[miningmx.com] –COLOURED gemstone producer Gemfields intends using its newly established powerhouse balance sheet to dominate the world’s emerald business, eventually hoping to control up to 60% of supply.
That’s according to CEO Ian Harebottle who told Miningmx that Gemfields had recently opened offices in Colombia and Brazil which are two of the world’s major emerald producing countries.
The third is Zambia where Gemfield’s Kagem mine is located and which is churning profits after a dramatic operating turnaround.
Kagem boosted production to 33 million carats in the year to end-June (previous financial year: 17.4 million carats) while the cost of sales was actually reduced to $15m ($16.5m).
Gemfields reported a taxed profit of $21.4m ($2.6m profit) and had cash on hand of $13.6m ($2.9m) at year-end.
Harebottle said Gemfields currently had cash on hand of $35m, following the record emerald auction held in July which generated $31.6m in sales revenue.
That was equivalent to 78% of total sales of $40.2m recorded for the year to end-June. Gemfields sells its production through regular auctions modeled on the “sights’ held by diamond producer De Beers.
According to Brian Gilbertson – chairman of Pallinghurst which is the controlling shareholder in Gemfields – the Gemfields system is an improvement on the De Beers method.
“It’s an auction. Buyers are allowed to view the goods in advance and then bid for exactly what they want,’ he commented.
The Kagem mine currently accounts for about 20% of world emerald production.
Harebottle said plans were to increase production from Kagem through a “push back’ of the high wall to expand the existing open pit as well as examining the “six other known emerald deposits’ on ground that Gemfields controls.
“The aim is to produce 40% of the world’s emeralds within about six years but, once there, we are likely to keep going,” he said.
“We would like to control 60% of the world’s emerald supply either through our own production or through our marketing system.
“I know investors are concerned about our moves into Colombia and Brazil but we are not going to rush into something there.
“Africa has its operating problems but so does South America and Australia. We want to be in a position to be able to carefully assess any opportunity that may arise.”
Gemfields is busy acquiring 75% of the Montepuez ruby deposit in northern Mozambique, and holds nine areas under prospecting licences in Madagascar.
PRICES STILL RISING
Harebottle said Gemfields was expecting price increases of between 10% and 12% on the emeralds due to be sold at the next auction in November and commented the group had, so far, not seen any negative impact from the current bout of economic uncertainty gripping world markets.
“We sell about 60% of our emeralds to eastern countries and the balance to western countries and we are still seeing rising demand and rising prices in both markets.
“We do sell luxury goods and the world is not a happy place at the moment but we would be able to ride out a three year dip with no problems. A major recession lasting longer than that would, clearly, affect us.
“The key issue is that the consistency of our supply of emeralds to consumers has transformed the coloured gemstone business.”
Turning to the issues of illegal mining and theft Harebottle said management’s target was to keep theft at Kagem within 20% of its production.
“Our policy is that if we catch thieves on the mine they are prosecuted but, if they get the stolen goods off the property, then we have a separate trading arm in Kitwe which buys up emeralds being offered for sale no questions asked.
“We have decided to be altruistic about this and we would rather recover the stolen emeralds this way than have them sold to our competitors.”
Harebottle described illegal mining as something that “had to be managed” but said the situation in Zambia was more relaxed than in Tanzania where mining companies like African Barrick had experienced serious confrontations with illegal miners.
“You could consider the illegals as a kind of advanced geological team because where they are operating is where you will find emeralds. We are finding the same pattern on the Montepuez ruby deposit in Mozambique.”
