Gemstones generates over US$40 million for Zambia

CONCERNS by players in the precious and gemstone industry over the relocation of the auction floor to Zambia unlike the foreign markets are now seemingly been overcome.
Early in 2013 President Michael Sata directed that all auctions of the precious metal should be done in Zambia and not outside, a decision which raised concern among major players.
The stakeholders, upon announcement by the Government over the new development, had raised eyebrows. They argued that the local market floor was not ideal to realize real returns from their business hence suggested that they still be allowed to remain on the foreign auction floors where business was lucrative.
They argued further that the lack of a reliable gemstone auction floor in Zambia has forced the key players in the industry to look elsewhere and generate enough foreign exchange. The transfer of the auction market has since netted more than US$40 million in direct revenue which has helped the treasury.
The President had argued that the outside auction floors were depriving the country of a lot of revenue which could help the country meet and finance various developmental projects including infrastructure being undertaken countrywide under the Six National Development Plan.
President Sata insisted that more money was eluding Zambia through such auctions and should instead use the local markets as opposed to a situation where Zambia has been losing millions of Kwacha annually, because the money realised from the gemstone sales abroad does benefit Zambians; One of the concerned players was the Kagem Mining Limited, Zambia’s leading emerald miner which feared they could lose more since the local market was not developed while various policies needed to be put in place to enhance market development.
Gemfields Plc, the majority owners of Kagem Mines had charged that the intention to ban the sale of gemstones outside of Zambia is potentially detrimental to the country’s gemstone sector, it said in a notice to shareholders posted on the London Stock Exchange website.
According to Gemfields, the possible ban by the Zambian government on the Company’s ability to sell its gemstones outside of the country is potentially detrimental to the Zambian gemstone sector.
Gemfields says the ban would prevent it from being able to freely sell its gemstones in the markets where it believes it would realise the best prices, he further argued. Gemfields’ principal asset, the Kagem emerald mine in Lufwanyama which it owns 75 percent shares is the single largest emerald mine in the world. Gemfields also owns 50 percent of the Kariba amethyst mine in Siavonga, with GRZ owning the other 50%.

Since 2009, Kagem’s production has been sold only outside of Zambia, generating USD 160 million of revenue from 11 auctions.
Representatives of GRZ have routinely attended those auctions.
Gemfields, in its notice added that the ban by the Government would ostensibly mean that all gemstones should be sold within Zambia and would similarly affect the Kariba amethyst mine in which Gemfields has a 50% interest.
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 Zambian gemstone sector across the globe.
Such a limitation would place Zambian emeralds at a disadvantage relative to other emerald producing countries where no such limitations are in place, added Gemfields. Given earlier verbal requests by the Ministry of Mines, Gemfields and Kagem had agreed to include Zambia as one of the destinations on its 2013 international auction circuit.
Subsequently the matter was resolved amicably resulting in Gemfields and Kagem hosting the first auction in Lusaka from 15-19 April 2013 with the next one being done in Singapore in June 2013, which was also put off because of the directive despite the concerns raised by Gemfields.
“The press statement by the Minister of Mines suggests that the sale of Zambian gemstones on foreign markets has contributed to capital flight. Gemfields takes particular pride in the repatriation of Kagem’s auction proceeds to Zambia and in keeping all relevant government departments fully updated in this respect.
“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.”
Gemfields CEO Ian Harebottle feared that these developments potentially endanger the health of the sector immediately after they have begun 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 mine, our auction practices, proprietary emerald grading system and global marketing campaigns have delivered dramatic results not only for Kagem, but for the wider Zambian gemstone sector.
Kagem’s repatriation of foreign currencies, payments of Zambian corporation tax and gemstone royalties stand at all-time highs and we believe 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,” Harebottle added.
He argued that since Gemfields acquired Kagem in mid-2008, it has pursued a strategy for Zambian emeralds not only to compete on the world stage, but to lead the sector internationally.

However, despite the concerns by the key players, Gemfields, the auctioning of precious stones in Zambia is now paying dividends as evidenced by the revenue being generated and paid out to the Government in various taxes, a move which has elated President Sata who said he was satisfied at the recent and third successful auction of emeralds held in Lusaka recently.
President Sata noted that the outcome of the successful auctions leaves no doubt about the country’s ability to hold these auctions locally and maximize revenue which might have been understated through various manipulations.
“On the insistence of Government, Kagem Mines Plc held a low grade rough emeralds auction from 15th – 19th April, 2013 which realized
US$15.2 million which was the highest value ever realized,” the President said in a statement accessed by the Zambian Mining magazine.
“Similarly, from 15th – 19th July another auction of high grade emeralds was held at which US$31.5 million was realized. This is the second highest auction revenue achieved to date and the best in terms of value per carat sold.”
The average per carat price of US$54 has set a new record.
Furthermore, all the 583,448 carats placed on offer were sold.
President Sata is further elated that it is now obvious that selling and auctioning of gemstones locally will create employment, enhance value addition through cutting, polishing and jewellery making activities as well as enhance revenue collection as a result of proper monitoring mechanisms.
“Additional spillover effects to other sectors of the economy will also be enhanced as international buyers who come and stay in the hotels will end up visiting other tourist attractions as well as having an interest in investment opportunities in various sectors of the economy,” President Sata said.
He reiterated government’s commitment to diversifying the economy away from copper and promoting value addition industries in the mining sector in line with the PF Manifesto. President Sata commended the Ministry of Mines, Energy and Water Development for implementing his directive on gemstone auctions without delay.
When all is said and done, the Kagem Mining Limited, the country’s largest emerald producer, has since declared a dividend of K41.6 million (or equivalent of US$8 million), of which K10.94 million (US$2
million) has been paid to the Government, representing a 25 per cent shareholder in the company.

