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The prospects for miners (in a diversified income focused portfolio)

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richfool
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The prospects for miners (in a diversified income focused portfolio)

#339693

Postby richfool » September 11th, 2020, 2:49 pm

I hold BRWM (Blackrock World Mining trust) in my diversified (mainly, but not exclusively income focused) IT portfolio. However, I am not sure how to assess the future prospects of that (mining) sector.

On the one hand I see an ongoing demand for commodities like copper, iron and steel and indeed precious metals (to which BRWM has exposure). However, on the other hand, if we suffer a continuing downturn or recession due to Covid or geo-political events, or for example a China event, that could well significantly dampen the demand for commodities/metals.

From the time scale perspective, I tend to look medium term,i.e. where I can see the light down the tunnel, as opposed to very long term whereby I have to travel a long way down a tunnel before there is any glimmer of light!

I note BRWM also has exposure to gold, though whilst attractive currently, I do and can get that exposure through other investments.

I would welcome views on the prospects for the mining sector, particularly taking into account the above points.

This is the breakdown of the mining sectors held by the trust:

Gold 39.3
Diversified 30.8
Copper 17.1
Industrial Minerals 2.8
Nickel 2.6
Platinum Group Metals 2.5
Iron Ore 1.7
Steel 1.6
Materials 0.4
Silver & Diamonds 0.3
Aluminium 0.1
Zinc 0.1
Current assets 0.7
Total 100.0

Moderator Message:
Moved this topic back here - leaving a link. - Chris

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Re: The prospects for miners (in a diversified income focused portfolio)

#339706

Postby dspp » September 11th, 2020, 3:34 pm

richfool wrote:I hold BRWM (Blackrock World Mining trust) in my diversified (mainly, but not exclusively income focused) IT portfolio. However, I am not sure how to assess the future prospects of that (mining) sector.


richfool,
I have relocated this post for you. I hope others are along to provide answers.
regards,
dspp

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Re: The prospects for miners (in a diversified income focused portfolio)

#339763

Postby 88V8 » September 11th, 2020, 8:21 pm

Increasing urbanisation, the rise of the Chinese middle class, the deplorable rate of population increase in India, all this and more will drive the demand for raw materials.
It's a bumpy sector, but on the whole will imho continue to provide decent returns.

The unknown however, is how much China's Belt & Road will supplant its current materials purchases in the coming years. Most certainly they are working towards a greater self-sufficiency which does not bode well for the sector.

So, one to hold, but not too much.

I hold BERI, BHP, RIO, and a residue of KAZ from the days when they were 'one to watch'. Which they were, just not one to buy ;)

V8

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Re: The prospects for miners (in a diversified income focused portfolio)

#339774

Postby UncleEbenezer » September 11th, 2020, 9:05 pm

Isn't this question just one of those to which the answer is diversification?

I hold a small amount of BRWM: OTTOMH it might be in the ballpark of 1% of my wealth. I'd be very nervous if it were not 1% but 10%.

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Re: The prospects for miners (in a diversified income focused portfolio)

#339789

Postby richfool » September 11th, 2020, 10:19 pm

dspp wrote:
richfool wrote:I hold BRWM (Blackrock World Mining trust) in my diversified (mainly, but not exclusively income focused) IT portfolio. However, I am not sure how to assess the future prospects of that (mining) sector.


richfool,
I have relocated this post for you. I hope others are along to provide answers.
regards,
dspp

dspp, I appreciate the thinking behind moving this to "Mining & Metals", but I would prefer it to be returned to "Investment Strategies".

I deliberately put it into Investments Strategies, rather than Investment Trusts, (which was also relevant), because I was seeking input regarding the relevance and risk of having BRWM as part of an income focused investment trust portfolio, which I included in the title. That included seeking to elicit whether a mining focused IT would be particularly risky or too cyclical for inclusion and what the outlook/prospects might be for that sector. By posting it under Mining & Metals might limit the readers to those more specifically or solely focused on just mining & metals.

As a comparison, to help illustrate my point, I note that topics about investment trusts are often made on the "High Yield Strategies" and "Investment Strategies" boards, rather than on the "Investment Trust" or Property Coy & REIT boards because the topic is about using them as part of an income focused strategy, for similar reasons. E.g. CTY, MRCH, PHP, RGL, etc.

