BlackRock World Mining takes NAV hit after latest write down

BlackRock World Mining's board says because of the lack of recent trading activity in Banro Corp's 10 per cent note and ongoing financing uncertainty, it concluded that it was appropriate to write down the value of its holding in the note. This takes down the valuation of the trust's investment in the note from £9.09m to £6.45m. As at 10 December 2014, the trust's total exposure to Banro Corporation represents 2.88 per cent of the NAV, of which the corporate bond represents 1.03 per cent and Banro's gold-linked preference share represents 1.85 per cent.

BlackRock World Mining started to invest in royalties to diversify its sources of income following the adoption of a high dividend policy in 2012. In July the trust also made a $12m royalty agreement with Australia's Avanco Resources over its exploration licences within the Carajas area in Brazil. Catherine Raw, co-manager of BlackRock World Mining, said this is a conditional commitment and is not yet in the portfolio, but added: "The project is progressing as the manager expected at the time of committing to the investment in July 2014."

The trust has not said if it will invest in any more royalties but Ms Raw said: "The board and the manager will continue to focus on diversifying income sources across the mining sector. More detail on how this strategy will be implemented going forward will be provided in the 2014 annual report."

After the write-downs in October the trust said it would use its revenue reserves to maintain the 2014 dividend at 21p - the same level as in 2012 and 2013 - and maintains that this is still the case now. However, the board has provided no guidance on the 2015 dividend.

"The shares have had a dreadful three months with the price down 34 per cent, against a background of big falls in mining company share prices and the write-off of London Mining," says Iain Scouller, head of the investment funds team at Oriel. "Whilst the board say they intend to maintain the dividend at 21p for 2014, we do think there is an increasing risk of a dividend cut in 2015 as conditions continue to deteriorate at the underlying mining companies. We maintain a Negative recommendation and expect the shares to settle on a double-digit discount."

The trust was on a discount to NAV of about 11 per cent against its 12-month average of 4.86 per cent as at 17 December.

But analysts at Numis say: "Mining is a cyclical sector and BlackRock World Mining has suffered a number of difficult periods of performance in the past. Each of these periods was followed by a strong recovery, and the trust has been able to add significant value over open-ended funds and trackers by adopting a long term investment approach."

Source: Morningstar

Performance of BlackRock World Mining Trust vs key indices

Source: Morningstar as at 15 December 2014

TOP 10 HOLDINGS as at 30 November 2014 (%)

Sector breakdown (%)