A copy of the Company's Half Year Report will shortly be available on the Company's website (https://ncim.co.uk/wp/city-natural-resources-high-yield-trust/) on the National Storage Mechanism (https://data.fca.org.uk/#/nsm/nationalstoragemechanism) and will also be provided to those shareholders who have requested a printed or electronic copy.

CQS NATURAL RESOURCES GROWTH AND INCOME PLC

Interim Results Announcement

for the six months ended 31 December 2021

[Graphs and charts are included in the published Half-Yearly Financial Report which is available on the Company's website at https://ncim.co.uk/city-natural-resources-high-yield-trust/]

Our Objective

To provide shareholders with capital growth and income predominantly from a portfolio of mining and resource equities and of mining, resource and industrial fixed securities.

Financial Highlights

*based on an annualised dividend of 5.60p (31 December 2020: 5.60p)

Chairman's Statement

Overview

The six-month period under review to 31 December 2021 has seen the major global stock markets rise although worrying signs of higher inflation began to be seen towards the calendar year-end. Commodity markets were strong and interestingly for the sector higher interest rate expectations are supporting a broad market rotation into value, which is supportive for mining and energy equity values, given their current strong free cash flow generation.

Investment, Share Performance and Discount

The NAV total return for the six months to 31 December 2021 was +15.16% which compares to a increase in the composite benchmark of 0.18%. The Fund benefited from good asset allocation from its overweight positions in copper, shipping and lithium. On the individual stock positions, we saw excellent returns from Talon Metals, Sigma Lithium Resources, Foran Mining and NexGen.

The Company's share price return was more disappointing with a total return of -0.61% for the six months to 31 December 2021. The discount at which the shares traded has widened from 3.5% at the end of June 2021 to 20.3% as at 31 December 2021. This is a major concern for the Board and we have been working with our advisors to better promote the excellent returns we have seen over the last 18 months. At the time of writing the position has improved and the discount currently stands at 15.3%.

Dividends and Income

The Board considers that the dividend policy is very attractive to shareholders and therefore provides an element of share price stability especially whilst other companies have been forced to cut dividends. The Company has continued to maintain the dividend and has paid two quarterly dividends of 1.26p each per share during the year to date.

Since the Manager is focused on generating capital growth and income from the portfolio the dividend may not always be completely covered by income and in those circumstances the Board will use distributable reserves to meet any shortfall. The yield on the Company's shares is 2.9% as at 9 March 2022.

Gearing

As at 31 December 2021 the gearing was 10.9% but has increased to 11.6% as at 9 March 2022. The Scotiabank facility was renewed during the six-month period and a new two-year facility for £20 million was agreed in September 2021. The amount drawdown under the Scotiabank facility is currently £19 million.

Board Changes

I have been a Director of the Company since 2006 and became Chairman in March 2018. I will be stepping down as a Director of the Company on 31 March 2022. Helen Green will be taking over as Chair on that date and I wish her and my colleagues on the Board my best wishes for the Company going forwards.

Outlook

Just as the global economy was beginning to recover after the pandemic the unprovoked invasion of Ukraine by Russia has resulted in extreme volatility in financial markets and significant increases in energy prices.

The severe sanctions imposed by the West on Russia has accelerated governments to rethink energy, defence and food security policies. The transition to low carbon economy will be at the forefront of these policies.

Commodity prices were already rising prior to Russia's invasion of Ukraine but now these raw materials are centre stage for investors forward planning. The Manager has articulated these trends in more detail in their report and the Fund was well positioned to take advantage of these before the crisis in Ukraine deepened.

Inflationary pressures are now rising along with these commodity price increases, and the Fund is also protected with a significant exposure to gold and other precious metals.

The closed end structure of the Fund has enabled it to take positions in less obvious and liquid stocks and expect these to provide very positive returns.

Since the year end the net asset value of the Fund has increased by 15.3% to 224.94 per share.

I would like to conclude again by extending my thanks to the Manager and all the shareholders for their continued support.

Richard Prickett

Chairman

10 March 2022

Investment Manager's Review

Raw materials at forefront of investor thinking

Recent commodity price moves have pushed raw material supply to the forefront of investor thinking. Against a backdrop of recovering economic growth and supply constraint inflationary pressures have been building for some time. In such an environment the Trust has performed well. The Fund returned 15% in the second half of 2021 and at the time of writing, year-to-date returns have risen a further 12%.

Behind these figures the composition of performance has changed. Strong gains by metals exposed to energy transition such as copper together with lithium and rare earth metal miners have latterly shifted more in favour of traditional sources of energy. The Fund has seen some rebalancing of exposure over the last year that continues to offer protection against ongoing inflation which may take time to resolve. 

Resource vulnerabilities reshape the outlook

Following a decade of underinvestment and exacerbated by Russia-Ukraine events, persistently high input prices have shattered complacency towards the sector. Notwithstanding government response to Russia's aggression, the extent of commodity price moves is reshaping fundamental thinking with regards government policy, economic growth and the composition of growth. In addition to addressing commodity supply deficits, the lack of diversification in the sources of supply, to better manage raw material availability and help mitigate extreme commodity price volatility, will become more integral to long-term strategic planning. Importantly, the Fund portfolio had already adjusted to reflect such shifts, itself becoming more diversified to more appropriately balance the short and long-term outlook for various commodities: in the short-term there is an immediate need to responsibly source energy; longer-term we expect commodity price moves to reset expectations regarding the pace at which energy transition evolves.

