Interim Management Statement

RNS Number : 7685F

Gem Diamonds Limited

14 October 2008

 



 News Release                                                                                                                 14th October 2008

GEM DIAMONDS LIMITED

('Gem Diamonds') or ('the Company')

INTERIM MANAGEMENT STATEMENT 

FOR THIRD QUARTER ENDED 30th SEPTEMBER 2008

This trading update reflects Gem Diamonds' performance for the nine months ended 30th September 2008. The Company's financial results for the 1st half of 2008 were detailed in its Half Yearly Results Announcement released on 29th August.

Key Points

• On the 8th September a D Colour Internally Flawless 478 carat diamond was recovered from the Letšeng Mine in Lesotho. 

• The Letšeng Mine continues to produce large diamonds of the highest quality. In the year to 30th September 2008, 90% of the revenue by value has come from large stones greater than 10.8 carats. During this period Letšeng produced in excess of 11,000 carats of diamonds above 10.8 carats. 

• The newly constructed No 2 Plant at Letšeng achieved a rapid and successful ramp up to full 'rated' capacity which has been exceeded from July onwards.

• Ellendale in Australia, the world's largest producer of fancy yellow diamonds, entered into a sales agreement with a high end jewellery manufacturer and retailer for the entire fancy yellow production and a small quantity of the better quality white diamonds. This agreement applies to between 40-50% of Ellendale's production by value (this figure may change according to production and market variables) and in addition includes a royalty for Ellendale on final sale of polished diamonds (the 'off take agreement'). 

• Q3/08 has continued the trend at Letšeng and Ellendale of delivering record tonnage and carats. The weakness of the Lesotho Maloti and the Australian dollar against the US dollar, together with the significant downturn in the fuel price will assist Letšeng and Ellendale to continue to achieve cost reductions.

• At the recent Letšeng tender held in Antwerp (which excluded the 478 carat diamond) prices for large, top quality rough diamonds softened by some 14% when compared to the October YTD moving average; for smaller goods prices were weaker. Letšeng is fortunate that some 90% of its revenue comes from the large, top quality goods. Had the 478 carat diamond been included in the tender, prices would have shown an increase on the YTD average.    

• The prices achieved by Ellendale for the top end production, sold under the 'off take agreement', have been unaffected by recent events. Demand and prices for fancy colours are holding up well. Prices for Ellendale's commercial goods sold at auction in Dubai were over 20% weaker. At the moment the pricing environment remains uncertain.

• Cempaka in Indonesia resumed operations in September.

• Gem Diamonds continues to implement its beneficiation strategy with the purchase of Calibrated Diamonds. Gem Diamonds is proceeding with the set up of the beneficiation operations in Dubai and Mauritius. 

1. Lesotho 

Gem Diamonds has 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     Expansion and Development

Production double-up was achieved by Letšeng's hard rock processing plants in July and the newly commissioned No 2 Plant is performing well. It exceeded its rated capacity in August and September. 

1.2     Production

A total of 1,986,324 tons of kimberlite were mined in Q3. Of this, 54% came from the Main Pipe and 46% from the Satellite Pipe. 1,926,387 tons of kimberlite from both pipes were processed; 70% through the Letšeng plants and 30% through the mining contractors plant. Waste mining in the satellite pipe pit amounted to 1,987,994 tons.

	H1 2008	3rd Qtr 2008	9  months ended 30 September 2008	9 months ended 30 September 2007	% Change
Waste mined (tonnes)	4,932,210	1,987,994	6,920,204	1,872,866	269.50
Ore processed (tonnes)	2,848,988	1,926,387	4,775,375	3,013,631	58.46
Carats produced	44,506	30,987	75,493	55,562	35.87

1.3      Rough Diamond Sales

	H1 2008	Q3 2008	9 months ended 30 September  2008	9 months ended 30 September  2007	% Change
Carats sold	35,813	25,281	61,095	55,187	10.7
Total sales value (US$ millions)	89.95	39.36	129.31	97.78	32.3
Achieved US$/ct	2,512	1,557*	2,116*	1,772	19.5

           Notes:

* During Q3 2008, 464.3 carats of rough diamonds with an indicative value of $16.6m were extracted for cutting and polishing. If these had been sold in the quarter at envisaged rough prices, the average $/carat for the quarter and 9 months YTD would have been $2,173 and $2,370.

The 478 carat diamond recovered in the quarter was not offered for sale. The 603 carat Lesotho Promise sold for $12.4m ($20 500 per carat) and the 493 carat Letšeng Legacy for $10.4m ($21 000 per carat). The 478 carat diamond is of superior quality to both the Lesotho Promise and Letšeng Legacy.

