Good morning all, and welcome. Thank you for joining us. Today, Sean Gilbertson, CEO, and David Lovett, CFO, will present Gemfields' 2022 results. At the end of the presentation, we will go into Q&A. If you'd like to ask a question, please write it in via the webcast portal or email ir@gemfields.com. Please do also take note of the important information on our disclaimer on slide two. I'll now pass on to Sean to start on slide four.
Thank you very much, Ian. Good morning. It's always a pleasure to present solid results. I'd like to start by extending our genuine and true heartfelt thanks and congratulations to our nearly 3,000 team members who made the results from 2022 possible. Many worked in particularly challenging circumstances. Nowhere was that more true than for our colleagues in the Cabo Delgado province of Mozambique, where our Montepuez Ruby Mine is based. In short, 2022 was an outstanding year for Gemfields, with strong operational and financial performance across the group. With record revenues for the group and our three key underlying businesses also, we are fortunate and also grateful to be in a position of solid financial strength.
As we've stated for a number of years, it has been a key ambition of this management team and our board to return capital to shareholders. To that end, we're delighted to announce today our third-ever dividend with a record $35 million dividend to be paid to shareholders in May of this year. Investors following Gemfields may be aware that we paid our maiden dividend of $20 million in May last year, followed by an interim dividend in November 2022 of $15 million. In other words, today's $35 million dividend matches the $35 million that we paid out in 2022, Meaning that Gemfields will have returned some $70 million to shareholders in 13 months, which is almost 28% of our prevailing market cap.
We also tip our hats to several of the world's biggest luxury brands and groups for their intensive work during the last 18 months in diligently assessing their colored gemstone supply chains, a development which we welcome. We believe that their work also makes Gemfields the most examined colored gemstone supplier in the history of our planet and putting us in a very good position as the number one choice of miner for colored gemstones. With that introduction, I'll hand you over to David on slide number five in order to talk about the financial performance for the year. David.
Thank you, Sean. Good morning, everybody. Before we get into the numbers, I just wanted to highlight the fact that these results, and those in the condensed financial report on our website, are currently classified as unaudited. Ernst & Young, our current or new auditor, their work is substantially complete. We are expecting them to issue an unmodified opinion early next week. Once that opinion is signed, we will release an announcement to inform the market of no change and publish our audited condensed financial results at that point. Now just to run through some of those figures. To repeat a couple of points Sean's already noted, it was a pretty spectacular year for Gemfields.
We had record revenues across the Gemfields Group, heightened rough gemstone prices received throughout our auctions, particularly in the first half, but it's worth noting that the cost increases, which we'll go through in a little bit more detail later, were fairly significant. The other thing that we've discussed with shareholders a few times is the approach we take towards capital allocation. There has been some movement on that, which again, we'll go through later in the presentation. As Sean said, we have declared the record dividend for the Gemfields Group of $35 million. That is on top of the interim dividend of $15 million declared last year. The $10 million share buyback approval is still running, and the capital allocation priorities have now been established by the board. If you can click forward.
Some of the financial highlights for 2022. As we've said a couple of times, record revenues. Pretty spectacular revenues, and we'll have a look at that in graphical form in a second. To split that out for you have $147 million from the Kagem emerald mine, $167 million from the Montepuez Ruby Mine, $18 million from Fabergé, then approximately $9 million from other parts of the business. Operating expenses have gone up significantly. It's worth noting here that 2021, the comparative year, the mines, Kagem and MRM, were suspending operations for the first four months of the year. It's not quite an apples-to-apples comparison.
If you do the math and take a slightly different approach on a monthly basis, the numbers aren't quite as different as they appear here. There is no doubt that Gemfields Group has seen inflationary pressures when it comes to costs. EBITDA margin of approximately 49%, a free cash flow margin of approximately 29%, and a net cash position of $105 million. That doesn't include $55 million of auction receivables. Based on the timing of our auctions, particularly the ruby auction which often comes in towards the middle of December, we always carry a relatively large receivable balance. I am pleased to say that that entire balance has now been received. Therefore, if we add that in, the net cash position moves up to $160 million, which is a pretty impressive place to be.
It wasn't that long ago where that number was significantly lower. The next slide just gives us a picture of the revenues across the group in a stacked bar. Pretty impressive all over the place. MRM up 13%, Kagem up 62%, Fabergé up 28%, and that gives us a total of $341 million, which is up 32% based on a year-over-year comparison. Another quick note on this graph, you'll see that we brought in the MRM Ruby Mine in 2014. That took our auction revenues above $100 million. It took us about five years to then get that figure to $200 million. Ignoring 2020, it only then took us two years to push that auction revenue number above $300 million. A pretty impressive movement in terms of this graph.
