Baker Steel Regulatory News (BSRT)

BAKER STEEL RESOURCES TRUST LIMITED

(Incorporated in Guernsey with registered number 51576 under the provisions of The Companies (Guernsey) Law, 2008 as amended)

Proposed amendment of the Company's investment policy

Adoption of new Articles of Incorporation

Temporary Suspension of Discount Management Policy

Notice of Extraordinary General Meeting

Introduction

The Board today announces that, following consultation with a number of the Company's largest Shareholders, it is seeking approval from Shareholders for an amendment to the Company's investment policy (the Investment Policy Proposal). The amendment, if approved, will enable the Company to increase its existing investment in Polar Silver Resources Limited and/or any company within its group (the Polar Silver Group) so that such investment may represent up to 35 per cent. of the value of the Company's gross assets at the time of the relevant transaction.

As the Investment Policy Proposal involves a material amendment to the Company's existing investment policy, the approval of the holders of Ordinary Shares is required in accordance with the Listing Rules and the Investment Policy Proposal is therefore conditional on the passing of the Investment Policy Resolution, which will be proposed at the Extraordinary General Meeting of the Company as an ordinary resolution.

Separately, the Company's Existing Articles provide that a majority of the Directors shall be resident for tax purposes outside the United Kingdom and if as a result of the death or resignation of a Director, such majority no longer exists, one or more Directors who are resident in the United Kingdom must resign in order to restore such majority.

As announced by the Board on 19 October 2015, Mr Edward Flood, one of the Directors sadly passed away. As a result and following a recent change in UK tax legislation which for some UK tax purposes removes the need for non-UK alternative investment funds, such as the Company, to appoint local directors and hold their Board meetings outside the UK, the Board believes that it is appropriate for the Existing Articles to be amended to remove these requirements in order to provide the Company with additional flexibility with regard to the composition of the Board. A special resolution will therefore be proposed at the Extraordinary General Meeting to adopt new Articles of Incorporation which will not include any of the existing restrictions relating to UK resident directors (the New Articles Proposal).

The Investment Policy Proposal and the New Articles Proposal are not inter-conditional.

Background to and reasons for the Investment Policy Proposal

Following consultation with a number of the Company's largest Shareholders, the Board is seeking approval from the holders of Ordinary Shares to amend the Company's investment policy in order to enable the Company to increase its existing investment in the Polar Silver Group so that such investment may represent up to 35 per cent. of the value of the Company's gross assets at the time of the relevant transaction.

As at 30 November 2015, the Company had net assets of £45.7 million and a market capitalisation of approximately £21 million. The Company is fully invested with the top 10 investments representing approximately 96 per cent. of the Portfolio by value:

The Company's largest investment is Polar Silver Resources Limited (Polar Silver) which is a private limited company incorporated in the British Virgin Islands that owns 100 per cent. of ZAO Argentum (Argentum), which is incorporated in Russia and in turn holds a 50 per cent. indirect interest in the Prognoz silver project, 444km north of Yakutsk in Russia (the Prognoz Asset). The Company's investment in the Polar Silver Group is in the form of shares in Polar Silver (the Polar Silver Shares), and loan notes in Argentum and Polar Silver (both of which are convertible into Polar Silver Shares). The Company currently owns 27.25 per cent. of the equity of Polar Silver and has lent US$14.835m in aggregate to Polar Silver and Argentum. The Company's Investment Manager, Baker Steel Capital Managers LLP, has advised the Board that there is a disagreement as to the strategy to develop the Prognoz Asset between one of the other major shareholders of Polar Silver (the Polar Shareholder) and the holder of the other 50 per cent. interest in the Prognoz Asset (the Prognoz Shareholder).

In order to remove the uncertainty and risk which this disagreement creates, the Investment Manager is proposing that the Company increases its interest in Polar Silver so that it can achieve a majority control position and undertake further work on the Prognoz Asset so that it can be developed for the benefit of the Shareholders. The effect of this increased interest in Polar Silver, if completed, would be to increase the percentage of the value of the Portfolio represented by the Company's investment in the Polar Silver Group from approximately 21 per cent. to approximately 28 per cent. (depending on the value of the Portfolio at the time and final terms of the proposed additional investment in Polar Silver).

