Business World

Saturday 21 October 2017

Green machine: emeralds shine with investors in sputtering global economy

Investment experts see growing demand for emeralds
Investment experts see growing demand for emeralds

Manuela Badawy

A year ago, Heraldo Casas found a 32-carat emerald on the outskirts of a mine near Bogota that he sold for $170,000 (€134,000).

It was enough money for the poor miner to buy his family a house in the Colombian capital. And Mr Casas says his lucky find got him hooked on working for virtually nothing, scouring the countryside for more of the green, precious stones.

In Colombia, the world's largest producer of raw emeralds, the story told by Mr Casas is no anomaly. Many of the country's poor work without a salary for several local emerald mining concerns, hoping to pocket a few stones along the way and make their own small fortunes.

It's no easy way to earn a living. But for these poor Colombians, there's hope that better days may be on the horizon.

Some investment experts see growing demand for the stones in places such as Asia and the Middle East where, for religious and astrological reasons, emeralds often have more appeal than diamonds or other precious gems.

Colombia, which has the largest emerald deposits in the world, is particularly well-positioned to benefit from this increased demand. Several countries in Africa also have significant emerald deposits.

"I would look at emeralds as a way of playing the huge demand for luxury goods from China and the Middle East," said Caspar Trenthard, investment director for UK smaller companies at Standard Life Investment.

Standard Life is a shareholder in Gemfields, a small company trying to position itself as the leader in emerald mining. Gemfields wants to move the business beyond its local-miner image and on to a bigger stage.

"Colour-stone mining around the world is done on a very small scale, almost mom and pop," said Ian Harebottle, chief executive of Gemfields, referring to a model that has hampered Colombia from better exploiting the abundance of its natural resource.

Mr Harebottle said his company, which is publicly traded on the London Stock Exchange's Alternative Investment Market, is trying to change that model. But one problem Gemfields faces is the lack of a uniform "grading system" for emeralds like there is for diamonds.

Clarity, brightness and colour are established characteristics of diamonds. But the standards for emeralds are still in flux and not universally agreed upon, something that can affect pricing and profitability.

Gemfields' goal is to do what privately owned De Beers did for diamonds by creating a stable market for emeralds.

"We are very fortunate because we can look at De Beers' history and say: let's do what they did well, better, and let's avoid what they did wrong," Mr Harebottle said in an interview from the company's Kagem emerald mine in Zambia.

Gemfields begins with an advantage over De Beers in that emeralds do not have the stigma of "blood diamonds", or such gems mined in a war zone and sold to finance insurgency.

The company says it carefully promotes a mission to mine and market emeralds in an ethical way to attract customers who want to know that its miners are well treated and do not work illegally.

Gemfields produces 20pc of all the emeralds in the world, most of that coming from its mine in Zambia. It is the largest player in emerald mining and each month extracts two million to three million carats of the gemstones.

Largest

Carat prices for small, high-quality emeralds have risen 1,000pc in the past three years to around $40 for a stone that is uncut and in the rough, according to industry analysts.

In the past three years, Gemfields' stock price has soared from three pence a share to 38p a share on the AIM.

But its small market capitalisation of $208.5m has kept some investors away.

Political risk is also a factor, as a change in Zambian government policy could negatively affect the company's operations. It's one reason Gemfields is looking at Colombia as a place to open a second mine, said a source.

After years of drug violence and political corruption, Colombia is now seen as a more hospitable environment for some mining operations.

In addition, the company's long-term prospects come down to supply and demand.

"We are selling a luxury good. It is not food, it is not fuel, so there is a dependence on people's ability to buy something of luxury," Mr Harebottle said.

Yet some analysts view this alternative market as a solid diversification tool, and a good store of value, in an adventurous investor's portfolio given its upward trajectory in a sputtering global economy.

"Gemfields is starting to get a broader audience of investors who are having a look at it because they can actually make some good money," said Alexander Mees, equity analyst at JP Morgan Cazenove. (Reuters)

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