The next couple of slides just give you an idea of something that Sean has talked about pretty extensively over the last few years, where people have asked us, is our increases in revenues due mainly to pricing or mainly to volume? The answer is both. On the Kagem side, you can see here, if you compare the amount of carats produced, and this is premium emeralds plus emeralds, so it's not everything that Kagem produces, that's gone up 3.5 x since 2009. The emerald revenue, so our auction revenue, has gone up 13 x. While there is an element of volume increasing, there is a significant price increase over the period.
If we look at that for MRM, the numbers aren't quite as aggressive. Again, you can see that despite volume increasing, the revenue has increased to a bigger percentage. This also helps when we have the conversation about increasing capacity through the second wash plant, which is something we are looking at this year and running into next year. A couple of the cost drivers which are leading to the increased cost base. Kagem is up a whopping 88% year-on-year. MRM not to the same extent, but is still up by 25%. Again, it's worth noting that the months of operation are not the same. The real drivers here for Kagem are the royalties and taxes, which clearly increase based on improvement in revenue.
We are certainly impacted by inflation in Zambia and across the world. There are significant rises in the cost of fuel. That has gone up by more than 70% in Zambia, so a significant movement, and fuel is one of our biggest costs. The kwacha on average during the year also strengthened. While the start of the year to the end of the year is relatively similar, there was significant strengthening for most of the year. The nice thing on both sides of the business is EBITDA margins are pretty close to 50%. Solid businesses despite the increasing cost base. One of the other things that often comes up is CapEx. The next couple of slides, we're looking at where the CapEx has been and where we expect it to be.
Kagem has seen pretty lumpy CapEx rather than a steady state replacement plan. You can see we've had peaks in 2014, 2015, again in 2018. 2022 leading into 2023 and possibly 2024, we are roughly running at around $14 million. That will increase. Kagem's fleet is aging. There is a significant amount of replacement CapEx which is required. On top of that, there are some infrastructure improvements we hope there. We do expect to see that number stabilizing at a higher level rather than the up and down nature we've seen previously. On the MRM side, it has been more stable, although it's worth noting that the last year or so has seen lower CapEx from a replacement plan perspective than we would expect.
This doesn't include any spend on the second treatment plant, which is something we can discuss in more detail later. This just breaks down that CapEx again. As I've said, we do expect it to increase in 2023 and 2024. In terms of the second wash plant, we are now largely through the design phase. The tender process is ongoing. We expect that to complete relatively soon. But it's worth noting for investors that, despite the potential increases in cost to when we first looked at this project, we do still expect payback to be within 18 months of the new plant becoming fully operational. We now have a quick look at Fabergé. It's fair to say that the cash draw has come down significantly and is certainly moving in the right direction.
That currently sits at $2 million, which is a record low for the Fabergé as part of the Gemfields Group, with costs of $9 million and revenue of $18 million. Certainly looking much more positive than it has done. A couple of points on the free cash flow. If we have a look at the individual mining operations, Kagem and MRM are split out here, you can see strong free cash flow performance on both sides. The development assets which include Nairoto and MML, which is our second Ruby project in Mozambique, are still spending money rather than generating money. As we said, the $99 million of free cash flow for the year is a pretty strong margin.
In terms of the record net cash position for the group, we are currently sitting at a net cash position of $104 million. If you add in the auction receivables, as we mentioned at the start of the presentation, that takes us to just under $160 million. Finally from my side, a couple of things on the capital allocation priorities. There is no order in terms of those three points, and we are pretty flexible in terms of how we allocate capital depending on where the business is and how we see things moving forward. Capital returns, managing debt, and organic or inorganic investments are the three things the board consider.
In terms of a dividend approach, this is now our dividend policy, although again it remains fully flexible and at board's discretion. That has allowed us to announce a final dividend for the year of $35 million, which gives a yield of 14%, which rises to around 20% if you include the interim which was paid last year. A couple of forward-looking slides. Normal auction schedule is expected in 2023. That's four for the emeralds, two high quality, two commercial quality, two for the rubies. There is an opportunity to run a commercial quality ruby auction, but that is likely to be immaterial from a revenue point of view. It's something that Adrian and his team will look at as we go through the year and see how the production is looking.
