Gemfields Resources

Watching this for developments. I think it will go lower before it starts to rise which will probably be on some sort of production facts or forecasts. Article is from Minesite


Feature Story Date: December 23, 2005

The Base Of Gemfields Resources In Jaipur Is Key To Its Ambitions To Control The Market In Coloured Gemstones

The secret to Gemfields Resources, which listed on AIM last month, does not lie in the fact that it owns three emerald mines in Zambia, but that the family of Rajiv Gupta, the executive vice chairman, have been involved in coloured stones in Jaipur since 1956. Jaipur is the centre of the world’s processing and trading activities in these stones and the family was recognised by the National Geographic as being the world’s largest dealers specifically in emeralds in 1990. It now makes a lot of sense for them to obtain primary production from Zambia’s Ndola Rural Emerald Restricted Area as this is the source of around 20 per cent of the world’s emeralds. The Fwaya-Fwaya-Pirala belt is the most productive of a handful of known belts and contributes 80 per cent to this total. Gemfields now controls 3.4 kms of this belt and has ambitions to expand its property portfolio further.

The company has just announced that it has completed the acquisition of the Kamakanga Mine and the Pamodzi Licence area. These are not new additions as the company claimed to own them in the AIM prospectus, but this legal nicety confirms that Rajiv Gupta is continuing to consolidate his position on the Ndola Rural Emerald Restricted area where ownership hitherto has been very fragmented. The Kamakanga mine came into production back in the 1970s and has been a significant producer of emeralds. It is located 5 to 6 km west-southwest along the regional strike from the Mbuva-Chibolele mine which is also owned by Gemfields. The Pamodzi property measuring 85 hectares, is contiguous to the northeast in the direction of the local dip of the controlling talcose mafic schists of Kamakanga and Jai Ambay pits, known for the best quality emeralds produced in the emerald belt of the Kafubu Emerald Area. The deal includes certain plant and equipment, infrastructure, offices and property for which a total sum of US$2.45 million has now been paid.

In the immediate future the aim is to get into production as quickly as possible. The company recently announced that a mining contract to remove overburden has been agreed at the Mbuva and Chibolele mines and work would start on 3 January with production due to follow in the third quarter of the year. According to Clive Newall, an expert on Zambia who is a director of the company, there is a good chance that a certain amount of cash will be generated well before then by highgrading parts of the mineralization. Traditional mining in Zambia has been pretty primitive using manual handpicking methods which have resulted in high levels of theft and low yields. To an extent it is this sort of mining that will take place in the coming months, but the security aspect will be watched very carefully.

Gemfields intends to introduce modern open pit mining techniques and it is interesting to see some sums done by Canaccord Capital, brokers to the company who raised £12.5 million for it at the IPO. Analyst David Dattels reckons that by increasing emerald recovery by just 6 per cent of the historically recovered grade, and assuming an average emerald value of US$75/gramme, unit revenues could increase from the currently estimated US$28/tonne to US$41/tonne. This calculation gives an immediate clue as to why emerald mining varies so significantly from diamonds. In a way it is the difference between a carat and a gramme. There are five carats in a gramme and an average value of US$15/ carat for gem quality diamonds is unheard of. The gap between the two, however, may mean that Gemfields has more room to manoeuvre pricing in the marketing and processing of rough gemstones.

As with diamonds the sale of rough emeralds provides the smallest real value in the market. In 2003 it has been calculated that sales of rough diamonds amounted to US$9.5 billion, but this value escalated to US$60 billion by the time the stones were cut and polished in the jewellery market. The same goes for emeralds and Gemfields intends to get a slice of the action by supporting the emerald mining operations with a wholly owned gemstone cutting and polishing business, based in Jaipur, which will process a proportion of the emeralds produced by the mines operated by the company. The balance will be sold as rough emeralds to dealers. This seems a rather modest aim and what seems more likely is that it will process all of its own gem quality production and as much from other producers in Zambia and elsewhere as possible.

Control of a market, with discretion, is a reasonable commercial aim. De Beers controlled the diamond market for many years through the Central Sales Office, but it squeezed suppliers and treated customers with a notable degree of arrogance. These chickens are coming home to roost despite its switch to a softer approach through Supplier of Choice, and Gemfields will doubtless ensure that it does not make similar mistakes. The ultimate ambition of the company is to be the king of the global coloured gemstone industry. This will take time, though amethysts and pink tourmalines are already on the menu and rubies and sapphires will surely follow as these businesses are all very fragmented


Companies featured in this Story
Gemfields Resources Plc (AIM-GEM)