31st Mar 2009 07:00
Gemfields Plc
Interim results for the six months ended 31 December 2008
31 March 2009
Gemfields Plc ("Gemfields" or "the Company", Ticker "GEM") presents its interim report for the six months ended 31 December 2008.
The Chairman's Statement and the primary financial statements are set out below. The full interim report can be viewed on the Company's website at www.gemfields.co.uk.
In addition, an updated overview of key production parameters at the Kagem emerald mine is available on the Company's website. On 3 February 2009, the Company announced and provided on its website an overview regarding Kagem's performance for the period 1 July 2008 through 31 December 2008 (the "Period"). The updated overview adds performance data for January and February 2009. Inter alia:
* During the Period, gemstone production (emerald and beryl) averaged 2.4 million carats per month. Production in January and February 2009 was 2.3 and 2.9 million carats respectively; * Ore production (known as "Reaction Zone") averaged 6,687 tonnes per month during the Period. Ore production in January and February 2009 averaged 6,080 tonnes per month; * Ore grade during the Period was 367 carats per tonne (compared with a 4 year average from January 2005 to December 2008 of 340 carats per tonne). Ore grade during January and February 2009 averaged 433 carats per tonne; * Kagem's stripping ratio during the Period averaged 69:1 compared with 45:1 across January and February 2009; * Kagem's unaudited operating cost during the Period was USD 346 per tonne of ore (or USD 0.94 per carat of emerald and beryl). Across January and February 2009, the unaudited operating cost was USD 213 per tonne of ore (or USD 0.49 per carat); and * During the Period, Gemfields' unaudited worldwide operating costs averaged about USD 2.5 million per month, 90% of which related to Kagem. This figure reduced to around USD 1.6 million per month across January and February 2009. Enquiries:Gemfields
Richard James, CFO [email protected]
+44 (0)20 7016 9416
Canaccord Adams Limited
Mike Jones/Tarica Mpinga +44 (0)20 7050 6500
Chairman's statement
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Dear Shareholder
Gemfields PLC ("the Company"), formerly named Gemfields Resources PLC, presents its interim report for the six months ended 31 December 2008.
Key developments during the period
* Encouraging increase in overall grade, quality and quantities of production * Ongoing reduction in costs coupled with increased operating efficiencies * Opening of Jaipur cutting & polishing facility producing recognised high quality finished emeralds * First company to present a significant polished emerald collection directly from mine to market * Completion of Faberg© brand licencing arrangements * Exercise of option to acquire Oriental Mining s. a. r. l. and its exploration licences in Madagascar * Result for the period affected by the US$246 million impairment charge against the value of the Kagem mine * Significant turmoil in the general diamond and gemstone sector, with significant price reductions widely reported
Key developments since the end of the period
* Appointment of new CEO * Ongoing positive grade and operating cost trends * Difficult conditions in the gemstone sector persist
Strategic Review
The rapid changes experienced in the global economy and the associated adverse impact on the luxury goods sector motivated an in-depth strategic review of Gemfields' group-wide operations.
Given the group's fortunate cash position and the realities of our operating environment, Gemfields focussed on reducing operating costs, improving operating efficiencies and increasing the level of our production inventories. We are pleased to report that we have achieved considerable progress in each of these key areas.
Initiating Gemfields' sales programs for both rough and polished gemstones will be a key developmental objective during 2009, particulary during prevailing adverse market conditions.
Operations * Kagem Emerald Mine
With the current economic climate and deteriorating markets for diamonds and other gemstones in mind, Gemfields has reduced the scale of mining at the Kagem emerald mine. In addition, and until the prospects for a recovery in the gemstone market become clearer, Gemfields has chosen to minimise all non-essential capital, project development and exploration expenditure.
Gemfields has also opted to take a conservative approach in estimating the emerald prices achievable for the remainder of 2009. Gemfields' performance has been and will thus likely continue to be significantly lower than projected at the time of readmission to AIM in June 2008, and will result in an operating loss for the financial year ending 30 June 2009.
