Q4 2010 Trading Update

RNS Number : 9294Z

Gem Diamonds Limited

24 January 2011

 



24 January 2011

GEM DIAMONDS LIMITED

Gem Diamonds Q4 2010 Trading Update

Gem Diamonds Limited (LSE: GEMD) reports a Trading Update for the fourth quarter period
01 October 2010 to 31 December 2010 (Q4 2010).

Key Points:

Letšeng:

In Q4 2010:

·      Letšeng Diamonds implemented its new sales and marketing strategy.

·      Rough diamond prices continued to strengthen.

·      Three exceptional white diamonds of 196 carats, 184 carats and 116 carats were sold for a total value of US$28.5 million at a combined average price of US$57 427 per carat.  

·      A record quarterly average price of US$3 291 per carat was achieved for Letšeng's rough production in Q4 2010. (US$1 680 per carat in Q3 2010).

·       In Q4 2010 a total of 48 diamonds sold at prices greater than US$20 000 per carat contributing a total revenue of US$59.6 million (average of US$42 740 per carat), including a 4.68 carat blue rough diamond which sold for a Letšeng record US$155 000 per carat.

·       Another exceptional 196 carat white diamond was recovered from the Main pipe at Letšeng in January 2011.

Ellendale:

In Q4 2010:

·       Ellendale achieved a record quarterly average price of US$3 482 per carat for its fancy yellow production sold directly to Tiffany & Co subsidiary Laurelton Diamonds Inc. (US$2 792 in Q3 2010).

·       Ellendale achieved an average price of US$189 per carat for its commercial production.

Gope:

·     Gope Exploration Company has been awarded a mining licence for the Gope diamond deposit by the Government of the Republic of Botswana.Full details of the Gope project will be published in the 2010 Full Year Results on 15 March 2011.

Group:

·       The Group has US$129 million cash at the end of Q4 2010, of which US$105 million is attributable to Gem Diamonds.

·       Cost management remains a key focus, however US dollar reported 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 14 month LTI-free period (in excess of 5.05 million LTI-free man-hours).  The Group has been fatality free for 14.5 million man-hours.

Gem Diamonds CEO, Clifford Elphick commented:

"The reports of strong diamond jewellery sales in the important US Christmas season, continuing growth in sales of diamond jewellery in Asia, specifically China and India and the fundamental supply demand imbalance, has meant strongly rising prices for rough diamonds and to a lesser extent  polished diamonds. Concerns ahead of the Christmas season that rough diamond prices were too far ahead of the equivalent polished prices, have been replaced with concerns that it is polished prices that need to (and are beginning to) catch up. For the first time Letšeng now has control over it's sales and marketing. The increase in prices for Letšeng's unique diamonds, together with the 25% increase achieved for the rare fancy yellows our Ellendale mine sells to Tiffany, have enabled Gem Diamonds to achieve record average prices for both mines in the fourth quarter. The Group remains focussed on moving forward with a number of core growth work streams, which will provide Gem Diamonds with increased exposure to rising and robust diamond prices."

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

	Q4 2010	Q4 2009	% Change	FY 2010
Waste stripped (tonnes)	3 510 318	2 307 969	52%	11 676 929
Ore mined (tonnes)	1 674 154	1 704 533	-2%	7 419 610
Ore treated (tonnes)	1 693 608	1 748 805	-3%	7 557 079
Carats recovered	22 066	19 957	11%	90 933
Grade (cpht)	1.30	1.14	14%	1.20

For the year 2010, waste mined in the Satellite pipe is in line with the mine plan and significantly up on the previous year due to the austerity measures taken in 2009. Considerably more ore was sourced from the Main pipe than in the previous year. For the year as a whole, 81% of the ore treated through Plants No 1 and 2 was sourced from the Main pipe. Both plants continue to perform consistently and above nameplate capacity.

During the last quarter of 2010, virtually all of the ore treated was sourced from the Main pipe. This enabled a reconciliation of the Main Pipe recovered grade and indicated that the Main pipe resource was performing above expectations, as well as recovering exceptional large stones. The recovered grade continues to benefit from the recovery process changes made (and reported) in early 2010. Higher dilution in the stockpile material resulting in a lower grade being recovered by Alluvial Ventures offset this improvement and resulted in the overall grade only increasing slightly.