The following D colour type IIA rough diamonds achieved the highest unit prices during the period:

• 55.47 carat stone sold for $69,560 per carat.

• 49.44 carat stone sold for $54,976 per carat.

• 39.98 carat stone sold for $46,823 per carat.

• 37.36 carat stone sold for $44,165 per carat.

• 14.59 carat stone sold for $55,734 per carat.

• 10.75 carat stone sold for $43,452 per carat.

1.4      Beneficiation.

          Ten stones weighing 464.3 carats with an indicative value of $16.6million were extracted for cutting and 
           polishing. The polishing of these diamonds will be completed in Q4 and sold thereafter.

1.5      Power Supply

          No power outages were experienced by the mine during the period. Standby generating
          capacity is being installed on site, sufficient to operate one of the two hard rock processing plants and the
          mining contractor's plant, to enable full production to be maintained in the event of an ESKOM (South African) 
          power outage. The Lesotho Electricity Corporation will provide sufficient power for the second hard rock
          plant from its Muela hydro-power plant.  

 

2.         Australia

 

The Ellendale mine, located in Western Australia, was acquired in December 2007 as part of the Kimberley Diamond Company acquisition.

2.1         Expansion and Development

 

Progress on the modifications to the East Plant (which is one of the two plants treating ore from the E9 pipe) continued as per schedule for the quarter. Equipment is being procured as part of the plan to upgrade the facility’s throughput to the rate of 5Mt per annum.

           

2.2         Production

 

The operation made satisfactory progress in the quarter and has continued to perform in line with the trends established toward the end of the second quarter, achieving record throughput levels in August. July’s diamond production was the highest in the history of the mine with the production of 61 382 carats.

 

	July 2008	Aug 2008	Sept 2008		Q1 2008	Q2 2008	Q3 2008	9 months ended 30 September 2008
Ore processed (Tonnes)	801,689	819,361	785,904		1,660,323	1,798,758	2,406,954	5,866,035
Carats recovered (Carats)	61,382	58,532	60,267		99,102	133,981	180,181	413,264

    Ellendale is now seeing the benefit from the investment in waste stripping operations in the second quarter this year, with the release of more ore for both treatment and stockpiling purposes. This has allowed for increased treatment, enabled the building of stockpiles ahead of the wet season and enabled the company to mine at a lower stripping ratio for the third quarter. 

	H1 2008	Q3 2008	Qtr on Qtr % Change	9 months ended 30 September 2008
Waste mined (tonnes)	8,547,934	4,537,280	-20.9%	13,085,213

              The grade difference between H108 (6.9 cpht) and Q3 08 (7.45 cpht) is mainly as a result of mining in a 
              different area of the E4 pit where grades are better. The grades achieved are in line with expectations   
              provided for in the resource statements. 

     2.3      Rough Diamond Sales

	H1 2008	Q3 2008	9  months ended 30 September  2008
Carats sold	287, 721	62,761	350,482
Total value (US$ millions)	60.2	17.1	77.27
Achieved US$/ct	209	272	220

The Q3 08 sales are lower due mainly to the timing of the September sale. These commercial goods were effectively sold (in Dubai) on the 1st October and will be reported on as part of the final quarter results. 

     

2.4        Off Take Agreement:

Ellendale has concluded an off take agreement with a high endjewellery manufacturer and retail chain based on the Ellendale price book for all shipments purchased by the purchaser for an initial period of six months. This includes the entire fancy yellow production and a small quantity of the better quality white diamonds. This agreement is extendable thereafter by mutual agreement.

3.     Indonesia

BDI Mining was acquired by Gem Diamonds in May 2007.  It owns 80% of the Cempaka alluvial diamond mine in South Kalimantan, Indonesia in partnership with PT Aneka Tambang, a company controlled by the Government of Indonesia.  The alluvial deposits at the Cempaka Mine are found in the Danau Seran and Cempaka paleochannels. 

Minor gold and platinum is present in the diamondiferous gravels in both channels and a precious metal concentrate is recovered as a by-product.

            3.1    Expansion and Development

The main thrust for 2008 was to ramp up both the mining rates and plant throughput. The plant achieved the increased throughput target in February when it treated 220,439 tons for the month. Heavy rains fell in March and resulted in the Danau Seran pit being flooded. In early April, Gem Diamonds suspended operations after environmental concerns were raised by the authorities. This suspension remained in place until 3rd September, at which time normal operations resumed. The suspension equates to a loss of 3.7Mt of overburden stripping, 1.06Mt of gravel and if Cempaka had achieved grade, 44 400 carats.

