The charming mysticism of precious stones is the stuff of legend, and today, these ‘tears of the gods’ are opening up major new opportunities for investors.
Now estimated to be worth north of $100 billion, the gemstone industry is growing in leaps and bounds, with analysts projecting that demand for diamonds and gemstones will continue to outstrip supply.
A lack of new discoveries, a growing inclination towards branded ornaments, a plunging dollar and ease of access thanks to online shopping have combined to make this one of the hottest markets of the year.
While diamonds have led the gemstone surge in recent decades, it’s emeralds, rubies and saphires that are poised to boom, with Technaviot predicting that the global gems and jewelry market will reach $292 billion by the end of 2019.
One only needs to look at the prices of colored gemstones today to see where this market is going.
A 5-carat sapphire that was sold for $10,000 in 1965 fetched $1,000,000 at a recent auction.
- In June 2017, the famous Rockefeller Emerald sold for an eye-watering $5.5 million, making it the most expensive emerald – per carat – ever sold at auction.
- An 8.62 carat unheated Burmese Ruby sold for $3.62 million at Christie's in 2006, setting a new world record of $420,000 per carat for unheated ruby.
Prices of diamonds vs. colored gemstones are traveling on opposite trajectories right now, with diamonds in a years'-long slump and rubies and emeralds on the rise.
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But that's only one part of the reason why colored gemstones are rapidly becoming 2018’s hottest investment.
They belong to a unique asset class that shows no correlation to other asset classes such as gold, commodities and real estate. The high resilience to macroeconomic shocks offers a great way for investors to hedge against the downward risks inherent in traditional equity markets.
The gemstone market is booming, and these 5 stocks have their finger on the pulse of this colorful revolution:
#1 Sotheby’s (NYSE:BID)
At a market cap of $2.7 billion and a trailing 12-month revenue of $886.5 million, Sotheby’s is one of the largest high-end art and jewelry auctioneers around.
It’s ‘Magnificent Jewels’ auction in New York in December raked in almost $54 million, with these headliners:
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After a revenue slump in 2016, Sotheby’s has been enjoying a nice recovery with topline growth clocking in at an impressive 87 percent during Q3 FY17.
The company announced in December that its popular ‘A Life of Luxury’ series managed sales of $117.3M across six auctions, with 85.2 percent of lots sold. More than half of those sales surpassed the higher end of their estimates, so it seems as if the strong momentum is carrying on.
Overseas buyers have been feeling particularly frisky due to a weaker dollar which gives them more purchasing power. The greenback is going through another rough start to the year, and 2018 might turn out to be another record year for Sotheby’s.
#2 Fura Gems Inc. (TSX.V:FURA)
This is the most exciting company in this space because it’s sitting on arguably the most famous emerald mine in the world in Colombia, and four ruby licenses in Mozambique—the new hot spot for rubies.
Its new Colombia mine—Coscuez--is home to one of the biggest emeralds the world has ever seen, a 1.759-carat emerald that the Banco de la Republica of Colombia has deemed priceless.
Even better: This mine has only been 10 percent excavated, so Fura has acquired the raging bull of emeralds in a country that is the emerald capital of the world.
What it hasn’t had until now is a team of professionals to mine it.
Another find like this record-breaking emerald in Colombia could put Fura on the front page of every news outlet in the world.
And then there’s Mozambique … the world’s largest supplier of rubies by volume. It’s about to get even bigger because it will fill in the gap left behind by falling supplies from Burma (Myanmar), whose human rights issues are scaring away investors and buyers alike.
Here, Fura has acquired exclusive rights to the most sought-after gemstone deposits with four licenses for deposits at shallow depths. It has an 80 percent stake covering almost 400 square kilometers.
Sweetening the deal is the fact that Fura does something few know how to do: Employ a rare process of heating and treatment for rubies that turns lower-quality rubies into high-quality gemstones for the market.
And just like in Colombia, the ruby market of Mozambique lacks capital and structure, and Fura is poised to systemitize it all.
There has only been one company—until now—in the Mozambique ruby market, and that is Gemfields. The rest has been fractured and disorganized. But Fura is going to change that using a “diamond action plan” for colored gemstones.
De Beers turned diamonds into a massive $80-billion industry. Gemfields has shown us the beginning of what’s possible in the colored gemstone industry. And the same man behind two huge Gemfields discoveries and its $1-billion ruby mine valuation is the CEO of Fura, Dev Shetty.
The company is backed by heavy hitters at Forbes & Manhattan, a highly successful resource-focused merchant banking group famed for its wild success in locating undervalued assets, developing them, and selling them for huge profits. It acquired Consolidated Thompson’s assets for $0.22 and sold them for $17.25, for instance.
