| Tue 31 Mar 2009, 7:05 | | PGL - Pallinghurst Resources - Annual results for the year ended 31 |
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PGL
PGL
PGL - Pallinghurst Resources - Annual results for the year ended 31
December 2008
Pallinghurst Resources (Guernsey) Limited
Registration Number: 47656
(Incorporated in Guernsey)
ISIN: GG00B27Y8Z93
BSX share code: PALLRES
JSE share code: PGL
("PRGL" or the "Company")
Annual results for the year ended 31 December 2008
NAV per share: R6.50 * down 7% (ZAR)/ US$0.65 down 37% (USD)* Based on an
exchange rate of US$1 = ZAR10
Highlights of the year to 31 December 2008
- A capital raising of US$15.1 million for Faberge, increasing the valuation
of the Faberge investment to US$78.7 million in May 2008
- The reverse takeover of Gemfields, accompanied by a GBP30 million share
placing, in June 2008
- The acquisition of significant positions in Australian iron ore explorers
Jupiter Mines and Mindax by July 2008
- A further US$15 million investment into Faberge by the Company in July 2008
- The listing of the Company on the JSE on 20 August 2008
- The exercising of entitlements to manganese and Platinum Group Metals
("PGM") joint venture investments
- An oversubscribed vendor consideration placing raised US$34.3 million to
participate in the acquisition of a controlling interest in Platmin Limited in
December 2008
Since the year-end, 2009 has seen:
- The completion of the acquisition of 33.4% in the Magazynskraal PGM
exploration prospect in February 2009.
- Shareholders of Jupiter Mines approve a transaction, in March 2009, to issue
further shares to the Company and joint venture partner, Red Rock Resources
plc ("RRR"), in exchange for the Company`s Mindax shares, A$1 million of cash,
and certain of RRR`s assets. The transaction will result in the Company and
RRR owning up to 55% of Jupiter Mines.
- The successful start-up of Pilanesberg Platinum Mine and commencement of ore
processing through its UG2 circuit, in March 2009.
Arne H Frandsen CEO commented:
Whilst the challenging economic environment has provided Pallinghurst with
very attractive investment opportunities, we have adopted a conservative
approach in valuing our portfolio as the unprecedented volatility in world
markets continues to impact equity valuations and commodity prices. As we
articulated when we listed Pallinghurst, our investment platforms are designed
for long-term value creation and we are focused on our investments` intrinsic
values. All of our five platforms are performing to expectation and are well
positioned to deliver significant value, as we realise our strategies and
global economic growth resumes.
Enquiries
Pallinghurst Resources 021 886 7294 / 082 440 8763
Arne H Frandsen, CEO
College Hill 011 447 3030
Johannes van Niekerk 082 921 9110
Abridged Investment Manager`s Report
Platinum group metals
The first step in the PGM strategy was the acquisition by the Pallinghurst
Investors of an indirect 27.61% interest (25.13% effective interest) in
Boynton, via the Moepi Group of companies. Boynton is a private company,
72.39% owned by Platmin Limited ("Platmin") (TSX/AIM:PPN). All of Boynton`s
projects are located in the BIC. Boynton`s primary assets include the
Tuschenkomst and Ruighoek properties on the Western Limb of the BIC
("Pilanesberg Platinum Mines" or "PPM"), and also the M`phahlele, Grootboom
and Loskop prospects which are on the Eastern Limb of the BIC, and offer long-
term growth potential.
The second step in the strategy was the acquisition of a controlling interest
in Platmin by Pallinghurst Investors.
In December 2008, as credit markets deteriorated and PGM prices fell,
Platmin`s intended debt facility to fund the final stage of the PPM project
failed to materialise. As a key shareholder in Boynton, the parent company of
PPM, Pallinghurst approached Platmin to offer immediate equity funding to
enable Platmin to avoid insolvency. Platmin received approval from the TSX for
the significant equity injection under the TSX financial hardship exemption,
i.e. without the need for shareholder approval.
The first tranche of investment was completed on 19 December 2008. Brian
Gilbertson and Arne H Frandsen, Directors of the Company, were immediately
appointed as directors of Platmin. The Company conducted a vendor placement to
fund its participation in the transaction, which raised more capital than was
anticipated. Accordingly, the Company acquired an indirect 25.85% interest in
the stake collectively acquired by the Pallinghurst Investors, a see-through
effective 16.12% interest in Platmin, for an acquisition consideration of
US$32.3 million.
