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Business as usual despite pandemic outbreak

Baker Steel Resources Trust 10 August 2020 Review
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Baker Steel Resources Trust

Business as usual despite pandemic outbreak

Investment trusts
Metals & mining

10 August 2020

Price

65.3p

Market cap

£69.5m

AUM

£81m

NAV*

75.5p

Discount to NAV

13.6%

*Including income. As at 31 July 2020.

Yield

0.0%

Ordinary shares in issue

106.5m

Code

BSRT

Primary exchange

LSE

AIC sector

Commodities and Natural Resources

Benchmark

None

Share price/discount performance

Three-year performance vs index

52-week high/low

65.3p

43.8p

77.2p

67.3p

**Including income.

Gearing

Gross*

0.0%

Net*

0.0%

*As at 31 July 2020.

Analyst

Milosz Papst

+44 (0)20 3077 5700

Baker Steel Resources Trust (BSRT) carried out an additional review of its unlisted holdings as at end-March 2020 to better reflect the impact of the COVID-19 crisis on its portfolio valuation. By the regular interim review at end-June 2020, however, the pandemic-related NAV declines had been fully offset. Consequently, the year to date NAV total return (as at 31 July) sits at 2.2%, which already reflects the subsequent equity markets rebound, which started in April. Moreover, we note that with several NAV triggers expected to materialise in the current year (described in detail below), BSRT seems well-placed to improve its NAV TR in the next few months.

Natural resources performance in H120

Source: Refinitiv, Edison Investment Research

The market opportunity

BSRT offers exposure to a wide commodity spectrum, including precious metals projects (c 40% of NAV at end-July 2020). Gold has so far performed particularly well during the COVID-19 crisis and may benefit from further macro uncertainty, as well as from the expansion of central banks’ balance sheets. BSRT’s focus on value-add project development and investing in projects that offer a solid safety margin in terms of IRR based on long-term historical commodity prices provides a certain level of downside protection for its industrial commodities investments.

Why consider investing in BSRT?

Unique access to the outsized potential returns offered by early-stage mining companies; investment managers’ expertise acts to mitigate associated risks.

Focus on riding development curve, so less reliant on rising commodity prices.

Investment via convertible loans limits downside while retaining equity upside.

Royalty income expected to contribute meaningful returns in the medium term.

Aligned interests – investment team owns c 25% of BSRT’s ordinary shares.

Strong performance relative to peer group.

Discount to NAV in line with peer group

Baker Steel Resources Trust is a research client of Edison Investment Research Limited

In H120, BSRT reported a 4.5% NAV total return (reflecting the last full portfolio revaluation) against a 5.8% increase posted by the EMIX Global Mining Index. While outperforming its peers in recent years, the fund trades at a 13.6% discount to its last reported NAV, which is slightly above the peer group median of 11.6%.

Exhibit 1: Company at a glance

Investment objective and fund background

Recent developments

Baker Steel Resources Trust’s (BSRT) investment objective is to seek capital growth over the long term through a focused global portfolio consisting principally of equities, loans or related instruments of natural resources companies. BSRT invests predominantly in unlisted companies, but also in listed securities, with a view to making attractive investment returns through uplift in value resulting from development progression of investee companies’ projects, and through exploiting value inherent in market inefficiencies and pricing anomalies.

May 2020: Disposal of listed shares in Polymetal International and Ivanhoe Mines.

20 April 2020: Publication of annual report for FY19.

7 April 2020: Results announcement of additional review of non-listed holdings, undertaken due to coronavirus outbreak.

February 2020: Exercise of the A$2m option to acquire a further 0.25% gross revenue royalty over Futura's coking coal properties.

Forthcoming

Capital structure

Fund details

AGM

14 August 2020

Ongoing charges

2.1%

Group

Baker Steel Capital Managers

Interim results

September 2020

Net gearing

0.9%

Manager

Team-managed

Year end

31 December

Annual mgmt fee

1.75% of average market cap

Address

Arnold House, St. Julian’s Avenue,

St. Peter Port, Guernsey, GY1 3NF

Dividend paid

N/A

Performance fee

15% of total NAV increase

Launch date

28 April 2010

Company life

Indefinite (subject to vote)

Phone

+44 (0)1481 707000

Continuation vote

Three-yearly (next 2021 AGM)

Loan facilities

None

Website

www.bakersteelresourcestrust.com

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

Dividends may be paid under BSRT’s capital return policy, and the board expects that royalty, interest and dividend income may support a future regular dividend. No dividends have been paid to date.

