Annual General Meeting (BERI)

00:00:06:02 - 00:00:22:11

Thank you very much, everybody, for attending. It's wonderful to see some familiar faces, in the audience and some and some new ones. As, Adrian mentioned, maybe it is the lunch on offer, combined with some, very welcome sunshine and, and the timing of the meeting.

00:00:22:13 - 00:00:39:12

But it's great to have so many people here. We look forward to taking some questions. At the end of the presentation, it's always, great for Mark and I to hear, directly from all of our all of our shareholders. So we've put together more slides this year than we have done in the past. Don't worry.

00:00:39:14 - 00:01:13:09

That doesn't mean, death by PowerPoint or that we will be keeping you from, refreshments. And, of course, the, the much anticipated Q&A. But it's also so, you know, you as shareholders have a little bit more information and information on the markets in which we invest, to digest at your, at your, at your leisure and your pleasure, you know, after, after the meeting, as well, so just a reminder, Mark and I have been, running this trust together now for, a number of years, which which is a great privilege and a pleasure.

00:01:13:11 - 00:01:44:13

Mark's background is, in energy and energy transition, where he's worked for, you know, with 25 years in the industry. I've got more of a mining related background. So together, you know, we can provide a nice balance, and objective view towards the investments, you know, across the portfolio. I should also acknowledge the tremendous support we get from the the broad team, in which we sit, we sit in our thematics and sectors team, within the equities division of BlackRock.

00:01:44:15 - 00:02:07:08

You know, we've got another five portfolio managers that work with us, and eight research analysts, looking across the entire extractives industry and thematic space. So, you know, we benefit from a really broad research platform. So, you know, whilst we've been quite pleased with the performance over the last few years, you know, really must acknowledge the contributions that everybody on the team, makes to that.

00:02:07:08 - 00:02:34:15

And, not only the investment ideas that make it into the fund, but also, you know, challenging us and stopping us putting investment ideas in, that may not perform as well, during, during certain points in time. So if we just look at the summary, you know, to the end of November, which I'm sure you'll all be, very familiar with, you know, the NAV sort of, and towards end of November was almost 140 p a share.

00:02:34:17 - 00:03:06:15

Obviously, we've seen that pull back a bit since then. And Mark's going to speak a bit about that because that's largely been sort of US centric and quite US driven over the first few months of 2025. The revenue per share did fall, during the year. I think, as we've mentioned in previous AGMs. You know, we have been, keen to flag that we are taking a flexible approach to managing this portfolio and are happy to pay a certain proportion of our dividend out of reserves.

00:03:06:17 - 00:03:28:05

You know, we have seen, especially on the mining and the conventional energy side, dividends be cut by a number of our portfolio companies over the last 12 months. As their cash flows, have, have reduced. But we've been very keen to maintain the flexibility in which we invest, across the portfolio and not be constrained just to those, high dividend payers.

00:03:28:05 - 00:03:54:18

And I think this is, starting to pay benefits in terms of the total return, in comparison to, you know, the industry as a whole in which we could we could invest in. Just a quick reminder then of the transition that took place. You know, coming up to five years ago, trying to re inject, some growth into the portfolio, by sort of bringing the energy transition specifically into our investment remit.

00:03:54:20 - 00:04:15:13

You know, we now increasingly see, that boundary between traditional energy and energy transition, increasingly blurred. You know, how do you think about a grid company? How do you think about a company that's going to provide the poles and wires, to connect data centers to, power generation, regardless of where that power is being generated?

00:04:15:15 - 00:04:40:22

And this is something that Mark has been, you know, fantastic at in thinking about the energy space, as a whole, rather than, you know, in very narrow, sectors, which traditionally some equity analysts might have thought about. When we look and we've got a chart in a couple of slides time about how we positioned the portfolio through the year, we closed, you know, the year of ended January at quite a balanced or neutral position relative to that.

00:04:40:24 - 00:05:01:04

Right. Relative to that, if you like, benchmark weighting of 40, 30, 30. We have varied that through the year. But as we've been through the last few months, especially with the elections in the US and all the, noise that has obviously, come, as a as a result of that, this isn't the environment to try and be a hero in terms of sector allocation.

