MERRILL LYNCH WORLD MINING TRUST plc
PRELIMINARY ANNOUNCEMENT OF RESULTS
in respect of the year ended 31 December 2007
Performance to 31 December 2007 1 year 3 years 5 years
(with income and warrant proceeds reinvested)
Undiluted net asset value per share +57.1% 240.4% +469.6%
Ordinary share price +49.0% 213.4% +438.2%
HSBC Global Mining Index* +54.4% 198.2% +373.3%
*adjusted for exchange rates relative to sterling.
Performance based on mid-market values with income reinvested on
ex-dividend date.
Sources: BlackRock, Datastream.
Highlights
* A 22.2% increase in total dividends declared of 5.50p (comprising an
ordinary dividend of 3.00p and a special dividend of 2.50p), to be paid
on 17 April 2008 to shareholders on the register on 22 February 2008.
* The undiluted net asset value per share at 31 December 2007 was 804.13p
(2006: 516.07p), an increase of 55.8%.
* During the year the Company's share price reached a new high of 706.00p.
The share price as at close of business on 13 February 2008 was 641.50p.
* Bonus warrants are exercisable on 29 February 2008 at a price of 478p per
share.
Chairman's Statement
It gives me great pleasure to report that the Company has enjoyed its seventh
consecutive year of growth. Since we reported at the interim stage, the
undiluted net asset value ("NAV") has increased by a further 19.9% and the
share price, which touched an all time high of 706p during the half year, by
14.9% (both with income and warrant proceeds reinvested).
Emerging market growth compensated for varying degrees of slowdown in the
developed economies, and further support for the sector was provided by
continuing escalation in corporate activity.
Earnings and dividends
The undiluted earnings per share amounted to 8.25p compared to 8.78p for the
previous year, a decrease of 6.0%. The dividend, which has increased for each
of the last nine years, will this year rise to 3.00p plus a special dividend of
2.50p.
Discount to net asset value
The Board has continued to monitor the discount very closely. In spite of the
continuing strong NAV performance, the level of discount has increased over the
last six months in line with the investment trust sector as a whole. A further
1,379,379 shares were repurchased in the past six months, making a total of
14,442,800 for the full year.
Bonus Warrants
The second exercise date for the bonus warrants issued in 2006 is 29 February
2008 and warrant holders should have received a reminder letter posted on 25
January 2008.
VAT
The Board welcomes the success of the Association of Investment Companies
("AIC") and JPMorgan Claverhouse Investment Trust plc who have won their
lengthy test case against HM Revenue & Customs ("HMRC") challenging the
imposition of VAT on management services supplied to investment trusts. HMRC
have now accepted the European Court of Justice's judgement of 28 June 2007
that management services supplied to investment trusts should be exempt from
VAT.
Total irrecoverable VAT incurred by the Company on management fees since
inception is estimated at �3 million and the prospective saving for your
Company is estimated at �660,000 per annum. The Manager has already submitted
claims to recover from HMRC any amounts repayable as a result of the AIC and
JPMorgan Claverhouse case and is awaiting clarification from HMRC regarding the
basis on which repayments will be made, which will have an impact on the
amounts recovered.
Given the volume of claims HMRC have to process it is likely to be a
significant period of time before any amounts are refunded. The amounts
involved are not expected to have a material impact on the Company's NAV.
Outlook
The direction of the US economy will be the major influence on equity markets
in the near future. We remain hopeful, however, that global growth will
continue, albeit at a more modest pace than of late which, allied to
sustained takeover activity, will provide opportunities for your Company once
again to achieve superior returns.
A W Lea
14 February 2008
Investment Manager's Report
Portfolio performance
The Company has enjoyed another highly satisfactory second half performance and
finished the year with the shares only 7.0% below the all-time high of 706p
achieved in November. This good performance in 2007 represents the seventh
consecutive year of growth in net asset value "NAV".
During the year under review, the Company's undiluted NAV and share price (both
with income and warrant proceeds reinvested) rose by 57.1% and 49.0%
respectively. In "capital" only terms the NAV rose by 55.8% and the share price
by 47.5%. These figures compare with the HSBC Global Mining Index (sterling
terms) which rose by 51.1% (capital only) and 54.4% (with income reinvested).
The theoretical effect of diluting the NAV to allow for exercise of the
warrants would have reduced the NAV by 51.85p per share at the end of December
to 752.28p.
Mining share overview
The world economic backdrop was positive in early 2007 and, despite investor
gloom, economic growth in the year matched the 2006 level at about 5%. Many
commentators expect the rate of growth to slow in 2008 and BlackRock's house
view is about 4%. The key factor behind the slowdown, especially in the
second half of the year, was the so-called "credit crunch" which adversely
affected the availability of finance globally and triggered a further
downwards shift in the US housing market. Offsetting this to some degree
was a loosening of monetary policy following September 2007 with the Federal
Reserve cutting interest rates after 17 successive rises from July 2004.
Despite weakness in the developed economies, other parts of the world
continued to grow strongly and "contagion" has been limited thus far.
Consequently, commodity demand remained firm and with supply again
constrained, prices for most metals achieved new highs at various times
during the year. As a result, while most people will remember 2007 as a year
of poor portfolio returns, investors in the mining, commodities and
resources sectors have enjoyed a vintage year.
The favourable moves in commodities and mining shares were at various times
given a "tail wind" by a weaker trend to the dollar which buckled under the
weight of sustained negative sentiment. Dollar-bears were encouraged by several
factors including the high trade deficit, the slowing economy, incipient
inflationary pressure and growing signs that sovereign wealth might find better
uses of capital other than purchases of US treasury bonds.
Favourable commodity prices, a good demand backdrop and the weakening dollar
all helped to create an environment in which mining analysts had to once again
upgrade their forecasts, especially in the early part of the year. However, the
rate of upgrade slowed in comparison to 2006 and for some companies, especially
those in Australia and Canada, the strength of local currencies coupled with
rising costs undid many of the benefits of higher metals prices. The fact that
share price growth on the whole exceeded earnings growth, particularly for the
base metals companies, meant that the mining sector enjoyed a positive
"re-rating", reversing the "de-rating" which occurred in 2006. We were not
surprised by this positive re-rating which we predicted in last year's Annual
Report. Nowhere was the re-rating more powerful than in China where the
combination of a strong local stock market and high commodity prices saw some
spectacular share price performances. We took advantage of this to take
profits, most notably in China Shenhua Energy which at its peak enjoyed a
market capitalisation larger than BHP Billiton.
Despite this upward re-rating, the sector remained relatively attractively
priced and we saw little let-up in the pace of corporate battles. Two stand out
during the year; firstly the battle for Alcan (initiated by Alcoa and
eventually won by Rio Tinto) and secondly the as yet unresolved clash between
BHP Billiton and Rio Tinto. This latter battle may well change the landscape of
the global mining industry and spark off another round of consolidation later
in 2008.
Merger and acquisition ("M&A") activity continues to look attractive to
companies, as the industry is finding it difficult to secure access to high
quality ore reserves through exploration drilling. Furthermore, new projects
around the world continue to be plagued by severe delays to construction time,
lack of availability of skills/equipment and rapidly escalating capital costs.
For example, Teck/Novagold's Galore Creek copper-gold project in the Canadian
arctic saw capital projections jump from about US$1.8 billion in the October
2006 feasibility study to nearly US$5 billion in the follow up study a year
later. Needless to say, the project has now been shelved. Similarly, Nikanor
saw the refurbishment cost of the Kov copper deposit in the Democratic Republic
of Congo ("DRC") jump by over a third from US$1.3 billion to US$1.8 billion,
necessitating a corporate restructuring. Some companies clearly believe that
acquisitions are a good way to grow without exposing the business to such
risks. In the gold sector, M&A has also been driven by an acute shortage of ore
reserves after many years of underinvestment.
