Gemfields announced plans to establish a new and independent operational grievance mechanism in keeping with industry best practice. Photo: Reuters
JOHANNESBURG – Gemfields, the world’s leading coloured gemstone producer, yesterday continued to lose ground on the JSE as it acknowledged that the tax regime changes introduced by the Zambian government would have a detrimental impact on its profitability and cash flow in that country.

Gemfields, formerly known as Pallinghurst Resources, at some stage sank 6.68 percent a share on the JSE yesterday after swinging to a $53.9million (R780.18m) pretax loss in 2018 from a $52.6m profit the year prior. However, the share recovered and closed 2.86percent lower at R1.70 yesterday.

Gemsfields chairperson Brian Gilbertson said the group had faced considerable challenges in Ethiopia, Mozambique and Zambia, where it owned 75percent in Kagem, the world’s single largest producing emerald mine.

Gilbertson said the share price had endured a disappointing 12 months, falling 40 percent by year-end, flying against the performance of the group’s operations.

“Perhaps our biggest challenge over the coming months will be in Zambia, where the government effected changes to the tax regime on January 1, 2019, introducing, inter alia, a new 15percent export tax on precious gemstones and metals,” said Gilbertson.

“Combined with the existing 6percent mineral royalty levied on gemstones, this increases Kagem’s total tax on revenues to 21percent,” said Gilbertson, adding that the mineral royalty was no longer tax-deductible for corporation tax purposes.

The company suffered a $47.6m fair value loss on its 6.54percent interest in the Sedibelo platinum mine in South Africa and a $22.6m impairment charge at its Kagem asset as a result of the newly implemented tax changes in Zambia.

Mozambican and Zambian operations generated revenues of $127.1m and $60.3m.

Gemfields said its holding in Sedibelo’s was valued at $50.4m at the end of December from $98.1m in the previous reporting period, following the fair value loss.

The company is now mulling to dump the stake in the mine.

In terms of operations, Kagem’s production in the “premium emerald” field reached 224000 carats, exceeding the previous 12 months to June 30, 2017, by more than 400percent.

Meanwhile, the legal case brought by English law firm Leigh Day was resolved after a $7.4m no admission of liability settlement was paid in January.

The company said it was forging ahead with an additional listing in London during 2019 without an associated capital raise.