Gemfields Grou. Regulatory News (GEM)

Gemfields plc

("Gemfields" or the "Company")

Gemfields plc (AIM: GEM) is pleased to present an operational update for the three month period ending 31 December 2015, the second quarter of the financial year 2016. All figures are approximate and unaudited. Unless otherwise stated, the term "carats" includes both emerald and beryl in relation to the Kagem emerald mine, and both ruby and corundum in relation to the Montepuez ruby deposit.

Highlights

Emeralds

· Production summary for 75%-owned Kagem Mining Limited ("Kagem") in Zambia for the quarter ending 31 December 2015:

§ Production of 8.2 million carats of emerald and beryl (versus 5.8 million carats in the quarter ending 31 December 2014);

§ Average grade of 272 carats per tonne (versus 190 carats per tonne in the quarter ending 31 December 2014);

§ Total operating costs(a) of USD 11.3 million (versus USD 11.6 million in the quarter ending 31 December 2014);

§ Unit operating costs(b) of USD 1.38 per carat (versus USD 2.00 per carat in the quarter ending 31 December 2014), while on a cash basis(c) unit operating costs were USD 0.91 per carat (versus USD 2.12 per carat in the quarter ending 31 December 2014), following the on schedule completion of the fourth high wall pushback in September 2015; and

§ Cash rock handling unit costs of USD 2.68 per tonne (versus USD 2.93 per tonne in the quarter ending 31 December 2014).

· November 2015 auction of predominantly lower quality rough emerald and beryl held in Jaipur, India generated revenues of USD 19.2 million at an average value of USD 4.32 per carat, delivering record results for lower quality rough emerald auctions to date; and

· Gemfields' next auction of predominantly higher quality rough emerald extracted from Kagem is scheduled to take place in March 2016.

Rubies

· Production summary for 75%-owned Montepuez Ruby Mining Limitada ("Montepuez") in Mozambique for the quarter ending 31 December 2015:

§ A focus on processing additional volumes of higher quality alluvial resource resulted in the production of 1.6 million carats of ruby and corundum (versus 3.4 million carats in the quarter ending 31 December 2014), with a 1,825% increase in the volume of higher quality rubies recovered;

§ Average grade of 22 carats per tonne (versus 34 carats per tonne in the quarter ending 31 December 2014), attributable to a greater proportion of higher quality, but lower grade, alluvial ore being processed during the quarter;

§ Total operating costs(a) of USD 6.9 million (versus USD 5.7 million in the quarter ending 31 December 2014), attributable to the continued increase in the scale of exploration, processing and mining activities being carried out across the licence area;

§ Unit operating costs(b) of USD 4.31 per carat (versus USD 1.68 per carat in the quarter ending 31 December 2014) as a direct result of the steady increase in the scale of operations and a short term decrease in production volumes. On a cash basis(c), unit operating costs were USD 3.31 per carat (versus USD 1.44 per carat in the quarter ending 31 December 2014); and

§ Cash rock handling unit costs of USD 5.02 per tonne (versus USD 5.24 per tonne in the quarter ending 31 December 2014) with improved efficiencies supporting a reduction in unit costs and increased rock handling.

· December 2015 auction of higher and medium qualities of rough ruby extracted from Montepuez ruby mine held in Singapore generated auction revenues of USD 28.8 million at an average value of USD 317.92 per carat.

Fabergé

· Sales orders agreed(d) during the quarter ending 31 December 2015 increased by 13% when compared to the quarter ending 31 December 2014. The gross profit margin on sales orders agreed increased from 31% to 49% over the same period;

· Unit sales during the quarter ending 31 December 2015 increased by 48% when compared to the quarter ending 31 December 2014;

· Total operating costs for the quarter ending 31 December 2015 increased by 16% when compared to the quarter ending 31 December 2014, largely due to an increase in advertising spend; and

· Awarded prestigious Grand Prix d'Horlogerie de Genève ("GPHG") held in October 2015, the Swiss watchmaking industry's highest honour, in the 'Ladies Hi-Mechanical' category with its 'Lady Compliquée Peacock' timepiece. The award cements Fabergé's position as a leader in the watch-making industry.

Ian Harebottle, CEO of Gemfields, commented:

"The second quarter of the 2016 financial year has delivered positive results across Gemfields' operations. Kagem delivered a 41% increase in production volumes year-on-year while costs continue to be well maintained. This is an excellent achievement and clearly demonstrates the positive impact of our ongoing commitment to increased efficiencies and improved mining methods. In addition, the exploration and bulk sampling activities are progressing as planned and yielding promising results.