I would appreciate it therefore if you could return the thread to the Investment Strategies board.

Thanks

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Re: The prospects for miners (in a diversified income focused portfolio)

#339793

Postby richfool » September 11th, 2020, 10:32 pm

88V8 wrote:Increasing urbanisation, the rise of the Chinese middle class, the deplorable rate of population increase in India, all this and more will drive the demand for raw materials.
It's a bumpy sector, but on the whole will imho continue to provide decent returns.

The unknown however, is how much China's Belt & Road will supplant its current materials purchases in the coming years. Most certainly they are working towards a greater self-sufficiency which does not bode well for the sector.

So, one to hold, but not too much.

I hold BERI, BHP, RIO, and a residue of KAZ from the days when they were 'one to watch'. Which they were, just not one to buy ;)

V8

Uncle Ebenezer wrote:Isn't this question just one of those to which the answer is diversification?

I hold a small amount of BRWM: OTTOMH it might be in the ballpark of 1% of my wealth. I'd be very nervous if it were not 1% but 10%.


Thank you both for your thoughts.

Yes, I like the idea from the perspective of diversification, (and income), but at the current time I am adopting a strategy of reducing risk, and thus avoiding particularly risky trusts or sectors. Also, I am aware of the cyclical nature of the sector and the prospect of recessions and downturns, so was pondering whether I should offload my (modest) holding. (Though) I do hold a gold miner (a smaller holding still).

Some of my UK and Global IT's hold a miner or two and would thus give me a small amount of exposure that way.

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Re: The prospects for miners (in a diversified income focused portfolio)

#339794

Postby 88V8 » September 11th, 2020, 10:48 pm

Those four I mentioned amount to about 4% of our investments, by value. I added somewhat in March.

As you say, not exactly a serene sector, but then one can find problems pretty well everywhere at present.
Holding through a specialised IT is probably more sensible than trying to follow the fortunes of a few mining majors.

V8

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Re: The prospects for miners (in a diversified income focused portfolio)

#339814

Postby scrumpyjack » September 12th, 2020, 8:48 am

One thing to look at in miners and risk is their cost of production vs the selling value. Er Rio and Bhp both have COP well under half the current iron ore price so they can weather a huge drop in the market price without becoming loss making.

That ratio is very relevant in deciding how risky a miner is

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Re: The prospects for miners (in a diversified income focused portfolio)

#339838

Postby richfool » September 12th, 2020, 10:56 am

88V8 wrote:Those four I mentioned amount to about 4% of our investments, by value. I added somewhat in March.

As you say, not exactly a serene sector, but then one can find problems pretty well everywhere at present.
Holding through a specialised IT is probably more sensible than trying to follow the fortunes of a few mining majors.

V8

scrumpyjack wrote:One thing to look at in miners and risk is their cost of production vs the selling value. Er Rio and Bhp both have COP well under half the current iron ore price so they can weather a huge drop in the market price without becoming loss making.

That ratio is very relevant in deciding how risky a miner is


Thanks for your thoughts. I decided I would offload my small holding of BRWM, partly to reduce risk and partly to reduce the total number of IT's I hold and help streamline my holdings. Upon a quick check, I note I get exposure to both RIO and BHP through Murray Income trust (MUT) and through some other IT's already in my portfolio. E.g. AAIF, SOI and HFEL each hold RIO.

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Re: The prospects for miners (in a diversified income focused portfolio)

#339852

Postby dspp » September 12th, 2020, 11:38 am

richfool wrote:
dspp wrote:
richfool wrote:I hold BRWM (Blackrock World Mining trust) in my diversified (mainly, but not exclusively income focused) IT portfolio. However, I am not sure how to assess the future prospects of that (mining) sector.


richfool,
I have relocated this post for you. I hope others are along to provide answers.
regards,
dspp

dspp, I appreciate the thinking behind moving this to "Mining & Metals", but I would prefer it to be returned to "Investment Strategies". I would appreciate it therefore if you could return the thread to the Investment Strategies board.