Although for the most part 2007's industry trends were inherited from 2006, the
exception to this was perhaps the declining importance of the "capital
management" programmes. In 2006, most of the larger companies enjoyed market
conditions so strong that cash flow far surpassed capital requirements,
resulting in lazy balance sheets. While some companies allowed cash to pile up,
others chose to distribute it in the form of higher dividends, special
dividends and share buy backs. In 2007, following on from the elevated M&A
activity, much of which involved cash transactions, companies needed cash flow
to repair balance sheet strength. The buy backs and special dividends petered
out and as we entered 2008, the only significant buy back programmes are coming
from companies that were either unable or unwilling to participate in the
consolidation frenzy; two notable exceptions are Alcoa and Anglo American.
While the year as a whole was again positive, we should not forget that this is
and will always be a volatile sector. We saw episodic changes in
sentiment which led to violent movements in the markets. Of the two largest in
2007 the first came as usual in the first quarter and resulted in a 12%
setback, in dollar terms. The second and more powerful setback came amidst the
credit crunch and it saw the mining sector fall by 23% between mid July and mid
August. We have learned that the best way of dealing with violent weakness in
the market is to repay the borrowings in the portfolio and to write near dated
"put options" covering those stocks with the best cash flow prospects and
therefore downside support. That way we can exploit both our gearing potential
and our willingness to buy shares at even cheaper prices than those prevailing
at the time we write the contracts. Similarly, if share price rises exceed our
expectations then writing call options becomes attractive. For example, in 2007
the positive re-rating of Vale (formerly CVRD) has taken its weight in the
portfolio to nearly 15%, the maximum permissible level for an investment trust
company. Selling call options against our Vale position has generated
significant revenue for the portfolio. In 2007, option writing and sub
underwriting generated �4.1 million of income for the Group.
As always, a particular focus of the portfolio has been on those companies that
are best placed to benefit from the changing shape of global demand. We try to
ensure that the largest portfolio investments are in companies which produce
the metals and minerals that are nearest to being in global shortage. In 2007
these were commodities like iron ore, nickel, fertilizers and precious metals.
Our top ten holdings produce a combination of these materials, and this
strategy together with the factors mentioned above has again helped generate
good returns in 2007.
The table that follows shows the price moves (in US dollar terms) of some of
the metals and minerals that are most important to the Company's portfolio. Not
surprisingly, the favourable pricing environment showed through in some good
earnings numbers for the leading companies in the mining industry. Despite
mounting pressure on production costs, many of the companies in the portfolio
will have again achieved record earnings for the year.
% Change %Change
Price year ended average
31 December 2007 31 December 2007 2007/2006
Gold (US$/troy oz) 836.15 +31.8 +15.3
Platinum (US$/troy oz) 1,529 +36.9 +14.3
Nickel (US$/tonne) 26,375 -22.9 +53.6
Copper (US$/tonne) 6,714 +6.8 +6.0
Aluminium (US$/tonne) 2,357 -17.3 +2.8
Zinc (US$/tonne) 2,385 -44.9 -0.5
Uranium (US$/lb) 90 +25.0 +107.8
Potash (US$/tonne) 257 +44.4 +15.0
Iron ore - lump (US$/tonne) 102.7 N/A +9.5
Coking coal - hard (US$/tonne) 95 N/A -15.2
Thermal coal (US$/tonne) 55.5 N/A +5.7
Source: Datastream
Gold and precious commodities
Looking at the year as a whole, gold equities continued their significant
underperformance compared to the rest of the mining sector and also
underperformed gold itself, which rose by a further 32% year on year. Towards
the end of 2007 gold tested its all-time high of US$850/oz, which at the time
of writing has now been surpassed. This represents one of the best ever years
for gold since the 1970s and should, in our view, have sparked off a much
bigger jump in gold equities than 17%.
Gold's good performance was most impressive during the second half of the year
once it became clear how treacherous the capital markets were in the wake of
the credit crisis. This stimulated a rush for so called "safe havens" of which
gold is one. However, the foundations for this rally were in any case quite
solid. Global mine output has been stagnant or falling since 2001 due to a lack
of exploration success while jewellery demand seems to have become less
sensitive to the fluctuating price. Investment demand for gold (as measured by
the success of the Exchange Traded Funds ("ETFs")) has surged and there has
been no let-up of demand for commodities as a diversifying asset class. With
global political turmoil an ever present factor and real interest rates falling
it is hard to see why there should be a sudden reversal of these established
patterns that are now nearly a decade old.
Despite the positive tone to the gold market, investment in gold shares has not
been a feature of the portfolio strategy for some years and we have been right
to remain underweight. The main reason for our caution is that the sector
continues to be plagued by a painfully slow earnings recovery. Costs rose
nearly as fast as revenues in 2007 and most companies are also suffering the
challenge of ore reserve replacement. As a result, the economics of the gold
sector remain insufficiently attractive in comparison with other parts of the
mining industry. Furthermore, several companies are still living with the
legacy of their disastrous hedging policies, and those companies which bit the
bullet and repurchased the contracts are paying a heavy price. We are therefore
still awaiting a sensible opportunity to significantly rebuild gold exposure
within the portfolio from today's low levels of 5.9% (6.9% at the end of 2006).
Of the gold equities in the portfolio only Minas Buenaventura provided a
meaningful contribution, nearly doubling in sterling terms over the year. This
good performance restored Buenaventura as a top ten holding in the portfolio.
The South African gold shares, Gold Fields and Harmony Gold Mining were
disappointing and to varying degrees badly affected by either operating
difficulties or management weaknesses. We disposed of the holding in Newmont
Mining in view of its poor production outlook.
Like gold, platinum had a good year, rising by over one third in price and
reached an all-time high of about US$1,540/oz. The strength stems from some
major constraints on the supply-side coupled with buoyant autocatalyst demand
and the launch of the ETF. South African supply has been particularly impacted
by the slow rate of mine expansions together with an even greater focus on
safety in the mines. The situation has been more recently exasperated by
increased shortages in power. These factors have kept the market very tight
and prone to price spikes. The situation is likely to be even tighter in 2008
as new pollution regulations take effect and the requirement for diesel
catalysts comes into force. The Company's portfolio currently holds five
South African platinum equities; Impala Platinum (4.1% of the portfolio),
Lonmin (1.7%), Aquarius Platinum (1.2%), Ridge Mining (0.4%) and Anglo
Platinum (0.3%) and the earnings outlook for these businesses seems very
bright if we are proved correct in our view of price trends; we believe
that US$2,000 per ounce is a medium term possibility.
The only silver play in the portfolio is the Mexican miner Industrias Penoles
(2.4% of the portfolio) which was again a star performer, posting a gain of
126% in sterling terms.
The diamond market was rather dull again in 2007 although rough prices did
start to pick up in the second half of the year. Our largest diamond equity
holding remains Harry Winston Diamond Corp. (1.3% of the portfolio), formerly
known as Aber Diamonds, and which owns a 40% stake in the Diavik mine in Canada
with Rio Tinto holding 60%. Our other main investment is Gem Diamonds (1.4% of
the portfolio) which carried out a successful initial public offering ("IPO")
early in 2007.
Base Metals
Base metals had a "curate's egg" of a year - good in parts. Some spectacular
price strength early in the year, underpinned by growth in China's demand, gave
way to price weakness in the second half as investors began to second guess the
impact of US economic slowdown. Overall the MG Base Metals Index fell by just
under 10% during the year. It is worth noting though that inventories in London
Metal Exchange ("LME") warehouses remain quite low reflecting broadly
balanced supply and demand trends. This means that we remain in an
environment where any supply disruptions will tend to spark off price spikes -
and several LME metals reached all-time highs during 2007. While the spot
market Index fell somewhat in the second half of the year it is interesting
that futures prices for some base metals proved to be more resilient. This
reflects both the potential for supply disruption as well as the rising cost
pressures in the industry.
Nickel was perhaps the most spectacular of the base metals in 2007 spiking to
an all time high of US$54,150/tonne, equivalent to US$24.50/lb. This is
fourteen times higher than the low point of US$3,722/tonne in late 1998. Nickel
benefited from strong stainless demand early in the year and short covering by
producers who sold forward at low levels and then suffered production problems.
Delays to commissioning of new capacity again plagued the market. The high
price provoked substitution and new supply which made us wary of nickel
producing equities which now comprise only a small part of the portfolio
although from time to time during the year we traded individual positions,
notably Jubilee Nickel that was bid for by Xstrata.
