Gemfields Group Limited (GML) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Martin Tolcher, Chair of Gemfields Group Limited. This is the Annual General Meeting of Gemfields Group Limited and to avoid repetition, I'll abbreviate that to Gemfields. The quorum is three members entitled to vote whether they're present in person, by corporate representative or by proxy. As there is a quorum present and it is now 10:00 a.m., I declare this meeting formally open. The meeting is to consider 6 ordinary resolutions, 1 special resolution and 2 nonbinding advisory votes of Gemfields. These all have the full support of the Board of Directors and have been set out in full in the Notice of AGM, which was distributed to Gemfields' shareholders on the 30th of April 2024, and sets out those resolutions now to be proposed. And in the absence of any objections, I should take the notice of this meeting as read. In accordance with Gemfields Articles of Incorporation, voting will be by way of a poll, and every shareholder present in person or represented by proxy and entitled to vote shall be entitled to one vote for every share held. Gemfields' registrar, Computershare, have been appointed as official scrutineers of the poll, and only shareholders present in person, by corporate representative or by proxy are entitled to vote. Shareholders present in-person and who have already lodged proxy forms prior to this meeting, should not complete a poll card unless there is an intention to change any prior votes cast. Shareholders who are participating online are able to view a live webcast of the meeting via the London Stock Exchange Group's Spark Live Service. Shareholders who wish to ask questions remotely were requested to join a conference call line, or to presubmit written questions by 4:00 p.m. yesterday, Monday, 24th of June. We do not have any request for questions via the phone lines. And therefore, we will only respond to questions that were presubmitted or asked in this room. We shall now take questions from shareholders on the business of the meeting, starting with any questions from those shareholders present in person. Do we have any -- and presubmitted in advance by e-mail, but do we have any questions from shareholders present here in person, please?

General or specifically about the agenda? Generally or specifically about the AGM agenda?

Please go ahead with any questions you may have, sir.

A general question about the company. As a long-standing shareholder, I was very pleased to get my dividend cheque yesterday, but I think the other comment I would make is about the share price. I just had [indiscernible] the other week, and by and large, it seems to have dropped by 13% in the last 12 months. And I think, having a bit of inside knowledge about the company, but just taking one of the comments from the more recent presentations, the share price has been underperforming substantially in terms of more than 50% discount to its NAV, which I think is a rather large gap. So my question really to Mr. Chairman, if you like, is what do you propose to do to try and close that gap and restore what I would call shareholder value? And as part of that, would you consider the stock consolidation, a reverse stock split. It's one method of doing something about it. But my general question is about the rather sort of big gap, between NAV and the way for us to be [indiscernible].

I'll hand over to Sean, if I may, in a moment to get a meaningful going forward answer. I think it's fair to say, from my perspective, and from Sean's father, the previous Chairman's perspective, the share price discount was very frustrating, to put it mildly. For example, we announced our first dividend or announced the best year ever, two days later the share price went down. And couple of times it seemed little we could do and the movement of the share price seemed counterintuitive, what we are actually achieving. In terms of going forward and to answer your specific question as to how to restore shareholder value and maybe to narrow the discount, if I may, Sean. Please, secure thoughts.

