Gemfields plc
A leading supplier of responsibly sourced coloured gemstones
INTERIM OBSERVATIONS UPDATE
Gemfields plc
2
IMPORTANT NOTICE & DISCLAIMER
This document, which has been compiled by Gemfields plc (the “Company”), comprises the written materials/slides for a
presentation concerning the Company, including its business, results of operations and prospects. This document does not
constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any
shares in the Company, its shareholders or affiliates, including Pallinghurst Resources Limited (together the “Group”) in the
United Kingdom, the United States nor any other country, nor may it or any part of it nor the fact of its distribution form the
basis of, or be relied on in connection with, any contract or investment decision in relation thereto, nor does it constitute a
recommendation regarding the shares of any Group member
No reliance may be placed for any purposes whatsoever on the information contained in this document or on its completeness, or
lack thereof. In particular, any data or figures presented in this document may not have been audited and should therefore be
treated with due caution. No representation or warranty, express or implied, is given by or on behalf of the Company, the Group
their respective advisors or representatives as to the accuracy or completeness of the information or opinions contained in this
presentation. None of the Company, the Group, their advisors or representatives shall have any liability whatsoever (in negligence
or otherwise) for any loss whatsoever arising from any use of this document, or its contents, or otherwise arising in connection
with this document. This document and its contents are confidential and may not be reproduced, redistributed or passed on,
directly or indirectly, to any other person or published, in whole or in part, for any purpose.
Certain statements in this presentation, or given in response to questions, may constitute forward-looking statements. These
statements relate to future events or future performance and reflect the Company’s assumptions regarding the growth, results of
operations, performance and business prospects and opportunities of the Company. In particular, statements regarding the
Company’s objectives, plans and goals involve forward-looking statements. We caution you that any forward-looking statements
are just estimates. They are not guarantees of future performance and involve manifold risks and uncertainties. A number of
factors could cause actual events, performance or results to differ materially from what is indicated in the forward-looking
statements. There can be no assurance that actual events, performance or results will be consistent with these forward-looking
statements, and the Company’s assumptions may prove to be incorrect. The Company does not intend, and, subject to any legal
or regulatory requirements, does not assume any obligation, to update or revise forward-looking statements to reflect new events
or circumstances.
Gemfields plc
3
75%
FABERGÉ
Kagem Mining
Ltd
(EMERALD)
ZAMBIA
Montepuez Ruby
Mining Lda
(RUBY)
MOZAMBIQUE
Other Gem
Licences for
Exploration &
Development
75-100%75%75%
GEMFIELDS PLC• The world’s leading miner of responsibly sourced precious coloured gemstones.
• Africa-focussed, with three principal activities: mining, grading and marketing.
• USD 158 million of revenue for year ending 30 June 2017 (vs USD 193 million prior year)
• 100% owned by Pallinghurst Resources Ltd (JSE:PGL)
Web Gemstone
Mining plc
(EMERALD)
ETHIOPIA
100%
Megaruma
Mining Lda
(RUBY)
MOZAMBIQUE
75%
• World’s largest
emerald mine.
• Acquired by
Gemfields in 2008.
• Zambian
Government, a
25% shareholder,
has received more
than USD 100
million since 2008.
• >USD 2 million
invested to date.
• Initial exploration
(pits, trenches and
drilling) completed.
• Bulk sampling
commenced
August 2017.
• Key infrastructure
in place.
• World’s largest ruby
mine.
• Licence granted
2012. First ruby
auction June 2014.
• Mozambican
Government’s
royalties and
corporation tax to
date exceed USD
70 million (to 30
June 2017).
• Bulk sampling to
commence
calendar Q4 2017.
• Adjacent to
Montepuez Ruby
Mining Licences.
• Exploration
licences in
Madagascar,
Mozambique and
Zambia.
• World-famous
brand first founded
in 1842.
• Promotes the
positioning and
perception of
precious coloured
gemstones by
producing
jewellery,
timepieces and
objects.
Gemfields plc
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Gemfields’ Typical Model for Gemstone Deposit Development
(Kagem is a good example)
GEMFIELDS
GOVERNMENT
(and/or other local partners)
ProjectCo(Licence Holder &
Mine Operator)
Key Points:1. Gemfields provides all investment funding
required. None required from partner (i.e. partner
has a free carry on its 20-25% stake and does not
get diluted).
2. Gemfields, with operational and management
control, appoints 3 persons to the ProjectCo
board of directors, and the partner appoints 1.
