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MENAFN - ProactiveInvestors - UK - 31/01/2013

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(MENAFN - ProactiveInvestors - UK) Gemfields (LON:GEM) put in a sparkling performance at the end of 2012, setting a new production record for the rainy season at its Kagem emerald mine.

The coloured gemstones specialist, which recently completed the acquisition of the iconic Faberg brand, said the 75% owned Kagem mine produced 6.6mln carats in the fourth quarter of 2012, a sharp increase on the 3.9mln carats produced in the corresponding period of 2011.

The grade for the quarter improved to 288 carats per tonne from 222 carats the year before, while the unit production costs came down to US0.66 per carat from US0.87 per carat a year earlier.

Cash rock handling costs were US3.43 per tonne in the fourth quarter, as against US3.21 per tonne the year before.

Unit ore production costs declined to US189 per tonne from US193 per tonne.

"Our emerald business remains a solid platform and continues to support our ongoing growth," declared Ian Harebottle, chief executive officer of Gemfields.

"There is a clear indication of growing demand for coloured gems," Harebottle told Proactive Investors, adding that the younger generation was especially receptive to them rather than the old standby of diamonds that their parents might prefer.

"Young people like to be different, and the ethics relating to the origins of the gems are very important to them as well," Harebottle said.

Harebottle's belief that the pricing environment for coloured gems is improving will be tested at the company's next auction, which is likely to be at the end of February.

Start-up operations are progressing well at the Mozambican ruby project owned by Montepuez Ruby Mining, in which Gemfields has a 75% interest.

A core team is on site at the ruby mine, and primary stage mining and processing equipment is operational. A semi-mobile ore treatment plant has been designed, fabricated and commissioned to test the characteristics of the ore. Bulk sampling has commenced and has shown encouraging results, the company said.

For some, Gemfields' progress on what Harebottle called "a massive, massive resource" can't come quick enough, but Gemfields won't cut corners.

"We have lots of earth to move. Not just thousands of tons, but hundreds of thousands of tons. Things are progressing very well, but the market always wants you to move faster. We have a reputation at Gemfields for doing things properly, though, and we are not going to change now," Harebottle said.

Another area which is exciting the interest of shareholders is the assimilation of Faberg, which finally completed on Monday.

"We did not really get too involved until it was completely ours," Harebottle explained.

Now, however, the company is keen to get cracking on using the Faberg brand to add value to Gemfields' coloured gems.

"We see a lot of potential in the combination," Harebottle said.

At the moment, potential is all it is and Harebottle does not want to raise expectations too soon by talking it up too much.

"It [the share price] will be driven on results, not on stories," he concluded.

The shares were up a penny (3.77%) to 27.5p in late trading.

Canaccord Genuity reiterated its 'buy' recommendation and 39p price target.

"We are encouraged that grade for the quarter increased to 288 carats/tonne, the highest grade achieved for six quarters. We forecast an average grade of 310 carats/tonne for the life of mine, in line with the average grade recovered of 310 carats/tonne since 2006, but we expect significant fluctuations due to the nature of the ore body," Canaccord said.

"At the end of December 2012, Gemfields had US27.9 million in cash and total debt outstanding of US7.9 million versus our forecasts of US34.7m and US9.2m. The difference can be attributable to the construction of the pilot plant at the Montepuez ruby mine in Mozambique, where bulk sampling remains underway," the broker added.

Investec, meanwhile, chipped in with its view. "This appears to be a solid performance by Gemfields with work continuing to support a growing business."

By John Harrington


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