BAKER STEEL RESOURCES TRUST LIMITED
Annual Report and Audited Financial Statements
For the year ended 31 December 2020
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.
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BAKER STEEL RESOURCES TRUST LIMITED
CONTENTS
Management and Administration
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
PAGE
1-2
3
4-8
9-11
12-16
17
18-25
26-28
29-35
36
37-38
39
40
41-61
62
63-64
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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 (resigned 15 September 2020)
Fiona Perrott-Humphrey (appointed 15 September 2020)
David Staples
(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.
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BAKER STEEL RESOURCES TRUST LIMITED
MANAGEMENT AND ADMINISTRATION (CONTINUED)
SUB-ADMINISTRATOR TO THE COMPANY:
HSBC Securities Services (Ireland) DAC
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
CUSTODIAN TO THE COMPANY:
SAFEKEEPING AND MONITORING AGENT:
AUDITOR:
REGISTRAR:
UK PAYING AGENT AND TRANSFER AGENT:
RECEIVING AGENT:
PRINCIPAL BANKER:
HSBC Continental Europe*
1 Grand Canal Square
Grand Canal Harbour
Dublin 2
Ireland
HSBC Continental Europe *
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
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
JE11ES
Jersey
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
* HSBC France, Dublin Branch changed its name to HSBC Continental Europe with effect from 1 December 2020.
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BAKER STEEL RESOURCES TRUST LIMITED
CHAIRMAN’S STATEMENT
For the year ended 31 December 2020
2020 was a year of great uncertainty and market volatility as the world came to grips with the consequences of the Covid-19
pandemic. Initial investor reaction saw a sharp sell-off in global equity markets including metals and mining shares but this
proved short lived as sentiment recovered when it became evident that governments would support economies with
unprecedented fiscal measures. The future inflationary risk of this massive government borrowing propelled the gold price to
all-time highs. This was then followed by increases in base metal prices with increased expected demand from government
stimulus packages including resource intensive infrastructure projects to kick start their economies.
This backdrop has a been a positive one for the Company with the NAV rising 31.5% over the year to 31 December 2020 and
the Company’s share price increasing by 35.8%, while the EMIX Global Mining Index rose by 22.2% in Sterling terms.
During the year the Company concentrated its resources on ensuring that our existing investee companies were able to progress
their projects in the prevailing difficult operating and market conditions. To this end, supplemental investments were made in
Futura Resources, Anglo Saxony Mining, Azarga Metals, Nussir, and Mines & Metals Peru PLC (MMTP). The market for junior
mining development companies to raise funds then opened up in the final quarter of 2020 and MMTP was able to raise equity
from new shareholders at the end of the year, following this up with a listing via a merger with TSX-V listed Oro X and raising
a further C$14 million to create Silver X. Likewise since the year end Anglo Saxony has been able to raise £5 million at a higher
price than we were carrying it at ahead of an anticipated IPO later this year. Futura continued to progress its coking coal projects
towards production but decided to push back the planned start-up of operations until more stability and transparency in coking
coal markets prevails. The investment in CEMOS was particularly rewarding, especially given initial Covid-related problems,
as it ramped up production and sales to full capacity at its cement plant in Morocco and posted record financial results.
The Company is well placed to benefit from the improved investor sentiment towards metals and mining with several of our
investee companies such as Bilboes, Futura, Tungsten West and Nussir having reached a stage where they need and are seeking
significant amounts of capital to develop their mines. In the case of Bilboes a comprehensive process was undertaken during
2020 to investigate the options for financing the mine, including merging with another gold mining company or a sale for cash.
In the end, it was decided that a sale for cash was the most attractive option and negotiations are continuing with a major gold
company to sell the Company’s interest in Bilboes for approximately £20 million subject to regulatory approvals. This would
represent a return of around four times our investment in Bilboes. In accordance with our commitment to shareholders, at least
15% of realised gains will be distributed to shareholders. Further details of the size, method and timing of such distribution will
be sent to shareholders following completion and once the consideration has been finalised and received.
Although the listed market has shown an increased willingness to finance mining projects, most institutional investors are unable
or unwilling to invest in private companies. This provides a continuing opportunity for the Company, particularly as private
companies are currently keen to raise finance to progress themselves to a sufficiently advanced stage to seek a stock exchange
listing. The Company intends to reinvest a major portion of the proceeds from the sale of Bilboes into advanced pre-IPO
opportunities and we are currently analysing a number of attractive propositions.
The mining industry has generally coped well with the Covid-19 pandemic as mines are usually in isolated locations and most
mining companies have been able to put in place protocols which have enabled them to continue operating. Furthermore, most
of the Company’s investments are not yet in operation so they have been relatively less affected than some, other than through
some slowing down of progress. The Company’s policy of investing through convertible bonds has meant we have at least
accrued interest on those loans during these delays, and our husbanding of our investments by ensuring they had sufficient
working capital when times were most difficult, as mentioned above, means our investments are in a strong position as the world
starts to emerge from the pandemic.
During the year we welcomed Fiona Perrott-Humphrey, who has over 30 years’ experience in mining finance, to the Board. She
replaced Clive Newall, whom I would like to thank for his invaluable insights on the mining industry and contribution to the
Company since its formation.
Howard Myles
Chairman
22 April 2021
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BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT
For the year ended 31 December 2020
Financial Performance
The audited Net Asset Value per Ordinary Share (“NAV”) as at 31 December 2020 was 97.2 pence, an increase of 31.5% in the
year compared with the increase in the EMIX Global Mining Index of 22.2% in Sterling terms.
For the purpose of calculating the NAV per share, unquoted investments were carried at fair value as at 31 December 2020 as
determined by the Directors and quoted investments were carried at their quoted prices as that date.
Net assets at 31 December 2020 comprised the following:
Unquoted Investments
Quoted Investments
Cash and other net assets
Investment Update
Largest 10 Holdings – 31 December 2020
Bilboes Gold Limited
Futura Resources Limited
Cemos Group Plc
Tungsten West Limited
Polar Acquisition Limited
Mines & Metals Trading (Peru) Plc
Anglo Saxony Mining Limited
Nussir ASA
Azarga Metals Corporation
Sarmin Minerals Exploration
Other Investments
Cash and other net assets
Largest 10 Holdings – 31 December 2019
Bilboes Gold Limited
Futura Resources Limited
Polar Acquisition Limited
Cemos Group Plc
Tungsten West Limited
Polymetal International Plc
Anglo Saxony Mining Limited
Mines & Metals Trading (Peru) Plc
Nussir ASA
Sarmin Minerals Exploration
Other Investments
Cash and other net assets
£m
95.4
7.2
0.9
103.5
% net assets
92.2
6.9
0.9
100.0
% of NAV
19.5
16.2
14.5
13.2
8.9
4.4
3.9
3.4
2.7
2.7
89.4
9.7
0.9
100.0
% of NAV
15.9
15.0
11.3
10.0
8.0
6.1
4.6
4.4
4.1
3.7
83.1
14.6
2.3
100.0
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BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
For the year ended 31 December 2020
Review
At the year end the Company was fully invested, holding 28 investments of which the top 10 holdings comprised 90% 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 has exposure to gold, silver, metallurgical coal, cement, tungsten, copper, tin, iron, lead and
zinc. Its projects are located in Australia, Canada, Germany, Indonesia, Madagascar, Mongolia, Morocco, Norway, Peru, the
Philippines, Republic of Congo, Russia, the UK and Zimbabwe.
During the year, the mining market continued the recovery which commenced in 2019 albeit with much greater volatility as a
result of the Covid-19 pandemic, with the EMIX Global Mining Index ending the year up 22.2% in Sterling terms, despite being
down at one point by around 30% in March 2020. The gains were initially led by precious metals with gold up 25% and silver
up 48% in US Dollars but in the second half were followed by other commodities to which the Company is exposed, with iron
ore up 74%, copper up 26%, tin up 20% and lead up 3% for the year (all in US dollars). The weakest performing commodity in
which the Company is invested was coking coal which was down 31% due to an unofficial embargo on coal imports from
Australia by China, although the price has recovered somewhat so far in 2021.
Whereas in 2019, the movements to the carrying values of the Company’s portfolio were largely driven by general market
movements (as represented by the Company’s IndexVal models), the increased activity in the sector meant that at the end of
2020 the majority of the unlisted holdings were valued on the basis of recent events, being either external fund raises or
transactions. In all cases the valuations reflect consideration as to whether there has been any changes since the transaction that
would indicate the price is no longer fair value. During the year, the Company also reviewed the liquid portion (listed securities)
of its portfolio in the light of volatile markets with the holdings in Polymetal International Plc and Ivanhoe Mines Ltd being
diversified into a spread of listed precious metal shares.
The Company did not make any new core investments during the year, partly due to our inability to visit projects due to travel
restrictions but also due to a decision to concentrate our resources on ensuring that our existing investments had sufficient
working capital to survive the difficult trading conditions as a result of the Covid-19 pandemic. To this end follow-up investments
were made in Futura Resources Ltd, Mines & Metals Trading Peru PLC, Anglo Saxony Mining Limited and Azarga Metals
Corporation.
The Company’s largest investment, Bilboes Gold Limited (“Bilboes”) completed its Definitive Feasibility Study (“DFS”) on its
forecast 170,000 ounce per annum gold mine, Isabella-McCays-Bubi in Matabeleland, Zimbabwe, early in 2020. Bilboes
shareholders undertook a formal process to examine the best way to realise the project’s value with all options including an IPO,
private development funding, a merger with another gold producer or outright sale considered. It was decided that the Company
and the other financial investor would sell their shares for cash whilst the local management would retain their interest with the
buyer committing to finance the development of the mine. The details of the transaction are still being negotiated and are subject
to signing binding contracts and regulatory approvals but assuming it completes, the Company would realise approximately £20
million in cash which equates to approximately four times its investment.
Progress at Futura’s Wilton and Fairhill coking coal projects was slow during 2020 partly due to the lengthy licencing processes
which have now been worked through, and partly because the unofficial ban on Australian coal imports by China led to disruption
of the market and as a result delayed Futura’s financing of the mine. It is hoped Futura will be able to raise the necessary finance
in the second quarter of 2021 and commence production in the second half of this year. This is an example of where the
Company’s structuring of its investments through convertibles has been important in mitigating risk. Due to the delays, Futura
was unable to meet certain milestones in the convertible agreement and as a result the conversion price of the loan was reduced
by 50%. Since the year end, the Company completed conversion of the loan so we now hold approximately 27% of the shares
of Futura.
During the second half of 2020, Cemos Group PLC achieved full production at its cement plant in Morocco and is now generating
approximately €1 million per month in EBITDA. Therefore, it was moved from an indexation based valuation to a maintainable
earnings multiple approach. At the year end Cemos was as a result revalued at €50 million of which the Company holds
approximately 32.4% assuming conversion of all the Convertible Unlisted Loan Securities. Following the year end Cemos made
a decision to double its capacity by constructing a second production line, to be financed out of cashflow from current operations,
which is expected to be in place at the end of 2021.
Towards the end of 2019, the Company invested £5 million in secured convertible loan notes in Tungsten West which owns the
Hemerdon Tungsten Mine, 7 miles northeast of Plymouth in Devon, England. This was a previously producing mine which
encountered processing problems at a time of low tungsten prices and was forced to close before being acquired by Tungsten
West. During 2020 Tungsten West undertook extensive mineralogical and metallurgical test work and in March 2021 completed
a Bankable Feasibility Study to reopen the mine. This showed a robust project operating for over 20 years with economics
showing a post-tax NPV of £272 million and IRR of 33% on the basis of an upfront capital requirement for the restart of £45
million.
