Miners large and small could be affected; Gemfield’s shares fall 16%.
The Government of the Republic of Zambia has announced plans to restrict the auction of Zambian gemstones outside of the country, in a move that could spell serious problems for emerald producers such as Gemfieds.
The news means that mining companies operating in Zambia producing stones such as emeralds and amethysts but selling the goods overseas will have their sales restricted to Zambia only.
Yamfra Makanga, Zambian MP and the country’s minister of mines, energy and water development, said that the current lack of restrictions means that Zambia has been denied the "much needed" benefits of gemstones auctions and as a result the government now plans to restrict the sale of Zambian gemstones anywhere outside of the country.
The Republic of Zambia’s president Michael Sata outlined that all Zambian gems should be auctioned in the country in order to benefit its people. The government outlined its vision for what the auctions could bring to the country, including improved transparency and accountability of Zambian stones.
The government added that the auction restrictions will "stimulate local demand for emeralds" and create opportunities for small-scale miners to sell their goods through a formal market for a fair price without having to deal with illegal traders buying at lower prices. The changes also have the potential to create employment and boost tourism owing to incoming buyers seeking Zambian gems.
A statement from the Government of the Republic of Zambia said: "Mining corporations in the gemstone sector are urged to abide by the government’s directive to auction gemstones within the country. To avoid springing up of secondary markets, mining companies large and small are encourage to joint [sic] auctions."
Gemstone producer Gemfields owns a 75% of the Zambian emerald mine Kagem, the world’s largest single emerald mine, plus 50% of the Zambian amethyst mine Kariba. The Government of the Republic of Zambia owns the remaining 25% and 50% stakes, respectively.
In reaction to the news Gemfields released a statement notifying its shareholders of the possible ban. It stated: "Such measures are potentially detrimental to the Zambian gemstone sector and would prevent the company [Gemfields] from being able to freely sell its gemstones in the markets where it believes it would realise the best prices".
According to Gemfields, Kagem’s production has been sold only outside of Zambia since 2009, generating US$160 million (£104.6m) of revenue from 11 auctions. Representatives of Republic of Zambia’s government have routinely attended the auctions.
The Gemfields statement continued: "Gemfields believes that any outright limitation on selling emeralds in other countries could have the potential to materially constrain Kagem’s revenues as well as the broader development of the Zambian gemstone sector across the globe. Such a limitation would, inter alia, place Zambian emeralds at a disadvantage relative to other emerald producing countries where no such limitations are in place".
Gemfields has agreed to host an auction in Lusaka, Zambia, from April 15 to 19 following verbal requests from the department of mines, energy and water development prior to this current announcement, but says that neither Gemfields or Kagem representatives have as yet participated in or been invited to any industry or stakeholder consultation process regarding the restriction measures.
Gemfields shares fell by 16% yesterday following the announcement, its biggest one-day fall in more than four years.
Gemfields chief executive Ian Harebottle said that the restrictions have the potential to endanger the strength of the sector just as it has begun to deliver meaningful positive results for its stakeholders.
Harebottle said: "Since Gemfields acquired Kagem in mid-2008, we have pursued a strategy for Zambian emeralds not only to compete on the world stage, but to lead the sector internationally. Our ambition has been to turn Kagem into a Zambian national champion and a shining example of what can be achieved in well-founded partnerships between government and investors. I believe we have achieved that goal, and can go much further. I therefore hope that we will continue to enjoy a Zambian legal and business framework that enables the Zambian gemstone sector to remain competitive globally”.
Kagem’s financial and operating performance is said to be in rude health thanks to a combination of Gemfields’ investments in the mine, its auction practices, proprietary emerald grading system and global marketing campaigns, while Kagem’s payments of Zambian corporation tax and gemstone royalties stand at all-time highs.