A small auction and a bigger test

Good afternoon and welcome to yesterday's newsletter. Mozambique’s first domestic ruby auction raised just over $214,000, a fraction of the tens of millions that Montepuez rubies fetch at major international sales. Held in a private room at Nacala International Airport under heavy police guard, the event attracted twelve companies to inspect the lots, of which four submitted bids. Two lots of rough ruby went to Mozambican firm Zambrock Mining and Exploration, a company owned by Belmiro Mize Lampiao, after live bidding pushed the price above its initial offer of $199,998. Two corundum lots remained unsold because bids fell below their reserve prices and will be offered again. Judged on revenue alone, the auction would be easy to dismiss.

Its value lies in completing a transaction. Fura Gems offered stones, buyers competed and a sale was concluded. Against the billions routinely announced at investment conferences, with little subsequent accounting, that is a useful result. Gemfields’ latest auction, with viewings in Bangkok followed by online bidding, raised $52m. The companies and parcels differ, so the totals say little about relative prices. Nacala nevertheless demonstrated that Mozambique can host a ruby sale and put the necessary security and procedures in place.

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Ethiopian Airlines’ new service should help develop that business. From tomorrow, the airline is scheduled to serve Nacala three times a week, connecting the city to its wider network through Addis Ababa. Flights arrive via Blantyre and return directly to the Ethiopian capital, removing one practical obstacle for visiting buyers. Hosting auctions locally can bring buyers closer to producers and generate work for local firms. It does not, however, mean the stones have been cut or processed in Mozambique. Nor does an overseas sale necessarily deprive the country of its proceeds: Gemfields says it pays royalties on the full sale prices and repatriates the revenue to its Mozambican operation. Nacala’s commercial case rests on the business it can attract and retain.

The auction took place during CAVAME-d, the conference the government wants to turn into an annual Mozambique Mining and Energy Week. Its $4.2bn in announced investment now needs to be assessed with the same attention to completed transactions. Signing twelve memoranda of understanding does not demonstrate that financing is secured or construction firmly committed. Next year’s gathering should establish how far those proposals have progressed.