Coloured gemstone specialist Gemfields' (LON:GEM) fledgling ruby business and the integration of the newly acquired Faberge brand offer significant growth potential, according to Sanlam.
The broker recently visited both the ruby project in Mozambique and the Kagem emerald mine in Zambia, the current core of the business.
In these, argues Sanlam, Gemfields owns two very large gem properties that both have the scale to control or positively affect prices in their respective markets.
Gemfields has already helped to strengthen emerald prices through effective marketing, and with rubies, as well, there is plenty of additional growth potential.
Kagem is already the largest coloured gemstone mine in the world and generated US$84mln of revenue and US$48m of adjusted operating in the year to last June.
The mine has a very high strip ratio, but Sanlam believes it is better to view Kagem in a similar way to a high grade gold mining operation (high strip, high value ore).
Kagem shifts 80 tonnes (t) waste for a tonne of ore, but the ore is worth over US$1500/t with grades of c365ct/t at an average carat (ct) value of US$4-5.
The annual carat production, sales and profits, are also quite consistent, said the broker, with the resource most recently estimated at 1 bn carats by SRK.
The next phase is to develop an underground mine to work alongside a growing and deepening pit.
Sanlam believes Kagem will continue to produce carats and decent profits for more than 20 years, although the move to supplement opencast mining with underground will provide technical challenges.
Montepeuz is Gemfields' ruby property in Mozambique, and Sanlam estimates it has the potential to double Gemfields' revenues and profits when it comes fully on stream within three years.
A 25 year mining licence is in place and grades in some areas are "clearly very high" added the broker. Gemfields has clamped down on illegal mining since it took control and a pilot plant is in operation and should be cash flow positive in calendar 2013.
The marketing division is as important as the mining side, especially with the recently acquired Fabergé business, which Sanlam sees as extremely valuable.
Fabergé remains one of the strongest global luxury brands said the broker.
"We feel that it is worth investing a very significant sum to bring in the right people (marketing, jewellery and fashion designers) to develop/re-introduce the Fabergé brand."
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