BAKER STEEL RESOURCES TRUST LIMITED
Annual Report and
Audited Financial Statements
For the year ending 31 December 2018
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BAKER STEEL RESOURCES TRUST LIMITED
CONTENTS
Chairman’s Statement
Investment Manager’s Report
Portfolio Statement
Strategic Report
Board of Directors
Directors’ Report
Report of the Audit Committee
Independent Auditor’s Report
Statement of Financial Position
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Appendix - Additional Information (Unaudited)
Glossary of Terms
Management and Administration
1
MISSION STATEMENT
(cid:37)(cid:68)(cid:78)(cid:72)(cid:85)(cid:3) (cid:54)(cid:87)(cid:72)(cid:72)(cid:79)(cid:3) (cid:53)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3) (cid:55)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3) (“BSRT”)(cid:3) (cid:68)(cid:76)(cid:80)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:69)(cid:72)(cid:3) (cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3) (cid:68)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
(cid:73)(cid:88)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:3) (cid:82)(cid:73)(cid:3) (cid:70)(cid:75)(cid:82)(cid:76)(cid:70)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:86)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3) (cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)
(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:86)(cid:15)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:87)(cid:75)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:92)(cid:17)(cid:3)
(cid:3)
(cid:3)
BSRT has increased its NAV and generated strong share price
performance over the past three years. The mining sector remains
undervalued compared to general equity markets and relative to
historical levels.
Baker Steel Resources Trust - 3 Year Performance
Miners remain undervalued
60
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Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Data at 31 December 2018.
Source: Bloomberg, Baker Steel internal.
56.9p BSRT
NAV per
share
44.5p BSRT
share price
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S&P 500 Index
EMIX Global Mining Index
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2
BAKER STEEL RESOURCES TRUST LIMITED
CHAIRMAN’S STATEMENT
For the year ended 31 December 2018
2018 was a year in which the recovery in the mining market paused for breath. Commodity prices were generally weaker and
the market for mining shares followed suit with the EMIX Global Mining Index down 5.9% over the year in Sterling terms.
Against this background, the Company increased its Net Asset Value by 0.2%, largely due to the successful completion of the
sale of our investment in the Prognoz silver project to Polymetal International plc.
This pause in the upward momentum has actually been welcome as it has given the Investment Manager the opportunity to
generate opportunities to recycle the proceeds of the Prognoz sale. One of the realities of investing in private companies is that
it often requires extensive legal and technical due diligence to be undertaken and if an issue needs addressing before investment,
this can mean it can take several months and sometimes more than a year before completion. The Investment Manager is currently
working actively on a number of new opportunities and since the year end the Company has made follow-up investments in
Futura Resources and Anglo Saxony Mining as well as one new investment into Azarga Metals.
Investing in mining has numerous technical risks but also geo-political risk which can significantly diminish the value of an
otherwise profitable project. Political risk does not just mean the risk of expropriation of a project by a rogue government of a
developing nation (which is in fact relatively rare and may be reversed through international arbitration). Just as damaging can
be increasingly protracted timetables and licencing issues which are at least as challenging in the developed world. For this
reason, the Company will continue to seek to diversify its portfolio not just by way of commodity but also geographically as
well, and to seek high returns to compensate for the risks involved.
As well as discovering new attractively priced propositions that have not yet been identified by the wider market, investing in
private situations gives more opportunity to structure transactions such as through the use of convertible debt which provides a
measure of downside protection whilst maintaining the upside. Typically investment risk is reduced the closer the investment
can be to the revenue stream, a feature of royalties, and we will be seeking to add attractively priced royalties to the portfolio,
particularly when exploration and reserve upside is considered to be good. In 2018, the Company maintained an interest in the
Prognoz silver mine through Polar Acquisition Limited retaining a royalty. In early 2019, the Company acquired a royalty over
the coking coal mines of Futura Resources and also received an option to acquire a royalty over Azarga Metals’ copper/silver
project as part of a financing agreement which included investment in a convertible loan.
Notwithstanding that the current mining market environment is attractive for investing in new mining opportunities, in 2015 the
Board introduced a capital returns policy whereby it will allocate cash for distributions to shareholders calculated as being no
less than 15% of the aggregate net realised cash gains in the previous financial year following audit. The sale of the majority of
the Company’s interest in the Prognoz silver project provides the first opportunity to deliver on this policy. Although the majority
of the proceeds are still held in Polymetal International plc shares, the Board considers these to be sufficiently liquid as to be
considered as cash for the purposes of the policy.
Having considered the alternatives, the Board believes the appropriate way to implement their policy is through a tender offer.
Shareholders will receive a tender offer document in May 2019 inviting them to vote on the details. These are likely to include
a tender of £4 - £5million representing approximately 25% of the realised gains on Prognoz during the year. The aim is to make
the exercise NAV enhancing and to ensure that shareholders who do not take up the offer are not prejudiced. It will also provide
a useful liquidity point for shareholders who might otherwise find it difficult to sell shares due to the low liquidity in the
Company’s shares. The remaining 75% of the gains will be reinvested in accordance with the Company’s investment policy.
It is hoped that the opportunity to receive a direct share of the proceeds of a successful realisation will encourage existing
shareholders to maintain their holdings in the Company and attract new investors appreciative of the clear visibility of likely
future returns from its investment activities, which in turn may help reduce the discount and improve share liquidity. In addition
to the capital returns policy, it is hoped that over time the income to be received from royalties, interest on convertible loans and
future dividend payments received from investee companies can support a regular dividend or liquidity event by the Company.
Taking into account the latest corporate governance requirements, the Board has put in place a succession plan to refresh its
membership while maintaining a degree of continuity. The first director who will step down is Mr Chris Sherwell who will retire
at this year’s Annual General Meeting (“AGM”). As in previous years all the directors, other than Mr Sherwell, will be subject
to re-election at the forthcoming AGM, as now required by the UK Corporate Governance Code. I would like to thank Chris for
his significant contribution to the Company since formation. The process to appoint a replacement for Chris is underway and is
expected to be completed before the AGM.
Howard Myles
Chairman
9 April 2019
3
BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT
For the year ended 31 December 2018
Financial Performance
The audited undiluted Net Asset Value per Ordinary Share (“NAV”) as at 31 December 2018 was 56.9 pence, an increase of
0.2% in the year but a decrease of 41.9% from the Company’s first NAV calculated on 30 April 2010. During the year the EMIX
Global Mining Index was down 5.9% (down 18.9% since 30 April 2010).
For the purpose of calculating the NAV per share, unquoted investments are carried at fair value as at 31 December 2018 as
determined by the Directors and quoted investments are carried at last quoted price as at 31 December 2018.
Net assets at 31 December 2018 comprised the following:
Unquoted Investments
Quoted Investments
Cash and other net assets
Investment Update
£m
40.9
21.1
4.0
66.0
% net assets
62.0
32.0
6.0
100.0
Largest 10 Holdings – 31 December 2018
Polymetal International Plc
Bilboes Gold Limited
Cemos Group Plc
Futura Resources Limited (formerly Queensland Coal Investment Holdings Ltd)
Polar Acquisition Limited
Sarmin Minerals Exploration (formerly Sarmin Minerals Exploration Inc)
Black Pearl Limited Partnership
Nussir ASA
Ivanhoe Mines Limited
PRISM Diversified Limited (formerly Ironstone Resources Limited)
Other Investments
Cash and other net assets
Largest 10 Holdings – 31 December 2017
Polar Acquisition Limited
Bilboes Gold Limited
Ivanhoe Mines Limited
Cemos Group Plc
Metals Exploration Plc
Sarmin Minerals Exploration Inc
Queensland Coal Investment Holdings Ltd
Black Pearl Limited Partnership
Ironstone Resources Limited
Nussir ASA
Other Investments
Cash and other net assets
% of NAV
28.9%
11.9%
10.5%
10.3%
9.3%
5.3%
4.2%
3.4%
2.3%
2.2%
88.3%
5.7%
6.0%
100.0%
% of NAV
37.4%
12.6%
11.3%
9.1%
6.8%
4.5%
4.4%
3.9%
3.8%
3.1%
96.9%
1.8%
1.3%
100.0%
4
BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
For the year ended 31 December 2018
Investment Update
At the year end, the Company was 94% invested, holding 16 investments of which the top 10 holdings comprised 88% of the
portfolio by value. The portfolio is well diversified both in terms of commodity and the geographical location of the projects. In
terms of commodity the portfolio is concentrated on the large liquid markets of gold, silver, metallurgical coal, potash, iron,
copper, platinum group metals and nickel. Its projects are located in Australia, Canada, Democratic Republic of Congo, Germany,
Indonesia, Madagascar, Mongolia, Morocco, Norway, the Philippines, Republic of Congo, Russia, South Africa and Zimbabwe.
During the first half of 2018, the mining market was flat and then fell back in the second half with the EMIX Global Mining
Index down 5.9% over the year in Sterling terms. This reflected weaker commodity prices with silver down 8.5%, gold down
1.6%, iron ore down 1.5%, coking coal down 15.4% and copper down 17.5% during 2018 (all in US dollars).
The first half of 2018 saw the culmination of the two-year reorganisation of the Company’s indirect interest in the Tier 1 Prognoz
silver project and its sale to Polymetal International Plc (“Polymetal”). This resulted in the Company holding Polymetal shares
whilst retaining an interest in the Prognoz project through a 0.9%-1.8% net smelter royalty held by Polar Acquisition Limited
(“PAL”). Overall the Company invested US$15.7 million in Prognoz, and as at 31 December 2018 had realised US$14.1 million
in cash and held 2,324,000 Polymetal shares valued at US$24.3 million and 47.8% of PAL valued at US$7.8 million.
Most of the Polymetal shares were initially subject to lock-up and although the lock-up expired in October 2018, the Company
has retained the majority of the shares to retain exposure to the market. Operationally, Polymetal has continued to perform well,
producing 1,562,000 gold equivalent ounces, exceeding its production guidance for 2018 largely due to the ramp-up of its new
Kyzyl gold mine ahead of schedule. It also has a progressive dividend policy whereby 50% of underlying earnings are paid out
as dividends resulting in a current dividend yield of approximately 4%. Notwithstanding the high concentration of Polymetal in
the portfolio is recognised and holding a large proportion of the assets in quoted mining stocks does not fall strictly within the
Company’s long term investment strategy. Polymetal is however highly liquid and the shareholding will be sold down as and
when the Company requires funds for new investments or if the Investment Manager believes that the shares in Polymetal have
become overvalued. Since the year end the shareholding in Polymetal has been sold down such that it represented approximately
21.6% of NAV as at 31 March 2019.
The Company’s second largest investment, Bilboes Gold Limited (“Bilboes”) completed a pre-feasibility study (“PFS”) on its
4.8 million ounce Isabella-McCays-Bubi gold project in Matabeleland, Zimbabwe during 2017. In 2018, Bilboes launched the
definitive feasibility study (“DFS”). Infill drilling and a pilot plant programme were both completed successfully during the year
and detailed engineering and costing is currently in progress with the aim of completing the DFS in mid-2019. It is anticipated
that the mine will initially produce approximately 100,000 ounces of gold per annum from the Isabella and McCays pits,
increasing to 200,000 ounces per annum once the Bubi pit is brought into production. The PFS forecast average cash costs for
the twelve year mine life of US$703/ounce gold with the economic model giving an NPV (10%) of US$167 million with an
internal rate of return of 34%.
In December 2017 and February 2018, the Company made its first significant new investment for some time with the investment
of A$10 million in convertible loan notes in Futura Resources Limited. Futura owns the Wilton and Fairhill coking coal projects
in the Bowen Basin in Queensland, Australia, which is well known for its high quality coking coal mines. In May 2018 it was
announced that Japanese trading house Sojitz Corporation (“Sojitz”) had agreed to acquire the nearby Gregory Crinum mine.
This was an important milestone for Futura as it has an in principle agreement with Sojitz to process coal produced by Wilton
and Fairhill through the coal washing plant at Gregory Crinum which will allow Futura to commence production from Wilton
during 2019. Production from Fairhill is then scheduled to commence in 2020 with aggregate coal production ramping-up to a
targeted sustainable level of 2.5 million tonnes of coal per annum of saleable processed coal by 2021/2 for at least 25 years.
Following the year end the Company acquired a 0.75% Gross Revenue Royalty (“GRR”) on production from Wilton and Fairhill
for A$6 million, together with the option to acquire an additional 0.25% GRR for a further A$2 million.
During 2018, CEMOS Group Plc completed the construction of a cement plant at its Tarfaya project in Morocco albeit delayed
by six months. The cement plant commenced production in December 2018 and reported a positive reception by its customers
to the quality of cement being produced. At full capacity for the initial Phase 1, targeted to be achieved by the end of 2019, the
operation is anticipated to generate over €10m in EBITDA per annum.
5
BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
For the year ended 31 December 2018
Investment Update (continued)
In September 2018, Sarmin completed a PFS on the Kanga potash project, which is located 50km from Pointe-Noire in the
Republic of the Congo (Brazzaville). The PFS adopted a phased approach to the development of Kanga employing solution
mining, which will commence with a 400,000 tonne per annum operation with a peak capital cost of US$410 million, rising to
2.4 million tonnes per annum with further capex. The exceptional mining widths of over 210 metres should result in one of the
lowest operating costs per tonne globally with a forecast FOB cost per tonne of Muriate of Potash (“MOP”) of US$53/tonne at
full production. Sarmin is currently marketing the project with a view to bringing in a development partner or an outright sale
The main disappointment in the portfolio has been the performance of Metals Exploration plc’s Runruno gold mine in the
Philippines which produced a total of 46,000 ounces of gold during the year against a target of approximately 100,000 ounces
of gold. A new Chief Executive was appointed at the beginning of 2019, who has refreshed the operating team at the mine and
it remains to be seen if it will be able to turn the mine around and achieve the desired production level.
During the year the Company also invested £1 million in a convertible loan to Anglo Saxony Mining Limited (“ASM”), which
holds the rights to a previously producing tin mine in Germany. This investment funded a metallurgical testwork programme to
demonstrate whether a saleable concentrate could be produced from the mine. This programme was successful which led to the
Company triggering its option to subscribe for a further £1 million convertible loan to ASM in February 2019 and will be used
to fund a Pre-Feasibility Study (“PFS”) into the project.
Elsewhere in the portfolio Nussir is well advanced with the definitive feasibility study (“DFS”) on its Nussir/Ulveryggen copper
project in Norway following the positive pre-feasibility study at the end of 2016 and the award of its Mining Licence in February
2019. The Definitive Feasibility Study is expected to be completed in the third quarter of 2019. In the iron ore sector, Black Pearl
continued discussions in China regarding the use of its mine as the basis for a new steel plant in Indonesia and Ironstone continued
its policy of moving away from a pure iron ore developer towards a greater focus on process and technology innovation. Ivanhoe
Mines has continued to record excellent drilling results from it Kamoa-Kakula project in the Democratic Republic of Congo and
in early 2019 announced a positive PFS for a 6 million tonne per year mine at Kakula together with an updated preliminary
economic assessment for an expanded Kakula-Kamoa operation at a rate of 18 million tonnes per year.
The outlook for mining and metals continues to be uncertain with the limited recovery seen in 2016 and 2017 seemingly having
paused in 2018. This has constrained the number of new mines being brought into production and correspondingly the amount
of exploration to discover and define new ore bodies. The limited amount of capital prepared to invest in mining has provided
the Company with some excellent opportunities to recycle the proceeds from the sale of Prognoz into attractive projects at
realistic prices using structures that give some downside protection. Since the year end the Company has acquired the royalty in
the Futura mines, increased its convertible loan in Anglo Saxony Mining and agreed to invest in a convertible loan in Azarga
Metals, which has a copper/silver project in Russia. The Investment Manager is currently investigating a number of other
advanced opportunities.
Further details of each of these investments and the Company’s other significant holdings are provided below.
Description of Largest Investments at 31 December 2018
Polymetal International plc (“Polymetal”)
Polymetal is a leading precious metals mining group operating in Russia and Kazakhstan listed on the London Stock Exchange
and Moscow Stock Exchange. The company is a member of FTSE 250, FTSE Gold Mines and MSCI Russia. Polymetal has
a portfolio of nine producing gold and silver mines which in 2018 produced 1,562,000 gold equivalent ounces and a pipeline
of future growth projects.
Bilboes Gold Limited ("Bilboes")
Bilboes is a private Zimbabwean based gold mining company which has a JORC compliant Indicated Mineral Resources of 48
million tonnes grading 2.42 g/t gold and an Inferred Mineral Resource of 10.6 million tonnes grading 2.55 g/t gold containing
3.7 million ounces of gold and a further 1.1 million ounces in Inferred Mineral Resources. A positive pre-feasibility study into a
mine producing up to 200,000 ounces per annum was completed in 2017, and a definitive feasibility is due for completion mid-
2019.
