Tough Start To The Year For BlackRock World Mining

It has been a disappointing six months for the £1.3bn BlackRock World Mining (LON: BRWM), which saw its NAV decline by 7.1% in the first half of the year with the share price down 10.3%. Despite the weakness it was one of the few investment trusts still to be issuing new shares in the period with the last capital raise being in May.

BRWM provides exposure to a portfolio of mining shares that are naturally highly sensitive to the health of the global economy. These started to suffer in March when the prospect of further interest rate rises and the uncertainty around China resulted in falling commodity prices.

Within the portfolio the key commodity exposures are copper, gold and steel. The former was down 10% in the first half of the year because of concerns about the growth outlook for China, while steel prices fell around 15% during the same period, with gold bucking the trend for a year-to-date gain of 5.5%.

Portfolio And Dividends

At the end of June the fund had 66 different holdings, with the largest investments in the diversified miners such as Vale, BHP, Glencore and Teck Resources. The ten biggest positions accounted for just under half of the assets, making it quite a concentrated portfolio, with the net gearing of 9.6% adding to the volatility.

Revenue per share was 16.73p, compared to 20.07p in the first half of 2022, a decrease of 16.6%, as many mining companies reduced their dividends. This is particularly relevant as the Board distributes pretty much all of the income each year, so it doesn’t have any meaningful revenue reserves to draw on.

BRWM pays quarterly dividends and made a payment of 5.5p on 31 May with a further 5.5p due on October 6. It is unclear how much will be distributed in respect of the remaining six months, but last year it managed a fully covered dividend of 40p.

Outlook

The managers believe that the compression of valuation multiples during the period and lower than forecast metal prices were due to both the short-term focus on interest rates and Chinese economic data. They concentrate more on stock specific outcomes and point to the energy transition that is taking place around the world and the fact that material supplies remain constrained.

Numis says that the fortunes of the sector are likely to continue to fluctuate based on investor sentiment and the outlook for economic growth. It is difficult to assess BRWM because of a change of benchmark at the end of 2019, but the broker believes that it needs to deliver outperformance over the long-term, given that there are other types of fund that provide access to this area of the market.

BlackRock World Mining’s shares traded on an average premium of 0.2% over the first half of the year, but are currently available at a small discount of three percent. The Board actively manages the situation and has a share buyback facility that it can use if required.