3rd Oct 2011 07:00
Gemfields Plc
("Gemfields" or the "Company")
Final results for the year ended 30 June 2011
3 October 2011
Gemfields plc ("Gemfields" or "the Company") is delighted to release its consolidated financial statements for the financial year ended 30 June 2011.
Highlights:Key financial indicators:
* Profit after tax improved by 729% to US$21,445,643 (2010: US$2,582,868);
* Revenue from emerald and beryl sales more than doubled to US$40,157,218 (2010: US$19,906,203); * Cash at bank of US$13,648,654 (2010: US$2,878,812); * Estimated cost of emerald inventory at hand of US$18,680,755 (2010: US$16,545,106).
Key operational developments during the financial year:
* Record annual production of 33 million carats (2010: 17.4 million carats)
representing a 90% increase; * Grade for the year to 30 June 2011 was 478 carats per tonne (2010: 286 carats per tonne);
* Average monthly operating costs at the Kagem mine were contained at US$1.07
million (2010: US$1.06 million); * Notable marketing and promotional initiatives completed during the year include the World Land Trust's "Emeralds for Elephants" campaign, the
"Emerald - Uniquely you" marketing campaign and the Indian International
Jewellery Show's (IIJS) "Jewellery Designer of the Year" awards;
* Implementation of a one year renewable mining contract for the removal of
overburden in the Chama Pit at Kagem Mining Limited; * Operational and sales strategies implemented at Kariba Mining Limited's amethyst mine resulted in improved performance of this division; and
* Initiation of process to acquire a 75% stake in the noteworthy Montepuez
ruby deposit.
Key developments since the end of the period:
* Successful rough emerald auction conducted during July 2011 yielded record
sales totalling US$31.6 million; * Various expansion, exploration and other growth projects have been initiated within Gemfields' Zambian and Madagascan licence areas. The Chairman's Statement and the primary financial statements are set out belowand are available to view on the Company's website at www.gemfields.co.uk. Thefull financial statements will be sent to the shareholders.
Ian Harebottle, CEO of Gemfields, commented:
"The past financial year has been an outstanding one for Gemfields. We havedoubled revenues, improved our profit eight fold and, following our recordrough emerald auction in July, we have started the new financial year strongly.Production is up, costs are well contained and increasing demand from both thetrade and consumer markets alike confirms the success of our various marketingand promotional efforts. We look forward to the prospect of continued growthand expansion throughout the coming year."
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
Jos Simson/Paul Youens Tel: +44 (0)20 7920 3150
Tavistock CommunicationsChairman's statement:Dear Shareholder,
The performance of Gemfields (the Company) over the past year has been heartening and I am pleased to share this set of results with you.
The key growth driver for the Company remains its on-going ability to containcosts whilst increasing its levels of production. This has been furthersupported by the continued growth in global demand for high quality ethicallysourced gemstones which has provided us with a platform from which we plan toincrease the depth and breadth of our business operations.The uncertain nature of the global economy is obvious and while we will seek touse our current position of strength to drive additional growth within theGroup, we will retain throughout the coming year the conservative approach thathas seen us through the past few years.I would once again like to thank our loyal shareholders, and each member of ourteam for your dedication to Gemfields and its vision to become the world'sleading coloured gemstone supplier. Your commitment has not gone unnoticed
andis greatly appreciated.Strategic ReviewThe uncertainty in the global economy and its associated impact on the luxurygoods sector prompted an in-depth strategic review of Gemfields' group wideoperations in the year 2009. As a result, Gemfields remains committed toreducing operating costs, improving operating efficiencies and delivering aconsistent supply of well-graded, high-quality rough emeralds to selectedstakeholders. The outcome of this approach is clearly evident in this set ofresults and, while a commitment to dynamic growth is included in the Group'sset of core objectives for the year ahead, our commitment to core operatingefficiencies remains steadfast.
Operations
* Mining - Kagem
The on-going improvement in operating efficiencies at the Kagem emerald mine inZambia, used a multi-faceted approach, which included the utilisation ofimproved technologies, a commitment to employee training and the adoption of a"constant learning" approach, and as a result has yielded positive results.Operating costs averaged US$204 (2010: US$193) per tonne of ore (known as"Reaction Zone") during the year under review while operating cost per carat(counting both emerald and beryl production) averaged US$0.43 per carat (2010:US$0.73 per carat).
