Rubies rather than emeralds are set to shine for Gemfields (LON:GEM), the miner that also owns the Faberge luxury brand.
This is the contention of City broker Sanlam, which repeated its ‘buy’ advice, which values the business at 57p a share.
Better known for its ethically sourced emeralds, unearthed from Kagem in Zambia, Gemfields’ Montepuez ruby operation in Mozambique is quickly coming to the fore.
“Gemfields’ ruby business is still an unknown quantity especially its scale and mine life,” said Sanlam in a note to clients.
“However, in the short and medium term we expect increasing ruby production and auctions to provide positive news flow and a share price catalyst.”
The June auction generated revenues of US$33.5mln at an average realised price of US$18.4 per carat. One more ruby auction is scheduled for this calendar year.
However, the green stones rather than red remain the mainstay of the business.
On Monday, Gemfields said sales from the Kagem Mine in Zambia totalled more than quarter of a billion dollars in the last five years as it revealed bumper results of an auction of lower quality rough emeralds and beryl.
The group raked in US$15.5mln from the sale in the country’s capital Lusaka.
This represented the second-highest haul achieved for these supposedly lesser stones and equated to US$1.34 a carat.
Broker Investec said yesterday: “The sales price achieved is close to the 1.50 a carat our analyst assumes for low quality stones and volume is almost what we assume for a year’s worth of this product.
“The key value driver at the Kagem mine is the price achieved for high quality stones that most recently stood at US$59.3carat.
"Low quality emerald sales make up around 20% of the revenue line so are an important added value to the operation.”
Of the 12.1mln carats offered, 11.6mln found buyers; in all 16 auctions have generated US$276mln since 2009.
Chief executive Ian Harebottle was particularly pleased the buyers are flocking to Lusaka with this, its fifth sale in 17 months on home soil.
“The role played by Zambian emeralds in the international market has never been more important and we remain delighted that they are the emerald of choice for so many,” he added.
“We will seek to further expand their reach with our determined marketing initiatives and by seeking a wider client base internationally, including our new audience of rough ruby buying clients."