Gemfields takes $125M hit as Montepuez grades disappoint

Gemfields (LON: GEM)(JSE: GML) expects to report a $73.5 million loss for the six months to June after taking a $125.2 million impairment against its Montepuez ruby mine in Mozambique, where it recovered fewer high-quality rubies than expected.

The coloured gemstones miner also increased an impairment on the mine taken in its 2025 financial year from $35 million to $65 million after identifying a further $30 million adjustment. It did not explain what caused the adjustment, saying only that more detail would be given with its interim results on September 30.

Gemfields said ruby recoveries had been lower than expected during the first half, although there had recently been some improvement.

“The first half of 2026 was a challenging period for Gemfields, driven by lower-than-expected premium ruby recoveries at MRM, which had a significant impact on the Group’s financial performance,” interim CEO David Lovett said.

The writedown raises the stakes for Gemfields’ efforts to improve output at Montepuez, one of the world’s most significant ruby deposits and a key source of the company’s revenue. Management is trying to determine the cause of weaker grades while improving mine planning and operating reliability as the company seeks to rebuild its balance sheet after two difficult years.

Eyes on new plant

Gemfields said the impairment reflects a more conservative forecast for recovered grades, particularly premium rubies, after disappointing production during the first half. Recent performance has shown early improvement, although the company said more evidence is needed before it can draw firm conclusions.

Management’s attention is also on PP2, the second processing plant at Montepuez. The plant has reached and at times exceeded its designed throughput, but final commissioning and optimization work continues.

PP2 is intended to triple Montepuez’s processing capacity to 600 tonnes per hour from 200 tonnes and help the mine work through stockpiles while providing greater flexibility to process ore from different parts of its large licence area.

The project has faced repeated setbacks. Completion was delayed last year by difficulties obtaining work permits for specialist electrical work, transportation problems that included damage to a key transformer, and security and operational disruptions related to illegal mining.

Further commissioning problems emerged after PP2 began operating in September 2025, including excessive wear on some components, equipment defects and choking in parts of the plant. Gemfields said in June that the problems had affected plant availability and operating consistency.

Montepuez generated $76.1 million in revenue during the first half, nearly double the $38.9 million recorded a year earlier. 

Gemfields cautioned that the periods are not directly comparable because a mixed-quality ruby auction originally scheduled for December 2025 was deferred until February.

Kagem, its emerald mine in Zambia, generated $26.7 million compared with $21.1 million a year earlier. Gemfields said the operation performed well and recovered good-quality premium emeralds, although operating costs remained elevated.

Financial pressure

Gemfields has been cutting costs and selling assets to shore up its finances after production interruptions constrained output, auction frequency and cash generation. The company reduced group operating costs by 17%, completed a $30-million rights offer and sold luxury jewellery brand Fabergé for $50 million as management prioritized debt reduction and financial flexibility.

Reliable production and regular auctions have become increasingly important as Gemfields seeks to convert gemstone inventories into cash while funding operations and investment.

Another risk lies outside the gemstone market. Rising geopolitical tensions in the Middle East have increased fuel costs and created potential supply problems for Gemfields’ diesel-dependent operations in Mozambique and Zambia. The company has warned of a possible fuel “pinch point” and considered measures including additional storage and alternative supply arrangements.

For now, Montepuez remains the immediate test. Lovett said Gemfields’ priority for the rest of 2026 is to demonstrate that the recent improvement in ruby recoveries can be sustained while maintaining financial discipline and flexibility.