Gemfields fears for its future
Precious stones producer Gemfields is concerned that the Covid-19 outbreak could push back auctions to the fourth quarter of 2020, putting the company’s future at risk.
Precious stones producer Gemfields is concerned that the Covid-19 outbreak could push back auctions to the fourth quarter of 2020, putting the company’s future at risk.
The group generates more than 90% of its revenue from auctions and is concerned that two auctions scheduled for May and June in Singapore may be delayed.
The group said should its first auction of the year be delayed past October, it would be in cash deficit without additional measures and be in breach of loan covenants. A company is a going concern if it is able to meet its obligations for the foreseeable future.
Gemfields’ two key operating assets are the Montepuez ruby mine (MRM) in Mozambique and the Kagem emerald mine in Zambia, in which it holds 75% of each. It holds five to seven auctions a year.
“We take some comfort from the fact that well-bought gemstones have for centuries been regarded as a store of value and a guard against turbulent times,” said CEO Sean Gilbertson.
“This was also evidenced in the 2008 financial crisis, where gemstone pricing indices proved remarkably resilient when compared to equity indices” Gilbertson said.
Gemfields said it was putting a halt to all discretionary spending, including advertising and marketing costs, as well as travel.
High demand for emeralds in 2019 and an end to export duties in Zambia has boosted the group, which had net cash of $25.4m (R483m) as of its year to end-December, from $9.8m in the comparative period. It is also still to receive some of the proceeds from auctions towards the end of 2019.
The group reported record revenue in its year to endDecember of $216.2m. The emerald auction in November 2019 saw a record number of companies bid, and a record price per carat, the group said.
The group returned to profit, with profit after tax of $39.13m (R745m) from a loss of $60.4m previously.
EXPORT DUTY
The company also reversed a write-down at Kagem of $21.6m during the year, following a decision by the Zambian government to put an end to export duty during the period.
Zambia had implemented a 15% export duty earlier in 2019, which, along with a 6% mineral tax, meant that Kagem was paying 21% of its revenues to tax authorities. The export duty was withdrawn in December.
New Zambian export duties levied on emeralds still had an effect on Kagem, costing it $12.4m during the period.
On Monday, the Gemfields share price ended 7.88% higher at R1.78 on the JSE, giving it a market capitalisation R2.1bn.
IN THE 2008 FINANCIAL CRISIS, GEMSTONE PRICING INDICES PROVED REMARKABLY RESILIENT COMPARED TO EQUITY INDICES