Pallinghurst Resources Ltd – Announcement of GEMFIELDS and FABERGÉ Merger

HAMILTON, Bermuda – 22 November 2012 – In a filing with the Bermuda Stock Exchange dated 21 November 2012, Pallinghurst Resources Limited (the “Company”; Ticker: PALLRES.BH), made the following related entity announcement.

1.   Introduction

Gemfields plc (“Gemfields”) has announced its proposed merger with Fabergé Limited (“Fabergé”), to be executed by way of an acquisition of 100% of the shares of Fabergé (the “Transaction”) in exchange for up to 214 million new shares in Gemfields (the “Consideration Shares”), representing approximately 40% of Gemfields’ fully diluted enlarged share capital post completion of the Transaction. Pallinghurst currently owns indirect interests of 33.0% in Gemfields and 49.1% in Fabergé.

Arne H. Frandsen, Pallinghurst Chief Executive, commented:

“Today’s announcement represents the logical next step in realising our vision and strategy for our gemstones and luxury platform. The merged company will be capturing a large part of the value chain from mine-to-market. Once consummated, we will be well on the way to creating the coloured gemstone equivalent of what De Beers has created for diamonds. The combined company represents a very attractive investment proposition and is very well positioned to unlock further shareholder value.”

2.   Key features and accounting impact of the Transaction

In line with its strategy of supporting its investments, Pallinghurst has previously loaned US$50 million to Fabergé (excluding accrued interest, including structuring fees). Assuming the Transaction completes, the terms of the conversion mechanism included within the US$50 million loan agreement would be met and Pallinghurst would convert its loan into Fabergé shares at US$35 per share, immediately before exchanging these for its share of the Consideration Shares as per the terms of the Transaction.

The number of Consideration Shares is fixed so the implied valuation of Fabergé at the date of completion (expected during the first quarter of 2013) will fluctuate depending on the Gemfields share price and US$:GBP exchange rate. Accordingly, the financial impact of the transaction can only be determined at the date of completion. Based on the closing Gemfields share price on 20 November 2012 (£0.39 per share), the Transaction results in an unrealised decrease in NAV for Pallinghurst versus the most recent valuation at 30 June 2012 of approximately US$0.05 per share. Alternatively, the Transaction results in a small gain assuming a valuation of Gemfields of £0.58 per share.A recent broker report for Gemfields by JP Morgan Cazenove entitled “Gemfields - Higher Quality Auction Delivers Second Highest Sales Result”, dated 6 November 2012, included a target price of £0.58 per Gemfields share.

Given the uncertainties over whether the conditions for the Transaction will be met, the timing of completion, the future Gemfields share price and the future US$:GBP exchange rate, any indicative analysis of valuation impact for Pallinghurst should be treated with caution. The pro forma financial effects below, included for illustrative purposes, show the impact of the potential accounting loss.

3.   Rationale for the Transaction

Gemfields has articulated a number of benefits of the Transaction for its shareholders, including Pallinghurst:

• It positions Gemfields as a UK based leading coloured gemstone miner and a global iconic luxury brand with an exceptional heritage operating in the two most profitable segments within the gemstone supply chain;
• Further advances Gemfields’ “Mine and Market” strategy creating a recognised coloured gemstone champion;
• Positions Fabergé as the coloured gemstone retailer of choice, within the hard luxury retail sector; a sector with an estimated turnover of US$54 billion in 2011 according to the Bain Luxury Market Study;
• Creates marketing, communication, management and supply synergies to deliver operational efficiencies; and
• Consolidates Gemfields’ brand as “The Coloured Gemstone Company”, creating a platform to further increase the Company’s market share within the coloured gemstone sector, while gaining exposure to luxury sector multiples and greater influence over product positioning and consumer awareness.

In addition, there are significant benefits to Pallinghurst if the transaction completes, in particular that Pallinghurst’s loan to Faberge will be converted to equity and the interest held in Gemfields will increase to approximately 48%.

4.   Pro forma financial effects of the Transaction on the Company

The impact of the completion of the Transaction on certain key elements of Pallinghurst’s financial information from the most recent published financial statements (30 June 2012) (the “Interim Report”) is illustrated below:

¹ Assuming completion of the Company's Rights Offer at 30 June 2012, see 30 June 2012 Report for more detail.

² This table is the responsibility of the Directors of the Company.

5.   Conditions precedent

The completion of the Transaction is subject to a number of conditions, including, inter alia, the approval of various related shareholder resolutions at Gemfields’ AGM which is expected to be held in December 2012. Pallinghurst will not able to vote on these resolutions at the AGM. Assuming the Transaction completes, the Directors anticipate that the successful completion would not occur prior to January 2013.

Pallinghurst will release further relevant information on the Transaction as it becomes available. A number of explanatory documents can also be found on Gemfields website at www.gemfields.com.

Ian Harebottle, Gemfields CEO, commented: 

“Gemfields has firmly established itself as “the Coloured Gemstone Mining Company” and the proposed acquisition of Fabergé further enhances our potential to be recognised as the leading coloured gemstone company. It provides exposure to the two most profitable segments in the gemstones value chain, namely mining and consumer sales. Fabergé is a globally recognised brand with a unique heritage, a history of excellence and a commitment to coloured gemstone products, sales and marketing, all of which is perfectly demonstrated by the magnificent Romanov necklace crafted from 2,225 emeralds and diamonds and unveiled earlier this year. The proposed acquisition is transformational for Gemfields, our team and our shareholders and has the potential to deliver significant value, expanded growth and diversification opportunities to Gemfields and our shareholders.

Gemfields has made excellent strides in its coloured gemstones mining and marketing initiatives, which will remain core to our business. However, we are confident that we will be able to put the new and exciting opportunities and natural synergies that a globally recognised brand of Fabergé’s standing is able to offer us to good use. I have no doubt that Fabergé will help to further accelerate demand for Gemfields’ ethically sourced premium coloured gemstones, actively championing the coloured gemstone industry  and providing a directly-controlled showcase for our finest gems. We look forward to moving into what is a considerably larger and grander market space than that which was previously available to the Gemfields brand.”

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