6
BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
For the year ended 31 December 2018
Description of Largest Investments at 31 December 2018 (continued)
Futura Resources Ltd (formerly Queensland Coal Investment Holdings Limited) (“Futura”)
Futura owns the Wilton and Fairhill coking coal projects in the Bowen Basin in Queensland, Australia which hold Measured and
Indicated resources of 843 million tonnes of coal. Production is targeted to commence at Wilton in 2019 and at Fairhill in 2020,
for a targeted combined sustainable level of 2.5 million tonnes of coal per annum of saleable processed coal by 2021/2 for at
least 25 years.
Cemos Group plc (‘‘Cemos’’)
Cemos is a private cement producer and oil shale explorer and developer whose key asset is the Tarfaya project in Morocco
containing JORC compliant measured resources of 308 million barrels of shale oil. As a first step for development, Cemos
completed the construction of a cement plant at Tarfaya in December 2018 with a capacity of up to 270,000 tonnes cement per
annum.
Polar Acquisition Limited ("PAL")
PAL is a private company which holds a 0.9% to 1.8% royalty over the Prognoz silver project ("Prognoz"), 444km north of
Yakutsk in Russia, owned by Polymetal. Prognoz has a 256 million ounce silver equivalent Indicated and Inferred Mineral
Resource at a grade of 789 g/t silver equivalent. A pre-feasibility study is being undertaken by Polymetal International plc and
is expected to be completed in the first half of 2020.
Sarmin Minerals Exploration Inc (“Sarmin”)
Sarmin is a private company which holds the Kanga potash project, in the Republic of the Congo which has an Indicated Mineral
Resource of 4,730 million tonnes grading 17.1% Potassium Chloride (“KCl”) containing 810 million tonnes KCl and an Inferred
Mineral Resource of 7,160 million tonnes grading 16.7% KCl containing 1,197 million tonnes KCl. A positive pre-feasibility
study, completed in September 2018 outlined a phased project employing solution mining, which will commence with a 400,000
tonne KCl per annum operation with a peak capital cost of US$410 million, rising to 2.4 million KCl tonnes per annum with
further capex.
Black Pearl Limited Partnership (“Black Pearl”)
Black Pearl is a special purpose vehicle formed to invest in the Black Pearl beach placer iron sands project in West Java,
Indonesia. The Black Pearl concession area is 15,000 hectares of which 1,600 hectares has been drilled. JORC compliant Mineral
Resources stand at 572 million tonnes grading 10% Fe. Due to mining regulations brought into force in January 2014, the future
for the project requires the further beneficiation of the product within Indonesia. Negotiations are ongoing for the Black Pearl
project to form the base production for an integrated steel production facility.
PRISM Consolidated Limited ("PRISM")
PRISM is a private Canadian company which owns the Clear Hills Iron Ore/Vanadium Project ("Clear Hills") in Alberta, Canada.
Clear Hills currently has Indicated Resources of 557.7 million tonnes at 33.3% iron and 0.2% vanadium and an Inferred Resource
of 94.7 million tonnes at 34.1% iron.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the Nussir and Ulveryggen copper project in Northern Norway. A
JORC compliant report estimated Indicated Mineral Resources at 21.3 million tonnes grading 1.14% copper containing 243,000
tonnes of copper. The resource statement also included 574,000 million tonnes of copper in Inferred Mineral Resources providing
combined contained copper of 817,000 tonnes. A pre-feasibility study into a mine producing up to 20,000 tonnes of copper per
annum was completed at the end of 2016 with a definitive feasibility study due in the second half of 2019.
Ivanhoe Mines Limited ("Ivanhoe”)
Ivanhoe is a company listed on the Toronto Stock Exchange which holds the Kamoa-Kakula copper project (39.6% owned) and
Kipushi zinc mine (68% owned) both in the Democratic Republic of Congo (“DRC”) and the Platreef nickel, platinum,
palladium, copper and gold project (64% owned) in South Africa.
Metals Exploration plc (“Metals Exploration”)
Metals Exploration is an AIM listed company which owns the Runruno gold mine in the Philippines. The Runruno mine produced
46,000 ounces of gold in 2018 and is in the process of ramping up towards full production of approximately 100,000 ounces of
gold per annum.
Baker Steel Capital Managers LLP
Investment Manager
7
BAKER STEEL RESOURCES TRUST LIMITED
PORTFOLIO STATEMENT
AT 31 DECEMBER 2018
Investments
Shares
/Warrants/
Nominal
Listed equity shares
Canadian Dollars
1,115,000
Ivanhoe Mines Limited
Canadian Dollars Total
Great Britain Pounds
122,760,000 Metals Exploration Plc
2,324,000 Polymetal International Plc
Great Britain Pounds Total
Total investment in listed equity shares
Debt Instruments
Australian Dollars
200,000
Indian Pacific Resources Limited Convertible Loan Note
200 Futura Resources Limited Convertible Loan Note
Australian Dollars Total
Canadian Dollars
250,500 PRISM Diversified Limited Loan Note 31/12/2018
125,000 PRISM Diversified Limited Loan Note
Canadian Dollars Total
Euro
807 Cemos Group Plc Convertible Loan Note
Euro Total
Great Britain Pounds
1,000,000 Anglo Saxony Mining Limited Convertible Loan Note
Great Britain Pounds Total
United States Dollars
440,000 Bilboes Holdings Convertible Loan Note
220,000 Bilboes Holdings Loan Note
7,009,332 Black Pearl Limited Partnership Loan Note
United States Dollars Total
Fair value
£ equivalent
% of Net
assets
1,519,301
1,519,301
491,040
19,103,280
19,594,320
21,113,621
180,880
6,792,319
6,973,199
295,870
43,660
339,530
3,632,962
3,632,962
1,007,756
1,007,756
946,353
168,781
2,749,620
3,864,754
2.30
2.30
0.74
28.93
29.67
31.97
0.27
10.29
10.56
0.45
0.07
0.52
5.50
5.50
1.53
1.53
1.43
0.26
4.16
5.85
Total investments in debt instruments
15,818,201
23.96
8
BAKER STEEL RESOURCES TRUST LIMITED
PORTFOLIO STATEMENT (CONTINUED)
AT 31 DECEMBER 2018
Investments
Shares
/Warrants/
Nominal
Unlisted equity shares and warrants
Australian Dollars
20,011,015
Indian Pacific Resources Limited
Australian Dollars Total
Canadian Dollars
1,000,000 PRISM Diversified Limited Warrants 31/12/2023
13,083,936 PRISM Diversified Limited
Canadian Dollars Total
Great Britain Pounds
2,000,000 Anglo Saxony Mining Limited
1,594,646 Celadon Mining Limited
24,004,167 Cemos Group Plc
Great Britain Pounds Total
Norwegian Krone
12,267,628 Nussir ASA
Norwegian Krone Total
United States Dollars
17,151,567 Archipelago Metals Limited
451,445 Bilboes Gold Limited
4,244,550 Gobi Coal & Energy Limited
1,000,000 Midway Resources International
15,531 Polar Acquisition Limited
55,419 Sarmin Minerals Exploration
United States Dollars Total
Total Unlisted equity shares and warrants
Fair value
£ equivalent
% of Net
assets
193,642
193,642
30,044
1,474,399
1,504,443
200,000
15,947
3,324,577
3,540,524
2,220,894
2,220,894
-
7,880,630
66,602
39,228
6,163,793
3,478,362
17,628,615
25,088,118
0.29
0.29
0.05
2.23
2.28
0.30
0.02
5.04
5.36
3.36
3.36
-
11.94
0.10
0.06
9.34
5.27
26.71
38.00
93.93
6.07
Financial assets held at fair value through profit or loss
62,019,940
Other Assets & Liabilities
4,007,844
Total Equity
66,027,784
100.00
9
BAKER STEEL RESOURCES TRUST LIMITED
STRATEGIC REPORT
Company Structure
The Company is a registered closed-ended investment scheme registered pursuant to the Protection of Investors (Bailiwick of Guernsey)
Law, 1987, as amended (“POI Law”) and the Registered Collective Investment Scheme Rules 2018 issued by the Guernsey Financial
Services Commission (“GFSC”). The Company is not authorised or regulated as a collective investment scheme by the Financial
Conduct Authority. The Company is subject to the Listing Rules and the Disclosure and Transparency Rules of the UK Listing
Authority. The Articles of the Company contain provisions as to the life of the Company. At the Annual General Meeting
(“AGM”) falling in 2018 and at each third AGM convened by the Board thereafter, the Board will propose a special resolution
to discontinue (the Company) which if passed will require the Directors, within 6 months of the passing of the special resolution,
to submit proposals to shareholders that will provide shareholders with an opportunity to realise the value of their Ordinary
Shares. Shareholders voted against discontinuing the Company at the 2018 AGM, the next discontinuation vote will be held in
2021.
Role and Composition of the Board
The Board is the Company’s governing body; it sets the Company’s strategy and is collectively responsible to shareholders for its long-
term success. The Board, which is comprised entirely of independent Non-Executive Directors, is responsible for appointing and
subsequently monitoring the activities of the Manager and other service providers to ensure that the investment objectives of the
Company continue to be met. The Board also ensures that the Manager adheres to the investment restrictions described in the
Company’s Prospectus and acts within the parameters set by it in any other respect. It also identifies and monitors the key risks facing
the Company.
Investment activities are predominantly monitored through quarterly Board meetings at which the Board receives detailed reports and
updates from the Investment Manager, who attends each Board meeting. Services from other key service providers are reviewed as
appropriate.
Subject to meeting solvency requirements, if the Ordinary Shares trade at a discount in excess of 15 per cent to their NAV, the
Board will consider whether the Company should buy back its own Ordinary Shares, taking into account conditions in the stock
market and mining markets.
The Board continues to review the Company’s ongoing charges to ensure that the total costs incurred by shareholders in the running
of the Company remain competitive when measured against peers. An analysis of the Company’s costs, including management fees
(which are based on the market capitalisation of the Company), Directors’ fees and general expenses, is submitted to each Board
meeting.
As at 31 December 2018, the Board comprised of four Directors (2017: four Directors).
Investment Management
The Manager was appointed pursuant to a management agreement with the Company dated 31 March 2010 (the Management
Agreement). Under the Management Agreement, the Manager acts as manager of the Company, subject to the overall control and
supervision of the Directors and was authorised to appoint the Investment Manager to manage and invest the assets of the Company.
The Manager is responsible for the payment of the fees of the Investment Manager. The Manager is a company incorporated in the
Cayman Islands on 10 April 2002 with registration number 117030 and is an affiliate of the Investment Manager.
Baker Steel Capital Managers LLP acts as Investment Manager of the Company and was incorporated in England and Wales on 19
December 2001. It is authorised and regulated by the Financial Conduct Authority in the United Kingdom. The Investment Manager
is a limited liability partnership with registration number OC301191 and is an affiliate of the Manager. The Investment Manager has
been appointed by the Company to act as its Alternative Investment Fund Manager (“AIFM”) and is responsible for the portfolio
management and risk management of the Company. The Investment Manager manages the Company in accordance with the
Alternative Investment Fund Managers Directives (“AIFMD”). The Investment Manager is a specialist natural resources asset
management and advisory firm operating from its head office in London and its branch office in Sydney. It has an experienced team
of fund managers covering the precious metals, base metals and minerals sectors worldwide, both in relation to commodity equities
and the commodities themselves.
The Directors formally review the performance of the Investment Manager on an annual basis and remain satisfied that the
Investment Manager has the appropriate resources and expertise to manage the portfolio of the Company in the best interests of
the Company and its shareholders.
10
BAKER STEEL RESOURCES TRUST LIMITED
STRATEGIC REPORT (CONTINUED)
Investment Objective
The Company’s investment objective is to seek capital growth over the long-term through a focused, global portfolio consisting
principally of the equities, loans or related instruments of natural resources companies. The Company invests predominantly in
unlisted companies [i.e. those companies that have not yet made an initial public offering (“IPO”)] but also in listed securities
(including special situations opportunities and less liquid securities) with a view to making attractive investment returns through
uplift in value resulting from the development progression of the investee companies’ projects and through exploiting value
inherent in market inefficiencies and pricing anomalies.
Investment Policy
The core of the Company’s strategy is to invest in natural resources companies, predominantly unlisted, that the Investment
Manager considers to be undervalued and that have strong fundamentals and attractive growth prospects. Natural resources
companies, for the purposes of the investment policy, are those involved in the exploration for and production of base metals,
precious metals, bulk commodities, thermal and metallurgical coals, industrial minerals, energy and uranium, and include single-
asset as well as diversified natural resources companies.
It is intended that unlisted investments be realised through an IPO, trade sale, management repurchase or other methods.
The Company focuses primarily on making investments in companies with producing and/or tangible assets such as resources
and reserves that have been verified under internationally recognised standards for reporting, such as those of the Australasian
Joint Ore Reserves Committee (“JORC”). The Company may also invest from time to time in exploration companies whose
activities are speculative by nature.
The Company has flexibility to invest in a wide range of investments in addition to unlisted and listed equities and equity-related
securities, including but not limited to commodities, convertible bonds, debt securities, royalties, options, warrants and futures.
Derivatives may be used for efficient portfolio management, hedging and for the purposes of obtaining investment exposure.
The Company may also have exposure from time to time to other companies within the wider resources and materials sector,
including services companies, transport and infrastructure companies, utilities and downstream processing companies.
The Company may take legal or management control of a company from time to time. The Company may invest in other
investment funds or vehicles, including any managed by the Manager or Investment Manager, where such investment would be
complementary to the Company’s investment objective and policy.
Borrowing and Leverage
The Company may, at the discretion of the Investment Manager, and within limits set by the Board, incur leverage for liquidity
purposes by borrowing funds from banks, broker-dealers or other financial institutions or entities. The costs of leverage will
affect the operating results of the Company.
During the current and prior year, no leverage was used by the Company.
Investment Restrictions
There are no fixed limits on the allocation between unlisted and listed equities or equity-related securities and cash although, as
a guideline, typically the Investment Manager will aim for the Company to be invested over the long-term as follows:
•
•
•
•
between 40 and 100 per cent of the value of its gross assets in unlisted equities or equity-related securities;
up to 50 per cent of the value of its gross assets in listed equities or equity-related securities;
up to 10 per cent of the value of its gross assets in cash or cash-like holdings; and
typically in 10 to 20 core positions to provide adequate diversification whilst retaining a focused core approach. Core
positions will be between 5 per cent and 15 per cent of NAV as at the date of acquisition.
The actual percentage of the Company’s gross assets invested in listed and unlisted equities and equity-related securities and
cash and cash-like holdings and the number of positions held may fall outside these ranges from time to time. For example, listed
securities might exceed the above guideline following a significant number of IPOs or in certain market conditions and likewise
cash balances may exceed the above guideline following the realisation of one or more investments or following the issue of
new equity in the Company, pending investment of the proceeds.
11
BAKER STEEL RESOURCES TRUST LIMITED
STRATEGIC REPORT (CONTINUED)
Investment Restrictions (continued)
The investment policy has the following limits:
•
Save in respect of cash and cash-like holdings awaiting investment, and except as set out below, the Company will invest
or lend no more than 20 per cent in aggregate of the value of its gross assets in or to any one particular company or group
of companies, as at the date of the relevant transaction.
• The Company's investment in Polar Silver Resources Limited and/or any company within its group (the Polar Silver
Group) may exceed the limit set out above provided that the Company will not invest or lend more than 35 per cent in
aggregate of the value of its gross assets in the Polar Silver Group as at the date of the relevant transaction.
• No more than 10 per cent in aggregate of the value of the gross assets of the Company may be invested in other listed
closed-ended investment funds, except for those which themselves have stated investment strategies to invest no more
than 15 per cent of their gross assets in other listed closed-ended investment funds.
Where derivatives are used for investment exposure, these limits will be applied in respect of the investment exposures so
obtained.
The Company will avoid (a) cross-financing between the businesses forming part of its investment portfolio and (b) the operation
of common treasury functions between it and the investee companies. When deemed appropriate, the Company may borrow up
to 10 per cent of NAV for temporary purposes such as settlement of mis-matches. Borrowings will not however be incurred for
the purposes of any Share repurchases. The Investment Manager will not normally hedge the exposure of the Company to
currency fluctuations.
Any material change in the investment objective, investment policy or borrowing policy will only be made with the prior approval
of holders of Ordinary Shares by Ordinary Resolution. In the event of any breach of the investment restrictions the Investment
Manager would report the breach to the Board and shareholders would be informed of any corrective action required. No breaches
of investment restrictions occurred during the year ended 31 December 2018.
Performance
The Company monitors NAV as a key performance indicator. An outline of performance, market background, investment activity
and portfolio strategy during the year under review, as well as outlook, is provided in the Chairman’s Statement on page 3 and the
Investment Manager’s Report on pages 4 to 7.
Principal risks and uncertainties
A summary of the principal risks and uncertainties faced by the Company is set out below. These have remained unchanged
throughout the year.
Market and financial risks
Market risk arises from volatility in the prices of the Company’s underlying investments which, in view of the Company’s
investment policy, are in turn particularly sensitive to commodity prices. Market risk represents the potential loss the Company
might suffer through holding investments in the face of negative market movements. The Board has set investment restrictions
and guidelines to help mitigate this risk. These are monitored and reported on by the Investment Manager on a regular basis.
Further details are disclosed in note 4 on pages 45 to 51.
