Investors Turn To Gems As Diamonds Fall Out Of Grace

The Coscuez emerald mine in Colombia might be the holy grail of Emerald mining.

The mine has only been partially explored and it thought to hold a large amount of ore that’s capable of producing emeralds. In fact, in 1998 the area contributed 77 percent of Colombia’s total emerald production.

The mine has even made it into the Guinness Book of World Records: the largest-ever emerald, measured at 1759-carats, was discovered there (photo to the right).

For comparison, in June 2017 an 18-carat emerald ring sold for $5.5 million at auction. A well-cut emerald can be worth as much as $9,800 per carat

That means the 1759 carat Coscuez stone is worth in the range of $17 million, and maybe a whole lot more because it is unique.

Now here’s what most investors don’t know about the Coscuez mine: A huge portion of the mine is yet to be explored This means there could be many more massive emeralds waiting to be found by its new operators, Fura Gems (TSX.V:FURA).

And there’s a bigger story here too for smart investors. Diamonds are not rising in value. Better value in gems now could lie in colored stones: rubies, emeralds and sapphires.

These highly-desirable, rare and coveted stones are in hot demand, yet their total value lags behind that of diamonds: $2 billion versus $13 billion.

Prices, which have been increasing steadily in the last decade, could continue to soar with demand. The price of emeralds, for example, has increased by 500 percent since 2010, according to Gemfields PLC.

From a mere $2 billion, if trends continue and strengthen, colored gems could displace diamond’s market share and reach $10 billion in the next decade.

At the forefront of this movement is Fura Gems, a team of experts who are primed to lead the gem revolution, following a banner year in 2017. With a new CEO, two new assets primed for production and highly-favorable market conditions, the potential here is endless.

Here are five reasons to look at Fura Gems (TSX.V:FURA) as a breakout company in 2018:

#1 New Opportunities in Colored Gems

The global gemstone market is approximately $23 billion, with rubies, emeralds and sapphires making up only $2 billion. The sector is dominated by governments and informal operators, who control 90 percent of the market; break-out operator Gemfields Plc. managed to seize only 10 percent of the market share.

With diamonds overvalued in the opinion of many people and new gemstone production coming on line in Colombia, Mozambique and elsewhere, the market could be poised for a shift, one which Fura Gems will be well-suited to exploit.

Gemstones remain a hot commodity: as highly-sought after status symbols, they have become recognizable and desirable among nearly every consumer market, with major spikes in demand from India, East Asia and South America.

The United States remains the world’s largest gemstones market, consuming about 40 percent of global sales, though rising demand in China has cut into that share.

The popularity in non-diamond stones has soared in recent years. Prices have increased 100 percent in the last decade, according to a report from the Natural Resource Governance Institute.

Yet the sector, because it is dominated by informal operators and governments, suffers from under-capitalization and a lack of technological expertise. Immense opportunities are squandered due to inefficiency.

Value is drained away through graft, corruption and waste. Large finds go undeveloped for lack of investment.

Colombia is a case in point: the country has seen its emerald production plummet from a high in 2004, even as exports rose nation-wide. The country has suffered from decades of conflict over its rich resources, particularly its emeralds, yet it remains a key source of precious stones for firms like Fura Gems, which can deploy technical expertise to tap into Colombian emeralds, which remain un-paralleled in quality.

The colored gemstones market is fractured. So far, no firm has emerged as the “De Beers of colored gemstones,” with the capital, expertise and long-term planning capable of rationalizing colored gemstones production and realizing large-scale profits.

But Fura Gems (TSX.V:FURA) is moving in that direction, thanks to its superb management team, an aggressive expansion strategy and a history of success.

#2 Diamonds vs. Colored Gems

In the world of precious stones, diamonds dominate. Sales of diamond jewelry exceed those of every other precious stone, and diamonds make up more than fifty percent of global precious stone sales per year.

Yet the idea that diamonds are intrinsically more valuable than colored gemstones is something of a myth.

In reality, some colored gems are far rarer than diamonds. A black opal, for instance, goes for as much as $20,000 per carat, which is twice as much as even the finest-cut diamond at $9,300 per carat. While colored gems are found through mining, diamonds can be manufactured.

And while diamond dealers possess a fairly organized system for measuring quality, gemstones are measured in a far more subjective manner.

The potential for gems here is huge.

The diamond sector grew thanks to the efforts of large firms like De Beers, which set up large integrated operations to grow the sector and control costs. By contrast, colored gemstones have been dominated by local and informal operators or governments.

