Gemfields PLC Market Update - Quarter to 30 September 2016 (9299N)

TIDMGEM

RNS Number : 9299N

Gemfields PLC

01 November 2016

Gemfields plc

("Gemfields" or the "Company")

Market Update - Quarter to 30 September 2016

1 November 2016

Gemfields plc (AIM: GEM) is pleased to present an operational update for the three month period ending 30 September 2016, the first quarter of the 2017 financial year. All figures are approximate and unaudited. Unless otherwise stated, the term "carats" includes both emerald and beryl in relation to the Kagem emerald mine, and both ruby and corundum in relation to the Montepuez ruby mine.

Highlights

Emeralds

-- Production summary for 75%-owned Kagem Mining Limited ("Kagem") in Zambia for the quarter ending 30 September 2016:

-- Production of 6.0 million carats of emerald and beryl with an average grade of 174 carats per tonne (versus 7.5 million carats with an average grade of 237 carats per tonne in the quarter ending 30 September 2015), with the difference being attributable to the varied nature of the mineralisation and a higher-grade zone mined in the comparative period;

-- Total operating costs(a) of USD 10.2 million (versus USD 11.4 million in the quarter ending 30 September 2015);

-- Unit operating costs(b) of USD 1.70 per carat (versus USD 1.52 per carat in the quarter ending 30 September 2015), while on a cash basis(c) unit operating costs were USD 1.18 per carat (versus USD 1.12 per carat in the quarter ending 30 September 2015); and

-- Cash rock handling unit costs of USD 2.37 per tonne (versus USD 2.05 per tonne in the quarter ending 30 September 2015) due to harder rock mining at deeper levels in the current quarter.

-- USD 10.7 million generated from emerald auction in September held in Jaipur, India, at an average value of USD 3.28 per carat. The auction consisted of predominantly commercial quality rough emeralds; and

-- Next auction of predominantly higher quality rough emeralds from Kagem mine is scheduled to take place in December 2016 in Singapore.

Rubies

-- Production summary for 75%-owned Montepuez Ruby Mining Limitada ("Montepuez") in Mozambique for the quarter ending 30 September 2016:

-- Production of 4.5 million carats of ruby and corundum with an average grade of 44 carats per tonne (versus 0.5 million carats with an average grade of 7 carats per tonne in the quarter ending 30 September 2015) supported by the processing of the higher grade, but lower value, amphibolite resources;

-- Total operating costs(a) of USD 5.8 million (versus USD 6.1 million in the quarter ending 30 September 2015);

-- Unit operating costs(b) of USD 1.29 per carat (versus USD 12.20 per carat in the quarter ending 30 September 2015) as a direct result of the increase in carats produced. On a cash basis(c) , unit operating costs were USD 1.04 per carat (versus USD 10.20 per carat in the quarter ending 30 September 2015); and

-- Cash rock handling unit costs of USD 4.27 per tonne (versus USD 4.50 per tonne in the quarter ending 30 September 2015) as a result of increased efficiencies and favourable exchange rate movements.

-- Gemfields' next mixed quality auction of rough rubies extracted from Montepuez ruby mine is expected to take place in December 2016 in Singapore.

Amethysts

-- September 2016 auction of predominantly higher quality rough amethysts held in Singapore generated revenues of USD 0.4 million; and

-- Second highest average realised price of 3.73 US cents per carat ever achieved at a Gemfields' amethyst auction.

Fabergé

   --     Fabergé highlights for the quarter ending 30 September 2016: 

-- The value of sales orders agreed(d) during the quarter ending 30 September 2016 fell by 23% when compared to the comparative quarter last year, largely due to the opening of two significant wholesale partners in July 2015;

-- The number of sales transactions during the quarter ending 30 September 2016 increased by 67% when compared to the quarter ending 30 September 2015;

-- The average selling price per piece increased by 2% during the quarter ending 30 September 2016 when compared to the comparative quarter last year; and

-- Total operating costs for the quarter ending 30 September 2016 fell by 1% when compared to the comparative quarter last year.

Corporate and cash

   --     Cash and cash equivalents of USD 24.1 million at 30 September 2016; and 
   --     Total debt outstanding of USD 49.4 million at 30 September 2016. 