The Company’s investment activities also expose it to a variety of financial risks including in particular foreign currency risk.
The foreign exchange risk can be affected by Brexit, but the impact of Brexit, hard or soft, is not quantifiable at the time of
publication of these financial statements. A sensitivity to foreign exchange is presented on pages 46 to 47.
Portfolio management and Performance risks
The Board is responsible for determining the investment strategy to allow the Company to fulfil its objectives and also for
monitoring the performance of the Investment Manager which has been delegated day to day discretionary management of the
Company’s portfolio. An inappropriate strategy may lead to poor performance. The investment policy of the Company allows
for a highly focused portfolio which can lead to a concentration of risk. To manage this risk the Investment Manager provides to
the Board, on an ongoing basis, an explanation of the significant stock selection recommendations and the rationale for the
composition of the investment portfolio. The Board mandates and monitors an adequate diversification of investments, both
geographically and by commodity, in order to reduce the risks associated with particular sectors, based on the diversification
requirements inherent in the Company’s investment policy.
12
BAKER STEEL RESOURCES TRUST LIMITED
STRATEGIC REPORT (CONTINUED)
Principal risks and uncertainties (continued)
Portfolio management and Performance risks (continued)
The Company invests in companies whose projects are located in emerging markets. In such countries governments can exercise
substantial influence over the private sector and political risk can be a significant factor. In adverse social and political
circumstances, governments have been involved in policies of expropriation, confiscatory taxation, nationalisation, intervention
in the securities markets and imposition of foreign exchange controls and investment restrictions. The Investment Manager and
the Board take into account specific political risks when entering into an investment and seek to mitigate them by diversifying
geographically.
The Company’s ability to implement its investment policy depends on the Investment Manager’s ability to identify, analyse and
invest in investments that meet the Company’s investment criteria. Failure by the Investment Manager to find additional
investment opportunities meeting the Company’s investment objectives and to manage investments effectively could have a
material adverse effect on the Company’s business, financial condition, and results of operations. The Company has no
employees and, subject to oversight by the Board, is reliant on the Investment Manager, which has significant discretion as to
the implementation of the Company’s operating policies and strategies. The Company is subject to the risk that the Investment
Manager will cease to be involved in the management of any part of the Company’s assets and that no suitable replacement will
be found. The Board regularly monitors the performance of the Investment Manager and the Company’s NAV performance.
There is the risk that the market capitalisation of the Company (on which the Investment Manager’s fee is calculated) falls to
such extent that it will no longer be viable for the Investment Manager to provide the services that it currently provides.
Risk of a vote to wind-up the Company
The Articles contain provisions for a special resolution of shareholders at the AGM in 2018 and every three years thereafter
on whether to discontinue the Company. Should there be a catastrophic loss of value in the Company’s assets, possibly as a
result of the risks above, or merely a change in sentiment towards the mining sector generally by a sufficient proportion of
investors, there is the risk of shareholders voting to wind-up the Company at that time. Because the Company’s investments are
largely unlisted it could then take a protracted amount of time to realise them or they may need to be sold at a discount to Fair
Value if an accelerated timetable is required.
The Board has conducted sensitivity tests of future income and expenditure and the ability to realise assets should assets fall in
value by over 50% by 2021. The Board has selected 2021 as the appropriate timeframe to conduct the analysis as this is when
the next discontinuation vote will take place. To understand the requirements of the Company’s major shareholders, the
Investment Manager regularly liaises with the Company’s broker and meets major shareholders. The Chairman is also available
to meet with shareholders as required.
In the event of a winding up of the Company, Shareholders will rank behind any creditors of the Company.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council
(“FRC”) in September 2014 (the “UK Code”), the Directors have assessed the prospects of the Company over 3 years, being the
period until the discontinuation vote at the AGM in 2021 and one year thereafter. The Directors consider that this is an appropriate
timeframe to assess the viability of the Company.
The Directors have considered each of the principal risks and uncertainties detailed above individually and collectively and have
taken into account in particular the impact of the shareholder vote on the viability of the Company.
The Company has previously seen pressures from the fall in commodity prices and a move by its share price to a discount to its
NAV, which itself has fallen significantly, notwithstanding its recovery in the past three years. These trends reflect the initial
failure of the world’s major economies to recover strongly from the global financial crisis of 2007-8 and the subsequent slowing
of growth of emerging markets.
Notwithstanding this, it is a feature of closed-ended investment companies such as BSRT that the greatest risk to viability is that
the investments lose value to an extent where the Board cannot ensure that assets continue to exceed liabilities or where expenses
become excessive or cannot be met as they fall due.
13
BAKER STEEL RESOURCES TRUST LIMITED
STRATEGIC REPORT (CONTINUED)
Viability Statement (continued)
In the case of the Company, which has no gearing, the Board has conducted stress and sensitivity tests of future income and
expenditure and the ability to realise assets, and has concluded that based on the listed assets held, even in circumstances
representing a further deterioration in value in excess of 50% of net assets, the Company can remain viable over the period to
the 2021 AGM. The key factor in this assessment is that currently the Company’s greatest expense is the management fee which
is calculated on the market capitalisation of the Company. Should net assets fall, market capitalisation would be expected to fall
in line, such that the costs of the Company would also fall.
As a result the Board of Directors have a reasonable expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment.
Future Developments
The future performance of the Company depends upon the success of the Company’s investment strategy and, as to its share
price and market rating, partly on investors’ view of mining related investments as an asset class. Further comments on the
outlook for the Company can be found in the Chairman’s Statement on page 3 and the Investment Manager’s Report on pages 4
to 7.
Signed on behalf of the Board of Directors by:
Howard Myles
Christopher Sherwell
9 April 2019
Commodity Exposure
Cash &
Other
7%
Copper
4%
Coking Coal
10%
Silver
17%
Australia
10%
Geographical Exposure
Cash &
Other
8%
DRC
2%
Zimbabwe
14%
Tin
2%
Cement / Oil
Shale
11%
Potash
5%
Norway
3%
Morocco
11%
Indonesia
4%
Iron Ore
8%
Gold
36%
Germany
2%
Canada
3%
Rep of
Congo
5%
Data at 31 December 2018
Russia
38%
14
BAKER STEEL RESOURCES TRUST LIMITED
BOARD OF DIRECTORS
The Board of Directors is listed below. Mr Sherwell was appointed on 9 March 2010; all other Directors were appointed on 12
March 2010. No limit on the overall length of service of any of the Company’s Directors, including the Chairman, has been
imposed, but taking into account the latest corporate governance requirements, the Board has put in place a succession plan to
refresh its membership while maintaining a degree of continuity. The first director who will step down is Mr Chris Sherwell who
will retire at this year’s AGM.
Howard Myles (aged 69): Howard Myles currently acts as a non-executive director of a number of investment companies.
Howard was a partner in Ernst & Young from 2001 until 2007 and was responsible for the Investment Funds Corporate Advisory
team. He was previously with UBS Warburg from 1987 to 2001. Howard began his career in stockbroking in 1971 as an equity
salesman and joined Touche Ross in 1975 where he qualified as a chartered accountant. In 1978 he joined W. Greenwell & Co.
in the corporate broking team and in 1987 moved to SG Warburg Securities where he was involved in a wide range of commercial
and industrial transactions in addition to leading UBS Warburg’s corporate finance function for investment funds. He is a fellow
of the Institute of Chartered Accountants and of The Chartered Institute for Securities and Investments.
Howard is a member of the Company’s Audit Committee.
Charles Hansard (aged 70): Charles Hansard has over 31 years’ experience in the investment industry as a professional and in
a non-executive capacity. He currently serves as a non-executive director on a number of boards which include the Moore Capital
group of funds, AAA- rated Deutsche Bank Global Liquidity Fund, and Electrum Ltd., a privately owned gold exploration
company. He formerly served as a director of Apex Silver Mines Ltd., where he chaired the finance committee during its capital
raising phase and as chairman of the board of African Platinum Plc, which he led through reorganisation and feasibility prior to
its sale to Impala Platinum. He commenced his career in South Africa with Anglo American Corporation and Fleming Martin as
a mining analyst. He subsequently worked in New York as an investment banker for Hambros before returning to the UK to co-
found IFM Ltd., one of the earliest European hedge fund managers. Charles holds a B.B.S. from Trinity College Dublin.
Clive Newall (aged 69): Clive Newall graduated from the Royal School of Mines, University of London, England in 1971 with
an honours degree in Mining Geology, and was awarded an MBA from the Scottish Business School at Strathclyde University.
He has worked in mining and exploration throughout his career, having held senior management positions with Amax
Exploration Inc. and the Robertson Group plc. Clive has been a director of a number of public companies in the United Kingdom
and Canada. He is the founder of First Quantum Minerals Ltd and has been its President and a director since its incorporation.
Clive is a member of the Company’s Audit Committee.
Christopher Sherwell (aged 71): Christopher Sherwell has worked since 2004 as a senior Non-Executive Director based in
Guernsey with roles in the offshore finance industry. Prior to January 2004, Christopher was Managing Director of Schroders’
offshore investment and private banking operations in the Channel Islands. Christopher was previously Investment Director from
1993-2000 and also served on the boards of various Schroder group companies and funds during his period there. Prior to
Schroders he worked at Smith New Court as a research analyst specialising in asset allocation for Asian markets. Christopher is
a Rhodes Scholar with degrees in science and in economics and politics. He has worked as a university lecturer and was for
sixteen years a journalist, most of them working for the Financial Times.
Christopher is the Chairman of the Audit Committee of the Company. As noted in the Chairman’s Statement, as part of an orderly
succession plan, Christopher will not stand for re-election at this year’s AGM.
15
BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT
For the year ended 31 December 2018
The Directors of the Company present their ninth annual report and the audited financial statements for the year ended 31
December 2018.
Principal activity and business review
Baker Steel Resources Trust Limited (the “Company”) is a closed-ended investment company with limited liability incorporated
on 9 March 2010 in Guernsey under the Companies (Guernsey) Law, 2008 with registration number 51576. The Company is a
registered closed-ended investment scheme registered pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987,
as amended (“POI Law”) and the Registered Collective Investment Scheme Rules 2018 issued by the Guernsey Financial
Services Commission (“GFSC”). On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company were admitted
to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange.
Details of the Company’s investment objectives and policies are described in the Strategic Report.
Performance
In the year to 31 December 2018, the Company’s NAV per Ordinary Share increased by 0.2% (2017: 18.6%). This compares
with a drop in the EMIX Global Mining Index (capital return in Sterling terms) of 5.9% (2017: rise of 20.7%). A more detailed
explanation of the performance of the Company is provided within the Investment Manager’s Report on pages 4 to 7.
The results for the year are shown in the Statement of Comprehensive Income on pages 32 and 33 and the Company’s financial
position at the end of the year is shown in the Statement of Financial Position on page 31.
Dividend and dividend policy
During the year ended 31 December 2015 the Board introduced a capital returns policy whereby, subject to applicable laws and
regulations, it will allocate cash for distributions to shareholders. The amount to be distributed will be calculated following
publication of the Company’s audited financial statements for each year and will be no less than 15% of the aggregate net realised
cash gains (after deducting losses) in that financial year. The Board will retain discretion for determining the most appropriate
manner to make such distribution which may include share buybacks, tender offers and dividend payments. The Company has a
realised net gain per the Statement of Comprehensive Income and realised an aggregate cash gain for the year ended 31 December
2018.
As a result of the reorganisation of Polar Acquisition Limited during the year, the Company received cash and share dividends
of Polymetal International Plc (“Polymetal”) shares totalling £20.4 million. The Board considers the Polymetal shares to be
sufficiently liquid so as to be considered in the calculation of net realised cash gains in the spirit of the policy and therefore is
recommending to shareholders a distribution of £4 - £5million being approximately 25% of the net realised gain to be made via
a tender offer. Details of the proposed tender offer are expected to be posted to shareholders in May 2019.
Directors and their interests
The Directors of the Company who served during the year and up until the date of signing of the financial statements were:
Howard Myles (Chairman)
Charles Hansard
Clive Newall
Christopher Sherwell
Biographical details of each of the Directors are presented on page 15.
Each of the Directors is considered to be independent in character and judgement, notwithstanding that they have each served
on the Board since the inception of the Company.
The Directors’ interests in the share capital of the Company up until the date of signing were:
Christopher Sherwell
Clive Newall
Number of
Ordinary Shares
2018
104,198
25,000
Number of
Ordinary Shares
2017
104,198
25,000
Each Director is asked to declare his interests at each Board Meeting. No Director has any material interest in any other contract
which is significant to the Company’s business.
16
BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2018
Authorised Share Capital
The share capital of the Company on incorporation was represented by an unlimited number of Ordinary Shares of no par value.
The Company may issue an unlimited number of shares of a nominal or par value and/or of no par value or a combination of
both.
Issue of Shares
The Company was admitted to trading on the London Stock Exchange on 28 April 2010. On that date, 30,468,865 Ordinary
Shares and 6,093,772 Subscription Shares were issued pursuant to a placing and offer for subscription and 35,554,224 Ordinary
Shares and 7,110,822 Subscription Shares were issued pursuant to a Scheme of Reorganisation of Genus Capital Fund.
In addition 10,000 Management Ordinary Shares were issued.
Following the exercise of Subscription Shares at the end of September 2010, March 2011, March 2012, June 2012 and
September 2012, a total of 119,444 Ordinary Shares were issued. The final exercise date for the Subscription Shares was 2 April
2013. No Subscription Shares were exercised at this time and all residual Subscription Shares were subsequently cancelled.
Following in specie transactions on 28 June 2014 and 1 July 2014, a total of 5,561,243 Ordinary Shares were issued.
Following in specie transactions on 25 February 2015 and 4 March 2015, 40,196,071 Ordinary Shares were issued. In addition
the Company issued a total of 3,368,488 Ordinary Shares on 4 March 2015 Shares under an open offer.
Following an in specie transaction on 22 September 2016, 1,561,645 Ordinary Shares were issued.
Details of these transactions are included within Note 10 of these financial statements.
On 14 August 2015 and 20 August 2015 the Company bought back 200,000 and 500,000 Ordinary Shares respectively, both at
an average price of 20 pence per share. The repurchased Ordinary Shares are held in Treasury.
Following the transactions noted above the Company has a total of 116,129,980 Ordinary and 10,000 Management Shares in
issue as at 31 December 2018, of which 700,000 Ordinary Shares are held in Treasury.
Significant Shareholdings
As at 31 December 2018, the Company had received notifications in accordance with the FCA’s Disclosure and Transparency
Rule 5.1.2 R of the following interests in 3% or more of the voting rights attaching to the Company’s issued share capital.
Ordinary Shareholder
Bank of New York Nominees Limited*
Vidacos Nominees Limited*
Citibank Nominees Limited*
Harewood Nominees Limited*
Nortrust Nominees Limited*
BNY Nominees Limited*
Rock Nominees Limited*
Number of
Ordinary Shares
000’s
22,549
22,404
14,353
14,171
12,119
7,670
3,677
% of Total
Shares in issue
19.30
19.18
12.29
12.13
10.37
6.57
3.15
* Custodian accounts held on behalf of individual shareholders, the majority of whom retained the associated voting rights.
These holdings are aggregated.
The Investment Manager, Baker Steel Capital Managers LLP had an interest in 10,000 Management Ordinary Shares at 31
December 2018 (31 December 2017: 10,000).
Baker Steel Global Funds SICAV – Precious Metals Fund (“Precious Metals Fund”) had an interest in 7,469,609 Ordinary
Shares in the Company at 31 December 2018 (2017: 7,469,609). These shares are included in Vidacos Nominees Limited above.
Precious Metals Fund has the same Investment Manager as the Company.
17
BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2018
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the annual report and financial statements in accordance with applicable Guernsey
law, Listing Rules, Disclosures and Transparency Rules, UK Corporate Governance Code and generally accepted accounting
principles.
Guernsey company law requires the Directors to prepare financial statements for each financial year which give a true and fair
view of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing these financial
statements the Directors should:
-
-
-
-
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable;
state whether applicable accounting standards have been followed, subject to any material departures disclosed and
explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the
financial position of the Company and which enable the Directors to ensure that the financial statements comply with the
Companies (Guernsey) Law, 2008. The Directors are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that to the best of their knowledge:
-
-
-
-
the financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
adopted by the European Union (“EU”) and give a true and fair view of the assets, liabilities and financial position and
profit or loss of the Company;
the Annual Report includes a fair review of the development and performance of the business and position of the
Company together with the description of the principal risks and uncertainties that the Company faces, as required by
the Disclosure and Transparency Rules of the UK Listing Authority; and
the Directors confirm that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Company’s performance, business
model and strategy.
The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance, solvency or liquidity.
Auditor Information
The Directors at the date of approval of this Report confirm that, so far as each of the Directors is aware, there is no relevant
audit information of which the Company’s auditor is unaware and each Director has taken all the reasonable steps he ought to
have taken as a director to make himself aware of any relevant audit information and to establish that the Company’s auditor is
aware of that information.
