Gemfields Resources Plc
Interim results for the six month period ended 31 December 2006
30 March 2007
Gemfields Resources Plc ("Gemfields" or "the Company", Ticker "GEM"), the AIM
quoted gemstone mining and exploration company, announces the interim financial
results of the Company for the six month period ended 31 December 2006.
Highlights
* Commencement of trial mining at the Company's 100% owned Mbuva-Chibolele
Emerald Mine in Zambia.
* The Company's first revenue from a US$768,246 sale of emeralds from
Mbuva-Chibolele; post period end revenue from second sale of emeralds of
US$1,028,128.
* The securing of further emerald licences in Zambia.
* The placing of 8,000,000 new ordinary shares, raising �3,200,000 before
expenses for production expansion.
Review of Operations
Gemfields has been very active in the six month period ended 31 December 2006.
The Company continued its focus on the initial development of the 100% owned
Mbuva-Chibolele Mine in Zambia with trial mining commencing in July, only eight
months after its initial public offering. The first sale of emeralds also took
place generating maiden revenue of US$768,246 in November from a partial sale
of production to that date and another sale has been completed since the end of
the period generating a further US$1,028,128. The first phase of the washing
plant installation has been completed and although not yet fully commissioned,
it has already begun to process previously stockpiled ore.
Gemfields continued its strategic vision to develop a range of different
precious stone operations with the securing of an amethyst and a further
emerald licence in Zambia and an option on a pink tourmaline mine. Gemfields
obtained a further emerald licence through the acquisition of the entire issued
capital of Sarina Global Limited, the owner of the Mitondo East exploration
licence in the Ndola Rural Emerald Restricted Area ("NRERA") for a total
consideration of 1,500,000 ordinary shares. A large scale amethyst prospecting
licence was also approved by the Ministry of Mines in favour of Gemfields,
extending its operations around the Kariba Amethyst Mine ("Kariba"). The
Company also paid US$50,000 for an option to purchase the Jagoda Pink
Tourmaline Mine ("Jagoda"). The exercise price is US$1.95m and the option
expires in September 2007.
The Company also completed a placing of 8,000,000 new ordinary shares just
prior to Christmas, raising �3,200,000 before expenses. This placing was
completed to provide funds for the exploration of Jagoda and the expansion of
Kariba.
The cash balance at the end of the period of US$6,976,253 did not include the
proceeds from the above placing which were not received until January 2007. The
Company now has in excess of US$11m in cash.
Mbuva-Chibolele Emerald Mine
Revenue US$768,246 (includes emeralds and beryl)
Carats sold 607,912 (includes emeralds and beryl)
Revenue per carat of $1.90
emerald sold
On the basis of initial mining it is too premature for management to accurately
assess how many carats per tonne of ore can be expected to be produced on
average over the life of the mine.
The revenue per carat of emeralds sold so far is also not necessarily
representative of values going forward as the quality of emeralds is expected
to improve as the mine becomes deeper. Indeed there has already been a 57%
increase in terms of per carat value from the first sale in November 2006 to
the second sale held in February 2007. This trend for better quality emeralds
is encouraging.
The quantity of emeralds produced per tonne of ore should also improve as
mining moves further away from the near surface, lower grade mineralisation.
It is also pleasing to be able to state that there are now three main
pegmatites exposed in the mine, and these are all about to enter simultaneous
production in April, vastly improving selection and flexibility.
Kariba Amethyst Mine
Kariba continues its production of amethyst, management being shared with the
Government of Zambia at this stage. Gemfields has embarked upon the
implementation of a major expansion plan for Kariba to increase the production
multi-fold over the next two years. The resource definition drilling has
commenced on the property and is expected to support the feasibility study for
expansion. The rate of ore production has already seen an increase of 100% in
the current month.
Jagoda Pink Tourmaline Mine
Preliminary exploratory work has been completed at Jagoda and a combination of
detailed geophysical surveys are to commence shortly followed by exploratory
core drilling for definition of the resource potential. The gem bearing
pegmatite appears to have a strike extension of about 700 metres based on the
results so far.
Kamakanga Emerald Mine
Exploration has commenced at the Kamakanga Emerald Mine, the furthest west of
Gemfields' active licences on the known prolific Fwaya Fwaya belt. The results
of airborne and ground geophysical surveys have indicated strike extensions of
the emerald belt on either side of the mine. This is to be followed up by
trenching and exploratory core drilling.