As announced by Platmin on 23 March 2009, the UG2 section of the milling and
flotation plant at PPM has been successfully commissioned, Eskom power has
been connected and the treatment of ore has commenced. This is significant
progress, on time and within budget, but mining start-ups are difficult, and
uncertainties will remain for some months yet.
The Magazynskraal farm is also located on the Western Limb of the BIC, close
to PPM. The most recent study suggests that the property has some 23 million
ounces of inferred resources. The Bakgatla-Ba-Kgafela Tribe ("Bakgatla") has
earned the right to 80% of this property by funding a bankable feasibility
study ("BFS"). An agreement between the Bakgatla and the Pallinghurst
Investors in respect of Magazynskraal was concluded and signed in May 2008,
whereby the Pallinghurst Investors would provide the necessary funding of the
BFS and acquire a stake in Richtrau from the Bakgatla. The Department of
Minerals and Energy of South Africa gave their approval to the transaction on
9 December 2008, at which the point the purchase became unconditional.
Coloured gemstones
In June 2008, the shareholders of London-listed Gemfields approved a reverse
takeover by Rox Limited, a company controlled by the Pallinghurst Investors,
whereby the Kagem emerald mine was vended into Gemfields by Rox Limited in
exchange for a fully diluted interest of approximately 55% of the enlarged
group. The Kagem mine is the largest emerald mine in Africa, and is Gemfields`
key asset.
A number of key operational changes have been made at Kagem. These include a
major improvement in the capacity and condition of mining machinery, a
revamping of management and security, and a significant infrastructure
upgrade. The sorting facility has been expanded and the capacity of the
washing plant improved. These improvements have resulted in significant
increases in the amount of ore mined and gemstones produced.
The current global financial crisis and the sharp falls in gemstone prices
experienced since October 2008 have resulted in significant uncertainty about
emerald prices and demand for the remainder of 2009. Gemfields has taken a
number of actions to address this situation, including a reduction in the
scale of its mining activity at Kagem and a focus on higher-grade areas.
On 12 February 2009, Gemfields announced the appointment of Ian Harebottle as
Chief Executive Officer. Mr Harebottle, a veteran of the coloured gemstone
industry, joined what became TanzaniteOne as Operations Director in September
2001. He was appointed CEO of T1 in April 2005 and served in that capacity
until February 2008.
Faberge
Faberge is led by Mark Dunhill, the former President of Alfred Dunhill Ltd,
who has built a strong team of luxury sector specialists, including Katharina
Flohr as Creative Director.
One of the first steps undertaken by the new team was to reunite the Faberge
name with the Faberge family after more than 50 years of separation. This was
a key move in reawakening the ethos and philosophy of Peter Carl Faberge and
ensuring the necessary integrity and authenticity of the new masterpieces. The
Faberge Heritage Council, which includes members of the Faberge family, has
been established to assist in adhering to Peter Carl Faberge`s relentless
pursuit of excellence and his original values of refined and cultivated
artistry, underpinned by superlative craftsmanship.
Over the years, Peter Carl Faberge collaborated with more than 40
"workmasters" such as Henrik Wigstrom and Michael Perchin. The workmaster
concept remains unique to Faberge and this tradition will be an important
element of Faberge`s future.
An experienced artist of international renown has been engaged as Head of High
Jewellery and is currently developing the first Faberge Collection, which is
due to be unveiled during 2009.
Manganese
The Pallinghurst Investors have formed a joint venture with Ntsimbintle, a
Black Economic Empowerment group with manganese exploration rights within the
Kalahari Basin of South Africa. The Kalahari Basin is the primary manganese
region of the world, and contains approximately 80% of the world`s known
mineable manganese reserves. The joint venture aims to create a world-class
manganese producer within the next three years.
The investment consists of the rights over two manganese properties, located
in the north and south of the Kalahari Basin. The key property is in the south
of the Basin and is adjacent to, and indicates very similar geology to,
Samancor`s Mamatwan Mine. The second property, Kalahari North, is adjacent to
Samancor`s Wessels mine, and is expected to share similar geological
characteristics. A BFS has been initiated on the southern property in the
Kalahari Basin, and this is expected to be completed by May 2009.
Australian iron ore
The Australian Iron Ore opportunity is in the Central Yilgarn of Western
Australia. The Company has so far invested US$10 million into various iron ore
explorers in the Yilgarn, including Mindax Limited ("Mindax") and Jupiter
Mines Limited ("Jupiter"). A joint venture with RRR was entered into during
May 2008 to pursue the iron ore and other base metals strategy.