Going Concern
The Directors have made an assessment of the Company’s ability to continue as a going concern and consider it appropriate to
adopt the going concern basis of account. The Board is satisfied that it has the resources to continue in business for at least 12
months following the signing of these financial statements. As at 31 December 2018, approximately 38% of the Company’s
assets were represented by cash and unrestricted listed and quoted investments. The Directors are not aware of any material
uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern.
Corporate Governance Compliance
The Guernsey Financial Services Commission’s Finance Sector Code of Corporate Governance (the “GFSC Code”) provides a
framework which applies to all companies in the regulated finance sector in Guernsey. The Company reports against the UK
Corporate Governance Code (the “Code”), which meets the requirements of the GFSC Code. The Board is committed to high
standards of corporate governance and has implemented a framework for corporate governance that it considers to be
appropriate for an investment company in order to comply with the principles of the Code. The Code is available on the FRCs
website www.frc.org.uk and the Company has made its corporate governance practices publicly available and these can be
found at www.bakersteelresourcestrust.com. The disclosures in this statement report against the provisions of the Code, as
revised in 2016.
18
BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2018
Corporate Governance Compliance (continued)
The Board has noted the publication of a further revised UK Corporate Governance Code in July 2018, which applies to financial
years beginning on or after 1 January 2019, and is considering the Company’s governance framework in light of the new
provisions. Throughout the year ended 31 December 2018, the Company has complied with the recommendations of the Code
except as set out below.
The Code includes provisions relating to:
• The role of the Chief Executive,
• Executive Directors’ remuneration
• The requirement for a senior Independent Director
• Nomination, Remuneration and Management Engagement Committees
• The requirement for an internal audit function
The Board considers these provisions are not relevant for the Company as it is an externally managed investment entity. The
Company has therefore not reported further in respect of these provisions. The Directors are all independent and non-executive
and the Company does not have employees, hence no Chief Executive is required for the Company. The Board is satisfied that
any relevant issues can be properly considered by the Board.
There have been no other instances of non-compliance, other than those noted above.
Operation and composition of the Board
• Composition
The Board has no executive directors and has contractually delegated responsibility for the management of the Company’s
investment portfolio, the arrangement of custodial and cash flow monitoring and oversight services and the provision of
accounting and company secretarial services. The Company has no employees.
•
Independence
The Board consists entirely of independent non-executive Directors, of whom Howard Myles is the Chairman. Each of the
Directors confirms that they have no other significant commitments that impact on their ability to act for the Company and
its shareholders, and that they have sufficient time to fulfil their obligations to the Company.
• Senior Independent Director
In view of its non-executive nature, the Board considers that it is not necessary for a Senior Independent Director to be
appointed.
• Appointment and re-election
The Company has a transparent procedure for the appointment and re-election of the Directors. There are no service contracts
in place for the Directors.
The Directors are not required to retire by rotation; instead each director puts himself forward for re-election on an annual
basis at the AGM. The AGM also includes a resolution whereby shareholders are able to approve the maximum cumulative
remuneration for the Board.
All the Directors are responsible for reviewing the size, structure and skills of the Board and considering whether any
changes are required or new appointments are necessary to meet the requirements of the Company’s business or to maintain
a balanced Board.
•
Information and training
The Board receives full details of the Company’s assets, liabilities and other relevant information in advance of Board
meetings. Typically, the Board meets formally four times a year; however, the Investment Manager and Company Secretary
stay in more regular, less formal contact with the Directors. Individual Directors have direct access to the Company Secretary
and may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the
furtherance of their duties. New Directors will receive an induction from the Investment Manager and Company Secretary
on joining the Board, and all Directors receive other relevant training as necessary.
19
BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2018
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
• Performance appraisal
The performance of the Board and the Audit Committee is evaluated through a formal and rigorous assessment process led
by the Chairman. The performance of the Chairman is evaluated by the other Directors.
•
Investment Manager assessment
The Investment Manager was appointed pursuant to an investment management agreement with the Manager dated 31 March
2010 and which was amended and restated, with the Company joining as a party, on 14 November 2014 (the Investment
Management Agreement). The Investment Manager is paid by the Manager and is not separately remunerated by the
Company. The Investment Management Agreement pursuant to which the Company and the Manager have appointed the
Investment Manager is terminable by any party giving the other parties not less than 12 months’ written notice.
The Investment Manager prepares regular reports to the Board to allow it to review and assess the Company’s activities and
performance on an ongoing basis. The Board and the Investment Manager have agreed clearly defined investment criteria,
exposure limits and specified levels of authority. The Board completes a formal assessment of the Investment Manager on
an annual basis. The assessment covers such matters as the performance of the Company relative to its peers and sector, the
management of investment relations and the reasonableness of fee arrangements. Based on its assessment it is the opinion
of the Board that the continuation of the appointment of the Investment Manager is in the best interests of shareholders of
the Company.
• Board meetings
The Board generally meets at least four times a year, at which time the Directors review the management of the Company's
assets and all other significant matters so as to ensure that the Directors maintain overall control and supervision of the
Company’s affairs. The Board is responsible for the appointment and monitoring of all service providers to the Company.
Between these quarterly meetings there is regular contact with the Investment Manager. The Directors are kept fully
informed of investment and financial controls and other matters which are relevant to the business of the Company and
which should be brought to the attention of the Directors. The Directors also have access to the Company Secretary (through
its appointed representatives who are responsible for ensuring that Board procedures are followed and that applicable rules
and regulations are complied with) and, where necessary in the furtherance of their duties, to independent professional
advice at the expense of the Company.
Attendance at the Board and Audit Committee meetings during the year was as follows:
Howard Myles
Christopher Sherwell
Charles Hansard
Clive Newall
Board Meetings
Held
4
4
4
4
Attended
4
4
4
4
Audit Committee
Meetings
Held
4
4
4
4
Attended
4
4
N/A
4
In addition to formal meetings, all Directors contribute to a significant ad hoc exchange of views with the Investment
Manager on specific matters, in particular in relation to developments in the portfolio.
The Directors are remunerated for their services at such rate as the Directors determine provided that the aggregate amount
of such fees may not exceed £200,000 per annum (or such sum as the Company in general meeting shall from time to time
determine).
For the year ended 31 December 2018 the total remuneration of the Directors was £115,000 (2017: £115,000), with £28,750
(2017: £28,750) payable at year end.
• Relations with Shareholders
The Board believes that the maintenance of good relations with shareholders is vital for the long-term prospects of the
Company. The Company’s stockbrokers, Numis Securities Limited, and Investment Manager are responsible for managing
relationships with shareholders and each provides the Board with feedback on a regular basis that includes a shareholder
contact report and any concerns the shareholder has raised. The Chairman and the Board are also available to meet with
shareholders at the Company’s Annual General Meeting or otherwise.
20
BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2018
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
Committees
The Committees of the Board have formal Terms of Reference which are available on the Company’s webpage
http://bakersteelresourcestrust.com/corporate-governance/.
• Audit Committee
The Board has established an Audit Committee. The Audit Committee meets at least three times a year and is responsible
for ensuring that the financial performance of the Company is properly reported on and monitored and provides a forum
through which the Company’s external auditor may report to the Board. The Audit Committee operates within established
terms of reference. The Directors consider there is no need for an internal audit function because the Company operates
through service providers and the Directors receive control reports on key service providers.
Christopher Sherwell is Chairman of the Audit Committee.
• Nomination, Remuneration and Management Engagement Committees
Given the size and nature of the Company and the fact that all the Directors are independent and non-executive it is not
deemed necessary to form separate Nomination, Remuneration, and Management Engagement Committees. The Board, as
a whole, will consider new Board appointments, remuneration and the engagement of service providers. The Directors
recognise the benefits of diversity in terms of gender and ethnicity and will take these into account when considering future
appointments to the Board. However their principal criteria will remain skills and experience with the objective of
maximising shareholder value.
The remuneration for the non- executive directors is capped by shareholder resolution at the AGM. There is no differential
for payments of the non-executive directors except that the Chairman of the Board and the Chairman of the Audit Committee
each receive additional payments for these roles.
Internal Controls
The Board has delegated the day to day responsibilities for the management of the Company’s investment portfolio, the
provision of depositary services and administration, registrar and corporate secretarial functions including the independent
calculation of the Company’s NAV and the production of the Annual Report and Financial Statements which are independently
audited.
Formal contractual agreements have been put in place between the Company and providers of these services.
Even though the Board has delegated responsibility for these functions, it retains accountability for them and is responsible for
the systems of internal control. At each quarterly Board meeting, compliance reports are provided by the Administrator and
Investment Manager.
The Company’s risk matrix continues to be the core element of the Company’s risk management process in establishing the
Company’s system of internal financial and reporting control. The risk matrix is prepared and maintained by the Manager and
reviewed regularly by the Board which initially identifies the risks facing the Company and then collectively assesses the
likelihood of each risk, the impact of those risks and the strength of the controls operating over each risk. The system of internal
financial and operating control is designed to manage rather than to eliminate the risk of failure to achieve business objectives
and by its nature can only provide reasonable and not absolute assurance against misstatement and loss.
21
BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2018
Corporate Governance Compliance (continued)
Internal Controls (continued)
These controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The Board confirms that there is an ongoing process for identifying, evaluating
and managing the significant risks faced by the Company.
This process has been in place for the year under review and up to the date of approval of this Annual Report and Audited
Financial Statements and is reviewed by the Board and is in accordance with the Internal Controls: Revised Guidance for
Directors on the Combined Code issued by the FRC.
The Board therefore believes that the Company has adequate and effective systems in place to identify, mitigate and manage
the risks to which it is exposed.
Internal Audit
The Company does not have an internal audit function; it delegates to third parties most of its operations and does not employ
any staff. The Board will continue to review whether a function equivalent to internal audit is needed.
Subsequent Events
Since 31 December 2018 the Company has acquired a 0.75% gross revenue royalty over Futura Resources Limited’s two coking
coal projects in Australia for A$6 million; subscribed for a further £1 million convertible loan notes in Anglo Saxony Mining;
and agreed to subscribe US$3 million in convertible loan notes in Azarga Metals Corp.
There were no other events subsequent to the year-end that materially impacted on the Company.
Signed on behalf of the Board of Directors by:
Howard Myles
Christopher Sherwell
9 April 2019
22
BAKER STEEL RESOURCES TRUST LIMITED
REPORT OF THE AUDIT COMMITTEE
For the year ended 31 December 2018
The function of the Audit Committee as described in its Terms of Reference is to ensure that the Company maintains high
standards of integrity in its financial reporting and internal controls.
The Board, as a whole, including the Audit Committee members, considers the nature and extent of the Company’s risk
management framework and the risk profile that is acceptable in order to achieve the Company’s strategic objectives. As a result,
it is considered that the Board has fulfilled its obligations under the UK Code.
The Audit Committee continues to be responsible for reviewing the adequacy and effectiveness of the Company’s on-going risk
management systems and processes. The Company’s system of internal controls, along with its design and operating
effectiveness, is subject to review by the Audit Committee through reports received from all service providers.
In the event of any deficiencies or breaches reported, the Board would consider the actions required to remedy and prevent
significant failings or weaknesses.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery and corruption policies of the Company. The Board receives a
confirmation from all service providers that there have been no instances of fraud or bribery.
The Audit Committee considers the adequacy and security of its arrangements for the employees of its service providers to raise
concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Audit Committee is satisfied it
has the ability and resources to investigate any such matters which may arise and to follow up on any conclusion reached by
such investigation.
The Audit Committee is appointed by the Board and all members are considered to be independent both of the Investment
Manager and the external auditor. The Audit Committee meets a minimum of three times a year to discuss the Interim and Annual
Report and Audited Financial Statements, the audit plan and engagement letter, and the Company’s risks, via discussion of its
risk matrix. The Board is satisfied that the Audit Committee is properly constituted with members having recent and relevant
financial experience, including one member who is a chartered accountant.
Primary Areas of Judgement
As part of its review of the Company’s financial statements, the Audit Committee takes account of the most significant issues
and risks, both operational and financial, likely to impact on the financial statements and the mitigating controls to address these
risks. The Audit Committee has determined that the key risk of misstatement is the valuation of investments for which there is
no readily observable market price. Such investments are recorded at fair value which is the price that would be expected to be
received to sell an asset in an orderly transaction between market participants at the measurement date. Significant judgements
are required in respect of the valuation of the Company’s investments for which there is no observable market price. Further
information on the Company’s methodologies is provided in Note 3 to the financial statements.
The risk is mitigated through the review by the Board of detailed reports prepared by the Investment Manager on portfolio
valuation including valuation methodology, the underlying assumptions and the valuation process.
The Investment Manager also provides information to the Board on relevant market indices, recent transactions in similar assets
and other relevant information to allow an assessment of appropriate carrying value having regard to the relevant factors.
The responsibility for ensuring that investments are carried at fair value lies with the Board.
23
BAKER STEEL RESOURCES TRUST LIMITED
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
For the year ended 31 December 2018
Through its meetings during the year ended 31 December 2018 and its review of the Company’s Annual Report and Audited
Financial Statements, the Audit Committee considered the following significant risks as well as the principal risks and
uncertainties described on pages 12 and 13.
Risk Considered
How addressed
The accuracy of the Company’s Annual Report and Financial
Statements
Review of the Annual Report and Audited Financial
Statements, discussions with the external auditor and
meetings with the auditor to understand the audit approach
and findings.
Adequacy of the Company’s accounting and internal controls
systems
Consideration of the Company’s risk matrix, taking account
of the relevant risks, the potential impact to the Company and
the mitigating controls in place.
Valuation of the Company’s investments, in particular the
valuation of unquoted investments
The effectiveness and independence of the external audit
process
Reports received from the Investment Manager providing
background to the investment valuations. The Investment
Manager reporting is then supported by the independent
auditor’s review of the investment valuations.
The Audit Committee has regular dialogue with the external
auditor both before and during the audit process. The auditor
presents to the Audit Committee at both the engagement and
audit review stage, and confirms its independence at each
stage. The Audit Committee receives feedback from the
Investment Manager on the audit process and any concerns or
challenges faced.
The Audit Committee also provides a forum through which the Company’s auditor reports to the Board. The Board, not the
Audit Committee, approves all non-audit work carried out by the auditor in advance and the fees paid to the auditor in this
respect.
External Audit
The Company’s external auditor is BDO Limited (“BDO”).
During 2017, the Audit Committee on behalf of the Board of Directors undertook a review of the Company’s audit arrangement.
Following a tender process, BDO were appointed as the Company’s independent external auditor. The appointment was effective
5 September 2017.
The fees due to auditors during the year were as follows:
Audit Fees
Audit Fees
Non audit Fees
Total Fees
*Paid to Ernst and Young LLP
Agreed Upon Procedures
2018
£
45,000
7,500
52,500
2017
£
45,000
*7,500
52,500
24
BAKER STEEL RESOURCES TRUST LIMITED
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
For the year ended 31 December 2018
The external auditor provided an audit planning report in advance of the annual audit. The Audit Committee has the opportunity
to question and challenge the auditor in respect of their work. Based on levels of interaction with the auditor, and the assessment
of auditor reporting, the Audit Committee is satisfied that the reappointment of the external auditor should be proposed at the
Annual General Meeting of the Company.
In conclusion, the Audit Committee is satisfied that the external auditor is independent. The Audit Committee continues to assess
the effectiveness of the external auditor, considering the audit planning, adherence to audit standards, competence of the audit
team and feedback from the Investment Manager and following the completion of the audit the Audit Committee will make a
recommendation regarding the continued appointment of BDO.
Internal Audit
The Audit Committee believes that the Company does not require an internal audit function because it delegates its day to day
functions to third party service providers, although the Audit Committee oversees these operations and receives regular reports
in this respect.
Risk Management and Internal Controls
The Board is responsible for the Company’s system of internal controls and risk management. The Audit Committee has been
delegated the responsibility for reviewing the ongoing effectiveness of the Company’s internal controls and it discharges its
duties in this area by assessing the nature and extent of the significant risks it is willing to accept in achieving the Company’s
objectives and ensuring that effective systems of risk identification, assessment and mitigation have been implemented.
The Company delegates its day to day operations to third parties and therefore relies on the internal control arrangements of its
outsourced service providers in respect of a number of key controls. It is the Audit Committee’s responsibility to ensure that
suitable internal control systems are implemented by the Company’s third party service providers and to review the effectiveness
of these controls on an ongoing basis.
The key risks faced by the Company, and the controls in place to mitigate such risks, are set out in a Risk Matrix which is
regularly reviewed by the Board. The Risk Matrix identifies the likelihood and severity of the impact of each identified risk
factor and the mitigating controls in place to minimise the probability of such risks occurring. The Strategic Report outlines the
principal risks and uncertainties affecting the Company.
By their nature, the control mechanisms can only provide reasonable rather than absolute assurance against misstatement or loss.
The Board seeks continual improvement in its internal control mechanisms. The Audit Committee is not aware of any significant
failings or weaknesses in the Company’s internal controls in the year under review.