Despite the best efforts of leading analysts, who seem to be always talking the
price downwards, copper continued its strong run in 2007 starting the year at
US284c/lb and finishing at just over 300c/lb for a year on year gain of just
over 6%. This is a very good price for copper mining companies and the copper
miners in the portfolio generally performed well, especially Freeport McMoran
Copper which used the high prices to dramatically shorten the debt repayment
schedule it took on to buy Phelps Dodge. The key to copper's resilience has
been the perennial supply disruptions (strikes plus earthquakes) which have
confounded the analyst's predictions of copper market surpluses. It is also
worth noting that the new supply from the DRC, which some commentators were
expecting to become a reality as early as next year, is unlikely to make a
material difference until 2010 due to infrastructure constraints and title
issues. Some of the copper companies also benefited from a continuation of high
by-product molybdenum prices which averaged US$30/lb during the year, far
higher than most people expected.
With earnings growth slowing, copper shares enjoyed some expansion of price/
earnings multiples and performed quite well albeit with volatility. The largest
copper equity position is still First Quantum Minerals (3.4% of the portfolio),
despite some profit taking. First Quantum had a good year with the shares
rising by 57% in sterling terms. The company has now successfully commissioned
the new Frontier copper project just over the border with Zambia in the DRC.
Towards the end of the year the company announced that it had acquired a 17%
stake in Equinox Minerals, a company that has nearly completed the development
of the Lumwana copper mine in Zambia. Equinox Minerals (1.3% of the portfolio)
the best performing copper share in the portfolio this year rising by 235% in
sterling terms.
Another solid performer was once again Oxiana (1.1% of the portfolio) which
rose by 20% in sterling terms. Oxiana's big challenge this year is the
development of the Prominent Hill copper-gold mine in South Australia, one of
the country's largest base metals projects. During the year we took our profits
and sold out of four copper holdings; Jiangxi Copper, Southern Peru Copper,
Ivanhoe Mines and Amerigo Resources. Despite this, copper continues to be an
important part of the portfolio at 9.8% (12.2% at the end of 2006).
In previous reports we have indicated a growing interest in the aluminium
market. We have proved to be too bullish too soon. Chinese aluminium demand
growth, whilst very strong, has struggled to match the even more impressive
expansion of domestic production. This has weighed heavily on the market and
the metal price is trading not far above the "marginal" cost of production. Our
major aluminium holdings are Alcoa (4.4% of the portfolio) and Alumina (1.8%)
and they have not made a significant contribution to portfolio returns this
year. Alcoa is in the midst of an important restructuring having sold its stake
in Chalco (at a huge profit) and its packaging and consumer business. These
sales have raised gross proceeds of US$4.7 billion much of which will be
deployed in a share buy back programme which might ultimately see 25% of the
shares retired. We continue to persevere with these holdings and aluminium now
makes up 6.3% of the portfolio (6.5% at the end of 2006).
Zinc and lead proved to be very volatile in 2007 although the two sister metals
bifurcated in the second half with lead charging to a new all time high and
zinc collapsing to finish the year as the worst performing of the base metals.
Given this weaker trend to zinc our holding in Zinifex suffered, but it did
continue to distribute strong dividends. Zinifex gained a new CEO in 2007,
Andrew Michelmore, the ex CEO of WMC Resources. Given his background it would
not be a surprise to see Zinifex embark on a diversification strategy and it
recently announced a bid for the Australian nickel miner Allegiance. In
October, Zinifex spun out its smelting assets into a new company Nyrstar (1.0%
of the portfolio). We believe that under focused management Nyrstar has the
potential to unlock significant value.
Zinc equities are quite rare in the global stock market and could become rarer
- towards the end of 2007 Bumi Resources announced a hostile bid for Herald
Resources (0.7% of the portfolio). Herald is developing the Dairi zinc deposit
in Indonesia. Subsequent to the year end we have disposed of the holding.
Energy Commodities
Uranium was buoyant in 2007, rising from US$72/lb at the start of the year to
US$90/lb at the end and spiking as high as US$138/lb in June. The price rise
was a result of generally good underlying supply/demand fundamentals coupled
with the supply-side shock that arose from the flooding of Cameco's Cigar Lake
mine in Canada. During the year we restructured the portfolio holdings
somewhat, taking our profits in Cameco, Denison Mines and Energy Resources of
Australia. We also reduced the holding in Uranium Participation. We increased
the holding in UEX (0.7% of the portfolio) reflecting the spectacular
exploration results being enjoyed by that company. After its volatile year we
would expect 2008 to be a year of consolidation for the uranium market.
With oil and gas prices rising in the second half of the year (crude reaching a
new high close to US$100/bbl) coal became the fuel of choice for utilities,
underpinning prices. This sparked off a good price recovery for shares such as
Peabody Energy (1.2% of the portfolio) up by 60% in sterling terms. Shenhua
Coal, China's largest coal company, did very well and we sold the holding on
valuation grounds despite its excellent business outlook. As we enter 2008 the
thermal coal market continues to look good. We initiated a position in Indo
Tambangraya Megah (0.1% of the portfolio), Indonesia's third largest thermal
coal producer, and in January 2008 also took a position in Bumi Resources,
Indonesia's largest coal producer and the world's second largest thermal coal
exporter.
The best performing coal stock in the portfolio proved to be Riversdale Mining,
a company that is helping to develop the substantial coal reserves in
Mozambique. Although this is a small position (1.4% of the portfolio), the
shares rose by more than 400% in sterling terms over the year.
Diversified mining companies and industrial commodities
In the Annual Report last year we commented on the lacklustre performance of
the large UK listed diversified mining companies and noted that their
achievements and earnings growth had been virtually unnoticed by the stock
market. Only Xstrata contributed meaningfully to our portfolio returns in 2006.
This year the big diversified companies played catch up, delivering some
exceptionally strong share price appreciation. Best performer was Rio Tinto
(12.2% of the portfolio) which rose by over 95% in sterling terms over the year
and was the second largest single contributor to the Company's portfolio. The
reason for this was the strong underlying value-creation coupled with BHP
Billiton's unwanted 3 for 1 share offer tabled in November. It is not possible
to predict the outcome of the merger proposal at this stage but if it were to
be consummated then we would need to make some adjustments to the portfolio as
the combined holding would be too large at over 18% of the portfolio. Subsequent
to the year end we have taken advantage of the Chinalco/Alcoa market raid to
trim back our holding in Rio Tinto.
The largest contributor to the Company's total returns was Vale (formerly
CVRD), 14.7% of the portfolio. In 2007 the shares more than doubled. Vale
obviously has benefited greatly from the sustained strength of the iron ore
price and seems set to benefit even more in 2008. However, the roots to the
strong share price growth of 2007 lie in 2006 when Vale won the contested
takeover battle for Inco, thereby becoming much more diversified from both a
geographic and commodity basis. The acquisition was funded with debt and Vale's
gearing therefore increased significantly. Given the strength of commodity
markets in 2007, this gearing helped to enhance shareholder returns.
In 2006, Vedanta Resources (2.7% of the portfolio) spoilt what would have
otherwise been a very good year by announcing that its Indian-quoted operating
company, Sterlite Industries, would issue shares in order to fund additional
business opportunities in India. In the event this share issue was much delayed
and finally came in June at a very attractive price. We participated in this
issue and have built a holding equivalent to 2.1% of the portfolio. Many
investors in the market dislike Vedanta/Sterlite's management style and
arguably patchy governance record. Our view though is that the group is one of
the only direct ways for our portfolio to benefit from the huge growth
potential of the Indian market. Vedanta has a good track record of implementing
capital projects on time and within budget, a rarity in the current
infrastructure marketplace.
BHP Billiton (6.1% of the portfolio) had another excellent year and achieved
record earnings and cash flow. The company has a near perfect product mix for
this commodity cycle and was able to take advantage of stronger iron ore, and
energy markets. BHP Billiton has led the way in demonstrating commitment to
shareholder value by returning huge amounts of cash through a stock buy back
and dividends, although this will now be put on hold pending the outcome of its
proposal for a merger with Rio Tinto. Regardless of the outcome though BHP
Billiton should have a good year in 2008 with the iron ore price expected to be
up by at least 25% and the much delayed oil projects in the Gulf of Mexico
finally ramping up production. BHP finished the year up by 65% in sterling
terms, a figure which would doubtless have been larger but for the merger
uncertainty.
