2017 was another strong year for BlackRock World Mining Trust (BRWM) – After a remarkable 2016 for global mining and commodity sectors, BlackRock World Mining Trust‘s undiluted NAV and share price rose in 2017 by 24.0% and 24.2% respectively in sterling terms with income reinvested. By comparison, the Euromoney global mining index rose by 20.8% (with income reinvested in sterling terms) in 2017. Therefore, the return generated by the company was ahead of its reference benchmark on a net of fees-basis. Tthe discount remained relatively unchanged, moving from 12.4% on a cum income basis to 12.8%.
In the full year results published for the year ending 31 December 2017, The Chairman of the Board commented that the mining sector in 2017 had another strong year, following the exceptionally strong recovery in 2016. Improving global economic growth, the weaker US dollar, and the impact of the industry’s focus on cost containment since 2011, all combined to bolster commodity prices. Reform measures in China to tackle pollution and remove excess capacity across a range of industries, including steel, coal and aluminium, have also been more effective than initially expected, and have improved profitability across a number of sectors.
Whilst the mining sector has performed strongly over the past two years, the company acknowledged the fact that total shareholder returns are back at 2014 levels and a long way below their peak in 2011.
Portfolio holdings in highly cash-generative well-financed larger companies, as well as firms involved in the extraction of the material required for battery manufacture also aided performance versus the benchmark.. The total dividend rate that the company will pay is up by 20% to 15.60p from 13.00p (paid quarterly).
Investment managers’ outlook
The outlook for 2018 is once again promising. The managers see it as another year of synchronised global economic growth, an environment where commodities generally perform well. The managers believe the recovery in mined commodity prices, which started in early 2016, is set to continue with another strong year for cash generation and significant earnings upgrades. The sector is also still trading at a material valuation discount to broader equity markets. Key to this positive outlook is that mining companies continue their recent focus on capital discipline, as high levels of free cash flow will then translate into further balance sheet strengthening, returns on capital and shareholder distributions, rather than increased capacity.
BRWM : 2017 was another strong year for BlackRock World Mining Trust