Gemstones (Image: Istock) 
If you woke up at the start of 2025 and decided that this was the year to buy Afrimat and Gemfields as your choices in the mining and resources sector, you would be down 29%. To make it even worse, just buying a Resources Index ETF (like the Satrix RESI ETF) would have doubled the value of your money over the same period thanks to the incredible gold rally and more recently the platinum group metals (PGMs).
As underperformance goes, that’s pretty awful. But could things change and allow Afrimat and Gemfields to regain some lost ground? Both companies released updates in the past week, so it’s a good opportunity to consider their performance and whether the bottom might be in.
We begin with Afrimat, where momentum does seem to be swinging.
Is dawn breaking at Afrimat?
Afrimat has an incredible track record of dealmaking. Over many years, they’ve built a resilient and diversified resources business through a combination of organic growth, bolt-on acquisitions and entries into new commodities.
At some point though, something had to go wrong.
As is usually the case, it’s a combination of factors that has led to the situation that Afrimat now finds itself in. The Lafarge acquisition is bold to say the least, with Afrimat having willingly signed up for a difficult asset that was always going to make losses for a while. Now, those losses can be absorbed if the rest of the business performs well, but that’s a big if.
While the group has been trying to bed down arguably the riskiest acquisition in its history, they’ve had to deal with a cocktail of problems, ranging from disastrous circumstances in the local ferrochrome smelters (key customers for the anthracite mining operations), to serious questions around the sustainability of ArcelorMittal as an iron ore customer. The risks of local infrastructure are never far away either, with planned maintenance scheduled on the Saldanha export line for the second half of the year. This will ruin the international volumes growth in bulk commodities, with the second half expected to offset the growth in the first half.
There are clearly no easy wins at Afrimat, yet the freshly released trading statement for the six months to August 2025 reflects HEPS (headline earnings per share) growth of between 90% and 95%. The important context is the soft base period, as the six months to August 2024 was an absolute disaster. HEPS was just 53 cents a share in that period vs an average interim HEPS of 270 cents for the three preceding periods (2021 – 2023). This means that even with the growth in the latest period, they are still running at less than half the levels that investors became accustomed to in the pandemic.
Still, the recovery has to start somewhere. Although there are reasons to be cautious about the second half of the year, shareholders will hope that the worst is behind them.
The current share price (at the time of writing) is R40.38 and the 52-week low is R36.46. The 52-week high is R72.50, so there’s way more space to the upside than the downside from current levels. These are the types of things that punters look at when deciding whether to buy into a turnaround story. Another important metric is the track record of the company before the trouble started, which is a box that Afrimat can certainly put a big green tick in.
No luck at all at Gemfields
We are currently in a world where many central banks (but not the SARB) are running their economies hot. You can see it in the gold price, which breached $4,000/oz in the past week. Over at Gemfields, they also decided to run the balance sheet hot in the past couple of years. Unfortunately, unlike central banks, they don’t have a printing press hiding around the back that can just inflate the problems away.
When Gemfields ran out of money earlier this year, they had to tap the market for more. The rights issue led to a significant change in the company’s recent reporting narrative, with clear acknowledgement that they took too many risks with their capital allocation and it got them into trouble.
The problem is that even with a more conservative view on capex, Gemfields remains a high-risk business. They are dealing with operational risks in Mozambique and Zambia, ranging from illegal mining activities and conflict, to governments who make crazy changes to tax laws without any warning.
Just this week, the company announced that illegal mining at the all-important MRM plant in Mozambique had led to the sabotage of plant supply infrastructure and delays to production plans. Gemfields has had to defer the November/December ruby auction to January/February next year. When the balance sheet has been under pressure, the last thing you want to see is deferred revenue.
The other major challenge in the business is that the rubies and emeralds that come out of the ground vary considerably in quality. This makes it difficult to forecast the auction revenues, since the grades at each auction will be different. At the latest ruby auction, only 62% of the carats on offer were sold. The lowest-grade material wasn’t supported by the market, so Gemfields will need to refine their strategy there.
The recent capital raising activity means that the 52-week high of R2.77 isn’t a realistic target to get back to in the near term, as there are now many more shares in issue than before. The current price is R1.32 and the 52-week low is R0.92, so there’s already been a bounce off the lows that could easily reverse if negative news continues to come through.
Compared with Afrimat, Gemfields feels like more of a gamble thanks to the underlying risk profile. And perhaps most of all, Afrimat benefits from exposure to commodities that have industrial uses, whereas Gemfields is at the mercy of consumer jewellery preferences. As De Beers recently taught us with the collapse of the mined diamond market, those consumers can be fickle. DM