00:05:01:06 - 00:05:29:11

You know, you don't want, you know, your portfolio to be swung one way or the other. By what, you know, Mr. Trump or indeed any other politician decides to tweet about, day to day. So in this type of environment, we've really just tried to focus on bottom up stock picking. And hopefully once a clearer policy and macro environment emerges, we can then sort of start to once again, take more definitive, sector positions.

00:05:29:11 - 00:05:44:16

But at the moment, we'd rather be taking more of our risk, from that bottom up stock picking perspective. With that in mind, we just sort of popped this in, which is, again, I won't go through it all. It's just, you know, the sort of day to day life of what we do, as members of the team.

00:05:44:18 - 00:06:05:23

And there's a picture there of my colleague, Aiden on site. One thing that we've really ramped up again over the last 12 to 18 months, you know, after those Covid travel restrictions dropped away kind of a couple of years ago, has been our onsite due diligence. Mark and his colleague, Tao, have visited countless energy and power assets across Europe and America over the last 12 months.

00:06:06:00 - 00:06:24:20

I've got out to quite a few mining assets, and people across our team be spending more time on site, really, to get to sort of that granular understanding of what's going on, you know, at a site level and how that feeds up into companies and then and then the overall industry. And this is a real privilege as being a part of BlackRock.

00:06:24:22 - 00:06:47:04

You know, something that, you know, I think I've only ever worked here. So I don't perhaps appreciate how lucky it is. But, you know, Mark's worked at other places as well and provides that context. You know, that the corporate access we get and our ability to go to sites globally, is really quite unique. And it's something that I think really does add, to our ability to get that that true granular insight.

00:06:47:06 - 00:07:09:01

I talked about, you know, the evolution of the sort of that sort of sector positioning, over, over the course of the year as we went through 2024, we did pare back some of our mining exposure, and that's really been, valuation driven more than anything else. You've seen China come in and I'll talk at the end of the presentation on, on the mining sector itself.

00:07:09:03 - 00:07:30:10

You have seen China come in and stimulate over the last few months. But really, when we look at the valuation of some of the mining opportunities ahead of us today compared to the energy transition or the energy space, they're just not as compelling as they were, for much of the last 2 to 3 years. When we look at free cash flow yields and that's just reinvestment is having to step up in that space.

00:07:30:12 - 00:07:58:12

We'll get into that a bit later. So when we then look at the subsector positioning, you can see the biggest single change has been taking down that, diversified mining exposure and increasing some of our exposure, both in the distribution side of the, of the oil and gas space and also on, the services side of the oil and gas space, as well as, you know, initiating some, some positions in energy storage, and increasing our positions in, on the energy efficiency side.

00:07:58:12 - 00:08:17:20

And, and Mark's going to go into some of those changes we've made in energy, and energy transition over the last especially six months, you know, where we've made some pretty big turnover, which isn't really captured in this, top down, analysis. You know, we we do like to have a top ten, which is reasonably concentrated, but not overly so.

00:08:17:24 - 00:08:48:17

You can see there plenty of names that I'm sure some of you will recognize. And then a couple that you may not have heard of, like NiSource and again, Mark and touch on a couple of those, in his presentation. We don't like to take too much, country specific risk in the portfolio. A lot of the companies that we own, whether listed in Europe or America, are truly global businesses, but, you know, in the world of tariffs and, and tantrums, you know, you have to be cognizant of, you know, where you are taking that specific risk.

00:08:48:19 - 00:09:11:03

You know, and I think that's again, why we kind of pared back, you know, our sort of, country exposure, because you just don't want to be too exposed to something that you really, as much as I'm sure macro commentators, have, have, a desire to say they have an insight into, you know, we just don't have an edge, on, on what's going to come out of, you know, the white House or indeed anywhere else.

00:09:11:03 - 00:09:30:05

So we'd rather stick to our knitting and and try and take the risk and generate the returns, the moment to that stock specific side. Just a word on performance. This is something over the last 12 months, whilst it's not necessarily been, you know, especially the first three months of 2025 have been tough from an absolute return perspective.