Kagem's key annual production parameters are summarised below:
KAGEM Annual Production Units Yr to Yr to Yr to Yr to Yr to Summary 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 07 08 09 10 11 Gemstone Production million 9.4 9.9 28.0 17.4 33.0 (Emerald + Beryl) carats Ore Production `000 29 42 80 61 69 (Reaction Zone) tonnes
Grade (Emerald + Beryl/ carats/ 325 233 349 286 478 Reaction Zone) tonne
Waste Mined (including million 2.8 5.1 4.0 2.5 3.8 TMS)
tonnes Stripping Ratio 96 120 50 42 54 While the variable nature of coloured gemstone mining in terms of both gradeand production outputs is well recognised and understood, the positive resultsof the past year have provided us with a high level of confidence and a soundfinancial position. This has motivated a short term shift from our currentfocus on production outputs, to one of a more strategic nature, in which thescale of operations at the mine will be increased. An external contractor hasbeen appointed (under a one year, renewable contract) to manage the wasteremoval component of an extended high-wall pushback project to open up areasfor future production. This project will be implemented over the next threeyears. The stripping ratio is thus anticipated to increase in the short tomedium term as areas of overburden are mined in order to expand the levels ofavailable ore, and is thus expected to have a commensurate impact on totalmining costs.The trial underground mining project continues to deliver encouraging resultsand has motivated the development of a comprehensive and in-depth undergroundmine plan. This plan will take into account the entire strike length of theChama and Fwaya Fwaya mining areas. Given the likely prospect of being able toimplement these plans in the foreseeable future, Gemfields is furthering itsefforts to identify the most suitable area for the continuation of its opencastmining operations.Post the significant cash commitment to improving the size and quality of theoperating fleet in 2008/09 and 2009/10, an additional US$4.7 million was spenton the acquisition of drill rigs, excavators and dump trucks in 2010/11. Theconstant upgrading of the fleet is in line with the Gemfields' on-going growthplans, its confidence in the mine's underlying profitability and its drive toconstantly improve operating efficiencies.
* Sales and Inventories
Gemfields continued during the period to offer its rough production to selectedmarket participants by way of sealed bid auctions (tenders) where all Kagemmaterial placed on offer is certified by Gemfields as natural, untreated and ofZambian origin. Indications are that Gemfields has become the `supplier ofchoice' for high quality emeralds and other premium coloured gemstonesdelivered to the market in this fashion, a factor which has motivated the Groupto take preliminary steps towards the sourcing and supply of additional,non-Gemfields mined (i.e. traded) emeralds. Many of the world's top gem housesand emerald lapidaries attend Gemfields' emerald auctions and demand for theCompany's products continues to grow.During the period, Gemfields hosted higher quality emerald auctions in July andDecember of 2010, followed by a lower quality emerald auction in March 2011.Some thirty companies drawn from Germany, India, Israel and the USA attendedthese events which saw 18.55 million carats of emerald and beryl offered in 81separate lots. The sales from these auctions totalled US$37.0 million with 76out of the 81 lots being sold. Total sales - after including specimens andcut-and-polished emeralds - totalled US$40.2 million. The results of theauctions are summarised below. AUCTION RESULTS JULY `10 DECEMBER '10 MARCH '11 SUMMARY AUCTION AUCTION AUCTION Dates 19-23 July 6-10 December 10-14 March 2010 2010 2011 Location London, Johannesburg, Jaipur, India England South Africa Type Higher Higher Quality Lower Quality Quality Carats offered 0.85 million 0.87 million 16.83 million Carats Sold 0.80 million 0.75 million 12.98 million No. of lots offered 27 19 35 No. of lots sold 24 18 34 Percentage of lots 89% 95% 97% sold Percentage of lots 94% 86% 77% sold by weight Percentage of lots 87% 99% 99% sold by value Total sales US$ 7.5 US$ 19.6 million US$ 9.9 realised at auction million million
Average per carat US$ 9.35 per US$ 26.20 per US$ 0.77 per sales value
carat carat carat
The high levels of interest from companies in all market sectors to attend Gemfields' auctions provides sound evidence of the continuing demand for Gemfields' products across all quality ranges, despite indications of a potential downturn in the global economy. This trend was further demonstrated in the auction held in July 2011 in which the Group achieved record sales totalling US$31.6 million.
Gemfields prefers to adopt a conservative approach when estimating netrealisable value of its rough emerald inventories. However in accordance withthe accounting standards, inventory is recorded at its production cost.Similarly, cut and polished emerald inventory has been assumed to have a valueequivalent to the production cost of the rough material consumed, plus thecosts of cutting and polishing.
