Gemfields mulls rights issue as Covid-19 cuts auction sales by 90%
Gemfields has cut costs at its emerald mine in Zambia and ruby mine in Mozambique, with things looking ‘bleaker rather than better’ for rest of 2020
Gemfields warned shareholders on Wednesday that it might have to issue shares to prop up the gemstone company’s finances as the Covid-19 pandemic wreaks havoc on production and auction sales revenue — which has fallen by 90%.
JSE-listed Gemfields has cut costs at its suspended emerald mine in Zambia and the halted ruby mine in Mozambique where government restrictions stopped operations.
More worryingly, sales for the year have stalled, meaning there is no revenue at a time when there are still care and maintenance costs at its mines and head office.
“Our last auction revenue was $11.5m (I189.9m) in February 2020 and we should typically be above $100m of auction revenue by this time of the year,” said CEO Sean Gilbertson. “The effect of travel restrictions, quarantine periods and prohibitions on large gatherings, combined with rising Covid-19 infection rates in our African host nations and in India — our key market for rough emeralds — mean that conditions presently look bleaker rather than better for the remainder of 2020.”
Gemfields generated 93% of its $216m revenue from six auctions during 2019.
The company is uncertain about whether it will be able to host another auction of its gemstones before the end of the year, Gilbertson said.
Gemfields has cash of $54m, down from $78m at the start of the year, and $44.3m of debt. There is $2m debt payable by December. The company is also negotiating a $15m loan.
“Should it become clear that hosting gemstone auctions by the end of December 2020 is unviable, additional cash maintenance measures will be implemented and the company is reviewing the requisite workstreams to prepare fundraising options, including a possible rights issue should that become necessary.”
The Montepuez ruby mine in Mozambique was suspended from April 22 and will openly reopen in October. Cash operating costs have been reduced to $1.8m a month from $2.6m, with further cuts planned.
There are enough rubies in stock to host an auction of mixed quality stones.
At the Kagem emerald mine in Zambia, operations stopped at the end of March and are expected to restart in November. Gemfields restarted its sorting house in June to sort and grade a stock of emeralds. Kagem has enough emeralds to host one, high-quality auction and a commercial quality sale.
Kagem’s operating costs have fallen to $1.3m a month from $3.4m.
Revenue at Gemfields’ wholly owned luxury brand Fabergé have dropped to $2.5m from $3.8m a year earlier. Operating costs were $1.7m in the June quarter , down from $2.4m.
Fabergé’s online sales grew to $360,000 in the first half of 2020 from $80,000 in the same period in 2019.
Gemfields share price closed 3.45% down at R1.40 giving it a market capitilisation of R1.63bn.
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