Wrap Text
PGL - Pallinghurst Resources Limited - Interim results for the period ended 30
June 2010
Pallinghurst Resources Limited
(Incorporated in Guernsey)
(Guernsey registration number: 47656)
(South African external company registration number 2009/012636/10)
Share code on the BSX: PALLRES ISIN: GG00B27Y8Z93
Share code on the JSE: PGL
("Pallinghurst" or the "Company")
Interim results for the period ended 30 June 2010
NAV per share: R5.136 up 2.41% from ZAR5.015 at 31 December 2009
CEO Arne H. Frandsen commented: We remain singularly focused on building
sustainable shareholder value in our four investment platforms. For the six
months to June 2010 we have successfully taken each platform forward and
achieved important milestones. The solid growth fundamentals that underpin each
platform remain intact as the global economic environment shows early signs of
recovery.
Summary
The first six months of the year saw continuing recovery from the global
financial crisis, and a further strengthening of stock markets and metal prices;
however, concerns remain regarding the stability of the global economy.
The Company has made progress in all of its four investment platforms. Key
accomplishments include a successful capital raising by Platmin, record revenue
generating auctions by Gemfields, profile-raising events by both Gemfields and
Faberge, the granting of Tshipi`s key new order mining right and the approval by
Jupiter shareholders of the Tshipi/Jupiter transaction.
The Directors have continued to use conservative asset valuations in light of
the uncertain market conditions. That notwithstanding, the net asset value of
the Company increased by 2.4% on a South African Rand basis (decreased by
approximately 0.5% in US Dollar terms) for the six-month period. The pending
closure of the Tshipi/Jupiter transaction is expected to result in a significant
uplift in the value of the Company`s investment in Tshipi. Assuming the
Tshipi/Jupiter transaction was completed, the net asset value at the end of the
period would have increased by an estimated 10.6% (on a South African Rand
basis).
The highlights forthe six months ended 30 June 2010 are as follows:
- Platmin raised US$385 million to fund the completion of the build-up phase of
mining operations at PPM;
- Significant progress was made on the Magazynskraal feasibility study, with 75%
of the boreholes drilled;
- Tshipi`s key new order mining right was granted by the DMR;
- Gemfields` first lower-grade rough emerald auction realised revenues of US$7.2
million;
- Gemfields participated in several profile-raising events, including the World
Land Trust "Emeralds for Elephants" event at Selfridges, London, involving
jewellery constructed with Gemfields` emeralds;
- An exceptional 6 225-carat rough emerald was discovered at Kagem; and
- Faberge undertook a series of focused client events across Europe and Asia.
Since the end of the period:
- Gemfields held a higher-quality rough emerald auction in London in July,
realising record revenues of US$7.5 million;
- Faberge achieved further rationalisation of the remaining brand licences
acquired from Unilever, gaining greater control over the brand; and
- The shareholders of Jupiter approved the Tshipi/Jupiter transaction.
Condensed consolidated income statement
for the six month period ended 30 June 2010
1 Jan 2010 1 Jan 2009 1 Jan 2009
to 30 June to 30 June to 31 Dec
2010 2009 2009
(reviewed) (reviewed) (audited)
US$`000 US$`000 US$`000
Income
Gains/(losses) on investments
Unrealised net gains in the fair value 57 23,592 53,195
of investments
Unrealised net foreign exchange (1,451) 4,749 8,801
(losses)/gains in the portfolio of
investments
Net gain on Platmin convertible note 863 - -
Net realised gains on Jupiter Mindax - 442 4,617
transaction
(531) 28,783 66,613
Portfolio income
Loan interest income 564 52 96
Structuring fee and other income 1,040 - 7
1,604 52 102
Net gains on investments and income 1,073 28,835 66,715
from operations
Expenses
Investment Manager`s benefit (2,312) (1,527) (3,533)
Operating expenses (384) (761) (1,436)
Other gains/(losses) including foreign 65 563 (242)
exchange
(2,631) (1,725) (5,210)
(Loss)/profit from operations (1,558) 27,110 61,504
Finance income 299 395 599
Finance costs - - -
Net finance income 299 395 599
(Loss)/profit before share in loss of (1,259) 27,505 62,104
associates
Share in (loss)/profit of associates (70) 629 328
(Loss)/profit before tax (1,329) 28,134 62,432
Income tax expense - - -
Net (loss)/profit for the financial (1,329) 28,134 62,432
period/year
(Loss)/earnings and diluted (0.003) 0.114 0.200
(loss)/earnings per share (US$)
Condensed consolidated balance sheet
as at 30 June 2010
30 June 30 June 31 Dec
2010 2009 2009
(reviewed) (reviewed) (audited)
US$`000 US$`000 US$`000
Assets
Non-current assets
Investments in associates 1,837 2,507 2,205
Investment portfolio
Quoted investments 84,293 57,721 82,952
Unquoted investments 163,225 122,521 154,069
Loans and receivables 29,154 1,196 1,321
Platmin convertible note 9,999 - -
286,671 181,438 238,342
Total non-current assets 288,508 183,944 240,547
Current assets
Trade and other receivables 1,181 12,597 1,112
Loan receivable from associate - 76,689 -
Cash and cash equivalents 30,972 4,255 80,406
32,152 4,344 81,518
Total assets 320,660 188,288 322,065
Liabilities
Current liabilities
Trade and other payables 309 427 384
Total liabilities 309 427 384
Net assets 320,352 187,862 321,681
Capital and reserves attributable to
equity holders
Share capital 5 2 5
Share premium 300,226 200,689 300,226
Cumulative translation adjustment - 17 -
reserve
Retained earnings/ (deficit) 20,121 (12,848) 21,450
Equity 320,352 187,862 321,681
