Gemfields operations severely impacted by COVID-19

Gemfields has reported 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.

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.”

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). These measures have reduced the overall wage bill at MRM by approximately 25%.

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 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 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. Operationally critical employees have remained on fullpay 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  

COVID-19 at the Kagem mine itself.

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 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.

SHORT-TERM PROSPECTS

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.

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.

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.

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.

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