective Investment Scheme Rules 2018 issued by the Guernsey
Financial Services Commission ("GFSC"). The Company is not
authorised or regulated as a collective investment scheme by the
Financial Conduct Authority. The Company is subject to the Listing
Rules and the Disclosure and Transparency Rules of the UK Listing
Authority. The Articles of the Company contain provisions as to the
life of the Company. At the Annual General Meeting ("AGM") falling
in 2018 and at each third AGM convened by the Board thereafter, the
Board will propose a special resolution to discontinue (the
Company) which if passed will require the Directors, within 6
months of the passing of the special resolution, to submit
proposals to shareholders that will provide shareholders with an
opportunity to realise the value of their Ordinary Shares.
Shareholders voted against discontinuing the Company at the 2018
AGM, and the next discontinuation vote will be held at this year's
AGM which is expected to be held in the third quarter of the
year.
Company Purpose and Values
The purpose of the Company is to carry out business as an
investment company and to provide returns to shareholders through
achieving its investment objective as described on page 13.
The values of the Company are discussed and agreed upon by the
Board. The Board seeks to run the Company with a culture of
openness, high integrity and accountability. It aims to demonstrate
these values through its behaviour both within itself and its
dealings with its stakeholders. It seeks to act in the spirit of
mutual respect, trust and fairness. The Board is robust in its
challenge of the Investment Manager and other service providers but
tries always to be constructive and collegiate. The Board expects
its members to exhibit an independence of mind and not to be wary
of asking difficult questions. Moreover, it expects and encourages
its key service providers to exhibit similar values.
Role and Composition of the Board
The Board is the Company's governing body; it sets the Company's
strategy and is collectively responsible for its long-term
performance. The Board, which is comprised entirely of independent
Non-Executive Directors, is responsible for appointing and
subsequently monitoring the activities of the Manager and other
service providers to ensure that the investment objectives of the
Company continue to be met. The Board also ensures that the Manager
adheres to the investment restrictions described in the Company's
Prospectus and acts within the parameters set by it in any other
respect. It also identifies and monitors the key risks facing the
Company.
Investment activities are predominantly monitored through
quarterly Board meetings at which the Board receives detailed
reports and updates from the Investment Manager, who attends each
Board meeting. Services from other key service providers are
reviewed as appropriate. As travel bans resulting from the pandemic
prevented physical meetings taking place, the Board have made use
of video conference facilities to maintain engagement with service
providers.
Subject to meeting solvency requirements, if the Ordinary Shares
trade at a discount in excess of 15 per cent to their NAV, the
Board will consider whether the Company should buy back its own
Ordinary Shares, taking into account the Company's liquidity,
conditions in the stock market and mining markets.
The Board continues to review the Company's ongoing expenditure
to ensure that the total costs incurred in the running of the
Company remain competitive. An analysis of the Company's costs,
including management fees (which are based on the market
capitalisation of the Company), Directors' fees and general
expenses, is submitted to each Board meeting.
As at 31 December 2020, the Board comprised four Directors
(2019: four).
Investment Management
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the Management Agreement).
Under the Management Agreement, the Manager acts as manager of the
Company, subject to the overall control and supervision of the
Directors and was authorised to appoint the Investment Manager to
manage and invest the assets of the Company. The Manager is
responsible for the payment of the fees of the Investment Manager.
The Manager is a company incorporated in the Cayman Islands on 10
April 2002 with registration number 117030 and is an affiliate of
the Investment Manager.
Baker Steel Capital Managers LLP acts as Investment Manager of
the Company and was incorporated in England and Wales on 19
December 2001. It is authorised and regulated by the Financial
Conduct Authority in the United Kingdom. The Investment Manager is
a limited liability partnership with registration number OC301191
and is an affiliate of the Manager. The Investment Manager has been
appointed by the Company to act as its Alternative Investment Fund
Manager ("AIFM") and is responsible for the portfolio management
and investment risk management of the Company. The Investment
Manager manages the Company in accordance with the Alternative
Investment Fund Managers Directives ("AIFMD"). The Investment
Manager is a specialist natural resources asset management and
advisory firm operating from its head office in London and its
branch office in Sydney. It has an experienced team of fund
managers covering the precious metals, base metals and minerals
sectors worldwide, both in relation to commodity equities and the
commodities themselves.
The Directors formally review the performance of the Investment
Manager on an annual basis and remain satisfied that the Investment
Manager has the appropriate resources and expertise to manage the
portfolio of the Company in the best interests of the Company and
its shareholders.
Investment Objective
The Company's investment objective is to seek capital growth
over the long-term through a focused, global portfolio consisting
principally of the equities, loans or related instruments of
natural resources companies. The Company invests predominantly in
unlisted companies (i.e. those companies that have not yet made an
initial public offering ("IPO") but also in listed securities
(including special situations opportunities and less liquid
securities) with a view to making attractive investment returns
through the uplift in value resulting from the development
progression of the investee companies' projects and through
exploiting value inherent in market inefficiencies and pricing
anomalies.
Investment Policy
The core of the Company's strategy is to invest in natural
resources companies, predominantly unlisted, that the Investment
Manager considers to be undervalued and that have strong
fundamentals and attractive growth prospects. Natural resources
companies, for the purposes of the investment policy, are those
involved in the exploration for and production of base metals,
precious metals, bulk commodities, thermal and metallurgical coals,
industrial minerals, energy and uranium, and include single-asset
as well as diversified natural resources companies.
It is intended that unlisted investments be realised through an
IPO, trade sale, management repurchase or other methods.
The Company focuses primarily on making investments in companies
with producing and/or tangible assets such as resources and
reserves that have been verified under internationally recognised
standards for reporting, such as those of the Australasian Joint
Ore Reserves Committee ("JORC"). The Company may also invest from
time to time in exploration companies whose activities are
speculative by nature.
The Company has flexibility to invest in a wide range of
investments in addition to unlisted and listed equities and
equity-related securities, including but not limited to
commodities, convertible bonds, debt securities, royalties,
options, warrants and futures. Derivatives may be used for
efficient portfolio management, hedging and for the purposes of
obtaining investment exposure. The Company may also have exposure
from time to time to other companies within the wider resources and
materials sector, including services companies, transport and
infrastructure companies, utilities and downstream processing
companies.
The Company may take legal or management control of a company
from time to time. The Company may invest in other investment funds
or vehicles, including any managed by the Manager or Investment
Manager, where such investment would be complementary to the
Company's investment objective and policy.
Borrowing and Leverage
The Company may, at the discretion of the Investment Manager,
and within limits set by the Board, incur leverage for liquidity
purposes by borrowing funds from banks, broker-dealers or other
financial institutions or entities. The costs and impact of
leverage, positive and negative will affect the operating results
of the Company.
During the current and prior year, no leverage was used by the
Company.
Investment Restrictions
There are no fixed limits on the allocation between unlisted and
listed equities or equity-related securities and cash although, as
a guideline, typically the Investment Manager will aim for the
Company to be invested over the long-term as follows:
-- between 40 and 100 per cent of the value of its gross assets
in unlisted equities or equity-related securities;
-- up to 50 per cent of the value of its gross assets in listed
equities or equity-related securities;
-- up to 10 per cent of the value of its gross assets in cash or cash-like holdings; and
-- in 10 to 20 core positions to provide adequate
diversification whilst retaining a focused core approach. Core
positions will be between 5 per cent and 15 per cent of NAV as at
the date of acquisition.
The actual percentage of the Company's gross assets invested in
listed and unlisted equities and equity-related securities and cash
and cash-like holdings and the number of positions held may fall
outside these ranges from time to time. The portfolio may become
focussed on fewer holdings as certain investments mature and
increase in value. Once such investments are realised it is
intended that the consideration will be reinvested in several new
investments thereby diversifying the portfolio. Listed securities
might exceed the above guideline following a significant number of
IPOs or in certain market conditions and likewise cash balances may
exceed the above guideline following the realisation of one or more
investments or following the issue of new equity in the Company,
pending investment or distribution of the proceeds
Investment Restrictions (continued)
The investment policy has the following limits:
-- Save in respect of cash and cash-like holdings awaiting
investment, and except as set out below, the Company will invest or
lend no more than 20 per cent in aggregate of the value of its
gross assets in or to any one particular company or group of
companies, as at the date of the relevant transaction.
-- No more than 10 per cent in aggregate of the value of the
gross assets of the Company may be invested in other listed
closed-ended investment funds, except for those which themselves
have stated investment strategies to invest no more than 15 per
cent of their gross assets in other listed closed-ended investment
funds.
Where derivatives are used for investment exposure, these limits
will be applied in respect of the investment exposures so
obtained.
The Company will avoid (a) cross-financing between the
businesses forming part of its investment portfolio and (b) the
operation of common treasury functions between it and the investee
companies. When deemed appropriate, the Company may borrow up to 10
per cent of NAV for temporary purposes such as settlement of
mis-matches. Borrowings will not however be incurred for the
purposes of any Share repurchases. Any material change in the
investment objective, investment policy or borrowing policy will
only be made with the prior approval of holders of Ordinary Shares
by Ordinary Resolution. In the event of any breach of the
investment restrictions the Investment Manager would report the
breach to the Board and shareholders would be informed of any
corrective action required. No breaches of investment restrictions
occurred during the year ended 31 December 2020.
Hedging
The Investment Manager will not normally hedge the exposure of
the Company to currency fluctuations.
Performance
The Company monitors NAV against the EMIX Global Mining Index as
a key performance indicator. An outline of performance, market
background, investment activity and portfolio strategy during the
year under review, as well as outlook, is provided in the
Chairman's Statement on page 3 and the Investment Manager's Report
on pages 4 to 8.
Principal risk and uncertainties
The Board is responsible for the Company's system of risk
management and internal control and for reviewing its
effectiveness.
The Board has adopted a detailed matrix of principal risks
affecting the Company's business as an investment company and has
established associated policies and processes designed to manage
and, where possible, mitigate those risks, which are monitored by
the Audit Committee on an ongoing basis. This system assists the
board in determining the nature and extent of the risks it is
willing to take in achieving the Company's strategic
objectives.
Although the Board believes that it has a robust framework of
internal controls in place this can provide only reasonable, and
not absolute, assurance against material financial misstatement or
loss and is designed to manage, not eliminate, risk. Actions taken
by the Board and, where appropriate, its committees, to manage and
mitigate the Company's principal risks and uncertainties are
discussed in more detail below.
Emerging Risks and Uncertainties
During the year, the Board also discussed and monitored a number
of risks that could potentially impact the Company's ability
to meet its strategic objectives. The principal emerging risk
was agreed to be climate change risk. Climate change risk includes
how climate change could affect the Company's investments, and
potentially shareholder returns. The Board has implemented an ESG
policy which has been developed from the Managers own ESG policy.
The Company's ESG policy is available on its website. The Board
will continue to monitor the implications of growing ESG pressures
as an emerging risk.
Market and financial risks
Market risk arises from volatility in the prices of the
Company's underlying investments which, in view of the Company's
investment policy, are in turn particularly sensitive to commodity
prices. Market risk represents the potential loss the Company might
suffer through holding investments in the face of negative market
movements. The Board has set investment restrictions and guidelines
to help mitigate this risk. These are monitored and reported on by
the Investment Manager on a regular basis. Further details are
disclosed in note 4 on pages 51 to 55.
The Company's investment activities also expose it to a variety
of financial risks including in particular foreign currency risk. A
sensitivity to foreign exchange is presented on pages 51 and
52.
The Coronavirus (Covid-19) has had a significant impact on
financial markets since February 2020. While it cannot be predicted
how long market conditions will remain volatile, the Board notes
that commodities have performed strongly during the period of the
pandemic due to the combined risks of inflation and the potential
for commodity intensive recovery plans by governments.
Portfolio management and Performance risks
The Board is responsible for determining the investment strategy
to allow the Company to fulfil its objectives and also for
monitoring the performance of the Investment Manager to which has
been delegated day to day discretionary management of the Company's
portfolio. An inappropriate strategy may lead to poor performance.
The investment policy of the Company allows for a highly focused
portfolio which can lead to a concentration of risk. To manage this
risk, the Investment Manager provides to the Board, on an ongoing
basis, an explanation of the significant stock selection
recommendations and the rationale for the composition of the
investment portfolio. The Board mandates and monitors an adequate
diversification of investments, both geographically and by
commodity, in order to reduce the risks associated with particular
sectors, based on the diversification requirements inherent in the
Company's investment policy.
The Company invests in certain companies whose projects are
located in emerging markets. In such countries governments can
exercise substantial influence over the private sector and
political risk can be a significant factor. In adverse social and
political circumstances, governments have been involved in policies
of expropriation, confiscatory taxation, nationalisation,
intervention in the securities markets and imposition of foreign
exchange controls and investment restrictions. The Investment
Manager and the Board take into account specific political and
other such risks when entering into an investment and seek to
mitigate them by diversifying geographically.
The Company's ability to implement its investment policy depends
on the Investment Manager's ability to identify, analyse and invest
in investments that meet the Company's investment criteria. Failure
by the Investment Manager to find additional investment
opportunities meeting the Company's investment objectives and to
manage investments effectively could have a material adverse effect
on the Company's business, financial condition, and results of
operations. The Company has no employees and, subject to oversight
by the Board, is reliant on the Investment Manager, which has
significant discretion as to the implementation of the Company's
operating policies and strategies. The Company is subject to the
risk that the Investment Manager or its key investment
professionals will cease to be involved in the management of any
part of the Company's assets and that no suitable replacement will
be found. The Board regularly monitors the performance and
capabilities of the Investment Manager and its key man risk
plans.
There is the risk that the market capitalisation of the Company
(on which the Investment Manager's fee is calculated) falls to such
an extent that it will no longer be viable for the Investment
Manager to provide the services that it currently provides. The
Board monitors this possibility and, should it start to become an
issue, would review it with the Investment Manager.
Risk of a vote to wind-up the Company
The Articles contain provisions for a special resolution of
shareholders at the AGM in 2018 and every three years thereafter on
whether to discontinue the Company. Should there be a catastrophic
loss of value in the Company's assets, possibly as a result of the
risks above, or merely a change in sentiment towards the mining
sector generally by a sufficient proportion of investors, there is
the risk of shareholders voting to wind-up the Company at that
time. Because the Company's investments are largely unlisted it
could then take a protracted amount of time to realise them or they
may need to be sold at a discount to Fair Value if an accelerated
timetable is required.
The Board has conducted sensitivity tests of future income and
expenditure and the ability to realise assets should assets fall in
value by over 50% over a three-year time period. The Board has
concluded that, even in circumstances representing such a
significant deterioration in markets, the Company can remain viable
until the following discontinuation vote in 2024, on the basis that
shareholders decide at this year's AGM to vote against
discontinuation. To be passed the discontinuation vote would
require a majority of 75% of those shareholders voting. The Company
has canvassed major shareholders and indications are that the vote
to discontinue will not be passed at the AGM in 2021.To understand
the requirements of the Company's major shareholders, the
Investment Manager regularly liaises with the Company's broker and
meets major shareholders. The Chairman is also available to meet
with shareholders as required.
