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Baker Steel Resources Trust (LON:BSRT)

Baker Steel Resources Trust (LON:BSRT)


Share Price
43.50 p
Change
0 (0.00 %)
Market Cap
£50.51 m
Proactive Investors - Run By Investors For Investors

Baker Steel Resources Trust RNS Release

Half-year Report


RNS Number : 1353Y
Baker Steel Resources Trust Ltd
17 August 2018
 

 

 

 

 

 

 

 

BAKER STEEL RESOURCES TRUST LIMITED

(Incorporated in Guernsey with registered number 51576 under the provisions of The Companies (Guernsey) Law, 2008 as amended)

 

 

17 August 2018

BAKER STEEL RESOURCES TRUST LTD

(the "Company")

Half-Yearly Report and Unaudited Condensed Interim Financial Statements

For the period from 1 January 2018 to 30 June 2018

The Company has today, in accordance with DTR 6.3.5, released its Half-Yearly Report and Unaudited Condensed Interim Financial Statements for the period ended 30 June 2018. The Report is available via www.bakersteelresourcestrust.com and will shortly be submitted to the National Storage Mechanism and will also shortly be available for inspection at www.hemscott.com/nsm.do

Further details of the Company and its investments are available on the Company's website www.bakersteelresourcestrust.com

 

Enquiries:

 

Baker Steel Resources Trust Limited                 +44 20 7389 8237

Francis Johnstone
Trevor Steel

 

Numis Securities Limited                                               +44 20 7260 1000

David Benda (corporate)

James Glass (sales)

 

HSBC Securities Services (Guernsey) Limited   + 44 (0)1481 707 000

Company Secretary     

        

 

 

DIRECTORS:

 

Howard Myles (Chairman)

 

 

Charles Hansard

 

 

Clive Newall

 

 

Christopher Sherwell

 

 

(all of whom are non-executive and independent)

 

 

 

REGISTERED OFFICE:

 

Arnold House

 

 

St. Julian's Avenue

 

 

St. Peter Port

 

 

Guernsey, GY1 3NF

 

 

Channel Islands

 

 

MANAGER:

Baker Steel Capital Managers (Cayman) Limited

 

 

PO Box 309

 

 

George Town

 

 

Grand Cayman KY1-1104

 

 

Cayman Islands

 

 

 

INVESTMENT MANAGER:

 

Baker Steel Capital Managers LLP*

 

 

34 Dover Street

 

 

London W1S 4NG

 

 

United Kingdom

 

 

 

STOCK BROKERS:

Numis Securities Limited

 

 

10 Paternoster Square

 

 

London EC4M 7LT

 

 

United Kingdom

 

 

 

SOLICITORS TO THE COMPANY:

Norton Rose Fulbright LLP

(as to English law)

 

3 More London Riverside

 

 

London SE1 2AQ

 

 

United Kingdom

 

 

 

ADVOCATES TO THE COMPANY:

Ogier

(as to Guernsey law)

 

Redwood House

 

 

St. Julian's Avenue

 

 

St. Peter Port

 

 

Guernsey GY1 1WA

 

 

Channel Islands

 

 

 

ADMINISTRATOR & COMPANY SECRETARY:

HSBC Securities Services (Guernsey) Limited

 

 

Arnold House

 

 

St. Julian's Avenue

 

 

St. Peter Port

 

 

Guernsey GY1 3NF

 

 

Channel Islands

 

 

 

* The Investment Manager was authorised as an Alternative Investment Fund Manager ("AIFM") for the purpose of the   Alternative Investment Fund Managers Directive ("AIFMD") on 22 July 2014.        

 

SUB-ADMINISTRATOR TO THE COMPANY:               

HSBC Securities Services (Ireland) DAC

 

 

1 Grand Canal Square

 

 

Grand Canal Harbour

 

 

Dublin 2

 

 

Ireland

 

 

CUSTODIAN TO THE COMPANY:                                                                            

HSBC Institutional Trust Services (Ireland) DAC

 

 

1 Grand Canal Square

 

 

Grand Canal Harbour

 

 

Dublin 2

 

 

Ireland

                                                                                                        

SAFEKEEPING AND MONITORING AGENT:

 

 

HSBC Institutional Trust Services (Ireland) DAC

 

 

1 Grand Canal Square

Grand Canal Harbour

 

 

Dublin 2

 

 

Ireland

 

 

 

AUDITOR:

 

BDO Limited

 

 

P O Box 180

 

 

Place du Pre

 

 

Rue du Pre

 

 

St. Peter Port

 

 

Guernsey GY1 3LL

 

 

Channel Islands

 

 

 

REGISTRAR:

 

Link Market Services (Guernsey) Limited

(previously Capita Registrars (Guernsey) Limited)

 

 

Mont Crevelt House

Bulwer Avenue

 

 

St. Sampson

 

 

Guernsey GY2 4LH

 

 

Channel Islands

 

 

 

UK PAYING AGENT AND TRANSFER AGENT:

 

Link Asset Services (Holdings) Limited

(previously Capita Asset Services)

 

 

The Registry

 

 

34 Beckenham Road

 

 

Beckenham

 

 

Kent BR3 4TU

 

 

United Kingdom

 

 

 

RECEIVING AGENT:

 

Link Asset Services (Holdings) Limited

(previously Capita Asset Services)

 

 

Corporate Actions

 

 

The Registry

 

 

34 Beckenham Road

 

 

Beckenham

 

 

Kent BR3 4TU

 

 

United Kingdom

 

 

 

PRINCIPAL BANKER:

 

HSBC Bank plc

 

 

8 Canada Square

 

 

London E14 5HQ

 

 

United Kingdom

 

 

INVESTMENT MANAGER'S REPORT

For the period from 1 January 2018 to 30 June 2018

 

Financial Performance

 

The unaudited net asset value per Ordinary Share as at 30 June 2018 was 57.1 pence per share, up 0.5% over the six months. During this period the EPIX Global Mining Index was up 1.1% in Sterling terms.

 

For the purpose of calculating the Net Asset Value ("NAV") per share, all investments are carried at fair value as at 30 June 2018. The fair value of unquoted investments is determined by the Directors with assistance from the Investment Manager. Quoted investments are carried at closing market prices as at 30 June 2018.

 

Net assets at 30 June 2018 comprised the following:

 

 

£m

 

 

% of net assets

Unquoted Investments

40.1

 

60.4

Quoted Investments

25.8

 

38.9

Cash and Other net assets

 0.4

 

  0.7

 

66.3

 

      100.0

 

Investment Update

 

Largest 10 Holdings - 30 June 2018

% of NAV

Polymetal International Plc

29.8%

Bilboes Gold Limited

15.4%

Cemos Group Plc

10.0%

Polar Acquisition Limited

9.6%

Futura Resources Limited (formerly Queensland Coal Investment Holdings Ltd)

8.7%

Metals Exploration Plc

6.0%

Sarmin Minerals Exploration Inc

4.6%

Black Pearl Limited Partnership

4.0%

PRISM Diversified Ltd (formerly Ironstone Resources Limited)

3.6%

Ivanhoe Mines Limited

3.0%

 

94.7%

Other Investments

4.6%

Cash and other net assets

0.7%

 

100.0%

     

 

Largest 10 Holdings - 31 December 2017

% of NAV

Polar Acquisition Limited

37.4%

Bilboes Gold Limited

12.6%

Ivanhoe Mines Limited

11.3%

Cemos Group Plc

9.1%

Metals Exploration Plc

6.8%

Sarmin Minerals Exploration Inc

4.5%

Queensland Coal Investment Holdings Ltd

4.4%

Black Pearl Limited Partnership

3.9%

Ironstone Resources Limited

3.8%

Nussir ASA

3.1%

 

96.9%

Other Investments

1.8%

Cash and other net assets

1.3%

 

100.0%

 

 

Review

 

At the end of June 2018, Baker Steel Resources Trust Limited was fully invested. During the first six months of 2018, the unaudited net asset value per share rose 0.5% to 57.1p in an overall flat market for mining shares, with the EPIX Global Mining Index rising 1.1% in Sterling terms. Commodities gave up some of their gains from the second half of 2017 with the steel minerals, coking coal and iron ore, falling 24.4% and 10.6% respectively. Likewise, gold fell 3.8% during the first six months of 2018 and silver fell 4.9%.

