Interim Management Statement

RNS Number : 1290V

Gem Diamonds Limited

28 October 2010

 



28 October 2010

GEM DIAMONDS LIMITED

October 2010 Interim Management Statement

Gem Diamonds Limited (LSE: GEMD) reports an Interim Management Statement (IMS) for the period
1 July to 27 October 2010.

Key Points:

Letšeng:

·       The new sales and marketing strategy was implemented for the October 2010 tender which was extremely well attended and successful, achieving an average price of US$2 422 per carat (compared to a Q3 2010 average price of US$1 680 per carat).

·       An exceptional 196 carat white diamond was recovered at Letšeng at the end of August 2010. This diamond was not included in the October tender and will be sold separately as an exceptional diamond.

·       In the first nine months of 2010 Letšeng sold 374 rough diamonds greater than 10.8 carats in size, equating to US$74.8 million (68% of revenue).

·       In the third quarter of 2010 alone, Letšeng sold 21 rough diamonds at prices greater than
US$20 000 per carat, including a 17.34 carat pink diamond which sold for US$67 474 per carat. For the nine months ended 30 September 2010, Letšeng sold 56 rough diamonds at prices in excess of US$20 000 per carat.

Ellendale:

·       Kimberley Diamonds and Laurelton Diamonds (Laurelton), a subsidiary of Tiffany & Co., agreed a 25% price increase for the exclusive assortment of rare fancy yellow diamonds from Kimberley's Ellendale mine, effective from 1 October 2010. (During Q3 2010 the fancy yellow diamonds sold to Laurelton achieved an average price of US$2 792 per carat).

·       During Q3 2010 Ellendale achieved a combined average price of US$657 per carat for both its fancy yellow diamonds and commercial diamonds (US$505 per carat in Q3 2009).

Group:

·       The Group has US$99.6 million cash at the end of Q3 2010, of which US$78.5 million is attributable to Gem Diamonds; the Group has no debt.

·       Cost management remains a key focus, however mining costs at both Letšeng and Ellendale continue to be negatively impacted by the weakening of the US dollar against the Lesotho loti (the Lesotho loti is pegged to the South African rand) and the Australian dollar.

Health, Safety, Social and Environment (HSSE):

·       The Group's continued focus on health and safety has resulted in another Lost Time Injury (LTI)-free quarter.  Gem Diamonds has now completed a 12 month injury-free period (in excess of 3.9 million LTI-free manhours).

Gem Diamonds CEO, Clifford Elphick commented:

"Diamond prices have continued to strengthen, driven by continued demand mainly from the East. As part of the new sales and marketing arrangements for Letšeng, we have just completed our first tender which achieved a very good average price of US$2 422 per carat which is a 138% increase over prices achieved in the post crash lows (average US$ per carat Q1 2009). In addition, Letšeng also recovered an exceptional 196 carat white diamond in August, which will be sold separately. At the first of the price reviews held with Tiffany & Co. for Ellendale's rare fancy yellow diamonds, a 25% price increase was agreed with effect from 1 October 2010.

Whilst the continued strength of the Lesotho loti and the Australian dollar continue to put pressure on operating costs, we are driving forward our long term growth plans at Letšeng and Ellendale. Negotiations for a mining licence at Gope in Botswana are expected to be completed by year end. Gem Diamonds has US$100 million cash on the balance sheet and no debt. The achievement of a LTI-free 12 month period for the Group is a tribute to management's consistent efforts in ensuring the health and safety of our employees and reflects the Group's extremely well run mining operations." 

