Shares in Gemfields (GEM) sold off this week after a shift in the coloured stone miner's auction calendar sparked earnings forecast downgrades. Though previously flagged, the source of the problem has been Indian Prime Minister Narendra Modi's ban on the circulation and use of 500 and 1,000 rupee notes at the end of 2016, a decision that immediately created liquidity problems for Gemfields' Indian customers.
This forced the delay of an emerald auction scheduled for December until mid-February, and that sale was also a disappointment in revenue terms, bringing in just $22.3m (£17.9m) at an average price of $64 per carat. What's more, another auction of high-quality emeralds due to take place this year has now been removed from the sales calendar, a move set to cause a material reduction in full-year profits and further compound comparisons with 2016's strong outing.
Emerald production from Kagem dipped regardless, thanks to a 35 per cent drop in grades to 166 carats per tonne. Chief executive Ian Harebottle shrugged this off as "attributable to the varied nature of the mineralisation", and expects an improvement in grades, along with "a correction in the market in the short term". FinnCap now expects an adjusted pre-tax loss of $1m and a 0.7¢ loss per share in the 12 months to June, against $41.8m and 2.2¢ in 2016.
GEMFIELDS (GEM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 48.3p | MARKET VALUE: | £265m | |
| TOUCH: | 46-49p | 12-MONTH HIGH: | 58p | LOW: 31p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 44¢ | NET DEBT: | 16% | |
| Half-year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2015 | 94.0 | 21.8 | 1.0 | nil |
| 2016 | 51.0 | -16.5 | -3.0 | nil |
| % change | -46 | - | - | - |
Ex-div: na Payment: na £1 = $1.25 | ||||
