- Updated Jul 9 2017 at 11:15 PM
Chinese demand for rubies expected to sparkle
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Mustang Resources plans to hold its first ruby auction in October. supplied
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by
Tess Ingram
The takeover of London-listed gemstone miner Gemfields will leave an Australian ruby junior as the only direct-listed exposure to a burgeoning sector keenly watched by China.
Gemfields, one of the world's largest miners of coloured gemstones and the owner of the Faberge jewellery brand, will be delisted at the end of the month after its major shareholder Pallinghurst Resources triumphed in a bidding war for the company over China's Fosun Gold Holdings.
Minority shareholders in Gemfields were outraged when Pallinghurst, a South-African listed fund chaired by former BHP Billiton chief Brian Gilbertson, lobbed a nil-premium, all-share bid in May for the 53 per cent of the company it didn't already own.
Despite a rival cash bid from the Chinese conglomerate, Pallinghurst's strong grip on Gemfields saw it prevail, with it now holding about 85 per cent of the company ahead of its offer closing on July 18.
The corporate activity has sparked a renewed focus on the growing ruby market, which had long been hampered by erratic production from artisanal miners.
In recent years Gemfields has used its position to ensure continuity of supply and increased advertising, which saw demand pick up and prices for emeralds and rubies rally, according to SP Angel mining analyst John Meyer.
China demand tipped to grow
Mr Meyer said China was expected to emerge as a greater source of demand for rubies and it was possible Fosun's acquisitive behaviour could continue.
"It may be that having developed an interest in rubies, they could look to buy the project next door, which is Mustang," Mr Meyer said.
While Pallinghurst blamed Gemfields' lacklustre returns for its decision to pounce, Fosun's rival bid painted a positive picture for Chinese demand for rubies.
In June bid documents, Fosun said it saw potential for Gemfields to "gain increased access to China, an as yet untapped market".
"Fosun has noted the increasing size of the precious stones market as consumers in China and other emerging markets increasingly demonstrate their wealth, status and emotional commitment to one another through the purchasing of jewellery and luxury goods as well as the increasing use of coloured gemstones in engagement rings," it said.
Emerging ASX-listed Mustang Resources plans to hold the first auction of stones from its Montepuez ruby project in Mozambique, which sits adjacent to Gemfields' larger Montepuez ruby mine, in October.
Chief executive Christiaan Jordaan said while the potential for Mustang to be a target "sometimes keeps me awake", the junior had a long way to go before it was a substantial player in the market.
"China is definitely one of the major growth markets that we see coming through," Mr Jordaan said. "Rubies are very sought after in China due to their religious and cultural significance and it is for that reason Fosun sees value in controlling something like Gemfields."
Shares in Mustang, trading at 4.3¢ a share, fell from 7.5¢ in April when it suddenly abandoned plans to sell some cut stones, instead opting to sell only rough stones at auction.
Mr Jordaan said he was confident rough auctions would generate better returns and that Mustang's entry into the market would not hamper prices.
"We are confident there is more than enough room for our supply in an organised sales process that can supply the market and stimulate sizeable growth from where it is today as a $US2 billion per annum industry."
However a portfolio manager familiar with gemstones, who declined to be named, said Mustang could face challenges auctioning its stones in a market dominated by a large and well-established competitor.
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