BUSINESS

Gemfields Partnership With Government Unveil Two Further Auctions In Lusaka

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Gemfields_logoGemfields, which owns 75 percent of the Kagem emerald mine in Lufwanyama in partnership with the Zambian government, has unveiled plans for two further gemstone auctions in Lusaka in the next five months.

The company has already held three successful auctions in Lusaka in the last year. The first one, of lower quality emerald, in April 2013, raised U$15.2 million. That was followed in July 2013 with an auction of high quality emeralds that raised US$31.5 million, and then a third in November, raising U$16.4 million from lower quality stones.

The latest two auctions – scheduled to take place before the end of June this year, will encompass one of predominantly higher quality emeralds and one of predominantly lower quality emeralds and beryl.

“We were extremely pleased with the record-setting emerald auction held in Lusaka, Zambia in November2013 and are buoyed by the ongoing increase in global demand for emeralds and other coloured gemstones – much of which is a direct result of Gemfields’ concerted marketing efforts,” said Gemfields Chief Executive Officer Ian Harebottle.

Gemfields operates the Kagem emerald mine Lufwanyama, in which the Zambian government is a 25 per cent shareholder. All the emeralds on offer at the auction were mined at Kagem’s mine in Lufwanyama, the single largest producing emerald mine in the world.

Gemfields and Kagem are at the forefront of developing the international market for Zambian emeralds by investing in sales and marketing in order to develop a competitive, reliable and trusted source of ethically produced gemstones that buyers can trust. Transparency and accountability are key to winning that trust in order to enhance the integrity of the industry.

This long-term strategy to place Zambian gemstones on the international map is aimed at optimising sales value by assuring buyers of the quality and consistency of supply, thus maximising profitability and hence tax revenue, employment and economic and social benefit for Zambia.

Gemfields Emerald

Gemfields Emerald

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Gemfields plc

(“Gemfields” or the “Company”)

Market Update – Quarter to 31 December 2013
3 February 2014

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Gemfields plc (AIM: GEM) presents an operational update for the three month period ending 31 December 2013. All figures are approximate and unaudited.

 

 

 

Highlights

Emeralds

  • Production summary for 75%-owned Kagem Mining Limited (“Kagem”) in Zambia for the quarter ending 31 December 2013:
    • Production of 3.9 million carats of emerald and beryl (versus 6.6 million carats in the quarter to 31 December 2012);
    • Grade of 224 carats per tonne (versus 288 carats per tonne in the quarter to 31 December 2012);
    • Unit production costs of USD 1.17 per carat (versus USD 0.66 per carat in the quarter to 31 December 2012). On a cash basis, production costs increased to USD 1.76 per carat (versus USD 1.16 in the quarter to 31 December 2012); and
    • Cash rock handling unit costs increased by less than 1% (well below the national inflation rate) to USD 3.46 per tonne (versus USD 3.43 per tonne in the quarter to 31 December 2012).
  • October 2013 auction of USD 8.5 million of traded rough emeralds (not obtained directly from the Company’s own mining operations).
  • November 2013 auction (of predominantly lower quality rough emerald and beryl) set records for aggregate revenues (at USD 16.4 million) and unit prices (at USD 3.32 per carat, a 27% increase over the previous record).
  • Completion of the USD 3.5 million direct sale of 11,286 kilograms of Kagem’s two lowest grades of beryl.
  • Two auctions, one of predominantly higher quality emeralds and one of predominantly lower quality emeralds and beryl to take place in Lusaka before 30 June 2014.

Rubies

  • Bulk sampling summary for 75%-owned Montepuez Ruby Mining Limitada (“Montepuez”) in Mozambique for the quarter ending 31 December 2013:
    • Approximately 2.3 million carats of ruby and corundum extracted in the quarter during the ongoing bulk sampling operation (versus 0.16 million carats in the quarter to 31 December 2012), taking the total ruby and corundum extracted at Montepuez to 7.0 million carats;
    • Total rock handling was 288,746 tonnes, made up of 150,941 tonnes of ore and 137,806 tonnes of waste (versus 12,371 tonnes in the quarter to 31 December 2012); and
    • Total cash operating costs of USD 2.8 million (versus USD 1.3 million in the quarter to 31 December 2012).
  • Ongoing fine-tuning of the ‘first-of-a-kind’ comprehensive grading and sorting framework for rough rubies.
  • Gemfields’ first ruby auction is expected to occur before 30 June 2014.

Fabergé

  • Wholly-owned Fabergé Ltd (“Fabergé”) saw revenue derived from sales booked during the key Christmas shopping month of December increase by 89% year-on-year.
  • Revenue derived from sales booked during the quarter ending 31 December 2013 increased by 26% compared to the same quarter in the prior year.
  • Robert Benvenuto, who during a thirteen year tenure at Harry Winston served as CFO, COO and Co-CEO, joined Fabergé as President & COO on 28 October 2013.
  • Sneak preview for long-lead press in October 2013 of ‘The Fabergé Big Egg Hunt’, a creative charity initiative placing up to 300 giant egg sculptures throughout New York from 1 to 26 April 2014.

