Grading Lifts Sales at Gemfields
Issue 36, March 2013
Gemfields, the world’s dominant coloured gemstone miner and owner of top-end jeweller Fabergé, has said that its next emerald auction will be held in April, Lusaka, Zambia. Since its first auction in July 2009, the company’s realised average price per carat has risen sevenfold from $4.40 to $29.71.
Behind Gemfields’ rising auction prices is a proprietary grading system developed by gemstone expert Adrian Banks and seen by Global Mining Observer, transforming the emerald market much as De Beers commercialised the diamond market in the late 1930s. “What we’re trying to do is make sure the grades we are supplying are consistent,” Banks says.
Emeralds from the company’s Kagem mine in Zambia are first divided by size into six categories, from 4mm to above 31mm, before being divided again into “vibrant green” and those with a “slight blue undertone,” which look best at night in incandescent light, well suited to the red carpet.
They are then grouped by transparency and finally, by each stone’s unique traits, such as evenness of colour and the ‘space’ within the stone for cutting a single gem. A top-tier emerald for example has high brilliance, vivid saturation and ‘excellent fire’, even before it is polished. Banks, who heads Gemfields’ global sales, previously traded tanzanite in north Tanzania. He discusses emeralds with cool admiration. “Zambian emeralds are renowned for their rich, deep colour,” he says.
Gemfields’ auction structure is no less precise. After grading, stones are sorted into schedules designed to suit cutters in the manufacturing process. “When we are putting the auctions together, we tailor-make the schedules so that the manufacturer will have the biggest benefit.”
Exceptional stones are sometimes sold individually, whilst different sizes of comparable quality may be parceled together, allowing cutters to plan production runs with matching pieces, fetching higher retail prices. For Gemfields, selling rough stones at auction rather than cut gems to jewellers, who may take 12 months to pay, has stark cash flow benefits.
Viewing is followed by closed bids. Reserves, set by Banks and based on price information for each grade that the company has built from previous tenders, are announced if they are not met, so that bidders have “a clear understanding of the price Gemfields expects.” Unsold schedules are returned to Zambia and made into new lots, preventing bidders from low-balling auctions until reserves are published.
“When we started auctioning the difference between the winning and lower bids was nearly 400 per cent.” As the uniformity of Gemfields’ supply has impacted the market however, the gap has narrowed whilst prices have risen.
“Everybody is getting a better understanding of what material they are buying, because the grades coming to market are consistent. There’s nowhere else in the world where you can buy large volumes of emeralds similar in size, shape, colour and characteristic. It makes the manufacturing process so much easier.”
The clarity Gemfields has brought to the emerald market has been afforded by the scale of its Kagem mine, producing 14.5m carats at $0.57 per carat in the last six months. Sales of $83.7m in 2012 more than doubled those of the prior year. Kagem accounts for 20 per cent of global emerald supply and in India, Gemfields controls up to 80 per cent of the country’s emerald trade, according to India’s Economic Times.
“Traditionally, one of the big problems in the coloured gemstone industry has been getting regular supply,” says Banks. “For small miners, it might be tempting in times of low supply to shift lower quality stones up a grade, which defeats the object.”
As Gemfields expands into rubies via its Montepuez deposit, Mozambique, Banks is confident that his methodology can be applied to other stones. “It’s certainly something we believe has worked successfully.”
The company’s grading system offers a rare example of a highly accretive sales channel in the mining industry, differentiating Gemfields from dig and dump price takers, miners selling commodities at market determined prices. Whilst its marketing efforts are able to foster sales, its grading has lifted realised prices, making the company more comparable to a consumer goods brand than its mining peers.
The acquisition of Fabergé this year in an all-paper deal with cornerstone investor Brian Gilbertson, architect of BHP Billiton, is meanwhile expected to add an additional 30 per cent premium to part of Kagem’s output, doubling as an eye-catching front for Gemfields’ coloured stones. Three auctions are due in the coming six months.
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