* Geology and Exploration
Given the Group's improving market position and financial condition, thedecision has been taken to re-initiate a number of geological and explorationprojects, some of which were put on hold in 2009 and some of which are newprojects motivated by developments that have taken place during the past year.These exploration projects are being carried out within the Kagem (emerald) andKariba (amethyst) mining licences and at other target areas within Zambia,Madagascar and other prospective gemstone provinces internationally.
* Security
Securing the Group's assets, protecting its people and limiting the theft ofgemstones remain key operational priorities. While the various securityinitiatives implemented during the past year are showing positive results, andare attested to by a reduction in the volumes of material available in theinformal markets neighbouring the mine, the reduction of theft and thechallenge of physically securing the mining licence area, requires thecontinuous efforts of our security team and is an on-going challenge. Variouscapital projects have been investigated and are proposed for the coming year,including the installation of X-ray body scanning units.
* Marketing and Promotions
Gemfields remains in constant communication with the trade to positionGemfields as the world's leading colour gemstone mining and marketing company,with a strong focus on Zambian emeralds, amethyst and other premium colouredgemstones, and a potential acquisition of ruby deposit in Mozambique. Thisapproach is delivering results. Furthermore, and in order to give furtherimpetus to Gemfields' global promotional efforts, the Company has recentlylaunched a new marketing and advertising campaign across various key marketscentred on the message "Emeralds - Uniquely You". This campaign targets themodern woman, her demand for excellence and her individuality. The campaign waslaunched in April 2011 in India.
A worldwide PR campaign was initiated to further complement the Company's advertising and has generated global PR value in excess of US$4million since January 2011.
Further to the success of the `Emeralds for Elephants' campaign held in Londonduring 2010, a follow-up project has been launched in India. This project hasthus far received a great deal of support from within the luxury goods sectorand has generated remarkable coverage and consumer interest across India. Theproject will culminate in a Sotheby's auction of bespoke emerald jewellery inMumbai in October 2011. Gemfields is researching new markets for expansion of its marketing activities,and plans to implement targeted marketing and communications campaigns in Chinaand other selected Asian countries, starting in January 2012.
A range of point-of-sale materials, which can be used by Gemfields' Distribution Partners and retailers alike, have been developed and distributed to numerous outlets. These have been developed with the aim of building a direct association between Gemfields, its unique range of ethically sourced gemstones, and the discerning consumer, thereby underpinning consumer confidence, their understanding and resulting sales.
Gemfields' first amethyst collaboration, in conjunction with UK jeweller-of-the-year, Jordan Askill, was launched in London during London's September 2011 fashion week. The collection was also shown at the Paris and New York fashion weeks in September 2011. This collaboration has been well received and various retailers have shown interest.
* Environment and Corporate Social Responsibility
Gemfields operates in compliance with relevant international environmental andsafety standards. Kagem has been upgraded from category C to category B in theEnvironmental Council of Zambia's (ECZ) inspection for the renewal of statutorylicences and the Environmental Protection Fund's (EPF) annual environmentalaudit reports, and is poised to be upgraded to category A in the near future.The Kagem mine's decommissioning and restoration provision was reviewed byindependent specialists, African Mining Consultants, in the year 2009/10. Basedon their findings, a significant amount of this provision has been released.This release was shown as a credit in the statement of comprehensive income
forthe year 2009/10.The Zero Carbon Project
Kagem embarked on a "Zero Carbon Project" and is well positioned in respect of any potential international standards which may be implemented in the foreseeable future.
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 Gemfields' 2009 financial statements. This was driven largely by the then uncertain outlook of the global economy, the loss-making performance of the Kagem mine during the preceding year and the lack of reliable emerald prices, all of which made it difficult at that time to justify forecasts showing a positive cashflow with reasonable certainty.
With Gemfields now increasingly optimistic that Kagem will be a viableoperation for years to come, and in recognition of the fact that many of theprevious uncertainties are either alleviating or better understood, Gemfieldshas initiated a re-assessment of the value of the asset.
* Kariba Amethyst Mine
Production at the Kariba amethyst mine (owned by Kariba Minerals Ltd of whichGemfields own 50%) is returning to historic levels (by volume) and demand forits product is improving. The quality of the supplied product has improvedsignificantly and a strong focus on its core business is delivering encouragingresults. Gemfields plans to increase the level of its commitment and investmentin this mine subject to resolution of increased ownership discussions withGovernment of the Republic of Zambia.