At Montepuez, continuing from the first quarter of this financial year, the bulk sampling operations remained focussed on the processing of ore derived from alluvial resources which are known to deliver lower volumes of significantly higher quality and value production, resulting in a 1,825% increase in the volume of higher quality rubies recovered. Montepuez continues to produce encouraging results and constantly improving geographical knowledge and insight across the licence area providing a high level of confidence that production volumes will soon to be supported by the planned shift in mining focus to areas where the grade is known to be higher, but with a commensurate reduction in value, in the coming months. We thus maintain our production target for the 2016 financial year of 25 to 30 million carats for rough emeralds and 8 million carats for rough rubies.

Fabergé has continued to reap the benefits of its successful watch campaign, launched in early 2015, and has delivered an increase in both unit sales and total sales revenue during the quarter. The coloured gemstone sector also appears to have avoided many of the challenges being faced within the diamond and wider resource sector as we look forward to our upcoming higher quality emerald auction in March 2016."

Explanatory Notes:

(a) Total operating costs include mining and production costs, selling, general and administrative expenses, depreciation and amortisation, but exclude capitalised costs and mineral royalties.

(b) Unit operating costs are calculated as total operating costs divided by the total gemstone production during the period.

(c) Cash operating costs include mining and production costs, capitalised costs, selling, general and administrative expenses, and exclude PPE-related capital expenditure, depreciation, amortisation and mineral royalties.

(d) Sales orders agreed are sales that Fabergé has agreed and confirmed with customers during the reporting period. Payment and/or delivery may take place later.

KAGEM EMERALDS

Production and Operations Update

The 75%-owned Kagem emerald mine remains the single largest producing emerald mine in the world. The key production parameters by quarter and half year are summarised below:

(a) Cash operating costs include mining and production costs, capitalised costs, selling, general and administrative expenses, and exclude PPE-related capital expenditure, depreciation, amortisation and mineral royalties.

(b) Total operating costs include mining and production costs, selling, general and administrative expenses, depreciation and amortisation, but exclude capitalised waste stripping costs and mineral royalties.

(c) As at 31 December 2015, a total of approximately USD 63.3 million of waste moving costs has been capitalised and is being amortised as and when the associated ore is mined. The balance of capitalised waste moving costs, net of amortisation, as at 31 December 2015 amounted to USD 21.3 million.

(d) Half year 2015-16 total rock handling figure doesn't equal the sum of Q1 2016 and Q2 2016 figures due to rounding.

The fourth high wall pushback was completed in September 2015 leaving approximately 15 months of exposed ore available for mining. Continued waste stripping of the Chama pit will be done in-house, without a contractor, in the foreseeable future.

Total rock handling during the quarter ending 31 December 2015 was 2.8 million tonnes, with all of this being moved by the in-house mining team. Increasing the overall strike length at the Chama pit operation and optimising the blasting and scheduling techniques assisted in further improved mining efficiencies and productivity. In addition, the exploration and bulk sampling activities at the Fibolele and Libwente pits are progressing well and have thus far yielded some promising results. The mining operations at the Fibolele pit have advanced during the period, taking the pit to an extended strike length of 600 metres, and yielded 1.6 million carats of emerald and beryl during the quarter.

Kagem has also increased its processing efficiency and capacity following an upgrade and extension to the existing washing plant facility, as well as the installation of an updated digital security and surveillance infrastructure. An improved climate-controlled environment has also been established within the extended picking facility, resulting in an improved working environment and better operating controls.

Kagem continues to maintain an excellent safety record, with no reportable lost time injuries having occurred since taking over the mine and a high-level commitment to the safety and wellbeing of our employees. In line with the expansion of mining operations, Kagem has proactively embarked on a comprehensive site wide Environmental Impact Assessment ("EIA") which is currently under process for approval.

Emerald Auction Update

The November 2015 auction of predominantly lower quality rough emerald and beryl held in Jaipur, India saw 4.45 million carats being sold, representing 95% of the value and 88% of the weight offered, and generated a record lower quality auction revenue of USD 19.2 million. The auction yielded an overall average value of USD 4.32 per carat, the highest average price per carat achieved to date for an auction of this nature.

The auction results during the quarter are summarised below:

The November 2015 traded emerald auction of predominantly higher quality rough emeralds, originating from Zambia and Brazil and obtained by Gemfields in the open market, was held in Jaipur, India, alongside the lower quality rough emerald and beryl auction. The traded rough emerald auction yielded gross revenues of USD 1.1 million with 20,400 carats being sold.