BSRT has authority to buy back up to 14.99% and allot up to 10% of its shares in issue. In FY14, FY15 and FY16, investments were acquired via ‘in specie’ share issues. In May 2019, a £4.9m tender offer was made to distribute realised gains.

Shareholder base (as at 6 August 2020)

Portfolio exposure by development stage (as at end-July 2020)

Top 10 holdings (as at 31 July 2020)

Portfolio weight %

Company

Country

Sector

31 July 2020

31 July 2019*

Bilboes Gold

Zimbabwe

Gold

20.7%

14.9%

Futura Resources

Australia

Coking Coal

16.2%

17.5%

Polar Acquisition

Russia

Silver

11.0%

9.3%

Cemos Group

Morocco

Cement, Oil Shale

9.0%

11.0%

Tungsten West

UK

Tungsten

8.2%

N/A

Anglo Saxony Mining

Germany

Iron ore

4.4%

4.0%

Azarga Metals

Russia

Copper, Silver

4.2%

N/A

Nussir

Norway

Copper

4.0%

3.1%

Mines & Metals Trading Peru

Peru

Silver, Lead, Zinc

3.9%

4.5%

Black Pearl

Indonesia

Iron ore

3.3%

3.9%

Top 10 (% of portfolio)

84.9%

68.2%

Source: BSRT, Edison Investment Research. Note: *N/A where not in end-July 2019 top 10.

Performance: Positive NAV TR in H120

Following a successful FY19, when BSRT reported c 30% NAV total return (TR) and outperformed the EMIX Global Mining Index (23% return), the fund looked to carry momentum forward into FY20, on the back of several potential NAV triggers. These included the conclusion of pre-feasibility (PFS) and definitive feasibility studies (DFS), granting mining licences by local authorities or launching production in certain venues, among others. However, early 2020 turned out to be a challenging period for the broad equity market due to the coronavirus outbreak, with BSRT’s performance also affected. We note, however, that the subsequent market rebound, coupled with BSRT’s positive organic developments, outweighed the initial impact of the pandemic.

Under ordinary circumstances, BSRT reviews the valuation of its unlisted investments twice a year, with a full review at the year-end and for interim financial statements. Having said that, this year the company decided to conduct a simplified portfolio revaluation as at end-March 2020, as well as providing the market with updated information on the COVID-19 impact. The procedure was not as comprehensive as the regular review, but based on the same methodology. Considering general market movements in mining equities, as well as company-specific factors and their potential impact on the carrying values of BSRT's unlisted holdings, the review resulted in a c 8.4% decline in NAV vs end February 2020 to 67.3p per share.

Subsequently, however, the regular interim review carried out at end-June 2020 resulted in a 10.3% NAV improvement vs end-May 2020, bringing the NAV per share to 77.2p. Consequently, BSRT’s performance in H120 was 4.5% NAV TR vs 5.8% posted by the EMIX Global Mining Index (not an official benchmark, but we use it as a broad reference for comparison). However, we note that the index (consisting of listed mining stocks) has enjoyed a stronger post-pandemic rebound since April, which has resulted in a c 40% increase over Q220 against just 14.4% recorded by BSRT.

BSRT has already announced its estimated NAV at end-July 2020, amounting to 75.5p per share, which constitutes a c 2.2% m-o-m decline. Given that BSRT conducts a more comprehensive portfolio valuation only twice a year, the monthly change in July was primarily driven by a 6% appreciation of sterling against the US dollar, in which around half of the company’s portfolio (including Bilboes and Polar Acquisition) is denominated. Simultaneously, the EMIX Global Mining Index went up by 6.6% in sterling terms in July. Consequently, one-year and three-year (annualised) NAV total returns at 31 July 2020 sit at 10.5% and 12.5%, respectively, vs 13.0% posted by the index in both periods. Expanding the analysed investment horizon further to five and 10 years reveals BSRT’s relatively weak performance in the early years since inception (28 April 2010), resulting in 13.3% and -2.4% annualised NAV total return, respectively, vs 19.6% and 1.2% demonstrated by the index.

Exhibit 2: Price, NAV and index total return performance, one-year rebased

Exhibit 3: Price, NAV and index total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-year and five-year performance figures annualised.

Source: Refinitiv, Edison Investment Research. Note: Three-year and five-year performance figures annualised.

Exhibit 2: Price, NAV and index total return performance, one-year rebased

Source: Refinitiv, Edison Investment Research. Note: Three-year and five-year performance figures annualised.