NAV and tangible NAV per share (US$) 0.673 0.760 0.670
NAV and tangible NAV per share (ZAR) 5.136 6.080 5.015
Condensed consolidated statement of cash flows
for the six month period ended 30 June 2010
1 Jan 10 1 Jan 09 1 Jan 09
to to to
30 June 10 30 June 09 31 Dec 09
(reviewed) US$`000 (audited)
US$`000 (reviewed) US$`000
(restated)
Cash outflows from operations (2,840) (25,550) (30,208)
Taxation paid - (74) (74)
Additions to investments (11,843) (1,671) (20,720)
Loans extended to investments (26,278) - -
Acquisition of convertible note (9,136) - -
Loan repayments from investments - 11,147 11,127
Proceeds from disposal of investment - - 19
Net cash outflows from operating (50,096) (16,074) (39,783)
activities
Cash flows from investing activities
Net decrease/(increase) in investments 299 (72) (72)
in associates
Net cash from/(used in) investing 299 (72) (72)
activities
Cash flows from financing activities
Issue of ordinary and management - - 106,510
shares
Share issue costs - - (4,558)
Net foreign exchange losses on share - - (2,412)
issue
Finance income received 299 395 599
Net cash generated from financing 299 395 100,139
activities
Net (decrease)/increase in cash and (49,499) (15,751) 60,284
cash equivalents
Cash and cash equivalents at the 80,406 20,940 20,940
beginning of the period/ year
Exchange gain/ (loss) on cash 65 (934) (818)
Cash and cash equivalents at the end 30,972 4,255 80,406
of the period/year
Condensed consolidated statement of comprehensive income
for the six month period ended 30 June 2010
1 Jan 2010 1 Jan 2009 1 Jan 2009
to 30 June to 30 June to 31 Dec
2010 2009 2009
(reviewed) (reviewed) (audited)
US$`000 US$`000 US$`000
Net (loss)/profit for the period (1,329) 28,134 62,432
Exchange differences on translation of - - (17)
foreign operations
Total comprehensive (expense)/income (1,329) 28,134 62,414
for the period/year
Condensed consolidated statement of changes in equity
For the six month period ended 30 June 2010
Share Share Retained Cumulative Total
capital premium earnings trans- equity
US$`000 US$`000 US$`000 lation (US$`000
adjustment
reserve
US$`000
Balance at 2 200,689 (40,982) 17,463 159,727
1 January 2009
Total - - 28,134 - 28,134
comprehensive
income for the
period
Balance at 2 200,689 (12,848) 17,463 187,862
30 June 2009
(reviewed)
Issue of ordinary 2 106,507 - - 106,509
shares
Share issue costs - (4,558) - - (4,558)
Net foreign - (2,412) - - (2,412)
exchange losses on
share issue
Total - - 34,297 (17,463) 34,280
comprehensive
income/(loss) for
the year
Balance at 5 300,226 21,450 - 321,681
31 December 2009
(audited)
Total - - (1,329) - (1,329)
comprehensive loss
for the period
Balance at 5 300,226 20,121 - 320,352
30 June 2010
(reviewed)
Fair valuation of investments
Investment Opening Unreal- Unrealised Additions Accrued Closing
fair ised foreign / interest fair
value at fair exchange disposals and value
31 Dec value gains/ (re- structur- at 30
2009 (re- adjustm (losses) viewed) ing fee June
viewed) ents(re (reviewed) US$`000 (re- 2010
US$`000 viewed) US$`000 viewed) (re-
US$`000 US$`000 viewed)
US$`000
30-Jun-10
Quoted equity
investments
Platmin 58,776 (9,957) (215) 11,514 - 60,119
Limited
Gemfields plc 8,330 (810) (563) 329 - 7,286
Jupiter Mines 15,845 1,668 (625) - - 16,888
Ltd
82,952 (9,098) (1,403) 11,843 - 84,293
Unquoted
equity
investments
Faberge Ltd 86,633 - - - - 86,633
Moepi Group 10,030 - - - - 10,030
(Boynton)
Richtrau No. 27,466 9,155 - - - 36,621
123 Ltd
(Magazyns-
kraal)
Tshipi 1 29,940 - - - - 29,940
154,069 9,155 - - - 163,225
Loans and
receivables
Tshipi loan 2 1,32 - (48) 432 100 1,805
Platmin loan - - - 25,845 1,505 27,350
1,32 - (48) 26,278 1,604 29,154
Convertible
note
Platmin - 863 - 9,136 - 9,999
convertible
note
Total 238,342 920 (1,451) 47,256 1,604 286,671
investment
portfolio
1) The partial disposal of an indirect interest of
2.27% in Tshipi to Posco for US$6.9 million, and
the transaction whereby the Group`s 7.71% interest
in Tshipi will be exchanged for shares in Jupiter,
have not yet completed.
2) The terms of the Tshipi loan are that it is
unsecured, and earns interest at the South African
Prime Rate, currently 10.0% per annum. As part of
the Tshipi/Jupiter transaction, the Tshipi loan
will also be exchanged for Jupiter shares.
Investment Opening Un- Un- Gains/ Accrued Closing
fair realised realised losses on inte- fair
value at fair foreign Jupiter rest value
31 Dec value exchange transaction (re- at
2008 adjust- gains/ and other viewed) 30 June
(re- ments (re-(losses) additions/ US$`000 2009
viewed) viewed) (re- disposals (re-
US$`000 US$`000 viewed) (reviewed) viewed)
US$`000 US$`000 US$`000
30-Jun-09
Quoted
equity
investments
Platmin 32,361 2,089 1,937 - - 36,388
Limited
Gemfields 13,317 (4,255) 1,956 469 - 11,487
plc
Jupiter 784 5,119 645 3,283 - 9,831
Mines Ltd
Mindax Ltd 2,147 - - -2,147 - -
Iron 8 6 1 - - 15
Mountain
Mining Ltd
48,618 2,959 4,540 1,605 - 57,721
Unquoted
equity
investments
Faberge Ltd 46,858 20,633 - 92 - 67,584
Moepi Group 6,687 - - - - 6,687
(Boynton)
Richtrau No. 18,311 - - - - 18,311
123 Ltd
(Magazynskra
al)
Tshipi 1 29,940 - - - - 29,940
101,795 20,633 - 92 - 122,521
Loans and
receivables
Tshipi 2 519 - 209 416 52 1,196
Total 150,932 23,592 4,749 2,113 52 181,438
investment
portfolio
1) The partial disposal of an indirect interest of
2.27% in Tshipi to Posco for US$6.9 million, and
the transaction whereby the Group`s 7.71% interest
in Tshipi will be exchanged for shares in Jupiter,
have not yet completed.
2) The terms of the Tshipi loan are that it is
unsecured, and earns interest at the South African
Prime Rate, currently 10.0% per annum. As part of
the Tshipi/Jupiter transaction, the Tshipi loan
will also be exchanged for Jupiter shares.
