31st Mar 2008 08:00
Gemfields Resources Plc Interim results for the six months ended 31 December 2007
31 March 2008
Gemfields Resources Plc ("Gemfields" or "the Company", Ticker "GEM") is pleased to report its interim results for the six months ended 31 December 2007.
Highlights
* Agreement to acquire the Kagem Emerald Mine * 10,050 carat emerald discovered at Mbuva-Chibolele Emerald Mine * Awarded management contract at the Kagem Emerald Mine * No revenue from emerald sales in the period
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.
Enquiries:Gemfields
Richard James, CFO [email protected]
+44 (0)20 7016 9416
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Robin Birchall +44 (0)20 7050 6500
Chairman's statement
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Dear Shareholder
Gemfields Resources PLC ("the Company") is pleased to announce the interim report for the six months ended 31 December 2007.
Highlights
* Agreement to acquire the Kagem Emerald Mine * 10,050 carat emerald discovered at Mbuva-Chibolele Emerald Mine * Awarded management contract at the Kagem Emerald Mine * No revenue from emerald sales in the period Acquisitions * Kagem Emerald Mine
As previously announced, Gemfields has conditionally agreed to acquire Rox Limited ("Rox", a Pallinghurst Resources portfolio company) giving it control over a 75% interest in the Kagem emerald mine in Zambia. The Kagem mine is the largest emerald mine in Zambia and one of the most attractive emerald operating assets in Africa, having produced more than 25 million carats of emeralds in the past five years. It is located 15km by road and less than 1km along the strike from the Group's Mbuva-Chibolele mine.
Rox has also granted to Gemfields an option to acquire a portfolio of in excess of 25 licences and licence applications for gemstone exploration in Madagascar held through its subsidiary Oriental Mining S.a.r.l.
In addition, Fabergĩ Limited, another Pallinghurst Resources portfolio company has agreed to grant Gemfields an option to acquire a worldwide and exclusive 15 year licence to use the Fabergĩ brand name in respect of gemstones (excluding diamonds).
Under the proposed transaction, Gemfields is to acquire Greentop International Inc. ("Greentop") (a BVI company) and Krinera Group SA ("Krinera") (a Panamanian company), the holding companies through which Rox's interest in the Kagem mine is held (via intermediate holding companies). In consideration for the acquisition of Greentop and Krinera and the grant of the options, Gemfields will issue to Rox 137,910,340 new ordinary shares in the Company (constituting 55% of Gemfields' share capital after implementation of the transaction on a fully diluted basis).
As the proposed transaction is classified as a reverse takeover under the AIM Rules, the transaction is conditional, amongst other things, on Gemfields obtaining the approval of its shareholders. Gemfields' shares have been suspended from trading since the announcement of the acquisition pending the preparation and publication of a Circular and notice of extraordinary general meeting ("EGM") setting out the details of the proposed transaction and seeking shareholder approval. A Competent Persons Reports is being prepared and it is expected that the Circular and notice of EGM will be sent to shareholders by the end of May 2008.
Kagem has a long and demonstrated history of producing high quality emeralds and Gemfields believes that its production levels can be significantly improved. Kagem presently has in excess of 350 employees and a modern processing plant. The Kagem assets include a cutting works in nearby Ndola. While Kagem's licence area is extensive and includes five emerald bearing belts, production to date has focused on a single pit known as "FF-F10" which lies on the Fwaya-Fwaya belt.
Jagoda Pink Tourmaline Mine
The option to acquire Jagoda expires on 31 March 2008. Exploration has been carried out throughout the period of the option but the results have proved inconclusive as to whether it would be possible to establish a commercially viable operation at the mine. Gemfields has therefore decided not to exercise the option and the US$100,000 paid for it has been written off from intangible assets in the balance sheet.
* Others
The Company has applied for other gemstone licences in Zambia and is also negotiating to acquire other mines and joint ventures in sub-Saharan Africa.
Review of operations
* Mbuva-Chibolele Emerald Mine
Production has continued at Mbuva-Chibolele throughout the period. Although some high quality emeralds have been mined and a 10,050 carat emerald was discovered, the overall yield at Mbuva-Chibolele has so far been disappointing. We have still only mined a relatively low amount of ore from this pit so it is too early to say if this trend is likely to continue. The right geological conditions exist for the occurrence of emeralds and there have been some encouraging signs as the mine gets deeper.
No emerald sales have taken place during the period. This decision was taken by the directors in order to build up a larger inventory of emeralds than what was offered at previous sales. When the next sale does take place the larger inventory will mean larger suites of similar emeralds will be offered for sale and it is hoped that this will lead to higher prices being achieved.