As a result, “diamond money” has always surpassed “colored gemstone money.” Out of a global market of $23 billion, diamonds make up $12-14 billion and jade $3-6 billion. Colored gems come in at a distant third, with only $1.5-2.5 billion.

But that could be about to change.

Conditions in many “blood diamond” mines, particularly in Sub-Saharan Africa, are bad and have attracted considerable international attention, putting more pressure on diamond manufacturers.

At a market level, tastes are moving away from diamonds and towards colored gems. Younger generations don’t attach as much importance to diamonds as their parents and grand-parents, and when they do buy stones they tend towards colored stones like rubies, emeralds and sapphires, according to one CNBC report.

De Beers, a major diamond company majority-owned by Anglo-American, has seen two straight cycles of declining sales. Sales of rough diamonds in one 2017 cycle fell by 29 percent from the prior year, from $494 million to $370 million, according to Fortune.

Outside of colored and other diamonds, rubies sell for much more USD per carat at auction than other gemstones.

If the “diamond playbook” used by firms like De Beers (integrated operations, large-scale application of technical expertise) is applied to colored gemstones, the profit potential could be immense.

Smart money may be about to move from diamonds to colored gems, and Fura Gems (TSX.V:FURA) has its “diamond playbook” at the ready.

#3 Management Team

The team at Fura Gems is prepared to put their diamond playbook into action. With immense experience in the natural resources industry and a long track record of success, the leadership of Fura Gems is well-positioned to capitalize on opportunities in the colored gems market.

CEO Dev Shetty came to Fura from Gemfields Plc, the world’s largest supplier of colored gemstones. Shetty joined Gemfields when the company was struggling, and he led the firm’s entry into Colombia and Ethiopia, where it realized some significant successes.

He played a vital role in developing the world’s largest emerald mine in Zambia and the Greenfield project in Mozambique, believed to be the largest deposit of rubies on earth.

Through Shetty’s efforts, the Mozambique ruby asset was developed from nothing to a valuation of around $1 billion, and the Gemfields mine itself generated $225 million in revenue from seven ruby auctions after 2014, with the total investment recouped after one auction.

Shetty’s predecessor at Fura, Jamie Lalinde, remains on the board and continues to offer advice to management. With more than twenty years in the banking industry, including stints at Chase Manhattan, Merrill Lynch and Citbank, Lalinde has extensive experience operating in the Mexican and Colombian mining sectors. He was the founder of La Esperenza Mining.

Fura has a top-notch advisory team behind it. The team includes legendary investor Jim Rodgers, famed broadcaster and media figure Larry King, and international investor Michael Spektor. Professional mining executive Stan Bharti, who in his thirty-years of experience has amassed over $3 billion in capital from junior resource companies, brings his unique insights to Fura’s efforts to become the world’s first large-scale colored gems producer.

Fura’s management includes executives from all the world’s major mining companies: De Beers, Rio Tinto, Alcan and Gemfields, just to name a few. This is a team to trust.

#4 Big Plans for Future Growth

With its leadership in place, Fura Gems is moving fast to capitalize on opportunities in the colored gems sector.

The company’s strategy focuses on acquiring gemstone projects with known properties, which have suffered from under-capitalization. By increasing productivity and establishing sales through auctions, focusing on its Mozambique rubies and Colombian emerald brands, Fura Gems plans to take assets with known but limited value and significantly increase their value.

In October, Fura announced the acquisition of the Coscuez emerald mine in Colombia. The $10 million deal gave Fura Gems a controlling stake in a mine covering 46 hectares, one that has produced some of the finest emeralds in history over its 400-year lifespan, yet it has never been opened up to large-scale development.

The Coscuez mine is believed to hold a large amount of emerald producing ore. The mine has a strong pedigree, and in 1998 the area contributed 77 percent of Colombia’s total emerald production, according to the U.S. Geological Survey’s report on global emerald production.

The mine has even made it into the Guinness Book of World Records: the largest-ever emerald, measured at 1759-carats, was discovered there.

For comparison, in June 2017 an 18-carat emerald ring sold for $5.5 million at auction. A well-cut emerald can be worth as much as $9,800 per carat. (A top quality 5-carat emerald could sell for as much as $95,500.)

That means the 1759 carat Coscuez stone is worth in the range of $17 million, and maybe a whole lot more, since it is unique.

And only a small portion of the mine has been explored, which means there could be hundreds more massive emeralds waiting to be found.

Fura Gems plans to apply its expertise and resources to modernize the mine, which like many mines in Colombia was exploited using primitive labor-intensive methods, and plans to greatly increase emerald production within six months.