The acquisition of the increased interest in Polar Silver would be made at a valuation which is at, or slightly above, the Company's current carrying value and therefore the acquisition is expected to have a minimal effect upon the Net Asset Value of the Company in the short term. This valuation is regarded by the Investment Manager as fundamentally attractive relative to what it considers to be the risk adjusted fair value of the Prognoz Asset and, accordingly, the Investment Manager believes that acquiring a further interest in the Prognoz Asset should be value enhancing for the Company in the medium to longer term.

The Board, as advised by the Investment Manager, believes that the Prognoz Asset is currently under-developed as a result of the disagreement between the Polar Shareholder and the Prognoz Shareholder and that the increase of the Company's indirect interest in the Prognoz Asset would enable the Company to progress the development of the Prognoz Asset and unlock significant value, whilst at the same time mitigating the risk to the value of its current investment associated with a protracted period of on-going disagreement between the Polar Shareholder and the Prognoz Shareholder. In common with mining assets generally, the Prognoz Asset is dependent on obtaining and maintaining appropriate governmental licences. A renewal of the terms of the Prognoz Asset's current mining licence is required by 31 December 2016. The terms of this mining licence were successfully renewed and extended by the owners of the Prognoz Asset in October 2013 and it is expected that another renewal and extension will be approved provided that a sufficient degree of technical work has been undertaken. However, the rate of progress of work on the Prognoz Asset has been hampered by the disagreement between the shareholders, and there is a risk that unless technical work is resumed, the relevant Russian governmental authorities will not grant another extension of this licence, which could have a material and adverse effect on the value of the Company's investment in the Polar Silver Group.

To the extent necessary, it is intended that the acquisition would be funded by a partial disposal of other investments held by the Company, although it is not intended that there will be a significant reduction in the total number of holdings in the Portfolio. Although there would be an increase in exposure to silver and to Russia, the Portfolio would continue to be diversified in terms of both commodity and geographic exposure following the increased investment in the Polar Silver Group and the objective of spreading investment risk would continue to be achieved. 

The Company's current investment policy limits the amount which the Company may invest in or lend to any one particular company or group of companies, to no more than 20 per cent. in aggregate of its gross assets as at the date of the relevant transaction.

In order to enable the Company to achieve a control position in Polar and to provide a degree of flexibility, it is proposed that the Company's current investment policy be amended to allow for the Company to increase its investment in the Polar Silver Group to an amount not exceeding 35 per cent. of the value of its gross assets as at the date of the relevant transaction.

Although the increased interest in Polar Silver would be expected to increase the percentage of the Portfolio value represented by the Company's investment in the Polar Silver Group, the Board and the Investment Manager will seek to reduce the Portfolio weighting of the Polar Silver Group to below 20 per cent. of the Company's gross assets over time, with a view to balancing the objectives of maximising Shareholder value and maintaining a diversified Portfolio.

The full text of the Company's current investment policy and the proposed amendments are set out in the appendix to this announcement.

Risks associated with proposed change in investment policy

The proposed change to the Company's investment policy, in addition to the increase in quantum of the specific risks associated with investment in a single project such as the Prognoz Asset, would increase the Company's exposure to US Dollars (being the currency in which the Company's investment in Polar Silver is denominated) and therefore Shareholders would potentially have greater exposure to the USD/GBP exchange rate. The Company's exposure to silver and its exposure to Russian assets would also increase.

Background to and reasons for the New Articles Proposal

The Company's Existing Articles provide that a majority of the Directors shall be resident for tax purposes outside the United Kingdom and if as a result of the death or resignation of a Director, such majority no longer exists, one or more Directors who are resident in the United Kingdom must resign concurrently in order to restore such majority.

As a result of a recent change in tax legislation in the UK, a non UK alternative investment fund, such as the Company, will not be treated as being resident in the UK for certain UK tax purposes merely by having a majority of UK resident directors or by virtue of holding board meetings in the United Kingdom. Accordingly, and provided that the Company does not carry on a trade in the UK through a permanent establishment, the Company will not be subject to UK income tax or corporation tax on its profits other than on any UK source income. 

