Gemfields Grou. Regulatory News (GEM)

13 May 2008 06:30



13 May 2008

Gemfields Resources plc

("Gemfields" or "the Company")

Conditional placing of 66,666,667 Ordinary Shares at 45 pence per share

Resumption of trading on AIM

Publication of Admission Document

Gemfields Resources plc (AIM: GEM), the AIM-listed gemstone mining and exploration company, today announces the resumption of trading of the Company's existing ordinary shares and additional details of the Company's proposed acquisition as announced on 18 December 2007 which forms part of its strategy to become a leading international coloured gemstone producer.

Shareholders are informed that an AIM Admission Document has been published and posted today, together with a notice convening an extraordinary general meeting (the "EGM") of the Company at which the approval of Shareholders will be sought for the proposed acquisition, an increase in the authorised share capital of the Company and the authority to allot the new ordinary shares pursuant to the proposed acquisition, the placing and generally to change the name of the Company to Gemfields plc. A copy of this AIM Admission Document is available from the Company's website: www.gemfields.co.uk.

The Directors and Proposed Directors believe that the proposed acquisition and placing provides a unique opportunity in the coloured gemstone market, and will transform the Company into a leading international coloured gemstone producer. The proposed acquisition will combine the operational expertise and extensive tenement portfolio of Gemfields with the Kagem Emerald mine, an option to acquire 15 exploration licences in Madagascar (rubies, sapphires and tourmalines), and an option to use the Fabergé brand name, through the acquisition of Greentop International Inc and Krinera Group SA from Rox Limited. The Directors and Proposed Directors believe that this development will propel Gemfields forward and support its vision for expansion in the future. 

Key benefits of the proposed transaction, which is subject to shareholder approval at the EGM, include;

Improvements in efficiency and processes at the Kagem Emerald Mine with a view to ramping up production from 200-300,000 tonnes per annum to a run rate in excess of 1.4 million tonnes of TMS per annum by July 2009;

Improving security at the Kagem Emerald Mine;

Drilling and exploration programmes to further define resources and re-categorise and increase resources figures at existing operations, particularly at the Kagem Emerald Mine;

Processing, cutting and polishing via the establishment of cutting and polishing facilities in Jaipur, India;

An opportunity to focus on marketing and branding by developing appropriate marketing campaigns to promote coloured gemstones in general and, at the outset, emeralds in particular;

Use of the Fabergé brand name on coloured gemstones to extract premium prices for the Enlarged Group's very best gemstones;

Development of a structured and consistent supply chain;

Opportunity to achieve premium pricing through natural, organic and CIBJO approved gemstones, guaranteed provenance "direct from the mine", and high ethical standards that guarantee gemstones are conflict and child-labour free;

Recruitment of appropriate additional operational teams for mining, processing, marketing and sales; and 

Restructure legal entities.

The consideration for the acquisition of Greentop and Krinera and the option to acquire a licence to use the Fabergé brand name in respect of coloured gemstones (excluding diamonds) and the option to acquire Oriental Mining will be satisfied by the issue to Rox of 137,910,340 new Ordinary Shares in Gemfields which, at the Issue Price, implies a price of £62.06 million.

It is proposed that Sean Gilbertson and Finn Behnken will join the Board on Completion as interim chief executive officer and non-executive director respectively. Graham Mascall will remain as non-executive chairman, Rajiv Gupta will remain as executive vice-chairman, Richard James will remain as chief financial officer and Clive Newall will remain as a non-executive director. Prior to the publication of the AIM Admission Document, Peter Kitchen, Sanjay Khandelwal and Valentine Chitalu resigned from the Board. The Company expresses its thanks to Messrs. Kitchen, Khandelwal and Chitalu for their contribution during their time at Gemfields.

Commenting today, Graham Mascall, Non-executive Chairman of Gemfields Resources plc, said, "The Acquisition will provide Gemfields with substantial and important building blocks for the future through the addition of a cash generative business from the 75 per cent ownership of Kagem, the significant exploration upside of Kagem's exploration rights and Oriental Mining's exploration licences and the opportunity to optimise the value of the Company's best gemstones through the use of the Fabergé brand name." 

He added, "These factors, together with Gemfields' existing assets and management team, will help the Company achieve its long term strategy: to pursue consolidation and vertical integration in the coloured gemstone industry." 

