Pallinghurst launches bold restructure with $150m Gemfields buyout

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Pallinghurst CEO, Arné Frandsen and Brian Gilbertson, chairman.

PALLINGHURST Resources is to buyout minority shareholders in UK-listed gemstones company, Gemfields, by offering $150m in its shares in a transaction that marks the beginning of the group’s transition to an operating company.

The buyout of minority shareholders in another of Pallinghurst Resources’ investments – its Tshipi manganese mine in South Africa’s Northern Cape province – is also on the cards.

In addition, Pallinghurst will cancel is management contract with its underlying investments making its four key executives salaried employees with a mandate to provide hands-on management control over Gemfields.

Currently, Pallinghurst is an investment company with a 47% stake in Gemfields, a 18.45% in Jupiter Mines, a steel feed company, and a 42% stake in Sedibelo Platinum Mines.

The company said earlier this year that it was considering “a value unlock” as its 10-year term initially set out as an investment firm was due to expire.

On May 17, Pallinghurst unveiled a joint venture agreement with the Zimbabwean government in which legislation would be promulgated compelling the country’s platinum miners to sell their concentrate to refineries developed by Pallinghurst. The agreement would see some $500m in investment in Zimbabwe.

An announcement today set down a plans to buy the outstanding shares in Gemfields in a ratio of 1.91 new Pallinghurst shares for each Gemfields share. Gemfields shareholders owning 28% of the company had agreed to the offer which means that Pallinghurst can de-list the company from London’s Alternative Investment Market.

Pallinghurst has extended its life as a closed-end investment firm, registered in Guernsey, since its 10-year term has now expired, but once it lists in London it will become a “box standard” operating company, said Arné Frandsen, Pallinghurst CEO in an interview with Miningmx.

“When we created Gemfields by putting the Kagem emerald mine into the business it was trading at 40 pence per share. It is now trading at 39p many years later,” said Frandsen.

“Gemfields has been on Pallinghurst’s books for 15 years and we have been its bank. But we are not getting a response. It is worth half of our value – the Pallinghurst share price is dependent on Gemfields – and its the key reason why shares in Pallinghurst have gone down. I and my shareholders can’t accept that,” he said.

Frandsen said existing Gemfields management, including CEO Ian Harebottle, would be tasked with operating duties while the marketing of the firm’s investment case would be taken up by Frandsen and his executive team. Brian Gilbertson, founder and chairman of Pallinghurst, Andrew Willis, finance director, chief investment officer, Sean Gilbertson, and Priyank Thapliyal as chief operating officer comprise the core of the executive team.

Frandsen said Gemfields was illiquid and would benefit from incorporation into Pallinghurst which would, in turn, benefit from closer proximity to the cash flow of its underlying businesses.

In addition, Pallinghurst is to accelerate the development of Gemfields’ Zambia and Mozambique assets, explore strategic alternatives with Fabergé through which its emeralds, amethyst, rubies and sapphires are effectively marketed, and improve profitability by cutting costs across the enlarged group.

Gemfields recently trimmed its full year production guidance for 2017 although Macquarie said in a report that although operational setbacks had hampered the share it remained “… confident in the three-year growth plan to nearly double production of rubies and emeralds”. Shares in Gemfields were 5% higher in early London trade.

In March, Gilbertson commented in Pallinghurst’s full-year results review that in respect of the Tshipi mine: “We are exploring all strategic alternatives to realise shareholder value from this asset”. Asked for comment on the possibility it would also be taken out, Frandsen declined to comment.

Pallinghurst has access to Tshipi through its 18.45% investment in Jupiter Mines which, in turn, has a 49.9% stake in Tshipi é Ntle Manganese Mining (Tshipi). Pallinghurst said in December it expected to receive a $10m (R140m) dividend from its stake in the asset which had a bumper year owing to the improvement in manganese prices internationally.

8 COMMENTS

  1. “Box Standard”! Hope that means it won’t employ all the dead wood above! If they have not delivered over 10 years, what idiot would employ them? Problem is not Gemfields, it is Pallinghurst and the enrichment of it’s management – they are like modern day BEE but living in London and Switzerland!

  2. Frandsen lives with his head in the clouds and snout in the pockets of his shareholders – get rid of him, please????

  3. Gemfields will need lots of cash from here! I’m going to wait to buy PGL at R2 again. Maybe by then shareholders will realize they have to change the bloated management team!

  4. Pallinghurst stuffed Faberge into GemFields for $144m and made them pay for Faberge’s hundreds of million dollar losses for the next 8 years. Now, just when Faberge is close to breaking even, they buy it back – swopping it for SA listed Pallinghurst shares (one of the worst performers in the mining arena). Pallinghurst was floated at R10 per share in 2008 and is now trading at 350c!! Some management! And Fransen has the nerve to say that as Gemfields is at the same 40p price when they invested in it, he and his “shareholders can’t accept that”. His Faberge deal is the root cause of the problem. AND his own share price is down 65%!! Gemfields is a great mining company whose price has been wrecked by having to fund Gilbertson’s Faberge folly. The average price target of the 5 brokers who monitor GemFields is 81p per share – MORE THAN DOUBLE Pallinghurst’s outrageous offer. IF THIS ASSET GRAB IS PERMITTED BY THE LSE IT NEEDS TO CHANGE ITS RULES!!!!!!!!!!!!!

    • Howdy – I’ll take this up directly with Arne. Thanks for the comment. For the record, there’s some broker reports that say Gemfields is undervalued so it’s a subject worth pursuing.

  5. NOT JUST SOME BROKER REPORTS!
    All 5 brokers who cover Gemfields rate it as a BUY – and their target prices are:
    Investec UK 69p
    Numis Securities 80p
    Peel Hunt 83p
    Name undisclosed 80p
    Finncap 95p
    Average 81.4p
    Come on LSE – you cannot allow this rape of the minorities.
    Surely it is your fiduciary duty to address this!!!

  6. What’s the reason the share price (PGL) is getting hammered so badly? Surely if they do a major deal it would be good for the company? What am I missing?
    Thanks

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