Outlook is gloomy at this point
A change in strategy is not yet having an effect on turning around the diversified mining company’s lacklustre share price
Diversified miner Pallinghurst Resources’ share price has failed to respond to management’s assurances that it is addressing shareholder dissatisfaction about the underperformance of its assets and nonalignment of management and shareholder interests.
The shares, at 250c this week, have almost halved since their January peak of 495c. The net asset value at the end of June was 436c.
Pallinghurst’s chairman is well-known mining deal maker Brian Gilbertson and its CEO is former Goldman Sachs and Jpmorgan investment banker Arne Frandsen.
Frandsen says the recent buyout of minorities in London-listed Gemfields for shares created an overhang but it was part of the strategy to simplify Pallinghurst’s structure and become an operating company. By the end of this month Pallinghurst will be ready to explain how it intends to turn around Gemfields where, in the six weeks since taking over, it has already brought management back from London to the operations and started to review mine plans.
In the six months to June, Pallinghurst made a total loss of US$81.2M, largely because of write-downs in the value of Gemfields and Sedibelo Platinum Mines, in which it holds 7%. Gemfields earned 24% less from auctions of its rubies and emeralds and production from emerald miner Kagem fell to a seven-year low. Sedibelo produced less platinum group metals than last year as it is focused on cutting costs.
Asked if Pallinghurst would consider selling its stake in Sedibelo in view of the fact that this is a minority stake, that platinum prices have been in an extended downturn and that some shareholders believe Sedibelo has no value, Frandsen says this is not the right time to be trading platinum assets.
The best-performing asset is Pallinghurst’s 18.45% stake in Australian-listed Jupiter, which holds 49.99% of the large and shallow Tshipi manganese mine in the Northern Cape and has benefited from manganese prices more than doubling in the past 18 months. Despite its good performance, Jupiter was not revalued upwards. Pallinghurst is considering options for Tshipi, Frandsen says. It is arguably the best manganese mine in the world but manganese prices are cyclical.
Pallinghurst has made three new appointments to its board and committees, including Sedibelo CEO Erich Clarke and a former Sedibelo director, Kwape Mmela. The only truly independent new appointee is Lumkile Mondi, former chief economist of the Industrial Development Corp.
Frandsen says these appointments were made because Pallinghurst is listening to its
shareholders. It is becoming more operational, bringing in people with specific hands-on experience and replacing directors who have resigned.
A shareholder, who asked not to be named, says the recent share-price underperformance reflects not only the exit by many former Gemfields shareholders who do not wish to remain in a diversified company, but also that some of the larger shareholders are still not happy. They missed their chance at the July AGM to change Pallinghurst’s structure and executive remuneration. So executives have entrenched their position. The most likely outcome is not another showdown, but that major shareholders will gradually cut their stakes.
At end-december, Christo Wiese and his family held 19.89% of Pallinghurst, Old Mutual Investment Group held 9.46% and Oasis Group Holdings, through its asset management and Sharia-compliant investment company, held 15.26% in total.
The shareholder quoted earlier says there are not many options now to unlock value. He believes Pallinghurst should increase its stake in Jupiter and though it could realise value by selling Gemfields to Chinese bidder Fosun Gold, which made a counter-offer, this is unlikely to happen. Pallinghurst may be able to generate more cash from Gemfields by paying down debt and increasing sales, but that will take time. He believes Sedibelo’s value is overstated. Another shareholder, who also asked not to be named, believes Sedibelo has no value at all. He says the weak share price reflects the fact that executive management speaks only to a select number of large shareholders, and minorities feel “ripped off” by the lack of capital and dividend return over the past 10 years against generous executive remuneration.
Arne Frandsen: Entrenched