          3.2          Production

	9 months 2008 *	9 months 2007	% Change
Waste mined (tonnes)	2,806,709	2,801,170	0.20 %
Gravel processed  (tonnes)	639,966	354,453	80.55 %
Carats produced	9,093	10,320	(11.9 %)
Au/Pt concentrate produced  (kg)	5.975	9.327	(35.94 %)

* Operations suspended from April to September 08

            3.3   Rough Diamond Sales 

	9 months 2008	9 months 2007	% Change
Carats sold	21,790	10,411	109%
Total tender value (US$ millions)	6.66	2.27	194%
Achieved US$/ct	305	218	40%

4. Botswana

Gem Diamonds acquired Gope Exploration Company (Gope Exploration) in May 2007. Gope Exploration was the holder of a suspended Retention License covering the Gope 25 Kimberlite deposit in the Central Kalahari Game Reserve. The Retention License is valid until the end of February 2009.

The De Beers feasibility study was revised in April 2008 and a detailed bankable feasibility study is ongoing. This is planned to be complete by the end of FY08.

The final report of the social and environmental impact assessment (SEIA) was submitted to the department of Environmental Affairs in August 2008. We are awaiting a record of decision by the government which is expected in Q4/08.

A Mining License application was submitted in July 2007 and the government has requested Gope Exploration to submit items which Gope Exploration would like to be discussed during the section 51 negotiations. It is anticipated that negotiations will commence in the last quarter of the year.

The development of a mine will be financed by a combination of cash and debt and discussions are ongoing with a number of banks in this regard. The current credit crisis and financial market turmoil will affect the timing for securing finance and this will in turn impact on the project start date.

5.     DRC

Gem Diamonds has interests in three projects in the DRC at Mbelenge, Lubembe and Longatshimo. These interests are held via a number of companies in which Gem Diamonds has between an 80% and 100% shareholding.

     5.1   Mbelenge

Exploration has continued in the Kasaï River. The Ground Penetrating Radar (GPR) surveys have produced promising sedimentation and bedrock profiles. The GPR is being used to supplement the bathymetry survey and the river mapping programme.

  5.2      Lubembe

5.2.1   Sampling

The grades at the Lubembe River continue to be positive with grades averaging 7.9 cts/m³ achieved. An appropriate mass mining technique for Lubembe remains to be determined.

Sampling of the Lubembe river gravels has been suspended whilst sampling is being conducted at Longatshimo. 

                       5.2.2   Kimberlite Programme

No kimberlite drilling was undertaken at Lubembe during this period. The historical airborne magnetic data is being interpreted by a specialist geophysical consultant who is familiar with the geology of the Tshikapa Triangle. 

5.3      Longatshimo

                        5.3.1  Sampling

Resource definition of river terraces and floodplains was ongoing during the period in the Longatshimo area through systematic field mapping and sampling. Significant additional high level terrace gravels have been identified and are being delineated. Bulk evaluation pitting is expected to commence at the end of Q4/08. 

A river sampling programme in the Longatshimo River, using dredges previously stationed at Mbelenge, has commenced.

                        5.3.2    Kimberlite Programme

No drilling has been undertaken during Q3 2008 in this area. Four of the initial anomalies, plus one new anomaly recently identified, remain to be investigated further when the drilling programme recommences in Q4 2008. The Gurpinar MP 250 portable drilling rig is now on site and fully operational.

A programme of intensive stream sediment sampling has produced a promising distribution of kimberlite indicator mineral concentrations. 

6. CAR

Gem Diamonds holds a 75% interest in Gem Diamonds Centrafrique, in partnership with the Government of the Central African Republic which holds the remaining 25%.  Gem Diamond Centrafrique holds exclusive exploration and mining rights to the Mambéré Concession.

            6.1     Sampling

River sampling has continued in the third quarter of 2008. The third and fourth river diversion dykes, namely the Danki Island III and Songo Island, were completed during the third quarter.  

The majority of the material processed during the quarter consisted of low grade stockpiles sourced from the earlier terrace sampling programme.  A total of 1,108 tonnes of material treated yielded 101.8 carats at an average grade of 9.1 cpht which is significantly below the average for samples derived from river gravels. Falling water levels in the concession will see the resumption in Q4 of the sampling of the modern river gravels which have thus far yielded grades averaging around 25cpht.