In March 2009, the joint venture was successful in acquiring a stake of up to
55% of Jupiter, in exchange for the Company`s Mindax shares and A$1 million of
cash, and RRR`s Mindax shares, Mt Alfred iron ore and Oakover manganese
projects. The transaction will result in a significant expansion and
diversification of Jupiter`s asset base, and the new assets will complement
Jupiter`s existing iron ore and nickel exploration portfolio in Western
Australia.
Outlook
Your company has invested in a set of robust ventures, each pursuing
strategies designed for long-term value creation. Notwithstanding the current
turbulent economic environment, we expect to unlock significant value as those
strategies are realised, and particularly when global economic growth resumes.
The unqualified audit opinion is available for inspection at the registered
office of the company.
On behalf of the Board
Brian Gilbertson Arne H Frandsen
Chairman Chief Executive Officer
Consolidated income statement
1 Jan 08 4 Sept 07
to 31 Dec 08 to 31 Dec 07
US$ US$
(Audited) (Audited)
(restated)
Income
(Losses)/revenue on investments
Realised profits on disposal of - 4,876,409
investments
Dividends received from financial 84,000 -
asset investment
Unrealised net losses in the fair (27,466,529) -
value of investments
Unrealised net foreign exchange (10,940,413) -
losses in the portfolio of
investments
(38,322,942) 4,876,409
Portfolio Income
Break fee income - 2,025,736
Loan interest income 497,433 10,561
497,433 2,036,297
(Losses)/revenue on investments and (37,825,509) 6,912,706
income from operations
Expenses
Investment Manager`s Benefit (2,556,643) (2,328,095)
Operating expenses (2,476,545) (330,787)
Net foreign exchange losses (2,037,036) -
(7,070,224) (2,658,882)
(Loss)/profit from operations (44,895,733) 4,253,824
Net finance income 1,349,047 1,202,830
(Loss)/profit before share in loss (43,546,686) 5,456,654
of associates
Share in loss of associates (2,883,815) (7,871)
(Loss)/profit before tax (46,430,501) 5,448,783
Income tax expense (144) -
Net (loss)/profit for the financial (46,430,645) 5,448,783
year/period
(Loss)/earnings, diluted (0.19) 0.03
(loss)/earnings and headline
(loss)/earnings per share
Consolidated balance sheet
31 Dec 2008 31 Dec 2007
US$ US$
(Audited) (Audited)
(restated)
Assets
Non-current assets
Investments in associates 1,804,765 193,257
1,804,765 193,257
Investment portfolio
Quoted investments 48,617,689 -
Unquoted investments 101,795,361 58,401,505
Loan receivable 519,327 2,298,490
150,932,377 60,699,995
Total non-current assets 152,737,142 60,893,252
Current assets
Trade and other receivables 764,546 25,609,537
Loan receivable from associate 11,127,017 -
Cash and cash equivalents 20,939,970 86,113,647
32,831,533 111,723,184
185,568,675 172,616,436
Liabilities
Current liabilities
Trade and other payables 25,841,436 (219,718)
25,841,436 (219,718)
Net assets 159,727,239 172,396,718
Equity
Share capital 2,474 1,695
Share premium 200,689,164 166,928,777
Cumulative translation adjustment 17,463 17,463
reserve
Retained earnings (40,981,862) 5,448,783
159,727,239 172,396,718
NAV and tangible NAV per share 0.65 1.02
Consolidated statement of cash flows
1 Jan 08 4 Sept 07
to 31 Dec 08 to 31 Dec 07
US$ US$
(Audited) (Audited)
restated)
Net (loss)/profit for the year/period (46,430,645) 5,448,783
Adjustments for:
Additions to investments (128,602,782) (104,711,568)
Loan interest reinvested (36,542) -
Fair value net losses in investment 27,466,529 -
portfolio
Unrealised foreign exchange losses on 10,940,413 -
investment portfolio
Loans extended to investments (29,012,464) (2,287,929)
Loan repayments from investments 15,622,082 -
Revaluation of loan to Rox Conduit 2,358,776 -
Accrued interest on loan to Rox Conduit (95,411) -
Part disposal of investments - 51,186,594
Gain on return of capital and sale of - (4,876,409)
investments
Net finance income (1,349,047) (1,202,830)
Share in loss of associates 2,883,815 7,871
Cash flows from operating activities (146,255,276) (56,435,488)
before changes in working capital and
provisions
Decrease/(increase) in trade and other 24,844,991 (25,620,098)
receivables
Increase in trade and other payables 25,621,718 175,286
Cash flows from operating activities (95,788,567) (81,880,300)
Investing activities
Investments in associates (4,495,323) (156,818)
Net cash used in investing activities (4,495,323) (156,818)
Financing activities
Issue of ordinary and management shares 33,761,166 166,930,472
Net finance income 1,349,047 1,202,830
Net cash generated from financing 35,110,213 168,133,302
activities
Net (decrease)/increase in cash and cash (65,173,677) 86,096,184
equivalents
Cash and cash equivalents at the 86,113,647 -
beginning of the year/period
Foreign exchange translation - 17,463
Cash and cash equivalents at the end of 20,939,970 86,113,647
the year/period
Notes
Accounting policies
These results have been prepared in accordance with IFRS, the Companies
(Guernsey) Law, 2008, and the listing requirements of the JSE Limited.
