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PGL - Pallinghurst Resources - Annual results for the year ended 31

Release Date: 31/03/2009 07:05
Code(s): PGL
Wrap Text

PGL - Pallinghurst Resources - Annual results for the year ended 31 December 2008 Pallinghurst Resources (Guernsey) Limited Registration Number: 47656 (Incorporated in Guernsey) ISIN: GG00B27Y8Z93 BSX share code: PALLRES JSE share code: PGL ("PRGL" or the "Company") Annual results for the year ended 31 December 2008 NAV per share: R6.50 * down 7% (ZAR)/ US$0.65 down 37% (USD)* Based on an exchange rate of US$1 = ZAR10 Highlights of the year to 31 December 2008 - A capital raising of US$15.1 million for Faberge, increasing the valuation of the Faberge investment to US$78.7 million in May 2008 - The reverse takeover of Gemfields, accompanied by a GBP30 million share placing, in June 2008 - The acquisition of significant positions in Australian iron ore explorers Jupiter Mines and Mindax by July 2008 - A further US$15 million investment into Faberge by the Company in July 2008 - The listing of the Company on the JSE on 20 August 2008 - The exercising of entitlements to manganese and Platinum Group Metals ("PGM") joint venture investments - An oversubscribed vendor consideration placing raised US$34.3 million to participate in the acquisition of a controlling interest in Platmin Limited in December 2008 Since the year-end, 2009 has seen: - The completion of the acquisition of 33.4% in the Magazynskraal PGM exploration prospect in February 2009. - Shareholders of Jupiter Mines approve a transaction, in March 2009, to issue further shares to the Company and joint venture partner, Red Rock Resources plc ("RRR"), in exchange for the Company`s Mindax shares, A$1 million of cash, and certain of RRR`s assets. The transaction will result in the Company and RRR owning up to 55% of Jupiter Mines. - The successful start-up of Pilanesberg Platinum Mine and commencement of ore processing through its UG2 circuit, in March 2009. Arne H Frandsen CEO commented: Whilst the challenging economic environment has provided Pallinghurst with very attractive investment opportunities, we have adopted a conservative approach in valuing our portfolio as the unprecedented volatility in world markets continues to impact equity valuations and commodity prices. As we articulated when we listed Pallinghurst, our investment platforms are designed for long-term value creation and we are focused on our investments` intrinsic values. All of our five platforms are performing to expectation and are well positioned to deliver significant value, as we realise our strategies and global economic growth resumes. Enquiries Pallinghurst Resources 021 886 7294 / 082 440 8763 Arne H Frandsen, CEO College Hill 011 447 3030 Johannes van Niekerk 082 921 9110 Abridged Investment Manager`s Report Platinum group metals The first step in the PGM strategy was the acquisition by the Pallinghurst Investors of an indirect 27.61% interest (25.13% effective interest) in Boynton, via the Moepi Group of companies. Boynton is a private company, 72.39% owned by Platmin Limited ("Platmin") (TSX/AIM:PPN). All of Boynton`s projects are located in the BIC. Boynton`s primary assets include the Tuschenkomst and Ruighoek properties on the Western Limb of the BIC ("Pilanesberg Platinum Mines" or "PPM"), and also the M`phahlele, Grootboom and Loskop prospects which are on the Eastern Limb of the BIC, and offer long- term growth potential. The second step in the strategy was the acquisition of a controlling interest in Platmin by Pallinghurst Investors. In December 2008, as credit markets deteriorated and PGM prices fell, Platmin`s intended debt facility to fund the final stage of the PPM project failed to materialise. As a key shareholder in Boynton, the parent company of PPM, Pallinghurst approached Platmin to offer immediate equity funding to enable Platmin to avoid insolvency. Platmin received approval from the TSX for the significant equity injection under the TSX financial hardship exemption, i.e. without the need for shareholder approval. The first tranche of investment was completed on 19 December 2008. Brian Gilbertson and Arne H Frandsen, Directors of the Company, were immediately appointed as directors of Platmin. The Company conducted a