BLACKROCK WORLD MINING TRUST PLC ANNUAL REPORT AND FINANCIAL STATEMENTS

Transcription

1 BLACKROCK WORLD MINING TRUST PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014

2 BlackRock World Mining Trust plc Investment objective and policy The Company s investment policy is to provide a diversified investment in mining and metal assets worldwide, actively managed with the objective of maximising total returns. While the policy is to invest principally in quoted securities, the Company s investment policy includes investing in royalties derived from the production of metals and minerals, as well as physical metals. Up to 10% of gross assets may be held in physical metals and up to 20% may be invested in unquoted investments. A MEMBER OF THE ASSOCIATION OF INVESTMENT COMPANIES Further details about the Company are available on the website at blackrock.co.uk/brwm ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014 [1]

3 Contents Overview Performance record 3 Chairman s statement 4 Historical record 6 Performance Strategic report 7 Investment manager s report 10 Ten largest investments 15 Investments 17 Portfolio analysis 19 Governance Governance structure and directors biographies 20 Directors report 21 Directors remuneration report 26 Corporate governance statement 29 Report of the audit & management engagement committee 33 Statement of directors responsibilities in respect of the annual report and financial statements 36 Regulatory disclosures AIFMD disclosures 37 Information to be disclosed in accordance with Listing Rule Financial statements Independent auditor s report 39 Consolidated statement of comprehensive income 42 Statements of changes in equity 43 Statements of financial position 44 Cash flow statements 45 Notes to the financial statements 46 Additional information Shareholder information 69 Analysis of ordinary shareholders 72 Base costs 73 Management & other service providers 74 Annual General Meeting Notice of Annual General Meeting 75 Glossary 79 Share fraud warning 80 [2] BLACKROCK WORLD MINING TRUST PLC

4 Overview Performance record FINANCIAL HIGHLIGHTS Attributable to ordinary shareholders 31 December December 2013 Change % Assets Net assets () 624, , Net asset value per ordinary share p p with income reinvested Ordinary share price (mid-market) p p with income reinvested Euromoney Global Mining Index Discount to net asset value 11.9% 6.9% For the year ended 31 December 2014 For the year ended 31 December 2013 Change % Revenue Net revenue return after taxation () 37,452 39, Revenue return per ordinary share 21.13p 22.36p -5.5 Dividend per ordinary share Interim 7.00 p 7.00 p Final 14.00p 14.00p Total dividends paid and payable 21.00p 21.00p PERFORMANCE OVER THE TEN YEARS ENDED 31 DECEMBER Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Sources: BlackRock and Datastream. Performance figures are calculated in sterling terms, rebased to 100. NAV per share (income reinvested) Euromoney Global Mining Index (income reinvested) Share price performance (income reinvested) ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014 [3]

