Gemfields warns of $2.8 million loss on writedown

Precious gemstones miner Gemfields (LSE: GEM) warned on Friday that it expects to swing to a loss of US$2.8 million in 2023 from a US$74.3 million profit the previous year due to a multi-million-dollar write-down in its platinum group metals investments, lower output and the cancellation of an emerald auction. 

The London-based company, which has a 6.5% stake in South African platinum group miner Sedibelo Resources, said that plummeting prices for platinum group metals (PGMs) has affected its bottom line.

“Production of premium rough gemstones has been weaker at both Kagem and Montepuez Rompared to 2022, and resulted in November 2023’s planned higher quality emerald auction being withdrawn from our schedule,” CEO Sean Gilbertson said.

“We look forward to completing our first auction of the year later on today, with a commercial-quality emerald auction taking place in Jaipur, and our next higher-quality emerald and mixed-quality ruby auctions to take place in Q2,” Gilbertson added.

Since the beginning of 2023, prices for palladium and rhodium, used mainly in the catalytic converters that clean exhaust fumes in vehicles, have dropped by 44% and 63% respectively. This collapse is attributed to inventory reductions and a sluggish global economy. 

While the decrease in platinum has been less significant, the overall decline in PGMs has had a severe impact on producers’ profits.

Gemfields said it had reduced the value of its Sedibelo investment, which will result in a write-down ranging between US$4 million and US$28 million. This would translate in a loss of US8¢ per share for 2023, a significant change from US4.8¢ in earnings per share of achieved in 2022. 

Headline loss per share, which includes Sedibelo Resources’ fair value loss, is likely to be US9¢ compared with the prior year’s headline earnings per share of US4.8¢.

When it comes to its core business, Gemfields saw revenue from its 75%-owned Kagem emerald mine in Zambia drop 40% to US$89.9 million in 2023, from US$148.6 million the previous year. Top-line revenue at its Montepuez ruby mine in Mozambique decreased by 9.2% to US$151.4 million from US$166.7 million in 2022.

Gemfields’ luxury brand Fabergé also disappointed, recording revenue of US$15.7 million, which is 11% lower than the US$17.6 million it had in 2022, mainly due to softer demand for precious stones.