In the event of a winding up of the Company, Shareholders will
rank behind any creditors of the Company.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code, published by the Financial Reporting Council ("FRC") in July
2018 (the "UK Code"), the Directors have assessed the prospects of
the Company over 3 years, being the period until the
discontinuation vote at the AGM in 2024. Following the consultation
with major shareholders as noted above, for the purposes of
assessing viability, the Directors have assumed that the
Discontinuation resolution will not be passed at the AGM and
therefore the Company will continue at least until the following
Discontinuation Vote in 2024 and therefore consider that this is an
appropriate timeframe to assess the viability of the Company as, in
relation to the types of investments the Company makes, three years
generally provides sufficient time for major milestones to be
reached on mining projects together with some realisations and new
investments to be made by the Company. Beyond three years, the
Board considers the mining and minerals markets to be too difficult
to predict to be sufficiently helpful.
The Directors have considered each of the principal risks and
uncertainties detailed above individually and collectively and have
taken into account in particular the impact of the shareholder
discontinuation vote in 2021, which the Directors have assumed will
not be passed, following consultation with major shareholders.
The Company has previously seen pressures from falls in
commodity prices and a move by its share price to an increased
discount to its NAV. The mining market is inherently cyclical and
dependent on world economic output. Notwithstanding this, it is a
feature of closed-ended investment companies such as BSRT that the
greatest risk to viability is that the investments lose value to an
extent where the expense ratio becomes excessive such that the
Company becomes an unattractive investment proposition. In such
conditions, it may also be a risk that liquidity (i.e. the ability
to sell or realise cash from the portfolio, or raise borrowings
should that be necessary) is insufficiently available to meet
liabilities.
In the case of the Company, which has no gearing, the Investment
Manager has conducted stress and sensitivity tests of future income
and expenditure and the ability to realise assets, and has
concluded that, even in circumstances representing a deterioration
in value of 50% of net assets and a complete inability to sell any
of the unlisted assets in the portfolio, the Company should remain
viable over the period to the 2024 AGM. The key factor in this
assessment is that currently the Company's greatest expense is the
management fee which is calculated on the market capitalisation of
the Company. Should net assets fall, market capitalisation would be
expected to fall in line or at a higher rate, such that the costs
of the Company would also fall. It is also assumed that the
liquidity required over the three-year period and under the highly
stressed conditions modelled, is largely provided by regular
realisations of the Company's listed equities. The Directors
believe this to be reasonable given that these equities are
regularly traded at sufficient volumes in the context of the very
minor positions the Company's holdings represent.
As a result, the Board of Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment.
Environmental, Social and Governance
The Company believes that monitoring environmental, social and
governance ("ESG") factors is important not only to support
sustainable and ethical investment but because ESG considerations
are key for creating and maintaining shareholder value. The Company
has developed an ESG Investment Policy which draws from
international best practice and builds upon the principles and
processes outlined in the United Nations Principles for Responsible
Investment, of which the Investment Manager is a signatory. A copy
of the Company's ESG policy is available on the Company's
website.
ESG considerations are considered as an enhanced risk management
tool and, as such, are incorporated into the Investment Manager's
investment decision process at multiple levels during stock
screening and company analysis, as well as being directly addressed
with company management during meetings and on-site visits. The
Company is an active investor and will use its voting rights to
influence company direction in a sustainable way where deemed
appropriate. The Company considers that social and environmental
responsibility, along with good governance, are an integral element
of running a successful mining company. For example the Nussir
copper project in Norway aims to become the first zero carbon mine
globally through being fully electric with the electricity
generated from entirely renewable sources . The Company has used
its representation on the Board of Nussir to actively promote this
evolution to electrification.
Non-Mainstream Pooled Investment
The Directors intend to operate the Company in such a manner
that its shares are not categorised as non-mainstream pooled
investments.
Future Developments
The future performance of the Company depends upon the success
of the Company's investment strategy and, as to its share price and
market rating, partly on investors' view of mining related
investments as an asset class. Further comments on the outlook for
the Company can be found in the Chairman's Statement on page 3 and
the Investment Manager's Report on pages 4 to 8.
Signed on behalf of the Board of Directors by:
David Staples
22 April 2021
BOARD OF DIRECTORS
The Board of Directors is listed below. In 2018 the Board put in
place a succession plan to refresh its membership while maintaining
a degree of continuity. Christopher Sherwell was the first director
to retire as part of this plan and he resigned at the Company's AGM
held on 28 May 2019. Clive Newall, who was the second director to
retire as part of the plan, resigned at the Company's AGM on 15
September 2020. David Staples was appointed on 29 May 2019 and
Fiona Perrot-Humphrey was appointed on 15 September 2020. Both the
other Directors were appointed on 12 March 2010. No limit on the
overall length of service of any of the Company's Directors,
including the Chairman, has been imposed, as the Board believes
that any decisions regarding tenure should consider the balance
between the need for continuity of knowledge and experience, and
the need periodically to refresh the Board's composition in terms
of skills, diversity and length of service.
Howard Myles: Howard Myles currently acts as a non-executive
director of a number of investment companies. Howard was a partner
in Ernst & Young from 2001 until 2007 and was responsible for
the Investment Funds Corporate Advisory team. He was previously
with UBS Warburg from 1987 to 2001. Howard began his career in
stockbroking in 1971 as an equity salesman and joined Touche Ross
in 1975 where he qualified as a chartered accountant. In 1978 he
joined W. Greenwell & Co. in the corporate broking team and in
1987 moved to SG Warburg Securities where he was involved in a wide
range of commercial and industrial transactions in addition to
leading UBS Warburg's corporate finance function for investment
funds. He is a Fellow of the Institute of Chartered Accountants and
of The Chartered Institute for Securities and Investments. Howard
is a director of Aberdeen Latin American Income Fund Limited,
Chelverton UK Dividend Trust plc and BBGI Global Infrastructure
S.A. all of which are listed on the London Stock Exchange.
Howard is a member of the Company's Audit Committee.
Notwithstanding that Howard's tenure extends beyond eleven years,
the Board is satisfied that he continues to demonstrate
independence of the Investment Manager.
Charles Hansard: Charles Hansard has over 40 years' experience
in the investment industry as a professional and in a non-executive
capacity. He currently serves as a non-executive director on a
number of boards which include JJJ Moore part of the Moore Capital
group of funds of which he was a director for 25 years. He is a
director of NYSE listed Los Gatos Silver Inc and Electrum Ltd., a
privately owned US gold exploration company. He formerly served as
a director of Apex Silver Mines Ltd., where he chaired the finance
committee during its capital raising phase and as chairman of the
board of African Platinum Plc, which he led through reorganisation
and feasibility prior to its sale to Impala Platinum. He commenced
his career in South Africa with Anglo American Corporation and
Fleming Martin as a mining analyst. He subsequently worked in New
York as an investment banker for Hambros before returning to the UK
to co-found IFM Ltd., one of the earliest European hedge fund
managers. Charles holds a B.B.S. from Trinity College Dublin.
Notwithstanding that Charles's tenure extends beyond eleven
years, the Board is satisfied that he continues to demonstrate
independence of the Investment Manager.
Fiona Perrott-Humphrey: Fiona Perrott-Humphrey has over 30
years' experience in the mining finance industry in London. She
moved to the UK in 1987 after a period in academia in South Africa,
and over the next 15 years, was a rated mining analyst for a number
of stockbroking firms including James Capel, Cazenove and Citigroup
(the latter as head of European Mining Research). After leaving
full time broking, Fiona has had a portfolio of roles drawing on
her experience of covering the global mining sector. She is a
founder of a mining strategic consulting business, and director of
AIM Mining Research and in 2007 published a book entitled
Understanding Junior Miners. In 2004, she was appointed Adviser to
the Mining team at Rothschild and Co. Fiona was a non-executive
director of Dominion Diamonds, located in northern Canada, for two
years from 2014. She is invited to present regularly at global
mining conferences.
Fiona is a member of the Company's audit committee.
David Staples: David Staples worked for PWC in London for 25
years, including 13 years as Partner. He has many years' experience
serving on boards of listed and private companies as a
non-executive director, including as chairman of listed investment
companies. David has a BSc in Economics and Accounting, is a Fellow
Chartered Accountant, a Chartered Tax Adviser and a holder of the
Institute of Directors' Certificate in Company Direction. He is a
Director of Ruffer Investment Company Limited and NB Global Monthly
Income Fund, both of which are listed on the London Stock Exchange.
He is also chairman of the general partner companies of private
equity funds advised by Apax Partners.
David is the Chairman of the Audit Committee.
DIRECTOR'S REPORT
For the year ended 31 December 2020
The Directors of the Company present their eleventh annual
report and the audited financial statements (the "Annual Report")
for the year ended 31 December 2020.
The Directors' Report contains information that covers this
period and the period up to the date of publication of this Report.
Please note that more up to date information is available on the
Company's website www.bakersteelresourcestrust.com .
Status
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
on 9 March 2010 in Guernsey under the Companies (Guernsey) Law,
2008 with registration number 51576. The Company is a registered
closed-ended investment scheme registered pursuant to the
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended ("POI Law") and the Registered Collective Investment Scheme
Rules 2018 issued by the Guernsey Financial Services Commission
("GFSC"). On 28 April 2010 the Ordinary Shares and Subscription
Shares of the Company were admitted to the Official List of the UK
Listing Authority and to trading on the Main Market of the London
Stock Exchange, Premium Segment.
Investment Objective
Details of the Company's investment objectives and policies are
described in the Strategic Report on page 13.
Performance
In the year to 31 December 2020, the Company's NAV per Ordinary
Share increased by 31.5% (2019: 29.9%). This compares with a rise
in the EMIX Global Mining Index (capital return in Sterling terms)
of 22.2% (2019: 18.1%). A more detailed explanation of the
performance of the Company is provided within the Investment
Manager's Report on pages 4 to 8.
The results for the year are shown in the Statement of
Comprehensive Income on pages 37 and 38 and the Company's financial
position at the end of the year is shown in the Statement of
Financial Position on page 36.
Dividends and distribution policy
During the year ended 31 December 2015 the Board introduced a
capital returns policy whereby, subject to applicable laws and
regulations, it will allocate cash for distributions to
shareholders. The amount to be distributed will be calculated and
paid following publication of the Company's audited financial
statements for each year and will be no less than 15% of the
aggregate net realised cash gains (after deducting losses) in that
financial year. The Board will retain discretion for determining
the most appropriate manner to make such distribution which may
include share buybacks, tender offers and dividend payments. In the
longer term the Board intends to formulate a more regular dividend
policy once it starts to receive income from its royalty
interests.
Directors and their interests
The Directors of the Company who served during the year and up
until the date of signing of the financial statements are:
Howard Myles (Chairman)
Charles Hansard
Clive Newall (Resigned 15 September 2020)
Fiona Perrott-Humphrey (Appointed 15 September 2020)
David Staples
Biographical details of each of the Directors who were on the
Board of the Company at the time of signing The Annual Report are
presented on page 17 of the Annual Report.
Each of the Directors is considered to be independent in
character and judgement.
Each Director is asked to declare his interests at each Board
Meeting. No Director has any material interest in any other
contract which is significant to the Company's business. None of
the Directors hold any shares in the Company.
Authorised Share Capital
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
Shares in issue
The Company was admitted to trading on the London Stock Exchange
on 28 April 2010. On that date, 30,468,865 Ordinary Shares and
6,093,772 Subscription Shares were issued pursuant to a placing and
offer for subscription and 35,554,224 Ordinary Shares and 7,110,822
Subscription Shares were issued pursuant to a Scheme of
Reorganisation of Genus Capital Fund.
In addition, 10,000 Management Ordinary Shares were issued.
In May 2019, the Company enacted a tender offer for 9,677,478
Ordinary Shares at 51 pence per share. The repurchased shares were
cancelled.
The Company had a total of 106,453,335 Ordinary and 9,167
Management Ordinary Shares in issue as at 31 December 2020, of
which 700,000 Ordinary Shares were held in Treasury.
Significant Shareholdings
As at 31 December 2020, the Company had received notifications
in accordance with the FCA's Disclosure and Transparency Rule 5.1.2
R of the following interests in 3% or more of the voting rights
attaching to the Company's issued share capital.
Number of
Ordinary Shares % of Total
Ordinary Shareholder 000's Shares in issue
Overseas Asset Management 13,681 12.85
The Sonya Trust 12,722 11.95
RIT Capital Partners 12,517 11.76
Northcliffe Holdings Pty Ltd 12,452 11.70
Premier Miton Investors 11,045 10.38
Armstrong Investments 5,100 4.79
Baker Steel Capital Managers 4,923 4.62
The Investment Manager, Baker Steel Capital Managers LLP had an
interest in 9,167 Management Ordinary Shares at 31 December 2020
(31 December 2019: 9,167).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest in 4,922,877 Ordinary Shares in the
Company at 31 December 2020 (2019: 5,622,877). Precious Metals Fund
has the same Investment Manager as the Company.
David Baker and Trevor Steel, Directors of the Manager, are
interested in the shares held by Northcliffe Holdings Limited and
The Sonya Trust respectively.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and financial statements in accordance with applicable Guernsey
law, Listing Rules, Disclosures and Transparency Rules, UK
Corporate Governance Code and generally accepted accounting
principles.
Guernsey company law requires the Directors to prepare financial
statements for each financial year which give a true and fair view
of the state of affairs of the Company and of the profit or loss of
the Company for that year. In preparing these financial statements
the Directors should:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and which enable the Directors to
ensure that the financial statements comply with the Companies
(Guernsey) Law, 2008. The Directors are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors confirm that to the best of their knowledge:
- the financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU") and give a true and fair view of the
assets, liabilities and financial position and profit or loss of
the Company;
- the Annual Report includes a fair review of the position and
performance of the business of the Company together with the
description of the principal risks and uncertainties that the
Company faces, as required by the Disclosure and Transparency Rules
of the UK Listing Authority;
- the Annual Report and Financial Statements, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy; and
- they have carried out a robust assessment of the emerging and
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity.
Auditor Information
The Directors at the date of approval of this Report confirm
that, so far as each of the Directors is aware, there is no
relevant audit information of which the Company's auditor is
unaware and each Director has taken all the reasonable steps he
ought to have taken as a director to make himself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Going Concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and consider it appropriate to adopt
the going concern basis of accounting. There will be a
discontinuation vote at the AGM in June 2021, however following
consultation with major shareholders, the Board consider it likely
that the discontinuation vote will not be passed and the Company
will continue following the AGM. The Board are satisfied that it
has the resources to continue in business for at least 12 months
following the signing of these financial statements. As at 31
December 2020, approximately 8% of the Company's assets were
represented by cash and unrestricted listed and quoted investments
which are readily realisable. The Directors are not aware of any
material uncertainties that may cast significant doubt upon the
Company's ability to continue as a going concern.
Related party transactions
Transactions with related parties are based on terms equivalent
to those that prevail in an arm's length transaction and are
disclosed in Note 12.
Corporate Governance Compliance
The Guernsey Financial Services Commission's Finance Sector Code
of Corporate Governance (the "GFSC Code") provides a framework
which applies to all companies in the regulated finance sector in
Guernsey. The Company reports against the UK Corporate Governance
Code (the "Code"), which meets the requirements of the GFSC Code.
