Gemfields PLC JORC Code compliant Resource and Reserve

 
TIDMGEM 
 
Gemfields plc 
 
                 ("Gemfields", "the Group" or "the Company") 
 
Gemfields announces positive JORC Code compliant resource and reserve update 
and underground mining feasibility study for its Kagem emerald mine in Zambia 
 
2 October 2012 
 
______________________________________________________________________________ 
 
Highlights: 
 
Resource Update 
 
- JORC Code compliant Indicated Mineral Resources of 2.75 million tonnes or 
  1.0 billion carats of emerald and beryl at 365 carats/tonne 
 
- JORC Code compliant Inferred Mineral Resources of 9,200 tonnes or 223,100 
  carats of emerald and beryl at 24.5 carats/tonne 
 
Underground mining feasibility study 
 
- Projected 20 year life-of-mine ("LOM") producing approximately 34 million 
  carats per annum 
 
- Gemfields to commence accelerated underground construction and development 
  in the FY 2014 -15 
 
- Projected nominal cash flow (no discount rate applied) over the LOM of 
  approximately USD 855 million 
 
- Robust economics - projected post-tax NPV (at a 10% discount rate) of USD 
  372 million 
 
- Capital expenditure of USD 55.1 million over the first five years and a 
  total of USD 113.2 million over a 20 year LOM 
 
- Extensive diamond core-drilling and bulk-sampling work continues throughout 
  the Kagem mining licence area on the remaining known, but as yet un-proven, 
  emerald bearing deposits 
 
______________________________________________________________________________ 
 
Gemfields plc (AIM: "GEM") is pleased to announce the positive 
outcome of the mineral resource estimates ("MRE") and underground feasibility 
study ("FS") carried out on its 75% owned Kagem mine in Zambia ("Kagem"). The 
FS has been prepared by the independent consultant SRK Consulting (UK) Limited 
("SRK") with a view to evaluating the available resource potential and the 
feasibility of extending the current open pit mine into a viable underground 
operation. The results of the FS strongly support the transition to an 
underground mine and provide an indicative LOM of 20 years with robust 
economics. 
 
Commenting on the FS and MRE, Ian Harebottle, Gemfields' CEO, said: 
"Today we have achieved a key milestone in the continual development of 
Gemfields. The study shows that extending the current open pit mine at Kagem 
to a large-scale underground operation will be economically enhancing to the 
Company and to our shareholders. The study covers only Kagem's existing 
principal pit on the Fwaya-Fwaya belt, which is one of several known emerald 
bearing belts available within the Kagem licence area. The study shows that 
the existing pit can be further developed as a high grade, low cost mine with 
robust project economics and a rapid payback period. The Company currently 
caries no value for the resource but with today's updated estimate will look 
to correct this in due course. 
 
We will now look to accelerate the development and implementation 
of a large-scale underground project at our flagship operation on the 
Fwaya-Fwaya belt, while continuing to assess the potential future development 
of the additional belts available within the greater mining licence area." 
 
SRK has based the FS on the MRE results, which have been reported 
according to the terms and definitions given in "The 2004 Australasian Code 
for Reporting of Exploration Results, Mineral Resources and Ore Reserves as 
published by the Joint Ore Reserves Committee of the Australasian Institute of 
Mining and Metallurgy, Australian Institute of Geoscientists and Minerals 
Council of Australia" (the "JORC Code"). The JORC Code is a reporting code 
which has been aligned with the Committee for Mineral Reserves International 
Reporting Standards reporting template. Accordingly SRK considers the JORC 
Code to be an internationally recognised reporting standard, widely adopted 
for market related reporting and financial investments. 
 
Mineral Resources and Reserves 
 
As part of the MRE scope of work SRK reported: 
 
- Indicated Mineral Resources for Kagem (as at August 2012) of 2.75 
  million tonnes of mineralised ore at a grade of 365 carats of emerald and 
  beryl (E+B) per tonne of ore (a total of 1.0 billion carats of contained E+B);and 
- an Inferred Mineral Resource of 9,200 tonnes of mineralised ore 
  was reported at a grade of 24.5 carats of E+B per tonne of ore for a total of 
  for 223,100 carats of contained E+B. 
 
Using only the Indicated Mineral Resource Estimates, the FS 
supports a Probable Mineral Reserve estimate of 2.35 million tonnes of ore 
containing 707 million carats of E+B at an average grade of 301 carats of E+B 
per tonne. Table 1 below presents a summary of the Reserves reported in 
accordance with the JORC Code. These have been converted from the Mineral 
Resources Estimate by the application of the dilution and recovery factors 
suggested by SRK in the LOM plan and are based solely on Indicated Resources. 
The Ore Reserves are contained within those Resources previously stated. 
 
