Diamonds or dust: MTN soars as Gemfields struggles in Africa's high-risk game

Daily Maverick

04-05-2025

MTN and Gemfields highlight Africa's duality: thrilling growth and unpredictable risk. MTN is thriving amid economic stabilisation, with standout results in Ghana and Nigeria. Gemfields, meanwhile, battles unrest, tax shocks, and plunging gemstone prices. For investors, Africa remains a high-stakes bet—rewarding for some, punishing for others. Resilience is essential.
MTN: Time for Africa?
MTN's share price bounces all over the place, mainly because the group is so heavily exposed to African economies, which can produce some pretty spectacular levels of volatility.
Inflation rates can be eyewatering, currencies can lose much of their value in just one year, and of course, there's always the risk of conflict or 'democratic' processes that leave much to be desired. And even if all of those corporate bullets are dodged, there's the risk of attempted tax grabs by African governments, often in the form of surprise changes to legislation or just outright attempts to bully companies into paying more tax.
And yet, the opportunity to do well is there. For those with strong stomachs and a healthy dose of risk appetite, Africa offers exciting markets. This volatility is why the narrative around MTN can change faster than Cape Town's weather.
Last year, the African economies were a mess and the forex losses were vast, particularly in MTN Nigeria. MTN even had to delay the maturity of the MTN Zakhele Futhi B-BBEE scheme, such was the depressed nature of the MTN share price. Fast forward to May 2025 and the MTN share price is up 32.5% year-to-date. The market is feeling far better about this story, mainly because the African economies have managed to find some stability at a time when the world's developed markets are having a wobbly.
MTN Ghana kicked things off in the past week, where service revenue growth of 39.6% was well ahead of inflation at 22.4%. The EBITDA (earnings before interest, tax and depreciation) margin expanded by 220 basis points to 58.1%, which drove an increase in EBITDA itself of 45%. High inflation rates aren't a problem when you see growth like this, as the company is delivering real growth – literally, growth in excess of inflation.
With Ghana having abolished the e-levy tax on mobile money transactions with effect from 2 April 2025, the great news is that even the government seems to be taking a pro-growth stance these days. Long may it last!
The results from Ghana were the perfect hors d'oeuvre, with MTN Nigeria as the main course. Nigeria is the business that makes or breaks the group story – and in this case, there's great news to share. Inflation was 24.2% and service revenue growth was 40.5%, so that's a very similar result to what we saw in Ghana. The big difference is that the currency stabilised against the US dollar this quarter, which took MTN Nigeria from a terrible net loss of N392.7-billion (about R4.5-billion) in the comparable period to a profit of N133.7-billion (about R1.5-billion) in this period.
And it's not just a currency story either, evidenced by a metric like EBITDA margin improving by a meaty 720 basis points to 46.6%. There's a real opportunity here for MTN Nigeria to continue making improvements to the balance sheet, provided that the currency continues to play ball.
When we combine the MTN news with the recent update from Standard Bank that reflected 10% earnings growth in the first quarter, with Africa as a meaningful contributor, it looks like 2025 could be a far stronger year for the continent. We just need the current trajectory to continue.
Rubies are red, emeralds are green – and auction prices are confusing
Of course, happier times for MTN and consistently good results for Standard Bank don't mean that every business in Africa is doing well. It all comes down to the underlying exposure and business model. The regional trajectory is just a useful tailwind for many businesses.
A perfect example is Gemfields, the company that mines rubies in Mozambique and emeralds in Zambia. It has had to navigate unrest and outright conflict in Mozambique, as well as the sudden introduction (and then removal) of a tax in Zambia. In fact, Gemfields is a great way to play Africa Risk Bingo.
If that wasn't bad enough, it has had to face these risks at the worst possible time. The combination of an extensive capex programme alongside a worsening market for the precious stones was just too much for the balance sheet to deal with, leading to the company having to tap shareholders for capital in a rights offer.
Now, the obvious way to track whether there's any improvement for Gemfields would be to look at auction results. The challenge is that rubies and emeralds are naturally occurring products of varying sizes and grades, which means that no two auctions are alike in terms of the mix of products being offered.
Still, the latest auction results appear to be at prices per carat that are way below previous auctions. Either there has been a material change in the mix of stones on auction, or market prices have nosedived. Given the broader difficulties in this space, it seems possible that the truth is a combination of the two.
For example, a recent mini-auction of rubies achieved just $39.47/carat, which is minimal compared to the preceding recent auctions at Gemfields that ranged from $154.84/carat to $321.94/carat. Similarly, an emeralds auction achieved only $6.97/carat, which is way off the recent results of $15.90/carat to $167.51/carat.
The corporate narrative around the auction's results is one of renewed optimism. I would just feel more confident in sharing that optimism if the numbers made more sense. Gemfields is certainly one to keep an eye on this year. DM