In addition, Brian Gilbertson, Chairman of Pallinghurst Resources said, "The coloured gemstone industry forms a key part of the luxury goods sector, but is currently fragmented and undercapitalised. Despite minimal consumer marketing, unreliable supply chains and a dearth of ethically-sourced product, the popularity of these gemstones has increased in recent years, with corresponding price rises. Pallinghurst believes that the Gemfields initiative will harness and enhance this trend in the international market for coloured gemstones, emulating the development of the diamond industry."

Placing statistics

Issue price 45p

Number of Existing Ordinary Shares as at date of this announcement 104,575,733

Number of New Ordinary Shares to be issued, as follows:

Consideration shares 137,910,340

Placing Shares 66,666,667

Percentage of Enlarged Share Capital represented by:

Consideration shares 44.61%

Placing Shares 21.56%

Number of Ordinary Shares in issue immediately following the Acquisition, Placing and Admission* 309,152,740

Estimated net proceeds of the Placing receivable by the Company   £ 27.50 million

Market Capitalisation of the Company on Admission at the Issue Price* £139.12 million

*assuming no options are exercised between the date of the AIM Admission Document and Admission

Expected timetable of principal events

Announcement of the Acquisition 18 December 2007

Latest time and date for receipt of Forms of Proxy 9.00am (BST) on 3 June 2008 

EGM, at the office of Reed Smith Rambaud Charot, Paris 9.00am (BST) on 5 June 2008

Completion of the Acquisition and Admission becomes effective and dealings on AIM commence in respect of the Enlarged Share Capital 8.00am (BST) on 6 June 2008

CREST accounts credited 8.00am (BST) on 6 June 2008

Expected date of dispatch of definitive share certificates (where appropriate) by 11 June 2008

For more information:

Richard James, CFO richard.james@gemfields.co.uk

Gemfields Resources Plc Tel: +44 (0)20 7016 9416

Mike Jones /Robin Birchall Tel: +44 (0)20 7050 6500

Canaccord Adams Limited

Neil Passmore/Sam Critchlow Tel: +44 (0) 20 7588 2828

JPMorgan Cazenove Limited

Charlie Geller/Ed Portman Tel: +44 (0)20 7429 6666/ +44 (0) 7528 233 383

Conduit PR

Not for release, publication or distribution in or into the United States of America, Australia, South Africa or Japan.

This announcement does not constitute an offer or invitation to purchase any securities.

Not for release, publication or distribution in or into the United States of America, Australia, South Africa or Japan.

Proposed acquisition of Greentop International Inc. and Krinera Group SA

Option to acquire a licence to use the Fabergé brand name in respect of gemstones (excluding diamonds)

Option to acquire Oriental Mining S.a.r.l.

Placing of 66,666,667 Ordinary Shares at 45 pence per share

Proposed change of name to Gemfields plc

Application for re-admission of the Existing Ordinary Shares and admission of the New Ordinary Shares to trading on AIM

Notice of Extraordinary General Meeting

Introduction

As announced by the Company on 18 December 2007, Gemfields has conditionally agreed to purchase from Rox, a company controlled by Pallinghurst Resources, a 75 per cent. interest in Kagem, the holder of the licence for the Kagem Emerald Mine located in the Zambian Fwaya-Fwaya belt adjacent to Gemfields' existing emerald mining operations and close to its exploration operations. This will be achieved via the purchase from Rox of the entire issued share capital of Greentop and Krinera, the indirect holders of a 75 per cent. interest in Kagem. The consideration for the acquisition of Greentop and Krinera will be satisfied by the issue to Rox of 137,910,340 new Ordinary Shares in Gemfields which, at the Issue Price, implies a price of approximately £62.06 million.

The Acquisition also includes:

• a put and call option to acquire a worldwide exclusive 15 year licence to use the Fabergé brand name in respect of coloured gemstones (excluding diamonds); and

• a put and call option to acquire, for the additional consideration of £1.00, the entire issued share capital of Oriental Mining, which is the holder of and applicant for (subject to certain registration requirements more fully described at paragraph 4 of Part I of the AIM Admission Document) 15 licences for gemstone exploration in Madagascar.

