Gemfields Grou. Regulatory News (GEM)

27 Oct 2009 07:00

Gemfields PLC

Market Update - October 2009

27 October 2009

Gemfields PLC ("Gemfields" or "the Company", Ticker "GEM") provided a market update on 5 August 2009 containing production data to 30 June 2009. Gemfields now presents a further market update for the three month period ending 30 September 2009. All figures are unaudited.

Highlights

* Full proceeds of the London auction held in July 2009 (USD 5.9 million) received. * Next auction scheduled for 23-27 November 2009. * Ongoing focus on improving mining and operational efficiency and reducing relative operating costs. * Non-auction sale of two emerald mineral specimens realised revenue of USD 425k. * Cash balance (exclusive of gemstone inventory in excess of USD 10 million) of USD 7.7 million (and debt of USD 6.6 million repayable by December 2010 and held at 75%-owned Kagem). * Year-to-date production (i.e. the quarter ending 30 September 2009) was dominated by low grade of 182 carats per tonne (versus 349 carats per tonne in the year ending 30 June 2009). * Illegal mining activity taking place within the Kagem mining licence area being addressed. * Graphical production update available at www.gemfields.co.uk

Emerald Auctions

As previously announced, Gemfields held an auction of rough emeralds in London from 20-24 July 2009, realising sales of USD 5.9 million. All proceeds from the auction have been received. Gemfields' next auction of rough emeralds is scheduled to take place from 23-27 November 2009. The response to date from stakeholders seeking to attend this forthcoming event has been very positive.

Production Update

Gemfields acquired a 75% interest in the Kagem emerald mine on 5 June 2008. Kagem is presently Gemfields' only operating emerald mine. Kagem's key unaudited production parameters by quarter are summarised below:

KAGEM Quarterly Summary Quarter 30 Sep 31 Dec 31-Mar-09 30 Jun 30 Sep TOTALto 30 Sep 09 Ending: 08 08 09 09 Gemstone Production million 9.4 5.3 7.3 6.0 2.9 30.9(Emerald+Beryl) carats Ore Production (Reaction '000 21.4 18.7 17.8 22.3 16.0 96.2Zone) tonnes Grade (Emerald+Beryl/ carats/ 438 286 409 268 182 321Reaction Zone) tonne Waste Mined (including million 1.7 1.0 0.8 0.5 0.5 4.5TMS) tonnes Stripping Ratio 0 81 53 43 22 33 47 Total Operating Cost USD 8.0 6.2 3.7 3.5 3.4 24.9 million

Unit Production Cost (per USD/carat 0.85 1.16 0.51 0.59 1.18 0.81 carat)

Unit Production Cost (per USD/tonne 372 332 210 159 215 259tonne of ore) Unit Cost (per tonne of USD/tonne 4.5 6.1 4.8 6.8 6.4 5.4rock moved)

Kagem's key annual production parameters are summarised below:

Year Year to 30 to: Jun 2010 KAGEM Annual 30 Jun 30 Jun 30 Jun 30 Jun Yr-to-DateProduction Summary 06 07 08 09 (3 mnths) Gemstone Production million 10.2 9.4 9.9 28.0 2.9(Emerald+Beryl) carats Ore Production '000 22.0 28.8 42.3 80.3 16.0(Reaction Zone) tonnes

Grade (Emerald+Beryl/ carats/ 462 325 233 349 182 Reaction Zone) tonne

Waste Mined (including million 1.8 2.8 5.1 4.0 0.5TMS) tonnes Waste+TMS:Reaction strip 83 96 120 50 33Zone ratio

Cost-reduction measures have continued to bear fruit, resulting in reduced relative mining costs. However, the stripping ratio is anticipated to rise toward the end of this calendar year and is thus expected to have a commensurate impact on total mining costs. Gemfields has initiated a trial underground mining project which is still at an early stage but, if successful, should provide a number of opportunities for expansion into areas that have a history of high quality production but where the dip of the ore body is relatively steep.

Kagem's unaudited total operating costs for the five quarters ending 30 September 2009 totalled USD 24.9 million, implying an average production cost during that period of USD 0.81 per carat of emerald and beryl. Unaudited unit production costs for the quarter ending 30 September 2009 were USD 1.18 per carat, driven by the lowest quarterly average grade achieved since Gemfields acquired 75% of Kagem in June 2008. While disappointing, the lower grade can be attributed to a number of factors, some of which were anticipated and are linked to the the opening up of new areas for mining (including areas with a reduced stripping ratio).

During the quarter ending 30 September 2009, Gemfields realised revenues of USD 425k from the non-auction sale of two specimens under Gemfields' collective agreement to market and sell emerald mineral specimens in conjunction with Collector's Edge of the United States of America (www.collectorsedge.com/ news.aspx?showarticle=44).

Ms. Gabriella Endlin will be joining the company as of 1 November 2009 as Product and Sales Manager and will focus on establishing and promoting a globally recognised warranty, certification and grading system for Gemfields, ensuring an equitable and transparent route to market for rough and finished gems.

The management of Kagem, in association with the Government of the United Republic of Zambia (GRZ), have had to deal with some illegal mining activity taking place within the boundaries of the Kagem mining licence area over the past few of weeks. While the matter is as yet not fully resolved, various steps have been put in place and the support of all key GRZ Ministries has been obtained.

A graphical production update can be downloaded from www.gemfields.co.uk

Cash Balances

Gemfields presently has USD 7.7 million in cash. Kagem Mining Ltd, in which Gemfields has a 75% interest, has bank loans and leases repayable by 31 December 2010 totalling USD 6.6 million. In addition, Gemfields has gemstone inventory estimated by management to exceed USD 10 million.

Ian Harebottle, CEO of Gemfields, commented:

"Bolstered by the various operational, marketing and promotional efforts that the Company has already initiated in core markets, we are confident that the forthcoming auction will build on the success experienced in our July auction. Gemfields continues to make good progress in various areas despite the quarter ending 30 September 2009 having been marred by low grade (significant periodic variations in grade are not uncommon in coloured gemstone deposits). Naturally we hope that the grade will soon return to its long-term average. We are delighted with the early results of our arrangements to market and sell emerald mineral specimens together with Collector's Edge of the United States of America."

Enquiries:

Gemfields richard.james@gemfields.co.uk

Richard James, CFO +44 (0)20 7518 3402

Canaccord Adams Limited

Nominated Adviser and Joint Broker to Gemfields

Mike Jones/Tarica Mpinga/Andrew Chubb +44 (0)20 7050 6500