Thanks


richfool,
I've just picked this up. I had actually relocated it because of an alert requesting I did so. I'll drop you a PM to discuss, but I am putting this here so others know you are not being ignored meantimes.
regards,
dspp

edit: some other kind Mod has already shunted it back across.

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Re: The prospects for miners (in a diversified income focused portfolio)

#339872

Postby richfool » September 12th, 2020, 12:42 pm

The thread is already back Investment Strategies now, and I think I now have the answers I was looking for. Thanks. (PM refers).

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Re: The prospects for miners (in a diversified income focused portfolio)

#357393

Postby richfool » November 17th, 2020, 2:34 pm

I have bought into BERI (Blackrock Energy & Resources Income Trust). (Formerly known as Blackrock Commodities & Income Trust)?

It invests in miners, including gold miners, energy including Chevron oil, and renewable energy through Next Era Energy and Vestas Wind.

It certainly enhances the dividend income with a yield of: c 6.0%. Discount to NAV 12.3%

Top Ten holdings:

BHP Group 6.94%
Rio Tinto 4.72%
Barrick Gold 4.64%
Newmont Corp 4.34%
Vale SA ADR 3.57%
Enel Eur 1 3.47%
Chevron Corp 3.45%
First Quantum Minerals Ltd. 7.25% 3.29%
NextEra Energy 2.94%
Vestas Wind 2.71%

https://www.hl.co.uk/shares/shares-sear ... rd-gbp0.01

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Re: The prospects for miners (in a diversified income focused portfolio)

#357462

Postby GoSeigen » November 17th, 2020, 7:36 pm

I think of miners as:

1. a liar standing by a hole in the ground, and
2. an amortising bond with a life of maybe ten years (i.e. it will mature with value 0).

If the investment doesn't look attractive taking both fully into account then I'm satisfied to buy other stuff.


GS

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Re: The prospects for miners (in a diversified income focused portfolio)

#365488

Postby OhNoNotimAgain » December 12th, 2020, 5:14 pm

GoSeigen wrote:I think of miners as:

1. a liar standing by a hole in the ground, and
2. an amortising bond with a life of maybe ten years (i.e. it will mature with value 0).

If the investment doesn't look attractive taking both fully into account then I'm satisfied to buy other stuff.


GS



The point you miss by swallowing accepted wisdom like that about oils and miners is that their key assets, the inventory of known but yet to be extracted resource, is nowhere to be found in the accounts. All you find is the exploration cost incurred in discovering it which is charged to the P&L.

The best analogy is with pharma which expenses R&D cost but don't include any figure for the value of their existing drug portfolio. The risk there is that the value falls when it goes off-patent.

The risk for miners is that someone discovers a better ore deposit. But finding one that is world class, in a country that gives you good title and has the infrastructure to allow it to be developed is a pretty good moat around a core business based on a good deposit.

The biggest risk is that primary metal demand grows more slowly than world industrial production, because of recycling, and IP does not grow as fast as GDP because services make up a larger part of developed economies and grow faster. Metal demand is also at risk from substitution by plastics.

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Re: The prospects for miners (in a diversified income focused portfolio)

#365491

Postby scrumpyjack » December 12th, 2020, 5:27 pm

The big problem for miners in the past has been gung ho CEOs thinking that commodity prices can only go up, and then making some huge acquisition at what turns out to have been the top of the cycle (eg Tom Albanese Rio buying Alcan, they then had a $14 billion write off)

Both Rio and BHP at present are in the 'oh we won't make that mistake again' stage - of course they will at some point, but not for a while.

They both have very low production costs and the outlook seems excellent and, according to Goldman Sachs, commodity prices going to rise a lot.

Happy to carry on holding them.

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Re: The prospects for miners (in a diversified income focused portfolio)

#365547

Postby 77ss » December 12th, 2020, 10:51 pm

scrumpyjack wrote:The big problem for miners in the past has been gung ho CEOs thinking that commodity prices can only go up, and then making some huge acquisition at what turns out to have been the top of the cycle (eg Tom Albanese Rio buying Alcan, they then had a $14 billion write off)

Both Rio and BHP at present are in the 'oh we won't make that mistake again' stage - of course they will at some point, but not for a while.

