Zambia Restriction on Gem Sales A Major Setback for Gemfields

Mila Kunis in a Gemfields ad.

The Zambia Ministry of Mines, Energy and Water Development issued a directive Friday stating that all auctioning of emeralds be held in Zambia, arguing that their sale in foreign markets contributes to capital flight. The timing of this order has dealt a major blow to the emerald ambitions of Gemfields, which operates what is believed to be the world’s largest emerald mine in Zambia.

The government in a statement said the directive is designed to promote transparency and accountability in the marketing of emeralds, stimulate local demand for emeralds, create more opportunities for small-scale miners to have access to colored gemstone markets, and increase tourism.

“Zambian gemstones have for a long time been sold on foreign markets, a situation that has contributed to capital flight and denied Zambians of the much needed benefits from the resource,” Yamfwa Mukanga, Zambia mining minister, said in the statement.

The move seemed to have come as a surprise to the London-listed company and the markets. Gemfields shares fell 16 percent Monday after the government announcement. In the past, Gemfields held its emerald auctions in other locations, including Singapore and in Jaipur, India. The next auction of its emeralds was already planned to be held in Zambia’s capital city of Lusaka from April 15 - 19.

The company is in partnership with the country of Zambia, which makes this seemingly sudden announcement more difficult to understand. Gemfields owns a 75 percent stake in the Kagem emerald mine with the government owning the remaining 25 percent. In addition, the two parties own a 50-50 stake in the Kariba amethyst mine, which will also be affected by the outside selling ban.

“Not allowing Gemfields to auction abroad is going to take us out of the competition with Brazil and Colombia, which holds 30 percent each of the world's supply of emeralds,” Dev Shetty, Gemfields COO, told Reuters.

The company that wants to do for emeralds what De Beers did for diamonds in the 20th Century recently had a string of marketing successes. It signed actress Mila Kunis as its ambassador; released an emerald-specific colored gemstone jewelry line made by independent jewelry designers ranging from Theo Fennell and Stephen Webster, Shaun Leane and Alexandra Mor; and finalized the acquisition of luxury jeweler Fabergé.

Since 2007, Gemfields has been creating a mine-to-market initiative for its emeralds using the Kagem mine as a single, traceable source for its emeralds. In addition, it is working on a program to mine its emeralds in adherence to fair-trade practices and in accordance with environmental, social and safety standards.

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Pressure From Zambia Forces Gemfields to Reschedule Emerald Auction

A Gemfields advertisement for its Kagem emeralds from a recent marketing campaign.

Gemfields has rescheduled its auction of emeralds from the Kagem mine in Zambia due to Zambian officials’ insistence that the company hold its auctions within the country’s borders.

The London-based colored gemstone exploration, mining and marketing company planned to auction higher grade rough emeralds in Singapore from June 10-14, but a change of policy on the part of the Zambian authorities caused the company to postpone the sale, it said through the Proactive Investors website on July 1. The auction will now take place July 15-19 in Lusaka, the capital city of Zambia.

The date change will affect Gemfields financial reporting for the fiscal year, which ended June 30. The delay means the company only completed two auctions during the fiscal year that generated $42 million in revenue, compared with four auctions held during the prior fiscal year that generated $77.9 million.

The directive was issued in April in the form of a written request by the Zambian Ministry of Mines, Energy and Water Development. Despite ongoing discussions, the country’s position apparently hasn’t changed. Even though Gemfields said Zambian officials have insisted there is no ban on overseas auctions.

The government of the Republic of Zambia owns 25 percent of the Kagem mine while Gemfields owns the remaining 75 percent. In addition, the two parties own a 50-50 stake in the Kariba amethyst mine, which will also be affected by the outside selling ban. However, nearly all of Gemfields income comes from the Kagem mine.

What’s at issue is the government’s belief that it isn’t receiving enough of the economic benefits from the mine.

“Zambian gemstones have for a long time been sold on foreign markets, a situation that has contributed to capital flight and denied Zambians of the much needed benefits from the resource,” Yamfwa Mukanga, Zambia mining minister, said in its written request issued in April.

For its part, Gemfields insists that it needs to sell Kagem emeralds at places that will likely get the most interest and the best price in order to compete with other emerald hubs, such as Colombia and Brazil.

Since 2007, Gemfields has been creating a mine-to-market initiative for its emeralds using the Kagem mine as a single, traceable source for its emeralds. In addition, it is working on a program to mine its emeralds in adherence to fair-trade practices and in accordance with environmental, social and safety standards. The distribution of its emeralds includes the Faberge luxury jewelry brand, which it owns. 

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Gemfields Emerald Auction in Zambia Raises $31.5 Million

Gemfields spokesperson Mila Kunis.

Maybe holding emerald auctions in Zambia isn’t such a bad idea. The ongoing tug of war between the Zambian government and colored gemstone mining and marketing company, Gemfields, over where to sell Zambian emeralds hasn’t dampened demand.

Gemfields’ most recent auction of higher quality rough emerald and beryl from the Kagem mine in Zambia resulted in revenues of $31.5 million, the second highest total to date for the company. The average price per carat reached $54, the highest unit value achieved at any auction and a 26 percent increase over the previous highest value achieved in July 2011. In addition, a 54-carat rough gem, offered as a single lot, set a new per carat record for prices achieved at a Gemfields auction.

A total of 40 companies were invited to the auction held July 15 - 19 in the Zambian capital city of Lusaka and 37 attended, with 36 attendees placing at least one bid, Gemfields said in a statement Tuesday. A total of 583,448 carats of emerald extracted from Kagem was placed on offer, with all lots being sold. The auction format is how Gemfields chooses to sell its Kagem emeralds, which account for nearly all of the company’s revenue.

The auction was held in Lusaka at the request of the Zambian Ministry of Mines, Energy and Water Development. The government first issued the directive in April, which appeared to be a surprise to Gemfields. Particularly since the two entities are business partners, with Zambia owns a 25 percent stake in the Kagem mine with Gemfields owning the remaining 25 percent.

The government in a statement said the directive is designed to promote transparency and accountability in the marketing of emeralds, stimulate local demand for emeralds, create more opportunities for small-scale miners to have access to colored gemstone markets, and increase tourism.

“Zambian gemstones have for a long time been sold on foreign markets, a situation that has contributed to capital flight and denied Zambians of the much needed benefits from the resource,” Yamfwa Mukanga, Zambia mining minister, said in the original statement.

This is the second auction of Kagem emeralds held in Lusaka. It was originally scheduled to be held in Singapore June 10-14, but was postponed and rescheduled to Lusaka due to government pressure.

Gemfields insists that it needs to sell Kagem emeralds at places that will likely get the most interest and the best price in order to compete with other emerald hubs, such as Colombia and Brazil. With the most recent sale showing such strong results the government seems to have the upper hand in this argument.

In a statement, Ian Harebottle, CEO of Gemfields, credited “favorable market conditions and particularly strong demand from our customers” for the strong results. “All indications show that demand for colored gemstones, and especially emeralds, will continue to increase at a steady pace over the coming year.”

Gemfields said its 13 auctions held since July 2009 have generated $207.3 million in aggregate revenues.

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