Gemfields De-Railed By Zambian Government. Again.

Gemfields, the leading gemstone producer that was formerly a prime candidate for the title of ‘Darling of The Market’ has been further hampered by one of its major shareholders, the Zambian Government (Kagem emerald mine is 25% owned by the Zambian Government). The latest news released this morning told us of further disappointment. The higher quality rough emerald and beryl auction which was to be held in Singapore this June is to be put on hold as the company is awaiting further clarification from the Zambian Government regarding whether or not Gemfields is permitted to accrue revenue from the sale of gemstones outside of Zambian borders.

We first learned of the proposed policy that gemstones were to be sold only within Zambia on 8th April 2013. The market has reflected this severe uncertainty in the value of the company since then, with shares trading at around a 20% discount since the fateful news. However, it was previously the case that the Singaporean auction was to go ahead, but this has now been thrown into doubt. For shareholders this is yet another knock to their investment here. I was briefly a shareholder but my investment was ill-timed, unfortunately. I had only been holding for a number of days when the policy was announced, forcing me to sell up upon the market’s opening.

As the government is a major shareholder it is in their best interests to ensure that Gemfields can continue its operations and deliver profits going forward. It has been mentioned, however, that Gemfields was not informed of their intentions prior to the announcement, and neither were they considered to be instrumental in the overall policy-making process. It all appears to have been poorly executed by the government, and a rational response can only point towards an outcome where Gemfields can sell their goods outside the country, as this is how the highest prices can be attained.

I do believe that Zambia should see some of the rewards from their gemstone sales, but a policy which results in the miners being unprofitable will cease all benefits entirely. It will take time for this to be resolved, but I can only see there being one sensible outcome and it should be one where Gemfields can continue to do what they do best. Of course, African governments have not always succeeded in policy-making, so I remain sceptical.

As soon as this ugly chapter concludes I will be the first to consider becoming a Gemfields shareholder once more, as the company itself has unique vision and supremely talented management. Such attributes should be enough, but geopolitical risk has a habit of overshadowing such things. Let us hope that the government sees sense and a fair and reasonable decision is made, and soon.