Gemfields Group Limited (GML) Earnings Call Transcript & Summary

Good morning, and welcome to this morning's presentation of the results of Gemfields Group Limited for the year ending the 31st of December 2021. Today's results are going to be presented by myself, Sean Gilbertson, your CEO; David Lovett, your CFO; and Tyrone Rahman, our Director of Finance. We would, of course, be very pleased to answer your questions at the end of today's presentation. [Operator Instructions]. We're not going to be walking through all of the slides in today's slide deck, and many of those are provided for investors who may be new to Gemfields. However, by far and where the bulk of the registered attendees today are pretty well-versed with Gemfields' history and its operations. So moving to the slide deck on Slide 2, please do pay attention to the disclaimer, which is important in the context of the data we're sharing today. In particular, note that any data beyond the 31st of December 2021, particularly in some of our graphs, are not audited, and some of that data has run through to the end of February. Moving on to Slide #6, just in terms of the shareholder base. On the top left-hand side, since August and September of last year, we have a new anchor shareholder in Assore International Holdings Limited, who now own approximately 26.5% of the Gemfields Group. Dr. Christoffel Wiese of the Titan Group sold out as part of that process. Old Mutual have also sold out, and the Fidelity International have sold approximately 1/2 of their prior stake. On the bottom left-hand side of the structured diagram, note also that our 6.5% holding in Sedibelo Platinum, which was previously indirect through a collective interposed vehicle, is now unbundled, and therefore, we own our shares in Sedibelo directly. Moving on to Slide #7. One can see here, going back to January 2010, the history of the group's revenue. Green, unsurprisingly, is emeralds; red, unsurprisingly, is rubies; and Faberge is made up by the little black tips at the top. The impact of COVID-19 in 2020, extremely dramatic as is, happily, the recovery that has ensued. And you can see that the results that we're announcing today delivered auction revenues north of $250 million. Obviously, very few businesses can sustain a blow of that magnitude, and I think it's worth reiterating that we haven't raised any new equity capital but we didn't rely on government support in any jurisdiction. And very importantly, we stood by our 2,400 team members around the world by not making any redundancies. Our entire group top to bottom also endured a 20% pay cut across the board during the course of 2022. Obviously, the world is looking much better now, as can clearly be seen in this graph, and we were delighted with the very strong auction results that we saw at the end of December. Our next auction, so to speak, is actually currently underway in Jaipur in India. That is an auction of commercial-quality emeralds, and that closes on the 1 of April 2022. With that, I'm happily going to pass you over to David to bring you up to speed on the headline figures in today's results. David?

Thank you, Sean, and good morning, everyone. Just a couple of points to note before we get stuck into the numbers. The first one is that the material uncertainty note around going concern, which has been in our accounts for the last 2 years, has now been removed. That's a slightly accounting technical point but certainly points to positivity for the group going forward. And the other point, which again, I'll break down more as we move through the numbers, is it should be noted that the cost base from an OpEx perspective was reduced in 2021 based on the mines being closed for the first quarter of the year, reduced marketing spend throughout the year and also reduced travel and other corporate costs, and the CapEx number is particularly low in 2021. Both of those things mean that our financial results are excellent alongside very, very positive auction results. But it should be noted that the EBITDA multiples and the free cash flow multiples are unlikely to be a sign of things to come because of that reduced cost base. So Sean, if you can just flip to Slide 12. So this is one of the key points from this year-end. For the first time, Gemfields has been put in a position to make its first dividend. That dividend is $20 million, which gives a yield of 7% and a dividend cover of 2.5. That equates to around 31% of earnings and 17% of free cash flow. And the table below gives you the timetable of that dividend. The payment date is the 6 May this year. So thank you to all the Gemfields team around the world to allowing the Board to put this dividend together. We flip forward to the highlights. This slide gives us the breakdown of the key numbers for the group. The important ones to note here are the record revenue, $257.7 million. That is split against $92 million for Kagem, $147 million for MRM, $14 million for Faberge and $5 million from other, which is our direct sales in India and some of our legacy cut and polish stock. I should also note that we have 2 comparatives this period, 2020, as everyone will understand, was an anomaly, and therefore, we've also included 2019. And it's worth noting that 2019 was a record-breaking year on its own. So the increases we're seeing across the board are pretty impressive even if you compare to our last best year, which was 2019. Following those revenues, we come down to an EBITDA number of $133 million, which gives a margin of around 52%. You've got a free cash flow number of $118 million, which is a margin of around 46%. We're ending the year with net cash of $63 million, and that's against the gross debt figure of $35 million. And finally, our auction receivables, which are the amounts achieved in the December auctions which weren't in the bank by the end of the year, have now been fully recuperated. So that $54.5 million of auction receivables has now hit the bank of Gemfields. So across the board, very impressive figures. As I said, it should just be slightly tempered based on the reduced cost base and the reduced levels of CapEx we saw in 2021. With that, I'll hand you over to Tyrone, who is our key man when it comes to the details behind these numbers.

