|Sean Gilbertson, CEO of Gemfields Group Ltd. |
Source: Gemfields Group Ltd.
➤ Company seeking to become the preferred partner for the development of colored gemstone assets in Africa
➤ Possible new sapphire asset acquisitions to be announced in the third quarter of 2019
➤ Revenues contributed by its emerald operation may take a 15% hit as Zambia is proposing an export tax on precious gemstones
In addition to operating the world's largest ruby mine Montepuez in Mozambique and the largest emerald mine Kagem in Zambia, Gemfields Group Ltd. is seeking to acquire new sapphire assets in Africa and looks forward to unveiling the deals in the third quarter of 2019. S&P Global Market Intelligence spoke with Chief Executive Sean Gilbertson, who recently returned from an auction trip in Singapore for its 5,655-carat emerald Inkalamu, to find out more about the company's strategies for expansion. What follows is an edited transcript of the interview.S&P Global Market Intelligence: What are the company's strategies for its asset portfolio?
Sean Gilbertson: Our vision is essentially to become the preferred partner for the development of colored gemstone assets in Africa. We are committed to what I call big three — emeralds, rubies and sapphires. We are keen to find the right sapphire opportunities in Africa, which is the continent of our focus. We always work in 75/25 partnership as we do believe it is important to have local partners. And in particular, we generally prefer that the local partner is the government of the country.
We are also eager to increase both our emerald footprint and our ruby footprint. In Mozambique, our Megaruma Mining Lda, which is adjacent to the Montepuez ruby deposit, has recently started bulk sampling operations.
In the emerald [portfolio], we are keen to expand our footprint in Zambia in addition to the Kagem mine and we have re-opened up our Mbuva-Chibolele operation. It has already produced more than 3 million carats of emeralds.
When will you expect to take the first step in making new acquisitions?
We will remain focused on Africa. You should not expect to see an international expansion from us out of this continent. We are not planning to make new acquisitions in rubies and emeralds as we are simply developing additional pits or licenses that are already in our ruby and emerald portfolio.
When it comes to new acquisitions, the only thing we are looking at is sapphires on the African continent. We have a few irons in the fire and we do have a few license applications that have been filed. All being well, you will hopefully see some sapphire news from us in the third quarter of 2019.
What challenges are current projects posing?
One of the challenges we are currently facing in Zambia is that the government is proposing a 15% export tax on precious gemstones, including emeralds. We have made representations to key government officials and our partners. Obviously that will mean we would suffer a 15% hit directly to our emerald revenue. State-owned Industrial Development Corp. of Zambia is holding 25% of Kagem Ltd. The introduction of the proposal will also hit the ability of Kagem to pay dividends.
You have just returned from an auction trip in Singapore for Inkalamu. Are you satisfied with the results? Through the auctions held by Gemfields this year, what are the changes you have seen in the gemstone market?
We are comfortable with the overall picture of the Inkalamu auction in Singapore. The average price per carat was the second highest in the auction history of Kagem emerald mine. It indicates a clear improvement in the conditions that have affected our customer base in Jaipur in India during the last 18 months. Because our customers are drawn almost entirely from there and Jaipur has suffered from a number of difficulties recently due to the Indian demonetization and a big scandal involving the Indian jeweler Nirav Modi, where about US$1.8 billion worth of bank loans were misplaced and not repaid. That spooked the banks and it made the banks not very keen to provide loan liquidity to the jewelry sector, which obviously made things more difficult for our customers and we saw some difficulties with our auctions earlier this year, particularly in May. But after that, we are very happy to see a clearly improving conditions in the emerald trade.
Outlooks for 2019?
We remain very positive about the consumer demand of this sector. We think it's attributable to the fact that we do now for the first time in the history of the sector have very reliable sources of supply that can bring rough gemstones to the market. And this year we have seen a series of jewelry brands making in person visits to either the Kagem emerald mine or the Montepuez ruby mine in Mozambique.
When you look at the revenue breakdown for the group at this moment, we have approximately US$185 million of annual revenue and US$110 million of it comes from ruby mining. But we do believe that the emerald operation can perform better than it had been in the last couple of years because the last couple of years have seen some mining difficulties. And we look to see the contribution being made by emeralds to the group to increase.
How do you differ Gemfields from other gemstone producers?
We always work in the 75/25 partnership and we don't work in 100% [ownership] only. In Zambia, approximately 20% of our revenue had been paid to the local government in the form of royalties, taxes or dividends and about 23% of our revenue had been paid to the the government of Mozambique. The countries can get their fair share and people of the country can get access to the value of the resources in the ground. We have been working in an industry which has not got a good track record of things like paying taxes, looking after employees and looking after the environment. If you looked back 15 years, the bar of this sector was set pretty low. These are the areas we are working really hard.