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Gemfields back on Aim at similar grade

After its dramatic exit the ruby and emerald miner is back to try to bring in more investors
February 17, 2020

Gemfields (GEM) has returned to Aim more than two years after it exited London's junior market, with the former Pallinghurst Resources (now just called Gemfields) adding a London listing to its presence in Johannesburg and Bermuda. 

IC TIP: Sell at 11.5p

The emerald and ruby miner, which opened trading at 10.5p, chose to come back to London to increase liquidity and attract bigger investors. It did not raise cash and the free float is around half of all shares issued, with the major shareholders involved in taking the company over in 2017 still involved. South African retail magnate Christo Wiese holds 13 per cent of the company. 

At the time of the Aim delisting, Pallinghurst said it could boost its revenue, cut costs and increase its valuation by bringing the miner in-house. Since mid-2017, when the all-share deal went through, the company’s share price has fallen around 30 per cent, to 214 rand cents (11p). In that time, the company sold its share of Australia-listed manganese miner Jupiter Mines for $31m, followed by the exit from Sri Lankan exploration licences and the purchase of a project in Colombia, both moves started by the previous Gemfields management, and paid out £5.8m to a group of claimants who alleged security and police at the Montepuez ruby mine in Mozambique had beaten and sexually assaulted them. Gemfields did not admit liability in the case, and said it paid out to avoid ruining its relationship with the community and the cost of a lengthy court case. 

Chief executive Sean Gilbertson told us on the Extraction Podcast that it was understandable the 2017 move did not sit well with UK investors, who were offered the choice of accepting Johannesburg-listed shares or selling a falling stock. 

He said as chief executive he had focused on getting production running smoothly at the company’s two mines, Kagem in Zambia and Montepuez in Mozambique, and cutting costs. In the most recent results, for 2019, Kagem saw premium emerald production fall 7.5 per cent year on year and costs rise 10 per cent. Montepuez saw premium production of rubies down 12 per cent year on year and operating costs flat on 2018. The cash profit of $33m (£25m) in the first half of 2019 was an improvement on the year before of 3 per cent. The last four ruby auctions have varied widely, with the per-carat value ranging from $52 in mid-2019 to $122 in mid-2018. In the same two-year period, emerald auctions saw premium prices range from $60 a carat to $85 a carat. Auctions focused on smaller stones saw averages of between $3 and $4.75 a carat. 

Mr Gilbertson said mining precious stones was different from pulling copper or gold out of the ground, with a volatile grade and variable quality of the stones. “Sometimes you might get very low grade, but beautiful quality. Sometimes you might get very high grade but terrible quality, but when we start shaking in the knees is when we get both bad grade, and also poor quality crystals,” he said. “It's a riskier form of mining.” The company mines several areas at once to even out this variability. 

A day before the company’s return to Aim, there was tragedy at its Montepuez ruby mine, when 11 people died during an “artisanal miner incursion”, in which 800 people forced their way onto the property. Gemfields said the deaths came from “ground collapse incidents”. 

Newcomers to the company might be surprised by a miner owning the famous Fabergé jewellery brand. The marque was brought to Gemfields by Mr Gilbertson in 2013, but has not been a profitable arm for the business. The annual spend on Fabergé is around $4.5m (£3.5m), which Mr Gilbertson said was a major improvement from operating costs of over $20m in 2015, although this has come from the company trying to limit spending rather than grow revenue.  

Listen to the Extraction Podcast here

This article was updated on 18/02/2020