Corporate

  • At 31 December 2013, Gemfields had cash of USD 14.8 million and total debt outstanding of USD 8.9 million.
  • Revenues from auctions and the direct sale of beryl during the first six months of the financial year to 31 December 2013 stand at USD 59.9 million, surpassing by 24% the all-sources revenue of USD 48.4 million achieved in the full financial year to 30 June 2013.
  • Continued evaluation of prospective coloured gemstone deposits and targets to broaden the scope for future growth.

Ian Harebottle, CEO of Gemfields, commented:

“Gemfields is pleased to report on another quarter of solid progress. With our first-half revenues comfortably exceeding our prior full year figure, we look forward to the two forthcoming emerald auctions and the first auction of rough rubies from Montepuez all to be held before the end of June this year.

While Kagem experienced reduced production this quarter – demonstrating the characteristic grade volatility in coloured gemstone mining – we are confident that this will improve in the near term. We were extremely pleased with the record-setting emerald auction held in Lusaka, Zambia in November2013 and are buoyed by the ongoing increase in global demand for emeralds and other coloured gemstones – much of which is a direct result of Gemfields’ concerted marketing efforts.

The concrete progress being made at Fabergé is evident in the robust December sales growth and we are delighted to welcome Robert Benvenuto as President & COO of Fabergé. His long-standing experience in the sector and at Harry Winston is clearly already bearing fruit.”

A graphical production update is available at www.gemfields.co.uk.

KAGEM EMERALDS

During the quarter, Kagem Mining Limited declared and paid a dividend of USD 8 million, of which USD 2 million was paid to the Government of the Republic of Zambia, a 25 % shareholder in Kagem. The dividend is believed to be both the first ever dividend paid by Kagem in its 29 year history and the first such payment to the Zambian Government from any gemstone operation in Zambia.

Production Update

The 75%-owned Kagem emerald mine is presently Gemfields’ only operating emerald mine and is the single largest producing emerald mine in the world. The key production parameters by quarter are summarised below:

KAGEM Quarterly Summary to Dec-13

Units

Dec-11 Mar-12 Jun-12 Sep12 Dec-12 Mar-13 Jun-13 Sep13 Dec-13 TOTAL
PRODUCTION
Gemstone Production (Emerald+Beryl) million carats

3.9

4.9

7.3

7.9

6.6

6.5

8.9

6.5

3.9

56.4
Ore Production (Reaction Zone) ‘000 tonnes 17.5 20.8 40.7 30.5 23.1 24.5 27.8 21.4 17.2 223.4
Grade (Emerald+Beryl/Reaction Zone) carats/tonne 222 236 181 259 288 265 322 302 224 253
Waste Mined (including TMS) milliontonnes

2.2

1.6

2.7

2.6

2.2

2.2

2.5

1.9

1.9

19.8
Total Rock Handling milliontonnes

2.2

1.6

2.8

2.6

2.2

2.3

2.5

1.9

2.0

20.1
Stripping Ratio 124

77

67

84

96

91

89

88

113

89

CASH COSTS
Kagem Total (Cash) Operating Cost USD million

7.0

6.0

9.8

8.5

7.7

6.9

9.0

6.8

6.8

68.7
Gemstone Unit Cost (E+B) USD/carat

1.8

1.2

1.3

1.1

1.2

1.1

1.0

1.1

1.8

1.2

RZ Unit Cost USD/RZtonne 400 291 242 280 333 282 325 319 393 307
Rock Handling Unit Cost USD/tonne

3.2

3.7

3.5

3.3

3.4

3.1

3.6

3.6

3.5

3.4

ACCOUNTING COSTS
Kagem Operating Cost * USD million

3.4

4.2

4.2

4.0

4.4

3.6

4.4

4.3

4.5

36.9
Gemstone Unit Cost (E+B) * USD/carat

0.9

0.8

0.6

0.5

0.7

0.6

0.5

0.7

1.2

0.7

RZ Unit Cost * USD/RZtonne 193 200 104 130 189 147 160 199 261 165
Rock Handling Unit Cost * USD/tonne

1.5

2.6

1.5

1.5

2.0

1.6

1.8

2.2

2.3

1.8

* Note: As at 31 December 2013, a total of approximately USD 35.1 million of waste moving costs have been capitalised and are amortised as and when the associated ore is mined. The balance of capitalised waste moving costs, net of amortisation, as at 31 December 2013 amounted to USD 20.2 million.

The quarter to 31 December 2013 yielded 3.9 million carats at a grade of 224 carats per tonne of ore and unit production costs of USD 1.17 per carat (excluding capitalised waste moving costs), or USD 1.76 per carat on a cash basis. The quarter saw approximately 2.0 million tonnes of rock moved. Cash rock handling unit costs remained well contained and increasing at well below the prevailing inflation rate to USD 3.46 per tonne (compared to USD 3.43 in the quarter to 31 December 2012).  Gemfields’ trial underground mining project achieved 57.6 metres of horizontal advance during the quarter ending 31 December 2013 (versus 74.2 metres in the quarter ending 30 September 2013). This quarter’s work focussed on the completion of the second stope and the requisite support work in the crosscuts and drives. Four blasts to complete the second stope took place this quarter. A total of 885 tonnes of ore was produced during the quarter (versus 683 tonnes in the prior quarter).

