Gemfields Group Limited (GML) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to this morning's presentation of the results of Gemfields Group Limited for the year ending December 31, 2020. The results will be presented this morning by myself, Sean Gilbertson, your CEO; and David Lovett, your CFO. We would, of course, be very pleased to answer any questions you might have at the end of today's presentation. [Operator Instructions] You'll be pleased to know we won't be walking through all of the slides in today's presentation as a number of the slides are provided for the information of investors who may be new to Gemfields. Today, the bulk of the registered attendees are either fairly well or very well versed with Gemfields' history and its operations. Moving on to Slide 2. Please do pay attention to the important disclaimer. This is important in the context of the data that we are sharing with you today. Moving on to Slide #5. In brief summary, as can be seen here, 2020 was a truly grizzly year for Gemfields. Our auction revenues declined by 89%, and more bluntly put, we had $178 million revenue hole when compared with 2019. On Slide #6, that revenue hole can be very clearly seen with our prior years, particularly in green, the record-breaking year of 2019 when we had a little north of $200 million of revenue compared with the just north of $20 million shown in red in 2020. As we have explained in our assorted market updates, this hole has been caused predominantly by the fact that we've been unable to host gemstone auctions in our traditional format since February 2020, more than 13 months ago. Typically, we would have around 120 people from about 40 companies in a single room for 4 or 5 days in order to physically inspect thousands and sometimes tens of thousands of gemstones. That process is not possible in the prevailing COVID era. Significantly, our business is not the same as the diamond industry, where physical inspection of the gems is not always necessary, and the diamonds can be reliably assessed by machines, which tell the buyer accurately what the result will be. We don't believe that many businesses can sustain a blow of the magnitude that we have had to endure in 2020. It is worth noting that we have not raised equity capital, we have not relied on government support in any jurisdiction, we have stood by our teams and the families that depend on them by not making any redundancies, and we have only recently added an additional $8.9 million in standby debt in Mozambique. The revenue hole, therefore, has been bridged by a combination of cost savings, not running either our emerald or ruby mine for a year, 20% to 50% pay cuts across the group and, of course, the healthy net cash position that we enjoyed in late 2019 and early 2020. We are particularly grateful to our teams for their fortitude and sacrifices, most of whom are only now coming off one year pay cuts with a number still on pay cuts until 1 May 2021. We're also grateful to our shareholders for their patience, and, of course, also to our host countries for their cooperation and forbearance. Importantly, today, we believe that the worst of the pandemic is now behind us. Our emerald and ruby mining operations, having been suspended since March and April of last year, are restarting as we speak, and we expect them to be fully operational by the end of April 2021. And in addition, we have a series of 12 consecutive emerald and ruby mini auctions currently underway. These started on the 15th of March 2021 and will conclude on the 17th of April 2021. Three of those auctions have already completed, and therefore, we have 9 to go. The results will be announced on the 8th of April for rubies and on the 17th of April in respect of emeralds. All being well, and subject, of course, to the usual caveats, we do, therefore, expect to be able to say on the 17th of April that Gemfields is back in business. I should note, in particular, the appalling developments in Cabo Delgado province in Northern Mozambique, which is home to our ruby mine. The insurgence struck a major blow in Palma during the course of last week, and Palma is located close to the hub of Mozambique's major gas projects, and lies approximately 280 kilometers to the north, northeast of our Montepuez ruby mine. An estimated 700,000 people have been displaced by the fighting thus far. And we believe that approximately 60,000 people have arrived in our immediate vicinity in our district with associated pressures on the social fabric and, of course, on illegal mining activity. Naturally, that's a situation that we're monitoring very closely, and our emergency procedures at the Montepuez ruby mine have been rehearsed twice in the last 96 hours. Moving on to Slide 7. There are no significant changes since our last update in either our shareholder base or indeed in the assets that we hold. On Slide 8, Mary Reilly was appointed as a non-Executive director with effect from the fourth of December last year. Mary has over 30 years of international experience, including in luxury retail, and holds nonexecutive roles on both NASDAQ and also FTSE-listed companies. Her excellent international network has already given rise to valuable contributions. And given the discussion at yesterday's Board meeting, I believe the Board is functioning very well indeed. She now sits on our Audit Committee and also chairs our Risk Council and I've been very encouraged by her data-driven no-nonsense approach. On Slides 9 and 10 we've set out the various cost-saving measures implemented during the pandemic, including, of course, the suspension of all noncommitted CapEx and marketing spend. Our worldwide team members have endured remuneration reductions of between 20% and 50% for a year, and our group-wide operating costs were reduced by around 60% from circa $12 million per month to around $5 million per month. With the world's largest emerald and ruby mines, producing no new supply for a year, we expect to see an interesting supply-demand situation develop during the course of 2021. On Slide 10, we also show the details behind our interim auction model, which we used successfully for the first time in November and December of 2020, and which we continue to deploy at the moment, providing important flexibility to navigate 2021 whilst so many restrictions remain in place. But in short, those auction mechanisms, which take place in multiple cities and, of course, in socially distanced environments have been successful to date, particularly deploying an online bidding system, which was first used in November of last year. While that interim auction model does give us important flexibility in the COVID era, we do still prefer our traditional auction model as few things can beat having 120 clients in one room at the same time. We hope that we will be able to be more traditional, so to speak, towards the end of this year. With that, I'm going to hand you over to David Lovett, just to walk you through the highlights from the financial statements.

