Gemfields (LON:GEM) shares look good value following pullback in stock BUY 82 pence


• Gemfields shares look good value given what look like solid fundamentals in the market.

• The company expects to continue to see good demand at its forthcoming emerald and ruby auctions.

• Management continue to invest in the Kagem and Montepuez mines using local borrowing which has the benefits of higher than normal currency depreciation.

• The company has debt facilities for $30m worth of Zambian Kwacha in Zambia and $45m of metical in Mozambique paying an average rate of Libor + 4%

• Sales are in dollars, head office costs in sterling and borrowings in kwacha (Zambia) and ‘new metical’ (Mozambique)

• We believe the trend for using coloured stones in jewellery and for investment should remain firm.

• Exploration, the company is looking to acquire and develop licenses in Colombia which is now at peace with the FARC and in Sothern Ethopia near the Kenyan boarder.

Conclusion: Gemfields looks to us like a solid company with potential for the discovery of ‘superstar’ rubies and emeralds to enhance returns. While it is possible that liquidity issues in gemstone markets could impair auction sales and values we believe Gemfields could do better than many diamond producers in the event of a liquidity squeeze.

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