 

The first half of 2018 saw the culmination of the two-year reorganisation of the Company's indirect interest in the Tier 1 Prognoz silver project.   At the beginning of January 2016, shareholders supported a resolution which gave the Company the authority to increase its interest in Polar Silver Resources Limited ("Polar Silver"), up to 35% of NAV of the Company. This allowed a specially formed subsidiary Polar Acquisition Limited ("PAL") to offer to acquire the interests of the other shareholders of Polar Silver. During June 2016, following negotiations with the other Polar Silver shareholders, a settlement was agreed whereby all loans in the Polar Silver group would be converted into equity in Polar Silver and subsequently PAL acquired all the shares in Polar Silver. The Company also agreed to acquire the interests of certain other Polar Silver shareholders for cash which together with the debt conversion enabled the Company to gain a 64% interest in PAL and thereby control of the investment.

 

In early 2017, Polymetal International plc ("Polymetal"), the London listed Russian gold and silver producer, acquired a 10% interest in Polar Silver and committed to undertake and fund the feasibility study on Prognoz over the next two years, budgeted at up to US$20 million. In consideration for this, Polymetal had the option to acquire the remainder of Polar Silver upon completion of the technical study and the reserve estimate. In early 2018, it was agreed between Polymetal and PAL to accelerate the exercise of this option and in April 2018, PAL completed the sale of Polar Silver for 6,307,000 Polymetal shares plus 2-4% royalty on its 45% pro rata share of future production from the Prognoz silver project. During June 2018 PAL distributed the Polymetal shares it had received as consideration to its shareholders and consequently the Company received 2.95 million Polymetal shares (equivalent to 0.65% of Polymetal), 90% of which are locked-up until October 2018.

 

The realisation process for the Prognoz investment has been extremely complicated and taken significant time but shows the advantage and potential value of being able to proactively manage investments in the mining sector. Overall the Company invested US$15.7 million in PAL, realised US$6.9 million in sales and dividends, holds 2.95 million shares in Polymetal valued at US$26.1 million and retains exposure to the Prognoz project through a royalty. This was during a period when the silver price almost halved and silver shares fell over 60%.

 

The Company made one significant new investment during the first half of 2018, completing its acquisition of A$10 million convertible loan notes in Futura Resources, ("Futura"). Futura owns the Wilton and Fairhill coking coal projects in the Bowen Basin in Queensland, Australia, which is well known for its high quality coking mines. On 30 May 2018 BHP Billiton Mitsubishi Alliance announced that it had agreed to sell the Gregory Crinum Mine in central Queensland, to Sojitz Corporation ("Sojitz"). This was an important milestone for the development of Futura's Wilton and Fairhill coking coal properties as Futura is currently finalising its agreements with Sojitz for Sojitz to contract-mine Wilton and Fairhill. The acquisition of Gregory Crinum by Sojitz means Futura will have access to the coal washing plant at Gregory Crinum which is 17km away from Wilton and means Futura can move into production by the end of 2018 as against several years for the permitting and construction of its own wash plant.

 

Bilboes Gold has completed its resource/reserve definition drilling for the definitive feasibility study ("DFS") following the positive pre-feasibility study published in the second half of 2017. An updated resource statement is expected in September 2018. In addition as part of the DFS a pilot plant has been erected at a site for a six month test programme to optimise the parameters for the concentration and BIOX® circuits. The DFS into a mine producing up to 200,000 ounces of gold per annum remains on course for completion in the first quarter 2019.

 

CEMOS Group PLC continued to make good progress on the construction of a cement plant at its Tarfaya project in Morocco, which commenced in the fourth quarter of 2017. The cement plant was manufactured by Loesche GmbH in Düsseldorf, Germany, shipped to Morocco, and installed on site by Loesche. The cement plant will have a capacity of up to 270,000 tonnes per annum and commissioning is due to commence in September 2018. The operation is expected to have annual revenues of more than €25 million and a payback of less than two years.

 

Elsewhere in the portfolio, Metals Exploration finally achieved its target throughput from the BIOX Plant at its Runruno gold project in the Philippines during April 2018. However in June 2018 unscheduled power outages caused the bacteria in the BIOX to become passive although this issue has now been addressed by the installation of additional electrical circuitry during July 2018. The pre-feasibility study on Sarmin Mineral Exploration's potash project in the Republic of Congo is proceeding according to schedule and is due for completion in September 2018.

 

 

The Company has carried out its normal half yearly review of general market movements in mining equities, as well as specific factors, and an assessment of whether these should impact the carrying values of its unlisted holdings. The Investment Manager maintains an index of comparable listed companies for each unlisted investment, in order to quantify how the share price of a particular unlisted stock might have moved during the period had it been listed. In accordance with this assessment the carrying value of Bilboes Gold Limited has been increased by 18% and that of Nussir ASA decreased by 12%.

 

At 30 June 2018

Price / Index Level

% Change in Six Months

% Change from Inception

Net Asset Value (pence/share)

57.1

+0.5%

-41.7%*

Ordinary Share Price (pence/share)

46.5

-1.1%

 -53.5%**

MSCI World Index (£)

382.90

+0.9%

+111.5%

EPIX Global Mining Index (£)

606.68

1.1%

-12.9%

Chinese Import Iron Ore Fines 62% Fe spot (US$)

64.73

-10.6%

-63.4%

Copper (US$/t)

6,625

-8.1%

-11.1%

Gold (US$/oz)

1,253.17

-3.8%

+7.3%

Silver (US$/oz)

16.12

-4.9%

-11.3%

SBB Premium Hard Coking Coal (US$/t)

196.60

-24.4%

n/a

Source: Bloomberg                                                        closing 27/4/10, **Issue price 28/4/10, * NAV 30/4/10 

 

 

Outlook

 

The Investment Manager has been undertaking due diligence on a number of interesting projects with a view to being in a position to invest once the lock-up on its Polymetal shares expires in October 2018. Polymetal is a cash generative mid-size producer with a good growth profile and progressive dividend policy but does not fit into the strategy of the Company. The Company will therefore utilise the high liquidity of Polymetal's shares to provide funds when the Company has a strong investment proposition more in line with its strategy. This would usually be through convertible instruments in projects where the Company would have a significant interest and be able to proactively influence policy such as through Board representation. Shareholders are reminded of the Company's policy to distribute at least 15% of the aggregate net realised cash gains (after deducting losses) during a financial year. It is anticipated that the realisation of the PAL investment should result in the first such distribution following the publication of the 2018 year end accounts.

 

 

 

 

Baker Steel Capital Managers LLP

Investment Manager

August 2018

 

DIRECTORS' REPORT

For the period from 1 January 2018 to 30 June 2018

 

The Board of the Company is pleased to present the Directors' Report for the six months ended 30 June 2018.

 

The Directors' Report contains information that covers this period and the period up to the date of publication of this Report. Please note that more up to date information is available on the Company's website www.bakersteelresourcestrust.com.