Thank you very much Mr. Chairman. And thank you also very much for the question, [ Graham ]. The discount to our share price for this particular entity, obviously, is longstanding or belongs more than a decade and our share price was one point lingering around the ZAR 1.40 level. And about two years ago, obviously, we saw that increase dramatically to ZAR 3.40, ZAR 3.50, which was a very welcome increase for all of our shareholders, including this one. We've been aware of the discount for a long period of time. And I have to say that everything we've tried, thus far, has not been successful in unlocking that discount. And in accordance with the old adage, that the executives should run the business and the shareholders can run the share price, we spent a great deal of effort from 2017, focusing not necessarily going out and telling the Gemfields story, but on getting the basics right at the operations and the efficiencies ticking over, with the intention of returning cash to shareholders, which obviously prior to 2017 hadn't happened at either Gemfields plc or indeed Pallinghurst Resources Limited, which is today this [ vehicle ]. And I think that strategy was very successful in terms of getting cash back to shareholders. We've paid out the first dividend of $35 million in '22, the next dividend of $35 million in '23. And of course, $10 million has been paid out. We hope in the last 24 hours, it should be arriving on people's desks, as we speak. The $10 million going up now is about a 5% yield. In the preceding 2 years, it was about a 14% yield. And if one adds up $35 million plus $35 million plus $10 million, that takes us to $80 million, plus there is a $10 million share buyback, which is USD 90 million returned to shareholders since Jan of '22. For a company with a market cap of about $170 million, I think that's probably extremely good performance. And so we're obviously open to any sensible ideas that will unlock that discount. But I have to say that our intention has been focused on the operations, the nuts and bolts of the business, and try and get money back into the pockets of shareholders. And whilst the share price return is obviously disappointing, if one looks at that on total return basis together with the dividends, I certainly hope there are a number of shareholders out there who are happy. Obviously, we're disappointed that this year's dividend is not as big as we have paid out in the last 2 years, but that's really a function of the capital expenditure that's going into both Zambia, but particularly Mozambique with the tripling of our throughput capacity. And that obviously means in 2023, our free cash flow has been somewhat squashed that's going to be true of 2024. And because we're funding all of this internally from our cash balances and from borrowings, I think that has quite a natural impact on people's expectations for the share price. So I think the reality is for the next 13 or 14 months, whilst we complete all of those expansion projects, and we then see them kicking in, in the second half of 2025, we will do our level best running the operations, and I sincerely hope that all of our shareholders will be rewarded by an uptick in the share price, when all of those efforts come to fruition in the second half of '25.

I certainly acknowledge the good financial performance, the dividend yield -- sorry, I acknowledge the good financial performance, the dividend yield, however, I happen to be shareholder in a couple of companies, one of them is not [ dissimilar ] in market cap who were paying roughly on average every year 10% dividend yield. They're in a different business. They mine copper in Kazakhstan, means little tidy, easy-peasy. But knowing a bit about the background. But as you just said, general story is unique. And basically, it is quite mature because you're still growing, but it doesn't seem to be resonating in what I would call the marketplace from a shareholder perspective. I wanted to have a look at shareholder liquidity. I couldn't find the right graph, but my guess is it's not particularly great. Is that a function of the current wide shareholding, is something to do with the fact you've got over 1 billion shares outstanding? What could be done from a market perspective, if anything? I acknowledge it's all going well, but it's not reflected in what should be a fair share price.

Yes. I think the other thing I would add there, [ Graham ], is whilst we're obviously very willing to look at the data and any sensible proposals, my gut feeling is a share consolidation or splits, if anybody felt that was going to work, is not necessarily going to change the share price or indeed pose that discount. Liquidity is a very key issue for us. But I think the other theme that definitely has a negative impact on the share price at the moment is that because, as you've said, Gemfields is a fairly unique business, we're not that well understood as you understand the business to be different from the diamond sector. And at the moment, we are lumped in from an investor perspective into this bigger gemstone sphere, and everybody sees the woes that have befallen the diamond business, and nobody wishes to touch gemstone companies. And so if we look at the share prices, for example, of Petra, Lucara, Gem Diamonds. In fact, I think the combined market cap of Petra plus Gem Diamonds, two former greats in the diamond business, today, as we sit here, is less than GBP 100 million combined when is it 4 or 5 or 6 years ago, Petra was probably $800 million $900 million market cap. And so this is real negative investor stance vis-a-vis the gemstone sector. Everybody is worried about lab grown diamonds and all sorts of other issues. And I think from an investor perspective, we are lumped right in there. As we know in mining, things are very cyclical. Our personal view is that the diamond sector will transcend the issue of lab grown diamonds over the course of the next 3 to 6 years and hopefully will then become more fashionable for investors, and that should be at a time when our operations have properly expanded and we're able to crank out the cash flow.

Any other questions from shareholders present in the room before we move on, please. In which case, I understand there has been a question submitted in writing. And therefore, I ask our company Secretary, Toby Hewitt, to read out to that question.