Key financial performance indicators
2011 2010 Share price £0.19 £0.05 Cash and cash equivalents US$13,648,654 US$2,878,812 Emerald inventory US$18,680,755 US$16,545,106 Revenue from emerald sales US$40,157,218 US$19,906,203 Profit after tax for the year US$21,445,643 US$2,582,868 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 18 December 2007.
Oriental has 15 exploration licences covering emeralds, rubies, sapphires,tourmalines and garnets in the Antananarivo, Fianarantsoa and Toliara provincesof Madagascar. In addition, Oriental has the right to 5 exploration licencesthat are pending approval from the Madagascan Ministry of Energy and Mines.Madagascar is recognised as one of the most exciting colour gemstone provincesin the world today, with several key discoveries having been made there duringthe last decade. Gemfields believes that, in the medium to long term,gemstone-related activity in the country has the potential to become a valuablepart of Gemfields' asset portfolio. Given Madagascar's improving political andsecurity environment, Gemfields has recently contracted Mineralogical andPeterological Services ("M.A.P.S.") to undertake a geological and geotechnicalassessment of the various licence areas.
Illegal mining activities within the Kagem licence area
Kagem continues to experience illegal mining activity within the boundaries ofthe Kagem mining licence area. While the matter is as yet not fully resolved,Gemfields continues to work in cooperation with all key Zambian ministries inits efforts to ensure that an amicable and peaceful solution is implemented andKagem's legal rights are protected and respected.
Post reporting period events
Gemfields held an auction of (predominantly higher quality) rough emeralds inSingapore from 11 to 15 July 2011 which was attended by 39 companies. Theauction saw 1.07 million carats offered, with 0.74 million carats being sold,raising US$31.6 million.
Gemfields' next auction of (predominantly lower quality) rough emeralds is scheduled to take place during November 2011.
Outlook and Objectives for the year ahead
Objectives:
* Build on the solid rough sales platform that has been established and is
showing encouraging signs of growth;
* Continue to reposition Gemfields as a world leader in the Premium Coloured
Gemstone sector;
* Expand the underground mining project to a point where it can be deployed
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;
* The establishment of a trial cutting facility on the mine to establish the
feasibility of local beneficiation; and
* Commit to the identification and evaluation of all potential growth areas,
including additional gemstone assets in other geographic locations.
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 clearly evident that demand
for the Gemfields' products is increasing across all levels within the
supply chain, supporting increased prices and improving margins.
* Gemfields will look to broaden its position as a leading miner and marketer
of Premium Coloured Gemstones, through growth and diversification into
other selected target areas.
* While the year ahead offers a number of challenges Gemfields believes it
will be able to deliver its internal growth and expansion targets.
Graham Mascall30 September 2011Gemfields PLC
Consolidated statement of comprehensive income
for the year ended 30 June 2011
2011 2010 US$'000 US$'000 Revenue 40,157 19,906 Increase/(decrease) in inventory 2,136 (1,169) Mining and production costs (14,484) (12,117) Depreciation (2,660) (3,248) ________ ________ Total cost of sales (15,008) (16,534) ________ ________ Gross profit 25,149 3,372 Other income 98 199 Administrative expenses Other administrative expenses (5,657) (4,801) Impairment reversal/(charge) of 313
(1,018)
available-for-sale investments Release of environmental restoration - 4,561liabilities Total Administrative expenses (5,344) (1,258) ________ ________ Profit from operations 19,903 2,313 ________ ________ Finance income 110 10 Finance expenses (111) (822) ________ ________ Profit before taxation 19,902 1,501 ________ ________ Tax credit 1,544 1,082 ________ ________ Profit after tax and total comprehensive 21,446 2,583income for the year ________ ________ Attributable to: Equity shareholders of the parent 17,046 2,068 Non-controlling interest 4,400 515 ________ ________ 21,446 2,583 ________ ________ Earnings per share Basic US$0.05 US$0.01 Diluted US$0.05 US$0.01
All amounts relate to continuing
activities. Gemfields PLC
Consolidated statement of changes in equity
for the year ended 30 June 2011
Attributable to equity holders of the parent Cumulative Share Share Merger Option Translation Retained Total Non-controlling capital premium Reserve Reserve Reserve deficit Interest Equity US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 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 loss 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 _____ _______ ______ ______ ________ _______ _____ _______ _____ Total - - - - - 17,046 17,046 4,400 21,446comprehensive income for the 4 30 - - - - 34 - 34year Issue of shares Share based - - - 605 - - 605 - 605payments Cancelled - - - (1,768) - 1,768 - - -options (old scheme) _____ ______ ______ ______ ________ _______ _____ _______ _____ Balance at 30 6,164 96,853 121,005 450 (7) (186,350) 38,115 4,915 43,030June 2011 _____ ______ ______ ______ ________ ________ _____ _______ _____
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 asconsideration for acquisition of subsidiaries in excess of the nominal value ofthe shares, where 90% or more of shares are acquired.
