Gemfields' precious moment
London-headquartered Gemfields Group Ltd (GGL), a global leader in the mining of African coloured gemstones (in particular emeralds and rubies) has made a remarkable recovery. Having suffered a challenging scenario during the Covid-19 pandemic (mining operations were shut for most of CY2020 and around 4 months during CY2021), the company, listed on London’s AIM Stock Exchange as also on the Johannesburg Stock Exchange, has delivered an impressive performance.
Gemfields Group Ltd (GGL), formerly known as Pallinghurst Resources Ltd, specialises in mining, processing, and selling rough and uncut coloured gemstones. In CY2022, the company achieved a record revenue of $341 million, representing a 32 per cent increase from $258 million in CY2021. The majority of the revenue came from the sale of rough emeralds and rubies through auctions.
Total auction revenues in 2022 reached a new annual record of $315 million, surpassing the previous record set in 2021. The individual emerald and ruby auctions also achieved new highs. The two rough emerald auctions held in Jaipur, generated $148.6 million, while the two rough ruby auctions held in Bangkok generated $162.4 million. In September 2022, an auction featuring sapphires, corundum, and lower-quality rubies generated revenues of $4.2 million. GGL’s seven auctions accounted for 92 per cent of the total revenue.
A special interest piece of emerald called the ‘Kafubu Cluster’, weighing 37 kg, was sold at the higher-quality emerald auction in Bangkok in November, setting a new record as the most expensive single emerald item ever sold by GGL.
The company paid its maiden dividend of $20 million in May 2022 and an interim dividend of $15 million in November 2022. Based on the strong 2022 results and future prospects, the Board approved the payment of GGL’s 2022 final dividend of $35 million, or approximately $0.029 per share. The dividend was distributed to shareholders in May 2023.
David Lovett, Chief Financial Officer of GGL, expressed that 2022 exceeded expectations with record-breaking revenues. Despite increased input costs and supply chain constraints, the company generated excellent cash flows. Challenges such as insurgent activity in Mozambique need to be navigated, but the strong production at both mines gives confidence that the planned auction schedule for 2023 will proceed as planned.
GGL is a leading responsible miner and marketer of coloured gemstones. It operates and owns 75 per cent of the Kagem emerald mine in Zambia, believed to be the world’s largest producing emerald mine, and the Montepuez ruby mine in Mozambique, which is one of the significant recently discovered ruby deposits globally. The company also holds controlling interests in various other gemstone mining and prospecting licences in Zambia, Mozambique (gold), Ethiopia (emeralds), and Madagascar (sapphires). GGL aims to establish its presence in Madagascar and is actively seeking sapphire deposits there.
In addition, GGL’s outright ownership of Fabergé, an iconic and prestigious brand, enables the company to optimise the positioning, perception, and consumer awareness of coloured gemstones through Fabergé designs, advancing its broader ‘mine and market’ vision.
“Year 2022 has exceeded expectations with record-breaking revenues realised in total and for individual emerald and ruby auctions. The coloured gemstone market has seen strong demand after the Covid-19 pandemic, with prices paid for uncut emeralds and rubies reaching remarkable levels during the first half of 2022. Our strategy of being a world-leading responsible miner and marketer of coloured gemstones is working and is generating considerable revenue and benefits for our host governments and the communities we operate in,” states Sean Gilbertson, Chief Executive Officer, GGL.
Belying the challenging global economic condition, GGL has kept its performance intact. In a recently held auction (5-20 June, 2023) comprising mixed-quality rough rubies in Bangkok, the total auction revenues for GGL stood at $80.4 million. Ninety-one of the 94 lots offered for sale were sold. The auction clocked an average realised price of $266 per carat.
The 19 auctions of Montepuez rubies held since June 2014 have generated $978.5 million in total revenue for GGL. The auction lots were made available in Bangkok for private, in-person viewings by customers. Following the viewings, the auctions took place via an online auction platform specifically adapted for GGL, which permitted customers from multiple jurisdictions to participate in a sealed-bid process.
Rebound in prices
“With the revenue from this auction up 20 per cent since our last ruby auction in December 2022, today’s results echo the significant rebound in market prices we reported just weeks ago for Zambian emeralds. The ruby market is clearly firing on all twelve cylinders, and the step-change in market pricing which we reported in 2022 is notably enhanced. As always, we send our thanks and congratulations to our hard-working teams, our partners, our host governments, and of course our clients for their support,” says Adrian Banks, Managing Director, Product & Sales, GGL.
