BlackRock World Mining Trust(LSE: BRWM) is falling today after the company reported that it had taken a hefty writedown on its investment in struggling micro-cap miner,London Mining.
The trust had been one of London Minings most prominent investors, capturing headlines whenmanagement signed aroyalty contract with the miner in return for financing several years ago. In total, the value of the royalty contract and convertible bond BlackRock had in place with London Mining was valued at47.8m and 4.6m respectively. The value of these investments, along with the trusts shareholding in London Mining has now beenwritten down to zero.
Time to buy?
Unfortunately, the writedowns caused by the failure of London Mining have hit the trusts net asset value hard. Indeed, at close ofbusiness on 6th October the trusts net asset value per share was reported as being 423p. However, at the close ofbusiness on 7th October the trusts net asset value had fallen to 390p per share on a capital only basis a fall of 8%.
Nevertheless, as the saying goes,the time to buy is when theres blood on the streetsand now could be the time to buyBlackRock World Mining Trust shares.
You see, as a percentage of overall assets, London Mining represented a fraction of the trusts total pool of investments. For example, the trusts three largest holdings, accounting for 35.8% of assets areGlencore,Rio TintoandBHP Billiton,stalwartsof the mining industry, which are unlikely to go out of business any time soon.
Whats more, after todays declines the trust is trading at a discount to its net asset value.
The London Mining debacle is a black mark on the records of the trusts managementteam but the teams historic performance more than makes up for recent mistakes.
Specifically, the trust has outperformed its benchmark,the Euromoney Global Mining Index, by a staggering 20% over the past five years, thats excluding dividends. If you were to include dividends, the trusts returns would be much higher as it currently supports a dividend yield of 5.5%. As of yet its unclear what effect the London Mining writedown will have on the trusts dividend payout.
Still, if youre looking for a play on the beaten down mining sector,BlackRock World Mining Trust appears to be your best bet.
While the trust may have hit a speed bump this week, its core holdings are some of the worlds largest miners, which have all proven over the past decade that they can out perform their smaller peers. Moreover, the trusts management is highly experienced, their track record is almost second to none. That 5.5% dividend yield is also extremely attractive.
Unfortunately, with many investors turning their backs on the mining industry it will take some time for the trust to return to its all-time highs, but with a yield of 5.5%, investors will be paid to wait.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.