Gemfields Grou. Regulatory News (GEM)

1 Mar 2012 07:00

Gemfields plc

("Gemfields" or the "Company")

Market Update - Quarter ending 31 December 2011

01 March 2012

Gemfields plc (AIM: GEM) presents an operational update for the three month period ending 31 December 2011. All figures are approximate, unaudited and, unless otherwise stated, the phrase "carats" includes both emerald and beryl.

Highlights

- Substantial waste moving programme at the Kagem mine underway to open new

areas for future ore production. As a result, improved medium-term operating

performance is expected.

- Due to the focus on waste moving, ore mining has been significantly reduced

with a commensurate impact on the quarter's production:

- Gemstone production was 3.9 million carats in the quarter ending

31 December 2011 (versus 4.9 million carats in the prior quarter)

- Grade for the quarter was 222 carats per tonne (versus 205 carats per tonne

in the prior quarter)

- Production costs for the quarter of USD 0.87 per carat (versus USD 0.79 per

carat in the prior quarter, with both figures excluding capitalised waste

stripping costs)

- Unit rock handling costs (on a cash cost basis) were USD 3.21 per

tonne (versus USD 3.28 per tonne in the prior quarter).

- A graphical production update is available at

www.gemfields.co.uk.

- As of 31 December 2011, Gemfields had USD 32 million in cash.

Production Update

The Kagem mine, of which Gemfields owns 75%, is presently Gemfields' only operating emerald mine. Kagem is the single largest emerald mine in the world and its key production parameters by quarter are summarised below:

Production Performance

Quarter Jun- Sep- Dec Mar Jun- Sep- Dec Mar Jun- Sep- DecQuarterly Summary End: 09 09 -09 -10 10 10 -10 -11 11 11 -11 TOTALGemstone Production million(Emerald+Beryl) carats 6.0 2.9 4.9 3.4 6.1 12.8 5.9 3.5 10.8 4.9 3.9 65.2Ore Production (Reaction Zone) 'k tonnes 22.3 16.0 13.5 12.5 18.9 19.5 16.0 12.0 21.7 24.0 17.5 193.7Grade (Emerald+Beryl/Reaction CaratsZone) /tonne 268 182 365 277 323 658 369 290 500 205 222 337Waste Mined (including TMS) million tonnes 0.5 0.5 0.7 0.6 0.7 0.9 0.8 0.8 1.4 2.2 2.2 11.4Stripping Ratio 22 33 49 51 38 48 48 66 67 92 125 59Cash Operating Cost USD million 3.5 3.3 3.1 3.0 3.4 3.5 3.6 3.6 3.5 7.2 7.1 44.6Cash Operating Cost per of rock USDmoved /tonne 6.8 6.1 4.6 4.7 4.6 3.6 4.6 4.4 2.4 3.3 3.2 3.9Financial Performance*Quarterly Summary Quarter Jun- Sep- Dec Mar Jun- Sep- Dec Mar Jun- Sep- Decto Sep-11 End: 09 09 -09 -10 10 10 -10 -11 11 11 -11 TOTALTotal Operating cost USD million 3.5 3.3 3.1 3.0 3.4 3.5 3.6 3.6 3.5 3.9 3.4 37.7Unit Production cost per carat USD /carats 0.59 1.13 0.63 0.87 0.55 0.27 0.62 1.03 0.32 0.79 0.87 0.58Unit Production cost per tonne of USDore /tonne 159 205 230 241 179 178