Earlier, at another auction (15 May-1 June 2023) comprising higher-quality rough emeralds in Bangkok, GGL clocked a total auction revenue of $43.7 million, an all-time revenue record for any Kagem emerald auction. The average realised price of around $165 per carat was an all-time record for any GGL emerald auction held so far. The 45 auctions of Kagem emerald held since July 2009 have generated $964 million in total revenue for the company.
“Gemfields’ second auction of 2023 has yielded a positively surprising outcome. In our last auction of November 2022, we saw the market normalise appreciably when compared with the exuberance of the first half of 2022. We are delighted today to see the market rebound sharply once again, underpinning the step-change in market pricing which we reported in 2022. This is our 45th auction of Kagem emeralds since 2009, and to see no fewer than three records fall (the highest-ever revenue, the highest ever average price per carat for an emerald auction and the highest-ever price per carat paid for a single auction lot) certainly puts the proverbial smile on my dial,” says Banks.
At the emerald auction in Bangkok, the majority of participants, around 60 out of 70, were from Jaipur, which is the hub for processing (cutting and polishing) nine out of 10 rough emeralds for global jewellery consumption. Bangkok, on the other hand, is the cutting and polishing hub for rubies. In Jaipur, over 100,000 artisans work across more than 5,000 units engaged in coloured gemstone processing, with a focus on cutting Zambian and Brazilian emeralds that has been ongoing for decades.
However, the industry’s attention has now shifted to the Zambian supply, and GGL’s auctions of this production have revolutionised the emerald cutting industry in Jaipur. GGL has also established a sales and marketing office there. The consistent supply of accurately graded parcels through regular auctions has made it easier to plan for customer demand for finished stones. The demand for coloured gemstones in India, a traditional market, has been promising, and even increasing, in recent years.
“We have been participating in these GGL auctions since they started auctioning emeralds. With large and organised miners like GGL and others involved in the mining of emeralds and other precious-coloured gemstones, the entire supply chain has become more organised. The coloured gemstone market is gradually taking shape in an organised and robust manner, and we foresee a very promising future. Now, we can plan ourselves better,” says Manoj Dhandia, partner at Dhandia Gems Corporation, a Jaipur-based company engaged in trading and cutting and polishing of rough emeralds.
“With organised miners like GGL and others coming into play, the entire global supply chain of precious, coloured gemstones is becoming organised in nature. Their grading system and auctioning process are also immensely helpful in creating a robust price discovery mechanism. The market is going through a transition, and we can expect a better marketplace going forward. The coloured gemstone market is becoming more robust, and so is the industry involved in producing finished products,” states Akshay Chordia, partner at Ashok Jewellers, a Jaipur-based company which has been participating in GGL auctions for many years and is engaged in the cutting, polishing, manufacturing, and exporting of gemstones and jewellery.
“The acceptance level of coloured gemstones in jewellery has increased significantly in recent years, and consumers are open to experimenting with different gemstones beyond emeralds, rubies, and sapphires. With players like Gemfields and Fura entering the business, the supply is becoming more consistent and organised. We may see the success story of De Beers in the diamond business being replicated in the coloured gemstone category as well. Unlike the diamond business, there has been no standard grading system for emeralds or rubies, but now these organised miners have started implementing their grading exercise,” says Colin Shah, managing director of Kama Jewellery and past chairman of the Gem Jewellery Export Promotion Council.
World class mines
Luxury brands in the jewellery industry need a reliable supply of raw materials to balance the demand from customers and create their products. If there is no consistent supply, luxury brands are less likely to use those materials due to the costs involved in design, marketing, as well as the lead time required to bring products to market. The coloured gemstone industry does not have established standards, and this is further compounded by centuries of inconsistent supply and the unique characteristics of each gemstone, which can have a dramatic effect on its value. GGL solves and addresses this issue with its unique and proprietary grading system.
Combined with its world-class mines, Kagem and MRM, which operate at scale, customers can be confident they have consistent access to similarly graded rough coloured gemstones over time. GGL’s responsibly-sourced gemstones are now the preferred choice for showpieces created by renowned luxury houses and cutting-edge designers.
“Gemfields has developed a proprietary grading system and a pioneering auction and trading platform to provide a consistent supply of coloured gemstones to the global jewellery market. These key components of the company’s business model, along with outright ownership of Fabergé (an iconic and prestigious brand of exceptional heritage), play an important role in the appropriate distribution and associated resurgence of the global coloured gemstone sector,” says a company official.
“Over the years, GGL has been ramping up its mining and processing infrastructure to create a robust supply chain. It has established a modern ruby sort house at Montepuez Ruby Mine in Mozambique, which is the first of its kind in the coloured gemstone industry and comparable to the best diamond facilities in the world. This state-of-the-art facility, resulting from a $15 million investment, enables MRM mine to consistently deliver a greater volume and spectrum of responsibly sourced rubies to the global market.
