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Interim Report and Consolidated Financial Statements for the six months ended 30 June 2015
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 Report for the six months ended 30 June 2015
Investment Manager’s Report
This year has so far been very challenging for the natural resources industry with many commodity prices at multi-year
lows and nearly all listed companies invested in the sector experiencing major share price falls. Whilst the performance
of Gemfields has been an exception to that pattern, with an improving financial performance and share price, our
Investment Portfolio is not immune to these industry-wide difficulties. Although we have seen decreases in some of the
carrying values, I am pleased to report that these declines have been more than offset by the increases. Accordingly,
the Company’s net asset value has risen over the past six months and we recorded a net profit of over US$3 million. This
result highlights the merit of holding three separate investment platforms, which has been our long-held strategic
stance.
Some of the key investment highlights so far this year include:
- SPM achieved record PGM dispatches of 82,500 ounces for the first six months of the year.
- Over 3.2 million fatality-free shifts were recorded at SPM.
- Tshipi produced and exported over two million tonnes of manganese ore in its second full year of operations.
- Tshipi was profitable in its second consecutive financial year, despite low manganese prices.
- Gemfields generated record auction revenues of US$154 million for its financial year to 30 June 2015.
- Gemfields released a CPR for its Montepuez ruby deposit which includes Probable Ore Reserves of 432 million carats of
ruby and corundum, a post-tax NPV of US$1 billion and an IRR of 312%.
These achievements demonstrate the solid progress our investments continue to make and we remain confident that when
commodity prices recover, each of our three platforms will be uniquely positioned to realise their significant inherent
value for shareholders.
Arne H. Frandsen
Chief Executive
Platinum Group Metals (“PGM”)
This year has been challenging for the PGM industry, with demand impacted by slowing global growth. Although demand
continues to exceed supply, significant above-ground stockpiles, particularly of platinum, have been sufficient to cover
the deficit.
Despite this difficult environment, Sedibelo Platinum Mines Limited (“SPM”) has developed well, with record metal
dispatches of 82,500 ounces of 4E PGM for the six months to 30 June 2015, a 15% increase from the 2014 comparable period.
This has been achieved through increased volumes and an optimisation process leading to an improvement in metal
recoveries at its Pilanesberg Platinum Mine (“PPM”). PPM management has also been improving operational efficiency and
cutting costs, which together with increased production has lowered unit costs.
SPM places a strong emphasis on workplace safety and has achieved a record of over 3.2 million fatality free shifts, a
considerable achievement in any mining environment. SPM continues to support the social and economic development of the
local community, including making improvements to the local water and road infrastructure.
SPM continues to develop its new “Kell” technology, an environmentally friendly PGM beneficiation process that has the
potential to transform the industry. Kell requires much less electricity than traditional smelting and has the potential
to increase recoveries not only of PGMs, but also the base metals copper, cobalt and nickel. Kell continues to show
encouraging recovery results and is being trialled in a pilot plant.
The cost-cutting initiatives at SPM will provide support through the current depressed market conditions and position
the company well to benefit from any PGM industry recovery. The long-term supply and demand fundamentals remain
positive; SPM, with its large, sustainable and relatively shallow resource base, is ready to proceed with a listing when
market conditions are favourable.
Steel Making Materials
The year has also been difficult for manganese producers, with significant price declines as a result of slowing demand
from China. Despite the difficult backdrop, Tshipi Borwa completed its ramp up, more than doubling its production and
exports to over two million tonnes of manganese ore in its financial year to 28 February 2015. Tshipi Borwa recorded its
second consecutive year of profit, a significant achievement in a low price environment and is again on track to export
two million tonnes for the financial year to 28 February 2016.
Tshipi’s commitment to the safety of its employees has resulted in a safer mining environment, with only one Lost Time
Injury recorded in the first half of 2015. Tshipi also continues to plant trees to offset construction activities, and
promotes local community development through infrastructure projects and educational development programmes.
Despite the current low price environment, the medium to long-term supply/demand fundamentals for manganese remain
favourable. Tshipi has established itself as a significant player in the South African manganese ore industry and is
well placed to benefit when the market recovers.
As a result of the current low iron ore price, Jupiter Mines Limited (“Jupiter”) has placed its Mount Ida magnetite and
Mount Mason hematite projects in the Central Yilgarn region of Western Australia on care and maintenance. Jupiter
continues to monitor the iron ore market and is ready to restart work on these projects once market conditions are
favourable.
Coloured Gemstones
Gemfields plc (“Gemfields”) has performed well, generating record auction revenues of US$154 million in its financial
year to 30 June 2015 and increases in production at both its Kagem emerald mine in Zambia and its Montepuez ruby deposit
in Mozambique. This positive performance has been reflected in the Gemfields share price, which has risen by 30% in the
first half of the calendar year.
The new ruby business continues to perform well with two auctions held so far in 2015. In April 2015 an auction of
predominantly lower quality rough ruby and corundum was held in Jaipur, India, generating revenues of US$16 million at
an average price of US$4.03 per carat. An auction of predominantly higher quality rough ruby was then held in Singapore
in June 2015, generating revenues of US$29 million at an average price of US$617 per carat. One of the highlights of the
auction was a rare matching pair of rough rubies, with a combined weight of 45 carats. The rubies were named the “Eyes
of the Dragon” by the buyer and reflect the exclusivity of Montepuez’s higher quality production.
The significant potential of the new ruby deposit at Montepuez was formally confirmed in July 2015 when Gemfields
released a Competent Persons Report (“CPR”) covering only 36 square kilometres out of the 336 square kilometre licence
area. The CPR estimates a post-tax net present value for the 36 square kilometre project area of US$1 billion and an
IRR of 312%. The CPR also gives an Indicated and Inferred Mineral Resource of ruby and corundum of 467 million carats
and Probable Ore Reserves of 432 million carats.