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BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
For the year ended 31 December 2020
Review (continued)
During the year, Polymetal International released details of a pre-feasibility study (“PFS”) it completed on the Prognoz silver
project in the Republic of Sakha (Yakutia), Russia over which Polar Acquisition Limited (“PAL”) holds a 1.8% to 0.9% net
smelter royalty. The PFS demonstrated the Prognoz project to be robust at a silver price of US$15 per ounce (Spot price US$24
per ounce as at 31 March 2021) based on an open pit mine producing 13.5 million ounces of payable silver per annum at an all-
in-sustaining cost of US$8-9 /ounce of silver. This excluded a further 100 million ounces of silver in mineral resources which
are likely to be more amenable to underground mining as well as by-product revenue, in particular lead, which is also the subject
of PAL’s royalty. Polymetal is expected to make a production decision on Prognoz in the fourth quarter of 2021.
The Company’s investment most affected by the Covid-19 pandemic was Mines & Metals Trading (Peru) PLC (MMTP), which
owns the Recuperada silver/lead/zinc mine in Peru, with the government of Peru closing down all mines in the middle of 2020.
In the fourth quarter MMTP was able to move back into full production and since the year end, has announced an agreement to
merge with TSX-V listed Peruvian explorer Oro-X and raise a minimum C$14 million. The combined company will be renamed
Silver X to create a growth-focused listed producer well positioned to consolidate the fragmented Peruvian silver mining
industry.
Anglo Saxony completed a PFS on its Tellerhauser tin project in Saxony, Germany, in April 2020. The study base case
economics were positive although an IRR of 10.8% suggested that the project needed further optimisation or a higher tin price
than the US$20,500/tonne used in the study, for it to be financeable. Tin has long been identified as one of the principal
beneficiaries of the global move towards electrification due to its use as solder for electrical connections, and a tin mine in the
heart of Europe is likely to be of strategic importance. Since the year end, the tin price has moved ahead strongly and closed at
US$27,539 /tonne at 31 March 2021. The renewed interest in tin meant that Anglo Saxony was able to raise £6 million in March
2021 at an 87.5% premium to the Company’s carrying value at 31 December 2020. This funding will allow Anglo Saxony to
perform further resource drilling and optimisation work ahead of an IPO planned for later this year.
During 2020 Nussir completed the DFS on its Nussir/Ulveryggen copper project in northern Norway. Although this showed a
robust project Nussir took the decision to revise the operating plan such that the whole operation is fully electric which will open
up the opportunity for certain grants and reduce the cost of financing the development as a zero-carbon business. In addition,
towards the end of 2020, Nussir raised a further NOK41 million in equity from northern Norwegian investors which has increased
the local participation in the project. The revised DFS is due in the second half of 2021.
In September 2020, Sarmin Mineral Exploration completed a positive DFS on its Kanga Potash project in the Republic of Congo
for a mine producing 600,000 tonnes per annum of Muriate of Phosphate (“MOP”). The Kanga project’s key advantages (in
addition to its exceptional geological characteristics) are its proximity to the coast, minimising the cost of product transport as
well as access to long term, competitively priced natural gas. This results in both capital and operating costs in the lowest part
of the industry cost curve making Kanga one of the most competitive MOP projects globally. It also has the potential to be
expanded on a modular basis up to 2.4M tpa over 30 years. Sarmin is currently seeking partners to finance the construction of
the project.
Amongst the smaller investments in the portfolio Azarga Metals Corp. completed a further drilling campaign on its Unkur
copper/silver project in far eastern Russia and is currently undertaking a revised Preliminary Economic Assessment. Metals
Exploration plc completed a debt restructuring and relisted on AIM in the fourth quarter and continued to improve the production
rate from its Runruno gold mine in the Philippines. Black Pearl continued discussions with Chinese partners regarding the use
of its mine as the basis for a new steel plant in Indonesia albeit that due to the continuing slow progress, the Company decided
to reduce its carrying value of Black Pearl by a further 50%. Prism Diversified is currently in discussions which could lead to
bringing in a new partner to acquire a majority stake in the company and Akora Resources Ltd (formerly Indian Pacific Resources
Ltd), completed a successful IPO on the Australian Stock Exchange during December 2020.
We are cautiously optimistic on the outlook for mining and metals with some commentators suggesting the start of a new
“supercycle” for commodities though we expect markets to remain volatile as the world continues to react to the implications of
the Covid-19 pandemic. Should the sale of Bilboes complete, the consideration will provide the Company with the resources to
invest in new projects at an opportune point in the cycle as well as fulfilling our commitment to return a portion of profits on
disposals to shareholders.
Further details of each of these investments are provided below.
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BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
For the year ended 31 December 2020
Review (continued)
Bilboes Gold Limited ("Bilboes")
Bilboes is a private Zimbabwean based gold mining company which has a JORC compliant Proved and Probable Reserves
containing 1.8 million ounces of gold out of a total Mineral Resource of 3.8 million ounces of gold. A positive definitive
feasibility study into a mine producing an average of 170,000 ounces of gold per annum was completed in 2020.
Futura Resources Ltd (“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 during 2021, for a targeted combined
sustainable level of 2.3 million tonnes per annum of saleable processed coal in 2022 for at least 25 years once in full production.
Cemos Group plc (‘‘Cemos’’)
Cemos is a private cement producer at Tarfaya in Morocco. Cemos completed the construction of a cement plant at Tarfaya in
December 2018 and reached full production rate of 270,000 tonnes cement per annum during 2020. It has announced plans to
double its plant capacity by the end of 2021.
Tungsten West Limited (‘‘Tungsten West’’)
Tungsten West is a private company which owns the Hemerdon Mine in Devon, United Kingdom. A feasibility study into a mine
producing approximately 350,000 mtu tungsten per annum over 25 years was completed in March 2021.
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 267-million-ounce silver equivalent Indicated and Inferred Mineral
Resource at a grade of 755 g/t silver equivalent. A pre-feasibility study was undertaken by Polymetal International plc in 2020
and a development decision is expected to be taken in the second half of 2021.
Anglo Saxony (“Anglo Saxony”)
Anglo Saxony is a private company which holds the Tellerhäuser operations in Germany. Total mineral resources for the project
have been estimated at 22.1 million tonnes of ore grading 0.46% tin. A pre-feasibility study was completed in March 2020.
Mines & Metals Trading Peru PLC (“MMTP”)
MMTP is a private company with operations in Peru. Total mineral resources for the project have been estimated at 7,336,633
tonnes of ore grading 4.77oz silver per tonne, 3.91% lead, and 2.53% zinc for the 54 vein systems identified. It has announced
an agreement to merge with TSX-V listed Peruvian explorer Oro-X.
Nussir ASA ("Nussir")
Nussir is a Norwegian private company whose key asset is the Nussir/Ulveryggen copper project in Northern Norway. A
definitive feasibility study into a mine producing approximately 14,000 tonnes of copper per annum was completed in March
2020.
Azarga Metals Corp. ("Azarga")
Azarga is a TSX-V listed company which holds the Unkur copper/silver project in far eastern Russia with Inferred Mineral
Resources estimated at 62 million tonnes at 0.53% copper and 38.6g/t silver, containing 328,600 tonnes of copper and 76.8
million troy ounces of silver (0.56 Mt of copper equivalent).
Sarmin Minerals Exploration Inc (“Sarmin”)
Sarmin is private company which holds the Kanga potash project, in the Republic of the Congo. A feasibility study producing
600,000 tonnes per annum of Muriate of Phosphate was completed in September 2020.
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
67,552 ounces of gold in 2020.
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. Negotiations are ongoing for the Black Pearl project to form the base production for an integrated steel production
facility.
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BAKER STEEL RESOURCES TRUST LIMITED
INVESTMENT MANAGER’S REPORT (CONTINUED)
For the year ended 31 December 2020
Review (continued)
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.
Akora Resources Ltd (previously Indian Pacific Resources Ltd) (“Akora”)
Akora is an Australian Stock Exchange Listed mineral exploration company with three prospective exploration target areas
comprising some 308 km2 of iron ore tenements in Madagascar.
Baker Steel Capital Managers LLP
Investment Manager
April 2021
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BAKER STEEL RESOURCES TRUST LIMITED
PORTFOLIO STATEMENT
AT 31 DECEMBER 2020
Investments
Shares
/Warrants/
Nominal
Listed equity shares
Australian Dollars
Akora Resources Limited (formerly Indian Pacific Resources
Limited)
5,091,910
1,705,000 Resolute Mining Limited
Australian Dollars Total
Canadian Dollars
6,352,301 Azarga Metals Corporation
20,000 Endeavour Mining Corporation
Canadian Dollars Total
Great Britain Pounds
31,000 Fresnillo Plc
122,760,000 Metals Exploration Plc
28,700 Polymetal International Plc
Great Britain Pounds Total
United States Dollars
21,000 Anglo Gold Ashanti Limited
101,000 Coeur Mining Inc
104,000 Harmony Gold Mining Company Limited
218,000
Iamgold Corporation
United States Dollars Total
Total investment in listed equity shares
Debt instruments
Australian Dollars
1,000,200 Futura Resources Limited
Australian Dollars Total
Canadian Dollars
305,000 PRISM Diversified Limited Loan Note 1
250,500 PRISM Diversified Limited Loan Note 2
Canadian Dollars Total
Euro
1,045 Cemos Group Plc Convertible Unsecured Loan Security
460,603 Cemos Group Plc Loan Note
Euro Total
9
Fair value
£ equivalent
% of Net
assets
1,006,887
765,814
1,772,701
219,063
340,488
559,551
350,145
1,964,160
483,452
2,797,757
347,885
765,572
356,454
585,931
2,055,842
7,185,851
10,406,905
10,406,905
129,977
414,138
544,115
7,697,632
412,517
8,110,149
0.97
0.74
1.71
0.21
0.33
0.54
0.34
1.90
0.47
2.71
0.34
0.74
0.34
0.57
1.99
6.95
10.05
10.05
0.13
0.40
0.53
7.44
0.40
7.84
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BAKER STEEL RESOURCES TRUST LIMITED
PORTFOLIO STATEMENT (CONTINUED)
AT 31 DECEMBER 2020
Investments
Shares
/Warrants/
Nominal
Debt instruments (Continued)
Great Britain Pounds
Fair value
£ equivalent
% of Net
assets
2,200,000 Anglo Saxony Mining Limited Convertible Loan Note
16,666,667 Tungsten West Limited Convertible Loan Note
Great Britain Pounds Total
United States Dollars
3,500,000 Azarga Metals Secured Convertible Loan Note
440,000 Bilboes Holdings Loan Note 1
220,000 Bilboes Holdings Loan Note 2
7,009,332 Black Pearl Limited Partnership
4,000,000 Mines & Metals Trading (Peru) Plc Convertible Loan Note
1,000,000 Mines & Metals Trading (Peru) Plc
United States Dollars Total
Total investments in debt instruments
Unlisted equity shares and warrants and royalties
Australian Dollars
7,800,000 Futura Gross Revenue Royalty
1,018,030 Futura Resources Limited
Australian Dollars Total
Canadian Dollars
13,490,414 Azarga Metals Convertible Loan Note Warrants 31/12/2022
13,083,936 PRISM Diversified Limited
1,000,000 PRISM Diversified Limited Warrants 31/12/2023
Canadian Dollars Total
Great Britain Pounds
8,096,233 Anglo Saxony Mining Limited
1,594,646 Celadon Mining Limited
24,004,167 Cemos Group Plc
7,869,319 Tungsten West Limited
3,400,613
10,074,837
13,475,450
2,508,890
2,667,091
516,689
1,281,629
3,683,307
585,887
11,243,493
43,780,112
5,316,448
1,006,539
6,322,987
104,502
1,000,026
36,987
1,141,515
647,699
15,946
6,943,907
3,541,194
3.29
9.73
13.02
2.42
2.58
0.50
1.24
3.56
0.56
10.86
42.30
5.14
0.97
6.11
0.10
0.97
0.04
1.11
0.62
0.02
6.71
3.42
Great Britain Pounds Total
11,148,746
10.77
Norwegian Krone
12,785,361 Nussir ASA
Norwegian Krone Total
3,550,538
3,550,538
3.43
3.43
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BAKER STEEL RESOURCES TRUST LIMITED
PORTFOLIO STATEMENT (CONTINUED)
AT 31 DECEMBER 2020
Investments
Shares
/Warrants/
Nominal
Unlisted equity shares and warrants and royalties
(Continued)
Fair value
£ equivalent
% of Net
assets
United States Dollars
451,445 Bilboes Gold Limited
4,244,550 Gobi Coal & Energy Limited
30,698 Mines & Metals Trading (Peru) Plc
16,352 Polar Acquisition Limited
56,042 Sarmin Minerals Exploration
United States Dollars Total
17,009,886
146,101
334,981
9,196,314
2,790,916
29,478,198
Total unlisted equity shares, warrants and royalties
51,641,984
Financial assets held at fair value through profit or loss
102,607,947
Other Assets & Liabilities
883,452
16.43
0.14
0.32
8.89
2.70
28.48
49.90
99.15
0.85
Total Equity
103,491,399
100.00
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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, and the next discontinuation
vote will be held at this year’s AGM which is expected to be held in the third quarter of the year.
