9th Oct 2012 09:47
Gemfields plc
("Gemfields" or the "Company")
Final results for the year to 30 June 2012
9 October 2012
Gemfields plc (AIM: GEM) is delighted to release its consolidated financial statements for the financial year ending 30 June 2012.
Key financial indicators:
* Revenue from emerald and beryl sales more than doubled to US$83.7 million
(2011: US$40.2 million); * Profit before tax and exceptional items increased by 140% to US$47.8 million (2011: US$19.9 million);
* Profit after tax, including the impairment reversal of the Kagem mine, of
US$161.5 million (2011: US$21.4 million);
* Year-end cash at bank improved by 169% to US$36.7 million (2011: US$13.6
million);
* Estimated cost of emerald and beryl inventory on hand of US$26.6 million
(2011: US$18.7 million);
* Post-tax NPV (at a 10% discount rate) of US$372 million from SRK Consulting
(UK) Limited's ("SRK") underground feasibility study for Kagem's principal
pit, based on Joint Ore Reserves Committee of the Australasian Institute of
Mining and Metallurgy, Australian Institute of Geoscientists and Minerals
Council of Australia ("JORC") compliant resource update.
Key operational developments during the financial year:
* Average monthly operating costs of US$1.34 million (2011: US$1.07 million);
* Ongoing significant waste moving programme at the Kagem mine to open new
areas of ore; * Total of 8.7 million tonnes (2011: 3.9 million) of rock handled; * Annual production of 21 million carats, a 36% decrease in year-on-year
production, reflecting the focus on waste removal during the first half of
the year (2011: 33 million carats);
* Grade for the year reduced to 205 carats per tonne, a direct result of the
lower grade areas being mined during the waste moving programme (2011: 478
carats per tonne); * Acquisition of a 75% stake in the noteworthy Montepuez ruby deposit in Mozambique completed;
* Certificate of commendation awarded to Kagem by the Zambian Mines Safety
Department in recognition of achieving two million injury-free shifts;
* Dynamic marketing initiatives implemented, increasing consumer awareness
and supporting firm demand.
Key operational developments post financial year end:
* JORC Code compliant resource and reserve update and underground mining feasibility study for the principal pit at the Kagem emerald mine in Zambia;
* SRK reported an `Indicated Mineral Resource' for the `Fwaya Fwaya Pirala'
emerald belt at Kagem of 2.75 million tonnes or 1.0 billion carats of
emerald and beryl at 365 carats/tonne and an `Inferred Mineral Resource' of
9,200 tonnes or 223,000 carats of emerald and beryl at 24.5 carats/tonne;
* Completion of the Kagem underground feasibility study. Accelerated underground construction and development to commence in FY 2014-15;
* Projected 20 year life-of-mine producing approximately 34 million carats
per annum;
* Projected (non-discounted) cash flow over the life-of-mine of approximately
US$855 million;
* Promotion of Mr Devidas Shetty from the position of Group Chief Financial
Officer to Group Chief Operating Officer;
* Appointment of Mr Mark Summers as Group Chief Financial Officer.
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 year for Gemfields. We havemore than doubled our revenues, improved our profitability, expanded into newproducts and broadened the depth and breadth of our marketing and distributionactivities. We can use this position of strength to support future growth andto solidify our position as "The Leading Coloured Gemstone Company". Supportedby the unwavering dedication and exceptional talent of my fellow team members,and the numerous exciting opportunities that we continue to be presented with,I remain convinced that this is yet still only the beginning."
Webcast presentation
A webcast presentation will be held at 11am BST on Tuesday 9 October 2012. Participants may join the conference call and webcast of the results presentation by dialling one of the following numbers, approximately 10 minutes before the start of the call:
From UK (toll free): 08003681950
From South Africa (toll free): 0800 983 097
From rest of the world: +44 20 3140 0668
Participant PIN Code: 215704#
A live webcast of the results presentation will be available on the link below:
Click here for the webcastPassword: 387453
A recording will be available from 16:00 BST on 9 October 2012 on www.gemfields.co.uk.
Enquiries:
Gemfields [email protected]
Dev Shetty, COO +44 (0)20 7518 3402
Canaccord Genuity Limited
Nominated Adviser and Joint Broker to Gemfields
Tarica Mpinga/Andrew Chubb +44 (0)20 7523 8000
Neil Passmore +44 (0)20 7155 8630
JP Morgan Cazenove
Jos Simson/Emily Fenton +44 (0)20 7920 3150
Tavistock CommunicationsChairman's statementDear Shareholder,
I am pleased to update you on a year of strong revenue and profit growth, driven primarily by our Kagem emerald mine in Zambia.
