Investments | Coloured Gemstones

Traditionally regarded as “second class” gemstones, coloured gemstones have enjoyed a dramatic rise in popularity in recent years.

The industry is highly fragmented and characterised by small scale operators deploying artisanal mining methods and lacking the capital to achieve economies of scale and surety of supply.

This backdrop provides a compelling opportunity for consolidation and vertical integration of the supply chain on an international scale. Pallinghurst’s vision is to create a leading coloured gemstone producer with the unique ability to bring ethically produced, conflict-free gemstones of certified provenance directly from mine to market on an integrated basis.

The marketing strategy includes vertical integration to the point of wholesaling branded stones, securing a portion of retail value through branding and numbering individual stones, and ensuring unquestionable provenance via ownership of mines and the supply chain.

To this end, in October 2007, the company along with certain strategic equity partners acquired, via Rox Ltd, an indirect 75% interest in a Zambian emerald mining company, Kagem Mining ltd. The remaining 25% is owned by the Zambian government. The major asset of the mining company is the Kagem emerald mine, the largest in Africa. Kagem has suffered historically from a lack of investment and, upon acquisition, significant investments were made to improve scale and efficiency.

In addition, a management contract was signed with AIM-listed Gemfields plc, the owner and operator of nearby emerald mines.

Subsequently, a reverse takeover of Gemfields was effected by Rox in June 2008. This resulted in Kagem being vended into Gemfields in exchange for Rox acquiring a fully diluted interest of around 55% in the enlarged group.

Following additional share purchases, Rox owns 64.2% of Gemfields with Pallinghurst (excluding its strategic equity partners) having an effective see-through stake of 30.3% of Gemfields.

Despite a cooling off in the luxury goods market due to the global credit crisis and slowdown in economic activity, rubies, emeralds and sapphires continue on occasion to achieve higher per carat prices at auction than diamonds. This achievement is particularly startling given the lack of marketing expenditure in the coloured gemstone industry.

Gemfields holds the worldwide exclusive licence to use the Fabergé brand name on its superior quality coloured gemstones.