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Audited annual results for the year ended 31 December 2014
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", the "Company" or "PRL")
AUDITED ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
“In a year where the industry found itself in troubled times, I am pleased to report profits for all our three business platforms, leading
to a strong financial performance by the Company for 2014. This success has been reflected in the share price, which was one of the best
performing stocks on the JSE during 2014”.
Arne H. Frandsen
Chief Executive
HIGHLIGHTS
- Sedibelo Platinum Mines recorded its first year of profitability.
- Sedibelo Platinum Mines achieved a record of more than three million fatality free shifts.
- Tshipi Borwa more than doubled its production and export volumes to over two million tonnes of manganese ore.
- Tshipi anticipates achieving record profits for its latest financial year.
- Gemfields’ new ruby business realised revenues of US$77 million from its first two auctions.
- Gemfields’ emerald auctions set records for both per carat prices and revenues.
CHAIRMAN’S STATEMENT
When we created the Company in 2007, we highlighted to shareholders the volatility and cyclical nature of the resources industry. We have
seen commodity markets reach significant highs since then, based on predictions of continued growth in emerging markets, but currently
commodity prices are low and pessimism is widespread.
Our strategy throughout this period has been to create industry-leading businesses regardless of the market environment. Despite market
volatility, the progress of each of our investments has vindicated this strategy. Even in the current weak markets, each is uniquely
positioned to realise the significant inherent value which we identified at the outset.
When we initially invested in Gemfields, some may have questioned our vision of developing a small, loss-making producer of emeralds into
the “De Beers for Coloured Gemstones”. So it has been pleasing to see the transformation of Gemfields, first into the world’s largest
emerald miner, and more recently into a major producer of rubies. I have every confidence that Gemfields will be able to apply its unique
business model to the sapphire properties it is exploring in Sri Lanka.
In manganese, we have in only a few years built Tshipi Borwa from bare veldt into what is now one of the world’s leading producers. Key to
this success was the implementation of a clear "exploration to mining" strategy, the building of a strong management team and the support
of our partner, Ntsimbintle, which initiated the first exploration activities. Each partner in the venture brought unique skills to the
operation and its own financial backing, surely one of the finest examples of a Black Economic Empowerment partnership in the South African
mining industry.
Our investment into the PGM industry would not have been achieved without the support of our partner, the Bakgatla Ba Kgafela Tribe, which
had interests in a range of PGM properties and a shared vision to create a “PGM Producer for the 21st Century”. Together, we acquired
adjoining properties and consolidated them into a single operation with a sizeable resource base, capable of being extracted in a safe and
sustainable way for decades to come. Although 2014 was a difficult year for the PGM industry, with significant disruptions experienced by
the three largest producers, Sedibelo Platinum Mines has again achieved record production, has further growth opportunities, and is testing
what could be industry-transforming beneficiation technologies.
Although commodity prices are currently depressed, our robust operations should withstand the storm, even for an extended period. Each of
our operations is well-positioned to deliver its full value for shareholders when the upturn comes, as surely it will.
I thank my fellow Directors and the management teams of our portfolio companies for their hard work and substantial contributions during
the past year.
Brian Gilbertson
Chairman
CHIEF EXECUTIVE’S STATEMENT
I am pleased to report another strong financial performance by the Company for 2014 with profit for the year rising to US$55 million and
Net Asset Value (“NAV”) increasing by 35% in ZAR terms. This is quite an achievement given the weak commodity prices over the period and
highlights the merit of our investment strategy as well as the value we continue to add to our investments – even in challenging markets.
The Company’s share price has also responded well and was one of the best performing stocks on the JSE during the year. However, the
inherent value has much further potential and the Company’s shares are still trading at a significant discount to underlying NAV.
Platinum Group Metals
Despite a gloomy PGM industry performance highlighted by the unprecedented five month labour strikes at the three largest platinum producers
in South Africa, Sedibelo Platinum Mines achieved another production record in 2014 with annual dispatches of 154,400 4E PGM ounces.
Sedibelo Platinum Mines also registered its first full year profit and has performed well into 2015. I am particularly proud of its safety
record, which recently exceeded three million fatality-free shifts. Through a strategic acquisition of a contiguous property, Sedibelo
Platinum Mines’ resource base was increased to over 100 million 4E PGM ounces. In addition, Sedibelo Platinum Mines successfully raised a
further US$65 million of equity capital in 2014, one of the largest mining equity raisings in South Africa during the year. The additional
funds will enable Sedibelo Platinum Mines to pursue further growth opportunities while remaining debt-free and maintaining one of the most
conservative balance sheets in the industry. Sedibelo Platinum Mines also remains focussed on an IPO once market conditions improve.
