Big bosses raking in the loot
Pallinghurst’s plans to address the value gap may not go far enough, say shareholders after the AGM
Shareholders in mining investment company Pallinghurst Resources have two particular grievances, neither of which, they feel, was resolved by management’s assurances after the recent annual general meeting.
The first is the underperformance of the share price, and the second is excessive management remuneration.
Shareholders who have held on since the listing in 2008 at R10, to last week’s share price of 300c, are cradling a 70% capital loss and received no dividends, while members of the investment management entity (headed by chairman Brian Gilbertson and CEO Arne Frandsen) have earned generous fees.
“Shareholders and management are just not on the same page,” a shareholder says, speaking on condition of anonymity. “Management are looking after themselves, not shareholders.”
Another says Pallinghurst’s plan for a new structure does not go far enough to satisfy shareholder concerns and further developments are likely.
That possibility, rather than approval of Pallinghurst’s new plans, may help to explain the recent firming in the share price.
Pallinghurst recently successfully garnered the required number of acceptances to succeed in its bid for all the shares of coloured gemstone miner Gemfields. Pallinghurst shareholders liked the deal but the meeting to approve the Gemfields transaction included a special resolution to extend Pallinghurst’s life beyond its original 10-year term as a closed-end investment trust and to increase remuneration to nonexecutive directors.
Though the resolution was passed, about
22% of shares were voted against it, a similar proportion to those who voted against the nonbinding resolution presented at the AGM a week later to approve the remuneration policy.
Pallinghurst management concedes in the Gemfields circular that the value in Gemfields, Sedibelo Platinum Mines and Tshipi Borwa manganese mine is not reflected in the share price.
It attributes this to the complexities in Pallinghurst’s structure (an external management company and multiple entry points into these assets), complex accounting and lack of consolidated earnings and cash flow.
The proposed solution includes applying for a premium (or primary) listing on the London Stock Exchange and changing from an investment trust to an operating company.
The investment management agreement will be cancelled and Gilbertson, Frandsen and finance director Andrew Willis will be employed on service contracts instead. The team has committed to five-year contracts.
The service contract provides for them to be paid $50,000 (R662,500) a month gross and an annual bonus of between 25% and 100% of the basic annual salary based on share price performance. No bonus will be payable if the share price goes down or rises by less than 10% in the period.
There are generous termination payments.
All this sounds like Pallinghurst will be carrying even more overheads in future.
Gilbertson says there will be some rationalisation of costs with the integration of Gemfields into Pallinghurst. But it is also necessary to bring onto the board managers who are knowledgeable about the business.
The new board appointments include Gilbertson’s son Sean, who is a director of Gemfields and CEO of Fabergé, and Priyank Thapliyal, who is the CEO of Jupiter Mines and a director of Tshipi. The two new nonexecutive directors are Kwape Mmela, who worked for Sedibelo Platinum Mine for 14 years, including as chief strategic officer and deputy chairman; and Erich Clarke, the CEO of Sedibelo, who was previously CFO of Eqstra Holdings.
Whether Mmela and Clarke could be described as fully independent, given their involvement with Sedibelo, is doubtful.
Asked if it was fair to blame Pallinghurst management for the share price underperformance, Gilbertson says it is “ultimately my job to take the blame”.
Still, the value in Gemfields is at least partly due to Pallinghurst’s intervention to buy Kagem and put it into Gemfields, and its full backing of the management team over the years, he says.
The team assembled Sedibelo into a significant project through the longest bear market in the history of platinum. Tshipi’s manganese mine was built from scratch to make it SA’S largest manganese exporter.
Gilbertson says Pallinghurst’s is not the only share price to be hit by the recent period of weak commodities prices. Until early 2016, there were gloomy forecasts about the future of the top diversified miners including Anglo American, Billiton and Glencore.
Pallinghurst’s biggest shareholders are Christo Wiese (who is also a director), with 19.6%;
Old Mutual Investment Group with 9.46%; and Oasis Asset Management with 9.04%.