GEMFIELDS, the UK-listed coloured gemstones and marketing firm, has suspended its share buy-back programme.
The company said today it was necessary to conserve cash whilst it waits out COVID-19 travel restrictions that will most likely prevent it from holding auctions of its gemstones until the fourth quarter at the earliest.
“The name of the game is to make remaining cash last for as long as possible as we don’t know extent of delay we could be facing,” said Sean Gilbertson, Gemfields CEO in response to questions during the firm’s 2019 annual results presentation.
As of February 29, the company had total cash of $73m, and net cash of $44m as well as some $30m in an undrawn overdraft held in a Mozambique subsidiary company.
The firm’s board had given the executive team the authority to buy back up to 20% of shares in the current financial year. Gemfields is currently trading at R1.61/share, some 3.8% lower year-to-date.
Gemfields bought back 10% of its shares last year, about 143 million shares, for about R1,50/share which group CFO, David Lovett, said represented “excellent value”. Before the onset of COVID-19 plans had been put in place to pay a dividend.
“We hoped that 2020 would have been the year that [dividend payment] would have happened,” said Lovett. “It is very gutting to the entire team, including the guys on the ground who bust their chops to give us a good balance sheet.
“Despite that hard work, the cash that we set aside is now our savings from which have to operate the business as well as we can. Hopefully, all things being equal, will be able to (pay dividends) on an annual basis, but the reality is that COVID has just shattered the ambition,” he said.
The focus now is how long Gemfields can continue to operate its mines in Mozambique and Zambia before it has to embark on more radical steps than just cash conservation. Monthly operational expenditure is estimated to be about $9.8m.
Gemfields’ auditor has said there was uncertainty about the firm as a going concern if the company was unable to generate revenue for more than a year.
“We can move our costs relatively quickly, but if auctions are shut for 12 to 18 months then the cash burn becomes a more significant issue,” said Gilbertson.
“We still have the ability to run the company on cash balance sheet for next 12 months and we are comfortable with 15 months despite auditors saying there’s uncertainty. But if it goes beyond that, the group will have to take drastic steps.”
Some companies, such as GEM Diamond Company, have embarked on “flexible” selling mechanisms, but Gilbertson said that measure was unfeasible in the gemstone market. “We are not like the diamond guys. Each gemstone is completely unique,” he said.