5 Overview Chairman s statement OVERVIEW 2014 was a challenging year for the Company. Against a backdrop of slowing global growth, the Board had taken the decision in the previous year to allocate up to 20% of assets in unquoted investments including mining royalties, equities and bonds. The strategic rationale for investing in royalties was, and remains, attractive in that it allows the Company to participate in long term production revenues by providing financing at a time of global banking constraint. However, the Company s exposure to the London Mining Marampa royalty contract was impacted by two unforeseen factors: the rapid and substantial decline in iron ore pricing following a collapse in Chinese demand and the spread of Ebola in West Africa. Our subsequent decision to write down the value of our investment in London Mining was taken only after careful consideration with our advisers. The Board is fully aware of the resultant effect on shareholders and, on behalf of my fellow Directors, I should like to offer our most sincere regret. Our responsibility to your Company is one we take most seriously. Accordingly, we are working closely with BlackRock to ensure that the Company continues to employ, and refine on an ongoing basis, robust diligence and supervisory processes designed to minimise the risk of such issues arising in the future, so far as it is within the power of the Board and the Investment Manager to do so. In this way, we hope to continue to capture the very significant opportunities that we believe exist in this sector with appropriate diversification of risk. Although the commodity markets remain volatile, since the year end we have been encouraged by the cautious approach taken by a number of reporting companies. Capital expenditures have been reined in to sustain dividends and the Company remains well positioned to take advantage of an eventual recovery in sentiment through a broad exposure to world class producers. PERFORMANCE Over the twelve months to 31 December 2014 performance was very disappointing, with the Company s net asset value (NAV) per share declining by 26.4% and the Company s share price declining by 30.4%. The Company s benchmark index, the Euromoney Global Mining Index, declined by 13.0% in the same period (all percentages calculated in sterling terms with income reinvested). Since the year end and up until the close of business on 17 March 2015, the Company s NAV has declined by 2.5% compared with a decline of 1.9% in the benchmark index. REVENUE RETURN AND DIVIDEND The Company s revenue return per share for the year to 31 December 2014 amounted to 21.13p compared with 22.36p for the previous year, representing a decrease of 5.5%. The Board recommends the payment of a final dividend of 14.00p per share for the year ended 31 December 2014 (2013: 14.00p) which, together with the interim dividend of 7.00p per share (2013: 7.00p), makes a total dividend of 21.00p per share (2013: 21.00p). The final dividend is payable on 8 May 2015 to shareholders on the Company s register on 27 March 2015 (ex dividend date is 26 March 2015). ROYALTIES AND UNQUOTED INVESTMENTS During the year, the Company s performance was negatively impacted by the write down to zero of the holding in both the London Mining Marampa royalty contract and convertible bond. In addition, the Board decided to hold the gold-linked preference shares in Banro Corporation at a 30% discount to the implied gold price and the corporate bond at a 25% discount to the last traded price, following the latter s financing delay which increased the likelihood of the company requiring alternative sources of funding. At the end of February 2015, following details of Banro s additional financing, the Board concluded that it was appropriate to reduce the discount on the gold-linked preference shares to 15% and the discount on the corporate bond to 10%. The discount at the year end is considered appropriate as the new financing details influencing the reduction of the discount in February were not in existence at 31 December Further information on these investments can be found in the Investment Manager s Report. Going forward, the Board has refined the guidelines associated with the Company s royalty strategy. In August 2013, shareholders voted to allow up to 20% of the Company s gross assets to be invested in unquoted investments including royalties (previously 10%). It is proposed to maintain the 20% maximum exposure to royalties but the royalty/unquoted portfolio should itself deliver diversification across operator, country and commodity. To this end, new investments into individual royalties/unquoted investments should not exceed circa 3% of gross assets at the time of investment. Total exposure to any single operator, including other issued securities such as debt and/or equity, where greater than 30% of that operator s revenues come from the mine over which the royalty lies, must also not be greater than 3% at the time of investment. In addition, the guidelines require that the Investment Manager must manage total exposure to a single operator, via reducing exposure to that operator s listed securities if they are also held in the portfolio, in a timely manner where royalties/unquoted investments are revalued upwards. In the jurisdictions where statutory royalties are possible (in countries where mineral rights are privately owned) these will be preferred and in respect of contractual royalties (a contractual obligation entered into by the operator and typically unsecured) the valuation must take into account the higher credit risk involved. Board approval will continue to be required for all royalty/unquoted investments. DISCOUNT The discount to net assets averaged 5.0% over the past year, ranging from a discount of 13.5% to a premium of 3.9% and ended the year at a discount of 11.9% (all measured on a cum income basis). The Company s discount has since widened to 13.3% as at the close of business on 17 March The Board recognises the importance to shareholders that the Company s shares should not trade at a significant discount to [4] BLACKROCK WORLD MINING TRUST PLC

6 the underlying net asset value. In recent years, the Board has placed much greater emphasis on seeking to close the discount through generating additional demand for the shares by increasing dividend distributions and illustrating the sustainability of these distributions through diversification of income. Recent events, along with mining sector weakness, have clearly impacted this strategy; however dividends remain key to discount management although not at the expense of potential capital growth. The Board regularly reviews the use of the Company s share buy back powers. The existing authority to buy back up to 14.99% of the Company s issued share capital will expire at the conclusion of the 2015 Annual General Meeting and a resolution will be put to shareholders to renew the authority at that meeting. THE BOARD I am pleased to report that Judith Mosely joined the Board on 19 August 2014 and is also a member of the Audit & Management Engagement Committee. Judith is Business Development Director for Rand Merchant Bank in London with responsibility for developing the bank s African business with international mining and metals companies. She also sits on the advisory board of Women in Mining and brings a wealth of mining and commercial experience. PORTFOLIO MANAGERS With effect from 30 April 2015, the Company s investments will be co-managed by Evy Hambro and Olivia Markham. The present co-manager, Catherine Raw, has informed the Board she is to take up a corporate position within the mining sector and will be leaving BlackRock on 30 April. The Board would like to express its thanks to Catherine for her contribution on behalf of the Company since Olivia Markham joined BlackRock s Natural Resources team in She has 11 years of industry experience, having formerly been the head of European mining research at UBS, a mining analyst at Merrill Lynch in Sydney and a member of the Mergers & Acquisitions team at BHP Billiton in Melbourne. INVESTMENT MANAGEMENT FEE Following a review of the investment management fee, the Board has agreed with the Manager that the investment management fee (including administration and company secretarial services) will be amended as follows: With effect from 1 July 2015 the annual fee, chargeable on the gross assets under management, will be reduced from a flat fee of 130bps to: 120bps on the first 500 million of gross assets 100bps on the next 500 million 85bps on gross assets above 1 billion However, between 1 April 2015 and 30 June 2015, the annual fee, chargeable on the gross assets under management, will be further reduced to: The Board intends to keep fee rates under review. In determining the appropriate rate, particular note will continue to be taken of the Manager s performance relative to the benchmark and the views of shareholders, as well as more general trends in the marketplace. JULIAN BARING SCHOLARSHIP FUND The Julian Baring Scholarship Fund was created in the name of well-known fund manager, Julian Baring, in celebration of his two great passions mining and Africa. The advisers to the Fund, with the support of the industry, endow annual scholarships for talented, but financially disadvantaged, African students to continue their studies and to pursue a career in the mining industry. The Fund has awarded scholarships to over forty individuals in mining related faculties at South African universities with which it is associated and has also set up joint ventures with several African-based mining companies which award scholarships to deserving individuals from those companies. During the year, the Company made a donation of 12,000 to the Julian Baring Scholarship Fund. It is hoped that with further support both in terms of funding and corporate partnerships, the Julian Baring Scholarship Fund will be able to make an even greater contribution to the skills and resources available to the mining industry. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 29 April 2015 at a.m. Details of the business of the meeting are set out in the Notice of Meeting on pages 75 to 78 of the Annual Report and Financial Statements. The Portfolio Managers will make a presentation to shareholders on the Company s performance and the outlook for the year ahead. OUTLOOK Growing concerns over a slowdown in the Eurozone and emerging economies, a strong US dollar and a well-supplied oil market have contributed to a weakening of many commodity prices since the summer of This does not paint a particularly optimistic outlook for 2015, especially as commodity markets are likely to remain volatile, with continued concerns over emerging market growth, inflated inventory levels and a buoyant US dollar creating headwinds. It is hoped that the second half of the year may see an improvement, as capital expenditure reductions made in prior years take effect on the rate of supply growth and concerns over commodity demand growth abate. With mining company management continuing to deliver operationally and with a focus on capital discipline and improved returns to shareholders, absent a further deterioration in the global macroeconomic environment, these factors should be supportive of valuations. 110bps on the first 500 million of gross assets 70bps on the next 500 million 40bps on gross assets above 1 billion A W LEA Chairman 19 March 2015 ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014 [5]

