Our opinion on the current state of GEMFIELDS(GML)The Gemfields Group (GML), formerly known as the Palinghurst Group, is a mining company with two main projects: (1) Kagem, the world's largest producer of emeralds in Zambia, and rubies at Montepuez in Mozambique; (2) Jupiter Mines, a South African manganese producer. The group is led by Brian Gilbertson, the former CEO of BHP Billiton, who saw an opportunity to consolidate and professionalize the semi-precious stones market, which was historically under-developed. This vision led to the establishment of Gemfields' operations.
In April 2018, Gemfields listed Jupiter Mines on the Australian Stock Exchange (ASX), disposing of 60% of the company as part of its strategy to focus solely on gemstones, moving away from being a diversified mining company. The Gemfields share is relatively well-traded, with approximately R500,000 worth of shares exchanging hands daily. However, like all commodity shares, Gemfields is exposed to market risks, particularly in relation to emerald and ruby prices, as well as the operational risks of mining in third-world countries. Despite these risks, the company has carved out a niche in the gemstone industry, where competition is limited, positioning it to perform well as global economic conditions improve.
On 24th October 2022, Gemfields announced that operations at the Montepuez Ruby Mine (MRM) had resumed after a temporary halt following an insurgent attack 12 kilometers away from the mine. Additionally, on 7th August 2023, the company revealed plans to construct a new processing plant that would triple its ruby output from the Montepuez mine.
For the year ending 31st December 2023, Gemfields reported a 23% drop in revenue and a headline loss of 0.9c (US) per share compared to a profit of 4.8c in the previous year. The company attributed this to the cancellation of its higher-quality emerald auction in November 2023 and a write-down of its non-core 6.54% equity holding in Sedibelo Resources, a platinum group metals mining company.
In its update for the six months ending 30th June 2024, Gemfields reported total auction revenues of $121 million and a net debt of $44.4 million. The construction of MRM's second processing plant is on budget and on track for completion by the end of H1 2025. In a trading statement for the same period, the company estimated that headline earnings per share (HEPS) would decline by 21% in rands, despite generating auction revenues of $120.6 million and an additional $6.6 million from its Fabergé division.
Technically, Gemfields' share price experienced a strong upward trend, which began after an island formation, but that trend was broken in July 2023. Currently, the share remains in a downward trend, and we recommend waiting for the downward trendline to be broken before considering any new positions.
On 11th June 2024, Gemfields announced the appointment of Bruce Cleaver as Chairman. In its June 2024 auctions, the company sold $68.7 million worth of rubies at an average price of $316.95 per carat, reflecting the ongoing demand for its gemstones.