We continue to be focused on costs, again, it's worth noting that some of those costs are outside of our control, particularly things like fuel. Tax rate is expected to stay roughly the same, there is a significant amount of CapEx earmarked for the second wash plant at MRM. Just to repeat a couple of those things, careful management of cash in a cost inflation environment remains a considerable concern for us. While we'd love to repeat 2022's financial performance, I think it's fair to say that particularly half one, 2022 really shot the lights out. The market looks fine, I think the mini bubble we saw may not be repeated.
Thanks to 2021 and 2022, Gemfields is now at its strongest position to date, and certainly gives us a lot of confidence going into 2023. I'll now pass you back to Sean to run through more of the operational side.
Thank you, David. Moving on to slide 21. We are honored to be the custodians of two world-class mines, the Kagem emerald mine in Zambia, and the Montepuez ruby mine in Mozambique. While both are open cast mines, they are rather different styles of operation with MRM, where no explosives are used, sometimes referred to as more like farming than mining. However, MRM clearly has other challenges due to the insurgency that has been underway there for more than five years. We do not expect that situation to improve anytime soon. We remain committed to doing our part in providing stable jobs, improving socioeconomic conditions, and of course, pursuing economic growth.
MRM continues to work on plans to build a second processing plant, which we believe will triple our throughput capacity. The design phase for that new plant has now largely been completed. Finalization of the tender process is expected during the first half of this year. The payback period on what would be a significant investment for the Gemfields Group is expected to be below 18 months from the point at which the plant becomes fully operational. We now look at production on slide 22. I always find it remarkable when one compares our rock handling with the number of actual premium quality carats that we produce. At Kagem, shown on the left-hand side, out of 13.2 million tons of rock handling, just 52 kg, which is 0.052 tons, drives more than 30% of our revenue.
Across the way, at MRM, the situation is even more extreme. Out of 7 million tons of rock handling, just 16 kg or 0.016 tons drives around 70% of MRM's revenues. This really isn't very much like other types of mining. We set out part of the reason for that on slide 23. Colored gems are primarily driven by the 7Cs. We add certification, confidence, and character to the well-known 4Cs of the diamond business. However, unlike the diamond business, there is no standardized grading system for colored gems. At world record prices attained at auctions hosted by Christie's, Sotheby's, and Bonhams for cut and polished gems, ruby and emerald are now more expensive than white or colorless diamonds.
Note also that when we look at the range of rough coming from MRM, on the bottom right-hand side, there is a 30 million time price variation per gram between our entry-level product and our top-of-the-range product. That profile drives the remarkable fact that some 95% of MRM's revenue comes from just 10% of the weight we produce. Moving on to our other key assets on slide 24, David's already covered Fabergé's solid improvement in 2022. In exploration, we remain enthusiastic about sapphires and also about Madagascar, where we hope to have feet on the ground later this year. Our work on the Nairoto gold prospect, which lies to the north of the Montepuez Ruby Mine, continues despite a recent evacuation of our team there arising from the insurgency situation.
If our operating conditions allow, we hope to provide the market with a far clearer picture of the Nairoto gold prospect by the end of this year. We also continue to look for an exit from our 6.5% stake in platinum miner Sedibelo, which is clearly non-core for the group. We understand that Sedibelo's management is still progressing an IPO, but that the timing is unclear. On slide 25, we set out the key pillars of our strategy, namely responsible mining, consistent supply of colored gems, being Africa's partner of choice, and also our long-established mine and market approach. On the next few slides, we'll explain what we've done in these areas in 2022. Moving on to slide 26. 2022 saw us reframe our corporate responsibility and ESG strategy to focus on four key pillars.
The first is being nature positive, the second is empowering our people, the third is promoting prospering communities, the fourth, of course, our long-standing practice of pursuing business integrity. On slide 27, that consistent supply has been a long-standing central strategy for Gemfields. Slide 27 sets out the history of our annual production over the last four or five years. As a broad brush rule of thumb, 10,000 premium quality carats per month, or 120,000 premium carats per annum, is a comfortable number for us. Note that both of these graphs have the same scale. On the left-hand side, Kagem delivered a rocket-propelled performance in 2022 with 260,000 premium carats versus the sort of rule of thumb of 120,000.