The Board is committed to high standards of corporate governance
and has implemented a framework for corporate governance that it
considers to be appropriate for an investment company in order to
comply with the principles of the Code. The Code is available on
the FRC's website www.frc.org.uk and the Company has made its
corporate governance practices publicly available and these can be
found at www.bakersteelresourcestrust.com. The disclosures in this
statement report against the provisions of the Code, as revised in
2018 effective for periods commencing on or after 1 January
2019.
Throughout the year ended 31 December 2020, the Company has
complied with the recommendations of the Code except as set out
below.
The Code includes provisions relating to:
-- The role of the Chief Executive
-- Executive Directors' remuneration
-- The requirement for a senior Independent Director
-- Nomination and Remuneration Committees
-- The requirement for an internal audit function
The Board considers these provisions are not relevant for the
Company as it is an externally managed investment entity. The
Company has therefore not reported further in respect of these
provisions. The Directors are all independent and non-executive and
the Company does not have employees, hence no Chief Executive is
required for the Company. The Board is satisfied that any relevant
issues can be properly considered by the Board as explained further
on the following pages.
There have been no other instances of non-compliance, other than
those noted above.
Operation and composition of the Board
-- Composition
The Board has no executive directors and has contractually
delegated responsibility to service providers for the management of
the Company's investment portfolio, the arrangement of custodial
and cash flow monitoring and oversight services and the provision
of accounting and company secretarial services. The Company has no
employees.
-- Independence
The Board consists entirely of independent non-executive
Directors, of whom Howard Myles is the Chairman. Each of the
Directors confirms that they have no other significant commitments
that adversely impact on their ability to act for the Company and
its shareholders, and that they have sufficient time to fulfil
their obligations to the Company.
-- Senior Independent Director
In view of its non-executive nature and small size, the Board
considers that it is not necessary for a Senior Independent
Director to be appointed.
-- Appointment and re-election
The Company has a transparent procedure for the appointment and
re-election of the Directors. There are no service contracts in
place for the Directors.
The Directors are not required to retire by rotation. Instead
each director puts himself forward for re-election on an annual
basis at the AGM. The AGM also includes a resolution whereby
shareholders are able to approve the maximum cumulative
remuneration for the Board.
All the Directors are responsible for reviewing the size,
structure and skills of the Board and considering whether any
changes are required or new appointments are necessary to meet the
requirements of the Company's business or to maintain a balanced
Board.
Howard Myles and Charles Hansard have now served as Directors
for more than 9 years. The Board believes that both these directors
continue to demonstrate independence of the Manager and to make a
valuable contribution to the Company, and therefore recommends that
shareholders vote in favour of their reappointment. The Board has a
succession plan under which its membership will be refreshed over
time. In 2019 Chris Sherwell retired and was replaced by David
Staples, and in 2020 Clive Newall retired and was replaced by Fiona
Perrott-Humphrey. It is intended that further new appointments will
be made in the course of the next two years. An executive search
firm with specialism in the financial sector was engaged to assist
with the identification and appointment of Ms Perrott-Humphrey.
Specialists will continue to be engaged as the Board consider
necessary to assist with future appointments.
-- Information
The Board receives full details of the Company's assets,
liabilities and other relevant information in advance of Board
meetings, including information on regulatory and accounting
developments.
-- Performance appraisal
The performance of the Board and the Audit Committee is
evaluated through a formal and rigorous assessment process led by
the Chairman. The performance of the Chairman is evaluated by the
other Directors.
-- Investment Manager assessment
The Investment Manager was appointed pursuant to an investment
management agreement with the Manager dated 31 March 2010 and which
was amended and restated, with the Company joining as a party, on
14 November 2014 (the Investment Management Agreement). The
Investment Manager is paid by the Manager and is not separately
remunerated by the Company. The Investment Management Agreement
pursuant to which the Company and the Manager have appointed the
Investment Manager is terminable by any party giving the other
parties not less than 12 months' written notice.
The Investment Manager prepares regular reports to the Board to
allow it to review and assess the Company's activities and
performance on an ongoing basis. The Board and the Investment
Manager have agreed clearly defined investment criteria, exposure
limits and specified levels of authority. The Board completes a
formal assessment of the Investment Manager on an annual basis. The
assessment covers such matters as the performance of the Company
relative to its peers and sector, the management of investor
relations and the reasonableness of fee arrangements. Based on its
assessment it is the opinion of the Board that the continuation of
the appointment of the Investment Manager is in the best interests
of shareholders of the Company.
-- Board meetings
The Board generally meets at least four times a year, at which
time the Directors review the management and performance of the
Company's assets and all other significant matters so as to ensure
that the Directors maintain overall control and supervision of the
Company's affairs. The Board is responsible for the appointment and
monitoring of all service providers to the Company. Between these
quarterly meetings there is regular contact with the Investment
Manager and Company Secretary. The Directors are kept fully
informed of investment and financial controls and other matters
which are relevant to the business of the Company and which should
be brought to the attention of the Directors. The Directors also
have direct access to the Company Secretary (through its appointed
representatives who are responsible for ensuring that Board
procedures are followed and that applicable rules and regulations
are complied with) and, where necessary in the furtherance of their
duties, to independent professional advice at the expense of the
Company.
Attendance at the Board and Audit Committee meetings during the
year was as follows:
Audit Committee
Board Meetings Meetings
Held Attended Held Attended
Howard Myles 4 4 4 4
Charles Hansard 4 4 4 N/A
Clive Newall* 4 3 4 3
Fiona Perrott-Humphrey* 4 2 4 2
David Staples 4 4 4 4
* Clive Newall resigned from the Board on 15 September 2020 and
Fiona Perrott-Humphrey was appointed to the Board on 15 September
2020. Since this date to the end of the year there has been one
quarterly Board meeting and one Audit Committee meeting.
In addition to the quarterly meetings, adhoc Board and committee
meetings are convened as required. All Directors contribute to a
significant exchange of views with the Investment Manager on
specific matters, in particular in relation to developments in the
portfolio.
-- Relations with Shareholders
The Board believes that the maintenance of good relations with
shareholders is vital for the long-term prospects of the Company.
The Company's stockbrokers, Numis Securities Limited, and the
Investment Manager are responsible for managing relationships with
shareholders and each provides the Board with feedback on a regular
basis that includes a shareholder contact report and any concerns
the shareholder has raised. The Chairman and the Board are also
available to meet with shareholders at the Company's Annual General
Meeting or otherwise.
-- Engagement with key Stakeholders
The Board considers its key stakeholders to be the Company's
Investment Manager, Administrator, Company Secretary and
Stockbroker. Engagement with each Stakeholder is formalised by
quarterly reporting at the Board Meetings but outside of the formal
meetings, is continuous as required by the operations of the
Company. The Board is very aware of the importance to the success
of the Company of these key stakeholders and encourages open and
frequent dialogue to facilitate improvements to the way that the
Company functions. For example, the Board has actively engaged with
the Investment Manager on the level of information it requires to
assess new investments. Through an iterative process of
consultation, a mutually agreed package of information, including
ESG considerations, has been developed.
-- Principal and Emerging Risks
The Board has delegated responsibility for the assessment of its
risk matrix to the Audit Committee. The Audit Committee meets on a
quarterly basis and assesses the adequacy of the controls
documented in the matrix as well as the completeness. As the Audit
Committee identifies changes that affect the risk profile of the
Company it will recommend to the Board that the matrix is updated
to reflect the risk and an assessment of the controls will take
place so that a residual risk assessment is documented. More
details on the Principal and Emerging Risks is presented in the
Strategic Report.
Committees
The Committees of the Board have formal Terms of Reference which
are available on the Company's webpage
http://bakersteelresourcestrust.com/corporate-governance/ .
-- Audit Committee
The Board has established an Audit Committee. The Audit
Committee meets at least three times a year and is responsible for
ensuring that the financial performance of the Company is properly
reported on and monitored and provides a forum through which the
Company's external auditor may report to the Board. The Audit
Committee operates within established terms of reference. The
Directors consider there is no need for an internal audit function
because the Company operates through service providers and the
Directors receive control reports on its key service providers.
David Staples is Chairman of the Audit Committee with Fiona
Perrott-Humphrey and Howard Myles as the other members.
-- Nomination, Remuneration and Management Engagement Committees
Given the size and nature of the Company and the fact that all
the Directors are independent and non-executive it is not deemed
necessary to form separate Nomination, Remuneration, and Management
Engagement Committees. The Board, as a whole, considers new Board
appointments, remuneration and the engagement of service
providers.
Internal Controls
The Board has delegated to service providers the day to day
responsibilities for the management of the Company's investment
portfolio, the provision of depositary services and administration,
registrar and corporate secretarial functions including the
independent calculation of the Company's NAV and the production of
the Annual Report and Financial Statements which are independently
audited.
Formal contractual agreements have been put in place between the
Company and providers of these services.
Even though the Board has delegated responsibility for these
functions, it retains accountability for them and is responsible
for the systems of internal control. However, it has delegated the
regular review and oversight of the systems of internal control to
the Audit Committee which reports back to the Board following each
Audit Committee meeting. At each quarterly Board meeting,
compliance reports are provided by the Administrator and Investment
Manager.
The Company's risk matrix continues to be the core element of
the Company's risk management process in establishing the Company's
system of internal financial and reporting control. The risk matrix
is prepared and maintained by the Investment Manager and reviewed
regularly by the Audit Committee which initially identifies the
risks facing the Company and then collectively assesses the
likelihood of each risk, the impact of those risks and the strength
of the controls mitigating each risk. The system of internal
financial and operating control is designed to manage rather than
to eliminate the risk of failure to achieve business objectives and
by its nature can only provide reasonable and not absolute
assurance against misstatement and loss. These controls aim to
ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for
publication is reliable. The Audit Committee confirms to the Board
that there is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Company.
This process has been in place for the year under review and up
to the date of approval of this Annual Report and Audited Financial
Statements and is reviewed by the Board by way of reporting from
the Audit Committee and is in accordance with the Guidance on Risk
Management Internal Control and Related Financial Reporting and
Business Reporting issued by the FRC.
The Board therefore believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the
risks to which it is exposed.
Director's Remuneration Policy
All Directors are non-executive and in view of the relatively
small size of the Board a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the
Directors' remuneration. No advice or services were provided by any
external person in respect of its consideration of the Directors'
remuneration.
The Company's policy is that the fees payable to the Directors
should reflect the time spent by the Directors on the Company's
affairs and the responsibilities borne by the Directors and be
sufficient to attract, retain and motivate directors of a quality
required to run the Company successfully. The Chairs of the Board
and the Audit Committee are paid a higher fee in recognition of
their additional responsibilities. The fee levels are reviewed
annually.
There are no long term incentive schemes provided by the Company
and no performance fees are paid to Directors. No Director has a
service contract with the Company but each of the Directors is
appointed by a letter of appointment which sets out the main terms
of their appointment. Directors hold office until they retire or
cease to be a director in accordance with the Articles of
Incorporation or by operation of law.
The Directors recognise the benefits of diversity in terms of
gender and ethnicity and will take these into account when
considering future appointments to the Board. However, their
principal criteria will remain the skills and experience of new
directors and the Board will select the candidates whom it believes
will add most value.
The Directors are remunerated for their services at such rate as
the Directors determine provided that the aggregate amount of such
fees may not exceed GBP200,000 per annum (or such sum as the
Company in general meeting shall from time to time determine).
For the year ended 31 December 2020, the total remuneration of
the Directors was GBP115,136 (2019: GBP115,000), with GBP28,750
(2019: GBP28,750) payable at the year end.
Directors are remunerated in the form of fees, payable quarterly
in arrears, to the Director personally. The fees paid to each
Director in respect of the years ended 31 December 2020 and 31
December 2019 are shown below.
2020 2019
GBP GBP
Howard Myles 35,000 35,000
David Staples 30,000 17,733
Charles Hansard 25,000 25,000
Clive Newall 17,731 25,000
Fiona Perrott-Humphrey 7,405 n/a
Christopher Sherwell n/a 12,267
Independent Auditors
The auditors, BDO Limited, have indicated their willingness to
continue in office and a resolution for their re-appointment will
be proposed at the Annual General Meeting.
Subsequent Events
Please refer to Note 16 of the financial statements.
Signed on behalf of the Board of Directors by:
David Staples
22 April 2021
Report of the Audit CommitteE
For the year ended 31 December 2020
The function of the Audit Committee as described in its Terms of
Reference is to ensure that the Company maintains high standards of
integrity in its financial reporting and internal controls. David
Staples is Chairman of the Audit Committee with Fiona
Perrott-Humphrey and Howard Myles as the other members.
The Audit Committee is appointed by the Board and all members
are considered to be independent both of the Investment Manager and
the external auditor. The Audit Committee meets a minimum of three
times a year to discuss the Interim and Annual Report and Audited
Financial Statements, the audit plan and engagement letter, and the
Company's risks, via discussion of its risk matrix. The Board is
satisfied that the Audit Committee is properly constituted with
members having recent and relevant financial experience, including
two members who are chartered accountants.
The Board as a whole as advised by the Audit Committee considers
the nature and extent of the Company's risk management framework
and the risk profile that is acceptable in order to achieve the
Company's strategic objectives. As a result, it is considered that
the Board has fulfilled its obligations under the UK Code.
The Audit Committee continues to be responsible for reviewing
the adequacy and effectiveness of the Company's on-going risk
management systems and processes. The Company's system of internal
controls, along with its design and operating effectiveness, is
subject to review by the Audit Committee through reports received
from all key service providers.
In the event of any deficiencies or breaches being reported, the
Board would consider the actions required to remedy and prevent
significant failings or weaknesses. During the year ended 31
December 2020, no significant weaknesses or failings were
identified.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery and
corruption policies of the Company. The Board receives a
confirmation from all service providers that they are not aware of
any instances of fraud or bribery.
The Audit Committee considers the adequacy and security of the
arrangements for the employees of its service providers to raise
concerns, in confidence, about possible wrongdoing in financial
reporting or other matters. The Audit Committee is satisfied it has
the ability and resources to investigate any matters that are
brought to its attention and to follow up on any conclusion reached
by such investigation.
Primary Areas of Judgement
As part of its review of the Company's financial statements, the
Audit Committee takes account of the most significant issues and
risks, both operational and financial, likely to impact on the
financial statements and the mitigating controls to address these
risks. The Audit Committee has determined that the key risk of
misstatement is the valuation of investments for which there is no
readily observable market price. Such investments are recorded at
fair value which is the price that would be expected to be received
to sell an asset in an orderly transaction between market
participants at the measurement date. Significant judgements are
required in respect of the valuation of the Company's investments
for which there is no observable market price. Further information
on the Company's methodologies is provided in Note 3 to the
financial statements.
The risk is mitigated through the review by the Board of
detailed reports prepared by the Investment Manager on portfolio
valuation including valuation methodology, the underlying
assumptions and the valuation process.
The Investment Manager also provides information to the Board on
relevant market indices, recent transactions in similar assets and
other relevant information to allow an assessment of appropriate
carrying value having regard to the relevant factors.
The responsibility for ensuring that investments are carried at
fair value lies with the Board.