Company Purpose and Values
The purpose of the Company is to carry out business as an investment company and to provide returns to shareholders through
achieving its investment objective as described on page 13.
The values of the Company are discussed and agreed upon by the Board. The Board seeks to run the Company with a culture of
openness, high integrity and accountability. It aims to demonstrate these values through its behaviour both within itself and its
dealings with its stakeholders. It seeks to act in the spirit of mutual respect, trust and fairness. The Board is robust in its challenge
of the Investment Manager and other service providers but tries always to be constructive and collegiate. The Board expects its
members to exhibit an independence of mind and not to be wary of asking difficult questions. Moreover, it expects and
encourages its key service providers to exhibit similar values.
Role and Composition of the Board
The Board is the Company’s governing body; it sets the Company’s strategy and is collectively responsible for its long-term
performance. 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. As travel bans resulting from the pandemic prevented physical meetings taking place, the Board have made use of video
conference facilities to maintain engagement with service providers.
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 the Company’s liquidity,
conditions in the stock market and mining markets.
The Board continues to review the Company’s ongoing expenditure to ensure that the total costs incurred in the running of the
Company remain competitive. 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 2020, the Board comprised four Directors (2019: four).
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 investment 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.
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BAKER STEEL RESOURCES TRUST LIMITED
STRATEGIC REPORT (CONTINUED)
Investment Management (continued)
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.
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
the 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 and impact of
leverage, positive and negative 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
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. The portfolio may
become focussed on fewer holdings as certain investments mature and increase in value. Once such investments are realised it
is intended that the consideration will be reinvested in several new investments thereby diversifying the portfolio. 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 or distribution of the proceeds
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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.
• 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. 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 2020.
Hedging
The Investment Manager will not normally hedge the exposure of the Company to currency fluctuations.
Performance
The Company monitors NAV against the EMIX Global Mining Index 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 8.
Principal risk and uncertainties
The Board is responsible for the Company’s system of risk management and internal control and for reviewing its effectiveness.
The Board has adopted a detailed matrix of principal risks affecting the Company’s business as an investment company and has
established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored
by the Audit Committee on an ongoing basis. This system assists the board in determining the nature and extent of the risks it is
willing to take in achieving the Company’s strategic objectives.
Although the Board believes that it has a robust framework of internal controls in place this can provide only reasonable, and
not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk. Actions
taken by the Board and, where appropriate, its committees, to manage and mitigate the Company’s principal risks and
uncertainties are discussed in more detail below.
Emerging Risks and Uncertainties
During the year, the Board also discussed and monitored a number of risks that could potentially impact the Company’s ability
to meet its strategic objectives. The principal emerging risk was agreed to be climate change risk. Climate change risk includes
how climate change could affect the Company’s investments, and potentially shareholder returns. The Board has implemented
an ESG policy which has been developed from the Managers own ESG policy. The Company’s ESG policy is available on its
website. The Board will continue to monitor the implications of growing ESG pressures as an emerging risk.
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 51 to 55.
The Company’s investment activities also expose it to a variety of financial risks including in particular foreign currency risk. A
sensitivity to foreign exchange is presented on pages 51 and 52.
The Coronavirus (Covid-19) has had a significant impact on financial markets since February 2020. While it cannot be predicted
how long market conditions will remain volatile, the Board notes that commodities have performed strongly during the period
of the pandemic due to the combined risks of inflation and the potential for commodity intensive recovery plans by governments.
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BAKER STEEL RESOURCES TRUST LIMITED
STRATEGIC REPORT (CONTINUED)
Principal risk and uncertainties (continued)
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 to 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.
The Company invests in certain 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 and other such 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 or its key investment professionals 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 and capabilities of the Investment
Manager and its key man risk plans.
There is the risk that the market capitalisation of the Company (on which the Investment Manager’s fee is calculated) falls to
such an extent that it will no longer be viable for the Investment Manager to provide the services that it currently provides. The
Board monitors this possibility and, should it start to become an issue, would review it with the Investment Manager.
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% over a three-year time period. The Board has concluded that, even in circumstances representing such a
significant deterioration in markets, the Company can remain viable until the following discontinuation vote in 2024, on the
basis that shareholders decide at this year’s AGM to vote against discontinuation. To be passed the discontinuation vote would
require a majority of 75% of those shareholders voting. The Company has canvassed major shareholders and indications are that
the vote to discontinue will not be passed at the AGM in 2021.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 31 of the UK Corporate Governance Code, published by the Financial Reporting Council (“FRC”)
in July 2018 (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 2024. Following the consultation with major shareholders as noted above, for the purposes
of assessing viability, the Directors have assumed that the Discontinuation resolution will not be passed at the AGM and therefore
the Company will continue at least until the following Discontinuation Vote in 2024 and therefore consider that this is an
appropriate timeframe to assess the viability of the Company as, in relation to the types of investments the Company makes,
three years generally provides sufficient time for major milestones to be reached on mining projects together with some
realisations and new investments to be made by the Company. Beyond three years, the Board considers the mining and minerals
markets to be too difficult to predict to be sufficiently helpful.
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BAKER STEEL RESOURCES TRUST LIMITED
STRATEGIC REPORT (CONTINUED)
Viability Statement (continued)
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 discontinuation vote in 2021, which the Directors have assumed
will not be passed, following consultation with major shareholders.
The Company has previously seen pressures from falls in commodity prices and a move by its share price to an increased discount
to its NAV. The mining market is inherently cyclical and dependent on world economic output. 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 expense ratio becomes excessive such that the Company becomes an unattractive investment proposition.
In such conditions, it may also be a risk that liquidity (i.e. the ability to sell or realise cash from the portfolio, or raise borrowings
should that be necessary) is insufficiently available to meet liabilities.
In the case of the Company, which has no gearing, the Investment Manager has conducted stress and sensitivity tests of future
income and expenditure and the ability to realise assets, and has concluded that, even in circumstances representing a
deterioration in value of 50% of net assets and a complete inability to sell any of the unlisted assets in the portfolio, the Company
should remain viable over the period to the 2024 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 or at a higher rate, such that the costs of the Company would also fall. It is also
assumed that the liquidity required over the three-year period and under the highly stressed conditions modelled, is largely
provided by regular realisations of the Company’s listed equities. The Directors believe this to be reasonable given that these
equities are regularly traded at sufficient volumes in the context of the very minor positions the Company’s holdings represent.
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.
Environmental, Social and Governance
The Company believes that monitoring environmental, social and governance (“ESG”) factors is important not only to support
sustainable and ethical investment but because ESG considerations are key for creating and maintaining shareholder value. The
Company has developed an ESG Investment Policy which draws from international best practice and builds upon the principles
and processes outlined in the United Nations Principles for Responsible Investment, of which the Investment Manager is a
signatory. A copy of the Company’s ESG policy is available on the Company’s website.
ESG considerations are considered as an enhanced risk management tool and, as such, are incorporated into the Investment
Manager’s investment decision process at multiple levels during stock screening and company analysis, as well as being directly
addressed with company management during meetings and on-site visits. The Company is an active investor and will use its
voting rights to influence company direction in a sustainable way where deemed appropriate. The Company considers that social
and environmental responsibility, along with good governance, are an integral element of running a successful mining company.
For example the Nussir copper project in Norway aims to become the first zero carbon mine globally through being fully electric
with the electricity generated from entirely renewable sources. The Company has used its representation on the Board of Nussir
to actively promote this evolution to electrification.
Non-Mainstream Pooled Investment
The Directors intend to operate the Company in such a manner that its shares are not categorised as non-mainstream pooled
investments.
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 8.
Signed on behalf of the Board of Directors by:
David Staples
22 April 2021
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BAKER STEEL RESOURCES TRUST LIMITED
BOARD OF DIRECTORS
The Board of Directors is listed below. In 2018 the Board put in place a succession plan to refresh its membership while
maintaining a degree of continuity. Christopher Sherwell was the first director to retire as part of this plan and he resigned at the
Company’s AGM held on 28 May 2019. Clive Newall, who was the second director to retire as part of the plan, resigned at the
Company’s AGM on 15 September 2020. David Staples was appointed on 29 May 2019 and Fiona Perrot-Humphrey was
appointed on 15 September 2020. Both the 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, as the Board believes that any decisions
regarding tenure should consider the balance between the need for continuity of knowledge and experience, and the need
periodically to refresh the Board’s composition in terms of skills, diversity and length of service.
Howard Myles: 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 director of Aberdeen Latin
American Income Fund Limited, Chelverton UK Dividend Trust plc and BBGI Global Infrastructure S.A. all of which are listed
on the London Stock Exchange.
Howard is a member of the Company’s Audit Committee. Notwithstanding that Howard’s tenure extends beyond eleven years,
the Board is satisfied that he continues to demonstrate independence of the Investment Manager.
Charles Hansard: Charles Hansard has over 40 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 JJJ Moore part of the
Moore Capital group of funds of which he was a director for 25 years. He is a director of NYSE listed Los Gatos Silver Inc and
Electrum Ltd., a privately owned US 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.
Notwithstanding that Charles’s tenure extends beyond eleven years, the Board is satisfied that he continues to demonstrate
independence of the Investment Manager.
Fiona Perrott-Humphrey: Fiona Perrott-Humphrey has over 30 years’ experience in the mining finance industry in London.
She moved to the UK in 1987 after a period in academia in South Africa, and over the next 15 years, was a rated mining analyst
for a number of stockbroking firms including James Capel, Cazenove and Citigroup (the latter as head of European Mining
Research). After leaving full time broking, Fiona has had a portfolio of roles drawing on her experience of covering the global
mining sector. She is a founder of a mining strategic consulting business, and director of AIM Mining Research and in 2007
published a book entitled Understanding Junior Miners. In 2004, she was appointed Adviser to the Mining team at Rothschild
and Co. Fiona was a non-executive director of Dominion Diamonds, located in northern Canada, for two years from 2014. She
is invited to present regularly at global mining conferences.
Fiona is a member of the Company's audit committee.
