10th Mar 2010 07:00
Gemfields PLC
Interim results for the six months ended 31 December 2009
10 March 2010
Gemfields Plc ("Gemfields" or "the Company", Ticker "GEM") presents its interim report for the six months ended 31 December 2009 (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.
HIGHLIGHTS FOR SIX MONTHS ENDING 31 DECEMBER 2009
- Revenue from emerald sales of US$12,060,731 (2008: US$344,063).
- Cash at bank of US$7,683,333 (2008: US$19,715,406).
- Loss for the period of US$6,353,536 (2008: US$186,586,824).
- Ore grade of 264 carats per tonne (2008: 367 carats per tonne).
- 7.82 million carats of total emerald and beryl production (2008: 14.7 million carats).
- Ongoing reduction in relative costs coupled with increased operating
efficiencies: During the Period, Gemfields' unaudited worldwide operating
costs averaged about USD 1.5 million per month, 80% of which related to Kagem
(2008: approx USD 2.5 million).
- Two successful rough emerald auctions conducted in July and November 2009
with sales totalling US$11.5 million.
- Initiation of co-operative global emerald marketing and promotion linked
with trade and consumer education initiatives.
KEY DEVELOPMENTS SINCE THE END OF PERIOD
- Trial underground mining project yields first production.
- Discovery of an exceptional 6,225 carat emerald at the Kagem mine.
- Continuing to focus on costs reduction and operating efficiencies.
- Global repositioning and launch of the new Gemfields brand and website.
- Encouraging signs of a sustainable increase in demand and interest for
emeralds across all key markets, including the emerging markets of India,
China and the Middle East.
ABOUT GEMFIELDS
Gemfields is one of the world's leading coloured gemstone producers and isembedded at the intersection of gemstone exploration, mining and marketing.Gemfields' flagship mine, Kagem, lies in the heart of the breathtaking Zambianlandscape, a constant reminder of the miracles of our planet and a perfect fitwith the beauty of its emeralds.
Unsurprisingly, natural, untreated gems are at the heart of Gemfields business, whose focus is on the consistent supply of ethically-produced emeralds and which sets new standards for fair-trade, environmental, social and safety practices in this industry. Gemfields' unique mine-to-market capabilities support the guaranteed provenance of every gem through a full disclosure and certification program - the keystone of Gemfields' promise to both the gemstone trade and the consumer.
Enquiries:Gemfields [email protected] Shetty, CFO +44 (0)20 7518 3402Canaccord Adams LimitedNominated Adviser and Joint Broker to GemfieldsTarica Mpinga/Andrew Chubb +44 (0)20 7050 6500Chairman's statement
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Dear Shareholder,
Welcome to the interim report of Gemfields PLC ("the Company"), formerly Gemfields Resources PLC, for the six months ended 31 December 2009.
Key financial indicators:
- Revenue from emerald sales of US$12,060,731 (2008: US$344,063).
- Cash at bank of US$7,683,333 (2008: US$19,715,406).
- Loss for the period of US$6,353,536 (2008: US$186,586,824).
Key operational developments during the period:
- Ore grade of 264 carats per tonne (2008: 367 carats per tonne).
- 7.82 million carats of total emerald and beryl production (2008: 14.7 million carats).
- Two successful rough emerald auctions conducted during July and November
2009 with sales totalling to US$11.5 million.
- Ongoing reduction in costs coupled to increased operating efficiencies.
- Initiation of co-operative global emerald marketing and promotion.
Key developments since the end of the period:
- Underground mining project yields first production.
- Discovery of an exceptional 6,225 carat emerald at the Kagem mine.
- Global repositioning and launch of the new Gemfields website and consumer
education initiatives.
- Encouraging signs of a sustainable increase in demand and interest for
emeralds across all key markets, including the emerging markets of India,
China and the Middle East.
- Continue to focus on costs reduction and operating efficiencies.