7 Overview Historical record Net Assets attributable to Ordinary Shareholders Undiluted Net Asset Value per Ordinary Share Diluted Net Asset Value per Ordinary Share Gearing Ordinary Share Price Revenue available for Ordinary Shareholders Revenue Earnings per Ordinary Share Dividends per Ordinary Share Year ended 31 December p p % p p p , , , , , , , , , , , , , , , , , , , , * 398, , , , , , ,268, , , , ,176, , ,708, , ,317, , ,215, , , , , , * Prior to 2004, financial information has been prepared under UK GAAP. From 2004 all information is prepared under IFRS as set out in note 2 on pages 46 to 49. [6] BLACKROCK WORLD MINING TRUST PLC

8 Performance Strategic report The Directors present the Strategic Report of the Company for the year ended 31 December PRINCIPAL ACTIVITY The Company carries on business as an investment trust. Its principal activity is portfolio investment and that of its subsidiary, BlackRock World Mining Investment Company Limited (the Group), is investment dealing. OBJECTIVE The Company s objective is to maximise total returns to shareholders through a worldwide portfolio of mining and metal securities. The Board recognises the importance of dividends to shareholders in achieving that objective, in addition to capital returns. STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY In order to achieve its objective, it is intended that the Group will normally be fully invested, which means at least 90% of the gross assets of the Company and its subsidiary will be invested in stocks, shares, royalties and physical metals. However, if such investments are deemed to be overvalued, or if the Investment Manager finds it difficult to identify attractively priced opportunities for investment, then up to 25% of the portfolio may be held in cash or cash equivalents. The Company s investment policy is to provide a diversified investment in mining and metal securities worldwide. While the policy is to invest principally in quoted securities, the Company s investment policy includes investing in unquoted investments. Risk is spread by investing in a number of holdings, many of which themselves are diversified companies. The Group may occasionally utilise derivative instruments such as options, futures and contracts for difference, if it is deemed that these will, at a particular time or for a particular period, enhance the performance of the Group in the pursuit of its objective. The Company is permitted to enter into stock lending arrangements. As agreed at a General Meeting on 21 August 2013, the Group may invest in any single holding of quoted or unquoted investments that would represent up to 20% of gross assets at the time of acquisition. Although investments are principally in companies listed on recognised stock exchanges, the Company may invest up to 20% of the Group s gross assets in investments other than quoted securities. Such investments include unquoted equities or bonds, royalties, physical metals and derivatives. In order to afford the Company the flexibility of obtaining exposure to metal and mining related royalties, it is possible that, in order to diversify risk, all or part of such exposure may be obtained directly or indirectly through a holding company, a fund or another investment or special purpose vehicle, which may be quoted or unquoted. The Board will seek the prior approval of shareholders to any unquoted investment in a single company, fund or special purpose vehicle or any single royalty which represents more than 10% of the Group s assets at the time of acquisition. As noted in the Chairman s Statement, the Board has now asked the Investment Manager to operate within tighter limits than those previously agreed in respect of unquoted investments, including royalties. It is proposed to maintain the 20% maximum exposure but there will be sizing for individual royalties/unquoted investments, diversification of the royalty portfolio and management of exposure to a single operator. Further details of the refinements are detailed on page 4. As at 31 December 2014, five investments were held at Directors valuation (including one unquoted investment in the Banro gold-linked preference shares). Unquoted investments can prove to be more risky than listed investments. The investment in the Banro gold-linked preference shares, Banro Corporate 10% note, Ivanhoe Mines, Romarco Minerals and Mountain Province Diamond are held at Directors valuation. In addition, while the Company may hold shares in other listed investment companies (including investment trusts) the Company will not invest more than 15% of the Group s gross assets in other UK listed investment companies. The Group s financial statements are maintained in sterling. Although many investments are denominated and quoted in currencies other than sterling, the Board does not intend to employ a hedging strategy against fluctuations in exchange rates. The Investment Manager believes that tactical use of gearing can add value from time to time. This gearing is typically in the form of an overdraft or short term loan facility, which can be repaid at any time or matched by cash. The level and benefit of gearing is discussed and agreed with the Board regularly. The Company may borrow up to 25% of the Group s net assets. The maximum level of gearing used during the year was 14.8% and, at the financial reporting date, net gearing (calculated as borrowings less cash as a percentage of net assets) stood at 11.7% of shareholders funds (2013: 9.6%). For further details on borrowings refer to note 14 on page 55. No material change will be made to the investment policy without shareholder approval. PORTFOLIO ANALYSIS Information regarding the Company s investment exposures is contained within the ten largest investments on pages 15 and 16, the investments listing on pages 17 and 18, and portfolio analysis on page 19. Further information regarding investment risk and activity throughout the year can be found in the Investment Manager s Report. ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014 [7]

