All information is at 29 February 2020 and unaudited.
Performance at month end with net income reinvested
| One | Three | One | Three | Five | ||
| Month | Months | Year | Years | Years | ||
| Net asset value | -9.9% | -8.9% | -7.0% | -0.2% | 30.9% | |
| Share price | -10.5% | -8.5% | -5.8% | 1.9% | 35.6% | |
| EMIX Global Mining Index (Net)* | -9.4% | -8.5% | -2.5% | 8.2% | 34.2% | |
| MSCI ACWI Metals and Mining 30% Buffer 10/40 Index (Net)* | -9.2% | -9.3% | -6.8% | -4.3% | 23.2% | |
| * (Total return) |
Sources: BlackRock, EMIX Global Mining Index, MSCI ACWI Metals and Mining 30% Buffer 10/40 Index, Datastream
| At month end | ||
| Net asset value including income1: | 368.63p | |
| Net asset value capital only: | 357.86p | |
| 1 Includes net revenue of 10.77p | ||
| Share price: | 319.50p | |
| Discount to NAV2: | 13.3% | |
| Total assets: | £744.7m | |
| Net yield3: | 6.9% | |
| Net gearing: | 15.6% | |
| Ordinary shares in issue: | 173,605,020 | |
| Ordinary shares held in treasury: | 19,406,822 | |
| Ongoing charges4: | 0.9% |
2 Discount to NAV including income.
3 Based on three quarterly interim dividends of 4.00p per share declared on 20 August 2019, 2 May 2019 and 14 November 2019 and a final dividend of 10.00p per share announced on 27 February 2020 in respect of the year ended 31 December 2019.
4 Calculated as a percentage of average net assets and using expenses, excluding finance costs, for the year ended 31 December 2019.
| Sector | % Total | Country Analysis | % Total | |
| Assets | Assets | |||
| Diversified | 38.7 | Global | 64.4 | |
| Gold | 26.4 | Australasia | 9.9 | |
| Copper | 15.7 | Latin America | 8.3 | |
| Silver & Diamonds | 5.8 | Canada | 5.9 | |
| Industrial Minerals | 4.5 | United Kingdom | 3.3 | |
| Nickel | 2.7 | South Africa | 3.1 | |
| Platinum Group Metals | 2.3 | Russia | 1.1 | |
| Iron Ore | 2.0 | Other Africa | 1.1 | |
| Diversified Mining | 0.8 | Sweden | 0.8 | |
| Coal | 0.4 | Indonesia | 0.7 | |
| Aluminium | 0.1 | USA | 0.7 | |
| Zinc | 0.1 | Argentina | 0.1 | |
| Steel | -0.1 | Current assets | 0.6 | |
| Current assets | 0.6 | —– | ||
| —– | 100.0 | |||
| 100.0 | ===== | |||
| ===== | ||||
| Ten Largest Investments | ||||||
Company | % Total Assets | |||||
| Vale: | ||||||
| Equity | 4.6 | |||||
| Debenture | 3.8 | |||||
| BHP | 8.4 | |||||
| Rio Tinto | 8.2 | |||||
| Anglo American | 6.2 | |||||
| Barrick Gold | 5.4 | |||||
| Newmont Mining | 5.3 | |||||
| First Quantum Minerals | 4.2 | |||||
| Wheaton Precious Metals | 4.1 | |||||
| OZ Minerals Brazil: | ||||||
| Royalty | 2.5 | |||||
| Equity | 1.3 | |||||
| Franco-Nevada | 3.4 | |||||
Commenting on the markets, Evy Hambro and Olivia Markham, representing the Investment Manager noted:
Performance
The Company’s NAV decreased by 9.9% in February, underperforming its reference index, the MSCI ACWI Metals and Mining 30% Buffer 10/40 Index (net return), which returned -9.2%. (Figures in GBP)
Global equity markets fell sharply in February as it became apparent that the coronavirus was spreading globally with a likely greater impact on economic activity. For reference, the MSCI World Index fell 8.5%. China’s response to attempt to contain the spread of the virus included placing a number of cities and towns on lockdown, which meant Chinese factories could not operate. This caused supply issues across many industries, whilst air travel was restricted to certain high virus risk destinations.
Mined commodity prices came under pressure, with zinc and iron ore returning -9.1% and -12.7% respectively. Aluminium and copper were broadly flat over the month returning -1.7% and +1.2% following price declines last month. The gold price was flat on the month and remains 5% higher than at the start of the year at $1,587/oz, reaffirming its safe haven status in times of market volatility. Similar to last month, gold equities lagged the gold price, partly reflecting the strong performance of the mid-cap gold companies in Q4 2019.
Strategy and Outlook
We see an attractive valuation opportunity in mining today. Mining companies have sold off in recent weeks in anticipation of a lower level of global economic growth in 2020. We expect any economic stimulus measures from China to disproportionately benefit the mined commodity sector.
The mining sector is generating close to record free cash flow, whilst balance sheets are in strong shape and companies remain focused on capital discipline. Our base case remains that we have positive global economic growth for the next 12-18 months, albeit at a slower rate than was expected this time last year. Barring an economic recession, we expect the mining sector to re-rate into a post coronavirus economic recovery as the miners continue to generate robust free cash flow and return capital to shareholders through dividends and buybacks.
We expect most mined commodity prices to be stable to rising through 2020. On the commodity demand side, we do not anticipate a hard-landing type event in China and we have been encouraged by stimulus measures beginning to feed through into improvements in some economic data points. On the commodity supply side, supply is tight in most mined commodity markets and, given the cuts in mining sector spending since 2012 (down ~66%), we expect it to remain so.
All data points are in USD terms unless stated otherwise.