As announced by the Board on 19 October 2015, Mr Edward Flood, one of the Directors sadly passed away which means that the Board no longer comprises a majority of non-UK resident Directors. As a result and in view of the recent changes in UK tax legislation referred to above, the Board believes that it is appropriate for the New Articles to be adopted which do not include the existing restrictions relating to the UK resident directors, in order to provide the Company with additional flexibility with regard to the composition of the Board and the location of future Board meetings. The New Articles Resolution will therefore be proposed at the Extraordinary General Meeting which, if passed, will delete the relevant provisions which contain these restrictions.

A copy of the New Articles, as proposed to be adopted by the passing of the New Articles Resolution is available for inspection (i) from the date of the Circular to the conclusion of the Extraordinary General Meeting, at the registered office of the Company, Arnold House, St. Julian's Avenue, St Peter Port, Guernsey, GY1 3NF; and (ii) at the place of the Extraordinary General Meeting for at least 15 minutes before and during the meeting.

Temporary suspension of Discount Management Policy

As set out in the prospectus published by the Company on 26 January 2015 the Board has adopted a Discount Management Policy under which the Company will on a monthly basis, following publication of its monthly Net Asset Value, calculate the aggregate net cash proceeds of realisation over the immediately preceding six month period. If the Ordinary Shares trade at a discount in excess of 15 per cent. to their Net Asset Value, the Company intends to allocate at least 50 per cent. of such realisation proceeds (less the aggregate value of any Ordinary Shares already bought back during the six month period) to buy back its own Ordinary Shares.

As the proposed terms of the acquisition of an additional interest in Polar Silver will constitute "inside information" for the purposes of the Financial Services and Markets Act 2000, the Board has resolved to suspend the operation of the Discount Management Policy temporarily, and accordingly it will not buy-back any further Ordinary Shares under the Discount Management Policy or otherwise, until the proposed acquisition has either completed or been terminated. A further announcement will made via a Regulatory Information Service once this suspension is lifted.

Extraordinary General Meeting

The Extraordinary General Meeting has been convened for 9:30 a.m. on 4 January 2016.

The Investment Policy Resolution will be proposed as an ordinary resolution of the Company, requiring the approval of a simple majority of the votes recorded and will, if passed, amend the investment policy of the Company so as to allow the Company to increase its investment in the Polar Silver Group provided this investment shall not exceed 35 per cent. in aggregate of the value of the Company's gross assets as at the date of the relevant transaction.

The New Articles Resolution will be proposed as a special resolution of the Company and will require the approval of 75 per cent. of the votes recorded.

Shareholders representing approximately 54 per cent. of the Company's issued share capital have confirmed to the Board that it is their intention to vote in favour of the Resolutions.

All Shareholders are entitled to attend the Extraordinary General Meeting and vote on the New Articles Resolution. Only holders of Ordinary Shares are entitled to vote on the Investment Policy Resolution. In accordance with the Articles, in relation to the Resolution(s) in respect of which a Shareholder is entitled to vote, such Shareholder present in person otherwise than by proxy shall, upon a show of hands have one vote, and on a poll such Shareholder present (including by proxy) shall have one vote in respect of every share held in the Company. In order to ensure that a quorum is present at the Extraordinary General Meeting it is necessary for one Shareholder entitled to vote on each Resolution to be present, whether in person or by proxy (or, if a corporation, by a representative).

The Resolutions are not inter-conditional.

Recommendation

The Board considers that the Proposals are in the best interests of Shareholders as a whole. Accordingly, the Board recommends that Shareholders vote in favour of the Resolutions to be proposed at the EGM, as the Directors intend to do in respect of their own beneficial holdings of Ordinary Shares, which, in aggregate, amount to 121,198 Ordinary Shares, representing approximately 0.11 per cent of the existing issued share capital of the Company as at the date of this document.

Enquiries:

Baker Steel Resources Trust Limited +44 20 7389 8237

Francis JohnstoneTrevor Steel

Numis Securities Limited +44 20 7260 1000

David Benda (corporate)

James Glass (sales)

HSBC Securities Services (Guernsey) Limited + 44 (0)1481 707 000

Company Secretary

Defined terms used in this announcement shall (unless the context otherwise requires) have the same meanings as are set out in the circular published by Baker Steel Resources Trust Limited dated 18 December 2015.

APPENDIX - INVESTMENT POLICY

If the Investment Policy Resolution is passed at the EGM, the full text of the Company's amended investment policy will be as set out below. The only section that will be amended if the Investment Policy Resolution is passed relates to the increase in the proportion of portfolio assets that can be invested in the Polar Silver Group. These amendments are included in bold underlined text below.