The results from our operations, supported by our marketing efforts, clearlyindicate that Gemfields remains in a growth phase. I am confident we have builta sound platform on which to further develop the global coloured gemstonesector.Over the last several years, management has committed a great deal of time andeffort to improving the prevailing operational efficiencies at each of ourrespective business units. Those fundamentals ensure that our costs remain wellcontained, and support an orderly longer term increase in production levels.In order to achieve optimal value for our gems and expand in new markets, thenature of the coloured gemstone industry requires a commitment to branding andpromotional awareness initiatives. For this reason, Gemfields has developed aproprietary rough emerald grading system that has allowed us to offer aconsistent supply of ethically sourced products at our international auctions.This has resulted in sound relationships with a number of downstreamstakeholders who understand and share our vision of growing consumer awarenessand demand for coloured gemstones across the globe. It is heartening indeed tosee the direct outcome of some of these efforts in this set of results.At Kagem, the past year has focused largely on the high-wall pushback programmeto remove waste. This resulted in lower volumes of ore being mined, but hasopened additional areas of ore for future production and this should have apositive effect on the forthcoming year's production levels. On the explorationfront, we have stepped up our efforts to quantify the considerable number ofopportunities that are available to us within our existing Zambian licenceareas for additional open pit mining operations.Of particular note this year has been the accelerated development of Montepuez,our Mozambican ruby project, which we believe has the potential to be one ofthe largest known ruby deposits in the world. At the time of writing, the bulksampling project, comprising both mining and processing, is on track tocommence by the end of the calendar year and we look forward to being able tooffer rough rubies to our customers in 2013.
In addition to the various organic growth options available, Gemfields has established a mergers and acquisitions project team charged with evaluating the increasing number of projects offered to us.
Post the year end, SRK, the mining consultancy, concluded their undergroundfeasibility study for the Kagem mine. This will extend the current open-pitoperation to include a large scale underground operation. The study showed thatthe existing pit can be further developed as a high grade, low cost mine withrobust project economics and a rapid payback period. This development,earmarked to start in the 2014/15 financial year, should prove to beeconomically enhancing to the Group and to our shareholders.Much work remains to be done before coloured gemstones achieve the level ofconsumer recognition and respect that we believe they rightly deserve. However,our ever expanding marketing initiatives, combined with those of our customersand other stakeholders, continue to make inroads into new and establishedmarkets despite the prevalent global economic uncertainty. The past year hasseen Gemfields firmly establish itself as the leading coloured gemstoneproducer and the next chapter demands that we continue to build on oursuccesses to date in both the mining and marketing divisions of our business.The Group is well positioned to achieve its goals and I look forward in 2013 toupdating shareholders on our progress, inter alia, in the development of ourunderground operations, the potential for further large scale mining within ourexisting emerald licences, the addition of rubies to our auctions in 2013 andin promoting greater desirability of coloured gemstones, and those produced byGemfields in particular, with a global consumer audience.
Kagem Operations
* Mining
Following the decision to open additional areas for future ore mining, largescale (in-house and contractor) waste mining on the high-wall started inearnest in June 2011, with the first sector of the pushback reaching the TMSzone (ore bearing talc-magnetite-schist) in the Chama section of the pit inearly January 2012.This programme gained pace throughout the year with over 8.7 million tonnes ofwaste (including TMS waste) and 103,000 tonnes of reaction zone (ore) havingbeen mined during the period (2011: 3.9 million tonnes of waste and69,000 tonnes of ore mined) at a stripping ratio of 85:1 (2011: 57:1). Whilstthe stripping ratio reduced to 68:1 in the last quarter, management anticipatesthat this will continue to increase in the near term as larger areas ofoverburden are mined and the push-back project is accelerated. However, anoverall increase in operating efficiencies and performance is expected as thestripping ratio stabilises in the medium term and as Kagem continues to be ableto mine both waste and ore more efficiently.