Strategic Review
The uncertainty in the global economy and its associated impacts on the luxurygoods sector motivated an in-depth strategic review of Gemfields' group wideoperations and a focus on core business. Following on from the stance taken inJune 2009, Gemfields continues to focus on:
- Reducing operating costs.
- Improving operating efficiencies.
- Delivering world class rough emerald supply - most notably the sustainable
supply of larger volumes of well graded, high quality emeralds to selected and
targeted stakeholders.
We have shown good progress in these areas and continue to achieve some encouraging results.
While Gemfields' performance has been, and is likely to continue to be,significantly lower than projected at the time of readmission to AIM in June2008, the goal now is to establish a solid base. A base which will be able tosupport future growth and profitability in line with improvements in ouroperating environment.Operations- Mining - KagemThe Kagem emerald mine in Zambia is presently Gemfields' only operatingemerald mine, and serves as the source of emeralds for our downstreambusiness. During the period, operating costs averaged US$245 per tonne of ore(known as "Reaction Zone") compared to US$346 per tonne in 2008. Until theprospects for a full and sustainable recovery in the gemstone market are morecertain, Gemfields will continue to limit its capital, project development andexploration expenditure to key projects only.
Kagem's key annual production parameters are summarised below:
Six months Six months to Six months to Six months to to 31 Dec 09 31 Dec 08 31 Dec 07 31 Dec 06Waste (million 1.2 2.8 1.2 1.5tonnes)Ore (Reaction Zone k 29.5 40.7 18 7tonnes)Stripping Ratio 40 69 70 210Emerald+Beryl 7.8 14.7 3.7 5.5(million carats)Ore Grade (carats 264 367 209 764per tonne)
Total carats produced fell 46% when compared with the same period in 2008. This was the result of a 28% decrease in grade combined with a 28% decrease in ore mined. Notwithstanding these setbacks, the mining cost per tonne of ore improved by 29% and the costs per carat improved by 12%
Cost reduction measures have continued to bear fruit, resulting in reducedunit production cost per tonne of rock moved. The stripping ratio (the ratioof waste rock to ore) has improved during the period, however we expect thisto rise in the short to medium term as area of overburden are mined in orderto expand the levels of available ore.
A trial underground mining project was initiated in February 2009, and has now realised its first production. The shaft and tunnel system (which was designed, developed and constructed in-house) intersected reaction zones in the face and footwall contacts at a depth of approximately 35 metres. The first production of emerald and beryl gemstones occurred on Wednesday 10 February 2010, just six months after the first blast.
Zambian emerald mining has historically deployed only opencast miningtechniques which involve high stripping ratios. At the Kagem mine, thestripping ratio typically exceeds 50:1 and approximately 1 gram of emerald andberyl is recovered for every tonne of rock handled. Underground mining has thepotential to transform Zambian emerald mining by reducing rock handlingrequirements and allowing mining operations to follow the ore zone without theneed to remove all of the surrounding rock.
- Geology and exploration
As part of its ongoing exploration programme a new pit, named FF3, has beenidentified for bulk sampling. This pit is positioned on the Fwaya Fwaya beltto the south west of the existing F10 - FF pit. Additional work is also beingcarried out on various other target sites across the licence area.
- Sales and Inventories
Gemfields has elected to offer its rough production to the market by way of closed tenders (auctions) where all material offered is certified by Gemfields as natural, untreated and of Zambian origin. Many of the world's top gem houses and emerald lapidaries are invited to attend these events.
During the period, Gemfields hosted emerald auctions in each of July andNovember 2009. Some thirty companies drawn from Germany, India, Israel and theUSA attended these events which saw 2.51 million carats of emerald offered in46 separate lots. The sales from these tenders totalled US$11.5 million, with40 of a total of 46 lots put on offer at the combined events being sold. Thetotal sales after including rough emeralds, specimen and cut and polishedemeralds will total to US$12.06 million.An auction of lower quality rough emerald and beryl is to be held in Jaipur,India during March 2010. Significant interest to attend the auction is clearlyevident from all key stakeholders providing sound evidence of an increase indemand for the Company's products across all markets and in all grades.Despite improving market conditions and early sales successes, Gemfields hasopted to take a conservative approach in terms of estimating the possible netrealisable value of its rough and polished emerald inventory.The Directors continue to prefer a conservative approach and have elected touse the average prices achieved in the past two auctions as the basis for thenet realisable value of the remaining rough emerald stock. The internalvaluation of the net realisable value of Gemfields' cut and polished emeraldinventory has been assumed to be the estimated value of the rough materialconsumed, plus the physical costs of cutting and polishing.
