Gem Diamonds Di Regulatory News (GEMD)

19 Oct 2009 07:00



19 October 2009

GEM DIAMONDS LIMITED

("Gem Diamonds") or ("the Company")

INTERIM MANAGEMENT STATEMENT

Gem Diamonds (LSE: GEMD) reports a trading update for the period from 1St July 2009 to the date of this announcement. 

Key Points 

Letšeng:

In Q3 2009, 23 756 carats of rough diamonds were recovered from Letšeng, bringing production to 70 921 carats for the nine months ended 30 Sept 2009. The Letšeng Mine in Lesotho is renowned for consistently producing very large, top quality rough diamonds.

In Q3 2009, 18 640 carats were sold in two tenders at an average price of US$1 710 per carat, bringing total sales for the first nine months of 2009 to 75 305 carats, sold at an average of US$1 408 per carat. 

In the nine months ended 30 September 2009, Letšeng recovered over 540 individual rough diamonds larger than 10.8 carats (totaling in excess of 11 800 carats), which represented 79% of the sales revenue from Letšeng. Of these, 35 diamonds sold at prices above US$20 000 per carat.

Ellendale:

In Q3 2009, 58 611 carats were recovered from the E9 pipe at Ellendale, bringing production from Ellendale to a total of 145 298 carats for the nine months ended 30 September 2009. The Ellendale Mine in Australia is renowned as the largest producer of fancy yellow diamonds.

In July 2009, the E9 processing facility treated a record tonnage of 417 000 tonnes. 

In Q3 2009, 38 686 carats were sold at an average price of US$505* per carat bringing total sales for the nine months ended 30 September 2009 to 231 425 carats sold, at an average price of US$218* per carat. 

In Q3 2009, 6 710 carats of fancy yellow diamonds were sold under the existing sales arrangements to a high end US retail jeweller.

* Refer to note regarding prices achieved at Ellendale. 

Group:

Q3 2009 saw the recommencement of Gem Diamonds' beneficiation operation. The results of which, whilst from a small number of diamonds, have so far have been encouraging.

The Group currently has no debt and US$100.5 million cash on its balance sheet.**

Mining costs at Letšeng and Ellendale continue to be impacted negatively by the weakening of the US dollar against the South African rand (The Lesotho loti is linked to the South African rand) and the Australian dollar. From 31 December 2008 to 30 September 2009 the South African rand has strengthened against the US dollar by 18% and the Australian dollar has strengthened by 21% against the US dollar. 

Gem Diamonds CEO, Clifford Elphick commented:

"Rough diamond prices continued to firm during Q3 2009 and demand for Letšeng and Ellendale's high value goods remains strong. Our strategy has continued to be to preserve cash and maximise returns from Letšeng and Ellendale, with a continued focus on both operational and central costs. We have started to beneficiate, allowing Gem Diamonds to capture further value. We have a strong balance sheet and no debt and the Board are continuously evaluating how best to further generate shareholder value from Gem Diamonds existing asset portfolio. " 

Diamond Market

During the third quarter of 2009, prices of rough diamonds have trended upwards, but still remain substantially below pre-September 2008 levels. Those major diamond producers, who had cut back production and/or sales in the first half of 2009 as a result of the weak market, have started increasing sales of rough diamonds without a negative impact on pricing. Whilst the industry as a whole has seen retail demand in the important US market stabilising, albeit at lower levels, Gem Diamonds remains cautious ahead of the US Christmas season. Cutting centre stocks remain high, primarily due to lower US imports of polished diamonds both from weaker US retail sales and destocking within the US diamond jewellery retail sector. Evidence suggests that demand for diamond jewellery is strong in China and India and has remained resilient in the rest of Asia (excluding Japan). 

** US$88.0m is attributable to Gem Diamonds 

1. Lesotho - Letšeng Diamonds (Pty) Ltd - Letšeng Mine

Gem Diamonds holds a 70% shareholding in Letšeng Diamonds (Pty) Ltd ("Letšeng") in partnership with the Government of the Kingdom of Lesotho which owns the remaining 30%. 

1.1 Production and Development

A total of just over 2 million tonnes of kimberlite ore were treated through the two Letšeng plants and the Alluvial Ventures plant during the period under review. The Satellite pit contributed 21% of the ore and the remainder was obtained from the Main pit and Main pit stockpile. Plant 1 processed 714 000 tonnes, Plant 2 processed 690 000 tons and the Alluvial Ventures pan plant processed 599 000 tonnes. Waste stripping in the Satellite pit totaled 2.28 million tonnes. The average recovered grade for all plants was 1.19 cpht. This slightly lower recovered grade is primarily due to the mix of ore treated.