Premium ruby production was, however, rather lower, but very comfortable when compared to our prior years. The proposed second processing plant at MRM may make these graphs look somewhat more similar in years to come as the throughput capacity at MRM increases. On slide 28, our third strategic pillar is to be Africa's partner of choice for colored gemstones. Governments wishing to make the most of their colored gemstone deposits should hopefully see Gemfields as their first choice when they look at the G-Factor for Natural Resources, a concept that we created and that displays the share of mineral wealth shared with host governments. In the case of MRM, since we started, the top table on the right-hand side, 23% of our revenue has been paid to the government of Mozambique.
At Kagem, since we started on the bottom right, 17% of our revenue has been paid to the government of Zambia. If we move on to slide 29, we show here a small selection of the many collaborations and events in 2022 from our fourth strategic pillar, being our mine and market approach. That obviously helps us to promote the desirability and also the awareness of colored gemstones. Moving on, in summary, slide number 31. Thank you. 2022 was a remarkable year for Gemfields, and while it will be very challenging indeed to repeat 2022's performance, we are very well-positioned for 2023.
The first of our gemstone auctions for this year, which is an auction of commercial quality emeralds from the Kagem Emerald Mine, closes later today. We will announce the results from that auction on Monday morning. Naturally, this will be a key indicator of what 2023 may hold in store for us. Please do keep your fingers crossed. Time now for questions. Hopefully some answers.
Great. Thank you, Sean. We're going to start going to the phone lines. As a reminder, if you'd like to ask a question, please write it in via the webcast portal. I see a number of you have already done that, so thank you so much. Or email it to me at ir@gemfields.com. I'll pass it on to our Chorus Call for any questions that are live.
Thank you. At this stage, we don't have any questions from the line.
Great. I will start reading out questions that are being sent through the portal. The first that came in was asking around the share buyback. It was announced back in November and started in December. No shares have been bought back. Would you be able to explain, please?
Happy to take that one. Thank you very much, Ian. In short, the principal answer is that the mandate that we submitted for the share buyback was put in as we went into the current closed period, therefore we have not been able to tinker with it.
Thank you, Sean. The next is asking around Fabergé, saying, "We happen to own a luxury goods brand with a low P/E ratio. Shouldn't you restructure or rebrand the business to be a luxury goods business with mining on the side, and that would hopefully increase your P/E ratio?
Excellent question and something we've kept a close eye on for a number of years. I think simply rebranding the business as a pure luxury business from one month to the next is challenging, and we'd obviously be very pleased to engage in debate as to how that kind of thing might be done. I think most investors looking at Gemfields primarily see a mining business, particularly given when they analyze the breakdown of revenue coming from the two mines versus that coming from Fabergé. We shan't quit.
Great. Thank you, Sean. The next is asking around cost inflation. On a per ton or per carat basis, do you expect that to moderate as you progress into 2023 and 2024?
I think the question there is primarily surrounding unit costs and how we see those developing. We obviously have, as investors and shareholders will be able to see from the appendices in this presentation, the operating update slides are there in some detail. Unit costs have certainly ticked up over recent months. I don't think we can make any promises that that trend isn't gonna continue into 2023, other than to say, we will do our level best to keep a lid on them. David, anything you wanted to add there? No, no. Thanks. Keep going. Thank you.
On to the next question. Have you seen any surprise in demand trends for your auctions? What are the trends that you see into 2023 and perhaps 2024 in terms of purchasing activity?
The market remains strong and subject, of course, to today's test from the commercial quality auction for Kagem. As far as we can tell, the market remains pretty healthy. I think the underlying theme for us is that the consistent supply of particularly emeralds and rubies has allowed this market to develop, and for many additional downstream players to come online, and that's resulted in significant growth for emeralds and rubies. We certainly hope that that's a trend that's going to continue.
Great. On the next question, we're back to Fabergé and its cash requirements. It looks like we're still needing cash from Gemfields. How long are we going to need funds to keep Fabergé going?
Just reach for my crystal ball. It's been a long journey with Fabergé as those who've been shareholders in Gemfields for a long time know. I think the graph that we presented today sets out that history with stark transparency. I think the team have made monumental progress in reducing Fabergé's annual funding requirement from a peak of about $23 million per annum to just $2 million during the course of last year. We obviously depend on the development in the luxury goods market, and if that luxury goods market is strong and buoyant, clearly the amount of cash that Fabergé requires is going to be lower. 2022 had an excellent start. The fourth quarter we felt was somewhat softer.
In the first quarter of this year, despite the fact that most of the big luxury groups had record high share prices, I think some of them are now starting to see some of the paint on the wall beginning to crack a little bit. The answer really depends on what we see from the luxury goods market this year. We would certainly hope that we can get Fabergé to the point where it's no longer reliant on cash from Gemfields Group in the not too distant future.