David Staples: David Staples worked for PWC in London for 25 years, including 13 years as Partner. He has many years’
experience serving on boards of listed and private companies as a non-executive director, including as chairman of listed
investment companies. David has a BSc in Economics and Accounting, is a Fellow Chartered Accountant, a Chartered Tax
Adviser and a holder of the Institute of Directors’ Certificate in Company Direction. He is a Director of Ruffer Investment
Company Limited and NB Global Monthly Income Fund, both of which are listed on the London Stock Exchange. He is also
chairman of the general partner companies of private equity funds advised by Apax Partners.
David is the Chairman of the Audit Committee.
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BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT
For the year ended 31 December 2020
The Directors of the Company present their eleventh annual report and the audited financial statements (the “Annual Report”)
for the year ended 31 December 2020.
The Directors’ Report contains information that covers this period and the period up to the date of publication of this Report.
Please note that more up to date information is available on the Company’s website www.bakersteelresourcestrust.com.
Status
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, Premium
Segment.
Investment Objective
Details of the Company’s investment objectives and policies are described in the Strategic Report on page 13.
Performance
In the year to 31 December 2020, the Company’s NAV per Ordinary Share increased by 31.5% (2019: 29.9%). This compares
with a rise in the EMIX Global Mining Index (capital return in Sterling terms) of 22.2% (2019: 18.1%). A more detailed
explanation of the performance of the Company is provided within the Investment Manager’s Report on pages 4 to 8.
The results for the year are shown in the Statement of Comprehensive Income on pages 37 and 38 and the Company’s financial
position at the end of the year is shown in the Statement of Financial Position on page 36.
Dividends and distribution 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 and paid
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. In the
longer term the Board intends to formulate a more regular dividend policy once it starts to receive income from its royalty
interests.
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 are:
Howard Myles (Chairman)
Charles Hansard
Clive Newall (Resigned 15 September 2020)
Fiona Perrott-Humphrey (Appointed 15 September 2020)
David Staples
Biographical details of each of the Directors who were on the Board of the Company at the time of signing The Annual Report
are presented on page 17 of the Annual Report.
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BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2020
Directors and their interests (continued)
Each of the Directors is considered to be independent in character and judgement.
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. None of the Directors hold any shares in the Company.
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.
Shares in issue
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.
In May 2019, the Company enacted a tender offer for 9,677,478 Ordinary Shares at 51 pence per share. The repurchased shares
were cancelled.
The Company had a total of 106,453,335 Ordinary and 9,167 Management Ordinary Shares in issue as at 31 December 2020,
of which 700,000 Ordinary Shares were held in Treasury.
Significant Shareholdings
As at 31 December 2020, 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
Overseas Asset Management
The Sonya Trust
RIT Capital Partners
Northcliffe Holdings Pty Ltd
Premier Miton Investors
Armstrong Investments
Baker Steel Capital Managers
Number of
Ordinary Shares
000’s
13,681
12,722
12,517
12,452
11,045
5,100
4,923
% of Total
Shares in issue
12.85
11.95
11.76
11.70
10.38
4.79
4.62
The Investment Manager, Baker Steel Capital Managers LLP had an interest in 9,167 Management Ordinary Shares at 31
December 2020 (31 December 2019: 9,167).
Baker Steel Global Funds SICAV – Precious Metals Fund (“Precious Metals Fund”) had an interest in 4,922,877 Ordinary
Shares in the Company at 31 December 2020 (2019: 5,622,877). Precious Metals Fund has the same Investment Manager as
the Company.
David Baker and Trevor Steel, Directors of the Manager, are interested in the shares held by Northcliffe Holdings Limited and
The Sonya Trust respectively.
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BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2020
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 position and performance of the business 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;
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; and
they have carried out a robust assessment of the emerging and 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 accounting. There will be a discontinuation vote at the AGM in June 2021, however following
consultation with major shareholders, the Board consider it likely that the discontinuation vote will not be passed and the
Company will continue following the AGM. The Board are 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 2020, approximately 8% of the Company’s
assets were represented by cash and unrestricted listed and quoted investments which are readily realisable. 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.
Related party transactions
Transactions with related parties are based on terms equivalent to those that prevail in an arm’s length transaction and are
disclosed in Note 12.
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BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2020
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 FRC’s
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 2018 effective for periods commencing on or after 1 January 2019.
Throughout the year ended 31 December 2020, 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 and Remuneration 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 as explained further on the following pages.
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 to service providers 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 adversely 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 and small size, 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.
21
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BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2020
Operation and composition of the Board (continued)
Howard Myles and Charles Hansard have now served as Directors for more than 9 years. The Board believes that both these
directors continue to demonstrate independence of the Manager and to make a valuable contribution to the Company, and
therefore recommends that shareholders vote in favour of their reappointment. The Board has a succession plan under which
its membership will be refreshed over time. In 2019 Chris Sherwell retired and was replaced by David Staples, and in 2020
Clive Newall retired and was replaced by Fiona Perrott-Humphrey. It is intended that further new appointments will be
made in the course of the next two years. An executive search firm with specialism in the financial sector was engaged to
assist with the identification and appointment of Ms Perrott-Humphrey. Specialists will continue to be engaged as the Board
consider necessary to assist with future appointments.
•
Information
The Board receives full details of the Company’s assets, liabilities and other relevant information in advance of Board
meetings, including information on regulatory and accounting developments.
• 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 investor 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 and performance
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 and Company
Secretary. 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 direct
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
Charles Hansard
Clive Newall*
Fiona Perrott-Humphrey*
David Staples
Board Meetings
Audit Committee
Meetings
Held
4
4
4
4
4
Attended
4
4
3
2
4
Held
4
4
4
4
4
Attended
4
N/A
3
2
4
* Clive Newall resigned from the Board on 15 September 2020 and Fiona Perrott-Humphrey was appointed to the Board on
15 September 2020. Since this date to the end of the year there has been one quarterly Board meeting and one Audit
Committee meeting.
In addition to the quarterly meetings, adhoc Board and committee meetings are convened as required. All Directors
contribute to a significant exchange of views with the Investment Manager on specific matters, in particular in relation to
developments in the portfolio.
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BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2020
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
• 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 the 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.
• Engagement with key Stakeholders
The Board considers its key stakeholders to be the Company’s Investment Manager, Administrator, Company Secretary and
Stockbroker. Engagement with each Stakeholder is formalised by quarterly reporting at the Board Meetings but outside of
the formal meetings, is continuous as required by the operations of the Company. The Board is very aware of the importance
to the success of the Company of these key stakeholders and encourages open and frequent dialogue to facilitate
improvements to the way that the Company functions. For example, the Board has actively engaged with the Investment
Manager on the level of information it requires to assess new investments. Through an iterative process of consultation, a
mutually agreed package of information, including ESG considerations, has been developed.
• Principal and Emerging Risks
The Board has delegated responsibility for the assessment of its risk matrix to the Audit Committee. The Audit Committee
meets on a quarterly basis and assesses the adequacy of the controls documented in the matrix as well as the completeness.
As the Audit Committee identifies changes that affect the risk profile of the Company it will recommend to the Board that
the matrix is updated to reflect the risk and an assessment of the controls will take place so that a residual risk assessment
is documented. More details on the Principal and Emerging Risks is presented in the Strategic Report.
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 its key service providers.
David Staples is Chairman of the Audit Committee with Fiona Perrott-Humphrey and Howard Myles as the other members.
• 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, considers new Board appointments, remuneration and the engagement of service providers.
Internal Controls
The Board has delegated to service providers 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. However, it has delegated the regular review and oversight of the systems of internal control to
the Audit Committee which reports back to the Board following each Audit Committee meeting. At each quarterly Board
meeting, compliance reports are provided by the Administrator and Investment Manager.
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BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2020
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
Internal Controls (continued)
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 Investment
Manager and reviewed regularly by the Audit Committee 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 mitigating 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.
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 Audit Committee confirms to the Board 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 by way of reporting from the Audit Committee and is in accordance with
the Guidance on Risk Management Internal Control and Related Financial Reporting and Business Reporting 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.
Director’s Remuneration Policy
All Directors are non-executive and in view of the relatively small size of the Board a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the Directors' remuneration. No advice or services were provided
by any external person in respect of its consideration of the Directors' remuneration.
The Company's policy is that the fees payable to the Directors should reflect the time spent by the Directors on the Company's
affairs and the responsibilities borne by the Directors and be sufficient to attract, retain and motivate directors of a quality
required to run the Company successfully. The Chairs of the Board and the Audit Committee are paid a higher fee in recognition
of their additional responsibilities. The fee levels are reviewed annually.
There are no long term incentive schemes provided by the Company and no performance fees are paid to Directors. No Director
has a service contract with the Company but each of the Directors is appointed by a letter of appointment which sets out the
main terms of their appointment. Directors hold office until they retire or cease to be a director in accordance with the Articles
of Incorporation or by operation of law.
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 the skills and experience of new
directors and the Board will select the candidates whom it believes will add most value.
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 2020, the total remuneration of the Directors was £115,136 (2019: £115,000), with £28,750
(2019: £28,750) payable at the year end.
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BAKER STEEL RESOURCES TRUST LIMITED
DIRECTORS’ REPORT (CONTINUED)
For the year ended 31 December 2020
Corporate Governance Compliance (continued)
Operation and composition of the Board (continued)
Director’s Remuneration Policy (continued)
Directors are remunerated in the form of fees, payable quarterly in arrears, to the Director personally. The fees paid to each
Director in respect of the years ended 31 December 2020 and 31 December 2019 are shown below.
Howard Myles
David Staples
Charles Hansard
Clive Newall
Fiona Perrott-Humphrey
Christopher Sherwell
Independent Auditors
2020
£
35,000
30,000
25,000
17,731
7,405
n/a
2019
£
35,000
17,733
25,000
25,000
n/a
12,267
The auditors, BDO Limited, have indicated their willingness to continue in office and a resolution for their re-appointment will
be proposed at the Annual General Meeting.
Subsequent Events
Please refer to Note 16 of the financial statements on page 61.
Signed on behalf of the Board of Directors by:
David Staples
22 April 2021
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BAKER STEEL RESOURCES TRUST LIMITED
REPORT OF THE AUDIT COMMITTEE
For the year ended 31 December 2020
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. David Staples is Chairman of the Audit Committee with
Fiona Perrott-Humphrey and Howard Myles as the other members.
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 two members who are chartered accountants.
The Board as a whole as advised by the Audit Committee 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 key service providers.
In the event of any deficiencies or breaches being reported, the Board would consider the actions required to remedy and prevent
significant failings or weaknesses. During the year ended 31 December 2020, no significant weaknesses or failings were
identified.
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 they are not aware of any instances of fraud or bribery.
The Audit Committee considers the adequacy and security of the 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 matters that are brought to its attention and to follow up on any conclusion reached
by such investigation.
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.
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BAKER STEEL RESOURCES TRUST LIMITED
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
For the year ended 31 December 2020
Through its meetings during the year ended 31 December 2020 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 14 and 15.
Risk Considered
How addressed
The accuracy of the Company’s Annual Report and Financial
Statements
Adequacy of the Company’s accounting and internal controls
systems
Valuation of the Company’s investments, in particular the
valuation of unquoted investments
The effectiveness and independence of the external audit
process
Emerging risks
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 having regard to the level of materiality agreed
with it.
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. The Committee also reviews
control and compliance reports in this respect and receives
explanations of any breaches and how any control
weaknesses have been addressed.
Reports received from and discussed in depth with the
Investment Manager providing support for the investment
valuations. The Investment Manager reporting is then
challenged and reconciled to 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 planning 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 discusses the Company’s risk matrix
each time it meets. Through these discussions emerging short
term risks such as those caused by the Covid-19 virus are
assessed. The matrix also documents long term implications
for the sector from secular trends such as climate change.
The Audit Committee also provides a forum through which the Company’s auditor reports to the Board. The Board, advised by
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”).
