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Baker Steel Resources Trust well placed to benefit from "battery metals" enthusiasm

The discount to net asset value narrowed in 2017 as the NAV rose 18.6%
Battery
The company has exposure to lithium and vanadium through PRISM Diversified

Natural resources companies backer Baker Steel Resources Trust Ltd (LON:BSRT) saw net asset value (NAV) per share rise by 18.6% in 2017 to 56.8p.

The increase in NAV was marginally lower than the 20.7% rise notched up by the trust’s benchmark index, the Euromoney Global Mining Index, although it is worth noting that 80.6% of Baker Steel’s holdings are in unquoted investments, which are carried at “fair value” - i.e. the directors’ best estimate of what they were worth.

READ Baker Steel Resources Trust boosts NAV with US$72 mln sale of Prognoz Silver mine

The largest 10 holdings were: Polar Acquisition Limited (37.4% of NAV); 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%) and Nussir ASA (3.1%).

Towards the end of 2017 and early in 2018, the company made its first major new investment for three years, investing AS$10 million in Futura Resources Limited (formerly Queensland Coal Investment Holdings) through a convertible loan, which is the company’s preferred way of investing in companies as it provides a measure of downside protection.

Company chairman Howard Myles noted that the convertible loan to Future was completed before the 73.6% increase in the price of coking coal in the second half of the year.

The portfolio is well diversified both in terms of commodity and the geographical location of the projects, the investment manager said.

WATCH: Baker Steel Resources Trust outlines 2018 growth drivers and upcoming milestones

In terms of commodities the portfolio is concentrated on the large liquid markets of silver, gold, iron ore, coal, copper, platinum group metals and nickel. Its projects are located in Australia, Canada, Democratic Republic of Congo, Germany, Indonesia, Madagascar, Mongolia, Morocco, Norway, the Philippines, Republic of Congo, Russia, South Africa, Vietnam and Zimbabwe.

Myles told shareholders that the mining market moved further along the road to recovery in 2017 and that the current point in the cycle “appears to be an attractive time for investing in mining projects”.

The chairman asserted that the company is not one to jump on the latest bandwagon but noted that hot commodities appear to be those associated with the electrification of motor vehicles and battery technology; copper is likely to be one of the key beneficiaries of electric cars, Myles predicted, and the company already has significant exposure to copper through its investments in Ivanhoe and Nussir.

“On the ‘battery metal’ front the company has exposure to lithium and vanadium through PRISM Diversified Limited (formerly Ironstone Resources Ltd). In addition, the increasing use of silver for photovoltaic reinforces silver as a ‘green’ metal and should drive demand,” Myles predicted.

Shares in Baker Steel currently trade at 45.6p, compared to the most recently published NAV of 54.7p on April 6.


 

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