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Coloured gemstones producer Gemfields plc (LSE:GEM) dropped 7.6% at the London Stock Exchange today following the results of the auction held by the company in Jaipur, India, which only sold a little more than a third of all the emeralds placed on offer.
The Zambia-focussed explorer, miner, and seller only sold 3.47 million out of the 10.85 million carats of lower quality rough emerald and beryl, raising US$9 million during the auction held from 9th to 13th June 2012 and attended by 25 companies.
Last week’s auction is the fourth and last to be held during the company’s current financial year ending on 30th June 2012, which raised US$77 million in total.
Weaker Rupee and Demand
Gemfields pointed a weaker demand for low quality emerald with only 20 out of the 25 companies that attended the auction placing the bids, the lowest number of bidders in all four actions held by the company during the current fiscal year, as one of the reason for the poor results.
The Indian Rupee also lost 13% of its value against the US Dollar from November 2011, the prior auction, to June 2011, “which further negatively affected pricing at this particular auction on account of the large percentage of finished goods produced from this material that is likely to be consumed directly within the Indian domestic retail market,” the company noted.
The average lot of US$2.61 per carat sold during the said auction, according to Gemfields, is “artificially inflated” considering the number of unsold carats, the lowest amongst the four auctions held at 31.98% compared to 78.89%, 77.12%, and 90.67% during the first, second, and third auctions, respectively.
Nonetheless, Gemfields said the company is in a strong cash position, reported at US$46.6 million as of 31st March 2012, and is positive about the “long term fundamentals of the emerald market”, which allows it to withhold sale of emeralds “where the bids do not meet its pre-determined minimum reserve prices”.
CEO Comments
Ian Harebottle, Chief Executive Officer of Gemfields, thinking beyond the results of the auction last week, stated:
“Overall, the on-going appetite for better grades remains firm and ensured that Gemfields was able to deliver another set of encouraging auction results thanks to our positive momentum, the success of our marketing initiatives and the consistency of the emeralds produced at our Kagem mine. In addition, the results are particularly pleasing given that a large supply of rough emeralds recently entered the Indian market from other sources, creating an isolated period of considerable supply which is not sustainable and which bodes well for future auctions.”
Company Spotlight
Gemfields produces 20% of the emerald supply in the world from its Kagem mine in Zambia, the world’s largest emerald mine in the world, which it controls for a 75% stake.
The company’s shares are listed on the Alternative Investment Market. At 4:00 PM, Gemfields share price was at 36.50 pence, down 3.00 pence from yesterday’s close.
