6th Oct 2010 07:00
Gemfields Plc
("Gemfields" or the "Company")
Final results for the year ended 30 June 2010
6 October 2010
Consolidated financial statements of Gemfields PLC ("Gemfields" or "the Company"), formerly Gemfields Resources PLC, for the financial year ended 30 June 2010.
Key financial indicators:
* Maiden profits of US$2,582,868 (2009: Loss of US$201,407,565); * Revenue from emerald sales of US$19,906,203 (2009: US$815,456); * Cash at bank of US$2,878,812 (2009: US$6,868,789); * Estimated value of emerald stock at hand US$16,545,106 (2009: US$17,715,627);
Key operational developments during the financial year:
* Average monthly operating costs at the Kagem mine reduced to US$1.06 million (2009: US$1.61 million); * Average revenue per carat of rough emerald and beryl has increased to approximately US$0.96 per carat after July 2010 auction; * Successful marketing and promotional initiatives completed during the year including the World Land Trust's "Emeralds for Elephants" campaign and the Indian International Jewellery Show's (IIJS) "Jewellery Designer of the Year" awards; * Operational and sales initiatives implemented at Kariba Mining Limited's amethyst mine resulting in improved performance of this division; * Discovery of exceptional 6,225 carat `Insofu' rough emerald at the Kagem mine; * Appointment of Dev Shetty as CFO.
Key developments since the end of the period:
* Successful rough emerald auction conducted during July 2010 with record sales totalling US$7.5 million; * Encouraging production at the Kagem mine during July 2010 of 3.9 million carats of emerald and beryl, a trend which has continued during August and September 2010; * Various exploration and other geological projects re-initiated within the Gemfields's Zambian and Madagascan licence areas.
The Chairman's Statement and the primary financial statements are set out below and will be available to view on the Company's website at www.gemfields.co.uk. The full financial statements will be sent to shareholders.
Ian Harebottle, CEO of Gemfields, commented:
"Considering the extent of the challenges that we have faced over the past year, the vast number of new projects and the strategic changes that we have implemented across all divisions within the Group, I am rather pleased with our results and what has been achieved.
We are now well on our way to positioning Gemfields as a market leader within the Premium Coloured Gemstone sector. This is attested to by the recognition and respect that we have received from our colleagues within our industry and the number of exciting opportunities that we are now faced with. I look forward to embracing the year ahead supported by my team and in conjunction with our industry partners."
Enquiries:
Gemfields [email protected]
Dev Shetty, CFO 44 (0)20 7518 3402
Canaccord Genuity Limited
Nominated Adviser and Joint Broker to Gemfields
Tarica Mpinga/Andrew Chubb +44 (0)20 7050 6500
Conduit PR
Jos Simson/Leesa Peters +44 (0)20 7429 6603
Dear Shareholder,
Gemfields has achieved success in a number of key areas over the past year despite the challenging global economic climate. Gemstone markets have yet to recover fully and, as a result, many of the challenges presently facing Gemfields are likely to prevail for the foreseeable future. However, we are encouraged by the ongoing growth in demand for, and pricing of, our products.
Like so many other companies, Gemfields has been forced to re-evaluate its business methodologies and while this has not been easy, we have come through the past year stronger than before. We will continue to manage our business with a conservative approach throughout the coming year, monitoring the prevailing factors in our sector and adjusting accordingly.
I would like to thank each member of our team for their hard work and for the dedication I know they will deliver during the coming year. I would also like to thank you, our loyal shareholders, for your continued support and commitment to our company and our vision.
Strategic Review
The uncertainty in the global economy and its associated impact on the luxury goods sector motivated an in-depth strategic review of Gemfields' Group wide operations and a clear focus on core business. Following on from the stance taken in February 2009, Gemfields continues to prioritise:
* Reducing operating costs.
* Improving operating efficiencies.
* Delivering consistent and world-class supply of larger volumes of
well-graded, quality rough emeralds to selected stakeholders.
