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A VISION FOR ZAMBIAN EMERALDS

2013 Zambian Emerald Summit Lusaka


30 31 May 2013

Who is Gemfields?
1. Gemfields plc is publicly listed on the London Stock Exchanges AIM list. 2. As such, any person can purchase shares in Gemfields. Hundreds of shareholders 51% Pallinghurst Resources Ltd 49%

Gemfields plc
The Coloured Gemstone Company

100%

75% Kagem Emerald Mine

75% Montepuez Ruby Mine

50% Kariba Amethyst Mine

100% Madagascar Licences


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FABERG

Kagem Annual Gemstone Production


Emerald + Beryl (millions of carats)
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GEMFIELDS acquires 75% of Kagem


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25

20

15

10

0 FY to 30 Jun 06 FY to 30 Jun 07 FY to 30 Jun 08 FY to 30 Jun 09 FY to 30 Jun 10 FY to 30 Jun 11 FY to 30 Jun 12

Kagem: Total Monthly Carats Produced


Even for a very large operation, gemstone production is very erratic. Erratic production = high level of risk (requires capital to survive the lean times).
Kagem Monthly Gemstone Production (carats) Emerald+Beryl
6,000,000

GEMFIELDS acquires 75% of Kagem


5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0 Oct '08 Oct'05 Oct'06 Oct'07 Oct'09 Oct'10 Oct'11 July'09 Apr'05 Apr'06 Apr'07 Apr'08 Apr'09 Apr'10 Apr'11 Apr'12 Oct'12 Jan'05 Jan'06 Jan'07 Jan'08 Jan'09 Jan'10 Jan'11 Jan'12 Jan'13 Jul'05 Jul'06 Jul'07 Jul'08 Jul'10 Jul'11 Jul'12

Emerald Geology on a Page


1. Emerald ore, known as Reaction Zone (RZ), is created when a pegmatite cuts through a layer or belt of talc-magnetite-schist (TMS). 2. A complex reaction between the pegmatite and the TMS results in a layer of RZ of varying thickness and quality. This reaction gives rise to emerald and beryl crystals. 3. RZ contains emeralds and beryl. Both TMS and pegmatite are essentially devoid of emeralds and beryl. 4. TMS belts are typically 10-40 metres thick. 5. Pegmatites vary from a few centimetres to tens of metres thick.
SIMPLIFIED STRUCTURE DIAGRAM

REACTION ZONE

TMS BELT

PEGMATITE

Kagem Emerald Mine Total Rock Handling


Kagem is close to moving 1 million tonnes of rock EACH month! Very heavy investment in further opening the pit during the last 18 months.
Kagem Total Rock Handling (tonnes)
1,200,000

GEMFIELDS acquires 75% of Kagem


1,000,000

800,000

600,000

400,000

200,000

0 Oct '08 Oct'05 Oct'06 Oct'07 Oct'09 Oct'10 Oct'11 Oct'12 Jan'05 Jan'06 Jan'07 Jan'08 Jan'09 Jan'10 Jan'11 Jan'12 July'09 Apr'05 Apr'06 Apr'07 Apr'08 Apr'09 Apr'10 Apr'11 Apr'12 Jan'13 Jul'05 Jul'06 Jul'07 Jul'08 Jul'10 Jul'11 Jul'12

Kagem Emerald Mine Total Cash Operating Costs


Total spent on operating Kagem since July 2008: USD 106 million This excludes capital investment in equipment and infrastructure!
KAGEM's TOTAL MONTHLY CASH OPERATING COSTS USD '000 (UNAUDITED)

3,200

2,700

2,200

1,700

1,200

700 Jul'08 Oct '08 Jan'09 Apr'09 July'09 Oct'09 Jan'10 Apr'10 Jul'10 Oct'10 Jan'11 Apr'11 Jul'11 Oct'11 Jan'12 Apr'12 Jul'12 Oct'12 Jan'13

Kagem: Carats per tonne of rock


Kagem produces about 3 carats of emerald and beryl per tonne of rock mined (average during the last 12 months) This equates to 0.6 grams per tonne (less than one part per million) If one excludes beryl (i.e. emerald only), this becomes less than 1 part in 5 million!
Gemstone carats per tonne of rock mined and handled (carats per tonne) Emerald+Beryl
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GEMFIELDS acquires 75% of Kagem


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15

10

0 Jan'05 Mar'05 May'05 Jul'05 Sep'05 Nov'05 Jan'06 Mar'06 May'06 Jul'06 Sep'06 Nov'06 Jan'07 Mar'07 May'07 Jul'07 Sep'07 Nov'07 Jan'08 Mar'08 May'08 Jul'08 Sep '08 Nov '08 Jan'09 Mar'09 May'09 July'09 Sep'09 Nov'09 Jan'10 Mar'10 May'10 Jul'10 Sep'10 Nov'10 Jan'11 Mar'11 May'11 Jul'11 Sep'11 Nov'11 Jan'12 Mar'12 May'12 Jul'12 Sep'12 Nov'12 Jan'13 Mar'13

We invest in marketingour 1st campaign

Advertising Campaign #2: Assisting The Downstream Industry

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2012 Advertising Campaign Rare Coloured Gemstones

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Gemfields Marketing FT How To Spend It at Kagem

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The Romanov Necklace by Faberg (featuring ZAMBIAN emeralds) Retail Price USD 2.85 million (excl. VAT!)