Investment Opening Un- Un- Gains/ Accrued Closing
fair realised realised losses on inte- fair
value at fair foreign Jupiter rest(aud value at
31 Dec value exchange transaction ited) 31 Dec
2008(audi adjust- gains/ and other US$`000 2009(audi
ted) ments (losses) additions/ ted)
US$`000 (audited) (audited disposals US$`000
US$`000 ) (audited)
US$`000 US$`000
31-Dec-09
Quoted
equity
investments
Platmin 32,361 20,983 5,432 - - 58,776
Limited
Gemfields 13,317 (7,056) 1,600 469 - 8,330
plc
Jupiter 784 61,297 1,475 7,457 - 15,845
Mines Ltd
Mindax Ltd 2,147 - - (2,147) - -
Iron 8 7 4 (19) - -
Mountain
Mining Ltd
48,618 20,063 8,511 5,760 - 82,952
Unquoted
equity
investments
Faberge Ltd 46,858 20,633 - 19,142 - 86,633
Moepi Group 6,687 3,343 - - - 10,030
(Boynton)
Richtrau 18,311 9,155 - - - 27,466
No. 123 Ltd
(Magazynskr
aal)
Tshipi1 29,940 - - - - 29,940
101,795 33,132 - 19,142 - 154,069
Loans and
receivables
Tshipi2 519 - 290 416 95,616 1,321
Total 150,932 53,195 8,801 25,318 95,616 238,342
investment
portfolio
1) The partial disposal of an indirect interest of
2.27% in Tshipi to Posco for US$6.9 million, and
the transaction whereby the Group`s 7.71% interest
in Tshipi will be exchanged for shares in Jupiter,
have not yet completed.
2) The terms of the Tshipi loan are that it is
unsecured, and earns interest at the South African
Prime Rate, currently 10.0% per annum. As part of
the Tshipi/Jupiter transaction, the Tshipi loan
will also be exchanged for Jupiter shares.
Segmental information
Luxury Steel Feed Coloured PGMs Total
Brands Corporation Gemstones
Cayman Austra- South Zambia South (re-
Islands lia Africa (re- Africa viewed
(re- (re- (re- viewed) US )
viewed) viewed) viewed) US$`000 (re- US$`00
US$`000 US$`000 US$`000 viewed 0
)$`000
30-Jun-10
Income
Unrealised gains/ - 1,668 - (810) (801) 57
(losses) in fair
value of
investments
Unrealised foreign - (625) (48) (563) (215) (1,451
exchange losses )
Net gain on Platmin - - - - 863 863
convertible note
Loan interest - - 100 - 464 564
income
Total segmental - 1,043 52 (1,373) 311 33
income
Structuring fee and - - - - 1,040 1,040
other income
- 1,043 52 (1,373) 1,351 1,073
Net gains on investments and income from operations 1,073
Expenses, net finance income, share of profit of associates, and (2,402)
taxation
Net loss for the six month period ending 30 June 2010 (1,329)
Luxury Steel Feed Coloured PGMs Total
Brands Corporation Gemstone
s
Cayman Austra- South Zambia South (re-
Islands lia(re- Africa (re- Africa viewed)
(re- viewed) (re- viewed) (re- US$`000
viewed) US$`000 viewed US$`000 viewed)
US$`000 ) US$`000
US$`00
0
30-Jun-09
Income
Unrealised net 20,633 5,125 - (4,255) 2,089 23,592
gains/ (losses)
in fair value of
investments
Unrealised - 646 209 1,956 1,937 4,749
foreign exchange
gains
Net realised - 442 - - - 442
gains on Jupiter
Mindax
transaction
Loan interest - - 52 - - 52
income
Total segmental 20,633 6,214 260 (2,299) 4,027 28,835
income
Expenses, net finance income, share of profit of associates, and (701)
taxation
Net profit for the financial period 28,134
Luxury Steel Feed PGMs Total
Brands Corporation
Cayman Austra- South Zambia South (audit-
Islands lia Africa (audited) Africa ed)
(audited) (audit- (audit- US$`000 (audit- US$`000
US$`000 ed) ed) ed)
US$`000 US$`000 US$`000
31-Dec-09
Income
Unrealised 20,633 6,136 - (7,056) 33,482 53,195
gains/
(losses) in
fair value of
investments
Unrealised - 1,479 290 1,600 5,432 8,801
foreign
exchange gains
Net realised - 4,617 - - - 4,617
gains on
Jupiter Mindax
transaction
Loan interest - - 96 - - 96
income
Total 20,633 12,231 385 (5,456) 38,914 66,708
segmental
income
Other income 7
Net gains on investments and income from operations 66,715
Expenses, net finance income, share of profit of associates, and (4,283)
taxation
Net profit for the financial year 62,431
Luxury Steel Feed Coloured PGMs Total
Brands Corporation Gemstones
Cayman Austra- South Zambia South (re-
Islands lia Africa (re- Africa viewed)
(re- (re- (re- viewed) (re- US$`000
viewed) viewed) viewed) US$`000 viewed)
US$`000 US$`000 US$`000 US$`000
30-Jun-10
Investment
portfolio
Quoted investments - 16,888 - 7,286 60,119 84,294
Unquoted 86,633 - 29,940 - 46,651 163,225
investments
Loans and - - 1,805 - 27,350 29,154
receivables
Convertible note - - - - 9,999 9,999
Total segmental 86,633 16,888 31,745 7,286 144,119 286,671
income
Total investments in associates, current assets, and liabilities 33,681
Net assets 320,352
Luxury Steel Coloured PGM`s Total
Brands Feed Gem-
Corporat stones
ion
Cayman Austra- South Zambia South (re-
Islands lia (re- Africa (re- Africa viewed)
(re- viewed) (re- viewed) (re- US$`000
viewed) US$`000 viewed) US$`000 viewed)
US$`000 US$`000 US$`000
30-jun-09
Assets
Investment
portfolio
Quoted - 9,847 - 11,487 36,388 57,721
investments
Unquoted 67,584 - 29,940 - 24,997 122,521
investments
Loans and - - 1,196 - - 1,196
receivables
Total 67,584 9,847 31,136 11,487 61,385 181,438
segmental
income
Total 6,424
investments
in
associates,
current
assets, and
liabilities
Net assets 187,862
Luxury Steel Feed Coloured PGMs Total
Brands Corporation Gemstones
Cayman Austra- South Zambia South (re-
Islands lia (re- Africa (reviewed) Africa viewed)
(re- viewed) (re- US$`000 (re- US$`000
viewed) US$`000 viewed) viewed)
US$`000 US$`000 US$`000
31-Dec-09
Investment
portfolio
Quoted - 15,845 - 8,330 58,776 82,952
investments
Unquoted 86,633 - 29,940 - 37,496 154,070
investments
Loans and - - 1,321 - - 1,321
receivables
Total 86,633 15,845 31,261 8,330 96,273 238,342
segmental
income
Total investments in associates, current assets, and liabilities 83,339
Net assets 321,681
All figures are rounded to US Dollar `000, meaning
some casting differences may be in evidence.
