Richland Resources adds KGK Group to sightholder list; says Q3 production is up 24pct

Richland Resources (LON:RLD) revealed this morning that KGK Group has been added to the company’s exclusive list of cutters and jewellery makers that receive the company’s tanzanite gemstones.

The news came as the group revealed it sold 573,771 carats in the third quarter for a total of US$4.7 million – up almost a quarter on the same period last year.

 The average grade achieved in that period was 53 carats per tonne.

In the same announcement, Richland also revealed it has commissioned a sampling plant that will process tsavorite, a green emerald-like stone.

The link up with KGK is an important one as it has state-of-the-art colour-stone manufacturing units in India, Thailand, Sri Lanka and Tanzania. 

KGK becomes what is called a Sighthholder, which simply means it is a preferred supplier of the purple- blue gemstones found only in one small area of Tanzania in the foothills of Mount Kilimanjaro. KGK is also a De Beers Group Diamond Trading Company.  

Bernard Olivier, the company’s chief executive, said today: "We are excited to welcome KGK Group as a new Sightholder and look forward to a long and successful relationship with them. 

“The company benefits significantly through the appointment of this well established manufacturer, with strong relationships in China. 

“The continued positive sales figure of US$ 4.7 million for the quarter represents a 24 per cent increase in sales relative to the same period last year, highlighting the company's progress since last year's return to profitability."

The company also plans to list on the Dar es Salaam Stock  Exchange by the end of this year. Preparations are continuing according to plan.

Today’s update underlines the progress being made under Olivier. The process has been aided by a buoyant market for its wares, but has required plenty of self help as he and his team have stamped down hard on costs. 

It culminated in a change of name – Richland was formerly called Tanzanite One – which reflects the company’s shift in focus from being solely a miner and seller of Tanzanite to a broader based coloured stones group. 

And it also distances the business from the failures of previous regimes.  

The company is moving into Australian sapphires and as already outlined has plans to mine Tsavorite. However, its bread and butter remains Tanzanite.

It owns the Merelani mine, the largest in the area among a handful of smallholders, which puts it in the unique position of being the ‘market maker’ for Tanzanite.

The stones are cut at Merelani and packaged into parcels before being sold.

The market is in recovery mode after the financial crisis, though prices have not yet reached their pre-recession levels.

Today China is picking up the slack left by the United States. It seems the newly minted millionaires and billionaires of the Middle Kingdom just can’t get enough of the stone.

One of the initiatives Olivier has taken is to ensure Richland spends its marketing budget wisely and more efficiently than it has in the past.

An illustration of how this works is provided by the way Richland does business in China. 

Its entrance to this vast market has been through various collaborations including with the Chinese Jewellery Association, which has given it access to the movers and shakers of the industry in the People’s Republic.

It is also sponsoring up-and-coming young Chinese designers by providing them with Tanzanite.

Production this year is expected to be around 2.4 million carats, though the ability to expand to meet the current demand is somewhat hampered, in part by the issue of theft, Olivier reveals. It could take another three years to get to 3 million carats.

So he is looking at a number of other expansion initiatives. One is a network of joint venture agreement with local smallholders, who require a big brother with deep pockets and the right equipment to extend the life of their mines. 

He also plans to develop an alluvial tsavorite deposit 20 kilometres from the existing Tanzanite mine. 

Following work last year it has a JORC compliant inferred resource of 7.6 to 10.4 million bank cubic metres.  Bulk sampling should be followed by a small trial mine, which will be financed out of existing cashflow.

The company is keeping under wraps many of the details of its planned A$1.2 million move into Australian sapphires until it has completed its extended period of due diligence, which runs until the end of this year.

Richland is expected to post sales of US$22 million and EBITDA of US$6.8 million rising to U$8.5 million in 2012, according to Ambrian Capital.