In early 2007 we disposed of the entire holding in Xstrata on the grounds that
its outperformance was unsustainably strong and that there were better
opportunities in the other diversified mining stocks. This proved to be correct
as Xstrata rose by "only" 39% during the year.
Anglo American's new CEO, Cynthia Caroll, set about re-tuning the company's
corporate strategy by retiring some senior executives and stepping up the
company's participation in M&A deals. Nonetheless, Anglo's biggest transactions
during the year were still disposals, selling a chunk of AngloGold Ashanti and
distributing the Mondi business. Although it does not make a good fit with a
mining portfolio we have kept the Mondi holding (0.7% of the portfolio) for the
moment as we believe that, despite a lacklustre post listing share price
performance, the management team can unlock value now that they have the
business contained in a separate company. Another factor which has helped Anglo
American's share price has been the persistent rumours that it might fall
victim to a corporate predator. Anglo makes up 3.1% of the portfolio.
Because we stayed bullish on zinc rather too long, the large portfolio position
in Teck Cominco (2.8%) hurt the portfolio somewhat, especially in the second
half of the year. Teck was also hurt by coking coal and the firmer Canadian
dollar. Despite bidding for Aur Resources, Teck's balance sheet remains strong.
Our most disappointing industrial minerals holding was once again Iluka
Resources, the titanium mineral and zircon producer (0.7% of the portfolio).
Despite a dominant market position and excellent exploration results, the stock
continued to languish as the company grappled with rising costs and delays/
capital cost overruns at its major projects. Given the climate for M&A activity
we have been amazed that this stock is still listed on the stock market.
A new area of the portfolio in 2006 was fertilizer stocks which are benefiting
from the upsurge in grain prices and demand. In 2007 we built this up somewhat
and now have three holdings; Potash Corp, Mosaic and Agrium. In aggregate these
three holdings comprise 2.4% of the portfolio.
Another new holding in 2007 was Eurasian National Resources ("ENRC") which held
its IPO in December. ENRC is a Kazakh based company with important assets in
ferrochrome, iron ore and alumina. It comprises 0.9% of the portfolio.
Derivatives activity
The Group sometimes holds positions in derivatives contracts, with virtually
all of the activity focused on selling either puts or calls in order to
generate option premium income. These positions, which are small in comparison
with the size of the Group, usually have the effect of obliging us to buy or
sell stock or futures at levels we believe are attractive. The volatility of
the market during 2007 provided some good opportunities for successful option
writing. However, at the end of December, most of the positions had matured or
expired and the only outstanding contracts covered Antofagasta, Xstrata,
Peabody, Alcoa and Fording Canadian Coal Trust.
Gearing
At 31 December 2007, the Company was utilising just �0.5m of its �40 million
overdraft facility. Net gearing is equivalent to 0.04% of net asset value.
Gearing, which can be drawn down or repaid at any time, is used in the
portfolio to take tactical advantage of market volatility and opportunities.
The Company also has a �60 million loan facility which has not been utilised.
Outlook and strategy for 2008
2008 has started with a mixed bag of commodity price moves. The trend in base
metals has been sideways or downwards whilst precious metals have been setting
new records and look like they will do very well this year. Bulk commodities
too are likely to have an excellent 2008. This suggests that the big
diversified mining companies will have another very satisfactory year in
terms of earnings and cashflow while some of the pure play base metals stocks
might struggle as their positive earnings momentum dissipates. Stock selection
can be expected to be increasingly important this year.
Although China and India remain the most important demand-side factor in the
natural resources industry, it is the sluggish US economy that is most
important to market sentiment at the moment. Although the Federal Reserve is
now easing monetary policy, analysts remain concerned about the implications of
the credit crunch and the possible economic weakness ahead. We believe that
weakness in the US may dent, but not derail, the world economy. Global growth
is likely to muddle through at around 4% but below the 5% of 2007. Uncertainty
about global growth in markets has already contributed to some extreme
volatility in January.
Corporate activity could be the most memorable feature of 2008. A merger
between Rio Tinto and BHP Billiton would change the landscape of the mining
industry and would surely force some hard thinking in the boardrooms of the
other large mining groups. Already it has been disclosed that Vale has
initiated talks with Xstrata with a view to a merger. Big looks like it is
going to be "beautiful" in the coming years.
We expect to see a continuation of the uptrend in gold and platinum. Mine
supply is likely to remain constrained while investment demand has grown and
net Central Bank sales (of gold) may even be on a declining path. This is a
good environment for precious metals especially as many commentators expect
further weakness in the dollar.
Our portfolio strategy at the start of 2008 is summarised as follows.
* Fully invested portfolio. Continuing emphasis on companies with strong cash
flow and the potential to lift returns to shareholders through higher
dividends and share buy backs. This strategy has been the backbone of the
portfolio for the past several years.
* Mindful of the M&A possibilities.
* Increase in precious metals exposure.
* Trading opportunities for fertilizer companies.
* Option writing - taking advantage of the innate volatility of the sector.
* Tactical use of gearing.
In last year's Annual Report we were not brave enough to predict that returns
in 2007 would be as good as the very strong out-turn of 2006, although we
anticipated that they would be satisfactory. We were too cautious! In 2008
there is perhaps even more scepticism surrounding markets and the year has got
off to a rocky start. We are again going to express cautious optimism and
believe that with a shortage of earnings growth in world stockmarkets the
mining sector should at the very least continue its outperformance.
Graham Birch & Evy Hambro
BlackRock Investment Management (UK) Limited
14 February 2008
Ten Largest Investments- 31 December 2007
Set out below is a brief description by the Investment Manager of the Company's
ten largest investments
Vale - 14.7% (2006: 10.7%) formerly known as CVRD, is the world's largest
producer of iron ore. Based in Brazil, the company also has significant
interests in other commodities such as nickel, aluminium, copper, gold and
coal. The company made a "transformational" acquisition in 2006 by purchasing
Inco for cash. This considerably broadens Vale's asset mix and makes it a
formidable competitor in the global mining industry. In addition to its mining
interests, Vale owns and operates transport infrastructure.
Rio Tinto - 12.2% (2006: 10.0%) is one of the most successful major mining
companies and arguably sets the standard to which the industry aspires. The
company has interests over a broad range of metals and minerals including iron
ore, aluminium, copper, coal, industrial minerals and gold. In October 2007,
Rio Tinto acquired Alcan making it the world's largest bauxite and aluminium
producer. In November 2007, BHP Billiton approached the company with regard to
a potential merger to create an industry behemoth that would dominate the
mining sector. At the time of writing Rio Tinto has rejected BHP Billiton's
3.4-for-1 hostile bid.
BHP Billiton - 6.1% (2006: 5.3%) is the world's largest diversified natural
resource company, formed in 2001 from the merger of BHP and Billiton. The
company is an important global player in a number of commodities including
aluminium, iron ore, copper, coal, manganese and diamonds. In addition, the
company is the only sizeable holding in the portfolio with significant oil and
gas assets. Following the company's rejected merger proposal to Rio Tinto, 2008
will see BHP Billiton either raising their offer or backing down.
Alcoa - 4.4% (2006: 3.9%) is a Dow Jones Industrial Average constituent; it is
the world's second largest alumina producer and a leader in aluminium
production. In downstream activities, Alcoa serves the aerospace, automotive,
packaging, building and construction, commercial transportation, and industrial
markets. In 2007, the company bought back 8% of its shares.
Impala Platinum - 4.1% (2006: 4.5%) is the world's second largest producer of
platinum group metals, with mining and refining operations in South Africa. The
company also owns a number of substantial assets in Zimbabwe and is a major
shareholder in Aquarius Platinum. The company restructured in 2006, converting
South Africa's Bafokeng tribe's royalty into an equity stake.
