Last year was a “huge frustration” for BlackRock World Mining (LSE: BRWM), say managers Evy Hambro and Olivia Markham in their annual report. The trust produced a total return of -12.7% and a net asset value (NAV) return of -10.7% as its discount to NAV widened from 3.3% to 5.8% over the year.
This had little to do with the fundamentals for commodities. Gold and silver prices rallied by 27.2% and 21.5%, respectively, while copper prices increased 8%. However, this failed to translate into meaningful returns for mining stocks.
Losses were most pronounced at “large mining companies that simply did not perform as they have historically”. Take copper miner Freeport-McMoRan, which made up 4.4% of the portfolio at the end of the year. The stock lost 9.4% on a total return basis in 2024. Worse still, gold miners Newmont and Barrick generated double-digit losses, even though gold chalked up one of the best performances of any asset class last year.
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Shifting away from mining
It’s not difficult to see why investors have moved away from the mining giants. The Magnificent Seven group of tech companies sucked in capital last year. While commodity prices jumped, rising operational and energy costs, political uncertainty and elevated interest rates all seemed to cloud the mining sector’s outlook.
The energy transition and exploding demand for artificial intelligence chips and data centres will almost certainly drive commodity prices such as copper high over the next few years. Still, mining is an incredibly hard business and is only getting harder as the easy-to-reach deposits dwindle.
However, it’s precisely these factors that make the sector look appealing in the long term. “Supportive demand trends, strong balance sheets, limited supply growth and low valuations are likely to underpin a recovery,” as Hambro and Markham put it. And BlackRock World Mining is almost uniquely positioned to manage the current uncertainty and profit when investor confidence returns.
Does BlackRock World Mining offer leveraged exposure?
The trust is well diversified. At the end of 2024, roughly 34% of the portfolio was allocated to global companies that produce a range of commodities. Just under 25% was allocated to investments specialising in copper and another 22% to those specialising in precious metals such as gold and silver.
However, the managers have taken full advantage of the investment trust structure. BRWM uses borrowing to improve returns – at the end of the year, gearing was 12%, although it had been as high as 14.7% at one point. And it invests in unquoted securities, which are 8.4% of the portfolio.
These unlisted assets include Vale debentures (2.7% of the portfolio), which entitles the trust to royalty payments from two mines operated by Brazilian giant Vale. Since these were acquired in 2019, the company has received all of its initial investment back in royalty payments, and the return stream is expected to grow over the coming years.
These alternative assets have provided a base for a healthy dividend. The trust declared total dividends of 23p per share for 2024, backed by 23.1p per share in revenue. Just under 70% of the revenue was generated by dividends from investments, with 10% from royalties, 20% from options trading and 1% from fixed income holdings.
Although the trust cut its dividend by 31% last year due to lower distributions from holding companies, it still yields an impressive 7.2%. The stock also trades at a near double-digit discount to NAV.
BlackRock World Mining is well positioned to capitalise on the sector’s recovery when it arrives. In the meantime, investors can collect a healthy, high single-digit yield backed by a diverse portfolio.
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