Ian Harebottle, CEO of Gemfields, commented:

"This has been a positive quarter with Montepuez continuing to generate strong results. The increased processing capacity and efficiency has seen us achieve exceptional production results.

At Kagem production remains consistent and operating costs saw a reduction on the corresponding period last year. In addition, I am pleased to report the quarter saw the completion of two new exciting community projects in the form of new Chapula high school and Nkana Health Clinic. These new facilities have been incredibly well received and the local communities are already reaping the rewards. This achievement is as a strong endorsement of the Company's CSR strategy that seeks to engage local stakeholders to conceive and co-develop projects that will have a long-lasting and positive impact in our local neighbourhoods.

Work on new projects continues apace and plans remain on schedule to meet our annual target production of 40 million carats of rough emeralds from Kagem and 20 million carats of rough rubies from Montepuez within the next three years.

Thanks to the full global launch of our new integrated marketing campaign, demand for our coloured gemstones continues to rise, ensuring that achievable prices generate robust auction results."

Explanatory Notes:

(a) Total operating costs include mining and production costs, selling, general and administrative expenses, depreciation and amortisation, but exclude capitalised costs and mineral royalties.

(b) Unit operating costs are calculated as total operating costs divided by the total gemstone production during the period.

(c) Cash operating costs include mining and production costs, capitalised costs, selling, general and administrative expenses, and exclude PPE-related capital expenditure, depreciation, amortisation and mineral royalties.

(d) Sales orders agreed are sales that Fabergé has agreed and confirmed with customers during the reporting period. Payment and/or delivery may take place later.

KAGEM EMERALDS

Production and Operations Update

The 75%-owned Kagem emerald mine remains the single largest producing emerald mine in the world. The key production parameters by quarter are summarised below:

 
                                                                          Quarter 
------------------------------                 -------------------------------------------------------------- 
KAGEM Quarterly 
 Summary to September-16            Units      Dec-14  Mar-15  Jun-15  Sep-15  Dec-15  Mar-16  Jun-16  Sep-16 
------------------------------  -------------  ------  ------  ------  ------  ------  ------  ------  ------ 
PRODUCTION 
Gemstone Production                million 
 (Emerald+Beryl)                    carats      5.8     9.9     8.1     7.5     8.2     7.1     7.2     6.0 
Ore Production (Reaction            '000 
 Zone)                              tonnes      30.5    27.9    36.5    31.7    30.1    23.9    39.0    34.4 
Grade (Emerald+Beryl/Reaction 
 Zone)                          carats/tonne    190     355     222     237     272     297     185     174 
Waste Mined (including             million 
 TMS)                               tonnes      4.1     4.0     3.6     4.0     2.8     2.6     3.1     2.9 
                                   million 
Total Rock Handling                 tonnes      4.2     4.0     3.6     4.1     2.8     2.6     3.1     3.0 
Stripping Ratio                                 134     143      99     126      93     109      79      84 
---------------------------------------------  ------  ------  ------  ------  ------  ------  ------  ------ 
CAPITAL EXPITURE 
Property, Plant                      USD 
 and Equipment                     million      6.7     1.0     1.8     0.2     0.5     2.6     0.4     0.6 
Capitalised Waste                    USD 
 Stripping (d)                     million      6.3     5.9     4.7     2.5      -       -       -       - 
------------------------------  -------------  ------  ------  ------  ------  ------  ------  ------  ------ 
CASH COSTS (a) 
Total (Cash) Operating               USD 
 Costs (a)                         million      12.3    11.4    10.5    8.4     8.0     6.8     8.1     7.1 
Gemstone (Cash) 
 Unit Cost (Emerald+Beryl) 
 (a)                              USD/carat     2.12    1.15    1.30    1.12    0.98    0.96    1.13    1.18 
Ore / Reaction Zone 
 (Cash) Unit Cost                  USD/RZ 
 (a)                                tonne       403     409     288     265     266     285     208     206 
Rock Handling (Cash) 
 Unit Cost (a)                    USD/tonne     2.93    2.85    2.92    2.05    2.86    2.62    2.61    2.37 
------------------------------  -------------  ------  ------  ------  ------  ------  ------  ------  ------ 
ACCOUNTING COSTS 
 (b) (d) 
Total Operating                      USD 
 Costs (b) (c) (d)                 million      11.6    9.8     12.8    11.4    12.1    11.2    12.6    10.2 
Gemstone Unit Cost 
 (Emerald+Beryl) 
 (b) (d)                          USD/carat     2.00    0.99    1.58    1.52    1.48    1.58    1.75    1.70 
Ore / Reaction Zone                USD/RZ 
 Unit Cost (b) (d)                  tonne       380     351     351     360     402     469     323     297 
Rock Handling Unit 
 Cost (b) (d)                     USD/tonne     2.76    2.45    3.56    2.78    4.32    4.31    4.06    3.40 
------------------------------  -------------  ------  ------  ------  ------  ------  ------  ------  ------ 
 