The Directors and Proposed Directors believe that the Acquisition will provide the Group with substantial and important building blocks for the future through the addition of an immediate cash generating business (through the 75 per cent. ownership of Kagem), the significant exploration upside (through Kagem's exploration rights and Oriental Mining's exploration licences) and the opportunity to optimise the value of the Company's best gemstones (through the use of the Fabergé brand name). The Directors and Proposed Directors believe that these factors, together with Gemfields' existing mining and exploration assets and management team, will help the Company in achieving its long term strategy, to pursue consolidation and vertical integration in the coloured gemstone industry.

The Directors and Proposed Directors believe that the coloured gemstone industry is ripe for the emergence of a significant industry participant who can supply this market with suites of high quality gemstones. Gemfields and Rox share the view that the coloured gemstone industry (which now forms a significant part of the luxury goods industry) is currently fragmented and undercapitalised. Given the increasing popularity of coloured gemstones and the price increases that have resulted in recent years, both companies believe that a significant opportunity exists in pursuing consolidation and vertical integration of the coloured gemstone industry on an international scale.

Background to and reasons for the Acquisition

Gemfields was the inspiration of Rajiv Gupta who formed the predecessor company to Gemfields in 2000 when he identified a significant opportunity in the gemstone industry and has since pursued a primary objective of identifying, acquiring and developing coloured gemstone mines. The proposed Acquisition forms the next logical step in achieving consolidation in the coloured gemstone industry and is expected to transform Gemfields into a leading international coloured gemstone producer. 

Significantly, Gemfields already owns two significant assets on the Fwaya-Fwaya emerald belt in Zambia (where the Kagem Emerald Mine is also located): Mbuva-Chibolele and Kamakanga. Gemfields has, during its development of Mbuva-Chibolele from a greenfield project, assembled an experienced management and operating team. The Directors and Proposed Directors believe the Kagem Emerald Mine is presently the single most desirable emerald mine on the Fwaya-Fwaya belt and has a long and demonstrated history of producing high quality emeralds. Hence, Gemfields and Rox believe that significant synergies can be achieved by pooling their respective assets and skill sets.

Gemfields is already managing operations at Kagem after signing a management agreement with Hagura UK (which holds the Target Group's interest in Kagem) in 2007. A significant review of operations has already been concluded and a revised production plan implemented to increase production to a run rate of in excess of 1.4 million tonnes of TMS per annum by July 2009. On completion of the Acquisition, the Enlarged Group will be the largest operator on the Fwaya-Fwaya belt by a substantial margin and the Directors and Proposed Directors believe that the Enlarged Group will be in a good position to further consolidate the belt and thereby achieve economies of scale. In addition, as the primary producer of emeralds in Zambia, the Enlarged Group will be in a position to restructure the sale process that has historically been characterised by inconsistent supply and quality.

The Directors and Proposed Directors believe that this initial footprint in the emerald market will form the cornerstone for expansion into other coloured gemstones. This will be achieved via Gemfields' existing rights in respect of amethyst, the option to acquire gemstone licences in Madagascar (which includes ruby, emerald and sapphire licences) currently owned (subject to certain registration requirements more fully, described in paragraph 4 of Part I of the AIM Admission Document) by Rox via Oriental Mining and by further focussed acquisitions of various coloured gemstone varieties.

In addition, the branding potential inherent in the Fabergé name, particularly given the recent re-unification of the Fabergé brand with the direct descendents of Peter Carl Fabergé, should position the Enlarged Group to optimise the value of its cut and polished production by branding its best stones with the Fabergé name.

Accordingly, the Directors believe that the Acquisition represents an attractive opportunity for Shareholders to participate in the Enlarged Group. The Acquisition enables Gemfields to draw together the following key components to accelerate the Directors' and Proposed Directors' vision of consolidating and vertically integrating the coloured gemstone industry:

• the operational expertise, infrastructure and extensive tenement portfolio of Gemfields;

• the renowned Kagem Emerald Mine;

• a put and call option to enter into an exclusive worldwide licence to use the Fabergé brand name on coloured gemstones for a period of 15 years;

• a base from which to add value through the development of in-house cutting and polishing facilities;

• modernisation of the mining process at the Kagem Emerald Mine to increase throughput, increase yield and lift overall efficiency;

• a put and call option to acquire Oriental Mining, which holds (subject to certain registration requirements more fully described in paragraph 4 below) 15 licences for gemstone exploration in Madagascar;

• enhanced leadership with deal making capabilities; and

• greater access to capital.

