BlackRock Mining Trust stumbles on softening commodity prices

The BlackRock World Mining Trust has been boosted by the surge in commodity prices and the performance of mining giants like Glencore and BHP. Though recessionary fears have brought some headwinds, leading commodity prices to stabilise or fall. 

As the price of commodities soared due to inflationary pressures, mining companies had been in demand among investors. The upbeat sentiment for the sector had helped the BlackRock World Mining Trust [BRWM.L] share price be resilient over the past year.

As of 27 June, the BlackRock World Mining Trust share price was up 9.3% year-to-date. The trust’s performance has largely tracked that of the FTSE 100, which also has an abundance of mining companies, and has outperformed the S&P 500’s 18.2% fall over the same period.

The rise had been driven by the strong performance of some of the companies the trust holds. For instance, its largest holding, Glencore [GLEN.L], which makes up 9% of the trust, had soared by around 23.2% year-to-date as of 27 June. However, the trust had not been able to climb as significantly as Glencore due to the underperformance of several other miners, including Vale [VALE] and Rio Tinto [RIO.L], which account for 8.8% and 4.1% of the trust, respectively. Vale had sunk 27.5% over the past year, while Rio Tinto had dipped 14.1% in this period.

Commodity prices rally fizzles

In April 2022, the BlackRock Mining Trust share price reached an all-time high of 804.98p. This was thanks to the extremely high commodity prices at the time, which were fuelled by the sharp rebound in demand after the pandemic and supply disruptions caused by the war in Ukraine.

The price of copper, which the trust has a 20% exposure to, reached an all-time high of $4.70 per pound in March 2022. Furthermore, the price of aluminium, which the trust has a 3.3% exposure to, reached all-time high of $3,500 per tonne at the start of March 2022, which is also an all-time high for the commodity.

However, fears of a recession have led to a dip in the price of many of these commodities since then. For example, copper has sunk to $3.77 per pound. The recent downturn has been caused by the Chinese Covid-related lockdowns in both Shanghai and Shenzhen. Though these cities have since eased restrictions, rising fears of an economic slowdown have also started to reduce demand for the metal. Aluminium has also dipped to $2,500 per tonne, mainly caused by the risk of a global recession in the near future. These factors have seen a recent downturn in mining stocks over the past few weeks, which has been reflected by a 15% monthly drop in the BlackRock World Mining Trust share price.

Glencore set to boost BlackRock World Mining Trust

The future performance of Larry Fink’s (pictured) BlackRock World Mining Trust heavily depends on the performance of the company’s holdings. The main holding is Glencore, which is expected to perform well in the short term. For instance, in 2021, the firm made a record £16bn in profit, allowing it to spend £3bn in share buybacks and dividends. In light of this, Morgan Stanley placed a 740p price target for the firm in a research report on 23 June, implying an upside of 63.4% from its price as of 27 June.

Other holdings are also expected to perform well. For example, BHP [BHP.L], which makes up 8% of the trust’s holdings, is highly rated by analysts. Goldman Sachs recently reiterated its ‘buy’ rating on the ASX-listed BHP stock with a A$49.40 price target, implying a 19.9% upside from its 27 June closing price. In particular, the investment bank points to the company’s attractive current valuation compared with its peers, its promising production growth pipeline and strong free cash flow generation. The company also has a prospective dividend yield of 12.1%.

According to analysts at Winterflood, there are many reasons why the BlackRock World Mining Trust share price could soar. For example, the investment team at the trust is considered highly experienced. Additionally, it has diversified exposure to the commodities sector, which may also help boost gains.

For income seekers, the dividend has offered a historic yield of around 6.9%. Although this is not guaranteed, the trust distributes nearly all its income, meaning that investors might expect strong returns moving forwards.