Exhibit 3: Price, NAV and index total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: Three-year and five-year performance figures annualised.

The extent of downward revaluation at the end of March 2020, associated in particular with companies operating in the industrial metals and minerals sector, was partially mitigated by the relatively strong performance of gold mining companies, Bilboes and Polymetal. The latter initially recorded a c 19% share price fall between end January 2020 and mid-March 2020, but the subsequent rebound to end-March not only fully offset the earlier decline, but the continued rally also brought the share price to a record-high level in May 2020. This encouraged BSRT to sell almost all of its remaining holdings in Polymetal, bringing exposure to precious metals (including silver) to c 30% of the portfolio at end-May 2020, from c 35% at end-December 2019. The same applies to all listed shares in Ivanhoe Mines, which were also sold during May 2020. BSRT’s exposure to the precious metals sector increased to almost 40% at the end of July, on the back of improved valuations of unlisted holdings in this sector and the deployment of resources into highly liquid, listed precious metal shares, to provide working capital until these funds are reinvested in line with BSRT’s core strategy. As per our estimates, at end-H120 BSRT already held such equities valued at c £4.8m, which constituted c 5.8% of the portfolio. Following a strong rise of listed stocks over July 2020, their total value improved by over 28% to c £6.1m, reaching 7.6% share of the portfolio as at 31 July 2020.

Based on our calculations (including an adjustment for FX rate movements), we have identified five unlisted holdings, whose value has been cut by over 20% during the March review. The carrying value of Polar Acquisition (PAL), which holds a 0.9–1.8% royalty interest in the Prognoz Silver Project in Russia, has been reduced by c 22% in US$ terms. This was presumably attributable to the decline in the price of silver, which fell from US$16.39 per ounce at end February 2020 to just US$14.10 per ounce at end-March 2020, constituting a c 14% decrease. This has likely fed through to projected cash flows used in the royalties valuation model. We note that in FY19, PAL was subject to a c 50% upward revaluation in local currency on the back of revised estimates and production levels for the Prognoz project and an increase in silver prices. We also note, that on the back of the recent rebound in the silver price, which reached US$18.20/oz per ounce at 30 June 2020, an upward revaluation of this investment by c 25% (based on our estimations excluding FX impact) has been done during the interim review in June 2020.

Due to the unfavourable outlook for the global industrial sector, which affects the pricing of comparable listed companies, the valuations of BSRT’s investments from the segment: Cemos (cement producer and oil shale explorer), Anglo Saxony Mining (tin producer), Sarmin (potash) and PRISM (iron ore) have been reduced by 25% to 35% at end-March 2020. However, we note that in the same review, Futura Resources – a coking coal mining company – recorded only a 6.3% decrease in value (taking into account FX moves), with the approaching launch of first production at its mines possibly being a mitigating factor, as it would bring Futura further up the development curve to the production stage (see Exhibit 4). Futura expected to obtain licences for both of its mines, Wilton and Fairhill, in Q220 and start mining operations in H220. The terms remain unchanged for the former, while the licensing process has been postponed to Q320 for the latter.

Importantly, in the interim review, out of five companies listed above, only Cemos and Anglo Saxony Mining saw improved valuations (by c 16% and 35%, respectively). As per our estimates, however, neither of these has seen its valuations reaching pre-pandemic levels yet. In the latter case, the updated valuation reflects the PFS results, which was completed in April 2020.

Mines & Metals Peru’s valuation was revised downwards by 13.5% during the interim review, due to disruptions associated with the COVID-19 lockdown (Peru has been particularly severely hit by the pandemic). This has fully offset the improvement in carrying value reported in March 2020, resulting in a 9% net fair value decline in H120, as per our estimates. At the same time, the company expects to increase its production and start processing ore from its own concessions in Q420, rather than treating ore from third parties, which constitutes the main potential NAV trigger for the year. Once the reverse takeover of Zincore is complete, the company plans to relist on the TSX Venture Exchange (Toronto). This was initially planned for this year, but due to the current market turmoil, the process has been postponed until 2021, when market conditions might be more convenient.

Exhibit 4: Risk-adjusted mining project valuation development curve

Source: Baker Steel Resources Trust. Note: The positioning of BSRT’s projects on the development curve is indicative only.

On the other hand, in the H120 portfolio review, BSRT has finally reflected the positive impact of the DFS on Bilboes’ Isabella-McCays-Bubi gold project in Zimbabwe, completed shortly after the FY19 year-end. We estimate that, as part of the interim review, Bilboes’ valuation in local currency improved by c 31.5%, supported by the appreciation of listed African gold mining peers.

Initially, the Bilboes project was expected to start production at c 100k ounces of gold per annum, and then expand on the back of generated cash flow. However, following completion of the DFS, BSRT now assumes it will operate at full capacity of c 170k annually, which is considered an optimal investment strategy. At a cash all-in sustaining cost of $791 per ounce, the company estimates the total funding requirement for the project at US$253m. At a gold price of $1,500/oz (currently more than $2,000/oz) and 10% discount rate, the project’s NPV is estimated at just over US$236m, generating a c 33% post-tax IRR with the payback period slightly exceeding one year since the start of production. Based on the ‘consensus pricing scenario’ (recently disclosed by the company) which used Bloomberg forward gold pricing (US$1,782/oz) and then available consensus data for 2023 and 2024, the investment economics of the project improve to a NPV of US$294m and IRR of 38%.

BSRT reported a stable fair value of its stake in Nussir, which completed a DFS in March 2020, after a six-month delay resulting from the decision to conduct additional drillings. Consequently, Nussir upgraded additional resources to the measured and indicated categories, significantly enhancing the project’s economics. As a result, the potential project’s NPV sits at US$189.8m, against the initial estimate of $132.6m at 23% IRR, calculated without the upside resulting from additional resources.

Finally, in the June NAV update, BSRT confirmed completion of the technical and economic update of Hemerdon Tungsten Mine (held by Tungsten West), which has not yet resulted in an upward revaluation of the holding, pending a potential fundraising. This could also be partially attributable to the preliminary character of the review, with the DFS planned for Q121. Based on the underlying assumptions of capital cost to restart the mine, amounting to £35m and a discount rate of 5%, the financial model used by BSRT indicates £306m of post-tax NPV and IRR of 111%.

Exhibit 5: BSRT’s NAV triggers schedule

 

 

FY20

Company

NAV Trigger

Q120

Q220

Q320

Q420

Bilboes

Complete feasibility study and finance/corporate event

 

 

 

Futura Resources

Obtain mining licences and launch production

 

Cemos

Re-rating as move to EV/EBITDA valuation basis

Tungsten West

Complete pre-feasibility study

 

Polar Acquisition

Pre-feasibility study on Prognoz Silver Project

 

Mines & Metals Peru

Increase production

 

Nussir

Complete feasibility study and finance mine construction

 

Sarmin

Completion of Feasibility Study

 

Azarga Metals

Resource upgrade following drilling

 

 

 

 

 

 

 

Source: Baker Steel Resources Trust

The remaining NAV triggers, expected to materialise within the next 12 months, include the PFS on the Prognoz Silver Project (royalty held by Polar Acquisition) and a DFS on Sarmin, which should be completed in H220, according to the investment manager. With the completion of construction works in the first plant in Tarfaya in December 2018 and capacity of c 270k tonnes of cement pa, Cemos is already reporting positive cash flow from its operations (and targets a cash flow of €8–10m pa at full capacity utilisation). In June 2020, it reported record sales of c 23k tonnes of cement, representing 92% of installed capacities and supporting the decision to start exploring options to launch a second production line, which would double potential annual output. Futura, as mentioned above, is planning to commence production after receiving mining licences, both expected in H220. For further details regarding potential NAV triggers, please refer to our previous update note.

Market overview: Gold continues to shine

The outbreak of the coronavirus and the impending global recession will remain key factors shaping the natural resources sector in the next few months. Heightened economic uncertainty caused significant distress in the financial markets with a spike in volatility and high-volume selling across asset classes, including natural resources equities. However, the main drivers of the decline differ depending on the resource type exposure.

Gold (19% of BSRT’s exposure at end-May 2020) as well as gold equity prices, reported a significant decline in early March, driven by liquidity-driven selling, which had a short-term impact only. Fundamentals for the gold sector in the medium to long term remain positive, with interest rates reaching new record-low levels (and negative in real terms), stimulus packages being implemented globally and other inflationary policy initiatives supporting sector recovery. The ‘safe haven’ status helped gold not only to rebound from initial losses within couple of weeks, but also fuelled a further rally, which brought the price above US$2,000 per ounce.

Gold equities are well positioned to benefit from the current favourable precious metals market, following several years of restructuring and a focus on disciplined returns, which results in improved dividend payments and increased share buyback activity. As a general example but not necessarily applicable to smaller mining players, Barrick Gold has already paid two dividends amounting to US$0.07 per share this year, while in 2019 there were three payments totalling just US$0.13 per share. Similarly, Newmont announced in April 2020 that it has increased its quarterly dividend payment by 79% to US$0.25 per share.

Passive gold equity investments, represented by the EMIX Global Mining Gold Index, recorded a c 33% return against a 3% loss year-to-date on the S&P 500 and a 5% loss on DAX. Active gold equity investments, represented by the ES Gold & Precious Metals Fund (managed by Baker Steel), reported an even better return of c 39% in the same period (see Exhibit 6).

Exhibit 6: Year-to-date performance of precious metals equities against the broader market

Source: Refinitiv, Edison Investment Research

The main risk to further positive gold equity price development is an unexpectedly rapid global economic recovery, which may encourage investors currently long on gold to switch to other asset classes. According to a recent report from the World Gold Council, the combination of higher government bond yields and tightening credit spreads represents the most adverse mid- to long-term scenario for gold prices. However, we believe this seems unlikely for now. Otherwise, high risk and economic uncertainty, together with lower opportunity cost for holding gold, may support further demand.

As we demonstrated in our recent Edison Gold Report, since 1967, the price of gold has shown an extremely strong (0.909) correlation with the aggregate US monetary base, which basically means that the more dollars either are, or could be, in circulation, the higher the expected gold price. With an additional US$700bn from the coronavirus stimulus response taking the total US monetary base to a record US$4.2tn, the gold price, implied by our model, has rocketed – initially to US$1,619/oz, with an upper level way in excess of US$2,000/oz. Furthermore, for every US$100bn by which the total US monetary base exceeds US$4.2tn on the back of unlimited bond buying activity, the gold price may be expected to be US$33/oz higher than US$1,619/oz. With a US monetary base of US$5.1tn (as per Federal Reserve data at 13 May 2020), the gold price could reach US$1,892/oz, with the potential to rise to as much as US$3,067/oz, according to our estimates.

Exhibit 7: Gold price against US real interest rates over last 20 years

Source: Refinitiv, Edison Investment Research

The outlook for industrial resources appears less favourable, as this particularly procyclical sector is most affected by the economic slowdown and consequent limited output. As an example, 64 countries reporting to the World Steel Association (WSA) produced 137.1m tonnes in April 2020, which constitutes a c 13.0% decrease compared to April 2019. According to WSA’s forecasts from early June 2020, global steel demand is expected to contract by 6.4% in 2020, with impeding recovery in China partially mitigating the initial decline. On the other hand, we note that the consumption and service-related sectors, which suffered the most severe short-term impact of the pandemic, are generally low steel-intensive businesses. The key to quick recovery by the steel industry (which would be supportive for the coking coal and iron ore sectors) is in the construction sector, including public infrastructure investments, as well as the automotive industry, which has so far reported significant y-o-y declines in sales in April and May 2020 reaching c 50% in the largest European countries. According to WSA, the steel industry should rebound in 2021, but the expected 3.8% improvement against current year output will not be enough to reach pre-pandemic production levels.

Interestingly, COVID-19 may also have a positive long-term impact, as it would fuel the transition to green energy. Rebounding industries may turn to new technologies, including wind turbines, solar panels, grid storage, electric vehicles and lower-carbon steels, resulting in increased demand for speciality metals such as platinum group metals, nickel, etc. Turning towards new resources that are still scarce or underexplored opens numerous investment opportunities in the sector. Baker Steel shares this view, as it expects large and sustained speciality metals deficits in the near term. Policy measures taken to prevent the spread of the pandemic resulted in logistical constraints and temporary mine closures, which is particularly important for the supply of metals with highly concentrated production. Almost 75% of the world’s primary platinum production, 37% of palladium and 80% of rhodium originates in the Republic of South Africa (RSA), which until mid-June 2020 reported c 30% of all cases in Africa. However, we note that the problem is global, as besides the RSA, mines had been closed in Mexico, which produces 23% of world’s primary silver, the Philippines – 16% of primary nickel, and Peru – 11% of zinc, among others. Even though the mine reopening process has already started, a limited supply together with expanding demand may drive a further increase in speciality metals prices, which were the best performers in 2019, with palladium’s price increasing by c 54% over the year and nickel’s price by c 31%. This in turn could drive up equity prices.