The emerald auctions also continue to generate strong revenues, with a lower quality rough emerald and beryl auction in
Lusaka, Zambia in February 2015 realising revenues of US$15 million. The average price of US$3.72 per carat was a new
record for lower quality emerald and beryl auctions and an increase of 12% over the previous record per carat average
price. A predominantly higher quality rough emerald auction was held in Singapore in September 2015. A total of 0.59
million carats were sold for US$34.7 million, representing an average price of US$58.42 per carat.
Gemfields has now held 19 auctions of emerald and beryl produced at Kagem which have generated revenues totalling
US$360 million. The four auctions of ruby and corundum produced at Montepuez have generated revenues of US$122 million.
During the year to 30 June 2015, emerald and beryl production at Kagem increased by 50% to 30 million carats, with the
grade 4% lower at 242 carats per tonne. In the same period, production of ruby and corundum at the Montepuez ruby
deposit increased by 30% to 8.4 million carats.
Gemfields’ strong safety record is evidenced by more than 3.5 million shifts free of reportable injuries at Kagem being
recognised by the Mines Safety Department of Zambia. Gemfields also has many projects that assist local communities and
strong progress was made in the past year on the construction of a secondary school and the upgrade of a village health
centre.
Gemfields’ luxury brand, Fabergé, saw an increase of 31% in sales orders agreed for its financial year to 30 June 2015
and the unveiling of a range of new jewellery and timepiece collections. The Fabergé Pearl Egg presented at the Doha
Jewellery & Watches Exhibition in February 2015 was the first egg created in the “Imperial Class” since 1917, while the
Fabergé name and Fabergé family have been united. Fabergé’s luxury positioning adds consumer appeal to Gemfields’
products through the promotion of coloured gemstones, and increases demand in the coloured gemstone industry.
Gemfields’ position as the world’s leading supplier of responsibly sourced coloured gemstones rests on its success of
applying its unique mining, grading, auctioning and marketing techniques to its operations. The global coloured
gemstone market continues to grow strongly and Gemfields has the potential to expand through its existing emerald and
ruby businesses and to apply its successful model to sapphires and other coloured gemstones.
Pallinghurst (Cayman) GP L.P.
September 2015
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 June 2015
1 January 2015 1 January 2014 1 January 2014
to 30 June 2015 to 30 June 2014 to 31 December 2014
US$ 000 US$ 000 US$ 000
INCOME Notes (reviewed) (reviewed) (audited)
Investment Portfolio
Unrealised fair value gains 2
57,801 106,426 80,146
Unrealised fair value losses 2 (51,314) - (19,109)
6,487 106,426 61,037
Investment Portfolio revenue
Loan interest income 2 368 135 556
368 135 556
Net gains on investments and
income from operations 6,855 106,561 61,593
EXPENSES
Investment Manager’s Benefit 4 (3,124) (2,574) (5,593)
Operating expenses (550) (382) (609)
Foreign exchange gains 2 - -
(3,672) (2,956) (6,202)
Net gain from operations 3,183 103,605 55,391
Finance income 5 6 8
Finance costs - - (2)
Net finance income 5 6 6
Profit before fair value gain
of associates 3,188 103,611 55,397
Fair value gain of associates 13 7 11
Profit before tax 3,201 103,618 55,408
Tax - - (4)
NET PROFIT/AFTER TAX 3,201 103,618 55,404
Other comprehensive income - - -
TOTAL COMPREHENSIVE INCOME 3,201 103,618 55,404
Basic and diluted earnings
per ordinary share - US$ 7 0.004 0.136 0.073
All elements of total comprehensive income for the period and all comparative periods are attributable to owners of the
parent. There are no non-controlling interests. The accompanying notes form part of these Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2015
30 June 2015 30 June 2014 31 December 2014
US$ 000 US$ 000 US$ 000
Notes (reviewed) (reviewed) (audited)
ASSETS
Non-current assets
Investments in associates 1,277 1,260 1,264
Investment Portfolio
Listed equity investments 2 243,312 208,090 185,511
Unlisted equity investments 2 214,067 288,191 265,381
457,379 496,281 450,892
Total non-current assets 458,656 497,541 452,156
Current assets
Investment Portfolio
Loans and receivables 2 - 9,935 15,256
Trade and other receivables 1,690 1,515 128
Cash and cash equivalents 14,383 10,934 4,082
Other investments 77 29 28
Total current assets 16,150 22,413 19,494
Total assets 474,806 519,954 471,650
LIABILITIES
Current liabilities
Trade and other payables 154 289 199
Total current and other liabilities 154 289 199
Net assets 474,652 519,665 471,451
Capital and reserves attributable
to equity holders
Share capital 8 8 8
Share premium 375,227 375,227 375,227
Retained earnings 99,417 144,430 96,216
EQUITY 474,652 519,665 471,451
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 30 June 2015
1 January 2015 1 January 2014 1 January 2014
to 30 June 2015 to 30 June 2014 to 31 December 2014
US$ 000 US$ 000 US$ 000
Notes (reviewed) (reviewed) (audited)
Net cash generated from/used in 5 10,299 (12,973) (19,825)
operating activities
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS 10,299 (12,973) (19,825)
Cash and cash equivalents at the beginning
of the period/year 4,082 23,907 23,907
Foreign exchange gain on cash 2 - -
CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD/YEAR 14,383 10,934 4,082
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2015
Share Share Retained Total equity
capital premium earnings/losses
US$ 000 US$ 000 US$ 000 US$ 000
Balance at 1 January 2014 (audited) 8 375,227 40,812 416,047
Total comprehensive income for the period - - 103,618 103,618
Balance at 30 June 2014 (reviewed) 8 375,227 144,430 519,665
Total comprehensive loss for the period - - (48,214) (48,214)
Balance at 31 December 2014 (audited) 8 375,227 96,216 471,451
Total comprehensive income for the period - - 3,201 3,201
Balance at 30 June 2015 (reviewed) 8 375,227 99,417 475,652
NOTES TO THE INTERIM FINANCIAL STATEMENTS
for the six months ended 30 June 2015
The accompanying notes form part of these Financial Statements.