Terms of the Acquisition

Under the terms of the Acquisition Agreement, Gemfields has conditionally agreed to acquire the entire issued share capital of Greentop and Krinera. The aggregate consideration for the acquisition of Greentop and Krinera is the allotment and issue of 137,910,340 Ordinary Shares (to rank pari passu in all respects with the Existing Ordinary Shares) to Rox at Completion which will represent 56.9 per cent. of the enlarged share capital of the Company immediately following the Acquisition but before the Placing. Rox is also participating in the Placing and following the Placing will hold approximately 56.35 per cent. of the Enlarged Share Capital. The Company has also been notified that, pursuant to an agreement between Rox and a vehicle of which Rajiv Gupta is a beneficiary, 8,888,890 Ordinary Shares in which Rajiv Gupta is interested will be transferred to Rox within three months of Admission in return for shares in Rox. This will mean Rox will hold 183,091,453 Ordinary Shares representing approximately 59.22 per cent. of the Enlarged Share Capital following such transfer (assuming no options are exercised between the date of the AIM Admission Document and the date of such transfer).

Following the issue of the Consideration Shares and the Placing Shares, the Existing Shareholders will own, in aggregate approximately 33.83 per cent. of the Enlarged Share Capital. 

The Acquisition Agreement contains certain warranties and an indemnity given by Rox to Gemfields in relation to the Target Group and certain warranties given by Gemfields to Rox in relation to the Group (in both cases subject to certain financial and other limitations). The Acquisition includes an escrow arrangement whereby the Consideration Shares and certain cash sums will be held in escrow for a defined period to be accessed in the event of any successful warranty claims by the Company. The Consideration Shares and cash may be released from escrow under certain specific circumstances,

In addition, the Acquisition Agreement includes restrictions on Gemfields and Rox entering into certain transactions with third parties in the period prior to Completion and a requirement on Gemfields and Rox to operate their groups in the ordinary course until Admission. The Acquisition Agreement may be terminated in a number of circumstances.

The Acquisition Agreement includes a put and call option, in consideration of an additional sum of £1.00, for the acquisition of the entire issued share capital of Oriental Mining. Gemfields has the right to exercise the option to acquire Oriental Mining, and Rox has the right to require Gemfields to exercise such option, within three months of Completion. The Acquisition Agreement contains certain warranties given by Rox to Gemfields in relation to Oriental Mining and its licences.

The Acquisition Agreement further contains a put and call option for Gemfields to enter into a worldwide exclusive 15 year licence with Fabergé Limited to use the Fabergé brand name in respect of coloured gemstones (excluding diamonds). Each of the Company and Fabergé Limited can require the other party to enter into such licence agreement within three months of Completion.

The Acquisition is conditional upon, amongst other things, the approval by Shareholders of the 

Resolutions to be proposed at the EGM (other than resolutions 3 and 5) and Admission.

Information on Enlarged Group

Enlarged Group assets

The Enlarged Group's assets will comprise 17 licences which cover an area of 1,344.17km2 in Zambia, Southern Africa and include: two advanced gemstone assets (assets upon which mineral resources reported in accordance with an internationally recognised reporting code have been defined), six exploration properties (assets upon which either historical mining or recent exploration activities have occurred) and nine exploration prospects (assets upon which limited or no exploration activity has been undertaken to date). In addition the Company will have the option to purchase Oriental Mining.

Gemfields is a holding company which currently manages (and will continue to manage following Completion) the Gemstone Assets through various subsidiaries and currently derives its revenues entirely from the Gemstone Assets. The subsidiaries comprise holding companies, intermediate holding companies, coloured gemstone exploration and mining companies and various dormant companies. The principal operating companies are:

• Kagem (in which Gemfields will, following Completion, have a 75 per cent. beneficial interest) will manage the Kagem Emerald Mine comprising an open-pit emerald and beryl mine and associated processing facilities;

• Kariba Minerals Limited (in which Gemfields has a 50 per cent. beneficial interest) which operates the Kariba mine comprising an open-pit amethyst mine and an associated processing facility; and

• Gemfields Holdings Zambia Limited (in which Gemfields has a 100 per cent. beneficial interest) which operates the Mbuva-Chibolele mine comprising an open-pit emerald and beryl mine and an associated processing facility (currently on care and maintenance).