We remain optimistic, however, that our current focus on reducing operating costs and improving mining efficiencies and our efforts to support brand awareness will ensure that Gemfields is well placed to reap the benefits when global conditions improve.
Gemfields concluded negligible sales of rough and polished gemstones during the period. Having recognised customer demand for reliable and consistent supply as a key driver of the Company's future success, Gemfields favoured a policy of inventory building in the period prior to the global economic downturn. Sales of rough and exceptional polished emeralds to preferred customers are expected to commence in Q2 2009.
The Kagem emerald mine in Zambia is Gemfields' principal source of emeralds for its downstream business. Following entering into a contract to manage Kagem in November 2007, Gemfields acquired a 75% stake in Kagem Mining Ltd on 6 June 2008.
During the six month period, Kagem achieved significant mining operation improvements:
* produced 14.7 million gemstone carats (comprising emerald and beryl), a significant increase over comparable periods for the previous two years, and an average of 2.4 million carats per month. For the same period in 2007, production totalled 3.7 million carats and, in 2006, 5.5 million carats (an average of 0.6 and 0.9 million carats per month respectively); * produced 40,122 tonnes of gemstone-bearing ore (known as "Reaction Zone"), an average of 6,687 tonnes of ore per month. For the same period in 2007, ore production totalled 17,713 tonnes and, in 2006, 7,264 tonnes (an average of 2,952 and 1,211 tonnes per month respectively). The implied ore grade during the Period was 367 carats per tonne which compares favourably with the average grade over 4 years (from January 2005 to December 2008) of 340 carats per tonne; * moved 2.8 million tonnes of waste. For the same period in 2007, waste moving totalled 1.2 million tonnes and in 2006, 1.5 million tonnes. Accordingly, Kagem's stripping ratio during the Period averaged 69:1 (compared with 70:1 for the same period in 2007 and 210:1 in the same period in 2006).
Pertinent information is summarised in the table below:
Six months to Six months to Six months to Six months to 31 Dec 08 31 Dec 07 31 Dec 06 31 Dec 05 Waste (million 2.8 1.2 1.5 0.8 tonnes) Ore (Reaction Zone 40 18 7 10 k tonnes) Stripping Ratio 69 70 210 72 Emerald+Beryl 14.7 3.7 5.5 5.4 (million carats) Ore Grade (carats 367 209 764 512 per tonne)
During the six month period, Kagem's operating cost was US$346 per tonne of ore (i.e. "Reaction Zone"). This equates to US$0.94 per carat (counting both emerald and beryl production). Mining efficiencies and operating costs have shown an improving trend during the period.
In the present market circumstances, and in the absence of suitable sales to date allowing realisable prices to be confidently estimated, Gemfields' management is assuming an unaudited value of USD 0.75 per carat (for rough gemstones), which can be compared to an average price of US$1.09 achieved during the previous four years. This value is an assumed average across the range of gemstone production. Values vary widely from lower grade to top grade material where, for example, top grade production can exceed USD 500 per carat on a rough value basis. Such material usually only makes up a small fraction of production, and has, encouragingly, been produced during the period. The historic realised average values per rough carat are tabulated below:
KAGEM Annual Year Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Dec-07* Dec-08Summary Ending: Carats produced carats 13.5 6.4 9.1 10.5 9.5 5.9 20.9(emerald+beryl) million Revenue USD 4.4 4.5 6.4 9.5 12.7 8.5 15.7** million Revenue per USD per 0.33 0.70 0.71 0.91 1.33 1.43 0.75carat carat Notes: * * Due to a change in year-end, the period ending December 2007 is a nine month period * ** Revenue for the year ending December 2008 is estimated by assuming a value of US$0.75 per carat
The above figures are all unaudited.
Note that these values do not account for any value-uplift derived from the cutting and polishing of a select range of high quality gemstones at the Gemfields' lapidary in Jaipur, India.