Financial Reporting
The primary role of the Audit Committee in relation to financial reporting is to review the annual Financial Statements with the
Administrator and the Investment Manager and assess their appropriateness. It focuses in this respect, amongst other matters,
on:
•
the clarity of the disclosures in the financial reporting and compliance with statutory, regulatory and other financial
reporting requirements;
the quality and acceptability of accounting policies and practices;
•
• material areas where significant judgements have been applied or where there has been discussion with the auditor; and
•
taken as a whole, whether the financial statements are fair, balanced and understandable and provide shareholders with
the necessary information to assess the Company’s performance and strategy although the Board retains overall
responsibility in this respect.
25
BAKER STEEL RESOURCES TRUST LIMITED
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
For the year ended 31 December 2018
Going Concern
The Audit Committee has made an assessment of the Company’s ability to continue as a going concern. Particular regard has
been given to the fact that the Company holds listed securities that can if necessary be realised to meet liabilities as they become
due; as at 31 December 2018, approximately 38% of the Company’s assets were represented by cash and unrestricted quoted
investments.
On the basis of its review, the Audit Committee is satisfied that the Company has the resources to continue in business for at
least 12 months from the date of signing these financial statements and therefore is of the opinion that the financial statements
should be prepared on a going concern basis and has accordingly recommended this opinion to the Board.
Christopher Sherwell
Audit Committee Chairman
9 April 2019
26
BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT TO MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED
Opinion
We have audited the financial statements of Baker Steel Resources Trust Limited (“the Company”) for the year ended 31
December 2018 which comprise the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of
Changes in Equity, the Statement of Cash Flows and notes to the financial statements, including a summary of significant
accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
•
•
•
give a true and fair view of the state of the Company’s affairs as at 31 December 2018 and of its profit for the year then
ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require
us to report to you whether we have anything material to add or draw attention to:
•
•
•
the disclosures in the annual report set out on pages 12 and 13 that describe the principal risks and explain how they are
being managed or mitigated;
the directors’ confirmation on page 18 in the annual report that they have carried out a robust assessment of the principal
risks facing the Company, including those that would threaten its business model, future performance, solvency or
liquidity;
the directors’ statement on page 18 in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of
any material uncertainties to the Company’s ability to continue to do so over a period of at least twelve months from
the date of approval of the financial statements;
• whether the directors’ statement relating to going concern is materially inconsistent with our knowledge obtained in the
•
audit; or
the directors’ explanation set out on pages 13 and 14 in the annual report as to how they have assessed the prospects of
the Company, over what period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and
meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified including those which had the greatest effect on the overall audit strategy, the allocation of resources in
the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
27
BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
For the year ended 31 December 2018
In arriving at our audit opinion on the financial statements, the key audit matter that had the greatest effect on our audit is included
in the table below. In addition, we have set out how we tailored our audit to address this specific area in order to provide an
opinion on the financial statements as a whole. This is not a complete list of all risks identified by our audit.
Key Audit Matter
Valuation of unlisted investments including unrealised
gains/(losses)
Refer to the accounting policies on pages 36 - 39 and Note 3
to the Financial Statements.
The majority (66.0%: 2018, 81.8%: 2017) of the carrying
value of the investments relates to the Company’s holdings in
unquoted investments, which are valued using different
valuation techniques as explained in Note 3 (page 43).
How we addressed the key audit matter in the audit
We considered the processes, policies and methodologies
used by management for fair valuing quoted investments held
by the Company including reviewing the hierarchy of
application of valuation principles.
We performed the following substantive procedures for all
unlisted investments:
• Agreed the manager’s application of valuation
techniques as appropriate to the circumstances of the
asset and the accounting policies applied:
The valuation is subjective, with a high level of judgment and
estimation linked to the determination of fair value with
limited market information available.
• Agreed the inputs into the models to independent
sources and evaluated whether all key terms of the
agreements had been considered:
As a result of the subjectivity, there is a risk of an
inappropriate valuation model being applied, together with
the risk of inappropriate inputs to the model being used.
The valuation of the unquoted investments is the key driver
of the Company’s net asset value and total return. Incorrect
valuation could have a significant impact on the net asset
value of the Company and therefore the return generated for
members.
• Corroborated to independent sources market volatility
rates used in each model:
• Recalculated management’s applied basket of indices
for each investment which had an Index valuation:
• For those investments which used recent Investment as
a basis for recalibrating inputs to the valuation model,
we considered if there were any material changes in the
market or changes in the performance of the Investee
Company affecting the fair value of the investment at
year end.
• Agreed the valuation per the models to the financial
statements.
Our work also included consideration of events which
occurred subsequent to the year end until the date of this audit
report.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.
We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these
levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
For planning, we considered materiality to be the level by which misstatements individually or in aggregate, including omissions,
could influence the economic decisions of the relevant users. Based on our professional judgment, we determined materiality for
the financial statements as a whole to be £1,187,000, which is based on a level of 1.75% of total assets (2017 £1,073,000, which
was based on 1.75% of total assets). We considered total assets to be the most appropriate benchmark due to the Company being
an investment fund with the objective of long-term capital growth.
We considered the application of materiality at the individual account or balance level and set an amount to reduce to an
appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. This
performance materiality has been set at £830,900 which is 70% of materiality (2017: £643,800 which was 60% of materiality).
This has been set based upon the control environment in place, the directors’ assessment of risk and the fact that the main item
on the accounts being unlisted investments which involves high degree of estimations and judgements.
28
BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
For the year ended 31 December 2018
Our application of materiality (continued)
International Standards on Auditing (UK) also allow the auditor to set a lower materiality for particular classes of transaction,
balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. In this context,
we set a lower level of materiality to apply certain trading activities, such as sensitive overhead expenses. Specific materiality
has been determined on the basis of 10% of materiality being £118,700 (2017: 5% of materiality £53,650 given it was the first
year as our appointment as auditor).
We agreed with the Board of Directors that we would report all audit differences in excess of £59,350 (2017: £37,555).
An overview of the scope of our audit
We tailored the scope of our audit taking into account the nature of the Company’s investments, involvement of the Manager
and the company Administrator, the accounting and reporting environment and the industry in which the Company operates. In
designing our overall audit approach, we determined materiality and assessed the risk of material misstatement in the financial
statements.
This assessment took into account the likelihood, nature and potential magnitude of any misstatement. As part of this risk
assessment we considered the Company’s interaction with the Manager and the company administrator. We considered the
control environment in place at the Manager and the company administrator to the extent that it was relevant to our audit.
Following this assessment, we applied professional judgement to determine the extent of testing required over each balance in
the financial statements.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual
report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to address specifically the following items in the
other information and to report as uncorrected material misstatements of the other information where we conclude that those
items meet the following conditions:
•
Fair, balanced and understandable set out on page 18 – the statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s performance, business model and strategy, is materially inconsistent
with our knowledge obtained in the audit; or
• Audit committee reporting set out on page 23 - the section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 18 – the parts of the
Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2)
do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report
to you if, in our opinion:
29
BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
For the year ended 31 December 2018
Matters on which we are required to report by exception (continued)
proper accounting records have not been kept by the Company; or
the financial statements are not in agreement with the accounting records; or
•
•
• we have failed to obtain all the information and explanations which, to the best of our knowledge and belief, are
necessary for the purposes of our audit.
Responsibilities of Directors
As explained more fully in the directors’ responsibilities statement set out on page 18, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view and for such internal control as
the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters which we have agreed to address
Following the recommendation of the Audit Committee, we were appointed by the Board on 4 December 2017 to audit the
financial statements for the year ending 31 December 2018 and subsequent financial periods. The period of total uninterrupted
engagement is 2 years.
The non-audit services prohibited by the FRC’s Ethical Standards were not provided to the Company and we remain independent
of the Company in conducting our audit.
Our audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
Richard Michael Searle FCA
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
9 April 2019
30
BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
Assets
Cash and cash equivalents
Other receivables
Financial assets held at fair value through profit or loss
Total assets
Equity and Liabilities
Liabilities
Directors’ fees payable
Management fees payable
Administration fees payable
Audit fees payable
Other payables
Custodian fees payable
Total liabilities
Equity
Management Ordinary Shares
Ordinary Shares
Profit and loss account
Total equity
Total equity and liabilities
Notes
9
3
12
7,12
6
10
10
2018
£
2017
£
3,811,921
385,659
62,019,940
66,217,520
1,060,077
15,406
65,070,244
66,145,727
28,750
75,370
16,731
45,050
18,073
5,762
189,736
28,750
74,679
54,221
45,050
5,984
5,587
214,271
10,000
81,024,525
(15,006,741)
66,027,784
10,000
81,024,525
(15,103,069)
65,931,456
66,217,520
66,145,727
Net Asset Value per Ordinary Share (in Pence) – Basic and diluted
13
56.9
56.8
The financial statements on pages 31 to 56 were approved and authorised for issue by the Board of Directors on 9 April 20199
and signed on its behalf by:
Howard Myles
Christopher Sherwell
The accompanying notes form an integral part of these audited financial statements
31
BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
Income
Facility & Guarantee fee
Net gain on financial assets at fair value through profit or loss
Foreign exchange gain
Net income
Expenses
Management fees
Directors’ fees
Administration fees
Custody fees
Broker fees
Other expenses
Audit fees
Legal fees
Directors’ expenses
Total expenses
Notes
11
3
7,12
12
6
8
Year ended
2018
Revenue
£
Year ended
2018
Capital
£
Year ended
2018
Total
£
358,951
20,693,637
-
21,052,588
-
(19,614,324)
65,492
(19,548,832)
358,951
1,079,313
65,492
1,503,756
928,850
115,000
100,111
71,639
38,236
80,444
52,500
4,408
16,240
1,407,428
-
-
-
-
-
-
-
-
-
-
928,850
115,000
100,111
71,639
38,236
80,444
52,500
4,408
16,240
1,407,428
Net gain/(loss) for the year
19,645,160
(19,548,832)
96,328
Net gain for the year per Ordinary Share:
Basic and diluted (in pence)
13
16.9
(16.8)
0.1
In the year ended 31 December 2018 there were no other gains or losses than those recognised above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC Statement of Recommended
Practice. The Company follows this element of the AIC practice only.
The accompanying notes form an integral part of these audited financial statements
32
BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
Income
Other income
Net gain on financial assets at fair value through profit or loss
Net foreign exchange gain
Net income
Expenses
Management fees
Directors’ fees
Administration fees
Custody fees
Broker fees
Other expenses
Audit fees
Legal fees
Directors’ expenses
Interest expenses
Total expenses
Notes
3
7,12
12
6
8
Year ended
2017
Revenue
£
Year ended
2017
Capital
£
Year ended
2017
Total
£
30,789
-
-
30,789
-
11,491,606
87,966
11,579,572
30,789
11,491,606
87,966
11,610,361
768,116
115,000
96,711
69,537
60,641
57,950
52,500
44,560
15,229
6,451
1,286,695
-
-
-
-
-
-
-
-
-
-
-
768,116
115,000
96,711
69,537
60,641
57,950
52,500
44,560
15,229
6,451
1,286,695
Net (loss)/gain for the year
(1,255,906)
11,579,572
10,323,666
Net (loss)/gain for the year per Ordinary Share:
Basic and diluted (in pence)
13
(1.1)
10.0
8.9
In the year ended 31 December 2017 there were no other gains or losses than those recognised above.
The Directors consider all results to derive from continuing activities.
The format of the Statement of Comprehensive Income follows the recommendations of the AIC Statement of Recommended
Practice. The Company follows this element of the AIC practice only.
The accompanying notes form an integral part of these audited financial statements
33
BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
Management
Ordinary
Shares
£
Ordinary
Shares
£
Treasury
Shares
£
Profit and
loss account
(Revenue)
£
Profit and loss
account
(Capital)
£
Total
£
Balance as at 1 January 2017
Net (loss)/gain for the year
Balance as at 31 December 2017
10,000
-
10,000
81,165,017
-
81,165,017
(140,492)
-
(140,492)
(8,284,845)
(1,255,906)
(9,540,751)
(17,141,890)
11,579,572
(5,562,318)
55,607,790
10,323,666
65,931,456
Net gain/(loss) for the year
Balance as at 31 December 2018
-
10,000
-
81,165,017
-
(140,492)
19,645,160
10,104,409
(19,548,832)
(25,111,150)
96,328
66,027,784
Note
10
10
10
The accompanying notes form an integral part of these audited financial statements
34
BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018
Year ended
2018
£
Year ended
2017
£
Notes
Cash flows from operating activities
Net gain for the year
Adjustments to reconcile net gain for the year to net cash used in operating activities:
Interest expense
Net gain on financial assets at fair value through profit or loss*
Net (increase)/decrease in receivables
Net (decrease)/increase in payables
3
Interest received/(paid)
Dividend received
Net cash used in operating activities
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss
Sale of financial assets at fair value through profit or loss
Net cash provided by investing activities
96,328
10,323,666
-
(1,079,313)
(366,115)
(24,535)
(1,373,635)
300,459
1,045,972
6,451
(11,491,606)
101,754
33,448
(1,026,287)
(177)
-
(27,204)
(1,026,464)
(5,380,263)
8,159,311
2,779,048
(9,542,851)
11,079,780
1,536,929
Net increase in cash and cash equivalents
2,751,844
510,465
Cash and cash equivalents at the beginning of the year
1,060,077
549,612
Cash and cash equivalents at the end of the year
9
3,811,921
1,060,077
* The net gain includes £19,343,068 of dividend income which was received in specie through the granting of shares in
Polymetal Plc.
The accompanying notes form an integral part of these audited financial statements
35
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
1. GENERAL INFORMATION
Baker Steel Resources Trust Limited (the “Company”) is a closed-ended investment company with limited liability
incorporated and domiciled on 9 March 2010 in Guernsey under the Companies (Guernsey) Law, 2008 with registration
number 51576. The Company is a registered closed-ended investment scheme registered pursuant to the Protection of
Investors Law and the Registered Collective Investment Scheme Rules 2018 issued by the Guernsey Financial Services
Commission (“GFSC”). On 28 April 2010 the Ordinary Shares and Subscription Shares of the Company were admitted to
the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange. The
Company’s Ordinary and Subscription Shares were admitted to the Premium Listing Segment of the Official List on 28
April 2010.
The final exercise date for the Subscription Shares was 2 April 2013. No Subscription Shares were exercised at this time
and all residual/unexercised Subscription Shares were subsequently cancelled.
The Company’s portfolio is managed by Baker Steel Capital Managers (Cayman) Limited (the “Manager”). The Manager
has appointed Baker Steel Capital Managers LLP (the “Investment Manager”) as the Investment Manager to carry out certain
duties. The Company’s investment objective is to seek capital growth over the long-term through a focused, global portfolio
consisting principally of the equities, or related instruments, of natural resources companies. The Company invests
predominantly in unlisted companies (i.e. those companies which have not yet made an Initial Public Offering (“IPO”)) and
also in listed securities (including special situations opportunities and less liquid securities) with a view to exploiting value
inherent in market inefficiencies and pricing anomalies.
Baker Steel Capital Managers LLP was authorised to act as an Alternative Investment Fund Manager (“AIFM”) of
Alternative Investment Funds (“AIFs”) on 22 July 2014. On 14 November 2014, the Investment Manager signed an amended
Investment Management Agreement with the Company, to take into account AIFM regulations. AIFMD focuses on
regulating the AIFM rather than the AIFs themselves, so the impact on the Company is limited.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The financial statements have been prepared on a historic cost basis except for Financial Instruments at Fair Value Through
Profit or Loss in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union.
The financial statements have been prepared on a going concern basis.
The Company's functional currency is the Great Britain pound Sterling (“£”), being the currency in which its Ordinary
Shares are issued and in which returns are made to shareholders. The presentation currency is the same as the functional
currency. The financial statements have been rounded to the nearest £. The Company invests in companies around the world
whose shares are denominated in various currencies.
Income encompasses both revenue and capital gains/losses. For a listed investment company it is necessary to distinguish
revenue from capital for the purpose of determining the distribution. Revenue includes items such as dividends, interests,
fees and other equivalent items. Capital is the return, positive or negative, from holding investments other than that part of
the return that is revenue.
Assets and liabilities are presented in order of liquidity. Their maturities are disclosed in Note 4(c).
New Standards not yet effective
There are a number of new standards, amendments to standards and interpretations that are effective for annual periods
beginning after 1 January 2019 which will be adopted from their effective date. The Directors consider there to be no material
impact to the Company.
IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to
buy or sell non-financial items. This standard replaces the IAS 39 Financial Instruments: Recognition and Measurement.
Although the application of IFRS 9 has resulted in changes to the classification of financial assets and liabilities, there has
been no impact on the carrying values of such financial instruments.
36
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IFRS 9 Financial Instruments (continued)
The following table summarises the financial assets and liabilities held by the Company, the treatment under IAS 39, the
new treatment under IFRS 9 and the impact on the financial statements at 1 January 2018.
Financial Assets
Investments
Other receivables
Cash and cash equivalents
Financial Liabilities
Other payables
Original classification under
IAS 39
New classification under
IFRS 9
Original carrying
amount under IAS 39
at 1 January 2018
£
Fair value through profit or loss Fair value through profit or loss 65,070,244
Loans and receivables
Loans and receivables
Amortised cost
Amortised cost
15,406
1,060,077
New carrying amount
under IFRS 9 at 1 January
2018
£
65,070,244
15,406
1,060,077
Amortised cost
Amortised cost
214,271
214,271
Classification and measurement of financial assets and financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities.