Thank you, David. Good morning all. So I'll be taking you through a high level of our financial performance over the year. I'm sure many of you are familiar with the format of our financial slides. I'd just like to bring your attention to the fact that for the first time this year, we've changed our segments to align with how the Board and executive management view resources and allocate resources to the particular assets. So you will see now instead of having the old Zambia, Mozambique and then everything lumped in country, we have Zambia, which represents only Kagem. Mozambique, which represents only MRM. Those 2 represent our operating assets. And then we have a Development Assets, column, which represents all our projects: MML, ERM, CDJ, Nairoto in Mozambique, also Mauritius and Ethiopia. Faberge corporate and other remain the same. So with that, I'll take you through the segmental cash flow. As David mentioned earlier, record revenues driven by 2 high quality and one commercial quality of emeralds at Kagem, delivering $92 million of revenue. We also had 2 mixed quality auctions of rubies at MRM delivering $147 million, given record -- again, record auction revenues of $230 million. Faberge, in our Indian subsidiary, contributed $18 million, bringing the total revenues to $258 million. Moving down to operating costs. As David mentioned, these costs are subdued to a large extent, for the shorter period that we were operational at the mines. It is expected that 2022 will see an increased trend at least pre-COVID levels as we go to a full year of operations. And also, we expect to see some of the inflationary pressures grow just like other mining companies across the globe. We'll look at costs in a little more detail on the income statement side. So with the record revenues and unusually subdued costs, the group generated a substantial $133 million of EBITDA. On EBITDA, we then go to calculate our free cash flow before working capitals, which is a significant KPI for the group. To get there, EBITDA, we remove non-cash items, and we take out the cash payments for tax and CapEx. This year's free cash flow of $118 million, which David mentioned earlier, is after tax payments of $9 million, constituting $7 million at Kagem, $3 million at MRM and then $12 million of CapEx across the group. Predominantly at Mozambique, with $4.5 million of CapEx in Mozambique, mainly at MRM -- MML in Nairoto. The tax payments I mentioned of $9 million -- principally constitute payments on account and catch-up payments for 2019, given the low profitability of all operations in 2020. Those payments are lower than we expect in 2022. Following on from the record profits, 2022 will see a chunky taxable flow for the 2021 results. CapEx mainly related -- at Kagem mainly related to the upgrade of infrastructure and replacement of yellow goods. Whilst at MRM, there was very little CapEx but in terms of expansion. In 2022, we expect to see an uptick in the CapEx as Kagem upgrades its infrastructure and yellow goods and MRM expand production capacity. Free cash flow, therefore, following all these adjustments of $118 million, is then reconciled to what we call what is a normal free cash flow taking into account working capital movements. Those working capital movements of $31 million, primarily related to changes in auction receivables between 2020 and 2021. Moving on to the income statement, please, Sean. I'd like to highlight just a few things here. So the mining and production costs at Kagem for 2021 we ran at approximately $2.4 million a month and at MRM at $2.1 million a month, well below comfort levels. Again, this is mainly due to the length of time we've been operational. Mineral royalties, there's no change in the rates. So you've got 10% of revenues at MRM are payable as production tax. 6% of revenues at Kagem are payable as mineral royalty. So total paid this year, substantial number for the government of our host countries of $21 million. The SG&A cost line at MRM is higher than previous years, mainly as the group made a provision for the expected costs related to the OGM. When we look at the mining and production costs and SG&A just for Kagem and MRM, Kagem's monthly running costs were $2.7 million and MRM, $3.3 million running cost compared to $3.4 million and $3.1 million in 2019. These are expected to increase in 2022. So taking into account the revenue and our cost lines I've just mentioned, EBITDA is at $133 million. The other income statement items of note are the unrealized fair value gains of $7.6 million. That represents the update -- the increasing value of our Sedibelo investment, mainly driven by PGM prices and the improvement in Sedibelo's own performance and cash balance. Depreciation and amortization is up, you'll see another uptick there as we -- as operating commenced in the last 3 quarters of 2021. You'll also note that there is a $4.4 million impairment charge against development assets. This represents our view of the value of the assets in Ethiopia. The country's situation has worsened such that it adds further uncertainty into -- with our return to work in those mining assets will happen in the near future. After profit for the year, we have $108 million. Following that, we will take off our finance costs, which mainly relate to our borrowing facilities at Kagem and MRM, that's $3.4 million of total interest. And then we have tax charges of $39 million principally driven by $13 million at Kagem and $22 million at MRM. These represent 37% -- this gives us an effective tax rate of the group of 37%. But that rate is almost just in line with what we would expect from previous years. We expect that to come down slightly given that Zambia has now made the mineral royalty tax deductible again, so the effective tax rate at Kagem should come down going forward. That leaves us for the year with $65 million of profit. Not a bad year after COVID. I'll just take you on to the balance sheet and just note a few items. I don't think we should spend a lot of time on the balance sheet. Overall, net assets have increased by $61 million, and that's driven by the profits we've made and the cash we've generated. You'll see the largest numbers out there is the mining assets. That actually relates to, I guess, the fair value uplift on the initial Pallinghurst acquisition back in 2018. Those assets are amortized over a unit of production over the life of mine. The corporate investment of $37 million, that represents our stake in Sedibelo. When we go down to the operating assets, which sit at $213 million. This is predominantly made up of the $55 million of auction revenues and then inventory at the mines and Faberge. Borrowings, no change to our facilities, although we did make a $4.5 million principal repayment of our Zambian facilities. Meaning, in Zambia, we now only have an outstanding balance of $23.5 million, down from $30 million in previous years. Last thing to note on the balance sheet is that the operating liabilities seem slightly higher than you'll be used to seeing for the Gemfields Group, and this is just primarily -- this is just driven by the fact that the mineral royalties and the production taxes were only paid in January, which is in accordance with the legislation. So we just said that overhang from the auctions, the December auctions. So that concludes the talk on the balance sheet. The next couple of slides are around our position. I'll just highlight a few things on Slide 17. Slide 17 shows our net debt profile over the years. You can see it's vastly improved when you look at this cash profile coming from the lows of some at $15 million net debt back in June of '17. You'll see the COVID slump where we relied on our facilities for survival, and now we're in the lofty heights of $73 million of net cash in February in early 2022. On to Slide 18. Personally, I think this is a fairly impressive graph. We've got -- it depicts our available resources, available for us to fund the group. At February, we had $100 million of cash, which is the blue line. $24 million of available facilities, mainly at MRM representing the overdraft facilities there, and $4 million of auction receivables which, as David mentioned, was received in March. Given this, we believe the group is in a robust position to continue on the growth trajectory, barring any catastrophes and any fallout from the ongoing crisis or another black swan event like COVID. With that, I'd like to say thank you, and I'll hand over back to Sean.

