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Global megatrends and mining

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Global megatrends and mining

The mining sector is benefiting from the world’s most compelling long-term trends. From digital transformation to the sustainability agenda, Evy Hambro and Olivia Markham, Portfolio Manager on the BlackRock World Mining Trust plc, discusses how the sector is changing.

It is tempting to believe that only certain sectors harness the world’s largest structural changes: technology, for example, or emerging markets. It is easy to overlook the mining sector, yet it has consistently reflected the most compelling global long-term trends – the growth of China, industrialisation and urbanisation.

Today is no exception. The mining sector continues to benefit from themes such as urbanisation and population growth. The world’s population is set to rise from the current 7.7 billion people to 9.7 billion by 2050[1]. Global resources are finite and as the population grows and living standards improve, it increases demand for mined products.

Identifying and keeping pace with these trends is a vital part of our approach to investing in the sector. As such, we have identified several emerging global trends that will influence the mining sector over the next decade. 

Demand for new commodities

Technology is not virtual and needs hardware to make it happen. New products require mined materials to build them, which can create long-term demand for specific commodities. This presents new growth opportunities for mining companies. Most recently, we have seen this with the rise of hybrid vehicles, which has created demand for palladium.

One of the major structural growth trends we see is the move to a lower carbon economy. We have been a significant investor in the producers of lithium and cobalt, key components in the batteries necessary for electric vehicles. These companies have been strong performers for the Trust and we continue to see future growth. Although electric vehicles make up only a relatively small part of the global market, they are seeing exceptional growth, particularly in China, where electric vehicles have a 5% market share. This is predicted to reach 10% by 2020[2].

Technological advances – changing distribution

Autonomous trucks are changing the costs of distribution for mining companies. Consulting group McKinsey recently estimated that with full autonomy, operating costs would decline by about 45%[3].

The trend could have mixed effects on the profitability of miners. Production costs will come down, but overall supply is likely to increase as it becomes easier to transport goods. We need to ensure we are invested in those companies on the right side of this trend. The same is true for emerging trends such as the smart grid and distributed power storage.
 

Technological advances – efficiency improvements

As certain natural resources become depleted, mining companies need to work harder with what they have. That means mastering new technology for more efficient extraction and processing. The use of “internet of things” devices – digital devices set up to monitor and automate elements of mining processes – is becoming more widespread. Automation and digitalisation should allow more targeted and efficient mining. Those companies that embrace these new technologies can expect to stand ahead of their peers.

The sustainability agenda

Sustainability goes beyond electric vehicles. The world is moving towards more renewable forms of energy generation and mined materials will be required to produce products such as wind turbines and solar panels. We are seeing a divergence in the pricing of individual commodities. Those with a carbon-lite production process and speciality materials with a high degree of purity are now attracting differentiated pricing.

We believe this “green pricing” may become more pronounced over the next few years. Commodities that support the sustainability agenda are likely to command higher prices than the other standard commodities. This is an important theme in the portfolio.

However, the move to a more sustainable economy also means that we could be approaching peak demand for certain commodities. While this will be outweighed to some extent by the rise in the world’s population and ongoing industrialisation in emerging markets, avoiding those companies on the wrong side of this trend is an important discipline in the Trust.

We believe the mining sector is a beneficiary of some of the most enduring global megatrends. We aim to ensure that this is reflected in the choices we make for the BlackRock World Mining Trust. We dig deep to find the strongest opportunities – across mining company shares, but also physical commodities, related fixed income bonds, unlisted mining companies and royalties. The Trust has also paid a high and consistent dividend stream to its investors, as companies in our universe improve profits and deliver cash to their investors.

In the early part of the 21st century, the growth in mining companies was driven by the spectacular development of China. As it industrialised, it needed raw materials on an unprecedented scale. Today, there are compelling structural growth stories to be found elsewhere and the mining sector is front and centre of those trends. As long as humans continue to produce things, mined materials will be needed to make them.

For more information on this Trust and how to access the opportunities presented by mining, please visit www.blackrock.com/uk/brwm

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested.

Trust Specific Risks

Exchange rate risk: The return of your investment may increase or decrease as a result of currency fluctuations.

Emerging markets: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.

Gold/mining: Mining shares typically experience above average volatility when compared to other investments. Trends which occur within the general equity market may not be mirrored within mining securities

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Important Information

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority.

The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The BlackRock World Mining Trust plc currently conducts its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the fund specific risks in the Key Investor Document (KID) which gives more information about the risk profile of the investment. The KID and other documentation are available on the relevant product pages at www.blackrock.co.uk/its. We recommend you seek independent professional advice prior to investing.

Any research in this material has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

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[1] UN World Population Prospects, June 2019

[2] McKinsey, January 2019

[3] CleanTechnica, June 2019

 

 

BlackRock

At BlackRock we see investment trusts differently. The world is undergoing political, economic and demographic change. For some, change means challenges but at BlackRock we see opportunity. We have a range of 9 investment trusts, from multi-asset to specialist. We use leading systems and experts to invest in the fastest growing countries and most successful companies across the world.

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