Gilbertson’s new listing harks back to old mining house system
THE JSE LISTING OF Brian Gilbertson’s Pallinghurst Resources (Guernsey) is a welcome change of plan (see story on p. 31). When I spoke to him in London last July, his feeling was that rather than list his holding company, he’d prefer to list its individual interests. In fact, the current company was nominally listed on the Bermuda Stock Exchange last September, though there has only been one trade: the equivalent of 500 000 shares at the nominal value of US$1/share.
But in fact what’s on offer isn’t the ultimate top company in Gilbertson’s complex Pallinghurst group – that’s the British limited partnership Pallinghurst Resources LLP – and its structure bears surprising resemblances to aspects of the old mining house system. While Gilbertson (chairman) and Arné Frandsen (CEO) are executive directors, there’s an investment management contract with Pallinghurst (Cayman), a limited partnership registered in the Cayman Islands, a well-known (some would say notorious) offshore financial centre.
The Cayman entity is entitled to an annual fee of 1,5% of the company’s funds for the first five years, the same 1,5% (but calculated differently) thereafter and, prob- ably more importantly, a performance incentive. That’s related to a hurdle defined as an 8% compound return on retained funds. Simplifying the legalese, the Cayman entity will take all the next 2% return and 20% after that.
Let me try and elucidate with a hypothetical example. Should Pallinghurst earn its target 25% return on its funds, investors will be allocated the first 8%, Cayman the next 2%, investors will get 80% of the other 15% (or 12%) and Cayman the other 20% (or 3%). Totting that up, investors will get 20% and Cayman 5%.
The executives of the investment manager have taken up shares worth $11m. For all practical purposes I imagine you may equate the investment manager with Messrs Gilbertson and Frandsen. That may be a substantial incentive – but it’s also a substantial reward. I should point out Gilbertson and Frandsen will receive no directors’ fees; but this creaming off of profits from shareholders is reminiscent of how top execs of the old mining houses flourished.
It’s a mechanism more commonly found in asset managers and property administrators rather than operating companies and it’s relevant that Pallinghurst is being listed not under “General mining” or even “Diversified industrial” but as an “Equity investment instrument” along with the likes of Brimstone, HCI (the sector leader, with a market cap of R7,5bn), Makalani and Sabvest.
Pallinghurst’s portfolio has been widely written about, so I won’t go into detail. It includes the Fabergé brand and a see-through 28% stake in the Gemfields emerald mine in Zambia, to which, as soon as possible after the listing, will be added interests in the Ntsimbintle manganese prospect near Samancor’s Mamatwan mine and two platinum prospects – the hot commodity of the moment, despite recent price weakness.
The balance sheet puts total assets at $172m, of which Fabergé contributes $26,5m, Gemfields $31,9m, a $2,3m loan to the manganese project and $112,7m cash and near cash, of which $35,3m is described as “unallocated”. That seems to leave a fair sum for further ventures.
With 169,3m shares in issue, net asset value is 102c/share (US) – around 785c (SA). Writing (due to deadlines) before the start of the listing, I hesitate to suggest how the share price may relate to that. Much may depend on how many shares the 67,4% controlling shareholder – a Guernsey charitable trust whose beneficiaries aren’t disclosed – decides to make available to the market.
However, I hope it develops an active market and I look forward to the deployment of that “unallocated” $35,3m, as I’m sure the investment managers won’t want it to sit idly in a bank for too long earning only nominal interest.