vendor placement to fund its participation in the transaction, which raised more capital than was anticipated. Accordingly, the Company acquired an indirect 25.85% interest in the stake collectively acquired by the Pallinghurst Investors, a see-through effective 16.12% interest in Platmin, for an acquisition consideration of US$32.3 million. As announced by Platmin on 23 March 2009, the UG2 section of the milling and flotation plant at PPM has been successfully commissioned, Eskom power has been connected and the treatment of ore has commenced. This is significant progress, on time and within budget, but mining start-ups are difficult, and uncertainties will remain for some months yet. The Magazynskraal farm is also located on the Western Limb of the BIC, close to PPM. The most recent study suggests that the property has some 23 million ounces of inferred resources. The Bakgatla-Ba-Kgafela Tribe ("Bakgatla") has earned the right to 80% of this property by funding a bankable feasibility study ("BFS"). An agreement between the Bakgatla and the Pallinghurst Investors in respect of Magazynskraal was concluded and signed in May 2008, whereby the Pallinghurst Investors would provide the necessary funding of the BFS and acquire a stake in Richtrau from the Bakgatla. The Department of Minerals and Energy of South Africa gave their approval to the transaction on 9 December 2008, at which the point the purchase became unconditional. Coloured gemstones In June 2008, the shareholders of London-listed Gemfields approved a reverse takeover by Rox Limited, a company controlled by the Pallinghurst Investors, whereby the Kagem emerald mine was vended into Gemfields by Rox Limited in exchange for a fully diluted interest of approximately 55% of the enlarged group. The Kagem mine is the largest emerald mine in Africa, and is Gemfields` key asset. A number of key operational changes have been made at Kagem. These include a major improvement in the capacity and condition of mining machinery, a revamping of management and security, and a significant infrastructure upgrade. The sorting facility has been expanded and the capacity of the washing plant improved. These improvements have resulted in significant increases in the amount of ore mined and gemstones produced. The current global financial crisis and the sharp falls in gemstone prices experienced since October 2008 have resulted in significant uncertainty about emerald prices and demand for the remainder of 2009. Gemfields has taken a number of actions to address this situation, including a reduction in the scale of its mining activity at Kagem and a focus on higher-grade areas. On 12 February 2009, Gemfields announced the appointment of Ian Harebottle as Chief Executive Officer. Mr Harebottle, a veteran of the coloured gemstone industry, joined what became TanzaniteOne as Operations Director in September 2001. He was appointed CEO of T1 in April 2005 and served in that capacity until February 2008. Faberge Faberge is led by Mark Dunhill, the former President of Alfred Dunhill Ltd, who has built a strong team of luxury sector specialists, including Katharina Flohr as Creative Director. One of the first steps undertaken by the new team was to reunite the Faberge name with the Faberge family after more than 50 years of separation. This was a key move in reawakening the ethos and philosophy of Peter Carl Faberge and ensuring the necessary integrity and authenticity of the new masterpieces. The Faberge Heritage Council, which includes members of the Faberge family, has been established to assist in adhering to Peter Carl Faberge`s relentless pursuit of excellence and his original values of refined and cultivated artistry, underpinned by superlative craftsmanship. Over the years, Peter Carl Faberge collaborated with more than 40 "workmasters" such as Henrik Wigstrom and Michael Perchin. The workmaster concept remains unique to Faberge and this tradition will be an important element of Faberge`s future. An experienced artist of international renown has been engaged as Head of High Jewellery and is currently developing the first Faberge Collection, which is due to be unveiled during 2009. Manganese The Pallinghurst Investors have formed a joint venture with Ntsimbintle, a Black Economic Empowerment group with manganese exploration