9 Performance Strategic report continued CONTINUATION OF THE COMPANY As agreed by shareholders in 1998, an ordinary resolution for the continuation of the Company is proposed at each Annual General Meeting. The Directors recommend that shareholders vote in support of the Company s continuation. PERFORMANCE In the year to 31 December 2014, the Company s net asset value per share declined by 26.4% compared with a decline in the Euromoney Global Mining Index of 13.0%. The Company s share price declined by 30.4% over the same period. (All figures calculated in sterling terms with income reinvested.) RESULTS AND DIVIDENDS The results for the Company are set out in the Consolidated Statement of Comprehensive Income on page 42. The total loss for the year, after taxation, was 223,442,000 (2013: loss of 293,167,000) of which 37,452,000 (2013: 39,633,000) is revenue profit. It is the Board s intention to distribute the maximum dividend possible in terms of earnings each year. The Directors recommend the payment of a final dividend as set out in the Chairman s Statement on page 4. Dividend payments for the year ended 31 December 2014 (including the interim dividend) amount to 37,230,000 (2013: 37,230,000). PRINCIPAL RISKS The key risks faced by the Company are set out below. The Board regularly reviews and agrees policies for managing each risk, as summarised below: Performance risk The Board is responsible for deciding the investment strategy to fulfil the Company s objectives and for monitoring the performance of the Investment Manager and implementation of the strategy. An inappropriate strategy may lead to underperformance against the benchmark index. To manage this risk the Investment Manager provides an explanation of significant stock selection decisions and the rationale for the composition of the investment portfolio. The Board monitors and mandates an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the Company s investment policy. The Board also receives and reviews regular reports showing an analysis of the Company s performance against the Euromoney Global Mining Index and other similar indices, including the performance of major companies in the sector. Past performance is not necessarily a guide to future performance and the value of an investment in the Company and the income from it can fluctuate as the value of the underlying investments fluctuate. KEY PERFORMANCE INDICATORS The Directors consider a number of performance measures to assess the Company s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to those reported by other investment trusts are as follows Net asset value per share p p Share price p p Discount to net asset value 11.9% 6.9% Revenue earnings per share 21.13p 22.36p Ongoing charges 1 1.4% 1.4% 1. Ongoing charges represent the management fee and all other operating expenses, excluding finance costs and taxation, as a % of average shareholders funds. The Board monitors the above KPIs on a regular basis. Additionally, it regularly reviews a number of indices and ratios to understand the impact on the Company s relative performance of the various components such as asset allocation and stock selection. DISCOUNT Details of the Company s share price discount to NAV are given in the Chairman s Statement on pages 4 and 5. Income/dividend risk The amount of dividends and future dividend growth will depend on the Company s underlying portfolio and investment activity. Any change in the tax treatment of the income received by the Company (including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests) may reduce the level of dividends received by shareholders. The Board monitors this risk through the receipt of income forecasts and considers the level of income at each meeting. Market risk Market risk arises from volatility in the prices of the Company s investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements. Changes in general economic and market conditions, such as interest rates, rates of inflation, industry conditions, tax laws, political events and trends can also substantially and adversely affect the securities and, as a consequence, the Company s prospects and share price. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager. [8] BLACKROCK WORLD MINING TRUST PLC

