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Gemfields hails momentous quarter as ruby auctions start

Second auction planned for end of year while latest emerald auction concludes tomorrow.
Gemfields hails momentous quarter as ruby auctions start

--adds broker comments--

Coloured gemstones miner Gemfields (LON:GEM) hailed a momentous last quarter that saw the first ever auction of rubies from its Montepuez mine in Mozambique.

Ian Harebottle, Gemfields’ chief executive, said that the auction represented “a profound shift” in the ruby industry.

The June auction generated revenues of US$33.5mln at an average realised price of US$18.4 per carat. 

One more ruby auction is scheduled for this calendar year.

Montepuez produced 0.2mln carats of ruby and corundum in the three months to June, compared to 1.1mln carats in the same period a year ago thoughGemfields said the quality extracted this quarter was significantly higher. 

Total cash operating costs were US$3.1 mln (US$2.4mln). 

For the year to June, Montepuez produced 6.5mln carats.

Gemfields’ emerald mine at Kagem in Zambia saw production in the latest quarter fall to 6.3mln carats from 8.9mln, but output was higher than the previous two quarters. 

Emerald grade was 271 carats per tonne compared to 322 this time last year, while costs rose to US$1.33 per carat from US$1.01.

For the year Kagem produced 20.2mln carats (30mln carats).

An emerald auction in May raised US$13.5mln. The next auction is currently underway in Lusaka and concludes tomorrow.

Luxury brand Faberge saw lower revenues but higher unit sales and robust margins.

Harebottle added: “Our marketing efforts continue to underscore our vision and we look forward to the results of this week's auction of rough emeralds and beryl (of predominantly lower quality) in Lusaka, Zambia."

Broker Investec added that the production report, although weaker year on year, gave no major cause for concern since the nature of the asset base typically delivers considerable volatility. 

The key value driver is the prices that can be achieved for the sale of emeralds and rubies. 

The broker has a target price of 55.6p, adding Gemfields remains in good financial shape with cash of US$36.7mln and debt of US$16.7mln at end-June. 

SP Angel added that Kagem saw a  dramatic recovery in grade and production in the quarter  after the two previous had seen significantly lower production as the mine pushed back to enter into new higher-grade areas.  

“The great news is that the higher grade of 271ct/t vs 198ct/t in the previous quarter is also accompanied by a 58% increase in the value realised at the company’s emerald auction in May vs September last year. “

Shares were 48.5p today.


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