During the six month period, Gemfields' unaudited worldwide operating costs averaged about US$2.5 million per month, 90% of which relate to Kagem. This figure has been reduced to US$1.7 million in December 2008 and is targeted to reach a level of circa US$1.3 million per month by the middle of 2009.
* Impairment
The Directors have taken the decision to write down the value of Kagem to zero in the financial statements. The ongoing uncertainty in the global economy, the loss-making performance during the period and the lack of reliable emerald prices make it difficult to justify forecasts showing a positive cashflow with reasonable certainty. This in turn complicates valuing the mine. The Company remains optimistic that Kagem will turn out to be a viable operation but recognises the value proposition is still clearly focused on the downstream business and believes the decision to write down the mine itself to be justifiable in the current climate.
* Kariba Amethyst Mine
Production at Kariba (of which Gemfields owns 50%) has continued at modest levels throughout the period. Critically, the privatisation agreement to purchase a further 26% of Kariba still remains unsigned by the Government of Zambia. The Company hopes to resolve the future ownership of Kariba during 2009. As stated previously, Gemfields remains optimistic that production could be improved but no further funds will be committed to expanding Kariba until the ownership issue is resolved.
Result
The result for the period is significantly and adversely affected by the impairment charge explained above and which makes up the bulk of the loss.
No emerald sales of any significance took place during the period with the Directors favouring a policy of inventory building with a view to establishing the base from which to provide customers with a reliable and consistent source of supply in the future.
Key financial performance indicators
6 months ended 6 months ended Year ended 31 December 31 December 30 June 2008 2007 2008 US$'000 US$'000 US$'000 Cash at bank 19,715 5,053 48,078 Inventory 17,619 3,097 7,500 Revenue from emerald sales 344 - - Loss for the financial 186,587 3,006 30,208period Cutting & Polishing Facility
Gemfields opened its own state-of-the-art cutting and polishing facility in Jaipur, India in August 2008. A small percentage of Kagem's rough production is selected for cutting and polishing at the Jaipur facility and results to date suggest encouraging potential for value-addition, downstream strategic partnering and market building.
As a result, Gemfields was able to unveil its new collection of cut and polished emeralds at the Jaipur Jewellery Show (JJS) in December 2008. In so doing, the Company became the first mining company to present a significant emerald collection directly from mine to market. The display showcased emeralds ranging from 5 carats up to 100 carats, all from the Kagem mine. The collection includes a 1,000 carat bead necklace priced at over US$1 million.
Faberg© Licence
The Company completed the arrangements granting it an exclusive worldwide licence to use the Faberg© brand name in respect of coloured gemstones (excluding diamonds).
Gemfields intends that the Faberg© name be reserved for high-end, conflict-free and ethically mined gemstones of guaranteed provenance. In addition, Faberg© gemstones will be individually numbered and certificated to ensure traceability.
The licence, granted pursuant to an option which Gemfields acquired in June 2008, covers an initial 15 year term.
Oriental Mining s. a. r. l.
The Company 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 the rights to fifteen 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 five 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. Madagascar recently made world headlines after the disputed export of an exceedingly rare 536 kilogram emerald specimen, which was on display at the BaoQu Tang Modern Art Gallery in Hong Kong until the 31st August 2008.
While Madagascar is presently experiencing considerable political turmoil, the Company 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.
Tanzanite One Limited
Gemfields announced details of a proposed offer for Tanzanite One Limited (T1) on 12 September 2008. A successful bid would have created an enlarged gemstone group with both open-cast and underground gemstone mining expertise, positioning the group well for future consolidation plus benefitting from synergies including in processing, sales, branding and marketing.
Gemfields began a stakebuilding exercise in Tanzanite One Limited (T1) during the period. The exercise saw Gemfields purchase 11,668,330 shares in T1. This was funded by the placing of 14,712,143 new Gemfields shares at a price of 29p per share to Rox Limited.
