Emaralds at a Gemfields auction. Mining at the Kagem mine n Zambia is still paused due to the weak market, with emeralds only produced by processing the pre-mined stockpile.
Image: supplied
Gemfields Group’s share price plunged 22% on Friday after it announced a $30 million (R577.8m) rights offer due to funding constraints caused by unrest in Mozambique.
The share, which is also listed on the London AIM market, was trading at R1.16 on the JSE on Friday afternoon, and the day’s decline meant it has fallen 58.2% over a year. Shareholders usually do not like rights issues, as it dilutes their interests and indicates that the company requires additional funding.
London-based Gemfields is seeking shareholder approval to issue 556,203,396 new shares to raise about $30m in a fully underwritten rights issue.
“While our planning of Gemfields' growth program did not envisage the requirement of additional funds from shareholders, the scope and scale of the difficulties we have encountered have unfortunately necessitated a change in approach,” CEO Sean Gilbertson said.
He said they had faced significant operational challenges in 2024, including an attempt to invade the residential area of the Montepuez Ruby Mine (MRM) in Mozambique, following the contested general election and associated civil unrest and supply chain interruptions in that country.
The increased risk was subsequently reflected in a big reduction in share price, said Gilbertson.
MRM mining operations were temporarily paused towards the end of the year. Last year, to navigate the challenges and complete construction of a second processing plant at MRM, management cut costs, including suspending mining at Kagem mine in Zambia, in light of the poor emerald market.
Other options for the group’s luxury jeweler brand Fabergé were also considered to address a forecast near-term working capital shortfall.
“This work did not yield the certainty of funds necessary within the desired time, and therefore…the board has recommended (the rights issue) to address the short-term funding requirements of the group,” said Gilbertson.
He said 2024 had seen their 50th Zambian emerald auction, the 10-year anniversary of their first Mozambican ruby auction and a new chapter of capital projects in Gemfields' growth trajectory.
“Management views the present challenges as transient,” said Gilbertson.
The rights issue would be underwritten by the two largest shareholders Assore International Holdings (AIH) and Rational Expectations. The rights offer was expected to be pitched at 4.22 pence or R1.06860 per new share, on a 10 share for every 21 existing shares basis.
AIH and Rational also agreed to make loans equivalent to their entitlement in the rights issue of $8.74m and $4.65m to the company.
The loans will provide Gemfields with working capital injection pending completion of the rights issue.
Gemfields had 1.17 billion shares in issue by December 31, compared with R1.21bn in issue at the end of the previous financial year.
Gemfields' annual results released on Friday showed total revenue falling to $213m from R262m due to the disrupted market for emeralds in the second half and lower production of rubies at MRM, impacting achievable auction revenues.
Construction of the second processing plant in Mozambique was on track and on budget, with completion expected by the end of the first half of 2025.
Mining at Kagem was still paused, with emeralds only produced by processing the pre-mined stockpile. Reasonable production was achieved but with a lower rate of premium emeralds.
Operating costs fell to $172m ($179m). Significantly lower operating costs were expected in 2025.
The EBITDA (earnings before interest tax depreciation and amortisation) margin fell to 19.2% from 31.7% in 2023 due to lower revenues at MRM and Kagem.
There were significant impairment charges in the year, primarily at Kagem due to the weaker emerald market and pause of mining, and at MML due to the halt of operations.
The adjusted headline loss per share widened to 1.8 US cents for the year from adjusted headline earnings per share of 1.5 US cents the previous year.
Gemfields is the operator and 75% owner of the Kagem emerald mine in Zambia, believed to be the world's single largest producing emerald mine, while the MRM is one of the most significant recently discovered ruby deposits globally.
Gemfields also holds controlling interests in other gemstone mining and prospecting licences in Zambia, Mozambique, Ethiopia, and Madagascar.
Business Report