Emerald Exploration Licences
Gemfields controls the majority of the prospective strike lengths of ultrabasic
rock in the NRERA comprising about 60% of the total length and maintains its
focus on further consolidation of this belt. Airborne geophysical surveys have
indicated some prospective locations that have been followed up with
geochemical sampling.
Other Gemstone Mines
The Company has applied for other gemstone licences in Zambia and is also
negotiating to acquire other mines and joint ventures in sub-Saharan Africa.
Outlook
Gemfields' long term strategic plan is to diversify its portfolio from its core
emerald producing and exploration operations to a range of different gem
producing operations. Progress has been made towards this goal with the recent
acquisitions and the raising of further capital.
A privatisation agreement to purchase a further 26% of Kariba Amethyst from the
Government of Zambia is expected to be signed shortly. This will give Gemfields
a 76% shareholding in Kariba. An independent report will be commissioned once
this has been completed with the Company then intending to rapidly increase
production from its current levels. Exploration has commenced at other
properties and the Company continues to pursue other opportunities in the
gemstone sector in Zambia and elsewhere.
Commenting on the results, Graham Mascall, Chairman of Gemfields, stated: "I am
very pleased to be able to announce maiden revenue in such a short period of
time from our rapidly growing precious stones business. While the focus is
still very much on the ramp up of the high quality emerald production at
Mbuva-Chibolele, we expect that our ability to extend operations significantly
from Kamakanga and potentially from other mines in the area, the consolidation
and aggressive ramp up at Kariba, and the exciting pink tourmaline prospects at
Jagoda, will allow for significant value enhancement in Gemfields. Furthermore,
this aggressive ramp up is likely to feed into a coloured stone market that is
continuing to experience significant value growth."
Gemfields Resources Plc
Consolidated profit and loss account for the six months ended 31 December 2006
Unaudited Unaudited Audited
Six months to Six months Year ended
to
31 December 31 December 30 June
2006 2005 2006
(restated) (restated)
Note US$ US$ US$
Turnover
Group and share of joint venture 1,293,175 634,658 1,171,332
less: share of joint venture (524,929) (634,658) (1,171,332)
turnover
________ ________ ________
768,246 - -
________ ________ ________
Cost of sales (2,902,021) - -
Administration expenses (1,709,950) (2,382,817) (3,070,198)
________ ________ ________
Group operating loss (3,843,725) (2,382,817) (3,070,198)
Share of operating loss in:
Joint ventures (86,301) (16,836) (228,131)
________ ________ ________
Loss on ordinary activities before
interest and taxation (3,930,026) (2,399,653) (3,298,329)
Interest receivable - group 244,247 34,392 371,310
Interest payable - group (1,513) (50,000) (8,025)
Interest payable - share of joint (14,927) - (37,684)
venture
________ ________ ________
Loss on ordinary activities before (3,702,219) (2,415,261) (2,972,728)
taxation
Taxation on loss on ordinary - - 48,106
activities
________ ________ ________
Loss on ordinary activities after (3,702,219) (2,415,261) (2,924,622)
taxation
________ ________ ________
Loss per share
Basic 2 US$(0.04) US$(0.04) US$(0.04)
________ ________ ________
All amounts relate to continuing
activities.
