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BlackRock's Hambro: backdrop is improving for miners
BlackRock World Mining Trust manager Evy Hambro thinks the clouds that have hung over the commodities sector may be lifting.
BlackRock World Mining Trust manager Evy Hambro thinks that many of the macro risks that overshadowed the commodities sector earlier this year have now lifted.
Hambro, whose fund is a pick of Citywire Selection, said that following elections in China and the US, there was a greater level of clarity for both and despite Europe's continuing woes, there was now a generally more benign backdrop to support the sector.
'China has had its slowdown without a hard landing and the US should now be able to start addressing its fiscal cliff. While Europe's crisis still lurches from one country to the next it is still in a better place than it was earlier this year.'
Hambro reasserted his belief that against a backdrop of US Federal Reserve chairman Ben Bernanke looking to keep interest rates low until at least 2015, and with the latest round of quantitative easing, or money printing, still in its infancy, the macro environment was still favourable for gold, and commodities in general.
However, in his liking for gold he is at odds with Robin Hepworth of Ecclesiastical Investment Management, who has recently sold out of the yellow metal, arguing that QE has peaked.
'Now Obama has been re-elected we should continue to see Bernanke's hand at the tiller. While we are not expecting a QE4, QE3 is still at an early stage and has some way to go which gives us clarity on commodities.'
Looking to add further royalty companies
Hambro bought his first royalties company London Mining in late summer and admitted that he was looking closely at several other opportunities in the royalties space, which he hopes to tie up in the next few months. The strategy to add royalty companies is to steadily boost the income stream for the trust over the next few years at a time when capital returns have been relatively hard to come by.
'We have been looking at royalties firms for a long time and right now the market is our friend as investors need access to capital.'
With London Mining a pure iron ore play, its first quarter in the £1.253 billion trust has been a volatile one, as the iron ore price dropped 40% on slowing China demand although it has since recovered slightly on the back of supply cuts.
Hambro stressed the longevity of the London Mining deal and he expects revenues from it to ramp up in the second half of 2013.
'London Mining is a thirty year asset and we have had just one quarter. There are eighty more to go at least. The company had talked about some production issues and in its last results gave guidance to 2013. Prices on iron ore are currently volatile but [London Mining] has only just started production and in the second half of next year we expect to see the juice.'
Copper tipped to do well
Some 20% of the trust is directly exposed to copper with further exposure accessed through its two largest holdings, diversified miners BHP Billiton and Rio Tinto (both just below 9% of the trust).
Hambro thinks the price of copper will remain range-bound over the coming months and that this will create plenty of cashflow for copper producers.
'We expect to see the price of copper remain between $3.30 and $3.80 and this generates a lot of cashflow for these companies that is not yet being appreciated by investors.
Hambro continues to tilt the portfolio towards income producing stocks and is still expecting to see ever greater dividends from his listed gold miners.
'Our main shift has been the income drive and we paid our first dividend of 7p at the interims. Gold miners have been raising dividends. They were up 70% in 2011 and 30% in 2012.'
Hambro remains underweight platinum miners although he recently took advantage of the industrial unrest in South Africa to add troubled Lonmin to the trust after new issuance.
The trust is currently around 8% geared, with most of this held against London Mining and Hambro continues to be overweight small and mid cap miners where he continues to find opportunities, although he thinks large caps are attractively valued.
Over five years to the end of October the trust's share price total return is -7.86%, compared to a -12.53% loss by the HSBC Global Mining index although the trust is up more than 420% over 10 years.
The trust's share price had widened slightly to a 14.2% discount on 20 November.
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