Gemfields Targets 20% of Ruby Supply From Mine in Mozambique

Gemfields Plc, the colored-gemstone miner that bought Faberge Ltd. this year, wants to supply a fifth of global demand for rubies from what could be the world’s biggest deposit in Mozambique.

The Montepuez project is estimated to contain as much as 40 percent of the world’s known supply of the red-colored stones, Chief Executive Officer Ian Harebottle said yesterday in an interview in Lusaka, the capital of neighboring Zambia. Gemfields shares climbed 3.7 percent in London trading.

African mines will benefit from the extension of a U.S. ban on stones from Myanmar, the world’s biggest producer in a global ruby market that may be worth more than $3 billion a year, said Jean Claude Michelou, vice president of the International Colored Gemstone Association. Gemfields plans to more than double output at Montepuez by July as increasing demand from China makes a high-end ruby more valuable than a high-quality diamond of the same weight, Harebottle said.

“That’s because red is the color of prosperity, health and wealth in China, so there’s a natural big demand for rubies,” said Harebottle, head of the London-based company that also owns 75 percent of the world’s largest emerald mine in Zambia.

Gemfields rose 1.25 pence to 35 pence, the highest price since Nov. 5, by the close in London. That boosted the company’s market value to 189 million pounds ($304 million). Share trading volumes were 64 percent more than the three-month daily average.

Diversifying Risk

The ruby project “will serve to attract investors into the stock,” John Meyer, an analyst at SP Angel Corporate Finance LLP, said by phone from London. “More areas of supply help to diversify a company’s risk and push up its investment grade.”

Operations at the deposit in the far north of Mozambique haven’t been affected by fighting in central Sofala province between government forces and the opposition group known as Renamo, according to Harebottle.

“There’s a lot more countries where there is a much bigger risk,” he said.

While the European Union lifted sanctions on Myanmar in April, a U.S. ban on rubies from the Asian country was extended in August, Michelou said by phone from Bogota today.

“All the big jewelry brands use African rubies and they ask their suppliers to make sure they are African, because they export a lot of pieces to the U.S.,” he said. That gives Gemfields “a big advantage,” he said.

While gems from Myanmar fetch a premium because of their high quality, Gemfields will try emulate its success in marketing emeralds from the Kagem mine in Zambia, said Michelou.

“You have some fantastic stones coming out of Mozambique,” he said.

Gemfields plans to boost monthly production at Montepuez to 2.5 million carats by July, from about 1 million carats during the current trial phase, Harebottle said. One carat is equal to 0.2 grams.

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