JOHANNESBURG (miningweekly.com) – Aim-listed Gemfields on Monday reported improved production results from its 75%-owned Kagem mine, in Zambia, and said that negotiations with the Zambian government over the location of its auctions were continuing.

The company increased production from Kagem, in which the Zambian government owns a 25% stake, by 42% year-on-year to 29.99-million carats in the 12 months ended June.

Grade at the mine increased by 38% to 283 ct/t over the period, while unit-per-carat production costs for the year decreased by 26% to $0.55/ct.

For the quarter ended June, gemstone production grew to 8.9-million carats, from 7.3-million carats in the previous corresponding period. Grade increased to 322 ct/t from 181 ct/t in the quarter to June 30, 2012.

CEO Ian Harebottle said that Gemfields, which had to move its emerald auction to Lusaka at the request of the Zambian government, was continuing discussions over the location of its auctions.

"We continue to seek guidance and to interact with the government of Zambia with respect to possible restrictions on the ability of Gemfields and Kagem to freely choose the locations of its auctions and, thereby, our ability to sustain the current levels of growth in demand for Zambia's magnificent and long undervalued gems.

“While the two auctions held in Lusaka this year have certainly been successful, the key question of course remains what they would have generated had they been held abroad (where competing and undermining sources of supply, frequently illegal, are not readily available to our customers) and their potential impact on the long-term growth of this sector," he said.

The first Lusaka auction of predominantly lower quality emerald and beryl, which was held during the quarter under review, yielded revenues of $15.2-million, resulting in the highest aggregate revenues on record for a lower grade auction to date but at a 7% decline in per carat prices when compared with the previous lower quality auction of a similar quality mix.

The second auction made up of predominantly higher quality emeralds was held in July and yielded aggregate revenues of $31.5-million, the second-highest aggregate auction revenues achieved to date, and with record per carat prices of $54/ct, reflecting an increase of 26% over the previous high of $42.71/ct achieved in the July 2011 Singapore auction.

At the end of June, Gemfields had cash of $11.6-million and total debt outstanding of $11.6-million, with Kagem having generated an additional $31.5-million in cash soon after the close of the quarter under review and as proceeds from the successful high-quality emerald auction.

Gemfields reported that illegal mining activity in the Kagem mining licence area was yet to be fully resolved and that it continued to work with key Ministries to alleviate the problem.

Meanwhile, Gemfields also reported encouraging bulk-sampling activities at its 75%-owned Montepuez ruby deposit, in Mozambique, with the first auction of rough rubies likely to take place in the first quarter of the 2014 calendar year. A pilot and semi-mobile ore processing plant continued to test the characteristics of the ore with adjustments being made to the plant to improve efficiencies in the ore washing and cleaning process. A sizeable increase in processing capacity had been achieved.

Gemfields expected the first auction of rough rubies to take place in the first calendar quarter of 2014.