No question that Gemfields (LON:GEM) is a company with ambition.
You only have to look at where it’s come from to discover that.
From a near standing start six years ago the 75%-owner of the Kagem emerald mine in Zambia has grown to be one of the largest coloured gemstone producers in the world.
Over that time its market capitalisation has increased to close on £250mln and its share price has increased more than tenfold .
But how has that been possible when everyone knows that over the same period of time mining markets have been shot to hell, that the global economy has been in intensive care, and consumer appetite for discretionary spending anaemic at best?
The answer, as Gemfields chief executive Ian Harebottle explains, is an interesting combination of the right people, the right assets, and a clever and sometimes counter-intuitive approach to the market.
“When I joined in 2009 our revenue was close to zero, ” he says. “We turned it completely around.”
Who exactly the “we” are in this statement perhaps requires a bit of explanation.
First off, there’s the Pallinghurst Group, a private equity vehicle controlled by one-time BHP Billiton (LON:BLT) chief Brian Gilbertson and which took a major stake in the company at the beginning of 2008.
In turn, Gilbertson and his team brought in Harebottle, described on the Gemfields web site as a coloured gemstone “veteran.”
But the key thing about that appointment was not just that Harebottle brought with him a wealth of African coloured gemstone experience garnered at the helm of Tanzanite One, but that he brought a lot of the Tanzanite One team with him.
At one time early on, he recalls, when the Gilbertsons (father and son) were sizing up a potential acquisition of Tanzanite One while Harebottle was between jobs, he delivered the intuitive advice that the company would be worth the acquisition price based on the value he believed that its people could add to Gemfields alone.
Once he was appointed to Gemfields many of those people, all of whom had developed unique sector specific skills over the years, came across with him and the nucleus of future success was put in place.
Still, anyone who recalls what the mining markets were like in 2009 will know that nothing then was a given.
Indeed, Harebottle himself regards the way the mining industry kept attempting to prop itself up in the face of relentless pressure on prices and demand as worse than futile.
In fact it was actually counterproductive, he says, as the mining industry went through a series of stops and starts instead of crashing to find its base level and beginning the job of rebuilding on firm foundations.
Still, as far as Gemfields is concerned it wasn’t all for the bad.
Global discretionary spend did indeed drop after the financial crisis in 2008, but that had the paradoxical effect of boosting demand for Gemfields’s emeralds.
Why?
Simple, says Harebottle. Faced with a choice in tougher times, the potential purchaser of a precious stone could either buy a tiny diamond or a bigger emerald.
That fundamental price-to-size advantage enjoyed by emeralds played well when purse strings were tightened, and especially when backed up by a clear-focused marketing strategy, and not just from Gemfields.
“In 2009 if you took a walk down Bond Street,” says Harebottle, “all you would have seen in the jewellery store windows would have been white diamonds. Now more than half the window space is colour, and you put in your window what’s going to draw your customers in.”
Colour is good; coloured gemstones are marketed heavily by De Beers, by Graf, by all the major players.
And where with tanzanite Harebottle often struggled to gain product recognition from consumers, with emeralds, and with Gemfields’ new products rubies and amethysts, there is no such need for education.
“There’s this inherent knowledge,” says Harebottle, and it runs deep.
“Man has a hierarchy of needs,” he says, eliciting the obvious ones of food, water and shelter first. “Going back into the past, right at the top of the pinnacle was coloured gems.”
That pinnacle has been subverted over the past 100 years, partly by De Beers’ unparalleled success in pushing diamonds, and partly by the more recent growth of consumer branding as a luxury item in itself.
But coloured stones are making a comeback.
Gemfields uses the US actress Mila Kunis in its marketing campaigns, and other major celebrities like Angelina Jolie and Penelope Cruz have also been seen wearing coloured stones with much more frequency lately.
Then there’s Kate Middleton, who famously wore Princess Diana’s sapphire engagement ring.
“We’re certainly seeing a significant demand for colour,” says Harebottle.
That’s all to the good, as far as Gemfields is concerned. It already accounts for around 30% of the world’s emeralds by value, and is making serious inroads into the ruby markets with its new Mozambican mines.
Will there be more to come?
You bet there will. The company has just sold US$19.2mln worth of stones in Jaipur, with the next auction due in December in Singapore.
“We’re in a solid place now,” says Harebottle. “We have a roughly 40 % EBITDA margin after spending 20% of our revenues on growth – 11% on marketing and 9% on greenfields exploration.”
In the long-term, there’ll probably be a move to the main board of the London Stock Exchange too. But one thing at a time.
After all, it’s only a few years since the company had no revenues at all - and look at it now.