1. Accounting policies
The financial statements within the Interim Report are for the period from 1 January 2015 to 30 June 2015 (the
“Interim Financial Statements”). The financial information for the year ended 31 December 2014 that has been included in
these Interim Financial Statements does not constitute full statutory financial statements as defined in The Companies
(Guernsey) Law, 2008.
The information included in this document for the comparative year was derived from the Annual Report and Financial
Statements for the year ended 31 December 2014 (the “Annual Financial Statements”), a copy of which has been delivered
to the Guernsey Financial Services Commission, the Johannesburg Stock Exchange (“JSE”) and the Bermuda Stock Exchange.
The auditor’s report on the Annual Financial Statements was unqualified, did not draw attention to any matters by way
of emphasis, and stated that the Annual Financial Statements had been properly prepared in accordance with The Companies
(Guernsey) Law, 2008.
Basis of accounting
These Interim Financial Statements have been prepared in accordance with IAS34 Interim Financial Reporting (“IAS34”)
and applicable legal requirements of The Companies (Guernsey) Law, 2008. They do not include all of the information
required for full financial statements and are to be read in conjunction with the Annual Financial Statements. The
Annual Financial Statements were prepared under 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 Annual Financial Statements also comply with the JSE Listings
Requirements and the BSX Listing Regulations.
The principal accounting policies applied are consistent with those adopted and disclosed in the Annual Financial
Statements. The Interim Financial Statements have been prepared on the historic cost basis, except for the valuation
of certain equity investments held within the Investment Portfolio. These equity investments are measured at fair value
not historic cost. Historic cost is generally based on the fair value of the consideration given in exchange for the
assets. Other than information contained within the Condensed Consolidated Statement of Cash Flows, the Interim
Financial Statements have been prepared on the accruals basis.
Interim results
Materially all of the Group’s results are related to investment valuations and are not directly affected by seasonality
or the cyclicality of operations. An investment’s most recent financial results do not necessarily directly impact upon
the fair value of that investment and other factors are usually more relevant in determining fair value than seasonality
or the cyclicality of operations.
Going concern
The Directors have reassessed the Group’s balance sheet and the principal risks applicable to the Group’s operations
at the interim reporting date. The Directors have concluded that the going concern basis of accounting is appropriate
for preparing the Interim Financial Statements.
Changes and amendments to IFRS
A number of amendments to IFRS have become effective for financial periods beginning on (or after) 1 January 2015, and
are therefore applicable for these Interim Financial Statements. These amendments have not had a material impact on
the Group.
2. Investment Portfolio
The reconciliation of the Investment Portfolio valuations from 1 January 2015 to 30 June 2015 is as follows:
Accrued
Unrealised Unrealised interest and Additions
Opening at 1 fair value fair value structuring and Closing at 30
January 2015 gains losses fee disposals June 2015
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
(reviewed) (reviewed) (reviewed) (reviewed) (reviewed) (reviewed)
Investment
Listed equity investments
Gemfields (1) 185,511 57,801 - - - 243,312
185,511 57,801 - - - 243,312
Unlisted equity investments
Jupiter Mines (2) 69,253 - (7,847) - - 61,406
Sedibelo
Platinum Mines (3)196,128 - (43,467) - - 152,661
265,381 - (51,314) - - 214,067
Total
non-current 450,892 57,801 (51,314) - - 457,379
Loans and receivables
Gemfields loan (4)15,256 - - 368 (15,624) -
Total current 15,256 - - 368 (15,624) -
Total Investment
Portfolio 466,148 57,801 (51,314) 368 (15,624) 457,379
(1) The unrealised fair value gain on Gemfields includes an unrealised foreign exchange gain of US$1.8 million.
(2) The unrealised fair value loss on Jupiter does not include any foreign exchange as the valuation is denominated in
US$.
(3) The unrealised fair value loss on SPM does not include any foreign exchange as the valuation is denominated in US$.
(4) The Group made a loan to Gemfields of US$15 million in two separate tranches during 2014. The loan, including interest
and the arrangement fee was repaid by Gemfields on 30 April 2015.
The reconciliation of the Investment Portfolio from 1 January 2014 to 30 June 2014 is as follows:
Realised
Unrealised Unrealised loss on Additions
Opening at 1 fair value fair value Gemfields/ and Closing at 30
January 2014 gains losses Faberge Merger disposals June 2014
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
(reviewed) (reviewed) (reviewed) (reviewed) (reviewed) (reviewed)
Investment
Listed equity investments
Gemfields (1) 144,361 63,729 - - - 208,090
144,361 63,729 - - - 208,090
Unlisted equity investments
Jupiter Mines (2) 30,257 42,697 - - - 72,954
Sedibelo
Platinum Mines 215,237 - - - - 215,237
245,494 42,697 - - - 288,191
Total
non-current 389,855 106,426 - - - 496,281
Loans and receivables
Gemfields loan (3) - - - 135 9,800 9,935
- - - 135 9,800 9,935
Total current - - - 135 9,800 9,935
Total Investment
Portfolio 389,855 106,426 - 135 9,800 506,216
(1) The unrealised fair value gain on Gemfields includes an unrealised foreign exchange gain of US$4.7 million.
(2) The unrealised fair value gain on Jupiter does not include any foreign exchange as the valuation is denominated in
US$.
(3) The Group committed to provide a loan to Gemfields of up to US$15 million for general working capital purposes. At
30 June 2014 the balance of the loan was US$9.935 million including interest and a pro-rated element of the arrangement
fee. The loan, including interest and the arrangement fee, was fully repaid by Gemfields on 30 April 2015.