Accordingly, while market volatility prevails and while demand and prices continue to be somewhat erratic, the actual value realised at the time of sale has the potential to differ from the estimated value provided here by the Directors.
- Marketing and Promotions
A part of the Company focus on revenue from emerald sales, Gemfields is in theprocess of repositioning the Company as a leader in premium coloured gemstonemining and the leading supplier of ethically-produced Zambian emeralds thatcan be traced directly from mine to market. Rebranding efforts have includedboth trade and consumer materials. In addition to learning about Zambianemeralds, both trade and consumers can use the new website to find informationon Gemfields' environmental and social programmes, and certificationprocesses. It will also act as a portal for news releases, financial updatesand reports on global tenders.
Another step in the identity overhaul includes the development of trade and consumer brochures, corporate and consumer DVDs and a comprehensive emerald training program available for distribution to partners and retailers. Each piece of collateral will reflect Gemfields' focused, clean, and modern look, merged with spectacular landscape and portrait photography.
In order to increase the awareness and aspiration of Gemfields Zambianemeralds we have been working on a number of promotional opportunities.Gemfields has collaborated with the World Land Trust and eight world-classjewellery designers to create a unique `pop up' collection of bespoke emeraldjewellery. The aim of the collection is to create awareness around theprotection of the World Land Trust's `Indian Elephant Corridor' project andraise crucial funds. The collection will `pop up' around the Emerald Queen, alife size fibreglass elephant designed by a UK jeweller, using GemfieldsZambian emeralds which will form part of the London Elephant Parade from Mayto July 2010.
The collection and the Emerald Queen will be showcased in Harrods Fine Jewellery Room for the month of May. In early June 2010, Sotheby's will auction the collection at an exclusive event held at Harrods, with a percentage of profits from each jewel going towards the World Land Trust's, `Indian Elephant Corridor' project.
- Environment and Corporate Social Responsibility
The Company operates in compliance with international environmental and safetystandards. This is evidenced by Kagem having been upgraded from category C tocategory B in the Environmental Council of Zambia's (ECZ) inspection forrenewal of statutory licences and the Environmental Protection Fund's (EPF)annual environmental audit reports.
The Zero Carbon Project
Kagem embarked on a "Zero Carbon Project" in March 2009 involving the planting of circa 300,000 trees to neutralise the effect of emissions. In excess of sixty thousand trees have been planted to-date.
Corporate Social Responsibility
Gemfields is committed to investing in sustainable community development projects. Such projects are developed in partnership with the local people living in close proximity to our operations and include the building and equipping of schools and medical clinics 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.
- Kariba Amethyst Mine
Production at the Kariba amethyst (of which Gemfields owns 50%) has continuedat modest levels throughout the year. Critically, the privatisation agreementto purchase a further 26% of Kariba still remains unsigned by the Governmentof Zambia. The Company hopes to resolve the future ownership of Kariba before30 September 2010.Mr Cyrille Djankoff joined the board of Kariba in December 2009 as Gemfields'representative. Gemfields remains cautiously optimistic about Kariba but willnot commit any additional funds to expanding Kariba until the matter ofownership is resolved.
Oriental Mining S. a. r. l.
