-- Adds management & broker comments, plus share price reaction --
Gemfields (LON:GEM) posted a strong end to a transformational year – one in which it acquired the famous Faberge name to become a vertically integrated miner and vendor of coloured stones.
Quarterly production from its Kagem emerald mine in Zambia was 8.9mln carats, up from 7.3mln a year earlier, giving a total for the 12 months of 29.99mln carats for a rise of 42%.
The average grade for the year increased 38% to 283 carats per tonne, a trend that continued into the final three months of the financial year to give a figure of 322 carats per tonne.
Production costs, meanwhile, fell 26% in the year, Gemfields told investors in an update ahead of results.
It also revealed its latest auction of higher quality emeralds, held in the Zambian capital Lusaka, brought in revenues of US$31.5mln, the second highest total ever for an auction of its kind.
It followed a sale of lower quality stones in April, which netted US$15.2mln.
Overall, the company is in a solid financial position with cash of US$11.6mln, which equates exactly to the level of its outstanding debt.
As well as owning Kagem, the world’s largest emerald mine, the group is developing the Montepuez ruby deposit in Mozambique.
Bulk sampling of the stones is said to be ‘encouraging’ and the group is on track to hold its first auction in the first quarter of next year.
Separately, Fabergé, which was acquired in January, achieved a record number of unit sales in the year ending June, Gemfields said.
Chief executive Ian Harebottle said the group continues “to seek guidance and to interact with the Government of Zambia” over possible restrictions on emerald auctions outside the country.
He added: “While the two auctions held in Lusaka this year have certainly been successful, the key question, of course, remains what they would have generated had they been held abroad (where competing and undermining sources of supply, frequently illegal, are not readily available to our customers) and their potential impact on the long term growth of this sector.”
Speaking to Proactive Investors, Harebottle said communication between the Zambian government and Gemfields was now “much, much better”, and is a lot more interactive than it had been in the past.
Operationally, Harebottle said “the key thing is the market for coloured gems is very strong. We’re very chuffed about that, and we’ve still got the ruby sales to come.”
The company said with the first auction of rough rubies from Montepuez is likely to take place in the first quarter of the 2014 calendar year.
Harebottle's upbeat view was echoed by broker SP Angel. “This is a positive update from Gemfields – production is performing well and the recent auction results would suggest that high quality stones are achieving record prices.
“Despite the auction being held in Lusaka the auction went well so the news flow around this could prove to be a red herring. Fundamentals should re-assert itself with scope for the share price to perform from here,” the broker said.
Sanlam Securities was of a similar mind. “Gemfields has reported very good production, sales and mining cost numbers for Q4 and FY 2013 to 30 June,” Sanlam analyst Charlie Long said.
“Gemfields’ 2013 will be negatively impacted by having fewer auctions and, looking ahead, there remains some confusion over the ‘possible’ restriction of gemstone sales outside Zambia. However, Gemfields has performed very well at the Kagem mine and the high value in-Zambia (Q1 2014) auction was a success in terms of carat price and also saw a decent attendance,” Long noted.
“The worst case scenario would be that in future Gemfields would always have to hold auctions in Zambia. This would restrict the number of attendees, negatively impact prices achieved (when emerald buyers visit Zambia they can be offered lower cost illegally mined product), and ironically lower the government tax take. However, it is very good to see that Gemfields could operate under these less than perfect conditions if necessary,” Long concluded.
Shares in Gemfields rose 4.4% to 23.5p following the update.