 

Principal activity and business review

 

Baker Steel Resources Trust Limited (the "Company") is a closed-ended investment company with limited liability incorporated on 9 March 2010 in Guernsey under the Companies (Guernsey) Law, 2008 with registration number 51576. The Company is a registered closed-ended investment scheme registered pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended ("POI Law") and the Registered Collective Investment Scheme Rules 2015 issued by the Guernsey Financial Services Commission ("GFSC"). On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company were admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange.

 

Investment Objective

 

The Company's investment objective is to seek capital growth over the long-term through a focused, global portfolio consisting principally of the equities, loans or related instruments of natural resources companies. The Company invests predominantly in unlisted companies (i.e. those companies that have not yet made an initial public offering ("IPO")) but also in listed securities (including special situations opportunities and less liquid securities) with a view to making attractive investment returns through uplifts in value resulting from development of the investee companies' projects and through exploiting value inherent in market inefficiencies and pricing anomalies.

 

Performance

 

During the period ended 30 June 2018, the Company's NAV per Ordinary Share increased by 0.5%. This compares with a rise in the Euromoney Global Mining 100 Index (capital return in Sterling terms) of 1.1%. A more detailed explanation of the performance of the Company is provided within the Investment Manager's Report on pages 3 to 5.

 

The results for the period are shown in the Statement of Comprehensive Income on pages 12 and 13 and the Company's financial position at the end of the period is shown in the Statement of Financial Position on page 11.

 

Dividend and dividend policy

 

During the year ended 31 December 2015 the Board introduced a capital returns policy whereby, subject to applicable laws and regulations, it will make distributions to shareholders. The amount to be distributed will be calculated following publication of the Company's audited financial statements for each year and will be no less than 15% of the aggregate net realised cash gains (after deducting losses) in that financial year. The Board will retain discretion for determining the most appropriate manner to make such distribution which may include share buybacks, tender offers and dividend payments. The Company realised an aggregate cash loss for the year ended 31 December 2017 and therefore no distributions were made for the 2017 financial year. The Company has net realised gains of GBP 2.3million for the period ended 30 June 2018 and it is therefore expected that a distribution may be made in respect of the current financial year.  

 

Directors and their interests

 

The Directors of the Company who served during the period and subsequently up to the date of this report were:

 

Howard Myles (Chairman)

Charles Hansard

Clive Newall

Christopher Sherwell

 

Biographical details of each of the Directors are presented on page 16 of the Company's annual report and financial statements for the year ended 31 December 2017.

 

Each of the Directors is considered to be independent in character and judgement.

 

The Directors' interests in the share capital of the Company were:

 

 

Number of

Ordinary Shares

30 June 2018

Number of

Ordinary Shares

31 December 2017

Christopher Sherwell

104,198

104,198

Clive Newall

25,000

25,000

 

Attendance at the Board and Audit Committee meetings during the period was as follows:

 

 

Board Meetings

 

Audit Committee

Meetings

 

He                  Held

Attended

Held

Attended

Howard Myles

2

2

2

2

Christopher Sherwell

2

2

2

2

Clive Newall

2

2

2

2

Charles Hansard

2

2

N/A

N/A

 

In addition to formal meetings, all Directors contribute to a significant ad hoc exchange of views between the Directors and the Investment Manager on specific matters, in particular in relation to valuation and developments in the portfolio.

 

The Directors are remunerated for their services at such rate as the Directors determine provided that the aggregate amount of such fees may not exceed £200,000 per annum (or such sum as the Company in general meeting shall from time to time determine).

 

For the period ended 30 June 2018 the total remuneration of the Directors was £57,500 (30 June 2017: £57,500). No fees were outstanding as at 30 June 2018 (31 December 2017: £28,750)

 

Authorised Share Capital

 

The share capital of the Company on incorporation was represented by an unlimited number of Ordinary Shares of no par value. The Company may issue an unlimited number of shares of a nominal or par value and/or of no par value or a combination of both.

 

Issue of Shares

 

The Company was admitted to trading on the London Stock Exchange on 28 April 2010. On that date, 30,468,865 Ordinary Shares and 6,093,772 Subscription Shares were issued pursuant to a placing and offer for subscription and 35,554,224 Ordinary Shares and 7,110,822 Subscription Shares were issued pursuant to a Scheme of Reorganisation of Genus Capital Fund.

 

In addition 10,000 Management Ordinary Shares were issued.

 

Following the exercise of Subscription Shares at the end of September 2010, March 2011, March 2012, June 2012 and September 2012, a total of 119,444 Ordinary Shares were issued. The final exercise date for the Subscription Shares was 2 April 2013. No Subscription Shares were exercised at this time and all residual Subscription Shares were subsequently cancelled.

 

Following in specie transactions on 28 June 2014 and 1 July 2014, a total of 5,561,243 Ordinary Shares were issued.

 

Following in specie transactions on 25 February 2015 and 4 March 2015, 40,196,071 Ordinary Shares were issued. In addition the Company issued a total of 3,368,488 Ordinary Shares on 4 March 2015 under an open offer.  

 

Following an in specie transaction on 22 September 2016, 1,561,645 Ordinary Shares were issued.

 

Details of these transactions are included within Note 8 of these financial statements.

 

 

On 14 August 2015 and 20 August 2015 the Company bought back 200,000 and 500,000 Ordinary Shares respectively, both at an average price of 20 pence per share. The repurchased Ordinary Shares are held in Treasury.

 

Following the transactions noted above the Company has a total of 116,129,980 Ordinary and 10,000 Management Shares in issue as at 30 June 2018, of which 700,000 Ordinary Shares are held in Treasury.

 

Going Concern

 

Having reassessed the principal risks and uncertainties described on pages 13 and 14 of the annual report and financial statements (the "Annual Report"), and the other matters discussed in connection with the viability statement as set out on pages 14 and 15 of the Annual Report for the year ended 31 December 2017, the Directors consider it is appropriate to adopt the going concern basis in preparing these interim Financial Statements.

 

Related Party Transactions

 

Transactions with related parties are based on terms equivalent to those that prevail in an arm's length transaction and are disclosed in Note 9.

 

Principal risks & uncertainties

 

The principal risks facing the Company, which include market and financial risk and portfolio management and performance risk, are considered in detail, along with the risks relating to a vote to wind up the Company, on pages 13 and 14 of the Company's Annual Report and Audited Financial Statements for the year ended 31 December 2017 which is available on the Company's website www.bakersteelresourcestrust.com. The Directors do not consider that these risks and uncertainties have materially changed during the period ended 30 June 2018 and do not expect any changes in the second half of 2018.

 

Directors' responsibility statement

 

The Directors confirm that to the best of their knowledge:

 

-            the condensed set of financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and give a true and fair view of the assets, liabilities and financial position and profit or loss of the Company; and

-           the Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules.

 

Corporate Governance Compliance

 

As described in the Company's Annual Report for the year ended 31 December 2017, the Board has considered the principles and recommendations set out in UK Corporate Governance Code (September 2014) (the "UK Code") issued by the Financial Reporting Council (the "FRC"). Page 20 of the Annual Report presents and explains those matters where the Company has not complied with the UK Code. There is no change in compliance since the Annual Report. 

 

The Board has noted the publication of proposals for a further revised UK Corporate Governance Code in December 2017 which applies to financial years beginning on or after 1 January 2019. The latest update of the UK Code is to make the code "shorter and sharper" than its previous iteration with supporting principles removed and either incorporated into new principles and provisions, or moved to guidance on board effectiveness. The Board is considering the Company's future governance in light of these new provisions.      

