Gemfields (Price: 32.8p | Target: 37.5p | Rec: Buy) Gemfields quarterly numbers demonstrated progress across its portfolio and most notably at the Montepuez Ruby mine where activities are picking up pace.

We have lifted our realised prices for high quality emeralds from Kagem following recent auctions.

We have also incorporated the latest balance sheet position as well as a clearer understanding of how the Faberge business contributes to the group’s financials.

This leads to an increase in our target price from 30p to 37.5p and a Buy recommendation. * Kagem: Quarterly performance was mixed, however operations are typically volatile over short time frame due to the nature of the ore bodies.

The recent record sale prices for high value emeralds give us confidence that the company will be able to secure higher long term prices.

We also see considerable upside potential at Kagem, where bulk sampling is progressing that could well support significant other sources of emerald production, boosting long term output. * Montepuez could provide a major positive step change for the company.

Operations are ramping up on site with 4.6m carats of ruby and corundum now recovered.

Gemfields is in the process of categorising stones for an auction in 1H14 that we hope will highlight major value potential. * The Faberge business is now fully integrated and contributing toward building up the market profile for coloured gems.

We assume that this business reaches break-even in FY16E, from a forecast net loss of US$12m this year. * We value the company based on a risked NPV of Kagem, factoring in the cost of Faberge, then add a valuation of Montepuez and other exploration which generates our 37.5p TP.
To access the full note please click here Analyst: Marc Elliott
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