Ruby growth

Gemfields In brief: Gemfields mines emeralds from Kagem in Zambia and rubies from MRM in northern Mozambique. It also owns Fabergé, a luxury jewellery manufacturing and retail company.

ESG: Kagem and MRM probably have the best G scores in the global precious-coloured gemstone industry due to their transparency and reporting standards while their geology and processing methods may provide among the best E scores for African miners.   

Emerald and ruby rough/retail markets. There is little reliable production or demand data for either ruby or emeralds. The buyers and cutters are located mostly in India and Thailand and polished goods are exported to the US, EU and China. Most cut gemstones are probably self-bought in jewellery sets. 

Emerald and ruby prices; The pricing of rough and polished emeralds and rubies is opaque and subjective but from Gemfields’ auction data, rough prices appear to have weakened in 2024FYE after several years of increases.  

Gemfields earnings: After a disappointing 2023FY, we expect to see a modest recovery in basic and adjusted earnings in 2024FYE to USD 1c/s and 1.4c/s. This outlook constrains Gemfields’ ability to pay dividends and invest in exploration.  

Gemfields growth: Grades at Kagem and MRM have fallen over the past two year which has contributed to the weak earnings. Two growth projects under way should offset this trend. The most important is to treble MRM plant capacity from August 2025, which could double premium ruby output until the known reserves are exhausted by 2029FY-end.

Ruby expansion: The ruby expansion should increase Gemfields’ earnings from 2026FYE to USD5c/s with forward PE multiples of 3x possible in 2026FY as well as provide Gemfields with a stronger flow of MMA revenues. 

Sensitivity: Although, Gemfields’ operations enjoy GP margins of between 15% and 35%, its other activities and SGA costs make its earnings sensitive to revenue changes. A 20% increase in revenue could double our EPS forecasts.

Gemfields’s ruby-blue skies: Outside of the MRM lease, Gemfields has 931km² of what may be the world’s best ruby exploration properties. Only the concentrations of the rubies need to be measured. The discovery of another Mugloto would have a significant impact on Gemfields’ earnings and valuations.

Valuation: We apply a 25% real discount rate to our valuations of Gemfields’s operations, not only because of the political or security risks of their jurisdictions but also because of the variability of their deposits and the opaque nature of the gemstone industry and pricing. Despite this, we estimate a base case valuation for the company of R3.06/s (USD17c/s). The valuations are very sensitive to revenues. A return to 2022FY grade and gemstone prices would lift the valuation to R5.00/s (USD28c/s).

Read PDF