Through its meetings during the year ended 31 December 2020 and
its review of the Company's Annual Report and Audited Financial
Statements, the Audit Committee considered the following
significant risks as well as the principal risks and uncertainties
described on pages 14 and 15.
Risk Considered How addressed
The accuracy of the Company's Annual Review of the Annual Report and
Report and Financial Statements Audited Financial Statements, discussions
with the external auditor and meetings
with the auditor to understand the
audit approach and findings having
regard to the level of materiality
agreed with it.
Adequacy of the Company's accounting Consideration of the Company's risk
and internal controls systems matrix, taking account of the relevant
risks, the potential impact to the
Company and the mitigating controls
in place. The Committee also reviews
control and compliance reports in
this respect and receives explanations
of any breaches and how any control
weaknesses have been addressed.
Valuation of the Company's investments, Reports received from and discussed
in particular the valuation of unquoted in depth with the Investment Manager
investments providing support for the investment
valuations. The Investment Manager
reporting is then challenged and
reconciled to the independent auditor's
review of the investment valuations.
The effectiveness and independence The Audit Committee has regular
of the external audit process dialogue with the external auditor
both before and during the audit
process. The auditor presents to
the Audit Committee at both the
planning and audit review stage,
and confirms its independence at
each stage. The Audit Committee
receives feedback from the Investment
Manager on the audit process and
any concerns or challenges faced.
Emerging risks The Audit Committee discusses the
Company's risk matrix each time
it meets. Through these discussions
emerging short term risks such as
those caused by the Covid-19 virus
are assessed. The matrix also documents
long term implications for the sector
from secular trends such as climate
change.
The Audit Committee also provides a forum through which the
Company's auditor reports to the Board. The Board, advised by the
Audit Committee, approves all non-audit work carried out by the
auditor in advance and the fees paid to the auditor in this
respect.
External Audit
The Company's external auditor is BDO Limited ("BDO").
The fees due to the auditor during the year were as follows:
2020 2019
GBP GBP
Audit fees Audit Fees 54,000 49,000
Agreed Upon Procedures
relating to the review
of the Company's half year
Non-audit fees report 8,000 7,650
Total Fees 62,000 56,650
================== =======
The external auditor provides an audit planning report in
advance of the annual audit. The Audit Committee has the
opportunity to question and challenge the auditor in respect of
their work. Based on levels of interaction with the auditor, and
the assessment of auditor reporting, the audit planning, adherence
to audit standards, competence of the audit team and feedback from
the Investment Manager, the Audit Committee and the Board are
satisfied that the reappointment of the external auditor should be
proposed at the Annual General Meeting of the Company.
Internal Audit
The Audit Committee believes that the Company does not require
an internal audit function because it delegates its day to day
functions to third party service providers, although the Audit
Committee oversees these operations and receives regular reports in
this respect.
Risk Management and Internal Controls
The Board is responsible for the Company's system of internal
controls and risk management. The Audit Committee has been
delegated the responsibility for reviewing the ongoing
effectiveness of the Company's internal controls and it discharges
its duties in this area by assessing the nature and extent of the
significant risks the Company is willing to accept in achieving the
Company's objectives, and ensuring that effective systems of risk
identification, assessment and mitigation have been implemented.
The Strategic Report on pages 12 to 16 outlines the principal risks
and uncertainties affecting the Company and the section on Internal
Controls in the Directors Report on pages 18 to 25 gives details of
the work performed by the Audit Committee in this area.
By their nature, the control mechanisms can only provide
reasonable rather than absolute assurance against misstatement or
loss. The Audit Committee seeks continual improvement in the
Company's internal control mechanisms. The Audit Committee is not
aware of any significant failings or weaknesses in the Company's
internal controls in the year under review nor up to the date of
this report.
Financial Reporting
The primary role of the Audit Committee in relation to financial
reporting is to review the Annual Report and Financial Statements
and the Half Year Report with the Administrator and the Investment
Manager and assess their appropriateness. It focuses in this
respect, amongst other matters, on:
-- the clarity of the disclosures in the financial reporting and
compliance with statutory, regulatory and other financial reporting
requirements;
-- the quality and acceptability of accounting policies and practices;
-- material areas where significant judgements and estimates
have been applied or where there has been discussion with the
auditor; and
-- taken as a whole, whether the financial statements are fair,
balanced and understandable and provide shareholders with the
necessary information to assess the Company's performance and
strategy, reporting to the Board in this respect.
Going Concern
The Audit Committee has made an assessment of the Company's
ability to continue as a going concern. There will be a
discontinuation vote at the AGM in June 2021, however following
consultation with major shareholders, the Audit Committee considers
that the discontinuation vote will not be passed and the Company
will continue following the AGM. Particular regard has been given
to the fact that the Company holds listed securities that can if
necessary be realised to meet liabilities as they become due. As at
31 December 2020, approximately 8.0% of the Company's assets were
represented by cash and unrestricted quoted investments.
On the basis of its review, the Audit Committee is satisfied
that the Company has the resources to continue in business for at
least 12 months from the date of signing these financial statements
and therefore is of the opinion that the financial statements
should be prepared on a going concern basis and has accordingly
recommended this opinion to the Board.
David Staples
Audit Committee Chairman
22 April 2021
Independent Auditor's Report to the MEMBERS of Baker Steel
resources TRUST LIMITED
Opinion on the financial statements
In our opinion, the financial statements of Baker Steel
Resources Trust Limited ("the Company"):
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2020 and of its profit for the year then
ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union
("IFRSs"); and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of the Company for the
year ended 31 December 2020 which comprise the Statement of
Financial Position, the Statement of Comprehensive Income, the
Statement of Changes In Equity, the Statement of Cash Flows and
notes to the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs(UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion. Our audit opinion is consistent with the
additional report to the audit committee.
Independence
We remain independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC's Ethical
Standard as applied to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with these
requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Company's
ability to continue as a going concern.
Our evaluation of the Directors' assessment of the Company's
ability to continue to adopt the going concern basis of accounting
included:
-- Obtaining the paper prepared by those charged with governance
and management in respect of going concern, which includes
consideration of the viability statement included within the Annual
Report, and discussing this with both the Company's Directors and
management;
-- Obtaining management's assessment of and support for their conclusion that the shareholder discontinuation vote in June 2021 will not be passed;
-- Examining management's cash flow forecasts for the 3-year
period to June 2024 and their stress tests of future income and
expenditure and the ability to realise the Company's liquid
assets;
-- Reviewing the key inputs into the cashflow forecasts to
ensure that these were consistent with our understanding and the
historical results of the company; and
-- Reviewing the minutes of the Board Meetings and the Company's
RNS announcements and the compliance reports for any indicators of
concerns in respect of going concern.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
In relation to the Company's reporting on how it has applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors' statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
Basis of materiality 1.75% (2019: 1.75%) of total assets.
Key audit matters (2020 Investment valuation and existence.
and 2019)
---------------------------------------
Financial statements as a whole:-
Materiality
GBP1.815m (2019:GBP1.38m) based on
1.75% (2019: 1.75%) of total assets.
---------------------------------------
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the
Company and its environment, including the Company's system of
internal control, and assessing the risks of material misstatement
in the financial statements. We also addressed the risk of
management override of internal controls, including assessing
whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
We tailored the scope of our audit taking into account the
nature of the Company's investments, involvement of the Manager and
the company Administrator, the accounting and reporting environment
and the industry in which the Company operates.
In designing our overall audit approach, we determined
materiality and assessed the risk of material misstatement in the
financial statements.
This assessment took into account the likelihood, nature and
potential magnitude of any misstatement. As part of this risk
assessment we considered the Company's interaction with the Manager
and the Company's Administrator. We considered the control
environment in place at the Manager and the Company's Administrator
to the extent that it was relevant to our audit. Following this
assessment, we applied professional judgement to determine the
extent of testing required over each balance in the financial
statements.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How the scope of our audit addressed the key
audit matter
Valuation of and existence
of unlisted investments
including unrealised gains/(losses).
Refer to the accounting For all unlisted investments we agreed the
policies on pages 41 to number of warrants to the warrant instrument
45 and Note 3 to the Financial and obtained direct con rmation from the underlying
Statements. investee for the holdings of other unlisted
investments.
92.06% (2019: 84.7%) of
the carrying value of For all investments:
the investments relates
to the Company's holdings * We considered the processes, policies and
in unlisted investments, methodologies used by management for fair valuing
which are valued using unlisted investments held by the Company including
di erent valuation techniques reviewing the hierarchy of application of valuation
as explained in Note 3 principles;
and pages 47 to 50.
The valuations are subjective,
with a high level of judgment * Agreed the Manager's application of valuation
and estimation linked techniques as appropriate to the circumstances of the
to the determination of investment and the accounting policies applied; and
fair value with limited
market information available.
As a result of the subjectivity, * Agreed the valuation per the models to the financial
there is a risk of an statements.
inappropriate valuation
model being applied, together
with the risk of inappropriate
inputs to the model being In respect of the investments using a valuation
used. model we:-
The valuation of the unlisted * Obtained and challenged management's model based on
investments is a key driver our understanding of the investment.
of the Company's net asset
value and total return.
Incorrect valuations could
have a signi cant impact * Agreed the inputs, for example volatility, resource
on the net asset value prices, tax rates etc. into the models to independent
of the Company and therefore sources;
the return generated for
shareholders.
* Evaluated whether all key terms of the underlying
agreements had been considered within the models;
* Performed an independent sensitivity analysis of
certain inputs to identify and challenge in more
detail, those which have the largest impact on the
valuation; and
* Checked the mathematical accuracy of the models.
For investments valued on an index valuation
we recalculated management's applied basket
of indices for each investment.
For those investments which used recent Investment
as a basis for recalibrating inputs to the
valuation model, we considered if there were
any material changes in the market or changes
in the performance of the investee company
affecting the fair value of the investment
at year end.
For those investments based on sales price
we obtained management rationale, underlying
supporting documentation and considered the
stage of sale and whether this was reasonable
to indicate fair value.
We reviewed and challenged the level of disclosures
around investment valuations on pages 47 to
50.
Key observation:
Based on the procedures performed we are satisfied
that judgements applied in valuing the unlisted
investments are appropriate and the Company
has valid ownership of these investments.
-------------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Company financial statements
2020 2019
GBP GBP
------------------ ------------------
Materiality 1,815,000 1,380,000
------------------ ------------------
Basis for determining materiality 1.75% of total assets
--------------------------------------
Rationale for the benchmark Due to it being an investment
applied fund with the objective of
long-term capital growth with
investment values being a
key focus of users of the
financial statements.
--------------------------------------
Performance materiality 1,179,000 897,000
------------------ ------------------
Basis for determining performance 65% of materiality.
materiality
This was determined using
our professional judgement
and took into account the
complexity and our knowledge
of the engagement together
with history of minimal historical
errors and adjustments.
--------------------------------------
Specific materiality
We also determined that for investment income and s ensitive
fees which include management fees, administration fees director's
fees and custodian fees, a misstatement of less than materiality
for the financial statements as a whole, specific materiality,
could influence the economic decisions of users. As a result, we
determined materiality for these items based on 10% of materiality
being GBP181,500 (2019: GBP138,000). We further applied a
performance materiality level of 65% of specific materiality to
ensure that the risk of errors exceeding specific materiality was
appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP54,000 (2019:
GBP69,000) and for items audited to specific materiality
differences above GBP5,400 (2019: GBP6,900). We also agreed to
report differences below this threshold that, in our view,
warranted reporting on qualitative grounds.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the Annual
Report and Audited Financial Statements, other than the financial
statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Company's
compliance with the provisions of the UK Corporate Governance
Statement specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit.
Going concern
and longer-term * The Directors' statement with regards the
viability appropriateness of adopting the going concern basis
of accounting and any material uncertainties
identified set out on page 20; and
* The Directors' explanation as to its assessment of
the entity's prospects, the period this assessment
covers and why the period is appropriate set out on
page 15 and 16.
Other Code
provisions * Directors' statement on fair, balanced and
understandable set out on page 20;
* Board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set
out on page 14;
* The section of the annual report that describes the
review of effectiveness of risk management and
internal control systems set out on page 28; and
* The section describing the work of the audit
committee set out on page 23 and pages 26 to 28.
----------------------------------------------------------------------
Other Companies (Guernsey) Law, 2008 reporting
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- proper accounting records have not been kept by the Company; or
-- the financial statements are not in agreement with the accounting records; or
-- we have failed to obtain all the information and explanations
which, to the best of our knowledge and belief, are necessary for
the purposes of our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors'
responsibilities within the Directors' Report, the Directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and have a direct
impact on the preparation of the financial statements. We
determined that the most significant frameworks which are directly
relevant to specific assertions in the financial statements are
those that relate to the reporting framework such as IFRSs and the
Companies (Guernsey) Law, 2008 . We evaluated management's
incentives and opportunities for fraudulent manipulation of the
financial statements (including the risk of management override of
controls), and determined that the principal risks were related to
revenue recognition on the Company's investments, the management
bias and judgement involved in accounting estimates, specifically
in relation to the valuation of investments (the response to which
is detailed in our key audit matter above).
Audit procedures performed by the engagement team to respond to
the risks identified included:
-- Discussion with and enquiry of management and those charged
with governance concerning known or suspected instances of
non-compliance with laws and regulations and fraud;
-- Reading minutes of meetings of those charged with governance,
correspondence with the Guernsey Financial Services Commission,
internal compliance reports, and breach registers to identify and
consider any known or suspected instances of non-compliance with
laws and regulations and fraud;
-- Recalculating investment income and realised and unrealised
gains and losses in full for listed investments based on external
source information;
-- For unquoted investments, recalculating realised and
unrealised gains and losses in full. For investment income the
amounts were recalculated where based on an agreement. Where not
agreement based, we obtained direct confirmation from the
underlying unquoted investee companies in relation to investment
income; and
-- Performing analytics on the mid-year NAVs with a focus on
reviewing and corroborating movements over a set threshold.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
https://www.frc.org.uk/auditorsresponsibilities . This description
forms part of our auditor's report.
The engagement director on the audit resulting in this
independent auditor's opinion is Justin Hallett.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members, as a body, for our audit work, for this report, or for the
opinions we have formed.