Thank you, Sean, and good morning, everybody. To start with, I just hope that these numbers aren't going to come as a shock to everybody. Over the last year, Gemfields has faced a number of difficulties, primarily in the traditional auction model. And therefore, our revenues have taken a significant hit leading to the results you see today. I would also like to note that in line with the 2019 financial statements, the unqualified audit report does contain a material uncertainty note in relation to going concern. Once again, the uncertainty is primarily based on the impact of COVID-19 and the impact of the related global travel restrictions on our ability to host our traditional auction model. This then has a direct impact on the debt facilities at both Kagem and MRM. The good news is we now have an alternative auction model, as Sean has mentioned, and this was used successfully for emeralds at the end of 2019 and is currently live for both MRM and Kagem with results coming in April. Looking at Slide 11 now. This is the key headline figures for the year. The revenue comes in at $34.6 million. That is $22 million from Kagem with the February commercial quality auction and then the mini auctions run at the end of the year, you have $7 million coming from Fabergé and $5 million coming from other. The bulk of the other is our direct sales through our office in India of emeralds. Following down from the revenues, we look at EBITDA. That is coming in at a loss of $30 million for the year to December 2020. Our cash flows from operating activities comes in at a negative $20.2 million. And then if we add back the CapEx and take out the working capital from that, that gives us our free cash flow of $56.1 million loss. The final thing to note on this slide is the auction receivables number. So bottom right of your screen, you can see that at the end of the year, we had $8.9 million of auction receivables versus a 2019 number of $56.7 million. This just highlights how much things can move based on auction timing and particularly this year with dropping a ruby auction in December, and that number is significantly impacted by that. Flicking through some of the segmental analysis now. On Page 12, we have the statement of cash flows. A couple of things to note here. The tax paid in Mozambique does look particularly high based on a year with no revenue. That is because of the way the Mozambican tax system works. We had a $9 million catch-up payment for 2019. So effectively, we underpaid in the previous year, which was a record-breaking year for Gemfields and MRM. And then we also had a $4.5 million forward payment for 2021. So the number there is high because of the system in Mozambique. And it's also worth noting that the capital expenditure at the bottom there, so $7.6 million relating to Mozambique. That includes our investment in the other projects we have. So this is not an MRM only segmental analysis. Moving then on to the income statement. One of the things I'd like to highlight here is the -- we've had some conversations with shareholders over the last couple of years about understanding the change in inventory and cost of sales line. So what we have done this year is in the notes -- so it's not on this slide, but in the notes to the accounts that you will see this morning, underneath the income statement, segmental analysis, we have broken down that figure between amounts capitalized and genuine cost of sales of goods sold. So hopefully, that will give people a better understanding of where that figure comes from. The other thing to note on this slide is the $27.9 million unrealized loss against Sedibelo. To give some more background on that figure, the market-based approach, which is what we have used over the last year or so is still valid. So effectively, we are following the same methodology for this period, but we have included, for the first time, financial metrics. So financial metrics have now been used based on Sedibelo's published results, leading to the direct comparison with a peer group, and that brings us out to a fair value for Sedibelo, including a 20% marketability discount of $29.6 million, and that relates to a $27.9 million write-down from the figure we had in December '19. The final thing on this slide so is the Fabergé tax charge. This is not a real tax charge. This is a reversal of a deferred tax asset based on the financial performance of Fabergé in the year to December 2020. That number will be reversed along with the Fabergé impairment, assuming things get better in that unit. In terms of the balance sheet, there isn't a huge amount to update on here. The Sedibelo number is now at $29.6 million. And the Fabergé number includes the $12 million write-down we've seen in this period. Again, that write-down will be written back up. The numbers for Fabergé and the external analysis of the valuation did provide the ability to partially write back the impairment we saw. But based on the accounting standards and the fact that COVID is still with us, and that was the primary driver for taking the impairment, that was deemed not the right time to bring that back up. So hopefully, as things improve in 2021, that impairment in Fabergé will be written back. We can now have a quick look at the debt profile for the business. What you can see here is the cash bar is the green bar. The debt bar is the red bar, and then the line shows us our net position. Currently, at the end of February, we're sitting at just over $10 million of net debt. The next inflow of cash will be the auctions in April. And therefore, we certainly hope to see that moving in the right direction again by the time we get to our next reporting period. It's also worth noting here that the current debt is maxed out at $58 million. As Sean mentioned earlier, we have now completed the additional overdraft facility in Mozambique. And that is available to us as of today. We haven't drawn on it yet, but we will draw on it before the auction revenues come in, and then we will look to repay that and discuss a different type of debt facility with the same bank once we've had the auction revenues in. And then the final slide here just gives us our pure gross debt number. So at the end of February, we were sitting on $57.9 million of gross debt. As I said, there is an additional $8.9 million, which is available to us as of today.