3. Gemfields does not engage in “offshoring” on the
sale of gems: ProjectCo receives all revenues
arising from the project, and at international
market prices via competitive Gemfields auctions
(for which a marketing and auction fee is payable).
4. Irrespective of the partner, representatives of
government are invited to attend and monitor
each auction in order to ensure transparency.
For example, this model could be used in relation to sapphire deposits in Ethiopia.
75-80% 20-25%
Gemfields plc
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REVISED TEAM STRUCTURE
1. 5 of 7 board directors are long-standing Gemfields employees – more than 50 years of operating Gemfields experience between them.
2. No more “department heads by expertise” (e.g. operations, geology). Rather, MD’s responsible for each country as a business unit.
3. Headcount reduced by >20 people across New York, London and Mumbai (figure excludes former board).
4. Three regional heads of marketing & communications will be replaced by one new head in London.
Gemfields plc
6
(50.0)
(40.0)
(30.0)
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
50.0
30 Jun 09 30 Jun 10 30 Jun 11 30 Jun 12 30 Jun 13 30 Jun 14 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18
Gemfields plc Annual Net Profit (USD million)
Gemfields plc
7
Gemfields plc
8
-
20.0
40.0
60.0
80.0
100.0
120.0
30 Jun 09 30 Jun 10 30 Jun 11 30 Jun 12 30 Jun 13 30 Jun 14 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18
Kagem's Annual Revenues (USD million)
Average revenue over last 7 years is USD 65 million.
Average revenue over last 6 years is USD 71 million.Past average used to indicate one
possible outcome
Gemfields plc
9
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
30 Jun 09 30 Jun 10 30 Jun 11 30 Jun 12 30 Jun 13 30 Jun 14 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18
Kagem's Annual Premium Emerald Production (Carats)
E
Six year historic average used to
indicate one possible outcomeOLD grading system, therefore
not a like-for-like comparison
Gemfields plc
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0.00
0.50
1.00
1.50
2.00
2.50
3.00
Kagem Unit Operating Costs (Actual Cash Cost Basis)USD/carat (Emerald+Beryl)
Gemfields plc
11
0
400,000
800,000
1,200,000
1,600,000
Jan
05
May
05
Sep
05
Jan
06
May
06
Sep
06
Jan
07
May
07
Sep
07
Jan
08
May
08
Sep
08
Jan
09
May
09
Sep
09
Jan
10
May
10
Sep
10
Jan
11
May
11
Sep
11
Jan
12
May
12
Sep
12
Jan
13
May
13
Sep
13
Jan
14
May
14
Sep
14
Jan
15
May
15
Sep
15
Jan
16
May
16
Sep
16
Jan
17
May
17
Kagem Monthly Total Rock Handling (tonnes)
It would appear that the pursuit of:
• a hands-off approach;
• big mining and processing scale;
• chasing down unit costs and hitting rock moving and ore mining targets
has had an undesired effect on gemstone retrieval.
So, we have SLOWED DOWN.
Gemfields plc
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KAGEM CHANGES
1. Revenues fell 53% to US$ 47.5 million in financial year ending 30 June 2017 (versus
USD 101.4 million in the prior year).
2. Ore grade in its financial year ending 30 June 2017 fell to 158 carats per tonne, down
34% from 241 carats per tonne in the prior year.
3. GM has been changed.
4. New security management team in place. PPP being implemented.
5. SLOWING DOWN from chasing “mining efficiency” to “romancing the reaction
zone”.
• Less mining rush to mine TMS, waste, etc - geos to focus on contacts
• Overall “carats” focus shifted to “premium carats”
• Increased number of chiselmen - extensive chiselling of the contacts
• Dedicated jack-hammer crew reintroduced – a practice from the past
• Lower intensity blasts to retain crystals
• More care for, and incorporation, of chiselmen
• Return of previous experience for on-the-ground insights
• Overhaul of practices in wash-plant, especially waste belts.
6. Improved communication across the chain of custody with more raising of concerns.
Efforts already being rewarded – a little hard to tell how much is due to our efforts and how much is geological luck!
Gemfields plc
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Kagem Washing Plant – SLOW DOWN!
(RHS)
(RHS)
(LHS)
Gemfields plc
Key Assets…Fabergé – A life in colour
14
Fabergé, the world’s most iconic artist jeweller, creates extraordinary
jewellery, timepieces and objets d’art, as well as bespoke commissions for a
discerning international clientele.
