Cutting woes for American Gem (September 04, 1995)

While Montana sapphire producer American Gem’s (TSE) placer mines and heat-treatment plant are both on stream, cutting the mined and treated stones is proving to be a major bottleneck. Company President Gregory Dahl is now spending most of his time finding quality cutting factories.

Recent downward pressure on American Gem’s stock price appears to reflect concerns over Dahl’s recent heart surgery and low operating revenues, which totalled US$75,014 in the 15 months ended March 31.

Until American Gem acquired Crystal Research, the partnership that owned the heat-treating technology American Gem intends to use on its Montana sapphires, it had no revenue. Since the June, 1994, acquisition, Crystal Research has done US$69,333 worth of contract heat-treatment for other producers.

American Gem’s actual sapphire sales from January, 1994, to March, 1995, amounted to $5,681. Dahl says the low revenues reflect the need to cut large volumes of stones and find contracting factories that can provide both volume and high-quality cutting.

“I believe we have identified the factories that will allow us to cut at this high rate,” Dahl says, adding that the Montana sapphires were naturally high-clarity stones and that poorer cutting, though adequate for darker or less clear stones, degraded the final clarity of better ones.

American Gem’s business plan calls for a 6,500-carat-per-day cutting capacity, set for March 31, 1996. Ultimately, it will need additional cutting capacity to fill large orders. Two factories are now working on a pilot basis, one in China and another in Thailand.

Mine production continues at around 20,000 carats per day, and this is expected to increase. The heat-treatment plant is running at an annual capacity of 8 million carats. The company has “orders and enquiries” from parties interested in its production and hopes to begin filling those orders once quality cutting is on stream.