--ADDS BROKER COMMENT--
Gemfields’ (LON:GEM) first auction of rubies from its Montepuez mine topped expectations and will add a valuable revenue string, according to brokers.
Revenues from the auction of rubies and corundum exceeded US$33mln, with more than 90% of the lots sold at a strong average price of US$18.43 per carat.
Gemfields said it expects revenues to exceed US$143mln this year to June following the success of the ruby sale.
JP Morgan expects the company to host two ruby auctions in the following year, which combined will add US$60mln to revenues.
As a result, the broker has now raised its revenue forecast for 2014-15 by 9% to US$154mln, comprising US$60mln from rubies, US$80mln from emeralds and US$14mln from Fabergé. Emerald revenue expectations have been trimmed due to lower than expected production recently.
Sanlam, meanwhile, added that while the average price for the rubies was a great result, it is best not to assume that US$18 will be the average price going forward.
It added, nonetheless, that the prices Gemfields' received did bode well and points to an average carat value as high or even higher than the US$6/emerald carat achieved at the Kagem mine in Zambia.
The South African broker added it was significant that the auction was carried out in Singapore, which is a substantial advantage over the emerald Zambian situation in providing free advertising exposure and attracting more buyers.
It was also the first ruby auction for this type of Mozambican rubies. Stones were sorted into lots with high quality and low quality untreated and heat treated stones offered.
“This is an excellent market place for gemstone retailers looking to build a market in rubies but where a well organised, regular, and high volume supply is needed. That is what Gemfields now offers in both emeralds and rubies,“ said Sanlam.
Investec, too, said the auction was a key step to help the company tailor the product mix for rubies going forward.
Having previously attributed US$40mln for the value of Montepuez, the broker said it will likely lift this as it gets a better understanding of the possible realised value for the stones.
“Our NPV for Kagem is US$307mln and Montepuez could well eclipse this in time,” it said.
Earlier, Ian Harebottle, Gemfields’ chief executive said: "We are naturally delighted to announce the stellar results of our first auction of rubies and corundum from Montepuez in Mozambique.
"Since completing the acquisition of Montepuez - our first ruby deposit - in 2012, we have swiftly brought this greenfield asset into the operational and revenue-generating phases, producing over eight million carats and simultaneously developing a first-of-a-kind, proprietary ruby grading system.
“Importantly, the proceeds of this auction will be fully repatriated to Mozambique, to Montepuez Ruby Mining Limitada, in which Gemfields owns 75% and with all royalties due to the Government of Mozambique being paid on the full sales price achieved at the auction."
The auction in Singapore saw 1.82mln carats sold, out of a total of 2.03mln offered, at an average retail price of US$18.43 per carat.
Total revenues of US$33.5mln were generated from the five day sale. As a result, group revenues this financial year will be more than US$143mln.
The coloured gemstone specialist has spent about US$34mln bringing Montepuez back into production since it acquired a 75% stake in 2011.