Zinifex - 3.5% (2006: 6.9%) is one of the world's largest integrated zinc and
lead producers. The company was formed from the ashes of Pasminco, which
declared bankruptcy in 2001. Zinifex owns and operates mines in Australia,
including the world-class Century mine. In 2007, the company merged its zinc
smelting assets with Umicore's to create an industry leader called Nyrstar.
This subsequently listed in Belgium in October 2007. Most recently, the company
has announced a bid for Allegiance Mining, an Australian nickel junior.
Minas Buenaventura - 3.5% (2006: 2.4%) is South America's premier precious
metals company. Its main asset is a stake in the Yanacocha gold mine in Peru,
which it jointly owns with Newmont. Buenaventura also has interests in a number
of other mines and exploration projects throughout Peru.
First Quantum Minerals - 3.4% (2006: 3.6%) is a fast growing integrated copper
producer, focused on the copper-cobalt belt in the DRC and Zambia. The company
has benefited from high copper prices, an aggressive growth strategy and a
strong control of costs, in addition to being small enough to manoeuvre through
the highly sensitive political environs in which it operates. In 2006 the
company bought Adastra Minerals which owned the large Kolwezi tailings project
in the Katanga region of the DRC. In December 2007, the company announced that
it had built a 17.3% stake in another of the Company's holdings, Equinox
Minerals, who are developing the Lumwana copper deposit in Zambia.
Anglo American Corporation - 3.1% (2006: 3.4%) is one of the world's leading
diversified resources groups. Over several years the company has successfully
implemented a sequence of transactions which have improved business focus and
reinforced shareholder returns. Anglo is best known for its South African
mining operations, especially platinum and diamonds but the company has also
been growing base metals and mining interests internationally.
Teck Cominco - 2.8% (2006: 4.5%) is a Canadian diversified miner and a leader
in the production of metallurgical coal through its 41% stake in Elk Valley
Coal, the world's premier metallurgical coal operation. Teck owns Red Dog, the
largest zinc mine in the world, as well as one of the world's largest zinc-lead
refining and smelting facilities. The company is also a significant producer of
copper and gold and in 2005 it made its first investment in the oil sands
industry. In August 2007, the company acquired Aur Resources, a copper producer
with operations in North and South America.
Investments
31 December 2007
Main Market
geographic value %of
exposure �'000 investments
Diversified
Vale Latin America 186,567 14.7
Rio Tinto Global 155,413 12.2
BHP Billiton Global 77,300 6.1
Anglo American Global 39,313 3.1
Teck Cominco Canada 36,068 2.8
Vedanta Resources India 34,782 2.7
Sterlite Industries India 26,143 2.1
African Rainbow Minerals South Africa 15,083 1.2
Oxiana Australia 14,583 1.1
Eurasian National Resources Kazakhstan 12,005 0.9
Pan Australian Resources Laos 9,294 0.7
Metorex South Africa 4,395 0.4
Xstrata Mar 08 Put Option Global (620) 0.0
------- ----
610,326 48.0
------- ----
Copper
First Quantum Minerals Zambia 43,266 3.4
Antofagasta Latin America 18,636 1.5
Equinox Minerals Zambia 17,164 1.3
Cerro Verde Latin America 16,783 1.3
Kazakhmys Kazakhstan 13,710 1.1
Freeport McMoran Copper & Gold Indonesia 13,301 1.0
Nikanor Congo 2,504 0.2
------- ---
125,364 9.8
------- ---
Platinum
Impala Platinum South Africa 52,317 4.1
Lonmin South Africa 21,651 1.7
Aquarius Platinum South Africa 15,525 1.2
Ridge Mining South Africa 5,550 0.4
Anglo Platinum South Africa 3,638 0.3
------ ---
98,681 7.7
------ ---
Aluminium
Alcoa USA 55,742 4.4
Alumina Australia 22,999 1.8
Norsk Hydro Norway 1,074 0.1
------ ---
79,815 6.3
------ ---
Gold
Minas Buenaventura "B" shares Latin America 43,923 3.5
Gold Fields South Africa 23,954 1.9
Harmony Gold Mining South Africa 5,467 0.4
Minera Latin America 1,138 0.1
SkyGold Ventures Canada 125 0.0
AngloGold Ashanti South Africa 12 0.0
------ ---
74,619 5.9
------ ---
Zinc
Zinifex Australia 43,952 3.5
Nyrstar Belgium 12,648 1.0
Herald Resources Australia 10,011 0.7
------ ---
66,611 5.2
------ ---
Silver & Diamonds
Industrias Penoles Latin America 30,173 2.4
Gem Diamonds Lesotho 17,647 1.4
Harry Winston Diamond Corp. Canada 16,517 1.3
------ ---
64,337 5.1
------ ---
Coal
Riversdale Mining South Africa 18,248 1.4
Peabody Energy USA 14,817 1.2
Aquila Resources Australia 2,989 0.2
Griffin Mining Australia 2,655 0.2
Indo Tambangraya Megah Indonesia 1,245 0.1
Coal of Africa South Africa 681 0.1
Fording Canadian Coal Trust Jan 08
Put Option Canada (10) 0.0
------ ---
40,625 3.2
------ ---
Other
Eramet France 25,685 2.0
Potash Corp. Canada 14,567 1.1
Minsur Latin America 13,200 1.0
Mosaic USA 9,452 0.7
Iluka Resources Australia 9,253 0.7
UEX Canada 8,668 0.7
Uranium Participation Canada 8,551 0.7
Mondi South Africa 8,500 0.7
Agrium USA 7,243 0.6
Kumba Iron Ore South Africa 2,095 0.2
Noventa South Africa 1,997 0.2
GobiMin Canada 1,879 0.1
Ivanhoe Nickel & Platinum Warrants Canada 754 0.1
------- ---
111,844 8.8
------- ---
Portfolio 1,272,222 100.0
========= =====
All investments are in ordinary shares unless otherwise stated. The negative
valuations in respect of the put options represents the notional cost of
repurchasing them at market prices at 31 December 2007.
The number of investments held at 31 December 2007 was 58 (31 December 2006:
62). The number of open options held at 31 December 2007 was 5 (31 December
2006: 2). See 'Derivatives Activity' within the Investment Manager's Report,
for details.
For further information, please contact:
Jonathan Ruck Keene, Managing Director, Investment Companies,
BlackRock Investment Management (UK) Limited
Tel: 020 7743 2178
Graham Birch, Fund Manager,
BlackRock Investment Management (UK) Limited
Tel: 020 7743 2690
Nigel Webb, Public Relations,
BlackRock Investment Management (UK) Limited
Tel: 020 7743 5938
William Clutterbuck, The Maitland Consultancy
Tel: 020 7379 5151
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2007
Revenue Revenue
return return
2007 2006
Notes �'000 �'000
Income from investments held at fair value
through profit or loss 3 26,123 22,872
Other income 3 8,668 7,593
------- -------
Total revenue 34,791 30,465
------- -------
Gains on investments held at fair value
through profit or loss - -
Realised gains on foreign exchange - -
------- -------
34,791 30,465
------- -------
Expenses
Management fees 4 (14,864) (10,186)
Other expenses 5 (1,274) (998)
------- -------
Profit before finance costs and taxation 18,653 19,281
------- -------
Finance costs 6 (1,547) (564)
------- -------
Profit before taxation 17,106 18,717
------- -------
Taxation 7 (3,715) (3,935)
------- -------
Profit for the year 13,391 14,782
======= =======
Earnings per ordinary share - basic 9 8.25p 8.78p
======= =======
Earnings per ordinary share - diluted 9 8.01p 8.78p
======= =======
The "Total" column of this statement represents the Group's Income Statement,
prepared in accordance with International Financial Reporting Standards
("IFRS"). The supplementary revenue and capital return columns are both
prepared under guidance published by the Association of Investment Companies
("AIC"). All items in the above statement derive from continuing operations. No
operations were acquired or discontinued during the year. All income is
attributable to the equity holders of Merrill Lynch World Mining Trust plc.
