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Coloured gems specialist Gemfields (LON:GEM) was upbeat about market conditions in its third quarter production update.
“We've been pleased to see new world records - on a per carat basis - achieved by both sapphires and rubies at recent auctions held by Sotheby's in Hong Kong and Geneva respectively.
"In particular, the sale of an 8.62 carat Burmese ruby has raised the world record for rubies at auction by 81% to USD 997,727 per carat. It is against this market backdrop that we look forward to our second auction of rough ruby and corundum which will be held in Singapore next month,” said Ian Harebottle, chief executive officer of Gemfields.
The company's next auction of predominantly higher quality emerald and beryl mined at Kagem in Lusaka, Zambia will conclude on 17 November 2014.
Production at the company’s 75%-owned Kagem mine in the three months to the end of September totalled 6.3mln carats of emerald and beryl, down from 6.5mln carats in the same quarter of last year.
The grade fell to 214 carats per tonne versus 302 carats the year before.
Unit operating costs in the quarter totalled US$1.63 per carat, compared to US$1.09 per carat in the third quarter of 2013, while cash rock handling unit costs eased to US$2.91 per tonne from US$3.58 per tonne a year earlier.
At the 7%-owned Montepuez ruby mine, around 2.9mln carats of ruby and corundrum were extracted during the quarter, which was about the same amount produced a year earlier.
The grade was 41 carats per tonne, versus 118 carats per tonne in the third quarter of last year.
Unit operating costs in the quarter totalled US$1.48 per carat, compared to US$0.62 per carat in the third quarter of 2013, while cash rock handling unit costs rose to US$6.93 per tonne from US$6.34 per tonne a year earlier.
The next auction of rough ruby and corundum is scheduled to take place in December.
The group’s Fabergé division saw the value of sales orders agreed during the quarter rise by 50% from a year earlier, while operating costs were down 26% year-on-year.
"Gemfields enjoyed a solid quarter of gemstone production notwithstanding lower grades than those in the same quarter last year. Market conditions remain upbeat with ongoing enthusiasm from the trade, retailers and consumers for responsibly supplied coloured gemstones,” Harebottle said.
As at 30 September 2014, Gemfields had cash and cash equivalents of US$ 32.2 million and total debt outstanding of US$ 25.1 million, including the outstanding balance of US$ 15 million at Kagem.
"In general the mines performed well, with production in line with our expectations. We reiterate our 60p price target," said Martin Potts of broker finnCap.
Sanlam Securities, meanwhile, said production was roughly in line with what it expected.
Half-year emerald production of 6.3mln carats was below the full-year run-rate of 13.4mln carats that Sanlam had pencilled in, but the broker notes there is plenty of inventory.
“Ruby production of 2.9mln carats, above our 2.0mln carat expectation. It is not clear what percentage of ruby production Gemfields will look to auction although it likely to be significantly less than production whilst it builds the market place,” the broker need.
The broker said it expects grade variability at both Kagem and Montepuez but “importantly, cash costs per carat provide for strong margins at both mines”.
“The first ruby auction of FY15 will take place in December where we are anticipating just over US$30mln of revenues. However, the size and average value achieved is very hard to accurately forecast.
“What we are more confident of is that the ruby business will grow over the coming quarters, prove to be high margin one and potentially act as a catalyst for Gemfields,” Sanlam said, as it stuck with its ‘buy’ rating and 60p target price.
Shares in Gemfields were 1.6% lower at 46.47p in late-morning trading.