Our opinion on the current state of GML

The Gemfields Group (GML), formerly known as Palinghurst Group, is a mining company with two significant projects: (1) Kagem, the world's largest producer of emeralds (located in Zambia) and rubies (at Montepuez in Mozambique); and (2) Jupiter Mines, a South African manganese producer. Led by Brian Gilbertson, former CEO of BHP Billiton, Gemfields identified an opportunity for consolidation and professional management in the underdeveloped semi-precious stones market, leading to its current operations.

Gemfields divested 60% of Jupiter Mines during its listing on the Australian Stock Exchange (ASX) in April 2018, aligning with its strategic decision to focus solely on gemstones and cease being a diversified mining company. With an average daily turnover of approximately R5 million, Gemfields shares are relatively liquid. However, like all commodity shares, they carry inherent risks, particularly dependent on international prices of emeralds and rubies, as well as the challenges associated with mining in developing countries.

Despite these risks, Gemfields has carved out a niche in the market with limited competition and is poised to benefit from the global economic recovery. Operations at MRM resumed on October 24, 2022, following an insurgent attack, signaling resilience in the face of adversity. Furthermore, on August 7, 2023, the company announced plans to construct a new processing plant at the Montepuez ruby mine, aiming to triple its output.

In its financial results for the six months ending June 30, 2023, Gemfields reported revenue of $153.6 million, compared with $193.2 million in the previous period, with headline earnings per share (HEPS) at 0.8c (US) compared to 3.7c in the previous period. Despite the decline, the company maintained a strong balance sheet, with net cash of $62 million and 97% collection of auction receivables amounting to $63.8 million.

In an operational update for the six months ending December 31, 2023, Gemfields reported total auction revenues of $242 million and net cash of $11.1 million, highlighting strong auction revenues and pricing for both emeralds and rubies. However, in a trading statement for the year ending December 31, 2023, the company estimated a headline loss of 16c compared to a profit of 78.3c in the previous year.

Technically, the share experienced a strong upward trend until July 2023 when the trendline was broken. We recommend waiting for the establishment of a new upward trend before considering further investment.