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
Date
STATEMENT OF FINANCIAL POSITION 2020
AS AT 31 DECEMBER 2020 2019
Notes GBP GBP
Assets
Cash and cash equivalents 9 424,140 659,757
Interest receivable 2(j) 684,184 1,266,886
Other receivables 19,628 17,284
Financial assets held at fair value through
profit or loss 3 102,607,947 76,932,117
Total assets 103,735,899 78,876,044
------------ ------------
Equity and Liabilities
Liabilities
Directors' fees payable 12 28,750 28,750
Management fees payable 7,12 110,825 85,447
Administration fees payable 6 35,000 42,447
Audit fees payable 54,000 49,000
Custodian fees payable 7,587 6,338
Other payables 8,338 752
Total liabilities 244,500 212,734
------------ ------------
Equity
Management Ordinary Shares 10 9,167 9,167
Ordinary Shares 10 75,972,688 75,972,688
Revenue Reserves 10,971,969 10,808,636
Capital Reserves 16,537,575 (8,127,181)
Total equity 103,491,399 78,663,310
------------ ------------
Total equity and liabilities 103,735,899 78,876,044
============ ============
Net Asset Value per Ordinary Share (in Pence)
- Basic and Diluted 13 97.2 73.9
The financial statements on pages 36 to 61 were approved and authorised
for issue by the Board of Directors on
22 April 2021 and signed on its behalf by:
David Staples
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER
2020
Year ended Year ended Year ended
2020 2020 2020
Revenue Capital Total
Notes GBP GBP GBP
Income
Interest income 2(j) 1,703,620 - 1,703,620
Dividend income 138,129 - 138,129
Net gain on financial assets at
fair value through profit or loss 3 - 24,674,768 24,674,768
Net foreign exchange loss - (10,012) (10,012)
----------- ----------- -----------
Net income 1,841,749 24,664,756 26,506,505
----------- ----------- -----------
Expenses
Management fees 7,12 1,104,344 - 1,104,344
Directors' fees 12 115,136 - 115,136
Administration fees 6 114,250 - 114,250
Other expenses 8 123,918 - 123,918
Custody fees 84,592 - 84,592
Broker fees 35,000 - 35,000
Audit fees 62,000 - 62,000
Directors' insurance and expenses 12,670 - 12,670
Legal fees 26,506 - 26,506
Total expenses 1,678,416 - 1,678,416
----------- ----------- -----------
Net gain for the year 163,333 24,664,756 24,828,089
=========== =========== ===========
Net gain for the year per Ordinary
Share:
Basic and Diluted (in pence) 13 0.15 23.17 23.32
In the year ended 31 December 2020 there were no gains or losses other than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice and is provided for information purposes.
STATEMENT OF COMPREHENSIVE INCOME Year ended Year ended Year ended
FOR THE YEARED 31 DECEMBER 2019 2019 2019
2019
Revenue Capital Total
Notes GBP GBP GBP
Income
Loan guarantee income 2(i) 193,577 - 193,577
Interest income 2(j) 1,457,593 - 1,457,593
Dividend income 538,787 - 538,787
Net gain on financial assets at
fair value through profit or loss 3 - 17,088,162 17,088,162
Net foreign exchange loss - (104,193) (104,193)
----------- ----------- -----------
Net income 2,189,957 16,983,969 19,173,926
----------- ----------- -----------
Expenses
Management fees 7,12 965,402 - 965,402
Directors' fees 12 115,000 - 115,000
Administration fees 6 103,938 - 103,938
Other expenses 8 95,648 - 95,648
Custody fees 77,521 - 77,521
Audit fees 56,650 - 56,650
Broker fees 40,972 - 40,972
Directors' insurance and expenses 18,979 - 18,979
Legal fees 11,620 - 11,620
Total expenses 1,485,730 - 1,485,730
----------- ----------- -----------
Net gain for the year 704,227 16,983,969 17,688,196
=========== =========== ===========
Net gain for the year per Ordinary
Share:
Basic and Diluted (in pence) 13 0.6 15.5 16.1
In the year ended 31 December 2019 there were no gains or losses other than those recognised
above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice and is provided for information purposes.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
Management
Ordinary Ordinary Treasury Revenue Capital Total
Shares Shares Shares reserves reserves equity
GBP GBP GBP GBP GBP GBP
Balance as at 1
January
2019 10,000 81,165,017 (140,492) 10,104,409 (25,111,150) 66,027,784
Redemption of
Ordinary
Shares (833) (4,934,681) - - - (4,935,514)
Expenses
related
to Tender
offer - (117,156) - - - (117,156)
Net gain for
the
year - - - 704,227 16,983,969 17,688,196
Balance as at
31
December 2019 9,167 76,113,180 (140,492) 10,808,636 (8,127,181) 78,663,310
Net gain for
the
year - - - 163,333 24,664,756 24,828,089
------------------- ------------------- ---------------- ----------- ------------- ------------
Balance as at
31
December 2020 9,167 76,113,180 (140,492) 10,971,969 16,537,575 103,491,399
=================== =================== ================ =========== ============= ============
Note 10 10 10
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
Year ended Year ended
2020 2019
Notes GBP GBP
Cash flows from operating activities
Net gain for the year 24,828,089 17,688,196
Adjustments to reconcile gain for the year to
net cash used in operating activities:
Interest income (1,703,620) (1,457,593)
Dividend income (138,129) (538,787)
Net gain on financial assets at fair value through
profit or loss 3 (24,674,768) (17,088,162)
Net (increase)/decrease in receivables (2,344) 5,286
Net increase in payables 31,766 22,998
------------- -------------
(1,659,006) (1,368,062)
Interest received 615,510 553,796
Dividend received 138,129 538,787
Net cash used in operating activities (905,367) (275,479)
------------- -------------
Cash flows from investing activities
Purchase of financial assets at fair value through
profit or loss (11,200,266) (16,601,793)
Sale of financial assets at fair value through
profit or loss 11,870,016 18,777,778
Net cash provided by investing activities 669,750 2,175,985
------------- -------------
Cash flows from financing activities
Expenses related to the tender offer - (117,156)
Payments for redemption of shares - (4,935,514)
------------- -------------
Net cash used in financing activities - (5,052,670)
Net decrease in cash and cash equivalents (235,617) (3,152,164)
Cash and cash equivalents at the beginning of
the year 659,757 3,811,921
Cash and cash equivalents at the end of the
year 9 424,140 659,757
============= =============
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the "Company") is a
closed-ended investment company with limited liability incorporated
and domiciled on 9 March 2010 in Guernsey under the Companies
(Guernsey) Law, 2008 with registration number 51576. The Company is
a registered closed-ended investment scheme registered pursuant to
the Protection of Investors Law and the Registered Collective
Investment Scheme Rules 2018 issued by the Guernsey Financial
Services Commission ("GFSC"). On 28 April 2010 the Ordinary Shares
and Subscription Shares of the Company were admitted to the
Official List of the UK Listing Authority and to trading on the
Main Market of the London Stock Exchange. The Company's Ordinary
and Subscription Shares were admitted to the Premium Listing
Segment of the Official List on 28 April 2010.
The final exercise date for the Subscription Shares was 2 April
2013. No Subscription Shares were exercised at this time and all
residual/unexercised Subscription Shares were subsequently
cancelled.
The Company's portfolio is managed by Baker Steel Capital
Managers (Cayman) Limited (the "Manager"). The Manager has
appointed Baker Steel Capital Managers LLP (the "Investment
Manager") as the Investment Manager to carry out certain duties.
The Company's investment objective is to seek capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities, or related instruments, of natural
resources companies. The Company invests predominantly in unlisted
companies (i.e. those companies which have not yet made an Initial
Public Offering ("IPO")) and also in listed securities (including
special situations opportunities and less liquid securities) with a
view to exploiting value inherent in market inefficiencies and
pricing anomalies.
Baker Steel Capital Managers LLP was authorised to act as an
Alternative Investment Fund Manager ("AIFM") of Alternative
Investment Funds ("AIFs") on 22 July 2014. On 14 November 2014, the
Investment Manager signed an amended Investment Management
Agreement with the Company, to take into account AIFM regulations.
AIFMD focuses on regulating the AIFM rather than the AIFs
themselves, so the impact on the Company is limited.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a historical cost
basis except for Financial Instruments at Fair Value Through Profit
or Loss ("FVTPL") in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union. The
financial statements have been prepared on a going concern
basis.
The Company's functional currency is the Great Britain pound
Sterling ("GBP"), being the currency in which its Ordinary Shares
are issued and in which returns are made to shareholders. The
presentation currency is the same as the functional currency. The
financial statements have been rounded to the nearest GBP. The
Company invests in companies around the world whose shares are
denominated in various currencies.
Income encompasses both revenue and capital gains/losses. For a
listed investment company, it is best practice to distinguish
revenue from capital. Revenue includes items such as dividends,
interest, fees and other equivalent items. Capital is the return,
positive or negative, from holding investments other than that part
of the return that is revenue. The format of the Statement of
Comprehensive Income follows the recommendations of the AIC
Statement of Recommended Practice and is provided for information
purposes.
Assets and liabilities are presented in order of liquidity.
Their maturities are disclosed in Note 4(c).
New standards, amendments and interpretations to existing
standards which are not yet effective for the current year
A number of new standards are effective for annual periods
beginning after 1 January 2021 and earlier application is
permitted, however the Company has not early adopted the new or
amended standards in preparing these financial statements.
The following amended standards and interpretations are not
expected to have a significant impact on the Company's financial
statements:
- IFRS 17 Insurance Contracts (effective for periods starting on
or after 1 January 2023)
- Classification of Liabilities as Current or Non-current -
Amendments to IAS 1 (effective for periods starting on or after 1
January 2023).
- Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture - Amendments to IFRS 10 and IAS 28
(effective date is not available until IASB completes the broader
review on the standard)
- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (effective for periods
starting on or after 1 January 2021).
New standards, amendments and interpretations to existing
standards which are effective for the current year
There are a number of new standards, amendments to standards and
interpretations that are effective for annual periods beginning
after 1 January 2020 and were adopted from their effective date.
These amendments did not have a significant impact on the Company's
financial statements.
Amendment to IFRS 3: Definition of Business
On 22 October 2018, the IFRS Interpretations Committee of the
International Accounting Standards Board ("IASB") issued a
narrow-scope amendment to the definition of business in IFRS 3
Business combinations. The amendments are intended to assist
entities to determine whether a transaction should be accounted for
as a business combination or as an asset acquisition. The IASB
provided guidance on the option to use a concentration test which
is a simplified assessment that results in an asset acquisition, if
substantially all of the fair value of the gross assets is
concentrated in a single identifiable asset or a group of similar
identifiable assets.
The amendment applies to annual reporting periods beginning on
or after 1 January 2020. Earlier application of the amendment is
permitted. The amendment did not have a significant impact on the
Company's financial statements.
Amendments to IAS 1 and IAS 8: Definition of Material
On 31 October 2018, the International Accounting Standards Board
("IASB") issued amendments to IAS 1 Presentation of Financial
Statements and IAS 8 to align the definition of 'material' across
the standards and to clarify certain aspects of the definition. The
new definition states that, 'Information is material if omitting,
misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general purpose
financial statements make on the basis of those financial
statements, which provide financial information about a specific
reporting entity.
The amendment applies to annual reporting periods beginning on
or after 1 January 2020. Earlier application of the amendment is
permitted. The amendment did not have a significant impact on the
Company's financial statements.
b) IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy
or sell non-financial items.
Classification and measurement of financial assets and financial
liabilities
A financial asset or liability is measured at amortised cost if
it meets both of the following conditions and are not
designated
as at FVTPL:
Ø it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
Ø its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
All financial assets of the Company are measured at FVTPL,
except for cash and cash equivalents which are measured at
amortised cost.
All financial liabilities of the Company are measured at
amortised cost.
Impairment of financial assets
Under IFRS 9 for trade receivables the Company has applied the
simplified model. Under the simplified approach the requirement is
to always recognise lifetime expected credit loss ("ECL"). Under
the simplified approach there is no need to monitor significant
increases in credit risk and measure lifetime ECLs at all times.
The interest receivable is in respect of the Convertible loan
notes, a list of which is presented in Note 4(c) on Page 55 of the
Annual Report, and no provision has been made for credit losses.
This is on the basis that the fair value of the underlying asset
supports the convertible receivable.
For other receivables, the Directors have concluded that any ECL
on these receivables would be highly immaterial.
c) Significant accounting judgements and estimates
The preparation of the Company's financial statements requires
the Directors to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements
and disclosure of contingent liabilities. However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability in future periods.
(i) Judgements
In the process of applying the Company's accounting policies,
the Directors have made the following judgements, which have had
the most significant effect on the amounts recognised in the
financial statements:
Assessment as Investment Entity
As per IFRS 10, an entity shall determine whether it is an
investment entity. An investment entity is an entity that fulfils
the following criteria:
Ø It obtains funds from one or more investors for the purpose of
providing those investors with investment services.
Ø It commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income or both.
Ø It measures and evaluates the performance of substantially all
of its investments on a fair value basis.
The Company meets the above criteria and is therefore considered
to be an investment entity and therefore does not consolidate its
subsidiaries.
Going Concern
As described in the Directors' Report, the Directors have made
an assessment of the Company's ability to continue as a going
concern and considered it appropriate to adopt the going concern
basis of accounting. There will be a discontinuation vote proposed
at the AGM in June 2021. To be passed the discontinuation vote
requires a majority of 75% of those shareholders voting to vote in
favour of discontinuing the Company. The Company has canvassed
major shareholders following which the Board consider that the vote
to discontinue will not be passed at the AGM in 2021 and therefore
the Company will be able to continue until at least the subsequent
discontinuation vote in 2024.The Board is satisfied that it has the
resources to continue in business for at least 12 months following
the signing of these financial statements. As at 31 December 2020,
approximately 8% of the Company's assets were represented by cash
and unrestricted listed and quoted investments which are readily
realisable. The Directors are not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern.
(i) Estimates and assumptions
The key assumptions concerning the future and other key sources
of uncertainty at the reporting date, that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year, are discussed
below. The Company based its assumptions and estimates on
parameters available when the financial statements were prepared.
However, existing circumstances and assumptions about future
developments may change due to market changes or circumstances
arising beyond the control of the Company. Such changes are
reflected in the assumptions when they occur. Please refer to Note
3 for further information.