There are no minority interests.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2007 continued
Capital Capital
return return
2007 2006
Notes �'000 �'000
Income from investments held at fair value
through profit or loss 3 - -
Other income 3 - -
------- -------
Total revenue - -
------- -------
Gains on investments held at fair value
through profit or loss 457,306 189,814
Realised gains on foreign exchange 361 697
------- -------
457,667 190,511
------- -------
Expenses
Management fees 4 - -
Other expenses 5 - -
------- -------
Profit before finance costs taxation 457,667 190,511
------- -------
Finance costs 6 - -
------- -------
Profit before taxation 457,667 190,511
------- -------
Taxation 7 - -
------- -------
Profit for the year 457,667 190,511
======= =======
Earnings per ordinary share - basic 9 281.94p 113.20p
======= =======
Earnings per ordinary share - diluted 9 273.64p 113.20p
======= =======
The "Total" column of this statement represents the Group's Income Statement,
prepared in accordance with International Financial Reporting Standards
("IFRS"). The supplementary revenue and capital return columns are both
prepared under guidance published by the Association of Investment Companies
("AIC") All items in the above statement derive from continuing operations. No
operations were acquired or discontinued during the year. All income is
attributable to the equity holders of Merrill Lynch World Mining Trust plc.
There are no minority interests.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2007 continued
Total Total
2007 2006
Notes �'000 �'000
Income from investments held at fair value
through profit or loss 3 26,123 22,872
Other income 3 8,668 7,593
------- -------
Total revenue 34,791 30,465
------- -------
Gains on investments held at fair value
through profit or loss 457,306 189,814
Realised gains on foreign exchange 361 697
------- -------
492,458 220,976
------- -------
Expenses
Management fees 4 (14,864) (10,186)
Other expenses 5 (1,274) (998)
------- -------
Profit before finance costs taxation 476,320 209,792
------- -------
Finance costs 6 (1,547) (564)
------- -------
Profit before taxation 474,773 209,228
------- -------
Taxation 7 (3,715) (3,935)
------- -------
Profit for the year 471,058 205,293
======= =======
Earnings per ordinary share - basic 9 290.19p 121.98p
======= =======
Earnings per ordinary share - diluted 9 281.65p 121.98p
======= =======
The "Total" column of this statement represents the Group's Income Statement,
prepared in accordance with International Financial Reporting Standards
("IFRS"). The supplementary revenue and capital return columns are both
prepared under guidance published by the Association of Investment Companies
("AIC"). All items in the above statement derive from continuing operations. No
operations were acquired or discontinued during the year. All income is
attributable to the equity holders of Merrill Lynch World Mining Trust plc.
There are no minority interests.
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 December 2007
Ordinary Share Capital Capital Capital
share premium Special redemption reserve - reserve - Revenue
capital account reserve reserve realised unrealised reserve Total
GROUP: �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
For year ended
31 December 2006
At 31 December 2005 8,415 11,767 203,244 22,779 60,267 349,670 12,060 668,202
Profit for the year
after taxation - - - - 85,148 105,363 14,782 205,293
Dividend paid and
declared (a) # - - - - - - (3,029) (3,029)
Special dividend
paid (a) # - - - - - - (1,683) (1,683)
Warrant issue costs - - - - (238) - - (238)
----- ------ ------- ------ ------- ------- ------ -------
At 31 December 2006 8,415 11,767 203,244 22,779 145,177 455,033 22,130 868,545
----- ------ ------- ------ ------- ------- ------ -------
For year ended
31 December 2007
At 31 December 2006 8,415 11,767 203,244 22,779 145,177 455,033 22,130 868,545
Profit for the year
after taxation - - - - 139,943 317,724 13,391 471,058
Exercise of warrants 192 16,685 - - - - - 16,877
Shares purchased
during the year * - - (80,787) - - - - (80,787)
Dividend paid and
declared (b) # - - - - - - (4,207) (4,207)
Special dividend
paid (b) # - - - - - - (3,366) (3,366)
----- ------ ------- ------ ------- ------- ------ ---------
At 31 December 2007 8,607 28,452 122,457 22,779 285,120 772,757 27,948 1,268,120
----- ------ ------- ------ ------- ------- ------ ---------
COMPANY:
For year ended
31 December 2006
At 31 December 2005 8,415 11,767 203,244 22,779 60,267 354,501 7,229 668,202
Profit for the year
after taxation - - - - 85,148 110,116 10,029 205,293
Dividend paid and
declared (a) # - - - - - - (3,029) (3,029)
Special dividend
paid (a) # - - - - - - (1,683) (1,683)
Warrant issue costs - - - - (238) - - (238)
----- ------ ------- ------ ------- ------- ------ -------
At 31 December 2006 8,415 11,767 203,244 22,779 145,177 464,617 12,546 868,545
----- ------ ------- ------ ------- ------- ------ -------
For year ended
31 December 2007
At 31 December 2006 8,415 11,767 203,244 22,779 145,177 464,617 12,546 868,545
Profit for the year
after taxation - - - - 139,943 320,855 10,260 471,058
Exercise of warrants 192 16,685 - - - - - 16,877
Shares purchased
during the year * - - (80,787) - - - - (80,787)
Dividend paid and
declared (b) # - - - - - - (4,207) (4,207)
Special dividend
paid (b) # - - - - - - (3,366) (3,366)
----- ------ ------- ------ ------- ------- ------ ---------
At 31 December 2007 8,607 28,452 122,457 22,779 285,120 785,472 15,233 1,268,120
----- ------ ------- ------ ------- ------- ------ ---------
(a) The final and special dividends for the year ended 31 December 2005,
declared on 9 February 2006 and paid on 24 March 2006.
(b) The final and special dividends for the year ended 31 December 2006,
declared on 14 February 2007 and paid on 29 March 2007.
* Held in treasury.
# See note 8.
GROUP BALANCE SHEET
as at 31 December 2007
2007 2006
Notes �'000 �'000
Non current assets
Investments held at fair value through
profit or loss 1,266,714 867,959
--------- -------
Current assets
Investments 5,508 13,607
Other receivables 1,772 1,558
--------- -------
7,280 15,165
--------- -------
Total assets 1,273,994 883,124
--------- -------
Current liabilities
Other payables (5,235) (6,282)
Bank overdrafts (543) (8,156)
--------- -------
(5,778) (14,438)
--------- -------
Total assets less current liabilities 1,268,216 868,686
Non current liabilities
Deferred tax (96) (141)
--------- -------
Net assets 1,268,120 868,545
========= =======
Equity attributable to equity holders
Ordinary share capital 10 8,607 8,415
Share premium account 28,452 11,767
Special reserve 122,457 203,244
Capital redemption reserve 22,779 22,779
Retained earnings:
Capital reserve - realised 285,120 145,177
Capital reserve - unrealised 772,757 455,033
Revenue reserve 27,948 22,130
--------- -------
Total equity 1,268,120 868,545
========= =======
Net asset value per ordinary share -
undiluted 11 804.13p 516.07p
======== =======
Net asset value per ordinary share -
diluted 11 752.28p 503.23p
======== =======
COMPANY BALANCE SHEET
as at 31 December 2007
2007 2006
Notes �'000 �'000
Non current assets
Investments held at fair value through
profit or loss 1,280,929 879,043
--------- -------
Current assets
Investments - -
Other receivables 1,952 1,651
--------- -------
1,952 1,651
--------- -------
Total assets 1,282,881 880,694
--------- -------
Current liabilities
Other payables (4,930) (3,754)
Bank overdrafts (9,735) (8,254)
--------- -------
(14,665) (12,008)
--------- -------
Total assets less current liabilities 1,268,216 868,686
Non current liabilities
Deferred tax (96) (141)
--------- -------
Net assets 1,268,120 868,545
========= =======
Equity attributable to equity holders
Ordinary share capital 10 8,607 8,415
Share premium account 28,452 11,767
Special reserve 122,457 203,244
Capital redemption reserve 22,779 22,779
Retained earnings:
Capital reserve - realised 285,120 145,177
Capital reserve - unrealised 785,472 464,617
Revenue reserve 15,233 12,546
--------- -------
Total equity 1,268,120 868,545
========= =======
Net asset value per ordinary share -
undiluted 11 804.13p 516.07p
======== =======
Net asset value per ordinary share -
diluted 11 752.28p 503.23p
======== =======
GROUP CASH FLOW STATEMENT
for the year ended 31 December 2007
2007 2006
�'000 �'000
Operating activities
Profit before taxation 474,773 209,228
Add back interest paid 1,547 564
Gains on investments held at fair value through
profit or loss (457,306) (189,814)
Net gains on foreign exchange (361) (697)
Net sales/(purchases) of current asset
investments by subsidiaries 12,327 (4,902)
Sales of investments held at fair value through
profit or loss 262,398 158,210
Purchases of investments held at fair value
through profit or loss (203,847) (166,858)
Increase in other receivables (596) (351)
Decrease/(increase) in amounts due from brokers 307 (215)
Increase in other payables 1,317 555
