Gemstones In Demand

“We remain cautiously optimistic, and, based on the improved market sentiment towards the end of 2016, we maintain a positive outlook for the year ahead,” CEO Ian Harebottle tells SA Mining.

Harebottle explains that the challenging economic conditions have seen diamond retailers increase their collection of coloured gemstones – this in a bid to offset the generally higher costs and lower margins associated with diamonds.

Deloitte’s Global Powers of Luxury Goods 2016 Disciplined Innovation report attributes the sluggish growth of the global luxury goods sector to the slowing down of important markets, such as China and Russia.

Harebottle also ascribes the market slowdown to various other factors, including the uncertainty arising from Britain’s exit from the European Union and the US’s focus on its election campaign, but he does not believe that all is doom and gloom, and takes the view that any kind of change is generally also associated with opportunity.

However, some markets continue to perform well with pockets of opportunity across the globe. India and Mexico for example, were growing quickly, and the Middle East offered further growth potential, the report stated.

Despite the poor forecast for the luxury goods market, the AIM-listed coloured gemstone miner has been growing by leaps and bounds and posted a sterling performance at its most recent full year results for 2016.

“Gemfields has delivered its best revenue and production rate to date and achieved record operational progress which has translated into strong financial results – the company has generated revenue of $193.1m. Over the past five years, Gemfields revenue increased by 380% and total revenue generated since the company’s first auction in 2008 has reached $717.6m, an impressive achievement given the challenges faced by the mining and luxury goods industries.”

Operationally Gemfields succeeded in its ambition of producing 30m carats of rough emerald and beryl from Kagem, and 10.3m carats of rough ruby and corundum from Montepuez, exceeding its forecast.

Harebottle explains that global imports of emerald, rubies and sapphire jewellery reached $5.9bn in 2015, up from $5.2bn in 2014 – this demonstrates a 13% increase in consumer demand on the previous year.

In addition to its strong marketing campaign, Gemfields’ strategy is to significantly lift production from two of its world-class deposits, the Kagem emerald mine in Zambia and the Montepuez ruby deposit in Mozambique.

The company has subsequently secured financing to help realise its expansion programme.

“We are aiming for higher production at both the Kagem and Montepuez operations over the next three years,” states Harebottle.

For 2016, Gemfields initially targeted 25-30m carats of emeralds and beryl, and achieved 30m carats; in 2017 the company will look to produce between 30m and 35m carats. By 2018, it plans on mining as much as 40m carats from its Kagem mine, which has an indicated 25-year life of mine.

In order to achieve this ambition, Gemfields is targeting an additional capex spend totalling $30m over the next three years – this will be used to update the existing fleet to cope with the increased capacity. as well as improving processing efficiencies through various means including the possibility of adding optical sorting into the mix.

According to Harebottle, an optical sorting unit has the potential to be far more efficient than the conventional conveyor belt system currently being deployed at its Kagem mine. While he is clearly excited by the possibilities that such a unit will provide, he is cautious to explain that some final stage evaluation still needs to be carried out before any definitive predictions can be made.

The existing fleet capacity consists of 30t and 40t dump trucks with larger capacity equipment currently being trialled on site.

In addition, Gemfields, will continue seeking opportunities in new and existing markets, including further unlocking its two new opportunities in Colombia and Southern Ethiopia.

In Colombia, the company has an option of acquiring a 75% stake in one of history’s five major producing mines in the country and it hopes to be mining emeralds in the next two years.

In Ethiopia Gemfields has acquired a 75% stake in a greenfields operation.

“We have already undertaken near-surface trenching and 1st phase diamond core drilling on the Ethiopian project. With beryl being recovered in the core from 12 of the first 15 holes drilled,” says Harebottle.

In a bid to determine the economic viability and economies of scale that can be achieved from the mining licence, Gemfields plans on undertaking a small-scale bulk sampling exercise in 2017.

Harebottle notes that with regard to rubies, the company produced 8.4m carats in 2015 and lifted production to 10.3m carats in 2016.

“We aim to ramp up ruby production to 20m carats over the next three years by which time we will be the world’s leading ruby supplier – delivering two-thirds of global production into the market,” states Harebottle.

Based on its plans to double production over the next three years, Gemfields has secured $60m, which will be used to acquire two washing plants.

“In 2017 we will spend $25m on upgrading our existing processing plant and sorthouse, and in 2018 we will commence with a second washing plant for $25m and in 2019, we plan on spending $10m on expanding the fleet.”

Gemfields has also been investigating the opportunities associated with mining sapphires in Sri Lanka. “Progress remains ‘slow and steady’,” says Harebottle.

He remains upbeat though as the company’s marketing strategy continues to gain momentum, with a number of big brands keen to co-market with the coloured gemstone producer.

“There is a growing attraction for big brands to partner with us, given that Gemfields is able to oversee its gemstones’ ethical route to market,” he enthuses.