March 6th, 2020 – Mark Anthony Karam
Today, we see applications of blockchain in all kinds of fields – from standard banking procedures and cryptocurrency trade, to helping maintain health records and assisting with loyalty programs, there’s almost nothing blockchain can’t improve on.
This is where UK company Gemfields comes in. Specializing in the mining, processing and sales of responsibly sourced colour gemstones, Gemfields agreed to partner with specialist gemology firm Gübelin Gem Lab, the creators of a new traceability technology which creates an independent proof of provenance for emeralds. In essence, the Provenance Proof as they call it allows for the permanent labeling of gemstones, so that they have an official, immutable record that is traceable across the supply chain. This is made possible with a new DNA-based nanoparticle technology that Gübelin Gem Lab developed, which uses blockchain to keep track of a gem’s journey across the supply chain.
“The Provenance Proof Blockchain basically is an electronic diary or logbook of a gemstone (or a parcel of gemstones), that accompanies the gemstone from its birthplace in the mine all along its journey to the final customer,” Dr Daniel Nyfeler, Managing Director, Gübelin Gem Lab, tells AMEinfo.
We had the opportunity to interview both companies, Gemfields and Gübelin Gem Lab, to learn more about this collaboration and the intricacies and applications of this technology. In part 1, you can find the interview with Sean Gilbertson, the CEO of Gemfields, where we learn about the gem business in Africa and the ongoing in this sector today. In part 2, we’ll explore Gübelin Gem Lab’s technology, which Managing Director Dr Daniel Nyfeler discusses at length.
What have been the three key strategic business decisions/achievements for Gemfields in the past 5 years that solidified the position, brand and revenue model of the company?
Gemfields is a world-leading supplier of responsibly sourced coloured gemstones. Our mission is to be the global leader in African emeralds, rubies and sapphires, promoting transparency, trust and responsible mining practices.
Gemfields has been through somewhat of a transformation in recent years. In 2017, the company restructured and came under ownership of Pallinghurst Resources Limited, which subsequently changed its name to Gemfields Group.
It recently re-listed on AIM, and also has a primary listing on the Johannesburg Stock Exchange and a secondary listing on the Bermuda Stock Exchange.
In the past couple of years, we have taken considerable strides in tailoring our portfolio to reflect our focus on the ‘big three’ coloured gemstones: rubies, emeralds and sapphires, our preferred origin of Africa, as well as our vision to become the De Beers of coloured gemstones.
The three-year business plan centres around the ‘big three’ – identifying suitable sapphire opportunities in Africa to complement our thriving ruby and emerald operations, expanding our marketing activities to boost demand for coloured gemstones and disposing of our non-core minority stakes in both platinum and manganese mines.
Where besides Africa are your top gem mining operations globally?
Our focus remains in Africa, specifically Zambia, Mozambique, Ethiopia and Madagascar.
We are the 75% owner and operator of both Kagem emerald mine in Zambia and Montepuez Ruby Mining in Mozambique and work with local partners in both nations. For Kagem we partner with the Zambian Government through the Industrial Development Corporation (IDC), and for MRM we partner with a local company called Mwiriti.
In recent years we have expanded our footprint in and around our Kagem and MRM mines. We hope to resume our work in Ethiopia and also see Madagascar as an exciting coloured gem province, but operations will be dependent on Madagascar’s political landscape.
Of the $1 billion of total Gemfields auction revenue since 2009, some $200 million (20% of revenue) has been paid in tax to the governments of Mozambique and Zambia, meaning those countries are, for the first time, receiving fair participation in their coloured gemstone resources.
We also work collaboratively with the Governments and the local communities around our mines to identify projects that enhance the lives of the local community with a focus on health, education and livelihoods as well as supporting Africa’s rich wildlife through conservation projects.
Where is demand coming from and how do you sell your end products? Is it mostly through auctions? How about personal/private investors, jewelry distributors/outlets, etc.?
Historically, auction partners from India tend to dominate for emeralds and for rubies Thailand has been the main centre for cut and polish, but we are seeing increasing interest from other markets.
Last year we saw the first Chinese customer successfully winning a schedule at a Gemfields’ emerald auction, followed by successful bids at our subsequent premium emerald auction, with finished pieces destined for the Chinese domestic market; demonstrating an increasing interest in Zambian emeralds coming from China.
Gemfields sells rough gemstones through its pioneering auction platform, where we invite some of the world’s leading companies in the manufacture and distribution of gemstones to purchase Gemfields’ gems. This revolutionary platform allows transparent and fair trading of coloured gemstones, with the market setting prices and vetted buyers given access to inspect the gems for themselves before placing their bids. Most importantly, the process provides full transparency to host countries’ governments, whose representatives observe the entire sales process, viewing sales figures and calculating taxes due to host economies. Only by utilising this platform are we fulfilling our core value of offering complete transparency to host nations.
What are your environmental impact measures and worker safety policies in and around the mines?
Our goal is to operate in a way that contributes positively to national economies, takes a leading role in modernising the coloured gemstone sector and builds lasting livelihoods for the communities around our mines. We believe that coloured gemstones should be mined and marketed by championing three key values: transparency, legitimacy and integrity.
Responsible sourcing for Gemfields means implementing industry-leading policies and practices across operations, transparency in our auction sales process, an active role in working groups to modernise the sector and projects to improve health, education and livelihoods for the communities around our mines.
Sustainability and corporate responsibility practices lie at the heart of our business: these back up our brand statement and support our efforts to play a pivotal role in improving the credibility of the entire coloured gemstone industry.
Before starting full-scale mining operations, we work with authorities to carry out environmental and biodiversity studies and involve the local communities, to ensure that their needs are always accounted for within our plans. We go beyond just adhering to national regulations: to ensure that we operate with the highest possible standards, we align our approach to the broader strategic aims of the United Nations Sustainable Development Goals.
