Increased demand for Gemfield’s (LON:GEM) emeralds and improving production rates are helping to position the company for ongoing growth, heavyweight broker JP Morgan Cazenove said in a note today.
In the miner’s third quarter update yesterday, Gemfields said gemstone production (emerald and beryl) at its Kagem mine in Zambia increased to 4.9 million carats from 3.5 million carats a year earlier.
Chief executive Ian Harebottle added that demand for coloured gemstones was increasing across all markets.
JP Morgan analyst Alexander Mees added: “Demand for emeralds is intensifying, accelerated by increased marketing and driven in particular by the economic powerhouses of Asia.”
Gemfields has been working hard to raise the profile of emeralds and at its last auction for rough emeralds in Singapore in March it raised US$26.2 million.
Mees believes that there is strong underlying demand for Gemfields’ emeralds as the average price per carat changed only marginally from the previous auction in July 2011. The next auction, for lower grade emeralds, is next month in Jaipur, India.
Gemfields will be able to ramp-up production at its 75 per cent owned Kagem emerald mine after it completes the first 50 metre phase of the high wall push back and intensifies its waste removal programme.
The broker said it expects gemstone production to accelerate further from the 26 per cent increase seen between the second and third quarter this year.
Gemfields also has amethyst and ruby mines within its portfolio of companies plus some sapphire and other coloured gemstone prospects spread across Zambia, Madagascar and Mozambique.
Mees said that although it was not factored into the broker’s estimates, production at Gemfield’s ruby mine might possibly start in the next financial year.
JP Morgan projects that operating profit will be US$47 million this year, while revenue is expected to be US$84 million.
Mees added: “We believe Gemfields has a very strong position in the production and marketing of coloured gemstones and that provides a solid foundation for ongoing growth.”
Although the broker has not upped its earnings estimates or price target of 44 pence, it is maintaining an ‘overweight’ recommendation.
The share price was up 2.6 per cent to 38 pence.