A super duper necklace, but it perpetuates one of the emerald sectors greatest myths: That all emeralds are equal, and that they are all worth a fortune. Er, no!
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MYTH BUSTING: EMERALD VALUES (ROUGH)


70% of total revenue comes from just 10% of the weight. US$ 10,000 per gram

PRICE INCREASES (500,000 times!)

Quality deteriorates dramatically.

and production volume/weight increases dramatically

US$ 0.02 per gram

Once all of this has averaged out at Kagem, the average equates to around USD 3.50 per carat (or USD 17.50 per gram) when sold as rough at international auction

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MYTH BUSTING: CUTTING & POLISHING I


August 2008: Gemfields decides to add value with cutting and polishing Sets up in India due to dramatically lower labour cost (and a world leader) The exercise failed (margins, client universe, consignment!) By August 2009: THE FACILITY WAS CLOSED. FACT: Today, Gemfields has NO cutting & polishing (outside Zambia)
IDIOT!
August 2008

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MYTH BUSTING: CUTTING & POLISHING II


A BAIN STUDY ON THE DIAMOND SECTOR:

The biggest margin is in MINING PRODUCTION The second biggest margin is in RETAIL Overall, cutting and polishing is a fairly low margin business.
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Emerald Prices Performing Well

vs.
Source: Forbes India, August 2012

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KAGEMS INTERNATIONAL EMERALD AUCTIONS: AMAZING RESULTS!


Kagem Rough Emerald & Beryl Auctions
Actual Sales Prices (USD/carat)
Calculated as: USD Received / Total Weight Sold

3.00

42.71 2.61 2.42

45
38.25

40 35

2.50
29.71 26.19

2.00

30 25

1.50
1.12

Lower Grade (Left Axis) 20 15


0.77 9.35

Higher Grade (Right Axis)

1.00

10 5 0

0.50

4.37

5.12

0.31

0.00
Jul 09 Sep 09 Nov 09 Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13

Why seek to stop a method that is clearly working?

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MYTH BUSTING The Hidden Billions


1. Kagems total revenues to 30 June 2012 were USD 78 million 2. If Gemfields was engaging in transfer pricing, or was somehow making additional revenues or profits offshore, those additional revenues would show up in the audited, published accounts for Gemfields plc (a London-listed company) 3. Gemfields total consolidated revenues to 30 June 2012 were USD 84 million 4. So, Gemfields revenues exceed those of Kagem by only USD 6 million. 5. The USD 6 million is explained by: 50% stake in Kariba Commissions earned when assisting clients with selling their polished gems Acquiring and selling rough from other markets like Brazil and Jaipur

So, who is making the allegations that Gemfields / Kagem are hoarding revenues and profits offshore?
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A REQUEST TO GRZ TO AID TRANSPARENCY: Commence publishing key emerald sector data
KEY ZAMBIAN EMERALD SECTOR DATA UNITS INPUT DATA 1 Corporation Tax Paid by Emerald Producers Kwacha Rebased 2 Mineral Royalty Collections i.r.o. Emerald/Beryl Kwacha Rebased 3 Total Weight of Declared Zambian Emerald/Beryl Exports Grams OUTPUTS 4 Implied value of all Emerald and Beryl Exports 5 Unit Value of Zambian Emerald / Beryl Exports 2006 2007 2008 2009 2010 2011 2012 2013*

597,200 4,592,407 304,533 2,994,198 3,690,141 17,730,376 16,805,197 6,648,676 *YTD

Kwacha Rebased Kwacha / Gram

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OBSERVATIONS I
The KEYS to the growth of the Zambian emerald sector include:

Transparency Consistent, Reliable and Secure supply International Marketing Reputation Building Communication & Collaboration

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OBSERVATIONS II
1. The entire planet is moving to a new era of transparency EMBRACE IT. 2. Gemfields and Kagem WELCOME government involvement and monitoring in gemstone mining and sales. 3. Zambia is the third biggest emerald producer (behind Colombia and Brazil) a. We must remain competitive, reliable and secure b. Wobbles in Zambia make customers nervous 4. Mining generally works better when the scale is bigger. Small-scale producers may find synergies in teaming up or merging their operations / licences. 5. Transform local value addition with cleaning, grading and sorting MUCH better margins than cutting and polishing. 6. Clamp down on illegal dealers and traders they destroy prices. 7. A possibility: Gemfields plc listing on the Lusaka Stock Exchange. 8. An idea: a dedicated GRZ Emerald Taskforce to oversee the sector and publish production, export and value information for all to see.
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A PROPOSAL: FAIR PRICES FOR THE INFORMAL MARKET


Owners: ESMAZ and possibly others 100% Gemfields plc Buying Member 2

Any rough emerald sellers

Kitwe Emerald Co-Op [/Exchange?] Ltd

Buying Member 3
1. An open, voluntary, multi-party buying platform = fair prices 2. Proper recording of Buying Members purchases for export / ZRA purposes 3. Kagem/Gemfields would identify and fund the set-up of a suitable location as one of their CSR projects 4. The Co-Op would earn a commission on all transactions to fund its operating costs 5. If desired, Kagem/Gemfields would provide training and skills-transfer during the first year to aid in operating the facility, and would for up to one year provide the requisite operating costs.
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THANK YOU.
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