The exploration properties and the exploration prospects in Zambia are all held by the Company's subsidiary, Gemfields Holdings Zambia Limited. Exploration and development activities are conducted through its representative office in Zambia which manages the licences for the advanced gemstone assets, the advanced exploration properties and the exploration properties. The Company also provides management services to each of the operating companies including: sales and marketing; finance; legal and technical support. Other administrative and regulatory aspects will also be provided in respect of co-ordinating group operating companies as well as public domain reporting.

Tables of consolidated resources

The Competent Persons Report set out in the AIM Admission Document notes that emerald deposits, owing to the distribution of economic concentrations of reaction zones are notoriously difficult to sample, estimate and classify as their thickness and grade are highly variable and their exact location very difficult to predict. Current drilling techniques are inappropriate to provide sufficient data density to enable direct estimation of reaction zone tonnage and grade. Accordingly drilling as currently employed can only provide information to determine the volume of the geological entity in which such reaction zones are present and the location of such entities relative to other lithology and geological structures. Derivation of mineral resources is largely dependent on the availability of the results of bulk samples or equivalent data such as historical production statistics. All the above uncertainties and the use of extrapolated grade and geological information require that only an Inferred Mineral Resource category can be assigned to the resources associated with the Gemstone Assets.

Gemstone Assets: Emeralds and Beryl Mineral Resource statement (1 January 2008)(1)

(1) No Measured or Indicated Mineral Resources are defined at Kagem and no Mineral Resources are defined at Mbuva-Chibolele.

Gemstone Assets: Amethyst Mineral Resource statement (1 January 2008)(1)

 (1) No Measured or Indicated Mineral Resources are defined at Kariba.

Enlarged Group Assets: Attributable Emeralds and Beryl Mineral Resource statement

(1 January 2008)(1), (2)

 (1) No Measured or Indicated Mineral Resources are defined at Kagem and no Mineral Resources are defined at Mbuva-Chibolele.

(2) Reported using 75 per cent. equity participation for Kagem.

Enlarged Group Assets: Attributable Amethyst Mineral Resource statement (1 January 2008)(1), (2)

 (1) No Measured or Indicated Mineral Resources are defined at Kariba.

(2) Reported using 50 per cent. equity participation for Kariba.

The above tables are extracted from paragraph 2.2 of the Competent Person's Report set out in Part VII of the AIM Admission Document. Details of key assumptions, parameters and methods used to estimate mineral resources are set out in the Competent Person's Report.

Oriental Mining

Oriental Mining is a company which was registered in Madagascar in September 2007 and is prior to the Acquisition, a wholly owned subsidiary of Rox. Oriental Mining is (subject to certain registration requirements which are further explained below and in the risk factors set out in Part VI of the AIM Admission Document) the holder of 15 licences in the Antananarivo, Fianarantsoa and Toliara provinces of Madagascar covering rubies, sapphires and emeralds, as well as garnets and tourmalines. Madagascar is presently believed to be one of the most prospective mineral provinces in the world for coloured gemstones.

The rights in the 15 exploration mining licences to be held by Oriental Mining were transferred to Oriental Mining pursuant to a sale and purchase agreement in October 2007. As at the date of the AIM Admission Document, applications have been filed for the transfer of these licences to Oriental Mining with the Bureau de Cadastres Miniers de Madagasca (''BCCM''), the Madagascar Ministry of Mines but, until new mining titles are issued by the BCCM in the name of Oriental Mining, the transfer is not complete.

Fabergé brand name

Fabergé Limited was established during 2006 for the purpose of acquiring the Fabergé brand and pursuing Fabergé's heritage of excellence in creativity, design and craftsmanship. In January 2007, Fabergé Limited acquired Unilever plc's worldwide portfolio of Fabergé trademarks, licences and associated rights. Gemfields has conditionally acquired the option (also exercisable by Fabergé Limited), within 3 months of Completion, to enter into a 15 year worldwide and exclusive licence with Fabergé Limited to use the Fabergé name in branding, marketing and selling coloured gemstones excluding diamonds. The Fabergé name carries exceptional branding potential and it is intended that, following the completion of the Fabergé Licence Agreement, it will become the Enlarged Group's premium brand.

