Pallinghurst is for the patient

[] — Pallinghurst Resources may well be worth a punt for patient resource bulls.

Listed in August 2008 at a price of 850c a share, investors hoped it would give them exposure to the deal-making skills of Brian Gilbertson, formerly CEO of resources giant BHP Billiton.

Within a few days, the share quickly ran up to 1 221c before beginning a steady descent, hitting a low of 200c in March 2009.

Since then the stock has recovered somewhat to 415c, but the market has been left wondering when the company will start to deliver.

Pallinghurst has grown into a more mature business, with four definite focus areas – platinum operations; equity holdings in operations which deliver input materials for the production of steel; consolidation in the gemstone industry and an attempt to re-establish Faberge as one of the world’s most valuable luxury brands.

When Pallinghurst reported interim results in September, the company had a net asset value (NAV) of 514c.

Imara SP Reid analyst Percy Takunda confirmed his long-term “buy” recommendation on the stock saying: “In our view Pallinghurst is an asset ideal for a long-term investor and might be less attractive in the short-term as turn-around and brand recognition could take considerable time.

“We do not anticipate this stock to be earnings generative in the near future but there is considerable potential for capital gains in line with broad market expectations.”

Standard Equities also has a “buy” recommendation on the stock with a price target of 700c and an estimated intrinsic net asset value of 526c.

“Pallinghurst is focusing on the ultimate prize of a consolidated and optimised PGM (platinum group metals) mining complex,” the firm said in a note to clients.

Key to the perceived value within Pallinghurst is its PGM assets. Its main platinum asset is an 8.8% interest in the JSE-listed firm Platmin, representing some 17% of its net asset value. Since the start of January, Platmin shares have slumped from 1 200c to 650c a share.

Platmin released a management update in August, saying that it was ramping up production at its Pilanesberg Platinum Mine.

CEO Tom Dale pointed out that Platmin had faced a number of “short-term challenges” which included unseasonal high rainfall in April and May which made access for trucks difficult and damage to a precipitator at the Northam Platinum Limited metallurgical facility.

Shaken out

In the first half of 2010, unit trusts were net buyers of Pallinghurst, adding 3.5m shares to their portfolios.

The biggest buyer was the Investec Growth Fund which purchased 3 million shares.

The fund is managed by Richard Middle, who commented “It is during times like these that the weak holders of small market capitalisation companies are “shaken out’.

“This has provided an excellent opportunity to acquire holdings in well managed, attractively priced companies which continue to grow outside the borders of South Africa.”