Broker Numis says precious gems miner Gemfields PLC's (LON:GEM) should 'excite' investors looking for exposure to a growing segment of the luxury goods sector.
It notes that with US$60mln of investments planned over the next three years, production should grow at the firm's Kagem mine in Zambia and double at its ruby mine Montepuez. It also has greenfield potential in Colombia and Sri Lanka.
But the broker noted that the recent Indian demonetisation policy is a temporary disruption to the emerald market and has tempered its full year 2017 Kagem projections as a result.
The country is tightening up the economy and trying to stamp out corruption by discontinuing 500 and 1,000 rupee notes.
As reported previously, plans remain on schedule for the group to meet its annual target production of 40mln carats of rough emeralds from Kagem and 20 million carats of rough rubies from Montepuez within the next three years.
That means US$30mln of capital expenditure is planned at Kagem over the next three years (US$10mln per year). The wash plant capacity has already been doubled from 33tph (tonnes per hour) to 66tph.
Meanwhile, US$60mln of capex is planned over the same time frame at Montepuez, where planned works include the doubling of the wash plant capacity to 150tph from the current 70tph, adding a DMS and scrubber and construction of a new sorthouse.
The broker repeated a 'buy' rating and 85p target price, which is a long chalk from the current share price of around 49p.