Poor Year For BlackRock World Mining

Investors in the £1.2bn BlackRock World Mining (LON: BRWM) have endured a difficult period with the NAV down 6.2% on a total return basis in 2023. Unfortunately 2024 has started badly as well with a further decline of 12.3% year-to-date.

The popular mining specialist aims to profit from the world’s most compelling long-term trends, from digital transformation, to the sustainability agenda, to gold and precious metals. It targets both income and capital growth, although the returns can be extremely volatile, so it is only really suitable for risk-tolerant long-term investors.

BRWM’s recent performance has been undermined by the weakness in commodity prices, especially the base metals, which have fallen due to concerns about global growth and higher interest rates, as well as the de-stocking taking place in China’s property sector. The bright spots were gold and silver, which rose 13.8% and 2.1% respectively in 2023.

Portfolio Positioning

At the end of January the main sector weighting was the 37.7% allocation to diversified miners, followed by copper 22.6% and gold 13.4%. The largest individual holdings were names such as: BHP, Vale, Rio Tinto and Glencore.

The outlook for gold has improved, with managers Evy Hambro and Olivia Markham looking to take advantage by increasing their exposure to the underlying producers. Their focus in this area is on high quality companies with strong margins and a solid production profile.

In terms of the base metals, the preferred option is copper, because of its role in facilitating the energy transition away from fossil fuels. Its price was flat in 2023, despite the healthy 12% year-on-year increase in demand driven by China’s focus on green investments in renewables, electric vehicles and the grid.

Dividends And Discount

The fund’s net revenue was down almost 17% during the financial year to the end of December, due to a combination of lower commodity prices, a weak US dollar and a reduction in the special dividends from mining companies. It has an unusual policy as it pays out all of the income each year rather than setting some aside in a revenue reserve, so the distributions have had to be cut back accordingly.

In 2022 the trust paid total dividends of 40p, but this was reduced to 33.5p in 2023. Based on the current share price of 505p this gives it an historic yield of 6.6%, although it remains to be seen what will happen this year.

BRWM was one of the few investment trusts to issue shares during 2023, however the last instance was in May and the fund has since de-rated. Its shares are currently available at a five percent discount to NAV, but there is no formal buyback policy to narrow the gap.

Outlook

The managers note that China’s demand for commodities is changing, with investment in renewables and electric vehicles increasing at the expense of more traditional areas such as property. They think that the energy transition is likely to be the key factor going forwards and that supply constraints will help to support the prices.

Hambro and Markham say that mining companies’ balance sheets remain strong and capital allocation frameworks are robust, but the businesses have to balance the need for new investment in decarbonisation against the return of capital to shareholders.

BlackRock World Mining is an interesting way to play these themes, but it can be volatile both in terms of the share price and dividends. It is best suited to long-term investors who are comfortable with the risk and who are not dependent on the income.