A solid foundation has been established for further growth and improved profitability. Our strategic review has realised encouraging results and combined with improved operating environments, we are well positioned to deliver sustainable growth and success in the years ahead, as is demonstrated by our maiden profit and reduced operating costs.
While Gemfields' performance has been lower than projected at the time of readmission to AIM in June 2008, a solid base has been established and is providing a sound foundation for further growth and profitability as our operating environment continues to improve.
Operations
* Mining - Kagem
The Kagem emerald mine in Zambia is presently Gemfields' only operating emerald mine and serves as the source of emeralds and beryl for our downstream business. Given the level of uncertainty which continues to prevail in the global markets, Gemfields took the decision early in 2009 to reduce the scale of mining at Kagem and seek operational efficiencies. Operating costs averaged US$193 per tonne of ore (known as "Reaction Zone") during the year under review, a reduction of 20% (compared to US$241 per tonne in 2009), demonstrating improved operational efficiencies.
Kagem's key annual production parameters are summarised below:
KAGEM Annual Units Yr to 30 Yr to 30 Yr to 30 Yr to 30 Production Summary Jun 07 Jun 08 Jun 09 Jun 10 Gemstone Production million 9.4 9.9 28.0 17.4 (Emerald + Beryl) carats Ore Production `000 29 42 80 61 (Reaction Zone) tonnes
Grade (Emerald + Beryl carats/ 325 233 349 286 /Reaction Zone) tonne
Waste Mined (including million 2.8 5.1 4.0 2.5 TMS)
tonnes Stripping Ratio 96 120 50 42
During the year, Kagem's operating cost averaged US$0.73 per carat (counting both emerald and beryl production), compared to an average of US$0.69 per carat in 2009. Although absolute costs have continued to fall, the per carat production costs increased slightly on account of lower production volumes.
The stripping ratio is anticipated to increase in the short to medium term as areas of overburden are mined in order to expand the levels of available ore, and is thus expected to have a commensurate impact on total mining costs.
The trial underground mining project continues to deliver encouraging results and has motivated the development of a comprehensive and in-depth underground mine plan, taking into account the entire Chama and Fwaya Fwaya mining areas. Given the prospect of being able to implement these plans in the foreseeable future, Gemfields is furthering its efforts to identify the most suitable area for the continuation of its opencast mining operations.
Post the delivery of three additional dump trucks and one excavator in 2009, an additional US$3.9 million was spent on the acquisition of five new dump trucks and four excavators in 2010. The constant upgrading of the fleet is in line with the Gemfields' growth plans, its confidence in the mine's underlying profitability and its ongoing drive to improve operating efficiencies.
* Sales and Inventories
Gemfields has elected to offer its rough production to selected market participants by way of sealed bid auctions where all material offered is certified by Gemfields as natural, untreated and of Zambian origin. Many of the world's top gem houses and emerald lapidaries are invited to attend these events.
During the period, Gemfields hosted high quality emerald auctions in July and November 2009 followed by a low quality emerald auction in March 2010. Some thirty companies drawn from Germany, India, Israel and the USA attended these events which saw 31.38 million carats of emerald and beryl offered in 102 separate lots. The sales from these auctions totalled US$18.7 million with 89 out of the 102 lots being sold. The total sales after including specimens and cut and polished emeralds totalled US$19.9 million. The results of the auctions are summarised below.
AUCTION RESULTS JULY `09 NOVEMBER '09 MARCH '10 SUMMARY AUCTION AUCTION AUCTION Dates 20-24 July 23-27 November 11-15 March 2009 2009 2010 Location London, Johannesburg, Jaipur, India England South Africa Type Higher Higher Quality Lower Quality Quality Carats offered 1.36 million 1.12 million 28.90 million Carats Sold 1.36 million 1.09 million 22.80 million No. of lots offered 27 19 56 No. of lots sold 26 14 49 Percentage of lots 96% 74% 88% sold Percentage of lots 99.8% 97.2% 78.9% sold by weight Percentage of lots 82% 76% 89% sold by value Total sales US$ 5.9 US$ 5.6 million US$ 7.2 realised at auction million million
Average per carat US$ 4.40 per US$ 5.10 per US$ 0.31 per sales value
carat carat carat
Significant interest in attending the Gemfields' auctions provides sound evidence of an increase in demand for our products across all grades. This trend was further demonstrated in the auction held in July 2010.