They both have very low production costs and the outlook seems excellent and, according to Goldman Sachs, commodity prices going to rise a lot.

Happy to carry on holding them.


Yes, I remember the Alcan write off and associated rights issue well. The truly interesting aspect is how well RIO recovered from what might have been a mortal blow in another industry. A testament to the underlying strength of the business I feel.

Not one for the short term maybe, but for those with a longer horizon mining is surely a must hold sector.

With RIO, I routinely top-slice on highs and top-up on dips (and boy, did it dip after Alcan - from £65 to £16!). Currently at 3.5% of my capital and delivering 6% of my dividend income. I shall continue to hold.

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Re: The prospects for miners (in a diversified income focused portfolio)

#365588

Postby TUK020 » December 13th, 2020, 8:44 am

OhNoNotimAgain wrote:
GoSeigen wrote:I think of miners as:

1. a liar standing by a hole in the ground, and
2. an amortising bond with a life of maybe ten years (i.e. it will mature with value 0).

If the investment doesn't look attractive taking both fully into account then I'm satisfied to buy other stuff.


GS



The point you miss by swallowing accepted wisdom like that about oils and miners is that their key assets, the inventory of known but yet to be extracted resource, is nowhere to be found in the accounts. All you find is the exploration cost incurred in discovering it which is charged to the P&L.

The best analogy is with pharma which expenses R&D cost but don't include any figure for the value of their existing drug portfolio. The risk there is that the value falls when it goes off-patent.

The risk for miners is that someone discovers a better ore deposit. But finding one that is world class, in a country that gives you good title and has the infrastructure to allow it to be developed is a pretty good moat around a core business based on a good deposit.

The biggest risk is that primary metal demand grows more slowly than world industrial production, because of recycling, and IP does not grow as fast as GDP because services make up a larger part of developed economies and grow faster. Metal demand is also at risk from substitution by plastics.


Another factor to consider is one's view of the risk that inflation will reappear. Miners & Oilies provide some protection against that scenario

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Re: The prospects for miners (in a diversified income focused portfolio)

#428098

Postby richfool » July 16th, 2021, 1:57 pm

scrumpyjack wrote:The big problem for miners in the past has been gung ho CEOs thinking that commodity prices can only go up, and then making some huge acquisition at what turns out to have been the top of the cycle (eg Tom Albanese Rio buying Alcan, they then had a $14 billion write off)

Both Rio and BHP at present are in the 'oh we won't make that mistake again' stage - of course they will at some point, but not for a while.

They both have very low production costs and the outlook seems excellent and, according to Goldman Sachs, commodity prices going to rise a lot.

Happy to carry on holding them.

Scrumpyjack, Are you still holding? I'm thinking, with the word "inflation" being banded around, miners and commodities should provide some protection in one's portfolio.

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Re: The prospects for miners (in a diversified income focused portfolio)

#428116

Postby scrumpyjack » July 16th, 2021, 2:52 pm

richfool wrote:
scrumpyjack wrote:The big problem for miners in the past has been gung ho CEOs thinking that commodity prices can only go up, and then making some huge acquisition at what turns out to have been the top of the cycle (eg Tom Albanese Rio buying Alcan, they then had a $14 billion write off)

Both Rio and BHP at present are in the 'oh we won't make that mistake again' stage - of course they will at some point, but not for a while.

They both have very low production costs and the outlook seems excellent and, according to Goldman Sachs, commodity prices going to rise a lot.

Happy to carry on holding them.

Scrumpyjack, Are you still holding? I'm thinking, with the word "inflation" being banded around, miners and commodities should provide some protection in one's portfolio.


Yes I still have quite large holdings of Rio and BHP. Quite happy to hold as commodities do give some protection and at present the miners seem to have learned the lessons of their past stupidities. There will be really massive dividends from them for the next couple of years at least.

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Re: The prospects for miners (in a diversified income focused portfolio)

#428136

Postby Wuffle » July 16th, 2021, 3:48 pm

I wouldn't want to claim any expertise here but the left hand end of a 5 year price graph for the oil and major commodity producers just about contains the results of their last bout of enthusiasm.
Covid may have presented a chance to get onboard a train that left when they curtailed projects back then.

W.


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