Thank you very much, David. Moving on now to Slide 19. Just a reminder that the net present value is calculated by SRK, perhaps, the world's leading mining consultancy total almost $1.2 billion for our 2 mining operations, compared and contrasted with our current market capitalization of approximately USD 120 million. Moving on to Slide 24. This shows the history of all of our Kagem emerald auctions. The higher quality's in green, the commercial quality's in yellow or orange. And the gap since our last traditional auction in February 2020 is clearly evident, and we can also see the reduced overall value of what we now call mini auctions which were held in November and December of 2020, on the far right. Obviously, this is going to get another green bar during the course of April as the currently scheduled auctions complete. Moving on to Slide 25. Given the suspension of operations at Kagem for what amounts to a year, the annual gemstone production shown here in total carats of both emerald and beryl has obviously fallen to 0. These are 12-month rolling figures. Therefore, no production in 12 months, by definition, means you're going to get to 0. And we expect to see this graph start picking up again from next month, April 2021. On Slide 27, and by way of reminder, in red, we can see the cumulative production of premium emeralds, which is the key driver of value at Kagem. And obviously, with the operations having been suspended in April, we flatlined for the rest of 2020, but quite remarkably, that red line, in just the first 3 months of last year, almost hit the year's budget which is shown in green. Prior years are shown in the other colors. And obviously, we do hope that the good run of production that was underway at Kagem prior to the pandemic will recommence as the mining operation gets back up and running. On Slide 29 now. Again, we're looking at the 12-month rolling total operating costs. So each of those bars represents what's happened in the preceding 12 months. We're basically looking at annual performance every month rather than once a year. And one can very clearly see the drop-off in OpEx as the operations were suspended, similarly so with rock handling at the bottom of that page. On Slide 30, again, we've included the standardized graphs that you would get in one of our presentations so that you can compare them. Obviously, things like the unit rock handling costs shown here and the unit production costs per carat will start looking somewhat silly, given that we have costs but no rock handling during the suspension of operations at the mining operations. On Slide 32, the extent of the OpEx savings created by suspending operations can be seen here with the costs reducing from approximately $3.2 million per month to circa $1.2 million per month. Finally, in respect of Kagem on Slide 33, the cessation of capital expenditure, obviously, also brought the 12-month rolling figure for CapEx to an all-time low. And again, this will start picking up during the balance of this year. David will just give you similar background in respect of the Montepuez Ruby Mining operation.

