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  Zambia to restrict sales of emeralds to local auctions, sends shockwaves through industry


April 14, 2013


A decision by the Zambian government to restrict the sale of emeralds mined on its territory to local auctions has sent ripples through the colored gemstone trade, and in particular at the corporate headquarters of Gemfields, the gemstone mining company that produces the major part of its output at the Kagem emerald mine in Zambia.

The government decision in early April was made by the country's mining minister, Yamfwa Mukanga. "Zambian gemstones have for a long time been sold on foreign markets," he said," a situation that has contributed to capital flight and denied Zambians of the much needed benefits from the resource."

The statement went on to say that new policy will promote transparency and accountability in the marketing of emeralds, stimulate local demand for emeralds, create more opportunities for small-scale miners to have access to colored gemstone markets, and increase tourism.

While the move could not come as a complete surprise to Gemfield, it was almost certainly was not welcomed. The company had seen its revenues more than double last year to $83.7 million, from $40.1 million in 2011. Over the same period its share price rose more than 45 percent. But with the announcement by the Zambian government, the price of its shares fell 16 percent in a single day.

Before Gemfields purchased the Kagem mine in 2009, the mine's auctions used to take place only in Zambia. But since then the London-headquartered firm has sold its stones exclusively on foreign markets, raising $160 million from 11 auctions. Over the period it has paid $15.5 million into the Zambian treasury's coffers through taxes and royalties on profits of $39.4 million.

If the decision to restrict Kagem's auction to Zambia leads to a drop in income, one of the chief victims of the shortfall will be the Zambian government itself. For in addition to the tax and royalty income it receives from Kagem, the government is also a 25 percent shareholder in the mine.

Gemfields was inclined not to react directly. The Zambian government press release that announced the new policy was uploaded without comment onto the Gemfields website. However, speaking to Reuters, Dev Shetty, Gemfields chief operating officer said: "Not allowing Gemfields to auction abroad is going to take us out of the competition with Brazil and Colombia, which hold 30 percent each of the world's supply of emeralds."

Gemfields does not appear to have plans to reduce its involvement in Zambia. Three days after the Zambian government move, the company itself announced that it planned to invest over more than $30 million over the next two years in underground emerald mining, and an additional $20 million when it commences full-scale underground mining.

During the press conference held to announcement its new investment, Kagem Mining Limited director Sean Gilbertson was asked about the recent government decision. The Zambian authorities should rescind the decision and allow the mine to auction the gems in places where they can get the best price, he responded.

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