BlackRock World Mining Trust discloses heavy exposure to Rio Tinto

The BlackRock World Mining Trust has published a portfolio update disclosing heavy exposure to the Anglo Australian mining group Rio Tinto.

The Trust, which reported that the portfolio had a net asset value (NAV) undiluted for one year of -15.1%, stood by its holding in the company saying that the mining sector had the potential to deliver strong returns over the medium term.

Over three years, the NAV of the BlackRock World mining Trust was 16.6% and over five years it was -1.7%.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

A breakdown of the portfolio showed a heavy weighting towards the diversified mining sector, with this accounting for 39.2% of total assets followed by base metals, which accounted for 20.3% and industrial minerals, which represented 10.4% of total assets.

The portfolio's largest investment was Rio Tinto, with shares in the company accounting for 10.2% of total assets, followed by BHP Billiton, accounting for 9.0%.

Rio Tinto posted a net loss of $3.0bn in the year to December today, down from a net profit of $5.8bn a year ago.

View on Rio Tinto holding: ComfortableCommenting on the markets, Evy Hambro, representing the Investment Manager, said: "2013 began with both global equities and mining equities rising as improving economic data and the averted fiscal cliff provided momentum to the market.

"While global equities continued their upward trajectory, mining equities paused slightly before weakening at the end of the month as the market took profits following their strong run since the market low in September."

Commenting on the mining sector, he said: "Mining companies provided a number of updates in January, Rio Tinto announced $14bn of write downs from their acquisitions of Riversdale and Alcan. These were combined with the news that Tom Albanese would be replaced with Sam Walsh, who was previously head of the iron ore division as Chief Executive Officer.

"While this news initially appeared to concern the market, we remain comfortable with our holding as the write downs reflect poor investments made in the past which the market has already largely taken into account and the new CEO has been a long standing member of the management team at Rio Tinto."

Describing the outlook and strategy going forward, Hambro added: "Mining company valuations continue to trade below historical averages and there is in our view the potential for strong returns over the medium term. We remain focused on companies with balance sheet strength and high asset quality as we believe these factors will be key differentiators.

"In addition, the market is becoming increasingly discerning about capital allocation by mining managements. Companies must show themselves to be highly disciplined in their approach to costs and management of their assets."

The BlackRock World Mining Trust's share price was down 1.31% to 604p at 14:00 on Thursday.

MF