The reconciliation of the Investment Portfolio valuations from 1 January 2014 to 31 December 2014 is as follows:
Accrued interest
Opening at Unrealised fair Unrealised fair income and Additions and Closing at
1 January 2014 value gains value losses structuring fee disposals 31 December 2014
Investment US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
(audited) (audited) (audited) (audited) (audited) (audited)
Listed equity investments
Gemfields(1) 144,361 41,150 – – – 185,511
144,361 41,150 – – – 185,511
Unlisted equity investments
Jupiter Mines(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 loan – – – 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 includes an unrealised foreign exchange loss of US$8.3 million.
(2) The unrealised fair value gain on Jupiter does not include any foreign exchange as the valuation is denominated in
US$.
(3) The unrealised fair value loss on SPM does not include any foreign exchange as the valuation is denominated in US$.
(4) The Group committed to provide a loan to Gemfields of up to US$15 million for general working capital purposes. At
30 June 2014 the balance of the loan was US$15.256 million including interest and a pro-rated element of the
arrangement fee. The loan, including interest and the arrangement fee was fully repaid by Gemfields on 30 April 2015.
Gemfields plc – equity
Nature of investment
The Group holds an equity interest in Gemfields plc; the world’s leading supplier of responsibly sourced coloured
gemstones and is listed on the AIM market of the London Stock Exchange.
The Group owns a see-through interest of 47.6% in Gemfields at 30 June 2015, valued at US$259 million.
Fair value methodology:
Listed share price
The Group’s interest in Gemfields is valued at the 30 June 2015 mid-price of GBP0.5975 per share, translated at the
closing rate of US$1/GBP0.6358.
Other considerations
The Group’s cost of investment is approximately US$119 million and the Group’s initial investment was made in October
2007.
Jupiter Mines Limited – equity
Nature of investment
The Group holds an equity interest in Jupiter Mines Ltd. Jupiter is based in Perth, Western Australia and its main
asset is a 49.9% interest in the Tshipi manganese joint venture in South Africa.
Fair value methodology
: Directors’ estimate
Each of Jupiter’s material assets has been valued separately to determine an appropriate valuation for 100% of Jupiter.
The Directors have estimated that the fair value of Jupiter at 30 June 2015 is US$333 million; the implied valuation
of the Group’s 18.5% interest is US$61 million.
Jupiter’s 49.9% interest in Tshipi Borwa has been valued based on an independent valuation report, prepared as at 30
April 2014. The independent valuation report includes a DCF analysis to value Tshipi Borwa and includes a range of
valuations. The DCF analysis is based on a large number of predictions and uncertainties including forecast manganese
prices, costs and exchange rates. Changing any of these assumptions may materially affect the implied valuation. The
valuation is based on the “preferred valuation” contained in the independent valuation report, less an adjustment to
take into account more recent lower manganese prices.
Jupiter’s other assets have been valued using a range of different valuation methodologies. Tshipi also holds
exploration rights in Tshipi Bokone, another manganese prospect located in the Kalahari Manganese Field. The Directors
have used the “preferred valuation” contained within the independent valuation report, referred to above, to value
Tshipi Borwa. Jupiter has made certain shareholder loans to Tshipi, these have been valued at amortised cost
(including accrued interest). Jupiter’s interest in Mount Mason has been estimated by the Directors based on an
independent valuation prepared for Jupiter’s board of directors, which compares various similar companies to imply a
valuation for Mount Mason. Jupiter’s interest in Mount Ida has been valued on a similar basis. Jupiter’s cash has been
included at fair value.
Jupiter has no material liabilities.
Other considerationsJupiter’s net assets per its most recent audited balance sheet at 28 February 2015 were US$350 million.
After making certain adjustments (mostly foreign exchange), Jupiter’s net assets at 30 June 2015 were estimated to be
US$331 million. This compares with the Directors’ valuation of Jupiter of US$333 million which implies that the Directors’
valuation is reasonable.
The Directors note that the valuation of Jupiter is sensitive to various key inputs, in particular the manganese price
for Tshipi Borwa and Tshipi Bokone. The independent valuation report uses recent manganese prices as a proxy for likely
future prices throughout the life of mine. The Directors believe that recent prices represent a reasonable estimate
for the future manganese price throughout the life of mine, but note that any deviation in price will have a material
impact on the valuation. Iron ore prices will have a significant impact on the future valuations of Mount Ida and Mount Mason.
The Group owned an effective 18.5% interest in Jupiter at 30 June 2015. The Group’s cash cost of investment is
approximately US$29 million and the Group’s initial investment into Jupiter was made in May 2008.
Sedibelo Platinum Mines Limited – equity
Nature of investment
The Group holds an equity interest in SPM, a producer of PGMs with interests in the Bushveld Complex in South Africa.
Fair value methodology:
Directors’ estimate
The Directors have estimated that the value of SPM Ltd is US$2.34 billion; the Group’s indirect 6.5% interest has
therefore been valued at US$153 million.
The Directors have considered a range of sources in determining the valuation of SPM. The primary source of evidence
was the valuation implied by two recent equity investments into SPM. These equity investments were made during July
and November 2014 and were for US$61.1 million and US$4 million respectively. The valuation of SPM implied by these
investments is US$2.34 billion.
The Directors’ valuation of SPM at 31 December 2014 was US$3 billion.
Other considerations
A competent person’s report was produced for the SPM board of directors as at 31 December 2013 which the Directors
have considered. The competent person’s report includes discounted cash flow (“DCF”) analysis to value SPM’s key assets
and includes a range of valuations. The Directors have then utilised more recent forecasts for PGM prices over the
duration of SPM’s life; forecast PGM prices around 30 June 2015 are lower compared to late 2013 and the valuation in
the competent person’s valuation has been adjusted downwards.
