Small Talk: Gemfields sparkles as the emerald business picks up
Monday 07 March 2011
The market has suddenly become rather keen on Gemfields, the emerald producer which is listed on the Alternative Investment Market (Aim) After treading water for months, it saw its shares shoot up by nearly 200 per cent in the final quarter of last year.
The new year has so far proved less exciting – but that may be because investors were awaiting the company's interim results, which are due this morning. So, what are the prospects? Pretty good, if the scribblers at Canaccord Genuity are to be believed.
They expect the figures to underpin their full-year estimates, forecasting first-half revenues of nearly $30m, with about $12m in earnings before interest, tax, depreciation and amortisation.
Their confidence is based on some strong fundamentals. Looking back at the total number of emeralds produced and the total sold since Gemfields made its market debut, and factoring in the first-half production numbers released earlier, analysts reckon the group's emerald inventory currently stands at about $30m.
Moreover, the business is debt-free, with $15.6m in reported cash. All this against the backdrop of a rising market for gemstones, according to the company's recent auction of mostly high-quality rough emeralds in South Africa at the end of last year. The event was attended by more than 30 buyers from India, Israel, Germany and the US.
In all, 870,000 carats were placed on offer and, of those, Gemfields managed to shift 750,000, generating sales of $19.6m. To get a sense of the haul, it is worth noting that sales from that one auction were more than the $18.7m accumulated at three auctions held during the year to the end of June put together.
A number of factors drove the auction, including the quality of the stones on offer, but also the rising demand for emeralds from the Indian subcontinent. No surprise, then, that the next event is set to be held later this month in Jaipur, the capital of India's western state of Rajasthan. The location is fitting, given its history as the seat of many a regal dynasty.
Gemfields itself deserves some credit for the strong market environment. As Canaccord points out, the emerald and indeed the wider gemstone business has historically suffered from fragmented and inconsistent supply from the mines to the cutters and polishers who prepare the final product.
"The lack of consistent product has caused the marketing spend for coloured gemstones to lag that for diamonds, for instance," it said. "The net result has been structurally lower emerald and other coloured gemstone prices."
Gemfields is pitching to change this by providing a stream of consistent supply, with its Kagem mine in Zambia making up for about 20 per cent of the global supply of emeralds.
That, along with the strong and well-managed inventory and a new grading system based on size and quality, is aiding the market, according to Canaccord Genuity.
Given the success of the recent auction in South Africa, and following this morning's results, all eyes will be on the next auction, where Gemfields will offer mostly lower-quality material.
Investment firm in reverse takeover
It is not often that a company manages to quadruple its market capitalisation over the course of two weeks. But that is what happened with Infrastructure India, the investment firm which was re-admitted to trading on the Aim index this week following the reverse takeover of the Indian assets of the Guggenheim Global Infrastructure Company (GGIC).
Following a fund-raising and after the re-admission, GGIC has more than 40 per cent of Infrastructure India.
Three of its executives have also taken up places on the Infrastructure India board, with one partner, Sonny Lulla, becoming the chief executive officer of the Aim-listed investment business.
He was joined by Tom Tribone as chairman and Robert Venurus as a non-executive director. Other changes saw the previous chairman, Rupert Cottrell, become deputy chairman, while Timothy Walker remains on the board as a non-executive director.
"The recent fundraising, in which GGIC also participated, puts the company in a strong position in the market to make the most of the extensive opportunities available to it," Mr Lulla said when the shares went back on Aim. "We look forward to the future with confidence."
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