The directors have also decided to temporarily cease production at Mbuva-Chibolele from the end of the first quarter of 2008. It has been decided that all mining management and staff resources and also machinery should be devoted to Kagem for the time being given its proven history of production which suggests that greater yields will be achieved. The intention is to return to Mbuva-Chibolele at some stage in the future. The directors anticipate that the selling prices of emeralds will improve over time as a result of Gemfields' overall strategy and this would make Mbuva-Chibolele more profitable when that occurs.
* Kariba Amethyst Mine
Production at Kariba has also continued throughout the period. However the privatisation agreement to purchase a further 26% of Kariba from the Zambian government remains unsigned by the Government of Zambia. The Company has not received any explanation regarding the delay. We remain confident that production can be improved but Gemfields will not be committing any funds to the expansion plan until this matter is resolved.
* Kamakanga Emerald Mine
Exploratory trenching carried out in Kamakanga has indicated the talc magnetite schist (TMS) bands to be discontinuous and patchy. All the geological, geophysical and geochemical data generated so far has been assimilated to understand the complex structure in this part of the emerald belt but it remains inconclusive. Exploration will be resumed with core drilling after the rainy season during the second quarter of 2008 to assess the potential of the area to support large scale mining.
* NRERA Prospecting Licences
A high resolution airborne magnetic and radiometric survey has been carried out in an 863 sq km area over the prospecting licences in the NRERA leading to the identification of anomalies pointing at possible TMS belts and pegmatitic zones. Exploratory pitting and geochemical sampling will be carried out over the course of the next year.
* Kagem
Gemfields was awarded a management contract with Hagura Mining Ltd ("Hagura") in November to manage and operate Kagem in anticipation of the acquisition of Kagem. The contract will remain in place until the completion of the acquisition. Under the contract, Gemfields provides all day to day management and operational skills including the provision of personnel and equipment. Kagem recognised the tremendous emerald exploration and mining techniques developed by Gemfields which can assist in the development of the mine and the awarding of the contract signifies a vote of confidence in the management and operational teams we have built.
Several steps have already been taken to improve operations at Kagem including the following:
* A mining contract has been awarded to speed up the removal of a backlog in waste. Also the in-house mining machinery is undergoing a major overhaul to increase capacity. * Mining capacity has already risen from 150,000 tonnes per month to 600,000 tonnes per month. * Management has been revamped and strengthened. Staffing levels in various departments have been rationalised in numbers and skills by recruitment, promotions and terminations. * The security department is undergoing a complete revamp with the introduction of expatriate security personnel. * An Infrastructure upgrade on the mine is in progress with additional buildings, a training centre for personnel and various facilities being erected. * Resource drilling is in progress to define the resources of the FF-F10 pit and other prospects. So far approximately 3000 metres has been completed. * An upgrade of the treatment plant is in progress to increase its capacity to match the projected ore production. * Result
The lack of sales during the period is due to the directors' decision to build up a larger inventory of emeralds as explained above. The decrease in production costs compared to the prior period was due to fewer tonnes of material mined at Mbuva-Chibolele. The decrease in administrative expenses was due to less being spent on accounting fees, consulting fees and travel and share based payments were also lower with no new options being issued during the period.
* Key financial performance indicators 6 months ended 6 months ended Year ended 31 December 31 December 30 June 2007 2006 2007 Cash at bank $5,052,966 $6,976,253 $9,835,940 Revenue from emerald sales - $768,246 $1,796,367Outlook
The future is looking very positive for the Company.
* The anticipated quality of the Kagem resource is expected to transform the performance of Gemfields. * Further exploration of Gemfields' properties has produced encouraging results. * Negotiations are continuing for further acquisitions of various coloured gemstone properties. * The Group intends to develop a cutting and polishing operation in India for its higher quality gemstones during 2008. * The Group also plans to actively pursue its strategy of integrating the supply chain and improving the marketing of coloured gemstones during the coming year. It is anticipated that these efforts will increase the selling prices achieved for coloured gemstones significantly therefore enhancing Gemfields' margins. Graham Mascall28 March 2008
Consolidated income statement for the six months ended 31 December 2007
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6 months 6 months Year ended ended ended 31 December 31 December 30 June 2007 2006 2007 (restated) (Unaudited) (Unaudited) (Unaudited) US$ US$ US$ Revenue 147,534 768,246 1,796,367 Other operating income - 186,044 186,044 Total Income 147,534 954,290 1,982,411 Mining and production costs (1,796,999) (2,940,433) (5,865,121) Corporate costs (719,839) (1,432,227) (2,322,757) Depreciation, amortisation and (867,779) (594,733) (1,520,282)impairment Loss from operations (3,237,083) (4,013,103) (7,725,749) Finance income 230,884 365,345 762,840 Share of loss in joint venture - (101,228) (188,100) Loss before taxation (3,006,199) (3,748,986) (7,151,009) Tax expense - - (116,160) Loss for the financial period (3,006,199) (3,748,986) (7,267,169)attributable to equity holders of the parent Loss per share Basic and diluted $(0.03) $(0.04) $(0.07)
All amounts included above relate to continued operations.