The competent person’s report used information from a range of sources to forecast PGM prices. The platinum price was
forecast to be within a range of US$1,663 to US$2,382 over SPM’s life-of-mine. Using the same range of sources at 30
June 2015, the platinum price is now forecast to be within a range of US$1,151 to US$1,850 over SPM’s life-of-mine.
The palladium price was forecast to be within a range of US$780 to US$1,191 over SPM’s life-of-mine. Using the same
range of sources at 30 June 2015, the palladium price is now forecast to be within a range of US$800 to US$925 over
SPM’s life-of-mine.
The Directors note that the valuation of Jupiter is sensitive to various key inputs, in particular the manganese price
for Tshipi Borwa and Tshipi Bokone. The independent valuation report used recent manganese prices as a proxy for likely
future prices throughout the life of mine. The Directors have considered certain price forecasts for manganese in
agreeing the valuation of Tshipi Borwa at 30 June 2015. This is in contrast to the reporting periods ending 31 December
2014 and 30 June 2014 when only current prices were utilised. The manganese price is predicted to increase from its
current lows over Tshipi Borwa’s life to levels that are not materially different to those used in previous reporting
periods. Therefore the Directors do not consider that any adjustment is required to the valuation. Iron ore prices will
have a significant impact on the future valuations of Mount Ida and Mount Mason.
The implied valuation of SPM using the competent person’s report with an adjustment for the decline in PGM prices is
US$2.35 billion, which is materially similar to the Directors’ estimate of US$2.34 billion at 30 June 2015.
The Group’s cash cost of investment for SPM is approximately US$123 million. The Group’s first PGM investment was the
acquisition of an interest in the Moepi Group made in August 2008.
Gemfields plc – loan
Nature of investment
The Group agreed to provide a loan of up to US$15 million to Gemfields, in line with the Group’s strategy of providing
support to its investments. The loan was repaid, with accrued interest, on 30 April 2015.
Fair value methodology:
Amortised cost- effective interest method
The value of loan to Gemfields was calculated using the effective interest method, with the arrangement fee accruing
evenly over the projected life of the loan. The outstanding balance on the date of repayment, 30 April 2015, including
interest and arrangement fee, was US$15.6 million. The effective interest rate on the loan during the period was
approximately 7.5%, and throughout the duration of the loan was approximately 7.4%.
Other considerations
On 19 August 2015, the Group made a further loan of US$10 million to Kagem Mining Limited, a 75% subsidiary of
Gemfields plc. The loan is due for repayment by 15 December 2015.
Fair value hierarchy
The Group owns certain financial instruments that are measured at fair value subsequent to initial recognition. The
equity investments held within the Investment Portfolio fall into this category. The Group also extends loans to
investments within the Investment Portfolio on occasion, which are categorised as Loans and receivables. The Group
also owns certain other equity investments which do not form part of the Investment Portfolio, held within Other
investments on the balance sheet.
IFRS13 requires disclosure of fair value measurements under the following hierarchy:
Level
Fair value input description
Level 1
Listed prices (unadjusted) in active markets for identical assets or liabilities
Level 2
Inputs other than listed prices included within level one that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices)
Level 3
Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs)
The Group’s valuation of Jupiter is based on a number of different valuation methodologies, with each of Jupiter’s
material assets valued separately. However, the investment in Jupiter as a whole has been categorised as Level 3 as
the most significant inputs to the Jupiter valuation as a whole are Level 3 inputs.
A breakdown of the Group’s financial assets at Fair Value through Profit or Loss (“FVTPL”), categorised as Level 1,
Level 2 and Level 3 assets is included below:
Level 1
Level 2
Level 3 Total
US$’000s
US$’000s
US$’000s
US$’000s
30 June 2015
(reviewed)
(reviewed)
(reviewed)
(reviewed)
Financial assets at FVTPL
Equity investments
243,312
-
214,067
457,379
Gemfields loan
-
-
-
-
Investments in associates
-
-
1,277
1,277
Other investments
77
-
-
77
243,389
-
215,344
458,733
Level 1
Level 2
Level 3 Total
US$’000s
US$’000s
US$’000s
US$’000s
30 June 2014
(reviewed)
(reviewed)
(reviewed)
(reviewed)
Financial assets at FVTPL
Equity investments 208,090 - 288,191 496,281
Gemfields loan
-
-
9,935
9,935
Investments in associates
-
-
1,260
1,260
Other investments
29
-
-
29
208,119
-
299,386
507,505
Level 1
Level 2
Level 3 Total
US$’000s
US$’000s
US$’000s
US$’000s
31 December 2014
(audited)
(audited)
(audited)
(audited)
Financial assets at FVTPL
Equity investments
185,511
-
265,381
450,892
Gemfields loan
-
-
15,256
15,256
Investments in associates
-
-
1,264
1,264
Other investments
28
-
-
28
185,539
-
281,901
467,440
Level 3 fair value reconciliation
A reconciliation of the Group’s investments during the period is provided below:
US$’000
As at 1 January 2014 (audited) (restated)
216,490
Fair value gain on associates (1)
7
Unrealised fair value gains
42,697
Jupiter reclassification upon delisting (2)
30,257
Loans extended to Gemfields
9,800
Accrued interest on Gemfields loan
135
As at 30 June 2014 (reviewed) (restated)
299,386
Fair value gain on associates (1)
4
Unrealised fair value losses
(22,810)
Loans extended to Gemfields
4,900
Accrued interest on Gemfields loan
421
As at 31 December 2014 (audited)
281,901
Fair value gain on associates (1)
13
Unrealised fair value losses
(51,314)
Accrued interest and structuring fee on Gemfields loan
368
Repayment of Gemfields loan
(15,624)
At 30 June 2015 (reviewed)
215,344
(1)Since the adoption of the Investment Entities Amendments on 1 January 2014, certain investments in associates which
were previously equity accounted are now accounted for at fair value and accordingly are included in the table above.
