BlackRock World Mining Trust (LSE: BRWM) is falling today after the company reported that it had taken a hefty writedown on its investment in struggling micro-cap miner, London Mining.
The trust had been one of London Mining’s most prominent investors, capturing headlines when management signed a royalty contract with the miner in return for financing several years ago. In total, the value of the royalty contract and convertible bond BlackRock had in place with London Mining was valued at £47.8m and £4.6m respectively. The value of these investments, along with the trust’s shareholding in London Mining has now been written down to zero.
Time to buy?
Unfortunately, the writedowns caused by the failure of London Mining have hit the trust’s net asset value hard. Indeed, at close of business on 6th October the trust’s net asset value per share was reported as being 423p. However, at the close of business on 7th October the trust’s net asset value had fallen to 390p per share on a capital only basis – a fall of 8%.
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Nevertheless, as the saying goes, ‘the time to buy is when there’s blood on the streets’ and now could be the time to buy BlackRock World Mining Trust shares.
You see, as a percentage of overall assets, London Mining represented a fraction of the trust’s total pool of investments. For example, the trust’s three largest holdings, accounting for 35.8% of assets are Glencore, Rio Tinto and BHP Billiton, stalwarts of the mining industry, which are unlikely to go out of business any time soon.
What’s more, after today’s declines the trust is trading at a discount to its net asset value.
Out performance
The London Mining debacle is a black mark on the records of the trust’s management team but the team’s historic performance more than makes up for recent mistakes.
Specifically, the trust has outperformed its benchmark, the Euromoney Global Mining Index, by a staggering 20% over the past five years, that’s excluding dividends. If you were to include dividends, the trust’s returns would be much higher as it currently supports a dividend yield of 5.5%. As of yet it’s unclear what effect the London Mining writedown will have on the trust’s dividend payout.
Still, if you’re looking for a play on the beaten down mining sector, BlackRock World Mining Trust appears to be your best bet.
While the trust may have hit a speed bump this week, its core holdings are some of the world’s largest miners, which have all proven over the past decade that they can out perform their smaller peers. Moreover, the trust’s management is highly experienced, their track record is almost second to none. That 5.5% dividend yield is also extremely attractive.
