Transcript
Speaker: Hello and welcome to Uncovering Trusts, a podcast by Edison Group. I'm your host, Liam O'Byrne, and today I'm joined by Milos Patz, Director of Investment Company Content at at Edison, to talk about Baker Steel Resources Trust, ticker BSRT. Milos, thanks for joining us today.
Speaker: Thanks Liam, good to be here. ah Well, it has been a very active year for BSRT with strong NAV growth, several portfolio companies moving closer to production and a new capital allocation policy that has started to change the shareholder return story. Great. Starting with a brief introduction then, what does BSRT invest in and and what makes it different from a conventional mining equity fund?
Speaker: So, Bakersfield Resources Trust is a closed-end investment company aiming for long-term capital growth through a concentrated portfolio of natural resources investments. It can invest in listed and unlisted equity, convertible loans, royalties, and related instruments. um That flexibility is important because Bakersfield's approach is focused on development stage assets where value can be created as projects are financed, permitted, built, and moved into production.
Speaker: um The manager typically invests from around the bank bankable feasibility stage onwards and often structures investment using convertibles or royalties as well as equity.
Speaker: um More recently, it has seen good opportunities at the pre-APO stage as well. Bank ST also commonly takes board representation. So the trust is not ah not simply a you know portfolio of quoted mining shares as a meaningful part of the return can come from project development and de-risking while ah royalties can create cash flows once assets enter production.
Speaker: And is it fair to say that the backdrop for this strategy has improved over the last couple of years? Yes, capital markets for junior mining and development companies reopened after a difficult period.
Speaker: At the same time, strong prices for several commodities are growing and and growing government interest in critical mineral supply chains have supported financing and valuations across parts of the portfolio.
Speaker: That combination has been particularly important for holdings such as Tanks and West and Blue Moon Metals. And how has that translated into performance? Well, our July research notes showed a 15.4% NAV total return and in the first half of 2026, ahead of the roughly 10% return from the MSCI World Metals and Mining Index, and around 5% from the S&P TSX Global Mining Index in sterling terms.
Speaker: Tengsten West and Blue Moon were the main positive drivers, partly offset by valuation reductions at Futura Resources and Semos. Now, the latest company update adds another significant move. At the end of August, NAV per share was and total NAV was around £190.7, up 17.3% during August, following a 2.6% in July.
Speaker: up seventeen point three percent during august following a two point six percent declinely ah The company attributed most of that increase to Tungsten West following the announcement of financing from the UK National Wealth Fund, ah together with a recovery in other listed holdings as commodity prices strengthened. So while monthly volatility remains high, the portfolio has continued to make material progress since our July note. I understand the board has also changed how it returns capital to shareholders. Could you maybe talk to us about the new policy?
Speaker: Sure. So the board introduced a capital allocation policy in April, targeting a 5% return of capital each year. um The core element is a 3% annual dividend based on NAV, paid semi-annually, with the balance of the 5% target available for buybacks or additional dividends.
Speaker: The first interim dividend is intended to be declared this month, ah followed by a payment in April 2027 based on the FY26 audited results.
Speaker: ah The board expects the dividend to become progressive as royalty income streams mature. um There is also a framework for significant realizations. BSRT committed to allocate at least 50% of profits from significant asset realizations to return of capital, either through a tender offer if its discount to an EV exceeds 25% and subject to sufficient cash level, or through enhanced share buybacks or dividends.
Speaker: Importantly, the policy remains subject to board discretion, including portfolio liquidity and follow-on funding requirements. um On buybacks, the program began in February, and so by the end of august but by the end of August, the trust has repurchased more than 1.2 million shares at a volume-weighted average price of 160.4 pence.
Speaker: ah There were no repurchases in August itself. Because the buybacks were completed below the prevailing NAV, they have been NAV accretive. Great. Now, let's turn to the portfolio then. What are the largest positions currently? The end-August NAV statement shows Tungsten West as the largest holding 28% Samuels is next at followed by Futura Resources at ah bloom on metals at twelve percent and the billbo's royalty at seven point four percent
Speaker: um And then there are also a few further holdings, including Silverax with 6.5%, Metals Exploration 3.8%, Thurston at 3.4%, Caledonia Mining and Kanga Potage at with some net cash equivalents and accruals of at So Tungsten West is clearly the key holding. What's changed there? Tungsten West is developing the Hemmerdon Tungsten tin mine in Devon. um The major August development was an agreement on on on terms with the UK National Wealth Fund for a proposed investment of up to £71 million. pounds
Speaker: That comprises 36 million of equity at 36 pence per share, a debt facility of up to 25 million pounds and a non-committed 10 million accordion.
Speaker: According to the trust, this package would provide the remaining funding required to bring Hammerden into production. um I believe that the strategic angle here is also important. um The National Wealth Fund is a UK government-owned institution and has an option to receive 50% of the mines offtake underlying you know the importance of domestic tungsten supply for areas such as defence, energy and aerospace.
Speaker: um And Tangston prices have risen roughly tenfold since the beginning of 2025, according to the Trust's latest update, with Tangston West shares rising 47% in August alone. The manager says the project remains on track for full production by the end of the first quarter of 2027. And how about Semos, the Moroccan cement producer?
Speaker: Semos remains the largest unlisted holding, um and the Trust owns around 30% of the company. Operationally, the main development has been the compact calcination unit at the tar fire plant, which is producing clinker and is expected to reduce raw material costs maturely, although our July note highlighted that some debottleneck was still required to reach nameplate capacity consistently.
