Q1 2010 INTERIM MANAGEMENT ST

RNS Number : 5890L

Gem Diamonds Limited

10 May 2010

 



10 May 2010

GEM DIAMONDS LIMITED

("Gem Diamonds" or the "Company")

Q1 2010 INTERIM MANAGEMENT STATEMENT

Gem Diamonds (LSE: GEMD) reports an Interim Management Statement for the period from 1 January 2010 to 10 May 2010.

Highlights:

Rough diamond prices have firmed in Q1 2010.

Letšeng:

·     15 468 carats were sold at an average price of US$1 753 per carat in Q1 2010 (US$1 017 per carat in Q1 2009).

·     A total of 12 diamonds from Letšeng sold at prices greater than US$20 000 per carat in Q1 2010, including a 33.87 carat diamond which sold for US$53 484 per carat and a 57.24 carat diamond which sold for US$49 552 per carat.

·     Circa 100 rough diamonds greater than 10.8 carats in size were recovered from Letšeng in Q1 2010.

Ellendale: 

·     Overall, Ellendale sold a combined total of 32 286 carats at an average price of US$489 per carat (US$102 per carat in Q1 2009).

·     4 652 carats of fancy yellow diamonds were sold to Tiffany & Co at an average price of US$2 545 per carat.

·     27 634 carats of commercial goods were sold at an average price of US$142 per carat (US$38 per carat in Q1 2009).

Gope:

Gope's resource update has now been completed and the highlights are below. The update is based on a resource statement prepared by three independent experts, Venmyn Rand, WWW International and QTS Kristal Dinamika.

·    The total contained resource carats have increased by 1.2 million carats to 20.5 million carats. This is due  to an increase in grade from new statistical modelling and also an increase in volume through re-interpretation of drilling results.

·    The average resource diamond price has increased by 19% to US$162 per carat.

·    The average resource in situ value has increased by 24% to US$31 per tonne. The high value south-eastern lobe of the deposit has increased by 19% to an in situ value of US$51 per tonne.

·    Two blue diamonds have been recovered from the historical diamond samples during the course of valuation work. This is considered significant in such a small sample parcel as these diamonds are extremely rare.

·    The total in situ value of the resource has increased by 27% to US$3.3 billion.

Group:

·    The Group has US$105.3 million cash at the end of Q1 2010, of which US$88.5 million is attributable to Gem Diamonds; the Group has no debt.

Gem Diamonds CEO, Clifford Elphick commented:

"The better than expected Christmas sales in the US, restocking in the cutting centers and continued strong demand for diamond jewellery in India and China have resulted in strong rough and polished diamond prices. It is pleasing to note that improved consumer demand in the quarter is impacting positively on polished prices, which have risen, albeit not as sharply as the rise in rough prices. The fundamentally positive supply demand picture remains." 

Lesotho

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

	Q1 2010	Q1 2009	% Change
Waste stripped (tonnes)	2 476 856	1 677 877	48%
Ore mined (tonnes)	1 957 872	1 914 823	2%
Ore treated (tonnes)	1 923 256	1 844 972	4%
Carats recovered	20 507	21 790	-6%
Grade recovered (cpht)	1.07	1.18	-9%

At the end of March Letšeng was on track to achieve the increased annual target for waste stripping.

In Q1 2010, the mining mix was biased towards the Main pipe, resulting in a low grade recovered. Alluvial Ventures continued to process high tonnages in an effort to offset a lower than expected recovered grade.

Plant modifications and continuing process improvements are on schedule in order to drive operational efficiencies as well as further improve safety aspects. As a result of the process improvements made, the recovered grade improved towards the end of Q1 2010 primarily through the recovery of additional smaller diamonds. These process improvements should result in an increase in overall revenue achieved, but with the recovery of additional smaller diamonds impacting upon the average US$ per carat. Management continue to expect to achieve their 2010 production targets.

Local mining costs have been contained within inflation targets, however, mining costs at Letšeng continue to be impacted negatively by the weakening of the US dollar against the South African rand (the Lesotho loti is pegged to the South African rand).

 1.2      Rough Diamond Sales

	Q1 2010	Q1 2009	% Change
Carats sold	15 468	22 243	-30%
Total sales value (US$ millions)	27.1	22.6	20%
Achieved US$/ct	1 753	1 017	72%

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 price achieved of US$ 1 753 per carat is 72% higher than the average price of US$1 017 achieved in Q1 2009. The April 2010 tender achieved an average price of US$2 002 per carat.