Kagem's key annual production parameters are summarised below:
KAGEM Annual Production Units Yr to Yr to Yr to Yr to Yr to Yr to Summary 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 07 08 09 10 11 12 Gemstone Production million 9.4 9.9 28.0 17.4 33.0 21.1 (Emerald + Beryl) carats Ore Production `000 29 42 80 61 69 103 (Reaction Zone) tonnes Grade (Emerald + Beryl/ carats/ 325 233 349 286 478 205 Reaction Zone) tonne Waste Mined (including million 2.8 5.1 4.0 2.5 3.8 8.7 TMS) tonnes Stripping Ratio 96 120 50 42 57 85 The short-term focus on waste mining, combined with various external factors(including initial delays experienced by the contractor, heavier thananticipated rains during the year and reduced accessibility of higher grade oreareas due to accelerated waste mining) had an overall negative impact ongemstone production with 21 million carats (of emerald and beryl) producedduring the year (2011: 33 million carats). Gratifyingly, production volumescontinued to increase throughout the second half of the year.Behavioural-based safety training was reintroduced to all Kagem employeesthroughout the year which has had a positive impact on the attitude ofemployees towards both work and safety. The mine has remained free ofreportable accidents for the past two consecutive financial years and hasreceived a certificate of commendation from the Mines Safety Department ofZambia in recognition of having achieved two million injury-free shifts. Thisis a significant achievement and our heartfelt congratulations are extended toall of our Kagem employees.Gemfields' trial underground mining project achieved 283 metres of horizontaladvance during the year (2011: 111 metres). Total cumulative linear developmentto 30 June 2012 was 471 metres (versus 188 meters at 30 June 2011), with atotal of 4,174 tonnes of ore produced during the year (versus 2,968 tonnes inthe prior year). Production mining has been the focus following the successfulcompletion of the secondary escape route.Approximately 353,222 carats were produced by the underground operation in theyear ending 30 June 2012 (versus 117,740 carats in the prior year).Importantly, the results to date of the trial underground mining exercise,coupled with the SRK feasibility study for underground mining, provide a highlevel of confidence that larger scale underground mining of the Fwaya FwayaPirala belt on the Kagem licence should be pursued and is likely to furtherreduce overall operating costs while increasing the life of the mineconsiderably.Approximately US$4.5 million was invested in new and upgraded mining equipmentduring the year. Kagem was also successfully connected to the Zambian NationalElectrical Grid at cost of US$600,000, reducing our carbon emissions andfurther improving operational efficiencies, with a saving of approximatelyUS$25,500 per month in energy and fuel costs.
* Geology and Exploration
At present, Kagem's principal mining operations lie on the Fwaya Fwaya Pirala emerald belt. Exploration work in respect of other emerald belts available within the Kagem mining licence area, including at Lushingwa, Fibolele and Libwente was initiated in earnest during the year. The exploration work, including extensive diamond-core drilling, is aimed at identifying primary target sites for additional open-pit operations.
Additional drilling and the extraction of more than 3,000 meters of core fromthe high wall side of the Fwaya Fwaya Pirala ore-body has confirmed the downdip extension of the TMS and pegmatites to a vertical depth of at least 200meters from surface. An additional 3 kilometres of drilling has also beencompleted in the Fibolele area of the mining licence, and is soon to besupported by the initiation of appropriate bulk sampling.
* Security
Ongoing investment in security personnel and equipment has continued over thepast year to ensure robust protection for Kagem's gemstone inventory, assetsand facilities. Projects concluded during the year include upgrading of theCCTV systems, the installation of high power remote-operated PTZ(pan-tilt-zoom) cameras with infrared night capability and the erection ofrepeater masts for improved communication within the mine site. The success ofthese initiatives is evidenced by the number of theft attempts that have beenthwarted, feedback from the marketplace and the general lack of unrestexperienced throughout the licence area.
* Mining Asset
In 2009, the carrying value of Kagem Mining Limited was impaired following theDirectors' review and assessment of the fair value of the assets to theirrecoverable amount. In view of the continued improvement in the market foremeralds and increasing production, the Directors undertook to assess andrevalue the Kagem mining asset. Following the completion of the feasibilitystudy and a positive report by SRK, the Directors have decided to reverse thepermissible value of the previously impaired mine asset. This has been treatedas an exceptional item.
* Environment and Corporate Social Responsibility
Kagem has achieved the highest level of environmental compliance, Category A,following the Zambian Environmental Protection Fund's annual environmentalaudit. Our commitment to the environment in which we operate continues to gobeyond pure compliance and includes baseline bio-diversity studies and acommitment to ensure that we will one day leave the area in a better overallcondition than that in which Gemfields first found it.
The Zero Carbon Project
Gemfields long-standing "Zero Carbon Project" has recently been updated to ensure compliance with potential future legislative changes and takes into account the entire Group's projected carbon footprint (covering the United Kingdom, India, Zambia and Mozambique). The rehabilitation of forest areas onsite and adjacent to the mine, through the planting of indigenous trees and the creation of fishing areas and farmland continues.
