PRICES at an upcoming diamond tender might be negatively affected by COVID-19 virus pandemic anxieties and interrupt a much-needed recovery in the market, said GEM Diamonds CEO, Clifford Elphick. Shares in his company reached an all-time low this week.
“We have a tender coming up in two weeks and we have not seen any cancellations that give us cause for concern,” he said. “But we will see how it translates into price. I would not be surprised if there was some impact (of COVID-19) given the loss of confidence and the impact of the unknown.”
Elphick was commenting during the presentation of the London-listed firm’s 2019 annual financial results in which lower grade from its satellite pipe of the Letseng mine in Lesotho and lower selling prices – the average price achieved decreased 23% to $1,637 per carat – resulted in lower revenue and a decline in share earnings.
Underlying earnings before interest, tax, depreciation and amoritisation (EBITDA) fell 58% year-on-year to $41m. Costs fell on lower production – total operating costs were at the end of guidance at some $245.9/t – but taxed profit was 90% lower at some $15.1m. The outcome at the share earnings level was 5.1 cents versus 22.9c/share in 2018, a 78% fall.
Shares in GEM were under renewed pressure in mid-February following its fourth quarter update – they declined about a third in value – but the selling resumed today. At 48 pence per share, GEM Diamonds was 5% weaker on the day, and is at an all-time low.
Elphick sought to look towards improved trading conditions. Whilst the US market, the largest for retail diamond sales – was yet to register its peak COVID-19 impact – there were signs of a recovery in China with while collar employees returning to work, he said. China would be “at full taps if not by the end of April, then soon thereafter,” he said.
Some of the other positives in the business was that the company had achieved $55m in repeatable business savings ahead of its $100m a year target by 2021. It has also signed a new 10-year lease with the Lesotho government securing mining from Letseng.
Elphick has not enjoyed the best record in terms of merger and acquisition activity – its last development venture outside Lesotho, the Ghaghoo mine in Botswana – was still to be sold after having failed to make a success of the project. But the firm was on the lookout for opportunities: “We have been looking at a host of opportunities, but we have had a tough, tough market so we haven’t found things our shareholders would like,” he said.
Elphick, as with many other diamond companies looking towards an upturn, believed mined supply was on the wane in the medium term. Forecasts for negative supply growth of 1% to 2%, previously described as “pessimistic” might actually be “realistic” forecasts, he said. “There are a number of diamond mines that are ageing and infrastructure is creaking.” Other mines were in distress.
Firestone Diamonds, which mines Liqhobong in Lesotho, was delisting from the London Stock Exchange after cutting diamond production 12% for its 2020 financial year. This was following power interruptions in its 2019 which has left the company clambering for working capital.