The Company exercised its option to acquire the entire issued share capital ofOriental Mining s.a.r.l., a company incorporated in Madagascar ("Oriental").Gemfields was granted the option by Rox Limited ("Rox") pursuant to anagreement between Gemfields and Rox dated 18th December 2007.Oriental has the rights to 15 exploration licences covering emeralds, rubies,sapphires, tourmalines and garnets in the Antananarivo, Fianarantsoa andToliara provinces of Madagascar. In addition, Oriental has the right to fiveexploration licences that are pending approval from the Madagascan Ministry ofEnergy 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. While the country is presently experiencing ongoing politicaluncertainty, the Company believes that, in the medium to long term,gemstone-related activity in the country has the potential to become avaluable part of Gemfields' asset portfolio.
Key financial performance indicators
6 months ended 6 months ended Year ended 31 December 31 December 30 June 2009 2008 2009 US$'000 US$'000 US$'000 Cash at bank 7,683 19,715 6,869Emerald Inventory 10,253 17,138 17,716Revenue from emerald sales 12,061 344 815
Loss for the financial period 6,354 186,587 201,408
Appointment of New CFO
Dev Shetty, a qualified chartered accountant with 10 years' of diverse international experience encompassing mergers and acquisitions, business start-ups, business turnarounds, strategic planning, treasury, tax and financial reporting, was appointed as CFO during the period.
Illegal mining activities within the Kagem Licence area
Kagem continues to experience illegal mining activity taking place within the boundaries of the Kagem mining licence area. While the matter is as yet not fully resolved the Company continues to work in cooperation with all key Zambian Ministries in its efforts to ensure that an amicable and peaceful solution is implemented.
Outlook and Objectives for the year ahead
Objectives:
- Building on the solid rough sales platform that has been established and
which is showing encouraging signs of growth.
- Repositioning and rebranding Gemfields as a world leader in the Premium
Coloured Gemstone sector.
- Expanding the underground mining project to include new target sites within
the Kagem mining licence area.
- Expanding open cast mining activities to new target sites within the Kagem
Licence Area.
- Continue to focus on costs reduction and operating efficiencies.
- A focus on improved and upgraded security across the mine site supported by
skilled manpower.
- The opening of a rough gemstone trading business in Kitwe, Zambia (aimed at purchasing rough emeralds from local and small scale operators).
- The establishment of a trial cutting facility on the mine to establish the
feasibility of local beneficiation.
Outlook:
- Improving mining efficiencies, targeting 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 license will
continue to be reviewed, assessed and implemented as and where appropriate.
- The Company continues to pursue its strategy of consolidating the supply
chain and increasing consumer awareness. It is hoped that through the
transparent route to market, demand for the Company's products will increase
thereby supporting increased prices and margins.
- While the year ahead will continue to offer challenges, the Company
continues to cement its business platform in preparation for future growth.
- The Company is planning to host a low grade emerald auction in March 2010,
and based on the high level of interest and demand being shown from all
sectors anticipates achieving favourable prices for the gems on offer.
Graham Mascall10 March 2010
Consolidated statement of comprehensive income for the six months ended 31 December 2009
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6 months 6 months Year ended ended ended 31 December 31 December 30 June 2009 2008 2009 (Unaudited) (Unaudited) (Audited) Note US$000's US$000's US$000's Revenue 12,061 344 815 Increase/(Decrease) in inventory (7,369) 9,990 10,927Mining and production costs (5,021) (12,729) (17,243) Gross loss (329) (2,395) (5,501) Other income 200 537 246 Administrative expensesImpairment - (249,485) (254,932)Depreciation (1,618) (12,644) (14,743)Other administrative expenses (4,120) (3,658) (8,213)Total Administrative expenses (5,738) (265,787) (277,888) Loss from operations (5,867) (267,645) (283,143) Finance income 7 507 1,423Finance expense 3 (494) (9,009) (9,358) Loss before taxation (6,354) (276,147) (291,078) Tax credit/(expense) - 89,560 89,670 Loss for the financial period (6,354) (186,587) (201,408) Other comprehensive incomeValuation gain on available for 539 -sale investments - Total comprehensive income (5,815) (186,587) (201,408) Attributable to:Equity shareholders of the parent (5,815) (149,936) (164,757)Minority interest - (36,651) (36,651) (5,815) (186,587) (201,408) Loss per shareBasic and diluted 4 $(0.02) $(0.48) $(0.51)
All amounts included above relate to continued operations.