Corporate Social Responsibility
Gemfields continues to place a high level of importance on the creation andsupport of sustainable community development projects. These projects aredecided on and developed in conjunction with the local communities indigenousto the area. Kagem has to date invested in excess of US$500,000 in the creationand support of two clinics, three schools and two local farming cooperatives.Kagem has continued to extend its support to the smaller scale miners operatingwithin the Zambian emerald community through its Small Scale Miners' AssistanceProgram whereby geological, mining and other technical support is offered on ano cost basis.Mergers and Acquisitions
Gemfields is increasingly consolidating its position as a global leader in theexploration, mining and marketing of coloured gemstones. Considerable potentialwith respect to the further development and consolidation of this sector stillexists and has been given a degree of priority within the Group over the pastyear.Various mining prospects exist within close proximity of the Group's existingoperations (e.g. the Kafubu emerald area in Zambia and the Montepuez ruby areain Mozambique). In addition to the preferred prospects of the three majorgemstones (emeralds, rubies and sapphires), a number of other less common butno less beautiful and fascinating gemstones also exist and often are worthconsidering. Other opportunities also exist outside of mining, but within theGroup's historic core competencies of coloured gemstone mining and marketing(such as cut and polished gemstone sales and branded retailing), with each ofthese being considered and given the attention that they deserve.
A dedicated and skilled mergers and acquisitions team has been established within Gemfields with a view to improving our ability to appropriately evaluate the increasing number of opportunities offered to the Group.
Kariba Amethyst Mine
In line with the increased level of importance attributed to this project,production at the Kariba amethyst mine (held by Kariba Minerals Ltd in whichGemfields owns 50%, the balance being owned by the Government of the Republicof Zambia through ZCCM-IH) is returning to historic production levels (byvolume) and demand continues to improve.The quality and nature of the product supplied to the global markets has alsoimproved significantly of late, delivering encouraging results. Kariba'sleading position within the global amethyst market remains unchallenged despitethe difficulties that have been faced by the mine over the past few years, anddemand for its products remains firm in both of its present primary markets,namely India and China.Subject to the resolution of various discussions that are currently in placebetween Gemfields and the Government of the Republic of Zambia, a sizeableincrease in the level of investment in this mine and associated marketinginitiatives to further increase the level of global awareness and demand forits products is due to take place.
Oriental Mining SARL
In 2008, Gemfields exercised its option to acquire the entire issued share capital of Oriental Mining SARL, 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 provincesof Madagascar. In addition, Oriental has the right to five exploration licencesthat are pending transfer approval from the Madagascan Ministry of Energy andMines.Madagascar is recognised as one of the most exciting coloured gemstoneprovinces in the world today, with several key discoveries having been madethere during the last decade. Gemfields believes that, in the medium to longterm, gemstone-related activity in the country has the potential to become avaluable part of Gemfields' asset portfolio. Given Madagascar's improvingpolitical and security environment, Gemfields has begun to increase its levelof focus on Madagascar believing that this country's vast gemstones assets mayconceivably offer a fair degree of potential scope for future development,should the current positive political trend continue.
Sales
* Rough Sales and Auctions
Gemfields offers its rough production of Kagem-mined emeralds and beryl toselected market participants by way of sealed-bid auctions, whereby allmaterial placed on offer is certified by Gemfields to be natural, untreated andof Zambian origin. Gemfields benefits from a strong cash position and hasconfidence in the growing emerald market, opting not to sell any lots where thebids received do not meet its pre-determined minimum reserve prices. Unsoldlots are held back and mixed into new inventory for re-offering at futureauctions.This year, Gemfields achieved record revenues. This milestone is testament tothe high level of demand that continues to be evident for our unique supply ofethical emeralds, supported by our ability to consistently supply well gradedemeralds to carefully selected distribution partners, coupled with globalmarketing initiatives at both trade and consumer levels.Gemfields held higher quality emerald auctions in July 2011 and March 2012, andlower quality emerald auctions in November 2011 and June 2011, totalling fourauctions for the year. Selected companies drawn from Germany, India, Israel andthe USA attended the auctions which saw 23.52 million carats of emerald andberyl being offered in 107 separate lots. The sales from these