Thank you very much, Tyrone. We're going to skip forward to Slide 28 and have a look at some of the aspects of Kagem. Slide 28 shows the entire history of Kagem's auctions, 39 auctions to date totaling USD750 million. The green bars are the higher-grade auctions and the orange bars are the commercial quality auctions. Auction #40, as previously mentioned, is currently underway and concludes on the first of April. Just to give you a quick indication on Slide 29, the total number of carats produced by Kagem was obviously obliterated during COVID-19 because the mine was on hold for essentially a year. But as you can see clearly from this graph, those figures have recovered very nicely. Zooming in the premium emerald production, which are the emeralds that really matter from a revenue perspective, our rule of thumb here is we like to see 10,000 premium carats per month. Again, one can see the vivid impact of COVID-19, and that's recovered very nicely. Subsequently, if we look at the cumulative production of premium emerald every year, the green line being our budget for 2022, you can see the figures for January and February, and we're pretty much on target with the budget, and we're certainly achieving the 10,000 premium carats per month. Moving on to Slide #33. We can similarly see that whilst the mine was suspended during COVID-19, we obviously still had fairly significant operating costs. The dip is very clear, and as David pointed out, the cost graph is now picking up again and we'll probably exceed the pre-COVID-19 levels given the level of inflation that so many companies, including an extractive space or seen. The bottom graph on this slide, very similar pattern from a rock handling perspective, and we can see that operations are pretty much back to normal status. In terms of our unit rock-handling costs in dollars per tonne, we're presently sitting at around the $3.50 level, which is pretty regular for us. And the very marked spike there, obviously, is caused by the fact that mining has stopped, but we still have costs, and therefore, the cost per tonne would appear to have gone bananas. Moving on to Slide #36. This just looks at our operating costs in U.S. dollars, thousands. Again, you can see the drop during COVID-19 and the subsequent increase to the circa $3.5 million to $4 million level. Then if we have a quick look at capital expenditure on Slide 37, this obviously has been pretty modest since 2018, and in 2020, practically no money was spent. But we do expect that in 2022, as we play catch-up, this CapEx is going to rise to approximately USD 12.5 million. David, do you want to take us through Montepuez Ruby Mine?

