Precious metals help Baker Steel shine – Baker Steel Resources Trust has just released results covering the year ended 31 December 2019. This is looking a bit like ancient history given developments since. However, it is worth saying that the trust had a good 2019, with a 29.9% return on NAV (this compares favourably to a 18.1% increase in the EMIX Global Mining Index).
The trust’s high exposure to precious metals was a major driver of returns as the gold and silver prices rose strongly over the year (up 18.8% and 15.9%, respectively).
The chairman says that “During 2019, the Company sold down a large part of its interest in Polymetal, partly to fund the successful tender offer to the Company’s shareholders to repurchase shares in accordance with its returns policy. Proceeds from the sale of Polymetal were also used to make four new significant investments: a royalty over Futura Resources Ltd’s coking coal mines in Australia; a convertible loan and option to acquire a royalty over Azarga Metals Corp’s copper/silver project in Russia; a convertible loan with Mines & Metals Trading (Peru) Plc for its operating silver/lead/zinc mine in Peru and a convertible loan with Tungsten West Ltd in relation to its tungsten mine in the United Kingdom.
Looking forward, two of our long-term holdings have reached important milestones in their development and are set for price discovery transactions during 2020. Bilboes Gold Ltd has completed a positive definitive feasibility study on its 200,000 ounce per annum open pit gold project in Zimbabwe, and Nussir has likewise completed its definitive feasibility study on its 14,000 tonne per annum copper project in Norway. It is the core strategy of the Company to invest in mining companies it considers to be undervalued and that have strong fundamentals and attractive growth prospects with the potential to move up the “development curve” and into production. Achieving a positive definitive feasibility study is one of the key milestones on the development curve and represents a significant reduction in the project’s risk. It remains to be seen whether the best way to unlock the value in these projects is through the companies raising the requisite capital themselves and developing them, or through joint venture or sale to third parties but in the case of Bilboes, open pit mines that can produce 200,000 ounces per annum are reasonably rare, as are fully permitted copper projects in Europe in the case of Nussir.”
Bilboes and Polymetal are holding up well in the current environment but the pandemic has helped depress the NAV, which was marked down from 73.9p to 67.3p as at the end of March 2020.