Consolidated balance sheet at 31 December 2007
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At 31 At 31 At 30 June December December 2007 2006 2007 (restated) (Unaudited) (Unaudited) (Unaudited) US$ US$ US$ Non-current assets Property, plant and equipment 9,520,526 10,630,719 9,712,608 Intangible assets 12,422,101 12,461,205 12,461,205 Investment in equity accounted Joint - 20,283 -Venture 21,942,627 23,112,207 22,173,813 Current assets Trade and other receivables 1,926,203 6,593,038 1,051,072 Inventory 3,096,931 1,585,843 2,190,472 Cash and cash equivalents 5,052,966 6,976,253 9,835,940 10,076,100 15,155,134 13,077,484 Total Assets 32,018,727 38,267,341 35,251,297 Non-current liabilities Trade and other payables (176,826) - (176,826) Current liabilities Trade and other payables (2,031,808) (2,221,201) (2,343,728) Total Liabilities (2,208,634) (2,221,201) (2,520,554) Net assets 29,810,093 36,046,140 32,730,743 Capital and reserves Share capital 1,871,166 1,871,166 1,871,166 Share premium account 33,775,898 33,775,898 33,775,898 Merger reserve 10,500,346 10,500,346 10,500,346 Option reserve 944,018 651,067 858,469 Cumulative translation reserve (7,204) (2,588) (7,204) Retained earnings (17,274,131) (10,749,749) (14,267,932) Total Equity 29,810,093 36,046,140 32,730,743
Consolidated cash flow statement for the six months ended 31 December 2007
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6 months to 31 6 months to 31 Year to December December 30 June 2007 2006 (restated) 2007 US$ US$ US$ Loss for the financial period (3,006,199) (3,748,986) (7,267,169) Less finance income (230,884) (365,435) (762,840) Add tax expense - - 116,160 Add share of loss in joint - 101,228 188,100venture Loss from operations (3,237,083) (4,013,193) (7,725,749) Depreciation 405,289 192,580 728,731 Amortisation 362,490 402,153 791,551 Share-based payments 85,548 207,404 414,806 Gain on sale of property, plant - (186,044) (186,044)and equipment Write-off of intangible assets 100,000 - - (Increase) / decrease in trade (875,131) 58,691 (316,988)and other receivables Decrease in trade and other (311,920) (478,910) (366,922)payables Increase in inventory net of (906,459) (1,573,573) (2,178,202)impairments Net cash outflow from operating (4,377,266) (5,390,892) (8,838,817)activities Cash flows from investing activities Interest received 170,482 244,247 524,218
Purchase of property, plant and (575,697) (947,048) (978,807) equipment
Sale of property, plant and - 265,456 289,777equipment Purchase of intangible assets (50,000) (50,000) (50,000) Exploration and development (10,897) (144,515) (144,515)expenditure Net cash outflow used in (466,112) (631,860) (359,327)investing activities Cash flows from financing activities Issue of ordinary shares (net of - - 5,917,645issue costs) Exercise of share options - 4,500 4,500 Net cash inflow from financing - 4,500 5,922,145activities
Net decrease in cash and cash (4,843,378) (6,018,252) (3,275,999) equivalents
Cash and cash equivalents at 9,835,940 12,873,317 12,873,317start of period Exchange differences on 60,404 121,188 238,622translation
Cash and cash equivalents at end 5,052,966 6,976,253 9,835,940 of period
Consolidated statement of recognised income and expense for the six months ended 31 December 2007
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6 months 6 months Year ended ended ended 31 December 31 December 30 June 2007 2006 2007 (restated) (Unaudited) (Unaudited) (Unaudited) US$ US$ US$ Income and expense recognised directly in equity Exchange translation differences on consolidation of group entities - (2,588) (7,204) Loss for the financial period (3,006,199) (3,748,986) (7,267,169) Total recognised income and expense for the
financial period attributable to equity (3,006,199) (3,751,574) (7,274,373) holders of the parent
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Gemfields Grou.