00:09:30:07 - 00:09:53:00

I think when we look back at 2024, we're quite pleased with how, the trust performed. You know, you can see there the top orange line says the NAV performance outperforming, you know, the mining sector, the energy sector and, you know, the energy transition space as represented by the S&P Global Clean Energy Index. And so that's something that, you know, we're quite proud of.

00:09:53:00 - 00:10:11:24

And, we can we can touch more upon in Q&A if there's any specifics that you'd like to get into there. Just a quick word on income, which I know is very important, to many of you. One thing that we didn't want to, ramp up in 2024 just to try and make a cover dividend was our option writing.

00:10:12:01 - 00:10:31:16

You know, we made the changes five years ago, you know, to incorporate the energy transition space and were very explicit when that happened that we would be flexible in our investment approach and be flexible to our approach towards income. We don't want to be constrained by having to write options just to make an income target. We're still very tactical

00:10:31:18 - 00:10:47:23

and opportunistic with our option writing. We've been doing a bit more of that in the last couple of weeks with this selloff, volatilities have increased in some of the shares that we really like, but they've looked a bit overvalued, have come back to prices. We'd be happy to get in it. So we step back that put option writing once more.

00:10:47:23 - 00:11:08:05

But I would expect the shape of that income that you've seen over the last three years to remain pretty consistent as we go through 2025. Adrian has already touched upon the discounts, you know, at the start of the meeting, obviously, you know, that that 10% is not is not ideal. But it's something that hopefully, you know, the board has been quite explicit -

00:11:08:05 - 00:11:20:15

they've been they've been defending and buying back, shares, quite rapidly. Mark will now take us through the bulk of the rest of the presentation on, on energy and, energy transition. But I'll have a couple of closing words, on mining.

00:11:21:05 - 00:11:43:11

again, I'd like to thank everyone for making the effort to come. It's always really pleasing to see so many people come along. Playing on energy transition. You know, as you would have seen from the performance slides that Tom offered up earlier, a lot of the energy transition stocks have continued to de-rate, which is interesting to us because at the same time, we've seen record years of solar and wind deployment.

00:11:43:13 - 00:12:09:16

We've seen record years for investment into energy efficiency, re industrialization, in the US in particular, the central chart there, and we've seen record global electric vehicle sales, particularly in China. And yet a lot of these stocks have continued to de-rate, and much of that is really down to the macro backdrop and on solar and wind, a lot of subsidies are under threat now.

00:12:09:18 - 00:12:34:17

A lot of cost pressure as well on the system, whether it's on the supply chain or whether it's indeed on the cost of capital, because a lot of these, solar and wind developments, for instance, need a lot of, financing, project financing, to, to affect, installation. And so a lot of the things have conspired to, bring down the stock prices and multiples of many of these companies.

00:12:34:19 - 00:12:58:14

But the good news is that we are progressing towards decarbonization. We can see that big picture. The challenge for us is to make sure that we can make money for our, shareholders at the same time. I think the main thing that we've been focused on, certainly in the shape of the portfolio, is really, shifting, energy transition as we think about it, towards a grid investment in particular.

00:12:58:16 - 00:13:18:09

So less about the power producing side and more about the need to actually upgrade the grid, because as we keep adding, more renewables onto the system, we actually need to upgrade the poles and wires to transmit those electrons to the consumers. And that's not kept at the same pace. The nice thing about those investments are they're done on regulated returns.

00:13:18:11 - 00:13:53:21

So the more the CapEx goes up, the more earnings growth you can capitalize on. So we have a distinct flavor of that in the energy transition portfolio. We've really steered away from, a lot of the electric vehicle, OEMs, largely because we can observe just how successful China has been in deploying at scale and what are actually pretty impressive, vehicles, pretty, pretty impressive consumer products at very competitive prices, even with substantive tariffs being put in place, on top of these, imports into Europe in particular.

00:13:53:23 - 00:14:15:16

So, you know, we're still keeping a very close eye on those opportunities, but I would certainly frame that from the energy transition piece, as much about, a grid investment as it is also the type of power that we're looking to generate. So there has still been a big push on renewables record year last year for renewable installation, but people might forget it was also a record year for coal consumption last year.

00:14:15:18 - 00:14:39:12

It was also a record year for gas consumption last year, and also a record year for uranium consumption last year. So power and energy and the transition is multifaceted, and we've been sort of pivoting the portfolio. And that energy transition sector is a lot into the sort of nuclear side as well as the gas side as well.

