Gemfields Grou. Regulatory News (GEM)

GEMFIELDS GROUP LIMITED

(Incorporated in Guernsey)

(Guernsey registration Number: 47656)

(South African external company registration number 2009/012636/10)

Share code on JSE:GML / AIM:GEM

ISIN: GG00BG0KTL52 LEI: 21380017GAVXTCYS5R31

("Gemfields" or the "Company")

29 July 2020

Trading, Corporate & COVID-19 Update

The Company hereby provides a trading and corporate update including in respect of the COVID-19 pandemic.

Gemfields' priority remains the health and wellbeing of its employees, host communities and customers while striving to safeguard the viability and value of the Company. In each of its countries of operation, Gemfields continues to monitor closely the guidance and advice of the relevant authorities.

The financial information within this announcement is the responsibility of the directors and has not been reviewed or reported on by the Company's external auditors. 

Montepuez Ruby Mining, Mozambique

All but critical operations at the Montepuez Ruby Mine ("MRM") in Mozambique were suspended from 22 April 2020 and are presently expected to remain suspended until at least 30 September 2020. Security, maintenance and other essential services continue in order to ensure that MRM is properly secured and well placed to resume normal operations as soon as it is both safe and practicable to do so.

Employees not required for ongoing critical services have been placed on suspended contracts under prevailing Mozambican law and will for the time being receive reduced remuneration (subject always to minimum wage considerations). The same applies to MRM's board of directors. These measures have reduced the overall wage bill at MRM by approximately 25%.

MRM confirmed 10 cases of COVID-19 in onsite employees on 12 July 2020 following routine testing. The bulk of the cases were asymptomatic and all of the affected employees were placed in self-isolation under medical supervision. All those who might have come into direct contact with these employees and those who are vulnerable either due to their age or underlying medical conditions have also been self-isolated. Social distancing measures remain in place at MRM.

All significant capital expenditure projects, including the second ore treatment plant, remain suspended for the foreseeable future.

MRM's cost saving measures during the crisis have resulted in cash operating expenditure being reduced from approximately USD 2.6 million per month (the monthly average for the 3 months to 30 June 2019) to circa USD 1.8 million per month (the monthly average for the 3 months to 30 June 2020). Additional cost saving measures that have recently been implemented will further reduce the cash operating expenditure at MRM in the coming months.

MRM presently has sufficient inventory to support one mixed quality ruby auction.

Kagem Mining Limited, Zambia

Principal operations at the Kagem Emerald Mine ("Kagem") in Zambia were suspended from 30 March 2020, putting on hold a good run of premium emerald production. The sort house was partially re-opened in June 2020 to clear a backlog of sorting, grading and referencing of emeralds. Given prevailing circumstances, principal operations are presently expected to remain suspended until at least 31 October 2020.

Employees not involved in the ongoing delivery of critical services have been placed on reduced remuneration since May 2020 under available provisions in Zambia's New Employment Code Act. The same applies to Kagem's board of directors. Operationally critical employees have remained on full pay throughout the pandemic. These measures have reduced the overall wage bill at Kagem by approximately 20%.

Zambia has experienced an exponential rise in the number of COVID-19 cases in July 2020 and a fourfold increase in the number of deaths. Zambia's Copperbelt province - where most of Kagem's employees reside - remains severely impacted. However, there have to date been no known cases of COVID-19 at the Kagem mine itself.

Social distancing measures remain in place at Kagem. Of the 49 expatriate employees who had remained on site, 15 were given a passage home on special repatriation flights arranged by the Government of India. An additional 19 expatriates will go on leave to their respective countries when flights become available.

All significant capital expenditure projects remain suspended for the foreseeable future.

Kagem's cost saving measures during the crisis have resulted in cash operating expenditure being reduced from approximately USD 3.4 million per month (the monthly average for the 3 months to 30 June 2019) to approximately USD 1.3 million per month (the monthly average for the 3 months to 30 June 2020).

Kagem presently has sufficient inventory to support one higher quality and one commercial quality emerald auction.