(2) Jupiter delisted from the ASX effective 10 January 2014. The investment in Jupiter has been reclassified from a
Level 1 to a Level 3 investment, effective the date of the delisting.
Other information
It is unlikely that the Group will invest in more than ten investments as the Investment Period has ended.
3. 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. Each of SPM, Jupiter and Gemfields is a separate legal entity and
each has a discrete board of directors with a clear set of responsibilities. Each investment is assessed on this basis
and as such, each of the Group’s operating segment may include multiple mines and other assets.
The segmental information provided to the CODM for the period ended 30 June 2015 is as follows:
Steel Making Coloured
PGMs(1) Materials(2) Gemstones(3) Unallocated Total
31 December 2015 US$’000 US$’000 US$’000 US$’000 US$’000
(reviewed) (reviewed) (reviewed) (reviewed) (reviewed)
Income statement
Unrealised fair value gains
-
-
57,801
-
57,801
Unrealised fair value losses
(43,467)
(7,847)
-
-
(51,314)
Loan interest income
-
-
368
-
368
Net segmental income/(expense)
(43,467)
(7,847)
58,169
-
6,855
Other income
-
-
Net (losses)/gains on investments and
income from operations
6,855
Expenses, net finance income, fair value
gain of associates and taxation
(3,654) (3,654)
Net segmental profit/ (loss)
(43,467)
(7,847)
58,169
(3,654)
3,201
Balance sheet
Net Asset Value
152,661
61,406
243,312
17,273
474,652
(1) The unrealised fair value loss on the PGMs segment does not include any foreign exchange as the valuation is denominated
in US$.
(2) The unrealised fair value loss on the Steel Making Materials segment does not include any foreign exchange as the
valuation is denominated in US$.
(3) The unrealised fair value gain on Coloured Gemstones includes an unrealised foreign exchange gain of US$1.8 million.
The segmental information provided to the CODM for the period ended 30 June 2014 is as follows:
Steel Making Coloured
PGMs (1) Materials(1) Gemstones(2) Unallocated Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
(reviewed) (reviewed) (reviewed) (reviewed) (reviewed)
Income statement
Unrealised fair value gains - 42,697 63,729 - 106,426
Unrealised fair value losses - - - - -
Loan interest income - - 135 - 135
Net segmental income - 42,697 63,864 - 106,561
Other income - -
Net gains on investments and income from operations 106,561
Expenses, net finance income,
share of loss of associates
and taxation (2,943) (2,943)
Net segmental profit/(loss) - 42,697 63,864 (2,943) 103,618
Balance sheet
Net Asset Value
215,237
72,954
218,025
13,449
519,665
(1) The unrealised fair value gain on the Steel Making Materials segment does not include any foreign exchange as the
valuation of Jupiter is denominated in US$.
(2) The unrealised fair value gain on the Coloured Gemstones segment includes an unrealised foreign exchange gain of
US$4.7 million.
The segmental information provided to the CODM for the year ended 31 December 2014 is as follows:
Steel Making Coloured
PGMs(1) Materials(2) Gemstones(3) Unallocated Total
31 December 2014 US$’000 US$’000 US$’000 US$’000 US$’000
(audited) (audited) (audited) (audited) (audited)
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 does not include any foreign exchange as the valuation is denominated in US$.
(2) The unrealised fair value gain on the Steel Making Materials segment does not include any foreign exchange as the
valuation is denominated in US$.
(3) The unrealised fair value gain on the Coloured Gemstones segment includes an unrealised foreign exchange loss of
US$8.3 million.
4. Investment Manager’s benefits
Investment Manager’s Benefit
The Investment Manager is entitled to an Investment Manager’s Benefit (“IMB”) each accounting period. The basis for
calculation of the IMB changed subsequent to 14 September 2012, the end of the Investment Period1. Prior to the end of the
Investment Period, the IMB was calculated as 1.5% per annum of the amount subscribed for by shareholders in the Company.
Since the end of the Investment Period, the basis for calculation is 1.5% per annum of the lower of either the aggregate
acquisition cost, or the fair value, of the Group’s unrealised investments (based on the Group’s most recent published
financial statements).
The total charge to the Consolidated Statement of Comprehensive Income for the IMB during the six months ending 30 June 2015
was US$3,124,000 (six months to 30 June 2014: US$2,574,000; year ending 31 December 2014: US$5,593,000). It is not possible
to accurately predict the future annualised Investment Manager’s Benefit as the calculation is affected by the valuation of
the Group’s investments and by any investment acquisitions or disposals.
Performance Incentive
Subject to certain conditions, the Investment Manager is entitled to a Performance Incentive related to the performance of
the Group’s investments. The excess of the total funds returned, and/or available for return, to shareholders, over the total
amount subscribed in each separate capital raising to date, will be split between the shareholders (80%) and the Investment
Manager2 (20%). This is subject to a Hurdle3 of 8% per annum; until the Hurdle is reached, the Investment Manager is not
entitled to any Performance Incentive. The Investment Manager would only receive the Performance Incentive if aggregate
returns to shareholders over the life of the Company are in excess of 8% per year.
The Directors assess whether a provision for the Performance Incentive should be made at the end of each reporting period.
The Directors also assess whether the provision should be accounted for as a current or non-current liability, based on
their best assessment of the likely timing of any outflow.
The provision for the Performance Incentive is calculated as follows:
(a) The Group’s Aggregate Proceeds4 are allocated entirely to shareholders until such time as shareholders have received an
aggregate amount of the Company’s Funds5 plus the Hurdle.
(b) Thereafter, the Investment Manager is allocated all further Aggregate Proceeds until it has been allocated an amount
equal to 25% of the Hurdle.
