After a successful last twelve months, coloured gemstones specialist Gemfields (LON:GEM) is poised to accelerate earnings growth while de-risking itself through diversification says JP Morgan.
Gemfields’ 139% increase in 2011/12 operating profit to $47.6m was 2% above estimates said the broker, while the flagship Kagem emerald mine improved and significant progress was made in diversifying the business into other areas such as rubies.
These may make a first contribution to revenues in 2013 following the progress made at Montepuez, the ruby mine in Mozambique that is now 75% owned by Gemfields.
Bulk sampling has recovered 35k carats of mineral from which rubies are expected to be extracted and brought to market during the current year. The first auction may occur in March or June 2013, JPM said.
Expansion into new gemstones such as rubies and also new geographical areas will not only boost earnings but dilute its exposure to any one asset, although for the foreseeable future the broker still expects the majority of earnings to be derived from Kagem.
JPM retains an ‘overweight’ stance on the shares.