Steel Making Materials
Tshipi Borwa more than doubled its production and export volumes to over two million tonnes of manganese ore, making it one of the world’s
largest manganese mines. This is a remarkable achievement given that Tshipi Borwa, which only commenced production a little over two years
ago, has continued to operate profitably despite the recent decline in the manganese price. Tshipi’s management team has also demonstrated
the mine’s capability to produce well in excess of two million tonnes per annum. If solutions can be found to resolve the transportation
constraints, Tshipi Borwa will be able to rapidly increase its capacity to over three million tonnes per annum.
Coloured Gemstones
Gemfields’ new ruby business saw immediate success with its first two auctions realising aggregate revenues of US$77 million, more than the
total acquisition and operating costs of the project to the end of 2014. Bulk sampling at Montepuez saw markedly increased ruby production
during the scaling-up of its operations. The potential of the Montepuez deposit is truly world-class and represents a valuable asset in the
Gemfields portfolio. The emerald business maintained its strong performance, with increasing revenues and per carat prices seen throughout
the year. Through its successful auction system, Gemfields has now positioned itself as the world’s leading supplier of emeralds. Gemfields
continues to unlock Fabergé’s growth potential with improvements in its financial metrics and the recent unveiling of the Fabergé Pearl
Egg, the first egg created in the “Imperial Class” since 1917 while the Fabergé name and Fabergé family have been united. Gemfields’ strong
revenue generation has been reflected in its share price, which increased by 40% during the year. We anticipate further increases as the
ruby operation starts to realise its full potential and Gemfields seeks to replicate its successful business formula to sapphires and
beyond.
We remain focussed on enhancing and unlocking the full value of each of our three investment platforms. Although the current market
environment is not necessarily conducive to divestments at optimal value, we continue to prepare the assets for eventual exit. When
commodity prices and market sentiment recover, each of our investments will be well-positioned to realise significant value for
shareholders.
Arne H. Frandsen
Chief Executive
Condensed Consolidated Statement of Comprehensive Income for the year ended 31 December 2014
1 January 2014 to 1 January 2013 to
31 December 2014 31 December 2013
US$ ’000 US$ ’000
INCOME
Investment Portfolio
Unrealised fair value gains 80,146 51,458
Unrealised fair value losses (19,109) (10,503)
Realised fair value loss on disposal of Fabergé equity shares – (7,952)
Realised loss on conversion of Fabergé loan to Gemfields shares – (12,027)
61,037 20,976
Investment Portfolio revenue
Loan interest income 556 –
556 –
Net gain on investments and income from operations 61,593 20,976
EXPENSES
Investment Manager’s Benefit (5,593) (5,220)
Operating expenses (609) (895)
Foreign exchange gains – 24
(6,202) (6,091)
Net gain from operations 55,391 14,885
Finance income 8 32
Finance costs (2) –
Net finance income 6 32
Profit before fair value gain/(loss) of associates 55,397 14,917
Fair value gain/(loss) of associates 11 (224)
Profit before tax 55,408 14,693
Tax (4) (4)
NET PROFIT AFTER TAX 55,404 14,689
Other comprehensive income – –
TOTAL COMPREHENSIVE INCOME 55,404 14,689
Basic and diluted earnings per ordinary share – US$ 0.07 0.02
All elements of total comprehensive expense for the year and comparative year are attributable to owners of the parent. There are
no non-controlling interests. The accompanying notes form part of these Condensed Financial Statements.
Condensed Consolidated Balance Sheet as at 31 December 2014
31 December 2014 31 December 2013
US$ ‘000 US$ ‘000
ASSETS
Non-current assets
Investments in associates 1,264 1,253
Investment Portfolio
Listed equity investments 185,511 174,618
Unlisted equity investments 265,381 215,237
450,892 389,855
Total non-current assets 452,156 391,108
Current assets
Investment Portfolio
Loans and receivables 15,256 –
Trade and other receivables 128 1,152
Cash and cash equivalents 4,082 23,907
Other investments 28 58
Total current assets 19,494 25,117
Total assets 471,650 416,225
LIABILITIES
Current liabilities
Trade and other payables 199 178
Total current and total liabilities 199 178
Net assets 471,451 416,047
Capital and reserves attributable to equity holders
Share capital 8 8
Share premium 375,227 375,227
Retained earnings 96,216 40,812
EQUITY 471,451 416,047
The Condensed Financial Statements were approved and authorised for issue by the Directors on 20 March 2015 and were signed on its
behalf by:
Arne H. Frandsen Andrew Willis
Chief Executive Finance Director
20 March 2015 20 March 2015
The accompanying notes form part of these Condensed Financial Statements.
