After delaying an auction due to the demonetisation policy in India, Gemfields sees full year earnings slipping
Gemfields today said its decision to delay an emerald auction because of India's demonetisation programme will drag down full-year revenue and core earnings.
Shares in the precious stone miner, which is listed on the Alternative Investment Market (Aim), fell as much as 7.9 per cent to 46.5p this morning.
The Indian demonetisation programme, which has hurt smaller midstream players in the market, pushed Gemfields to reschedule one higher quality rough emerald auction into the second half of the financial year and remove another higher quality emerald auction.
"The impact of this will see a material reduction in annual revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) for this financial year only," said chief executive Ian Harebottle. He added the firm is confident it will see a correction in the market in the short term.
The results of Gemfields' rescheduled auction were announced today. The firm sold 349,935 carats – 84 per cent of its total by weight and 95 per cent by value – generating revenue of $22.3m (£17.94m). This was Gemfields' third highest value per carat to date with an average of $63.61.
"A normal high quality auction delivers revenue normally of $32-$35 million on 500,000-600,000 carats of sales. Today they delivered very good pricing… but it was only on 350,000 carats sold, so a significantly smaller auction," analyst Michael Stoner at brokerage Peel Hunt told Reuters.
"We would like to see that kind of strength to pricing on higher volumes," he said.
Today, the miner also reported a loss of $4.3m for the half-year ended 31 December. Revenue plunged 45.7 per cent to $51m due to a deferral of the higher quality rough emerald auction and a moderated product mix at its last ruby auction, the miner said.
"Notwithstanding the short term impact of the demonetisation policy in India, the long term outlook for the sector continues to be very encouraging," said Harebottle, adding that consumer trends are shifting towards embracing coloured gemstones.