GEM Diamonds nudged down full-year guidance for diamonds sold from its Letšeng mine in Lesotho after encountering a geological surprise at its Satellite pipe.
Carats sold for the 2019 financial year is now expected to range between 111,000 and 113,000 which compares to an earlier estimate of 115,000 to 119,000 carats, GEM said in a third quarter trading update today.
The company said that it had run into a deviation from the anticipated contact face which was supposed to provide increased production from the Satellite pipe. The deviation would mean lower production. The area had last been mined in 2014.
The Satellite Pipe would contribute 1.6 million tons of ore compared to a previous expectation of 1.8 million tons.
The impact of lower production comes at a time when diamond prices are not exactly shooting the lights out. It was reported earlier today by Bloomberg News that De Beers had cut the price of diamonds about 5% for its November sales cycle.
Clifford Elphick, CEO of GEM, said production from Letšeng had experienced “price pressure”. Combined with lower value gems that were mined in the previous quarter, the average price in the third quarter at $1,417 per carat was 6% lower than in the second quarter. The average for the year to date was $1,609/carat.
From a cost perspective, however, direct cash costs and mining waste cash costs per ton of waste mined were unchanged from previous guidance. Operating costs, including the cost of the firm’s $100m business transformation strategy would fall to a maximum of 255 Maloti per ton treated compared to a previous maximum of M268/t.
Total capital expenditure would also be lower for the year at some $11m to $13m compared to a previous expectation of $18m to $20m. In terms of the business transformation plan, GEM expected to have locked in about $50m of the $100m target by the close of the financial year.
As a trading update, GEM did not report earnings numbers but it said it ended the three month period with cash of $21.9m of which $17.6m was attributable to the company. Net debt totalled $11.6m as of end-September. Undrawn and available facilities at period end were $ 49.3m compared to facilities of $61.5m in the previous three months.
In September, GEM reported attributable interim profit from continuing operations of $6.6m compared to $26.8m in the six months of the previous financial year. This was on the back of earnings before interest, tax, depreciation and amortisation of $25.3m compared to $70.7m previously.
