BlackRock World Mining (BRWM ) could be on the verge of a rerating as China ramps up stimulus measures for its ailing economy, a key factor behind the trust’s underperformance in 2023 and a 17% cut to the final dividend.

Shares in the £960m London-listed fund have added 3.4% this week after Premier Li Qiang outlined an ambitious 5% growth target for China’s economy at this week’s National People’s Congress.

That should lift commodities and mining stocks, said BRWM chair David Cheyne who is stepping down at the AGM on 14 May.

In a coup for the trust, Cheyne will be replaced by Chip Goodyear, a former BHP chief executive, who joined the board in August. Goodyear will donate his £52,500 fee to the Julian Baring Scholarship Fund.

The annual report yesterday showed underlying returns per share had fallen 6.2% in the year to January, including dividends, while shareholder returns dropped 10.4%, as the trust dramatically fell from the point of issuing shares in May to a 3.3% discount.

These returns fell short of the MSCI ACWI Metals & Mining 30% Buffer 10/40 Index, which rose 2.4%, not to mention the FTSE 100, which added 7.7% and the consumer price index’s 4% gain.

While the dividend cut to 33.5p per share was not as bad as the 25% reduction predicted by Stifel analysts, fund managers Evy Hambro and Olivia Markham flagged the 16.6% drop in revenues as commodity prices softened, the US dollar weakened and higher costs made an impact. The 8%-yielder pays out virtually all its income, meaning the dividend was fully covered by earnings.

Cheyne also pointed to the increased volatility caused by higher interest rates, the challenging political backdrop with conflicts in both Eastern Europe and the Middle East, as well as structural competition between the US and China. However, he was optimistic.

‘Remaining Covid-19 pandemic era supply disruptions are also fading and the Chinese government has moved forward with a series of stimulus measures to turn round its ailing economy which should support commodity demand,’ Cheyne said.

‘The energy transition to a low carbon economy is also set to increase demand for materials in the supply chain for low carbon technologies, including copper, steel and lithium, which is a positive tailwind for selective parts of the mining sector.’

Hambro and Markham noted the apparent change in China’s demand for commodities, with investment into renewable infrastructure, manufacturing and electric vehicles growing significantly, against the decline of more traditional areas of commodity demand such as property.

For mining companies whose balance sheets remain strong and management teams are anchored to disciplined capital allocation frameworks, the challenge will be balancing the desire to invest either for decarbonisation or growth, versus returning capital to shareholders, Hambro and Markham said.

They reiterated that while dividend payments were lower than the peak of a few years ago, they remained competitive with bonds and cash meaning shareholders are being paid to wait for the positive outlook to be reflected in share prices.

Stocks take a bashing

The trust also suffered from company-specific factors, with the populist Panama government forcing the closure of First Quantum Minerals’ largest asset and Australia’s Chalice Mining sliding after investors baulked at the cost of developing its Gonneville minerals cluster north of Perth.

Weakness in lithium prices, which dropped 33% over the year, also hurt some holdings.

The managers emphasised the trust’s longer-term performance, with underlying returns over five years to the end of January totalling 78%, beating the benchmark’s 62%, while the shares shot up 105%.

The company’s largest holdings include several Citywire Elite Companies, including 9.8% in AAA-rated Australian miner BHP, A-rated Brazilian mining company Vale, which makes up 8.7% of assets, and AAA-rated Rio Tinto (RIO), a 7.7% weighting.

Stifel’s Iain Scouller expects the board to reduce the final dividend again in a year’s time as a number of holdings are already indicating ‘sizeable’ cuts themselves. Given the current 4% discount to NAV, he retained a ‘neutral’ recommendation.

Deutsche Numis analyst Gavin Trodd pointed out that NAV is down year 12% year to date, double the benchmark’s fall as Rio Tinto and Vale have been hit by price weakness.

He also noted that the board has not bought back any shares since they started trading on a discount last June, having issued £15.7m in the first half of the year, and nor did the board have a buyback policy in place.