Option reserve Cumulative fair value of options charged to the statement of comprehensive income net of transfers to the profit and loss reserve on exercised and cancelled/lapsed options.
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.
Non-controlling interest Amounts attributable to non-controlling shareholders.
Gemfields PLC
Consolidated statement of financial position
at 30 June 2011 2011 2010 US$'000 US$'000 Non-current assets Property, plant and equipment 8,076
6,008
Available-for-sale Investments 1,725 1,412 Deferred tax asset 2,205 - ________ ________ 12,006 7,420 ________ ________ Current assets Inventory 20,054 17,380 Trade and other receivables 3,582 3,051 Cash and cash equivalents 13,649 2,879 ________ ________ Total current assets 37,285 23,310 ________ ________ Total assets 49,291 30,730 ________ ________ Non-current liabilities Deferred tax liability - (46) Other non-current liabilities (895) (1,579) ________ ________ (895) (1,625) Current liabilities Trade and other payables (3,807) (2,580) Current tax (743) (31) Borrowings - (3,506) Other current liabilities (816) (2,043) ________ ________ (5,366) (8,160) ________ ________ Total liabilities (6,261) (9,785) ________ ________ Total net assets 43,030 20,945 ________ ________
Capital and reserves attributable to
equity holders of the parent Share capital 6,164 6,160 Share premium 96,853 96,823 Merger reserve 121,005 121,005 Option reserve 450 1,613
Cumulative translation reserve (7)
(7) Retained deficit (186,350) (205,164) ________ ________ 38,115 20,430 Non-controlling interest 4,915 515 ________ ________ Total equity 43,030 20,945 ________ ________
The financial statements were approved by the Board of Directors and authorised for issue on 30 September 2011.
Company Registration Number 05129023
Gemfields PLC
Consolidated statement of cash flows
for the year ended 30 June 2011
2011 2010 US$'000 US$'000
Cash flows from operating activities
Profit for the year after tax 21,446 2,583 Depreciation 2,660 3,248 Deferred tax credit ( 2,251) (1,089) Share-based payments 605 274 Finance income (110) (10) Finance expense 111 822 Profit on sale of property, plant and (107) (148)equipment Release of environmental restoration - (4,561)liabilities Impairment (reversal)/charge of available (313) 1,018for sale investments (Increase) in trade and other receivables (531)
(1,431)
Increase/(decrease) in trade and other 1,939 (511)payables
(Decrease)/increase in other liabilities (1,911)
369
(Increase)/decrease in inventory (2,674) 1,065 ________ ________ Net cash inflow from operating activities 18,864
1,629
Cash flows from investing activities
Interest received 110 10 Purchase of property, plant and equipment (4,728)
(3,262)
Sale of property, plant and equipment 107
147 ________ ________ Net cash flow from investing activities (4,511)
(3,105)
Cash flows from financing activities
Issue of ordinary shares 34 - Repayment of borrowings (3,506) (3,777) Receipt of loans - 2,085 Finance expense - (559) ________ ________ Net cash flow from financing activities (3,472)
(2,251)
Net increase/(decrease) in cash and cash 10,881 (3,727)equivalents Cash and cash equivalents at start of year 2,879
6,869
Exchange differences on translation (111) (263) ________ ________ Cash and cash equivalents at end of year 13,649 2,879 ________ ________Basis of preparationThe Group financial statements have been prepared and approved by the Directorsin accordance with International Financial Reporting Standards IFRS's and IFRICinterpretations, issued by the International Accounting Standards Board (ISAB)as endorsed for use in the EU ("Endorsed IFRSs") and those parts of theCompanies Act 2006 that are applicable to companies that prepare theirfinancial statements under IFRS.The financial information for the years ended 30 June 2011 and 30 June 2010does not constitute statutory accounts as defined by section 435 of theCompanies Act 2006 but is extracted from the audited accounts for those years.The 30 June 2010 accounts have been delivered to the Registrar of Companies.The 30 June 2011 accounts will be delivered to Companies House within thestatutory filing deadline. The auditors have reported on those accounts; theirreport was unqualified and did not contain statements under Section 498 (2) of(3) of the Companies Act 2006.
XLONRelated Shares:
Gemfields Grou.