The accounting policies used are in line with those disclosed in the audited
financial statements for the period ending 31 December 2007, except for a
change in accounting policy relating to the accounting for the portfolio of
investments. IAS 28 Investments in Associates allows investments held by
venture capital organisations to be excluded from its scope where those
investments are designated, upon initial recognition, as at fair value through
profit or loss and accounted for in accordance with IAS 39 Financial
Instruments: Recognition and Measurement, with changes in fair value
recognised in the income statement in the period of the change. This treatment
has been applied to the current year and the comparative period restated
accordingly. Users of the financial statements will now be provided with more
reliable and more relevant information about the Group`s financial position
and financial performance. The change complies with IFRS, specifically IAS 8
Accounting Policy, Changes in Accounting Estimates and Errors.
In line with the requirements of IAS 14 Segment Reporting, the Group`s
segmental reporting has also been amended to give users of the financial
statements information that is similar to that used by management and the
comparative figures have been restated accordingly. For the Group`s detailed
accounting policies and further information contained in the notes to the
accounts please see the Annual financial statements in the annual report to
shareholders to be mailed on or about 9 April 2009.
Fair valuation of investments
Investment Current Unrealised Unrealised Accrued Total
cost fair value FX interest valuation
US$ adjustments gains/ US$ US$
US$ (losses)
US$
2008
(Audited)
Quoted equity
investments
Platmin 32,317,190 - 43,852 - 32,361,042
Limited
Gemfields plc 54,400,730 (34,559,320) (6,523,980) - 13,317,430
Jupiter Mines 5,196,693 (3,028,782) (1,384,154) - 783,757
Ltd
Mindax Ltd 3,349,775 (293,469) (909,047) - 2,147,259
Iron Mountain 61,468 (36,644) (16,623) - 8,201
Mining Ltd
95,325,856 (37,918,215) (8,789,952) - 48,617,689
Unquoted
equity
investments
Faberge 41,461,381 5,396,651 - - 46,858,032
Ltd 1
Moepi Group 13,373,316 (6,686,658) - - 6,686,657
(Boynton)
Richtrau No. 36,621,344 (16,084,951) (2,225,721) - 18,310,672
123 Ltd
(Magazyn-
skraal)
Kalahari 2,000,000 27,826,644 113,356 - 29,940,000
joint venture
2
93,456,041 10,451,686 (2,112,365) - 101,795,361
Loan
investments
Kalahari 520,881 - (38,096) 36,542 519,327
joint
venture 3
Total 189,302,778 (27,466,529) (10,940,413) 36,542 150,932,377
investment
portfolio
Investment Current Unrealised Unrealised Accrued Total
cost fair value FX interest valuation
US$ adjustments gains/(losses) US$ US$
US$ US$
2007
(Audited)
(restated)
Unquoted
equity
investments
Faberge 26,461,381 - - - 26,461,381
Limited
Rox 31,940,124 - - - 31,940,124
Limited
(relating
to
Gemfields)
58,401,505 - - - 58,401,505
Loan
investments
Pallinghurs 2,287,929 - - 10,561 2,298,490
t Kalahari
4
Total 60,689,434 - - 10,561 60,699,995
investment
portfolio
1 The investment in Faberge was revalued in May 2008 in line with a third
party round of funding at US$78.7m, significantly above cost of US$26.1m. In
August 2008, the Company invested a further US$15m, at this price per share,
increasing the total cost of investment to US$41.4m and valuation to US$93.7m.
In line with the IPEVC guidelines and IFRS, the valuation was then impaired by
50% from that level to US$46.9m.
2 The Kalahari joint venture relates to an unincorporated manganese joint
venture in the Kalahari Basin. The joint venture agreement gives the Company
the right to take an equity interest in Tshipi e Ntle Manganese Mining (Pty)
Ltd, the entity which will hold the relevant Mining Rights. The entity has
been incorporated and will assume the interests of the JV on 31 March 2009.