Yes, sure. So we can go to Slide 42, please. So this gives -- in the same way we have Kagem, this gives all the auctions run by the Ruby Mine in Mozambique since June 2014, which was our first auction. There have been 15 auctions, and we have raised $731 million during that time. The 2 auctions in the year we are looking at were April 2021 and December 2021, which added up to the $147 million, which we saw going through the MRM books in this period. The next auction, which again will be a mixed quality ruby auction, is due in June 2022. If we flip forward and look at some of the same metrics we use for Kagem, on Slide 43, if you don't mind, Sean. This just gives total production. You can see quite clearly what happened during COVID. But like we've said many times, total production is pretty meaningless. And therefore, the next 2 slides are where our team are focused when it comes to mining metrics. And so on Slide 44, we have the premium only version on a 12-month basis. So you can see pretty clearly what happened during COVID. We pretty much went down to nil. That graph is now moving back in the right direction, and as at the end of February, we still had 2 months’ worth of non-production at the mine when the mine was closed at the start of 2021. And therefore, that should continue to pick up. And in the same way, we look at 100 -- sorry, 10,000 premium carats per month as the benchmark for a good performance at the mine. We are pushing back towards that. We have only hit that a couple of times in MRM's history. But certainly, we feel we can get back there in the next few months. And then 45, just gives you the same information but on a sort of rolling month basis. And what you can see is the yellow line here shows almost no production up until the end of May when the mine started running smoothly again. And since then, the rest of 2021 had a very pleasingly smooth curve in the upward direction. So that's pretty positive, and shows that the mining guys are flattening out that production bumps, which you can see in previous years. It is worth noting, however, that in 2022, the first couple of months have seen huge amounts of rainfall in Mozambique, and therefore, production is behind where we'd like it to be. We do expect that to pick up as we move past the rainy period. On Slide 47, we have OpEx at the top and rock handling at the bottom. Again, very clear to see that as the mining operations shut down, our rock handling pretty much went to zero. Our OpEx went down. Both of those things are back up to somewhere close to pre-COVID levels. But in the same way, Kagem's costs may exceed the level seen in 2019 because of the inflation we're seeing across the world. That is also likely to happen at MRM. So that OpEx graph may push past the sort of $30 million to $35 million per year number in the next 12 months. Slide 48 gives us unit cost, and you see that, that is, again, it's hugely affected by COVID when there was almost no mining. We are looking back around the $5 per tonne level. There is some opportunity for that to go down as the second wash plant comes up, but $5 per tonne is roughly where MRM was pre-COVID. 49 gives you the cost per premium carat which, again, premium carats is what we're focused on. And again, you can see that is moving in the right direction as the mining operation pick up again, and that should come down a little bit further. As we said, January and February were pretty tough months in terms of mining operations. Slide 50. This is an interesting one for MRM. This is CapEx. And again, as we've said previously, MRM was effectively built from scratch back in 2014, so we have had to build everything on site. We have a very impressive, sort of house. We have a nice wash plant, but we are planning on tripling output or throughput in the MRM mine from 200 tonnes per hour to 600 tonnes per hour so effectively adding a 400-tonne per hour plant alongside our current plant, and that will obviously push CapEx up pretty significantly. So this bar is likely to go significantly in excess of our previous peaks of around $20 million to $25 million. Just to give you an idea, the second wash plant cost in 2022, assuming everything moves as planned, is somewhere in the region of $30 million to $50 million. So a pretty big chunk of spend will come in, in the next 10, 11 months. There will also be some costs in the following year or so. But that wash plant, as we've discussed previously, is a pretty key part of the future of MRM. And then finally, Slide 52, this just gives -- it's pretty hard to draw too much from this graph because the composition of the auctions changes quite significantly. But the positive thing is, if you take lines -- the average line on both the average price per carat and the total auction sales, they are moving in the right direction. So while it's hard to directly impair auction by auction, and certainly, the trend is moving in the right direction. That both our pricing and our total auction sales are increasing. With that, I'll hand you back to Sean.