Approximately 60,915 carats were produced by the underground operation in the quarter (versus 34,320 carats in the prior quarter). The grade for the quarter was 68.8 carats per tonne and the overall grade for the project to date is 77.8 carats per tonne.

Illegal mining activity within the boundaries of the Kagem mining licence is not yet resolved and Gemfields continues to work with key ministries to alleviate this challenge.

Emerald Auction Update

The company successfully completed its first stand-alone auction of purely traded rough emeralds (not directly obtained from any of its operating mines) in October of 2013, in Jaipur. A total of 42 companies attended the auction, with 38 of them placing at least one bid. The auction saw 417,032 carats of traded emeralds placed on offer, with 145,952 carats (representing by far the bulk of the value offered) being sold, and generating gross auction revenues of USD 8.5 million.

The November 2013 auction of predominantly lower quality rough emerald and beryl held in Lusaka, Zambia saw 4.9 million carats being sold, representing by far the bulk of the value offered, and generating record aggregate lower grade auction revenues of USD 16.4 million. The auction yielded an overall average of USD 3.32 per carat, the highest unit value achieved at any Gemfields auction of predominantly lower quality material, and representing a 27% increase over the previous high of USD 2.61 per carat (achieved in the June 2012 Jaipur auction).

The direct sale of 11,286 kilograms of Kagem’s two lowest grades of beryl for USD 3.5 million, agreed during the quarter ending 30 September 2013, has been completed and the funds duly received by Kagem.

Two auctions, one of predominantly higher quality emeralds and one of predominantly lower quality emeralds and beryl to take place in Lusaka before 30 June 2014.

MONTEPUEZ RUBIES

Bulk-Sampling Update

Bulk-sampling operations at the Montepuez ruby project in Mozambique, in which Gemfields has a 75% interest, continue to scale up progressively and with consistently encouraging results. The requisite core infrastructure is largely in place, which will accommodate a smooth transition to formalised mining once bulk sampling and permitting is completed. Improvements continue to be made to the pilot, semi-mobile ore processing plant, improving efficiencies and the understanding of the ore characteristics.

Approximately 2.3 million carats of ruby and corundum were extracted during the quarter to 31 December 2013, versus 0.16 million carats in the quarter to 31 December 2012. This takes the total ruby and corundum extracted at Montepuez since the commencement of bulk sampling to 7.0 million carats.

Total rock handling stood at 288,746 tonnes (compared to 12,371 tonnes in the quarter to 31 December 2012), of which 150,941 tonnes were ore and 137,806 tonnes were waste. Total cash operating costs during the quarter totalled USD 2.8 million, versus USD 1.3 million in the quarter to 31 December 2012.

Given the size and nature of the Montepuez ruby licence, illegal mining activity and theft remain key challenges, although new infrastructure, a significant security presence and ongoing efforts have resulted in a clear improvement.

A proprietary ruby grading system has been developed and continues to be tested and refined as further ruby and corundum is extracted. Various downstream ruby and corundum enhancement processes are being investigated, with encouraging results.

Ruby Auction Update

As previously announced, Gemfields expects the first auction of rough rubies and corundum to take place before 30 June 2014.

FABERGÉ

Wholly-owned Fabergé Ltd (“Fabergé”) saw revenue derived from sales booked during the key Christmas shopping month of December increase by 89% year-on-year. Revenue derived from sales booked during the quarter ending 31 December 2013 increased by 26% compared to the same quarter in the prior year.

Robert Benvenuto, who during a thirteen year tenure at Harry Winston served successively as CFO, COO and Co-CEO, joined Fabergé as ‘President and COO’ on 28 October 2013.

In October 2013, Fabergé hosted a sneak-preview for long-lead press in New York to announce ‘The Fabergé Big Egg Hunt’. This creative charity initiative will see up to 300 giant egg sculptures (each designed by globally renowned artists, designers, architects and brands including Tracey Emin, Mark Quinn, Zaha Hadid, Ronnie Wood, Peter Beard, Diane Von Furstenberg, Marchesa and Bruce Weber) placed throughout the five boroughs of New York City during the 2014 Easter period. The Fabergé boutique on Madison Avenue will house one of the exceptional designs and display the three Fabergé egg pendant prizes, which feature coloured gemstones by Gemfields. The funds raised will benefit ‘Elephant Family’, founded by Mark Shand and ‘Studio in a School’, founded by Agnes Gund. The New York egg hunt follows the success of The Fabergé Big Egg Hunt in London in 2012, which set two Guinness World Records and ultimately raised over USD 1.5 million for charity.

CORPORATE & CASH

At 31 December 2013, Gemfields had cash of USD 14.8 million (and total debt outstanding of USD 8.9 million).
Revenues from auctions and the direct sale of beryl during the first six months of the financial year to 31 December 2013 stand at USD 59.9 million, surpassing by 24% the all-sources revenue of USD 48.4 million achieved in the full financial year to 30 June 2013.

 

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