rights within the Kalahari Basin of South Africa. The Kalahari Basin is the primary manganese region of the world, and contains approximately 80% of the world`s known mineable manganese reserves. The joint venture aims to create a world-class manganese producer within the next three years. The investment consists of the rights over two manganese properties, located in the north and south of the Kalahari Basin. The key property is in the south of the Basin and is adjacent to, and indicates very similar geology to, Samancor`s Mamatwan Mine. The second property, Kalahari North, is adjacent to Samancor`s Wessels mine, and is expected to share similar geological characteristics. A BFS has been initiated on the southern property in the Kalahari Basin, and this is expected to be completed by May 2009. Australian iron ore The Australian Iron Ore opportunity is in the Central Yilgarn of Western Australia. The Company has so far invested US$10 million into various iron ore explorers in the Yilgarn, including Mindax Limited ("Mindax") and Jupiter Mines Limited ("Jupiter"). A joint venture with RRR was entered into during May 2008 to pursue the iron ore and other base metals strategy. In March 2009, the joint venture was successful in acquiring a stake of up to 55% of Jupiter, in exchange for the Company`s Mindax shares and A$1 million of cash, and RRR`s Mindax shares, Mt Alfred iron ore and Oakover manganese projects. The transaction will result in a significant expansion and diversification of Jupiter`s asset base, and the new assets will complement Jupiter`s existing iron ore and nickel exploration portfolio in Western Australia. Outlook Your company has invested in a set of robust ventures, each pursuing strategies designed for long-term value creation. Notwithstanding the current turbulent economic environment, we expect to unlock significant value as those strategies are realised, and particularly when global economic growth resumes. The unqualified audit opinion is available for inspection at the registered office of the company. On behalf of the Board Brian Gilbertson Arne H Frandsen Chairman Chief Executive Officer Consolidated income statement 1 Jan 08 4 Sept 07 to 31 Dec 08 to 31 Dec 07
US$ US$ (Audited) (Audited) (restated) Income (Losses)/revenue on investments Realised profits on disposal of - 4,876,409 investments Dividends received from financial 84,000 - asset investment Unrealised net losses in the fair (27,466,529) - value of investments Unrealised net foreign exchange (10,940,413) - losses in the portfolio of investments (38,322,942) 4,876,409
Portfolio Income Break fee income - 2,025,736 Loan interest income 497,433 10,561 497,433 2,036,297
(Losses)/revenue on investments and (37,825,509) 6,912,706 income from operations
Expenses Investment Manager`s Benefit (2,556,643) (2,328,095) Operating expenses (2,476,545) (330,787) Net foreign exchange losses (2,037,036) - (7,070,224) (2,658,882) (Loss)/profit from operations (44,895,733) 4,253,824 Net finance income 1,349,047 1,202,830 (Loss)/profit before share in loss (43,546,686) 5,456,654 of associates Share in loss of associates (2,883,815) (7,871) (Loss)/profit before tax (46,430,501) 5,448,783 Income tax expense (144) - Net (loss)/profit for the financial (46,430,645) 5,448,783 year/period
(Loss)/earnings, diluted (0.19) 0.03 (loss)/earnings and headline (loss)/earnings per share Consolidated balance sheet 31 Dec 2008 31 Dec 2007 US$ US$ (Audited) (Audited) (restated)
Assets Non-current assets Investments in associates 1,804,765 193,257 1,804,765 193,257
Investment portfolio Quoted investments 48,617,689 - Unquoted investments 101,795,361 58,401,505 Loan receivable 519,327 2,298,490 150,932,377 60,699,995 Total non-current assets 152,737,142 60,893,252
Current assets Trade and other receivables 764,546 25,609,537 Loan receivable from associate 11,127,017 - Cash and cash equivalents 20,939,970 86,113,647 32,831,533 111,723,184 185,568,675 172,616,436 Liabilities Current liabilities Trade and other payables 25,841,436 (219,718) 25,841,436 (219,718)
Net assets 159,727,239 172,396,718 Equity Share capital 2,474 1,695 Share premium 200,689,164 166,928,777 Cumulative translation adjustment 17,463 17,463 reserve Retained earnings (40,981,862) 5,448,783 159,727,239 172,396,718 NAV and tangible NAV per share 0.65 1.02 Consolidated statement of cash flows 1 Jan 08 4 Sept 07 to 31 Dec 08 to 31 Dec 07 US$ US$ (Audited) (Audited)