(ii) Fair value of financial instruments
When the fair values of financial assets and financial
liabilities recorded in the Statement of Financial Position cannot
be derived from active markets, their fair value is determined
using a variety of valuation techniques that include the use of
valuation models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible,
estimation is required in establishing fair values. The estimates
include considerations of liquidity and model inputs related to
items such as credit risk, correlation and volatility. Changes in
assumptions about these factors could affect the reported fair
value of financial instruments in the Statement of Financial
Position and the level where the instruments are disclosed in the
fair value hierarchy. To assess the significance of a particular
input to the entire measurement, the Company performs sensitivity
analysis or stress testing techniques. Please refer to Note 3 for
further information. Investments in associates are carried at fair
value as they are held as part of the investment portfolio which is
valued on a fair value basis.
d) Interest income and expense
Bank interest income and interest expense are recognised on an
accruals basis using the effective interest method.
e) Expenses
All expenses are recognised on an accruals basis.
f) Translation of foreign currencies
Foreign currency transactions during the year are translated
into Sterling at the rate of exchange ruling at the date of the
transaction. Assets and liabilities denominated in foreign
currencies are translated into Sterling at the rate of exchange
ruling at the Statement of Financial Position date. Exchange
differences including those arising from adjustment to fair value
of financial instruments during the year, are included in the
Statement of Comprehensive Income. The foreign exchange movements
relating to financial assets form part of the fair value movement
in the Statement of Comprehensive Income.
g) Segment information
The Directors are of the opinion that the Company is engaged in
a single segment of business: investing in natural resources
companies.
h) Net asset value per share
Net Asset Value per Ordinary Share disclosed on the face of the
Statement of Financial Position is calculated in accordance with
the Company's Prospectus by dividing the net assets of the Company
on the Statement of Financial Position date by the number of
Ordinary Shares (including the Management Ordinary Shares)
outstanding at that date. Treasury Shares are excluded from the Net
Asset Value per Ordinary Share calculation.
i) Interest on investments
These comprise of interest accrued and interest received from
convertible loans where interest is payable throughout the life of
the instrument which are accounted for on an accruals basis and
recognised in the Statement of Comprehensive Income.
j) Dividend income
Dividend income is accrued on an ex-dividend basis and
recognised in the Statement of Comprehensive Income and is
presented net of withholding tax.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended Year ended
Investment Summary: 2020 2019
GBP GBP
Opening book cost 74,539,152 70,753,693
Purchases at cost 12,871,078 16,601,793
Proceeds on sale of investments (11,870,016) (18,777,778)
Net realised gains 5,462,827 5,961,444
------------- -------------
Closing cost 81,003,041 74,539,152
Net unrealised gains 21,604,906 2,392,965
------------- -------------
Financial assets held at fair value through profit
or loss 102,607,947 76,932,117
============= =============
The following table analyses net gains on financial assets at
fair value through profit or loss for the years ended
31 December 2020 and 31 December 2019.
Year ended Year ended
2020 2019
GBP GBP
Financial assets at fair value through profit or
loss
Realised gains on:
- Listed equity shares 5,462,245 6,135,349
- Debt instruments 582 (173,905)
5,462,827 5,961,444
Movement in unrealised (losses)/gains on:
- Listed equity shares (2,924,836) 250,838
- Unlisted equity shares 10,821,831 5,134,808
- Royalties (428,348) 4,373,836
- Debt instruments 11,731,267 1,280,943
- Warrants 12,027 86,293
------------ ------------
19,211,941 11,126,718
------------ ------------
Net gain on financial assets at fair value through
profit or loss 24,674,768 17,088,162
============ ============
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2020.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at
fair value through profit
or loss
Listed equity shares 7,185,851 - - 7,185,851
Unlisted equity shares - - 36,987,733 36,978,733
Royalties - - 14,512,762 14,512,762
Warrants - - 141,489 141,489
Debt instruments - - 43,780,112 43,780,112
------------- ------------------ ------------ -----------
7,185,851 - 95,422,096 102,607,947
============= ================== ============ ===========
The following table analyses investments by type and by level
within the fair valuation hierarchy at 31 December 2019.
Quoted prices
in active Quoted market Unobservable
markets based observables inputs
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets at
fair value through profit
or loss
Listed equity shares 8,722,030 - - 8,722,030
Unlisted equity shares - - 24,780,551 24,780,551
Royalties - - 14,019,975 14,019,975
Warrants - - 116,337 116,337
Debt instruments - - 29,293,224 29,293,224
------------- ------------------ ------------ -----------
8,722,030 - 68,210,087 76,932,117
============= ================== ============ ===========
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in net gain on financial
assets and liabilities at fair value through profit or loss held at
31 December 2020.
Unlisted Debt
31 December 2020 Equities Royalties instruments Warrants Total
GBP GBP GBP GBP GBP
Opening balance 1 January
2020 24,780,551 14,019,975 29,293,224 116,337 68,210,087
Purchases of investments 1,519,012 921,135 2,818,227 13,125 5,271,499
Sales of investments - - (63,188) - (63,188)
Transfer to Level 1 (133,661) - - - (133,661)
Change in net unrealised
gains 10,821,831 (428,348) 11,731,267 12,027 22,136,777
Realised gains - - 582 - 582
Closing balance 31 December
2020 36,987,733 14,512,762 43,780,112 141,489 95,422,0963,633,558
----------- ----------- ------------ --------- --------------------
Unrealised gains on investments
still held at 31 December
2020 9,366,113 2,745,785 13,105,480 128,364 25,345,742
=========== =========== ============ ========= ====================
The table below shows a reconciliation of beginning to ending
fair value balances for Level 3 investments and the amount of total
gains or losses for the year included in net gain on financial
assets and liabilities at fair value through profit or loss held at
31 December 2019.
Unlisted Debt
31 December 2019 Equities Royalties instruments Warrants Total
GBP GBP GBP GBP GBP
Opening balance 1 January
2019 18,894,281 6,163,793 15,818,201 30,044 40,906,319
Purchases of investments 751,462 3,482,346 12,367,985 - 16,601,793
Change in net unrealised
gains 5,134,808 4,373,836 1,280,943 86,293 10,875,880
Realised losses - - (173,905) - (173,905)
Closing balance 31 December
2019 24,780,551 14,019,975 29,293,224 116,337 68,210,087
------------ ----------- ------------ --------- -----------
Unrealised (losses)/gains
on investments still held
at 31 December 2019 (1,455,715) 3,174,130 1,421,092 116,337 3,255,844
============ =========== ============ ========= ===========
It is the Company's policy to recognise a change in hierarchy
level when there is a change in the status of the investment, for
example when a listed company delists or vice versa, or when shares
previously subject to a restriction have that restriction released.
The transfers between levels are recorded either on the value of
the investment immediately after the event or the carrying value of
the investment at the beginning of the financial year.
In determining an investment's position within the fair value
hierarchy, the Directors take into consideration the following
factors:
Investments whose values are based on quoted market prices in
active markets are classified within Level 1. These include listed
equities with observable market prices. The Directors do not adjust
the quoted price for such instruments, even in situations where the
Company holds a large position and a sale could reasonably impact
the quoted price. The Company does not hold a sufficiently large
position in any listed company that it could impact the quoted
price via a sale of its investment.
Investments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer
quotations or alternative pricing sources supported by observable
inputs, are classified within Level 2. These include certain
less-liquid listed equities. Level 2 investments are valued with
reference to the listed price of the shares should they be freely
tradable after applying a discount for liquidity if relevant. As
Level 2 investments include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability,
which are generally based on available market information. The
Company held no Level 2 investments at 31 December 2020 (31
December 2019: none).
Investments classified within Level 3 have significant
unobservable inputs. They include unlisted debt instruments,
unlisted equity shares and warrants. Level 3 investments are valued
using valuation techniques explained below. The inputs used by the
Directors in estimating the value of Level 3 investments include
the original transaction price, recent transactions in the same or
similar instruments if representative in volume and nature,
completed or pending third-party transactions in the underlying
investment of comparable issuers, subsequent rounds of financing,
recapitalisations and other transactions across the capital
structure, offerings in the equity or debt capital markets, and
changes in financial ratios or cash flows. Level 3 investments may
also be adjusted with a discount to reflect illiquidity and/or
non-transferability in the absence of market information.
Valuation methodology of Level 3 investments
The primary valuation technique is of "Latest Recent
Transaction" being either recent external fund raises or
transactions. In all cases the valuation considers whether there
has been any change since the transaction that would indicate the
price is no longer fair value. Where an unquoted investment has
been acquired or where there has been a material arm's length
transaction during the past six months it will be carried at
transaction value, having taken into account any change in market
conditions and the performance of the investee company between the
transaction date and the valuation date. Where there has been no
Latest Recent Transaction the primary valuation driver is IndexVal.
For each core unlisted investment, the Company maintains a weighted
average basket of listed companies which are comparable to the
investment in terms of commodity, stage of development and location
("IndexVal"). IndexVal is used as an indication of how an
investment's share price might have moved had it been listed.
Movements in commodity prices are
deemed to have been taken into account by the movement of
IndexVal.
A secondary tool used by Management to evaluate potential
investments as well as to provide underlying valuation references
for the Fair Value already established is Development Risk Adjusted
Value ("DRAV"). DRAVs are not a primary determinant of Fair Value.
The Investment Manager prepares discounted cash flow models for the
Company's core investments annually taking into account significant
new information, and for decision making purposes when required.
From these, DRAVs are derived. The computations are based on
consensus forecasts for long term commodity prices and investee
company management estimates of operating and capital costs. The
Investment Manager takes account of market, country and development
risks in its discount factors. Some market analysts incorporate
development risk into the discount rate in arriving at a net
present value ("NPV") rather than establishing an NPV discounted
purely for cost of capital and country risk and then applying a
further overall discount to the project economics dependent on
where such project sits on the development curve per the DRAV
calculations.
The valuation technique for Level 3 investments can be divided
into six groups:
i. Transactions & Offers
Where there have been transactions within the past 6 months
either through a capital raising by the investee company or known
secondary market transactions, representative in volume and nature
and conducted on an arm's length basis, this is taken as the
primary driver for valuing Level 3 investments, having taken into
account of any change in market conditions and the performance of
the investee company between the transaction date and the valuation
date. This includes offers, binding or otherwise from third parties
around the year end which may not have completed prior to the year
end but have a high chance of success and are considered to
represent the situation at year end.
ii. IndexVal
Where there have been no known transactions for 6 months, at the
Company's half year and year end, movements in IndexVal will
generally be taken into account in assessing Fair Value where there
has been at least a 10% movement in IndexVal over at least a
six-month period. The IndexVal results are used as an indication of
trend and are viewed in the context of investee company progress
and any requirement for finance in the short term for further
progression.
iii. Royalty Valuation Model
Royalties are valued on projected cashflows taking into account
expected time to production and development risk and adjusted for
movement in commodity prices.
iv. EBITDA Multiple
In the case of Cemos Group plc, which moved to full production
during 2020 and so could reflect maintainable earnings, it is a
cement plant with no defined life like a mining project and
therefore has been valued on the basis of a multiple of historical
and forecast earnings before interest, tax, depreciation and
amortisation when compared to listed comparable cement producers.
Previously, given the stage of development of the investment, this
was valued under IndexVal.
v. Warrants
Warrants are valued using a simplified Black Scholes model
taking into account time to expiry, exercise price and volatility.
Where there is no established market for the underlying shares the
average volatility of the companies in that investment's basket of
IndexVal comparables is utilised in the Black Scholes model.
vi. Convertible loans
Convertible loans are valued at fair value through profit or
loss, taking into account credit risk and the value of the
conversion aspect.
Quantitative information of significant unobservable inputs -
Level 3
Range of unobservable
input
2020 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 27,236,964 Transactions Private transactions n/a
Unlisted Equity 2,790,916 IndexVal Change in index n/a
Unlisted Equity 6,943,907 EBITDA Multiple EBITDA Multiple n/a
Royalties 14,512,762 Royalty Valuation Commodity price n/a
model and discount
rate risk
Unlisted Equity 15,946 Other Exploration n/a
results, study
results, financing
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 1,281,629 estimated recovery range +/-50%
Other Convertible 13,070,904 Transactions Private transactions n/a
Debentures/Loans
Valued at fair
Other Convertible value with reference Rate of Credit
Debentures/Loans 29,427,579 to credit risk Risk 20%-40%
Simplified Black
Warrants 141,489 Scholes Model Volatilities 50%
Range of unobservable
input
2019 Unobservable (weighted
Description GBP Valuation technique input average)
Unlisted Equity 5,661,710 Transaction Private transactions n/a
Unlisted Equity 19,102,895 IndexVal Change in index n/a
Royalties 14,019,975 Royalty Valuation Commodity price n/a
model and discount
rate risk
Unlisted Equity 15,946 Other Exploration n/a
results, study
results, financings
Debt Instruments
Black Pearl Limited Valued at mean Estimated recovery
Partnership 2,643,205 estimated recovery range +/- 50%
Valued at fair
value with reference
to credit risk
Other Convertible and value of embedded Rate of Credit
Debentures/Loans 26,650,019 derivative Risk 20%-40%
Simplified Black
Warrants 116,337 Scholes Model Volatilities 50%
Information on third party transactions in unlisted equities is
derived from the Investment Manager's market contacts. The change
in IndexVal for each particular unlisted equity is derived from the
weighted average movements of the individual baskets for that
equity so it is not possible to quantify the range of such
inputs.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 investments
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2020 are as shown below:
Description Input Sensitivity Effect on Fair
used Value (GBP)
Transactions & Expected
Unlisted Equity Transactions +/- 10% +/-2,723,696
Unlisted Equity Change in IndexVal +82/-42%* +2,288,551/-1,172,185
Unlisted Equity EBITDA Multiple +/- 20% +/-1,388,781
Royalties Commodity Price +/-20% +/-2,862,119
Royalties Discount Rate +/-20% -2,732,511/+2,223,695
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/-422,938
Others/Loans Risk discount rate +/-20% -4,272,633/+1,996,328
Volatility of Index
Others/ Loans Basket +/-40% +2,109,175/-2,346,725
Transactions and
Others/ Loans expected transactions +/-10% +/-1,307,090
Volatility of Index
Warrants Basket +/-40% +87,968/-92,079
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2019 are as shown below:
Description Input Sensitivity Effect on Fair
used Value (GBP)
Unlisted Equity Change in IndexVal +/-43.5%* +/-8,309,760
Royalty valuation
Royalties models +/-20% +/-2,803,995
Debt Instruments
Black Pearl Limited
Partnership Probability weighting +/-33% +/-872,258
Others/Loans Risk discount rate +/-20% +/-4,747,375
Volatility of Index
Warrants Basket +/-40% +100,833/--61,601
* The sensitivity analysis refers to a percentage amount added
or deducted from the input and the effect this has on the fair
value. The +82%/-42% sensitivity was used as this was the range of
movements of the constituents in the IndexVal basket for Sarmin,
the only investment valued on the basis of IndexVal in the year
(2019:43.5%).
The Company has not disclosed the fair value for financial
assets such as cash and cash equivalents and short-term receivables
and payables, because their carrying amounts are a reasonable
approximation of fair values.
4. RISK MANAGEMENT POLICIES AND DISCLOSURES
The Company's principal financial instruments comprise financial
assets, primarily unlisted equity investments and loans in natural
resources companies. The portfolio is concentrated on projects on
the large liquid commodity markets and diversified in terms of
geography. These investments reflect the core of the Company's
investment strategy.
The Company manages its exposure to key financial risks
primarily through diversification of geography and commodity, and
through technical and legal due diligence. The objective of the
policy is to support the delivery of the Company's core investment
objective whilst maintaining future financial security. The main
risks that could adversely affect the Company's financial assets or
future cash flows are market risk (comprising market price risk,
currency risk and interest rate risk), commodity price risk,
liquidity risk, concentration risk and credit risk.
The Company's financial liabilities principally comprise fees
payable to various parties and arise directly from its
operations.
Risk exposures and responses
The Company's Board of Directors oversees the management of
financial risks, each of which is summarised below.
a) Market risk
Market risk is the risk that the fair value of a financial
instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: market price risk,
currency risk and interest rate risk.
i. Market price risk
Market price risk is the risk that the fair value of future cash
flows will fluctuate because of changes in the market prices of the
Company's investment portfolio.
The sensitivity analysis on the previous page illustrates the
sensitivity of the key inputs into the market valuation and the
resulting impact of the fair values. The level of change is
considered to be reasonably possible. The sensitivity analysis
assumes all other variables are held constant.
ii. Currency risk
At 31 December 2020, the largest non-Sterling portion of the
Company's financial assets and liabilities was denominated in US
Dollars. The functional currency of the Company is Sterling.
Currency risk is the risk that the value of non-Sterling
denominated financial instruments will fluctuate due to changes in
foreign exchange rates. The tables below shows the currencies and
amounts the Company was exposed to at 31 December 2020 and 31
December 2019.
