Pallinghurst CE Arne Frandsen. Picture: FINANCIAL MAIL
Pallinghurst CE Arne Frandsen. Picture: FINANCIAL MAIL

Pallinghurst launched a no-premium all-share bid for the 52% stake in gemstone miner Gemfields it does not own, marking a more aggressive stance in managing its portfolio.

Gemfields, which according to Bloomberg, was hovering around a nine-month low on Thursday, shot higher on Friday when 47% shareholder Pallinghurst unveiled its proposal to take over and delist the company from London’s Alternative Investment Market.

The plan was to use the South African manganese and platinum investments to cross-subsidise the ruby and emerald businesses in Mozambique and Zambia, respectively, cementing them as leading sources of each gemstone, said Pallinghurst CEO Arne Frandsen.

Pallinghurst and "friends" control about 76% of Gemfields’ shares, making the transaction a done deal, with Alternative Investment Market rules allowing any shareholder with more than 75% of a company’s stock to delist the share, giving minority shareholders time to sell out of their stake.

In this case, Gemfields shareholders can swap each of their shares for 1.91 Pallinghurst shares, valuing Gemfields at 38.5p each and the total company at $277m. Gemfields shareholders will own 42% of Pallinghurst, which will retain its primary listing on the Johannesburg bourse and cancel its Bermuda listing and shift to the London bourse, said Frandsen.

Pallinghurst wanted to tap into the London financial markets. Once the transaction was concluded, the shareholding would be split 60-40 between Johannesburg and London, he said.

"This offer appears opportunistic and being at par, and offering South African scrip for UK equity might not offer appropriate value to minority shareholders," Edward Sterck, an analyst at BMO Capital Markets, said in a note to investors quoted by Bloomberg.

However, Frandsen said the transaction was unconditional because of the level of support it had taking it above the 75% mark. The Faberge brand, synonymous with jewelled eggs during Tsarist Russia, comes with Gemfields and Pallinghurst was conducting a review of the asset, said Frandsen.

"It’s a fantastic asset, but we have to consider the best way to put a turbo on its development," he said.

Pallinghurst bought the Faberge brand in 2009 and vended it into Gemfields along with the Kagem emerald mine in Zambia in exchange for shares.

"We’ve achieved a hell of a lot and now it’s the right time to review how we can take it to the next level as a leading luxury brand," said Frandsen.

Brian Gilbertson, one of the founders of BHP, the world’s largest diversified miner, would help manage the Gemfields business in his role as Pallinghurst chairman, he said.

Pallinghurst’s shares rose as high as R3.50 on Friday, but closed 2.4% higher at R3.40.

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