In an effort to advise its shareholders, AIM-listed Gemfields has announced that there could be a possible ban by the Zambian government on the company’s ability to sell its gemstones outside of the country.

Gemfields warned that such measures are potentially detrimental to the Zambian gemstone sector and would prevent the company from being able to freely sell its gemstones in the markets where it believes it would realise the best prices.

Gemfields’ principal asset, the Kagem emerald mine, which is the single largest emerald mine in the world, is located in northern Zambia. Gemfields owns 75% of Kagem and the government of the Republic of Zambia (GRZ) owns the remaining 25%. Gemfields also owns 50% of the Kariba amethyst mine on southern Zambia, with GRZ owning the other 50%.

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 Kagems 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,” explains Gemfields’ CEO Ian Harebottle.

At a press conference in Lusaka on 5 April 2013, the Minister of Mines, Energy and Water Development (MoMEWD) addressed members of the media and distributed a press statement seemingly restraining Kagem and other producers from selling emeralds outside of Zambia. Since 2009, Kagems production has been sold only outside of Zambia, generating US$160 million of revenue from 11 auctions.

While the press statement deals primarily with emeralds, it also refers to a pronouncement by the President of Zambia that all gemstones should be sold within Zambia. Gemfields noted that such a requirement or law, if confirmed, would similarly affect the Kariba amethyst mine in which Gemfields has a 50% interest.

Gemfields also 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 Zambian gemstone sector across the globe. The company further pointed out that such a limitation would, among other things, place Zambian emeralds at a disadvantage relative to other emerald producing countries where no such limitations are in place.

Given earlier verbal requests by MoMEWD, Gemfields and Kagem had agreed to include Zambia as one of the destinations on its 2013 international auction circuit. As a result, Gemfields and Kagem will host an auction in Lusaka from 15-19 April 2013. Gemfields advised that its next auction thereafter is presently scheduled to take place in Singapore in June 2013.

The company advised that neither Gemfields nor Kagem have as yet participated in or been invited to any industry or stakeholder consultation process regarding these measures. Kagem has written to MoMEWD requesting clarification of the terms, conditions and basis of the measures. Gemfields said that it believes a key component of Kagems success in recent years has been its ability to provide a secure, reliable and consistent supply of wellgraded, high quality emeralds to its customers in locations that are competitive and convenient.

Gemfields highlighted that it is therefore important that the prevailing uncertainty be clarified promptly, minimising apprehension in the downstream market and supporting Kagems and Gemfields ongoing efforts to position Zambian emeralds at the forefront of the global emerald industry and as the first choice for discerning consumers.

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.

Since Gemfields acquired Kagem in mid-2008, we have pursued a strategy for Zambian emeralds not only to compete on the world stage, but to lead the sector internationally. Our ambition has been to turn Kagem into a Zambian national champion and a shining example of what can be achieved in well-founded partnerships between government and investors. “I believe we have achieved that goal, and can go much further. I therefore hope that we will continue to enjoy a Zambian legal and business framework that enables the Zambian gemstone sector to remain competitive globally,” Ian Harebottle concludes.

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