Baker Steel Resources Trust [LON:BSRT], is one of five funds managed by Baker Steel, a specialist fund manager offering a range of funds in the natural resources, gold and precious metals sectors. The firm was set up in 2001 and has offices in London and Sydney and manages the resources portfolios for institutions, other investment managers and private investors.
The GBP61m fund is part of the Association of Investment Companies’ Commodities and Natural Resources sector and aims to seek capital growth over the long-term through a focused global portfolio consisting principally of the equities, or related instruments, of natural resources companies. Interestingly enough, BSRT has an eye for an unlisted opportunity and will invest in miners that haven’t been through IPO yet.
- Mineral & Financial Investments: flexibility to take advantage of global trends
- Ormonde offers high-potential mining
- Corcel focusing on high-potential O&G assets
Although a fairly new company (compared to some of the investment trusts The Armchair Trader has covered in the past that can trace their lineage back centuries), the investment team is staffed by seasoned veterans and grizzled old pros of the investment management industry, headed by Mark Burridge, CEO and managing partner. Burridge has over 30-years involvement with the metals and mining industry, initially literally at the mine-face as a geologist and geological engineer with Barrick Gold, before swapping an overall for a three-piece suit and joining the Metals and Mining Equity team with Merrill Lynch as an analyst.
Independent boutique approach
After five-years with Merrill, Burridge decided to go-it-alone and helped set up boutique corporate finance firm, Hatch Corporate Finance then taking on a series of executive and advisory roles at mining firms, before joining Baker Steel in 2017. Burridge tag-teams with managing partners David Baker in Sydney who co-founded the investment management firm with chief investment officer Trevor Steel.
Baker was a colleague of Burridge at Merrill, where he managed the Mercury Gold Metal Open Fund and had been a gold and mining analyst at James Capel Stockbrokers in London after working in a similar position at Capel Court Powell in Australia. He too came to the investment management sector from working in mining as a metallurgist in Broken Hill, Australia. Steel was also an alumni of Merrill’s natural resources team, where he worked closely with Baker and today, he oversees the investment philosophy of the Baker Steel group.
Long-term investment horizon
The investment manager has three key strategies: precious metals equities, which focuses on holding shares over the long-term in mid-cap and large-cap gold and precious metals mining stocks, preferring exposure to mining companies over physical commodities; speciality metals equities, which again is long-term strategy that seeks out mining companies involved with metals and minerals that are key to the transition from hydrocarbons to sustainable energy, such as lithium, nickel, cobalt and graphite, and; the strategy that BSRT follows, pre-IPO and development stage mining equities strategy.
The pre-IPO and development stage mining equities strategy is another long-term hold, but enters the game at a very early stage, taking equity holdings in exploration and pre-production miners before they list on public markets. The BSRT strategy narrows down on unlisted miners – though on occasion the team also will take stakes in listed companies that they think are undervalued by the market – in the hope that their early call will unlock “deep value” for investors.
The fund aims to make money after participating in initial round to late-stage financing and betting on an uplift at IPO or a rerating, “riding the development curve” as the explorer progresses the project from initial resource discovery, through exploration, feasibility, development to production. Given the Baker Steel Resources Trust team’s specific mining expertise, as the project gets into development and nears production it will work alongside the explorer bringing technical and industry experience to bear to unlock hidden value.
Undoubtedly, it’s been a tough time for the mining industry (when hasn’t it been?), with many juniors frozen out of the markets post-Covid as the global economy slumped – despite the demand for battery minerals and gold seemingly starting to build up a head of steam. That’s why Baker Steel’s patient capital and expertise has been so valuable.
Top performance over a year, longer term more hit-and-miss
The BSRT was the best-performing fund (on a share price total return basis to 29th November) in the Commodities and Natural Resources sector with a +70.6% return over the last twelve-months, some sixty-six percentage points ahead of the sector average.
However, over the longer term it seems that BSRT has been following too many narrow veins and coming up with blind orebodies, as it had a truly shocking +3.1% return over five-years, comparing very unfavourably with the sector average of +98.1% return. Over ten-years, BSRT weighed in with a slightly more respectable +74.4% return, but was still behind the sector average of 84%, leaving it in fifth place out of seven funds.
However, one can see that different strategies, chasing different minerals at different stages in development have yielded very different results with a near 200 percentage point (194 percentage points) differential between the top-performing and bottom-performing funds in sector over ten-years.
BSRT’s long-term approach might have started to pay out now. Steel explained: “There are many reasons why mining equities will continue to attract investors’ attention, especially over the longer term. From a portfolio management perspective, miners have a relatively low correlation to US equity markets, with precious metals having the lowest correlation, offering valuable diversification.”
He continued: “Importantly, mining equities can be considered thematic investments, offering one of the purest plays to build exposure to the growth of green technology and the clean energy transition. Fundamentally however, mining is a rare equity sector which offers value, yield and growth. The sector appears undervalued on a relative and historical basis, yet margins are largely robust, and dividend yields strong relative to broader equity markets.”
Baker Steel Resources Trust top five holdings:
| Investment | Commodity & location | Weighting |
| Cemos Group (unquoted) | Cement – Morocco | 30.6% |
| Futura Resources (unquoted) | Coal – Australia | 12.7% |
| Bilboes* (unquoted) | Gold – Zimbabwe | 7.9% |
| Caledonia Mining [LON:CMCL] | Gold – Zimbabwe | 4.1% |
| Nussir** (unquoted) | Copper – Norway | 3.6% |
Source: Morningstar 30th June 2024
* Subsequently acquired by Caledonian Mining.
** Sold to Blue Moon Metals 29/11/2024
Although over the longer-term Baker Steel Resources Trust has flattered to deceive, in the last year it has been ahead of the sector by a length, and this might be the signal for sustained outperformance. The fund through its appetite to invest in early-stage, unlisted mining stocks offers a unique investment proposition for those seeking exposure to the mining sector.
By focusing on early-stage companies and leveraging the team’s deep industry expertise, the fund aims to capitalise on significant growth opportunities. While the strategy involves inherent risks, the potential rewards could be substantial for patient investors. As the global demand for critical minerals continues to rise, Baker Steel Resources Trust’s focus on pre-IPO mining companies positions it well to navigate the evolving landscape of the natural resources industry.