00:14:39:14 - 00:14:59:17

When we think about the other things, that are impacting Tom and I’s outlook, certainly for when we think about this year and the emergence of, Mr. Trump, of course, in the US, it's interminably frustrating that we have to look at daily tweets and try and figure out what nonsense is going to be coming out next, and it is causing a lot of volatility

00:14:59:19 - 00:15:20:01

in the system, and not least with all the tariffs that are being bandied around, and the attendant real economic impact there. And, you know, some of you may have been following the sort of latest ISM surveys out of the US. New orders were down seven percentage points month on month. That's a two and a half standard deviation move.

00:15:20:06 - 00:15:41:19

People aren't actually ordering stuff in the US because they're worried about tariffs. That’s having real economic impact on consumption in the US right now. But also when we step back and think of energy security, you know, what we've been very focused on of late is Germany. You know, there's a lot of interest around the shift in, economic policy there.

00:15:41:21 - 00:16:02:02

And also subsidies. And they're getting pumped back into, into the system. But a lot of it is going to be into defense spending, which may well credit other investments as well. Yet to be fully at sea. But what's really driving a lot of this is a recognition in Europe that we need lower cost, more secure energy supplies.

00:16:02:04 - 00:16:38:12

And unfortunately, one of the ways that one can solve for that is by reconsidering nuclear, and reconsidering natural gas, because renewables, although the headline installation cost is low, the variability of the the spikes in renewables does cost, cause much more volatility and higher power prices on average. So we think that there's a very real probability that because energy security is much higher up the agenda for policymakers in Europe, that we will see some profound changes in how we consume energy if we want to maintain jobs in Europe quite simply, and particularly in Germany, the industrial heartland of Europe.

00:16:38:14 - 00:17:03:02

And we'll have to make some very tough decisions. We still think there's a real probability that they'll, in fact, look to reverse their policy on nuclear, in the coming years because they simply don't have enough baseload power. There's a phenomenon called a ‘Dunkelflaute’. I apologize, that's my worst German accent, but that really refers to something, a phenomena that we often see when, during the winter months, the wind can be incredibly calm.

00:17:03:04 - 00:17:22:13

And it tends to happen right across a large swathe of northern Europe. That that means that there's no wind power to draw on, and you have to turn the coal plants back on. And if you have them, you have to turn the nuclear plants back on as well. And in fact, I think German power prices in the early part of January got as high as €800 a megawatt hour.

00:17:22:15 - 00:17:48:11

Just for context, sort of runaway average prices for power have been about €50 a megawatt hour over the last ten years. So really big number is really profound. And that's something that the German, government is now trying to address front and center. So again, we think there are opportunities around, power investments in Europe. But again, rather than thinking mainly about renewables, developers could actually be more focused again on grid speed.

00:17:48:13 - 00:18:07:03

Where we, we can observe that there's a need to actually increase the scale of the grid, before we can even think about adding more capacity onto it going forward. An interesting factoid there is that we know in Spain, for instance, a lot of, hyperscalers are actually coming to Europe, and they're looking at Spain as an area to invest.

00:18:07:05 - 00:18:28:18

And that's because they have cheap power. It's generally greener, and they have a very cheap labour force. A lot of boxes get ticked and they've got land availability and there's something like 50GW of, renewables, waiting to get put onto the system in Spain, the overall capacity of Spain is 120GW. These numbers are profound. They're enormous.

00:18:28:24 - 00:18:50:08

So there needs to be grid investment before you can actually start connecting all of these, new power sources. So a lot of opportunity think will come out, although it's a little bit unclear right now. We're obviously also monitoring, the traditional energy markets through this lens as well. A lot happening in the Middle East that we need to be very wary of, as well as whether or not Russian sanctions get lifted.

00:18:50:10 - 00:19:15:15

In the coming months. I included this chart here just by way of trying to explain some of the really interesting dislocations that we see in the narrative around, power and energy, at a global level. I think we we included a similar chart last year just looking at the possible impact of AI data center demand, on power consumption on the left hand side, and the big numbers.