Condensed Consolidated Statement of Cash Flows for the year ended 31 December 2014
1 January 2014 to 1 January 2013 to
31 December 2014 31 December 2013
US$ ’000 US$ ’000
Net cash used in operating activities (19,825) (8,464)
Investing activities
Amounts invested in associates – (63)
Amounts returned from associates – 434
Net cash from investing activities – 371
Financing activities
Net cash from financing activities – –
NET DECREASE IN CASH AND CASH EQUIVALENTS (19,825) (8,093)
Cash and cash equivalents at the beginning of the year 23,907 31,976
Foreign exchange gain on cash – 24
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 4,082 23,907
The accompanying notes form part of these Condensed Financial Statements.
Condensed Consolidated Statement of Changes in Equity for the year ended 31 December 2014
Share Share Retained Total
capital premium earnings equity
US$’000 US$’000 US$’000 US$’000
Balance at 1 January 2013 8 375,227 26,123 401,358
Total comprehensive income for the year – – 14,689 14,689
Balance at 31 December 2013 8 375,227 40,812 416,047
Total comprehensive income for the year – – 55,404 55,404
Balance at 31 December 2014 8 375,227 96,216 471,451
The accompanying notes form part of these Condensed Financial Statements
Notes to the Condensed Consolidated Financial Statements for the year ended 31 December 2014
Investment portfolio
The reconciliation of the Investment Portfolio valuations from 1 January 2014 to 31 December 2014 is as follows:
Accrued interest
Opening at Unrealised fair Unrealised fair income and Additions and Closing at
1 January 2014 value gains value losses structuring fee disposals 31 December 2014
Investment US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Listed equity investments
Gemfields(1) 144,361 41,150 – – – 185,511
144,361 41,150 – – – 185,511
Unlisted equity investments
Jupiter Mines Ltd(2) 30,257 38,996 – – – 69,253
Sedibelo Platinum Mines(3) 215,237 – (19,109) – – 196,128
245,494 38,996 (19,109) – – 265,381
Total non-current 389,855 80,146 (19,109) – – 450,892
Loans and receivables
Gemfields–US$15 million loan(4) – – – 556 14,700 15,256
– – – 556 14,700 15,256
Total current – – – 556 14,700 466,148
Total Investment Portfolio 389,855 80,146 (19,109) 556 14,700 466,148
(1) The unrealised fair value gain on Gemfields of US$41.150 million includes an unrealised foreign exchange loss of US$8.252 million.
(2) The unrealised fair value gain on Jupiter of US$38.996 million does not include any foreign exchange as the valuation is denominated
in US$.
(3) The unrealised fair value loss on Sedibelo Platinum Mines of US$19.109 million does not include any foreign exchange as the valuation
is denominated in US$.
(4) The Group has provided a loan to Gemfields of US$14.7 million (US$15 million less an arrangement fee of US$0.3 million or 2%). The
loan was drawn down in two tranches,
the first US$9.8 million in April 2014 and the second US$4.9 million in October 2014. Interest is also payable, calculated per the
agreement at three month US$ LIBOR plus 4.5%.The outstanding balance of the loan at 31 December 2014 is US$15.256 million. The loan is due
for repayment by 30 April 2015.
The reconciliation of the Investment Portfolio valuations from 1 January 2013 to 31 December 2013 is as follows:
Opening at Unrealised fair Unrealised fair income and Additions and Closing at
1 January 2013 value gains value losses structuring fee disposals 31 December 2013
Investment US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Listed equity investments
Gemfields(1) 59,569 20,717 – – 64,075 144,361
Jupiter(2) 38,106 – (10,503) – 2,654 30,257
97,675 20,717 (10,503) – 66,729 174,618
Unlisted equity investments
Fabergé 33,456 – – (7,952) (25,503) –
Sedibelo Platinum Mines(3) 184,495 30,742 – – – 215,237
217,951 30,742 – (7,952) (25,503) 215,237
Loans and receivables
Fabergé–US$50 million loan(4)50,599 – – (12,027) (38,572) –
50,599 – – (12,027) (38,572) –
Total non-current 366,225 51,459 (10,503) (19,979) 2,654 389,855
Total current – – – – – –
Total Investment Portfolio 366,225 51,459 (10,503) (19,979) 2,654 389,855
(1) The unrealised fair value gain on the Gemfields investment of US$20.717 million includes an unrealised foreign exchange gain of
U$4.412 million.