auctionstotalled US$77.8 million with 74 lots being sold. Total emerald and beryl sales(including rough material, geological specimens and cut-and-polished gemstones)totalled US$83.7 million for the period. The results of the auctions aresummarised below.AUCTION RESULTS JULY `11 NOVEMBER `11 MARCH `12 JUNE `12 Dates 11-15 Jul 2011 21-25 Nov 19-23 Mar 2012 9-13 Jun 2012 2011 Location Singapore Jaipur, India Singapore Jaipur, India Type Higher Quality Lower Quality Higher Quality Lower Quality Carats offered 1.07 million 10.83 million 0.77 million 10.85 million Carats sold 0.74 million 9.82 million 0.69 million 3.47 million No. of companies 38 27 29 20 placing bids Average no. of bids 16 9 11 3 per lot No. of lots offered 25 26 23 33 No. of lots sold 18 19 20 17 Percentage of lots 72% 73% 87% 52% sold Percentage of lots 69% 91% 89% 32% sold by weight Percentage of lots 91% 80% 94% 60% sold by value Total sales realised US$31.6 US$11.0 US$26.2 US$9.0 at auction million million million million Average per carat US$42.71/carat US$1.12/carat US$38.25/carat US$2.61/caratsales value
Gemfields continues to test levels of demand for rough emeralds from othersources of supply (i.e. traded emeralds). These emeralds, which are notcertified as being mined by Gemfields, were offered at auctions runningconcurrently to the Kagem auctions. The present income generated from tradedemerald rough remains immaterial in the context of Gemfields' own production,and the Group will continue to refine and evolve the opportunities of sellingrough from other sources of supply.Looking to the year ahead, Gemfields is expecting continued strong demand,particularly for its higher quality emeralds. The current global economicunease and the weaker Indian Rupee could result in the slowing of demand forthe commercial and lower qualities, signals of which were evident at the mostrecent low quality auction held in June 2012. Given the Group's solid cashposition and its vision for the growth and development of the emerald market,Gemfields holds back lots which do not achieve predetermined reserve prices.
* Cut and Polished Sales
In March 2011, Gemfields conducted comprehensive market research in the UK, USand European markets. The results showed that there was a clear need foradditional suppliers of cut and polished Zambian emeralds within these markets.Due to the historic lack of reliable supply in these markets, retailers anddesigners had been reluctant to incorporate Zambian emeralds in their designsand collections, and this was further influenced by limited knowledge of thedifferences in various sources of origin.
Armed with this research, a Gemfields team was established with the specific aim of accelerating the supply of cut-and-polished Kagem emeralds to these markets and to implement comprehensive staff training and consumer education.
Since its inception in 2011, Gemfields' (London-based) cut-and-polished salesoffice has achieved a high degree of success, initiating work with a number ofleading manufacturers and retailers within the United Kingdom and Europe. Suchhas been the demand for their comprehensive and bespoke service, that a numberof additional offices have been opened including Cape Town, Mumbai and Jaipur.Other key locations are currently under consideration. These four offices, instrategic international locations, fulfil a much needed service and will helpto ensure a consistent supply of fine and commercial Gemfields Zambian emeraldsglobally.Gemfields' cut-and-polished sales division has collaborated with a number ofleading international luxury brands, including Gitanjali of India (with theirdedicated emerald brand `Envi'), Amrapali in London (with their `Panna'collection) and Faberg© of Switzerland (where Gemfields supplied a suite ofhand-picked and exceptionally rare emeralds for their prodigious `Romanov'necklace). The division continues to work on initiatives with internationaldesigners globally and is constantly looking at key markets to further salesgrowth.Marketing and Promotions * Advertising Campaign
The new `Rare Coloured Gemstones' advertising campaign was launched in June2012 in leading trade, consumer and online publications. The advertisingschedule included the UK, India, USA, South Africa and Hong Kong. Positivefeedback was received from our retail partners. A news release announcing theadvertising campaign was distributed, generating (at the time of writing) inexcess of 3,500 online references and news articles internationally.
* PR
Gemfields continues to receive consistent, high quality press features including in publications such as the FT `How To Spend It', Vanity Fair UK and Hello India.
* International Indian Film Awards ("IIFA") Sponsorship
Gemfields co-sponsored `IIFA Rocks' and the `IIFA Green Carpet' together withIndian jeweller Gitanjali. The `IIFA Rocks' fashion show was hosted the daybefore the main event and included models wearing jewellery featuring GemfieldsZambian emeralds. Gemfields sponsored the IIFA party, attended by more than 500high net worth individuals, with models wearing Gemfields Zambian emeraldjewellery. Gemfields India has already received PR coverage valued atUS$350,000 and the greater association with IIFA is expected to generate inexcess of US$1 million of PR exposure.