Investment platforms
Platinum Group Metals ("pgms")
African Queen Strategy
PGMs are essential to a wide range of industries.
An estimated 20% of all consumer products either
contain pgms or require them in their production,
making pgms both unique and essential to
industrialised economies. However, PGM resources
are rare and occur predominantly in South Africa.
The "African Queen" Strategy is to build
Pallinghurst`s portfolio of PGM investments,
through acquisition and consolidation, into a PGM
producer of industry significance.
Background to the African Queen investments
The diverse demand dynamics, combined with
continuing supply pressures and high barriers to
entry, make the outlook for the PGM industry very
attractive. The industry is highly concentrated:
According to the South African Department of
Mineral Resources ("DMR"), 88% of the world`s
platinum reserves are located in South Africa. The
Company and certain Pallinghurst Co-Investors have
pursued the African Queen Strategy through a
unique partnership with the Bakgatla-Ba-Kgafela
("Bakgatla") (jointly the "AQ Partners"). The AQ
Partners have to date predominantly invested in
assets on the Western Limb of the Bushveld Complex
("BC") in South Africa.
Following its inward listing on the JSE on 20
August 2008, the Company exercised its right to
participate in the acquisition by the Pallinghurst
Co-Investors of an indirect 27.61% interest
(25.13% effective interest) in Boynton Investments
(Pty) Limited ("Boynton"), via the Moepi Group of
companies. Boynton is the 72.39% operating
subsidiary of Platmin Limited ("Platmin")
(TSX/AIM:PPN, JSE:PLN). Boynton`s flagship
project, the Pilanesberg Platinum Mine ("PPM"),
which is currently ramping up production to full
capacity, is located north of the Pilanesberg
intrusion on the Western Limb of the BC. Boynton`s
other assets include the M`phahlele, Grootboom and
Loskop prospects, which are on the Eastern Limb of
the BC. These projects offer future growth
potential.
In December 2008, as credit markets deteriorated
and PGM prices fell, Platmin`s debt facility,
intended to fund the final stage of the PPM
project, failed to materialise. After negotiations
with the Platmin Board, the Company and certain
Pallinghurst Co-Investors agreed to provide US$175
million in equity funding in two tranches in
exchange for 69.84% of Platmin`s enlarged share
capital, under the TSX financial hardship
exemption. A vendor consideration placing was
conducted to fund US$32.3 million of the initial
US$125 million tranche, giving the Company a see-
through interest of 16.12% in Platmin. Brian
Gilbertson and Arne H. Frandsen, Directors of the
Company, were immediately appointed as directors
of Platmin. Since October 2009, Mr Gilbertson has
been the Chairman of Platmin.
Also in December 2008, the DMR approved the
acquisition by the Company and certain
Pallinghurst Co-Investors of an interest in
Magazynskraal from the Bakgatla. Magazynskraal is
a property in close proximity to PPM, with some 23
million ounces of inferred resources of pgms. In
February 2009, the Company and certain
Pallinghurst Co-Investors, on behalf of the
Bakgatla, completed the second US$50 million
tranche of funding to Platmin. These shares were
transferred to the Bakgatla as part of the final
consideration for Magazynskraal following
Platmin`s listing on the JSE.
As part of the Magazynskraal transaction, the
Company and certain Pallinghurst Co-Investors
secured the right, through the Bakgatla-
Pallinghurst Joint Venture ("BPJV"), to acquire
49.9% of the Bakgatla`s interest in Sedibelo at
"fair market value". The Sedibelo property, which
lies between Magazynskraal and the eastern
boundary of the PPM opencast pit, has an estimated
19 million ounces of PGM resources.
Key developments during the period
In April 2010, Platmin announced a conditional
agreement with Barrick Platinum South Africa
("BPSA") to acquire BPSA`s 10% interest in
Sedibelo for US$15 million. Barrick separately
undertook to sell to Platmin various long-lead
items required for the development of the project,
for up to US$45 million. Subsequent to the period
end, Platmin announced that the conditions
precedent had not been fulfilled. Negotiations
were continued with the Bakgatla to determine the
"fair market value" for Sedibelo in order to
transfer Sedibelo into the BPJV.
Due to the industrial action at PPM during the
second half of 2009 (which was widespread
throughout the South African mining industry) and
the lower than expected recoveries from the
weathered and oxidised surface ore, the expected
production build-up to full capacity was delayed.
During the June quarter, Platmin released a
revised mine plan that accelerates the mining of
deeper, unaltered ore and targets annualised
commercial production of 250,000 PGM ounces during
2011.
In May 2010, Platmin completed a US$385 million
capital raising to fund the completion of the
build-up phase of mining operations at PPM. New
equity worth US$250 million was issued at US$1.215
per share, as well as convertible notes ("CNs")
with a face value of US$135 million. The CNs are
convertible at the option of the holders by 31
December 2010, at a conversion price of US$1.215.
The Group participated in both the equity and CN
tranches of the capital raising, having earlier in
the period extended a US$26 million short-term
loan facility to Platmin (on arms-length
commercial terms).
During the second quarter, the Magazynskraal
feasibility study gained momentum, and most of the
initial drilling is now complete. Boynton has been
appointed as the lead consultant and is currently
implementing a phased diamond drilling and
exploration programme, with more than 70 of the
total planned 93 boreholes drilled. The
feasibility study is expected to be completed
during 2011.
