Baker Steel Regulatory News (BSRT)

Baker Steel Resources Trust Limited

Update re: Polar Silver investment

27 April 2016

Further to the EGM held on 5 January 2016 the Board of Baker Steel Resources Trust Limited (the "Company") is pleased to provide an update on its intention to increase its ownership in Polar Silver Resources Limited and/or any company within its group (the "Polar Silver Group").

Polar Silver Resources Limited ("Polar Silver") is the Company's largest investment representing 25.8 per cent. of the net asset value as at 31 March 2016. It 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"). An NI 43-101 compliant report by independent consultants Micon International Limited ("Micon") in July 2009, estimated an indicated resource of 5.86 million tonnes of ore grading 773 g/t silver containing 146 million ounces silver and inferred resources of 9.64 million tonnes of ore grading 473g/t silver containing 147 million ounces silver. An NI 43-101 compliant preliminary economic assessment by Micon envisages a mine producing an average of 13 million ounces of silver per annum over a 16 year mine life.

The Company's investment in the Polar Silver Group is in the form of shares in Polar Silver ("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$14.84m 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 another major Polar Silver shareholder and the holder of the other 50 per cent. interest in the Prognoz Asset. In order to remove the uncertainty and risk which this disagreement creates, the Investment Manager has proposed that the Company increases its interest in the Polar Silver Group so that the Company can achieve majority control position and undertake further work on the Prognoz Asset so that it can be developed for the benefit of its shareholders.

Accordingly, a wholly owned subsidiary of the Company, Polar Acquisition Limited ("PAL"), has made an irrevocable offer (the "Offer") to acquire Polar Silver's entire holding in Argentum in accordance with the rights set out in the shareholders' agreement between the significant shareholders in Polar Silver.

The Offer has been made at a valuation around the Company's current carrying value and therefore the acquisition is expected to have a minimal effect upon the Company's Net Asset Value 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 Offer is subject to pre-emption by certain other Polar Silver shareholders, which if exercised, would result in the cash repayment of the Company's convertible loan investment (US$14.84m, equivalent to 25.8% of the Company's NAV at 31 March 2016) and payment for its equity holding in Polar Silver (with the loan repayment representing the majority of the total consideration received) such that a pre-emption would be broadly NAV neutral to the Company.

On the assumption that these pre-emption rights are not exercised, on completion of the Offer the Company's indirect interest in the ordinary shares of Argentum, via its new holdings in PAL, would increase to over 50% thereby providing it with a control position.

The Offer structure is such that holders of convertible loans and ordinary shareholders in the Polar Silver Group can elect to receive settlement in new shares of PAL or cash. The value of the Offer is such that, coupled with the minimum level of anticipated acceptances in PAL shares, the maximum anticipated cash outlay required by PAL would be equivalent to approximately 5% of the Company's NAV at 31 March 2016, which would be funded from existing cash resources and/or portfolio realisations. Further, PAL has identified potential third party investors which, if they subscribe for new PAL shares, would result in a reduced (or potentially no) cash funding requirement from the Company.

Assuming the Offer completes, the Company's holding in the Prognoz Asset through its new holdings in PAL will increase such that pro-forma it is expected to represent around 30% of the Company's NAV as at 31 March 2016, which is in accordance with the revised investment restrictions as approved by shareholders at the EGM held on 5 January 2016. Assuming completion of the Offer, the Company's effective equity interest in the Prognoz Asset will be between 30-35%.

The settlement of a significant portion of the consideration payable under the Offer is subject to extension of the Mining License for Prognoz. The Board has been advised by the Company's Russian counsel that application for extension of the license is valid under law. The Investment Manager has a reasonable expectation that this extension will be granted.

It is anticipated that the Offer will complete (or pre-emption by other Polar Silver investors will take place) around mid-year, although it could be sooner by agreement.

The Company will keep investors updated on developments.

Enquiries:

Baker Steel Resources Trust Limited

+44 20 7389 8237

Francis Johnstone

Trevor Steel

Numis Securities Limited

+44 20 7260 1000

David Benda / Nathan Brown (corporate)

James Glass (sales)