Gemfields' next auction will be of predominantly higher quality rough emerald and is scheduled to take place in March 2016.

MONTEPUEZ RUBIES

Production and Operations Update

The ongoing mining and bulk sampling operations at the Montepuez ruby deposit in Mozambique, in which Gemfields has a 75% interest, continue to provide positive results and sound insight into the geology of the deposit throughout the licence area. This test work has led to an enhanced understanding of the ore characteristics and has supported the identification of additional higher value (lower grade) alluvial ore resources. Throughput at the existing semi-mobile processing plant saw an approximate 29% decrease in tonnes processed when compared to the same quarter in the prior year, largely on account of the rainy season making the clay-rich head feed difficult to process. Upgrades to the existing wash plant are planned to be carried out in a phased manner throughout the 2016 calendar year with a view to further improving its processing efficiency.

The key production parameters by quarter and half year are summarised below:

(a) Cash operating costs include mining and production costs, capitalised mining and production costs, selling, general and administrative expenses, and exclude capital expenditure, depreciation and mineral royalties.

(b) For the period to 30 June 2014, mining and production costs were capitalised. The total operating costs included security costs, selling, general and administrative expenses and depreciation, but exclude mineral royalties and capitalised mining and production costs. Following the reclassification of the Montepuez Ruby Mine from intangible unevaluated asset under IFRS 6 to evaluated mining property, mining and production costs are recognised in the income statement from 1 July 2014. From 1 July 2014, the total operating costs include mining and production costs (including security costs), selling, general and administrative expenses, and depreciation, but exclude mineral royalties.

(c) Total operating costs in the quarter ending September 2014 have been restated due to a change in accounting treatment of mining and processing costs as stated above.

In the quarter ending 31 December 2015, total ore mined amounted to 132.9 thousand tonnes (versus 158.3 thousand tonnes for the quarter ending 31 December 2014), of which 71.7 thousand tonnes were processed (versus 101.4 thousand tonnes for the quarter to 31 December 2014). The key focus has been on mining the Mugloto block, where a known higher value deposit is spread over a large area, as well as the delineation of an additional and recently identified area that has the potential to produce material of exceptional quality, resulting in an increase in the volume of waste mining and a total of 922.0 thousand tonnes being moved (versus 776.9 thousand tonnes for the quarter ending 31 December 2014). Increased processing of the Mugloto ore reduced overall grade to 22 carats per tonne with production of 1.6 million carats of ruby and corundum but with a corresponding 1,825% increase in the volume of higher quality rubies recovered.

The construction of the new Montepuez camp commenced in March 2015 with a total of 102 housing units, a recreation unit, canteen and new kitchen being built. The first set of housing units have been commissioned and allotted. Completion of the project and handover of the camp and grounds is targeted for the end of April 2016. 

Given the size and nature of the Montepuez ruby licence, unlicensed mining activity and asset loss remain key challenges. The implementation of new infrastructure facilities and improved technological interventions such as the enhancement of radio communication ranges, mobile camera lighting towers, increased numbers of CCTV cameras and mobile guard posts resulted in a visible improvement to overall security.

An extensive and dynamic security plan has been formulated and is being implemented at site level. A dedicated training programme for security personnel incorporating human rights and soft skill development has been provided. 

The period was injury free with no major incidents reported. The EIA plan for Montepuez has been approved by the Mozambican authorities, while the rehabilitation of mined out areas and an extensive plantation programme is ongoing.

Various social initiatives are currently underway within the local communities, including preparation of the farmlands, installation of street lighting in a nearby village, an HIV awareness programme and an animal farming project.

In November 2015, a new amalgamated licence 4703C (combining the two initial licences 4702 & 4703) covering an area on 34,966 hectares was issued in favour of Montepuez by the Government of Mozambique.

Ruby Auction Update

The December 2015 auction of higher and medium qualities of rough ruby extracted from Montepuez ruby mine held in Singapore saw 90,642 carats being sold, representing 95% of the value offered and 98% of the weight offered, and generating auction revenues of USD 28.8 million. The auction yielded an overall average value of USD 317.92 per carat.

The auction results during the quarter are summarised below:

FABERGÉ

Fabergé enjoyed a strong quarter with sales orders agreed increased by 13% when compared to the quarter ending 31 December 2014. Gross profit margin increased from 31% to 49% and unit sales increased by 48% when compared to the quarter ending 31 December 2014.