Okay. So Slide 37 gives you the individual breakdowns of auction revenue for MRM since it began in June '14. The thing to highlight here is December '19 was our last auction. So that's 15 months without an auction. We will see a new bar here for April 2021. Slide 38 just gives us some production figures. This is entire production except sapphire and low sapphire. And what you can see is, as the operations shut down in April 2020, those bars just continued to drop and will actually flatline in March 2021. Slide 39 gives us our premium production only. Again, you can see that the numbers are dropping pretty significantly on a monthly basis with 0 production coming through. Again, they will start to move back up again from April. Slide 40 gives us the premium production by calendar year in carats. You can see that the start of the year was reasonable. It was certainly in line with history, and then it flatlined. Then slide 42 gives us the operating costs at the top. You can see that they've come down to levels seen in sort of October '15. That will drop slightly further but will certainly start to go back up once mining operations are open as they currently are starting to be. And then similarly, with rock handling, you can see that number is dipping fast and will go all the way to 0 before going back up again. Slide 43 gives us our unit rock handling costs. Because we are not mining right now, those costs are going significantly up. But again, we would expect them to start getting back to the sort of $4 to $6 level once the mining operations start. Slide 44 gives us our unit cost per carat. Again, these numbers are pushed up because we're just not producing. And then Slide 45 gives us our CapEx numbers. As we've discussed previously, our CapEx at MRM has remained relatively significant over the last 3 or 4 years at around the sort of $15 million to $20 million level. That has dropped almost to 0 with the lockdown. We do expect that to pick back up. The second wash plant in Mozambique, which was planned for 2020 has been pushed back and based on performance of the business over the next 12 months, we will reassess when we can bring that back to the front of our minds. And finally, on this slide, we have the monthly total cash operating costs and CapEx costs for MRM. So what we're currently running at is around the sort of $1.4 million a month level with almost 0 CapEx. And again, that will start to move back up towards the previously seen levels once the mining operations really kick in over the next few weeks.

Thank you very much, David. Moving on now to Fabergé and on Slide number 49, on the left-hand side, in green, we can see Fabergé's sales orders agreed, which fell by some 30% in 2020. The IFRS figure, which can only take into account items that have been delivered, even if they have been manufactured and paid for are even worse because there are a number of larger, heavier-weight items that have not yet been delivered to their customers as a result of the code out of COVID-19. And therefore, obviously, 2021 will receive something of an IFRS-related bump when those items do get delivered. However, in 2020, as you can see on the right-hand side of this page, the operating costs were well managed by the team. And our gross profit margins in 2020 also improved markedly, and that resulted in Fabergé improving its EBITDA loss in 2020 by circa 50%, notwithstanding the impact of the pandemic. On Slide 50, on the left-hand side, we're looking at the 12-month rolling number of pieces sold by Fabergé. In green are the direct-to-consumer sales and in orange or yellow are the sales to the wholesale side of the business with sales to multi-brand retailers and the impact can clearly be seen post February 2020. On the right-hand side, we're looking at a similar graph, but in this case, the 12-month rolling number of sales transactions. We can see that in the run-up to the pandemic in both of those graphs Fabergé was certainly on a very healthy trajectory. And to see both of those graphs suffer in the way that they have in 2020 is obviously somewhat depressing. But the process of rebuilding those figures is currently underway. Moving on to Slide 52. Our Fabergé management team is tasked with getting Fabergé to a point where it is cash-generating rather than cash-consuming. And therefore, this graph is one of their key performance metrics. The pandemic in 2020 clearly did increase the funding that Fabergé required from the Gemfields Group when our goal is to decrease it. But we have, in recent months, as can be seen here, again, seen the tide turn with Fabergé's reliance on the Gemfields Group now declining again. Fabergé required USD 4.5 million of funding from the Gemfields Group in the year to the 28th of February 2021. On Slide 54, we've set out a number of reasons as to why we think there is cause for optimism in 2021. In short, we expect a firm and we believe healthy colored gemstone market in 2021, particularly aided by the fact that there's been no new supply from either Kagem or MRM during 2020. On Page 55, we've just set out additional sources of funding currently in the works. As David's confirmed, $8.9 million of additional standby facility is now available to us to draw down in Mozambique. The interim auction model will continue to be used for the foreseeable future until such time as we can go back to the traditional model, which we hope will be towards the end of this year. We did, in 2020, increase the amount of direct sales rather than auction sales that were made, particularly of emeralds directly into the Indian market. And again, we will continue to do that in 2021. And then, of course, we continue to seek to sell our 6.54% indirect interest in Sedibelo Platinum Mines Limited, which is a noncore asset for us. That process, as was announced, has been underway since last year and has been complicated by the fact that we are somewhat trapped in an interposed entity called Pallinghurst Ivy Lane Capital. We have very recently received the news from the management of Pallinghurst Ivy Lane Capital that they intend to unbundle that entity, meaning that we will come then to hold our stake in Sedibelo directly rather than indirectly. And naturally, we hope that, that would not only increase the value somewhat, but make it rather easier for us to achieve a successful sale. With that, we have concluded the presentation portion of what we wanted to walk you through today. And we'll now move to taking any verbal questions that anybody would like to ask via the Chorus Call facility. So Chorus Call, do you have any questions in the queue for us?

