Baker Steel Resources Trust has published its results for 2015. The Euromoney Global Mining Index fell 39.3% in Sterling terms during the year and at 31 December 2015 was down 68.2% from the date of the Company’s first Net Asset Value (NAV) on 30 April 2010. By comparison, the Company’s NAV per share fell 25.4% during the year and has fallen 65.8% since 30 April 2010.
Mining shares have fallen in response to weak commodity prices which in turn have fallen owing to concerns over the level of global growth, and in particular the growth in China as it evolves from an infrastructure-led to a consumer-led economy. Iron ore companies continued to be hard hit with the price of iron ore trading a little above US$40 per tonne at the year end, less than a quarter of its price 5 years ago. The other main component of steel manufacture, coking coal, has similarly been hard hit and massive oversupply from the steel industry has seen dumping from Chinese manufacturers onto the world market. Most other major commodities have followed suit with copper down 26% and nickel down 42% during 2015.
Oil and energy was another badly-hit sector during 2015, with the price of the benchmark Brent Crude falling 35% during 2015 and off 67% since 30 June 2014. The company has one investment in the energy sector, Cemos Group plc (formerly Global Oil Shale Group Limited) which has oil shale projects in Morocco and Australia. The investment in Cemos demonstrates the importance of investing in companies with good management as well as the quality of projects that they hold. Rather than slowing down their activities in response to the depressed oil price, the entrepreneurial management of Cemos has changed the focus of its development of its Tarfaya project in Morocco away from the production of oil and electricity generation, towards exploiting the cement potential of the project. The production of cement is highly energy intensive and the energy content of the oil shale will ensure a low cement production cost with a view to selling product throughout West Africa, where strong demand has been identified.
They say Metals Exploration plc is a good example of some of the pitfalls that mining companies have to contend with in developing their projects. Despite constructing the Runruno gold mine in the Philippines within budget it first suffered delays due to the bureaucratic permitting procedures in the Philippines and then, just as the final permits were being released, the mine was hit by super typhoon Lando, which although not inflicting any major structural damage, required Metals Exploration to suspend activities and rehabilitate the area. Once in full production, Runruno is scheduled to produce approximately 100,000 ounces of gold per annum.
Current market sentiment towards the mining sector is, they think, highlighted by Ivanhoe Mines Limited which is listed on the Toronto Stock Exchange. Ivanhoe continued to move forward strongly on all three of its main projects during 2015. In South Africa it has commenced shaft sinking on its Platreef Project where in the first phase it is planned to produce 433,000 ounces of platinum, palladium, rhodium and gold per annum, plus 31 million pounds of nickel and copper. In the Democratic Republic of Congo, Ivanhoe recently declared its first Mineral Resource estimate for its Kipushi zinc-copper-germanium-lead-silver mine with Measured and Indicated Mineral Resources totalling 10.2 million tonnes grading 34.9% Zinc containing 3.55 million tonnes of Zinc and completed a transaction to sell 49.5% of the Kamoa Copper Project for US$412 million (C$575 million) to Zijin Mining. Despite its remaining stakes in these three Tier 1 mining projects, with a market capitalisation of C$475 million at 31 December 2015 Ivanhoe was trading at a significant discount to the cash receivable from Zijin.
The sale of the Company’s entire holding in Ferrous Resources Limited for US$2.06 million, following a tender offer from Icahn Enterprises Holdings L.P., was the Company’s only significant realisation during 2015.
In order to protect its interest in its largest investment, the Prognoz Silver Project in Russia, which is held through convertible loans to Polar Silver Resources Ltd. and its 100% subsidiary ZAO Argentum (“the Polar Group”), the Company has amended its Articles to allow it to make a further investment in the Polar Group. At the date of this report negotiations with other Polar Group investors are ongoing but the Company expects to make an offer to gain control of the Polar Group in the second quarter of 2016.
BSRT : Baker Steel Resources Trust makes up some ground against benchmark