Baker Steel Resources Trust Ltd (BSRT) is unique in offering UK investors access to early-stage mining companies, which can be higher-risk but have the potential to deliver outsize returns, according to Edison Group.
Edison, an investment research and advisory firm, initiated its coverage of Baker Steel by saying the trust’s investors are “highly experienced” and “very selective”.
The investment team aims to generate gains through “specific risks being mitigated as projects progress along the development curve, rather than relying on commodity price rises”, Edison said.
The research group added: “Investments are typically made via convertible loan notes, often in stages, to limit downside risk. BSRT proactively works with investee companies to unlock value and investments can take a number of years to mature.
“Performance has varied since its launch (although ahead of most peers over one and three years), but BSRT's investment team sees a number of near-term catalysts for potentially significant valuation gains.”
Edison said recent net asset value (NAV) returns have been positive and Baker Steel’s 16.4% share price discount to NAV is narrower than its 20.7% one-year average.
The broker highlighted that Baker Steel conducted a tender offer for 9.7m shares at 51p per share in May 2019 as part of its policy to distribute at least 15% of net realised gains. The trust held a 2.0% net cash position after the tender offer.
“Future distributions could be made via dividends, supported by prospective royalty income,” Edison said.
On the sector as a whole, Edison said mining equities have recovered from the lows of early 2016, but concerns over China’s economic growth and the wider effects of the US-China trade dispute continue to weigh on sentiment.
"Nevertheless, mining stocks remain at a significant discount to global equities and valuations appear attractive relative to historical levels, suggesting scope for the sector to outperform as sentiment improves," it said.