Found this article from the Wall Street Journal from April this year. Discusses some interesting stuff about Gemfields and the ruby industry. Apologies if has been posted before.
Namanhumbir, Mozambique — When Gemfields CEO Ian Harebottle hosts visitors at the company’s Montepuez ruby mine, he jokingly tells guests they’re only allowed to have lunch if they can collect a handful of the rare red stones. No one ever goes hungry.
Machines need only dig a metre into the ground at this former hunting ground in northern Mozambique to unearth millions of carats of jewels each year. Once the top layers of soil are removed, dozens of glistening stones are visible to the naked eye, and guests can fondle the gems before depositing them into plastic bags held by security guards.
Harebottle is betting this remote site, which has emerged as the world’s largest known ruby deposit, will power a new global boom for the gem, one of the few precious stones rarer — and in some cases more expensive — than diamonds. Gemfields, which owns 75% of Montepuez, continues to ramp up production. In the second half of last year, the mine produced 5.6-million carats of ruby and parent-stone corundum, up from 2.1-million carats during the same period a year earlier.
"It’s almost an embarrassment of riches," says Patrick Morton, an analyst at Macquarie Group. But to make good on the mine’s promise, he says Gemfields needs "to marry the technical challenge of ramping up the mine with the need to develop demand to absorb all the new production." The supply chain, traditionally based in Southeast Asia, also needs an overhaul.
Gemfields has revived a playbook it used after taking control of the world’s largest emerald mine in Zambia in 2009. The strategy, which has helped lift global emerald prices 14-fold since 2009 according to company sales data, includes creating a new grading and auction system, plying designers with a constant stream of stones and aggressive marketing. The company spent $15m in the year ended June 2016 on ad campaigns featuring Hollywood actresses such as Mila Kunis and Sophie Cookson.
The push comes at a time when coloured gems have once again become the centre-piece in jewellery designs, whether it’s Kate Middleton’s sapphire engagement ring or the bright, haute couture pieces that grace the red carpet. Demand for rubies, long renowned for their durability and beauty, has risen. Further fueling interest, in October the US lifted an eight-year ban on imports of all rubies mined in Myanmar, the traditional and most well-known source of the gem.
"The ruby in a fine quality and a large size is still the rarest large stone that exists in the world," says Marco Hadjibay, creative director at Bayco Jewels, a high-end New York designer. "Prices have kept jumping up."
While the market for rubies remains relatively small compared with diamonds, it is growing. A Gemfields ruby auction in December achieved an average price of $27.79 a carat, up from $18.43 a carat in 2014. The company said total revenue from its Montepuez operation rose to $50.3m in the six months to December 31, accounting for 60% of group revenue compared to 31% in the same period a year earlier.
The biggest problem with the ruby mine is keeping the locals out of it
Montepuez’s ruby rush has drawn illegal miners from across Mozambique and neighbouring Tanzania. Scattered loosely in the earth, rubies are easier to mine than emeralds, which are embedded in rock. Eight years after the site was discovered, the streets of Namanhumbir are lined with small shops that Gemfields and townspeople say serve as fronts for ruby smuggling; some openly sell pans, shovels and picks for locals looking to lift gems from sites on or near mines.
"The biggest problem with the ruby mine is keeping the locals out of it," says Martin Potts, director of mining research at finnCap, a British investment bank and brokerage. Crime in the region has increased, as have allegations of exploitation and human-rights violations after some miners have died in accidents and shootings. Some reports have alleged that Gemfields has been negligent in its handling of illegal miners. The company denies any wrongdoing.
Another problem is the supply chain. For centuries, the ruby trade has been centred in Southeast Asia, with stones plucked from the earth in Myanmar by small, artisanal miners, then cut and polished in Thailand. In the industry, rubies from that origin are still referred to as Burmese, Myanmar’s colonial era name. Because, in the past, rubies have been so rare, Thai cutters and polishers rarely focused on volumes or economies of scale. As Gemfields looks to operate on a larger basis, the company says it is helping ease Thai buyers’ access to capital and guaranteeing a steady stream of stones.
Macquarie’s Morton says short-term oversupply and creating desire at the consumer level are the biggest long-term challenges facing the company. "There is a sense that maybe the market is stable at this point," he says, referring to the most recent auction results for both emeralds and rubies, which were lower than previous sales. "That’s certainly hurting demand."
Analysts say the challenges could be difficult to surmount, but add that Gemfields’ successful revamping of the emerald market puts the firm in a strong position. Says Morton: "Marketing, for sure, is the key."
MUS Price at posting:
10.0¢ Sentiment: Buy Disclosure: Held
