GEM Diamonds opened the second half of its 2020 financial year in good form demonstrating an almost complete recovery from the Covid-19 lockdown, registering higher average prices for its diamonds, and racking up $75m in revenue enhancement and savings in terms of its $100m, four-year business improvement strategy.
Third quarter diamond recoveries from the firm’s Lesotho mine, Letseng, totalled 29,127 carats taking recoveries for the year to 72,403 carats. This puts the company on course to beat last year’s 84,207 carats in production.
In September, GEM adjusted its full year guidance to between 96,000 and 100,000 carats which compares to earlier, pre-Covid-19 guidance that year of 118,000 to 122,000 carats.
The average price achieved for the three months ended September was $2,215 per carat which compares to $1,714/carat in the previous period, albeit restated to account for lower value diamond sales post-period.
“These prices achieved (on a like-for-like basis) are higher than those realised in the pre-Covid-19 market conditions of [the second half of the 2019 financial year],” said Clifford Elphick, CEO of GEM Diamonds. “This, together with the continued pro-active cost control and cash preservation measures implemented across the group, has resulted in continued positive cash flow,” he said.
Crucially, the firm moved into net cash of some $1.1m as of September-end (June: net debt $5.5m) owing to the improved sales prices and business improvements. Seven diamonds sold for more than $1m each generating revenue of $25.6m in the three month period. A total of 24 diamonds had sold for greater than $1m in the year to date.
Elphick said in September he detected promising signs in the diamond market after Covid-19 lockdowns globally had all but snuffed out diamond tenders. “In the last 10 days, there has been a bit of buoyancy and life,” he said at the time. “We are looking forward to our tender in September.”
Recovery in the diamond market is thought to be fragile, however. De Beers said in a recent trading update that whilst economic recovery was evident, sales over the important year-end period would provide an insight into midstream and consumer appetite.
Commenting in a trading update this week, Petra Diamonds said the risks to the level of recovery in diamonds were for all to see. “All participants in the industry recognise that risks to a sustained recovery remain, particularly in light of the current resurgence of Covid-19 in key diamond markets.” The level of consumer activity, especially in the US market, would be a key development, it added.
GEM reported an $1.7m attributable loss for the six months ended June compared to a R4.2m profit in the previous financial year. Earnings before tax, interest, depreciation and amortisation were $11.3m (2019: $25.3m).
Shares in GEM Diamonds have gained nearly 61% in value in the last six months.