Total operating costs increased by 16%, when compared to the quarter ending 31 December 2014, largely due to an increase in advertising spend, with Fabergé's first significant print advertising campaign since Christmas 2013 held throughout the Christmas period and focused on the key Emotion, Devotion and new timepiece collections.

Fabergé won the prestigious GPHG award held in October 2015, the Swiss watchmaking industry's highest honour, in the 'Ladies Hi-Mechanical' category with its 'Lady Compliquée Peacock' timepiece. Following this accolade, editorial coverage for this timepiece and the wider collection was seen in Revolution, Vogue, Tatler and Vanity Fair as well as many other titles. Fabergé's media exposure was at an all-time high in December 2015 with over 160 separate pieces of coverage seen worldwide.

COLOMBIA

Following the announcement of the two emerald projects in Colombia, namely Coscuez Emerald Mine and the ISAM exploration prospects, a fully owned Colombian subsidiary was established which will allow for a full time Gemfields senior management team to be positioned in Colombia.

During the period, Gemfields conducted a series of meetings with key Colombian ministries, agencies and leading press to present its plans for the Colombian projects. In October 2015, Gemfields sponsored and attended the first International Emerald Symposium in Bogota, Colombia. The meetings and symposium have been well received.

Exploration and mine planning activities such as drone surface topographic survey, underground survey, and preliminary assessment of engineering solutions for Coscuez Emerald Mine access were initiated as part of the ground preparations for future operations. Further exploration activity will be carried out over the next 18 to 24 months to support the development of a geological model and a preliminary mine plan.

SRI LANKA

Following the issuance of the trading licence to Ratnapura Lanka Gemstones (Pvt) Ltd ("Ratnapura Lanka Gemstones"), Gemfields has completed the establishment of the required infrastructure and equipment for trading in Colombo and Ratnapura.

Gemfields has also completed its preliminary assessment on some of the exploration licences covering diverse minerals and expects to continue its assessment of the other licences in the current calendar year.

ETHIOPIA

Manual trenching exercise has been completed on a promising area in the northern part of the licence named Dogogo Hill. The block measures 1.92 km2, covering a strike length of 2.4 km with eight trenches being planned at 100 metre intervals. Excavation of the trenches was completed in November 2015, with a cumulative length of 2.2 km. The trenches exposed contacts between pegmatites and talcose schists, and the occurrence of beryl has been recorded. A pitting exercise has been initiated at the contact zones exposed during the trenching exercise.

A detailed geological mapping exercise has been completed concurrently at various scales in another block to the south of the licence, called Karolo Kora Hill. This block measures 13.75 km2, and covers a 5.5 km strike length of the ultramafic belt.

CORPORATE & CASH

At 31 December 2015, Gemfields had cash and cash equivalents of USD 24.9 million and total debt outstanding of USD 55 million, which includes the outstanding debt balance of USD 30 million at Kagem with Barclays Bank, a USD 15 million loan from Macquarie Corporate Holdings Pty Limited (UK Branch) and a USD 10 million loan from Pallinghurst Resources Limited. In the quarter to 31 December 2015, Gemfields had total sales, general and administrative expenses of USD 14.5 million.

ENQUIRIES:

Notes to Editors:

Gemfields plc is a leading supplier of responsibly sourced coloured gemstones and is quoted on the AIM market of the London Stock Exchange (ticker: GEM) where it is a constituent of the AIM50 index.

Gemfields is the operator and 75 per cent. owner of both the Kagem emerald mine in Zambia (believed to be the world's single largest producing emerald mine) and the Montepuez ruby deposit in Mozambique (one of the most significant recently discovered ruby deposits in the world). In addition Gemfields also holds a 50 per cent.

interest in the Kariba amethyst mine in Zambia, as well as controlling interests in various other gemstone mining and prospecting licenses in Zambia, Mozambique, Colombia, Ethiopia, Madagascar and Sri Lanka.

Gemfields' outright ownership of the Fabergé brand - an iconic and prestigious brand of exceptional heritage - enables Gemfields to optimise positioning, perception and consumer awareness of coloured gemstones, advancing the Group's "mine and market" vision.

Gemfields has developed a proprietary grading system and a pioneering auction and trading platform to provide a consistent supply of quality coloured gemstones to the global downstream markets. This is a key component of the Company's business model which the Directors believe has played an important role in the appropriate distribution and associated resurgence of the global coloured gemstone sector.

www.gemfields.co.uk