In the eye of the storm: The BlackRock World Mining Trust

The slowdown in China has had a huge impact on the prices of raw materials with iron ore losing more than two-thirds of its value and copper falling 50% from the highs back in 2010/11. This has contributed to the recent stock market volatility with the mining sector bearing the brunt of the sell-off.

One of the best known funds operating in this area is the BlackRock World Mining Trust, which is listed on the London Stock Exchange under the ticker BRWM. Over the last 5 years the share price has fallen by 60% and it now trades on a discount to NAV of around 8%.

BRWM invests in mining and metal assets worldwide, but its two largest holdings, BHP Billiton and Rio Tinto have both lost considerable value. Each of these stocks accounts for more than 10% of the portfolio and will have had a detrimental impact on the returns.

Another significant investment has fared even worse. A year ago Glencore’s shares were changing hands at more than £3, but the mining company has plunged in value and you can now pick them up for less than a pound.

There was more bad news in relation to their holding in the London Mining Marampa Royalty contract. This gave the fund the right to receive the Sierra Leone mine’s revenue in return for an upfront capital investment, but the money had to be written off last year after the outbreak of Ebola and the collapse in the price of iron ore.

It all sounds pretty desperate, yet the lead manager, Evy Hambro, believes that the sector has fallen to such an extent that it is now beginning to attract investor interest. He is encouraged by the fact that mining companies have cut back drastically on their costs and scaled down their production, which should help to restore the balance between supply and demand.

The shares are now yielding over 10% and the managers are keen to maintain the dividend at its current level and are prepared to use some of the revenue reserves to do so. In the longer term they will only be able to do this if the payment is fully covered by their annual income.

It would be highly risky to try to call the bottom of the market, but it might be worth setting up a regular investment plan. Most brokers will allow you to invest a fixed amount each month at a reduced level of commission, which enables you to average out your purchase price. If you do this it could turn out to be a profitable long-term exposure, although it is not for the faint hearted.