Rights issue and a 2026FY recovery

2024FY Setback: At the end 2024FY, Kagem’s emerald auction revenue fell sharply and unexpectedly due to its competitor’s aggressive sales strategy. At the same time, MRM’s ruby auction felt the impact of the mine’s shrinking volumes of premium ruby production.  

Liquidity squeeze: MRM’s poor production and auction results affected its ability to make the final payments for its investment in the substantially debt-funded Second Processing Plant (PP2) expansion project. 

Mitigation:  To preserve cash, Kagem ceased mining and treated its lower grade stockpiles. GGL stopped all work at its Nairoto and MML prospects for the same reason. 

Asset sale: Gemfields opened discussions to sell Fabergé as a supplementary source of cash. This process was unable to close in time to close the funding gap and was suspended in favour of a rights issue.  

Rights issue: By the end of 2024FY, Gemfields’ debt had increased to $101m of which $83m was held by MRM. To ensure the completion of the PP2, a $30m rights issue was launched with underwriting support of both its largest shareholders.

The rights issue impact: The rights issue was priced at R1.05/s, nearly 30% below the ruling price of R1.50/s and well below 2023FY’s > R3/s price. Shares in issue will increase by 48%, significantly diluting GGL’s valuations.

Good news, PP2 expansion ‘materially’ on track: The completion of MRM’s PP2 expansion and the trebling of capacity should produce some compelling revenue and cash flow metrics from 2026FY. Profit growth may be more subdued by the potential amortisation over the current short life of mine and increased finance charges, but MRM could generate a FCF of $45m/a from 2026FY.

More good news? We believe that the sale of Fabergé is critical to secure GGL’s future and that the sales process will be restarted in June and concluded by the end of 2025FY. Speculatively, this could generate a net, after-tax sale price of c.$40m. This could be GGL’s get-out-of-jail card, which may catalyse ERM, reduce MRM’s gearing or even fund a special dividend.

GGL’s profits: GGL’s profits in 2024FY were severely impacted by $91m of impairments, contributing to a loss of USD7cps. In 2025FY, we expect a loss of USD3cps due to Kagem’s slow restart, MRM’s finance charges and Fabergé FV losses. By 2026FY, the PP2 expansion should restore GGL’s profit to USD3cps.

Valuation: Based on 1,736m issued shares, a hybrid DCF model, Q1 balance sheets and a value for Fabergé of $40m, we value GGL at R1.51/s (prev R3.06). Our optimistic case, which uses a 20% improvement in grade/prices, results in a value of R2.54/s (prev R5.00). GGL’s forward PE multiple for 2026FY is just 2x.

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