The next question refers to Nairoto and our prospects in gold. What's the latest update with the operations there, given the suspension that took place reasonably recently?
In terms of the exploration work and the costing of our first gold bars, there's a fairly good update and some images on our website. As we announced, there was an attack in the Nairoto village, which is about 15 km to the southwest as the crow flies from where Nairoto Resources Limitada has its exploration camp. We obviously prioritize the safety and well-being of our colleagues and our team members. We did not hesitate to evacuate them at the first sign of trouble. I'm pleased to say that we have started repopulating the camp and that operational team members have started returning to site. There is obviously quite a lot of state-driven security in the area.
For those following Mozambique, you may be aware that the Mozambican government have invited, the military forces from a number of other governments to assist with the problem. The Nairoto village where the attack previously took place is now also the site at which a fairly significant contingent of the Rwanda Defence Force is based. In large measure, that's one of the reasons why we are able to get the operation back up and running there. I should say that our ability to get a protracted, undisturbed operating period at Nairoto has been extremely challenging, having ceased matters with COVID and then again as a result of a couple of other issues, and most recently, the evacuation.
I repeat that if we can get an undisturbed period of concentrated work, it would certainly be our expectation to be able to give investors a much clearer picture, as to the prospects of Nairoto by the end of this year.
A related question in terms of what's the latest update on insurgency and the risks that it poses on MRM?
We're fortunate that with the exception of the other evacuation that we had at the Montepuez Ruby Mine in October of last year, the operation itself has not been significantly hampered by the insurgency situation. I was at MRM for a week, about three weeks ago, and I have to say, I personally felt quite comfortable both at the operations and also in the MRM village. I think, on the whole, that is also true of many of our colleagues who are working there. Operations do continue as normal. I don't think that the insurgency situation is going to get resolved anytime soon, and that the creation of economic growth, stable jobs, and of course, improving socioeconomic conditions is the only solution to the insurgency in Cabo Delgado, and that's certainly something that we will seek to play a role in.
I would say that at the moment, our judgment is that we are likely to proceed with the second processing plant, notwithstanding the insurgency situation, and I think that is probably an indication of our level of reasonable comfort in terms of balancing the risks relating to the insurgency.
Great. Thank you, Sean. a different change of topic. Do you have any views on M&A for the group, given the strong financial position, and clear operational skills?
Sure, I'll take that one in. In terms of M&A in our industry, it's not easy to find another mine of scale that would interest us. There are always interesting things happening, but in terms of the way we look at things, there has to be a significant scale to make it worth our investment and our time to bring it to market. While there are some other mines, and certainly there's some interesting conversations to be had, it's not a case of simply having cash and then picking and choosing which M&A deals we would like to do. We're certainly interested, but right now, there are no active conversations going on with any sort of M&A activity.
Thank you, David. Another change of topic into our developmental assets. What are the type of payback timelines that you're thinking for such assets?
I assume when they say development assets, they're talking about the mining operations rather than CapEx expansion. In terms of the development assets we currently are working on, most of the cash is going towards secondary ruby projects in Mozambique and our gold project in Mozambique. It's fair to say both of those have been slow-going and certainly not helped by the insurgent activity and obviously COVID. We're not in the position that we thought we would be as quickly as we would like to be to make a full assessment of those projects. It is fair to say, though, that none of those projects have yielded exceptionally strong results, but the geologists and our operating teams still have significant amounts of interest.
Therefore, while we're not gonna be throwing serious amounts of cash at these projects until we have more confidence in them, at this point, we do feel that all of them are interesting and are worth pursuing for at least the short term.
I think it's also worth noting that particularly with colored gemstone deposits, they are not like copper and gold, where you can simply drill some holes. I don't wanna say simply, where you can spend your money drilling the holes, and you're going to get a much more reliable indicator of the resources and the reserves that you're dealing with. Colored gemstones are fundamentally different, and therefore, it's very difficult to say that there's a defined payback period. Sometimes you have to do a little bit of experimentation in order to try and understand what that resource looks like and whether or not it's gonna be profitable. There will be some hits, and there will be some misses.
All right, moving on to the next question, is around MRM and its expansion plans. Once the designs are finished for the second processing plant, could you talk to the possible timelines on investment, and what considerations you'll need to take, to assess that timeline?