(2) The unrealised fair value loss on the Jupiter investment of US$10.503 million is net of an unrealised foreign exchange gain of
US$5.433 million.
(3) The unrealised fair value gain on the Sedibelo Platinum Mines investment of US$30.742 million does not include any foreign exchange as
the valuation is denominated in US$.
(4) The Group exercised its right to convert its US$50 million loan to Fabergé into equity and immediately vended these new Fabergé shares
into Gemfields in return for new Gemfields shares, effective 28 January 2013.
Segmental reporting
The Chief Operating Decision Maker (“CODM”) is Mr Gilbertson, the Chairman, who measures the performance of each operating segment by
assessing the fair value of the Group’s Investment Portfolio on a regular basis. The Group’s segmental reporting is based around three
Investment Platforms, PGMs, Steel Making Materials, and Coloured Gemstones, each of which is categorised as an operating segment.
The segmental information provided to the CODM for the year ended 31 December 2014 is as follows:
Steel Making Coloured
PGMs(1) Materials(2) Gemstones(3) Unallocated Total
31 December 2014 US$’000 US$’000 US$’000 US$’000 US$’000
Income statement
Unrealised fair value gains – 38,996 41,150 – 80,146
Unrealised fair value losses (19,109) – – – (19,109)
Loan interest income – – 556 – 556
Net segmental income/(expense) (19,109) 38,996 41,706 – 61,593
Other income – –
Net gains on investments and income from
operations 61,593
Expenses, net finance income, fair value
gain/(loss) of associates and taxation (6,189) (6,189)
Net segmental (loss)/profit (19,109) 38,996 41,706 (6,189) 55,404
Balance sheet
Net Asset Value 196,128 69,253 200,767 5,303 471,451
(1) The unrealised fair value loss on the PGMs segment of US$19.109 million does not include any foreign exchange as the valuation is
denominated in US$.
(2) The unrealised fair value gain on the Steel Making Materials segment of US$38.996 million does not include any foreign exchange as the
valuation is denominated in US$.
(3) The unrealised fair value gain on the Coloured Gemstones segment of US$41.150 million includes an unrealised foreign exchange loss of
US$8.252 million.
The Consolidated Statement of Comprehensive Income segmental information provided to the CODM for the year ended
31 December 2013 is as follows:
Steel Making Coloured
PGMs(1) Materials(2) Gemstones(3) Unallocated Total
31 December 2013 US$’000 US$’000 US$’000 US$’000 US$’000
Income statement
Realised fair value loss on disposal of
Fabergé equity shares – – (7,952) – (7,952)
Realised loss on conversion of Fabergé
loan to Gemfields shares – – (12,027) – (12,027)
Unrealised fair value gains 30,742 – 20,716 – 51,458
Unrealised fair value losses – (10,503) – – (10,503)
Net segmental expenses 30,742 (10,503) 737 – 20,976
Other income – –
Net gains on investments and income from
operations 20,976
Expenses, net finance income, fair value
gain/(loss) of associates and taxation (6,287) (6,287)
Net segmental profit/(loss) 30,742 (10,503) 737 (6,287) 14,689
Balance sheet
Net Asset Value 215,237 30,257 144,361 26,192 416,047
(1) The unrealised fair value gain on the PGMs segment of US$30.742 million does not include any foreign exchange as the valuation is
denominated in US$.
(2) The unrealised fair value loss on the Steel Making Materials segment of US$10.503 million is net of an unrealised foreign exchange
gain of US$5.433 million.
(3) The unrealised fair value gain on the Coloured Gemstones segment of US$20.716 million includes an unrealised foreign exchange gain of
US$4.412 million.
Basis of preparation
The Group Financial Statements for the year ending 31 December 2014 have been prepared in accordance with International Financial
Reporting Standards (“IFRS”), the financial reporting guides issued by the Accounting Practices Committee of the South African Institute
of Chartered Accountants (the “SAICA Reporting Guides”) and the financial reporting pronouncements issued by the Financial Reporting
Standards Council of South Africa (the “FRSC Pronouncements”). The Financial Statements also comply with the JSE Listings Requirements,
the BSX Listing Regulations and The Companies (Guernsey) Law, 2008 and show a true and fair view.
The Financial Statements have been audited by the Company’s auditors, Saffery Champness; their audit opinion was unqualified, and did
not draw attention to any emphases of matter. The audit opinion is available for inspection at the Company’s registered office.