The fees due to the auditor during the year were as follows:
Audit fees
Audit Fees
Non-audit fees
Total Fees
Agreed Upon Procedures relating to the
review of the Company’s half year report
2020
£
54,000
8,000
62,000
2019
£
49,000
7,650
56,650
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BAKER STEEL RESOURCES TRUST LIMITED
REPORT OF THE AUDIT COMMITTEE (CONTINUED)
For the year ended 31 December 2020
The external auditor provides 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 planning, adherence to audit standards, competence of the audit team and feedback from the
Investment Manager, the Audit Committee and the Board are satisfied that the reappointment of the external auditor should be
proposed at the Annual General Meeting of the Company.
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 the Company 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 Strategic Report on pages 12 to 16 outlines the principal risks and uncertainties affecting the Company and
the section on Internal Controls in the Directors Report on pages 18 to 25 gives details of the work performed by the Audit
Committee in this area.
By their nature, the control mechanisms can only provide reasonable rather than absolute assurance against misstatement or loss.
The Audit Committee seeks continual improvement in the Company’s 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 nor up to the date of
this report.
Financial Reporting
The primary role of the Audit Committee in relation to financial reporting is to review the Annual Report and Financial
Statements and the Half Year Report 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 and estimates 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, reporting to the Board in this respect.
Going Concern
The Audit Committee has made an assessment of the Company’s ability to continue as a going concern. There will be a
discontinuation vote at the AGM in June 2021, however following consultation with major shareholders, the Audit Committee
considers that the discontinuation vote will not be passed and the Company will continue following the AGM. 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 2020, approximately 8.0% 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.
David Staples
Audit Committee Chairman
22 April 2021
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BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED
Opinion on the financial statements
In our opinion, the financial statements of Baker Steel Resources Trust Limited (“the Company”):
•
give a true and fair view of the state of the Company’s affairs as at 31 December 2020 and of its profit for the
year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards as adopted by
the European Union (“IFRSs”); and
• have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of the Company for the year ended 31 December 2020 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 IFRSs.
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 believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to
the audit committee.
Independence
We remain 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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the
Company’s ability to continue as a going concern.
Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going concern basis
of accounting included:
• Obtaining the paper prepared by those charged with governance and management in respect of going concern,
which includes consideration of the viability statement included within the Annual Report, and discussing this
with both the Company’s Directors and management;
• Obtaining management’s assessment of and support for their conclusion that the shareholder discontinuation
vote in June 2021 will not be passed;
• Examining management’s cash flow forecasts for the 3-year period to June 2024 and their stress tests of future
income and expenditure and the ability to realise the Company’s liquid assets;
• Reviewing the key inputs into the cashflow forecasts to ensure that these were consistent with our
understanding and the historical results of the company; and
• Reviewing the minutes of the Board Meetings and the Company’s RNS announcements and the compliance
reports for any indicators of concerns in respect of going concern.
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BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED (continued)
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the Company’s reporting on how it has applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the Directors’ statement in the financial statements about
whether the Directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the
relevant sections of this report.
Overview
Basis of materiality
1.75% (2019: 1.75%) of total assets.
Key audit matters (2020 and
2019)
Investment valuation and existence.
Materiality
Financial statements as a whole:-
£1.815m (2019:£1.38m) based on 1.75% (2019: 1.75%) of
total assets.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company’s
system of internal control, and assessing the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including assessing whether there was evidence
of bias by the Directors that may have represented a risk of material misstatement.
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’s Administrator.
We considered the control environment in place at the Manager and the Company’s 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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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.
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BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED (continued)
Key audit matter
Valuation of and existence of
unlisted
including
investments
unrealised gains/(losses).
Refer to the accounting policies on
pages 41 to 45 and Note 3 to the
Financial Statements.
92.06% (2019: 84.7%) of the carrying
value of the investments relates to
the Company's holdings in unlisted
investments, which are valued using
different valuation techniques as
explained in Note 3 and pages 47 to
50.
level
judgment
The valuations are subjective, with a
and
of
high
estimation
the
linked
determination of fair value with
information
limited
available.
market
to
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 unlisted
investments is a key driver of the
Company's net asset value and total
return. Incorrect valuations could
have a significant impact on the net
asset value of the Company and
therefore the return generated for
shareholders.
How the scope of our audit addressed the key audit matter
For all unlisted investments we agreed the
number of warrants to the warrant instrument and obtained direct
confirmation from the underlying investee for the holdings of other
unlisted investments.
For all investments:
• We considered the processes, policies and methodologies used by
management for fair valuing unlisted investments held by the
Company including reviewing the hierarchy of application of
valuation principles;
• Agreed the Manager’s application of valuation techniques as
appropriate to the circumstances of the investment and the
accounting policies applied; and
• Agreed the valuation per the models to the financial statements.
In respect of the investments using a valuation model we:-
• Obtained and challenged management’s model based on our
understanding of the investment.
• Agreed the inputs, for example volatility, resource prices, tax rates
etc. into the models to independent sources;
• Evaluated whether all key terms of the underlying agreements had
been considered within the models;
• Performed an independent sensitivity analysis of certain inputs to
identify and challenge in more detail, those which have the largest
impact on the valuation; and
• Checked the mathematical accuracy of the models.
For investments valued on an index valuation we recalculated
management’s applied basket of indices for each investment.
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.
For those investments based on sales price we obtained management
rationale, underlying supporting documentation and considered the
stage of sale and whether this was reasonable to indicate fair value.
We reviewed and challenged the level of disclosures around investment
valuations on pages 47 to 50.
Key observation:
Based on the procedures performed we are satisfied that judgements
applied in valuing the unlisted investments are appropriate and the
Company has valid ownership of these investments.
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BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED (continued)
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.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we
use a lower materiality level, performance materiality, to determine the extent of testing needed. 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.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
Materiality
Company financial statements
2020
£
1,815,000
2019
£
1,380,000
Basis for determining materiality
1.75% of total assets
Rationale for the benchmark applied
Due to it being an investment fund with the
objective of long-term capital growth with
investment values being a key focus of users
of the financial statements.
Performance materiality
1,179,000
897,000
for
Basis
materiality
determining
performance
65% of materiality.
This was determined using our professional
judgement and took into account the
complexity and our knowledge of the
engagement together with history of
minimal historical errors and adjustments.
Specific materiality
We also determined that for investment income and sensitive fees which include management fees, administration
fees director’s fees and custodian fees, a misstatement of less than materiality for the financial statements as a
whole, specific materiality, could influence the economic decisions of users. As a result, we determined
materiality for these items based on 10% of materiality being £181,500 (2019: £138,000). We further applied a
performance materiality level of 65% of specific materiality to ensure that the risk of errors exceeding specific
materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of
£54,000 (2019: £69,000) and for items audited to specific materiality differences above £5,400 (2019: £6,900). We
also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative
grounds.
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BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED (continued)
Other information
The Directors are responsible for the other information. The other information comprises the information included
in the Annual Report and Audited Financial Statements, 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. 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 course of 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 this gives rise to a material misstatement in the financial
statements themselves. 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.
Corporate governance statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability
and that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions
of the UK Corporate Governance Statement specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained
during the audit.
Going concern
and
longer-
term viability
• The Directors' statement with regards the appropriateness of adopting the going
concern basis of accounting and any material uncertainties identified set out on page
20; and
• The Directors’ explanation as to its assessment of the entity’s prospects, the period
this assessment covers and why the period is appropriate set out on page 15 and 16.
Other
provisions
Code
• Directors' statement on fair, balanced and understandable set out on page 20;
• Board’s confirmation that it has carried out a robust assessment of the emerging and
principal risks set out on page 14;
• The section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on page 28; and
• The section describing the work of the audit committee set out on page 23 and pages
26 to 28.
Other Companies (Guernsey) Law, 2008 reporting
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:
• 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.
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BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED (continued)
Responsibilities of Directors
As explained more fully in the Statement of Directors’ responsibilities within the Directors’ Report, 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.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures
in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is
detailed below:
We obtained an understanding of the legal and regulatory frameworks that are applicable to the Company and
have a direct impact on the preparation of the financial statements. We determined that the most significant
frameworks which are directly relevant to specific assertions in the financial statements are those that relate to
the reporting framework such as IFRSs and the Companies (Guernsey) Law, 2008. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of
management override of controls), and determined that the principal risks were related to revenue recognition
on the Company’s investments, the management bias and judgement involved in accounting estimates, specifically
in relation to the valuation of investments (the response to which is detailed in our key audit matter above).
Audit procedures performed by the engagement team to respond to the risks identified included:
• Discussion with and enquiry of management and those charged with governance concerning known or
suspected instances of non-compliance with laws and regulations and fraud;
• Reading minutes of meetings of those charged with governance, correspondence with the Guernsey
Financial Services Commission, internal compliance reports, and breach registers to identify and consider
any known or suspected instances of non-compliance with laws and regulations and fraud;
• Recalculating investment income and realised and unrealised gains and losses in full for listed investments
based on external source information;
•
For unquoted investments, recalculating realised and unrealised gains and losses in full. For investment
income the amounts were recalculated where based on an agreement. Where not agreement based, we
obtained direct confirmation from the underlying unquoted investee companies in relation to investment
income; and
• Performing analytics on the mid-year NAVs with a focus on reviewing and corroborating movements over a
set threshold.
34
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BAKER STEEL RESOURCES TRUST LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKER STEEL RESOURCES TRUST LIMITED (continued)
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events and transactions reflected in the
financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
The engagement director on the audit resulting in this independent auditor’s opinion is Justin Hallett.
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.
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
Date
35
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BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
Assets
Cash and cash equivalents
Interest receivable
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
Custodian fees payable
Other payables
Total liabilities
Equity
Management Ordinary Shares
Ordinary Shares
Revenue Reserves
Capital Reserves
Total equity
Total equity and liabilities
Notes
9
2(j)
3
12
7,12
6
10
10
2020
£
2019
£
424,140
684,184
19,628
102,607,947
103,735,899
659,757
1,266,886
17,284
76,932,117
78,876,044
28,750
110,825
35,000
54,000
7,587
8,338
244,500
28,750
85,447
42,447
49,000
6,338
752
212,734
9,167
75,972,688
10,971,969
16,537,575
103,491,399
9,167
75,972,688
10,808,636
(8,127,181)
78,663,310
103,735,899
78,876,044
Net Asset Value per Ordinary Share (in Pence) – Basic and Diluted
13
97.2
73.9
The financial statements on pages 36 to 61 were approved and authorised for issue by the Board of Directors on
22 April 2021 and signed on its behalf by:
David Staples
The accompanying notes form an integral part of these audited financial statements
36
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BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
Income
Interest income
Dividend income
Net gain on financial assets at fair value through profit or loss
Net foreign exchange loss
Net income
Expenses
Management fees
Directors’ fees
Administration fees
Other expenses
Custody fees
Broker fees
Audit fees
Directors’ insurance and expenses
Legal fees
Total expenses
Net gain for the year
Notes
2(j)
3
7,12
12
6
8
Year ended
2020
Revenue
£
Year ended
2020
Capital
£
Year ended
2020
Total
£
1,703,620
138,129
-
-
1,841,749
1,104,344
115,136
114,250
123,918
84,592
35,000
62,000
12,670
26,506
1,678,416
-
-
24,674,768
(10,012)
24,664,756
1,703,620
138,129
24,674,768
(10,012)
26,506,505
-
-
-
-
-
-
-
-
-
-
1,104,344
115,136
114,250
123,918
84,592
35,000
62,000
12,670
26,506
1,678,416
163,333
24,664,756
24,828,089
Net gain for the year per Ordinary Share:
Basic and Diluted (in pence)
13
0.15
23.17
23.32
In the year ended 31 December 2020 there were no gains or losses other 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 and is provided for information purposes.