* Collaborations
Gemfields participated in `Brilliance' at the Masterpiece annual show held inLondon. `Brilliance', curated by Carole Woolton, jewellery editor of Vogue UK,was a fine jewellery exhibition within the Masterpiece show. Gemfieldssponsored Shaun Leane's jewellery creation, which featured Zambian emeralds.Other key designers and brands participating included, among others, Faberg©,Victoire de Castellane (for Dior) and De Beers.
Hannah Martin and Jordan Askill created pieces in advance for the Palladium Guild's `Rock Vault' at London Fashion Week in September 2012.
* Gitanjali and Gemfields
Gemfields is partnering with one of India's largest jewellery retailers, Gitanjali (which operates over 4,000 points of sale), to launch a dedicated emerald brand, Envi. Gitanjali is expected to source around US$2-3 million of polished emeralds from Gemfields during each year of the collaboration.
* Gemfields New York Office
Gemfields opened a marketing and PR office in New York in September 2012 which will spearhead Gemfields' growth in the US market.
* Mozambique and Zambia Crossover
Two sets of key Mozambican journalists and a representative from the Ministryof Mineral Resources, Mozambique, visited Zambia to see the level of investmentthat Gemfields has committed to the Kagem mine. The journalists sent verypositive news reports to their relative publications and editorial appeared in`Noticias' and TVM (Mozambique national television) explaining theprofessionalism and integrity of Gemfields and Kagem.
Post Reporting Period Events
* Resource Update
The Group completed a feasibility study to determine the mineral reserveestimates and viability of underground mining at the Kagem mine in Zambia. Thestudy was prepared by SRK with a view to evaluating the available resourcepotential and the possibility of progressing the current open pit operation tothat of a viable underground operation. The results of the study stronglysupport the progression to an underground mine and provide an indicativelife-of-mine of 20 years.
SRK reported, inter alia:
* `Indicated Mineral Resources' for Kagem (as at August 2012) of 2.75 million
tonnes of mineralised ore at a grade of 365 carats of emerald and beryl per
tonne of ore (a total of 1.0 billion carats of contained emerald and beryl); and * `Inferred Mineral Resources' of 9,200 tonnes of mineralised ore was
reported at a grade of 24.5 carats of emerald and beryl per tonne of ore
for a total of 223,100 carats of contained emerald and beryl.
SRK has undertaken a detailed financial analysis for the Kagem underground feasibility study. A model has been constructed using all of the production schedules, costs and financial parameters generated as part of the study. The model is expressed in real terms. SRK notes that at a 10% discount rate, pre-tax and post-tax NPVs are US$579 million and US$372 million respectively.
The base case price scenario provided by Kagem assumes an average emerald andberyl selling price of US$2.44 per carat for 2012-13, which increases toUS$2.77 per carat for the period 2014 to 2015 followed by a further increase toUS$3.00 per carat thereafter for the rest of the life-of-mine. This profile isin real terms and results in an average price of US$2.95 per carat.It is noted that Kagem is presently realising per carat prices well in excessof the assumptions made in the feasibility study. However, a more conservativeprice profile has been modelled by SRK for the feasibility study, taking intoaccount the prevailing global economic uncertainty. SRK report that the NPV (ata 10% discount rate) is approximately zero at an average price of USD 1.00 percarat. This, particularly in light of the current average emerald and berylsales prices being achieved by Gemfields, illustrates robust economics.
An Environmental and Social Review of Kagem was undertaken and successfully completed by SRK as part of the feasibility study. The project was found to be in compliance with applicable Zambian environmental laws. Construction and development of the large scale underground project is expected to commence during 2014/15 financial year.
* Bulk sampling - Montepuez Ruby Mining Lda ("MRM")
Bulk sampling commenced at Montepuez, the ruby deposit in Mozambique in whichGemfields owns 75%, intersecting ruby mineralisation in both alluvial andbedrock horizons. In excess of 35,000 carats of corundum were recovered by 15September 2012.Significant progress has been achieved post the financial year end in terms ofprogressing bulk sampling and securing the sizeable licence area. `MiningLicense' numbers 4702 and 4703 were issued in the name of MRM on 24 February2012 and are valid for 25 years, effective from 11 November 2011. This wasfollowed by the receipt of the respective environmental licences, valid forfive years, and effective from 28 November 2011 to 28 November 2016. Theprocess of land registration (called "DUAT") is well underway and a competentand highly experienced project management team is in place to implement thetransition from being a start-up project to that of a professional and fullyoperational business unit.During the first phase of initial mining operations a sizeable bulk sample isplanned to support the assessment of the relative ore grades and commercialvalues at various target sites, underpinning the future development of afull-scale operational mine plan and JORC compliant resource statement. Aninitial fleet of mining equipment including an excavator, two articulated dumptrucks, bulldozer, grader and a back hoe loader arrived on site during April2012 and have since been commissioned and put to use in developing the basicmine infrastructure and commencing the preliminary bulk sampling projects.The current focus is on the completion of the temporary base camp, setting upthe mobile treatment plant and the pilot gemstone sorting and security areas.Security remains a priority and various initiatives, including the contractingof a premier private security agency, will continue to be implemented, inconjunction with the ongoing support of the local authorities and nationalsecurity forces. The induction of employees, development of primaryinfrastructure and various social and community projects that have beeninitiated under the direction of local government will also continue throughoutthe coming months.