10 Financial risk The Company s investment activities expose it to a variety of financial risks which include market risk, currency risk, interest rate risk, market price risk, liquidity risk and credit risk. Further details are disclosed in note 18 on pages 57 to 68, together with a summary of the policies for managing these risks. Regulatory risk The Company operates as an investment trust in accordance with the requirements of Chapter 4 of Part 24 of the Corporation Tax Act As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the results are reported to the Board at each meeting. Following authorisation under the Alternative Investment Fund Managers Directive (AIFMD), the Company and its appointed Alternative Investment Fund Manager (AIFM or Manager) are subject to the risks that the requirements of the Directive are not correctly complied with. The Board and the Manager also monitor changes in government policy and legislation which may have an impact on the Company. Operational risk In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Manager, BNY Mellon Trust & Depositary (UK) Limited (the Depositary) and the Bank of New York Mellon (International) Limited (the administrator), who maintain the Company s accounting records. The security of the Company s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These have been regularly tested and monitored which is evidenced through their Service Organisation Control (SOC 1) Reports which are reported on by their service auditors and give assurance regarding the design and effective operation of controls. The Board also considers business continuity arrangements for the Company s key service providers. Resource risk The quality of the investment management team employed by the Investment Manager is a crucial factor in delivering good performance and the loss by the management of key staff could affect investment returns. The Investment Manager has training and development programmes in place for its employees and its recruitment and remuneration packages are developed in order to retain key staff. Gearing risk The Company has the power to borrow money (gearing) and does so when the Investment Manager is confident that market conditions and opportunities exist to enhance investment returns. However, if the investments fall in value, any borrowings will magnify the extent of this loss. All borrowings require the approval of the Board and gearing levels are reviewed regularly by the Board and Investment Manager. FUTURE PROSPECTS The Board s main focus is to maximise total returns over the longer term. The future performance of the Company is much dependent upon the success of the investment strategy and, to a large degree, on the performance of financial markets. The outlook for the Company in the next twelve months is discussed in both the Chairman s Statement on page 5 and the Investment Manager s Report on page 14. SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES As an investment trust with no employees, the Company has no direct social or community responsibilities or impact on the environment. However, the Company believes that it is in shareholders interests to consider environmental, social and governance factors, and human rights issues, when selecting and retaining investments. Details of the Company s policy on socially responsible investment are set out on pages 31 and 32. DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES The Directors of the Company on 31 December 2014 are set out in the governance structure and Directors biographies on page 20. The Board consists of six male Directors and one female Director. The Company does not have any employees. The information set out on pages 10 to 19, including the Investment Manager s Report, forms part of this Strategic Report. The Strategic Report was approved by the Board at its meeting on 19 March BY ORDER OF THE BOARD BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED Company Secretary 19 March 2015 ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014 [9]

11 Performance Investment manager s report PORTFOLIO PERFORMANCE 2014 was a further year of negative returns for mining shares. The sector has now underperformed broader markets for four consecutive years, the first time this has happened since the Company was formed. Despite positive steps taken by mining companies to reduce costs and curtail excessive capital investment, share prices fell on the back of underlying commodity price falls, especially in the second half of the year. The year was a reversal of 2013 which saw share prices perform well in the second half after a poor start. This year all of the gains made in the first half were more than offset by falls in the second half. For the calendar year 2014, the Company s net asset value (NAV) and share price fell by 26.4% and 30.4% respectively, in sterling terms with income reinvested. In capital only terms, the NAV fell by 29.4% and the share price by 33.3%. By comparison, in sterling terms, the Euromoney Global Mining Index fell by 15.6% (capital only) and 13.0% (with income reinvested). The underperformance was almost entirely driven by the Company s exposure to iron ore and, in particular, the extremely disappointing failure of the royalty investment in the Marampa iron ore mine. There is further detail on this investment in the unquoted section of this report. MINING SECTOR OVERVIEW After the changes put in place in 2013, the mining sector started the year with strong momentum behind it. The capital discipline plans initiated by the new management teams bolstered hopes for further gains in the sector after the recovery in share prices in the second half of Company results for 2013 were mostly ahead of expectations and the prospect of increased returns boosted share prices early on in the year. From the low in July 2013 to the high in July 2014 the sector was up 20.4% (in sterling terms) and, as noted, this was driven by the belief that the self-help strategies put in place by mining companies would realise value for shareholders. However, as the summer ended, commodity prices started to fall and it was not long before falling prices for iron ore, nickel and copper started to put pressure on companies to defer the capital management plans announced at the start of the year. Nowhere was this impact felt more severely than when BHP Billiton failed to meet shareholder expectations for a share buyback in August. In the final quarter of the year, as the US ended its Quantitative Easing programme, the negative momentum intensified. The price of oil collapsed so severely that it spilt over into the base metal suite taking prices of most metals down with it. The scale and rapidity of the fall in oil took the market by surprise and, when OPEC decided not to intervene, the fall accelerated to levels not seen since EUROMONEY GLOBAL MINING INDEX (TR) Jun 13 Dec 13 Jun 14 Source: Datastream, in sterling terms, rebased to 100. Dec14 Commodity demand held up better than the price falls implied. The US economy continued to beat growth expectations and, with the bears on China yet again disappointed not to see a collapse in domestic activity, demand for metals remained reasonably buoyant (although at annual growth levels well below the peaks seen in the prior decade). Although Europe started the year showing early signs of economic recovery, these had faltered by the second half leaving European metals demand generally weak for the year as a whole. The problem for metal prices was not so much on the demand side but from the growth in supply. Despite capital investment now falling, commodities markets have been saddled with the weight of new supply finally arriving from capacity that has been under construction for the last five years. The wave of additional material overwhelmed prices during the year and caused them to reset to lower levels, impacting long-established cost curves. With input costs also falling, such as the oil price and weaker producer currencies, investors started to reassess where the new cost curves for metals and minerals production would be. This resulted in further downward pressure on metal prices especially during the last quarter. In such an environment it is no surprise that M&A activity was subdued during the year. Most companies prioritised the repayment of debt and dividends rather than venturing above the parapet to look at M&A. However, a number of asset sales were concluded and this saw mid-size producers able to grow their production base as majors sold non-core assets. The exception to this was the sale of the Las Bambas mine by Glencore to China MinMetals for US$7 billion. This transaction had been expected by the market and, with the benefit of hindsight, it looks like a positive deal for Glencore. Another strategy back in fashion is for larger companies to spinout non-core assets to their existing shareholders on a pro rata basis. This was first mentioned by BHP Billiton with the creation of South 32 which will hold their aluminium, manganese and sub scale base metal assets. The company expects to conclude this during the first half of Vale is also considering a similar process for their entire base metals division which should see it listed separately during the third quarter of [10] BLACKROCK WORLD MINING TRUST PLC