(a) Cash operating costs include mining and production costs, capitalised costs, selling, general and administrative expenses, and exclude PPE-related capital expenditure, depreciation, amortisation and mineral royalties.

(b) Total operating costs include mining and production costs, selling, general and administrative expenses, depreciation and amortisation, but exclude capitalised waste stripping costs and mineral royalties.

(c) As at 30 September 2016, a total of approximately USD 62.4 million of waste moving costs was capitalised and is being amortised as and when the associated ore is mined. The balance of capitalised waste moving costs, net of amortisation, as at 30 September 2016 amounted to USD 13.9 million.

(d) Following the updated JORC Reserves and Resource Statement in September 2015, Kagem changed its mine plan from previously undertaking significant high wall pushbacks to now undertaking continuous waste removal and mining. The previous high wall pushback campaigns whose costs were capitalised as deferred stripping costs ceased in September 2015. The results of the three quarters to March 2016 have been restated, to reflect this change in accounting treatment.

Total rock handling during the quarter ending 30 September 2016 was 3.0 million tonnes with total production of 6.0 million carats (versus 4.1 million tonnes of rock handling with total production of 7.5 million carats in the quarter ending 30 September 2015). Continued mining of new areas within the Chama pit with optimised production scheduling has assisted in further improved mining efficiencies and productivity. Exploration and bulk sampling activities at the Fibolele and Libwente sectors continued in the current quarter. Increasing the share of bulk emulsion explosives has further improved blasting performance and resulted in further optimised rock fragmentation leading to less wear and tear of fleet buckets and improved cost of production.

Health, Safety, Environment and Community Update

Kagem continues to maintain an excellent safety record, with no reportable lost time injuries in the quarter to September 2016 and a high-level commitment to the wellbeing of our employees. A new staff canteen and rest shelter at the mine site have been completed, improving the welfare infrastructure at the mine. Kagem has embarked on an inclusive community strategy and has continued to engage local stakeholders to assist in identifying community needs and jointly developing project plans, roles and responsibilities. The new Chapula Secondary School and Nkana Clinic are now operational with both facilities being used by the local community.

Emerald Auction Update

The September 2016 auction of predominantly commercial quality rough emerald extracted from Kagem was held in Jaipur, India. The auction saw 3.27 million carats being sold, which represented 82% of the value and 81% of the weight offered. The auction generated revenues of USD 10.7 million at an average realised value of USD 3.28 per carat.

The auction results are summarised below:

 
 
   KAGEM AUCTION RESULTS      September 2016 
-------------------------  ------------------- 
                             26-29 September 
 Dates                             2016 
 Location                     Jaipur, India 
 Type                       Commercial quality 
 Carats offered                4.05 million 
 Carats sold                   3.27 million 
 No. of companies 
  placing bids                      30 
 Average no. of bids 
  per lot                           7 
 No. of lots offered                19 
 No. of lots sold                   15 
 Percentage of lots 
  sold                             79% 
 Percentage of lots 
  sold by weight                   81% 
 Percentage of lots 
  sold by value                    82% 
 Total sales realised 
  at auction                 USD 10.7 million 
 Average per carat 
  sales value                 USD 3.28/carat 
-------------------------  ------------------- 
 

Gemfields' next auction of predominantly higher quality rough emerald extracted from Kagem is scheduled to take place in December 2016 in Singapore.

