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PGL - Pallinghurst Resources (Guernsey) Limited - Interim results for the period

Release Date: 25/09/2008 13:00
Code(s): PGL
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PGL - Pallinghurst Resources (Guernsey) Limited - Interim results for the period ended 30 June 2008 Pallinghurst Resources (Guernsey) Limited Registration Number: 47656 (Incorporated in Guernsey) ISIN: GG00B27Y8Z93 BSX share code: PALLRES JSE share code: PGL ("Pallinghurst" or "the Company") INTERIM RESULTS for the period ended 30 June 2008 * NAV per share up 27% (US$) / up 45% (Rand) * Successful listing on the JSE HIGHLIGHTS OF THE PERIOD TO 30 JUNE 2008 * Net asset value per share of $1.30 (R10.15) * Received exit proceeds of the Consolidated Minerals investment at an IRR in excess of 150% * Share placing made in June 2008 to new and existing strategic equity partners in Faberge Limited, implying a significantly higher rerating in the Faberge investment valuation * Successful reverse takeover of Gemfields by Rox Limited (a portfolio company) and GBP 30 million share placing completed in June 2008 HIGHLIGHTS SINCE 30 JUNE 2008 * Successfully listed on the JSE * Exercised entitlement to invest in a black empowered manganese investment in the Kalahari Basin of South Africa * Exercised entitlement to invest in a black empowered platinum group metals (PGMs) investment in the Western Limb of the Bushveld Igneous Complex of South Africa * Gemfields has released details of a potential offer for TanzaniteOne, the world`s leading producer of tanzanite. If a bid proceeds and is successful, a combined Gemfields/ TanzaniteOne entity would create the world`s leading coloured gemstone producer Pallinghurst Resources Guernsey CEO Arne H Frandsen commented: "I am delighted to be able to report an increase in US$NAV of 27% and 45% in ZAR-NAV for the first six months of the year. We are steadily building our asset base in our four key focus areas, being Faberge, Coloured Gemstones, Platinum and Steel Feed Materials. Our proven ability to identify under performing assets and introducing improved operational and strategic growth measures, has resulted in us exceeding our aggressive growth target both in US Dollar and Rand terms. The momentum is continuing in the second half of the year and we remain positive as to Pallinghurst`s ability to maintain internal rates of return above par - despite the extremely challenging market conditions." Arne H Frandsen, CEO +44 778 7521 871 Martin Tolcher, Legis Fund Services Limited +44 1481 732178 Andrew Willis +44 20 7518 3383 College Hill +27 11 447 3030 Johannes van Niekerk +27 82 921 9110 CONDENSED CONSOLIDATED INCOME STATEMENT 1 Jan 08 to 30 June 08 4 Sept 07 to 31 Dec 07 US$ US$ (reviewed) (restated)(audited)
INCOME Revenue Realised profits on disposal of investments - 4,876,409 Unrealised changes in the fair value of investments 59,545,397 - Unrealised foreign exchange gains in the portfolio of investments 693,075 - Portfolio income 60,238,472 4,876,409 Break fee income - 2,025,736 Loan interest income 228,224 10,561 228,224 2,036,297 Revenue and income from operations 60,466,696 6,912,706 EXPENSES Investment Manager`s Benefit (1,269,900) (2,328,095) Performance Incentive accrual (12,609,544) - Administrative expenses (210,095) (330,787) Other losses (313,189) - (14,402,728) (2,658,882) Profit from operations 46,063,968 4,253,824 Net finance income 1,308,723 1,202,830 Profit before share in loss of associates 47,372,691 5,456,654 Share in loss of associates (15,235) (7,871) NET PROFIT FOR THE PERIOD 47,357,456 5,448,783 Earnings, diluted earnings and headline earnings per share 0.28 0.03 HEADLINE EARNINGS PER SHARE AND EARNINGS PER SHARE 1 Jan 08 to 30 June 08 4 Sept 07 to 31 Dec 07 US$ US$
EARNINGS PER SHARE (EPS) (reviewed) (restated)(audited) Headline earnings 47,357,456 5,448,783 Number of shares 169,316,000 169,316,000(1) EPS after change in accounting policy and effect of 1000-for-1 share split 0.28 0.03(2) (1) A 1000-for-1 share split was approved by Investors on 9 June 2008; for the purpose of calculating EPS it has been assumed that the share split occurred before 31 December 2007. (2) The EPS per the 2007 financial statements was $24.40. The EPS assuming that the change in accounting policy had occurred before 31 December 2007, but the share split had not occurred, would have been $32.18. CONDENSED CONSOLIDATED BALANCE SHEET 2008 2007 US$ US$