At the moment, the design process is largely completed. The tendering process is underway. All being well, we'll be able to complete that in the next three or four months, followed by which we hope to place the order. Construction is likely to take up to two years, and therefore, our first full operating year will probably be 2026. That processing plant at the moment, we are scoping to be 400 tons per hour versus the presently installed capacity of 200 tons per hour, meaning we'd go from 200 - 600 tons per hour. That does not mean that we expect our revenues to triple.
On the contrary, what we'd be doing is putting in a lot of the potentially ruby-bearing gravels from many of the other pits that we do have at MRM. Obviously, the various pits have very different grades and contain very different rubies, and therefore, none of our investors should be under the impression that tripling throughput capacity is gonna triple our revenues. That's not the case. However, we are in fairly desperate need of additional processing capacity. We have a very significant stockpile of ore, and with the presently installed 200 tons per hour, we're simply not getting through it. This is a very logical next step for MRM and also for the Group, notwithstanding the fairly difficult operating environment.
Of course, when one tenders for fairly significant construction projects in the north of Mozambique, the sort of insurgency premier that come with those tenders can be relatively high. That's a bit of a process.
A related question on that, you touched on it just at the end of that answer, but what's the expected budget for the second processing plant?
We're not quite in a position to reveal a figure just yet. As I said, the tendering process is still underway. We prefer to just sit tight for a little while until we have a proper figure in hand.
To confirm, it will be the biggest single capital project that the Gemfields Group has ever undertaken, so it is a significant amount of cash.
Yeah. No doubt. We do expect that the payback from it being fully operational to occur within an 18-month period.
The next question, thanks you both for the very strong operational year, and wanted to recognize that performance in the revenue terms as well. The question is more around costs. It's well-recognized that the 41% OpEx rise isn't like for like, but what do you actually estimate inflation to be in the business in both the mines and across the group?
It's hard to summarize that in a brief response, but I think it's fair to say that the significant amounts of cost increase we saw last year have now stabilized to a large extent. We're not seeing huge increases on a monthly or quarterly basis at this point. Fuel costs across the world are starting to go the other way now. A lot of the negotiations we've had with the labor force are largely complete, and costs at the group level haven't seen the same level of impact as we have at the mining operations. As I said, we could break that down into much more detail and that's potentially a good conversation to have once we release our full financial results in a few weeks' time.
At this point, we do expect costs to remain roughly where they are in terms of an operating basis, and potentially come down a little.
Yeah. And as David's pointed out, the grizzly bear here has obviously been the price per liter in terms of fuel. The moment that goes up, everything else we have delivered to the mine from Granny Smith apples through to explosives just goes up because everybody's gotta spend fuel to get there.
Great. The next question is, going back a little bit in terms of the second wash plant or processing plant. You refer to an 18 months payback. On what basis is that calculated?
That is the basis is the cash that we spend building that plant to the point of getting it to full production capacity, and then the inflows are the additional revenues that we anticipate coming from the additional washing capacity. That's a classic payback calculation.
The next question, goes into a slightly different area in terms of, what other types of gemstones do you produce beyond emeralds and rubies at your mines? A follow-up question on top of that is, what other gemstones are you looking for? What, do you think you'll be able to do, if you had either inorganic, growth or through development, and exploration?
Thank you very much, Ian. At the moment, the Kagem Emerald mine produces emeralds. It also produces a lower quality product called beryl, which is mineralogically the same thing. The only difference is one is clear and transparent, which is the emeralds, and the other is somewhat milky or opaque, which is the beryl. Across the way, at the Montepuez Ruby Mine, we produce essentially corundum in its most beautiful form. It's a ruby, we also do get quite a bit of color variations. Rubies obviously are sapphires, so sapphires come in all colors. If the sapphire is red, it's called a ruby. We do also produce a lot of pink gemstones, which some people would call pink rubies, from the Montepuez Ruby Mine. In reality, those are pink sapphires.
That's all we have in the group at the moment. From a strategic perspective, we are focused on Africa. We are focused on the big three color gemstones, namely emeralds, rubies and sapphires. We have for some time been enthusiastic about adding the third leg, namely blue sapphires, to the portfolio. However, it's not that easy to find world-class assets like the ones that we have in the Kagem Emerald mine and the Montepuez Ruby mine, our search continues. We had our hopes pinned on Ethiopia for a while, and in fact, we own a couple of sapphire licenses in the north of the country, again, that's a fairly tricky operating environment. The other interesting color gemstone province is Madagascar, as indicated today, we hope to have a foot on the ground there by the end of this year.