Despite the improving market conditions and demonstrated sales successes, Gemfields' Directors continue to prefer a conservative approach when estimating the possible net realisable value of the rough emerald inventories. Similarly, the internal valuation of the net realisable value of Gemfields' cut and polished emerald inventory has been assumed as the estimated value of the rough material consumed, plus the physical costs of cutting and polishing.
* Geology and Exploration
Given the improving market and financial conditions, the decision has been taken to re-initiate a number of geological and exploration projects, some of which were put on hold in 2009 and some of which are new projects motivated by the developments that have taken place over the past year. These include:-
* Fwaya Fwaya 3 (FF3) - Work on the separate FF3 pit commenced in February 2010. The pit is currently around 30 metres deep, exposing one concordant and four discordant pegmatites over a strike length of 40 metres. A total of approximately 201kt of rock that has been handled to date (against a bulk sampling target of 500kt) and has generated 630t of Reaction Zone (ore) and produced approximately 10,000 carats of emerald and beryl; * Geological and geotechnical assessment of the various Oriental Mining SARL licences areas in Madagascar; and * The establishment of an in-house diamond-core drilling team, including the acquisition of a drill-rig, to facilitate continued drilling of various key target sites within the Gemfields's various Zambian emerald licence areas. * Security
Securing the Group's assets, protecting its people and limiting the theft of gemstones remain a key operational priority. While the various security initiatives implemented during the past year have begun to show positive results, and are attested to by a reduction in the volumes of material available in the informal markets neighbouring the mine, the reduction of theft and challenges of physically securing the mining licence area require the continuous efforts by our security team and is an ongoing challenge. Various capital projects have been investigated and are proposed for the coming year, including the installation of new and upgraded CCTV systems and associated IT infrastructure.
* Marketing and Promotions
Apart from our core focus on rough emeralds, Gemfields is also in the process of repositioning itself as a leader in the mining and marketing of ethically-produced "Premium Coloured Gemstones"; gemstones that can be traced directly from mine to market.
These rebranding efforts include demonstrated successes in terms of the level of exposure achieved for the Group's products in leading trade and consumer magazines, the development of trade and consumer brochures, corporate and consumer DVDs and a comprehensive emerald training program made available to our distribution partners and retailers.
Further to the above, Gemfields has collaborated with the World Land Trust and eight world-class jewellery designers to create a unique `pop up' collection of bespoke emerald jewellery. With a view to creating awareness of the World Land Trust's `Indian Elephant Corridor' project and to raise crucial funds, the collection was placed on display at Selfridges Wonder Room and was auctioned by Sothebys to a select group of high profile personalities in June 2010. The auction was a considerable success.
* Environment and Corporate Social Responsibility
Gemfields operates in compliance with relevant international environmental and safety standards. Kagem has been upgraded from category C to category B in the Environmental Council of Zambia's (ECZ) inspection for the renewal of statutory licences and the Environmental Protection Fund's (EPF) annual environmental audit reports, and is poised to be upgraded to category A in the coming year.
The Kagem mine's decommissioning and restoration provision was reviewed by independent specialists, African Mining Consultants, during the year. Based on their findings, a significant amount of this provision has been released. This release is shown as a credit in the statement of comprehensive income.
The Zero Carbon Project
Kagem embarked on a "Zero Carbon Project" in March 2009 involving the planting of circa 300,000 trees to neutralise the effect of emissions. In excess of 60,000 trees have been planted to-date.
Corporate Social Responsibility
Gemfields is committed to investing in sustainable community development projects. Such projects are developed in partnership with the local people living in close proximity to our operations and include the building and equipping of schools and a medical clinic and the development of local farming projects. A project team has been established to ensure that all social projects are undertaken in the best interests and with the support of the relevant community.