Founded in 1842, Fabergé has been the most revered name in jewellery ever
since Peter Carl Fabergé became official goldsmith to the Russian Imperial
Court; the house created exquisite jewels and objects, including the legendary
series of lavish and ingenious Imperial Easter Eggs.
Today, Fabergé takes inspiration from its storied past to introduce a new era
of spectacular and contemporary collections. By painting with the world’s
finest coloured gemstones and a vibrant enamel palette, Fabergé explores a
life in colour through creations which are destined to become future
heirlooms.
Current collections are available at Fabergé boutiques in London and
Houston, as well as at Harrods in London and other exclusive international
retailers. Select items are also available via Fabergé’s online boutique at
faberge.com.Fabergé Fine Jewellery & Watch Campaign FY 2017/18
Gemfields plc
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Luxury Sector Pulse
Signals are very mixed:
A GOOD TIME FOR:
1. Hermes: sales up 7.5% with record revenues, profits and margins for 2016. “Business in the UK is booming”
2. LVMH: Q1 2017 results show 15% revenue growth
3. Kering: 29% like-for-like sales growth (48% at Gucci and 33% at Yves Saint Laurent)
4. Breitling: bought out by CVC for EUR 800 million
A ROUGH TIME FOR:
1. Theo Fennell: gone into administration (and saved)
2. Tiffany: six straight quarters of declining sales
3. Signet (owner of Zales, Ernest Jones, H. Samuel and Kay): sales fell 12% globally (3.5% in the UK) in the most recent quarter
4. Michael Kors: will close 100-125 stores after 14.1% slump in same-store sales in most recent quarter
5. Burberry: pre-tax profit down 21%. Cost-cutting underway. Same-store sales up 1%
6. Ralph Lauren: USD 370 million cost-cutting and store closures, including Fifth Avenue
7. Prada: double-digit decline in sales and profits for year ending January 2017
8. Macy’s: sales down 7.5% in most recent quarter
Gemfields plc
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Fabergé Cash Draws from Gemfields
0
2
4
6
8
10
12
14
16
18
20
FY 15 FY 16 FY 17
Faberge Cash Draw from Gemfields*Full Financial Years (USD million)
USD 9.5 million improvement
Gemfields plc
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FABERGÉ
1. Results for the year are mixed: revenues up 16%, cash consumption down 50% (but still USD 9 million)
2. Overall (multi-year) EBITDA loss remains flat due to write-downs and sale of Zaavy items at a loss.
3. Houston opening marred by Hurricane Harvey!
4. Dubai mono-brand opening with Damas in Dubai Mall in October 2017.
5. Opex cost: seeking a reduction from USD 16 million to USD 12 million.
6. Possible sale of Fabergé?
Gemfields plc
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Fabergé Points-of-Sale
-
5
10
15
20
25
30
35
40
45
Jul-
11
Oct
-11
Jan
-12
Ap
r-12
Jul-
12
Oct
-12
Jan
-13
Ap
r-13
Jul-
13
Oct
-13
Jan
-14
Ap
r-14
Jul-
14
Oct
-14
Jan
-15
Ap
r-15
Jul-
15
Oct
-15
Jan
-16
Ap
r-16
Jul-
16
Oct
-16
Jan
-17
Ap
r-17
Fabergé Total Points of Sale
0
2
4
6
8
10
12
14
2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Total Points of Sale Opened Each Financial Year
NOTES:
a. Fabergé currently operates only two of its own points of sale, being Grafton Street and Harrods. Fabergé will add the Houston Galleria to this in
October 2017 (one month delay after Hurricane Harvey)
b. A Fabergé mono-brand store, operated by Damas, will open in Dubai Mall in November 2017
Gemfields plc
• Community investment strategies developed in
collaboration with local communities to identify
projects that are most needed, with the best chance of
longevity & success.
• Primary objective to enhance socio-economic
standards of those living close to the projects
• Key focus on health, education & agriculture
• Highlights include; construction and upgrade of
schools, funding & development of farming
cooperatives that supply food products to our
projects, funding of mobile health clinics, and
upgrades to existing medical centres.
• Projects funded by revenue generated by each mine
• Mining performed with minimum environmental
impact, including back-filling, 0% toxic chemicals
and on-site nurseries for indigenous plants
19
Social Impact – Community Investment
Gemfields plc
Contact Us
Gemfields plc
1 New Burlington Place
London
W1S 2HR
United Kingdom
Tel: +44 (0)20 7659 4952
gemfields.co.uk