Speaker: And Semel's is also building a second SEMM plan, which should roughly double production capacity from the middle of 2027. At the end June valuation review, BSRT reduced the carrying value by 10.4% because listed Moroccan comparators had derated. So it's not because of a deterioration of Semel's operating plan.
Speaker: The manager believes SEMOS could pay a maiden dividend in the second half of 2026, subject to confirmation of a planned project loan, and continues to consider a possible Casablanca listing in 2027 or 2028.
Speaker: Futura had a more difficult first half, I believe. What's the position there now? Futura owns the Fairhill and Wilton coking coal mines in Queensland Bowen Basin. The trust has both an equity stake and 1.5% gross revenue royal royalty.
Speaker: Futura refinanced with a 90 million US dollar Nordic bond, but severe cyclonic weather and flooding hit production in the first half and so the restart of Wilton was pushed back to early 2027.
Speaker: The weaker operating outcome, together with lower public market comparables, led the trust to reduce the carrying value of Futura's equity by 31.2% and the royalty by 24.3% at the half-year review.
Speaker: I think there is still execution risk here. um The trust has said Futura may need additional equity to remain within its bond covenants. On the other hand, it has also reported ah interest from parties looking at consolidation in the region. So there is potential corporate activity as well as operational recovery to watch. Blue Moon Metals is another important listed holding. What's the investment case there? Yes, so as I already mentioned, Blue Moon now represents 12% of NAV and gives the trust exposure to several critical mineral projects. Its Nusir copper project in Norway has completed the feasibility study and moved to a final investment decision with production targeted for the fourth quarter of 2027.
Speaker: In Nevada, ah Blue Moon is also task-tracking the Springer tungsten mine and mill, um again targeting production around the end of 2027. In July, it launched a 67,000-meter drilling program at Springer to support the geological model and development plan.
Speaker: Blue Moon also owns the Apex Germanium Gallium project in Utah and the Blue Moon Polymetallic project in California. The company raised around 156 million Canadian dollars in gross proceeds in May, giving it, well, substantial funding for this project pipeline.
Speaker: I would say that the strategic attraction is its exposure to minerals where North American supply is limited and government support for domestic supply chains could become increasingly relevant. And what should our listeners watch for among the trust's smaller holdings? There are several catalysts. First, the trust owns a 1% net smelter royalty over Caledonia Mining's Bilbo's gold project in Zimbabwe.
Speaker: Caledonia is working on the remaining project financing with the first production targeted for late 2028 and 2029 expected to be the first full year. ah The Trust's 2025 annual report estimated that at gold prices above $4,000 an ounce, the royalty could generate more than $5 million us s dollars a year after withholding tax once the mine is operating.
Speaker: Second, Silver Axis ramping up its Nueva Recuperada operation in Peru. ah The company raised 69 million Canadian dollars through a five-year secured convertible debenture and the trust invested 90 million Canadian dollars in that instrument.
Speaker: Silver Axis targeting around 6 million silver equivalent ounces of annual production by 2029. Third, Firstin published an updated definitive feasibility study for the Taronga project in Australia in August, which assumes average production of 3,200 tons of tin a year over and a half years ah and gives an NPV of million dollars at price,
Speaker: rising to around four hundred million us dollars at the then current price of more than fifty five thousand The next major milestone is the operating license, which first in hopes to receive by E-Rent.
Speaker: And then Metals Exploration is progressing its La India Gold project in Nicaragua towards first production around the end of 2026, while Kanga Potash is working towards a potential sale of its project in the Republic of Congo. Great. And am I right in thinking that the trust has also started making a few shorter duration pre-IPO investments?
Speaker: Yes, that's correct. Baker Steel has allocated ah well relatively small part of the portfolio to opportunities ah where it sees a shorter route to a listing or rewriting.
Speaker: um Chancery royalty was revalued up by 50% at the half year after subsequent financing at a higher price. while McKay Gold & Silver listed on the TSXV in April, and at the end of June, its share price was about 71% above BSRT's entry price in sterling terms.
Speaker: These positions are small, but they show that the manager is again finding new investment opportunities after several years when capital markets for junior miners were much less receptive. To finish then, how would you sum up the investment case and also the main risks involved?
Speaker: I would highlight four points. First, the portfolio is maturing. Tungsten West has agreed a financing package intended to cover its remaining development funding. SEMOS is expanding capacity. Blue Moon has several projects moving towards production. And Bilbo's may ultimately add a meaningful royalty income stream.
Speaker: That creates the potential for more of BSRT's value to come from operating cash flows and realizations rather than simply from further funding rounds and pre-production operational progress.
Speaker: Second, BSRT offers differentiated route into a naturalists need to natural resources because returns are driven not only by commodity prices but also by project development, financing and corporate milestones.
Speaker: The mix of equity, convertibles and royalties can provide different sources of return, while ah convertibles can add some structural downside protection, although they do not remove mining or valuation risk.
Speaker: Third, shareholder returns now have a clearer framework through the 5% capital return targets. the planned dividend and the buyback program. The trust discount has narrowed from 43% in the year of 2025 to 22% at the last closing price. So as you can see the rating has already improved maturely, although discounts can remain volatile as and listed holdings move.
Speaker: And fourth, the risks remain significant. The portfolio is concentrated, some holdings are in higher risk jurisdictions, unlisted valuations are inherently less observable, um commodity markets are volatile, and Futura in particular still faces operating and potential funding pressure.
Speaker: So the investment case is stronger as several projects de-risk, but it remains a specialist, higher risk natural resources vehicle. Brilliant. Milos, thank you. My pleasure, William. You've been listening to Uncovering Trusts, a podcast by Edison Group. For more information on BSRT and other investment companies we cover, please visit www.edisongroup.com.