Fura is kicking off full production in less than a year, while revenues are expected six months later. With potential underground precious gemstone assets that are much larger than its current $52.3-million market cap, Fura Gems offers early-in investors a rare opportunity for strong capital appreciation from early-stage investments in a highly disruptive and exclusive resource sector.
#3 Rio Tinto Plc (NYSE:RIO)
This Australian-British mining giant awed the colored gemstone industry this summer, when it revealed, in New York City, the largest Fancy Red diamond in the history of its Argyle Pink Diamonds Tender. The 2.11-carat polished, radiant cut diamond—The Argyle Everglow™--is a feather in this miner’s cap. And it’s on trend with consumers’ desire for color.
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RIO is one of the top five largest independent diamond producers in the world. Its stock has been on the mend since early 2016 and has rallied strongly after the hammering it received post the 2011 commodities peak. The stock has rallied nearly 40 percent over the past 12 months, and the current bull market in metals and precious stones has only just started…
Being a large diversified mining company, diamond production is just one of RIO’s activities.
Rio boasts impressive growth assets that can continue to support earnings growth for many years to come. Currently the biggest of these is Silvergrass, whose primary product is iron ore. The project has the potential for more than 20 million tons/annum, good for nearly $1.6 billion in revenue at current prices of $77/ton. Silvergrass boasts an impressive Internal Rate of Return (IRR) in excess of 100 percent. Meanwhile, capex for the project is low at around $0.5 billion per quarter.
Rio also owns Amrun and Oyu Tolgoi projects, charged with the production of seaborne bauxite and high-quality copper, respectively. These two projects are probably responsible for driving most of the current investor enthusiasm on RIO stock. Both are big projects with annual capex exceeding $20 billion. Aluminum and copper prices have been climbing sharply, and are expected to remain elevated amid robust global demand.
#4 Tiffany & Co. (NYSE:TIF)
Tiffany is one of the largest and oldest jewelry companies with more than 100 international locations. In fact, Tiffany is credited with developing the carat as a weight standard for gems.
TIF has a new CEO, Alessandro Bogliolo, who is pushing his team hard to not only exceed investor expectations but also to outperform its competitors.
The stock had two upgrades in December, as analysts eye improved performance.
CitiBank upgraded TIF because it sees luxury goods businesses growing their sales by about 6 percent industrywide over the next few years, with profits growing at about 10 percent. It has pegged Tiffany’s as one of the leaders.
Arguably, TIF has done a lot to improve top and bottom-line performance in the long run. It has leveraged capital investments from the past few years in distribution, manufacturing and diamond-sourcing processes.
#5 Signet Group Plc (NYSE:SIG)
Signet Group is the world's largest retailer of diamond jewelry. Unlike high-end players such as Sotheby’s, Signet specializes in the middle-tier market and owns several brands, including Kay Jewelers, Zales and Jared.
SIG stock has endured a tough period that saw the valuation of its shares cut nearly by half due to lackluster growth. The company's transition to a non-bank lender rather than a pure-play jewelry has also been taking a toll due to high delinquency rates.
But at the current fair valuation, the stock might be a decent pick for value investors. It’s really trading at a discount amid all the negative publicity over a technically disastrous in-house credit portfolio and credit practices problems, but it’s under new leadership now and we see a new strategic focus, more stability and a new acquisition of an online diamond retailer.
Honorable mentions:
First Majestic Silver (NYSE:AG): There’s a lot of bullishness around this stock, with earnings growth expected to be high over the next 3-5 years. The optimism is absolutely justified as this Canadian mining company has been operating in Mexico for nearly a decade and has over $770 million in assets including 5 of the most promising locations in the country.
By. Charles Kennedy
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Forward-Looking Statements
This news release contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this release include that Fura’s property can achieve mining success for quality gemstones; that the gems when produced will be high quality; that tastes will move away from diamonds to colored gems; that Fura will be able to increase production through modern methods and increase the value of its assets through branding and auction sales; and that Fura will be able to carry out its expansion and other business plans. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that the Company may not be able to finance its acquisitions, expansion or other business plans, aspects or all of the properties’ development may not be successful, mining of the gems may not be cost effective, changing costs for mining and processing; increased capital costs; marketing plans may not work out as well as expected; the timing and content of work programs may change; geological interpretations and technological results based on current data that may change with more detailed information or testing; potential process methods and mineral recoveries assumptions based on limited test work with further work may not be viable; additional high value gem properties may not be available for Fura to acquire, or Fura may not be able to afford them; competitors may offer better quality or better marketing strategies; the availability of labour, equipment and markets for the products produced; and despite the current expected viability of its projects, that the gems cannot be economically produced on its properties, or that the required permits to build and operate the envisaged mines cannot be obtained. The forward-looking information contained herein is given as of the date hereof and the Company assumes no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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