12 Gold shares performed better in 2014, in contrast to 2013 when they were adversely impacted by a fall in the gold price. The gold price was range bound during the year as central bank buying and jewellery demand acted to provide a floor, outweighing the much lower rate of gold ETF liquidation. As a result, gold company share prices were driven more by their own fundamentals and this led to huge dispersion in performance within the sector. The larger ex-growth companies with weak balance sheets performed poorly, whilst the mid-size companies with fully financed growth outperformed. The Company was well positioned to take advantage of this, leading to strong relative performance in this sub sector of mining. BASE METALS In 2014 the performance of base metals was mixed. The best performer was nickel, which managed to hold on to part of the gains made in the first half of the year on the back of the curtailment of exports from Indonesia. Prices rallied strongly in the first few months of the year, but once these stronger price levels encouraged other producers to lift production (the Philippines in particular), nickel soon gave back its stellar gains made earlier in the year. Nickel company share prices followed the moves in the underlying price and some had given back all of the gains by the year end. However, those that were fortunate to see their domestic currencies weaken versus the US dollar, namely Australian and Russian based producers, fared better. For the Company, the holding in the Russian company Norilsk was a source of both good performance and substantial income despite the political turmoil surrounding Crimea and Ukraine. Zinc and aluminium prices also closed the year higher as their respective markets shifted from surplus to deficit. Both metals seemed to have turned the corner, especially when compared to other commodities which, as previously mentioned, are still suffering from oversupply. The Company had minimal direct exposure to aluminium for most of the year but, in the second half, initiated a position in Alumina Limited on the back of better prices and a weaker local currency. In zinc, the main exposure during the year was a futures contract which performed well and profits were taken during the second half of the year. Zinc equity exposure was limited to smaller holdings such as Nyrstar (0.2% of the portfolio) and indirect exposure via Lundin Mining (4.6% of the portfolio), Hudbay Minerals (2.3% of the portfolio), Boliden (1.5% of the portfolio), Volcan (0.1% of the portfolio) and Sociedad Minera El Brocal (0.1% of the portfolio). With the closure of the large Century mine in Australia scheduled for the second half of 2015, the prospects for zinc continue to look positive. SELECTED COMMODITY PRICE CHANGES DURING 2014 Price 31 December 2014 % change over 12 months % change average 2014 vs Nickel (US$/lb) Zinc (US$/lb) Aluminium (US$/lb) Uranium (US$/lb) Gold (US$/oz) 1, Platinum (US$/oz) 1, Tin (US$/lb) Copper (US$/lb) Lead (US$/lb) Hard Coking Coal (US$/tonne) Silver (US$/oz) Thermal Coal (US$/tonne) Iron Ore fines 62% Fe China Import (US$/tonne) Baltic Freight Rate Index (US$) Sources: Datastream and Bloomberg. Copper was once again the largest single base metals exposure within the Company. The rationale for this positive view again played out during the year as expectations of a large surplus were not accurate and copper once more averaged over US$3/lb for the year (the 5th consecutive year of greater than US$3/lb prices). Sadly, despite the market data being supportive for the price, copper equities generally moved lower due to fears of a surplus in 2015, as well as company specific events. Freeport-McMoRan, the Company s second largest copper equity exposure at 4.0%, did not manage to deliver on its debt reduction plans as problems in Indonesia and lower oil prices reduced cash flow, thereby limiting the company s ability to pay down debt. First Quantum Minerals (8.6% of the portfolio, including both debt and equity exposure) struggled with changes to tax rates in Zambia and delays to the ramp-up of new capacity. The mid cap companies, such as Hudbay, Lundin and Nevsun Resources (2.0% of the portfolio), all helped performance during the year but it was not sufficient to offset the relative underperformance from the larger holdings. GOLD AND PRECIOUS METALS Following the sharp decline in the price in 2013, gold was comparatively range-bound in 2014, down 1.8% for the year (in US dollar terms). Throughout the year gold was buffeted by a number of macro factors including the end of Quantitative Easing in the US, a structurally stronger US dollar, the conflict in Ukraine, the rise of ISIS in Northern Iraq and the collapse in oil prices in the second half of the year. The net result was that gold ended the year almost where it started. ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014 [11]