Thank you very much, David. Let's have a quick look at Faberge starting on Slide #56. On the left-hand side, we've got the 12-month rolling sales orders agreed. And we can see that in 2020, Faberge's revenues took approximately a 30% hit but has since recovered, and now sits at a very pleasing $18 million on a sales-order agreed basis at the end of February 2022. On the right-hand side, we're looking at the operating costs, and we can see that those have come down dramatically since 2016. And I think the team have done a remarkable job in being able to build revenue despite the magnitude of the cuts made from a cost perspective in marketing, retail and the like. On Slide #57, on the left-hand side, we're looking at the 12-month rolling number of pieces that have been sold. We can see great trajectory before COVID-19. Again, the pandemic's impact is very clear. And fortunately, the business has recovered to a point where it is now making and shipping approximately 3,000 pieces per annum. And on the right-hand side, we see that the number of sales transactions also on a 12-month rolling basis is, again, pleasingly sitting at an all-time high. The green represents sales directly to end consumers, whereas the yellow or the orange, depending on your optics, is reflective of the wholesale business. If we have a quick look at Slide #59, one of the key metrics for our Faberge management team is to get the business to a point where it is contributing cash rather than consuming cash. And we can see that back in 2015, Faberge is requiring $24 million per annum of cash. That currently sits at USD 3 million in the preceding 12-month period, and that figure was the same at the end of December and also at the end of February. So good progress made, and we certainly expect to see that situation continue to improve as the year progresses. On the corporate front, David, I think you're going to just walk us through where we are on the broker research.

Yes, if you don't mind, but I'll hand over to Mark.

Perfect.