The accompanying notes form an integral part of these audited financial statements
37
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BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Income
Loan guarantee income
Interest income
Dividend income
Net gain on financial assets at fair value through profit or loss
Net foreign exchange loss
Net income
Expenses
Management fees
Directors’ fees
Administration fees
Other expenses
Custody fees
Audit fees
Broker fees
Directors’ insurance and expenses
Legal fees
Total expenses
Notes
2(i)
2(j)
3
7,12
12
6
8
Year ended
2019
Revenue
£
Year ended
2019
Capital
£
Year ended
2019
Total
£
193,577
1,457,593
538,787
-
-
2,189,957
965,402
115,000
103,938
95,648
77,521
56,650
40,972
18,979
11,620
1,485,730
-
-
-
17,088,162
(104,193)
16,983,969
193,577
1,457,593
538,787
17,088,162
(104,193)
19,173,926
-
-
-
-
-
-
-
-
-
-
965,402
115,000
103,938
95,648
77,521
56,650
40,972
18,979
11,620
1,485,730
Net gain for the year
704,227
16,983,969
17,688,196
Net gain for the year per Ordinary Share:
Basic and Diluted (in pence)
13
0.6
15.5
16.1
In the year ended 31 December 2019 there were no gains or losses other 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 and is provided for information purposes.
The accompanying notes form an integral part of these audited financial statements
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BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
Management
Ordinary
Shares
£
Ordinary
Shares
£
Treasury
Shares
£
Revenue
reserves
£
Capital
reserves
£
Total
equity
£
Balance as at 1 January 2019
Redemption of Ordinary Shares
Expenses related to Tender offer
Net gain for the year
Balance as at 31 December 2019
10,000
(833)
-
-
9,167
81,165,017
(4,934,681)
(117,156)
-
76,113,180
(140,492)
-
-
-
(140,492)
10,104,409
-
-
704,227
10,808,636
(25,111,150)
-
-
16,983,969
(8,127,181)
66,027,784
(4,935,514)
(117,156)
17,688,196
78,663,310
Net gain for the year
Balance as at 31 December 2020
-
9,167
-
76,113,180
-
(140,492)
163,333
10,971,969
24,664,756
16,537,575
24,828,089
103,491,399
Note
10
10
10
The accompanying notes form an integral part of these audited financial statements
39
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BAKER STEEL RESOURCES TRUST LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
Cash flows from operating activities
Net gain for the year
Adjustments to reconcile gain for the year to net cash used in operating activities:
Interest income
Dividend income
Net gain on financial assets at fair value through profit or loss
Net (increase)/decrease in receivables
Net increase in payables
Interest received
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
Cash flows from financing activities
Expenses related to the tender offer
Payments for redemption of shares
Net cash used in financing activities
Year ended
2020
£
Year ended
2019
£
Notes
3
24,828,089
17,688,196
(1,703,620)
(138,129)
(24,674,768)
(2,344)
31,766
(1,659,006)
615,510
138,129
(1,457,593)
(538,787)
(17,088,162)
5,286
22,998
(1,368,062)
553,796
538,787
(905,367)
(275,479)
(11,200,266)
11,870,016
669,750
(16,601,793)
18,777,778
2,175,985
-
-
-
(117,156)
(4,935,514)
(5,052,670)
Net decrease in cash and cash equivalents
(235,617)
(3,152,164)
Cash and cash equivalents at the beginning of the year
659,757
3,811,921
Cash and cash equivalents at the end of the year
9
424,140
659,757
The accompanying notes form an integral part of these audited financial statements
40
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
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 historical cost basis except for Financial Instruments at Fair Value Through
Profit or Loss (“FVTPL”) 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 best practice to distinguish
revenue from capital. Revenue includes items such as dividends, interest, 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. The format of the
Statement of Comprehensive Income follows the recommendations of the AIC Statement of Recommended Practice and is
provided for information purposes.
Assets and liabilities are presented in order of liquidity. Their maturities are disclosed in Note 4(c).
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New standards, amendments and interpretations to existing standards which are not yet effective for the current
year
A number of new standards are effective for annual periods beginning after 1 January 2021 and earlier application is
permitted, however the Company has not early adopted the new or amended standards in preparing these financial
statements.
The following amended standards and interpretations are not expected to have a significant impact on the Company’s
financial statements:
- IFRS 17 Insurance Contracts (effective for periods starting on or after 1 January 2023)
- Classification of Liabilities as Current or Non-current - Amendments to IAS 1 (effective for periods starting on or after 1
January 2023).
- Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS
28 (effective date is not available until IASB completes the broader review on the standard)
- Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (effective for
periods starting on or after 1 January 2021).
New standards, amendments and interpretations to existing standards which are effective for the current year
There are a number of new standards, amendments to standards and interpretations that are effective for annual periods
beginning after 1 January 2020 and were adopted from their effective date. These amendments did not have a significant
impact on the Company’s financial statements.
Amendment to IFRS 3: Definition of Business
On 22 October 2018, the IFRS Interpretations Committee of the International Accounting Standards Board (“IASB”) issued
a narrow-scope amendment to the definition of business in IFRS 3 Business combinations. The amendments are intended to
assist entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition.
The IASB provided guidance on the option to use a concentration test which is a simplified assessment that results in an
asset acquisition, if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a
group of similar identifiable assets.
The amendment applies to annual reporting periods beginning on or after 1 January 2020. Earlier application of the
amendment is permitted. The amendment did not have a significant impact on the Company’s financial statements.
Amendments to IAS 1 and IAS 8: Definition of Material
On 31 October 2018, the International Accounting Standards Board (“IASB”) issued amendments to IAS 1 Presentation of
Financial Statements and IAS 8 to align the definition of ‘material’ across the standards and to clarify certain aspects of the
definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those
financial statements, which provide financial information about a specific reporting entity.
The amendment applies to annual reporting periods beginning on or after 1 January 2020. Earlier application of the
amendment is permitted. The amendment did not have a significant impact on the Company’s financial statements.
42
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) 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.
Classification and measurement of financial assets and financial liabilities
A financial asset or liability is measured at amortised cost if it meets both of the following conditions and are 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.
All financial assets of the Company are measured at FVTPL, except for cash and cash equivalents which are measured at
amortised cost.
All financial liabilities of the Company are measured at amortised cost.
Impairment of financial assets
Under IFRS 9 for trade receivables the Company has applied the simplified model. Under the simplified approach the
requirement is to always recognise lifetime expected credit loss (“ECL”). Under the simplified approach there is no need to
monitor significant increases in credit risk and measure lifetime ECLs at all times. The interest receivable is in respect of
the Convertible loan notes, a list of which is presented in Note 4(c) on Page 55 of the Annual Report, and no provision has
been made for credit losses. This is on the basis that the fair value of the underlying asset supports the convertible receivable.
For other receivables, the Directors have concluded that any ECL on these receivables would be highly immaterial.
c) 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.
43
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) Significant accounting judgements and estimates (continued)
(i) Judgements (continued)
Going Concern
As described in the Directors’ Report, the Directors have made an assessment of the Company’s ability to continue as a
going concern and considered it appropriate to adopt the going concern basis of accounting. There will be a discontinuation
vote proposed at the AGM in June 2021. To be passed the discontinuation vote requires a majority of 75% of those
shareholders voting to vote in favour of discontinuing the Company. The Company has canvassed major shareholders
following which the Board consider that the vote to discontinue will not be passed at the AGM in 2021 and therefore the
Company will be able to continue until at least the subsequent discontinuation vote in 2024.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 2020, approximately 8% of the Company’s assets were represented by cash and unrestricted listed and quoted
investments which are readily realisable. 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.
(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. 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. Investments in
associates are carried at fair value as they are held as part of the investment portfolio which is valued on a fair value basis.
d) Interest income and expense
Bank interest income and interest expense are recognised on an accruals basis using the effective interest method.
e) Expenses
All expenses are recognised on an accruals basis.
f) 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.
g) Segment information
The Directors are of the opinion that the Company is engaged in a single segment of business: investing in natural resources
companies.
h) 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. Treasury Shares are
excluded from the Net Asset Value per Ordinary Share calculation.
44
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
i)
Interest on investments
These comprise of interest accrued and interest received from convertible loans where interest is payable throughout the life
of the instrument which are accounted for on an accruals basis and recognised in the Statement of Comprehensive Income.
j) Dividend income
Dividend income is accrued on an ex-dividend basis and recognised in the Statement of Comprehensive Income and is
presented net of withholding tax.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Investment Summary:
Opening book cost
Purchases at cost
Proceeds on sale of investments
Net realised gains
Closing cost
Net unrealised gains
Financial assets held at fair value through profit or loss
Year ended
2020
£
74,539,152
12,871,078
(11,870,016)
5,462,827
81,003,041
21,604,906
102,607,947
Year ended
2019
£
70,753,693
16,601,793
(18,777,778)
5,961,444
74,539,152
2,392,965
76,932,117
The following table analyses net gains on financial assets at fair value through profit or loss for the years ended
31 December 2020 and 31 December 2019.
Financial assets at fair value through profit or loss
Realised gains on:
- Listed equity shares
- Debt instruments
Movement in unrealised (losses)/gains on:
- Listed equity shares
- Unlisted equity shares
- Royalties
- Debt instruments
- Warrants
Net gain on financial assets at fair value through profit or loss
Year ended
2020
£
Year ended
2019
£
5,462,245
582
5,462,827
6,135,349
(173,905)
5,961,444
(2,924,836)
10,821,831
(428,348)
11,731,267
12,027
19,211,941
24,674,768
250,838
5,134,808
4,373,836
1,280,943
86,293
11,126,718
17,088,162
45
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 2020.
Financial assets at fair value through
profit or loss
Listed equity shares
Unlisted equity shares
Royalties
Warrants
Debt instruments
Quoted prices in
active markets
Level 1
£
Quoted market
based observables
Level 2
£
Unobservable
inputs
Level 3
£
7,185,851
-
-
-
-
7,185,851
-
-
-
-
-
-
-
36,987,733
14,512,762
141,489
43,780,112
95,422,096
Total
£
7,185,851
36,978,733
14,512,762
141,489
43,780,112
102,607,947
The following table analyses investments by type and by level within the fair valuation hierarchy at 31 December 2019.
Financial assets at fair value through
profit or loss
Listed equity shares
Unlisted equity shares
Royalties
Warrants
Debt instruments
Quoted prices in
active markets
Level 1
£
Quoted market
based observables
Level 2
£
Unobservable
inputs
Level 3
£
8,722,030
-
-
-
-
8,722,030
-
-
-
-
-
-
-
24,780,551
14,019,975
116,337
29,293,224
68,210,087
Total
£
8,722,030
24,780,551
14,019,975
116,337
29,293,224
76,932,117
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 2020.
31 December 2020
Opening balance 1 January 2020
Purchases of investments
Sales of investments
Transfer to Level 1
Change in net unrealised gains
Realised gains
Closing balance 31 December 2020
Unlisted
Equities
£
Debt
Royalties
£
instruments Warrants
£
£
Total
£
1,519,012
-
(133,661)
10,821,831
-
24,780,551 14,019,975
921,135
-
-
(428,348)
-
36,987,733 14,512,762
29,293,224
2,818,227
(63,188)
-
11,731,267
582
43,780,112
13,125
-
-
116,337 68,210,087
5,271,499
(63,188)
(133,661)
12,027 22,136,777
582
141,489 95,422,096
3,633,558
-
Unrealised gains on investments still held at 31
December 2020
9,366,113
2,745,785
13,105,480
128,364 25,345,742
46
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 2019.