13 Performance Investment manager s report continued The size of the physical gold market fell by 6% year-on-year for the first three quarters of 2014 versus the same period in Financial investor participation in the physical market was limited and conviction levels were generally low. Gold s tourist investors, who got involved during the heady days of the bull market of 2010 and 2011, have almost completely exited the market, meaning changes in gold holdings in physically-backed ETFs have had a limited influence on the gold price over the course of the year. Instead, the more established markets of China and India, as well as Central Banks, provided vital support for the gold price during the sharp sell-offs in the gold futures market in the second and fourth quarters. After a relatively weak first half for Asian gold demand year-on-year, the third quarter witnessed accelerating demand out of China and India and the market was positively surprised when India eased restrictions on gold imports in November. Central Bank demand was much stronger in 2014 than the market had expected, with Russia and the Former Soviet countries responsible for cumulative central bank purchases for the first three quarters of the year which exceeded those in the equivalent period of The Swiss referendum on its Central Bank gold holdings also helped to emphasise that gold is still very much perceived as a core reserve currency by the public, which in turn helped to improve market sentiment towards the yellow metal in the fourth quarter. Gold equities, as measured by the FTSE Gold Mines Index, fell by 9.9% (in sterling terms). As discussed earlier, there was a significant dispersion in returns across the gold producers; for example, of the two largest gold companies, RandGold Resources (1.6% of the portfolio) was up by 15.6%, whereas Barrick (not held in the portfolio) ended the year down by 34.8% in sterling terms. The companies that performed best were those with stronger balance sheets, lower costs and organic growth, a good example of which was RandGold Resources. Royalty companies, which are not exposed to underlying cost inflation, also delivered strong performance and the Company s best performing gold holding was Franco- Nevada (1.2% of the portfolio), up by 28.8% (in sterling terms). Silver underperformed its more valuable cousin for the second year in a row, falling by 19.2% in US dollar terms. The bulk of the Company s silver exposure is through its holding in Fresnillo (3.0% of the portfolio) and its parent company, Industrias Penoles (1.6% of the portfolio). In September, Fresnillo announced its intention to purchase Newmont s 44% stake in the Penmont joint venture, taking Fresnillo s ownership of three high quality gold mines, plus two advanced exploration projects, to 100%. This could see the majority of Fresnillo s revenues coming from gold production once the deal completes. Of the other precious metals, platinum ended the year down 11.1%, wiping out the gains achieved in the first half of the year. Palladium fared better, holding on to most of its gains in the first half to end the year up 13.3% in US dollar terms. The Company has minimal exposure to platinum producers and exited its position in the platinum ETF in the second half of the year. The Company has significant exposure indirectly to palladium through its exposure to Norilsk Nickel (3.4% of the portfolio), the world s largest palladium producer. Diamond exposure in the portfolio increased year-on-year with additions to holdings in Petra Diamonds and Mountain Province Diamonds. Total exposure to the diamond sector ended the year at over 3% of the portfolio. Rough diamond prices performed well in 2014, driven by good demand growth from the US and a shortage of high quality diamonds. ENERGY COMMODITIES There was no respite for energy commodities in 2014 with the year-on-year average price for metallurgical coal down by 23.0%, thermal coal down by 24.9% and uranium down by 13.6%. The main reason for prices falling yet again was the muted supply side response. Producers either opted to increase production in order to lower unit costs or chose to deliver into sales contracts at prices set before the falls. This meant that supply falls did not come through fast enough to arrest the price declines. The Company was significantly underweight to US and Australian producers of coal during the year and, as such, this was a source of positive relative returns. The Company s only large coal holding was that of China Shenhua Energy. This holding was initiated during the latter stages of 2013 and added to throughout the year under review. The shares fared much better than both other coal companies and the whole mining sector due to the company s decision to diversify its business downstream into power generation rather than just mining coal. The Company had no direct exposure to uranium. Looking forward, the prospects do not look promising. The collapse in the price of oil and a weakened Australian dollar have lowered costs, keeping marginal producers operating for longer than expected. In addition, China s reduced coal imports dampened demand expectations. In uranium, reports that China has taken advantage of the low prices to build up a strategic inventory will also push out the need for purchases as and when they finally commission their new generation of nuclear reactors. UNQUOTED/ILLIQUID INVESTMENTS Marampa royalty contract (0.0% of the portfolio) In July 2012, the Company purchased a 2% revenue-related royalty contract calculated on iron ore sales from London Mining plc s Marampa mine in Sierra Leone. This royalty contract was with a subsidiary of London Mining plc whose sole asset was the Marampa mine. It was a contractual royalty, rather than a statutory royalty, which is attached directly to the mining licence area. In Sierra Leone mineral rights are not privately owned but leased from the government by the operator; as such, it is not possible for the owner of the mine to attach a royalty directly to the mine area. Within the royalty contract, there were anti-dilution clauses and other protections that ensured that in the case of the sale of all or part of the asset by London Mining plc, the royalty would remain whole. However, there was no security over the mine itself, this having already been part of the bank debt facility, [12] BLACKROCK WORLD MINING TRUST PLC