Decrease in amounts due to brokers - (1,163)
Dealing profits (4,228) (6,587)
-------- --------
Net cash inflow/(outflow) from operating
activities before interest and taxation 86,331 (2,030)
-------- --------
Interest paid (1,547) (564)
Tax paid (4,830) (175)
Tax on overseas income (1,219) (1,164)
-------- --------
Net cash inflow/(outflow) from operating
activities 78,735 (3,933)
-------- --------
Financing activities
Purchase of ordinary shares (80,787) -
Exercise of warrants 16,877 -
Warrant issue costs - (238)
Dividends paid (7,573) (4,712)
-------- --------
Net cash outflow from financing activities (71,483) (4,950)
-------- --------
Increase/(decrease) in cash and cash equivalents 7,252 (8,883)
Cash and cash equivalents at start of the year (8,156) 30
Effect of foreign exchange rate changes 361 697
-------- --------
Cash and cash equivalents at end of the year (543) (8,156)
===== ======
Comprised of:
Bank overdrafts (543) (8,156)
------ -------
Total (543) (8,156)
====== =======
COMPANY CASH FLOW STATEMENT
for the year ended 31 December 2007
2007 2006
�'000 �'000
Operating activities
Profit before taxation 473,433 207,134
Add back interest paid 1,444 427
Gains on investments held at fair value through
profit or loss (460,437) (194,567)
Net gains on foreign exchange (361) (697)
Net sales/(purchases) of current asset
investments by subsidiaries - -
Sales of investments held at fair value through
profit or loss 262,398 158,210
Purchases of investments held at fair value
through profit or loss (203,847) (166,858)
Increase in other receivables (683) (253)
Decrease/(increase) in amounts due from brokers 307 (215)
Increase in other payables 1,317 555
Decrease in amounts due to brokers - (1,163)
Dealing profits - -
------- ------
Net cash inflow/(outflow) from operating 73,571 2,573
activities before interest and taxation
------- ------
Interest paid (1,444) (427)
Tax paid (1,267) (93)
Tax on overseas income (1,219) (1,161)
------- ------
Net cash inflow/(outflow) from operating
activities 69,641 892
------- ------
Financing activities
Purchase of ordinary shares (80,787) -
Exercise of warrants 16,877 -
Warrant issue costs - (238)
Dividends paid (7,573) (4,712)
------- ------
Net cash outflow from financing activities (71,483) (4,950)
------- ------
Increase/(decrease) in cash and cash equivalents (1,842) (4,058)
Cash and cash equivalents at start of the year (8,254) (4,893)
Effect of foreign exchange rate changes 361 697
------- ------
Cash and cash equivalents at end of the year (9,735) (8,254)
======= ======
Comprised of:
Bank overdrafts (9,735) (8,254)
------- ------
Total (9,735) (8,254)
======= ======
NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2007
1. Principal activity
The principal activity of the Company is that of an investment trust
company within the meaning of section 842 of the Income and Corporation
Taxes Act 1988 ("ICTA").
The principal activity of the subsidiary undertaking, World Mining
Investment Company Limited, is investment dealing. The other subsidiary,
Merrill Lynch Gold Limited, is no longer trading.
2. Accounting policies
The principal accounting policies adopted by the Group and the Company
are set out below.
(a) Basis of preparation
The Group and Parent Company financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as
adopted by the European Union and as applied in accordance with the
provisions of the Companies Act 1985. The Company has taken advantage of
the exemption provided under section 230 of the Companies Act 1985 not to
publish its individual income statement and related notes.
The Group's financial statements are presented in sterling, which is the
currency of the primary economic environment in which the Group operates.
All values are rounded to the nearest thousand pounds (�'000) except
where otherwise indicated.
Insofar as the Statement of Recommended Practice ("SORP") for investment
trusts issued by the Association of Investment Companies ("AIC"), revised
in December 2005 is compatible with IFRS, the financial statements have
been prepared in accordance with guidance set out in the SORP.
(b) Basis of consolidation
The Group financial statements consolidate the Company and its wholly
owned trading subsidiary undertaking, World Mining Investment Company
Limited, which are registered and operate in England and Wales.
(c) Presentation of the Consolidated Income Statement
In order to better reflect the activities of an investment trust company
and in accordance with guidance issued by the AIC, supplementary
information which analyses the Consolidated Income Statement between
items of a revenue and a capital nature has been presented alongside the
Consolidated Income Statement. In accordance with the Company's status as
a UK investment company under section 266 of the Companies Act 1985, net
capital returns may not be distributed by way of dividend.
(d) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business.
(e) Income
Dividends receivable on equity shares are treated as revenue for the year
on an ex-dividend basis. Where no ex-dividend date is available dividends
receivable on or before the year end are treated as revenue for the year.
Provision is made for any dividends not expected to be received. Interest
income and expenses are accounted for on an accruals basis. Premia on
written options are recognised as income.
(f) Expenses
All expenses, including finance costs, are accounted for on an accruals
basis. Expenses have been treated as revenue except as follows:
- expenses which are incidental to the acquisition of an investment.
- expenses are treated as capital where a connection with the maintenance
or enhancement of the value of the investments can be demonstrated.
(g) Taxation
Deferred taxation is recognised in respect of all temporary differences
that have originated but not reversed at the balance sheet date, where
transactions or events that result in an obligation to pay more tax in
the future or right to pay less tax in the future have occurred at the
balance sheet date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be
suitable profits from which the future reversal of the temporary
differences can be deducted. Deferred tax assets and liabilities are
measured at the rates applicable to the legal jurisdictions in which they
arise.
(h) Investments held at fair value through profit or loss
All investments are designated upon initial recognition as held at fair
value through profit or loss. Assets are de-recognised at the trade date
of the disposal. Proceeds will be measured at fair value, which will be
regarded as the proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their quoted bid
price at the balance sheet date, without deduction for any estimated
future selling costs. Unquoted investments are valued by the Directors at
fair value using International Private Equity and Venture Capital
Association Guidelines. This includes all non current asset investments
held by the Group.
Where fair value cannot reliably be measured the investment will be
carried at the previous reporting date value unless there is evidence
that the investment has since been impaired, in which case the value will
be reduced.
Consolidated changes in the fair value of investments held at fair value
through profit or loss and gains and losses on disposal are recognised in
the Consolidated Income Statement as "Gains or losses on investments held
at fair value through profit or loss". Also included within this heading
are transaction costs in relation to the purchase or sale of investments.
(i) Other receivables and payables
Other receivables and other payables do not carry any interest and are
short term in nature and are accordingly stated at their nominal value.
(j) Dividends payable
Final dividends are only recognised after they have been approved by
shareholders. Special dividends are recognized when paid to shareholders.
(k) Foreign currency translation
Transactions involving foreign currencies are converted at the rate
ruling at the date of the transaction.
Foreign currency monetary assets and liabilities are translated into
sterling at the rate ruling on the balance sheet date. Foreign exchange
differences arising on translation are recognised in the Consolidated
Income Statement.
(l) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents are
short term, highly liquid investments that are readily convertible to
known amounts of cash and that are subject to an insignificant risk of
changes in value.
(m) Bank borrowings
Bank overdrafts are recorded as the proceeds received, net of direct
issues costs. Finance charges, including any premia payable on settlement
or redemption and direct issue costs, are accounted for on an accruals
basis in the Consolidated Income Statement using the effective interest
rate method and are added to the carrying amount of the instrument to the
extent that they are not settled in the period in which they arise.