Outlook
During the first six months of 2010, the platinum
price reached a 22-month high above US$1,700 per
ounce. Whilst supplies of platinum were expected
to increase during 2010, escalating cash costs and
missed production targets continue to affect many
companies in the PGM industry. Global industrial
demand, particularly from auto catalyst producers
who depleted stocks in 2009, is expected to
continue to strengthen over the coming years. The
Company`s PGM investments are thus well placed to
benefit from an improved environment.
Steel Feed Corporation ("SFC")
The Steel Feed Corporation Strategy
Competition for raw materials (in particular
manganese, iron ore and coking coal) is
intensifying as the major steel producers seek to
secure their input materials through equity
ownership of mining companies. The Steel Feed
Corporation strategy seeks to develop a platform
to supply these key raw materials to the steel
industry.
Background to the Steel Feed Corporation
investments
In 2007, the Company made its initial SFC
investment though the acquisition of a stake in
the Australian manganese, chrome and nickel
producer, Consolidated Minerals Limited. In the
face of competing bidders, that stake was divested
in the same year, realising a profit of US$6.2
million. The Investment Manager has continued to
pursue the SFC strategy, with a particular focus
on manganese and iron ore.
South Africa contains approximately 80% of the
world`s known economic manganese resources and is
a major contributor to global manganese ore
production. The Kalahari Manganese Field ("KMF")
in South Africa spans approximately 400 square
kilometres and contains an estimated 20 billion
tonnes of manganese resources at grades of between
20% - 48% manganese. The KMF`s size and geological
simplicity render it amongst the most important
manganese resources in the world.
The Investment Manager, for and on behalf of the
Company and certain Pallinghurst Co-Investors,
formed a joint venture vehicle, Tshipi e Ntle
Manganese Mining (Pty) Limited ("Tshipi"), with
Ntsimbintle Mining (Pty) Limited ("Ntsimbintle"),
a broad based Black Economic Empowerment
consortium. Tshipi holds manganese prospecting
rights over a property in the north of the KMF
(Tshipi Bokone, Bokone meaning "North" in the
local languages, Setswana and Sesotho), but its
key asset is a new order mining right over a
manganese property located in the south of the KMF
(Tshipi Borwa, Borwa meaning "South" in the
Setswana and Sesotho languages). This property has
a mineral resource of 163 million tonnes of
manganese, at a grade of 37%. The geology is
expected to be similar to Samancor`s adjacent
Mamatwan mine, which has been in production for
over 45 years.
Separately, the Company together with certain
Pallinghurst Co-Investors have invested in Jupiter
Mines Limited ("Jupiter"), an Australian Stock
Exchange ("ASX") listed iron ore and manganese
explorer. Jupiter`s iron ore assets are located in
the Central Yilgarn region of Western Australia
and include inferred resources of 5.75 million
tonnes of high grade hematite (59.9% Iron), and a
conceptual exploration target containing an
estimated 1.1 - 1.3 billion tonnes of magnetite
iron ore at an expected grade of between 30% - 40%
Fe. Jupiter`s iron ore assets form part of several
early stage projects in the Yilgarn region that
presently appear not to be economically viable
individually, but which, through sensible
consolidation and development of joint operations,
might take advantage of the existing rail and port
infrastructure, to create a sizeable iron ore
producing region. Jupiter`s Australian manganese
assets (Oakover) include 700km2 of exploration
tenements located in the Pilbara area of Western
Australia. Jupiter has recently completed a
Versatile Time-Domain Electromagnetic survey of
the area and the first drill holes have revealed
encouraging intersections of manganese ore.
Posco, one of the world`s largest steel producers,
has invested in both Tshipi and Jupiter, providing
a significant endorsement of each investment, and
the overall SFC strategy. Posco also entered into
off-take arrangements to acquire a proportion of
the future production of each of Tshipi Borwa`s
manganese and Jupiter`s direct shipping ore at
future prevailing prices.
Key developments during the period
Tshipi
On 1 March 2010, Jupiter announced that it was to
acquire the Pallinghurst Co-Investors` collective
49.9% equity and loan interests in Tshipi in
return for the issue of 1,208,667,347 new shares
at a price of 21.1 Australian cents per share
(based on the 30 day volume weighted average price
of the Jupiter shares prior to the announcement),
valuing the 49.9% stake at AUD245 million. As part
of the transaction, the Company and certain of the
Pallinghurst Co-Investors agreed to subscribe for
AUD5 million of new Jupiter shares. The
transaction was approved by Jupiter`s shareholders
at an EGM on 12 August 2010, and it is anticipated
that the transaction will close shortly. Following
completion, the Group will own 18.3% of the
enlarged Jupiter.
A tender process has been completed for the Front
End Engineering Design (FEED) of the new mine yet
to be constructed on the Tshipi Borwa property.
Drilling is in progress to better define the
mineral resources and accurately determine the
location of the manganese suboutcrop. These data
will assist the planners in optimising the mining
layout and in addition should allow Tshipi to
understand, and thus market, its initial ore
specifications. Tshipi has also concluded an
agreement to acquire the surface rights of a 342
hectare farm located adjacent to the Tshipi Borwa
property, these surface rights will be required
for mining operations and associated
infrastructure.
In early September 2010, approval was received
from the DMR to transfer the new order mining
right on the Tshipi Borwa property from
Ntsimbintle, which had been granted the mining
right in March 2010, to Tshipi.
Drilling has commenced at Tshipi Bokone with the
purpose of evaluating a geological anomaly that
historic studies indicate is likely to contain a
high-grade manganese body. Similar drilling
programmes are progressing on neighbouring
properties, giving rise to the potential to
collaborate with a view to opening a small high-
grade underground manganese mine.
Jupiter
In June 2010, Jupiter suffered the tragic loss of
its then Chairman, Mr Geoff Wedlock, in an
aircraft crash in poor weather conditions in the
Republic of Congo. In these sad circumstances,
Brian Gilbertson was appointed as a Non-Executive
Director of Jupiter and as its Non-Executive
Chairman, having been originally proposed that he
join the board of Jupiter upon closing of the
Tshipi/Jupiter transaction.
In February 2010, the Company and Red Rock
Resources plc ("Red Rock") announced the
termination of their joint venture arrangements,
the initial objectives of the relationship having
been achieved.