We are realistic and open about the impact of mining on the environment. Using environmental studies to guide us, we aim to meet and exceed international best practices to mitigate the effects of our operations. We back-fill our open-pit mines, collect seeds of indigenous plants and trees from the topsoil and create a seed bank for replanting vegetation in order to return the land to its original state at the earliest opportunity. We do not use chemicals that are hazardous to health, and we recycle the water used in our wash-plants.
We are an Africa-focused mining company, and there is an undeniable connection between the rarity of our coloured gemstones and the great African wildlife. We are proud to partner with local conservation organisations that are protecting Africa’s animals whilst working with communities to prevent illegal poaching.
Mining can be a hazardous activity, and the safety of our workforce is our absolute priority. We operate a ‘zero harm’ environment from the initial stages, before any action is undertaken, right through the lifespan of the mining operation. We enhance the wellbeing of our employees through the establishment of recreational facilities and inter-cultural and sporting events, such as football and volleyball pitches and an annual on-site ‘Olympic Games’.
Regarding their annual earnings, Gilbertson noted that in 2018, the company recorded $206,090,000 in revenue, while Cost of Sales was recorded at ($123,546,000). Meanwhile, Gross Profit was recorded at $82,544,000. Gross Profit Margin was therefore 40%.
Which areas of your operations garner the most capital investments?
The majority of our capex is spent on new mining machinery and technology.
What are the top 3 challenges this industry faces and your meeting of these challenges?
The gemstone industry is ancient and complex, and there’s no shortage of challenges to negotiate.
We see promising signs of recovery to India’s financial market, which has certainly posed a challenge to our Indian buyers. The Indian market is particularly important when it comes to the sale of commercial quality emeralds and which has been navigating challenging financial conditions for some time. It now appears to have turned a corner and we hope will continue to go from strength to strength.
Until recently, the biggest impediment for our emerald mine, Kagem, was the introduction of the new 15% Zambian export duty, imposed on emeralds since 1 January 2019. When combined with the pre-existing 6% mineral royalty tax, Zambian emerald exporters had to pay an effective 21% turnover tax on their revenues, which handed over the tactical advantage to other emerald producing countries like Brazil and Colombia, neither of which have any export duty on emeralds. The Zambian government’s decision to suspend the 15% export tax on gemstones in January 2020 has created a positive sentiment in the sector and resulted in increased interest from foreign buyers.
What is your outlook for the next 5-10 years in terms of colored gems’ demand and supply?
Demand has grown markedly. A decade ago, diamonds were widely perceived by consumers to be the most prestigious of gems. Today, the swing toward precious coloured gemstones is significant. The past decade has seen the world record prices for an emerald and a ruby surpass that of a colourless diamond on a per carat basis, with the current records set at auctions held by Christie’s. It surely can’t be long before sapphires (a record presently held by Sotheby’s) surpass diamonds too.
When combined with significant improvements in the supply chain, particularly in respect of reliable and responsible sources of supply, it is no surprise that we’ve seen such growth in the sector. The recent discovery of rubies in Mozambique in 2009 has been a real game changer. Mozambique has fast become the world’s #1 ruby exporter, yielding record-breaking auction results for Gemfields. Following US-led bans in 2008 on rubies from Burma, Mozambique’s consistency and transparency of supply has instilled renewed confidence in rubies and has enabled high-end jewellery brands to create extraordinary capsule collections with fine rubies they would typically have spent years collecting.
Interestingly, people often forget that the well-known laws of supply and demand apply to “efficient markets”, a term that cannot yet be used for the coloured gemstone sector. Gemfields’ Kagem emerald mine in Zambia is a case in point: today it produces an estimated 25% of world emerald supply. Over the last decade its gemstone production has tripled while the prices received have increased more than six-fold!
How does the Middle East factor into Gemfields’ business? Do you have buyers/investors from the region?
In Middle Eastern culture jewellery, precious gems and precious metals have long been revered as excellent investments. The colour green is auspicious and important in the Islamic religion making emeralds very popular in the region. Gemfields has also noted a strong increase in demand for Mozambican rubies from the Middle East over the past decade.
Dubai is an important trading hub for coloured gemstones and a number of Gemfields’ Authorised Auction Partners are represented there.
Besides blockchain, what other technologies are impacting the colored gems market?
The most recent technical advance, beyond blockchain, is our industry-leading ruby sorting house in Mozambique. Gemfields introduced the most technologically advanced coloured gemstone sort house in the world at its operations in Montepuez in February 2019. This state-of-the-art facility, the result of an investment of USD15M, allows Montepuez Ruby Mine to consistently deliver a greater volume and spectrum of responsibly sourced rubies to the global market.
It works by using the natural properties of rubies as a means of automated sorting. The process starts with washing of the raw material, before passing it under ultra-violet (UV) light. Rubies naturally fluoresce under UV light, meaning optical sorters can detect the fluorescence and employ blasts of air to direct individual rubies to separate channels for further sorting and grading.
The introduction of synthetic diamonds has certainly had an impact on the diamond sector.
Gemfields is not concerned by lab-created gemstones: they are a different market segment.
Lab-created coloured gemstones have been around for years, and after initial heightened demand, their flawlessness and lack of character led to levelled-off pricing, whereby you have been able to purchase lab-created emeralds and rubies for a fraction of the price of a real one for some time now.
If the lab-created diamonds follow the pattern of lab-created coloured gemstones, they will become bigger and bigger, and cheaper and cheaper, thereby entrenching a similar two-tier market. This is already starting to be seen in the diamond sector. If you appreciate the rarity, unique character and colour of a naturally formed coloured gemstone, a lab-created version will never come close.