Johannesburg- and London-listed Gemfields says it will be seeking shareholder approval to, among other things, issue 556.2-million new shares to raise about $30-million by way of a fully committed and underwritten rights issue.

CEO Sean Gilbertson says Gemfields has considered options outside of the group for its wholly-owned luxury jeweller Fabergé as a means of addressing a forecast near-term working capital shortfall.

He notes, however, that this work did not yield the certainty of funds necessary within the desired time period and, therefore, subject to regulatory and shareholder approvals, the board has recommended a proposed rights issue to address the short-term funding requirements of the group.

In a trading statement, the company notes that the proposed rights issue, which is subject to shareholder approval, shall be fully underwritten by Gemfields’ two largest shareholders, Assore International Holdings (AIH) and Rational Expectations.

Should shareholder approval be obtained at an extraordinary general meeting (EGM), Gemfields says it will launch the proposed rights issue which will be offered at a UK issue price of 4.22p per new share and South African issue price of R1.07 per new share, on a ten new shares for every 21 existing shares basis and will be available to all qualifying shareholders.

AIH and Rational have also entered into pre-funding agreements with the company, pursuant to which each of AIH and Rational shall make loans equivalent to their pro rata entitlement in the proposed rights issue in the amounts of $8.74-million and $4.65-million, respectively to the company, subject to the publication of the EGM circular.

The loans will provide the company with an immediate working capital injection pending the completion of the proposed rights issue.

Gemfields has, meanwhile, reported revenue of $213-million for the year ended December 31, 2024, down from $262-million in the prior financial year, owing to a disrupted market for emeralds in the second half of 2024 and lower production of premium rubies at Montepuez Ruby Mining (MRM), in Mozambique.

In its audited annual report for the year ended December 31, 2024, the company says construction of the second processing plant in Mozambique is materially on track and on budget, with completion expected by end of the first half of this year.

Gemfields notes that mining at the Kagem emerald mine, in Zambia, continues to be paused, with emeralds only produced by processing the pre-mined stockpile. It notes that reasonable emerald production was achieved but with a lower rate of premium emeralds to date.

Additionally, the company reports a decrease in operating costs to $172-million, with significantly lower operating costs expected in 2025.

Moreover, there are significant impairment charges in the year, primarily at Kagem, owing to a weaker emerald market and the pause in mining.

Gemfields posted an adjusted headline loss a share of $0.018 for the year, compared with adjusted headline earnings a share of $0.015 in 2023.

MARKET CONDITIONS

Gilbertson expresses that market conditions throughout 2024 were more challenging than the company could have anticipated. He notes that revenues at both emerald and ruby auctions were materially lower than the group had experienced in recent years.

This is owing to disturbed emerald market dynamics arising from the oversupply of Zambian emeralds at discounted prices by a competing Zambian emerald producer during the second half of 2024, compounded by conflicting auction dates and so giving rise to a poor Zambian emerald market outlook for the first half of 2025; lower-than-expected production of premium rubies at MRM; and a weaker luxury and gemstone market generally, given economic difficulties in China and widespread geopolitical turbulence.

Further, Gilbertson says the group faced significant operational challenges in relation to civil unrest and associated supply chain interruptions in Mozambique as a result of the contested general election in October 2024.

“Our increased risk profile was reflected in a significant reduction in our share price. In line with the company’s commitment to the safety and security of its personnel, mining operations at MRM were temporarily paused towards the end of the year following an attempt to invade MRM’s residential area.

“Management views the present challenges as transient. While our planning of Gemfields’ growth programme did not envisage the requirement of additional funds from shareholders, the scope and scale of the difficulties we have encountered contemporaneously has unfortunately necessitated a change in approach,” he says.

Gilbertson notes that, in order to navigate this turbulent period and complete the construction of the second processing plant at MRM, a project he says the company considers to be pivotal to the group’s future, management undertook an extensive programme of cost cutting across the group, as announced in a strategic update towards the end of 2024, including the suspension of mining at Kagem in light of the poor emerald market conditions.

“I remain of the opinion that Gemfields’ mining operations are world-class assets and that the group’s strategic goals remain wholly relevant. Once fully operational, MRM’s second processing plant is expected to triple the processing rate and, therefore, add considerably to the mine’s ruby production and revenues.

“The coloured gemstone market is expected to recover and continue its medium- to long-term upward trajectory. I am confident that there is an exciting growth phase for Gemfields on the other side of this near-term funding shortfall, and I am thankful to our shareholders and our experienced operational teams for leaning into the challenges we are facing together,” he states.