Strategic development plan

The Enlarged Group intends to pursue vertical integration in the coloured gemstone industry on an international scale. Its vision is to become a leading integrated supplier of rough and cut and polished coloured gemstones. The principal methods of achieving this vision will be by establishing cutting and polishing facilities in Jaipur, India and securing suitable sales and marketing contracts.

Further details of the Enlarged Group's strategic development plan are set out in Part II of the AIM Admission Document and can be broken down to include:

• continuing the improvements in efficiency and processes at the Kagem Emerald Mine with a view to ramping up production from 200-300,000 tonnes per annum to a run rate of in excess of 1.4 million tonnes of TMS per annum by July 2009. The Directors and Proposed Directors believe that cash costs per tonne of TMS produced are expected to be in the range of $18-19 per tonne upon reaching the 1.4 million tonnes annual production rate. The Directors and Proposed Directors expect that these costs will rise over time as stripping requirements increase. 

• improving security at the Kagem Emerald Mine. Theft is a material risk of any precious stone operation and, based on the experiences which the Group has in implementing security measures and mining processes at the Mbuva-Chibolele mine, steps have already begun to improve security at the Kagem Emerald Mine;

• modifying sales formats for example by pursuing direct sales, increasing the number of buyers attending an auction and increasing the scope to include manufacturing jewellers and buyers from a larger number of countries;

• processing, cutting and polishing via the establishment of cutting and polishing facilities in Jaipur, India;

• focussing marketing and branding by developing appropriate marketing campaigns to promote coloured gemstones in general and, at the outset, emeralds in particular, and the use the Fabergé brand name on coloured gemstones to extract premium prices for the Enlarged Group's very best gemstones;

• developing a structured and consistent supply chain. The coloured gemstone industry is renowned for the unstructured nature of its supply chain and erratic supplies to customers. By working with gemstone processors, manufacturing jewellers and retailers, the Directors and Proposed Directors believe that the Enlarged Group should be well positioned to create a structured pipeline which will ensure consistent supply and enhance credibility with, and therefore prices from, consumers;

• ethical sourcing and assured provenance, obtaining premium pricing by building strong consumer allegiance to its gemstones through supplying only natural, ''organic'' and CIBJO approved gemstones, adopting the highest ethical standards and a ''direct from source'' capability to guarantee the provenance of high-end gemstones and operating its mines in accordance with the highest environmental, social and safety standards;

• drilling and exploration programmes to grow and refine resources figures at existing operations and particularly at the Kagem Emerald Mine;

• appropriate restructuring and a reduction in the number of legal entities in the Enlarged Group's structure; and

• recruitment of appropriate additional operational teams for mining, processing, marketing and sales.

The Enlarged Group is also actively seeking to acquire additional mine sites and licences in the NRERA and expand its geographic footprint by the acquisition of other coloured gemstone assets internationally, thereby also broadening its product portfolio.

The proposed worldwide and exclusive Fabergé licence will entitle the Enlarged Group to brand coloured gemstones with the Fabergé name. Fabergé will be used as the Enlarged Group's premium brand and will pioneer the Enlarged Group's policy of ethical sourcing, guaranteed provenance and strong branding to maximise the value and appeal of the Enlarged Group's gemstones. It will be the ownership of the producing assets along with an integrated supply chain which will enable the Enlarged Group to guarantee the exact provenance of its gemstones and assure customers of their ethical legacy. The importance of such considerations to today's consumer can be seen in how blood, conflict and origin issues have affected the diamond industry.

The Board

It is proposed that Sean Gilbertson and Finn Behnken will join the Board on Completion as interim chief executive officer and non-executive director respectively. Graham Mascall will remain as non-executive chairman, Rajiv Gupta will remain as executive vice-chairman, Richard James will remain as chief financial officer and Clive Newall will remain as a non-executive director. Prior to the publication of the AIM Admission Document, Peter Kitchen, Sanjay Khandelwal and Valentine Chitalu resigned from the Board. The Company expresses its thanks to Messrs. Kitchen, Khandelwal and Chitalu for their contribution during their time at Gemfields.and in recognition of their contribution during that time, the Directors have proposed that the share options held by Messrs Kitchen, Khandelwal and Chitalu continue to be exercisable after their resignation and for a period of up to three years following Admission. This proposal will be subject to approval by the Shareholders at the EGM in accordance with the rules of the Unapproved Scheme.