Emeralds, rubies and sapphires from Africa and Madagascar is the way forward for us. Keep your fingers crossed.
Again, a slightly connected question is on stock on hand, how much gold ore do you have available?
Gold ore, that relates obviously to our Nairoto project. We haven't made a figure public yet, so we're not going to do that at this juncture. I would recommend just having a look at the photograph on the website in relation to an update for the Nairoto gold prospect. I should stress it is too early to tell whether or not that project will be economically viable or not. There is certainly secondary gold, sometimes visible. There is certainly primary gold, and we have quite a bit of work to do yet before we pass final judgment on that deposit.
The next question is around another of our current assets. What are your thoughts on the possible Sedibelo IPO timeline?
I think we can sadly really only repeat what we've said thus far, which is that our understanding has for some time been that the Sedibelo management team are progressing an IPO, that work has certainly been underway I think for at least a year. I believe a lot of progress has been made, converting the financial statements to things like U.S. GAAP, where I believe they're targeting the U.S. market for the IPO. That view, in other words, that an IPO is being progressed, is recently confirmed to us again by the Sedibelo management team. We simply have no insight as to when that might occur.
Thank you, Sean. The next, and, it's impressive it took this long to get to this topic, but is around the strong dividend that has been announced this morning. The asker has said they're delighted with the dividend, and thank you. They would like you to explain how the board processed and determined the dividend, what were the key drivers of the quantum, and whether it included turning operating cash flow, and including any form of cash buffer, less any cash for expected CapEx.
Sure. As we noted earlier in the presentation, the board does retain a pretty flexible policy towards dividends. We think that is the right way to go, rather than setting percentages of revenue or free cash flow or any other measure. Partly the reason is because of our lumpy revenue income stream, and therefore, trying to set out very clear forward-looking projections is tough. It's, you know, we have an auction closing today, and sitting around the table, we probably have quite different numbers on what that revenue is. Trying to look one year out, and look at our production and also our revenue streams, it's hard to do significant forward-looking planning.
What we do as a board is look at the performance of last year, compare that cash balance to how we see the costs we really have control of looking forward. Certainly we do a significant amount of forward planning from a cash outflow point of view. Compare that to roughly where we think revenues are gonna be. Therefore, like the question is asked, we do have a cash buffer in mind. Even that isn't a hard set figure, which we effectively use as the base level and pay out anything above that. There is quite a bit of flexibility, and certainly there is a significant amount of discussion that goes into where the figure should be.
Effectively, we look at where we are today, we look at roughly where we think we're gonna be over the next 12 months on a monthly basis. We see where the tight points are. Therefore, it gives us an idea.
Well, how much cash we can pay out to shareholders. I think the discussions we've had recently have certainly been less conservative than maybe the position we've taken in the past. Following the strong results, and the relatively positive feedback in the market in terms of gemstone demand, we have looked at things in a more positive way than maybe we would have done a couple of years ago.
Thank you, David. A follow-up question from that is, what's your expectations for future dividends? What can you see, again, through that, glass door?
Well, we can't obviously be making firm commitments other than to reiterate the intention of this management and our board to make regular returns of capital to shareholders. Hopefully, shareholders have seen the very strong, I believe, delivery of that intent last year and this year. If we should be blessed with good operating conditions, both on the ground and also fairly healthy markets, I see no reason why that should not continue. We obviously have to balance that with our capital considerations, as David has pointed out, but it certainly remains our ambition to try and keep regular dividends going.
Thank you, Sean. The next question goes back to Fabergé. Noting on your comments, earlier in this Q&A, is there any considerations, or should the board reconsider selling Fabergé? You mentioned that you will not give up, but when would you see an exit or a point where you do give up?
Well, I guess I'd start by saying I'm not sure I see why we would give up, given the very clear progress delivered at Fabergé, and the fact that its cash requirement is reduced from $23 million per annum to $2 million per annum last year. There's a clear trajectory. We hope that that trend will continue, and that in the not-too-distant future, Fabergé should be in a position where it starts costing no money from the Gemfields Group, and hopefully, a couple of years down the road, is able to start delivering a cash contribution to the group. I'm not sure why, in that context, we would necessarily consider a sale or that it is required.
I would also say that we are obviously a public Group. We have a series of very good assets, inside of that Group. As such, all of our assets are for sale all of the time. We would listen to any sensible proposal from any party.
Thank you, Sean. We're just going into the last couple of questions now. Could you please provide some color on the increase in security costs at MRM?