Consolidated statement of changes in equity for the six months ended 31 December 2009
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Attributable to equity holders of the parent Cumulative Available Share Share Merger Option Translation for -sale Retained Total Minority capital premium Reserve Reserve Reserve Reserve Earnings Interest Equity $000s $000s $000s $000s $000s $000s $000s $000s $000s $000s
Balance at 31 December 2008 6,156 96,720 121,005 1,762 (7)
- (193,495) 32,141 - 32,141
____ _______ ______ ______ _______ _______ _______ _____ ______ _____Total comprehensive income - - - - - - (14,821) (14,821) - (14,821)Issue of new share capital 4 103 - - - - - 107 - 107Share based payments - - - 661 - - - 661 - 661Options expired - - - (219) - - 219 - - -Minority interest resultingfrom acquisition - - - - -
- - - - -
____ _______ ______ ______ _______ _______ _______ _____ ______ _____Balance at 30 June 2009 6,160 96,823 121,005 2,204 (7)
- (208,097) 18,088 - 18,088
____ _______ ______ ______ _______ _______ _______ _____ ______ _____Total comprehensive - - - - - 539 (6,354) (5,815) - (5,815)incomeIssue of new share - - - - - - - - - -capitalShare based payments - - - 254 - - - 254 - 254Options expired - - - (172) - - 172 - - - ____ _______ ______ ______ _______ _______ _______ _____ ______ _____Balance at 31 December 6,160 96,823 121,005 2,286 (7) 539 (214,279) 12,527 - 12,5272009 ____ _______ ______ ______ _______
________ _______ _____ ______ _____
The nature and purpose of each reserve within Shareholder's equity is described as follows:
Reserve Description and purposeShare 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 assets ofreserve overseas operations to the presentation currencyAvailable-for-sale reserve Gains/losses arising on financial assets classified as available for sale.Retained earnings Cumulative net gains and losses recognised in the consolidated income statementMinority interest Amounts attributable to non-controlling shareholders
Consolidated statement of financial position at 31 December 2009
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At 31 December At 31 December At 30 June 2009 2008 2009 (Unaudited) (Unaudited) (Audited) US$000's US$000's US$000'sNon-current assetsProperty, plant and equipment 6,601 7,291
5,993
Intangible assets - 4,292
-
Available-for-sale Investments 2,968 3,838 2,430 9,569 15,421 8,423 Current assetsInventories 11,076 17,619 18,445Other receivables 992 1,360 1,620Cash and cash equivalents 7,683 19,715 6,869 19,751 38,694 26,934 Total Assets 29,320 54,115 35,357 Non-current liabilitiesDeferred taxation (1,134) (1,266) (1,134)Other non-current liabilities (7,851) (13,784) (7,848) (8,985) (15,050) (8,982) Current liabilitiesTrade payables (3,195) (933) (2,640)Current tax - - (23)Other current liabilities (4,613) (5,991) (5,624) (7,808) (6,924) (8,287) Total Liabilities (16,793) (21,974) (17,269) Total net assets 12,527 32,141 18,088 Capital and reserves attributableto equity holders of the parentShare capital 6,160 6,156 6,160Share premium account 96,823 96,720 96,823Merger reserve 121,005 121,005 121,005Option reserve 2,286 1,762 2,204Cumulative translation reserve (7) (7) (7)Available-for-sale reserve 539 - -Retained earnings (214,279) (193,495) (208,097) 12,527 32,141 18,088Minority interest - - - Total Equity 12,527 32,141 18,088
Consolidated statement of cash flows for the six months ended 31 December 2009
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At 31 December At 31 December At 30 June 2009 2008 2009 (Unaudited) (Unaudited) (Audited)
Cash flows from operating activities
Loss for the period (6,354) (186,587) (201,408) Depreciation 1,618 12,644 14,743Share-based payments 254 660 1,321Gain on sale of property, plant and - (2) -equipmentFinance income (7) (957) (1,423)Finance expense 494 9,009 9,358Tax expense/(credit) - (89,560) (89,670)Impairment of evaluated mining - 245,692
249,731
properties
Impairment of available-for-sale - 3,793
5,201
assets
(Increase)/Decrease in trade and 629 (209)
(469)
