The recent successful emerald auction by Gemfields (LON:GEM) prompted Canaccord, the company’s broker, to raise its valuation of the stock by a penny to 25 pence a share this morning.
Repeating his speculative buy recommendation, analyst Tyler Broda made a number of interesting observations on the Jaipur sales.
He pointed out the proceeds were US$2 million more than he had been predicting at US9.9 million, while fewer carats were offered – 16.8 million carats versus the Canaccord estimate of 22.6 million.
More to the point the low quality emeralds placed in the auction sold for an average of 77 cents a carat - more than double the broker’s estimate of 31-35 cents.
“This suggests to us that Gemfields and its structurally changing grading and marketing techniques are providing a material rerating in emerald prices,” Broda said in a note to investors.
“We believe this trend is likely to continue as Gemfields is able to lever its knowledge from recent auctions going forward.
“In our view, persistent strong diamond prices are opening up the possibility for emeralds to take market share in retail jewellery.
“This bodes well for Gemfields, which we estimate to produce roughly 20 per cent of global supply.”
The company owns the Kagem mine in Zambia and markets its gems under that name using a variation of the model that has made De Beers the international name in diamonds.
It is a strategy that is gaining more than a little traction as Gemfields posted a maiden profit in October last year.
City research house Edison expects the company to unveil a US$19 million pretax profit this year on sales of over US$42 million.
Analyst Julian Emery, who also values Gemfields at 25 pence a share, is impressed with the progress of the company under chief executive Ian Harebottle.
“It is building a production and marketing track record that could support future capital programmes and establish both production expansions and operations longevity,” he said.
At 12.30 pm the shares were trading at 20.3 pence each, up 0.3 pence.