A Vision for Zambian Emeralds

7/28/2019 A Vision for Zambian Emeralds

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A VISION FOR

ZAMBIAN EMERALDS

2013 Zambian Emerald Summit

Lusaka

30 31 May 2013


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Gemfields plc

The Coloured Gemstone Company

FABERGKagem

Emerald MineMontepuezRuby Mine

KaribaAmethyst Mine

MadagascarLicences

100% 75% 50% 100%75%

Hundreds ofshareholders

Pallinghurst ResourcesLtd

51% 49%

Who is Gemfields?

1. Gemfields plc is publicly listed on the London Stock Exchanges AIM list.2. As such, any person can purchase shares in Gemfields.


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FY to 30 Jun 06 FY to 30 Jun 07 FY to 30 Jun 08 FY to 30 Jun 09 FY to 30 Jun 10 FY to 30 Jun 11 FY to 30 Jun 12

Kagem Annual Gemstone ProductionEmerald + Beryl (millions of carats)

GEMFIELDS acquires 75% of Kagem


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Kagem: Total Monthly Carats Produced

Even for a very large operation, gemstone production is very erratic.

Erratic production = high level of risk (requires capital to survive the lean times).

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1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

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Kagem Monthly Gemstone Production (carats)

Emerald+Beryl



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Emerald Geology on a Page1. Emerald ore, known as Reaction

Zone (RZ), is created when a

pegmatite cuts through a layer or

belt of talc-magnetite-schist

(TMS).

2. A complex reaction between the

pegmatite and the TMS results in

a layer of RZ of varying thickness

and quality. This reaction gives

rise to emerald and beryl crystals.

3. RZ contains emeralds and beryl.

Both TMS and pegmatite are

essentially devoid of emeralds and

beryl.

4. TMS belts are typically 10-40

metres thick.

5. Pegmatites vary from a few

centimetres to tens of metres

thick.

SIMPLIFIED STRUCTURE DIAGRAM

TMS

BELT

PEGMATITE

REACTION

ZONE


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Kagem Emerald Mine Total Rock Handling

Kagem is close to moving 1 million tonnes of rock EACH month!

Very heavy investment in further opening the pit during the last 18 months.

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Kagem Total Rock Handling (tonnes)



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Kagem Emerald Mine Total Cash Operating Costs

Total spent on operating Kagem since July 2008: USD 106 million

This excludes capital investment in equipment and infrastructure!

700

1,200

1,700

2,200

2,700

3,200

Jul'08 Oct '08 Jan'09 Apr'09 July'09 Oct'09 Jan'10 Apr'10 Jul'10 Oct'10 Jan'11 Apr'11 Jul'11 Oct'11 Jan'12 Apr'12 Jul'12 Oct'12 Jan'13

KAGEM's TOTAL MONTHLY CASH OPERATING COSTS

USD '000 (UNAUDITED)


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Kagem: Carats per tonne of rock

Kagem produces about 3 carats of emerald and beryl per tonne of rock mined(average during the last 12 months)

This equates to 0.6 grams per tonne (less than one part per million) If one excludes beryl (i.e. emerald only), this becomes less than 1 part in 5 million!

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Gemstone carats per tonne of rock mined and handled (carats per tonne)

Emerald+Beryl



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We invest in marketingour 1st campaign


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Advertising Campaign #2: Assisting The Downstream Industry


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2012 Advertising Campaign Rare Coloured Gemstones


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Gemfields MarketingFT How To Spend It at Kagem


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The Romanov Necklace by Faberg (featuring ZAMBIAN emeralds)Retail Price USD 2.85 million (excl. VAT!)

A super duper necklace, but it perpetuates one of the emerald sectors greatest myths:That all emeralds are equal, and that they are all worth a fortune.

Er, no!


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MYTH BUSTING: EMERALD VALUES (ROUGH)

Once all of this has averaged out at Kagem, the average equates to around USD3.50 per carat (or USD 17.50 per gram) when sold as rough at international auction

US$ 10,000 per gram

US$ 0.02 per gram

PRICE INCREASES

(500,000 times!)

Qualitydeteriorates

dramatically.

and production

volume/weightincreases dramatically

70% of totalrevenue comes

from just 10% of

the weight.