Thank you, Mr. Chairman. This is a question submitted by Martin Levy from Credo Capital on behalf of a shareholder client. The question is, in an awful year for the mines and shareholders, why did the CEO get a bonus of USD 397,000 to make his total remuneration USD 1.048 million? The bonus alone is more than most [indiscernible] CEOs are paid.

Thank you, Toby. Thank you for the question, Mr. Levy. I think I'll deal with the question in three elements, if I may. The question starts off by referring to 2023 as an awful year. Whilst it was certainly down against the previous record-breaking revenue results seen in 2022, the group did generate the second highest auction revenue in its history, despite Kagem actually holding one less auction than was planned, and the mines moved more rock than any other year in Gemfields' history, a record $35 million dividend was paid and USD 10 million share buyback was completed. In terms of the reference to the bonus being more than most [indiscernible] CEOs are paid, the company commissioned H2 Glen firm, remuneration advisory, an independent company to prepare a benchmarking study, covering both executive and nonexecutive remuneration early in 2023. Executive salary levels at Gemfields were to be found to be around the median to upper quartile of the comparator group. An annual bonus was in line with market levels. And so in terms of the bonus paid in relation to 2023, and in accordance with the workings of the annual bonus scheme under the remuneration policy, Gemfields deployed a balanced scorecard structure to assess executive directors' short-term performance-related comparison, and all bonus payments were at the discretion of the Remuneration Committee. Any other questions received. No. Toby, you have no other...

No other questions received.

As there are no further questions then, we'll move on to the main business of this meeting. And those shareholders present, please now hold up your hand if you need a poll card? Very good. Since no poll cards were distributed, the registrar will calculate the results of the poll from the proxy votes exercised by those shareholders who have launched their proxy forms before the start of this meeting. As Chair of the meeting, I intend to vote all undirected proxies available to me in favor of these resolutions. So we move on to the resolutions, specifically. Resolution 1 is to adopt Gemfields annual report for the year ended 31st of December 2023. Resolution 2 is to reelect Mary Reilly, who is retiring by rotation, as a Director of the company. Resolution 3 is to reelect Kwape Mmela, who is retiring by rotation, as a Director of the company. Resolution 4 is to reelect Mary Reilly that is subject to a reelection as a director pursuing to ordinary Resolution 2, to the company's Audit Committee. Resolution 5 is to reelect Lumkile Mondi to the Company's Audit Committee. Resolution 6 is to appoint Ernst & Young LLP as the company's auditor until the conclusion of the 2025 Annual General Meeting and to authorize the directors to fix its remuneration. Resolutions 1 to 6 above are proposed as ordinary resolutions and therefore, to be passed, require in excess of 50% of the votes cast to be in favor. And I've been informed by the registrar that the required majority of more than 50% has voted in favor or all of those ordinary resolutions, i.e. those Resolutions 1 to 6. Accordingly, I declare Resolutions 1 to 6 carried as ordinary resolutions. Resolution 7 being the sole special resolution is as follows: To authorize the directors of Gemfields pursuant to Article 5 of the Articles of Incorporation to issue up to 58,334,756 ordinary shares, representing 5% of the issued share capital of the company at the date of the notice of this AGM for cash, subject to the conditions more particularly set out in the Notice of this AGM. Resolution 7 is proposed as a special resolution and, therefore, to be passed, requires votes in favor of not less than 75%. I'm informed by the registrar that the required majority of not less than 75% have not voted in favor of the special resolution, and therefore, it is not passed. Finally for the advisory votes, nonbinding advisory vote to endorse Gemfields' remuneration policy and a second nonbinding advisory vote to endorse Gemfields' remuneration implementation report. As stated, these 2 nonbinding advisory votes are proposed for information purposes only, though I'm informed by the registrar that a majority of not less than 75% have voted in favor of both nonbinding advisory votes, and therefore, both have passed. I'm pleased to advise that the final summary of the votes cast in respect of each of these resolutions will be announced via RNS and [ sends ] and published on our website as soon as is practicable after the conclusion of this meeting. And if I may, before closing this meeting, as has been previously announced, Lumkile Mondi, Carel Malan and I will be resigning from the Gemfields Board on the 1st of July. To my fellow Board members of the -- to my fellow members of the Board, thank you all for your guidance, judgment, rigor and more importantly, I guess, support over the period that I've been Chair. It's been a pleasure to sit and work alongside you all. And at this time, I'd like to give my particular thanks to Lumkile, as he too resigns after entering his final term in office like me. And Carel, who is departing to focus on his now a permanent role at Oran Metal Company Limited. Both of you have provided invaluable contributions to Gemfields, Lumkile as Lead Independent Non-Executive Director, and as Chair of the Nomination Committee; and Carel [ went to ] very recently as Chair of the Audit Committee. Looking ahead, I'm more than confident that under Bruce Cleaver stewardship's Chair, Gemfields will go from strength to strength. As we all know, Gemfields, as has already been said in this meeting, is a unique business, and I'm sure we'll continue to lead the world in the responsible mining and marketing of colored gemstones. And I understand now that Sean Gilbertson, our CEO, wishes to say a few words. So I should defer, sir.

