Interim Management Statement

RNS Number : 4594S

Gem Diamonds Limited

19 May 2009

 



News Release                                                                                                                      19th May 2009

GEM DIAMONDS LIMITED

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

INTERIM MANAGEMENT STATEMENT

This IMS reflects Gem Diamonds' performance from 1st January 2009 to the date of this announcement.  

Highlights

• Through the 1st quarter of 2009, the Management of Gem Diamonds continued to reposition the business in the light of the ongoing global downturn with the emphasis on cost cutting and cash preservation. In February 2009, Gem Diamonds announced that it would place the operation at the lower value E4 pipe at Kimberley Diamonds' Ellendale mine in Australia on care and maintenance. Gem Diamonds has continued to focus on generating maximum cash flow from its higher value assets, the Letšeng and the Ellendale E9 operations. 

• There has been a substantial reduction in capital expenditure at the producing mines and a continuing programme of cost cutting and retrenchments at its non cash generating projects. Since October 2008 Gem Diamonds' workforce (employees and long-term contractors) has been reduced by 51%. There has been a substantial reduction in central costs through salary reductions, no bonuses, a recruitment freeze and a voluntary separation programme. In 2008, central costs amounted to US$ 18.4 million. At the time of the capital raising, the forecast figure for 2009 had been reduced to US$ 13.5 million. This cost cutting programme across all operations and at the centre is continuing with a target for 2009 of US$10 million.

• Mining unit costs at both Letšeng in Lesotho and Ellendale in Australia are likely to be impacted negatively by the recent strength of the Loti (the Lesotho Loti is pegged to the South African Rand) and Australian Dollar to the US Dollar. 

• On 20th April, shareholders approved the placing of 75,000,000 new Ordinary Shares at a price of 100 pence per share. As a consequence, the Company is in a significantly stronger financial position and the Group has gross cash of some US$ 123 million. The loans due for repayment in Q3 2009 to Société Générale have been fully repaid. Some US$ 16 million of convertible bonds, together with interest therein, will be paid at or before the 2nd October 2009.

• The last quarter of 2008 saw substantial falls in rough and polished diamond prices throughout the diamond industry. That weakness continued into early 2009. From March 2009 onwards rough diamond prices have begun to improve, especially for better qualities and larger sizes. 

• Letšeng remains a 'best in class' asset in the diamond industry and has remained profitable during Q1 2009. During Q1 2009 Letšeng held two tenders which achieved an average price of US$ 1,017/ct. The April Letšeng tender comprised a lower quality production of diamonds but nonetheless showed a rising trend on a 'price point' by 'price point' basis. The May Letšeng tender comprised a better range of diamonds than the April tender and the year to date average price for Letšeng now stands at over    US$ 1,100/ct.

• Average prices for the Ellendale production in Q1 2009 were over US$ 100/ct which included production from the lower quality E4 pipe and the sale of diamond inventory held over from 2008. In Q1 2009 the off-take arrangement between Kimberley and a high end jewellery retailer continued. Negotiations for a long term formal agreement are ongoing. 

• For those Ellendale diamonds which are not the subject of the offtake arrangement and which were sold in January 2009, prices fell to a low of approximately US$ 30/ct (this included a portion of lower value diamonds from the E4 pipe). Since then prices have since firmed substantially. In the most recent sale, the average price of diamonds from the E9 pipe (sold outside the offtake arrangement) achieved more than US$ 70/ct.  

• In Q1 plans to develop beneficiation facilities in Dubai and Mauritius were placed on hold because of the economic downturn. 

• Negotiations with the Government of Botswana regarding the terms of a mining license at Gope are ongoing.

