Baker Steel Resources Trust — Interim revaluations bring H124 NAV TR to c 5%

Baker Steel Resources Trust (LSE: BSRT)

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Research: Investment Companies

Baker Steel Resources Trust — Interim revaluations bring H124 NAV TR to c 5%

Baker Steel Resources Trust (BSRT) has released its end-June 2024 NAV (following the usual half-year valuation review of its unlisted holdings), posting a 1.8% NAV increase versus end-May 2024, which resulted in an H124 NAV total return (TR) of 4.9%. Major positive drivers included Cemos, a Morocco-based cement producer, and BSRT’s royalty over the Bilboes gold project in Zimbabwe (owned by Caledonia Mining Corporation, CMCL). This was partly offset by the fair value reduction of Kanga Investments and share price declines of some listed holdings. Importantly, BSRT’s half year revaluations did not capture some recent positive developments at Futura Resources, its largest holding. BSRT’s shares currently trade at a c 34% discount to NAV.

Milosz Papst

Written by

Milosz Papst

Head of Content, Investment Trusts

Investment Companies

Baker Steel Resources Trust

Interim revaluations bring H124 NAV TR to c 5%

Investment trusts
Metals and mining

18 July 2024

Price

53.25p

Market cap

£56.7m

NAV

£86.2m

NAV*

81.0p

*At end June 2024.

Discount to NAV

34.3%

Yield

0.0%

Shares in issue*

107.2m

*Including 700k treasury shares.

Code/ISIN

BSRT/GG00B6686L20

Primary exchange

LSE

AIC sector

Commodities & Natural Resources

52-week high/low

56.0p

33.5p

81.0p

65.9p

Gearing

Net cash and accruals at 30 June 2024

1.8%

Fund objective

Baker Steel Resources Trust is a closed-end investment company aiming to achieve long-term capital growth through investing in equity, loans and related instruments issued by private natural resources companies. BSRT targets a global, concentrated portfolio of 10–20 investments. Its objective is to create value through driving the development of investee companies, as well as exploiting market inefficiencies and pricing anomalies.

Bull points

Exposed to project development gains – not a simple beta play on commodity prices.

Maturing portfolio, with several projects approaching mine construction or production, offering the potential to generate income or exit proceeds.

Some downside protection is provided by BSRT’s focus on realising value from project development, valuations based on consensus forecasts for commodity prices and the use of convertible debt.

Bear points

The tough funding environment may delay project progress and/or result in fund-raising at depressed valuations.

Risk of cost overruns due to the inflationary environment.

High portfolio concentration makes BSRT’s performance dependent on a narrow set of assets.

Analyst

Milosz Papst

+44 (0) 20 3077 5700

Baker Steel Resources Trust is a research client of Edison Investment Research Limited

Baker Steel Resources Trust (BSRT) has released its end-June 2024 NAV (following the usual half-year valuation review of its unlisted holdings), posting a 1.8% NAV increase versus end-May 2024, which resulted in an H124 NAV total return (TR) of 4.9%. Major positive drivers included Cemos, a Morocco-based cement producer, and BSRT’s royalty over the Bilboes gold project in Zimbabwe (owned by Caledonia Mining Corporation, CMCL). This was partly offset by the fair value reduction of Kanga Investments and share price declines of some listed holdings. Importantly, BSRT’s half year revaluations did not capture some recent positive developments at Futura Resources, its largest holding. BSRT’s shares currently trade at a c 34% discount to NAV.

Impact of major unlisted holdings on BSRT’s H124 NAV total return (pp)

Source: BSRT, Edison Investment Research. Note: Share in end-June 2024 NAV in brackets.

Positive revaluations of Cemos and Bilboes royalty

Cemos was revalued by 11%, driven by rebounding sales in 2024 after a more muted 2023, as well as good construction progress at its clinker plant (see our previous note for details). The holding is valued based on an EBITDA multiple in reference to two local listed peers, LafargeHolcim Maroc and Ciments Du Maroc. The 16% fair value increase of the Bilboes royalty was assisted by the preliminary economic assessment (PEA) announced by CMCL in June 2024 and the c 13% increase in the gold price in H124. Based on the PEA, CMCL concluded that a single-phase development would provide the best economic return. It expects a new feasibility study to be delivered in H125. BSRT estimates that at the current gold price, its 1% net smelter royalty (which we calculate was valued at c US$8.6m at end-June) has a c US$3m income potential pa over the base case 10-year mine life.

Valuation of Kanga Investments reduced visibly

The fair value of Kanga Investments, which holds the Kanga Potash project in the Republic of the Congo, was reduced by 46%, as the project faces challenges in attracting short-term working capital funding (despite interest from potential partners to acquire or finance its potash project, according to BSRT). The lower share prices of CMCL, Silver X and First Tin reduced BSRT’s June NAV, though we note that CMCL’s shares have risen by 13% so far in July in sterling terms following its Q224 production update, indicating a 19% y-o-y increase in gold production at its Blanket mine to c 17.4koz, with management reiterating the 2024 guidance of 74–78koz.

Latest developments at Futura not fully captured

We note that Futura Resources (the owner of two coking coal mines in Australia and BSRT’s largest holding at end-June 2024) has seen ‘encouraging’ coking coal quality and recoveries from its Wilton mine (where production commenced in March 2024, see our previous note for details). However, the fair values of BSRT’s equity and royalty investment in Futura remain unchanged following the half-year valuation review as more data is needed to justify a reduction in the development risk discounts applied to the valuation model for this holding. The end-June 2024 valuation also does not capture the offtake finance agreed post reporting date to fund the quicker development of Futura’s second mine (Fairhill), which the company now expects to move to production in Q424. BSRT highlighted that the above developments will be examined during the year-end valuation review in anticipation of both mines reaching full production in 2025. The company had earlier indicated Futura’s EBITDA potential of A$80–90m upon full production ramp-up, with the mid-point implying an EV/EBITDA multiple of c 1.5x based on Futura’s current fair value. This compares with an average multiple of 2.7x for listed peers (Stanmore Resources, Whitehaven Coal, Yancoal and Bowen Coking Coal) based on LSEG consensus for CY25e.

First Tin: New issue and strategic investor

First Tin, the owner of three tin assets (the Tellerhäuser and Gottesburg projects in Germany and the Taronga project in Australia), issued 53m new shares on 10 July 2024, raising c £2.1m in gross proceeds, which will be used for the further development of its projects, as well as general working capital purposes. As part of the offering, Metals X, Australia’s largest tin producer, subscribed to 11.5m shares. Moreover, Metals X made an on-market purchase of 60m existing First Tin shares from Clara Resources, which brings Metals X’s stake to 23%. We consider the support provided by this strategic investor as testament to the quality of First Tin’s assets.

General disclaimer and copyright

This report has been commissioned by Baker Steel Resources Trust and prepared and issued by Edison, in consideration of a fee payable by Baker Steel Resources Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Baker Steel Resources Trust and prepared and issued by Edison, in consideration of a fee payable by Baker Steel Resources Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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