Gemfields confident despite depressed gemstone figures

Gemfields issued an operational update for the three months ending 31 March on Friday - the third quarter of the financial year.

The AIM-traded firm said that, in its emeralds arm, production totalled 4.5 million carats of emerald and beryl with an average grade of 193 carats per tonne, versus 7.1 million carats with an average grade of 297 carats per tonne in the quarter ending 31 March 2016, with the difference being attributable to the varied nature of the emerald mineralisation, exceptionally high rainfall combined with a renewed focus on opening new areas for future production.

Total operating costs were $9.6m, against $11.2m in the quarter to 31 March 2016, supported by improved efficiencies and ongoing cost saving initiatives.

Unit operating costs were $2.13 per carat, compared to $1.58 per carat in the quarter to 31 March 2016, while on a cash basis, unit operating costs were $1.73 per carat , against $0.96 per carat in the quarter to 31 March, with the difference being attributable to the lower number of carats recovered in the quarter.

Cash rock handling unit costs were $3.55 per tonne, compared to $2.62 per tonne in the quarter to 31 March 2016, primarily due to the reduction in total rock handling on account of the higher rainfall experienced.

An auction of predominantly higher quality rough emeralds extracted from the Kagem mine was held in Lusaka, Zambia in February 2017.

The company said the auction generated revenues of $22.3m, at an average realised value of $63.61 per carat, which the board said was the third highest price achieved to date.

It said the next auction of predominantly commercial quality rough emeralds from Kagem was scheduled to take place in Jaipur, India, from 15 to 18 May.

The lower production achieved to date at Kagem was expected to reduce the targeted total production for the 2017 financial year to between 20 and 25 million carats.

Gemfields said it remained confident that it would deliver on the longer-term production ramp up over the coming years.

For rubies, production totalled 1.2 million carats of ruby and corundum with an average grade of 7.0 carats per tonne, versus 2.0 million carats with an average grade of 30 carats per tonne in the quarter ending 31 March 2016, largely as a result of the lower grade but higher value ore being processed, with the quantity of premium quality rubies recovered increasing by 92%.

Total operating costs were $6.5m, compared to $5.8m in the quarter to 31 March 2016.

Unit operating costs were $5.42 per carat, compared to $2.90 per carat in the quarter to 31 March 2016, which the board said was a direct result of the decrease in carats produced.

On a cash basis, unit operating costs were $4.08 per carat, versus $2.40 per carat in the quarter ending 31 March 2016.

Cash rock handling unit costs were $5.37 per tonne, compared to $10.18 per tonne in the quarter ending 31 March 2016, mainly attributable to the almost doubling of total rock handling while costs were maintained at similar levels as comparative period.

The next mixed quality auction of rough rubies and corundum from Montepuez was expected to take place in June 2017, in Singapore.

Gemfields said that, given the production focus would be on processing predominantly lower grade but considerably higher value ore for the remainder of the financial year, the targeted total production was now estimated to be between eight and 10 million carats of rough rubies and corundum, compared to previous guidance of 10 to 12 million carats.

The emeralds production summary was from its 75%-owned Kagem Mining in Zambia, while the rubies production summary was from the 75%-owned Montepuez Ruby Mining in Mozambique.

At Faberge, Gemfields said the number of pieces sold during the quarter increased by 63% when year-on-year, supported by an 18% increase in the number of sales transactions during the same period.

Sales orders agreed during the quarter declined by 39%, and total operating costs fell by 13%.

Faberge launched its third men's timepiece in the Fabergé Visionnaire collection during the period, the board highlighted, further cementing its position within the “highly profitable” sector.

It said the Visionnaire Chronograph was showcased alongside new jewellery pieces at Baselworld 2017, the World Watch and Jewellery Show, and had already received “considerable acclaim”.

On the corporate front, Gemfields said cash and cash equivalents stood at $4.6m as at 31 March, and total debt outstanding was $60.1m.

“From an operational perspective the quarter under review delivered mixed results but we remain delighted that demand for coloured gemstones continues to increase as the sector strengthens,” said CEO Ian Harebottle.

“Montepuez has once again performed extremely well, with a significant increase in the quantity of ore and the quality of the gemstones produced.

“The inclement weather during the period, varied nature of the mineralisation and a focus on opening new areas for future mining have resulted in Kagem delivering lower volumes of production.”

Harebottle said that the lower production experienced during the quarter at both Kagem and Monetpuez, and the changes to the targeted total production figures for financial year 2017, would not impact on the company's upcoming auction schedule.

“Post an internal review Gemfields has made the decision to withdraw from the Coscuez transaction in Colombia and its operations in Sri Lanka.

“The company truly believes that its portfolio of high quality assets in Africa, as well as other potential expansion opportunities within Zambia, Mozambique and Ethiopia, are all likely to deliver considerably higher returns, with shorter payback periods, than some of the other jurisdictions it had previously been evaluating.”