The stakebuilding exercise culminated in a "first come first served" tender offer for 30,754,970 T1 shares on 21 October 2008. The offer was oversubscribed within four days of its announcement. The T1 board responded by issuing new T1 shares (constituting more than 50% of the enlarged voting share capital) to a T1 subsidiary. This prevented Gemfields from acquiring a controlling stake in T1 and therefore the offer was allowed to lapse. Gemfields currently has no intention of making any revised or further offer for T1.
Appointment of New CEO
Subsequent to the end of the period Ian Harebottle, a veteran of the coloured gemstone industry, was appointed as CEO.
Name Change
Subsequent to the end of the period, the Company has changed its name from Gemfields Resources Plc to Gemfields Plc.
Outlook
* The mining plan presently being implemented at Kagem aims to continue the current trend of improving mining efficiency, further reducing operating costs and focusing on higher grade areas in pursuit of optimising financial performance. The scale of the mining plan will be re-assessed as and when market conditions improve. * The implementation of formal sales programs for both Gemfields' rough and polished material during 2009 will be a key developmental objective, allowing the value uplift of cutting and polishing to be brought to bear. * The Company plans to actively pursue its strategy of integrating the supply chain and improving the marketing of coloured gemstones during the coming year. It is hoped that these efforts will increase demand for the company's products, thereby supporting an increase in prices and achievable margins. Graham Mascall31 March 2009
Consolidated income statement for the six months ended 31 December 2008
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6 months 6 months Year ended ended ended 31 December 31 December 30 June 2008 2007 2008 (Unaudited) (Unaudited) Note US$000's US$000's US$000's Revenue 344 - - Mining and production costs (2,739) (1,797) (3,024) Gross loss (2,395) (1,797) (3,024) Other income 537 148 739 Administrative expenses Impairment 2 (249,485) (100) (19,500) Depreciation (12,392) (768) (2,960) Amortisation (252) - (42) Other administrative expenses (3,658) (720) (6,370) Total Administrative expenses (265,787) (1,588) (28,872) Loss from operations (267,645) (3,237) (31,157) Finance income 3 507 231 935 Finance expense 4 (9,009) - (419) Loss before taxation (276,147) (3,006) (30,641) Tax credit/(expense) 89,560 - 433 Loss for the financial period (186,587) (3,006) (30,208) Attributable to: Equity shareholders of the (149,936) (3,006) (29,330)parent Minority interest (36,651) - (878) (186,587) (3,006) (30,208) Loss per share Basic and diluted 5 $(0.48) $(0.03) $(0.25)
All amounts included above relate to continued operations.
Consolidated statement of changes in equity for the six months ended 31 December 2008
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Attributable to equity holders of the parent Cumulative Share Share Merger Option Translation Retained Total Minority capital premium Reserve Reserve Reserve Earnings Interest Equity $000s $000s $000s $000s $000s $000s $000s $000s $000s Balance at 31 1,871 33,776 10,500 944 (7) (17,274) 29,810 - 29,810December 2007 ____ _______ ______ ______ ________ _______ _____ _______ _____ Loss for the - - - - - (26,324) (26,324) (878) (27,202)period Issue of new 4,033 55,910 110,505 - - - 170,448 - 170,448share capital Share based - - - 197 - - 197 - 197payments Options expired - - - (30) - 30 - - - Minority interest - - - - - - - 37,529 37,529resulting from acquisition ____ _______ ______ ______ ________ _______ _____ _______ _____ Balance at 30 5,904 89,686 121,005 1,111 (7) (43,568) 174,131 36,651 210,782June 2008 ____ _______ ______ ______ ________ _______ _____ _______ _____ Loss for the - - - - - (149,936) (149,936) (36,651) (186,587)period Issue of new 252 7,034 - - - - 7,286 - 7,286share capital Share based - - - 