At Jupiter`s Mount Ida Iron Ore Project, an 11,000
metre reverse circulation ("RC") drilling
programme has been fast tracked to target magnetic-
high anomalies. The programme is expected to take
three months and will test both the geological
model and the quality of magnetite concentrate
that might be produced. Jupiter has also
commissioned a structural mapping programme and a
detailed Vegetation and Flora Survey. The drilling
programme will be undertaken on the conceptual
indicated resource of 1.1 - 1.3 billion tonnes of
magnetite iron ore.
The results of the first pass RC drilling
programme at Jupiter`s Oakover Manganese Project
returned results of up to 49.6% manganese at
shallow depth, and confirmed the presence of host
rocks similar to that of Consolidated Minerals
Limited`s Woodie Woodie manganese mine. The
additional exploration licence applied for last
year has recently been granted, increasing
Jupiter`s ground position to 890kmSquared. Jupiter
has approved an exploration budget of AUD2 million
for Oakover for the 2011 financial year, and
further exploration work is planned during the
current field season.
Outlook
Demand for steel in the emerging nations and
particularly in China (which now accounts for
almost half of global steel production) show no
signs of abating. The Company`s Steel Feed
Corporation investments are well positioned to
benefit from this growing demand in an improving
economic environment.
Gemfields plc ("Gemfields")
The Gemfields Strategy
The coloured gemstone industry has historically
been overlooked, fragmented and undercapitalised.
It is characterised by the absence of large,
reliable suppliers consistently able to deliver
meaningful quantities of gemstones in a
professional and transparent manner.
Notwithstanding this, the utilisation of coloured
gemstones in the jewellery and fashion sectors has
increased during the last decade.
Gemfields` strategy is to create the leading
coloured gemstone producer, pursuing consolidation
and vertical integration on an international
scale. With an initial focus on the emerald
sector, Gemfields is working to put in place
coordinated marketing and supply mechanisms akin
to those found in the diamond sector. A core
pillar of the Gemfields strategy is to bring
ethically-produced, conflict-free gemstones of
certified provenance directly from the mine to the
market.
Background to the Gemfields investment
In October 2007, the Company and certain
Pallinghurst Co-Investors acquired a controlling
interest in the Kagem emerald mine in northern
Zambia. In June 2008, the Kagem emerald mine was
vended into AIM-listed Gemfields via a reverse
takeover to secure approximately 55% of the
enlarged group. Following various corporate
actions, the Group and the Pallinghurst Co-
Investors presently own 63.4% of Gemfields. The
Kagem mine is the largest emerald mine in Africa
(and one of the largest in the world) and is now
Gemfields` key asset.
Since acquisition, significant improvements have
been made to the infrastructure, security and
management of the operation, delivering
considerable increases in mining capabilities and
gemstone production. In an effort to meet the
market`s need for reliable and consistent supply,
Gemfields favoured an initial policy of inventory
building. The onset of the global financial crisis
in 2008 and its resulting fallout had a material
adverse effect on the diamond and coloured
gemstone markets (and on the value of the
stockpile Gemfields had built). Gemfields adapted
to this environment by reducing the scale of its
mining activities and minimising all non-essential
capital, project development and exploration
expenditure. Focus was placed on cost minimisation
and improving operational efficiencies.
In the second half of 2009, as coloured gemstone
markets showed early signs of recovery, Gemfields
initiated its formal auction program with two
auctions of higher-quality rough emeralds,
realising aggregate revenues of US$11.5 million.
Key developments during the period
Gemfields held its first lower-grade rough emerald
auction (since October 2007) in Jaipur, India, in
March 2010, realising revenues of US$7.2 million.
A total of 22.8 million carats were sold for an
average per carat revenue of US$0.31. (Emerald
value declines dramatically as quality decreases.
Prices for rough emerald vary widely, from US$0.01
per carat for low quality material, which is
produced in large volumes, through to US$500 per
carat for very high quality material, of which
very little is produced.)
Subsequent to the period, in July 2010, Gemfields
held a third higher-quality rough emerald auction,
realising revenues of US$7.5 million. This
represented the highest auction revenue to date.
The average per carat price of US$9.35 represented
an 83% increase over the previous higher-quality
rough emerald auction held in November 2009.
Whilst Gemfields has scaled back its cutting and
polishing operations, an auction of cut and
polished emerald inventory took place in Hong Kong
between 18 - 20 September 2010. The next auction
of higher quality rough emerald is scheduled to
take place in December 2010.
In February 2010, Gemfields announced the first
production of emerald and beryl from its trial
underground mining project. The shaft and tunnel
system was designed, developed and constructed by
the in-house team. Underground mining has the
potential to transform Zambian emerald mining by
reducing rock handling requirements and allowing
mining operations to follow the ore zone in a
"surgical" fashion, without the need to strip and
move all of the surrounding barren rock. If
Gemfields` trial underground shaft proves
successful, the model could be rolled out to
access further emerald ore bodies across
Gemfields` licence areas. The underground mining
project continues to make progress with a total of
76.6 metres of development achieved by 30 June
2010.
Kagem`s unaudited total operating costs for the
year ending 30 June 2010 totalled US$12.7 million,
implying an average unit production cost for the
financial year of US$0.73 per carat of emerald and
beryl (versus US$0.77 per carat for the year
ending 30 June 2009). Unit production costs have
decreased despite an overall reduction in the
scale of mining (2.6 million tonnes of rock
handling in the year ending 30 June 2010 versus
4.1 million tonnes in the prior year) and is
indicative of the mine achieving true economies of
scale in its reworked mine plan.
Gemfields has also continued to raise its profile,
having now completed a re-branding exercise and
launched its new-look website www.gemfields.co.uk
and corporate literature. In addition, Gemfields
has initiated a series of marketing initiatives to
promote emeralds generally and Zambian emeralds in
particular. Most recently this has included
sponsoring the sixth annual Retail Jeweller India
Awards in August 2010, the event previously
sponsored by De Beers.