00:19:15:17 - 00:19:34:23

And what was interesting, if you look back to at the end of January when we had DeepSeek Monday, as we called it, there was a big capitulation, when DeepSeek, the new AI model, was announced out of China and claims were made that there was much less energy intensive and therefore we don't need as many gigawatts added to the system in order to power these these data centers.

00:19:35:00 - 00:19:55:18

And that may well be the case. But what was fascinating to us is that not only did AI, in datacenter, name sell off the hyperscalers themselves, but also companies that provide equipment into data centers but also natural gas production companies, because they'd also been touched by data center hype, for a period, because people thought, well, we'll need more natural gas to power these data centers, which is true.

00:19:55:20 - 00:20:17:03

But the reality is that most of the gas demand that we can see coming through in the next five years is driven not by data centers at all. It's actually driven by LNG expansion in the United States, which is contracted, which is being built today, which is coming. It's real demand that's not going away. And there's also continued coal to gas switching as we continue to switch off coal plants that will also drive for the gas.

00:20:17:03 - 00:20:41:19

Now, again, nothing to do with data centers. And yet those stocks sold off similarly, as people sort of, tarred them of the same brush, or in data center hype. o we think there's a lot of opportunities in that space as well. And we would say that, you know, it was probably June of last year, I think that we were invited across - BlackRock has every year what we call the BlackRock Investment Institute or BII.

00:20:41:24 - 00:21:02:20

So the great and the good of BlackRock get together once a year to discuss top of mind big picture topics, megatrends - as we tend to call them. And no surprise, data centers and AI was top of mind for everyone at BlackRock. And erstwhile colleagues on the tech from the technology teams were putting up their own forecasts of what they thought the data center power demand would look like.

00:21:02:22 - 00:21:25:03

But being the wise and old engineer that I am by by training, I said that's it's not possible you're going to hit those numbers anytime soon. Just because of pure physical constraints and permitting constraints will be very difficult to get those numbers in. But just it was a kind of a word of warning even then, that perhaps people getting a little bit too excited about the data center hype, although we still think there's there's quite a lot to go there.

00:21:25:05 - 00:21:46:07

Another interesting thing that's happening in the renewable space is that a lot of people will show you charts of, the cost dropping for solar panels and inverters, and how that's making solar even more competitive in the renewables mix, and then goes into the power market. And that's true. But again, people don't show your charts on ducks - .

00:21:46:07 - 00:22:05:22

and I don't mean the type that you put in a little pancake with some hoisin sauce. I actually mean, duck curves as in power consumption curve. So think about as we add more renewables to the system during the day, it's light. We might even have some wind and power prices collapse because we have a surge of solar, entering through the system.

00:22:05:24 - 00:22:28:03

But then at night time, because batteries can only bridge maybe 2 to 3 hours at best, there's a dearth of available power supply, and power prices spike again. So rather than have a nice smooth power prices, you have what they call these looks like a duck neck, these duck curves coming in. And we're seeing more and more of that happen, which actually means that, it places higher value, ironically, on gas peaking plants.

00:22:28:05 - 00:22:55:13

It places higher value on battery manufacturers and so those are areas that are interesting us and not necessarily just the pure fact that we're seeing a lot of cost deflation, in solar in particular. On the conventional energy side, you know, we do see an upside bias to, to where we are today, on oil prices, and natural gas prices, clearly gets more severe.

00:22:55:15 - 00:23:17:00

It's been a little bit colder this winter than we found for the last few winters. Gas storage levels in Europe are now at sort of 37, 38%, which is lower than it was in 2022 when the Russians turned the gas off. And we still have a mandate to fill gas storage levels by the end of October of this year to 90%, from that 38 cent that we're not just now.

00:23:17:06 - 00:23:36:20

And that will require Europe to actually pay up for a global LNG cargoes and compete directly with China. So we do think there's quite an underpinning on, on gas prices remaining pretty robust, for the balance of this year. Oil price is a lot trickier. Right now we've seen oil prices rocket up to 80 bucks a bottle.

00:23:36:20 - 00:24:00:04

And we're now back to sort of mid 60s, $66 a bottle. And frankly, when we look at the world, today, you know, the, the downside, of course, of oil prices, sort of going up, and is that it will cause some friction on demand. You know, we did observe last year that Chinese demand came down incredibly sharply.