I have no question on Chorus Call.

Thank you. We'll do a double check on Chorus Call shortly. But in the meantime, we will move across to any written questions. And we have quite a few and we'll obviously take those in the order in which they've come in. The first question is, hi, guys, well done in surviving this pandemic. First question, by when will auctions normalize? Is the traditional auction model dead? So in short, we hope that we will be able to run traditional auctions by the end of the year. That means getting multiple parties into the same room. However, we will retain one feature of the interim auction model, which is obviously the online bidding. So in our old traditional auctions, everybody submitted paper bids at the end of the auction process. They will, in the future, instead, do that via the online system. But we do still think that there are tremendous benefits in having everybody in the room at the same time. So fingers crossed, that will happen by the end of this year. But until then, expect to see us using that interim auction model. The next question has come in, in relation to receivables. Would it be reasonable to assume a rebuild in receivables at the end of the year? Or are you planning to schedule the auctions to reduce any perceived working capital build as at December 31, 2021?

Okay. So in terms of receivables, the plan would be, if we can, get back to the traditional auction model, to revert to a similar timetable as we have them over the last few years. So we certainly wouldn't be planning our auctions based on receivables balances. And it would be based on when Adrian and his team think it's best place to make the most money possible. And certainly, a year-end auction for both emeralds and rubies would be probably where we land. But we are flexible with that, and it will depend on how things progress over the year in terms of travel restrictions and everything else. So yes, hopefully, that covers that.

And the next question is, can you remind me if there are any debt facilities associated with Fabergé? And does the adjustment in value impact on that? The short answer to that is there are no third-party or external debt facilities associated with Fabergé. Rather, Fabergé has been receiving its funding directly from the Gemfields Group. And therefore, there is a facility that is repayable by Fabergé to the Gemfields Group. The next question is, is a 10% discount rate in your mines NPV not too low, given the political risks in your mining territories. In short answer, the 10% is the one that's been adopted in the SRK CPRs. Those go back to the end of 2019. and in short, given changes in both of those jurisdictions, I would say, yes, the 10% discount rate is too low in 2021.

And just to add to that, if I can. The 10% used by SRK is not the rate we use internally. So when we've reviewed the impairment case for both operations, we did not use 10%. We used a real discount rate of 12.5% for Kagem and a real discount rate of 15.2% for MRM. So we have taken account of of those things when looking at the value of the mines on our balance sheet, which obviously isn't the same number as what SRK have used.

