5th Aug 2009 07:00
Gemfields PLC
Operational Update - August 2009
5 August 2009
Gemfields PLC ("Gemfields" or "the Company", Ticker "GEM") provided an operational update on 31 March 2009 together with its interim report for the six months ending 31 December 2008. Gemfields now presents a further operational update for the four month period ending 30 June 2009, together with the results of its auction of higher quality rough emeralds held in London between 20-24 July 2009. All figures are unaudited.
Highlights
* Successful auction conducted in London with sales totalling USD 5.9 million * Ongoing focus on improving mining and operational efficiency evidenced in reduced operating costs * Increased annual gemstone production to 349 carats per tonne compares favourably with the average grade over four years of 340 carats per tonne * Cash balance of USD 6.5 million (excluding receivables from recent London auction) and debt of USD 5 million * A focus on the rough gemstone business
London Rough Emerald Auction
Gemfields held an auction of rough emeralds in London between 20-24 July 2009. Prior to this auction and since readmission in June 2008, Gemfields had not made any significant sales of either rough or polished gems, having favoured a policy of inventory building, in an effort to support the markets' need for a reliable and consistent supply of rough emeralds. Given the prevailing market conditions, Gemfields' current strategy will focus on the selling of rough gemstones to selected customers on a regular basis.
The auction, orchestrated by Gemfields' Product Director Adrian Banks, saw 1.36 million carats of high quality rough emeralds offered in 27 separate lots. Gemfields set undisclosed reserve prices for each lot in advance of the auction which was attended by 30 companies drawn from Germany, India, Israel and the USA. On average, 10 bids were received for each lot. The results of the auction are summarised below:
* 26 (representing 99.8% by weight) of the 27 lots were sold; * invoiced sales totalled USD 5.9 million (representing an average price of USD 4.37 per carat); and * the unsold lot represented the highest quality material on offer, comprising 3,095 carats and carried the highest reserve price of USD 300 per carat. Gemfields is confident that the reserve price for this lot was fair and, accordingly, this lot will be blended with new production and offered at Gemfields' next auction.
The auction consisted of higher quality rough emeralds which represents approximately 5% of Gemfields' production by volume. It may be worth noting that as the emerald quality decreases in the Company's production profile its value also decreases while the volume produced increases. Achievable values for rough emerald sales can vary widely from lower-quality to higher-quality material, ranging from USD 0.01 per carat through USD 500 per carat. Since Gemfields has not yet sold any meaningful quantities of lower quality material, it remains difficult to project the average per carat revenues that will be derived from Gemfields' overall production profile.
In its market updates in February and March, Gemfields' management assumed anestimated revenue figure of USD 0.75 per carat across the blended productionprofile and tabled the historically realised average value per rough carat asfollows:KAGEM Annual Summary Year Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Dec 07 Ending: Carats produced carats 13.5 6.4 9.1 10.5 9.5 5.9(emerald + beryl) million Revenue USD 4.4 4.5 6.4 9.5 12.7 8.5 million Revenue per carat USD per 0.33 0.70 0.71 0.91 1.33 1.43 carat Notes:
Due to a change in year-end, the period ended December 2007 is a nine month period.
Gemfields intends to hold a further auction towards the end of this calendar year at a suitable international venue.
Production Update
Gemfields acquired a 75% interest in the Kagem emerald mine on 5 June 2008. Kagem is Gemfields' only operating emerald mine. In February 2009, Gemfields announced a reduction in the scale of its mining activity until the prospects for a recovery in the gemstone market became clearer. While markets remain uncertain Gemfields will continue to minimise all non-essential capital, project development and exploration expenditure.
Kagem's key annual production parameters are summarised below:
KAGEM Annual Production Units Yr to 30 Yr to 30 Yr to 30 Yr to 30Summary Jun 06 Jun 07 Jun 08 Jun 09 Gemstone Production million 10.2 9.4 9.9 28.0(Emerald + Beryl) carats
Ore Production (Reaction `000 22 29 42 80Zone) tonnes Grade (Emerald + Beryl/ carats/ 462 325 233 349Reaction Zone) tonne Waste Mined (including million 1.8 2.8 5.1 4.0TMS) tonnes Stripping Ratio 83 96 120 50
During the financial year ending 30 June 2009, the key production parameters by quarter were:
KAGEM Annual Summary to Quarter 30 Sep 08 31 Dec 31 Mar 30 Jun Total30 Jun 09 Ending 08 09 09 Gemstone Production million 9.4 5.3 7.3 6.0 28.0(Emerald + Beryl) carats
Ore Production (Reaction `000 21 19 18 22 80Zone) tonnes
Grade (Emerald + Beryl/ carats/ 438 286 409 268 349 Reaction Zone)
tonne
Waste Mined (including million 1.7 1.0 0.8 0.5 4.0 TMS)
tonnes Stripping Ratio 81 53 43 22 50 Total Operating Cost* USD 8.0 6.2 * * * million
Unit Production Cost USD/carat 0.85 1.16 * * * (per carat)*
Unit Production Cost USD/tonne 372 332 * * * (per tonne of ore)*
*Cost figures for March through June are available but could form the data necessary to calculate an approximate figure for future profits and therefore cannot be published before being audited or reported on in accordance with Rule 28.6(a) while Gemfields is in an Offer Period under the City Code on Takeovers and Mergers.
Production figures for March and June 2009 are unaudited.
Gemfields has been successful in achieving a significant increase in annual gemstone production while cost-reduction measures have continued to deliver material improvements during the last nine months. It should, however, be noted that the stripping ratio is anticipated to rise toward the end of this calendar year, and is expected to have a commensurate impact on mining costs. This increase in stripping ratio is partly a result of the Company having held back on some stripping over the past few months.
While increased security and theft reduction have been identified as priority areas within the Company, and while some early positive results have been achieved, Gemfields will continue to focus on these areas in the coming months.
Cash Balances
Excluding the receivables from the recent London auction, Gemfields presently has USD 6.2 million in cash. Kagem Mining Ltd, in which Gemfields has a 75% interest, has bank loans repayable by 31 December 2010 totalling USD 4.9 million.
Cutting & Polishing Facility
Gemfields opened its own cutting and polishing facility in Jaipur, India in August 2008. In order to focus on its rough business, and due to ongoing uncertainty in gemstone markets, Gemfields is scaling down this operation.
Ian Harebottle, CEO of Gemfields, commented:
"Gemfields continues to concentrate on reducing unit production costs and improving efficiencies. Our key focus now is to mine efficiently and to sell our rough gemstones to selected customers on a regular and reliable basis. This will be supported by targeted marketing and promotional initiatives, so as to build a sustainable supply chain and an increase in the demand for emeralds. While the uncertainty in gemstone markets prevails, the successful delivery of our London auction and the positive response we received from the various participants demonstrates that we certainly are "in the game and on the playing field"."
Website
A copy of this announcement is available on Gemfields' website at www.gemfields.co.uk.
Enquiries:Gemfields
Richard James, CFO [email protected]
+44 (0)20 7518 3402
Canaccord Adams Limited
Nominated Adviser and Joint Broker to Gemfields
Mike Jones/Tarica Mpinga +44 (0)20 7050 6500
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