            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

	Q1 2008	Q1 2009	% Change
Waste Mined	2,557,132	1,677,877	-34.4%
Ore processed (Tonnes)	1,205,829	1,844,972	+52.3%
Carats Recovered (ct)	18,871	21,790	+15.5%
Grade Recovered (ct)	1.56	1.18	-24.4%

A total of 1.84 million tonnes of kimberlite ore was treated through the three Letšeng plants during the period under review. The Satellite pit contributed 22% of the ore and the remainder was obtained from the Main pit and Main pit stockpile. Plant 1 processed 670k tonnes, Plant 2 processed 660k tons and the Alluvial Ventures pan plant processed 515k tonnes. Waste stripping in the Satellite pit totaled 1.68 million tonnes

The average recovered grade for all plants was 1.18cpht. This reduction over the prior period is due to various factors: 

• Lower grade facies being mined and processed from the southern and central areas of the Main Pipe.
• A higher percentage of main pipe-sourced head feed to the Alluvial Ventures plant reporting as oversize and hence not being treated. 
• The Alluvial Ventures plant processing 32% more than budgeted lower grade main pipe kimberlite.  

    1.2   Rough Diamond Sales

	Q1 2008	Q1 2009	% Change
Carats sold	10,921	22,243	+103.7%
Total value (US$ millions)	23.05	22.63	-1.9%
Achieved US$/ct	2,111	1,017	-51.8%

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

41.24 carat stone sold for US$ 30,470 per carat.

62.23 carat stone sold for US$ 29,166 per carat.

38.08 carat stone sold for US$ 25,025 per carat.

22.14 carat stone sold for US$ 20,370 per carat.

58.67 carat stone sold for US$ 17,660 per carat. 

2.     Australia

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

   2.1  Production and Development

The planned front end modifications at the E9 processing facility that would have further increased the processing capacity have been placed on hold until further notice in line with the Company's stated plan to minimise all non-essential capital and project development expenditure in the light of the current global financial crisis and the resultant impact on the diamond industry. However plans to relocate a DMS unit from the E4 Processing Facility to the E9 facility have proceeded to plan, and commissioning of this unit is scheduled for the end of May 2009. This will allow the E9 facility to treat up to 600 tonnes per hour. 

	Q1 2008	Q1 2009	% Change
Ore processed (Tonnes)	1,658,346	883,300	-46.7%
Carats recovered (Carats)	98,700	44,592	-54.8%
Grade Recovered (cpht)	5.95	5.05	-15.4%

With the operations at E4 being placed on care and maintenance, the tonnage treated and the carats recovered have decreased accordingly. The production through the E9 facility was affected by one of the wettest seasons in the history of the mine. The grade from the E4 pit is higher than that of the E9 pit and as such the grade variance quarter on quarter reflects a larger adverse variance with the cessation of mining of the E4 operation. The recovered grade from E9 is in line with expectations. 

Operations in the E9 pit recommenced on schedule (after the wet season) in mid March and are progressing satisfactorily. 

	Q1 2008	Q1 2009	% Change
Waste mined (tonnes)	2,906,243	208,821	-93%

Waste mining in 2008 included waste stripping at the E4 and E9 pit, but with mining operations being limited to the E9 pit only in 2009, waste stripping requirements will be substantially lower than in 2008. 

    2.2 Rough Diamond Sales

	Q1 2008	Q1 2009	% change
Carats sold	130,476	156,943	+20.3%
Total value (US$ millions)	28.08	16.12	-42.6%
Achieved US$/ct	216	102	-52.8%

Carats sold increased over Q1 2008 due to the sale of excess commercial diamond inventory held at the year end and sold in Q1 2009. The Company has seen positive demand and therefore improving prices for its commercial product through Q1 2009 although average prices achieved in Q1 2009 are significantly lower than those realised for the same period in 2008 when market conditions were more buoyant. 

    2.3  Off Take Agreement:

The finalisation of the off-take agreement with a high end manufacturer is progressing satisfactorily. Purchasing arrangements remain intact.

   3.     Beneficiation:

Gem Diamonds sold 45 polished diamonds weighing 180.91 polished carats for $10 million in January 2009 from rough diamonds extracted and polished from its Letšeng production in 2008 as part of the beneficiation trials.  Due to market conditions prevailing at the end of 2008 and in early 2009, the roll-out of these facilities has been delayed. However, Gem Diamonds intends to further its beneficiation strategy in the future depending on market conditions and funding.

 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, Media
Mob: [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 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 generative 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 centres. Operations and projects are situated in Angola, Australia, Botswana, the Central African Republic, the Democratic Republic of Congo, Dubai, Lesotho, Mauritius 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 long term returns.

 

END

 

 

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