(reviewed) (restated) (audited) ASSETS Non-current assets Investments in associates 178,022 193,257 Financial asset investment 1,588,339 - 1,766,361 193,257 Investment portfolio Quoted investments 67,988,226 - Unquoted investments 78,715,943 58,401,505 Loan receivable 15,970,758 2,298,490 162,674,927 60,699,995 Total non-current assets 164,441,288 60,893,252 Current assets Trade and other receivables 26,583,810 25,609,537 Cash and cash equivalents 41,606,595 86,113,647 68,190,405 111,723,184
TOTAL ASSETS 232,631,693 172,616,436 LIABILITIES Current liabilities Trade and other payables (267,975) (219,718) Performance Incentive accrual (12,609,544) - (12,877,519) (219,718) TOTAL NET ASSETS 219,754,174 172,396,718 Capital and reserves attributable to equity holders Share capital 1,695 1,695 Share premium 166,928,777 166,928,777 Foreign exchange translation reserve 17,463 17,463 Retained earnings 52,806,239 5,448,783 TOTAL EQUITY 219,754,174 172,396,718 NAV and tangible NAV per share 1.30 1.02 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 1 Jan 08 to 30 Jun 08 4 Sept 07 to 31 Dec 07 US$ US$ (reviewed) (restated) (audited) Net profit for the period 47,357,456 5,448,783 Adjustments for: Additions to investments (28,064,192) (104,711,568) Additions to financial asset investments (1,901,528) Loan interest reinvested (211,155) - Fair value changes to investment portfolio (59,545,397) - Other losses 313,189 - Unrealised foreign exchange gains on investments portfolio (693,075) - Loans extended to investments (23,461,113) (2,287,929) Loan repayments from investments 10,000,000 - Part disposal of investments - 51,186,594 Gain on return of capital and sale of investments - (4,876,409) Net finance income (1,308,723) (1,202,830) Share in loss of associates 15,235 7,871 Cash flows from operating activities before changes in working capital and provisions (57,499,303) (56,435,488) Increase in trade and other receivables (974,273) (25,620,098) Increase in trade and other payables 48,257 175,286 Increase in Performance Incentive accrual 12,609,544 - 11,683,528 (25,444,812)
Cash flows from operating activities (45,815,775) (81,880,300) Investing activities Investments in associates - (156,818) Net cash used in investing activities - (156,818) Financing activities Issue of ordinary and management shares - 166,930,472 Net finance income 1,308,723 1,202,830 Net cash generated from financing activities 1,308,723 168,133,302 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (44,507,052) 86,096,184 Cash and cash equivalents at the beginning of the period 86,113,647 - Foreign exchange translation - 17,463 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 41,606,595 86,113,647 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Retained Share capital premium earnings
US$ US$ US$ 2008 (reviewed) Balance at 1 Jan 2008 1,695 166,928,777 5,448,783 Net profit for the period - - 47,357,456 Balance at 30 Jun 2008 1,695 166,928,777 52,806,239 2007 (restated) (audited) Balance at 4 Sept 2007 - - - Net profit for the period - - 5,448,783 Foreign exchange translation reserve - - - Issue of share capital 1,695 166,928,777 - Balance at 31 Dec 2007 1,695 166,928,777 5,448,783 Foreign exchange translation reserve Total
US$ US$ 2008 (reviewed) Balance at 1 Jan 2008 17,463 172,396,718 Net profit for the period - 47,357,456 Balance at 30 Jun 2008 17,463 219,754,174 2007 (restated) (audited) Balance at 4 Sept 2007 - - Net profit for the period - 5,448,783 Foreign exchange translation reserve 17,463 17,463 Issue of share capital - 166,930,472 Balance at 31 Dec 2007 17,463 172,396,718 Notes Accounting policies These results have been compiled in accordance with IAS34 Interim Financial Reporting, and the Companies (Guernsey) Law, 1994. The presentation of these results also conforms to the listing requirements of the JSE Limited for interim reporting. The accounting policies used are in line with those disclosed in the audited financial statements for the period ending 31 December 2007, except for a change in accounting policy relating to the accounting for the portfolio of investments. IAS 28 Investments in Associates allows investments held by venture capital organisations to be excluded from its scope where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement, with changes in fair value recognised in the income statement in the period of the