(c) Aggregate Proceeds are then allocated 80% to Investors and 20% to the Investment Manager.
(1) The Investment Period commenced on 14 September 2007 and ended on 14 September 2012.
(2) Any Performance Incentive payment may be made to the Investment Manager or an affiliate, at the election of the Investment
Manager.
(3) The Hurdle is calculated as 8% of the Company’s Funds, compounded annually and calculated daily.
(4) Aggregate Proceeds are equal to the Group’s NAV after adding back any provision for the Performance Incentive. For this
calculation, it is assumed that all investments will be disposed of at their current fair value, with no associated
transaction costs, and that all proceeds will be distributed immediately. The Group’s NAV, after adding back any provision
for the Performance Incentive, is therefore the best estimate of the total amount available for distribution.
(5) The Company’s Funds is equal to the amounts subscribed for by shareholders in the Company, prior to certain related costs
and foreign exchange.
5. Cash outflows from operations
1 January 2015 1 January 2014 1 January 2014
to 30 June 2015 to 30 June 2014 to 31 December 2014
US$’000s (reviewed) US$’000s (reviewed) US$’000s (audited)
Notes
Net profit after tax
3,201
103,618
55,404
Adjustments for:
Unrealised fair value gains (2)
(57,801)
(106,426)
(80,146)
Unrealised fair value losses
51,314
-
19,109
Loans extended to Gemfields
(2)
-
(9,800)
(14,700)
Loan repaid by Gemfields (
2)
15,624
-
-
Accrued interest
(2)
(368)
(135)
(556)
Unrealised fair value
(gain)/loss on Other investments
(49)
29
30
Tax expense
-
-
4
Foreign exchange gain on cash balances
(2) - -
Fair value gain of associates
(13)
(7)
(11)
Operating cash flows before
movements in working capital
11,906
(12,721)
(20,866)
(Increase)/decrease in trade
and other receivables
(1,562)
(363)
1,024
(Decrease)/increase in trade
and other payables
(45)
111
21
Cash generated from/(used in)
operating activities
10,299
(12,973)
(19,821)
Tax paid
-
-
(4)
Net cash generated from/(used in)
operating activities
10,299
(12,973)
(19,825)
6. Related party transactions
The Group’s subsidiaries, joint ventures and associates are related parties. Investments within the Group’s Investment
Portfolio are also usually related parties. The Investment Portfolio consists of investments held at fair value and loans
to portfolio companies. Certain individuals act as both Directors of the Company and as directors of the Group’s investments.
Mr Gilbertson is the chairman of SPM and Jupiter, and Mr Frandsen is a director of SPM.
The Investment Manager acts through its general partner, Pallinghurst GP Limited. The directors of Pallinghurst GP Limited
are Mr Gilbertson, Mr Frandsen, Mr Willis, Mr Harris and Mr Tolcher. The Investment Manager is a related party due to the
common directorships between the Group and Pallinghurst GP Limited.
Orangefield Legis Fund Services Limited (“Orangefield Legis”) acts as the Group’s administrator, company secretary and
registrar. Mr Platt-Ransom is a director of Orangefield Legis and certain entities within the Orangefield Legis group. Mr
O’Mahoney resigned as Permanent Alternate to Mr Platt-Ransom on 12 May 2015. The Group’s relationship with Orangefield Legis
is at arm’s length.
Related party transactions include entering into equity investments, exiting from equity investments and loan transactions.
Related party transactions related to the Group’s investments are detailed in Note 2 Investment Portfolio. Certain amounts
are payable by the Group to the Investment Manager as disclosed in Note 4 Investment Manager’s benefits.
The amounts paid to the Non-Executive Directors for services during the six months to 30 June 2015 are set out below:
Directorship Directorship Lead
of the of other Group Audit Independent
Company companies Committee Director Total
US$000 US$000 US$000 US$000 US$000
1 January 2015 to 30 June 2015 (reviewed) (reviewed) (reviewed) (reviewed) (reviewed)
Stuart Platt-Ransom 15 - 1 1 17
Clive Harris 15 2 2 - 19
Martin Tolcher 15 - 3 - 18
Dr Christo Wiese 15 - - - 15
Total 60 2 6 1 69
The amounts paid to the Non-Executive Directors for services during the six months to 30 June 2014 are set out below:
Directorship Directorship Lead
of the of other Group Audit Independent
Company companies Committee Director Total
US$000 US$000 US$000 US$000 US$000
1 January 2014 to 30 June 2014 (reviewed) (reviewed) (reviewed) (reviewed) (reviewed)
Stuart Platt-Ransom 15 - 1 1 17
Clive Harris 15 2 2 - 19
Martin Tolcher 15 - 3 - 18
Dr Christo Wiese 15 - - - 15
Total 60 2 6 1 69
The amounts paid to the Non-Executive Directors for services during 2014 are set out below:
Directorship Directorship Lead
of the of other Group Audit Independent
Company companies Committee Director Total
US$000 US$000 US$000 US$000 US$000
1 January 2014 to 31 December 2014 (audited) (audited) (audited) (audited) (audited)
Stuart Platt-Ransom 30 - 3 2 35
Clive Harris 30 5 3 - 38
Martin Tolcher 30 - 5 - 35
Dr Christo Wiese 30 - - - 30
Total 120 5 11 2 138
7. Per share information
Accounting policy
NAV per share and Earnings Per Share (“EPS” or “Earnings Per Share”) are key performance measures for the Group. NAV per
share is based on net assets divided by the number of ordinary shares in issue at 30 June 2015. EPS is based on profit for
the year divided by the weighted average number of ordinary shares in issue during the year. There are no dilutive indicators
or dilutive ordinary shares in issue.