However, it eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and
available for sale.
The adoption of IFRS 9 has not had a significant effect on the Company’s accounting policies related to financial liabilities.
The impact of IFRS 9 on the classification and measurement of financial assets is set out below.
Under IFRS 9, on initial recognition, a financial asset is classified as measured at:
➢ Amortised cost;
➢ Fair value through other comprehensive income (“FVOCI”) – debt measurement;
➢ FVOCI – equity investment; or
➢ Fair value through profit or loss (“FVTPL”)
The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is
managed and its contractual cash flow characteristics. The Company only has financial assets that are classified as measured
at amortised cost and at FVTPL.
Financial assets held at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
➢
➢
principal amount outstanding.
Financial assets at amortised cost are initially measured at fair value plus transaction costs that are directly attributed to its
acquisition, unless it is a trade receivable without a significant financing component which is initially measured at its
transaction price.
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced
by impairment losses as detailed below.
FVTPL
A financial asset at FVTPL is initially measured at fair value. These assets are subsequently measured at fair value. Net
gains and losses, including any interest or dividend income, are recognised in profit or loss.
Impairment of financial assets
IFRS 9 has introduced the expected credit loss (“ECL”) model which brings forward the timing of impairments. Under IFRS
9 for trade receivables the Company has applied the simplified model. Under the simplified approach the requirement is to
always recognise lifetime ECL. Under the simplified approach there is no need to monitor significant increases in credit risk
and measure lifetime expected credit losses at all times.
37
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IFRS 9 Financial Instrument (continued)
Impairment of financial assets (continued)
As at 31 December 2017, there were no trade receivables, and accordingly no change required to the opening retained
earnings at 1 January 2018 on transition to IFRS 9.
For other receivables the Directors have concluded that any expected credit loss on other receivables would be highly
immaterial on the basis that the other receivables will be settled by way of conversion into a fixed number of convertible
loan notes within Cemos.
Financial liabilities
These comprise of payables and are classified at amortised cost, and are initially measured at fair value, and subsequently
stated at amortised cost using the effective interest method.
b) Significant accounting judgements and estimates
The preparation of the Company’s financial statements requires the Directors to make judgements, estimates and
assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities.
However, uncertainty about these assumptions and estimates could result in outcomes that could require a material
adjustment to the carrying amount of the asset or liability in future periods.
(i) Judgements
In the process of applying the Company’s accounting policies, the Directors have made the following judgements, which
have had the most significant effect on the amounts recognised in the financial statements:
Assessment as Investment Entity
As per IFRS 10, an entity shall determine whether it is an investment entity. An investment entity is an entity that fulfils the
following criteria:
➢
➢
➢
It obtains funds from one or more investors for the purpose of providing those investors with investment services.
It commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation,
investment income or both.
It measures and evaluates the performance of substantially all of its investments on a fair value basis.
The Company meets the above criteria and is therefore considered to be an investment entity and therefore does not
consolidate its subsidiaries.
In making their assessment the Directors have considered the other income from the Cemos guarantee. As the guarantee was
to protect the investment in Cemos the income has been assessed as being in the nature of the investment.
Subsidiaries
Entities in which the Company holds more than 50% of the voting rights, and where the Company has appointed or has the
right to appoint the majority of directors or where the Company is otherwise able to exercise control are considered as
subsidiaries of the Company. These are disclosed in Note 16 of these financial statements. Investments in subsidiaries are
carried at fair value through profit or loss as they are held as part of the investment portfolio which is evaluated on a fair
value basis.
Associates
The Directors consider that entities over which the Company exercises significant influence, including where it holds
between 20% and 50% of the voting rights, or where there is a shareholders agreement giving the Company the right to
appoint a director and the right to veto significant financial decisions should be considered as associates of the Company.
These are disclosed in Note 15 of the financial statements. This also includes entities where the Company has representation
on the board and such representation is considered to have significant influence over the major decisions of such entity.
Investments in associates are carried at fair value as they are held as part of the investment portfolio which is evaluated on
a fair value basis.
Going Concern
As described in the Directors’ Report the Directors have assessed the financial position of the Company and are satisfied
that it can continue in operation for at least 12 months from the date of signing the financial statements, accordingly the
financial statements have been prepared on a going concern basis.
38
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) Significant accounting judgements and estimates (continued)
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources of uncertainty at the reporting date, that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below. The Company based its assumptions and estimates on parameters available when the financial statements
were prepared. However, existing circumstances and assumptions about future developments may change due to market
changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when
they occur. Please refer to Note 3 for further information.
(iii) Fair value of financial instruments
When the fair values of financial assets and financial liabilities recorded in the Statement of Financial Position cannot be
derived from active markets, their fair value is determined using a variety of valuation techniques that include the use of
valuation models. The inputs to these models are taken from observable markets where possible, but where this is not
feasible, estimation is required in establishing fair values. The estimates include considerations of liquidity and model inputs
related to items such as credit risk, correlation and volatility. Changes in assumptions about these factors could affect the
reported fair value of financial instruments in the Statement of Financial Position and the level where the instruments are
disclosed in the fair value hierarchy. The models are tested for validity by calibrating to prices from any observable current
market transactions in the same instrument (without modification or repackaging) when available. To assess the significance
of a particular input to the entire measurement, the Company performs sensitivity analysis or stress testing techniques. Please
refer to Note 3 for further information.
c) Interest income and expense
Bank interest income and interest expense are recognised on an accruals basis.
d) Expenses
All expenses are recognised on an accruals basis.
e) Translation of foreign currencies
Foreign currency transactions during the year are translated into Sterling at the rate of exchange ruling at the date of the
transaction. Assets and liabilities denominated in foreign currencies are translated into Sterling at the rate of exchange ruling
at the Statement of Financial Position date. Exchange differences including those arising from adjustment to fair value of
financial instruments during the year, are included in the Statement of Comprehensive Income. The foreign exchange
movements relating to financial assets form part of the fair value movement in the Statement of Comprehensive Income.
f) Segment information
The Directors are of the opinion that the Company is engaged in a single segment of business: investing in natural resources
companies.
g) Net asset value per share
Net Asset Value per Ordinary Share disclosed on the face of the Statement of Financial Position is calculated in accordance
with the Company’s Prospectus by dividing the net assets of the Company on the Statement of Financial Position date by
the number of Ordinary Shares (including the Management Ordinary Shares) outstanding at that date.
39
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Investment Summary:
Opening book cost
Purchases at cost
Proceeds on sale of investments
Realised gains/(losses)
Closing cost
Unrealised (losses)/gains
Financial assets held at fair value through profit or loss
Year ended
2018
£
50,780,732
24,723,331
(8,159,311)
3,408,941
70,753,693
(8,733,753)
62,019,940
Year ended
2017
£
54,964,732
9,542,851
(11,079,780)
(2,647,071)
50,780,732
14,289,512
65,070,244
The following table analyses net gains/ (losses) on financial assets at fair value through profit or loss for the years ended 31
December 2018 and 31 December 2017.
Financial assets at fair value through profit or loss
Realised gains/(losses) on:
- Listed equity shares
- Unlisted equity shares
- Debt instruments
- Warrants
Movement in unrealised gains/losses on:
- Listed equity shares
- Unlisted equity shares
- Debt instruments
- Warrants
Net (loss)/gain on financial assets at fair value through profit or loss
Dividend income
Total net gain on financial assets at fair value through profit or loss
Year ended
2018
£
Year ended
2017
£
3,358,649
-
72,118
(21,826)
3,408,941
(2,446,616)
(269,983)
69,528
-
(2,647,071)
(5,291,074)
(19,067,970)
1,284,890
50,889
(23,023,265)
(19,614,324)
20,693,637
1,079,313
4,286,190
9,805,381
51,428
(4,322)
14,138,677
11,491,606
-
11,491,606
40
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The following table analyses investments by type and by level within the fair valuation hierarchy at 31 December 2018.
Financial assets at fair value through
profit or loss
Listed equity shares
Unlisted equity shares
Warrants
Debt instruments
Quoted prices in
active markets
Level 1
£
Quoted market
based observables
Level 2
£
Unobservable
inputs
Level 3
£
21,113,621
-
-
-
21,113,621
-
-
-
-
-
25,058,074
30,044
15,818,201
40,906,319
Total
£
21,113,621
25,058,074
30,044
15,818,201
62,019,940
The following table analyses investments by type and by level within the fair valuation hierarchy at 31 December 2017.
Financial assets at fair value through
profit or loss
Listed equity shares
Unlisted equity shares
Warrants
Debt instruments
Quoted prices in
active markets
Level 1
£
Quoted market
based observables
Level 2
£
Unobservable
inputs
Level 3
£
Total
£
11,862,289
-
-
-
11,862,289
-
-
-
-
-
-
43,595,292
981
9,611,682
53,207,955
11,862,289
43,595,292
981
9,611,682
65,070,244
The table below shows a reconciliation of beginning to ending fair value balances for Level 3 investments and the amount
of total gains or losses for the year included in net gain on financial assets and liabilities at fair value through profit or loss
held at 31 December 2018.
31 December 2018
Opening balance 1 January 2018
Purchases of investments
Change in net unrealised (losses)/gains
Realised gains/(losses)
Closing balance 31 December 2018
Unrealised (losses)/gains on investments
still held at 31 December 2018
Unlisted Equities
£
43,595,292
530,752
(19,067,970)
-
25,058,074
Debt
instruments
£
9,611,682
4,849,511
1,284,890
72,118
15,818,201
Warrants
£
981
-
50,889
(21,826)
30,044
Total
£
53,207,955
5,380,263
(17,732,191)
50,292
40,906,319
(7,790,230)
93,270
30,044
(7,666,916)
41
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
The table below shows a reconciliation of beginning to ending fair value balances for Level 3 investments and the amount
of total gains or losses for the year included in net gain on financial assets and liabilities at fair value through profit or loss
held at 31 December 2017.
31 December 2017
Opening balance 1 January 2017
Purchases of investments
Sale of investments
Change in net unrealised gains
Realised (losses)/gains
Closing balance 31 December 2017
Unlisted Equities
£
37,819,837
957,241
(4,717,184)
9,805,381
(269,983)
43,595,292
Debt
instruments
£
4,037,448
8,019,379
(2,566,101)
51,428
69,528
9,611,682
Warrants
£
Total
£
5,303
-
-
(4,322)
-
981
41,862,588
8,976,620
(7,283,285)
9,852,487
(200,455)
53,207,955
Unrealised gains / (losses) on investments
still held at 31 December 2017
11,277,740
(1,191,620)
(20,845)
10,065,275
It is the Company’s policy to recognise a change in hierarchy level when there is a change in the status of the investment,
for example when a listed company delists or vice versa, or when shares previously subject to a restriction have that
restriction released. The transfers between levels are recorded either on the value of the investment immediately after the
event or the carrying value of the investment at the beginning of the financial year.
In determining an investment’s position within the fair value hierarchy, the Directors take into consideration the following
factors:
Investments whose values are based on quoted market prices in active markets are classified within Level 1. These include
listed equities with observable market prices. The Directors do not adjust the quoted price for such instruments, even in
situations where the Company holds a large position and a sale could reasonably impact the quoted price.
Investments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer
quotations or alternative pricing sources supported by observable inputs, are classified within Level 2. These include certain
less-liquid listed equities. Level 2 investments are valued with reference to the listed price of the shares should they be freely
tradable after applying a discount for liquidity if relevant. As Level 2 investments include positions that are not traded in
active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-
transferability, which are generally based on available market information. The Company held no Level 2 investments at 31
December 2018 (31 December 2017: none).
Investments classified within Level 3 have significant unobservable inputs. They include unlisted debt instruments, unlisted
equity shares and warrants. Level 3 investments are valued using valuation techniques explained below. The inputs used by
the Directors in estimating the value of Level 3 investments include the original transaction price, recent transactions in the
same or similar instruments if representative in volume and nature, completed or pending third-party transactions in the
underlying investment of comparable issuers, subsequent rounds of financing, recapitalisations and other transactions across
the capital structure, offerings in the equity or debt capital markets, and changes in financial ratios or cash flows. Level 3
investments may also be adjusted with a discount to reflect illiquidity and/or non-transferability in the absence of market
information.
42
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Valuation methodology of Level 3 investments
The default valuation technique is of “Latest Recent Transaction”. Where an unquoted investment has been acquired or
where there has been a material arm’s length transaction during the past six months it will be carried at transaction value,
having taken into account of any change in market conditions and the performance of the investee company between the
transaction date and the valuation date. Where there has been no Latest Recent Transaction the primary valuation driver is
IndexVal. For each core unlisted investment, the Company maintains a weighted average basket of listed companies which
are comparable to the investment in terms of commodity, stage of development and location (“IndexVal”). IndexVal is used
as an indication of how an investment’s share price might have moved had it been listed. Movements in commodity prices
are deemed to have been taken into account by the movement of IndexVal.
A secondary tool used by Management to evaluate potential investments as well as to provide underlying valuation
references for the Fair Value already established is Development Risk Adjusted Values (“DRAV”). DRAVs are not a
primary determinant of Fair Value. The Investment Manager also prepares discounted cash flow models for the Company’s
core investments annually and also for significant new information and decision making purposes when required. From
these, DRAVs are derived. The computations are based on consensus forecasts for long term commodity prices and investee
company management estimates of operating and capital costs. The Investment Manager takes account of market, country
and development risks in its discount factors.
The valuation technique for Level 3 investments can be divided into five groups:
i. Transaction
Where there have been transactions within the past 6 months either through a capital raising by the investee company or
known secondary market transactions, representative in volume and nature and conducted on an arm’s length basis, this is
taken as the primary driver for valuing Level 3 investments, having taken into account of any change in market conditions
and the performance of the investee company between the transaction date and the valuation date.
ii. IndexVal
Where there have been no known transactions for 6 months, at the Company’s half year and year end, movements in
IndexVal will generally be taken into account in assessing Fair Value where there has been at least a 10% movement in
IndexVal over at least a six month period. The IndexVal results are used as an indication of trend and are viewed in the
context of investee company progress and any requirement for finance in the short term for further progression.
iii. Royalty Valuation Model
Royalties are valued on projected cashflows taking into account expected time to production and development risk and
adjusted for movement in commodity prices.
iv. Warrants
Warrants are valued using a simplified Black Scholes model taking into account time to expiry, exercise price and volatility.
Where there is no established market for the underlying shares the average volatility of the companies in that investment’s
basket of IndexVal comparables is utilised in the Black Scholes model.
v. Convertible loans
Convertible loans are valued at fair value through profit or loss, taking into account credit risk and the value of the conversion
aspect.
43
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Quantitative information of significant unobservable inputs – Level 3
Description
Unlisted Equity
Unlisted Equity
Unlisted Equity
Unlisted Equity
Debt Instruments
Black Pearl Limited
Partnership
Other Convertible
Debentures/Loans
2018
£
Valuation technique
Unobservable input
Range
(weighted average)
9,223,833 Transaction
9,355,029
6,163,793 Royalty Valuation model
IndexVal
315,419 Other
Private transactions
Change in IndexVal
Exploration results
Exploration results,
study results,
financings
n/a
n/a
n/a
n/a
2,749,620 Valued at mean estimated
recovery
Estimated recovery
range
+/- 50%
13,068,581 Valued at fair value with
Rate of Credit Risk
20%-40%
reference to credit risk and
value of embedded
derivative
Warrants
30,044 Simplified Black Scholes
Volatilities
50%
Model
Description
Unlisted Equity
Unlisted Equity
Unlisted Equity
Debt Instruments
Black Pearl Limited
Partnership
Other Convertible
Debentures/Loans
2017
£
Valuation technique
Unobservable input
Range
(weighted average)
33,443,276 Transaction
10,009,161 IndexVal
142,854 Other
Private transactions
Change in IndexVal
Exploration results,
study results,
financings
n/a
n/a
n/a
2,589,715 Valued at mean estimated
recovery
Estimated recovery
range
+/- 50%
7,021,967 Valued at fair value with
Rate of Credit Risk
20%-40%
reference to credit risk and
value of embedded derivative
Warrants
981 Simplified Black Scholes
Volatilities
40%
Model
Information on third party transactions in unlisted equities is derived from the Investment Manager’s market contacts. The
change in IndexVal for each particular unlisted equity is derived from the weighted average movements of the individual
baskets for that equity so it is not possible to quantify the range of such inputs.
44
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Sensitivity analysis to significant changes in unobservable inputs within Level 3 investments
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December 2018 are as shown below:
Description
Input
Sensitivity used*
Effect on Fair Value (£)
Unlisted Equity
Change in IndexVal
+/-31%
+/-2,900,059
Debt Instruments
Black Pearl Limited Partnership
Probability weighting
Others/Loans
Warrants
Risk discount rate
Volatility of 40%
+/-33%
+/-20%
+/- 915,320
+/- 2,241,196
+70/-50%
+37,625/-30,044
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December 2017 are as shown below:
Description
Input
Sensitivity used*
Effect on Fair Value (£)
Unlisted Equity
Change in IndexVal
+/-31%
+/-3,102,840
Debt Instruments
Black Pearl Limited Partnership
Probability weighting
Others/Loans
Warrants
Risk discount rate
Volatility of 40%
+/-33%
+/-20%
+/-20%
+/-863,238
-244,066/+244,066
+1,426/-703
*The sensitivity analysis refers to a percentage amount added or deducted from the input and the effect this has on the fair value. The 31% sensitivity was
used as this was the highest movement observed for IndexVal for the comparable baskets in the year (2017:31%).