31 December 2019
Opening balance 1 January 2019
Purchases of investments
Change in net unrealised gains
Realised losses
Closing balance 31 December 2019
Unlisted
Equities
£
Debt
Royalties
£
instruments Warrants
£
£
Total
£
18,894,281
751,462
5,134,808
-
6,163,793
3,482,346
4,373,836
-
24,780,551 14,019,975
15,818,201
12,367,985
1,280,943
(173,905)
29,293,224
30,044 40,906,319
- 16,601,793
86,293 10,875,880
(173,905)
116,337 68,210,087
-
Unrealised (losses)/gains on investments still
held at 31 December 2019
(1,455,715)
3,174,130
1,421,092
116,337
3,255,844
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. The Company
does not hold a sufficiently large position in any listed company that it could impact the quoted price via a sale of its
investment.
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 2020 (31 December 2019: 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.
47
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)
Valuation methodology of Level 3 investments
The primary valuation technique is of “Latest Recent Transaction” being either recent external fund raises or transactions.
In all cases the valuation considers whether there has been any change since the transaction that would indicate the price is
no longer fair value. 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 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 Value (“DRAV”). DRAVs are not a primary
determinant of Fair Value. The Investment Manager prepares discounted cash flow models for the Company’s core
investments annually taking into account significant new information, and for 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. Some market analysts incorporate development risk into the discount
rate in arriving at a net present value (“NPV”) rather than establishing an NPV discounted purely for cost of capital and
country risk and then applying a further overall discount to the project economics dependent on where such project sits on
the development curve per the DRAV calculations.
The valuation technique for Level 3 investments can be divided into six groups:
i. Transactions & Offers
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. This includes offers,
binding or otherwise from third parties around the year end which may not have completed prior to the year end but have a
high chance of success and are considered to represent the situation at year end.
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. EBITDA Multiple
In the case of Cemos Group plc, which moved to full production during 2020 and so could reflect maintainable earnings, it
is a cement plant with no defined life like a mining project and therefore has been valued on the basis of a multiple of
historical and forecast earnings before interest, tax, depreciation and amortisation when compared to listed comparable
cement producers. Previously, given the stage of development of the investment, this was valued under IndexVal.
v. 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.
vi. 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.
48
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
Royalties
Unlisted Equity
Debt Instruments
Black Pearl Limited
Partnership
Other Convertible
Debentures/Loans
Other Convertible
Debentures/Loans
2020
£
Valuation technique
Unobservable input
Range of
unobservable input
(weighted average)
27,236,964 Transactions
2,790,916
6,943,907 EBITDA Multiple
IndexVal
14,512,762 Royalty Valuation model
15,946 Other
Private transactions
Change in index
EBITDA Multiple
Commodity price and
discount rate risk
Exploration results,
study results,
financing
n/a
n/a
n/a
n/a
n/a
1,281,629 Valued at mean estimated
recovery
13,070,904 Transactions
Estimated recovery
range
Private transactions
+/-50%
n/a
29,427,579 Valued at fair value with
Rate of Credit Risk
20%-40%
reference to credit risk
Warrants
141,489 Simplified Black Scholes
Volatilities
50%
Model
Description
Unlisted Equity
Unlisted Equity
Royalties
Unlisted Equity
Debt Instruments
Black Pearl Limited
Partnership
Other Convertible
Debentures/Loans
2019
£
Valuation technique
Unobservable input
Range of
unobservable input
(weighted average)
5,661,710 Transaction
19,102,895 IndexVal
14,019,975 Royalty Valuation model
15,946 Other
Private transactions
Change in index
Commodity price and
discount rate risk
Exploration results,
study results,
financings
n/a
n/a
n/a
n/a
2,643,205 Valued at mean estimated
recovery
Estimated recovery
range
+/- 50%
26,650,019 Valued at fair value with
Rate of Credit Risk
20%-40%
reference to credit risk and
value of embedded
derivative
Warrants
116,337 Simplified Black Scholes
Volatilities
50%
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.
49
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 2020 are as shown below:
Description
Unlisted Equity
Input
Transactions & Expected
Transactions
Sensitivity used
Effect on Fair Value (£)
+/- 10%
+/-2,723,696
Unlisted Equity
Change in IndexVal
+82/-42%*
+2,288,551/-1,172,185
Unlisted Equity
EBITDA Multiple
Royalties
Royalties
Debt Instruments
Commodity Price
Discount Rate
Black Pearl Limited Partnership
Probability weighting
Others/Loans
Others/ Loans
Others/ Loans
Warrants
Risk discount rate
Volatility of Index Basket
Transactions and expected
transactions
Volatility of Index Basket
+/- 20%
+/-20%
+/-20%
+/-33%
+/-20%
+/-40%
+/-10%
+/-40%
+/-1,388,781
+/-2,862,119
-2,732,511/+2,223,695
+/-422,938
-4,272,633/+1,996,328
+2,109,175/-2,346,725
+/-1,307,090
+87,968/-92,079
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 2019 are as shown below:
Description
Input
Sensitivity used
Effect on Fair Value (£)
Unlisted Equity
Change in IndexVal
+/-43.5%*
+/-8,309,760
Royalties
Royalty valuation models
+/-20%
+/-2,803,995
Debt Instruments
Black Pearl Limited Partnership
Probability weighting
Others/Loans
Warrants
Risk discount rate
Volatility of Index Basket
+/-33%
+/-20%
+/-40%
+/-872,258
+/-4,747,375
+100,833/--61,601
* The sensitivity analysis refers to a percentage amount added or deducted from the input and the effect this has on the fair value. The +82%/-42%
sensitivity was used as this was the range of movements of the constituents in the IndexVal basket for Sarmin, the only investment valued on the basis of
IndexVal in the year (2019:43.5%).
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.
50
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
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.
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 sensitivity analysis on the previous page illustrates the sensitivity of the key inputs into the market valuation and the
resulting impact of the fair values. The level of change is considered to be reasonably possible. The sensitivity analysis
assumes all other variables are held constant.
ii. Currency risk
At 31 December 2020, the largest non-Sterling portion of the Company’s financial assets and liabilities was denominated
in US Dollars. The functional currency of the Company is Sterling. Currency risk is the risk that the value of non-Sterling
denominated financial instruments will fluctuate due to changes in foreign exchange rates. The tables below shows the
currencies and amounts the Company was exposed to at 31 December 2020 and 31 December 2019.
31 December 2020
Currency
AUD
CAD
EUR
GBP
NOK
USD
31 December 2019
Currency
AUD
CAD
EUR
GBP
NOK
USD
Amount in
local currency
33,258,402
3,906,292
9,115,280
27,672,415
41,552,423
58,809,001
Amount in
local currency
24,918,433
8,239,132
5,402,335
20,324,844
37,302,882
43,084,105
Conversion rate
(based on £)
0.5650
0.5748
0.8956
1.0000
0.0854
0.7324
Conversion rate
(based on £)
0.5306
0.5823
0.8475
1.0000
0.0859
0.7552
Value % of net assets
£
18,790,284
2,245,181
8,163,664
27,672,415
3,550,538
43,069,317
103,491,399
18.16%
2.17%
7.89%
26.74%
3.43%
41.61%
100.00%
Value % of net assets
£
13,220,893
4,797,382
4,578,409
20,324,844
3,204,604
32,537,178
78,663,310
16.81%
6.10%
5.82%
25.84%
4.07%
41.36%
100.00%
51
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
ii. Currency risk (continued)
Analysis has been completed to assess what movements in currency rates are reasonably possible. This analysis has
considered the variance between the highest and lowest conversion rates in 2020 and 2019 for each of the currencies in the
table below. The table shows the potential movements in the Company’s net assets as a result of such foreign exchange
movements.
Currency
AUD
CAD
EUR
NOK
USD
Reasonably
possible
move
10%
11%
13%
20%
16%
2020
Value
£
1,879,028
246,970
1,061,276
710,108
6,891,091
10,788,473
2019
Value
£
1,344,200
527,712
595,193
640,921
5,197,578
8,305,604
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.
At 31 December 2020
Assets
Cash and cash equivalents
Financial assets held at fair value through profit or loss*
Other receivables
Interest receivable*
Total Assets
Liabilities
Other liabilities
Total Liabilities
Interest rate sensitivity gap
Less than More than Non-interest
bearing
6 months
6 months
£
£
£
424,140
-
-
28,983,181
585,887
-
-
-
684,184
28,983,181
1,694,211
Total
£
424,140
73,038,879 102,607,947
19,628
684,184
73,058,607 103,735,899
19,628
-
-
-
1,694,211
-
-
28,983,181
244,500
244,500
244,500
244,500
*The interest rate risks on these items are considered as part of overall price risk in valuing the convertibles.
52
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 2019
Assets
Cash and cash equivalents
Financial assets held at fair value through profit or loss*
Other receivables
Interest receivable*
Total Assets
Liabilities
Other liabilities
Total Liabilities
Interest rate sensitivity gap
Less than More than Non-interest
bearing
6 months
6 months
£
£
£
659,757
-
-
58,735,577
18,196,540
-
17,284
-
-
-
1,266,886
-
17,284
76,932,117
1,926,643
Total
£
659,757
76,932,117
17,284
1,266,886
78,876,044
-
-
1,926,643
-
-
76,932,117
212,734
212,734
212,734
212,734
*The interest rate risks on these items are considered as part of overall price risk in valuing the convertibles.
Interest rate sensitivity
It is the opinion of the Directors that the Company is not materially exposed to interest rate risk and accordingly no interest
rate sensitivity calculation has been provided in these financial statements.
b) Liquidity risk
Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations as they fall due. The
Company invests in unlisted equities for which there may not be an immediate market. The Company seeks to mitigate this
risk by maintaining cash and readily realisable listed equity positions 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.
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 contractual cash flows.
At 31 December 2020
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
£
424,140
1-3 months 3-12 months
£
-
£
-
More than
12 months
£
-
No
contractual
maturity
£
-
Total
£
424,140
-
684,184
1,108,324
-
15,878
15,878
9,759,932
3,750
9,763,682
19,809,136
-
19,809,136
73,038,879 102,607,947
703,812
73,038,979 103,735,899
-
Less than
1 month
£
1-3 months 3-12 months
£
£
More than
12 months
£
No
contractual
maturity
£
Total
£
149,575
149,575
15,925
15,925
79,000
79,000
-
-
-
-
244,500
244,500
Net assets attributable to shareholders
53
103,491,339
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
b) 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 contractual cash flows.
At 31 December 2019
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
£
659,757
-
1,284,170
1,943,927
Less than
1 month
£
1-3 months 3-12 months
£
-
£
-
More than
12 months
£
-
No
contractual
maturity
£
-
Total
£
659,757
-
-
-
-
-
-
18,196,540
-
18,196,540
58,735,577
-
58,745,577
76,932,117
1,284,170
78,876,044
1-3 months 3-12 months
£
£
More than
12 months
£
No
contractual
maturity
£
Total
£
28,750
28,750
97,463
97,463
86,521
86,521
-
-
-
-
212,734
212,734
Net assets attributable to shareholders
78,663,310
The value of the cash and listed equity positions held by the Company at the year end was £5,645,831 (2019: £9,381,787)
with the total liabilities at the year end at £240,603 (2019: £212,734).
54
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
c) 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 on debt
instruments for the Company is £43,018,741 (2019: £29,952,981).