other receivablesDecrease in trade and other payables (1,175) (3,075) (1,881)Increase/(Decrease) in provisions - -
(802)
(Increase)/Decrease in inventory 7,369 (10,119)
(10,945)
Net cash outflow from operating 2,828 (18,711)
(26,244)
activities
Cash flows from investing activitiesAcquisition of investment - (7,631) (7,631)Interest received 7 507 974Dividends received - 449 449Purchase of property, plant and (2,375) (1,259)
(2,338)
equipment
Sale of property, plant and equipment 150 5
534
Net cash outflow used in investing (2,218) (7,929)
(8,012)
activities
Cash flows from financing activitiesIssue of ordinary shares (net of issue - 7,253 7,360costs)Exercise of share options - 33 33Repayment of borrowings (1,386) - (4,986)New loans 2,085 - -Finance expense (305) (528) (653) Net cash inflow from financing 394 6,758
1,754
activities
Net increase/(decrease) in cash and 1,004 (19,882)
(32,502)
cash equivalents
Cash and cash equivalents at start 6,869 48,078
48,078
of period
Exchange differences on translation (190) (8,481)
(8,707)
Cash and cash equivalents at end 7,683 19,715
6,869
of period
Notes forming part of the interim report for the six months ended 31 December 2009
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1 Accounting policies
Statement of compliance with IFRS
The condensed interim financial information has been prepared using policies based on international Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting
Standards Board ("IASB") as adopted for use in the EU. The condensed interim financial information has
been prepared using the accounting policies which will be applied in the Group's statutory financial information for the year ended 30 June 2010.
This results in the adoption of the revision to IAS 1, which includes therequirement to present a Statement of Changes in Equity as a primary statementand introduces the possibility of either a single Statement of ComprehensiveIncome (combining the Income Statement and a Statement of ComprehensiveIncome) or to retain the Income Statement with a supplementary Statement ofComprehensive Income. The first option has been adopted by Gemfields Plc. Asthis standard is concerned with presentation only it does not have any impacton the results or net assets of the Group. In addition IFRS 8 "Segmentalreporting" will affect the disclosure notes of the financial statements forthe full year.
2 Financial reporting period
The condensed interim financial information for the period 1 July 2009 to 31December 2009 is unaudited. In the opinion of the Directors the condensedinterim financial information for the period presents fairly the financialposition, and results from operations and cash flows for the period inconformity with the generally accepted accounting principles consistentlyapplied. The condensed interim financial information incorporates unauditedcomparative figures for the interim period 1 July 2008 to 31 December 2008 andthe audited financial year to 30 June 2009.
The financial information contained in this interim report does not constitute statutory accounts as defined by Section 435 of the Companies Act 2006.
The comparatives for the full year ended 30 June 2009 are not the Company's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 498 (2)-(3) of the Companies Act 2006.
3 Finance expense
Finance expense for the periods comprises the following:
6 months ended 6 months ended Year ended 31 December 31 December 30 June 2009 2008 2009 (Unaudited) (Unaudited) US$000's US$000's US$000's Exchange differences (190) (8,481) (8,705)Interest on bank loans (304) (528) (653) (494) (9,009) (9,358)4 Loss per shareLoss per ordinary share has been calculated using the weighted average numberof shares in issue during the period. The weighted average number of shares is324,114,883 (31 December 2008 - 315,147,166; 30 June 2009 - 324,114,883) andthe loss, being loss after tax attributable to equity holders of the parent isUS$6,353,536 (31 December 2008 - $149,935,834; 30 June 2009 - $164,756,574).The effect of potential ordinary shares is antidilutive therefore no dilutedloss per share is presented.
vendorRelated Shares:
Gemfields Grou.