A total of 12 diamonds sold at prices greater than US$20 000 per carat in the first quarter, at an average price of US$36 094 per carat. The following ten rough diamonds achieved the highest per carat prices at the January and March Letšeng tenders:

·     33.87 carat stone for US$53 484 per carat

·     57.24 carat stone for US$49 552 per carat

·     5.29 carat stone for US$43 100 per carat

·     17.75 carat stone for US$36 844 per carat

·     45.75 carat stone for US$36 452 per carat

·     23.79 carat stone for US$34 276 per carat

·     44.18 carat stone for US$28 361 per carat

·     30.92 carat stone for US$25 876 per carat

·     14.46 carat stone for US$24 265 per carat

·     15.21 carat stone for US$22 856 per carat

During the quarter Gerald Boting was appointed as Chief Operating Officer at Letšeng Diamonds.

2. Australia

The Ellendale mine ("Ellendale"), located in Western Australia, is owned and operated by Gem Diamonds' wholly owned subsidiary, Kimberley Diamond Company NL.

2.1       Production

	Q1 2010	Q1 2009 (Incl. E4)	Q1 2009 (E9 only)	% Change Q1 2010 vs Q1 2009 (E9 only)
Waste stripped (tonnes)	102 390	208 821	208 821	-51%
Ore mined (tonnes)	-	113 440	113 440	-100%
Ore treated (tonnes)	903 391	883 300	606 591	49%
Carats recovered	40 006	44 592	21 529	86%
Grade recovered (cpht)	4.43	5.05	3.55	25%

Operational focus remained on Ellendale's high value E9 pipe. During the first quarter of each year, due to the wet season, mining activities relate to the treatment of stockpiled ore. Thus, during Q1 2010 no ore mining took place and all ore for processing was sourced exclusively from the stockpile. The 2009 mining campaign was a very successful one and the stockpile levels generated to provide plant headfeed during the wet season were more than sufficient to sustain ongoing treatment operations.

Plant modifications and enhanced operating and maintenance practices have resulted in improved efficiencies of the E9 processing facilities and have resulted in a higher recovered grade.

2.2       Rough Diamond Sales

	Q1 2010	Q1 2009 (Incl.  E4)	% Change
Carats sold	32 286	156 943	-79%
Total sales value (US$ millions)	15.8	16.1	-2%
Achieved US$/ct	489	102	379%

The number of carats sold in Q1 2009 included both E9 and E4 production as well as a substantial portion of inventory of lower value commercial goods carried over from 2008, whereas Q1 2010 only included production from E9. Despite the number of carats sold in Q1 2010 falling by 79%, the total sales value was only 2% lower than in the same period in 2009.

Prices achieved for commercial goods continued to strengthen throughout Q1 2010 and averaged US$142 per carat versus US$38 per carat in Q1 2009. This is primarily because of the different timing of fancy yellow and commercial sales cycles, which resulted in a lower proportion of commercial goods being sold in the quarter.

3. HSSE

The Group's continued focus on health and safety has resulted in an LTI-free quarter, with no fatalities. This brings LTI-free man-hours worked to a total in excess of 1.7 million since November 2009 and 24 fatality-free months over 11.3 million man-hours worked.

There were no major environmental incidents in Q1 2010 and none recorded since January 2008.

4. Polishing Strategy

In accordance with Gem Diamonds strategy to extract additional value, Gem Diamonds continued to bid for selected high quality rough diamonds at the Letšeng tenders. Gem Diamonds purchased a rough diamond from the January Letšeng tender and subsequent to Q1 2010, purchased two more rough diamonds from the April Letšeng tender. In total, Gem Diamonds has acquired 71.87 carats for a total value of US$2.5m in 2010 at an average of US$35 000 per carat. The polished diamonds from the diamond purchased in January are currently being sold and the two rough diamonds purchased in April are in the cutting and polishing process.

5. Botswana

Gem Diamonds holds 100% of Gope Exploration Company ("Gope"). Gope is the holder of a Retention License covering the Gope 25 Kimberlite deposit.  Work on updating the Gope geological model was conducted by three independent experts and has resulted in the publication of a resource update referred to in the highlights above and is available on the Gem Diamonds website www.gemdiamonds.com. Mining license and project development negotiations are continuing through 2010.

6. Other assets

The Group is currently considering its options with regard to the Cempaka mine in Indonesia and the Chiri project in Angola, which remain on care and maintenance.

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

James Henderson / James MacFarlane

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 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, 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.

 

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