 

Signed for and on behalf of the Directors

 

 

Howard Myles

Chairman

15 August 2018

 

     

   

   

   

UNAUDITED PORTFOLIO STATEMENT

 

 

AS AT 30 JUNE 2018

 

 

 

 

 

 

Shares

Investments

Fair value

% of Net

/Warrants/

 

£ equivalent

assets

Nominal

 

 

 

 

Listed equity shares

 

 

 

 

 

 

 

Canadian Dollars

 

 

1,283,001

Ivanhoe Mines Limited

1,995,830

3.01

 

 

 

 

 

Canadian Dollars Total

1,995,830

3.01

 

 

 

 

 

Great Britain Pounds

 

 

 122,760,000

Metals Exploration Plc

 3,989,700

 6.02

 2,953,140

Polymetal International Plc

 19,786,038

 29.84

 

 

 

 

 

Great Britain Pounds Total

 23,775,738

 35.86

 

 

 

 

 

Total investment in listed equity shares

 25,771,568

 38.87

 

 

 

 

 

Debt instruments

 

 

 

 

 

 

 

Australian Dollars

 

 

 200,000

Indian Pacific Resources Limited Loan Note

 210,285

 0.32

 200

Futura Resources Limited

 5,754,015

 8.68

 

 

 

 

 

Australian dollar Total

         5,964,300

9.00

 

 

 

 

 

Canadian Dollars

 

 

 

 

 

 

 250,500

PRISM Diversified Limited Loan Note

 262,952

 0.40

 

 

 

 

 

Canadian Dollars Total

 262,952

 0.40

 

 

 

 

 

Euro

 

 

730

Cemos Group Plc Loan Notes

 3,278,793

 4.95

 

 

 

 

 

Euro Total

 3,278,793

 4.95

 

 

 

 

 

United States Dollars

 

 

 

 

 

 

 440,000

Bilboes Holdings Convertible Loan Note

 1,047,986

 1.58

 220,000

Bilboes Holdings Loan Note

 157,705

 0.24

 7,000,000

Black Pearl Limited Partnership Loan Note

 2,652,520

 4.00

 

 

 

 

 

United States Dollars Total

 3,858,211

 5.82

 

 

 

 

 

Total investments in debt instruments

 13,364,256

 20.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

Investments

Fair value

% of Net

/Warrants/

 

£ equivalent

assets

Nominal

 

 

 

 

Unlisted equity shares and warrants

 

 

 

 

 

 

 

Australian Dollars

 

 

20,011,015

Indian Pacific Resources Limited

196,315

0.30

 

 

 

 

 

Australian Dollars Total

196,315

0.30

 

 

 

 

 

Canadian Dollars

 

 

 13,083,936

PRISM Diversified Limited

2,148,405

3.24

 

 

 

 

 

Canadian Dollars Total

2,148,405

3.24

 

 

 

 

 

Great Britain Pounds

 

 

 2,000,000

Anglo Saxony Mining Limited

200,000

0.30

 1,594,646

Celadon Mining Limited

15,947

0.02

 24,004,167

Cemos Group Plc

3,324,577

5.01

 

 

 

 

 

Great Britain Pounds Total

3,540,524

5.33

 

 

 

 

 

Norwegian Krone

 

 

 11,457,628

Nussir ASA

1,875,238

2.83

 

 

 

 

 

Norwegian Krone Total

1,875,238

2.83

 

 

 

 

 

United States Dollars

 

 

 17,151,567

Archipelago Metals Limited

129,985

0.20

 2,000,000

Archipelago Metals Limited Warrants 31/12/2018

-

-

 451,445

Bilboes Gold Limited

8,982,712

13.55

 4,244,550

Gobi Coal & Energy Limited

386,014

0.58

 1,000,000

Midway Resources International

37,893

0.06

 15,314

Polar Acquisition Limited

6,387,208

9.63

 50

Sarmin Minerals Exploration Inc

3,031,451

4.57

 

 

 

 

 

United States Dollars Total

18,955,263

28.59

 

 

 

 

 

Total Unlisted equity shares and warrants

 

26,715,745

40.29

 

 

 

 

 

Financial assets held at fair value through profit or loss

 

65,851,569

99.33

 

 

 

 

 

Other Assets & Liabilities

 

442,920

0.67

 

 

 

 

 

Total Equity

 

66,294,489

100.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION

 

AS AT 30 JUNE 2018

 

 

 

 

 

Unaudited

30 June

2018

Audited

31 December

2017

 

Notes

£

£

Assets

 

 

 

Cash and cash equivalents

 

578,403

1,060,077

Other receivables

 

14,166

15,406

Financial assets held at fair value through profit or loss

3

65,851,569

65,070,244

Total assets

 

66,444,138

66,145,727

 

 

 

 

Equity and Liabilities

 

 

 

 

 

 

 

Liabilities

 

 

 

Directors' fees payable

 

-

28,750

Management fees payable

7

78,024

74,679

Administration fees payable

 

29,240

54,221

Audit fees payable

 

22,550

45,050

Other payables

 

14,164

5,984

Custodian fees payable

 

5,671

5,587

Total liabilities

 

149,649

214,271

 

 

 

 

Equity

 

 

 

Management Ordinary Shares

8

10,000

10,000

Ordinary Shares

8

81,024,525

81,024,525

Profit and loss account

 

(14,740,036)

(15,103,069)

Total equity

 

66,294,489

65,931,456

 

 

 

 

Total equity and liabilities

 

66,444,138

66,145,727

 

 

 

 

Net Asset Value per Ordinary Share (in Pence) - Basic and diluted

5

57.1

56.8

 

 

 

 

 

 

 

 

 

 

 

 

These unaudited condensed financial statements were approved by the Board of Directors on 15 August 2018 and signed on its behalf by:

 

 

 

 

 

____________                                                     _________________

Howard Myles

Christopher Sherwell

 

 

         

 

 

 

UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018

 

 

 

 

Unaudited period ended 30 June

2018

Unaudited period ended 30 June

2018

Unaudited period ended 30 June

2018

 

 

Revenue

Capital

Total

 

Notes

£

£

£

 

 

 

 

 

Income

 

 

 

 

Net gain on financial assets at fair value through profit or loss

3

-

1,020,295

1,020,295

Net foreign exchange gain

 

-

58,817

58,817

Net income

 

-

1,079,112

1,079,112

 

 

 

 

 

Expenses

 

 

 

 

Management fees

7

482,531

-

482,531

Directors' fees

 

57,500

-

57,500

Administration fees

 

49,858

-

49,858

Other expenses

 

37,718

-

37,718

Custody fees

 

35,039

-

35,039

Audit fees

 

22,500

-

22,500

Broker fees

 

22,417

-

22,417

Directors' expenses

 

7,827

-

7,827

Legal fees

 

689

-

689

Total expenses

 

716,079

-

716,079

 

 

 

 

 

Net (loss)/gain for the period

 

(716,079)

1,079,112

363,033

 

 

 

 

 

Net gain for the period per Ordinary Share:

 

 

 

 

Basic and diluted (in pence)

5

(0.6)

0.9

0.3

 

 

 

 

 

 

In the period ended 30 June 2018 there were no other gains or losses than those recognised above.

 

The Directors consider all results to derive from continuing activities.

 

The format of the Income Statement follows the recommendations of the AIC Statement of Recommended Practice.