660 - 660 - 660payments Options expired - - - (9) - 9 - - - ____ _______ ______ ______ ________ _______ _____ _______ _____ Balance at 31 6,156 96,720 121,005 1,762 (7) (193,945) 32,141 - 32,141December 2008 ____ ______ ______ ______ _________ ______ _____ _______ _____ The nature and purpose of each reserve within Shareholder's equity is describedas 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. Option reserve Cumulative fair value of options charged to the income statement. Cumulative translation Cumulative gains and losses on retranslating the net reserve assets of overseas operations to the presentation currency Retained earnings Cumulative net gains and losses recognised in the consolidated income statement Minority interest Amounts attributable to non-controlling shareholders
Consolidated balance sheet at 31 December 2008
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At 31 At 31 At 30 December December June 2008 2007 2008 (Unaudited) (Unaudited) US$000's US$000's US$000's Non-current assets Property, plant and equipment 7,291 9,521 264,338 Intangible assets 4,292 12,422 4,545 Available-for-sale Investments 3,838 - - 15,421 21,943 268,663 Current assets Inventories 17,619 3,097 7,500 Trade and other receivables 1,360 1,926 1,151 Cash and cash equivalents 19,715 5,053 48,078 38,694 10,076 56,729 Total Assets 54,115 32,019 325,392 Non-current liabilities Deferred taxation (1,266) - (90,827) Other non-current liabilities (13,784) (177) (17,039) (15,050) (177) (107,866) Current liabilities Trade payables (933) (2,032) (2,275) Current tax - - (329) Other current liabilities (5,991) - (4,140) (6,924) (2,032) (6,744) Total Liabilities (21,974) (2,209) (114,610) Total net assets 32,141 29,810 210,782 Capital and reserves attributable to equity holders of the parent Share capital 6,156 1,871 5,904 Share premium account 96,720 33,776 89,686 Merger reserve 121,005 10,500 121,005 Option reserve 1,762 944 1,111 Cumulative translation reserve (7) (7) (7) Retained earnings (193,495) (17,274) (43,568) 32,141 29,810 174,131 Minority interest - - 36,651 Total Equity 32,141 29,810 210,782
Consolidated cash flow statement for the six months ended 31 December 2008
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At 31 At 31 At 30 June December December 2008 2007 2008 (Unaudited) (Unaudited) Cash flows from operating activities Loss for the period (186,587) (3,006) (30,208) Depreciation 12,392 405 3,002 Amortisation 252 362 - Share-based payments 660 86 283 Gain on sale of property, plant and (2) - -equipment Finance income (957) (231) (935) Finance expense 9,009 - 419 Tax expense/(credit) (89,560) - (433) Impairment of property, plant and 245,692 - 6,708equipment Impairment of intangible assets - 100 12,514 Impairment of inventory - - 278 Impairment of investments 3,793 - - (Increase)/Decrease in trade and (209) (875) 136other receivables Decrease in trade and other (3,075) (312) (8,293)payables Increase in inventory (10,119) (906) (2,159) Net cash outflow from operating (18,711) (4,377) (18,688)activities Cash flows from investing activities Acquisition of investment (7,631) - (22) Interest received 507 170 260 Dividends received 449 - - Purchase of property, plant and (1,259) (576) (737)equipment Sale of property, plant and 5 - -equipment Purchase of intangible assets - (50) (50) Exploration and development - (11) (3)expenditure Net cash outflow used in investing (7,929) (467) (552)activities Cash flows from financing activities Issue of ordinary shares (net of 7,253 - 57,227issue costs) Exercise of share options 33 - - Finance expense (528) - (419) Net cash inflow from financing 6,758 - 56,808activities
Net increase/(decrease) in cash and (19,882) (4,844) 37,568 cash equivalents
Cash and cash equivalents at start 48,078 9,836 9,836of period Exchange differences on translation (8,481) 60 674 Cash and cash equivalents at end of 19,715 5,052 48,078
period
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