* Impairment
The Directors took the decision to write down the value of Kagem to zero in the Gemfields' 2009 financial statements, driven largely by the ongoing uncertainty in the global economy, the loss-making performance of the Kagem mine during the preceding year and the lack of reliable emerald prices, therefore making it difficult to justify forecasts showing a positive cashflow with reasonable certainty.
With Gemfields now becoming increasingly optimistic that Kagem will become a viable operation in the foreseeable future, and in recognition of the fact that many of the previous uncertainties are either alleviating or better understood, Gemfields has initiated a re-assessment of the value of these assets.
* Kariba Amethyst Mine
Production at the Kariba amethyst mine (held in Kariba Minerals Ltd of which Gemfields own 50%) is returning to historic levels by volume and demand for its product is improving in all markets. The quality of the supplied product has improved significantly and a strong focus on its core business is delivering encouraging results. Gemfields plans to increase the level of its commitment and investment in this division subject to resolution of increased ownership discussions with Government of the Republic of Zambia.
Key financial performance indicators
2010 2009 Share price £0.05 £0.06 Cash and cash equivalents US$2,878,812 US$6,868,789 Emerald inventory US$16,545,106 US$17,715,627 Revenue from emerald sales US$19,906,203 US$815,456 Profit/(Loss) for the year US$2,582,868 US$ (201,407,565) Oriental Mining S. a. r. l.
In 2008, Gemfields exercised its option to acquire the entire issued share capital of Oriental Mining s.a.r.l., a company incorporated in Madagascar ("Oriental"). Gemfields was granted the option by Rox Limited ("Rox") pursuant to an agreement between Gemfields and Rox dated 18th December 2007.
Oriental has 15 exploration licences covering emeralds, rubies, sapphires, tourmalines and garnets in the Antananarivo, Fianarantsoa and Toliara provinces of Madagascar. In addition, Oriental has the right to 5 exploration licences that are pending approval from the Madagascan Ministry of Energy and Mines.
Madagascar is recognised as one of the most exciting colour gemstone provinces in the world today, with several key discoveries having been made there during the last decade. Gemfields believes that, in the medium to long term, gemstone-related activity in the country has the potential to become a valuable part of Gemfields' asset portfolio. Given Madagascar's improving political and security environment, Gemfields has recently contracted Mineralogical and Peterological Services ("M.A.P.S.") to undertake an geological and geotechnical assessment of the various licence areas.
New Appointments
Dev Shetty, a qualified chartered accountant with 10 years' of diverse international experience encompassing mergers and acquisitions, business start-ups, business turnarounds, strategic planning, treasury, tax and financial reporting, was appointed as CFO during the period.
Illegal mining activities within the Kagem Licence area
Kagem continues to experience illegal mining activity within the boundaries of the Kagem mining licence area. While the matter is as yet not fully resolved, Gemfields continues to work in cooperation with all key Zambian ministries in its efforts to ensure that an amicable and peaceful solution is implemented and Kagem's legal rights are protected and respected.
Post reporting period events
Gemfields held an auction of (predominantly higher quality) rough emeralds in London from 19 to 23 July 2010. The auction was attended by 37 companies drawn from India, Israel and the United States. The auction saw 0.85 million carats offered, with 0.80 million carats being sold, raising record auction revenues of US$7.5 million.
Gemfields' next auction of (predominantly higher quality) rough emeralds is scheduled to take place during December 2010.
Outlook and Objectives for the year ahead
Objectives:
* Build on the solid rough sales platform that has been established and which is showing encouraging signs of growth; * Continue to reposition and rebrand Gemfields as a world leader in the Premium Coloured Gemstone sector; * Expand the underground mining project to a point where it can be initiated on a significantly larger scale; * Expand open cast mining activities to new target sites within the Kagem licence area; * Continue the focus on cost reduction and improved operating efficiencies; * Focus on improved and upgraded security across the mine site supported by skilled manpower; * Open a rough gemstone trading business in Kitwe, Zambia (aimed at purchasing rough emeralds from local dealers and small scale operators); and * The establishment of a trial cutting facility on the mine to establish the feasibility of local beneficiation.