Outlook and Objectives for the Year Ahead
Objectives:
* Continue to contain costs and improve operating efficiencies across the Group; * Increase the scale and volume of emerald production at the Kagem mine through:- * + accelerated development and implementation of the larger scale underground mining plans, and
+ initiation of open cast mining on newly targeted sites existent within
the Kagem mining licence.
* While amethyst remains an ancient, beautiful and yet undervalued gem,
increased consumer demand for amethyst and the improved performance of this
division will be supported by the recapitalisation of the Kariba amethyst
mine, improved production volumes and increased marketing and promotional
support;
* Progress the development of the Montepuez ruby mine to escalate production
volumes and sales targets; * Continue the roll-out of our global marketing initiatives, including:- *
+ the appointment of brand ambassadors for the Group, promoting coloured
gemstones; and
+ the expansion of our marketing footprint into new regions and a broader
consumer base. * Demand for ethical emeralds continues to remain firm across all major markets, with Gemfields' next higher quality rough emerald auction
scheduled to take place in Singapore between the 29 October and 3 November
2012; * Development of our mergers and acquisitions team in order to:- * + support the evaluation of gemstone deposits offered and identified by Gemfields; and + ensure continuous review of additional growth opportunities with a
specific focus on projects that offer Gemfields the potential to reduce
our dependence on prevailing market forces and operating jurisdictions.
Outlook:
While the global economy remains uncertain, demand for ethically sourced rarecoloured gemstones continues to increase across all major markets, includingthe USA, Europe, India and China. We are thus confident that this, coupled withGemfields' proven operating efficiencies and accelerated expansion, sales andmarketing initiatives, will support continued growth throughout the comingyear.Furthermore, our efforts to increase the production levels at each of our minesand to bring online certain targeted acquisitions, should serve to reduce ouroperating risks and ensure healthy production volumes for each of our coreproducts. With sales being well supported by our ability to expand our existingand proven marketing initiatives across a broader target market, and given thevarious strategic initiatives that we have planned for the coming year, weremain encouraged by the opportunities that are available to us and theirpotential to secure our continued growth into the future.Graham Mascall8 October 2012 Gemfields PLC Consolidated statement of comprehensive income for the year ended 30 June 2012 2012 2011 US$'000 US$'000 Revenue 83,715 40,157 Increase in inventory 7,936 2,136 Purchases (5,683) - Mining and production costs (17,668) (14,484) Depreciation and amortisation (6,624) (2,660) ________ ________ Total cost of sales (22,039) (15,008) ________ ________ Gross profit 61,676 25,149 Other income 316 98 Administrative expenses Other administrative expenses (14,193) (5,657)
Impairment reversal of evaluated mining 201,115
-properties
Impairment (charge)/credit of (158)
313
available-for-sale investments Total Administrative expenses 186,764 (5,344) ________ ________ Profit from operations 248,756 19,903 ________ ________ Finance income 246 110 Finance expenses (76) (111) ________ ________ Profit before taxation 248,926 19,902 ________ ________ Tax (charge)/credit (87,460) 1,544 ________ ________ Profit 161,466 21,446 ________ ________
Profit for the year attributable to:
Owners of the parent 120,228 17,046 Non-controlling interest 41,238 4,400 ________ ________ 161,466 21,446 ________ ________
Earnings per share for profit attributable to the owners of the parent during the year Basic US$0.37 US$0.05 Diluted US$0.36 US$0.05 Gemfields PLC Consolidated statement of comprehensive income (Continued) for the year ended 30 June 2012 2012 2011 US$'000 US$'000 Profit 161,466 21,446
Other comprehensive income 307 - Exchange gains arising on translation of ________ ________foreign operations 161,773 21,446Total comprehensive income ________ ________
Total comprehensive income attributable to: Owners of the parent 120,535 17,046 Non-controlling interest 41,238 4,400 ________ ________ 161,773 21,446 ________ ________ Gemfields PLC Consolidated statement of changes in equity for the year ended 30 June 2012 Attributable to equity holders of the parent Share Share Merger Option Cumulative Retained