Shareholders are advised that in order to obtain a full understanding of the nature of the auditors’ engagement, they should obtain a copy
of that audit opinion together with the accompanying annual report. Any reference to future financial information included in this
announcement has not been reviewed or reported on by the auditors. The Financial Statements will be distributed to shareholders during
April 2015, and made available on the Company’s website, www.pallinghurst.com.
This preliminary announcement includes condensed financial statements (the “Condensed Financial Statements”). The Condensed Financial
Statements have been prepared in accordance with IAS34 Interim Financial Reporting and do not contain sufficient information to fully
comply with IFRS. The Condensed Financial Statements comply with the SAICA Reporting Guides and the FRSC Pronouncements, the JSE
Listings Requirements and the BSX Listing Regulations and show a true and fair view.
Accounting policies
The Group’s accounting policies were last described in full in the Group`s financial statements for the year ended 31 December 2013.
The Group adopted the various standards known as the “package of five” effective 1 January 2013. The adoption of the package of
five did not have a material impact on the Group. In October 2012, the IASB issued “Investment Entities (Amendments to IFRS10,
IFRS12 and IAS27) (the “Investment Entities Amendments”)”. Where an entity meets the definition of an investment entity under IFRS10,
it is required to account for investments in joint ventures, associates and certain controlled entities at fair value through profit
or loss. The Investment Entities Amendments became effective from 1 January 2014.
Various new and revised accounting standards, amendments to standards and new interpretations have been issued by the International
Accounting Standards Board but are not yet effective. At this stage, the Directors do not believe that these changes will have a material
impact on the Group or its financial reporting. The accounting policies applied are consistent with those adopted and disclosed in the
Group`s financial statements for the year ended 31 December 2013 other than in respect of these changes.
Contingent liabilities and contingent assets
The Group has acted as a limited guarantor for the lease of Fabergé’s New York retail outlet at 694 Madison Avenue since 31 August 2011.
The circumstances relating to the guarantee have not changed since 31 December 2011. One of the conditions of the Gemfields/Fabergé
Merger was that Gemfields either take over as guarantor from PRL, or that Gemfields indemnify the Group against any potential liability to
the landlord. Gemfields have now provided an indemnification to the Group against any loss from this guarantee. The Directors’ assessment
is that the maximum amount of the Group’s contingent liability continues to be US$219,000, although any such loss should be recoverable
from Gemfields under the terms of the indemnification.
The Group had no other significant contingent liabilities or contingent assets at 31 December 2014 or 31 December 2013.
Commitments
The Group had no material commitments at the date of signature of the Financial Statements.
Events occurring after the end of the year
Approval of Annual Report
The Annual Report was approved by the Directors and authorised for issue on 20 March 2015.
Pallinghurst Resources Limited | (Incorporated in Guernsey) | (Guernsey registration number: 47656) | (South African external company
registration number 2009/012636/10) | Share code on the JSE: PGL | Share code on the BSX: PALLRES | ISIN: GG00B27Y8Z93 | (“Pallinghurst”,
the “Company” or “PRL”) EXECUTIVE DIRECTORS: Brian Gilbertson, Arne H. Frandsen, Andrew Willis(1) NON-EXECUTIVE DIRECTOR: Dr Christo Wiese
INDEPENDENT NON-EXECUTIVE DIRECTORS: Stuart Platt-Ransom(2), Martin Tolcher, Clive Harris PERMANENT ALTERNATES: Chris Powell(1), Brian
O’Mahoney(2) ADMINISTRATOR AND COMPANY SECRETARY: Orangefield Legis Fund Services Limited, 11 New Street, St Peter Port, Guernsey, GY1
2PF, Channel Islands REGISTERED OFFICE: 11 New Street, St Peter Port, Guernsey, GY1 2PF, Channel Islands SOUTH AFRICAN TRANSFER SECRETARY:
Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg, 2001, South Africa AUDITOR: Saffery Champness, PO Box
141, La Tonnelle House, Les Banques, St Sampson, Guernsey, GY1 3HS, Channel Islands JSE SPONSOR: Investec Bank Limited, 100 Grayston
Drive, Sandown, Sandton, 2196, South Africa BSX SPONSOR: Clarien Investments Limited, 25 Reid Street, 4th Floor, Hamilton, HM11, Bermuda.
(1) Mr Powell acts as Permanent Alternate to Mr Willis.
(2) Mr O’Mahoney acts as Permanent Alternate to Mr Platt-Ransom.
Date: 23/03/2015 12:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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