The next question is, you mentioned Fabergé's cash consumption for the year to February. Does that potentially imply that it was cash neutral or better in the first 2 months of 2021? Yes, that is a perfectly reasonable and rational assumption. And if you go back to the last 3 months of 2020, based on our market update, you will see that the same is true of that period. So things are certainly gradually getting better at Fabergé. Next question is, other than increased levels of illegal mining due to an influx of people in the Montepuez area, are you expecting other problems to arise for your Ruby Mining Operations from the insurgency in Cabo Delgado? Obviously, very important and good question. Very difficult for us to forecast that. Naturally, we hope that we're not going to see any direct impact other than the influx of people. We have, for example, recently invited and hosted a visit by the United Nations body for refugees particularly to indicate that we didn't think it was a particularly good idea to send many of the displaced persons into the ruby area, something that they have taken on board. But all being well and provided there isn't a major escalation or widening of the area of conflict, hopefully, we will be able to continue operations at a regular scale throughout 2021, naturally a situation we're watching very closely. Next question is, what is the time line given for the Ivy Lane unbundling? And has there been an update on the plans for an IPO of Sedibelo? So it's been indicated to us that the Ivy Lane unbundling might possibly complete at some point in the next 60 days. There is some paperwork that needs to be completed. Of course, we understand that the Ivy Lane team is looking specifically at tax consequences. And also the accounts of Ivy Lane for 2020 have to be approved by its shareholders. At this point in time, absent anything negative coming from that tax review and provided the time line remains on track, I think it might be realistic to expect that being done in the next 60 to 90 days. Insofar as a possible IPO of Sedibelo is concerned, we don't have any particular additional information to share with you other than as we presently read the tea leaves, it doesn't sound like moves toward IPO of Sedibelo are going to take place during the second quarter, may not happen in the third quarter. And if anything, perhaps, would be pushed back into the fourth quarter. Obviously, that's not a situation in respect of which we are in the driving seat. Next question is what is the Board's assessment of management performance over the year relative to other gemstone miners and marketers? I think the -- that's kind of a split question just in the sense that if one looks at companies that might be considered as being in the same peer group as Gemfields, so for example, Gem Diamonds, a similar market cap mining gemstones in Africa. Having looked at Gem Diamond's results, I have to say, I think they were extraordinarily impressive. And 2020 for them was better than 2019. I cannot stress enough that the 2 businesses in terms of sales are very different. Our gemstones have to be inspected physically by the purchasers. That is not always the case with diamond production. And specifically, in the case of Gem Diamonds, they have one of the world's most enviable positions of having an average price per carat for the diamonds of circa $2,000 per carat. That compares out of interest with about $65 per carat as an average for our higher-quality emerald auctions. In respect, of course, we have far greater numbers of gemstones to physically move. So I hope that cast some light on that question. I can but repeat that I believe the decisions that we've made in 2020 or be they difficult have set Gemfields up for an optimal 2021 under prevailing conditions. And I do believe that the Board backs that view and the assessment of management's performance in 2020. Next question is, why have you been able to hold high-quality emerald mini auctions but no commercial quality auctions? Do commercial quality auctions require more physical interaction in some way? The short question -- the short answer to that question is, yes, that's absolutely correct. The volumes that one is dealing with in commercial auctions increases by orders of magnitude. So you're talking about 2 tonnes of material versus, say, 50, 60, 70 kilograms of material depending on the auction. And so there are obviously far larger logistical difficulties in using the interim auction model, where, for example, the gemstones travel to multiple cities for viewing by the different customers because the customers themselves can't travel. And it's much more difficult to do that with the far greater weights with the commercial quality auctions. The next question is, when will the Sedibelo interest be unbundled? And are there any updates on the Sedibelo listing. So I think we've already dealt with a similar question. It seems odd that in an environment where the price of every listed PGM related asset has increased dramatically, Sedibelo's carrying value has been written down. Why this divergence from the rest of the PGM industry? David, I don't know if there's anything you specifically want to comment on there, but that's essentially a result of having introduced financial multiples into the valuation methodology, whereas previously, it looked only at resources and reserves.

That's correct. And the reason for making that change is not a choice. It's because previously Sedibelo's financial performance according to the expert valuation company that we used meant that it was not comparable to the peer group. It was effectively loss-making, whereas the peer group was profitable. And therefore, those numbers would wildly throw off any evaluation. Because Sedibelo's position has improved, conversely, as you say, that means that those numbers are now more comparable with the peer group, and therefore, can be included in the valuation and come up with a reasonable value for Sedibelo. So at each balance sheet date, we have to use the best information available to us at that time. And for the first time this year, financial metrics are available and directly comparable to the peer group and therefore, have been used.

Thank you, David. The next question is, I'm surprised that the value of Sedibelo has decreased considering that all PGM-listed stocks re-rated or were up significantly in 2020. What are the plans on the listing of Sedibelo? Now appears to be an opportune time. So I think we've dealt with a similar question previously. The next question is the Fabergé impairment puzzles me. The business has been underperforming consistently in need of cash investment of $4 million to $6 million for the last few years. Why the impairment now? It seems convenient to blame COVID for what is clearly a consistently underperforming business that should have been impaired years ago. I think on that one, most parties will probably agree that COVID-19 has been a very significant setback for many businesses. And whilst it may appear convenient to blame COVID-19, clearly, there has been an impact. Clearly, the revenues are down for Fabergé. And therefore, we thought it appropriate to take the impairment. Naturally, we'll be very pleased to write that back up in years to come as the revenues rebuild. Anything do you want to add to that, David?

