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Gemfields biggest shareholder offers to buy out emerald miner

Palllinghurst offer values shares at 38.5 pence each.

Gemfields’s biggest investor offered to buy out the world’s top emerald producer, and the miner’s independent board advised shareholders not to take any action for now.

Pallinghurst Resources offered to buy the 53% of Gemfields it doesn’t already own, it said in a statement on Friday. The South African-listed commodities investment firm is offering 1.91 of it its own shares for each Gemfields share. Gemfields’s independent board said it the firm hasn’t engaged with Pallinghurst and shareholders shouldn’t do anything for now.

Pallinghurst said the offer values Gemfields shares at 38.5 pence each. The stock closed at a nine-month low of 38.125 pence on Thursday, and rose 1.6% by 10:57am in London, valuing the company at $277 million. Pallinghurst is probably taking advantage of the recent weakness in the stock, according to Peel Hunt, which values the shares at 83 pence.

Pallinghurst said it had support of 28 percent of shareholders, giving it 75% backing and making the offer unconditional.

“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.

Gemfields produces emeralds at its Kagem mine in Zambia and also mines rubies in Mozambique. Emerald prices have rallied more than 11-fold in the past eight years as the company has sought to expand production and boost advertising for the green stones. Previously, the gems were mainly produced by artisanal miners which meant there wasn’t enough consistent supply for retailers to run production lines or advertise the goods.

“Pallinghurst has not engaged with the company with respect to the unsolicited offer and as such, the independent board is reviewing the unsolicited offer with its advisers,” Gemfields said a separate statement. “The independent board strongly advises its shareholders to take no action at this time.”

Pallinghurst said Gemfields currently has limited access to equity and debt markets and low share liquidity, and that the restructuring will allow it to perform to its “full potential.” 

© 2017 Bloomberg

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