Ongoing operational efficiency improvements have started to yield results in mining and processing. Changes in waste drilling designs have resulted in some cost savings and rigid frame truck trials for waste mining indicate potential savings in fuel costs per ton. 

Number 1 and Number 2 plants are both operating in excess of their design capacity by 20% and 17% respectively. 

1.2 Rough Diamond Sales

A total of 15 diamonds sold at prices greater than US$20 000 per carat in the third quarter, at an average price of US$27 712 per carat. The following D colour type IIA rough diamonds achieved the highest unit prices at the July and September tenders:

54.45 carat stone for US$39 300 per carat

23.78 carat stone for US$33 300 per carat

24.34 carat stone for US$31 000 per carat

38.10 carat stone for US$28 500 per carat

59.69 carat stone for US$27 500 per carat

33.26 carat stone for US$27 000 per carat

41.70 carat stone for US$26 900 per carat

2. Australia - Kimberley Diamonds Company NL - Ellendale Mine

The Ellendale mine, located in Western Australia, is part of Gem Diamonds' wholly owned Kimberley Diamond Company. 

2.1 Production and Development

In July 2009, after the completion of the DMS relocation and after bedding down changes to the processing flow as a result of this modification, the E9 processing facility treated a record tonnage of 417 000 tonnes and produced a record 20 900 carats. The recovered grade at E9 continues to be higher than the planned grade. This is as a result of a more detailed understanding of the resource following the remodeling work that was completed during H1 of 2009 and improved secondary crushing and DMS efficiencies. 

On the mining front, the deployment of a larger excavator from the middle of August has yielded benefits. Increases of 13% and 83% for waste and ore mined respectively have been recorded in the third quarter 2009 over the second quarter 2009. The increase in ore mined is as per schedule and includes the ore being stockpiled for treatment during the wet season when mining operations will cease.

The mine has been conducting processing trials on material that has been historically difficult to treat as a result of ore characteristic changes as a result of the wet season which have caused problems in the past. The focus on preventative maintenance at the E9 plant continues.

2.2 Rough Diamond Sales 

* As reported in the H1 2009 Trading Statement, H1 2009 sales included a large volume of lower value commercial diamond inventories held at the year end, which lowered the average US$ per carat for H1 2009. Whilst prices in Q3 2009 for commercial goods have improved slightly, the average US$ per carat is higher than it would otherwise be, primarily because of the timing of sales, which resulted in a higher proportion of fancy yellow diamonds being sold during the quarter.

3. Other assets 

Operations at the E4 pipe at Ellendale, Cempaka in Indonesia and Chiri in Angola remain under care and maintenance. The alluvial operations in the DRC and CAR also remain under care and maintenance while sale arrangements are being finalized, which are expected to be completed by the end of the year. 

4. Beneficiation 

In Q3 2009, Gem Diamonds recommenced its beneficiation operation in order to take advantage of value opportunities. Two large, top quality, rough Letšeng diamonds were in the manufacturing process at period end. All polished diamonds produced from these beneficiated diamonds are expected to be sold before year end.

For further information:

Gem Diamonds Limited

Clifford Elphick, Chief Executive Officer

Glenn Turner, Chief Commercial and Legal Officer

Tel: +44 (0) 203 043 0280

Richard Chetwode, Investor Relations

Tel: +44 (0) 203 043 0280

Mob: +44 (0) 759 0064 883

Gem Diamond Technical Services (Pty) Ltd

Sherryn Tedder, Corporate Affairs

Tel: +27 (0) 11 560 9600

Mob: +27 (0) 83 943 4505

Pelham PR

James Henderson

Tel: +44 (0) 207 337 1501

About Gem Diamonds:

Gem Diamonds Limited (LSE: GEMD) is a global diamond company that has been pursuing a long term growth strategy through targeted acquisitions and the development of existing assets. Under current market conditions, the Company is focused on the development of its cash generating assets and has curtailed all non-essential capital and development expenditure. 

The Company's portfolio comprises producing kimberlite and lamproite mines, development projects and exploration assets, as well as diamond beneficiation centers. Operations and projects are situated in Angola, Australia, Botswana, the Central African Republic, the Democratic Republic of Congo, Lesotho and Indonesia. 

With Letšeng's production of the world's most remarkable white diamonds and Ellendale's production of rare fancy yellow diamonds, Gem Diamonds is focused towards higher value diamonds. This segment of the market is expected to deliver attractive returns.