change. This treatment has been applied to the current period and the comparative period restated accordingly. Users of the financial statements will now be provided with more reliable and more relevant information about the Group`s financial position and financial performance. The change complies with IFRS, specifically IAS 8 Accounting Policy, Changes in Accounting Estimates and Errors, paragraph 14. Also, in line with the requirements of IAS 14 Segment Reporting, the Group`s segmental reporting has been amended to give user of the financial statements information that is similar to that used by management and the comparative figures have been restated accordingly. For more detail please see the interim financial statements. www.pallinghurst.com FAIR VALUATION OF INVESTMENTS Unrealised Unrealised fair value FX Current cost adjustments gains Investment US$ US$ US$ 2008 (reviewed) Quoted equity investments Gemfields Resources plc 52,525,840 6,991,781 646,564 Jupiter Mines Ltd 4,707,201 (250,026) 41,296 Mindax Ltd 2,709,807 543,569 5,099 Iron Mountain Mining Ltd 61,468 5,511 116 60,004,316 7,290,835 693,075 Unquoted equity investments Faberge Ltd 26,461,381 52,254,562 - Loan investments Tshipi JV/ Pallinghurst Kalahari(1) 5,749,042 - - Faberge Ltd(2) 10,000,000 - - 15,749,042 - - Total investment portfolio 102,214,739 59,545,397 693,075 Total
Accrued valuation Investment interest US$ 2008 (reviewed) Quoted equity investments Gemfields Resources plc - 60,164,185 Jupiter Mines Ltd - 4,498,471 Mindax Ltd - 3,258,475 Iron Mountain Mining Ltd - 67,095 - 67,988,226 Unquoted equity investments Faberge Ltd - 78,715,943 Loan investments Tshipi JV/ Pallinghurst Kalahari(1) 97,267 5,846,309 Faberge Ltd(2) 124,449 10,124,449 221,716 15,970,758 Total investment portfolio 221,716 162,674,927 Unrealised Unrealised fair value FX Current cost adjustments gains Investment US$ US$ US$ 2007 (restated) (audited) Unquoted equity investments Faberge Limited 26,461,381 - - Rox Limited (relating to Gemfields Resources) 31,940,124 - - 58,401,505 - - Loan investments Tshipi JV/ Pallinghurst Kalahari(1) 2,287,929 - - Total investment portfolio 60,689,434 - - Total
Accrued valuation Investment interest US$ 2007 (restated) (audited) Unquoted equity investments Faberge Limited - 26,461,381 Rox Limited (relating to Gemfields Resources) - 31,940,124 - 58,401,505
Loan investments Tshipi JV/ Pallinghurst Kalahari(1) - 2,287,929 Total investment portfolio - 60,699,995 (1) The loan to Pallinghurst Kalahari (Mauritius) Limited ("Pallinghurst Kalahari") is provided to enable the latter to acquire an initial equity participation in the joint venture, in terms of the agreement concluded with Ntsimbintle Limited. The terms of the loan are interest bearing (at a rate of 1 month USD LIBOR +2%), unsecured and repayable within twelve months. (2) The loan to Faberge Limited was unsecured, bore interest at LIBOR plus 4% until the repayment date. The loan was repaid on 31 July 2008 including accrued interest of US$182,243. SEGMENTAL REPORTING Primary reporting format - by business segment Luxury Steel Feed Coloured brands Corporation Gemstones US$ US$ US$
2008 (reviewed) Realised profits on disposal of investments - - - Unrealised fair value/ FX gains of investments 52,254,562 345,565 7,638,345 Portfolio income - 228,224 - Revenue and income from operations52,254,562 573,789 7,638,345 Other expenses, net finance income and share of loss in associates - - - Net profit/(loss) for the period 52,254,562 573,789 7,638,345 Valuation of investment portfolio(1) 88,840,392 13,670,350 60,164,185 Other net assets - - - Total net assets 88,840,392 13,670,350 60,164,185 2007 (restated) (audited) Realised profits on disposal of investments 473,624 4,402,785 - Unrealised fair value/ FX gains of investments - - - Portfolio income - 2,036,297 - Revenue and income from operations 473,624 6,439,082 - Other expenses, net finance income and share of loss in associates - - - Net profit/(loss) for the period 473,624 6,439,082 - Valuation of investment portfolio(1) 25,986,846 2,298,490 32,414,659 Other net assets - 25,608,459 - Total net assets 25,986,846 27,906,949 32,414,659 Other Group US$ US$ 2008 (reviewed) Realised profits on disposal of investments - - Unrealised fair value/ FX gains of investments - 60,238,472 Portfolio income - 228,224 Revenue and income from operations - 60,466,696 Other expenses, net finance income and share