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Gemfields a 'rare gem' says bullish Investec

Published: 13:04 06 Aug 2013 BST

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Investec has initiated coverage of Gemfields (LON:GEM) with a ‘buy’ recommendation and a 30 pence-a-share price target, describing it as a ‘rare gem’.

“It has established itself as the largest single producer of emeralds in the world,” analyst Marc Elliott said.

“The company has successfully increased the value of its production through marketing and formalising the sales process of its emeralds, enabling margins to expand as jewellery buyers are able to gain confidence in supplies.”

On Monday, the group updated on progress during the last year - one in which it acquired the famous Faberge name to become a vertically integrated miner and vendor of coloured stones.

Production from its Kagem emerald mine in Zambia was 29.99mln carats in the 12 months to June, up 42% on the year earlier.

The average grade for the year increased 38% to 283 carats per tonne, a trend that continued into the final three months of the financial year to give a figure of 322 carats per tonne.

Production costs, meanwhile, fell 26% in the year, Gemfields told investors in an update ahead of results.

It also revealed its latest auction of higher quality emeralds, held in the Zambian capital Lusaka, brought in revenues of US$31.5mln, the second highest total ever for an auction of its kind.

Gemfields has been successfully formalising the trade in emeralds from the Kagem mine, leading to an appreciation in the prices secured for its emeralds,” analyst Elliott said.

“This is an on-going process that has potential to unlock considerably more value long term.”

At 1pm, the stock was changing hands for 24.63 pence, for a rise of almost 3% so far on Tuesday, building on the 20% advance seen in the past month.

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