Gemfields Resources Plc
Consolidated statement of total recognised gains and losses and reconciliation
of movements in shareholders' funds for the six months ended 31 December 2006
Unaudited Unaudited Audited
Six months to Six months Year ended
to
31 December 31 December 30 June
2006 2005 2006
(restated) (restated)
US$ US$ US$
Statement of total recognised gains and
losses
Loss for the financial year
- Group (3,600,991) (2,398,.425) (2,706,913)
- Joint venture (101,228) (16,836) (217,709)
________ ________ ________
Total gains and losses for the year
before currency
adjustments for translation differences (3,702,219) (2,415,261) (2,924,622)
Movement of foreign exchange reserve (2,588) - 52,802
________ ________ ________
Total recognised gains and losses for the (3,704,807) (2,415,261) (2,871,820)
financial year
________ ________ ________
Reconciliation of movements in
shareholders' funds
Loss for the year (3,702,219) (2,415,261) (2,924,622)
Foreign exchange movement (2,588) - 52,802
Increase in reserves 160,637 249,885 387,958
Issue of shares (net of issue costs) 7,354,645 18,771,138 23,402,788
_______ _______ _______
3,810,475 16,605,762 20,918,926
Opening shareholders' funds 32,235,665 11,316,739 11,316,739
_______ _______ _______
Closing shareholders' funds 36,046,140 27,922,501 32,235,665
_______ _______ _______
Gemfields Resources Plc
Consolidated balance sheet at 31 December 2006
Unaudited Unaudited Audited
31 December 31 December 30 June
2006 2005 2006
(restated) (restated)
US$ US$ US$
Fixed assets
Intangible assets 12,461,205 11,078,405 10,834,190
Tangible assets 10,630,719 1,296,982 10,357,816
Investments in joint
ventures
- share of gross assets 643,807 764,351 696,823
- share of gross (623,524) (492,181) (572,724)
liabilities
________ ________ ________
23,112,207 12,647,557 21,316,105
________ ________ ________
Current assets
Debtors 6,593,038 510,885 734,084
Cash at bank and in hand 6,976,253 17,082,069 12,873,317
Stocks 1,585,843 30,091 12,270
________ ________ ________
15,155,134 17,623,045 13,619,671
Creditors: amounts
falling due
within one year (2,221,201) (2,348,101) (2,700,111)
________ ________ ________
Net current assets 12,933,933 15,274,944 10,919,560
________ ________ ________
Total assets less 36,046,140 27,922,501 32,235,665
current liabilities
________ ________ ________
Capital and reserves
Called up share capital 1,871,166 1,518,256 1,685,128
Share premium account 33,430,445 27,541,610 27,665,688
Merger reserve 10,500,346 4,755,796 9,096,496
Option reserve 940,355 661,338 781,566
Warrant reserve 345,453 345,453 345,453
Profit and loss account (11,041,625) (6,899,952) (7,338,666)
________ ________ ________
Shareholders' funds - 36,046,140 27,922,501 32,235,665
equity
________ ________ ________
Gemfields Resources Plc
Consolidated cash flow statement for the six months ended 31 December 2006
Unaudited Unaudited Audited
Six months to Six months Year ended
to
31 December 31 December 30 June
2006 2005 2006
(restated) (restated)
Note US$ US$ US$
Cash outflow from operating 3 (5,347,603) (2,414,962) (2,785,824)
activities
Capital expenditure and
financial
investment
Payments to acquire intangible (50,000) (1,908,853) (2,448,853)
fixed assets
Payments to acquire tangible (867,636) (1,094,072) (2,434,076)
fixed assets
Exploration and development (144,515) (325,376) (2,743,805)
expenditure
Proceeds from disposals of 265,456 - -
fixed assets
________ ________ ________
(796,695) (3,328,301) (7,626,734)
________ ________ ________
Cash outflow before use
of liquid resources and (6,144,298) (5,743,263) (10,412,558)
financing
Financing
Issue of shares (net of issue 4,500 18,771,138 18,902,788
costs)
Return on investments and
servicing of finance
Interest received 244,247 34,392 371,310
Interest payable (1,513) - (8,025)
________ ________ ________
242,734 34,392 363,285
________ ________ ________
(Decrease)/Increase in cash 4 (5,897,064) 13,062,267 8,853,515
________ ________ ________
Gemfields Resources Plc
Notes to the financial statements for the six months ended 31 December 2006
1 Accounting policies
The financial statements have been prepared under the historical cost
convention as modified by the revaluation of land and buildings and are in
accordance with applicable accounting standards and the Statement of
Recommended Practice "Accounting for Oil and Gas Exploration, Development,
Production and Decommissioning Activities" ("the SORP"). The following
principal accounting policies have been applied:
Basis of consolidation
The consolidated financial statements incorporate the results of Gemfield
Resources Plc and all of its subsidiary undertakings as at 31 December 2006
using the acquisition method of accounting. Under the acquisition method, the
results of subsidiary undertakings are included from the date of acquisition.
Goodwill
Goodwill arising on the acquisition of subsidiary undertakings is the
difference between the fair value of the consideration paid and the fair value
of the assets and liabilities acquired. It is capitalised and amortised through
the profit and loss account over the directors' estimate of its useful economic
life which ranges from 15 to 20 years. Impairment tests on the carrying value
of goodwill are undertaken:
* at the end of the first full financial year following acquisition;
* in other years if events or changes in circumstances indicate that the
carrying value may not be recoverable.
