Zambian governemnt ruling hit Gemfields shares

By Garry White

09 Apr 2013

Shares in emerald group Gemfields plunged 16pc yesterday after the Zambian government said it would not allow stones mined in the country to be exported for auction.

The move aims to stop “capital flight”, but it could blow up in the government’s face if it means Zambian producers are forced to sell stones at knock-down prices. The move has also increased the risk profile for foreign investors, which could hit investment in the country.

This is certainly a setback for Gemfields, which plans to do for coloured gemstones such as emeralds and rubies what De Beers did for diamonds in the 20th century. The company’s management scored a major coup by signing up Hollywood actress Mila Kunis as the face of the company and it is current launching the brand across the world. To help in brand recognition, it has also bought Fabergé, the upmarket jeweller famous for the eggs made for the Russian tsars.

Gemfields has mining operations in Zambia for emeralds and amethysts, in Mozambique for rubies, as well as owning prospecting licences for other gemstones in Madagascar.

Its main asset is the Kagem emerald mine in northern Zambia. Gemfields owns 75pc of Kagem and the Zambian government has the rest. Gemfields also owns 50pc of the Kariba amethyst mine in southern Zambia, with the government owning the other half. It is therefore in the interest of the Zambian government to maximise the money received in each auction.

However, this news from the Zambian government could be a significant setback. Emeralds are traditionally auctioned in Singapore and India. Forcing the auctions to be held in Zambia means that there is likely to be less bid interest and lower realised prices. This is especially true for the lower-quality, high-volume stone sales, which are likely to be hit hard.

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 of the resource,” said Yamfwa Mukanga, Zambia’s minister of mines. “In an effort to address this problem, the government has directed that all auctioning of emeralds be held in Zambia.”

He argued that this would promote transparency, stimulate local demand for emeralds and create an opportunity for small-scale emerald miners to have access to a market where they get a fairer return. Most smaller miners are forced to sell their emeralds to illegal buyers at depressed prices because of a lack of a formal market in the country, Mr Mukanga said.

However, it is more likely to put Zambian producers at a disadvantage, as miners of gemstones in places such as Colombia will take their stones where they expect to get the highest price.

Since 2009, Kagem’s production has been sold only outside Zambia, generating $160m (£104m) of revenue from 11 auctions.

Gemfields already had plans to hold an auction within Zambia later this month, but yesterday’s move could raise doubts over the sale in Singapore scheduled for later this year.

It could be that the situation is fluid, as often proves to be the case when political developments impact on the mining sector. Some analysts have said they won’t adjust forecasts, and it will be interesting to see the results of the auction in Lusaka between April 15 and 19.

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18 Responses to "Zambian governemnt ruling hit Gemfields shares"

  1. Mario Franco   April 9, 2013 at 16:41

    Don’t listen to germfield these Indian are criminals we know them very well,if they want let them go to India we have Zambians who can manage these mines,first one is government,please our minister don’t listed to these Indians,we know how we suffer because of these same puppet Indians,let them go to Colombia if they will be allowed…
    We have to sell our emeralds here in Zambia for the benefit of all Zambians.

  2. infor   April 9, 2013 at 16:15

    Gemfields stop being cry babies.Emeralds were auctioned in Zambia before you acquired majority shareholding and you knew this.Spare us with the noise and just comply.

  3. KAMBILO   April 9, 2013 at 14:12

    Just look at the author, he is representing his supremists sponsors. While we may agree that the decision may affect prices gained from the trade….the fact is that these people have only their interests to serve. While they may be earning a lot of money from sales in precious stones no tangible investment can be seen in Lufwanyama District where they operate… I certainly don’t offer any sympathy to them. The only thing govt. can do is increase its stake so that it has more say in the way the proceeds are used

    • Mailon   April 9, 2013 at 15:22

      Please investers come here to make money and it is left to the government of the day to put in place approriate legislation eg for encouraging them to invest locally by tax incentives etc.For all we should know we are making a decent cut but our priorities are wrong.Can you imagine if even the cost of one by election was invested.

