GEM Diamonds did not anticipate any stumbling blocks in renewing the Letšeng mining lease with the Lesotho government, saying the process was merely “bureaucratic” and was likely to be completed by the year-end.
GEM Diamonds and the Lesotho government are in discussions about renewing the Letšeng mining lease for another 10 years to 2034.
“We believe the government is focused in getting it done. It is a lengthy process but the government has got a multitude of conflicting interests and it’s just taking longer than we would like,” said Clifford Elphick, CEO of GEM Diamonds. “It’s just a bureaucratic process that we have to get through.”
Elphick was responding to analyst questions in a conference call today following the publication of the firm’s interim results which showed all the benefits of Letšeng having experienced the kind of purple patch for which it is famous. It yielded a record in the six months ended June of ten diamonds greater than 100 carats.
GEM Diamonds also benefited from the sale for $40m of the 910 carat “Lesotho Legend”. There was record rough tender revenue of $169.2m which dwarfed the $88.8m in first half sale in the firm’s 2017 financial year. There was a 54% increase to $2,742 per carat in the average price in the first half of 2018.
The outcome was significant financially for GEM Diamonds which has had its fair share of misadventures, most of them related with attempts to diversify in other districts and not in respect of Letšeng. Underlying pretax earnings before exceptional items was $68.4m compared to $13m in the corresponding period of the previous financial year. Attributable profit before exceptional items was $24.5m (2017: $49,000).
On a share earnings basis, GEM Diamonds reported 17.68 cents compared to 0.04 cents in 2017. Cash on hand increased to $70.5m, an increase of $22.8m year-on-year. The market rewarded GEM Diamonds for its performance with the share gaining just over 3% in London by around midday.
Commenting on negotiations with the Lesotho government, diamond analyst for Canaccord Genuity in London, Des Kilalea, said the host nation could potentially ask for additional imposts. “The government has stated that it supports the extension and Gem aims to get this concluded by the end of 2018”.
“Our view is that the government will probably look for some additional benefits in the form of some creep in the likes of diamond royalties. Given the improving efficiency of the group and higher large stone recovery, we do not see that possibility as a negative,” he said.
The outlook for the remainder of the financial year was promising. GEM Diamonds disclosed that subsequent to the close of the half-year, two further diamonds larger than 100 carats had been recovered. The latest in August marked the twelfth such recovery for the year, the company said. “This now positions 2018 as a record for recoveries of diamonds greater than 100 carats in a single year,” said Elphick.
The company also reported progress in respect of a targeted $100m business improvement programme having identified $47m in annual savings of which $10m were flowing to date.
