GEM Diamonds confirmed it would run a share buy-back programme, saying today that it would start today and see up to $2m in purchases.
Clifford Elphick, CEO of Gem, said in March the company was “grossly undervalued” and that a share buy-back was “the best way to protect the share price for all shareholders”.
Liberum Capital would carry out on-market purchases on behalf of the diamond producer. The company was authorised to buy up to 14 million shares as per a passed resolution at its annual general meeting last year.
“We are of the view that the value of Gem Diamonds is not reflected in its current share price,” said Elphick in a statement. “We remain confident about the future and, coupled with our recently proposed $3.8m dividend, we believe that this buyback represents an important mechanism by which to return further capital to shareholders.”
In March, Gem reported attritutable profit of $18.5m for the 12 months ended December which compares to a profit of $16.9m in the prior year.
Elphick expressed astonishment at the firm’s full year results presentation that the company was valued at such a lowly level. “I think the valuation for a company such as ours, which has a $50m EBITDA, and produces cash … I find the valuation quite staggering, to say the least,” he said.
Shares in the company gained nearly 7% today taking year-to-date gains to around 43%. Over 12 months, however, the company had shed about 8% in value.
Elphick said the firm’s single asset portfolio consisting of the Letseng mine located in Lesotho was a possible factor in how investors viewed the company. He also acknowledged Gem had not been able to participate in successful industry consolidation.
“We have tried very hard over last four or five years to try participate in an industry consolidation whereby a single management team would be able to manage three or four assets,” said Elphick. “Unfortunately, we’ve never been able to agree terms with any of our competitors on a basis that would work for our shareholders. So haven’t been able to deal with that issue; the issue of having one orebody.”
Gem has sought to diversify itself but its acquisitions haven’t worked out. In 2012 Gem Diamond sold its Ellendale assets in Australia which was its first major attempt at adding a new asset to the portfolio. It is currently attempting to sell Ghaghoo, a mining project in Botswana that Gem bought but wasn’t able to turn to account.
In February, Vast Resources announced it was withdrawing from a $4m deal to buy Ghaghoo with Botswana Diamonds (BDO) from Gem. Gem CFO Michael Michael said that an update on a new buyer would be announced. BOD said it remained committed to the deal.
Perhaps the “staggering” valuation reflects the staggering value-destruction foisted on shareholders over the years: staggering losses incurred at Cempaka, Chiri, Ellendale and Ghaghoo. Gem have amply disqualified themselves from running more than one asset.
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