Total Non-controllinginterest Equity
translation capital premium reserve reserve reserve deficit US$'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 1,613 (7) (205,164) 20,430 515 20,945June 2010 Profit for the - - - - - 17,046 17,046 4,400 21,446year and other comprehensive 4 30 - - - - 34 - 34income 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 _____ _______ ______ ______ ________ _______ _____ _______ _____ Profit for the - - - - - 120,228 120,228 41,238 161,466year - - - - 307 - 307 - 307Other comprehensive 5 48 - - - - 53 - 53income Issue of shares Share based - - - 896 - - 896 - 896payments Cancelled - - - (8) - 8 - - -options _____ ______ ______ ______ ________ _______ _____ _______ _____ Balance at 30 6,169 96,901 121,005 1,338 300 (66,114) 159,599 46,153 205,752June 2012 _____ ______ ______ ______ ________ ________ _____ _______ _____
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 translating 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 2012 2012 2011 US$'000 US$'000
Non-current assets Property, plant and equipment 224,865
8,076
Available-for-sale Investments 1,567 1,725 Intangible asset 2,634 - Deferred tax asset - 2,205 ________ ________ 229,066 12,006 ________ ________ Current assets Inventory 27,979 20,054 Trade and other receivables 4,309 3,582 Cash and cash equivalents 36,737 13,649 ________ ________ Total current assets 69,025 37,285 ________ ________ Total assets 298,091 49,291 ________ ________ Non-current liabilities Deferred tax liability (76,400) - Borrowings (1,917) - Non-current provisions (1,353) (895) ________ ________ (79,670) (895) Current liabilities Trade and other payables (8,102) (3,807) Current tax (2,720) (743) Borrowings (1,000) - Current provisions (847) (816) ________ ________ (12,669) (5,366) ________ ________ Total liabilities (92,339) (6,261) ________ ________ Total net assets 205,752 43,030 ________ ________
Capital and reserves attributable to
equity holders of the parent Share capital 6,169 6,164 Share premium 96,901 96,853 Merger reserve 121,005 121,005 Option reserve 1,338 450
Cumulative translation reserve 300
(7) Retained deficit (66,114) (186,350) ________ ________ 159,599 38,115 Non-controlling interest 46,153 4,915 ________ ________ Total equity 205,752 43,030 ________ ________
The financial statements were approved by the Board of Directors and authorised for issue on 08 October 2012.
Gemfields PLC Consolidated statement of cash flows for the year ended 30 June 2012 2012 2011 US$'000 US$'000
Cash flows from operating activities
Profit for the year after tax 161,466 21,446 Depreciation and amortisation 6,624 2,660 Taxation charge/(credit) 87,460 ( 2,251)
Impairment reversal of evaluated mining (201,115)
-properties 896 605Share-based payments Finance income (246) (110) Finance expense 76 111 Profit on sale of property, plant and (144) (107)equipment Impairment charge/(reversal) of available 158 (313)for sale investments (Increase) in trade and other receivables (727)
(531)
Increase in trade and other payables 3,445
1,939
Increase/(decrease) in provision 489 (1,911) (Increase) in inventory (7,925) (2,674) ________ ________ Net cash inflow from operating activities 50,457 18,864 Taxation paid (6,878) -
Cash flows from investing activities Investment in Mozambican ruby licence (1,784)
- Interest received 246 110 Purchase of property, plant and equipment (7,811) (4,728) Overburden removal costs (14,490) -
Sale of property, plant and equipment 147
107 ________ ________ Net cash flow from investing activities (23,692)
(4,511)
Cash flows from financing activities
Issue of ordinary shares 53 34 Repayment of borrowings (83) (3,506) Receipt of loans 3,000 - Finance expense (76) - ________ ________ Net cash flow from financing activities 2,894
(3,472)
Net increase in cash and cash equivalents 22,781
10,881
Cash and cash equivalents at start of year 13,649
2,879
Exchange differences on translation 307 (111) ________ ________ Cash and cash equivalents at end of year 36,737 13,649 ________ ________ 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 2012 and 30 June 2011does 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 2011 accounts have been delivered to the Registrar of Companies.The 30 June 2012 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.