Trimming expectations
Nic Dinham
H1:25: Gemfields reported a USD1.5cps interim loss caused by poor emerald and ruby auctions. These auction results forced Gemfields to take cash conservation measures at both its operations, particularly Kagem and its head office. It also curtailed exploration spend throughout the group.
Cash raise: MRM’s ongoing expansion and concerns around the stability of its debt funding required Gemfields to raise cash. The solution was a rights issue in June that increased the shares in issue by 48% to 1.7bn and raised a net $30m. This was followed by the successful sale of Fabergé for $50m in August, resolving Gemfields’ immediate cash concerns.
Emerald outlook: Kagem enjoyed windfall results from the first two mining sections it reopened in June, which supported its auction in September. However, emerald markets are now muddied by 50% tariffs on Indian jewellery exports to the US and rising production from both Kagem and Grizzly Mining.
Poor Mugloto grades? The June auction of MRM’s rubies showed that the Mugloto pit may only be generating $60m/a of revenues if the exceptional stone sold in the auction is extracted. This may be the worst on record.
Good Meninge grades: The Meninge pit produced exceptional quantities of ‘premium rubies’ from April. These rubies are larger, flatter and lighter red than those from Mugloto but their values are still to be tested by consumers and the consistency of the orebody is uncertain.
PP2 delay: The PP2 expansion will only be at full production from January 2026. The late start and poor Mugloto output have delayed the usual December ruby auction until February 2026FY. As a result, MRM’s revenue will fall from 2024FY’s $119m to just $50m in 2025FY and contribute to Gemfields’ forecast loss of USD2.3cps.
Trimmed expectations: The poor MRM auction results require us to reduce our revenue forecasts for the 2026FY from $290m to $190m/a. This means that revenues and costs could double although production will treble in 2026FY.
Expansion value pivot: MRM’s expansion remains the key value pivot for Gemfields investors. Although our profit forecast is subdued, the expansion will allow about $20m/a of debt to be repaid and Gemfields’ ratings to recover. Dividends are unlikely for several years.
Valuation: Our trimmed expectations of MRM’s cash flows after the expansion as well as Kagem’s cautious rebuild have resulted in a lower range of valuations of between R1.28cps and R2.19cps (from R1.51cps and R2.54cps previously). These valuations as well as profit forecasts will be materially improved by confirmation by an external CPR that MRM has additional reserves.
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