The Company’s financial assets are exposed to credit risk, which amounted to the following at the Statement of Financial
Position date:
Assets
Cash and cash equivalents
Interest receivable
Other receivables
Financial assets held at fair value through profit or loss
Total assets
2020
£
424,140
684,184
19,628
102,607,947
103,735,899
2019
£
659,757
1,266,886
17,284
76,932,117
78,876,044
As at 31 December 2020, the Company's non-equity financial assets exposed to credit risk were held with the following
ratings:
Financial Assets
Counterparty
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan Note
-Convertible Loan Note
-Convertible Unsecured Loan
-Loan Note
-Loan Note
-Loan Note
Cash and cash equivalents
Total
Anglo Saxony Mining Limited
Azarga Metals
Bilboes Holdings Loan Note 1
Bilboes Holdings Loan Note 2
Mines & Metals Trading (Peru) Plc
Tungsten West Limited
Black Pearl Limited Partnership
Futura Resources Limited
Cemos Group Plc
Cemos Group Plc Loan Note
PRISM Diversified Limited Loan Note 1
PRISM Diversified Limited Loan Note 2
HSBC Bank plc
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan & Loan Note
-Convertible Loan Note
-Convertible Loan Note
-Loan Note
-Loan Note
-Loan Note
Cash and cash equivalents
Total
* No rating available
**As per S&P
Anglo Saxony Mining Limited
Azarga Metals
Bilboes Holdings
Tungsten West Limited
Mines & Metals Trading (Peru) Plc
Black Pearl Limited Partnership
Futura Resources Limited
Cemos Group Plc
PRISM Diversified Limited Loan Note 1
PRISM Diversified Limited Loan Note 2
HSBC Bank plc
**Credit
Rating
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
AA-
**Credit
Rating
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
NR*
AA-
2020
% of net assets
3.29
2.42
2.58
0.50
4.12
9.73
1.24
10.05
7.44
0.40
0.13
0.40
0.41
42.71
2019
% of net assets
3.96
2.59
2.04
6.40
4.35
3.36
8.55
5.23
0.14
0.48
0.84
37.94
As at 31 December 2019, the Company's non-equity financial assets exposed to credit risk were held with the following
ratings:
Financial Assets
Counterparty
55
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
4. RISK MANAGEMENT POLICIES AND DISCLOSURES (CONTINUED)
d) Concentration risk
The Company’s 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.
5. TAXATION
The Company is a Guernsey Exempt Company and is therefore not subject to taxation in Guernsey on its income under the
Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. An annual exemption fee of £1,200 (2019: £1,200) has been
paid. The Company may, however, be exposed to taxes in certain other territories in which it invests such as withholding
taxes on interest payments and dividends and on realisations of investments.
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 2020 were £114,250 (2019: £103,938) of which £35,000
(2019: £42,447) was payable at 31 December 2020. 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 2020 was £1,104,344 (2019: £965,402) of which £110,825 (2019:
£85,447) 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
(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 (“Highwater Mark”). In addition, the performance fee will only become payable
if there have been sufficient net realised gains. As at 31 December 2020, the Highwater Mark was the equivalent of
approximately 94 pence per share with the relevant Hurdle being the equivalent of approximately 140 pence per share.
There were no earned performance fees payable for the current or prior year.
56
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
Public relations fees
Listing fees
Regulatory fees
Registrar fees
Website expenses
Income tax exemption fee
Research fees
Board recruitment fees
FATCA Review
Miscellaneous
9. CASH AND CASH EQUIVALENTS
Cash at HSBC Bank plc
10. SHARE CAPITAL
2020
TOTAL
£
7,500
11,670
10,374
23,138
1,000
1,200
31,199
10,000
13,500
14,337
123,918
2019
TOTAL
£
10,800
10,295
6,009
28,684
1,000
1,200
12,000
-
-
25,660
95,648
2020
£
424,140
2019
£
659,757
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 106,453,335 (2019: 106,453,335) Ordinary Shares in issue with an additional 700,000 (2019:
700,000) held in treasury. The Company has 9,167 (2019: 9,167) 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.
57
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
Total Share Capital
2020
2019
Amount No. of shares**
Amount No. of shares**
£
£
76,122,347
107,162,502
76,122,347
107,162,502
(140,492)
75,981,855
(700,000)
(140,492)
75,981,855
(700,000)
The outstanding Ordinary Shares as at the year ended 31 December 2020 are as follows:
Balance at 1 January 2020 & 31 December 2020
Ordinary Shares
Amount No. of shares**
Treasury Shares
Amount No. of shares
£
76,122,347
106,462,502
£
140,492
700,000
The outstanding Ordinary Shares as at the year ended 31 December 2019 were as follows:
Ordinary Shares
Amount No. of shares**
Treasury Shares
Amount No. of shares
Balance at 31 December 2019
* During 2019, 9,677,478 shares were repurchased and cancelled following a tender offer totalling £4,935,514 excluding expenses.
** Includes 9,167 (2019: 9,167) Management Ordinary Shares.
106,462,502
*** The amount reported for the ordinary shares represents the net of subscriptions and redemptions (including any associated expenses)
£
76,122,347
£
140,492
700,000
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 and when desirable, any discount or premium between the Company’s share
price and its NAV per Ordinary Share.
The Company has continued to hold sufficient cash and liquid listed assets 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.
58
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
10. SHARE CAPITAL (CONTINUED)
Capital Management (continued)
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 compared with 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.
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.
As described in the Directors’ Report on page 18, 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, tender offers or otherwise.
The Company enacted a tender offer for 9,677,478 Ordinary Shares at 51 pence per share in May 2019. The repurchased
shares were cancelled. This was undertaken as a result of the reorganisation of Polar Acquisition Limited during 2018, for
which the Company received cash and share dividends of Polymetal International Plc (“Polymetal”) shares totalling £20.4
million. The Board considered 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
The Company had a realised net gain per the Statement of Comprehensive Income and realised an aggregate cash gain for
the year ended 31 December 2020. However, the majority of this related to the remaining sale of Polymetal shares which
had been taken into account in the calculation of the distribution made in May 2019. Accordingly, no distribution is proposed
in respect of 2020. However, should the sale of Bilboes Gold be confirmed and completed in a timely fashion in 2021, the
Board will consider a distribution in line with the policy.
The Company is not subject to any externally imposed capital requirements.
Reserves
As at the year- end the Company had Revenue Reserves of £10,971,969 (2019: £10,808,636) and Capital Reserves of
£16,537,575 (2019: deficit of £8,127,181).
Under the Companies (Guernsey) Law 2008, the Company may buy back its own shares, or pay dividends, out of any
reserves, subject to passing a solvency test. This test considers whether, immediately after the payment, the Company’s
assets exceed its liabilities and whether it will be able to pay its debts when they fall due.
11. COMMITMENTS
The Company has provided a letter of comfort regarding a €1.35 million overdraft facility for Cemos with the Bank of
Morocco. No liability is expected to arise on this commitment.
12. RELATED PARTY TRANSACTIONS
The Investment Manager, Baker Steel Capital Managers LLP, had an interest in 9,167 Management Ordinary Shares at 31
December 2020 (31 December 2019: 9,167).
Baker Steel Global Funds SICAV – Precious Metals Fund (“Precious Metals Fund”) had an interest in 4,922,877 Ordinary
Shares in the Company at 31 December 2020 (2019: 5,622,877). These shares are held in a custodian account with Citibank
N.A. London. Precious Metals Fund shares a common Investment Manager with the Company.
David Baker and Trevor Steel, Directors of the Manager, are interested in the shares held by Northcliffe Holdings Limited
and The Sonya Trust respectively, which are therefore considered to be Related Parties. Northcliffe Holdings Limited holds
12,452,177 shares (2019: 12,452,177) and The Sonya Trust holds 12,722,129 shares (2019: 12,673,350).
The Company’s Associates are described in Note 14 to these financial statements.
59
|PUBLIC|
BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
12. RELATED PARTY TRANSACTIONS (continued)
The Management fees and Directors’ fees paid 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
2020
£
1,104,344
115,136
2020
£
110,825
28,750
2019
£
965,402
115,000
2019
£
85,447
28,750
13. NET ASSET VALUE PER SHARE AND GAIN PER SHARE
Net asset value per share is based on the net assets of £103,491,399 (31 December 2019: £78,663,310) and 106,462,502 (31
December 2019: 106,462,502) 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 2020
Ordinary Shares
31 December 2019
Ordinary Shares
103,491,399
106,462,502
97.2
106,462,502
78,663,310
106,462,502
73.9
109,688,328
The basic and diluted gain per share for 2020 is based on the net gain for the year of the Company of £24,828,089 and on
106,462,502 Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.
The basic and diluted gain per share for 2019 is based on the net gain for the year of the Company of £17,688,196 and on
109,688,328 Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.
There are no outstanding instruments which could result in the issue of new shares or dilute the issued share capital.
14. 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
valued on a fair value basis.
Investment
Cemos Group Limited
Bilboes Gold Limited
PRISM Diversified Limited
Nussir ASA
Akora Resources Limited
Futura Resources
Tungsten West Limited
Anglo Saxony Mining Limited
Polar Acquisition Limited
Azarga
Country of Incorporation
Jersey
Mauritius
Canada
Norway
Australia
Australia
England and Wales
England and Wales
British Virgin Islands
Canada
Voting Rights held
25.70%
24.2%
16.40%
12.2%
8.5%
Convertible Loan
13.2%
Convertible Loan
49.99%
Convertible Loan
NED Appointed
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Various Baker Steel representatives and their associates received fees and incentives for their role as directors to these
companies. These fees are received in addition to the management fees charged.
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BAKER STEEL RESOURCES TRUST LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
15. SIGNIFICANT EVENTS
COVID-19 has had a significant impact on financial markets since February 2020. While it cannot be predicted how long
market conditions will remain volatile, the Board notes that commodities have performed strongly during the period of the
pandemic due to the combined risks of inflation and the potential for commodity intensive recovery plans by governments.
In February 2020, the Company exercised its option to acquire a further 0.25% gross royalty interest in Futura Resources’
Wilton and Fairhill metallurgical coal mines for A$1.8 million.
During the year ended 31 December 2020, the Company made purchases of listed equities for £7,599,581 and sales of listed
equities for £11,806,829 as part of the Board's decision to diversify the liquid part of the portfolio.
During the year, the Company entered into a further US$1 million loan with Mines and Metals Trading (Peru) Limited, a
A$1 million loan to Futura Resources Limited, and a further US$500,000 loan to Azarga and renegotiated the terms of its
convertible loan.
16. SUBSEQUENT EVENTS
There were no events subsequent to the period end that materially impacted on the Company that require disclosure or
adjustment to these financial statements.
17. APPROVAL OF ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
The Annual Report and Audited Financial Statements for the year-ended 31 December 2020 were approved by the Board of
Directors on 15 April 2021.
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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 2020 the LLP as Investment Manager paid fixed remuneration to members and those identified
as AIF code staff of £336,201. Variable remuneration amounted to £1,349,568. No carried interest was paid by the Company.
These figures represent the aggregate remuneration paid to members and those identified as AIF code staff of the LLP as
Investment Manager for the year ended 31 December 2020. 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 £1,685,769.
The total AIFM remuneration attributable to senior management was £1,685,769. No other staff were identified as material risk
takers in the year. The remuneration figures reflect an approximation of the portion of AIFM remuneration reasonably
attributable to the AIF.
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BAKER STEEL RESOURCES TRUST LIMITED
GLOSSARY OF TERMS
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
DFS – A Definitive Feasibility Study is an evaluation of a proposed mining project to determine whether the mineral resource
can be mined economically. A DFS is the basis for detailed design and construction of a project and determines definitively
whether to proceed with the project. Detailed feasibility studies require a significant amount of formal engineering work,
with costings accurate to within 10-15%. The definitive feasibility study will be based on indicated and measured mineral
resources.
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
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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.
OCI – Other comprehensive income
PEA – Preliminary Economic Assessment
SORP – Statement of Recommended Practice issued by The Association of Investment Companies dated November 2014
UK Code – UK Corporate Governance Code published by the Financial Reporting Council in July 2018.
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