  4. Fougarcon   April 9, 2013 at 10:28

    Now PF’s stupidity is reaching the City of London. Believe me those guys are absolutely ruthless when Governments do stupid things. I think Zambians need to get it through their thick skulls that punishing capital is not the route to poverty reduction and, instead, the focus should be on expanding what is a very small economy and creating more jobs and increasing tax receipts that way. Can see a major downgrade of Zambia coming next time Fitch issues its ratings on Zambia. Then Miles Sampa’s flights of fancy about changing the face of Lusaka by issuing more Government paper will land flat on their face.

    • CHOOMA   April 9, 2013 at 20:17

      What a stupid sickening analysis like you. How are you going to expand if the Indians are keeping all the money in India and nothing comes back? The Indians have done this for a long time and will never leran to re-invest! For all I care let them take their so called capital and see what they get! You are such an!!

  5. mwiya   April 9, 2013 at 10:17

    It is sad that the decision is made in an abrupt fashion, typical of the PF Government.It is however the correct one. Once Zambia starts adding value to its minerals more jobs will be created. Zambia is at present one of a few countries where you can hardly appreciate the artistic value of copper yet it is a super-power in copper production?It is also a country where an educated priest like Leonard Chiti does not understand the value of art in mineral beneficiation. Under ideal conditions, all copper products should processed in Zambia and only exported as finished goods but alas this science is beyond the comprehension of many to such a level that even when it is implemented it wrongly done. “Callboy Lusaka” I hear you!

    • PF Yosila   April 9, 2013 at 15:36

      In this case no value is being added. it is the point sale which is changing.

  6. chikalongas   April 9, 2013 at 09:18

    Let it plug so that they can sell shares. we zambians can buy the shares

  7. Vilifier   April 9, 2013 at 09:07

    This explanation form Government is hanging. Its like PF solution to every suspected capital flight is some sort of a ban, why?

    • CHOOMA   April 9, 2013 at 20:22

      That’s the correct way of empowering local pipo and that is done even in England where foreigners cant buy more than 5% of the shares of a national asset like BP!!

  8. Mulongoti   April 9, 2013 at 09:06

    I personally support PF 100% on this good decision. These guys, want to continue stealing from us. in SA, whatever is sold in from there, all the money should go back.

    • Bob   April 9, 2013 at 09:14

      There are exceptions to some of these decisions. Zambia is not existing in isolation but part of the global community. pf needs to think thru this very carefully and come up with a proper solution. What has happened with Gemfields shares is what you hear from wall street when certain unpopular statements are made from some quarters that affect the probable profitability of an industry or organisation.

    • ndongo ya maho   April 9, 2013 at 09:18

      Stop thinking with your bottom and grow up. Will you be there to buy the emeralds when they are auctioned locally? What is wrong with you Zambians being so dull? How can you even think of comparing a developed economy South Africa with a poverty-stricken Zambia? Have you even been to South Africa?

      • hellen   April 9, 2013 at 14:09

        if you want emeralds come to zambia who knows in due time everyone who wants good quality stone will come here… initially it may a bad start but it will gain with time.

      • Twabwela   April 9, 2013 at 15:54

        But what makes you think buyers wont travel to Zambia to buy emeralds?

  9. offman2000   April 9, 2013 at 08:34

    “He argued that this would promote transparency, stimulate local demand for emeralds and create an……………” Is he for real? People can’t even afford 3 meals but will buy emeralds en masse cos they will be auctioned locally?……….Puleeeze…….jst saying.

  10. callboy Lusaka   April 9, 2013 at 08:24

    sentiments by elderman Daniel Munkombwe reminds me of the late Chama Chakomboka. How many bloggers remember this man Mr Chakomboka? He was from Luanshya. A former deplomat. He was Zambia Ambassador in Brussels, Belgium, with an education from Makerere University. He later formed his Political party called Movement for Democratic Process with the John Chipawa Sakulanda.

    He had vast knowledge of the locations of Precious stones in Zambia, but unfortunately, this knowledge was not fully shared.

    Like I say, for me, I am learning driving so that one day, I can drive my own bus.

    When I am through with driving, I will share the knowledge.