Deferred development and exploration costs
In accordance with the full cost method as set out in the SORP, all costs
associated with mining development and investment are capitalised on a
project-by-project basis pending determination of the feasibility of the
project. Costs incurred include appropriate technical and administrative
expenses but not general overheads. If a mining development project is
successful, the related expenditures will be amortised over the estimated life
of the commercial ore reserves on a unit of production basis. Where a licence
is relinquished, a project is abandoned, or is considered to be of no further
commercial value to the company, the related costs will be written off.
The recoverability of deferred mining costs and mining interests is dependent
upon the discovery of economically recoverable reserves, the ability of the
company to obtain necessary financing to complete the development of reserves
and future profitable production or proceeds from the disposition of
recoverable reserves.
Mineral rights
Mineral rights are recorded at cost less amortisation and provision for
diminution in value. Amortisation will be over the estimated life of the
commercial ore reserves on a unit of production basis.
Licences for the exploration of natural resources will be amortised over the
lower of the life of the licence and the estimated life of the commercial ore
reserves on a unit of production basis.
Revenue
Revenue is recognised at the point when goods are sold to outside customers at
invoiced amounts.
Share-based payments
The Company has adopted Financial Reporting Standard 20 ("FRS 20"),
"Share-based Payment" which is effective for accounting periods commencing on
or after 1 January 2006. Prior to the adoption of FRS 20, the Company did not
recognise any charge or credit in its profit and loss account in respect of any
grant of equity instrument. FRS 20 has been applied to all grants of equity
instruments which had not vested as of 1 July 2006.
The Company issues equity-settled share based payments in the form of share
options to certain employees. Equity-settled share-based payments are measured
at fair value at the date of grant. The fair value determined at the date of
grant of the equity-settled share-based payments is expensed on a straight line
basis over the vesting period, based on the Company's estimate of shares that
will eventually vest.
Fair value is estimated using a proprietary binomial probability valuation
model. The expected life used in the model has been adjusted, on the basis of
management's best estimate for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The new accounting policy for share-based payment has been adopted
retrospectively and the comparative profit and loss accounts for the six months
ended 31 December 2005 and the year ended 30 June 2006 have been restated. This
change in accounting policy has resulted in an increase in administrative
expenses and accordingly the loss on ordinary activities for the six months
ended 31 December 2005 and 2006 of US$249,885 and US$160,637 respectively and
for the year ended 30 June 2006 of US$387,958.
Any profit and loss charge in a period in respect of share-based payments is
credited to the Company's reserves. The change in accounting policy has
therefore had no effect on the consolidated balance sheets of the Company at 31
December 2005 and 30 June 2006.
2 Loss per share
Loss per ordinary share has been calculated using the weighted average number
of shares in issue during the period. The weighted average number of shares is
95,719,157 and the loss, being loss after tax is US$3,702,219. The effect of
potential ordinary shares is antidilutive.
3 Reconciliation of operating loss to net cash outflow from operating
activities
Unaudited Unaudited Audited
Six Months Six Months Year ended
to to
31 December 31 December 30 June
2006 2005 2006
US$ US$ US$
(restated) (restated)
Group Operating Loss (3,843,725) (2,382,817) (3,070,198)
Adjustments for non-cash items:
Amortisation 402,153 - -
Depreciation 192,580 53,949 35,763
Share-based payments 160,637 249,885 387,958
Profit on disposal of fixed assets (265,456) - -
________ ________ ________
489,914 303,834 423,721
________ ________ ________
Cash (used)/provided by changes
in non-cash working capital items:
Decrease in debtors 58,691 455,036 231,837
Decrease in creditors (478,910) (760,924) (358,914)
Increase in inventory (1,573,573) (30,091) (12,270)
________ ________ ________
(1,993,792) (335,979) (139,347)
________ ________ ________
Cash outflow from operations (5,347,603) (2,414,962) (2,785,824)
________ ________ ________
4 Reconciliation of net cash inflow to movement in net funds
Unaudited Unaudited Audited
Six Months Six Months Year ended
to to
31 December 31 December 30 June
2006 2005 2006
US$ US$ US$
Opening funds 12,873,317 4,019,802 4,019,802
Increase/(Decrease) in cash in the year (5,897,064) 13,062,267 8,853,515
________ ________ ________
Closing net funds 6,976,253 17,082,069 12,873,317
________ ________ ________
END
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