MONTEPUEZ RUBIES

Production and Operations Update

The ongoing mining and bulk sampling operations continued during the period at the Montepuez ruby deposit in Mozambique, in which Gemfields has a 75% interest. The key production parameters by quarter are summarised below:

 
                                                                                  Quarter 
----------------------------------                   ----------------------------------------------------------------- 
MONTEPUEZ Quarterly Summary to 
September-16                             Units       Dec-14  Mar-15  Jun-15  Sep-15   Dec-15   Mar-16  Jun-16  Sep-16 
----------------------------------  ---------------  ------  ------  ------  -------  -------  ------  ------  ------- 
PRODUCTION 
Gemstone Production 
 (Ruby+Corundum)                    million carats    3.4     1.4     0.7      0.5      1.6     2.0     6.2      4.5 
Ore Production (Primary+Secondary)    '000 tonnes    158.3    79.4   119.5    136.9    132.9    65.1   175.5    177.4 
Ore Processed (Primary+Secondary)     '000 tonnes    101.4    78.6    75.5    72.8     71.7     67.6    83.1    102.6 
Grade (Ruby+Corundum/Ore 
 Processed)                          carats/tonne      34      18      9        7       22       30      75      44 
Waste Mined                           '000 tonnes    776.9   441.7   859.7    996.8    922.0   406.3   693.2    923.0 
Total Rock Handling                   '000 tonnes    935.2   521.1   979.2   1,133.7  1,054.9  471.4   868.7   1,100.4 
Stripping Ratio                                       4.9     5.6     7.2      7.3      6.9     6.2     3.9      5.2 
---------------------------------------------------  ------  ------  ------  -------  -------  ------  ------  ------- 
CAPITAL EXPITURE 
Property, Plant and Equipment         USD million     1.6     1.4     2.3      3.3      1.8     1.6     0.8      3.6 
----------------------------------  ---------------  ------  ------  ------  -------  -------  ------  ------  ------- 
CASH COSTS (a) 
Total (Cash) Operating Costs (a)      USD million     4.9     3.7     6.0      5.1      5.3     4.8     6.2      4.7 
Gemstone (Cash) Unit Cost 
 (Ruby+Corundum) (a)                   USD/carat      1.44    2.64    8.57    10.20    3.31     2.40    1.00    1.04 
Ore Production (Cash) Unit Cost 
 (a)                                   USD/tonne     30.95   46.60   50.21    37.25    39.88   73.73   35.33    26.49 
Rock Handling (Cash) Unit Cost (a)     USD/tonne      5.24    7.10    6.13    4.50     5.02    10.18    7.14    4.27 
----------------------------------  ---------------  ------  ------  ------  -------  -------  ------  ------  ------- 
ACCOUNTING COSTS (b) 
Total Operating Costs (b)             USD million     5.7     4.6     7.0      6.1      6.9     5.8     7.4      5.8 
Gemstone Unit Cost (Ruby+Corundum) 
 (b)                                   USD/carat      1.68    3.29   10.00    12.20    4.31     2.90    1.19    1.29 
Ore Production Unit Cost (b)           USD/tonne     36.01   57.93   58.58    44.56    51.92   89.09   42.17    32.69 
Rock Handling Unit Cost (b)            USD/tonne      6.09    8.83    7.15    5.38     6.54    12.30    8.52    5.27 
----------------------------------  ---------------  ------  ------  ------  -------  -------  ------  ------  ------- 
 

(a) Cash operating costs include mining and production costs, capitalised costs, selling, general and administrative expenses, and exclude PPE-related capital expenditure, depreciation, amortisation and mineral royalties.

(b) Total operating costs include mining and production costs (including security costs), selling, general and administrative expenses, depreciation and amortisation, but exclude capitalised costs and mineral royalties.

Operations at two new pits in the Mugloto and Glass areas commenced during the quarter. In the quarter ending 30 September 2016, a total of 177.4 thousand tonnes of ore was mined (versus 136.9 thousand tonnes for the quarter ending 30 September 2015). The stripping ratio decreased to 5.2 (versus 7.3 for the quarter to 30 September 2015) due to the mining of exposed ore in Mugloto and Glass pits that was stripped during the previous quarters.

During the quarter ending 30 September 2016, the wash plant saw a 102.6 thousand tonnes processed, a 41% increase over 72.8 thousand tonnes processed in the quarter ending 30 September 2015. This increase in processing is attributable to improved production planning, a reduction in plant stoppages, the commissioning of a new water treatment plant and the processing of pre-screened material. Planned upgrades to the wash plant, including uprated washing facilities and the installation of a Dense Medium Separation unit are currently being progressed. The enhanced wash plant is expected to be operational by end of December 2016, which will further increase the mine's processing capacity.

