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Hambro strikes deal with London Mining to boost BlackRock income

The £70 million deal will see the BlackRock World Mining trust  receive a share of the income from London Mining’s iron ore sales.


According to Roger Bell, Fraser Jamieson and Ben Defay, part of the European metals, mining and steel team at JP Morgan Cazenove, a 10% increase in iron ore prices would trigger a 13% rise in the royalty paid to Hambro. It would not be too far-fetched to assume that Hambro, chief investment officer of BlackRock’s natural resources team, will eventually reap these additional gains.

Even though consensus anticipates a 6% drop in the spot price this year, largely due to slippage in demand and high cost Chinese production, sentiment should improve over the next five years as global demand recovers, particularly if the eurozone crisis improves.

Hambro is also positive on the commodity’s outlook, with iron ore representing 7.8% of his portfolio, and while the deal will lift its gearing, currently 8.6%, the trust’s board has a 15% cap in force.

Numis’s investment company team certainly feel there is scope for the trust’s discount to narrow on the agreement, and as mining stocks return to favour. ‘We believe the decision to place greater emphasis on dividend yield should help to broaden interest among private wealth managers,’ the team, which is led by Charles Cade, advised.

Over three years the trust has returned 35% in share price terms, compared with an 11.8% rise in its benchmark.

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