Earlier in the period, Gemfields collaborated with
UK-based jeweller Sabine Roemer to produce an
emerald-themed pair of customised Nelson Mandela
"46664" bracelets using emeralds from Gemfields`
Kagem mine. The bracelets were expressly designed
for the leading actor Mr Morgan Freeman and the
producer of "Invictus" Ms Lori mccreary to wear at
the 2010 Oscars. The Morgan Freeman bracelet was
auctioned in South Africa during the World Cup,
raising US$137,000 for the 46664 charity. The
bracelets generated much publicity, appearing in
footage of the red carpet, and featuring on the
Jay Leno show in the United States.
In February 2010, Gemfields discovered an
exceptionally rare 6 225 carat rough emerald. The
emerald has been named "Insofu" (or "elephant" in
the local Bemba language) in consideration of its
size, and in honour of the World Land Trust`s
"Wild Lands Elephant Corridor Project", in which
Gemfields is a participant. In support of this
project and the London Elephant Parade, Gemfields
conceived the "Emeralds for Elephants" project,
culminating in an auction and gala event on 23
June 2010 in the "Wonder Room" at the Selfridges
department store in London. Emerald jewellery,
incorporating Gemfields` emeralds, was crafted for
the event by eight leading international
jewellers, including Theo Fennell, Shaun Leane,
James Currens and Francis Mertens. The profits
from this high profile event were donated to the
World Land Trust.
Outlook
The ongoing successful auctions, combined with the
operational improvements and innovations, provide
a solid platform from which to pursue future
growth as the global economy improves. There
continue to be encouraging signs of increasing
demand for emeralds from all key markets, with
prices expected to continue to strengthen.
Faberge
Faberge Strategy
The strategy is to re-establish Faberge as one of
the world`s most exclusive and valuable luxury
brands.
Background to the Faberge investment
Faberge is one of the most revered names in
history and to this day remains synonymous with
artistry and craftsmanship of the highest order.
In 2007, the Investment Manager facilitated the
acquisition by the Company and certain
Pallinghurst Co-Investors of the global portfolio
of trademarks, licences and associated rights
relating to the Faberge name (which had been owned
by Unilever since 1989).
Following the acquisition, to assist in
reawakening the ethos and philosophy of Peter Carl
Faberge and ensure the integrity and authenticity
of the new masterpieces, the Faberge name was
reunited with the Faberge family from which it had
been separated for more than 50 years. The Faberge
Heritage Council, which includes members of the
Faberge family, was established to continue Peter
Carl Faberge`s relentless pursuit of excellence
and cultivated artistry, underpinned by
superlative craftsmanship.
A team of luxury sector specialists was recruited
to implement the Faberge vision and pursue an
innovative model of selling directly to its
customers. In addition, Paris-based artist-
jeweller Frederic Zaavy was selected to create the
first new Faberge collection. His work emphasises
extraordinary colouration, artistry and innovative
design, and elevates jewellery into works of art.
The renaissance of Faberge took place with a
highly successful international launch on 9
September 2009 at which Faberge`s first high
jewellery collection since 1917, dubbed "Les
Fabuleuses", was unveiled. The collection was
comprised of 132 unique pieces, ranging in price
from US$40,000 to US$7 million. To coincide with
this event, www.faberge.com was launched, a
pioneering online "Global Flagship" store that
replicates the traditional High Jewellery
purchasing experience which had previously been
confined to a traditional retail environment. The
launch received overwhelmingly positive
international press coverage, including CNN
airtime and a cover story and feature in the
Financial Times` "How to Spend It" magazine.
Prior to the September 2009 launch, Faberge
completed a capital raising of US$35 million in
new equity share capital, and in which the Group
participated. The capital raised is being used to
further fund the development of the business by
extending the product range and building sales
momentum.
In December 2009, Faberge opened its first
boutique in Geneva, Switzerland, within an elegant
historic townhouse and overlooking Le Jardin
Anglais. The boutique is the first Faberge
boutique outside Russia since 1915 (when the
former London boutique at 173 Bond Street was
closed). Both the location and ethos of this
boutique is intended to complement the unique
online experience and brand positioning.
Key developments during the period
Faberge`s strategy of engaging directly and
personally with its customers saw a series of
carefully tailored events hosted in St. Moritz and
Gstaad in Switzerland during February and March
2010 respectively. In April there was a further
trip to Malaysia and Singapore. June was marked by
a three-week trip to Asia where the new Faberge
collection was presented.
Faberge intends now to develop the client base
through diversification of the product portfolio,
whilst maintaining the highest standards of
design, craftsmanship and materials. Creation of
the new "classics collection" is underway at three
ateliers. An initial twelve pieces (featuring
white diamonds, and having an average retail price
over EUR100,000) will be available during the
autumn for the Christmas market.
Subsequent to the period end, Faberge finalised
the termination of the licensing agreement held by
Franklin Mint of the United States since 1986.
Only one licence now remains of those inherited
from Unilever. The termination of the prior
licensing agreements gives increased control over
the brand, ensuring the supply of Faberge products
and services remains world-class.
Outlook
The successful international launch in the prior
year, along with the enthusiastic media response
has significantly reduced the risks of the Faberge
investment. Faberge`s rising profile and increased
control of the brand have put Faberge on track to
liberate the significant value inherent in the
revered name.
Accounting policies
The Company`s interim report has been prepared in
accordance with IAS 34 Interim Financial
Reporting, applicable legal and regulatory
requirements of The Companies (Guernsey) Law,
2008, and the listing requirements of the JSE
Limited.
The information contained in this press release is
based on the information contained in the interim
financial statements. A copy of the interim report
will be sent to shareholders before 30 September
2010, and will be included on the Company`s
website www.pallinghurst.com.
The accounting policies applied in the interim
financial statements are consistent with those
adopted and disclosed in the Group`s annual report
for the year ended 31 December 2009. There have
been various amendments to accounting standards
and new interpretations issued by the
International Accounting Standards Board,
applicable from 1 January 2010. None of these
amendments and new interpretations has had a
material impact on the Group.
Comparative information
Restatement of the cash flow statement
The cash flow statement for the period ending 30
June 2009 has been restated to exclude the impact
of a non-cash accrued expense from trade and other
payables; and to include an exchange gain on cash
balances as a reconciling item between net profit
for the period and net cash outflows from
operations.