Finance minister Alexander Chikwanda received on behalf of the Government the revenue realised from the local auction amounting to K10.94m in dividend from Kagem Mining chairman William Nyirenda.
Gemfields later in a statement stated that the amount represented a 25 percent stake in the company.

The cash pay-out arises from distributable net profits generated by Kagem during recent years. It is believed to be both the first ever dividend paid by Kagem in its 29 year history and the first such payment to the Government from any gemstone operation in Zambia.
The dividend has been facilitated by the turnaround strategy initiated at Kagem in conjunction with Government a little more than five years ago, when London-listed Gemfields plc acquired a 75 per cent beneficial interest in the company.
Accoprdingly at that time, Kagem was loss-making and its total annual sales (approximately US$ 8.9 million) were broadly the same as the dividend now being paid. It added that in the year ending 30 June 2012, Kagem’s revenues had grown to approximately K405 million (or US$
78 million),a growth in the real returns of the company since inception.
In October 2008, Kagem also implemented a pioneering emerald incentive scheme, paying a bonus to all Kagem employees for each month in which pre-determined emerald production thresholds are reached. The scheme, in its 5 years of operation, has paid more than K13 million (approximately US$ 2.5 million) to Kagem’s employees, over and above their regular remuneration arrangements.
In the last year, more than K24 million (approximately US$4.6 million) has been invested in new mining and ancillary equipment, as well as the improvement of Kagem’s facilities.
It added, in October 2013, the Mines Safety Department awarded Kagem a certificate recognising more than 2.8 million reportable injury-free shifts, believed to be a record in the Zambian mining industry.
Kagem is at the forefront of developing the international market for Zambian emeralds by investing in exploration, mining, sales and marketing in order to develop a competitive, reliable and trusted source of ethically produced gemstones that buyers can trust.
A key supporting initiative has been the appointment by Gemfields plc of Hollywood movie star Mila Kunis as the company’s global brand ambassador. Ms Kunis visited Kagem and Zambia earlier this year and has been instrumental in branding Zambian emeralds internationally.
According to Harebottle, the chief executive officer, Gemfields plc and of Kagem, the development of a dividend is a milestone achieved by the two companies adding that:
“This dividend – a truly remarkable milestone – is the culmination of more than five years of very hard work. First, we invested heavily in the restructuring, redevelopment and expansion of Kagem. Second, we’ve implemented – on a scale never before seen in the Zambian gemstone sector – an innovative and sustained international marketing campaign for Zambian emeralds, promoting them as a reliable, secure and ethical source of supply.
Kagem is the flag-bearer of the Zambian gemstone sector, and one of the finest examples of what can be achieved in partnerships between government and foreign investors in the mining sphere. We would like to thank and congratulate our partners in Government for their role and support in reaching this excellent result.”
At the same occasion, Chikwanda admitted that although it was the first time that a dividend is being received from a gemstone mine, he was confident that marks the beginning of the good things to come from gemstone mining in Zambia.
“Most likely it is as a result of not only hard work and dedication but also the measures that Kagem undertook in the last five years in conjunction with the government to restructure, re-develop and expand the Kagem mine.” Chikwanda said.
Although Gemfields plc is not listed on the local bourse in Lusaka as opposed to Copperbelet Energy Corporation, Zambia Sugar Plc, among others, it remains a leading coloured gemstone miner listed on the AIM market of the London Stock Exchange (ticker: GEM).
According to data, the company’s principal asset is the 75 percent owned Kagem emerald mine in Zambia, the world’s single largest emerald mine. In addition to the Kagem emerald mine, Gemfields has a 50 percent interest in the Kariba amethyst mine in Zambia.
In July 2009 Gemfields commenced a formal auction programme for its Zambian emeralds. To date, the Company has held 14 auctions which have generated revenues totalling US$224 million.
The company also owns a 75 percent stake in the highly prospective Montepuez ruby deposit in Mozambique and licences in Madagascar including ruby, emerald and sapphire deposits.
Gemfields acquired the Fabergé brand in January 2013 to create a globally recognised coloured gemstone champion. Fabergé provides Gemfields with direct control over a high-end luxury goods platform and a global brand with exceptional heritage.


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