BlackRock World Mining Trust (BRWM) announced its annual report for the year ended 31 December 2024. The company saw a NAV total return fall 10.7% while the share price fell 12.7%. Over the same period, the company’s benchmark index, the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index (net total return), returned -9.9%. The manager noted that relative performance over the second half of the year was much improved despite economic weakness in China, Europe and other parts of the world adding downward pressure on commodity prices. The overall move lower was significant and, despite a brief China-induced rally in September 2024, the year finished in negative territory. The final quarter of the year was particularly poor with share prices of many companies declining. In addition to the economic headwinds, demand for exposure to the mining sector declined as investor focus remained on the influential US large cap technology stocks, known as “the Magnificent 7”, and the artificial intelligence (AI) theme. This led to share prices failing to capture the performance of the underlying commodity price moves which were generally positive. Despite the disappointing year, and probably to the surprise of many people, the sector has done well versus the performance of world markets over the last five years apart from when it underperformed in Q4 of 2024.
Discussing the results the manager added; “Within the commodity space, the key performers during the year were the gold and silver prices which enjoyed strong returns, up by 27.2% and 21.5%, respectively. Yet the gold mining companies were unable to convert this into meaningful returns. The FT Gold Mines Index was only up by 7% in 2024. However, there was significant dispersion in returns between the companies, as we discuss below. The industrial metals suite was generally positive but volatile. Copper, a key exposure within the company, was up approximately 8% when looking at year-on-year average price levels. The battle for control of future production resulted in a number of merger & acquisitions (M&A) events which delivered solid gains for the portfolio.
“The huge frustration during the year has been a breakdown in the relationship between commodity prices and the share prices of the companies that produce them. Historically, mining equities have been a very efficient way to capture returns from commodity markets. The combination of option like leverage at the earnings level, combined with exploration, volume growth, dividends and M&A has delivered superior share price returns to the underlying commodity price moves. In the last few years this relationship has been tested.
“The key areas where this was felt in the portfolio were in large mining companies that simply did not perform as they have historically. In the copper sector the “go to” company, Freeport-McMoRan, generated a -9.4% total return during the year whilst the average price of copper was up by approximately 8%. Across the gold sector, the two largest producers, Newmont Corporation and Barrick Gold, generated -7.9% and -12.3% returns respectively, compared to the average gold price which was up by 23.0%. Examples like this can be found across the mining sector.
“The reduced correlation between mining company share prices and underlying commodity prices remains prevalent and it is the result of the mining companies’ inability to convert the higher commodity prices into increased free cash flow, earnings and dividends. Much of the beta has been consumed by cost inflation, rising maintenance expenditure and a recent pick-up in growth capital. Management teams that can unlock the conversion of higher revenues into free cash flow, earnings and dividends are likely to be the winners in the years to come.”
Regarding the outlook, it added:
“We remain confident that supportive demand trends, strong balance sheets, limited supply growth and low valuations are likely to underpin a recovery to positive returns, especially after such a negative final quarter to the year. Yet we are also realistic that this upside requires a catalyst. In the near term there are several factors that are likely to hold back the sector, including uncertainty around China. It is clear that the Chinese government has recognised the issues needed to support the economy and drive change, but has not delivered the significant stimulus program the markets have been looking for to catalyse material improvement in economic activity. Uncertainty is also high regarding the scope, scale and timing of tariffs that President Trump is willing to use, which could lead to a slowdown in global trade. The sector remains highly exposed to key trends driving global markets such as the energy transition and AI. On AI, the staggering scale of investment in data centres requires enormous amounts of materials to build the infrastructure: copper for the energy intensive connections and the metals needed for nuclear rejuvenation.
“In summary, 2024 failed to meet expectations in terms of share price performance. But with fundamentals intact, low valuations, competitive shareholder returns and a positive outlook currently ignored by the broader market, it feels as though we are well positioned to capture returns when near-term issues fade.”
