Gemfields – Ahead Of AGM Next Week, Record Prices For Rubies Drives Current Year Hopes Of Quadrupled Profits

The Guernsey-incorporated Gemfields Group (LON: GEM) is a world-leading responsible miner and marketer of coloured gemstones.

The company, which is also listed on the Johannesburg Stock Exchange (JSE:GML), is the operator and 75% owner of both the Kagem emerald mine in Zambia and the Montepuez ruby mine in Mozambique.

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It also holds controlling interests in various other gemstone mining and prospecting licences in Zambia, Mozambique, Ethiopia and Madagascar.

Emeralds Or Rubies

Emeralds and rubies are incredibly rare, which leads to their enduring attractiveness and maintains their value.

Sources of both coloured gemstones are scarce on a global basis with the historic sources, such as Colombia for emeralds and Myanmar for rubies, no longer dominating supply.

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The Kagem is believed to be the world’s single largest producing emerald mine, while the Montepuez is one of the most significant recently discovered ruby deposits in the world.

Gemfields produces approximately 25% of the global supply of rough emeralds and approximately 50% of the global supply of rubies.

Last year some 14m tonnes of rock were handled to produce 31.3kg of premium emeralds, while over 30% of the Kagem revenue comes from premium emeralds.

In 2023 some 8m tonnes of rock were handled to produce 12.5 kg of premium rubies, with about 70% of the Montepuez revenue coming from premium rubies.

The Group’s Mission

Gemfields’ mission is to be the global leader in African emeralds, rubies and sapphires, promoting transparency, trust and responsible mining, while creating a positive impact for its host communities and countries.

Gemfields Also Owns Faberge

Gemfields’ has outright ownership of Fabergé, which is an iconic and prestigious brand of exceptional heritage.

It enables the group to optimise positioning, perception and consumer awareness of coloured gemstones through Fabergé designs, advancing the wider group’s “mine and market” vision.

Grading To Auctions

The company has developed a proprietary grading system and a pioneering auction platform to provide a consistent supply of coloured gemstones to downstream markets, which is a key component of its business model that has played an important role in the growth of the global coloured gemstone sector.

Yesterday the group announced the results of its latest ruby auction which reported a new record in realised ruby prices.

Product & Sales MD Adrian Banks stated that:

This auction marks the 10th anniversary of Gemfields’ first auction in June 2014 of rubies from the Montepuez Ruby Mine in Mozambique.

We are pleased to announce another strong result demonstrating the confidence that loyal customers have in our product offering and auction platform.

While auction results should not be directly compared, our team is proud to have crossed the milestone of an average selling price of $300 per carat at this auction.

While the industry is currently facing some headwinds, arising in part from a softening in China, we hope this result provides good comfort to other stakeholders in our sector.”

Management Statement On Outlook

Retiring Chairman Martin Tolcher stated that:

“Looking towards the upcoming months and years, the Board is confident that the Group’s excellent work will continue and drive positive growth for all stakeholders.

Working with a natural product, there will be variation in both the quality and quantity of the coloured gemstones that the Group produces and the prices paid for the rough gemstones.

The considerable investments the Group has made, and is continuing to make, will result in a weaker cash flow within the financial results for this coming year, but the Board is confident that they will drive strong returns and position the business for growth in the years to come.”

The Equity

There are some 1,166,695,130 shares in issue.

The larger holders include Assore International Holdings (29.2%), Rational Expectations (13.4%), Ophorst Van Marwijk Kooy Vermogensbehor (9.8%), Oasis (7.8%), Fidelity International (6.0%), Van Lanschot Kempen (5.2%), and Diacolor International (3.5%).

Analyst View

At brokers Liberum Capital analysts Ben Davis, Tom Price and Yuen Low rate the shares as a Buy, looking for them to rise to 24p in due course.

They are estimating that the current year to end December will show sales of £279m (£261m) while pre-tax profits could quadruple to £70.8m (£16.6m).

For the 2025 year they estimate £366m sales, with £109.2m in profits.

My View

I totally agree with the company’s own assumption of its business when stating that ‘Gemfields is a unique investment proposition that offers investors exposure to a global leader in a niche field, with supportive and growing market trends.’

The shares were trading at 16.95p this time last year and have since been down to just 11p.

Ahead of next Tuesday morning’s 2023 AGM, I would suggest that the shares of this £152m capitalised group are looking attractive at just 12.50p, I look for a price recovery to the trading range of 14p to 16p possibly before the Interim Results are announced in September.

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