By Dr. Michael Green

Matters seem to be progressing quite swiftly at gemstone mining business Shefa Yamim. A recent operational summary was able to highlight that the substantial progress achieved in 2018 has continued into the current year.

So far in 2019, management has been able to deliver a number of key milestones. Firstly, the completion of independent Technical Economic Evaluation (TEE) which very neatly places the first mine at Kishon Mid-Reach Zone 1 project at the lower end of the cost curve. Secondly, official recognition has been received on a new mineral in nature named Carmeltazite, discovered by Shefa and found in its gemstone the Carmel Sapphire™.

Thirdly, an independent valuation of the company’s Gem Box suite of precious stones, compiled by gem expert Dr Gavrielov Gila, which importantly includes valuations of US$10,000 and US$7,000 per carat for Natural Moissanite™ and Blue Carmel Sapphire™ respectively.

On top of this the company has made an important move to improve liquidity by a highly sensible 10-for-1 share split. Plus, the English name of the company is being changed to Shefa Gems Ltd, so now investors can more easily appreciate what the company does.

Recently the company raised £1 million, which is expected to fuel growth and allow the team to pursue its twin-track strategy of progressing the Kishon Mid-Reach Zone 1 project whilst developing its Mine to Market strategy. The new monies should help Shefa continue progress with planning and regulatory procedures to advance the Kishon Mid-Reach Zone 1 area to begin mining in 2020 and generate revenue. In addition, these funds are expected to allow further exploration of its target in the Kishon Mid-Reach area, beginning with further exploration of Zone 2 in Q2 2019.

Part of the newly raised cash will also allow for an expansion of exploration efforts to Zone 3 of the Kishon Mid-Reach area. There does seem to be a lot more gemstones to be found in Zones 2 and 3.  That’s not to mention building on the launch of the “Heaven on Earth” collection, created by world-renowned jewellery designer Yossi Harari, along with developing the company’s Mine to Market strategy and sell its jewellery using its exquisite gemstone internationally.

At the time of theupdate, Chairman Michael Rosenberg OBE commented that “The Board’s focus is to unlock the premium value of these multi-gemstone projects for the long-term benefit of shareholders. In 2019, we also aim to engage with London-based advisors who will help us expand understanding of Shefa Yamim’s investment proposition amongst City audiences. In conclusion, from an operational, financial and corporate perspective, Shefa Yamim has never been in a stronger position. The funds raised will enable us to pursue our twin-track strategy to progress the Kishon Mid-Reach Zone 1 project, while developing our “Mine to Market” strategy with the ambition to build a global brand based on the unique location and rarity of our precious gemstones.”

For those new to Shefa, the company has a gemstone mining project in the Holy Land with high margins on rare gemstones expected by adopting a Mine to Market strategy. After 19 years of exploration in greenfield terrain in Israel, the company has found commercial quantities of some exquisite and rare coloured gemstones which are destined to fetch fancy prices.

To date over US$35 million has been invested in exploration. Drilling and bulk sampling has allowed the delineation of a 4.5km long deposit in Kishon Mid-Ranch Zone, with gravel layers of varying thickness up to 4.5m, where all the gemstones have been found. Significant exploration upside exists within the Mid-Reach, Proximal Reach and the longer term Distal-Reach.

Early cash flow is expected for 2020 by which time trial mining of the Kishon Mid-Ranch Zone 1 should be well underway to be quickly followed by the move to commercial mining.  There is some bureaucracy that the company needs to navigate its way through to gain the trial mining licence as Israel does not really have much of a mining industry and so granting a licence is a bit of a new thing over there.

However, the granting of a mining licence will allow the company to sell the gemstones found in bulk sampling and other exploration work, which provides the prospect of early cash flow. At the same time, we are excited that Shefa will be capturing high margins by adopting a similar Mine to Market strategy (rather than simply being a miner) to that successfully pursued by Gemfields, which was acquired for £200m+ in 2016. 

Shefa has been allowed to sell pieces on a trial marketing basis. Following an exhibition in the US, ten pieces of the “Heaven on Earth” collection were sold at prices that serve to validate the independent expert valuation numbers for the constituents of the company’s Gem Box.

Management has an ambition to build a global brand based on its unique location coupled with the rarity of its precious gemstones. It does seem that Shefa Yamim is well-positioned and has the funding in place to make some important strides towards this goal. We initiated coverage on the company in March 2019 with a Conviction Buy stance when the share price was 52.5p (or 5.25p post the spilt) with a target price of 376p (or 37.6p post the split). With the shares currently trading at the 5.75p mark, our positive view remains unchanged.

DISCLOSURE & RISK WARNING

Shefa Yamim (SEFA) is a research client of Align Research. Align Research holds an interest in the shares of SEFA. Full details of our Company & Personal Account Dealing Policy can be found on our website http://www.alignresearch.co.uk/legal/

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• Shefa Yamim