00:24:00:06 - 00:24:19:18

And that's partly a function of a slower economic growth outlook for China, but also partly a function of slowing gasoline demand because EV penetration has been so rapid in China. But as we step forward into into next year, or rather this year, we still see a relatively robust outlook on what we can see today for oil demand.

00:24:19:18 - 00:24:49:14

The problem is we've got a lot of oil supply out there. That's well in excess of the 1 million barrels per day of growth in demand that we think is our base case for this year. That should naturally put downside risk onto the oil price. But we've also got another issue, which is Iran, and Venezuela, to name a couple of countries where Trump in his daily tweets, are telling us that they want to put maximum pressure back on Iran.

00:24:49:16 - 00:25:11:09

If you look at the chart on the left, is not not to call whether I'm red or blue, Trump or Biden. I'm neither. I just to merely observe that when Trump was last in power, he, cut Iranian oil exports by 1,000,005 barrels per day. I did a similar thing in Venezuela. And we anticipate that could happen again.

00:25:11:09 - 00:25:33:18

And if we take those barrels off the market, then clearly oil prices would be biased upwards again. So there's quite a lot of uncertainty in global oil markets, that were very mindful of. And that kind of goes back to the point Tom was making earlier is it trying to make big sector bets? Either direction is quite risky right now because frankly, we can't foreshadow what Mr. Trump is going to tweet next.

00:25:33:20 - 00:25:57:21

But we do think there's some pretty good opportunities ironically, in some of the traditional energy companies, partly, in the fact that we can observe through the last 3 or 4 months, perhaps one of the biggest de-grossing events that we've seen in the last 5 or 6 years, for hedge funds and those, hedge funds have been selling down their winners and reducing shorts on losers,

00:25:57:23 - 00:26:23:22

and that's squeezing stock prices up and down in equal measure. But critically, in stocks where we have very clear fundamental, conviction that the good companies, we can see the growth very robust business models. There's a company in particular that Tom was talking about that we recently bought some options and where we can see a 15% free cash yield, we can see very moderate growth underpinned at a very low oil price.

00:26:23:24 - 00:26:45:13

And and that stock is sold off by about two turns on its multiple in the last three months. And yet earnings continue to be upgraded. That's just a simple de-growth. There's people selling the, the the winners. So has given us a lot of opportunity to lead into stocks on a stock by stock basis that that we really like. I mentioned that the natural gas side of the equation as well.

00:26:45:15 - 00:27:07:22

We typically try not to play natural gas prices because they can be incredibly volatile. What what we can observe is there's a lot of natural gas demand coming through the system. As I mentioned earlier, there's a lot of US LNG construction along the US Gulf Coast, just to put some rough numbers on that, the US consumes about 100 billion cubic feet per day of natural gas.

00:27:07:24 - 00:27:31:07

In the next three and a half years, we can see 12 billion cubic feet of demand coming through from those gas plants. On top of that, we can see another 2 to 3 billion cubic feet per day coming through from coal to gas switching. And all of that should be supportive for natural gas demand. But oftentimes the, the drillers, the suppliers of, of that production, can often get too excited, drill too much and crash the price.

00:27:31:07 - 00:27:53:17

But what we can see is an increased need for these molecules. So we like to to play that through companies that are shipping those molecules because those revenues tend to be very sticky. So again, a lot of opportunity in the portfolio there. I guess maybe the final thing to leave you with, certainly from an energy and energy transition piece, we think there will be a lot of opportunity this year.

00:27:53:19 - 00:28:13:08

Tom and I keeping a very, very close eye on policy, because that is going to shift the direction of where capital goes to. We can observe, for instance, there have been a lot of capital has moved from the US over to Europe. That's why Europe, European markets have had their best start against the US, S&P, I think in 25 years, Tom might correct me on this, but I thought 25, 26 years.

00:28:13:08 - 00:28:28:13

Okay. So so in a nutshell, I, Tom and I are very focused on, on a couple of things for this year in particular. One is policy, because we can see things that are changing in Europe, but that are also changing in the US as well.