And so yes, on Slide 61, just looking at the current brokers that cover Gemfields. In fact, there's currently 3 brokers who cover Gemfields and we ended coverage with Edison at the start of this year, but we just included that most recent report in the slide. So you can see that the average kind of NPV from various brokers is $468 million. Compare that to our current market cap, closing market cap last night, just over $280 million, we're still kind of 60% upsize in our current market cap. And so at the bottom of the slide, you can see their forecasted revenues for 2022 and 2023 and EBITDA and EPS, et cetera. And overall, looking really positive compared to 2021. You can see that the target price of -- the average target price of the brokers was 29p, GB pence. That compares to our current market share price of 17.5p. There's plenty of upside there as well. Moving to Slide 62. So this slide just focuses on the key kind of financial metrics based on Gemfields 2021 results. There couple of metrics are quite flattering, including free cash flow yield and that, for obvious reasons, less sort of CapEx spend in 2021. Less chunky sort of tax payments that we didn't have to make last year, then OpEx was obviously lower. So that's probably -- it's obviously too flattering, but it's -- yes, looking great at the minute. Over the next column, we've always wanted to have a figure. In this column, the dividend yields, they finally got a figure in there. And you can see compared to our peer group and the bigger sort of diversified miners, where we're looking very good as well compared to those guys. And the PE ratio is also looking like it's good value compared to our peer group as well. The EV sales and EBITDA, just to note, that these, again, probably look slightly more flattering than they should because the way we receive our revenues is quite lumpy. So we -- certain times of the year, we had very high cash balances which obviously reduces the enterprise value. By normalized -- bigger, we're still looking at good value compared to our peer group. If you go to Slide 63, this slide looks -- the Gemfields Group, the share price compared to our peer group from the start of 2021. So the past 15 months, and you can see it as a clear winner on that graph, which is Gemfields. We obviously started from a relatively low starting point back in the early 2021, but we've clearly outperformed the market quite significantly over the past 15 months. If you go to Slide 64, this just looks at the Gemfields share price over the past 1 year on the left hand side, and the past 5 years on the right-hand side. So you can see the 1-year graph is on a steady incline, which is looking great. There's obviously still room for improvements if you look at where Gemfields share price has been, over the past 5 years, it has been as high as just under -- 5 under share, so there's still plenty of headroom there. Move to Slide 66. This just looks at where our shareholders are currently based. It's been a long-term ambition to move more to a 50-50 ratio between the JSE and the AIM registers. And I think the last time we did a presentation, we were weighted 80-20. The JSE, as you can see, those percentages moving in the right direction now. Pass you back over to Sean now.

Thank you very much, Mark. Ladies and gentlemen, that concludes the presentation portion for today, and we'll now move on to taking any verbal questions from the Chorus Call line. So Chorus Call, do you have any live questions for us in the queue?

[Operator Instructions]

Thank you very much, and we'll now move on to looking at the written questions that have been received via the webcast platform. We'll take those in the order which I believe they've come in. The first is, can you provide some detail on your budget expectations for absolute costs and impact of general inflationary pressures for the year?

So, I'll take that one, Sean. In terms of the budget expectations, the budget was set towards the end of last year, and therefore, some of the current high-rising inflation numbers weren't taken into account in the formal budgeting process. We have, however, relooked at our models. And while I can't give you exact figures, in terms of the forward-looking projections when it comes to running the business and the going concern assumption specifically, we have looked at doubling the cost of fuel across the group and a 10% increase on all other expenditure, and that still gives us significant headroom to keep the business running. Yes.

Thanks, David. And the second question is, do we have any particular concerns or views on FX assumptions?

Again, the FX assumptions we use are pretty straightforward. We certainly don't do any significant hedging against currencies, and we react to the market. We are relatively well-hedged as a business because our income is U.S. dollar based. And therefore, generally, things are relatively easy to control at a local level. But certainly, yes, there aren't any significant forward planning FX instruments in the business.