The company’s second large asset is its open-pit ruby mine in Mozambique, announced in September. The company’s licenses give it exclusive rights to ruby deposits in the Montepuez District of Mozambique, the area where rubies have been historically mined.The initial finding from the artisanal pits shows the occurrence of both primary and secondary mineralization consisting of both higher and lower quality rubies. For the lower quality rubies, Fura’s unique heating/treatment process will enhance the value proposition.

Fura has set its sights on India, the third largest jewelry consuming country on earth. Fura is “actively looking for opportunities,” according to Shetty, who hopes to tackle the fragmented and scam-riddle colored gemstone sales sector in India through the organized marketing of brand jewels from the company’s mines in Colombia and Mozambique.

These investments are just the beginning of Fura’s plans. The estimated value of mineral assets at these mines is much higher than what has actually been produced. Colombia, for instance, has produced perhaps 20 percent of its total emerald reserve, according to a detailed report from the Gemological Institute of America (GIA).

Discoveries of high quality emerald pockets can yield revenues of up to $14,000 per carat. Getting accurate figures on the total value of emerald production is very difficult, since production is so diffuse, fragmentary and localized. But from a $10 million stake in the Coscuez mine, it’s possible that Fura Gems’ ruby licenses have a similar opportunity to repeat the success of Gemfield’s Mozambique operation: $225 million from seven auctions in the first five years.

#5 Urgency

The expansion of the diamond industry was decades in the making. Now, with interest in diamonds possibly on the wane, colored gemstones could be set to expand, breaking free from the shackles of a fragmented industry. Fura Gems is aiming to drive that expansion.

The company has its priorities set. By taking on proven mining assets in Colombia and Mozambique, it reduces the inherent risk of a greenfield project: the Colombian mine at Coscuez, for example, has been producing for four-hundred years!

Furthermore, the company’s management team is full of experts with a proven track-record in delivering high-quality results. CEO Dev Shetty took Gemfields from a $201 million net loss in 2009, and realized $84 million sales with a 50 percent profit margin by 2013. By 2015 the company had a market valuation of $525 million.

And he’s starting again in this CAD$60 million market cap startup. When you consider the value locked away in Mozambique the Colombia, the value of Fura Gems’ assets and sales could increase significantly.

It’s highly likely, with interest in colored gemstones on the rise, he is looking to repeat this performance at Fura Gems.

The company has emeralds and rubies, but once its business plans are fully implemented, it could announce a “rainbow” of colored stones across the world.

With the industry looking to take off, and with Fura Gems (TSX.V:FURA) poised for a dynamic 2018 to follow its record-setting 2017, now is the time for investors to take note.

Other giants in the luxury goods space:

Turquoise Hill Resources (TSX:TRQ) is a mid-cap Canadian mineral exploration and development company headquartered in Vancouver, British Columbia. Its focus is on the Pacific Rim where it is in the process of developing several large mines. The company mines a diversified set of metals/minerals including Coal, Gold, Copper, Molybdenum, Silver, Rhenium, Uranium, Lead and Zinc. One of the fortes of Turquoise hill is its good relationship with mining giant Rio Tinto.

Pretium Resources (TSX:PVG): This impressive Canadian company is engaged in the acquisition, exploration and development of precious metal resource properties in the Americas. Pretium has an impressive portfolio and if you can catch the stock while the price is right, there could be huge opportunity for upside. Additionally, construction and engineering activities at its top location continue to advance, and commercial production is targeted for this year.

Barrick Gold Corp. (TSX:ABX) An under-performer in 2017, Barrick Gold is likely to have a much stronger 2018, even if gold prices fall. The company is one of the world’s largest gold producers, with 1.243 million oz. produced in Q3 of 2017. The company is projecting more than 5 million oz. for 2018. The company runs 11 gold mines. For the last several years, Barrick has been loaded down by debt and lower-than-average gold prices. It enters 2018 after a year-long slump. However, with lower debt and stable gold prices expected, the company enters the new year under-valued, making it a tempting target for investors.

First Majestic Silver (TSX:FR): 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.

IAMGOLD (TSX:IMG): IAMGOLD is a fast-growing mid-tier gold miner with the ambition to become a major gold miner. The company produced some 214,000 ounces in Q1 2017 from its operations in South America and Africa. In June, this promising miner closed a deal with Japanese commodity giant Sumimoto to develop an Ontario gold project.

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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 Gems can deploy technical expertise to tap into Colombian emeralds; that gemstones will be as much in demand in future as currently expected; that Fura can fulfill all its obligations to exercise its property options; that Fura’s property can achieve mining success for quality gemstones; that Fura has a process that can convert low quality stones into high value gemstones; that Fura will obtain mining permits on its properties; 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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