BlackRock World Mining Trust (BRWM) has its annual results for the year ended 31 December 2020, during which the managers say they were delighted with the portfolio’s performance. During the year, BRWM provided NAV and share price total returns of +31.8%1 and +46.7%1 respectively. In comparison, BRWM says that its reference index, the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return), returned +20.6%, while its previous reference index, the EMIX Global Mining Index, returned +21.8%, the FTSE All-Share Index returned -9.8% and the UK Consumer Price Index (CPI) increased by 0.6%.
Why did mining companies prosper during such a difficult year?
BRWM’s manager says that mining companies were well-positioned to see out the immediate volatility due to the robustness of their businesses. Strong revenues, rock solid balance sheets and long duration debt maturities softened the blow from lockdowns. In addition, immediate closure of capacity in response to virus outbreaks meant that inventories did not build into a supply overhang. This meant that, when demand returned, prices were able to react positively to the recovering activity. Finally, with limited amounts of new supply coming onstream, this has left the market looking ‘short’ compared to the likely ongoing demand recovery during 2021. The managers say that given ‘basic resources’ sensitivity to world GDP, no other sector is better placed to benefit than the miners.
BRWM’s see the potential for miners to resume paying special dividends
However, BRWM’s managers also say that, despite all of the positives, mining companies in the portfolio were rightly cautious during the initial virus outbreak and, given the timing, this resulted in lower than expected dividend payments to shareholders during the year. This was most acutely reflected in the low level of special dividends paid by the diversified majors whose balance sheets now hold significant levels of excess cash. Shareholders are expecting 2021 to be a year of significant distributions of excess cash, as most companies now have gearing well below the bottom end of guidance levels. For BRWM , special dividends accounted for 0.30p per share in 2020 versus 3.80p in 2019, but looking forward this area could potentially be a very supportive factor for income in 2021.
During the year the Company maintained large holdings in key producers of iron ore given the ongoing supply issues and resultant better than expected prices. BRWM’s holdings in key beneficiaries such as Vale, Rio Tinto, BHP and Fortescue Metals Group, together with the iron royalty exposures in Vale Debentures and Labrador Iron Ore, all helped to increase the Company’s NAV during the year.
The manager says that exposure to gold producers in the first half delivered excellent capital growth, as gold prices moved to new record levels on the back of the expansion of central bank balance sheets and collapse in interest rates. Gold shares enjoyed huge share price rallies, as the absence of cost inflation allowed them to capture the higher prices in margins. Also, in precious metals, the platinum group metals (PGM) sector enjoyed equally spectacular returns, with the PGM basket rising to new all-time highs, initially driven by palladium and then taken higher by rhodium during the second half of the year.
[QD comment: BRWM’s managers are rightfully pleased with their performance. They have markedly outperformed a strongly performing sector in an otherwise difficult year, and extended the trust’s longer term record of strong performance. By way of illustration, over the last five years, BRWM has provided NAV and share price total returns of 227.1% and 289.5% respectively. However, during the same period, it says that MSCI ACWI Metals & Mining 30% Buffer 10/40 Index has returned 186.2% and the All-Share 28.5%. Over three years its NAV and share price have returned 36.7% and 56.3% respectively, while the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index has returned 22.8%, while the All-Share lost 2.7%.]