Both Gemfields' (LON:GEM) mining and marketing businesses are being well managed and the group is set for "significant profitable growth" over coming years, suggests broker Sanlam, which has just returned from an analyst visit.
It reckons its Mozambique ruby business is the most valuable, due to the long life resources and the Montepuez mine’s excellent profit margins.
Analyst Charlie Long believes ruby sales in full year 2016 and, particularly, 2017 will drive the group's revenue, profit and share price.
At its first low quality ruby auction last week 99% of ruby carats sold at an average of $4/carat, meaning a 50% profit margin for the firm, while in June, it will hold a high quality auction and Sanlam said it was forecasting sales from that of $34mln based on an average value of $350 per carat.
Recent third quarter results showed ruby production was booming with 7.7Mcts produced in the year to date against the 8 million carats guided for 2015.
The broker, which rates the shares 'buy', has lifted its target to 90p a share (current price -60p) to reflect the increased cashflow potential of the Montepuez business, it said.
It forecasts underlying earnings (EBITDA) of US$88.5mln in 2015, rising to US$103mln in 2016.