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

	Q3 2010	Q3 2009	% Change	9 months to 30 Sep 2010	9 months to 30 Sep 2009	% Change
Waste stripped (tonnes)	3 558 756	2 276 549	56%	8 166 611	5 764 063	42%
Ore mined (tonnes)	2 013 152	1 897 372	6%	5 745 456	5 755 263	(0.2%)
Ore treated (tonnes)	2 035 085	2 003 994	2%	5 864 360	5 800 581	1%
Carats recovered	24 119	23 756	2%	68 867	70 921	(3%)
Grade (cpht)	1.19	1.19	0%	1.17	1.22	(4%)

Tonnes of ore treated through both Letšeng plants is ahead of target for the year to date. Alluvial Ventures continues to exceed budget and contribute to the overall positive tonnage variance. With the continuing adverse impact of the strength of the loti on costs, management has revised the mine plan, lowering the tonnage of ore sourced from the Satellite pipe. Under the revised mining plan the full year target for waste stripping has been changed to 12 million tonnes of waste. The recent high tender values achieved is in the context that only 14% of ore mined in the third quarter of 2010 was sourced from the Satellite pipe. The mining plan (ore and waste) is under continual review to achieve the best result for 2010.

The forecast grade and carats recovered remain on track for the year and the significant increase in the number of smaller diamonds being recovered since March has been maintained. Alluvial Ventures continues to recover grades in line with expectation given the dilution within the De Beers stockpile.

A project is currently underway to test the diamond recovery of the Alluvial Ventures plant on the treatment of specific areas of Main Pipe ore. Positive test results would enable Letšeng to improve its carat profile through the treatment of higher grade ore through the Alluvial Ventures plant.

Preparations are currently underway for a pre-feasibility study for the integrated expansion plan at Letšeng. In addition, an engineering firm has been selected to undertake a study on the underground mining of the Satellite pipe in order to eradicate costly waste stripping on that pipe.

1.2     Rough Diamond Sales

	Q3 2010	Q3 2009	% Change	9 months to 30 Sep 2010	9 months to 30 Sep 2009	% Change
Carats sold	22 503	18 642	21%	64 047	75 305	(15%)
Total sales value (US$ millions)	37.8	31.9	18%	109.6	106.0	3%
Achieved average US$/carat	1 680	1 710	(2%)	1 712	1 408	22%

Letšeng generally holds ten tenders annually, two in each of the first and third quarters and three in each of the second and fourth quarters. The average US$ per carat achieved for the nine months to end September 2010 is US$1 712 per carat, compared with US$1 408 per carat for the same period in 2009.

A total of 21 diamonds sold at prices greater than US$20 000 per carat in the third quarter, at an average price of US$33 873 per carat. The following ten D colour type IIa rough diamonds achieved the highest unit prices at the July and September tenders:

Size of individual diamond  (carats)	Price achieved per carat (US$)	Total revenue per diamond (US$)
56.59	44 194	2 500 917
54.77	45 098	2 470 000
34.34	37 142	1 275 456
32.97	33 391	1 100 914
22.37	46 446	1 038 989
26.63	35 674	950 000
23.27	35 191	818 888
26.88	30 459	818 735
10.12	32 730	331 223
11.62	25 000	290 500

Additionally, a 17.34 carat pink diamond sold for US$67 474 per carat, achieving a total revenue of US$1 170 000.

1.3     Marketing Strategy

In October 2010 in Antwerp, Letšeng began implementing its strategy for the sales and marketing of its unique high value diamond production. Gem Diamond Marketing Services BVBA, a Belgium-based subsidiary, markets the Group's diamond production. This has resulted in the average price achieved in the October tender of US$2 422 per carat compared to US$1 680 per carat for Q3 2010. The exceptional 196 carat white diamond recovered at the end of August 2010 was not included in this sale and will be sold under separate arrangements.

2. Australia - Kimberley Diamond 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

	Q3 2010	Q3 2009	% Change	9 months to 30 Sep 2010	9 months to 30 Sep 2009	% Change
Waste stripped (tonnes)	1 837 694	1 320 738	39%	3 740 402	2 699 378	39%
Ore mined (tonnes)	1 253 368	1 602 904	(22%)	2 462 312	2 592 189	(5%)
Ore treated (tonnes)	1 102 086	1 194 770	(8%)	2 990 219	3 049 204	(2%)
Carats recovered	45 672	58 611	(22%)	127 173	145 298	(12%)
Grade (cpht)	4.14	4.91	(16%)	4.25	4.77	(11%)

Following the successful completion of some remedial work, including the implementation of the 'plant uptime' project on the Ellendale facility, production in September has returned to normal levels. Grade is slightly down for the period which is as a result of working through some lower grade areas in the West pit.