The tonnage mined and treated was slightly down on forecast due to treatment test work being carried out at the Alluvial Ventures plant in October and November.

The Letšeng Expansion project is in the Pre-Feasibility phase which aims to deliver a high level business case in the short term. High pressure grinding roll and cone crushing test work is being carried out in Germany and Japan respectively with encouraging early results. A high volume X-Ray machine test plant has been constructed and test work has commenced. 

Work investigating the mining of the Satellite pipe by underground means is in progress. Trade-off studies are being undertaken to establish the best value profile for Letšeng's life of mine. A concept study report is due by the end January 2011.

Ongoing optimisation of operations has showed significant improvements in drilling and blasting processes and costs with annualised savings of Maloti 14 million. The improved fragmentation along with other ongoing initiatives is due to yield more savings in 2011. Consistent and stable plant operations have enabled an annualised 5% increase in plant utilisation with a subsequent increase in production volume targets for 2011.

1.2     Rough Diamond Sales

	Q4 2010	Q4 2009	% Change	FY 2010
Carats sold	24 517	26 294	-7%	88 564
Total sales value (US$ millions)	80.7	49.8	62%	190.3
Achieved average US$/carat	3 291	1 894	74%	2 149

In October 2010 Letšeng's new sales and marketing strategy was implemented following the expiry of its previous arrangements. The new sales and marketing strategy provides Letšeng with complete flexibility and improved control over the sale and marketing of its rough production in order to optimise revenues. A key element of the new sales and marketing strategy will be to develop Letšeng's downstream activities and capabilities. During the period 24 517 carats of rough diamonds were sold at an average price of US$3 291 per carat which is a quarter record.

Three exceptional white rough diamonds of 196 carats, 184 carats and 116 carats were sold for a total of US$28.5 million, at an average of US$57 427 per carat.

A total of 48 rough diamonds sold at prices greater than US$20 000 per carat in the fourth quarter, at an average price of US$42 740 per carat. The following ten D colour type IIa rough diamonds achieved the highest unit prices at the October, November and December tenders and all sold for greater than US$40 000 per carat:

Size of individual diamond  (carats)	Price achieved per carat (US$)	Total revenue per diamond (US$)
195.81	(These two diamonds received a higher price as a combined lot) 59 825	22.7 million
184.24
22.91	51 514	1 180 180
21.93	50 666	1 111 111
54.8	49 929	2 736 136
115.76	49 554	5 736 360
32.64	45 922	1 498 889
22.63	44 986	1 018 026
34.27	44 296	1 518 018
16.34	42 264	690 591

Additionally, a 4.68 carat blue rough diamond sold for a Letšeng record of US$155 000 per carat, achieving a total revenue of US$725 400.

1.2 Costs

Cash costs (Local Currency): Continued focus on cost management has resulted in unit cash costs for the year for ore mined, waste mined and ore treated rising slightly below inflation (relative to FY 2009). However total unit cash costs per tonne treated have increased in direct proportion to the increase of waste mined for the year relative to the prior year.  

Operating Costs: (Local Currency): The lower than budgeted volume of ore mined from the Satellite pipe in 2010 has resulted in less waste stripping costs, associated with the Satellite pipe, being amortised and recognised in the income statement. Therefore total operating costs per tonne for the full year are estimated to be similar to the H1 2010 costs per tonne as previously reported.

2. Australia - Kimberley Diamond Company NL - Ellendale Mine

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

      2.1 Production and Development

	Q4 2010	Q4 2009	% Change	FY 2010
Waste stripped (tonnes)	1 054 346	1 257 579	-16%	4 794 748
Ore mined (tonnes)	1 341 247	1 487 888	-10%	3 803 559
Ore treated (tonnes)	1 026 119	1 110 278	-8%	4 016 338
Carats recovered	39 535	54 162	-27%	166 708
Grade (cpht)	3.85	4.88	-21%	4.15

Production during Q4 2010 was influenced by unseasonal rain and a number of unplanned maintenance events that negatively impacted plant throughput. Availability matters continued to plague the processing facility but pleasingly, the trend at year end was showing improvement. The lower grade has had a significant impact on the carat production for the year and is associated with plant throughput efficiencies and some changes in the internal facies and waste boundaries when compared against the resource model. A change to the mining plan resulted in the rescheduling of a waste cut back until after the wet season pending the outcome of a revised mine design based on higher rough diamond prices.