The Company has not disclosed the fair value for financial assets such as cash and cash equivalents and short-term
receivables and payables, because their carrying amounts are a reasonable approximation of fair values.
4. RISK MANAGEMENT POLICIES AND DISCLOSURES
The Company’s principal financial instruments comprise financial assets, primarily unlisted equity investments and loans
in natural resources companies. The portfolio is concentrated on projects on the large liquid commodity markets and
diversified in terms of geography. These investments reflect the core of the Company’s investment strategy.
The Company manages its exposure to key financial risks primarily through diversification of geography and commodity,
and through technical and legal due diligence. The objective of the policy is to support the delivery of the Company’s core
investment objective whilst maintaining future financial security. The main risks that could adversely affect the Company’s
financial assets or future cash flows are market risk (comprising market price risk, currency risk and interest rate risk),
commodity price risk, liquidity risk, concentration risk and credit risk.
The Company’s financial liabilities principally comprise fees payable to various parties and arise directly from its operations.
45
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
Risk exposures and responses
The Company’s Board of Directors oversees the management of financial risks, each of which is summarised below.
a) Market risk
Market risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market prices. Market
risk comprises three types of risk: market price risk, currency risk and interest rate risk.
i. Market price risk
Market price risk is the risk that the fair value of future cash flows will fluctuate because of changes in the market prices of
the Company’s investment portfolio.
The following illustrates the sensitivity of the income to an increase or decrease of 10% in the fair value of the Company’s
investment portfolio. The level of change is considered to be reasonably possible based on observations of current market
conditions in 2018. The sensitivity analysis assumes all other variables are held constant.
The impact of a 10% decrease in the value of investments on the financial assets at fair value of the Company as at 31
December 2018 would have been a decrease of £6,201,994 (31 December 2017: £6,507,024). An increase of 10% would
increase the NAV by £6,201,994 (31 December 2017: £6,507,024). In practice, the actual results may differ from the
sensitivity analysis above and the difference could be material.
ii. Currency risk
The majority of the Company’s financial assets and liabilities are denominated in US Dollars. The functional currency of
the Company is Sterling. Currency risk is the risk that the value of non-£ denominated financial instruments will fluctuate
due to changes in foreign exchange rates. The table below shows the currencies and amounts the Company was exposed to
at 31 December 2018.
31 December 2018
The table below shows the currencies and amounts the Company was exposed to at 31 December 2018 and 31 December
2017.
Currency
AUD
CAD
EUR
GBP
NOK
USD
31 December 2017
Currency
AUD
CAD
EUR
GBP
NOK
USD
Amount in
local currency
12,960,918
5,849,807
4,439,852
27,797,348
24,535,256
27,392,449
Conversion rate
(based on £)
0.5530
0.5749
0.8983
1.0000
0.0905
0.7846
Amount in
local currency
5,744,337
16,832,962
3,031,459
8,861,593
22,915,256
52,780,548
Conversion rate
(based on £)
0.5781
0.5900
0.8884
1.0000
0.0904
0.7399
Value % of net assets
£
7,166,842
3,363,273
3,988,412
27,797,348
2,220,894
21,491,015
66,027,784
10.86
5.09
6.04
42.10
3.36
32.55
100.00
Value % of net assets
£
3,320,579
9,931,443
2,693,210
8,861,593
2,071,322
39,053,309
65,931,456
5.04
15.06
4.09
13.44
3.14
59.23
100.00
46
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
ii. Currency risk (continued)
At 31 December 2018 and 31 December 2017, had any foreign currencies strengthened or weakened by 10% relative to
Sterling, with all other variables held constant, total equity would have increased or decreased by the amounts shown below.
Currency
AUD
CAD
EUR
NOK
USD
2018
Value
£
716,684
336,327
398,841
222,089
2,149,102
3,823,043
2017
Value
£
332,058
993,144
269,321
207,132
3,905,331
5,706,986
The estimated movement is based on management’s determination of a reasonably possible change in foreign exchange
rates. In practice, the actual results may differ from the sensitivity analysis above and the difference could be material.
iii. Interest rate risk
Although the Company’s financial assets and liabilities expose it indirectly to risks associated with the effects of fluctuations
in the prevailing levels of market interest rates on its financial position and fair value, it is subject to little direct exposure to
interest rate fluctuations as the majority of the financial assets are equity investments or similar investments which do not
pay interest. For valuation purposes convertible loans all have fixed interest rates and are treated more like quasi equity
albeit with higher ranking than equity. As such they are not directly exposed to interest rates from a cash flow perspective.
Any excess cash and cash equivalents are invested at short-term market interest rates which expose the Company, to a
limited extent, to interest rate risk and corresponding gains/losses from a change in the fair value of these financial
instruments.
The table below summarises the Company’s exposure to interest rate risk. It includes the Company’s assets and liabilities
at fair values, categorised by the earlier of contractual re-pricing or maturity dates.
Up to More than Non-interest
bearing
£
-
-
385,659
385,659
6 months
£
-
62,019,940
-
62,019,940
1 month
£
3,811,921
-
-
3,811,921
Total
£
3,811,921
62,019,940
385,659
66,217,520
-
-
3,811,921
-
-
62,019,940
189,736
189,736
189,736
189,736
At 31 December 2018
Assets
Cash and cash equivalents
Financial assets held at fair value through profit or loss
Other receivables
Total Assets
Liabilities
Other liabilities
Total Liabilities
Interest rate sensitivity gap
47
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
iii. Interest rate risk (continued)
The table below summarises the Company’s exposure to interest rate risk. It includes the Company’s assets and liabilities
at fair values, categorised by the earlier of contractual re-pricing or maturity dates.
At 31 December 2017
Assets
Cash and cash equivalents
Financial assets held at fair value through profit or loss
Other receivables
Total Assets
Liabilities
Other liabilities
Total Liabilities
Interest rate sensitivity gap
Up to More than Non-interest
bearing
£
-
55,458,562
15,406
55,473,968
6 months
£
-
9,611,682
-
9,611,682
1 month
£
1,060,077
-
-
1,060,077
Total
£
1,060,077
65,070,244
15,406
66,145,727
-
-
1,060,077
-
-
9,611,682
214,271
214,271
214,271
214,271
Interest rate sensitivity
It is the opinion of the Directors that the financial statements of the Company are not materially exposed to interest rate risk
and accordingly no interest rate sensitivity calculation has been provided in these financial statements.
b) Commodity price risk
The Company is exposed to the risk of fluctuations in prevailing market commodity prices through its investment portfolio.
Commodity price risk is beyond the Company’s control but will be mitigated to a certain extent as a result of the Company’s
diversified portfolio as long as commodity prices remain uncorrelated. It is not possible to quantify within reasonable ranges
the impact of commodity price changes on the valuation of the Company’s investments although it will be reflected in the
value of IndexVal and in the price of financings within the investment and therefore be reflected in carrying value. In general,
long term commodity price increases should give rise to an increase in fair value of the Company’s investments, and vice-
versa.
c) Liquidity risk
Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations on time or at a
reasonable price. The Company invests in unlisted equities for which there may not be an immediate market. The Company
seeks to mitigate this risk by maintaining a cash and listed share position which will cover its ongoing operational expenses.
The Company has the ability to incur borrowings of up to 10% of its NAV but the Company's policy is to restrict any such
borrowings to temporary purposes only, such as settlement mis-matches.
48
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
c) Liquidity risk (continued)
The table below analyses the Company’s financial assets and liabilities into relevant maturity groupings based on the
remaining period at the Statement of Financial Position date to the contractual maturity date. The amounts in the table are
the undiscounted contractual cash flows.
Net assets attributable to shareholders
At 31 December 2018
Assets
Cash and cash equivalents
Financial assets held at fair
value through profit
or loss
Receivables
Total Assets
Liabilities
Other payables
and accrued expenses
Total Liabilities
At 31 December 2017
Assets
Cash and cash equivalents
Financial assets held at fair
value through profit
or loss
Receivables
Total Assets
Liabilities
Other payables
and accrued expenses
Total Liabilities
Less than
1 month
£
3,811,921
-
385,659
4,197,580
Less than
1 month
£
Less than
1 month
£
1,060,077
-
15,406
1,075,483
Less than
1 month
£
1-3 months 3-12 months
£
-
£
-
More than
12 months
£
-
No
contractual
maturity
£
-
Total
£
3,811,921
-
-
-
295,870
-
295,870
14,544,619
-
14,544,619
47,179,451
-
47,179,451
62,019,940
385,659
66,217,520
1-3 months 3-12 months
£
£
More than
12 months
£
28,750
28,750
103,436
103,436
57,550
57,550
-
-
1-3 months 3-12 months
£
-
£
-
More than
12 months
£
-
1-3 months 3-12 months
£
£
More than
12 months
£
28,750
28,750
88,251
88,251
97,270
97,270
-
-
No
contractual
maturity
£
Total
£
-
-
189,736
189,736
66,027,784
No
contractual
maturity
£
-
Total
£
1,060,077
No
contractual
maturity
£
Total
£
-
-
214,271
214,271
65,931,456
981
-
981
-
-
-
9,611,682
-
9,611,682
55,457,581
-
55,457,581
65,070,244
15,406
66,145,727
Net assets attributable to shareholders
The value of the cash and listed equity positions held by the Company at the year end is £24,925,542 (2017: £12,922,366)
with the total liabilities at the year end at £189,736 (2017: £214,271). The Company therefore has minimal liquidity risk
exposure.
49
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
d) Credit risk
Credit risk is the risk that a counterparty will be unable to pay amounts in full as they fall due. The Company has exposure
to credit risk in relation to its cash balances, debt instruments, loan and loan notes as stated in the Statement of Financial
Position.
The Company seeks to mitigate this risk by lending to companies with projects which have significant value over and above
the value of the debt in such company so that there is a significant equity “buffer”. The maximum credit risk for the Company
is £19,630,122 (2017: £10,671,759).
As at 31 December 2018, the Company's financial assets exposed to credit risk were held with the following ratings:
Financial Assets
Counterparty
Debt instruments
-Convertible Loan Note
-Convertible Loan & Loan Note
-Convertible Loan Note
-Convertible Loan Note
-Convertible Loan Note
-Loan Note 1
-Loan Note 2
-Convertible Loan Note
Cash and cash equivalents
Total
Anglo Saxony Mines Limited
Bilboes Gold Limited
Black Pearl Limited Partnership
Cemos Group Plc
Indian Pacific Resources Limited
PRISM Diversified Limited
PRISM Diversified Limited
Futura Resources Limited
HSBC Bank Plc
**Credit
Rating
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
A**
2018
% of net assets
1.53
1.69
4.16
5.50
0.27
0.45
0.07
10.29
5.77
29.73
As at 31 December 2017, the Company's financial assets exposed to credit risk were held with the following weight:
Financial Assets
Counterparty
Debt instruments
-Convertible Loan Note
-Convertible Loan & Loan Note
-Convertible Loan Note
-Convertible Loan Note
-Loan Note
-Convertible Loan Note
Cash and cash equivalents
Total
Black Pearl Limited Partnership
Bilboes Gold Limited
Cemos Group Plc
Indian Pacific Resources Limited
Ironstone Resources Limited
Queensland Coal Investment Holdings
HSBC Bank Plc
**Credit
Rating
NR*
NR*
NR*
NR*
NR*
NR*
AA-**
2017
% of net assets
3.93
1.34
4.10
0.35
0.48
4.38
1.61
16.19
* No rating available
**As per S&P as at 31 December 2018 and 2017
e) Concentration risk
The Company’s current investment policy is to invest in natural resources companies, both listed and unlisted, that the
Investment Manager considers to be undervalued and that have strong fundamentals and attractive growth prospects which
means that the Company has significant concentration risk relating to natural resources companies.
Concentration risks include, but are not limited to natural resources asset category (such as gold) and geography. The
Company may at certain times hold relatively few investments. The Company could be subject to significant losses if it
holds a large position in a particular investment that declines in value or is otherwise adversely affected, including by the
default of the issuer. Such risks potentially could have a material adverse effect on the Company’s financial position, results
of operations, business prospects and returns to investors. The Company’s investments are geographically diverse reducing
this aspect of concentration risk. In terms of commodity, the portfolio is likewise diversified in the large liquid markets of
silver, gold, iron ore, coal, copper, platinum group metals, nickel and oil to mitigate this aspect of concentration risk.
50
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
e) Concentration risk (continued)
The Company’s investment in Polymetal International Plc (“Polymetal”) made up 28.91% of net assets at year end.
Polymetal whose shares are listed on the London Stock Exchange had a market capitalisation of approximately £4 billion
as at 31 December 2018. The Company’s shares in Polymetal represented less than 3 days of Polymetal’s average daily
turnover in 2018.
5. TAXATION
The Company is a Guernsey Exempt Company and is therefore not subject to taxation on its income under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989. An annual exemption fee of £1,200 (2017: £1,200) has been paid.
6. ADMINISTRATION FEES
The Administrator, HSBC Securities Services (Guernsey) Limited, is paid fees for acting as administrator of the Company
at the rate of 7 basis points of gross asset value up to US$250 million; the rate reduces to 5 basis points of gross asset value
above US$250 million. The Administrator is also reimbursed by the Company for reasonable out-of-pocket expenses. These
fees are calculated and accrued as at the last business day of each month and paid monthly in arrears.
The Administrator is also entitled to a fee for its provision of corporate secretarial services provided to the Company on a
time spent basis and subject to a minimum annual fee of £40,000. The Company is also responsible for any sub-
administration fees as agreed in writing from time to time, and reasonable out-of-pocket expenses. The Administrator is also
entitled to fees of €5,000 for preparation of the financial statements of the Company.
The administration fees payable for the year ended 31 December 2018 were £100,111 (2017: £96,711) of which £16,731
(2017: £54,221) was payable at 31 December 2018. HSBC Securities Services (Ireland) DAC, the sub-Administrator, is
paid a portion of these fees by the Administrator.
7. MANAGEMENT AND PERFORMANCE FEES
The Manager was appointed pursuant to a management agreement with the Company dated 31 March 2010 (the
“Management Agreement”). The Company pays to the Manager a management fee which is equal to 1/12th of 1.75 per cent
of the total average market capitalisation of the Company during each month. The management fee is calculated and accrued
as at the last business day of each month and is paid monthly in arrears. The Investment Manager’s fees are paid by the
Manager.
The management fee for the year ended 31 December 2018 was £928,850 (2017: £768,116) of which £75,370 (2017:
£74,679) was outstanding at the year end.
The Manager is also entitled to a performance fee. The Performance Period is each 12 month period ending on 31 December
in each year (the “Performance Period”). The amount of the performance fee is 15 per cent of the total increase in the NAV,
if the Hurdle has been met, at the end of the relevant Performance Period, over the highest previously recorded NAV as at
the end of a Performance Period in respect of which a performance fee was last accrued, having made adjustments for
numbers of Ordinary Shares issued and/or repurchased. In addition, the performance fee will only become payable if there
have been sufficient net realised gains.
There were no performance fees for the current or prior period.
51
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
7. MANAGEMENT AND PERFORMANCE FEES (CONTINUED)
If the Company wishes to terminate the Management Agreement without cause it is required to give the Manager 12 months
prior notice or pay to the Manager an amount equal to: (a) the aggregate investment management fee which would otherwise
have been payable during the 12 months following the date of such notice (such amount to be calculated for the whole of
such period by reference to the Market Capitalisation prevailing on the Valuation Day on or immediately prior to the date
of such notice); and (b) any performance fee accrued at the end of any Performance Period which ended on or prior to
termination and which remains unpaid at the date of termination which shall be payable as soon as, and to the extent that,
sufficient cash or other liquid assets are available to the Company (as determined in good faith by the Directors), provided
that such accrued performance fee shall be paid prior to the Company making any new investment or settling any other
liabilities; and (c) where termination does not occur at 31 December in any year, any performance fee accrued at the date of
termination shall be payable as soon as and to the extent that sufficient cash or other liquid assets are available to the
Company (as determined in good faith by the Directors), provided that such accrued performance fee shall be paid prior to
the Company making any new investment or settling any other liabilities.
8. OTHER EXPENSES
Registrar fees
Listing fees
Regulatory fees
Public relation fee expense
Income tax exemption
Website expenses
Miscellaneous expenses
9. CASH AND CASH EQUIVALENTS
Cash at HSBC Bank plc
10. SHARE CAPITAL
2018
TOTAL
£
36,739
10,398
13,854
7,500
1,200
1,000
9,753
80,444
2017
TOTAL
£
22,291
10,971
7,908
-
1,200
2,700
12,880
57,950
2018
£
3,811,921
2017
£
1,060,077
The share capital of the Company on incorporation was represented by an unlimited number of Ordinary Shares of no par
value. The Company may issue an unlimited number of shares of a nominal or par value and/or of no par value or a
combination of both.