of loss in associates (13,109,240) (13,109,240) Net profit/(loss) for the period (13,109,240) 47,357,456 Valuation of investment portfolio(1) - 162,674,927 Other net assets 57,079,247 57,079,247 Total net assets 57,079,247 219,754,174 2007 (restated) (audited) Realised profits on disposal of investments - 4,876,409 Unrealised fair value/ FX gains of investments - - Portfolio income - 2,036,297 Revenue and income from operations - 6,912,706 Other expenses, net finance income and share of loss in associates (1,463,923) (1,463,923) Net profit/(loss) for the period (1,463,923) 5,448,783 Valuation of investment portfolio(1) - 60,699,995 Other net assets 86,088,264 111,696,723 Total net assets 86,088,264 172,396,718 (1) The valuations include both equity investments and loans made to the investments within the investment portfolio. Investment Manager`s Report INCORPORATION AND NEW PRIMARY LISTING ON THE JSE The Company was incorporated on 4 September 2007, and listed on the Bermuda Stock Exchange (BSX). The JSE approved the application for a primary listing of all the issued shares of Pallinghurst in the "Equity Investment Instruments" sector of the JSE main board with effect from 20 August 2008. Pallinghurst will continue to be listed on the BSX, as its secondary listing. INVESTMENTS AND REALISATION FABERGE LIMITED: In May 2008, a US$12.1 million share placing was made to new and existing strategic equity partners, diluting the Company`s see-through interest to 43.2%, but resulting in an implied unrealised value of the Company`s equity stake of approximately US$79 million. Faberge enjoys excellent brand recognition globally, and will benefit from the rapid growth in the premium jewellery market and the strong appetite of high net worth individuals for superlative luxury items. Faberge will be guided by the model pioneered by Peter Carl Faberge, pursuing excellence in creativity, design and craftsmanship. The worldwide debut of its new collection, which will focus on high jewellery, is planned for the second quarter of 2009. GEMFIELDS RESOURCES PLC: During December 2007, the Company announced the proposed reverse takeover of Gemfields Resources plc by Rox Limited, a Pallinghurst portfolio company. The reverse takeover was successfully completed on 6 June 2008, together with a share placing of GBP 30 million (US$ 58.9 million). Together with a further purchase of shares on the open market during June, the company`s see through interest in Gemfields is approximately 28%, for a total aggregate cost of US$52.5 million. Gemfields intends to become the leading producer and supplier of coloured gemstones by pursuing consolidation and vertical integration opportunities in the industry on an international scale. Gemfields` operating scope will include acquiring and running mines of suitable scale, in-house cutting and polishing of its high-grade material and pursuing suitable marketing and branding programmes for coloured gemstones. Gemfields will seek to further enhance the market appeal of its coloured gemstones including improving consistency of supply, ensuring ethical sourcing of gemstones and focusing on natural, untreated stones. CONSOLIDATED MINERALS LIMITED: During the period ending 31 December 2007, the Company, along with certain strategic equity partners, acquired a stake in Consolidated Minerals Limited shares and convertible bonds. The Company realised this investment during 2007 and proceeds of US$25.6 million were received during the current period. The overall profit from the investment to the Company was US$6.2 million, or an IRR in excess of 150%. EVENTS OCCURRING AFTER THE END OF THE PERIOD The most significant events occurring after the end of the period are detailed below. For the details of a number of less significant events occurring after the end of the period see the interim financial statements. Inward listing on the JSE on 20 August 2008 On 20 August 2008, the Company obtained an inward listing on the JSE Limited ("JSE"). In addition to complying with its undertaking to do so within a year of listing on the BSX, the Company sought to implement the JSE listing in order to achieve a number of strategic and financial benefits including: * facilitating investments by the Company within the Common Monetary Area; * enhancing the liquidity and tradability of the Company`s shares; * facilitating the incremental investment and direct investment in its