Table 1. Probable Mineral Reserves Estimates effective as of August 
2012 
 
                                       Grade 
                           ROM     carats/tonnes  Total Carats 
                         tonnes   emerald + beryl  (million) 
Open pit (DRZ and CRZ)   335,500      310.00         104.00 
Development CRZ          491,078      305.00         149.78 
DRZ stoping (vertical)   875,585      292.50         256.11 
CRZ stoping (flat)       647,456      304.50         197.15 
Total Probable Reserves 2,349,619     300.92         707.04 
 All figures are on a 100% ownership basis 
 
Mine Plan 
 
The rationale for the underground FS is the fact that the amount of 
waste being stripped from the open pit has been increasing in recent years to 
the point where an underground operation becomes potentially more cost 
effective. Studies have confirmed that the most appropriate access option is 
via a decline shaft at approximately 15 degrees from the north end of the 
current open pit. The decline is expected to be 3.5 metres high x 3.5 metres 
wide and will be driven by hydraulic jumbos supported by diesel loaders and 20 
tonne trucks. The mine will be developed using a series of strike drives 
driven through the ore body. These drives will provide access to the stopes 
resulting in early stage production. Ventilation will be provided initially by 
forcing air into the decline via a fan at the entrance. Thereafter, 
breakthroughs will be made into the existing workings to form a "through 
circuit" allowing bigger volumes of air. The next stage will be the 
construction of a ventilation shaft that will also provide additional egress 
to surface. 
 
The FS envisages that the mine will produce 120,000 tonnes per 
annum of ore to target an annual production rate of 34 million carats of E+B. 
Underground mining will follow a similar approach to the open pit operation 
where teams of trained pickers will remove the gemstones that are clearly 
visible post blasting. Thereafter, the remaining ore will be trucked to the 
washing plant for sorting and sizing. 
 
The mining schedule produced by SRK for the FS demonstrates a 
producing mine life at Kagem of 20 years based on the current Indicated 
Resource. The mining schedule envisages the mining of 336 thousand tonnes of 
ore and 19 million tonnes of waste with a stripping ratio of 56:1 over the 
remaining life of the open pit up to FY 2014-15. After this, production will 
be sourced from the underground operation which will produce a further 2 
million tonnes of ore with 372,000 tonnes of associated waste, yielding a much 
improved waste:ore ratio. 
 
Capital Expenditure 
 
Capital costs have been derived principally from planned equipment 
requirements but also include capitalised operating costs for the initial 
pre-production development and the ongoing capital development costs. The 
mining equipment capitalisation occurs mainly in the beginning of the 
underground operation but also includes some replacement of mining equipment 
for the current open pit which has three years of production remaining before 
transition to the underground operation is complete. In the financial model 
accompanying the FS, mine development is capitalised until the project reaches 
an ore production rate of 120,000 tonnes per annum. Total capital requirements 
for the life-of-mine are given in Table 2 below. 
 
Table 2. Summary of Project Capital Costs (USD million) 
 
                                                              2017- 
                      2012-13 2013-14 2014-15 2015-16 2016-17 2031  TOTAL 
Open Pit Capex         4.00    3.00                                  7.0 
UG Mine Capital Costs                  12.16   10.7    4.27   39.6  66.8 
Processing Plant               2.00    8.00                         10.0 
Sustaining Capital - 
Plant                  0.56    0.62    0.59    0.62    0.61   8.75  11.75 
Contingency            0.11    0.52    4.15    2.27    0.98   9.68  17.70 
TOTAL CAPEX            4.67    6.14    24.90   13.59   5.86   58.07 113.2 
 
Cash Operating Costs 
 
Table 3 below illustrates open pit and underground operations in 
terms of total and unit operating costs. According to the results of the FS, 
the underground operation is significantly cheaper than that of the current 
open pit. It is also expected to allow greater mining selectivity than the 
bulk nature of the open pit operation. 
 
Table 3: Cash Operating Costs 
 
                                      Units                                                             2017- 
                                    (million)        2012-13    2013-14    2014-15  2015-16 2016-17      2031     TOTAL 
Open Pit Production costs              USD             30.04      27.83      16.86        -       -         -     74.73 
UG Mine Production costs               USD                 -          -          -    11.35   13.30    218.43    243.08 
Administrative costs                   USD 
(including Contingency)                                 5.31       6.13       5.92     6.31    6.16     88.67    118.50 
TOTAL Operating costs                  USD             35.35      33.96      22.78    17.66   19.45    307.10    436.31 
Total Emerald and Beryl               carats           32.87      36.25      34.96    35.72   34.56    497.31    671.66 
Cash Cost per carat                 USD/carats          1.08       0.94       0.65     0.49    0.56      0.62      0.65 
 
Economic Model 
 
SRK has undertaken a detailed financial analysis for the Kagem 
underground FS. A model has been constructed using all of the production 
schedules, costs and financial parameters generated as part of the study. The 
model is expressed in real terms. SRK notes that at a 10% discount rate, 
pre-tax and post-tax NPVs are USD 579 million and USD 372 million 
respectively. 
 
The base case price scenario provided by Kagem assumes an average 
E+B selling price of USD 2.44 per carat for 2012-13, which increases to USD 
2.77 per carat for the period 2014 to 2015 followed by a further increase to 
USD 3.00 per carat thereafter for the rest of the LOM. This profile is in real 
terms and results in an average price of USD 2.95 per carat. 
 