 

UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE PERIOD FROM 1 JANUARY 2017 TO 30 JUNE 2017

 

 

 

 

Unaudited period ended 30 June

2017

Unaudited period ended 30 June

2017

Unaudited period ended 30 June

2017

 

 

Revenue

Capital

Total

 

Notes

£

£

£

 

 

 

 

 

Income

 

 

 

 

Net gain on financial assets at fair value through profit or loss

3

-

 4,692,844

4,692,844

Net foreign exchange loss

 

-

(20,640)

(20,640)

Other income

 

2,381

-

2,381

Net income

 

2,381

4,672,204

4,674,585

 

 

 

 

 

Expenses

 

 

 

 

Management fees

7

366,589

-

366,589

Directors' fees

 

57,500

-

57,500

Administration fees

 

47,784

-

47,784

Custody fees

 

33,247

-

33,247

Other expenses

 

32,205

-

32,205

Audit fees

 

23,950

-

23,950

Broker fees

 

17,500

-

17,500

Directors' expenses

 

8,695

-

8,695

Total expenses

 

587,470

-

587,470

 

 

 

 

 

Net (loss)/gain for the period

 

(585,089)

4,672,204

4,087,115

 

 

 

 

 

Net gain for the period per Ordinary Share:

 

 

 

 

Basic and diluted (in pence)

5

(0.5)

                 4.0

                 3.5

 

 

In the period ended 30 June 2017 there were no other gains or losses than those recognised above.

 

The Directors consider all results to derive from continuing activities.

 

The format of the Income Statement follows the recommendations of the AIC Statement of Recommended Practice.

 

 

 

 

 

UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY

 

FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018

 

 

 

Management

Ordinary

Shares

 

 

Ordinary

Shares

 

 

Treasury

Shares

 

Profit and loss account (Revenue)

 

Profit and loss account (Capital)

 

Total Equity

 

£

£

£

£

£

£

 

 

 

 

 

 

 

Balance as at 1 January 2018

10,000

81,165,017

(140,492)

(9,540,751)

(5,562,318)

65,931,456

Net (loss)/gain for the period

-

-

-

(716,079)

1,079,112

363,033

 

 

 

 

 

 

 

Balance as at 30 June 2018

10,000

81,165,017

(140,492)

(10,256,830)

(4,483,206)

66,294,489

  Note:                                                                             8                          8        

 

 

UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM 1 JANUARY 2017 TO 30 JUNE 2017

 

 

 

 

 

 

Management

Ordinary

Shares

 

 

Ordinary

Shares

 

 

Treasury

Shares

 

Profit and loss account (Revenue)

 

Profit and loss account (Capital)

 

Total Equity

 

£

£

£

£

£

£

 

 

 

 

 

 

 

Balance as at 1 January 2017

10,000

81,165,017

(140,492)

(8,284,845)

(17,141,890)

55,607,790

Net (loss)/gain for the period

-

-

-

(585,089)

4,672,204

4,087,115

 

 

 

 

 

 

 

Balance as at 30 June 2017

10,000

81,165,017

(140,492)

(8,869,934)

(12,469,686)

59,694,905

 

 

 

 

UNAUDITED CONDENSED INTERIM STATEMENT OF CASH FLOWS

 

 

 

FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018

 

 

 

 

 

Unaudited Period ended

30 June

2018

Unaudited Period ended

30 June

2017

 

 

£

£

Cash flows from operating activities

 

 

 

Net gain for the period

 

363,033

      4,087,115

Adjustments to reconcile gain/(loss) for the period to net cash used in operating activities:

 

 

 

Net gain on financial assets at fair value through profit or loss

 

(1,020,295)

    (4,692,844)

Net decrease in other receivables

 

1,240

            98,495

Net decrease in payables

 

(64,622)

        (28,178)

Net cash used in operating activities

 

(720,644)

       (535,412)

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of financial assets at fair value through profit or loss

 

(3,285,227)

    (1,345,029)

Sale of financial assets at fair value through profit or loss

 

2,853,131

      5,662,374

Dividend Received

 

671,066

-

Net cash (used in)/provided by investing activities

 

238,970

4,317,345

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(481,674)

      3,781,933

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

1,060,077

549,612

 

 

 

 

Cash and cash equivalents at the end of the period

 

578,403

       4,331,545

 

 

 

 

 

 

NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD FROM 1 JANUARY TO 30 JUNE 2018

 

1.   GENERAL INFORMATION

 

Baker Steel Resources Trust Limited (the "Company") is a closed-ended investment company with limited liability incorporated and domiciled on 9 March 2010 in Guernsey under the Companies (Guernsey) Law, 2008 with registration number 51576. The Company is a registered closed-ended investment scheme registered pursuant to the Protection of Investors Law and the Registered Collective Investment Scheme Rules 2015 issued by the Guernsey Financial Services Commission ("GFSC"). On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company were admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange. The Company's Ordinary and Subscription Shares were admitted to the Premium Listing Segment of the Official List on 28 April 2010.

 

The final exercise date for the Subscription Shares was 2 April 2013. No Subscription Shares were exercised at this time and all residual/unexercised Subscription Shares were subsequently cancelled.

 

The Company's portfolio is managed by Baker Steel Capital Managers (Cayman) Limited (the "Manager"). The Manager has appointed Baker Steel Capital Managers LLP (the "Investment Manager") as the Investment Manager to carry out certain duties. The Company's investment objective is to seek capital growth over the long-term through a focused, global portfolio consisting principally of the equities, or related instruments, of natural resources companies. The Company invests predominantly in unlisted companies (i.e. those companies which have not yet made an Initial Public Offering ("IPO")) and also in listed securities (including special situations opportunities and less liquid securities) with a view to exploiting value inherent in market inefficiencies and pricing anomalies.

 

Baker Steel Capital Managers LLP (the "Investment Manager") was authorised to act as an Alternative Investment Fund Manager ("AIFM") of Alternative Investment Funds ("AIFs") on 22 July 2014. On 14 November 2014, the Investment Manager signed an amended Investment Management Agreement with the Company, to take into account AIFM regulations. AIFMD focuses on regulating the AIFM rather than the AIFs themselves, so the impact on the Company is limited.

 

The Half-Yearly financial report has not been audited or reviewed by the auditors pursuant to the Auditing Practices Board

Guidance on review of Interim Financial Information.

 

2.   SIGNIFICANT ACCOUNTING POLICIES

 

The accounting policies adopted in the preparation of these unaudited condensed interim financial statements have been consistently applied during the period, unless otherwise stated.

 

a)     Statement of compliance

The unaudited condensed interim financial statements of the Company for the period 1 January 2018 to 30 June 2018 have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted in the EU, together with applicable legal and regulatory requirements of The Companies (Guernsey) Law, 2008 and the Listing Rules of the London Stock Exchange's Main Market. The unaudited condensed interim financial statements do not include all the information and disclosure required in the annual financial statements and should be read in conjunction with the annual report and audited financial statements at 31 December 2017.

 

b)     Basis of preparation

The unaudited condensed interim financial statements have been prepared under the historical cost basis, modified by the revaluation of certain financial instruments designated at Fair value through Profit or Loss. The accounting policies adopted in the preparation of these unaudited condensed interim financial statements have been consistent with the accounting policies stated in Note 2 of the annual financial statements for the year ended 31 December 2017. The preparation of unaudited condensed interim financial statements in conformity with IAS 34, "Interim Financial Reporting", requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

The Company's functional currency is the Great Britain pound Sterling ("£"), being the currency in which its Ordinary Shares are issued and in which returns are made to shareholders. The presentation currency is the same as the functional currency. The financial statements have been rounded to the nearest £. The Company invests in companies around the world whose shares are denominated in various currencies. Currently the majority of the portfolio is denominated in GBP but this will not necessarily remain the case as the portfolio develops.

 

 

c)   Significant accounting judgements and estimates

The preparation of the Company's financial statements requires the Directors to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities.

However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability in future periods.

 

(i)    Judgements

In the process of applying the Company's accounting policies, the Directors have made the following judgements, which have had the most significant effect on the amounts recognised in the financial statements:

 

Assessment as Investment Entity

As per IFRS 10, an entity shall determine whether it is an investment entity. An investment entity is an entity that fulfils the following criteria:

 

Ø It obtains funds from one or more investors for the purpose of providing those investors with investment services.

