Gem Diamonds to quit DRC

Brendan Ryan | Wed, 26 Aug 2009 10:03

[miningmx.com] -- GEM Diamonds has decided to exit its operations in the Central African Republic (CAR) and the Democratic Republic of Congo (DRC).

The decision is despite turning in better-than-expected results for the six months to end-June which reported an attributable profit of $3.3m. The Gem share price rose 8% to 268p on the London stock market on release of the results this morning.

That is a blow to the DRC in particular because Gem had viewed the country as one of the most prospective in which to find a major new kimberlite mine. Gem management had previously been highly optimistic about some of its exploration projects there.

Market speculation at one point was that Gem was considering teaming up with BRC DiamondCore on kimberlite exploration in the south of the DRC where their projects sat in close proximity.

CEO Clifford Elphick attributed Gem’s profitability to improving rough diamond prices in the second quarter and the strategy of cash preservation and generating maximum cash flow from its two producing mines - Letseng in Lesotho and the Ellendale E9 operation in Australia.

Elphick pointed out that Gem was now debt free and held gross cash of $120,5m - of which $106.1m is attributable to the company - at end June.

This followed the decision to raise $98.8m through an equity placing which was used to pay off outstanding loans and redeem the outstanding convertible bonds due in October this year.

Elphick commented, “having repaid all debt the company is in a sound position to create value for shareholders.”

He added Gem’s operations in the DRC and the CAR remained on care and maintenance and commented these were “ under continuous review and management is actively seeking opportunities to dispose of these operations.”

Gem lost $3.2m on its operations in “Central Africa” during the six months to end-June.

Also on care and maintenance – but apparently not up for disposal at this stage - are Gem’s operations in Angola and Indonesia while “negotiations with the Government of Botswana concerning a mining licence for the Gope deposit are on-going.”

Elphick remained cautious on prospects for the remaining six months of the financial year to end-December.

He commented, “demand for diamond jewellery at the retail level has continued to remain below 2007 levels in the United States which remains the largest consumer of diamond jewellery.

“There has however, been continued strength in sales of diamond wedding jewellery. Evidence suggests that retail diamond jewellery has remained strong in the Middle East, Asia (excluding Japan) and especially in China.

“The company remains cautious about the level of retail diamond jewellery demand in the US in the forthcoming Thanksgiving and Christmas season.

“The company remains focused on preserving existing cash and generating profits from its producing operations.”

By far the bulk of Gem’s operating profits came from the Letseng mine which generated an operating profit of $22.3m compared with an operating profit of $1.4m for Ellendale.

The Government of Lesotho is entitled to 30% of the profits made by Letseng.