The average grade during the quarter ending 30 September 2016 increased to 44 carats per tonne (compared to 7 carats per tonne in the comparative period) producing a total of 4.5 million carats of rough rubies and corundum (versus 0.5 million carats in the quarter to 30 September 2015). The increase is partly due to processing of larger volumes of higher grade but lower value ore.

The construction of the new Montepuez camp is proceeding according to plan and is expected to be fully complete by December 2016.

Security Update

Further measures have been put into place to minimise losses due to unlicensed mining activity on the concession. Construction of the security barracks at Ntoro area has been completed and a team of security personnel have now been stationed at this block. In respect of industrial and technical security, phase 2 of the CCTV project has been completed. Additional cameras have been installed in high risk areas, back up servers have been installed along with additional UPS units at the sort house and the server room. A dedicated electrical line is also in place for the CCTV setup to ensure clean and uninterrupted power supply to security systems. A new deputy manager with expertise in industrial and technical security has also joined the Montepuez security team to further streamline processes and build in security elements to the new wash plant and proposed sort house complexes.

Health, Safety, Environment and Community Update

Regular employee training sessions covering human rights, conflict resolution, housekeeping procedures and operation and maintenance of heavy earth moving machinery continued during the quarter.

Notable progress has been made regarding DUAT and Resettlement Action Plan ("RAP") applications. A recommendation letter was issued by the National RAP Commission to the National DUAT Commission, for the final approval and issuance of Montepuez RAP by the Council of Ministers of Mozambique. On RAP, a positive compliance statement was issued by the National RAP Commission following successful hosting of the final public consultation meeting and technical workshop over the Montepuez RAP proposal. The RAP is now awaiting confirmation of a date for it to be presented to the Council of Ministers for final review and approval.

During the quarter, Montepuez established seven agricultural associations, four of which have already been officially registered with the government. Two of the newly created associations are specifically designed to support empowerment of women. A women's association is now working on a chicken farm which was built by Montepuez with the intention of the project being fully handed over to the association after the third cultivation cycle. The women's association is already selling its produce in the market and to the mine, at market prices, and has begun to generate its own income. Discussions continue with the relevant government departments and district administrators with regards to proposals put forward by Montepuez to a new primary school infrastructure within the region as well as the running of a mobile clinic which will serve the local villages.

Ruby Auction Update

Gemfields' next mixed quality auction of rough rubies and corundum extracted from Montepuez ruby mine is expected to take place in December 2016 in Singapore.

KARIBA AMETHYSTS

Gemfields' fifth auction of higher quality rough amethyst from Kariba amethyst mine in Zambia in which Gemfields holds 50% interest was held in Jaipur, India in September 2016 alongside the commercial quality rough emerald auction. The auction saw 11.6 million carats being sold and generated auction revenues of USD 0.4 million at an average realised value of 3.73 US cents per carat.

FABERGÉ

Fabergé saw a 23% fall in the value of sales orders agreed during the quarter ending 30 September 2016 when compared to the quarter ending 30 September 2015, largely attributable to the wholesale side of the business which is, by nature, dependent on the timing of new openings. The number of sales transactions, however, increased by 67%, alongside an increase in the average selling price per piece of 2%, for the quarter ending 30 September 2016 when compared to the same period in the previous financial year. This reflects a positive response to the strategic shift in Fabergé's product mix alongside encouraging consumer engagement with the marketing campaign.

Both the Fabergé Visionnaire DTZ men's watch and the Fabergé Lady Levity women's watch qualified for the shortlist in the prestigious Grand Prix d'Horlogerie de Geneve, one of the most revered watch competitions in the world. Results will be announced in Geneva on 10 November 2016. Fabergé is particularly pleased with the reception received for these timepieces, and looks forward to monitoring sales when they become available for delivery in November 2016.