3. Income
2007 2006
�'000 �'000
Investment income:
UK listed dividends 4,504 3,338
UK listed special dividends 276 2,252
Overseas listed dividends 20,806 14,674
Overseas listed special dividends 537 2,471
Bond interest - 137
------ ------
26,123 22,872
------ ------
Other operating income:
Deposit interest 298 296
Dealing profits 4,228 6,587
Underwriting commission - 171
Stock lending income 43 -
Option premium income 4,099 539
------ ------
8,668 7,593
------ ------
Total income 34,791 30,465
====== ======
Total income comprises:
Dividends 26,123 22,735
Deposit interest 298 296
Bond interest - 137
Other income 8,370 7,297
------ ------
34,791 30,465
====== ======
Dealing profits are presented after deducting transaction costs incurred on the
purchase and sale of investments.
4. Management fees
2007 2006
�'000 �'000
Investment management fees 14,371 9,887
VAT 493 299
------ ------
14,864 10,186
====== ======
The investment management fee is levied quarterly, based on the value of the
gross assets on the last day of each quarter. All investment management fees
are charged to revenue.
5. Other expenses
2007 2006
�'000 �'000
Custody fee 278 202
Administration fee 676 467
Auditor's remuneration:
- audit services 20 18
- non audit services 5 4
Registrar's fee 87 80
Directors' remuneration 82 85
Other administrative costs 126 142
----- ---
1,274 998
===== ===
The Company's total expense ratio,
calculated as a percentage of average net
assets and using expenses, excluding
interest costs, after relief for taxation
was: 1.1% 1.0%
==== ====
6. Finance costs
2007 2006
�'000 �'000
Interest on bank overdrafts 1,547 564
===== ====
7. Taxation
2007 2006
�'000 �'000
Corporation tax 3,760 3,951
Double taxation relief (1,228) (1,090)
------ -----
2,532 2,861
Overseas tax 1,228 1,095
Prior year adjustment - (52)
------ -----
Total current tax 3,760 3,904
Deferred tax (45) 31
------ -----
Total tax 3,715 3,935
====== =====
The tax assessed for the year is lower than the standard rate of corporation
tax of 30% (2006: 30%). The differences are explained below:
2007 2006
�'000 �'000
Income from operations before taxation 474,773 209,228
Return on ordinary activities multiplied
by standard rate of corporation tax (30%) 142,432 62,768
Effects of:
Non taxable UK dividends (1,409) (1,629)
Withholding tax suffered 1,228 1,095
Double taxation relief (1,228) (1,090)
Gains on investments held at fair value
through profit or loss (137,300) (57,153)
Income taxable in different periods 37 (35)
Prior year adjustment - (52)
------- ------
Current tax charge 3,760 3,904
Deferred tax (45) 31
------- ------
Total tax charge 3,715 3,935
======= ======
Investment trusts are exempt from corporation tax on capital gains provided the
Company obtains agreement from HM Revenue & Customs that section 842 ICTA tests
have been met.
8. Dividends
Under IFRS, final dividends are not recognised until approved by shareholders,
and interim dividends are not recognised until they are paid. They are also
debited directly to reserves. Amounts recognised as distributable to ordinary
shareholders for the year ended 31 December were as follows:
2007 2006
�'000 �'000
Final ordinary dividend in respect of the year ended
31 December 2006 of 2.50p, approved by shareholders
on 22 March 2007 4,207 -
Declared special dividend in respect of the year ended
31 December 2006 of 2.00p, paid on 29 March 2007 3,366 -
Final ordinary dividend in respect of the year ended
31 December 2005 of 1.80p, approved by shareholders
on 17 March 2006 - 3,029
Declared special dividend in respect of the year ended
31 December 2005 of 1.00p, paid on 24 March 2006 - 1,683
----- -----
7,573 4,712
===== =====
The total dividends payable for the year which form the basis of section 842 of
the Income and Corporation Taxes Act 1988 are set out below:
2007 2006
�'000 �'000
Dividends on equity shares:
Proposed final ordinary dividend of 3.00p (2006: 2.50p) 4,731 4,207
Declared special dividend of 2.50p (2006: 2.00p) 3,943 3,366
----- -----
8,674 7,573
----- -----
9. Earnings per ordinary share 2007 2006
Net revenue return attributable to ordinary
shareholders (�'000) 13,391 14,782
Net capital return attributable to ordinary
shareholders (�'000) 457,667 190,511
------- -------
Total earnings attributable to ordinary
shareholders (�'000) 471,058 205,293
------- --------
The weighted average number of ordinary shares in
issue during each year, on which the basic
return per ordinary share was calculated, was: 162,326,817 168,298,906
The weighted average number of ordinary shares in
issue during each year, on which the diluted
return per ordinary share was calculated, was: 167,248,221 168,298,906
Undiluted
Revenue return per share 8.25p 8.78p
Capital return per share 281.94p 113.20p
------- -------
Total earnings per share 290.19p 121.98p
======= =======
Diluted
Revenue return per share 8.01p 8.78p
Capital return per share 273.64p 113.20p
------- -------
Total earnings per share 281.65p 121.98p
======= =======
There was no dilution to returns for the year ended 31 December 2006 as the
average share price was above the warrant exercise price.
10. Share capital
Ordinary Treasury
shares shares
number number Total
(nominal) (nominal) shares �'000
Authorised share capital comprised:
Ordinary shares of 5p each 750,000,000 - 750,000,000 37,500
Allotted, issued and fully paid:
At 1 January 2007 168,298,906 - 168,298,906 8,415
Shares transferred into treasury (14,442,800) 14,442,800 - -
Ordinary shares issued as a
result of warrants exercised 3,844,373 - 3,844,373 192
----------- ---------- ----------- -----
At 31 December 2007 157,700,479 14,442,800 172,143,279 8,607
=========== ========== =========== =====
During the year, 14,442,800 ordinary shares were repurchased at a cost of �
80,787,000. These shares were held in treasury at 31 December 2007.
On 28 February 2007, 3,844,373 warrants were exercised at an exercise price of
439p, for a total consideration of �16,877,000. At the year end there were
29,814,855 warrants outstanding, exerciseable in two tranches at 478p and 565p
per share.
11. Net asset value per ordinary share 2007 2006
Net assets attributable to ordinary shareholders (�'000) 1,268,120 868,545
The actual number of ordinary shares in issue at the
year end, on which the net asset value per ordinary
share was calculated, was: 157,700,479 168,298,906
Number of ordinary shares in issue for diluted net
asset value 187,515,334 201,958,134
Net asset value per ordinary share - undiluted 804.13p 516.07p
Net asset value per ordinary share - diluted 752.28p 503.23p
Share price 655.00p 444.00p
Warrant price 175.00p 48.75p
The diluted net asset value per share at 31 December 2007 of 752.28p is
calculated by adjusting equity shareholders' funds for consideration receivable
on the exercise of 29,814,855 warrants, at an exercise price of 478p, and
dividing by the total number of shares that would have been in issue at
31 December 2007 had all warrants been exercised. As the share price at 31
December 2007 was below the net asset value, the 14,442,800 treasury shares
could not be reissued and were therefore not dilutive.
12. Publication of non statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The annual report and financial statements for the year ended 31 December 2007
will be filed with the Registrar of Companies in due course.
The figures set out above have been reported upon by the Auditor, whose report
for the year ended 31 December 2007 contains no qualification or statement
under section 237(2) or (3) of the Companies Act 1985.
The comparative figures are extracts from the audited financial statements of
Merrill Lynch World Mining Trust plc and its subsidiaries for the year ended 31
December 2006, which have been filed with the Registrar of Companies. The
report of the Auditor on those accounts contained no qualification or statement
under section 237 of the Companies Act.
13. Annual Report
Copies of the annual report will be sent to members by no later than 29
February 2008 and will be available from the registered office, c/o The Company
Secretary, Merrill Lynch World Mining Trust plc, 33 King William Street, London
EC4R 9AS. This report will also be available on BlackRock Investment
Management's website at www.blackrock.com.uk/its.
14. Annual General Meeting
The Annual General Meeting of the Company will be held at 33 King William
Street, London EC4R 9AS on Thursday, 10 April 2008 at 11.30 a.m.
14 February 2008
33 King William Street
London EC4R 9AS
END
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