In addition to remaining as executive vice chairman of the Company, Rajiv Gupta will continue in his significant role of helping the Group to acquire prospective gemstone properties. He will also have key responsibility for implementing the marketing, cutting and polishing aspects of the Group's strategy.

Brief biographies of the Proposed Directors post-Admission are set out below along with details of their letters of appointment or service contracts. The Company will seek to appoint a permanent chief executive officer in the future.

Sean Gilbertson, Interim Chief Executive Officer, aged 35 - Proposed Director

Sean Gilbertson graduated as a mining engineer from the University of the Witwatersrand in South Africa having spent time in the country's deep-level gold and platinum mines. From 1995 he worked for Deutsche Bank Ag and Deutsche Morgan Grenfell in Frankfurt and London specialising in project finance. He co-founded globalCOAL in 1998 and was appointed chief executive officer in 2001 when the business was acquired by industry players including, inter alia, Anglo American plc, BHP-Billiton Ltd, Glencore International Ag and Rio Tinto plc. He joined the office of Brian Gilbertson in late 2003, working on a variety of natural resources projects and culminating in the establishment of Pallinghurst Resources LLP in 2005. Sean Gilbertson is a partner of Pallinghurst Resources and is a director of certain Pallinghurst portfolio companies including Rox Limited and Fabergé Limited. He will be appointed as interim chief executive of the Company on Admission and will dedicate two thirds of his professional time to the Company.

Sean Gilbertson entered into a service agreement with the Company dated 13 May 2008 and will be appointed Interim Chief Executive Officer of the Company, with effect from and conditional on Admission. The scope of his employment is to perform such duties and exercise such powers consistent with his position or assigned to him by the board of directors. He has agreed to devote 66 per cent. of his professional time in carrying out these duties for the Company. The agreement is terminable by the Company on 3 months written notice or by Sean Gilbertson on 6 months notice. He is entitled to a basic salary of £150,000 per annum payable monthly. He is entitled to 13 days paid holiday. However, the Company will continue to pay his salary and benefits during an absence of 6 weeks in any 6 month period on medical grounds. The agreement contains post termination restrictive covenants which place limitations and restrictions on the solicitation of customers and employees, dealings with customers and interfering with suppliers of the Group and from acting in competition with the business of the Group. The agreement also includes provision for the assignment to the Company of intellectual property discovered by Sean Gilbertson during his term in office and provision for the non-disclosure of confidential information.

Finn Behnken, Non-Executive Director, aged 36 - Proposed Director

Finn Behnken graduated as a mining engineer from the University of the Witwatersrand in South Africa having worked in coal and gold mining. He furthered his career by specialising in mining finance and spent almost 10 years with South Africa's Nedbank Ltd serving, inter alia, as a non-executive director in relation to certain of its producing mining investments. Nedbank moved him to London in 2006 to develop their international business. He has had wide ranging interaction with small and mid-size listed mining companies across the commodity spectrum and has travelled extensively visiting mines around the globe. Finn Behnken joined Pallinghurst Resources in 2007 and will join the Board as a non-executive director on Admission.

Finn Behnken has pursuant to a letter of appointment dated 13 May 2008, agreed to act as non-executive director conditional upon and with effect from Admission. He is entitled to a fee of £16,000 per annum gross payable quarterly in arrears. His letter of appointment also grants him an option over 300,000 ordinary shares in the Company exercisable at the Issue Price subject to the terms and conditions of the Unapproved Scheme and conditional on Admission. The Company will be responsible for any out of pocket expenses incurred by him. The letter of appointment contains a restrictive covenant that he will not hold any directorships in the same business sector as the Company except with prior approval of the board.

Share options and management incentives

The Company operates the Unapproved Scheme to incentivise directors and employees of the Group. The Directors intend to grant options over a total of 4,430,000 Ordinary Shares under the Unapproved Scheme, including to each of the Directors or Proposed Directors (save for Rajiv Gupta), together with certain other employees on Admission. These options will have an option exercise price equal to the Issue Price. The aggregate number of Ordinary Shares over which options have been granted and will be outstanding as at the date of Admission (assuming no options are exercised between the date of the AIM Admission Document and Admission) will be 12,690,000. The percentage of the Enlarged Share Capital that the Ordinary Shares under option would represent on exercise is approximately 4.10 per cent. 

