[miningmx.com] — GEM Diamonds (Gem) reported record earnings before interest, tax, depreciation and amortisation (EBITDA) of $90.8m in the six months to June because of record rough diamond prices.
CEO Clifford Elphick said the record prices resulted from a number of fundamental changes that have taken place in the diamond market over the past few years, which were now “dramatically impacting’ on rough and polished diamond pricing.
Elphick commented “rough supply from the major producers is diminishing, no new large diamond mines have come on stream in the last five years and it is widely acknowledged that, outside of Zimbabwe, there is limited hope of significant new supply coming on-stream within the next ten years.
“Of the existing diamond mines in operation, many of the older mines require substantial amounts of capital to continue operating as they mine deeper and/or move to more expensive underground operations.
“In addition, following the global financial crisis, the severe reduction in rough diamond supply by the major producers between November 2008 and June 2009 was much greater than the equivalent fall in retail demand with the result that stocks of rough and polished diamonds in the cutting centres fell substantially.
“Allied to this, whilst the United States remains the largest market for the consumption of diamond jewellery, the engine of growth has moved east to China and India.
“According to De Beers, in 2010 whilst the US diamond jewellery market grew by 7%, the Chinese market grew by 26% and the Indian market grew by 37%.’
Elphick added that given the rarity of large exceptional, high quality, top colour diamonds and the significant growth in demand in the East, the supply/demand dynamics were especially positive at the top end of the market.
Gem produces such diamonds from its Letseng mine in Lesotho and the Ellendale mine in Australia. Letseng achieved a record value of $3,052 per carat for its exports in the first half of 2011 compared with $1,1728 per carat in the first half of 2010.
Ellendale achieved a record average value of $4,045 per carat for its fancy yellow goods compared with $2,588 for the comparable period of 2010.
Gem is currently carrying out a prefeasibility study to expand production at Letseng and the final capital cost estimate should be presented to the board by December.