restated) Net (loss)/profit for the year/period (46,430,645) 5,448,783 Adjustments for: Additions to investments (128,602,782) (104,711,568) Loan interest reinvested (36,542) - Fair value net losses in investment 27,466,529 - portfolio Unrealised foreign exchange losses on 10,940,413 - investment portfolio Loans extended to investments (29,012,464) (2,287,929) Loan repayments from investments 15,622,082 - Revaluation of loan to Rox Conduit 2,358,776 - Accrued interest on loan to Rox Conduit (95,411) - Part disposal of investments - 51,186,594 Gain on return of capital and sale of - (4,876,409) investments Net finance income (1,349,047) (1,202,830) Share in loss of associates 2,883,815 7,871 Cash flows from operating activities (146,255,276) (56,435,488) before changes in working capital and provisions Decrease/(increase) in trade and other 24,844,991 (25,620,098) receivables Increase in trade and other payables 25,621,718 175,286 Cash flows from operating activities (95,788,567) (81,880,300) Investing activities Investments in associates (4,495,323) (156,818) Net cash used in investing activities (4,495,323) (156,818)
Financing activities Issue of ordinary and management shares 33,761,166 166,930,472 Net finance income 1,349,047 1,202,830 Net cash generated from financing 35,110,213 168,133,302 activities Net (decrease)/increase in cash and cash (65,173,677) 86,096,184 equivalents Cash and cash equivalents at the 86,113,647 - beginning of the year/period Foreign exchange translation - 17,463 Cash and cash equivalents at the end of 20,939,970 86,113,647 the year/period Notes Accounting policies These results have been prepared in accordance with IFRS, the Companies (Guernsey) Law, 2008, and the listing requirements of the JSE Limited. 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 year 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. In line with the requirements of IAS 14 Segment Reporting, the Group`s segmental reporting has also been amended to give users of the financial statements information that is similar to that used by management and the comparative figures have been restated accordingly. For the Group`s detailed accounting policies and further information contained in the notes to the accounts please see the Annual financial statements in the annual report to shareholders to be mailed on or about 9 April 2009. Fair valuation of investments Investment Current Unrealised Unrealised Accrued Total cost fair value FX interest valuation US$ adjustments gains/ US$ US$ US$ (losses)
US$ 2008 (Audited) Quoted equity investments Platmin 32,317,190 - 43,852 - 32,361,042 Limited Gemfields plc 54,400,730 (34,559,320) (6,523,980) - 13,317,430 Jupiter Mines 5,196,693 (3,028,782) (1,384,154) - 783,757 Ltd Mindax Ltd 3,349,775 (293,469) (909,047) - 2,147,259 Iron Mountain 61,468 (36,644) (16,623) - 8,201 Mining Ltd 95,325,856 (37,918,215) (8,789,952) - 48,617,689 Unquoted equity investments Faberge 41,461,381 5,396,651 - - 46,858,032 Ltd 1 Moepi Group 13,373,316 (6,686,658) - - 6,686,657 (Boynton) Richtrau No. 36,621,344 (16,084,951) (2,225,721) - 18,310,672 123 Ltd (Magazyn- skraal) Kalahari 2,000,000 27,826,644 113,356 - 29,940,000 joint venture 2 93,456,041 10,451,686 (2,112,365) - 101,795,361 Loan investments Kalahari 520,881 - (38,096) 36,542 519,327 joint venture 3 Total 189,302,778 (27,466,529) (10,940,413) 36,542 150,932,377 investment portfolio Investment Current Unrealised Unrealised Accrued Total cost fair value FX interest valuation US$ adjustments gains/(losses) US$ US$ US$ US$ 2007 (Audited) (restated) Unquoted equity investments Faberge 26,461,381 - - - 26,461,381 Limited Rox 31,940,124 - - - 31,940,124 Limited (relating to Gemfields) 58,401,505 - - - 58,401,505
