Hand-dug sapphire pit in Madagascar, the so-called Garden of Eden for coloured gemstones. Photo: the GIA

Hand-dug sapphire pit in Madagascar, the so-called Garden of Eden for coloured gemstones. Photo: the GIA

Gemfields: Market Roll-Up
Gathers Pace

Issue 97, September 2014

London-listed Gemfields has made a low-cost entry into the fragmented sapphire market, continuing its march to dominance across the coloured gemstone sector.

For $400,000, Gemfields has bought 75 per cent of 3 subsidiary companies, holding 16 exploration licenses in Sri Lanka and a trading company licensed by Sri Lanka’s Investment Board to buy rough sapphires on the local market. According to filings with Jersey’s Financial Services Commission, its 25 per cent partner was incorporated in Jersey two months ago.

The agreement mirrors Gemfields’ prior moves into emeralds and rubies, where it is now the industry leader. Backed by BHP Billiton founder Brian Gilbertson, the company has bought 75 per cent shares in both Zambia’s Kagem emerald mine and the Montepuez ruby deposit in Mozambique since 2008. The two assets have grown into the world’s largest emerald and ruby mines respectively, generating record revenue in the last 12 months of $143m.

The company’s latest move suggests its consolidation of the market is gathering pace, with expansion into each new gemstone becoming incrementally less expensive. Whilst Kagem was seen as a protracted turnaround story, Gemfields remarkably recouped its entire sunk costs at Montepuez at its inaugural auction in June, on sales of $34m.

Its Sri Lankan trading business meanwhile adds both blue and orange-pink sapphires to its gemstone roster, without committing to the outlay of a new mine. According to gemstone dealers, Sri Lanka is seen as a gateway to gemstones from Madagascar, off-limits to most listed companies since a coup in 2009.

Gemfields has expanded its trading operations since a ban on overseas emerald auctions by Zambia’s government last year, holding two auctions of traded emeralds in India’s Jaipur, generating sales of $22m at a “solid trading profit.” Full year results are due on Monday.

Shares last traded at 49p, up 92 per cent in 12 months. 

“Solid trading profit.”

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