The programme for the fourth quarter requires a minimum of 10,000 tonnes to be treated from samples obtained from the Danki III diversion.

              6.2     Expansion and Development

Gem Diamonds is conducting environmental and social impact assessments in parallel with the sampling with the objective of firming up gravel volumes available in the river as soon as possible. 

7.     Angola

A Cooperation Agreement was signed in January 2007 between Gem Diamonds and Avantis Angola Inc (Avantis) with respect to a feasibility study to be conducted on the known Chiri kimberlite in the Lunda Sul Province of Angola in which Avantis have a 25% interest. An Option Agreement whereby Gem Diamonds can acquire an effective 11.25% interest in Chiri from Avantis was signed at the same time.

Diamond core drilling commenced in June with 2,183m drilled during the quarter under review and 2,403m drilled year to date of the initial programme of 3,000m; the first phase programme will be completed in the fourth quarter. Core drilling and bulk sampling have shown interesting coarse grained kimberlite facies in the north west and south west parts of the kimberlite with the central and eastern areas showing significant thicknesses of fine grained kimberlite overlying the coarser grained material.

Bulk sampling was initiated in July with a total of 11,287 tonnes mined from seven sample sites which have been stockpiled at the plant and which complete the original scope of sampling approximately 10,000 tonnes.

    The sampling plant was commissioned in July and during the quarter 3,533 tonnes of bulk sample material was treated with one sample completed and another in progress. 1,089 carats were recovered at a mean stone size of 0.250 and an encouraging grade of 31 cpht. Valuation of the stones, which appear to be of good quality, will be carried out early in Q4/08.

The large diameter drill rig arrived on site at the end of the quarter and drilling will commence early in Q4/08 to generate samples for grade determination at depth.

8.      Beneficiation

In the furtherance of its beneficiation strategy adopted in Q2 2008, Gem Diamonds has in the third quarter of 2008 proceeded with the establishment of analysing, cutting and polishing facilities in Dubai and Mauritius.  

In August 2008 Gem Diamonds secured the personal services of the founding executives of Matrix Diamond Technology, together with a team of engineers and master polishers, to establish and operate Gem Diamonds' beneficiation facility in Dubai.  This high tech state-of-the-art facility will use sophisticated rough diamond mapping and analysing technology to analyse, cut and polish the very highest quality +10 carat rough diamond production and it intended that this facility will be in full production by the end of H1/09.

In September 2008 Gem Diamonds acquired Calibrated Diamonds Investment Holdings (Pty) Limited ('Calibrated Diamonds'), together with its state-of-the-art diamond processing assets, intellectual property and management expertise from Petra Diamonds Limited for a total cash investment of US$5.9 million (ZAR 47.0 million).  Gem Diamonds will use this diamond processing and cutting technology to beneficiate a portion of Gem Diamonds' top quality rough diamond production (initially 3 to 10 carats).  It is intended to be in full production by the end of Q3/09.

This trading update reflects Gem Diamonds' performance in the 3rd quarter of the 2008 financial year.  

For further information: 

Gem Diamonds Limited Clifford Elphick, Chief Executive Officer Glenn Turner, Chief Commercial Officer Tel: [phone] Richard Chetwode, Investor Relations  Tel: [phone] Mob: [phone] Gem Diamond Technical Services Ltd  Angela Parr  Tel: [phone]

Pelham PR Candice Sgroi  Tel: [phone] James Henderson Tel : [phone]

About Gem Diamonds:

Gem Diamonds Limited (LSE: GEMD) is a global diamond company that is pursuing an accelerated growth strategy through targeted acquisitions and the development of existing assets.

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

Gem Diamonds was formed with the aim of becoming a leading supplier of high quality diamonds. Principally through Letšeng and Ellendale, Gem Diamonds has moved a long way to realising that vision for rough diamonds. With the acquisition of polishing technologies and expertise, Gem Diamonds intends to achieve the same in relation to selected polished diamonds.

Gem Diamonds has a specific focus towards higher value diamonds, a segment of the market expected to deliver superior long term returns. The Company produces some of the world's most remarkable white diamonds from its Letšeng mine and rare fancy yellow diamonds from its Ellendale mine and an array of coloured diamonds from its Cempaka mine.

Established in July 2005, Gem Diamonds listed on the main board of the London Stock Exchange in February 2007 raising US$635 million. It is currently capitalised at approximately US$431 million and had US$144 million of cash on its balance sheet at the end of June 2008.

For further information about Gem Diamonds visit www.gemdiamonds.com.

 

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