| Commenting on the markets, Evy Hambro and Olivia Markham, representing the Investment Manager noted: |
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| Performance |
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| The Company’s NAV decreased by 2.5% in June, underperforming its benchmark, the EMIX Global Mining Index (net return), which returned -1.2%. |
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| June was a difficult month for the mining sector, which took it into negative territory overall for 2018. The month saw more noise around potential trade wars as President Donald Trump approved tariffs worth $50bn on China, leading Beijing to counter with $50bn of tariffs of its own. Concerns heightened around the potential for this to derail the global economic growth story and mined commodities suffered as a result. However, whilst the market focused on the risks surrounding rising protectionism, global economic data remained healthy, with global manufacturing PMI increasing to 53.0. |
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| The US dollar strengthened over the month, providing another headwind for commodity prices and precious metals in particular. Gold, silver and platinum prices were off -4.1%, -2.2% and -6.2% respectively. The base metals were also weak, with zinc, copper and nickel down -6.2%, -3.2% and -2.2% respectively. The bulk commodities were relatively stable, however, with the iron ore (62% fe) price up +2.3% over the month to $67/tonne. (Commodity returns in USD) |
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| During the month, underperformance was mainly stock specific. Our position in Vale, which has been a strong source of relative returns over the past 18 months, was a notable detractor on the back of deteriorating sentiment towards Brazil and emerging markets in general. |
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| Among the Company’s smaller positions, Arizona Mining received a bid from South32 during the month, at a ~50% premium to last close. In addition, the bid for Avanco Resources from Oz Minerals was declared unconditional during the month, with Oz Minerals to commence compulsory acquisition. |
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| Strategy and Outlook |
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| After two strong years, investors that have not been exposed to mining may now be questioning if they have missed the opportunity. We are, however, still a long way below the peak in 2011 and the sector continues to trade at a valuation discount to broader equity markets. Meanwhile, free cash flow in the sector is close to the highest it has ever been. That said, we believe most mined commodities look reasonably fairly priced and so our base case is that they remain range-bound at current levels. Crucially, however, mining equities are still pricing in commodity prices well below current spot prices and, as such, we are constructive on the shares but fairly neutral on the commodities themselves. Many still distrust the miners, expecting them to make the same mistakes of the past in terms of poor capital discipline. Our view though is that the pain of the recent down-cycle is still too fresh in the minds of management teams for this to become a widespread issue in the near-term. We have begun to see moderate increases in sustaining capex announced but we believe for the most part these have been necessary increases rather than indicative of a widespread return to poor capital discipline. |
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| All data points are in GBP terms unless stated otherwise. |
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| 17 July 2018 |
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| ENDS |
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| Latest information is available by typing www.blackrock.co.uk/brwm on the internet. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement. |