Shareholdings

Immediately following the Acquisition, the Placing and Admission, the approximate percentages of the Enlarged Share Capital held by Rox, the placees and the Existing Shareholders will be as follows:

Rox  56.35 per cent.

Placees (excluding Rox)  9.83 per cent.

Existing Shareholders  33.83 per cent.

The Company has been notified that pursuant to an agreement between Rox and a vehicle of which Rajiv Gupta is a beneficiary, Rajiv Gupta has agreed to transfer his entire beneficial shareholding in the Company to Rox within 3 months of Admission which will mean Rox will hold 183,091,453 Ordinary Shares representing 59.22 per cent. of the Enlarged Share Capital following such transfer (assuming no options are exercised between the date of the AIM Admission Document and the date of such transfer).

Lock-in and escrow arrangements

The continuing Directors and Proposed Directors have agreed (subject to certain standard exceptions) not to dispose of any interests in any of the Ordinary Shares for a period of 12 months from Admission other than through Canaccord or JPMorgan Cazenove in such orderly manner as Canaccord or JPMorgan Cazenove respectively shall reasonably require with a view to the maintenance of an orderly market in the Ordinary Shares.

Rox will, on Completion, enter into the Rox Escrow Agreement whereby it has agreed to put into escrow the Consideration Shares or the proceeds from any sale of the Consideration Shares up to a maximum amount of US$60 million until 30 June 2009 unless a claim has been brought in which case such shares or proceeds would be retained pending settlement of such claim. The terms of the Rox Escrow Agreement are described more fully in paragraph 10.1.2 of Part IX of the AIM Admission Document. 

In addition, Rox has agreed (save for certain standard exceptions) not to dispose of any interest in any Ordinary Shares held by it (save for any Placing Shares issued to Rox in connection with the Placing) for a period of 12 months following Admission. For a further period of 12 months after the expiry of the above period, Rox has agreed not to dispose of any interests in any Ordinary Shares other than through Canaccord or JPMorgan Cazenove in such orderly manner as Canaccord or JPMorgan Cazenove respectively shall reasonably require with a view to the maintenance of an orderly market in the Ordinary Shares.

Relationship Agreement

The Company will, on Completion, enter into a Relationship Agreement with Rox. Under the Relationship Agreement, the parties agree to regulate their relationship so that the Group is capable of carrying on its business and making decisions independently of Rox. The Board considers this Relationship Agreement necessary given that following the Placing and Admission it is intended that Rox will own approximately 59.22 per cent. (following the transfer of Rajiv Gupta's entire beneficial shareholding to Rox) of the Enlarged Share Capital of the Group and will have two representatives on the Board. The terms of the Relationship Agreement are described more fully in paragraph 10.1.2 of Part IX of the AIM Admission Document.

Canaccord Adams Limited (''Canaccord''), which is regulated and authorised in the United Kingdom by the Financial Services Authority, is acting as nominated adviser, joint broker, joint bookrunner and joint co-lead manager to the Company in relation to the Admission and the Placing. Canaccord is not acting for any other persons and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Canaccord or for providing advice in relation to the contents of this document, the application for Admission or the Placing. Canaccord has not authorised any part of this document. No liability is accepted by Canaccord for the accuracy of any information or opinions contained in or for the omission of any information from this document for which the Directors, the Proposed Directors and the Company are responsible.

JPMorgan Cazenove Limited (''JPMorgan Cazenove''), which is regulated and authorised in the United Kingdom by the Financial Services Authority, is acting as joint broker, joint bookrunner and joint co-lead manager to the Company in relation to the Admission and the Placing. JPMorgan Cazenove is not acting for any other persons and will not be responsible to anyone other than the Company for providing the protections afforded to customers of JPMorgan Cazenove or for providing advice in relation to the contents of this document, the application for Admission or the Placing. JPMorgan Cazenove has not authorised any part of this document. No liability is accepted by JPMorgan Cazenove for the accuracy of any information or opinions contained in or for the omission of any information from this document for which the Directors, the Proposed Directors and the Company are responsible.