On the development front, the possibility of re-opening the E4 facility to treat the run of mine stockpiles and currently exposed ore from the pit is currently being reviewed. The trial on the 'alternative mining system' has been successfully completed and studies into the deployment of this system are underway, including an assessment of what may be required in terms of front-end modifications to the E9 treatment facility.

The Resource Extension and Development Programme has progressed well since its commencement in August this year and is expected to be completed mid-2011. All of the geophysical surveys have been completed and the data is now being compiled for detailed analysis. Drill programmes in the E9 pit have progressed satisfactorily and the first phase is now complete. The results of this phase of the programme will be modelled and analysed over the next two months whilst drilling operations move into the E4 pit. Drilling operations moved into the E4 pit and commenced on 4 October 2010.

 

 2.2 Rough Diamond Sales

	Q3 2010	Q3 2009	% Change	9 months to 30 Sep 2010	9 months to 30 Sep 2009	% Change
Carats sold	21 436	38 686	(45%)	98 634	231 425	(57%)
Total sales value (US$ millions)	14.1	19.6	(28%)	47.6	50.3	(5%)
Achieved average US$/carat	656.6	505.4	30%	482.5	217.5	122%

During Q3 2010, 4 581 carats of fancy yellow diamonds were sold to Laurelton at an average price of US$2 792 per carat. Recent negotiations have led to a 25% price increase on fancy yellow diamonds effective with effect from 1 October and the next six-monthly price review with Laurelton will take place in March 2011.

Since 1 July, Kimberley has held two sales of commercial diamonds; the first sale (held during Q3 2010) consisted of a smaller parcel of lower quality commercial diamonds (16 855 carats at an average price of US$76 per carat) and the second sale for a larger parcel of commercial diamonds which only closed on 5 October (24 349 carats at an average price of US$204 per carat). The average price for run of mine commercial diamonds from Ellendale from these two parcels is therefore US$151 per carat for the period of this report (compared to US$144 per carat in H1 2010). 

3.Botswana

Gem Diamonds holds 100% of the shares in Gope Exploration Company (Gope). Gope is the holder of a Retention Licence covering the Gope 25 Kimberlite deposit. The retention licence has been extended to December 2010 and negotiations for a mining licence are ongoing and are expected to be completed by the end of the year.

4.Other assets

The Group is currently considering its options with regard to the Chiri project in Angola, which remains on care and maintenance and a desktop study has been completed to review the feasibility of a small low capital mine option. The options are being considered. The group continues to look at all options for the PT Galuh Cempaka mine in Indonesia including disposal.

The majority of assets and equipment at the CAR operations have been sold and management continues to liaise with the government on the remaining activities required in order to close down the holding company, Gem Diamond Centrafrique SA.

For further information:

Gem Diamonds Limited

Clifford Elphick, Chief Executive Officer

Glenn Turner, Chief Commercial and Legal Officer

Tel: [phone]

Richard Chetwode, Investor Relations

Tel: [phone]

Mob: [phone]

Gem Diamond Technical Services (Pty) Ltd

Sherryn Tedder, Corporate Affairs

Tel: [phone]

Mob: [phone]

Pelham Bell Pottinger

Charles Vivian

Tel: [phone]

Mob: [phone]

James MacFarlane

Tel: [phone]

Mob: [phone]

About Gem Diamonds:

Gem Diamonds is an international diamond mining company that has pursued a long term growth strategy through targeted acquisitions and the development of its existing assets. Following the recovery in diamond prices in 2010 the Company's focus has been to place itself in a position to take advantage of long term growth opportunities.

The Company's mining portfolio comprises producing kimberlite and lamproite mines in Lesotho and Australia, as well as development projects in Angola and Botswana. The Company also owns a diamond cutting technology company.

With Letšeng's production of the world's most sought after remarkable white diamonds and Ellendale's production of rare fancy yellow diamonds, Gem Diamonds remains focused on higher value diamonds. This segment of the market is likely to deliver attractive long term returns.

www.gemdiamonds.com

 

END

 

 

IMSPGGCUUUPUGMM