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(Alliance News) - A landmark year for Gemfields Group Ltd has opened up the prospect of once unlikely shareholder returns, broker Liberum argued on Friday.
The gemstones supplier reported record revenue following a ruby auction which kicked off on November 8 and concluded on Thursday.
The company recorded total auction revenues of USD88.4 million. It was an all-time high for Montepuez Ruby Mining Ltd ruby auctions. The average price per carat was USD132.47.
Gemfields added its yearly gemstone auction revenue reached a record USD239.6 million - across emeralds and rubies - topping the previous high of USD200.6 million in 2019 by around 20%.
"This has been the strongest ruby auction in Gemfields' history and we're very pleased with the trajectory and growth of the downstream ruby sector," Gemfields Managing Director of Product & Sales Adrian Banks said.
Gemfields has "bounced back" from a difficult 2020, Liberum analyst Ben Davis commented.
"This year-end cash boon for the balance sheet enables capital allocation decisions into 2022 with near term growth from a second wash plant at Montepuez and the possibility of dividends/buybacks, that would have been unthinkable just twelve months ago. Pricing dynamics remain solid in the precious stone market, and auction metrics reveal growing and competitive interest in the space," Davis added.
The company's Montepuez asset is located in Mozambique, a nation recently hit by militant attacks. However, Davis explained the "tide appears to have turned" in the southern African nation, which straddles the Indian ocean and borders South Africa and Zimbabwe.
Davis commented: "The situation in Mozambique appears to be improving, in particular thanks to the Rwandan military force. Key strongholds have been recaptured from insurgents in the north of the country. It is difficult to estimate an end to the conflict, but there has been no operational disruption to Gemfields operations, and we are more confident in continued delivery in the year ahead."
Gemfields shares closed flat at 14.25 pence on Friday, but were roughly 5% higher earlier in the session. In Johannesburg, where it is also listed, the stock faced late selling to close down 9.3%, after largely treading water throughout the session.
Liberum has a Buy recommendation for the stock. It lifted its price target to 23.0p from 20.0p.
By Eric Cunha; ericcunha@alliancenews.com
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