Gemfields Reports Mixed Results

Gemfields logoGemfields plc. reported a significant increase in emerald production at its Kagem mine in Zambia while realizing few actual gemstone sales along with a large financial loss for the six-month period, ended Dec. 31, 2008, due to the worldwide economic crisis.

Because of economic realities, the company said it will reduce emerald production at Kagem in 2009 but still go forward with its ambitious mine-to-market initiative for emeralds mined at Kagem, which is 75-percent owned by Gemfields.

“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,” said Graham Mascall, Gemfields chairman. “In addition, and until the prospects for a recovery in the gemstone market become clearer, Gemfields has chosen to minimize 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.”

He added, “Initiating Gemfields’ sales programs for both rough and polished gemstones will be a key developmental objective during 2009, particularly during prevailing adverse market conditions.”

Gemfields is setting up a system to bring what it is defines as “ethically produced, conflict-free gemstones of certified provenance directly from mine to market on an integrated basis.”

Under the plan, Gemfields will develop a structured and consistent supply chain for retailers. The company aims to become a “supplier of choice,” by offering emeralds that are natural and organic (meaning untreated or with treatments approved by international norms and fully disclosed). He says that the emeralds being direct from the Kagem mine, along with other provisions in the sourcing and distribution of these emeralds, will guarantee that the gemstones are conflict free and mined in a socially and environmentally responsible manner. The entire supply chain from mine to market will be “completely traceable and certified,” the company said.

During the six month period, Kagem 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 totaled 3.7 million carats and, in 2006, 5.5 million carats.

Revenue from emerald sales from Kagem was $344,000 for the period, choosing to forego immediate sales in order create a stockpile of emeralds.

“Having recognized customer demand for reliable and consistent supply as a key driver of the company’s future success, Gemfields favored a policy of inventory building in the period prior to the global economic downturn,” Mascall said. “Sales of rough and exceptional polished emeralds to preferred customers are expected to commence in Q2 2009.”

Gemfields’ management estimates an unaudited value of $0.75 per carat (for rough gemstones), compared to an average price of $1.09 achieved during the previous four years. Values vary widely from lower grade to top grade material where top grade production can exceed $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,” Mascall said.

Kagem accounted for 90 percent of Gemfields’ unaudited worldwide operating costs, which averaged about $2.5 million per month, during the six-month period. Operating costs were reduced to about $1.6 million per month for January and February, 2009.

Gemfields reported a loss of $186.5 million for the six-month period, which includes an impairment charge. It has $19.7 million of cash on hand. And, it values its inventory at $17.6 million.

“We remain optimistic … 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,” Mascall said.