The core of Baker Steel Resources Trust’s bottom-up, value-focused strategy is to invest in a concentrated portfolio of 10–20 unlisted junior mining companies. Its current portfolio primarily offers exposure to steelmaking coal, cement and gold, as well as a combination of other commodities, including silver and industrial and specialty metals.
1. Baker Steel Resources Trust is more than a simple beta play on the mining sector.
The trust’s portfolio does not simply offer geared exposure to a basket of commodities, but provides the potential to generate returns from bringing junior mining projects up the development curve. The manager focuses on capturing the alpha arising from the development progress made by these businesses as they move from a pre-feasibility stage to completion of a definitive feasibility study and then towards mine construction. The trust’s portfolio holdings are normally valued based on long-term forward curve prices. In many cases, the company seeks to mitigate the risks arising from investing in early-stage mining businesses by investing through convertible loan notes, as well as providing funding in stages as development milestones are met.
2. The trust’s investment manager is a natural resources specialist.
Baker Steel Resources Trust is managed by Baker Steel Capital Managers (BSCM), an independently owned, specialist natural resources asset management and advisory firm, which has headquarters in London, with a branch office in Sydney, Australia. The firm has an experienced team of fund managers covering the precious metals, base metals and minerals sectors worldwide, including equity markets and underlying commodity markets. Investment opportunities are mainly sourced from the investment and advisory team’s extensive proprietary network of industry contacts. BSCM’s managing partner, Trevor Steel, has acted as the trust’s lead manager since its launch. He is supported by Francis Johnstone (investment adviser), with David Baker and Mark Burridge (managing partners) also sitting on the trust’s investment committee. BSCM is actively involved in supporting the development of the trust’s portfolio companies, which often involves having a board seat.
3. The trust’s maturing portfolio provides high income potential.
The trust’s current portfolio includes several maturing assets, many of which are already in production. The trust’s manager believes that upon full production ramp-up of its major projects, its portfolio should generate significant royalty and dividend income, which would represent a double-digit yield on its current market capitalisation. Most of this potential comes from Futura Resources and Cemos Group, which plan to complete their production ramp-up and expansion in the next 12–24 months. Futura Resources is the owner of two coking coal mines in Australia and has recently seen ‘encouraging’ coking coal quality and recoveries from its Wilton mine (where production commenced in March 2024). Moreover, in July 2024, it secured an off-take finance agreement to advance Fairhill, its second mine, to production. Cemos Group, a Moroccan-based cement producer, has two major investment projects (a compact calcination unit and second grinding line) which offer the prospect of a significant increase in earnings from 2025.
4. Monetary easing and secular growth drivers may support a recovery of junior miners.
Junior mining projects worldwide were in recent years affected by a combination of high interest rates, elevated inflation and geopolitical headwinds. However, a turn in the interest rate cycle may drive a recovery in global M&A activity in the natural resources sector. Monetary easing, coupled with geopolitical uncertainty, also proved supportive for precious metals. Finally, secular drivers such as the green energy transition and the resulting high demand for certain industrial and specialty metals, coupled with supply constraints for some of the commodities, could prove supportive for the sector.
Published 19 February 2025.
