Pallinghurst Moves On Gemfields, And Throws In A Bit Of Fabergé Magic
By Alastair Ford
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“It’s overlooked. There are hundreds of thousands of tiny little players. It’s under-capitalised, and it’s too layered.” That succinct summary of the coloured gemstone market comes from Sean Gilbertson, who’s under starter’s orders to initiate a big round of consolidation in the sector. He just needs the sign-off from an extraordinary general meeting on 5th June from shareholders in Gemfields Resources, and he’ll hop into the driving seat as chief executive. That moment will mark the end of a six month reverse takeover process, by which Gemfields has been acquired by Sean’s father Brian’s investment vehicle, Pallinghurst Resources.
If all goes to plan, it will have been just a shade easier than the previous deal Pallinghurst brought directly to the Aim market – the lowball bid for Consolidated Minerals that was eventually trounced by the Ukrainian group Palmary. At a stretch you might just about refer to the story of the Consolidated Minerals bidding war as a “ding-dong battle”. But in fact there was little about it that was “ding dong” as it was all just painfully slow. And in the end, although industry specialists watched the twists and turns with morbid fascination, it came as no great surprise when Pallinghurst’s flat-footedness eventually lost them the battle.
Sean Gilbertson, described simply as an “executive” on the Pallinghurst website, doesn’t deny that Pallinghurst made some wrong moves, but points to the 155 per cent return that Pallinghurst eventually delivered to its investors from its wheeling and dealing in Cons Mins. Returns like that can cover a lot of blushes. And as far as Pallinghurst’s next moves in the base metals space are concerned, Sean Gilbertson says, “what we do will be in the press soon”, although recent moves in Australia’s prolific Yilgarn district might give some clue.
Sean’s keen to emphasise that there are three distinct branches to Pallinghurst’s operational side: there’s something called Steel Feed Corp., which specialises in the metals associated with the steel industry; there’s a platinum arm, which has mining interests on the western limb of the Bushveld; and there’s a gemstones arm, of which Gemfields will soon become the centrepiece. It’s the latter which most interests him at the moment, as he tours London, covering all the bases, trying to make sure that the Gemfields deal will go through without a hitch. It ought to – it has the backing of major shareholders, a decent, if slightly ambitious business plan, and the prospect of £27.5 million in new money delivered by Cazenove and Canaccord, at the usual five per cent rate. In total the deal is costing around £2.5 million to close off. That’s not a great deal to Pallinghurst, which as a private equity vehicle has nearly US$1 billion to draw on as required, but £2.5 million is plenty enough for bonus-hungry brokers in this market starved of IPOs.
The plan for Gemfields is to create a vertically integrated gemstone specialist. Mr Gilbertson reckons that if the company can deliver consistency of supply that will actually prove beneficial to prices, as dealers have previously had to survive on a hand-to-mouth basis, cutting deals as and when they can get stones. The proposed suite of assets already has some chance of delivering that consistency, and with the prospect of further acquisitions on the table, the theory will soon be put to the test.
The old Gemfields brings its extensive Zambian portfolio of emerald production and exploration assets, and also the expertise of founder Rajiv Gupta, who, says Mr Gilbertson, hails from a family in India with a long history of emerald specialisation. There’ll be cutting and polishing and marketing operations in Jaipur, run by Mr Gupta, and since India will be Gemfields’ biggest market, the positioning couldn’t be better.
For its part Pallinghurst brings the Kagem emerald mine, also in Zambia, and several exploration tenements in Zambia and Madagascar. Kagem is a mine that, according to Sean Gilbertson, is capable of producing revenues of around US$20 million per year. There are some lingering corruption allegations relating to Kagem’s former owners, but Gemfields ought to be able to look past those fairly quickly and concentrate on increasing production as experienced operators are brought over from the other Zambian assets.
Pallinghurst also brings the Fabergé brand, recently acquired from Unilever. The idea is to re-activate this old, but much neglected classic name, with a new focus on gemstones. Gemfields’ stones will therefore have their own marque, and their own mark-up. In addition, Sean Gilbertson is also keen to cut a diamond deal with Alrosa, following the legally-enforced end of Alrosa’s marketing deal with De Beers. At the moment Alrosa doesn’t seem quite so enthusiastic, but Sean Gilbertson reckons that putting the Fabergé marque onto Russian diamonds will present such a compelling proposition that its realistic to talk about it, even without the endorsement of Alrosa at this stage.
Once the deal goes through, expect Gemfields to move fairly swiftly. Under the new arrangements Sean Gilbertson will be paid £150,000 per year, but, poor lad, is only entitled to 13 days holiday per year, so there’ll be plenty of days in the office for him to crunch numbers and contemplate deals. On those parameters, Graham Mascall gets an altogether better deal. He’s due £45,000 per year for his role as non-executive chairman, and under the terms of his contract must turn up for work for just twelve days each year. That equates to roughly £3,800 per day, which can’t be bad on anyone’s terms. |
