GEM lifts average sales price 13% as seeks recovery after Ghaghoo

Clifford Elphick, CEO Gem Diamonds

GEM Diamonds said it had sold 39,950 carats for an average price of $1,636 per carat for the first three tenders of 2017 representing a 13% increase in value per carat compared to the fourth quarter of 2016.

“Letšeng has recovered larger better quality diamonds during the period and it is encouraging that during April and May, there was a notable improvement in the size and quality of diamonds recovered,” said Clifford Elphick, CEO of GEM Diamonds in a first quarter update for its 2017 financial year.

GEM said that of recovered diamonds in the period, it had a 98.42 carat high quality D-colour Type II diamond which would be sold in June. It also sold a 8.65 carat pink diamond $164,855 per carat which was the sixth highest price per carat that had been achieved by a Letšeng rough diamond.

“The market for Letšeng’s high quality diamonds has remained firm over the period and this is anticipated to continue into H2 [second half] of this year,” he added. The Letšeng diamond mine in Lesotho is GEM’s only operating mine. Ghaghoo, a mine it developed in Botswana, is on care and maintenance.

Including the write-down of Ghaghoo for $176.5m, GEM posted an attributable loss of $158.8m for the 2016 financial year equal to a basic loss per share of 114.9 US cents. The mothballing of Ghaghoo also required GEM to settle a $25m loan to the asset which it paid out of existing facilities.

However, the combination of this settlement and lower recoveries from Letšeng, which contributed to negative cash flow, left GEM with net cash of only $3.8m down from $55m in the 2015 financial year.

As a result, the company held the dividend, but CFO Michael Michael said the priority was to resume the payout. “The dividend policy is intact. Given the write-off, however, the board decided it was prudent not to pay a dividend at this time,” he said in March.

In its first quarter update, GEM said it had net debt of $10.8m having drawn down $40m in debt. It still had $29.7m in undrawn and available facilities by the end of the first quarter including some $16m which had been raised by Letšeng for construction of a mining support services complex.

Cash on hand was $29.2m of which $24.4m was attributable to GEM.

“The revised life of mine plan was implemented during February with the objective of reducing waste tonnes mined and improve near term cash flows, and we expect to see the benefits emerge during 2017,” said Elphick.