31 December 2020
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 33,258,402 0.5650 18,790,284 18.16%
CAD 3,906,292 0.5748 2,245,181 2.17%
EUR 9,115,280 0.8956 8,163,664 7.89%
GBP 27,672,415 1.0000 27,672,415 26.74%
NOK 41,552,423 0.0854 3,550,538 3.43%
USD 58,809,001 0.7324 43,069,317 41.61%
103,491,399 100.00%
----------- ---------------
31 December 2019
Currency Amount in Conversion rate Value % of net assets
local currency (based on GBP) GBP
AUD 24,918,433 0.5306 13,220,893 16.81%
CAD 8,239,132 0.5823 4,797,382 6.10%
EUR 5,402,335 0.8475 4,578,409 5.82%
GBP 20,324,844 1.0000 20,324,844 25.84%
NOK 37,302,882 0.0859 3,204,604 4.07%
USD 43,084,105 0.7552 32,537,178 41.36%
78,663,310 100.00%
----------- ---------------
ii. Currency risk (continued)
Analysis has been completed to assess what movements in currency
rates are reasonably possible. This analysis has considered the
variance between the highest and lowest conversion rates in 2020
and 2019 for each of the currencies in the table below. The table
shows the potential movements in the Company's net assets as a
result of such foreign exchange movements.
Reasonably 2020 2019
Currency possible Value Value
move GBP GBP
AUD 10% 1,879,028 1,344,200
CAD 11% 246,970 527,712
EUR 13% 1,061,276 595,193
NOK 20% 710,108 640,921
USD 16% 6,891,091 5,197,578
---------- ---------
10,788,473 8,305,604
========== =========
The estimated movement is based on management's determination of
a reasonably possible change in foreign exchange rates. In
practice, the actual results may differ from the sensitivity
analysis above and the difference could be material.
iii. Interest rate risk
Although the Company's financial assets and liabilities expose
it indirectly to risks associated with the effects of fluctuations
in the prevailing levels of market interest rates on its financial
position and fair value, it is subject to little direct exposure to
interest rate fluctuations as the majority of the financial assets
are equity investments or similar investments which do not pay
interest. For valuation purposes convertible loans all have fixed
interest rates and are treated more like quasi equity albeit with
higher ranking than equity. As such they are not directly exposed
to interest rates from a cash flow perspective. Any excess cash and
cash equivalents are invested at short-term market interest rates
which expose the Company, to a limited extent, to interest rate
risk and corresponding gains/losses from a change in the fair value
of these financial instruments.
The table below summarises the Company's exposure to interest
rate risk. It includes the Company's assets and liabilities at fair
values, categorised by the earlier of contractual re-pricing or
maturity dates.
At 31 December 2020 Less than More than Non-interest
6 months 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 424,140 - - 424,140
Financial assets held at fair value through profit or loss* 585,887 28,983,181 73,038,879 102,607,947
Other receivables - - 19,628 19,628
Interest receivable* 684,184 - - 684,184
--------- ---------- ------------ -----------
Total Assets 1,694,211 28,983,181 73,058,607 103,735,899
========= ========== ============ ===========
Liabilities
Other liabilities - - 244,500 244,500
Total Liabilities - - 244,500 244,500
========= ========== ============ ===========
Interest rate sensitivity gap 1,694,211 28,983,181
========= ==========
*The interest rate risks on these items are considered as part
of overall price risk in valuing the convertibles.
The table below summarises the Company's exposure to interest
rate risk. It includes the Company's assets and liabilities at fair
values, categorised by the earlier of contractual re-pricing or
maturity dates.
At 31 December 2019 Less than More than Non-interest
6 months 6 months bearing Total
Assets GBP GBP GBP GBP
Cash and cash equivalents 659,757 - - 659,757
Financial assets held at fair value through profit or loss* - 18,196,540 58,735,577 76,932,117
Other receivables - - 17,284 17,284
Interest receivable* 1,266,886 - - 1,266,886
--------- ----------- ------------ -----------
Total Assets 1,926,643 76,932,117 17,284 78,876,044
========= =========== ============ ===========
Liabilities
Other liabilities - - 212,734 212,734
Total Liabilities - - 212,734 212,734
========= =========== ============ ===========
Interest rate sensitivity gap 1,926,643 76,932,117
========= ===========
*The interest rate risks on these items are considered as part
of overall price risk in valuing the convertibles.
Interest rate sensitivity
It is the opinion of the Directors that the Company is not
materially exposed to interest rate risk and accordingly no
interest rate sensitivity calculation has been provided in these
financial statements.
b) Liquidity risk
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations as they fall due. The
Company invests in unlisted equities for which there may not be an
immediate market. The Company seeks to mitigate this risk by
maintaining cash and readily realisable listed equity positions
which will cover its ongoing operational expenses.
The Company has the ability to incur borrowings of up to 10% of
its NAV but the Company's policy is to restrict any such borrowings
to temporary purposes only, such as settlement mis-matches.
The table below analyses the Company's financial assets and
liabilities into relevant maturity groupings based on the remaining
period at the Statement of Financial Position date to the
contractual maturity date. The amounts in the table are the
contractual cash flows.
At 31 December 2020 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 424,140 - - - - 424,140
Financial assets held at fair value
through profit
or loss - - 9,759,932 19,809,136 73,038,879 102,607,947
Receivables 684,184 15,878 3,750 - - 703,812
--------- ---------- ----------- ---------- -------------- -----------
Total Assets 1,108,324 15,878 9,763,682 19,809,136 73,038,979 103,735,899
========= ========== =========== ========== ============== ===========
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 149,575 15,925 79,000 - - 244,500
--------- ---------- ----------- ---------- -------------- -----------
Total Liabilities 149,575 15,925 79,000 - - 244,500
========= ========== =========== ========== ============== ===========
Net assets attributable to shareholders 103,491,339
===========
The table below analyses the Company's financial assets and
liabilities into relevant maturity groupings based on the remaining
period at the Statement of Financial Position date to the
contractual maturity date. The amounts in the table are the
contractual cash flows.
At 31 December 2019 Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Assets GBP GBP GBP GBP GBP GBP
Cash and cash equivalents 659,757 - - - - 659,757
Financial assets held at fair value
through profit
or loss - - - 18,196,540 58,735,577 76,932,117
Receivables 1,284,170 - - - - 1,284,170
--------- ---------- ----------- ----------- -------------- -----------
Total Assets 1,943,927 - - 18,196,540 58,745,577 78,876,044
========= ========== =========== =========== ============== ===========
Less than More than No contractual
1 month 1-3 months 3-12 months 12 months maturity Total
Liabilities GBP GBP GBP GBP GBP GBP
Other payables
and accrued expenses 28,750 97,463 86,521 - - 212,734
--------- ---------- ----------- ----------- -------------- -----------
Total Liabilities 28,750 97,463 86,521 - - 212,734
========= ========== =========== =========== ============== ===========
Net assets attributable to shareholders 78,663,310
===========
The value of the cash and listed equity positions held by the
Company at the year end was GBP5,645,831 (2019: GBP9,381,787) with
the total liabilities at the year end at GBP240,603 (2019:
GBP212,734).
c) Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full as they fall due. The Company has exposure to
credit risk in relation to its cash balances, debt instruments,
loan and loan notes as stated in the Statement of Financial
Position.
The Company seeks to mitigate this risk by lending to companies
with projects which have significant value over and above the value
of the debt in such company so that there is a significant equity
"buffer". The maximum credit risk on debt instruments for the
Company is GBP43,018,741 (2019: GBP29,952,981).
The Company's financial assets are exposed to credit risk, which
amounted to the following at the Statement of Financial Position
date:
2020 2019
GBP GBP
Assets
Cash and cash equivalents 424,140 659,757
Interest receivable 684,184 1,266,886
Other receivables 19,628 17,284
Financial assets held at fair value through
profit or loss 102,607,947 76,932,117
Total assets 103,735,899 78,876,044
------------ -----------
As at 31 December 2020, the Company's non-equity financial
assets exposed to credit risk were held with the following
ratings:
Financial Assets Counterparty **Credit 2020
Rating % of net assets
-Convertible Loan & Loan Note Anglo Saxony Mining Limited NR* 3.29
-Convertible Loan & Loan Note Azarga Metals NR* 2.42
-Convertible Loan & Loan Note Bilboes Holdings Loan Note 1 NR* 2.58
-Convertible Loan & Loan Note Bilboes Holdings Loan Note 2 NR* 0.50
-Convertible Loan & Loan Note Mines & Metals Trading (Peru) Plc NR* 4.12
-Convertible Loan & Loan Note Tungsten West Limited NR* 9.73
-Convertible Loan Note Black Pearl Limited Partnership NR* 1.24
-Convertible Loan Note Futura Resources Limited NR* 10.05
-Convertible Unsecured Loan Cemos Group Plc NR* 7.44
-Loan Note Cemos Group Plc Loan Note NR* 0.40
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.13
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.40
Cash and cash equivalents HSBC Bank plc AA- 0.41
Total 42.71
===============
As at 31 December 2019, the Company's non-equity financial
assets exposed to credit risk were held with the following
ratings:
Financial Assets Counterparty **Credit 2019
Rating % of net assets
-Convertible Loan & Loan Note Anglo Saxony Mining Limited NR* 3.96
-Convertible Loan & Loan Note Azarga Metals NR* 2.59
-Convertible Loan & Loan Note Bilboes Holdings NR* 2.04
-Convertible Loan & Loan Note Tungsten West Limited NR* 6.40
-Convertible Loan & Loan Note Mines & Metals Trading (Peru) Plc NR* 4.35
-Convertible Loan Note Black Pearl Limited Partnership NR* 3.36
-Convertible Loan Note Futura Resources Limited NR* 8.55
-Loan Note Cemos Group Plc NR* 5.23
-Loan Note PRISM Diversified Limited Loan Note 1 NR* 0.14
-Loan Note PRISM Diversified Limited Loan Note 2 NR* 0.48
Cash and cash equivalents HSBC Bank plc AA- 0.84
Total 37.94
===============
* No rating available
**As per S&P
d) Concentration risk
The Company's investment policy is to invest in natural
resources companies, both listed and unlisted, that the Investment
Manager considers to be undervalued and that have strong
fundamentals and attractive growth prospects which means that the
Company has significant concentration risk relating to natural
resources companies.
Concentration risks include, but are not limited to natural
resources asset category (such as gold) and geography. The Company
may at certain times hold relatively few investments. The Company
could be subject to significant losses if it holds a large position
in a particular investment that declines in value or is otherwise
adversely affected, including by the default of the issuer. Such
risks potentially could have a material adverse effect on the
Company's financial position, results of operations, business
prospects and returns to investors. The Company's investments are
geographically diverse reducing this aspect of concentration risk.
In terms of commodity, the portfolio is likewise diversified in the
large liquid markets of silver, gold, iron ore, coal, copper,
platinum group metals, nickel and oil to mitigate this aspect of
concentration risk.
4. TAXATION
The Company is a Guernsey Exempt Company and is therefore not
subject to taxation in Guernsey on its income under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989. An annual exemption fee
of GBP1,200 (2019: GBP1,200) has been paid. The Company may,
however, be exposed to taxes in certain other territories in which
it invests such as withholding taxes on interest payments and
dividends and on realisations of investments.
5. ADMINISTRATION FEES
The Administrator, HSBC Securities Services (Guernsey) Limited,
is paid fees for acting as administrator of the Company at the rate
of 7 basis points of gross asset value up to US$ 250 million; the
rate reduces to 5 basis points of gross asset value above US$ 250
million. The Administrator is also reimbursed by the Company for
reasonable out-of-pocket expenses. These fees are calculated and
accrued as at the last business day of each month and paid monthly
in arrears.
The Administrator is also entitled to a fee for its provision of
corporate secretarial services provided to the Company on a time
spent basis and subject to a minimum annual fee of GBP40,000. The
Company is also responsible for any sub-administration fees as
agreed in writing from time to time, and reasonable out-of-pocket
expenses. The Administrator is also entitled to fees of EUR5,000
for preparation of the financial statements of the Company.
The administration fees payable for the year ended 31 December
2020 were GBP114,250 (2019: GBP103,938) of which GBP35,000 (2019:
GBP42,447) was payable at 31 December 2020. HSBC Securities
Services (Ireland) DAC, the sub-Administrator, is paid a portion of
these fees by the Administrator.
6. MANAGEMENT AND PERFORMANCE FEES
The Manager was appointed pursuant to a management agreement
with the Company dated 31 March 2010 (the "Management Agreement").
The Company pays to the Manager a management fee which is equal to
1/12th of 1.75 per cent of the total average market capitalisation
of the Company during each month. The management fee is calculated
and accrued as at the last business day of each month and is paid
monthly in arrears. The Investment Manager's fees are paid by the
Manager.
The management fee for the year ended 31 December 2020 was
GBP1,104,344 (2019: GBP965,402) of which GBP110,825 (2019:
GBP85,447) was outstanding at the year end.
The Manager is also entitled to a performance fee. The
Performance Period is each 12-month period ending on 31 December
(the "Performance Period"). The amount of the performance fee is 15
per cent of the total increase in the NAV, if the Hurdle has been
met, at the end of the relevant Performance Period, over the
highest previously recorded NAV as at the end of a Performance
Period in respect of which a performance fee was last accrued,
having made adjustments for numbers of Ordinary Shares issued
and/or repurchased ("Highwater Mark"). In addition, the performance
fee will only become payable if there have been sufficient net
realised gains. As at 31 December 2020, the Highwater Mark was the
equivalent of approximately 94 pence per share with the relevant
Hurdle being the equivalent of approximately 140 pence per
share.
There were no earned performance fees payable for the current or
prior year.
If the Company wishes to terminate the Management Agreement
without cause it is required to give the Manager 12 months prior
notice or pay to the Manager an amount equal to: (a) the aggregate
investment management fee which would otherwise have been payable
during the 12 months following the date of such notice (such amount
to be calculated for the whole of such period by reference to the
Market Capitalisation prevailing on the Valuation Day on or
immediately prior to the date of such notice); and (b) any
performance fee accrued at the end of any Performance Period which
ended on or prior to termination and which remains unpaid at the
date of termination which shall be payable as soon as, and to the
extent that, sufficient cash or other liquid assets are available
to the Company (as determined in good faith by the Directors),
provided that such accrued performance fee shall be paid prior to
the Company making any new investment or settling any other
liabilities; and (c) where termination does not occur at 31
December in any year, any performance fee accrued at the date of
termination shall be payable as soon as and to the extent that
sufficient cash or other liquid assets are available to the Company
(as determined in good faith by the Directors), provided that such
accrued performance fee shall be paid prior to the Company making
any new investment or settling any other liabilities.
8. OTHER EXPENSES
2020 2019
TOTAL TOTAL
GBP GBP
Public relations fees 7,500 10,800
Listing fees 11,670 10,295
Regulatory fees 10,374 6,009
Registrar fees 23,138 28,684
Website expenses 1,000 1,000
Income tax exemption fee 1,200 1,200
Research fees 31,199 12,000
Board recruitment fees 10,000 -
FATCA Review 13,500 -
Miscellaneous 14,337 25,660
--------
123,918 95,648
======== =======
9. CASH AND CASH EQUIVALENTS
2020 2019
GBP GBP
Cash at HSBC Bank plc 424,140 659,757
======== ========
10. SHARE CAPITAL
The share capital of the Company on incorporation was
represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a
nominal or par value and/or of no par value or a combination of
both.
