(IDEX Online) – Colored gemstone miner Gemfields plc posted a drop in revenue and a net loss from profit compared with the year before for the six months ending December 31.

 

Revenue came to $51.0 million from $94.0 million a year earlier following a deferral of the higher quality rough emerald auction originally scheduled to take place in December 2016 to February 2017 and a moderated product mix placed on offer at its last ruby auction.

 

Only two auctions were held during the half-year period, consisting of one commercial quality rough emerald and beryl auction and one mixed quality rough ruby and corundum auction. The previous period saw three auctions including one higher quality and one commercial quality rough emerald and beryl auction and one mixed to higher quality rough ruby and corundum auction;

 

Auctions were impacted by Gemfields' decision to allow some of its customers to adjust to the Indian demonetization program which was put in place in November 2016.

 

Gemfields held the deferred auction of predominantly higher quality rough emerald during the week commencing February 13 generating revenue of $22.3 million. The firm plans to hold a further auction of commercial quality rough emerald and beryl as well as another mixed quality rough ruby and corundum auction during the second half of the financial year 2017.

 

The miner reported production of 10.7 million carats of rough emerald and beryl compared with 15.7 million carats last year. There was revenue of $10.7 million in the period from one commercial quality rough emerald and beryl auction compared with $53.8 million in 2015.

 

The next auction of predominantly commercial quality rough emerald and beryl from Kagem mine is expected to take place before end of the financial year.

 

Meanwhile, there was a rise in rough ruby and corundum production to 5.6 million carats from 2.1 million carats) with a 52 percent increase in premium quality rough rubies recovered.

 

Revenue was $30.5 million, just above the $28.8 million figure in 2015, from one mixed quality rough ruby and corundum auction, with an average price of $27.88 per carat.

 

The next auction of mixed quality rough rubies and corundum from the Montepuez ruby mine is expected to take place in June 2017 in Singapore.

 

Reporting on its new projects, Gemfields said the Coscuez emerald project in Colombia is progressing, with further due diligence work, pre-completion exploration, mine planning and administrative activities underway.

 

In Ethiopia, an exploratory diamond core drilling program for emeralds at the Dogogo-South block was completed in early December 2016 with a total of 3,538 meters drilled over 45 closed drill holes. The preliminary program delivered highly encouraging results with pegmatite being intersected in all of the sections along a 800-meter strike length.

 

In Mozambique, preliminary drilling commenced at the Megaruma ruby license area. In addition, exploration license 5061L held by Eastern Ruby Mining Ltd, in which Gemfields holds a 75 percent interest, was converted to a mining license in November 2016, and is valid for 25 years.

 

And in Sri Lanka, the long-term future of a sapphire project is currently under review on account of various operational challenges faced and the higher potential investment return offered by a number of the company's other projects.

 

In comments on the colored gemstone market, the firm said: "The emerald market has experienced a short period of uncertainty created by the demonetization program in India which has impacted buyer's liquidity. This is nearing completion with some level of stability beginning to return to the sector. The long term prospects remain strong.

 

"There continues to be an ongoing increase in demand for responsibly sourced Mozambican rubies across key markets and categories. There is positive downstream market sentiment and pleasing sales orders reported by the vast majority of Gemfields' customers who attended the Tucson gemstone fair, along with a noticeably more positive business sentiment within the US. The resurgence of colored gemstones within the luxury sector has been most notably demonstrated by the launch of exquisite colored gemstone collections by an increasing number of the leading jewelry houses.

 

"The original auction schedule for H2 2017 included one commercial quality emerald and beryl auction, one mixed quality rough ruby and corundum auction and a higher quality emerald auction. Due to the impact of the demonetization program in India and deferral of the predominantly higher quality rough emerald auction from December 2016 to February 2017, Gemfields has decided to remove one of the scheduled higher quality emerald auction from the current financial year. The removal of this auction will result in a material reduction in revenue and EBITDA for the financial year ending 30 June 2017.

 

"The outlook for Montepuez remains encouraging both in terms of operational and financial performance. The recently upgraded processing plant will allow the company to achieve its planned increase in production over the coming periods.

 

"Low first half production at Kagem mine is expected to reduce targeted total production of rough emerald and beryl to 25 to 30 million carats for the financial year 2017 (previous guidance 30 - 35 million carats). The company however, remains confident that it will be able to achieve its planned ramp up in emerald and beryl production over the coming years."

 

Ian Harebottle, CEO of Gemfields, commented: "Gemfields' financial results for the six months have been impacted by the one-off Indian demonetization program which has affected the company's auction schedule. This has resulted in the requirement to reschedule one higher quality rough emerald auction into the second half of the financial year, the results of which were announced today, and the consequent removal of another higher quality emerald auction. The impact of this will see a material reduction in annual revenue and EBITDA for this financial year only.

 

"Today's auction results for our higher quality emerald auction continue to demonstrate strong pricing levels and firm demand in spite of the Indian demonetization and resulting financial constraints it has placed on one of our core customer bases. We are confident that we will see a correction in the market in the short term as the actions required by our customers to improve liquidity and adjust to the demonetization program begin to bear fruit.

 

"From an operational standpoint Montepuez has seen continued strong production performance. The recent installation of the upgraded processing plant will provide the capacity to process ore at a significantly increased rate. In line with our strategy of embracing new technology and modernity within the sector, the plant uses technology previously reserved for diamond production and is a world first for rubies. 

 

"At Kagem, the lower production of 10.7 million carats is largely attributable to the variability of the gemstone mineralization and a higher grade zone having been encountered during the prior period. We have previously experienced similar levels of variability in mineralization at Kagem and based on our knowledge of the ore body, we remain confident that the variance is a short term anomaly and that grades will return to their consistent annualized levels in due course. In addition, the Company's strategy of maintaining 12 months of rough inventory ensures stock is available for our future auctions.

 

"The clear shift in both consumer trends and the increased urgency with which so many of the world's leading luxury brands are beginning to embrace colored gemstones remain extremely encouraging and provides for a continued long term positive outlook for the sector. This is clearly evidenced by the increased number of retail brands that are now looking to collaborate with Gemfields."