Investment objective

The Company's investment objective is to seek capital growth over the long-term through a focused, global portfolio consisting principally of the equities, or related instruments, of natural resources companies. The Company invests in unlisted companies (i.e. those companies that have not yet made an initial public offering or IPO) and in listed securities (including special situations opportunities and less liquid securities) with a view to making attractive investment returns through the uplift in value from development progression of the investee companies' projects and through exploiting value inherent in market inefficiencies and pricing anomalies.

Investment policy

The core of the Company's strategy is to invest in natural resources companies, predominantly unlisted, that the Investment Manager considers to be undervalued and have strong fundamentals and attractive growth prospects.

Natural resources companies, for the purposes of the investment policy, are those involved in the exploration for and production of base metals, precious metals, bulk commodities, thermal and metallurgical coals, industrial minerals, energy and uranium and include single-asset as well as diversified natural resources companies.

It is intended that unlisted investments be realised through an IPO, trade sale, management repurchase or other methods.

The Company focuses primarily on making investments in companies with producing assets and/or tangible assets such as resources and reserves that have been verified under internationally recognised standards for reporting, such as those of the Australasian Joint Ore Reserves Committee. The Company may also invest from time to time in exploration companies whose activities are speculative by nature.

The Company has the flexibility to invest in a wide range of investments in addition to unlisted and listed equities and equity-related securities, including but not limited to commodities, convertible bonds, debt securities, royalties, options, warrants and futures. Derivatives may be used for efficient portfolio management, hedging and for the purposes of obtaining investment exposure.

The Company may also have exposure from time to time to other companies within the wider resources and materials sector, including services companies, transport and infrastructure companies, utilities and downstream processing companies.

The Company may take legal or management control of a company from time to time. The Company may invest in other investment funds or vehicles, including any managed by the Manager or Investment Manager, where such investment would be complementary to the Company's investment objective and policy.

Limits

There are no fixed limits on the allocation between unlisted and listed equities or equity-related securities and cash although, as a guideline, typically the Investment Manager will aim for the Company to be invested over the long-term as follows:

· between 40 and 100 per cent. of the value of its gross assets in unlisted equities or equity related securities;

· up to 50 per cent. of the value of its gross assets in listed equities or equity-related securities;

· up to 10 per cent. of the value of its gross assets in cash or cash-like holdings;

· typically in between 10 to 20 core positions to provide adequate diversification whilst retaining a focused core approach. Core positions will typically be between 5 per cent and 15 per cent. of the NAV as at the date of acquisition.

The actual percentage of the Company's gross assets invested in listed and unlisted equities and equity-related securities and cash and cash-like holdings and the number of positions held may fall outside these ranges from time to time. For example, listed securities might exceed the above guideline following a significant number of IPOs or in certain market conditions and likewise cash balances may exceed the above guideline following the realisation of one or more investments or following the issue of new equity in the Company, pending investment of the proceeds.

The investment policy has the following limits:

· Save in respect of cash and cash and cash-like holdings awaiting investment and except as set out below, the Company will invest or lend no more than 20 per cent. in aggregate of the value of its gross assets in or to any one particular company or group of companies, as at the date of the relevant transaction.

· The Company's investment in Polar Silver Resources Limited and/or any company within its group (the Polar Silver Group) may exceed the limit set out above provided that the Company will not invest or lend more than 35 per cent in aggregate of the value of its gross assets in the Polar Silver Group as at the date of the relevant transaction.

· No more than 10 per cent. in aggregate of the value of the gross assets of the Company may be invested in other listed closed-ended investment funds, except for those which themselves have stated investment strategies to invest no more than 15 per cent. of their gross assets in other listed closed-ended investment funds.

Where derivatives are used for investment exposure, these limits will be applied in respect of the investment exposures so obtained.

The Company will avoid (a) cross-financing between the businesses forming part of its investment portfolio and (b) the operation of common treasury functions as between it and the investee companies.

Gearing

When deemed appropriate, the Company may borrow up to 10 per cent. of NAV for temporary purposes such as settlement mismatches. Borrowings will not however be incurred for the purposes of any Share repurchases.

The Investment Manager will not normally hedge the exposure of the Company to currency fluctuations.