shares by South African institutional and retail investors respectively; * appealing to a broader set of prospective investors, thus providing further access to capital markets in order to facilitate and accelerate the Company`s growth and/or acquisition of investments falling within the Company`s investment scope; and * increasing the Company`s public presence and profile. The Company did not issue new shares as part of the inward listing. However, the Company may offer further shares for subscription in the future, subject to the funding requirements of its existing and prospective Investments. New manganese investment in the Kalahari Basin The Company has entered into a manganese investment in the Kalahari Basin of South Africa, in a joint venture with Ntsimbintle Mining (Proprietary) Limited, called Tshipi e Ntle Manganese Mining (Pty) Ltd ("Tshipi JV"). The purpose of the joint venture is to create a significant manganese producer within the next 3 year period. Following the inward listing on 20 August 2008, the Company has invested approximately US$2.8 million for a see-through equity stake of 9.80% in Tshipi JV. New PGM investment in Western Limb of the Bushveld Igneous Complex The Company has entered into a new platinum investment in the Bushveld Igneous Complex of South Africa. The Company, along with certain strategic equity partners, have formed a broad-based and black-owned PGM investment vehicle with the Bakgatla-Ba-Kgafela tribe ("Bakgatla"), 49.9% by the Pallinghurst Consortium. Following the inward listing on 20 August 2008, the Company invested approximately US$25.2 million for a see-through equity stake of 9.26%. Gemfields proposed offer to shareholders of TanzaniteOne (T1) A proposed offer by Gemfields to the shareholders of T1 was made on 12 September 2008, at 45p for each share in T1. T1 is an AIM-listed producer of a variety of gemstones, including tanzanite, with operations in Tanzania and Kenya. The proposed offer described above does not amount to a firm intention to make an offer. The proposal is at an early stage and there can be no certainty that any offer will ultimately be made. As there is no guarantee that an offer will be made, and the Board of T1 are initially opposed to the proposed offer, there are clearly no guarantees that the strategy will succeed, but if the bid is successful the Investment Manager believes that the transaction would unlock significant value for Gemfields shareholders including the Company. Further equity investment of US$15 million into Faberge Limited on 11 August 2008 On 11 August 2008, the Company invested a further US$15 million directly into Faberge Limited in return for an issue of new shares. This represents an additional stake of 7.61%, which, combined with the existing stake held through Faberge Conduit (which is diluted by the new purchase), results in a total see-through interest in Faberge Limited of 47.55%. The cost of the new investment was in line with the recent cost of investment paid by other third party investors in April 2008, on which the fair value of the investment in Faberge Limited at 30 June 2008 has been based. The directors therefore believe that the new stake has a fair value of US$15 million, equivalent to cost. Interim financial statements Interim financial statements have been released and made available to shareholders. The independent review conclusion on the interim financial statements, from Saffery Champness, the auditors, was unqualified. The interim financial statements are available on the Pallinghurst website, www.pallinghurst.com On behalf of the Board B Gilbertson A Frandsen Chairman Chief Executive Officer DIRECTORS Brian Gilbertson, Arne Frandsen, Stuart Platt-Ransom, Clive Harris, Martin Tolcher* *Appointed permanent alternate to Stuart Platt-Ransom on 3 June 2008 ADMINISTRATOR, SECRETARY AND REGISTERED OFFICE Legis Fund Services Limited, 1 Le Marchant Street, St Peter Port, Guernsey, GY1 4HP, Channel Islands INVESTMENT MANAGER Pallinghurst (Cayman) GP L.P., Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands INVESTMENT ADVISER Pallinghurst Resources LLP, 54 Jermyn Street, London, SW1Y 6LX, United Kingdom AUDITOR Saffery Champness, La Tonnelle House, St Sampson, Guernsey, GY1 3HS, Channel Islands Sponsor: Investec Bank Limited Date: 25/09/2008 13:00:03 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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