Actually, the security costs obviously are related to the insurgency, that has resulted in needing more people on the ground to provide better coverage of the licensed area, and that brings with it a number of associated additional costs, including the provision of food, accommodation. We do also have a number of armored vehicles, including armored buses on site, which obviously also come with a cost. I would hope that we don't see a further increase in those costs going forward for the next six to 12 months, subject, of course, to how the insurgency pans out. Hopefully, those have now stabilized.
On to the next question. This is a follow-up to your comments just a few minutes ago on dividends. What are you thinking around doing interim dividends? Are you thinking more on basing them on the final dividends or on a half versus half basis?
Good question. Just in the sense that we should highlight that the payment of an interim dividend in 2022 was a truly special scenario and circumstance driven by the extraordinarily high prices that we saw in the first half of 2022. The payment of an interim dividend in 2022, I would describe as an extraordinary event and a very special set of circumstances.
Thank you, Sean. The next goes on to the price of rubies and emeralds. If the world's increasing, in terms of costs through inflation, what do you think that would do to the prices of rubies and emeralds? As a connected question, do you think the reopening of China will actually impact on those prices, if there's increased demand?
Maybe we take those in reverse order. Yes, we think the reopening of China is a positive influence and hopefully will have a positive impact. Certainly, our colleagues who've been out to trade shows in the luxury and the color and the gemstone business have reported a significant return and influx of Chinese customers. Hopefully we will see that level of support coming through. And then on to the first part of that question, do we anticipate the prices of ruby and emerald to increase due to inflation? I think if one looks at a 10 or 20-year trend, the chances are pretty good. No guarantees, of course, but I think the chances are pretty good.
Great. To the last two questions that are currently written. What are the approximate run rates of exploration costs, and what is that split between Kagem, MRM, and Nairoto?
I don't actually have the split out exploration cost for Kagem and MRM, where it's obviously a very small percentage of the overall OpEx to hand. Insofar as Nairoto is concerned, we haven't yet published the figures. I would recommend that at the same time as we put out our next update on Nairoto, there will obviously be additional detail in terms of both OpEx and CapEx.
Just to add a couple of things to that. I think it's fair to say that exploration at MRM, we would like to increase significantly. Right now, partly due to the wash plant capacity, we can't explore much of the license area. That is something that we would love to do if we can bring the second treatment plant online. I think we would like to actually spend more on exploration at MRM. Just to give you some idea of the development assets, last year we spent approximately $6 million on those projects, that will increase this year. To use an accounting term, you should expect that to materially increase, but it's not gonna be a major part of our OpEx for 2023.
I think the other point that's worth taking into account there is that given the nature of the type of deposits that we're dealing with, exploration does sometimes take the form of production. In other words, our exploration often is conducted by way of bulk sampling, which essentially means a mini mining operation. You start digging out, the material and, you start seeing what you get. As I said earlier, there will be some hits and there will be some misses. It's not always that easy to see the boundary between what constitutes exploration and what constitutes revenue generating mining.
Thank you, Sean. Onto the final written question, that was in just a few moments ago. Back onto the second processing plant. If you are satisfied with an uncertain 18-month payback, delivered almost 5 years out. Given the group's current low EV versus free cash flow ratio, should you not be maximizing the use of excess cash for aggressive share repurchases?
The share buyback program is something that we have discussed already. We're certainly supportive, and we certainly feel the business is currently undervalued. When it comes to how aggressive that is, I think it's fair to say that members of the board have different opinions, and certainly shareholders have different opinions. We did spend some time last year, working or discussing with various shareholders on their opinions of buybacks versus dividends. As I said, they're fairly mixed, but we do think the business is undervalued. We do think a share buyback program is worthwhile. Now that we're coming through the closed period, we will certainly have another look at the mandate that's in place to see if that needs to change.
I think we should also point out, over the last four or five years, we've purchased back 12% of our outstanding shares.
I think it's also worth pointing out just, at the last year's AGM, the buyback was actually voted down by shareholders. Certainly it hasn't been the most straightforward way to use cash.
Yeah.
Great. Thank you both. That completes all the questions that have been written. I'm just going to check in with Chorus Call to make sure there aren't any questions live waiting to speak with you. Otherwise, we will end the call. Chorus Call, are there any live questions?
Thank you, sir. No, we have no questions on the line. Thank you.
Fantastic. With that, I think we will close the call. Thank you very much for joining us, and we will remain to be open to any further questions you'd like to reach out to us in the coming days and weeks. Thank you very much.