“The sort facility has significantly increased production levels by utilising the natural properties of rubies for automated sorting. The process involves washing the raw material and passing it under ultraviolet (UV) light. Rubies naturally fluorescence under UV light, allowing optical sorters to detect the fluorescence and use blasts of air to direct individual rubies to separate channels for further sorting and grading. The use of programmable logic controllers and data software under UV light enables a faster, more reliable, and more efficient process compared to the human eye.
As the world-leading supplier of responsibly sourced coloured gemstones, GGL is advancing the industry by being the first company to offer coloured gemstones for sale complete with Gübelin’s Provenance Proof technologies. These technologies not only cite the gemstone’s place of origin but also establish an encrypted record of its journey from mine to consumer. C
ustomers can now benefit from next-level transparency of gemstone history through complete blockchain records provided during the closed-room auction. The Provenance Proof Blockchain records can be completed with ownership details at each step, providing an unprecedented level of clarity regarding the path a gemstone has taken.
The move comes as consumers increasingly demand knowledge of gemstone origins and show heightened interest in mindful purchasing and appreciation of the impact of their behaviour throughout supply chains. The introduction of Gübelin’s Emerald Paternity Test in 2017, which utilises unique DNA particles remaining within an emerald’s fissures to identify its origin, combined with Gübelin’s blockchain record process, represents a significant advancement towards the goal of full transparency.
“In July 2021, GGL announced the ‘G-Factor for Natural Resources’, a measure promoting greater transparency in the sharing of natural resource wealth with host countries’ governments across various sectors, such as mining, oil, gas, timber or fishing. Recently, the Group announced updated figures till the end of December 2022 and invited governance bodies, mining organisations, industry observers, and host governments to adopt the G-Factor for Natural Resources to improve transparency when it comes to the share of natural resource wealth paid to a host country’s government.
The G-Factor
The G-Factor for Natural Resources is intended to be a straightforward indicator of the percentage of a natural resource company’s revenue that is paid to the host country’s government in taxes and dividends (where the host government is a shareholder). It reflects the share of natural resource wealth paid to a host country’s government. The G-Factor for Natural Resources takes its name from the ‘g’ in ‘government’, ‘governance’ and ‘good practice’.
“Given the evolving dynamics of resource nationalism on the one hand, and the increasing strategic competition by companies and states for resource access on the other, it seems to us that a practical measure allowing for a direct comparison of the sharing of natural resource wealth would greatly assist in identifying responsible custodians of host nations’ resources. We hope that the G-Factor for Natural Resources will be voluntarily adopted by other companies, insisted upon by host governments, and incorporated into projects such as EITI,” says Gilbertson.
As a responsible miner, Corporate Responsibility and ESG are deeply embedded within GGL’s mission, strategy, and business practices. It considers its people, its communities, its environment and its industry. This means operating with transparency, honesty, and openness, ensuring legitimacy and acting with integrity. One per cent of revenue from Kagem and MRM mines is allocated to establish community and conservation projects. As the Gemfields Foundation enters its second year in 2022, it continues to develop projects that directly improve the lives of those working and living near its operations in Africa.
In Mozambique, Zambia, and all other locations where GGL operates, working closely with the communities is crucial. This is recognised in the newly established ESG strategy, which aims to promote transparency, trust, and responsible mining while creating a positive impact for the host communities and countries. Through these commitments, GGL aims to set the standard for African emeralds, rubies, and sapphires.
“We aim to conduct ourselves in a manner that considers and respects our people, our communities, our host countries, our environment, and our industry. That means working hard at being transparent, honest and open, and operating with legitimacy and acting with integrity. We continue our efforts to minimise the environmental impact of our operations, building livelihoods for the community members that live in the villages surrounding our mines and promoting lasting, positive change across the coloured gemstone industry. To further this endeavour, we established an ESG Committee in 2022 and have developed a new ESG Strategy that is being rolled out across Gemfields’ group companies,” says the GGL CEO.
With all these developments in place, GGL has positioned itself quite strongly in the precious, coloured gemstone market. The group’s strategy to improve the attractiveness of coloured gemstones through marketing and securing a consistent supply for customers is continuing to be of benefit. The strong prices paid for coloured gemstones in 2022 is further evidence that increasing supply can lead to higher demand. Through its outright ownership of Fabergé, an iconic and prestigious brand of exceptional heritage, GGL can further optimise the positioning, perception, and consumer awareness of coloured gemstones.