How Technology Will Impact Commodity Investments

BlackRock World Mining Trust manager Evy Hambro reveals how commodities of the future are delivering returns to investors in a post-industrial world

Emma Wall 28 April, 2017 | 10:47AM
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Emma Wall: Hello, and welcome to the Morningstar Series "Why Should I Invest With You?" I am Emma Wall and I am joined today by Evy Hambro, Manager of the BlackRock World Mining Trust (BRWM).

Hello, Evy.

Evy Hambro: Good Morning, Emma.

Wall: So full disclosure, I should say that I have this trust in my SIPP, and therefore I know that there was a bad investment made a few years ago, which did hurt the share price. But I also know I've been rewarded with dividends in the interim, which has helped bringing up that total return, perhaps you could talk a little to that investment, and also, to the dividend policy?

Hambro: Yeah, so a few years ago, we decided to invest in royalties inside the trust. We made two investments. One that was sadly affected by the breakout of Ebola and other factors in Sierra Leone in 2012, which caused the loss of that investment. And we bought another royalty in the trust today, which is doing very, very well. It's actually just been revised upwards in its value, by the independent value which is accepted by the Board in the annual results.

With regards to dividends, yeah, I am pleased to say the trust is being going now for the best part of 23 years and we IPO’d at [a share price of] £1 and we paid 160 pence in dividends over that time period.

So it's been a – although it's been an incredibly cyclical sector, and we're not an income trust in any way, it's amazing the income that can't come back to shareholders and with the share price somewhere close to £4, it's over that time period and £6 of value for a £1 invested.

Wall: The dividend policy is changing from next month as well, isn't it?

Hambro: Yes. So, over the last couple of years, we've moved the trust away from annual dividends to semi-annual dividends. And then this year, we are going to a quarterly dividend which I think brings us into line with the rest of the sector.

Wall: As you said, it's not an income trust and so we should focus on what is in the portfolio. Over the last couple of decades, I imagine the outlook and indeed even what makes up the index of investable universe has changed quite considerably. What are the things that you are seeing now coming through which will be the mining opportunities of the future?

Hambro: Yeah, so the main theme inside the trust today is one around deleveraging. Obviously, the companies went through a very difficult time post the peak of the China related boom a few years ago and with the investment decisions they are making they built up a lot of debt. That debt has been paid down in large part and the companies that haven't done that yet are in the process of deleveraging. So that theme really dominates our portfolio kind of half the positions we have inside the trust, aggressively paying down debt. And the other kind of half I suppose have either done it and are passing money back to us as shareholders. So that theme is a dominant one.

Resource replacement is another one to make sure they have the life to be able to survive the cycles.

And thinking about the future, we've had some significant changes in the trust over time in kinds of different commodity exposure in different companies. But while the ones that are really kind of playing to us in the last couple of years has been our shift away from traditional exposure to automotive companies via the commodities that go into it, say, platinum group metals towards some of the commodities, I think, go into the cars of the future. And lithium has been a big theme for us now for the last kind of three years, and I think it's probably saying that we will continue to grow.

We are very aware that these kind of commodities sometimes go in and out of fashion. So, we are not kind of charging in without any history. So, we are doing it cautiously and choosing the stocks on a very specific basis. But I think it is a really, really interesting theme for the future.

Wall: Again, that is interesting, in part because if you think about sustainability, you think about renewable energy and you think about the future of where we'd like to take this world, you would perhaps think commodities is not part of that. But you are saying, actually, there is a way to get exposure to commodities, which will help bring about that change?

Hambro: Yeah. I mean, I think we are effectively giving capital to companies who will then use that capital to build the new mines, which will supply commodities that we needed for applications, which will probably help the world. We don't have any direct exposure to coal today. We haven't had for quite some time.

We do have exposure to iron ore and copper and so on, aluminum and things, but some of the nicher commodities that are now coming into play, as technology evolves and it is finding new uses for these commodities, the step-change in demand is dramatic. And given that it takes quite a long time for supply to catch up with these big jumps in demand, there are great opportunities for companies to make money in that environment.

Wall: Evy, thank you very much.

Hambro: Thanks Emma.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BlackRock World Mining Trust Ord700.47 GBX-0.64Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar