Baker Steel Resources Trust — Potential sale of Futura on the horizon

Baker Steel Resources Trust (LSE: BSRT)

Last close As at 08/05/2025

GBP0.55

3.25 (6.25%)

Market capitalisation

GBP59m

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Research: Investment Companies

Baker Steel Resources Trust — Potential sale of Futura on the horizon

Baker Steel Resources Trust (BSRT) has announced that Futura Resources (one of its largest holdings, making up 33.1% of end-April 2025 NAV) obtained a US$15m loan from International Resources Holdings (IRH), a mine-to-market company based in the UAE. The loan proceeds will be used to fund the further production ramp-up of Fairhill (one of Futura’s two coking coal mines in Australia). Separately, BSRT and some other Futura shareholders, representing more than 50.1% of Futura’s fully diluted share capital, signed agreements giving IRH an option to acquire their shares at a price of A$3.15 per Futura share within nine months, which implies Futura’s enterprise value of c A$250m, according to BSRT. Importantly, this equity valuation is c 43% above the carrying value of A$2.21 per share at which BSRT currently holds its Futura shares (which we calculate make up 12.5% of BSRT’s end-April 2025 NAV), offering significant re-rating potential if IRH exercises its option (a c £5m valuation uplift and a 5.3% increase in BSRT’s NAV vs end-April 2025). For now, BSRT has refrained from revaluing Futura pending a binding offer from IRH.

Milosz Papst

Written by

Milosz Papst

Director of Content, Investment Trusts

Investment companies

Metals and mining

9 May 2025

Price 52.00p
Market cap £55m
Shares in issue 106.5m
Code/ISIN BSRT/GG00B6686L20
Primary exchange LSE
AIC sector Commodities & Natural Resources
52-week high/low 59.5p 44.0p

Fund objective

Baker Steel Resources Trust is a closed-end investment company aiming to achieve long-term capital growth through investing in equity, loans and related instruments issued by private natural resources companies. It targets a global, concentrated portfolio of 10–20 investments. Its objective is to create value through driving the development of investee companies, as well as exploiting market inefficiencies and pricing anomalies.

Analyst

Milosz Papst
+44 (0)20 3077 5700

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

A sale of BSRT’s shares in Futura while retaining the 1.5% gross revenue royalty BSRT holds over Futura (which is not covered by the IRH agreement) would offer BSRT’s shareholders several benefits. Firstly, according to BSRT’s current capital returns policy, the trust distributes no less than 15% of net realised cash gains in a given year to shareholders, which at a disposal price of A$3.15 per Futura share would translate (all else being equal) to a distribution of at least £1.8m (or c 3.2% of BSRT’s current market capitalisation), excluding tax. Secondly, the realisation would reduce Futura’s share in BSRT’s NAV to the value of the royalty, which at end-2024 was valued at £16.8m or c 17.6% of NAV. Part of the proceeds not distributed to shareholders could then be used by BSRT to invest in new projects, resulting in much-needed portfolio diversification (currently Futura Resources and Cemos Group, another large holding, make up 64.5% of BSRT’s end-April 2025 NAV). Thirdly, BSRT would still receive a significant income stream from the project. BSRT already started receiving royalty income from the Wilton mine where run-of-mine (ROM) production had successfully ramped up as planned to 80k tonnes per month by Q324. First coal was mined at Fairhill in April 2025, with the first shipment to the wash plant made in May 2025, and the company plans to reach ROM production at Fairhill of 145k tonnes per month by Q325, bringing the combined production from both mines to c 2.1m tonnes in 2025 (with a target of 4.0m pa by 2030). This would represent 0.9m and 1.9m tonnes of saleable product, respectively. Management recently estimated that upon full ramp-up of both coking coal mines, royalty income for BSRT could reach c A$4m (c £1.9m, or 3.4% of its current market capitalisation).

The IRH funding supports the ramp-up of Fairhill and, in turn, the path to maximising BSRT’s royalty income at a time when coking coal prices have fallen on the back of weaker economic growth prospects (especially in China) from US$320 per tonne at end-2023 to c US$200 per tonne at end-2024, and then to lows of c US$170 per tonne amid this year’s macroeconomic and geopolitical turmoil. The current price is c US$187 per tonne, according to Bloomberg, which is slightly lower than consensus prices of US$200–225 per tonne, according to BSRT. To facilitate the IRH funding completion, BSRT recently provided Futura with a A$1.4m bridge loan. Futura’s management believes that the recent coal price weakness is only temporary given the expected medium-term supply constraints and strong demand outlook for seaborne imports, most notably in India.

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