Back­ing Brian

SA in­vestors of­fered chance to join min­ing leg­end Gil­bert­son

Finweek English Edition - - Companies & Markets - BREN­DAN RYAN bren­danr@fin­

IN­VESTORS SHOULD WATCH CLOSELY move­ments in the share price of Pallinghurst Re­sources – Brian Gil­bert­son’s lat­est ven­ture – now that it’s started trad­ing on the JSE at lev­els around 900c/share. The rea­son be­ing that should the stock be af­fected by the cur­rent doom and gloom con­di­tions per­vad­ing South Africa’s ju­nior min­ing sec­tor, then in­vestors just might get the chance to buy in at bar­gain lev­els.

Pallinghurst chair­man Gil­bert­son – and part­ner Arné Frand­sen, who is CEO – aren’t ex­pect­ing that to hap­pen, as the stock should be very tightly held. Frand­sen com­ments: “I wouldn’t ex­pect to see price weak­ness – but it’s an il­lu­sion to be­lieve you can be listed and not be af­fected by mar­ket con­di­tions.”

The shares were placed a year ago with a “se­lect” group of 300 in­sti­tu­tional and in­di­vid­ual SA in­vestors who put up a to­tal of US$170m. Those bought in at R7/share through the ini­tial list­ing on the Ber­muda Stock Ex­change, for which they had to use their for­eign ex­change in­vest­ment al­lowances.

Those share­hold­ings will “mi­grate” to the JSE, which is now Pallinghurst’s pri­mary reg­u­la­tor, and that will free up those ini­tial in­vestors’ for­eign in­vest­ment cap­i­tal.

Though Pallinghurst’s projects look sound, the mar­ket has ham­mered ju­nior re­sources com­pa­nies across the board this year, re­gard­less of the qual­ity of their op­er­a­tions. The main cause has been forced sales by in­sti­tu­tional share­hold­ers who have had to cash in chunks of their port­fo­lios to meet cash re­demp­tions from their funds by in­vestors.

Two of Pallinghurst’s first four projects are lo­cated in SA, with a third in south­ern Zam­bia. The com­pany is also open­ing an of­fice in Cape Town. Gil­bert­son quips: “I had an ar­gu­ment about that with Arné, be­cause I thought Jo­han­nes­burg would be bet­ter. But he main­tains the fund man­agers are all based in Cape Town, while he also just hap­pens to live there.”

The two SA projects in­volve man­ganese in the North­ern Cape and platinum near Rusten­burg, while the Zam­bian op­er­a­tions cen­tre on the Kagem emer­ald mine. Pallinghurst con­trols Kagem through Lon­don AIM-

listed Gem­fields Re­sources, which owns other emer­ald mines in the same re­gion. Frand­sen says in­vestors will get a much bet­ter han­dle on Pallinghurst’s value at endAu­gust, when a direc­tors’ val­u­a­tion of the group’s as­sets will be pub­lished.

Gil­bert­son adds: “We in­di­cated to our back­ers it would take time for us to im­ple­ment our strat­egy but that doesn’t mean they have to sit back and wait for 10 years to get re­turns. We lost the bat­tle for (Aus­tralian base met­als min­ing group) Consmin last year but still made a 150% re­turn on the funds we com­mit­ted. We es­ti­mate our ini­tial in­vest­ment in Fabergé has in­creased four­fold in value.”

Frand­sen says the man­ganese and platinum in­vest­ments made in SA fol­low the min­ing equiv­a­lent of the prop­erty busi­ness adage of “lo­ca­tion, lo­ca­tion, lo­ca­tion”. “We’ve bought into the best ad­dresses for th­ese met­als. We’re car­ry­ing out the bank­able fea­si­bil­ity study for a stand-alone platinum mine on our prop­er­ties but we also con­tinue to think strate­gi­cally. This isn’t just about sink­ing shafts and build­ing head­gears. Next door to our Magazynkraal project is Bar­rick’s Sed­i­belo project, in which the Bak­gatla are also part­ners.”

Pallinghurst’s other platinum ven­ture links into Toronto-listed Plat­min.

Frand­sen adds a bank­able fea­si­bil­ity study is also un­der way into de­vel­op­ing an open­cast mine to pro­duce 2m t/year of man­ganese ore, which would be ex­ported. “We’re in dis­cus­sions with Transnet Freight Rail over the lo­gis­tics of get­ting that ma­te­rial to the coast. Ob­vi­ously, over the longer term we’d like to build a smelter to ben­e­fi­ci­ate that ma­te­rial – but then you run into the power con­straint prob­lems.”

Pallinghurst’s fourth ven­ture is Fabergé, where the plan is to mar­ket top qual­ity “coloured” gem­stones – such as the emer­alds to be pro­duced from the Zam­bian op­er­a­tions. Says Gil­bert­son: “The profit mar­gins in coloured gem­stones are higher than for di­a­monds and I don’t want to sound grandiose but no­body has done in coloured gem­stones what De Beers has done for the di­a­mond in­dus­try.”

Gil­bert­son has been threat­en­ing to re­tire to Plet­ten­berg Bay for years but keeps find­ing new ven­tures to get in­volved in. Asked about his lat­est re­tire­ment plans, he says: “It’s get­ting closer. I mean, the of­fice will now be in Cape Town.”

In­vest­ing in the best min­ing ad­dresses. Brian Gil­bert­son and Arné Frand­sen

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