Ø It commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both.

Ø It measures and evaluates the performance of substantially all of its investments on a fair value basis.

 

The Company meets the above criteria and is therefore considered to be an investment entity and therefore all investments, including those which qualify as subsidiaries or associates are carried at fair value through profit or loss.

 

Subsidiaries

Entities in which the Company holds more than 50% of the voting rights, and where the Company has appointed or has the right to appoint the majority of directors or where the Company is otherwise able to exercise control are considered as subsidiaries of the Company. These are disclosed in Note 9 of these unaudited condensed interim financial statements. Investments in subsidiaries are carried at fair value through profit or loss.

 

Associates

The Directors consider that entities over which the Company exercises significant influence, including where it holds between 20% and 50% of the voting rights, or where there is a shareholders agreement giving the Company the right to appoint a director and the right to veto significant financial decisions, should be considered as associates of the Company. These are disclosed in Note 14 of the Annual Report. This also includes entities where the Company has representation on the board and such representation is considered to have significant influence over the major decisions of such entity.

 

Going Concern

As stated in the Directors' Report the Directors have assessed the principal risks and uncertainties (as described in pages 13

and 14 of the Annual Report) and the other matters discussed in connection with the viability statement as set out on pages

14 and 15 of the Annual Report for the year ended 31 December 2017. The Directors consider it is appropriate to adopt the going concern basis in preparing these interim accounts.

 

(ii)   Estimates and assumptions

The key assumptions concerning the future and other key sources of uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets liabilities within the next financial year, are discussed below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur. Please refer to Note 3 for further information.

 

(iii) Fair value of financial instruments

When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using a variety of valuation techniques that include the use of valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. The estimates include considerations of liquidity and model inputs related to items such as credit risk, correlation and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments in the statement of financial position and the level where the instruments are disclosed in the fair value hierarchy. The models are tested for validity by calibrating to prices from any observable current market transactions in the same instrument (without modification or repackaging) when available. To assess the significance of a particular input to the entire measurement, the Company performs sensitivity analysis or stress testing techniques.

 

 

d)    Change in accounting policy

 

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments, effective date for annual periods beginning on or after 1 January 2018, specifies how an entity should classify and measure financial assets and liabilities, including some hybrid contracts. The standard changes the approach for classification and measurement of financial assets compared with the requirements of IAS 39 Financial Instruments: Recognition and Measurement. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria.

 

The Company's financial assets in equity instruments and derivative instruments continue to be held at fair value through profit or loss ("FVTPL"). Debt instruments are measured at FVTPL as the Company's business model is to convert the debt to equity and sell for gain.

 

The application of IFRS 9 may change the measurement and presentation of many financial instruments, depending on their contractual cash flows and the business model under which they are held. However, it is not expected that classification of financial assets and liabilities will change from FVTPL and therefore it is not expected that the implementation of IFRS 9 on 1 January 2019 and reflected in the financial statements as at year end 31 December 2019 will have a significant impact on the financial statements given most financial instruments are expected to be at FVTPL.

 

3.     FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

 

 

Investment Summary:

Period ended 30 June

 2018

Year ended 31 December 2017

 

£

£

Opening book cost

50,780,732

 54,964,732

Purchases at cost

3,285,227

 9,542,851

Proceeds on sale

(2,853,131)

(11,079,780)

Realised gains/(losses)

2,304,224

(2,647,071)

Closing cost

53,517,052

50,780,732

Unrealised gains

12,334,517

14,289,512

Financial assets held at fair value through profit or loss

65,851,569

 65,070,244

 

The following table analyses net gains/ (losses) on financial assets at fair value through profit or loss for the period/year ended 30 June 2018 and 31 December 2017.

 

 

Period ended 30 June

2018

Year ended

31 December 2017

 

£

£

Financial assets at fair value through profit or loss

 

 

Realised gains/(losses) on:

 

 

- Listed equity shares

2,232,106

(2,446,616)

- Unlisted equity shares

-

(269,983)

- Debt instruments

72,118

69,528

 

2,304,224

(2,647,071)

Movement in unrealised (losses)/gains on:

 

 

 - Listed equity shares

9,063,744

4,286,190   

 - Unlisted equity shares

(11,412,987)

9,805,381  

 - Debt instruments

395,229

51,428   

 - Warrants

(981)

(4,322)

 

(1,954,995)

14,138,677  

Net gain on financial assets at fair value through profit or loss

349,229

11,491,606

Dividend Income

671,066

-

Total net gain on financial assets at fair value through profit or loss.

1,020,295

11,491,606

 

       

The following table analyses investments by type and by level within the fair valuation hierarchy at 30 June 2018.

 

 

Quoted prices in active markets

Quoted market based observables

Unobservable

inputs

 

 

Level 1

Level 2

Level 3

Total

 

£

£

£

£

Financial assets at fair value through profit or loss

 

 

 

 

Listed equity shares

25,771,568

-

-

25,771,568

Unlisted equity shares

-

-

26,715,745

26,715,745

Warrants

-

-

-

-

Debt instruments

-

-

13,364,256

13,364,256

 

25,771,568

-

40,080,001

65,851,569

 

The following table analyses investments by type and by level within the fair valuation hierarchy at 31 December 2017.

 

 

Quoted prices in active markets

Quoted market based observables

Unobservable

inputs

 

 

Level 1

Level 2

Level 3

Total

 

 £

 £

 £

 £

Financial assets at fair value through profit or loss

 

 

 

 

Listed equity shares

 11,862,289

-

-

 11,862,289

Unlisted equity shares

-

-

43,595,292  

43,595,292  

Warrants

-

-

 981

 981

Debt instruments

-

-

9,611,682  

9,611,682  

 

11,862,289

-

 53,207,955

 65,070,244

 

The tables below shows a reconciliation of beginning to ending fair value balances for Level 3 investments and the amount of total gains or losses for the period included in net gain on financial assets and liabilities at fair value through profit or loss held at 30 June 2018.

 

 

 

Debt

 

 

30 June 2018

Unlisted Equities

instruments

Warrants

Total

 

£

£

£

£

 

 

 

 

 

Opening balance 1 January 2018

43,595,292

9,611,682

981

53,207,955

Purchases of investments

-

3,285,227

-

3,285,227

Change in net unrealised gains and losses

(11,412,987)

395,229

(981)

(11,018,739)

Realised gains

-

72,118

-

72,118

Transfer to Level 1 during the period

(5,466,560)

-

-

(5,466,560)

Closing balance 30 June 2018

26,715,745

13,364,256

-

40,080,001

 

 

 

 

 

Unrealised losses on investments still held at 30 June 2018

(135,247)

(796,391)

(21,826)

(953,464)

 

 

The tables below shows a reconciliation of beginning to ending fair value balances for Level 3 investments and the amount of total gains or losses for the year included in net loss on financial assets and liabilities at fair value through profit or loss held at 31 December 2017.

 

 

 

Debt

 

 

31 December 2017

Unlisted Equities

instruments

Warrants

Total

 

£

£

£

£

 

 

 

 

 

Opening balance 1 January 2017

37,819,837

4,037,448

5,303

41,862,588

Purchases of investments

957,241  

8,019,379  

 -

8,976,620  

Sale of investments

(4,717,184)

(2,566,101)

-

(7,283,285)

Change in net unrealised gains

9,805,381  

51,428  

 (4,322)

9,852,487  

Realised (losses)/gains

(269,983)

69,528  

-

(200,455)

Closing balance 31 December 2017

43,595,292  

9,611,682  

 981

 53,207,955

 

 

 

 

 

Unrealised gains / (losses) on investments still held at 31 December 2017

11,277,740

(1,191,620)

(20,845)

10,065,275

 

It is the Company's policy to recognise a change in hierarchy level when there is a change in the status of the investment, for example when a listed company delists or vice versa, or when shares previously subject to a restriction have that restriction released. The transfers between levels are recorded either on the value of the transaction the value of the investment immediately after the event or the carrying value of the investment at the beginning of the financial year.