00:28:28:15 - 00:28:50:13

What is, I guess very firm in our minds is that the energy transition or any energy evolution is still progressing. There's still a lot of capital moving into this space and that will offer continued opportunities for us. The nice thing that we can observe more recently, is a lot of what we would call tourists in the areas that we invest in are now out of, of our sectors.

00:28:50:13 - 00:29:16:00

And what I mean by that specifically is we've seen a lot of tech investors step in to utility companies. For instance, I've sat at a conference very recently, where it's been utilities and energy companies for ten years and two gentlemen sitting either side of me, I didn't recognize, and they are both tech investors and those tech investors were trying to teach me about petroleum engineering, which is what I graduated in 25 years ago.

00:29:16:01 - 00:29:34:03

That was the point where I called Tom up and said, I think we might need to take some money out of these stocks because there's a lot of, a faster money. I think gravitating into it. The good news is a lot of that's deflated now, and the fundamental outlook hasn't changed demonstrably. We can still put our hands on very clear growth coming through in underlying earnings.

00:29:34:03 - 00:29:52:04

So that's kind of exciting. But we're very cognizant that there's simple tweaks or policy shifts on both sides of the Atlantic that could shift capital quite quickly. So we want to remain nimble around the allocation within the portfolio. But the outlook we think is still very encouraging overall.

00:29:52:04 - 00:30:26:21

Great. I'll just close off with a few quick slides on mining as I’m aware time is getting on. I'm sure if Adrian had the ability to reach my shins from down there, he would be kicking me on. So we can't really, talk about the trust, without at least mentioning, China. You know, despite the fact that a lot of the growth in mined commodity demand will be driven by the energy transition over the next 5 to 10 years, by the reshoring of manufacturing to the US.

00:30:26:23 - 00:31:12:16

The largest consumer of virtually every mined commodity today still remains China. And as anyone who's picked up a newspaper or financial press over the last few years will realize is that the Chinese economy has been continuing to go through some, pretty painful, transitions of its own. However, what we have seen over the last few months, is that the government there has realized that it now needs to step in, and stimulate. Not to the extent that we saw in 2015, which created an enormous, sort of reflation in mining, commodities and, you know, very, sharp rally in mining, equities.

00:31:12:22 - 00:31:37:01

But you can see on the right hand side there, the top right hand chart a little tick up, in China, non-manufacturing, PMI, the Purchasing Managers Index and on the left hand side, the same, in manufacturing. So off a very low base. But the stimulus we are seeing enacted in China does seem to be putting a floor in, which is encouraging.

00:31:37:03 - 00:32:08:09

But, you know, when charts are titled “New home sales declining less sharply”, things are less bad than they used to be. But that's often where the most interesting turning points, can present themselves. The mining sector as a whole, though, continues to suffer from underinvestment. When we think about what is needed, to meet the demand projections three, five, ten years, out, and this is at a time where you have rising capital intensity of building new projects.

00:32:08:11 - 00:32:35:18

So you can see on the right hand side there this is the cost in US dollars, to build one tonne of annual copper production capacity. So you can see, you know, that this is a sort of 20, year chart. You can see that that cost has or capital intensity has tripled over the last, 20 years and has really, actually stepped up even in the last sort of 5 to 7 years.

00:32:35:20 - 00:33:10:05

And that has some pretty big implications for how we're thinking about the investable universe at the moment. It means that the value of existing production today is probably higher than equity markets are willing to give things credit for, but it also means companies that have now got to enter a reinvestment cycle to maintain their business, are potentially value traps when it comes to an investment, because the capital they're going to need to spend is going to be greater than the depreciation charges that are going through, through their income statements.

00:33:10:11 - 00:33:41:21

So this means you have to be very selective in the mining universe at the moment. You are not in an environment where a rising tide is going to lift all ships. You know, I think that's very much reflected in how we're picking stocks in the portfolio today. Iron ore, you know, which, underpins steel, which, you know, you can't escape from in almost any building, whether here or or abroad, you know, you do see, in iron ore, a pretty big wave of new supply coming.

00:33:41:23 - 00:34:03:04

The Chinese have finally, you know, their investments abroad, outside of China are finally bearing fruit in terms of bringing supply into the market, largely with the Simandou project, in Guinea, which will ramp up, over the next few years. So when you look at this chart, on the right hand side, you might think that iron ore is a pretty tough place to be invested in.