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MYTH BUSTING: CUTTING & POLISHING I

August 2008: Gemfields decides to add value with cutting and polishing Sets up in India due to dramatically lower labour cost (and a world leader) The exercise failed (margins, client universe, consignment!) By August 2009: THE FACILITY WAS CLOSED. FACT: Today, Gemfields has NO cutting & polishing (outside Zambia)

IDIOT!August 2008


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MYTH BUSTING: CUTTING & POLISHING II

The biggest margin is in MINING PRODUCTION The second biggest margin is in RETAIL Overall, cutting and polishing is a fairly low margin business.

A BAIN STUDY ON THE DIAMOND SECTOR:


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Emerald Prices Performing Well

Source: Forbes India, August 2012

vs.


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KAGEMS INTERNATIONAL EMERALD AUCTIONS: AMAZING RESULTS!

0.31

0.77

1.12

2.61

2.42

4.375.12

9.35

26.19

42.71

38.25

29.71

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Kagem Rough Emerald & Beryl AuctionsActual Sales Prices (USD/carat)

Calculated as: USD Received / Total Weight Sold

Lower Grade (Left Axis)

Higher Grade (Right Axis)

Why seek to stop a method that is clearly working?


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MYTH BUSTINGThe Hidden Billions

1. Kagems total revenues to 30 June 2012 were USD 78 million

2. If Gemfields was engaging in transfer pricing, or was somehow making additionalrevenues or profits offshore, those additional revenues would show up in the

audited, published accounts for Gemfields plc (a London-listed company)

3. Gemfields total consolidated revenues to 30 June 2012 were USD 84 million

4. So, Gemfields revenues exceed those ofKagem by only USD 6 million.

5. The USD 6 million is explained by:

50% stake in Kariba

Commissions earned when assisting clients with selling their polished gems Acquiring and selling rough from other markets like Brazil and Jaipur

So, who is making the allegations that Gemfields / Kagem are hoarding revenues and

profits offshore?


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A REQUEST TO GRZ TO AID TRANSPARENCY:

Commence publishing key emerald sector data

KEY ZAMBIAN EMERALD SECTOR DATA UNITS 2006 2007 2008 2009 2010 2011 2012 2013*

INPUT DATA

1 Corporation Tax Paid by Emerald Producers Kwacha Rebased

2 Minera l Royalty Collections i. r.o. Emerald/Beryl Kwacha Rebased 597,200 4,592,407 304,533 2,994,198 3,690,141 17,730,376 16,805,197 6,648,6763 Total Weight of Declared Zambian Emerald/Beryl Exports Grams

*YTD

OUTPUTS

4 I mplied value of all Emerald and Beryl Exports Kwacha Rebased

5 U nit Value of Zambian Emerald / Beryl Exports Kwacha / Gram


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OBSERVATIONS I

The KEYS to the growth of the Zambian emerald sector include:

Transparency

Consistent, Reliable and Secure supply

International Marketing Reputation Building

Communication & Collaboration


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OBSERVATIONS II

1. The entire planet is moving to a new era of transparency EMBRACE IT.

2. Gemfields and Kagem WELCOME government involvement and monitoring in gemstonemining and sales.

3. Zambia is the third biggest emerald producer (behind Colombia and Brazil)a. We must remain competitive, reliable and secureb. Wobbles in Zambia make customers nervous

4. Mining generally works better when the scale is bigger. Small-scale producers may findsynergies in teaming up or merging their operations / licences.

5. Transform local value addition with cleaning, grading and sorting MUCH better marginsthan cutting and polishing.

6. Clamp down on illegal dealers and traders they destroy prices.

7. A possibility: Gemfields plc listing on the Lusaka Stock Exchange.

8. An idea: a dedicated GRZ Emerald Taskforce to oversee the sector and publish production,export and value information for all to see.


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A PROPOSAL: FAIR PRICES FOR THE INFORMAL MARKET

Kitwe Emerald Co-Op [/Exchange?] Ltd

Gemfieldsplc

BuyingMember 2

BuyingMember 3

Owners: ESMAZ and possibly others

100%Any roughemeraldsellers

1. An open, voluntary, multi-party buying platform = fair prices2. Proper recording of Buying Members purchases for export / ZRA purposes3. Kagem/Gemfields would identify and fund the set-up of a suitable location as one

of their CSR projects4. The Co-Op would earn a commission on all transactions to fund its operating costs5. If desired, Kagem/Gemfields would provide training and skills-transfer during the

first year to aid in operating the facility, and would for up to one year providethe requisite operating costs.


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THANK YOU.

Documents

A Vision for Zambian Emeralds