Outlook:
* Improving mining efficiencies, targeting of higher grade areas and further reducing relative operating costs continues to drive the Kagem mine plan. Possible expansion of mining activities within the Kagem mining licence will continue to be reviewed, assessed and implemented where appropriate. * Gemfields continues to pursue its strategy of consolidating the supply chain and increasing consumer awareness. It is becoming increasingly evident that demand for the Gemfields' products is increasing across all levels within the supply chain, supporting increased prices and improving margins. * While the year ahead will offer a number of challenges Gemfields is reasonably optimistic of its ability to achieve its targets of internal growth and expansion. Graham Mascall4 October 2010Gemfields PLC
Consolidated statement of comprehensive income
for the year ended 30 June 2010
2010 2009 US$'000 US$'000 Revenue 19,906 815 (Decrease) / Increase in inventory (1,169) 10,927 Mining and production costs (11,784) (17,447) ________ ________ Total cost of sales (12,953) (6,520) ________ ________ Gross profit/(loss) 6,953 (5,705) Other income 199 246 Administrative expenses Other administrative expenses (5,134) (8,009) Depreciation (3,248) (14,743) Impairment of available-for-sale (1,018) (5,201)investments Impairment of mining assets - (249,731) Release of decommissioning 4,561 -liabilities Total Administrative expenses (4,839) (277,684) ________ ________ Profit/(loss) from operations 2,313 (283,143) ________ ________ Finance income 10 1,423 Finance expenses (822) (9,358) ________ ________ Profit/(loss) before taxation 1,501 (291,078) ________ ________ Tax credit 1,082 89,670 ________ ________ Profit/(loss) and total comprehensive 2,583 (201,408)income/(loss) for the year ________ ________ Attributable to: Equity shareholders of the parent 2,068 (164,757) Minority interest 515 (36,651) ________ ________ 2,583 (201,408) ________ ________ Earnings/(loss) per share Basic US$0.01 US$(0.51) Diluted US$0.01 US$(0.51) All amounts relate to continuing activity.
Gemfields PLC
Consolidated statement of changes in equity
for the year ended 30 June 2010
Attributable to equity holders of the parent Cumulative Share Share Merger Option Translation Retained Total Minority Total capital premium Reserve Reserve Reserve deficit Interest Equity $000s $000s $000s $000s $000s $000s $000s $000s $000s Balance at 30 5,904 89,686 121,005 1,111 (7) (43,568) 174,131 36,651 210,782June 2008 Total - - - - - (164,757) (164,757) (36,651) (201,408)comprehensive loss for the year Issue of new 256 7,137 - - - - 7,393 - 7,393share capital (net of issue costs) Share based - - - 1,321 - - 1,321 - 1,321payments Expired options - - - (228) - 228 - - - ____ _______ ______ ______ ________ _______ _____ _______ _____ Balance at 30 6,160 96,823 121,005 2,204 (7) (208,097) 18,088 - 18,088June 2009 ____ _______ ______ ______ ________ _______ _____ _______ _____ Total - - - - - 2,068 2,068 515 2,583comprehensive income for the year Share based - - - 274 - - 274 - 274payments Expired options - - - (865) - 865 - - - ____ _______ ______ ______ ________ _______ _____ _______ _____ Balance at 30 6,160 96,823 121,005 1,613 (7) (205,164) 20,430 515 20,945June 2010 ____ ______ ______ ______ ________ ______ _____ ______ _____
The nature and purpose of each reserve within Shareholders' equity is described as follows:
Reserve Description and purpose
Share capital Amount subscribed for share capital at nominal value.
Share premium Amount subscribed for share capital in excess of nominal value.
Merger reserve The difference between the fair value of the shares issued as consideration for acquisition of subsidiaries in excess of the nominal value of the shares, where 90% or more of shares are acquired.
Option reserve Cumulative fair value of options charged to the statement of comprehensive income.
Cumulative translation reserve Cumulative gains and losses on retranslating the net assets of overseas operations to the
presentation currency.
Retained deficit Cumulative net gains and losses recognised in the consolidated statement of comprehensive income.
