Trimming again

2025FY: In the past year, GEM/GML experienced headwinds across both of its businesses, including aggressive competitor sales, a weak Chinese economy, illegal mining activity and negative grade trends at MRM.  

2025FY Capital Events: These headwinds threatened GEM's going concern status, term debt covenants as well as its expansion at MRM but were resolved by a $33m rights issue and the sale of Fabergé for $50m. 

MRM Setbacks: The key issues facing Gemfields have been the 12-month delay of the c. $90m PP2 expansion at MRM and the ongoing grade declines at its flagship Mugloto pit that have offset some expansions benefits.

Mugloto vs Maninge Nice: During the year, MRM produced large quantities of rubies from Maninge Nice (MN), which are different from those at Mugloto. These variants may not be as valuable as originally hoped for, partly catalysing a $35m impairment.

MRM Revenue: We expect MRM to process 2.6mt in 2026 and 3.5mt/a in 2027FY and 2028. We estimate MRM revenues of $153m in 2026, assisted by the $53m February auction and $150m/a in the following years. These estimates have been trimmed by $40m/a since our last report.

MRM Financials: MRM should generate a profit and a positive cash flow in 2026 assisted by a large stockpile drawdown, capex reductions and an early auction. From 2027FY, if grades don't improve, both cash flow and profits will be under pressure as mining rate increases to 16mtpa, term debt is repaid and D&A charges rise.

More from Left Field: New challenges keep arriving. The impact of the Gulf War on diesel prices could be temporary but severe and the Mozambique Tax Authority (MTA) has claimed VAT on all service payments. Yet another recent challenge has come from proposed changes to the Mozambican Mining Act.

Holding Back? Gemfields corporate supported MRM through inter-company loans and by deferring Marketing, Management and Auction (MMA) fees and dividends in 2025FY. MRM may repay some of these liabilities in 2026FY, but it may be more restricted from 2027FY. Fee payment shortfalls may require Gemfields corporate to reduce its cash holdings to fund its head office and development asset expenses.

Kagem Recovery: Kagem is producing good quantities of high-quality emeralds from three low-cost sections that should support a 2026FY revenue increase to $90m. From 2028, Kagem may resume a major cutback and an expansion.

GEM Profits: We expect GEM to earn revenues of $250m in 2026 and unless MRM is impaired, which looks increasingly likely, could return to profit in 2026FY of $1cps, for the first time in four years. Underlying cash flows are expected to be positive.

GEM Valuations: Our FFVR of our base case which assumes current grades continue over MRM's remaining life of mine is ZAR96cps (prev ZAR128cps). Our optimistic case assumes a 25% increase in grades at MRM and 10% increase at Kagem and values GEM at ZAR182cps (prev ZAR219cps). The mid-point value of the share is ZAR139cps, which is 20% below our previous mid-point valuation due to our lower revenue forecasts.

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