Gemfields Bets on Gemstone Market’s Growth – by Russell Shor and Robert Weldon (GIA.com – January 26, 2015)

http://www.gia.edu/

Established in 1931, GIA is the world’s foremost authority on diamonds, coloured stones and pearls. A public benefit, non-profit institute, GIA is the leading source of knowledge, standards and education in gems and jewellery.

In late November 2014, Gemfields unveiled a 40.23 ct ruby it had just unearthed from its Montepuez ruby deposit in Mozambique. The discovery made headlines, the kind usually reserved for large diamonds.

Indeed, when Gemfields’ CEO Ian Harebottle speaks about the colored gemstone industry, the word “potential” comes up in just about every sentence. He believes that colored gemstones’ share of luxury goods sales could increase greatly around the world—potentially rivaling diamonds—if jewelry manufacturers and retailers could count on regular supplies, stable pricing, consistent grading, and increased marketing support. He has set his company’s goals on doing just that.

Gemfields faces a tall order in catching up to diamonds. Sales of gemstones remain a small fraction of diamond sales worldwide. In the US, they represent about 8% of jewelry store sales by value, according to the 2014 Jewelers of America’s Cost of Doing Business Survey. In China, that percentage is believed to be much higher, but with the vast majority consumed by the country’s passion for jade.

Gemfields, he believes, can be the change agent to lift gemstones to their rightful place in the market.

The company claims to be the world’s single largest known mining source of emeralds, with the production from its Kagem mine in Zambia, and is heading toward being able to make a similar claim for rubies, with its Montepuez mine in Mozambique. The company also operates the Kariba amethyst mine in southern Zambia.

The company bases its clout on the fact that it is the largest of only three publicly traded gemstone mining operations in the world, an anomaly in an industry still dominated by very small firms with little capital and possibly a few larger firms at some localities around the world, with limited disclosures and transparency. It is also the only gemstone operation with both the resources and the willingness to spend a large portion of its revenues on marketing and advertising.

Last year, the company spent approximately $5 million – about one-third of its total advertising spend–on a marketing campaign that engaged actress Mila Kunis as brand ambassador for its emeralds. This year Mila is back, now sans makeup, to stress the “natural image” in a further $5 million campaign that extends to its ruby production.

In a break from most emerald and ruby producers, Gemfields sells its production openly through auctions, instead of through a private dealer network. This, according to Harebottle, both ensures that the company receives market-based, competitive prices for its rough, and gives a much wider range of leading global dealers access to supplies.

The company’s ambitious strategy consists of simultaneously tackling the following challenges: consistency in its product line, pricing, and grading. And it does this from the moment they mine the gemstones. “Consistent supply,” says Harebottle, “is where everything must start.”

Consistency has always been one of the most problematic challenges to the industry. Usually, when a deposit is discovered, small-scale miners flock to an area while the pickings are relatively easy to find, only to abandon it after the deposit dwindles, if quality of the gem material declines, or when the cost of inefficient extraction is more than the return—especially if a new, more lucrative area is discovered. The Winza ruby and sapphire deposit in Tanzania, which was discovered in 2007, offers an excellent example. For two years, gems flowed plentifully from the mine, but now, scarcely six years later, the primary deposits have been largely worked out, and very little fine material is easily accessible and reaching the market.

Additionally, many small mining operations avoid paying taxes and duties and then abandon the area after the easy shallow pickings have been removed, leaving the deeper-lying goods in the ground.

Gemfields’ high cost structure, supporting more than 1100 employees in three countries, and the capital costs of securing and operating a mine, limits the company’s ability to withhold goods when the market is rising, like many major gem dealers do, but they are still able to retain at least one years’ worth of emerald and ruby inventory at any given time for continuity of supply. Gemfields prefers to manage obtainable prices by driving demand, rather than trying to do so by holding back supply. This age-old speculative practice invariably creates shortages that drive prices even higher, but stymie efforts by downstream retailers and dealers to create consistent jewelry lines.

For the rest of this article, click here: http://www.gia.edu/gia-news-research-gemfields-bets-gemstone-markets-growth

Comments are closed.