Pallinghurst Resources Ltd Completes GEMFIELDS and FABERGÉ Merger

HAMILTON, Bermuda – 30 January 2013 – In a filing with the Bermuda Stock Exchange dated 30 January 2013, Pallinghurst Resources Limited (the “Company”; Ticker: PALLRES.BH) announced the successful completion of the Gemfields/Fabergé Merger.

Introduction

Shareholders are referred to the announcement dated 21 November 2012 and are advised that Gemfields plc (“Gemfields”) (via a wholly owned subsidiary) has completed its merger with Fabergé Limited (“Fabergé”) (the “Transaction”) in exchange for 214 million new shares in Gemfields (the “Consideration Shares”). These new shares represent approximately 40% of Gemfields’ fully diluted enlarged share capital. Pallinghurst previously owned indirect equity interests of 33% in Gemfields and 49% in Fabergé and also held certain loan interests in Fabergé. Post completion, Pallinghurst now owns 48% of the enlarged Gemfields.

Brian Gilbertson, Pallinghurst Chairman, commented: “This transaction creates the world’s #1 coloured gemstone company, operating at both critical ends of the value chain. Gemfields can now take its vision for coloured gemstones to the next level and Fabergé becomes the obvious consumer choice for high-end, ethically supplied coloured gemstone jewellery”.

Arne H. Frandsen, Pallinghurst Chief Executive, commented: “This is the right transaction for all parties. Although it generates an accounting loss for Pallinghurst at the current Gemfields share price, I expect the outcome to be significantly value accretive as the new Gemfields reaches its full potential”.

Key features and accounting impact of the Transaction

Between 2010 and 2012, Pallinghurst loaned US$50 million to Fabergé (excluding accrued interest, including structuring fees), in line with its strategy of supporting its investments. The terms of the conversion mechanism in the loan agreement having been met, Pallinghurst exercised its option to convert its loan into Fabergé shares at US$35 per Fabergé share, immediately before exchanging these for 91,184,694 Consideration Shares. Pallinghurst also converted its existing equity interest in Fabergé (previously valued at US$87,006,204) into 60,290,904 Consideration Shares.

The key benefits to the Transaction are articulated below. However, in accounting terms it results in a decrease in NAV of approximately US$0.10 per share (compared to Pallinghurst’s most recently published balance sheet dated 30 June 2012).  That decrease is based on the closing Gemfields share price of £0.2688 per share on 28 January 2013 and the closing US$1=GBP0.6355 exchange rate. The pro forma financial effects below show the impact of this accounting loss.

Rationale for the Transaction

The transaction brings the following benefits to Pallinghurst: 

•       Pallinghurst’s equity interest in the enlarged Gemfields has increased to approximately 48%;

•       Pallinghurst has converted the loan it provided to Fabergé into equity and any future Fabergé funding requirements will be provided by Gemfields as its parent company;

•       The Directors do not believe that the current Gemfields share price reflects Gemfields’ inherent value. Gemfields is developing the Montepuez ruby deposit in Mozambique which will add a new source of revenue to Gemfields’ existing revenue stream and should enhance the Gemfields share price; and

•       The average Gemfields share price during 2012 was £0.3447, significantly higher than the share price on 28 January 2013, with a high point of £0.43625 reached on 10 October 2012. If the Gemfields share price increases, Pallinghurst would make an unrealised fair value gain, offsetting the accounting losses described above.

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

•       It positions Gemfields as a UK-based leading coloured gemstone miner and a global iconic luxury brand with exceptional heritage operating in the two most profitable segments within the gemstone supply chain;

•       It further advances Gemfields’ “Mine and Market” strategy, creating a recognised coloured gemstone champion;

•       It 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;

•       It creates marketing, communication, management and supply synergies to deliver operational efficiencies; and

•       It consolidates Gemfields’ brand as “The Coloured Gemstone Company”, creating a platform to further increase Gemfields’ market share within the coloured gemstone sector, while gaining exposure to luxury sector multiples and greater influence over product positioning and consumer awareness.

Pro forma financial effects of the completion of the Transaction

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 Pallinghurst’s Rights Offer at 30 June 2012, see the Interim Report for more detail.

2 This table is the responsibility of Pallinghurst’s Directors.

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