Clifford Elphick, diamond entrepreneur
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» Elphick targets five mines by year-end
» GEM may bid for Kimberley Diamond Co.
» Gem buys troubled Gope for $34m


GEM may sell 1m oz gold prospect
Allan Seccombe
Posted: Thu, 19 Jul 2007

[miningmx.com] -- GEM Diamonds will sell its Papua New Guinea gold asset before the end of 2007, a year in which it will spend a further A$20m at the Ellendale diamond mine in Australia to lift production to 500,000 carats, CEO Clifford Elphick said on Thursday.

Gem unveiled a A$300m bid on Thursday for ASX and AIM-traded Kimberley Diamond Company, which owns the Ellendale mine. Gem will fund the transaction out of existing cash resources and hopes to finalise the deal by mid-September, Elphick said.

Gem acquired BDI Mining earlier this year, gaining an 80% stake in the Cempaka alluvial diamond project in Indonesia as well as the Woodlark gold project in Papua New Guinea.
We are running at breakneck speed
It has always been Gem’s intention to dispose of the million ounce gold resource project to offset the £42m or $83m cost of the BDI acquisition.

“We have an offer on the table, which we are evaluating. It’s a bit shy of where we want it to be and we are in negotiations to get them to nudge it up a bit. If it gets to where we want to be we will close that transaction,” Elphick told Miningmx.

The unsolicited offer came in before Gem could embark on a formal sale process and inviting interested parties to look over Woodlark. “We’ve held off doing that while this happened because it’s much simpler,” he said.

A number of large gold companies are operating on the island. South Africa’s Harmony Gold has a bold development and exploration programme in Papua New Guinea. Barrick Gold has the Porgera mine there and has recently bought Emperor Mining’s 20% stake in the project.

Elphick declined to identify the company.

Once the Kimberley transaction is completed, Gem will have $200m cash remaining on its books. It raised $600m when it listed on the London Stock Exchange in February this year.

Earlier this year, Gem bought the Gope kimberlite exploration project in Botswana from De Beers and Xstrata.

Elphick has said Gem will be a million carat producer by 2009. It has now made three acquisitions since listing in February this year, including Kimberley.

“We are running at breakneck speed,” Elphick said. There are still further acquisition targets available, but he would not be drawn whether Gem would continue its buying spree.

If the Kimberley transaction goes through, it should lift Gem's diamond output to roughly 1.1 million carats in 2008. With the ramp up in production at all the projects, output could rise to an indicative 1.24 million carats a year later.

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As part of the Kimberley offer, Gem is providing a A$10m loan towards the Perth-based company’s working capital requirements. This money is the precursor to another A$20m Gem will spend at Ellendale to raise production.

Production is currently 380,000 carats from treating five million tonnes of material from two lamproite pipes. The additional spending on crushers, screens and other infrastructure will lift production to eight million tonnes a year and 500,000 carats a year.

Again, the capital investment will come from Gem’s internal cash pile.

Kimberley ran into financial difficulties at the project where it has already spent A$150m. Heavy rains over Western Australia last year flooded operations and set back the ramp-up process.

Elphick said by improving the roads, such risks when Gem was running the operation could be avoided.

Gem wants to secure acceptances of 90% of shareholders to force out minorities and delist Kimberley, keeping the access point into Gem limited to its London listing.

If the Kimberley transaction is completed in September, Gem will spend the remainder of the year, which is the rainy season, improving the plants and systems to achieve full production at the start of 2008.