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

The star power of mining industry veteran Brian Gilbertson has not been enough to keep investors committed to Pallinghurst, the mining investment company he chairs. Its shares are still trading about 70% lower than their listing high of R10.70, hit on August 22 2008. But this week’s success in securing control of coloured-gem miner Gemfields may be the kick the company needs. BD asked CEO Arne Frandsen how they won out over rival Chinese cash bidder Fosun:

My proposition is very different — I said to our shareholders in Pallinghurst and Gemfields, stay with us; let us change the structure of the company, let us take operational control and we will unlock value by refocusing the business.

What would you say went wrong at Gemfields?

First of all, Gemfields is separately listed and you can appreciate the rules that basically mean we have not managed to influence it…. The right thing is for me and my partners to get in and look through it. In our minds, it’s back to basics. It’s basically about two mines: the ruby mines in Montepuez in Mozambique and the Kagem mine in Zambia. These are the two pistons, as I like to call it, and nothing else matters. To me, expansion in Colombia, Ethiopia, Sri Lanka and a number of other places is all very interesting … but if your engine is not firing consistently and to its maximum ability then it will never produce its maximum output.

Is it possible that when you take control you’ll discover that Gemfields’s assets are not what you’re hoping they’ll be?

No. Just remember that we owned the Kagem mine and gave that to Gemfields for shares. We know the team.

What is going to happen to the management team at Gemfields? Are you keeping on CEO Ian Harebottle?

I really do not want to place blame on management — that would not be professional. Let’s focus on the assets, let’s focus on the strategy, let’s focus on the mines and getting them prosperous. And the right people then to do that will be the people who buy into that strategy. I have no preconceived ideas in that respect.

That does suggest that if the assets are good, it’s been management at fault …

I think it’s too simple always to blame someone, it’s always someone else’s mistake. I don’t want to fall into that trap before I have been inside and I have done a thorough analysis of the plans of what he’s going to do.

How strong is the coloured gemstone market right now?

You know, I use my own friends: coloured stones are in fashion. I think there is a sea-change [in taste] and we want to play into that. We want to be the world’s largest miner of ethically sourced coloured gemstones, and that will have an appeal for a lot of people. Not a single one of our stones has been sourced in a dubious way. I know exactly where the stones have been mined. I know there is no child labour. Things like that are becoming more and more important in the world.

For the diamond market, changing social norms may be a problem – people aren’t getting married as much, millennials are choosing experiences rather than diamond rings …

You know, many of our customers are ladies. They don’t want to wait for their partner to buy their stones. They buy what they like.

The market has not bought the Pallinghurst sales pitch. Is it making life difficult to have such lowly valued scrip?

What we’re doing right now is addressing that issue. The fact that our largest investment was Gemfields and Gemfields is worth half what it was a year ago … it’s very difficult to boost the share price of Pallinghurst.

So if you get Gemfields right are you saying that Pallinghurst will enjoy a substantial rerating?

Massive, massive. In five or 10 years, we will be what De Beers is today for coloured gemstones. It’s enormously exciting. What De Beers did so successfully was to create a business out of diamond mining — they created a system by which you could supply these stones to the market. For the past many decades — until we came along — there wasn’t really an organised selling structure through auction systems etcetera, and we have created that. And to create that order in the market and to create the ongoing supply to the market means the dynamics have changed.

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