227 298 160 162 193 194

*Note: With effect from July 2011, Gemfields adopted a new accounting policywhereby all waste moving costs are capitalised and are then subsequentlyamortised when the ore corresponding to that waste is mined. As of 31 December2011, approximately USD 6.9 million of waste moving costs have beencapitalised and will be amortised later when the associated ore is mined.The quarter ending 31 December 2011 produced 3.9 million carats at a grade of222 carats per tonne of ore and a unit cost of USD 0.87 per carat (excludingcapitalised waste moving costs).As previously announced, Kagem has initiated a large-scale waste movingprogramme with a view to opening new areas for future ore production. Thisprogramme has gained paced with over 4.4 million tonnes of rock having beenmoved in the last two quarters. While the stripping ratio will continue toincrease in the near term as areas of overburden are mined in order to expandthe levels of ore available for future mining, management expects an overallincrease in operating efficiencies and performance in the medium term as Kagemis able to mine both waste and ore more efficiently.This focus on moving waste, combined with various external factors(including delays experienced by the contractor and heavier than anticipatedrains) have had a negative impact on gemstone production on the quarter underreview. Production is, however, expected to increase considerably in thecoming months.Approximately 1.1 million tonnes of waste was moved by the contractor duringthe quarter (compared to 1.0 million tonnes in the previous quarter) with cashrock handling costs decreasing to USD 3.21 per tonne in the current quarter(compared to USD 3.28 in prior quarter).

Kagem's key annual production parameters are summarised below:

Kagem Annual UNITS YEAR YEAR YEAR YEAR YEAR YEAR YTDProduction Summary to 30 Jun to 30 Jun to 30 Jun

to 30 Jun to 30 Jun to 30 Jun to 31 Dec

2006 2007 2008 2009 2010 2011 2011Gemstone Production million carats 10.2 9.4 9.9 28 17.4 33.0 8.8(Emerald+Beryl)Ore Production `000 22 29 42 80 61 69 42(Reaction Zone) tonnes

Grade (Emerald+Beryl/Reaction carats/ 462 325 233

349 286 478 212Zone) tonneWaste Mined (incl. TMS) million tonnes 1.8 2.8 5.1 4.0 2.5 3.9 4.3Waste+ TMS: Reaction Zone stripping ratio 83 96 120 50 42 54 105Total Rock Handling million tonnes 1.8 2.8 5.1 4.1 2.6 3.9 4.4Gemfields' underground mining project achieved 73.8 metres of horizontaladvance during the quarter ending 31 December 2011 from 79 blasts (versus 43.3metres in the quarter ending September 2011). With four production drivesaccessing ore bearing contact areas, the quarter has seen an increase in bothore mined and carats produced within this zone. Some 61,077 carats wereproduced in the quarter ending 31 December 2011, improving the undergroundproject's grade to 61 carats per tonne.Illegal mining activity within the boundaries of the Kagem mining licence isnot yet fully resolved and Gemfields continues to work with key ministries

toalleviate this challenge.Cash Balances

As of 31 December 2011, Gemfields had USD 32 million in cash, and Kagem, in which Gemfields has a 75% interest, is debt free.

Ian Harebottle, CEO of Gemfields, commented:

"Demand for coloured gemstones from both developed and emerging markets alikeremains firm and Gemfields' healthy cash position has supported the Company'sdecision to actively pursue the development of other assets in its portfolioand to increase the scale of operations at its Kagem mine. Operationalperformance will continue to improve post the current high-wall pushbackproject with significantly increased production outputs anticipated in thelast two quarters of this financial year."

Enquiries:

Gemfields dev.shetty@gemfields.co.uk

Dev Shetty, CFO +44 (0)20 7518 3402

Canaccord Genuity Limited +44 (0)20 7050 6500

Nominated Adviser and Joint Broker to Gemfields

Tarica Mpinga/Andrew Chubb

Neil Passmore +44 (0)20 7155 8630

JP Morgan Cazenove

Jos Simson/Lydia Eades +44 (0)20 7920 3150

Tavistock Communications

Notes to Editors:

Gemfields plc is a leading gemstone miner listed on the AIM market of the London Stock Exchange . The Company's principal asset is the 75% owned Kagem emerald mine in Zambia, the world's single largest emerald mine. In addition to the Kagem emerald mine, Gemfields has a 50% interest in the Kariba amethyst mine in Zambia.

The Company also owns controlling stakes in a highly prospective ruby depositin Mozambique and licences in Madagascar including ruby, emerald and sapphiresdeposits.

In July 2009 Gemfields commenced a formal auction programme for its Zambian emeralds. To date, the Company has held eight auctions which have generated revenues totalling USD 98.5 million.