Emerald miner Gemfields reports 7 pct fall in prices at Lusaka auction

April 22 Mon Apr 22, 2013 4:56am EDT

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April 22 (Reuters) - Emerald miner Gemfields Plc reported a 7 percent decline in average per-carat prices at its lower-quality gemstone auction earlier this month, hurt by a recent directive by the Zambia government that prevents the overseas sale of gemstones mined in the country.

The rough emerald and beryl auction in Lusaka, Zambia, generated revenue of $15.2 million, but the gemstones sold for an average of $2.42 per carat, the first dip in per-carat prices in the last five auctions of lower-quality stones by Gemfields.

"The results were reasonable, but probably not as optimal as they could have been," Chief Executive Ian Harebottle said.

Gemfields, which mines emeralds at Kagem in Zambia, as able to sell only 36 percent of the 17.34 million carats offered for sale at the auction.

"A factor in this reduction may have been due to a number of declined auction invitations, which was higher than in prior auctions, most notably due to the travel demands placed on clients in reaching Lusaka, typically involving three flights and approaching 24 hours of journey time," the company said.

Gemfields said earlier this month that the potential ban on selling gemstones outside Zambia could hurt its competitive position against countries like Brazil and Colombia.

Zambia is the third largest producer of emeralds after Colombia and Brazil.

"At this stage, it is unclear whether the (company's) higher-quality auction in Singapore scheduled for June 2013 will go ahead," JPMorgan Cazenove analyst Alexander Mees said.

"The government of Zambia is a 25 percent shareholder in Kagem and so would presumably want to consider the impact of any changes on the value of its investment as well as the tax remittance currently being generated."

The company said it would continue to seek a resolution to the prevailing situation.

Gemfields produced 6.6 million carats in the quarter ended Dec. 31 at Kagem, its only producing mine, up from 3.9 million carats in the prior year.

"We are concerned that volumes have been significantly lighter for the past two auctions, especially as mine production is expected to increase," Canaccord Genuity's Jeremy Dibb said.

"Though the lowest quality stones are by nature the lowest revenue contributors this will result in a significant inventory build."

Shares in the company were trading down marginally at 26.5 pence at 0844 GMT on Monday on the London Stock Exchange.

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