3 The loan was provided to the joint venture in terms of the agreement
concluded with Ntsimbintle Limited, for the joint venture`s prospecting and
exploration expenditure and working capital requirements. The terms of the
loan are that it is unsecured, earns interest at the South African Prime Rate,
and must be repaid before any dividends are paid to equity shareholders.
4 The loan was provided to Pallinghurst Kalahari (Mauritius) Limited
("Pallinghurst Kalahari") to enable the latter to acquire an initial equity
participation in the joint venture, per the terms of the agreement concluded
with Ntsimbintle Limited. The terms of the loan were interest bearing (at a
rate of 1 month USD LIBOR +2%), unsecured and repayable within twelve months.
The loan has now been repaid.
Segmental reporting
Primary reporting format - by business segment
Luxury Steel Feed Coloured
brands Corporation Gemstones
US$ US$ US$
2008 (Audited)
Realised profits - - -
on disposal of
investments
Unrealised fair 5,396,651 22,233,185 (41,083,300)
value/FX
gains/(losses) of
investments
Dividend income - - -
Portfolio income 182,243 213,272 101,918
Revenue and income 5,578,894 22,446,457 (40,981,382)
from operations
Other expenses, - - -
net finance income
and share of loss
of associates
Net profit/(loss) 5,578,894 22,446,457 (40,981,382)
for the year
Valuation of 46,858,032 33,398,544 13,317,430
investment
portfolio 1
Other net assets - - -
Total net assets 46,858,032 33,398,544 13,317,430
Luxury brands Steel Feed Coloured
Corporation Gemstones
2007 (Audited)
(restated)
Realised profits 473,624 4,402,785 -
on disposal of
investments
Unrealised fair - - -
value/FX gains of
investments
Portfolio income - 2,036,297 -
Revenue and income 473,624 6,439,082 -
from operations
Other expenses, - - -
net finance income
and share of loss
of associates
Net profit/(loss) 473,624 6,439,082 -
for the period
Valuation of 25,986,846 2,298,490 32,414,659
investment
portfolio 1
Other net assets - 25,608,459 -
Total net assets 25,986,846 27,906,949 32,414,659
Segmental reporting (continued)
Primary reporting format - by business segment
Platinum Other Group
US$ US$ US$
2008 (Audited)
Realised profits on - - -
disposal of
Investments
Unrealised fair (24,953,478) - (38,406,942)
value/FX
gains/(losses) of
investments
Dividend income - 84,000 84,000
Portfolio income - - 497,433
Revenue and income (24,953,478) 84,000 (37,825,509)
from operations
Other expenses, net - (8,605,136) (8,605,136)
finance income and
share of loss of
associates
Net profit/(loss) (24,953,478) (8,521,136) (46,430,645)
for the year
Valuation of 57,358,371 - 150,932,377
investment
portfolio 1
Other net assets - 8,794,862 8,794,862
Total net assets 57,358,371 8,794,862 159,727,239
Platinum Other Group
2007 (Audited)
(restated)
Realised profits on - - 4,876,409
disposal of
investments
Unrealised fair - - -
value/FX gains of
investments
Portfolio income - - 2,036,297
Revenue and income - - 6,912,706
from operations
Other expenses, net - (1,463,923) (1,463,923)
finance income and
share of loss of
associates
Net profit/(loss) - (1,463,923) 5,448,783
for the period
Valuation of - - 60,699,995
investment
portfolio 1
Other net assets - 86,088,264 111,696,723
Total net assets - 86,088,264 172,396,718
Pallinghurst Resources (Guernsey) Limited
Directors Brian Gilbertson, Arne Frandsen, Andrew Willis, Stuart Platt-Ransom,
Clive Harris, Martin Tolcher Administrator, Secretary and Registered Office
Legis Fund Services Limited, 1 Le Marchant Street, St Peter Port, Guernsey,
GY1 4HP, Channel Islands Investment Manager Pallinghurst (Cayman) GP L.P.,
Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands
Investment Adviser Pallinghurst Advisers LLP (formerly Pallinghurst Resources
LLP), 54 Jermyn Street, London, SW1Y 6LX, United Kingdom Auditor Saffery
Champness, La Tonnelle House, St Sampson, Guernsey, GY1 3HS, Channel Islands
31 MARCH 2009
SPONSOR: INVESTEC BANK LIMITED
Date: 31/03/2009 07:05:01 Produced by the JSE SENS Department.
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