Next question for us is, given the expenditure anticipated for the near term, can you talk about how you see the group's capital structure evolving, especially now given the intention to continue to distribute dividends to shareholders? Absent anything you wish to add there, David. We are generally a debt-averse group, and we'd like to try and continued reduction in the gross debt levels that we carry. We certainly would like to continue paying out dividends. The world over the last couple of years has been a fairly unpredictable place but on the assumption that everything runs smoothly, and it having been a long-held ambition for us to pay regular and sustainable dividends, we'd certainly like to continue doing that. So we've got obviously a fairly significant CapEx over the next 2 years, particularly at MRM, but that should have a material impact on our revenues, allowing us to continue to reduce the debt, maintain healthy cash balances and hopefully, to maintain good and sustainable dividends. The next question for us is, congratulations on the dividend. Please explain the meaning of it being called a special dividend? Some smiles in the room here at the moment. And let's deal with that one first. In essence, this really only has to do with the basis on which South African Reserve Bank approval has been obtained. It obviously is also our maiden and first dividend, and so perhaps more from an English grammatical perspective, it's certainly a special moment for us. But I repeat, it remains our ambition to continue to pay dividends to the extent that the operating and financial performance of the business permit us to do so. The next question is, have you committed to the wash plant expansion? And if so, how do you intend funding that? Is it going to be debt or is it going to be cash? So we have not signed the paperwork or the contractual obligations to build that washing plant yet. The work is in advanced stages. Some of the final engineering diagrams are being completed, and we would expect that the washing plant would be commissioned in a few months' time with it coming onstream in 2023. We certainly hope to fund that primarily from internal sources, and we will deploy some debt at the Mozambican level. Anything you wanted to add there, David?

So just in terms of that debt at the Mozambican level, we have reached agreement, but that is not a committed facility. So if it turns out we can fund the expansion fully internally, then that will be the approach we take.

The next question for us is our assessment of the current political situation in both countries. Clearly, most participants today will be aware of the fairly recent change in government in Zambia. We've certainly seen that as a very positive development. We've had the opportunity of meeting a number of the new ministers in Cabinet, and with perhaps one exception, have been very impressed. On a slightly alarming note, we've recently seen some fairly disturbing footage of a copper slag dump in Kitwe that has been handed over to artisanal and use cooperatives, and it doesn't look like the safety aspects of some of that are particularly appealing. And it may, of course, give rise to the possibility that individuals or other cooperatives want access to other waste dumps, and therefore, potentially also to the Kagem waste dumps. Clearly, we do have an obligation under the Zambian law in order to protect the mining license, which we obviously continue to do. So at this point in time, we're pretty comfortable with Zambia. We've obviously been operating there since circa 2007, and we think the potential for the new government and with the economic development in Zambia is very positive indeed. Across the way in Mozambique, we would describe it at the moment as being rather more stable. That includes the amount of attention and time that we're seeing strong government spend in our province, province of Cabo Delgado. And we were able recently to meet also with the Ministry of Defense at Mozambique, and they certainly seem to be doing everything they can to contribute to what is a much more stable situation for us than it was during 2021. So broadly speaking, stable, and certainly no material in circumstances from our operating perspective at this juncture. The next question is the question as written says, here it is. On behalf of OvMP in Netherlands, congratulations to all employees, stakeholders and the Board of Gemfields for the final results in 2021 and the announcement of a special dividend. Can you say something about your expectations on future dividend policy for the years ahead. Kind regards. Thank you very much, and certainly will pass that credit on to our wider team. At the moment, we don't have a specific dividend policy. Quite a lot of time is being spent by the Board in considering what the most appropriate approach would be for our group. Should that be a percentage of earnings? Should it be a percentage of free cash flow? And at the moment, we don't have a final decision. However, we are conscious that in our business, the number of varying factors that we have to deal with, and obviously, also our future CapEx requirements mean that we have to maintain a degree of flexibility in approaching dividends. But I think the most important message for today is that it's very much this management team's intention to try and keep dividends flowing in the years ahead. I don't know if there's anything you wanted to add on that front, David?

No, nothing. That's good.