And just to add to that, the Fabergé impairment review is again undertaken by an external valuation expert based on peer group analysis and particularly revenue multiples. So the sort of internally generated discounted cash flow model is no longer being used to value Fabergé. Going forward an external valuation, I think, gives everyone more comfort that the number is in line with a reasonable estimate.

Thank you, David. Next question is, how sustainable are cost savings achieved since lockdown? Or are they expected to revert to pre-COVID-19 levels? There's no doubt that the cost levels are going to increase materially, given the restarting of both the Kagem emerald mine and the Montepuez ruby mine. Obviously, we will do everything we can to minimize the cost increases and to avoid them going back to pre-COVID levels. But the extent to which we are able to do so will obviously be driven by the local management teams with close supervision from our side. And we look forward to giving you an update at the half year as to what the picture then looks like. The next question is, given how the diamond market has increasingly moved away from traditional auctions, is that not also the way the colored gemstone market should be moving rather than banking on a return to the traditional auction format. Can you do more to facilitate a change in industry practice in this area? So I think the answer there really is twofold. The first is that our gemstones are unique in the context that the buyers still have to sit and physically interact with the gemstone. And secondly, the variation in subjectivity and the pricing opinions for our gemstones are enormous. That is not the case in the gem -- in the diamond business, where one can take a diamond, pop it in one of the excellent machines that performs a scan, the machine will tell you more -- very accurately what you're going to get in terms of color, cut, clarity and so forth. And that, of course, can readily be turned into an accurate pricing picture. That cannot be done in our business. And the level of opinion or subjectivity in our business is very high indeed. And we have learned from hard experience, having made the mistake in December of 2008 that it is much better to let the customers sit together, talk together, bounce ideas with one another, share their views on particular lots and schedules in the auction, gather confidence because when you isolate them and make them do things by themselves, they perceive a higher degree of risk, much more depends on their own assessment of the gemstone. And when they perceive increased levels of risk, obviously, the bidding is lower. And we made that mistake in the very first auction we tried to run, which was wholly unsuccessful, in December 2008. And subsequently, we have found that letting the customers sit together, talk together is a much more successful formula. So I don't think that is one that we're going to be able to bring about in our sector because the gemstones are fundamentally different. The next question is regarding the Sedibelo fair value adjustment, this must be the only PGM asset in the world that has reduced in value over the reporting period and defies logic, unless it must be seen as an admission that an incorrect valuation technique was used previously, which has been my view for some time. Is this fair to say? David, I don't know if you have any comments, but obviously, the critical thing here is for us to try and ensure that we have as reasonable a picture of the prevailing value of the asset. And to the extent that any of our shareholders has a differing view from the one that you see before you today on the value of the asset, we are obviously very pleased to hear from you and indeed to engage with you. David, anything do you want to add there?

No. As I said earlier, the -- it is our position to take a valuation at each balance sheet date. I wouldn't say that the previously used methodology is wrong. I would say this is better. And therefore, we're now in a position where we feel this is an accurate valuation for Sedibelo.

Next question is, what is being done to convert cut and polished gem stock and Fabergé old stock of about $30 million into cash? So starting with the cut and polished gemstone stock, this is a legacy stock from the days when Gemfields was still involved in the cut and polished business, a decision that we stopped some years ago. But we have, inter alia, sent some of our cut and polished gemstones to one of the Chinese events that did take place towards the back end of last year with modest success and some of the items were sold there. We have also fairly recently put quite a lot of that stock onto a new online platform called GemCloud where that remains for sale, and it is going to be a bit of a process, but the numbers are gradually winding down. The same applies to the older stock inside of Fabergé. It is a slow process. We do continue to make sales of the larger, older items from time to time. And we have, in prior years, also run at Fabergé, what we've called sample sales, which have allowed us to move, at an off-site event, some of that older stock at very reasonable prices. Naturally, during the course of 2020, we were not able to hold any such sample sales given the COVID-19 restrictions. But again, we do hope that a sample cell will be held in 2021. I think that completes the written questions that we've received, and I may just double check again on the Chorus Call facility, whether there's anybody in the queue to ask any questions there.

I'd like to mention that we don't have any questions on Chorus Call.

Fine. With that, ladies and gentlemen, thank you very much indeed for your time, patience and also for your interest and questions this morning. Please keep your fingers crossed for the outcome of our auctions during the course of April, and we look forward to engaging with you in the weeks and months ahead. Thank you and enjoy the rest of your respective days. Goodbye.