It is noted that Kagem is presently realising per carat prices well 
in excess of the assumptions made in the FS. However, a more conservative 
price profile has been modelled by SRK for the FS, taking into account the 
prevailing global economic uncertainty. SRK report that at a 10% discount rate 
the NPV is approximately zero at an average price of USD 1.00 per carat which, 
particularly in light of the current average emerald and beryl sales prices, 
illustrates robust economics. 
 
An Environmental and Social Review of Kagem was undertaken and successfully 
completed by SRK as part of the FS. The project was found to be in compliance 
with applicable Zambian environmental laws. 
 
The Company expects to commence accelerated underground construction and 
development in FY 2014-15. 
 
A copy of the FS and MRE will be available on www.gemfields.co.uk 
 
ENDS 
 
Competent Persons 
 
The "Competent Person" (as such term is defined in the JORC Code) 
who supervised the preparation of the Mineral Reserve estimates for the Kagem 
Project disclosed in this press release is Mr Michael Beare ACSM CEng BEng 
MIMMM, Corporate Consultant Mining Engineer at SRK Consulting (UK) Ltd, who is 
a member of the IMMM, has over 20 years of experience in underground mining 
and is considered a Competent Person for this purpose. 
 
The Competent Person with overall responsibility for reporting of 
Mineral Resources is Dr Lucy Roberts, a Senior Resource Geologist at SRK 
Consulting (UK) Ltd, specialising in all aspects of mineral resource 
estimation and classification and has eight years' experience in the resource 
sector. 
 
For further information please contact: 
 
Gemfields                                         [e-mail] 
Dev Shetty, COO                                   [phone] 
 
Canaccord Genuity Limited 
Nominated Adviser and Joint Broker to Gemfields 
Tarica Mpinga/Andrew Chubb                        [phone] 
 
Neil Passmore                                     [phone] 
JP Morgan Cazenove 
 
Jos Simson/Emily Fenton                           [phone] 
Tavistock Communications 
 
GLOSSARY of technical terms: 
 
Indicated Mineral Resource - that part of a Mineral Resource for 
which quantity, grade or quality, densities, shape and physical 
characteristics, can be estimated with a level of confidence sufficient to 
allow the appropriate application of technical and economic parameters, to 
support mine planning and evaluation of the economic viability of the deposit. 
The estimate is based on detailed and reliable exploration and testing 
information gathered through appropriate techniques from locations such as 
outcrops, trenches, pits, workings and drill holes that are spaced closely 
enough for geological and grade continuity to be reasonably assumed. 
 
Inferred Mineral Resource - that part of a Mineral Resource for 
which quantity and grade or quality can be estimated on the basis of 
geological evidence and limited sampling and reasonably assumed, but not 
verified, geological and grade continuity. The estimate is based on limited 
information and sampling gathered through appropriate techniques from 
locations such as outcrops, trenches, pits, workings and drill holes. 
 
Mineral Reserve - an economically mineable part of a Measured 
and/or Indicated Mineral Resource. It includes diluting materials and 
allowances for losses, which may occur when the material is mined. Appropriate 
assessments and studies have been carried out, and include consideration of 
and modification by realistically assumed mining, metallurgical, economic, 
marketing, legal, environmental, social and governmental factors. These 
assessments demonstrate at the time of reporting that extraction could 
reasonably be justified. Mineral Reserves are subdivided in order of 
increasing confidence into Probable Ore Reserves and Proved Ore Reserves. 
 
Mineral Resource - a concentration or occurrence of natural, solid, 
inorganic or fossilized organic material in or on the Earth's crust in such 
form and quantity and of such a grade or quality that it has reasonable 
prospects for economic extraction. The location, quantity, grade, geological 
characteristics and continuity of a Mineral Resource are known, estimated or 
interpreted from specific geological evidence and knowledge. 
 
Probable Mineral Reserve - an economically mineable part of 
Indicated Mineral Resource. It includes diluting material and allowances for 
losses which may occur when the material is mined. A Probable Ore Reserve has 
a lower level of confidence than a Proved Ore Reserve but is of sufficient 
quality to serve as the basis for a decision on the development of the 
deposit. 
 
Proved Mineral Reserve - an economically mineable part of a 
Measured Mineral Resource. It includes diluting materials and allowances for 
losses which may occur when the material is mined. Appropriate assessments and 
studies have been carried out, and include consideration of and modification 
by realistically assumed mining, metallurgical, economic, marketing, legal, 
environmental, social and governmental factors. These assessments demonstrate 
at the time of reporting that extraction could reasonably be justified. A 
Proved Ore Reserve represents the highest confidence category of reserve 
estimate. The style of mineralisation or other factors could mean that Proved 
Ore Reserves are not achievable in some deposits. 
 
Sulphide - a mineral composed of a chemical compound between a 
metal and sulphur 
 
t - tonne (=1 million grams) 
 
 
 
 
END