 

In determining an investment's position within the fair value hierarchy, the Directors take into consideration the following factors:

 

Investments whose values are based on quoted market prices in active markets are classified within Level 1. These include listed equities with observable market prices. The Directors do not adjust the quoted price for such instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

 

Investments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within Level 2. These include certain less-liquid listed equities. Level 2 investments are valued with reference to the listed price of the shares should they be freely tradable after applying a discount for liquidity if relevant. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. The Company held no Level 2 investments at 30 June 2018 (31 December 2017: none).

 

Investments classified within Level 3 have significant unobservable inputs. They include unlisted debt instruments, unlisted equity shares and warrants. Level 3 investments are valued using valuation techniques explained below. The inputs used by the Directors in estimating the value of Level 3 investments include the original transaction price, recent transactions in the same or similar instruments if representative in volume and nature, completed or pending third-party transactions in the underlying investment of comparable issuers, subsequent rounds of financing, recapitalisations and other transactions across the capital structure, offerings in the equity or debt capital markets, and changes in financial ratios or cash flows. Level 3 investments may also be adjusted with a discount to reflect illiquidity and/or non-transferability in the absence of market information.

 

 

There have been no transfers between levels during the period. However the distribution of Polymetal shares by PAL has resulted in an increase in Level 1 investments and a decrease in Level 3 investments, because Polymetal is listed on the London Stock Exchange.

 

 

Valuation methodology of Level 3 investments

 

The default valuation technique is of "Latest Recent Transaction". Where an unquoted investment has been acquired or where there has been a material arm's length transaction during the past six months it will be carried at transaction value unless there are changes or events which suggest cost is not equivalent to fair value. Where there has been no Latest Recent Transaction the primary valuation driver is IndexVal. For each core unlisted investment, the Company maintains a weighted average basket of listed companies which are comparable to the investment in terms of commodity, stage of development and location ("IndexVal"). IndexVal is used as an indication of how an investment's share price might have moved had it been listed. Movements in commodity prices are deemed to have been taken into account by the movement of IndexVal.

 

A secondary tool used by Management to evaluate potential investments as well as to provide underlying valuation references for the Fair Value already established is Development Risk Adjusted Values ("DRAV"). DRAVs are not a primary determinant of Fair Value. The Investment Manager prepares discounted cash flow models for the Company's core investments annually and also for significant new information and decision making purposes when required. From these, DRAVs are derived. The computations are based on consensus forecasts for long term commodity prices and investee company management estimates of operating and capital costs. The Investment Manager takes account of market, country and development risks in its discount factors. Some market analysts incorporate development risk into the discount rate in arriving at a net present value ("NPV") rather than establishing an NPV discounted purely for cost of capital and country risk and then applying a further overall discount to the project economics dependent on where such project sits on the development curve per the DRAV calculations.

 

The valuation technique for Level 3 investments can be divided into four groups:

 

i.  Transactions

 

Where there have been transactions within the past 6 months either through a capital raising by the investee company or known secondary market transactions, representative in volume and nature and conducted on an arm's length basis, this is taken as the primary driver for valuing Level 3 investments.

 

ii. IndexVal

 

Where there have been no known transactions for 6 months, at the Company's half year and year end, movements in IndexVal will generally be taken into account in assessing Fair Value where there has been at least a 10% movement in IndexVal over at least a six month period. The IndexVal results are used as an indication of trend and are viewed in the context of investee company progress and any requirement for finance in the short term for further progression.

iii. Warrants

 

Warrants are valued using a simplified Black Scholes model taking into account time to expiry, exercise price and volatility. Where there is no established market for the underlying shares the average volatility of the companies in that investment's basket of comparables as utilised in the IndexVal.

 

iv. Convertible loans

Convertible loans are valued at fair value through profit and loss, taking into account credit risk and the value of the conversion aspect.

 

Quantitative information on significant unobservable inputs - Level 3

 

Description

30 June 2018

£

Valuation technique

Unobservable input

Range

(weighted average)

 

 

 

 

 

Unlisted Equity

12,943,236

Recent Transactions

Private transactions

n/a

Unlisted Equity

13,392,369

IndexVal

Change in IndexVal

n/a

Unlisted Equity

380,140

Other

Exploration results, study results, financings

n/a

 

 

Description

30 June 2018

£

Valuation technique

Unobservable input

Range

(weighted average)

Debt Instruments

 

 

 

 

Black Pearl Limited Partnership

2,652,520

Valued at mean estimated recovery

Estimated recovery range

+/- 50%

Other Convertible Debentures/Loans

10,711,736

Valued at fair value with reference to credit risk and value of embedded derivative

Rate of Credit Risk

n/a

 

Description

31 December

2017

£

Valuation technique

Unobservable input

Range

(weighted average)

 

 

 

 

Unlisted Equity

33,443,276 

Recent Transactions

Private transactions

n/a

Unlisted Equity

10,009,161 

IndexVal

Change in IndexVal

n/a

Unlisted Equity

142,854 

Other

Exploration results, study results, financings

n/a

Debt Instruments

 

 

 

 

Black Pearl Limited Partnership

2,589,715 

Valued at mean estimated recovery

Estimated recovery range

+/- 50%

Other Convertible Debentures/Loans

7,021,967 

Valued at fair value with reference to credit risk and value of embedded derivative

Rate of Credit Risk

n/a

 

 

 

 

 

Warrants

981

Simplified Black Scholes Model

Volatilities

40%

 

Information on third party transactions in unlisted equities is derived from the Investment Manager's market contacts. The change in IndexVal for each particular unlisted equity is derived from the weighted average movements of the individual baskets for that equity so it is not possible to quantify the range of such inputs.

 

Sensitivity analysis to significant changes in unobservable inputs within Level 3 investments

 

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis as at 30 June 2018 are as shown below:

 

Description

Input

Sensitivity used*

Effect on Fair Value (£)

Unlisted Equity

Change in IndexVal

+/-31%

+/-8,281,881

Debt Instruments

 

Black Pearl Limited Partnership

Probability weighting

+/-33%

+/-884,173

Others/Loans

Risk discount rate

+/-20%

-/+2,095,156

 

*The sensitivity analysis refers to a percentage amount added or deducted from the input and the effect this has on the fair value. The 31% sensitivity was used as this was the highest movement observed for IndexVal for any investment during 2018.

 

 

 

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis as at 31 December 2017 are as shown below:

 

Description

Input

Sensitivity used*

Effect on Fair Value (£)

Unlisted Equity

Change in IndexVal

+/-31%

+/-3,102,840

Debt Instruments

 

Black Pearl Limited Partnership

Probability weighting

+/-33%

+/-863,238

Others/Loans

Risk discount rate

+/-20%

-244,066/+244,066

Warrants

Volatility of 40%

+/-20%

+1,426/-703

 

*The sensitivity analysis refers to a percentage amount added or deducted from the input and the effect this has on the fair value. The 31% sensitivity was used as this was the highest movement observed for IndexVal for any investment during 2017.

 

4.   OTHER FINANCIAL INSTRUMENTS

 

The Company has not disclosed the fair value for financial assets such as cash and cash equivalents and short-term receivables and payables, because their carrying amounts are a reasonable approximation of fair values.