Fabergé

Fabergé's directly operated retail operations have now reopened. Harrods (which closed its doors on 25 March 2020) re-opened on 15 June 2020. Fabergé's Houston boutique (which closed its doors on 19 March 2020) partially re-opened on 1 May 2020 with a by-appointment service which remains in place today. Fabergé's partner-operated mono-brand boutiques have also re-opened. The Fabergé Dubai Mall boutique (which closed on 20 March 2020) re-opened on 28 April 2020. Fabergé's partner operated boutique in Kiev, Ukraine (which closed on 19 March 2020) re-opened on 22 May 2020. In addition, the majority of the multi-brand retailers that Fabergé sells to have also reopened. Although the luxury retail market has been severely impacted by COVID-19, Fabergé is starting to see gradual signs of recovery in the market.

Fabergé's revenues (on an IFRS reporting basis) have been severely impacted during the first half of 2020, bringing USD 2.5 million compared with USD 3.8 million in the first half of 2019, a decline of approximately 34%.

Fabergé has sought to further reduce its operating costs and increase its online sales. Operating costs during the 3 months ending 30 June 2020 were approximately USD 1.7 million (versus USD 2.4 million for the same period in 2019), a reduction of approximately 29%. Fabergé's online sales have increased from USD 80k in the first half of 2019 to USD 360k in the first half of 2020, an increase of some 350%.

UK & Corporate

In light of the severe impact which COVID-19 has had on the Group's revenue stream and operations, the Company has instigated measures which progressively reduce costs as the anticipated impact of the pandemic protracts. On 1 May 2020, all UK staff members, including the Board of Directors of the Company, switched to a 20% remuneration reduction with UK employees being placed on a 4-day working week. These cost saving measures are presently expected to remain in place until at least 30 September 2020 with market and COVID-19 developments being closely monitored.

Operational Market Update to 30 June 2020

The Company has today also released, on its website, monthly operational performance data up to and including 30 June 2020 in respect of the Kagem emerald mine, the Montepuez ruby mine and Fabergé.

In addition, the Company has released on its website a document entitled 'Gemfields Inventory Accounting' in order to assist interested stakeholders in better understanding the accounting treatment of Gemfields' rough gemstone inventory.

The operational results and inventory accounting documents can be found on the Company's website at www.gemfieldsgroup.com.

Gemfields' 2020 Auction Schedule

Gemfields' auction schedule has been significantly impacted by the many government measures put in place to mitigate COVID-19 contagion.

Group-wide revenue in the six months ending 30 June 2020 was approximately USD 15.0 million. During the same period in 2019, group-wide revenue was USD 89.0 million implying a drop of some 83% in 2020. In 2019, 93% of Gemfields' group-wide revenue of USD 216 million was derived from the 6 gemstones auctions held during the year. Due to the COVID-19 pandemic, Gemfields has only been able to host one auction in 2020, yielding USD 11.5 million from the sale of commercial quality emeralds in February 2020 (most of which have yet to be delivered due to COVID-19 restrictions).

While not confirmed yet, it is noted that the influential Hong Kong Jewellery & Gem World show, originally scheduled for September 2020 and subsequently delayed to 9-13 November 2020, may be adversely affected by Hong Kong's reported extension to 31 December 2020 of the 14 day quarantine requirement for arriving persons.

Due to the persistent uncertainty, Gemfields is unable to provide reliable guidance as to when it might next be able to host gemstone auctions. Gemfields has however advised its customers of the intention to host both an emerald (higher quality) and a ruby (mixed quality) auction in December 2020.

Cash & Cash Conservation

As a result of the cost saving measures implemented across the group, monthly cash operating expenditure has dropped from approximately USD 12.1 million per month (the monthly average during the year to 31 December 2019) to less than USD 5.0 million for the month of June 2020. Average cash operating expenditure in the 6 months ending 30 June 2020 was below USD 7.0 million per month.

It should be noted that local circumstances and regulations vary across Gemfields' countries of operation. Suspensions of mining operations may therefore be lifted to various degrees at different times, including as a result of government or union related considerations, thereby impacting cost savings. Detailed disclosure relating to going concern will be included in the interim financial statements to 30 June 2020, which will be released by the end of September 2020.

A summary of the group's cash resources is tabulated below:

The cash balances shown are held by various group companies and are not freely transferable around the group. As a result of COVID-19 related restrictions, Gemfields remains unable to make delivery of emeralds to certain clients in respect of the emerald auction held in February 2020. Payment is expected as soon as delivery can occur.