COLOMBIA

During the quarter Gemfields continued pre-emptive exploration and mine planning activities in preparation for completion of the Coscuez transaction and as part of the base-level arrangements for future operations. These included the development of geological model maps to better understand and interpret the mine's ore deposit, XRF analysis for over 1,500 analysis points, and development of mining methods to be implemented in currently operational and future tunnels. Planning of equipment and workforce requirements for the period after takeover has also been carried out. Several meetings with Esmeracol S.A., a Colombia based company and present licence owners, were conducted to determine mechanism of debt payment to the Colombian National Mining Agency ("ANM") given that Esmeracol is looking for financing the debt prior to completion. The operations team in collaboration with Suna Verde, a two-way digital communications platform created by Gemfields, is developing near-term social plans to be implemented post-completion.

SRI LANKA

Gemfields announced the next phase of development by offering an Expression of Interest ("EOI") in local media calling for the interested parties to supply gemstones. In the first phase, a total of five suppliers have been appointed as preferred suppliers. Selection of prospective suppliers was based on responsible sourcing credentials and in accordance with Gemfields' global sourcing policy.

Geological Survey and Mines Bureau ("GSMB") of Sri Lanka has renewed exploration license for four blocks covering diverse minerals as a result of the successful completion of the first phase of exploration works including reconnaissance survey, geological mapping of selected areas followed by VLF survey and submission of biannual report.

ETHIOPIA

The diamond core drilling programme initiated at Dogogo South Block in July 2016 is now well underway, with 1,855 metres of 3,500 metres completed over 23 closed drill holes. The objective of the drilling programme is to confirm the depth continuity of the ore body that was exposed during the trenching and pitting exercises by intersecting it at 25 and 50 metres vertical depth. Drilling completed so far confirms pegmatitic activity and the presence of reactions zones along 800 metres strike length. A geochemical XRF analysis exercise of the drilled core is in progress. Bulk sampling is expected to ramp up in the second half of the 2017 financial year.

CORPORATE & CASH

At 30 September 2016, Gemfields had cash and cash equivalents of USD 24.1 million. The total debt outstanding at 30 September 2016 was USD 49.4 million, which includes USD 15.0 million with Macquarie Bank Limited (UK Branch), USD 4.4 million with Pallinghurst Resources Limited, Kagem's outstanding debt balance of USD 30.0 million with Barclays Bank. Gemfields had total sales, general and administrative expenses of USD 10.5 million in the quarter to 30 September 2016.

ENQUIRIES:

 
Gemfields                                        [e-mail] 
Janet Boyce, CFO                                 [phone] 
 Grant Thornton UK LLP 
Nominated Adviser 
Philip Secrett/Richard Tonthat/Jamie Barklem     [phone] 
 JP Morgan Cazenove 
Joint Broker 
Jamie Riddell                                    [phone] 
 BMO Capital Markets Limited 
Joint Broker 
Jeff Couch/Neil Haycock/Tom Rider/Jenny Wyllie   [phone] 
 Macquarie Capital (Europe) Limited 
Joint Broker 
Raj Khatri/Nick Stamp/Guy de Freitas             [phone] 
 Tavistock 
Jos Simson/Emily Fenton/Barnaby Hayward          [phone] 
 

Notes to Editors:

Gemfields plc is a leading supplier of responsibly sourced coloured gemstones and is quoted on the AIM market of the London Stock Exchange (ticker: GEM).

Gemfields is the operator and 75 per cent. owner of both the Kagem emerald mine in Zambia (believed to be the world's single largest producing emerald mine) and the Montepuez ruby deposit in Mozambique (one of the most significant recently discovered ruby deposits in the world). In addition, Gemfields also holds a 50 per cent. interest in the Kariba amethyst mine in Zambia, as well as controlling interests in various other gemstone mining and prospecting licenses in Zambia, Mozambique, Colombia, Ethiopia, Madagascar and Sri Lanka.

Gemfields' outright ownership of the Fabergé brand - an iconic and prestigious brand of exceptional heritage - enables Gemfields to optimise positioning, perception and consumer awareness of coloured gemstones, advancing the Group's "mine and market" vision.

Gemfields has developed a proprietary grading system and a pioneering auction and trading platform to provide a consistent supply of quality coloured gemstones to the global downstream markets. This is a key component of the Company's business model which the Directors believe has played an important role in the appropriate distribution and associated resurgence of the global coloured gemstone sector.

www.gemfields.co.uk

"The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulations (EU) No. 596/2014."

This information is provided by RNS

The company news service from the London Stock Exchange

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November 01, 2016 03:00 ET (07:00 GMT)