Diversified portfolio skewed towards precious metals

Even though BSRT’s portfolio is rather concentrated, as it typically consists of 15–20 investments, it is also well diversified both geographically and by commodity, covering the precious, speciality and industrial metals segments. Consequently, it is a play on multiple trends in the commodities space. At the same time, we note its significant exposure to gold and silver projects (c 40% of the portfolio through a mix of equity, convertible loans and royalty interests), which seem to have the most favourable outlook in the natural resources space. According to the company, following four significant investments in FY19, BSRT intends to focus on its existing projects in FY20 and refrain from new investments until the completion of the next meaningful realisation.

Exhibit 8: Portfolio breakdown by commodity

Exhibit 9: Portfolio breakdown by geography

Source: Baker Steel Resources Trust, Edison Investment Research. Note: Data as at end-July 2020.

Source: Baker Steel Resources Trust, Edison Investment Research. Note: Data as at end-July 2020.

Exhibit 8: Portfolio breakdown by commodity

Source: Baker Steel Resources Trust, Edison Investment Research. Note: Data as at end-July 2020.

Exhibit 9: Portfolio breakdown by geography

Source: Baker Steel Resources Trust, Edison Investment Research. Note: Data as at end-July 2020.

Peer group comparison

For valuation purposes, we compare BSRT with a group of peers including investment companies focused on commodities and natural resources. The entities differ in terms of market cap, natural resources subsector covered, preferred form of investment and development stage of holding companies. Both BlackRock trusts, for example, prefer investment in the listed shares of mature companies, while Polo Resources and Riverstone Energy focus on entities in the early stages of development and engagement through different instruments, including unlisted equities, debt and partnerships. However, we note that the last reported NAV for Polo Resources and Riverstone Energy is dated at 20 March 2020 and 31 March, respectively, and may not yet fully reflect the impact of the coronavirus pandemic.

Exhibit 10: Selected peer group as at 6 August 2020

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

Discount (cum-fair)

Ongoing charge

Performance
fee

Net gearing

Dividend yield

Baker Steel Resources Trust

69.5

10.4

42.5

86.9

(13.6)

2.1

Yes

98

0.0

BlackRock Energy & Resources Trust

73.1

(12.6)

6.9

39.8

(11.6)

1.5

No

103

6.2

BlackRock World Mining Trust

734.3

8.0

28.0

124.3

(10.2)

1.0

No

108

5.2

CQS Natural Resources G&I

61.9

(4.0)

(8.9)

32.4

(18.9)

1.9

No

115

6.0

Geiger Counter

16.8

0.6

(28.5)

(2.3)

3.5

4.1

Yes

111

0.0

Golden Prospect Precious Metal

39.9

91.9

76.4

203.7

(5.6)

2.8

No

100

0.0

Polo Resources

6.3

(47.7)

(32.0)

(55.1)

(79.5)

4.1

No

70

0.0

Riverstone Energy

185.8

(58.8)

(71.6)

(58.7)

(37.4)

1.9

Yes

100

0.0

Average

159.7

(3.2)

(4.3)

40.6

(22.8)*

2.5

101

5.8

Rank in peer group

4

2

2

3

5

6

7

4

Source: Morningstar, Edison Investment Research. Note: TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared). Note: *The average is distorted by Polo Resources and Riverstone Energy, which have not yet released their updated NAV reflecting the COVID-19 impact. Peer median discount stands at 11.6%.

BSRT has outperformed almost all its peers in every analysed time horizon up to five years, including one-, three- and five-year NAV total returns. The sole exception is the Gold Prospect Precious Metal fund, which is focused on equity investments in the gold, silver and diamonds sectors, and has benefited the most from the aforementioned favourable price developments in the precious metals segment (BlackRock World Mining Trust reported higher returns in the five-year period only). BSRT’s discount to last reported NAV currently stands at c 13.6%, which is slightly above the peer group median of 11.6% (peer group average of 22.8% is distorted by two funds, which have not yet released their updated NAV reflecting the COVID-19 impact), ranking it fifth in the group. Its ongoing charge ratio sits below the peer average, but it is worth noting that BSRT also charges a performance fee (while only two other peers do). Total ongoing charges reported in FY19 amounted to £1.5m, against c £1.3m cash held at end-July 2020, per our estimates. It is worth noting that BSRT’s liquidity position has improved on the back of the recent selling down of holdings in Polymetal and Ivanhoe Mines. Furthermore, BSRT does not employ gearing and does not pay a dividend, which secures its own capital even further.

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This report has been commissioned by Baker Steel Resources Trust and prepared and issued by Edison, in consideration of a fee payable by Baker Steel Resources Trust. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Baker Steel Resources Trust and prepared and issued by Edison, in consideration of a fee payable by Baker Steel Resources Trust. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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