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Gemfields Builds Emerald Inventory, Expects to Commence Sales in 2Q

Mar 31, 2009 8:06 AM   By Jeff Miller
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RAPAPORT... Gemfields Plc reported in its interim results that production of emerald and beryl gemstones during the six months that ending December 31, 2008, averaged 2.4 million carats per month, or a total of 14.7 million carats. Emerald sales totaled only $344,000 as the company focused on building its inventory levels. The company reported $19.7 million cash on hand and $17.6 million in total inventory. Gemfields' half-year losses were $186.6 million.  During the half-year, Gemfields' unaudited operating costs averaged $2.5 million; 90 percent of these costs were associated with the Kagem Emerald Mine. Other significant events of the company during the period included its opening of a cutting and polishing facility in Jaipur, India, and its completion of licensing arrangements for the Fabergé brand.

"The rapid changes experienced in the global economy and the associated adverse impact on the luxury goods sector motivated an in-depth strategic review of Gemfields' group-wide operations," the company reported. Gemfields has decided to reduce the scale of mining Kagem. "[U]ntil the prospects for a recovery in the gemstone market become clearer, Gemfields has chosen to minimize all nonessential capital, project development and exploration expenditure." Sales of rough and polished emeralds to preferred customers are expected to commence in the second quarter of 2009.

Gemfields also opted to take "a conservative approach" in estimating possible emerald prices for 2009. The company thus projects that it will report an operating loss for the full financial year ending June 30, 2009. "We remain optimistic, however, that our current focus on reducing operating costs and improving mining efficiencies and our efforts to support brand awareness will ensure that Gemfields is well placed to reap the benefits when global conditions improve."

During the six-month period, Kagem's operating cost was $346 per metric ton of ore, which equates to 94 cents per carat. In the current market conditions, Gemfields is assuming an unaudited value of 75 cents per carat for rough gemstones, compared with an average price of $1.09 achieved during the previous four years.

The value of Kagem was written down to zero in Gemfields' financial statements. "The ongoing uncertainty in the global economy, the loss-making performance during the period and the lack of reliable emerald prices make it difficult to justify forecasts showing a positive cash flow with reasonable certainty," the company reported in its statement. "This in turn complicates valuing the mine. The company remains optimistic that Kagem will turn out to be a viable operation but recognizes the value proposition is still clearly focused on the downstream business and believes the decision to write down the mine itself to be justifiable in the current climate."

Gemfields exercised its option to acquire the entire issued share capital of Oriental Mining s.a.r.l., a company incorporated in Madagascar. Oriental has the rights to 15 exploration licenses that cover emeralds, rubies, sapphires, tourmalines and garnets in Madagascar's Antananarivo, Fianarantsoa and Toliara provinces. Oriental also has the right to five exploration licenses that are pending approval from the Madagascan Ministry of Energy and Mines. "While Madagascar is presently experiencing considerable political turmoil, the company believes that, in the medium to long term, gemstone-related activity in the country has the potential to become a valuable part of Gemfields' asset portfolio."



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Tags: Economy, India, Polishing, Production
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