The next question is what progress are you making on the sale of the Sedibelo stake? So as previously noted, we now hold our 6.54% directly. The value of that state has been written up in today's results to $37 million, basically on the back of the increases in the basket Platinum group elements prices. And as we've previously indicated, and this remains our understanding today, there is a muted IPO of Sedibelo, and we understand that a market sounding exercise is currently underway, and that we expect some feedback from that somewhere in the next 2 to 3 weeks. And obviously, we will maintain open auctions as to how we wish to proceed. It is a non-core stake. We would like to sell it down in orderly fashion. And clearly, the prospects of an IPO if successful may represent a way in which we can get a portion of the value of Sedibelo realized. Next question is what proportion of group cash, $98 million, is held in Mozambique and Zambia versus at the company level?

So to answer that one simply, it's around -- at the end of the year, it was around 30% held in Mozambique and Zambia, 70% at the group level. And in general, our approach is to minimize the amount of cash held at the mining operations. There are a number of ways we can bring money back to the group. Primarily, they are fees, so management fees and auction fees, which are charged after each auction, and we have the dividend. So both MRM and Kagem have recently declared dividends, which will be paid back to the group.

The next question is, you mentioned being debt adverse. Wouldn't it make good sense to retain a portion of the capital invested in Zambia and Mozambique as debt raised in those countries? The answer to that question is yes. Whilst we do generally wish to reduce our debt levels, we don't believe that will go down to 0. And depending on the circumstances both in Zambia and also in Mozambique, a proportion of the capital structure will be debt-based and certainly in respect to Mozambique, we'll see some more of that given the addition of new washing plant. The next question is a comment. It says thanks, great set of results, well done. Well, thank you very much. The next question is, would you consider your current inventory levels, USD 16 million, to be normalized/sustainable?

So in answer to that, it's -- look, it does move up and down as we run through auctions. It's worth noting that Kagem has not had a lower quality auction for a year. As Sean said, that's currently running. And generally, those low-quality auctions, because of the way we price our inventory, have more significant cost of sales numbers. And therefore, clearing out some of the lower end of the quality spectrum certainly increases your cost of sales, so your margins aren't as good, and decreases your inventory holdings. So the plan over the next 12 months is to run 2 commercial quality emerald auction, and we're certainly hoping to move some of the lower-quality ruby along with it. So we would expect some of that high level of inventory to get run down in the next 12 months based on a sort of normal auction schedule. But we do, ideally, what we've said previously, we would love to have a year's worth of inventory in the safe. If we have a good solid lot of inventory to sell as and when required, that certainly takes the pressure off the mining operations rather than in the past, Gemfields has certainly lived on sort of straight out of the mine, straight to auction type approach. So we -- so in summary, the -- I would expect the inventory levels to full in the next 12 months. But we would like to build up a bit of a buffer so that if things aren't going as well on the mining front, we're not pushed up against it immediately.

Thank you very much, David. And we have a further comment, which says, given the fantastic performance of the new viewing and billing system, do you see Gemfields returning to its previous in-person auction system as travel restrictions are being lifted? In answer to that question, we will continue with a hybrid model, and that means that we will do in-person viewings combined with online bidding. It's quite possible this year that some of the in-person viewings will take place in only one city given the reduction in travel restrictions rather than in multiple cities, and that the viewing periods will be a little bit more protracted versus the only 5-day stints that we saw previously. So viewings may take place over a few weeks, 2, 3 weeks, followed by online bidding. So that hybrid model, which has worked very well for us, is likely to continue. That concludes the questions submitted in writing. Just to double check Chorus Call, do you have any questions on the Chorus Call line?

There are no questions on the conference call, sir.

Thank you very much, indeed. Well, with that, to all of our participants, in particular, our shareholders, thanks for your patience. We're delighted to have made dividend, and we look forward very much to providing you with updates in due course for what we really hope will be an exciting 2022. Thank you for your time and attention this morning, and wish you all a good weekend. Thank you. Bye-bye.