Third quarter performance…
Increased processing capacity and efficiency at Gemfields PLC's (LON:GEM) Montepuez asset saw the ruby mine achieve “exceptional production results” in the third quarter.
Plans remain on schedule for the group to meet its annual target production of 40 million carats of rough emeralds from Kagem and 20 million carats of rough rubies from Montepuez within the next three years.
The 75%-owned mine produced 4.5mln carats of ruby and corundrum in the third quarter of 2016, with an average grade of 44 carats per tonne; that's a massive improvement on the 0.5mln tonnes produced in the same quarter of 2015, when the average grade was seven carats per tonne.
Total operating costs eased to US$5.8mln from US$6.1mln the year before.
At the 75%-owned Kagem emerald mine in Zambia, production clocked in at 6mln carats of emerald and beryl with an average grade of 174 carats per tonne, versus production of 7.5mln carats at an average grade of 237 carats per tonne a year earlier.
Gemfields said the difference between this year's third quarter performance and last year's was down to the varied nature of the mineralisation; last year the company was mining a higher-grade zone than it was this year.
Total operating costs at Kagem came down to US$10.2mln from US$11.4mln the previous year.
The group's Fabergé unit saw the value of sales orders agreed fall by 23% from a year earlier, when two new significant wholesale agreements were signed.
The number of sales transactions rose 67% year-on-year, and the average selling price per piece rose by 2%.
Gemfields ended the quarter with cash and cash equivalents of US$24.1mln and Total debt outstanding of US$49.4mln.
Most recent auction…
Global demand for rough rubies remains robust said Gemfields, after the coloured gemstones supplier sold US$30.4mln worth of rubies at a Singapore auction last week.
The gems were all mined from the Montepuez deposit in Mozambique – in which Gemfields has a 75% stake – with 58 of the 76 lots selling.
Almost 1.1mln carats – around 80% of the Total offered – were sold at an average price of US$27.79.
Thirty nine companies placed bids at the sale, which offered both high and commercial grade rubies in treated and untreated form.
Gemfields has raised US$225.7mln from the seven auctions of Montepuez rubies held so far.
What the boss has said…
“This has been a positive quarter with Montepuez continuing to generate strong results. The increased processing capacity and efficiency has seen us achieve exceptional production results,” said Ian Harebottle, chief executive officer of Gemfields.
“At Kagem production remains consistent and operating costs saw a reduction on the corresponding period last year. In addition, I am pleased to report the quarter saw the completion of two new exciting community projects in the form of new Chapula high school and Nkana Health Clinic.”
“These new facilities have been incredibly well received and the local communities are already reaping the rewards. This achievement is as a strong endorsement of the company's CSR [corporate social responsibility] strategy that seeks to engage local stakeholders to conceive and co-develop projects that will have a long-lasting and positive impact in our local neighbourhoods,” Harebottle added.
“Thanks to the full global launch of our new integrated marketing campaign, demand for our coloured gemstones continues to rise, ensuring that achievable prices generate robust auction results.”
What the brokers are saying…
“With an ambitious growth profile and greenfield opportunities in Colombia and Sri Lanka, GEM should excite investors looking for exposure to a growing segment of the luxury goods sector,” said City broker Numis.
“Gemfields has aggressive growth plans ahead, with US $60m of investments planned over the next three years that should see production grow at Kagem and double at Montepuez.”
The broker repeated its 'buy' rating for the stock, as well as the 85p target price – which is a long chalk from the current share price of around 55p.
The share price: A referendum recovery…
The stock was treading water for most of the year at around the 45p level, but was sparked into life following the Brexit vote back in June.
The price slumped to 31.5p in the days following the referendum, but the initial negativity seemed to be what was needed in the longer-term.
Shares are up more than 75% since the opening week of July and currently trade at 55p or so, giving Gemfields a valuation of circa £295mln.