Commitments
Commitment to invest in Sedibelo
As described in the Investment Manager`s report,
the Company has a commitment to take up its share
of the investment in Sedibelo. Sedibelo is located
on the Western Limb of the BC and is contiguous to
both PPM and Magazynskraal. Currently, the
Bakgatla hold an effective 90% interest in
Sedibelo, with the remaining 10% held by Barrick,
which announced during the period that it had
agreed to sell this 10% stake to Platmin, although
this transaction has not yet completed.
The Company and certain Pallinghurst Co-Investors
have a commitment to acquire 49.9% of the
Bakgatla`s interest in Sedibelo at "fair market
value". Negotiations continue to determine
Sedibelo`s "fair market value".The timing and
amount of cash outflows are uncertain; however, it
is anticipated that the cash outflow will be
material.
Commitment to loan up to US$25 million to Faberge
The Company entered into a commitment on 24 May
2010 to loan Faberge up to US$25 million. The
commitment can be drawn upon by the Directors of
Faberge Limited during the period from 1 October
2010 to 31 May 2011.
Any amount loaned under the terms of the loan
agreement will accrue interest at three month US$
LIBOR plus 4% until repayment. The Group will also
earn an arrangement fee of US$375,000 assuming the
commitment is drawn upon. Any amounts drawn down,
plus accrued interest, must be repaid to the
Company by 31 July 2011.
Commitment to invest AUD5 million into Jupiter
The Group has held an interest in Jupiter since
2008, and increased the interest held during March
2009 and September 2009. As part of the
transaction terms with Jupiter agreed in March
2009, the Group committed to provide a further
AUD5 million to Jupiter for working capital
purposes. There has been no actual cash outflow at
the date of this release.
The transaction whereby the Group, along with
certain Pallinghurst Co-Investors, vended its
interest in Tshipi into Jupiter for new Jupiter
shares, has been approved by the shareholders of
Jupiter and is expected to complete in the near
future.
The Directors anticipate that Jupiter will
undertake a review of its future capital
expenditure requirements for both Tshipi and its
existing projects. Once this review has been
undertaken, it is likely that the existing AUD5
million commitment made by the Group will be
either revised or formally rescinded.
Commitment to partially dispose of indirect
interest in Tshipi to Posco
The disposal of 2.27% of Tshipi to a subsidiary of
South Korea`s Posco, one of the world`s largest
steel producers, will be concluded simultaneously
with the conclusion of the Tshipi/Jupiter
transaction.
Contingent liabilities
The Group had no significant contingent
liabilities at 30 June 2010,
30 June 2009 or 31 December 2009.
Events occurring after the end of the period
Completion of Tshipi/Jupiter transaction
As disclosed in the Investment Manager`s Report,
the transaction to vend the 49.9% interest in
Tshipi held by the Group and certain Pallinghurst
Co-Investors into Jupiter for new equity shares
has been approved by Jupiter shareholders. The
last remaining condition precedent is expected to
complete in the near future.
Jupiter will acquire a collective 49.90% interest
in Tshipi from the Pallinghurst Co-Investors and
issue 1,160,363,867 new Jupiter shares at a price
of AUD0.211 per share, based on the 30 day volume
weighted average price of Jupiter shares on 1
March 2010. The Company`s respective proportion of
this consideration received equates to 179,247,878
new Jupiter shares.
The Company will also exchange its shareholder
loans in Tshipi for additional shares in Jupiter
and subscribe for further shares in Jupiter, in
the form of an issue of shares for cash. The
Company will receive an additional 7,810,981 and
13,205,667 new Jupiter shares as consideration for
its shareholder loans, and the issue for cash,
respectively. These shares are also priced at AUD
0.211 per share.
Currently the Company`s interest in Jupiter
equates to 92,899,165 shares, or 25.12% of the
369,786,471 shares in issue. Following completion
of the Tshipi/Jupiter transaction, the Company
will own 293,163,691 shares in Jupiter, or 18.30%
of the 1,602,150,501 shares then in issue.
The completion of the Tshipi/Jupiter transaction
represents a major step in the SFC strategy. The
Company has an implied fair value gain on the
Tshipi/Jupiter transaction of around US$24.0
million, post estimated transaction costs of
around US$300,000.
Completion of disposal of 2.27% interest in Tshipi
to POSCO (the "POSCO transaction")
Effective 1 July 2009, the Company disposed of an
indirect interest of 2.27% in Tshipi for US$6.9
million to a group company of South Korean steel
major, POSCO, resulting in the indirect interest
in Tshipi being reduced to 7.71%.
The POSCO transaction will also complete, and the
Company will receive the US$6.9 million POSCO
consideration, which has been held in escrow. The
completion of the POSCO transaction has no impact
on the Company`s NAV or Earnings, as the
consideration received for the 2.27% interest
disposed of was equal to the carrying value of the
asset in the balance sheet.
Potential diminution in valuation of Gemfields
shares, Platmin shares, and Platmin convertible
note
The Platmin share price has fallen since the
balance sheet date meaning that the current fair
value of the Company`s equity investment and
convertible note are lower than the valuations at
the balance sheet date.
The Gemfields share price has fallen since the
balance sheet date, meaning that the current fair
value of Gemfields is lower than the valuation at
the balance sheet date.
These are non-adjusting post balance sheet events.
Interim Review Opinion
The interim financial statements have been
reviewed by the Company`s auditor, Saffery
Champness. The interim review opinion from the
auditor is available from the registered office of
the Company.
On behalf of the Board
Brian Gilbertson Arne H. Frandsen
Chairman Chief Executive
Executive Directors: Brian Gilbertson, Arne H.
Frandsen, Andrew Willis
Independent Non-Executive Directors: Clive Harris,
Stuart Platt-Ransom1, Martin Tolcher1
Administrator, Secretary and Registered Office: 1
Le Marchant Street, St Peter Port, Guernsey, GY1
4HP, Channel Islands.
South african Transfer Secretary: Computershare
Investor Services (Proprietary) Limited, 70
Marshall Street, Johannesburg, 2001
Auditor: Saffery Champness, PO Box 141, St Peter
Port, Guernsey, GY1 3HS, Channel Islands
Investment bank and JSE sponsor: Investec Bank
Limited, 100 Grayston Drive, Sandown, Sandton,
2196, South Africa
1 Patricia White is Permanent Alternate to Stuart
Platt-Ransom and Martin Tolcher.
Date: 22/09/2010 07:31:01 Supplied by www.sharenet.co.za
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