Headline Earnings Per Share (“HEPS”) is similar to EPS, except that attributable profit specifically excludes certain items,
as set out in Circular 2/2013 “Headline earnings” (“Circular 2/2013”) issued by SAICA. None of these exclusions are relevant
to the Group and EPS is equal to HEPS in the current and prior year.
NAV per share
The Group’s NAV per share is as follows:
30 June 2015 30 June 2014 31 December 2014
(reviewed) (reviewed) (audited)
Net assets - US$’000
474,652
519,665
471,451
Number of shares in issue
760,452,631
760,452,631
760,452,631
NAV per share- US$
0.624
0.683
0.620
Tangible NAV is similar to NAV but excludes intangible assets such as goodwill or IT software. The Group does not hold any
intangible assets and NAV is equal to Tangible NAV.
The Group’s EPS is as follows:
30 June 2015 30 June 2014 31 December 2014
(reviewed) (reviewed) (audited)
Profit for the year - US$’000
3,201
103,618
55,404
Weighted average number of shares in issue
760,452,631
760,452,631
760,452,631
Earnings Per Share- US$
0.004
0.136
0.073
There are no reconciling items between EPS and HEPS and they are equal to each other. There are no dilutive shares and HEPS
is equal to dilutive HEPS.
8. Financial instruments and risk management
Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern while taking
advantage of strategic opportunities to provide sustainable returns to shareholders. The Group’s capital structure has not
changed since the year-end.
9. 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. One of the conditions of the Gemfields/Fabergé Merger, which completed on 28 January 2013, was that Gemfields
either take over as guarantor from the Company, or that Gemfields indemnify the Group against any potential liability to the
landlord. Gemfields have provided an indemnity to the Group against any loss from this guarantee. The Directors’ assessment
is that the maximum amount of the contingent liability continues to be US$0.2 million, although any such loss should be
recoverable from Gemfields under the terms of the indemnity.
The Group had no other significant contingent liabilities or contingent assets at 30 June 2015, 30 June 2014 or 31 December
2014.
10. Commitments
The Group had no material commitments at the date of signature of these Financial Statements.
11. Events occurring after the end of the period
US$10 million loan to Kagem Mining Limited (“Kagem”)
On 10 August 2015, the Group entered into a commitment to lend Kagem, a 75% subsidiary of Gemfields plc, up to US$10 million.
The loan commitment was drawn down in full and paid to Kagem on 19 August 2015. The loan will be utilised for inventory
investment and working capital. The formal interest rate is three month US$ LIBOR plus 4.5%. In addition, the US$10 million
includes an arrangement fee of US$0.2 million which will be amortised over the life of the loan. The amount drawn down plus
interest is due for repayment by 15 December 2015. The effective interest rate on the loan is likely to be around 11%.
Approval of Interim Financial Statements
The Interim Financial Statements were approved by the Directors and authorised for issue on 10 September 2015.
Review by Saffery Champness
The Interim Report has been reviewed by the Group’s auditor, Saffery Champness, who have provided a report to the Company
(the “Independent Review Report”). The Independent Review Report confirms that nothing has come to the auditor’s attention
that might cause them to believe that the Interim Report was not prepared, in all material respects, in accordance with
IAS34, the SAICA Reporting Guides and the FRSC Pronouncements. The Independent Review Report does not necessarily report on
all of the information contained in this Interim Report. Any reference to future financial information included in the
Interim Report has not been reviewed or reported on by the auditors. Shareholders are advised that in order to obtain a full
understanding of the nature of the auditors’ engagement they should obtain a copy of the Independent Review Report together
with the accompanying financial information. The Independent Review Report is available from the Company’s registered office.
Directors
Brian Gilbertson
Arne H. Frandsen
Andrew Willis (1)
Dr Christo Wiese
Stuart Platt-Ransom (2)
Martin Tolcher
Clive Harris
Chris Powell (1) (resigned 25 June 2015)
Brian O’Mahoney (2) (resigned 12 May 2015)
(1) Mr Powell acts as Permanent Alternate to Mr Willis.
(2) Mr O’Mahoney acts as Permanent Alternate to Mr Platt-Ransom.
General Partner of the Investment Manager Administrator, Company Secretary and Registrar
Pallinghurst GP Limited (3) Orangefield Legis Fund Services Limited (4)
2nd floor 11 New Street
23-25 Le Pollet St Peter Port
St Peter Port Guernsey
Guernsey, GY1 1WQ GY1 2PF
Channel Islands Channel Islands
(3) Previously Pallinghurst (Cayman) GP Limited (4) previously Legis Fund Services Limited
Investment Advisor (London) Registered Office
Pallinghurst Advisors LLP 11 New Street
54 Jermyn Street St Peter Port
London Guernsey
SW1Y 6LX GY1 2PF
United Kingdom Channel Islands
Legal Advisor (Guernsey) Investment Advisor (South Africa)
Mourant Ozannes Pallinghurst Advisors (Pty) Limited
1 Le Marchant Street PO Box 12160
St Peter Port Die Boord
Guernsey Western Cape, 7613
GY1 4HP South Africa
Channel Islands
Legal Advisor (Bermuda) Legal Advisor (South Africa)
Appleby Global Edward Nathan Sonnenbergs Inc
Canon’s Court 150 West Street
22 Victoria Street Sandton, 2196
Hamilton HM12 South Africa
Bermuda
Investment Bank and JSE Sponsor BSX Sponsor
Investec Bank Limited Clarien Investments Limited
100 Grayston Drive 25 Reid Street, 4th Floor
Sandton, 2196 Hamilton HM11
South Africa Bermuda
Auditor
Computershare Investor Services Saffery Champness Chartered Accountants
(Pty) Limited PO Box 141
Ground Floor St Sampson
70 Marshall Street Guernsey
Johannesburg, 2001 GY1 3HS
South Africa Channel Islands
Date: 14/09/2015 09:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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