 

Cash and cash equivalents include cash in hand, deposits held with banks and other short-term investments in an active market.

 

Other assets include the contractual amounts for settlement of the trades and other obligations due to the Company. Investment management fees payable, directors' fees payable, audit fees payable, administration fees payable and other payables represent the contractual amounts and obligations due by the Company for settlement for trades and expenses.

 

5.   NET ASSET VALUE PER SHARE AND LOSS PER SHARE

 

Net asset value per share is based on the net assets of £66,294,489 (31 December 2017: £65,931,456) and 116,139,980 (31 December 2017: 116,139,980) Ordinary Shares, being the number of shares in issue at 30 June 2018. The calculation for basic and diluted NAV per share is as below:

 

 

30 June 2018

31 December 2017

 

Ordinary Shares

 

Ordinary Shares

 

Net assets at the period end (£)

66,294,489

65,931,456

Number of shares*

116,139,980

116,139,980

Net asset value per share (in pence) basic and diluted**

57.1

56.8

Weighted average number of shares

116,139,980

116,139,980

 

*Including 10,000 Management Ordinary Shares

**As there are no subscription shares, options or other relevant share issuances in place at the period end, there is no difference between the net asset value per share and the diluted net asset value per share

 

The basic and diluted gain per share for the period ended 30 June 2018 is based on the net gain for the period of the Company of £363,033 and on 116,139,980 Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the period.

 

The basic and diluted gain per share for the period ended 30 June 2017 is based on the net gain for the period of the Company of £4,087,115 and on 116,139,980 Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the period.

 

 

6.    TAXATION

 

The Company is a Guernsey Exempt Company and is therefore not subject to taxation on its income under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. An annual exemption fee of £1,200 (2017: £1,200) has been paid.

 

 

7.    MANAGEMENT AND PERFORMANCE FEES

 

The Manager was appointed pursuant to a management agreement with the Company dated 31 March 2010 (the "Management Agreement"). The Company pays to the Manager a management fee which is equal to 1/12th of 1.75 per cent of the total average market capitalisation of the Company during each month. The management fee is calculated and accrued as at the last business day of each month and is paid monthly in arrears. The Investment Managers fees are paid by the Manager.

 

The management fee for the period ending 30 June 2018 was £482,531 (30 June 2017: £366,589) of which £78,024 (31 December 2017: £74,679) was outstanding at the period end.

 

The Manager is also entitled to a performance fee. The Performance Period is each 12 month period ending on 31 December in each year (the "Performance Period"). The amount of the performance fee is 15 per cent of the total increase in the NAV, if the Hurdle has been met, at the end of the relevant Performance Period, over the highest previously recorded NAV as at the end of a Performance Period in respect of which a performance fee was last accrued, having made adjustments for numbers of Ordinary Shares issued and/or repurchased as described above. In addition, the performance fee will only become payable if there have been sufficient net realised gains.

 

There were no performance fees for the current or prior period.

 

If the Company wishes to terminate the Management Agreement without cause it is required to give the Manager 12 months prior notice or pay to the Manager an amount equal to: (a) the aggregate investment management fee which would otherwise have been payable during the 12 months following the date of such notice (such amount to be calculated for the whole of such period by reference to the Market Capitalisation prevailing on the Valuation Day on or immediately prior to the date of such notice); and (b) any performance fee accrued at the end of any Performance Period which ended on or prior to termination and which remains unpaid at the date of termination which shall be payable as soon as, and to the extent that, sufficient cash or other liquid assets are available to the Company (as determined in good faith by the Directors), provided that such accrued performance fee shall be paid prior to the Company making any new investment or settling any other liabilities; and (c) where termination does not occur at 31 December in any year, any performance fee accrued at the date of termination shall be payable as soon as and to the extent that sufficient cash or other liquid assets are available to the Company (as determined in good faith by the Directors), provided that such accrued performance fee shall be paid prior to the Company making any new investment or settling any other liabilities.

 
8.     SHARE CAPITAL

 

The share capital of the Company on incorporation was represented by an unlimited number of Ordinary Shares of no par value. The Company may issue an unlimited number of shares of a nominal or par value and/or of no par value or a combination of both.

 

The Company has a total of 116,129,980 (31 December 2017: 116,129,980) Ordinary Shares in issue with an additional 700,000 (31 December 2017: 700,000) held in treasury. In addition, the Company has 10,000 (31 December 2017: 10,000) Management Ordinary Shares in issue, which are held by the Investment Manager.

 

On 22 September 2016, the Company acquired 3,926,425 Ordinary Shares of Nussir ASA from three different parties for a total consideration of £624,658. This consideration was settled through the issue of 1,561,645 Ordinary Shares of the Company at the unaudited NAV of 40.0 pence per share. In accordance with IFRS the consideration of the transaction is recorded in the Company's financial statements based on its (trading) share price, which was 29.875pence per share, the consideration recorded is therefore £0.47million.

 

The Ordinary Shares are admitted to the Premium Listing segment of the Official List of the London Stock Exchange.

 

 

 

 

The details of issued share capital of the Company are as follows:

 

 

30 June 2018

31 December 2017

 

Amount

No. of shares**

Amount

No. of shares**

 

£

 

£

 

Issued and fully paid share capital

 

 

 

 

Ordinary Shares of no par value*

81,175,017

116,839,980

81,175,017

116,839,980

(including Management Ordinary Shares)

 

 

 

 

Treasury Shares

(140,492)

(700,000)

(140,492)

(700,000)

 

* On 9 March 2010, 1 Management Ordinary Share was issued and on 26 March 2010, 9,999 Management Ordinary Shares were issued.

** Includes 10,000 Management Ordinary Shares

 

9.    RELATED PARTY TRANSACTIONS

 

The Directors' interests in the share capital of the Company were:

 

 

Number of

Ordinary Shares

30 June 2018

Number of

Ordinary Shares

31 December 2017

Christopher Sherwell

104,198

104,198

Clive Newall

25,000

25,000

 

The Directors' fees for the period ended 30 June 2018 were £57,500 (30 June 2017: £57,500), with £Nil payable at 30 June 2018 (31 December 2017: £28,750).

 

The Investment Manager, Baker Steel Capital Managers LLP had an interest in 10,000 Management Ordinary Shares at 30 June 2018 (31 December 2017: 10,000).

 

The Management fees paid and accrued for the year are disclosed under Note 7.

 

Baker Steel Global Funds SICAV - Precious Metals Fund ("Precious Metals Fund") had an interest of 7,469,609 Ordinary Shares in the Company at 30 June 2018 (31 December 2017: 7,469,609). Precious Metals Fund shares a common Investment Manager with the Company.

 

At 31 December 2017, the Company held a 47.3% fully diluted interest in PAL, a company incorporated in the British Virgin Islands. Several of the other shareholders' interests were held through options and convertibles such that the Company's undiluted shareholding at 31 December 2017 was 75.9%. PAL was accordingly regarded as a subsidiary.

 

During the first half of 2018 all options and convertibles into PAL were exercised so that at 30 June 2018 the Company held a 46.8% (diluted and undiluted) interest in PAL. Accordingly PAL is no longer considered a subsidiary of the Company.

 

 

10.  SUBSEQUENT EVENTS

 

There were no other events subsequent to the period end that materially impacted on the Company.

 

11.  APPROVAL OF HALF YEARLY REPORT AND UNAUDITED CONDENSED INTERIM FINANCIAL                                                              

       STATEMENTS

 

The Half-Yearly Report and Unaudited Condensed Interim Financial Statements to 30 June 2018 were approved by the Board of Directors on 15 August 2018.

                                                                     


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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