The Company has a total of 116,129,980 (2017: 116,129,980) Ordinary Shares in issue with additional 700,000 (2017:
700,000) held in treasury. In addition, the Company has 10,000 (2017: 10,000) Management Ordinary Shares in issue, which
are held by the Investment Manager.
The Ordinary Shares are admitted to the Premium Listing segment of the Official List of the London Stock Exchange.
Holders of Ordinary Shares have the right to receive notice of and to attend and vote at general meetings of the Company.
Each holder of Ordinary Shares being present in person or by proxy at a meeting will, upon a show of hands, have one vote
and upon a poll each such holder of Ordinary Shares present in person or by proxy will have one vote for each Ordinary
Share held by him.
52
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
10. SHARE CAPITAL (CONTINUED)
Holders of Management Ordinary Shares have the right to receive notice of and to attend and vote at general meetings of
the Company, except that the holders of Management Ordinary Shares are not entitled to vote on any resolution relating to
certain specific matters, including a material change to the Company’s investment objective, investment policy or borrowing
policy. Each holder of Management Ordinary Shares being present in person or by proxy at a meeting will, upon a show of
hands, have one vote and upon a poll each such holder of Management Ordinary Shares present in person or by proxy will
have one vote for each Management Ordinary Share held by him. Holders of Ordinary Shares and Management Ordinary
Shares are entitled to receive, and participate in, any dividends or other distributions out of the profits of the Company
available for dividend and resolved to be distributed in respect of any accounting period or other income or right to
participate therein.
The details of issued share capital of the Company are as follows:
Issued and fully paid share capital
Ordinary Shares of no par value*
(including Management Ordinary Shares)
Treasury Shares
2018
2017
Amount No. of shares**
Amount No. of shares**
£
£
81,175,017
116,839,980
81,175,017
116,839,980
(140,492)
(700,000)
(140,492)
(700,000)
The outstanding Ordinary Shares during the year ended 31 December 2018 were as follows:
Balance at 1 January 2018 & 31 December 2018
Ordinary Shares
Amount No. of shares**
Treasury Shares
Amount No. of shares
£
81,175,017
116,139,980
£
140,492
700,000
The issue of Ordinary Shares during the year ended 31 December 2017 took place as follows:
Balance at 1 January 2017 & 31 December 2017
Ordinary Shares
Amount No. of shares**
Treasury Shares
Amount No. of shares
£
81,034,525
116,139,980
£
140,492
700,000
* On 9 March 2010, 1 Management Ordinary Share was issued and on 26 March 2010, 9,999 Management Ordinary Shares were issued.
** Includes 10,000 Management Ordinary Shares
Capital Management
The Company regards capital as comprising its issued Ordinary Shares. The Company does not have any debt that might be
regarded as capital. The Company’s objectives in managing capital are:
• To safeguard its ability to continue as a going concern and provide returns to shareholders in the form of capital growth
over the long-term through a focused, global portfolio consisting principally of the equities or related instruments of
natural resources companies;
• To allocate capital to those assets that the Directors consider are most likely to provide the above returns; and
• To manage, so far as is reasonably possible, any discount between the Company’s share price and its NAV per Ordinary
Share.
The Company has continued to hold sufficient cash and listed assets positions to enable it to meet its obligations as they
arise and the Investment Manager provides the Directors with reporting on the activities of the investments of the Company
such that they can be satisfied with the allocation of capital.
As discussed in the Strategic Report, in August 2015 the Company introduced a share buyback programme with the objective
of managing the discount the Company’s shares trade at as compared to its NAV. The Company has repurchased 700,000
shares at an average price of 20 pence per share through this programme and the repurchased shares are held in Treasury.
53
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
10. SHARE CAPITAL (CONTINUED)
Capital Management (continued)
As described in the Directors’ Report on page 17, the Company has a policy to distribute at least 15 per cent of net realised
cash gains after deducting losses during the financial year through dividends or otherwise. The Company has a realised net
gain per the Statement of Comprehensive Income and realised an aggregate cash gain for the year ended 31 December 2018.
As a result of the reorganisation of Polar Acquisition Limited during the year, the Company received cash and share
dividends of Polymetal International Plc (“Polymetal”) shares totalling £20.4 million. The Board considers the Polymetal
shares to be sufficiently liquid so as to be considered in the calculation of net realised cash gains in the spirit of the policy
and therefore is recommending to shareholders a distribution of £4 - £5million being approximately 25% of the net realised
gain, to be made via a tender offer. Details of the proposed tender offer are expected to be posted to shareholders shortly.
The Company has authority to make market purchases of up to 14.99 Per Cent of its own Ordinary Shares in issue. A renewal
of such authority is sought from Shareholders at each Annual General Meeting of the Company or at a General Meeting of
the Company, if required. Any purchases of Ordinary Shares will be made within internal guidelines established from time
to time by the Board and within applicable regulations.
The Company is not subject to any externally imposed capital requirements.
11. COMMITMENTS
The Company has guaranteed €1.7 million of vendor financing from Loesche GmbH to Cemos Group plc in relation to the
development of the Tarfaya project in Morocco. The Company has also provided a letter of comfort regarding a €1.35
million overdraft facility for Cemos with the Bank of Morocco. During 2018, the Company accrued a fee of £346,744 in
respect of the guarantee of the Loesche vendor financing and of £12,207 in respect of the comfort letter regarding the
overdraft facility.
This fee has been recognised over time in accordance with IFRS 15. The terms of this agreement are that the Company will
subscribe for up to €2,125,000 convertible loan stock of Cemos Group Plc to enable them to make their loan repayment and
as such no financial liability has been recognised within the financial statements.
12. RELATED PARTY TRANSACTIONS
The Directors’ interests in the share capital of the Company were:
Christopher Sherwell
Clive Newall
Number of
Ordinary Shares
2018
104,198
25,000
Number of
Ordinary Shares
2017
104,198
25,000
The Investment Manager, Baker Steel Capital Managers LLP had an interest in 10,000 Management Ordinary Shares at 31
December 2018 (31 December 2017: 10,000).
Baker Steel Global Funds SICAV – Precious Metals Fund (“Precious Metals Fund”) had an interest in 7,469,609 Ordinary
Shares in the Company at 31 December 2018 (2017: 7,469,609). These shares are held in a custodian account with Citibank
N.A. London. Precious Metals Fund shares a common Investment Manager with the Company.
As a result of the sale of PAL’s 90% interest in Polar Silver to Polymetal on 13 April 2018, the vesting of the shares issued
under a PAL long term incentive plan was accelerated. A total of 1,593 PAL shares (4.9% of PAL on a fully diluted basis)
valued at £2.79 million based on the price of Polymetal shares on 12 April 2018 were issued to the four directors of PAL
including to Mr Trevor Steel. The shares issued to Mr Steel were allocated 48.3% to the Company to reflect his investment
management role, and BSRT's percentage economic ownership of PAL, and the balance 51.7% to the Manager, to reflect his
role as executive chairman of PAL.
54
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
12. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company’s Associates and Subsidiaries are described in Note 15 and 16 to these financial statements.
The Management fees and Directors’ fees payable and accrued for the year were:
Management fees
Directors’ fees
The Management fees and Directors’ fees outstanding at the year end were:
Management fees
Directors’ fees
13. NET ASSET VALUE PER SHARE AND LOSS PER SHARE
2018
928,850
115,000
2018
75,370
28,750
2017
768,116
115,000
2017
74,679
28,750
Net asset value per share is based on the net assets of £66,027,784 (31 December 2017: £65,931,456) and 116,139,980 (31
December 2017: 116,139,980) Ordinary Shares, being the number of shares in issue at the year end. The calculation for
basic and diluted NAV per share is as below:
Net assets at the year end (£)
Number of shares
Net asset value per share (in pence) basic and diluted
Weighted average number of shares
31 December 2018
Ordinary Shares
31 December 2017
Ordinary Shares
66,027,784
116,139,980
56.9
116,139,980
65,931,456
116,139,980
56.8
116,139,980
The basic and diluted gain per share for 2018 is based on the net gain for the year of the Company of £96,328 and on
116,139,980 Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.
The basic and diluted gain per share for 2017 is based on the net gain for the year of the Company of £10,323,666 and on
116,139,980 Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.
14. NET ASSET VALUE
The following table reconciles the published Net Asset Value (“NAV”) to the audited NAV shown in the financial statements
for the year ended 31 December 2018. The carrying value of Futura was adjusted in the financial statements for the year
ended 31 December 2018.
Published NAV
Reduction in the value of Futura
Reduction in fees
Audited NAV
31 December 2018
£
67,681,014
(1,653,395)
165
66,027,784
31 December 2017
£
65,931,456
-
-
65,931,456
55
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2018
15. INVESTMENT IN ASSOCIATES
The interests in the below companies are for investment purposes and they are deemed associates by virtue of the Company
having appointed a non-executive director (“NED”) and/or holding in excess of 20% of the voting rights of the relevant
company. Investments in associates are carried at fair value as they are held as part of the investment portfolio which is
evaluated on a fair value basis.
Investment
Cemos Group Limited
Bilboes Gold Limited
PRISM Diversified Limited
Nussir ASA
India Pacific Resources Limited
Futura Resources
Anglo Saxony Mining
Polar Acquisition Limited
Country of Incorporation
Incorpo Incorpo
Jersey
Mauritius
Canada
Norway
Australia
Australia
England and Wales
British Virgin Islands
Voting Rights held
25.70%
21.70%
16.40%
14.10%
10.50%
Convertible Loan
Convertible Loan
47.50%
NED Appointed
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
16. SUBSIDIARY COMPANIES
At 31 December 2017, the Company held a 75.9% undiluted interest which constituted control in PAL, a Company
incorporated in the British Virgin Islands. However, during the year a number of options and convertible loans were
exercised such that at 31 December 2018 the Company’s undiluted and fully diluted interest was 47.8%. Accordingly at 31
December 2018, PAL is no longer regarded as a subsidiary.
17. SUBSEQUENT EVENTS
Since 31 December 2018, the Company has acquired a 0.75% gross revenue royalty over Futura Resources Limited’s two
coking coal projects in Australia for A$6 million; subscribed for a further £1 million convertible loan notes in Anglo Saxony
Mining; and agreed to subscribe US$3 million in convertible loan notes in Azarga Metals Corp.
There were no other events subsequent to the year-end that materially impacted on the Company that require disclosure or
adjustment to these financial statements.
18. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
The Annual Report and Audited Financial Statements for the year-end 31 December 2018 were approved by the Board of
Directors on 9 April 2019.
56
BAKER STEEL RESOURCES TRUST LIMITED
APPENDIX - ADDITIONAL INFORMATION (UNAUDITED)
REMUNERATION DETAILS FOR INVESTMENT MANAGER’S STAFF
As noted earlier, under AIFMD, the Investment Manager received approval to act as a full scope UK AIFM to the Company as
of 22 July 2014. Pursuant to Article 22(2)9e) and (f) of AIFMD, an AIFM must, where appropriate for each AIF it manages,
make an annual report available to the AIF investors. The annual report must contain, amongst other items, the total amount of
remuneration paid by the AIFM to its staff for the financial year, split into fixed and variable remuneration including, where
relevant, any carried interest paid by the AIF, along with the aggregate remuneration awarded to senior management and
members of staff whose actions have a material impact on the risk profile of the AIF.
For the year ended 31 December 2018 there was no fixed remuneration paid to members of the LLP as Investment Manager.
Variable remuneration amounted to £346,264. No carried interest was paid by the Company. These figures represent the
aggregate remuneration paid to members of the LLP as Investment Manager for the year ended 31 December 2018. The total
remuneration of the individuals whose actions have a material impact upon the risk profile of the AIF managed by the AIFM
amounted to £283,094.
The total AIFM remuneration attributable to senior management was £57,507, and amounts attributable to other Identified Staff
in the year was £37,457. The remuneration figures reflect an approximation of the portion of AIFM remuneration reasonably
attributable to the AIF.
57
BAKER STEEL RESOURCES TRUST LIMITED
GLOSSARY OF TERMS
4PE – Platinum, Palladium, Gold and Rhodium
AIF – Alternative Investment Fund
AIFM – Alternative Investment Fund Manager
AIFMD - Alternative Investment Fund Managers Directive
BSRT – Baker Steel Resources Trust Limited
Commission – Guernsey Financial Services Commission
DRAVs – Development Risk Adjusted Values
DRC – Democratic Republic of Congo
EU – European Union
EGM – Extraordinary General Meeting
FCA – Financial Conduct Authority
FRC – Financial Reporting Council
FVO – Fair value option
FVOCI– Fair value through other comprehensive income
FVTPL – Fair value through profit or loss
GFSC – Guernsey Financial Services Commission
GFSC Code - Guernsey Financial Services Commission Code of Corporate Governance
g/t – Grams per tonne
IAS – International Accounting Standards
ITG – IFRS Transition Resource Group of Impairment of Financial Instruments
IFRS – International Financial Reporting Standards as adopted by the European Union
IndexVal – Where there have been no known transactions for 6 months, at the Company’s half year and year-end, movements
in IndexVal will generally be taken into account in assessing Fair Value where there has been at least a 10% movement in
IndexVal over at least a six month period. The IndexVal results are used as an indication of trend and are viewed in the context
of investee company progress.
IPO – Initial Public Offering (stock market launch)
JORC – AUSTRALASIAN JOINT ORE RESERVES COMMITTEE
The Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code) of the Australasian Joint Ore Reserves
Committee (JORC) is widely accepted as a standard for professional reporting of mineral resources and ore reserves. Mineral
resources are classified as 'Inferred', 'Indicated' or 'Measured', while ore reserves are either 'Probable' or 'Proven'.
Mt – million tonnes
NAV – Net Asset Value
58
BAKER STEEL RESOURCES TRUST LIMITED
GLOSSARY OF TERMS (CONTINUED)
NI 43–101 – CANADIAN NATIONAL INSTRUMENT 43-101
Canadian National Instrument 43-101 is a mineral resource classification instrument which dictates reporting and public
disclosure of information in Canada relating to mineral properties.
NAV Discount – NAV to market price discount The Net Asset Value (“NAV”) per share is the value of all the investment
company’s assets, less any liabilities it has, divided by the number of shares. However, because the Company’s Ordinary Shares
are traded on the London Stock Exchange's Main Market, the share price may be higher or lower than the NAV. The difference
is known as a discount or premium. The Company’s discount is calculated by expressing the difference between the period end
dollar equivalent share price and the period end NAV per share as a percentage of the NAV per share (2018: 0.32%, 2017: 5.5%).
OCI – Other comprehensive income
PEA – Preliminary Economic Assessment
SORP – Statement of Recommended Practice issued by The Association of Investments Companies dated November 2014
UK Code – UK Corporate Governance Code published by the Financial Reporting Council in September 2014.
59
BAKER STEEL RESOURCES TRUST LIMITED
MANAGEMENT AND ADMINISTRATION
DIRECTORS:
REGISTERED OFFICE:
MANAGER:
INVESTMENT MANAGER:
STOCK BROKERS:
SOLICITORS TO THE COMPANY:
(as to English law)
ADVOCATES TO THE COMPANY:
(as to Guernsey law)
Howard Myles (Chairman)
Charles Hansard
Clive Newall
Christopher Sherwell
(all of whom are non-executive and independent)
Arnold House
St. Julian’s Avenue
St. Peter Port
Guernsey, GY1 3NF
Channel Islands
Baker Steel Capital Managers (Cayman) Limited
PO Box 309
George Town
Grand Cayman KY1-1104
Cayman Islands
Baker Steel Capital Managers LLP*
34 Dover Street
London W1S 4NG
United Kingdom
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
United Kingdom
Ogier
Redwood House
St. Julian’s Avenue
St. Peter Port
Guernsey GY1 1WA
Channel Islands
ADMINISTRATOR & COMPANY SECRETARY:
HSBC Securities Services (Guernsey) Limited
Arnold House
St. Julian’s Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
* The Investment Manager was authorised as an Alternative Investment Fund Manager (“AIFM”) for the purpose of the
Alternative Investment Fund Managers Directive (“AIFMD”) on 22 July 2014.
60
BAKER STEEL RESOURCES TRUST LIMITED
MANAGEMENT AND ADMINISTRATION (CONTINUED)
SUB-ADMINISTRATOR TO THE COMPANY:
CUSTODIAN TO THE COMPANY:
SAFEKEEPING AND MONITORING AGENT:
AUDITOR:
REGISTRAR:
UK PAYING AGENT AND TRANSFER AGENT:
RECEIVING AGENT:
PRINCIPAL BANKER:
61
HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
HSBC Institutional Trust Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
HSBC Institutional Trust Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
BDO Limited
P O Box 180
Place du Pre
Rue du Pre
St. Peter Port
Guernsey GY1 3LL
Channel Islands
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey GY2 4LH
Channel Islands
Link Asset Services (Holdings) Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
Link Asset Services (Holdings) Limited
Corporate Actions
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom