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

Financial Mail - - MONEY & INVESTING - Char­lotte Mathews math­ewsc@fm.co.za

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

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