Minority interest Amounts attributable to non-controlling shareholders.
Gemfields PLCConsolidated statement of financial positionat 30 June 2010 2010 2009 US$'000 US$'000 Non-current assets Property, plant and equipment 6,008 5,993 Available-for-sale Investments 1,412 2,430 ________ ________ 7,420 8,423 ________ ________ Current assets Inventory 17,380 18,445 Trade and other receivables 3,051 1,620 Cash and cash equivalents 2,879 6,869 ________ ________ Total current assets 23,310 26,934 ________ ________ Total assets 30,730 35,357 ________ ________ Non-current liabilities Deferred taxation (46) (1,134) Borrowings - (1,637) Other non-current liabilities (1,579) (6,211) ________ ________ (1,625) (8,982) Current liabilities Trade and other payables (2,204) (2,640) Current tax (31) (23) Borrowings (3,506) (3,561) Other current liabilities (2,419) (2,063) ________ ________ (8,160) (8,287) ________ ________ Total liabilities (9,785) (17,269) ________ ________ ________ ________ Total net assets 20,945 18,088 ________ ________ Capital and reserves attributable to equity holders of the parent Share capital 6,160 6,160 Share premium 96,823 96,823 Merger reserve 121,005 121,005 Option reserve 1,613 2,204 Cumulative translation reserve (7) (7) Retained deficit (205,164) (208,097) ________ ________ 20,430 18,088 Minority interests 515 - ________ ________ Total equity 20,945 18,088 ________ ________
The financial statements were approved by the Board of Directors and authorised for issue on 4 October 2010.
Dev Shetty
Director
Company Registration Number 05129023
Gemfields PLC
Consolidated statement of cash flows
for the year ended 30 June 2010
2010 2009 US$'000 US$'000 Cash flows from operating activities Profit/(loss) for the year before tax 1,501 (291,078) Depreciation 3,248 14,743 Share-based payments 273 1,321 Finance income (10) (1,423) Finance expense 822 9,358 Profit on sale of property, plant and (147) -equipment Release of decommissioning liabilities (4,561) - Impairment of evaluated mining - 249,731properties Impairment of available for sale 1,018 5,201investments (Increase)/decrease in trade and other (1,431) (469)receivables Increase/(decrease) in trade and other (518) (1,881)payables Increase/(decrease) in provisions 369 (802) (Increase)/(Decrease) in inventory 1,065 (10,945) ________ ________ Net cash outflow from operating 1,629 (26,244)activities Cash flows from investing activities Acquisition of available for sale - (7,631)investment Interest received 10 974 Dividend received - 449 Purchase of property, plant and (3,262) (2,338)equipment Sale of property, plant and equipment 147 534 ________ ________ Net cash flow from investing activities (3,105) (8,012) Cash flows from financing activities Issue of ordinary shares (net of issue - 7,360costs) Exercise of share options - 33 Repayment of borrowings (3,777) (4,986) Receipt of loans 2,085 - Finance expense (559) (653) ________ ________ Net cash flow from financing activities (2,251) 1,754 Net decrease in cash and cash (3,727) (32,502)equivalents Cash and cash equivalents at start of 6,869 48,078year Exchange differences on translation (263) (8,707) ________ ________ Cash and cash equivalents at end of 2,879 6,869year ________ ________Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards IFRS's and IFRIC interpretations, issued by the International Accounting Standards Board (ISAB) as endorsed for use in the EU ("Endorsed IFRSs") and those parts of the Companies Act 2006 that are applicable to companies that prepare their financial statements under IFRS.
The financial information for the years ended 30 June 2010 and 30 June 2009 does not constitute statutory accounts as defined by section 435 of the Companies Act 2006 but is extracted from the audited accounts for those years. The 30 June 2009 accounts have been delivered to the Registrar of Companies. The 30 June 2010 accounts will be delivered to Companies House within the statutory filing deadline. The auditors have reported on those accounts; their report was unqualified and did not contain statements under Section 498 (2) of (3) of the Companies Act 2006.
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