The results are in from Gemfields' (LON:GEM) auction of low quality emeralds and beryls in Lusaka, to an almost audible sigh of relief from brokers.
The auction was seen as a dry-run for the Zambian authorities’ apparent wish to prevent emeralds extracted from Zambian mines from being auctioned outside of the country.
Gemfields would clearly prefer to be able to sell its coloured gems wherever it can get the best price, and although the Lusaka auction results do nothing to counter this argument, they also show that it would by no means be a disaster for the company should the directive become law in Zambia.
The auction saw 6.3mln carats of emeralds and beryls sold, generating US$15.2mln in revenues, which is the most Gemfields has ever raised from a lower quality auction.
However, the average price per carat of the stones taken from the Kagem mine in Zambia was US$2.42, down 7% from its last lower quality auction in Jaipur, India, reversing the historic growth pattern for the first time.
“While prices are down on a per carat value it is hard to say this was down to the auction being held in Lusaka rather than Jaipur – the latter is likely to be more convenient and appealing to the buyers for this type of auction,” broker SP Angel speculates.
“Overall the fact that the company achieved relatively decent revenues should counteract concerns that sales will be drastically cut back – the company could argue for higher quality sales they need to hold them in places which will attract the best bids,” the broker continued.
Another broker, RF Ambrian, noted that the money raised in the auction was “comfortably above expectations”.
“This is good news, but we will wait to see if the Zambian proposal is ratified in law and what impact this will have on the auction process for higher-quality gems,” RF Ambrian said.
Another set of City scribblers, however, took a contrary view. Fox-Davies views the lower percentage volumes as “disappointing, especially in view of the uncertainty over the company’s on-going ability to freely sell emeralds outside of Zambia.”
Over at Canaccord Genuity, the advice to the Fox-Davies doubters is to relax. “We don’t think the average US$/carat value achieved from auction to auction should be a focus for investors as lack of sales for the lowest quality stones actually pushes up the average value per carat sold. Instead, we think the focus should be on the total revenues generated over a longer period.”
In other words, if the demand had been weaker, only the better quality gems would have been bought, thereby resulting in a higher average price per carat.
Perhaps the most balanced view comes from Investec, which points out the bargaining chips the auction result has given Gemfields (GEM).
“While the decline in prices may be disappointing to GEM, it does give the group the opportunity to point out some of the issues of auctioning their produce in-country. This is particularly pertinent in light of the Zambian government’s recent possible ban on marketing of emeralds abroad,” Investec said.
Gemfields’ shares took a tumble on the Zambian authorities’ surprise announcement on 8 April about the possible introduction of sale restrictions, falling to 24.5p. They have since recovered a tad, to 26.5p, and SP Angel thinks the shares should improve from here.