At the time of writing exposure to copper, oil & gas production and precious metals, each stand at around 20% of assets. Energy storage minerals such as rare earth metals, lithium and nickel represent nearer 15% of assets. Exposure to shipping, which is biased towards transportation of energy, stands at around 8% of assets. Elsewhere, by virtue of strong performance, the Fund's exposure to nuclear power has become a more meaningful position as investors recognise the value inherent in existing clean, baseload generating capacity which has recaptured credence as many country's reassess their energy policies.

Perhaps most notably, the Fund began increasing exposure directly into traditional fossil-based energy over the summer of 2021 as the perceived risks to energy supply increased. Investment in low cost, rapid response US shale production figured highly in this rotation. Names such as Precision Drilling were added in anticipation of a pick-up in North American oil and gas production given a more expedient need for a sizeable supply response than seen thus far in the post-covid recovery. Other companies added to the portfolio include EOG, Diamond Back and Vermilion Energy, that owns significant Europe facing gas production. Cognisant of the risks, in late summer 2021 the Fund took a small position in Gazprom, a pressure point for the supply of gas into Europe.Following its suspension from the London Stock Exchange this investment has been written down to zero.

Some modest exposure to coal production was also added. This was largely funded by a reduction in exposure to industrial metals such as copper which was already in the process of being reduced as potential risks emerged from China's property slowdown. The Fund also took some profits on soon-to-be lithium producer, Sigma Lithium, which has made an outstanding contribution to performance.

The Fund retains exposure to precious metals. While the contribution to performance was muted in the six months to end-December, with gold and related equities trading in narrow range as markets grappled with the competing forces of rising inflation and rising interest rates, the prospect of stubbornly high inflation and less hawkish rate outlook has latterly seen a return of investment flows into the precious metal sector. Precious metal valuations remain extremely attractive. Exposure continues to provide cheap insurance should the tragedy in Ukraine escalate further while also protecting against stagflation risks should raw material prices remain high despite decelerating demand growth. More immediately, the shift in the EU's industrial competitiveness brought about by higher energy prices is already feeding into the ECB's mind set; it comes as little surprised that ECB monetary policy has become less hawkish which has prompted some increased attention on precious metals.

Recent events accentuate trends already underway

Commodity prices rises over the interim period have more recently accelerated. Recent events, in particular the  invasion of Ukraine, has served to accentuate rising commodity price trends that have been underway since the post-covid process of reopening economies took hold in early 2021. Combined with rising demand during the unlocking process the more recent Russian incursion has seen a broader scramble for energy which has, at least temporarily, upended the clean energy investment theme. Long-term goals to reduce fossil fuel consumption have been demoted as regions scramble to ensure energy is available for immediate needs.

Nowhere has this been felt more acutely than in energy markets in regions such as Europe, which has found itself squeezed by an extreme energy shortage. The global drive to reduce fossil fuel consumption has not only discouraged investment in traditional fuels curbing underlying supply but many utilities also wound down fossil fuel inventories to the lowest level on record. The region has found itself exposed to extreme supply shortages in the post covid economic rebound. Furthermore, Europe's energy policies placed considerably more reliance on imported fuel, notably from Russia, to meet future gas needs. Even without deliveries from the now stalled Nordstream II gas pipeline, Russia provided approximately 40% of the Europe's gas.

As illustration, one year forward gas prices in Europe, for delivery in December 2022, had risen nearly four-fold in the calendar year to end-December 2021, the majority of this rise occurring in the second half of the year. Since Russia's invasion of Ukraine, the price of gas for December 2022 delivery has risen a further 160% as sanctions on trade bite. Alternate fuels sought to fill the energy supply gap have seen similar price moves. The thermal coal market, another sector in which Russia has a dominant 20%+ share of global export trade, has seen seaborne benchmark prices (FOB Australia) rising over 60% during calendar 2021 and prices have since doubled in the year-to-date. Analogous moves have also impacted crude markets. The price of Brent crude, which had risen nearly 50% in 2021, has now more than doubled and at the time of writing stood at US$126 per barrel.

At the vanguard of economic growth, supply shortages and energy price rises continue to exert inflationary pressures that may take time to address. The Fund is well positioned to sustain returns in a fast changing world reconfiguring to blend short-term energy requirements with longer-term environmental goals. Our closed ended structure, which allows a focus on more attractively valued, less liquid investments, provides another dimension to this.

Ian Francis, Keith Watson and Rob Crayfourd

New City Investment Managers

10 March 2022

Classification of Investment Portfolio by Sector

[Graphs and charts are included in the published Half-Yearly Financial Report which is available on the Company's website at https://ncim.co.uk/city-natural-resources-high-yield-trust/]

Investment Portfolio

As at 31 December 2021

Note 1 - Includes First Quantum Minerals valued at £10,521,000 and First Quantum Minerals 7.5% 01/04/2025 ** valued at £760,000.
Note 2 - Includes REA Holdings 9% preference shares valued at £4,975,000, REA Finance 8.75% 31/08/2025 ** valued at £452,000, REA Holdings valued at £256,000 and REA Holdings warrants valued at £35,000.
Note 3 - Includes Euronav valued at £4,444,000, Euronav Luxembourg SA 6.25% 14/09/26 ** valued at £454,000 and Euronav Luxembourg SA 7.5% 31/05/2022 ** valued at £150,000.
Note 4 - Includes Talon Metals valued at £4,203,000 and Talon Metals Warrants valued at £nil.

** Denotes a Level 2 security