Thank you very much, Martin. Martin has already thanked Lumkile and Carel, but I would like to extend the very best of farewell wishes to each of Martin, Lumkile and Carel, who depart these fields of Gems in 5 days time, on the 30th of June, 2024. It is, in my experience, far too often the case, that when colleagues have provided years of loyal service, sent thousands of e-mails, made many sacrifices, stood steady during times that induce severe knee wobbling, endured hundreds of pretty dull hours reviewing meeting minutes, that but a few warm words are said at the final Board meeting or AGM. And then they depart into the sunset without an adequately wide and true recognition of their contributions. Carel joined the Board of Gemfields Group on the 9th of January 2019, meaning that he completes 5.5 years on the Board. He is, by far, one of the most meticulous and diligent individuals that David and I have ever had the privilege of working with. And I consider it progress indeed, that we have seen is 10,000 questions in 2019 declined to 9,000 questions in 2020, 8,000 questions in 2021 and so on. Sadly, we now won't get to see that figure reduced to zero by 2029. I jest, of course, but Oran Metals' gain is definitely our loss. Lumkile joined this board on the 9th of October 2015, meaning he completes 8 years and 8 months with us. I have always appreciated and enjoyed Lumkile's aversion to groupthink and his enthusiasm, particularly for thinking big and way beyond the ordinary. He has and continues to serve on many prestigious boards, and they are, in my view, very fortunate to have him. He is a man who sees the possibilities, rather than presenting purely the problems. And again, in my experience, such a person is for a rare breed. Martin joined this venture 4 September 2007 when we pretty much had thin air and lots of ambition. As such, he is completing almost 17 years, a truly remarkable contribution. He became Chair of Gemfields on the 25th of November 2019, meaning nearly 5 years in the proverbial hot seat. For those of you who are not aware, Martin is an accredited and active cricket umpire, and has served on the Guernsey Cricket Board for nearly 6 years. He's also a digital radio presenter, presenting 2 shows on GNET Radio. The first is entitled Songs From Under The Floorboards, subtext independently minded music from post-punk period and beyond. And the second is a biweekly music program from around the world called Musica Mundi, both run for 2 hours and again, in my opinion, are excellent. My colleague, [indiscernible] and I have never been able to catch Martin out on his music knowledge. And I think those two elements, the cricket umpire and the independently minded era of music summarized Martin's tenure with Gemfields, a gentleman's approach to fairness and the cheeky grin and attendant energy and humor. And so gentlemen, Carel, Lumkile and Martin, I say to you today that your hours, your diligence, your sacrifices, your support, your comradery, your fortitude and your contribution to steering this company and this team through times, both tricky and [ plump ], are hugely appreciated and will not be forgotten. So on behalf of everybody at Gemfields, we give you our genuinely heartfelt thanks, and wish you well on the next chapter of your journeys. Most of all, we hope that our paths will continue to cross and that you will come regularly to visit your friends at Gemfields. Thank you. Thank you Mr. Chairman.

Thank you, Sean, very much for those kind words. Thank you for only one reference to [ plump ]. And especially thank you for your promotional for GNET Radio, www.gnetradio.com. Ladies and gentlemen, that concludes the formal business of this meeting, and I therefore, declare it closed. Thank you all for your participation. Good day.