Loan investments Pallinghurs 2,287,929 - - 10,561 2,298,490 t Kalahari 4 Total 60,689,434 - - 10,561 60,699,995 investment portfolio 1 The investment in Faberge was revalued in May 2008 in line with a third party round of funding at US$78.7m, significantly above cost of US$26.1m. In August 2008, the Company invested a further US$15m, at this price per share, increasing the total cost of investment to US$41.4m and valuation to US$93.7m. In line with the IPEVC guidelines and IFRS, the valuation was then impaired by 50% from that level to US$46.9m. 2 The Kalahari joint venture relates to an unincorporated manganese joint venture in the Kalahari Basin. The joint venture agreement gives the Company the right to take an equity interest in Tshipi e Ntle Manganese Mining (Pty) Ltd, the entity which will hold the relevant Mining Rights. The entity has been incorporated and will assume the interests of the JV on 31 March 2009. 3 The loan was provided to the joint venture in terms of the agreement concluded with Ntsimbintle Limited, for the joint venture`s prospecting and exploration expenditure and working capital requirements. The terms of the loan are that it is unsecured, earns interest at the South African Prime Rate, and must be repaid before any dividends are paid to equity shareholders. 4 The loan was provided to Pallinghurst Kalahari (Mauritius) Limited ("Pallinghurst Kalahari") to enable the latter to acquire an initial equity participation in the joint venture, per the terms of the agreement concluded with Ntsimbintle Limited. The terms of the loan were interest bearing (at a rate of 1 month USD LIBOR +2%), unsecured and repayable within twelve months. The loan has now been repaid. Segmental reporting Primary reporting format - by business segment Luxury Steel Feed Coloured brands Corporation Gemstones US$ US$ US$ 2008 (Audited) Realised profits - - - on disposal of investments Unrealised fair 5,396,651 22,233,185 (41,083,300) value/FX gains/(losses) of investments Dividend income - - - Portfolio income 182,243 213,272 101,918 Revenue and income 5,578,894 22,446,457 (40,981,382) from operations Other expenses, - - - net finance income and share of loss of associates Net profit/(loss) 5,578,894 22,446,457 (40,981,382) for the year Valuation of 46,858,032 33,398,544 13,317,430 investment portfolio 1 Other net assets - - - Total net assets 46,858,032 33,398,544 13,317,430
Luxury brands Steel Feed Coloured Corporation Gemstones 2007 (Audited) (restated) Realised profits 473,624 4,402,785 - on disposal of investments Unrealised fair - - - value/FX gains of investments Portfolio income - 2,036,297 - Revenue and income 473,624 6,439,082 - from operations Other expenses, - - - net finance income and share of loss of associates Net profit/(loss) 473,624 6,439,082 - for the period Valuation of 25,986,846 2,298,490 32,414,659 investment portfolio 1 Other net assets - 25,608,459 - Total net assets 25,986,846 27,906,949 32,414,659 Segmental reporting (continued) Primary reporting format - by business segment Platinum Other Group US$ US$ US$
2008 (Audited) Realised profits on - - - disposal of Investments Unrealised fair (24,953,478) - (38,406,942) value/FX gains/(losses) of investments Dividend income - 84,000 84,000 Portfolio income - - 497,433 Revenue and income (24,953,478) 84,000 (37,825,509) from operations Other expenses, net - (8,605,136) (8,605,136) finance income and share of loss of associates Net profit/(loss) (24,953,478) (8,521,136) (46,430,645) for the year Valuation of 57,358,371 - 150,932,377 investment portfolio 1 Other net assets - 8,794,862 8,794,862 Total net assets 57,358,371 8,794,862 159,727,239 Platinum Other Group 2007 (Audited) (restated) Realised profits on - - 4,876,409 disposal of investments Unrealised fair - - - value/FX gains of investments Portfolio income - - 2,036,297 Revenue and income - - 6,912,706 from operations Other expenses, net - (1,463,923) (1,463,923) finance income and share of loss of associates Net profit/(loss) - (1,463,923) 5,448,783 for the period Valuation of - - 60,699,995 investment portfolio 1 Other net assets - 86,088,264 111,696,723 Total net assets - 86,088,264 172,396,718 Pallinghurst Resources (Guernsey) Limited Directors Brian Gilbertson, Arne Frandsen, Andrew Willis, Stuart Platt-Ransom, Clive Harris, Martin Tolcher 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 Advisers LLP (formerly Pallinghurst Resources LLP), 54 Jermyn Street, London, SW1Y 6LX, United Kingdom Auditor Saffery Champness, La Tonnelle House, St Sampson, Guernsey, GY1 3HS, Channel Islands 31 MARCH 2009 SPONSOR: INVESTEC BANK LIMITED Date: 31/03/2009 07:05:01 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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