The growing prospects of two Aim-traded African gemstone miners have been illustrated in the past week. Gemfields (GEM) rose by 9.5 per cent after the producer of ethically-sourced gemstones unveiled an updated JORC resource statement that outlined the huge potential of its flagship Kagem emerald mine in Zambia and Stellar Diamonds (STEL) revealed more positive test results from its Droujba diamond prospect in Guinea.
The Gemfields' assessment, produced by Cardiff-based SRK Consulting, gives an indicated resource of 2.75m tonnes of ore, or around 1bn carats of emerald and beryl at 365 carats a tonne. The total inferred resource is put at 223,100 carats, which is impressive enough in itself, but the economics of the Kagem project are perhaps even more compelling from an investment angle. Gemfields' management has been trying to assess whether it would be economically feasible to extend the open-pit operation into an underground mine. The rationale for the underground operation is that the amount of waste being stripped from the open pit has increased to the point where an underground operation becomes potentially more cost-effective - and the report tends to confirm that view.
Kagem should have a 20-year lifespan with the potential to produce 34m carats a year at an average cash cost of 62¢ per carat. At current prices, Kagem would generate $885m (£550m) over two decades, and SRK projects a net present value for the new underground operation of $372m at a 10 per cent discount rate. Capital costs are estimated at $55m over the first five years and $113m over the life of the mine. Gemfields told us that "the underground development represents an exciting opportunity to further the life of our Kagem emerald mine. We continue to see opportunities in the emerald price, particularly with our higher-valued gemstones and look forward to the auction in November."
And well it might, particularly as the market for coloured gemstones is developing rapidly in key Asian markets outside of the Indian state of Rajasthan, which has historically been home to a large wholesale industry. An upcoming auction in Jaipur will be instructive given the recent fall-away in demand for luxury goods in Asia, particularly China, which became the world's second-biggest diamond consumer last year. In 2008, Gemfields was selling half its output in the US, but that fraction has since fallen to a fifth as its focus has changed towards Asian markets.
Meanwhile, Stellar's early testing of samples from its Droujba prospect has signalled its potential as a feasible project and assay results from the Katcha kimberlite announced this week suggested it represents a viable extension to Droujba's overall potential. An independent revision of Stellar's 2.5m carat inferred resource figure is under way with results expected before the year-end.
