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Pallinghurst
Diamonds and Gems  
7 December 2017

Pallinghurst reveals its six point plan for 2018

The integration of the Gemfields and Pallinghurst teams has been successfully implemented with the headcount at the London head-office reduced by 15%.

Immediately upon completion of the takeover, it was clear that two key issues needed to be addressed.

The first was the debt position of Gemfields, which had grown almost five-fold from circa US$17 million (gross) in the middle of 2014 to circa $84 million at completion.

The indicated remedies for this were to reduce costs as far as reasonably possible and to seek ways to increase revenues.

The second was the $54 million decline in the revenues from Kagem in the financial year to end-June 2017
compared to 2016, caused essentially by a sharp fall in the production of premium emeralds.

However, operating procedures and structures were re-visited to seek to improve and revitalise production.

Actions taken included cost reductions and streamlining of the management team as well as the integration of the Gemfields and Pallinghurst.

Further staff rationalisation was implemented at the Gemfields offices in New York and India.

At Kagem, production was deliberately “slowed down”, blast patterns modified to lower intensity and
jackhammer crews and chisel men bolstered to focus on contact and reaction zones.

The focus is now on extraction of carats in the “premium emerald” category.

Whilst it is too early yet to make firm forecasts, the initial results have been very positive, with strongly improved
premium production in the last three months, particularly in November.

To increase available production areas and boost overall gemstone production, the re-opening of the mothballed
Mbuva-Chibolele mining pit, located across the Kafubu River from the Kagem mine, has commenced.

The first production of gemstones from this operation is expected in the first quarter of 2018.

Bulk sampling has commenced at one of the two Megaruma ruby licences, located adjacent to the Montepuez
ruby mining operations.

In Ethiopia exploration commitment continues.

Emerald mineralisation has been encountered and bulk-sampling continues. Initial results have been encouraging.

During the first four months since the acquisition, Pallinghurst has recorded the following key achievements:

  • In October, an auction of higher quality emeralds in Lusaka generated revenues of approximately $21
    million at an average price per carat in excess of $66, the second highest price ever achieved. 100%
    of the offered emeralds were sold
  • In November, the auction of high and commercial grade rough rubies in Singapore generated a record
    $55 million from the sale of 605 000 carats. The average realized price was in excess of $90 per
    carat
  • Montepuez ruby mining will have a record year in 2017, with revenues in excess of $109 million
  • The past three months of production at Kagem have generated approximately 40 000 carats of premium
    emeralds. This compares to production figures of 7 940 carats for calendar Q1, 2017 and 11 310 carats
    for calendar Q2, 2017
  • Jupiter Mines announced record levels of production and profitability, with the Tshipi manganese mine
    on target to produce over 3 Mt for its financial year ending 28 February 2018
  • Pallinghurst has received distributions of $15 million in 2017 from Jupiter Mines. In November,
    Jupiter Mines indicated that a further $25 million distribution could be expected in H1, 2018. In that
    event, Pallinghurst would expect to receive a further $5 million

Following its strategic review, management has identified six key priorities for 2018

1. Revitalise emerald production in Zambia
2. Expand ruby production in Mozambique – both at Montepuez
ruby mining and the adjacent Megaruma property
3. Seek to increase Pallinghurst’s exposure to Steel Making Materials
4. Complete an internal review of Fabergé
5. Decrease leverage and strengthen balance sheet
6. Increase shareholder interaction and improve demand for shares through Premium LSE listing

Feature image credit: Wikimedia

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