Betting on ‘transparency’
Gemfields’ coloured stone strategy pays off
JSE-listed producer of rubies and emeralds Gemfields has been reporting a lot of auction records of late. A lot. The majority owner of the Kagem emerald mine in Zambia, and the Montepuez ruby mine in Mozambique (and Fabergé) saw all three of them book record revenue in 2022. It recorded $74.3 million (about R1.2 billion) in profit, up 14%.
The company has been talking about a “step-change” in precious stones demand since late 2021, and repeated this phrase on Wednesday, while adding it is “enhanced” and that the “ruby market is clearly firing on all twelve cylinders”.
On Tuesday, it reported on the results of its most recent ruby auction – it wasn’t a record but its shares still lifted 6% at one point, though it eased in afternoon trade.
But diamond producer De Beers reported slightly less rosy results, complaining about the threat of a looming global recession. Anglo American fell more than 2%.
Both diamonds and coloured stones should benefit from the continued booming demand for luxury goods since 2019, with the rich seemingly recession-proof.
As one major asset manager put it:
Who would have thought pre-2020 that a pandemic would be good for suppliers of luxury goods and building materials and bad for hospital stocks?
Vuitton owner LVMH became the first European company to exceed $500 billion in market value in 2023. Richemont (Cartier etc) has also smashed records, and the company said in May demand is still growing.
Gemfields is benefiting from particularly strong prices for coloured stones. Supply has been under pressure due to a shortage of labour in some countries, as well the US’s 2021 sanctions against major producer Myanmar (Burma).
Another factor may be Gemfields’ own successful strategy itself, with one investment firm noting in 2022 that the group provided more than a decade of consistent supply, in terms of volumes quality and grading. This has helped with demand (and pricing) given it has enabled a wider range of jewellery retailers to develop emerald and ruby lines.
This was, in fact, natural resources investor’s Pallinghurst’s plan all along (Kagem emerald mine was handed over to Gemfields in 2008 in a reverse takeover that gave Pallinghurst 55% of the enlarged group).
This followed Pallinghurst’s bet that the coloured gemstone sector was an “overlooked” industry with constrained supply due to the lack of large, reliable producers able to consistently deliver sufficient quantities of gemstones. It then developed a consistent auction system that Gemfields says has helped bring “a level of professionalism and transparency previously not seen in the industry.”
The bet has paid off, it seems, with its share price climbing by more than 135% over the past three years.
Quote of the day
My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2% goal. Nearly all FOMC [Federal Open Market Committee] participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year. Reducing inflation is likely to require a period of below-trend growth and some softening of labour market conditions.
Federal Reserve Chair Jerome Powell on Wednesday
Chart of the day
Number of the day
$2.91 trillion (R53.5 trillion)
The market value of tech behemoth Apple, whose shares have risen more than 50% so far in 2023. The world’s most valuable company is worth more than ten times SA’s GDP.
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