14 which meant in the event of default the Company became an unsecured creditor. The Marampa mine started production in the second half of 2011 and shipped its first concentrate in January For the full year 2012, sales totalled 1.3 million wet metric tonnes (wmt), increasing in 2013 by 186% to 3.7 million wmt. However, in 2014, a combination of a slower than expected ramp-up of the second plant, a fall of over 40% in the iron ore price and the outbreak of Ebola in Sierra Leone, meant that by October London Mining plc could no longer meet its financial obligations. A member of the BlackRock Natural Resources Team revisited the Marampa mine in May 2014 following first quarter results, which indicated that the ramp-up of production was slower than market expectations. The improvements that had been put in place, and the further planned modifications, indicated that the company s full year production target was, as at the time of the site visit, still achievable. However, following the release of London Mining s interim financial results in August 2014, it was clear that the financial situation of London Mining plc had deteriorated owing to a slower ramp-up impacting both revenues and costs, compounded by the fall in the iron ore price. In addition, the company highlighted the increased risk on operations associated with the outbreak of Ebola in Sierra Leone. The Board of the Company wrote down the holding value of the Marampa royalty contract by 30% based on the Investment Manager s adjusted production assumptions and the increased discount rate applied to future cash flows. At the interim results of London Mining plc, they indicated that they were in the midst of a strategic partner search that would provide them with the necessary funds to allow them to not only maintain production but also to fund further expansion. On 22 September 2014, the company announced that they were in a dispute with Glencore regarding a cash prepayment which accelerated the decline in the company s financial position and made the need for external funding more urgent. On 29 September, in an update to the market, the company maintained that strategic partner discussions were ongoing but indicated that this would lead to significant equity dilution at the plc level. However, on 8 October, London Mining plc announced they foresaw little or no value in the equity of the company and that existing lenders would not provide further short term funding. Following the 8 October announcement, the Board concluded that the most prudent approach was to value the Company s holdings in the London Mining Marampa royalty contract and its holding in London Mining s convertible bond at nil and to recognise income on the royalty contract and the convertible bond only to the extent that it had already been received. On 16 October 2014, London Mining plc was placed into administration owing to the failure of the company to secure further funding either from their existing lenders or from a new strategic investor. The Marampa mine was subsequently sold by the administrator and the company s equity and convertible bond were delisted. As at the date of writing, London Mining plc remains in administration; the Company has submitted its claim as an unsecured creditor and the administrator is working to realise any residual value from the company s remaining assets on behalf of its creditors. Banro gold-linked preference shares (1.6% of the portfolio) and Banro Corporate 10% note (1.0% of the portfolio) In April 2013, the Company purchased US$30 million gold-linked preference shares from Banro Corporation to help fund the development of its second gold mine, Namoya. The gold-linked preference shares provide exposure to the gold price, as well as to volume growth, with the principal moving in line with the gold price and the dividend ranging between 10-15% depending on Banro s overall level of production. In late July 2014, Banro reported that, during the commissioning of their Namoya mine, it had become evident that the plant was not able to process the higher than expected fines content of the ore and modifications were required to meet the designed throughput rate. The company engaged an independent technical consultant to help evaluate options for optimisation of the plant, as well as appointing financial advis ers to assist in assessing the company s consequent financial requirements. On 18 August, Banro announced they had secured funding to cover the short term capital programme at Namoya, as well as to reduce accounts payable and for general working capital purposes. In addition, it announced the signing of a memorandum of understanding with Gold Holding Ltd for a US$41 million gold forward sale over the Twangiza production and a US$80 million gold streaming transaction over the Namoya mine for a total of US$121 million of new capital. On 4 November, a definitive agreement was subsequently signed over the first US$41 million with the expectation that the deal would close in a few weeks. Towards late November the deal had still not closed and the uncertainty over the timing of the closure of this transaction, coupled with a balance sheet update provided in the Banro s Q3 results released on 11 November, meant the Board concluded it was appropriate to hold the Banro gold-linked preference shares at a 30% discount to the implied gold price used in the valuation of the preference shares. In December the Board noted the lack of recent trading activity in Banro s 10% Note (March 2017) and, coupled with the ongoing financing uncertainty, concluded it was prudent to value the Company s investment in the Banro Corporate 10% note at a 25% discount to its last traded price on 21 November On 5 January 2015, after the financial year end, Banro confirmed that the transaction with Gold Holding Ltd had been delayed and, as a result, the company was progressing with alternative funding solutions and focusing on careful cash management. As part of the company s cash management, Banro elected to accrue the fourth quarter 2014 dividends on the company s gold-linked preference shares. ANNUAL REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 2014 [13]