For the year, carat production was below forecast with both tonnes treated and grade contributing almost equally to the negative variance. Sticky ore from the stockpile was experienced in the first quarter of the year was due to unusually high rainfall during the wet season. May and October also experienced unseasonal rain. As with the fourth quarter, the grade recovered was lower than the expected resource grade. Geological work is in progress to improve grade definition in the pit. Waste stripping ended the year 10% below forecast due to the weather influence and the adjusted mine plan as mentioned above.

Work commenced on the Resource Extension and Development Programme and has progressed as planned. Drilling in the E9 pipe, Area 5 of the E4 pipe and the E4 satellite pipe was completed ahead of the wet season. 85% of the drilling in Area 1 and Area 22 of the E4 pipe was completed before the rains set in mid-December 2010. The results are currently being modelled and core and chip samples from the drilling are being prepared for geochemistry and diamond content analysis. The reports on the geophysical work have been received; part two of target evaluation is under way ahead of the onset of the dry season when potential drill targets will be further investigated.

 2.2 Rough Diamond Sales

	Q4 2010	Q4 2009	% Change	FY 2010
Carats sold	65 299	81 026	-19%	163 934
Total sales value (US$ millions)	30.3	22.1	37%	77.9
Achieved average US$/carat	464	272	70%	475

During Q4 2010, Kimberley Diamonds sold 5 444 carats of rare fancy yellow diamonds to Tiffany & Co subsidiary Laurelton Diamonds Inc. The agreed 25% price increase which became effective from the 1st October 2010 resulted in an average price achieved of US$3 482 per carat. The next pricing review takes place in March 2011.

During the period under review, Kimberley Diamonds sold 59 855 carats of commercial diamonds at an average price of US$ 189 per carat. It should be noted that at the end of Q3 2010, the sale of lower quality commercial diamond production fell into that period, but due to the timing of the planned tender, the associated higher quality commercial diamonds production fell into Q4 2010. The average price of US$164 per carat achieved for Ellendale's commercial diamonds in H2 2010 is a fair reflection of the current high prices for these commercial goods.

Up until November 2010, Kimberley Diamonds had sold its commercial production via tender and direct sales only. In December 2010 for the first time, the commercial production from Ellendale was sold on an eAuction platform with very pleasing results, achieving an average price of US$179 per carat.

2.3     Costs

Cash costs (Local Currency): Overall unit cash costs have been maintained at 2009 levels. Whilst there were savings associated with not treating E4 pipe ore during 2010 as compared to H1 2009, the higher amount of waste moved and the slightly lower tonnage of ore treated for the year (both compared to 2009), has resulted in similar cash costs per tonne of ore treated to 2009.

Operating Costs: (Local Currency): Total operating costs per tonne of ore treated in 2010 have been positively impacted by approximately 8% (relative to FY 2009). The costs for 2009 included a substantial stock carry charge in respect of lower value commercial goods, which were sold in H1 2009 and which was not repeated in the current year.

3. Botswana

Gem Diamonds holds 100% of the shares in Gope Exploration Company (Gope) which now holds a mining licence in respect of the Gope deposit.

The mining licence was granted in December 2010 for a period of 25 years, during which time the Company envisages a phased approach to the construction of the mine, with an underground mine planned to improve the Company's knowledge of the ore body, diamond valuation and metallurgical characteristics. After an initial period of mining, the production capacity will be scaled up to a higher steady state. The life of mine at Gope is currently estimated to be in excess of 30 years. Details of the mine plan and the relevant staged capital expenditure will be released at the time of the announcement of the Company's 2010 results on 15 March 2011.

Integral to the mining licence approval process was the approval of the Environmental Impact Assessment (EIA) by the Government of Botswana which was obtained in late 2008. The Company remains committed to continuing working closely with the project's affected communities and other interested parties.

4. Polished sales:

During the fourth quarter 2010, Gem Diamonds sold 4 polished diamonds totaling 38.6 carats for a total revenue of US$4.2 million (average of US$107 743 per carat). For the full year 50.7 carats, were sold for a total of US$5.1 million (average of US$101 078 per carat).

5. Other assets and projects:

The group continues to look at options for the Cempaka mine in Indonesia and Chiri in Angola.

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.

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

 

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