The debt facilities held by the group are:

· At Kagem, a USD 20 million five year term loan (expiring in December 2024) and a USD 10 million revolving credit facility which has an initial three year term (expiring in August 2022). Both facilities bear interest at three-month USD LIBOR plus 5.5% per annum. The facilities were fully drawn at 31 December 2019 and USD 2 million is repayable in December 2020.

· At MRM, USD 30 million of overdraft facilities provided equally by two banking institutions. One facility has an interest rate of three-month USD LIBOR plus 4.0% per annum while the other bears USD LIBOR plus 3.75% per annum.

In addition to its existing USD 30 million overdraft facilities, MRM is seeking to finalise a further USD 15 million financing facility with a local bank.

Should it become clear that hosting gemstone auctions by the end of December 2020 is unviable, additional cash maintenance measures will be implemented and the Company is reviewing the requisite workstreams to prepare fund raising options, including a possible rights issue should that become necessary.

Shareholder Engagement

On 16 July 2020, a shareholders' conference call was held by the Company's Remuneration Committee to engage, inter alia, with those dissenting shareholders who had voted against the Company's Remuneration Report and Implementation Report at the Company's 2020 AGM. Several Gemfields shareholders attended the call and provided their feedback in respect of the two remuneration reports. The feedback centred around the following key topics: the total number of shares under the Share Option Plan exceeding recommended guidelines; the vesting period of the shares awarded under the Share Option Plan being shorter in timeframe than recommended guidelines; the lack of operational KPIs being used by the Company when awarding bonuses to executive directors and the level of basic remuneration of executive directors when benchmarked against cross-sector JSE-listed companies and to a lesser extent against cross-sector AIM-listed companies.

On 20 July 2020, as a result of shareholder interest in better understanding the role of marketing in respect of gemstones generally and specifically at Gemfields, the Company hosted a webinar and roundtable discussion open to all shareholders. The session covered Gemfields' mine-and-market approach and its ownership of Fabergé.

The Company would like to thank the shareholders attending these events for their participation and feedback. 

Sean Gilbertson, CEO of Gemfields, commented:

"Conditions remain very challenging for Gemfields and for the wider gemstone sector. The effect of travel restrictions, quarantine periods and prohibitions on large gatherings, combined with rising COVID-19 infection rates in our African host nations and in India - our key market for rough emeralds - mean that conditions presently look bleaker rather than better for the remainder of 2020. There remains considerable uncertainty as to whether Gemfields will be able to successfully host gemstone auctions by the end of this year. Our last auction revenue was USD 11.5 million in February 2020 and we should typically be above USD 100 million of auction revenue by this time of the year.

Both of our mines remain suspended, meaning no new supply has been produced since mid-April 2020. That said, Kagem presently has sufficient inventory to support one higher quality and one commercial quality emerald auction while MRM can presently support one mixed quality ruby auction.

Despite five months without gemstone auction revenue, the cost optimisation initiatives implemented by our hard-working teams and our remaining cash balances enable us to pursue stability in the coloured gemstone sector as we navigate the months ahead and strive to prolong a balancing of the books."

Further information on Gemfields Group Limited can be found at www.gemfieldsgroup.com

To join our investor mailing list, contact us on: companysecretary@gemfields.com 

For any press enquiries please contact us on gemfields@camarco.co.uk  

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Additional information on Gemfields

Gemfields is a world-leading supplier of responsibly sourced coloured gemstones. Gemfields is the operator and 75% owner of both the Kagem emerald mine in Zambia (believed to be the world's single largest producing emerald mine) and the Montepuez ruby mine in Mozambique (one of the most significant recently discovered ruby deposits in the world). In addition, Gemfields also holds controlling interests in various other gemstone mining and prospecting licenses in Zambia, Mozambique, Ethiopia and Madagascar.

Gemfields' outright ownership of Fabergé - an iconic and prestigious brand of exceptional heritage - enables Gemfields to optimise positioning, perception and consumer awareness of coloured gemstones, advancing the wider 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 coloured gemstones to downstream markets, a key component of Gemfields' business model and has played an important role in the growth of the global coloured gemstone sector.