Gemfields reports loss after auction cancellation

Coloured gemstone producer Gemfields has reported a loss for the year to end-December as revenue declined, partly due to the cancellation of a higher-quality emerald auction in November 2023 and fewer carats sold.

The company reported a 23% decline in revenue to $262m and a loss after tax of $2.8m from a profit of $74.3m the year before, primarily due to the unrealised fair value losses of $28m from the group’s 6.54% equity holding in Sedibelo and the decrease in revenues.

The group said on Monday that inflationary pressure was affecting revenues.

“Though global commodity prices [showed] a slight decline in late 2023, concerns about high interest rates and geopolitical tensions persist worldwide, contributing to higher costs.”

As a result, the operating cost base remains elevated. However, it is implementing cost optimisation measures aimed at containing expenses without adversely affecting production. 

The overall lower quality and quantity of premium emerald production at Kagem Mining led to the cancellation of the November auction. Production remained weaker than Kagem’s post-Covid production profile, but there had been individual months of improvement, it said.

“Production of gemstones in the premium quality category has been weaker at both Kagem and Montepuez Ruby Mining (MRM) when compared with 2022 and resulted in one auction of higher quality emeralds being withdrawn from our schedule in November 2023, negatively affecting our results for 2023,” said CEO Sean Gilbertson.

On Monday, the miner reported a 93% take-up of its emeralds at its latest auction for $17.1m.

This was lower than the $25.5m total sales achieved at the previous auction held from August to September, where all 43 lots on offer were sold.

The rough emeralds sold in the latest auction held from March 5 to 22 were extracted from Kagem Mining’s sites in Zambia. It is believed to be the world’s single largest emerald producer.

The company sold 3.85-million rough emeralds at an average price of $4.45 per carat. About 50 companies placed bids, Gemfields said.

Gemfields’ MD of product and sales, Adrian Banks, said the latest auction offering included large quantities of lower-quality emeralds, which would normally be sold to smaller manufacturers in Jaipur, India, via the group’s direct sales channel.

He said those parcels accounted for 55% of the auction by weight, resulting in the lower overall dollar-per-carat figure realised at the auction.

“We are pleased to conclude another successful Kagem auction, demonstrating that the commercial-quality emerald market remains in good shape and prices achieved are broadly in line with the September 2023 commercial-quality auction,” said Banks.

“We now look forward to our next higher-quality emerald and mixed-quality ruby auctions to be held in Bangkok.”

Over the last decade, gemstone production at Kagem has tripled, while the prices received have increased more than six-fold.

Gemfields has paid about a fifth of total revenues, or $251m, in corporation tax and mineral royalties to the governments of Mozambique and Zambia between 2009 and 2020.

The group, with a R3.5bn market capitalisation on the JSE, said the proceeds of the auction would be fully repatriated to Kagem in Zambia, with all royalties due to the government being paid on the full sales prices achieved at the auction.

Despite the setback of the withdrawn auction, 2023 still marked a strong auction performance after the record-breaking revenue of 2022. Gemfields’ total auction revenue for 2023 reached $241.3m, down 23%, but still the second highest in the company’s history. Additionally, Gemfields’ cumulative emerald and ruby auction sales reached more than $2bn in 2023. A normal schedule of auctions was expected for 2024, it said.

Capital expenditure for the year increased to $68.3m, including the $8.1m costs capitalised to intangible assets for development assets. Capex for 2024 will remain high.

Gilbertson said that “2023 also saw the start of a period of considerable investment across the group spurred by the position of financial strength prevailing at the end of 2022.

“We believe that the short-term impact of these investments on our financial performance and position will lead to a stronger and expanded business, particularly at MRM, where construction of a second processing plant — tripling our throughput capacity — is well under way.”

Gilbertson said there would be “considerable investment across our mining and development operations” in 2024.

While the scale of the group’s investments would affect the 2024 financial results, “there is much to be excited about in the coming years across Gemfields’ unique business”, said Gilbertson.

mackenziej@arena.africa

gumedemi@businesslive.co.za