Coloured gems producer Gemfields is looking forward to ramping up production at it flagship mine in Zambia having laid the groundwork with a lengthy stint of waste removal.
Revenue in the six months to the end of December 2011 rose to $45.73m from $29.05m in the corresponding period of 2010. Profit before tax doubled to $31.09m from $15.55m the year before, but the company has now started paying tax, having paid none last year, so the post-tax improvement was less marked; profit after tax was $22.00m versus $15.55m a year earlier.
The company's Chief Executive Officer, Ian Harebottle, looked on the bright side when talking to Sharecast about having to start paying tax. "It's all right. It cements tenure," he said.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Diluted earnings per share edged up to 5 cents from 4 cents the year before.
Latest Videos FromMoneyWeek
The company has plenty of cash but does not yet pay dividends, being focused on growing the company. Cash and cash equivalents at the end of the year had more than doubled to $32.38m from $15.50m at the end of 2010. The company has a policy of keeping a year's worth of inventory, so as to ensure a continued supply to its customers, and the estimated production cost of its emerald inventory at the end of the year had risen to $22.1m from $13.4m.
During the period the company shifted 4.4m tonnes of waste at a cash operating cost of $3.25 per tonne, compared to 1.7m tonnes of waste lobbed out the previous year at a cost of $3.88 per tonne. Part of the improvement in the cost per tonne rate seems to be down to the hiring of a mining contractor who can get shot of the unwanted stuff at a cheaper rate than the company can manage in-house.
"It's because they can go at it 24-7," Chief Financial Officer Officer Dev Shetty explained to Sharecast.
Despite the contractor apparently eschewing sleep, the waste clearance programme is a little bit behind schedule, which led to production at the company's flagship Kagem emerald mine in Zambia being lower than the company.
The removal is critical to expanding the strike zone of the mine, however, so the company is gritting its teeth through this period of upheaval. "I liken it to having your house refurbished; for a while you all have to live in one room but it's worth it when it is finished," Harebottle said.
As well as being raring to go in terms of stepping up production at Kagem to meet growing demand for emeralds, the company is also looking forward to getting cracking on ruby production, having bought a 75% stake in a significant ruby deposit in the Cabo Delgado province in Mozambique.
"We're excited about the future given the anticipated increase in production from the Kagem emerald mine (a
direct result of our commitment to waste mining over the past half year) and the acquisition of a controlling stake in the foremost Mozambican ruby deposit. We have a healthy cash position, an exceptional team and an exhilarating platform for growth," asserted Harebottle.
The market looked inclined to believe him, as the shares surged 1.5p to 26.75p on the day of the results, just a penny below its 52-week high. Indeed, at one point in the day, the shares rose as high as 28p before pulling back in the afternoon session.
jh