The Company has a total of 106,453,335 (2019: 106,453,335)
Ordinary Shares in issue with an additional 700,000 (2019: 700,000)
held in treasury. The Company has 9,167 (2019: 9,167) Management
Ordinary Shares in issue, which are held by the Investment
Manager.
The Ordinary Shares are admitted to the Premium Listing segment
of the Official List of the London Stock Exchange. Holders of
Ordinary Shares have the right to receive notice of and to attend
and vote at general meetings of the Company.
Each holder of Ordinary Shares being present in person or by
proxy at a meeting will, upon a show of hands, have one vote and
upon a poll each such holder of Ordinary Shares present in person
or by proxy will have one vote for each Ordinary Share held by
him.
Holders of Management Ordinary Shares have the right to receive
notice of and to attend and vote at general meetings of the
Company, except that the holders of Management Ordinary Shares are
not entitled to vote on any resolution relating to certain specific
matters, including a material change to the Company's investment
objective, investment policy or borrowing policy. Each holder of
Management Ordinary Shares being present in person or by proxy at a
meeting will, upon a show of hands, have one vote and upon a poll
each such holder of Management Ordinary Shares present in person or
by proxy will have one vote for each Management Ordinary Share held
by him. Holders of Ordinary Shares and Management Ordinary Shares
are entitled to receive, and participate in, any dividends or other
distributions out of the profits of the Company available for
dividend and resolved to be distributed in respect of any
accounting period or other income or right to participate
therein.
The details of issued share capital of the Company are as
follows:
2020 2019
Amount No. of shares** Amount No. of shares**
GBP GBP
Issued and fully paid share
capital
Ordinary Shares of no par value*/*** 76,122,347 107,162,502 76,122,347 107,162,502
(including Management Ordinary
Shares)
Treasury Shares (140,492) (700,000) (140,492) (700,000)
----------- -----------
Total Share Capital 75,981,855 75,981,855
----------- -----------
The outstanding Ordinary Shares as at the year ended 31 December
2020 are as follows:
Ordinary Shares Treasury Shares
No. of
Amount No. of shares** Amount shares
GBP GBP
Balance at 1 January 2020 &
31 December 2020 76,122,347 106,462,502 140,492 700,000
----------- ---------------- ------------ ------------
The outstanding Ordinary Shares as at the year ended 31 December
2019 were as follows:
Ordinary Shares Treasury Shares
No. of
Amount No. of shares** Amount shares
GBP GBP
Balance at 31 December 2019 76,122,347 106,462,502 140,492 700,000
----------- ---------------- ------------ ------------
* During 2019, 9,677,478 shares were repurchased and cancelled
following a tender offer totalling GBP4,935,514 excluding
expenses.
** Includes 9,167 (2019: 9,167) Management Ordinary Shares.
*** The amount reported for the ordinary shares represents the
net of subscriptions and redemptions (including any associated
expenses)
Capital Management
The Company regards capital as comprising its issued Ordinary
Shares. The Company does not have any debt that might be regarded
as capital. The Company's objectives in managing capital are:
-- To safeguard its ability to continue as a going concern and
provide returns to shareholders in the form of capital growth over
the long-term through a focused, global portfolio consisting
principally of the equities or related instruments of natural
resources companies;
-- To allocate capital to those assets that the Directors
consider are most likely to provide the above returns; and
-- To manage, so far as is reasonably possible and when
desirable, any discount or premium between the Company's share
price and its NAV per Ordinary Share.
The Company has continued to hold sufficient cash and liquid
listed assets to enable it to meet its obligations as they arise
and the Investment Manager provides the Directors with reporting on
the activities of the investments of the Company such that they can
be satisfied with the allocation of capital.
As discussed in the Strategic Report, in August 2015, the
Company introduced a share buyback programme with the objective of
managing the discount the Company's shares trade at compared with
its NAV. The Company has repurchased 700,000 shares at an average
price of 20 pence per share through this programme and the
repurchased shares are held in Treasury.
The Company has authority to make market purchases of up to
14.99 Per Cent of its own Ordinary Shares in issue. A renewal of
such authority is sought from Shareholders at each Annual General
Meeting of the Company or at a General Meeting of the Company, if
required. Any purchases of Ordinary Shares will be made within
internal guidelines established from time to time by the Board and
within applicable regulations.
As described in the Directors' Report on page 18, the Company
has a policy to distribute at least 15 per cent of net realised
cash gains after deducting losses during the financial year through
dividends, tender offers or otherwise.
The Company enacted a tender offer for 9,677,478 Ordinary Shares
at 51 pence per share in May 2019. The repurchased shares were
cancelled. This was undertaken as a result of the reorganisation of
Polar Acquisition Limited during 2018, for which the Company
received cash and share dividends of Polymetal International Plc
("Polymetal") shares totalling GBP20.4 million. The Board
considered the Polymetal shares to be sufficiently liquid so as to
be considered in the calculation of net realised cash gains in the
spirit of the policy
The Company had a realised net gain per the Statement of
Comprehensive Income and realised an aggregate cash gain for the
year ended 31 December 2020. However, the majority of this related
to the remaining sale of Polymetal shares which had been taken into
account in the calculation of the distribution made in May 2019.
Accordingly, no distribution is proposed in respect of 2020.
However, should the sale of Bilboes Gold be confirmed and completed
in a timely fashion in 2021, the Board will consider a distribution
in line with the policy.
The Company is not subject to any externally imposed capital
requirements.
Reserves
As at the year- end the Company had Revenue Reserves of
GBP10,971,969 (2019: GBP10,808,636) and Capital Reserves of
GBP16,537,575 (2019: deficit of GBP8,127,181).
Under the Companies (Guernsey) Law 2008, the Company may buy
back its own shares, or pay dividends, out of any reserves, subject
to passing a solvency test. This test considers whether,
immediately after the payment, the Company's assets exceed its
liabilities and whether it will be able to pay its debts when they
fall due.
11. COMMITMENTS
The Company has provided a letter of comfort regarding a EUR1.35
million overdraft facility for Cemos with the Bank of Morocco. No
liability is expected to arise on this commitment.
12. RELATED PARTY TRANSACTIONS
The Investment Manager, Baker Steel Capital Managers LLP, had an
interest in 9,167 Management Ordinary Shares at 31 December 2020
(31 December 2019: 9,167).
Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious
Metals Fund") had an interest in 4,922,877 Ordinary Shares in the
Company at 31 December 2020 (2019: 5,622,877). These shares are
held in a custodian account with Citibank N.A. London. Precious
Metals Fund shares a common Investment Manager with the
Company.
David Baker and Trevor Steel, Directors of the Manager, are
interested in the shares held by Northcliffe Holdings Limited and
The Sonya Trust respectively, which are therefore considered to be
Related Parties. Northcliffe Holdings Limited holds 12,452,177
shares (2019: 12,452,177) and The Sonya Trust holds 12,722,129
shares (2019: 12,673,350).
The Company's Associates are described in Note 14 to these
financial statements.
The Management fees and Directors' fees paid and accrued for the
year were:
2020 2019
GBP GBP
Management fees 1,104,344 965,402
Directors' fees 115,136 115,000
The Management fees and Directors' fees outstanding at the
year-end were:
2020 2019
GBP GBP
Management fees 110,825 85,447
Directors' fees 28,750 28,750
12. NET ASSET VALUE PER SHARE AND GAIN PER SHARE
Net asset value per share is based on the net assets of
GBP103,491,399 (31 December 2019: GBP78,663,310) and 106,462,502
(31 December 2019: 106,462,502) Ordinary Shares, being the number
of shares in issue at the year end. The calculation for basic and
diluted NAV per share is as below:
31 December 2020 31 December 2019
Ordinary Shares Ordinary Shares
Net assets at the year end (GBP) 103,491,399 78,663,310
Number of shares 106,462,502 106,462,502
Net asset value per share (in pence)
basic and diluted 97.2 73.9
Weighted average number of shares 106,462,502 109,688,328
The basic and diluted gain per share for 2020 is based on the
net gain for the year of the Company of GBP24,828,089 and on
106,462,502 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year.
The basic and diluted gain per share for 2019 is based on the
net gain for the year of the Company of GBP17,688,196 and on
109,688,328 Ordinary Shares, being the weighted average number of
Ordinary Shares in issue during the year.
There are no outstanding instruments which could result in the
issue of new shares or dilute the issued share capital.
13. INVESTMENT IN ASSOCIATES
The interests in the below companies are for investment purposes
and they are deemed associates by virtue of the Company having
appointed a non-executive director ("NED") and/or holding in excess
of 20% of the voting rights of the relevant company. Investments in
associates are carried at fair value as they are held as part of
the investment portfolio which is valued on a fair value basis.
Investment Country of Incorporation Voting Rights held NED Appointed
Cemos Group Limited Jersey 25.70% Yes
Bilboes Gold Limited Mauritius 24.2% Yes
PRISM Diversified Yes
Limited Canada 16.40%
Nussir ASA Norway 12.2% Yes
Akora Resources Yes
Limited Australia 8.5%
Futura Resources Australia Convertible Loan Yes
Tungsten West Limited England and Wales 13.2% Yes
Anglo Saxony Mining Yes
Limited England and Wales Convertible Loan
Polar Acquisition British Virgin Yes
Limited Islands 49.99%
Azarga Canada Convertible Loan Yes
Various Baker Steel representatives and their associates
received fees and incentives for their role as directors to these
companies. These fees are received in addition to the management
fees charged.
14. SIGNIFICANT EVENTS
COVID-19 has had a significant impact on financial markets since
February 2020. While it cannot be predicted how long market
conditions will remain volatile, the Board notes that commodities
have performed strongly during the period of the pandemic due to
the combined risks of inflation and the potential for commodity
intensive recovery plans by governments.
In February 2020, the Company exercised its option to acquire a
further 0.25% gross royalty interest in Futura Resources' Wilton
and Fairhill metallurgical coal mines for A$1.8 million.
During the year ended 31 December 2020, the Company made
purchases of listed equities for GBP7,599,581 and sales of listed
equities for GBP11,806,829 as part of the Board's decision to
diversify the liquid part of the portfolio.
During the year, the Company entered into a further US$1 million
loan with Mines and Metals Trading (Peru) Limited, a A$1 million
loan to Futura Resources Limited, and a further US$500,000 loan to
Azarga and renegotiated the terms of its convertible loan.
15. SUBSEQUENT EVENTS
There were no events subsequent to the period end that
materially impacted on the Company that require disclosure or
adjustment to these financial statements.
16. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL
STATEMENTS
The Annual Report and Audited Financial Statements for the
year-ended 31 December 2020 were approved by the Board of Directors
on 15 April 2021.
Appendix - additional information (UnAUDITED)
REMUNERATION DETAILS FOR INVESTMENT MANAGER'S STAFF
As noted earlier, under AIFMD, the Investment Manager received
approval to act as a full scope UK AIFM to the Company as of 22
July 2014. Pursuant to Article 22(2)9e) and (f) of AIFMD, an AIFM
must, where appropriate for each AIF it manages, make an annual
report available to the AIF investors. The annual report must
contain, amongst other items, the total amount of remuneration paid
by the AIFM to its staff for the financial year, split into fixed
and variable remuneration including, where relevant, any carried
interest paid by the AIF, along with the aggregate remuneration
awarded to senior management and members of staff whose actions
have a material impact on the risk profile of the AIF.
For the year ended 31 December 2020 the LLP as Investment
Manager paid fixed remuneration to members and those identified as
AIF code staff of GBP336,201. Variable remuneration amounted to
GBP1,349,568. No carried interest was paid by the Company. These
figures represent the aggregate remuneration paid to members and
those identified as AIF code staff of the LLP as Investment Manager
for the year ended 31 December 2020. The total remuneration of the
individuals whose actions have a material impact upon the risk
profile of the AIF managed by the AIFM amounted to
GBP1,685,769.
The total AIFM remuneration attributable to senior management
was GBP1,685,769. No other staff were identified as material risk
takers in the year. The remuneration figures reflect an
approximation of the portion of AIFM remuneration reasonably
attributable to the AIF.
GLOSSARY OF TERMS
AIF - Alternative Investment Fund
AIFM - Alternative Investment Fund Manager
AIFMD - Alternative Investment Fund Managers Directive
BSRT - Baker Steel Resources Trust Limited
Commission - Guernsey Financial Services Commission
DRAVs - Development Risk Adjusted Values
DFS - A Definitive Feasibility Study is an evaluation of a
proposed mining project to determine whether the mineral resource
can be mined economically. A DFS is the basis for detailed design
and construction of a project and determines definitively whether
to proceed with the project. Detailed feasibility studies require a
significant amount of formal engineering work, with costings
accurate to within 10-15%. The definitive feasibility study will be
based on indicated and measured mineral resources.
EU - European Union
EGM - Extraordinary General Meeting
FCA - Financial Conduct Authority
FRC - Financial Reporting Council
FVO - Fair value option
FVOCI- Fair value through other comprehensive income
FVTPL - Fair value through profit or loss
GFSC - Guernsey Financial Services Commission
GFSC Code - Guernsey Financial Services Commission Code of
Corporate Governance
g/t - Grams per tonne
IAS - International Accounting Standards
ITG - IFRS Transition Resource Group of Impairment of Financial
Instruments
IFRS - International Financial Reporting Standards as adopted by
the European Union
IndexVal - Where there have been no known transactions for 6
months, at the Company's half year and year-end, movements in
IndexVal will generally be taken into account in assessing Fair
Value where there has been at least a 10% movement in IndexVal over
at least a six month period. The IndexVal results are used as an
indication of trend and are viewed in the context of investee
company progress.
IPO - Initial Public Offering (stock market launch)
JORC - AUSTRALASIAN JOINT ORE RESERVES COMMITTEE
The Code for Reporting of Mineral Resources and Ore Reserves
(the JORC Code) of the Australasian Joint Ore Reserves Committee
(JORC) is widely accepted as a standard for professional reporting
of mineral resources and ore reserves. Mineral resources are
classified as 'Inferred', 'Indicated' or 'Measured', while ore
reserves are either 'Probable' or 'Proven'.
Mt - million tonnes
NAV - Net Asset Value
GLOSSARY OF TERMS (CONTINUED)
NI 43 -101 - CANADIAN NATIONAL INSTRUMENT 43-101
Canadian National Instrument 43-101 is a mineral resource
classification instrument which dictates reporting and public
disclosure of information in Canada relating to mineral
properties.
NAV Discount - NAV to market price discount The Net Asset Value
("NAV") per share is the value of all the investment company's
assets, less any liabilities it has, divided by the number of
shares. However, because the Company's Ordinary Shares are traded
on the London Stock Exchange's Main Market, the share price may be
higher or lower than the NAV. The difference is known as a discount
or premium.
OCI - Other comprehensive income
PEA - Preliminary Economic Assessment
SORP - Statement of Recommended Practice issued by The
Association of Investment Companies dated November 2014
UK Code - UK Corporate Governance Code published by the
Financial Reporting Council in July 2018.
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