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Gemfields warns of possible Zambia ban on overseas gemstone auctions

8th April 2013

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – Aim-listed gemstone miner Gemfields has warned shareholders of a possible ban by the Zambian government on the sale of domestically mined gemstones outside of the country, which would severely impact on the company’s revenue.

If instituted, the measures would prevent the company from freely selling its gemstones in the markets where it believes it would realise the best prices.

Gemfields' principal asset, the Kagem emerald mine, is located in northern Zambia and is 75% owned by Gemfields, with the Zambian government owning the remaining 25%.

Gemfields also owns 50% of the Kariba amethyst mine in southern Zambia, with the Zambian government owning the other 50%.

“At a press conference in Lusaka on Friday, the Minister of Mines, Energy and Water Development (MoMEWD) distributed a press statement seemingly restraining Kagem and other producers from selling emeralds outside Zambia,” Gemfields said in a statement on Monday morning.

“Since 2009, Kagem's production has only been sold outside Zambia, generating $160-million of revenue from eleven auctions. Representatives from government have routinely attended those auctions,” the company noted.

The statement issued by MoMEWD noted that “government has directed that all auctioning of emeralds be held in Zambia".

Gemfields said that, while the press statement dealt primarily with emeralds, it also referred to a “pronouncement” by Zambia’s President Michael Sata that “all gemstones should be sold within Zambia”.

Such a requirement or law, if confirmed, would similarly affect the Kariba amethyst mine.

“Gemfields believes that any outright limitation on selling emeralds in other countries could have the potential to materially constrain Kagem's revenues, as well as the broader development of the global Zambian gemstone sector.

“Such a limitation would place Zambian emeralds at a disadvantage relative to other emerald-producing countries where no such limitations are in place,” the producer cautioned.

Auction Scheduled for Lusaka

Following earlier verbal requests by MoMEWD, Gemfields and Kagem had agreed to include Zambia as one of the destinations on its 2013 international auction circuit.

Accordingly, Gemfields and Kagem would host an auction in Lusaka from April 15 to 19.

Thereafter, Gemfields' next auction was scheduled to take place in Singapore in June.

The company advised that neither Gemfields nor Kagem had, as yet, participated in, nor been invited, to any industry or stakeholder consultation process regarding the proposed measures.

“Kagem has written to MoMEWD requesting clarification of the terms, conditions and basis of the measures. Gemfields believes that a key component of Kagem's success in recent years has been its ability to provide a secure, reliable and consistent supply of well-graded, high-quality emeralds to its customers in locations that are competitive and convenient.

“It is, therefore, important that the prevailing uncertainty be clarified promptly, minimising apprehension in the downstream market and supporting Kagem's and Gemfields' ongoing efforts to position Zambian emeralds at the forefront of the global emerald industry and as the first choice for discerning consumers,” the company said.

Further, Gemfields believed that the press statement by the MoMEWD suggested that the sale of Zambian gemstones on foreign markets had contributed to capital flight.

“Gemfields and Kagem set the benchmark for transparency in the sector, publishing detailed auction information including the revenue received for each of its auctions, as well as all of its gemstone production data, including unit costs, on a quarterly basis,” the gem miner stated.

Gemfields CEO Ian Harebottle said the recent developments had the potential to endanger the health of the company, immediately after it had started to deliver meaningful, positive results on behalf of stakeholders.

“The record shows that Kagem's financial and operating performance has never been better. The combination of our investments in the mines, our auction practices, proprietary emerald grading system and global marketing campaigns have delivered dramatic results not only for Kagem, but also for the wider Zambian gemstone sector,” he asserted.

He further noted that Kagem's repatriation of foreign currencies, payments of Zambian corporation tax and gemstone royalties stood at all-time highs, and believed the same to be true for total tax and royalty receipts from the Zambian gemstone sector.

“This record of success and growth should not be put at risk,” he said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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