00:34:03:06 - 00:34:23:19

And in many regards, you'd be right. What this doesn't show, though, is that even if prices are not that exciting for the next five years, businesses at the bottom end of the cost curve continue to generate exceptional margins. And so there are always going to be, pockets of the iron ore industry that we will want exposure to.

00:34:23:19 - 00:34:42:13

But again, you've got to be more selective on valuation and ensure you're investing at the bottom end of that cost curve, because some of these new tonnes that are coming in on the supply side are not high cost. The iron ore tonnes that will be brought in in Guinea from the Simandou project will be in the bottom half of that cost curve.

00:34:42:18 - 00:35:05:11

So you just have to be very wary about where you're investing across that business at the moment. Mark mentioned uranium, and this is an area that we've had some exposure to over the last 12 to 18 months, in the portfolio. But it is equally a space which I think in many regards has got a bit ahead of itself.

00:35:05:13 - 00:35:30:10

You know, nuclear will form, a key component of our energy mix, on a ten year plus, view. But the construction of new nuclear plants takes a long time. So when a policy, when policy tone shifts towards nuclear, which it certainly has done in the US, I think it's a little bit more mixed still in Europe, whilst people get very excited very quickly about that.

00:35:30:12 - 00:35:58:01

It does take still many years for that not to be, be seen in, in uranium demand, which is why that supply demand balance doesn't really get exciting until we hit the 2030s. That gap opening up there between supply and demand. So we've pared back some of our investments in upstream uranium mining over the last six months, because we feel things just got a little bit ahead of itself.

00:35:58:03 - 00:36:27:05

And similarly, this, sort of slide here, a lot of the hyperscalers, the data center providers, you know, have have talked positively about nuclear. And whilst that may generate winners in the long run, actually, as Mark spoke about, the big winners in the short to medium term from hyperscalers in the US at least, has been the gas industry because you are able to deploy, power production a lot more quickly and a lot more flexibly than you can, with new, new nuclear.

00:36:27:07 - 00:36:50:03

Hopefully, as we go into the 2030s, small modular reactors, or SMRs will change that. But again, these are technologies where we haven't even seen, you know, plant 001 built yet. So I think we have to be, perhaps a little bit more cautious than some of the more over exuberant equity participants would have.

00:36:50:05 - 00:37:14:09

I thought I'd just put this chart up on the right hand side here just to show that, you know, the Chinese property market having been so important for commodity demand is becoming less important even within the context of China itself. And you can see on the right hand side there, global energy transition demand for copper is now bigger than the copper demand from the Chinese property market.

00:37:14:11 - 00:37:33:20

This is quite a different scenario than what we've faced as mining investors. You know, for my almost 20 years, here. And that clean energy investment is broad. It's happening not just in Western countries, but it's happening significantly in China, as they look to become energy independent or at least as much as they can do.

00:37:34:00 - 00:38:00:12

And that involves and building out significant amounts of, clean energy, but also continuing to invest in their coal infrastructure, and also building out on the gas side. I'm very aware of time, so what I will do is I'll leave this chart up here. There's a couple more charts, but go into gold, which, if anyone wants to ask a question on, I'm more than happy to take, but I'll leave this chart up here, which I think we showed you last year as well.

00:38:00:14 - 00:38:27:07

This just shows you how exciting, the energy transition is from a materials perspective. And this is something that is going to happen regardless of where the winning occurs. You know, Mark spoke about the fact that Chinese auto producers or OEMs have been really successful in capturing market share. I think last year, Chinese cars accounted for just under 40% of cars sold globally.

00:38:27:10 - 00:38:52:05

It's a pretty amazing statistic, given that most people ten years ago had barely heard of a Chinese car brand. But whether it's a Chinese car brand building, a European car brand or a US car brand, they still need the raw materials to go into it. Which is why, you know, the mining component of this fund will remain pretty core to what we do, because it doesn't matter who the winner is from a company or a country perspective.

00:38:52:07 - 00:39:00:16

You know, you still can't create an electric car, out of fairy dust. It still needs copper, aluminum, steel, lithium and nickel.