Trading Statement

RNS Number : 7559V

Gem Diamonds Limited

16 July 2009

 



News Release    July 16th 2009

GEM DIAMONDS LIMITED

('Gem Diamonds') or ('the Company') 

Trading update for the six months ended 30th June 2009

Gem Diamonds (LSE: GEMD) reports a trading update for the first six months of the 2009 financial year. The Company's financial results for the period will be detailed in its Half Yearly Results Announcement which is due for release on the 26^th August 2009.

Highlights 

• 47 165 carats recovered from Letšeng in H1 2009 up 6% from H1 2008;

• 56 663 carats sold from Letšeng in H1 2009 generating sales of US$74.1m;

• Rough diamond prices have firmed across almost all categories in Q2 2009, following on from the unprecedented falls of Q4 2008 and Q1 2009;

• H1 2009 average price for Letšeng's rough diamonds sales was US$1 308 per carat (US$1 017 per carat in Q1 2009);

• A total of 20 diamonds from Letseng sold at prices greater than US$20 000 per carat in H1 2009, including a 49 carat stone which sold for US$37 100 per carat, a 52 carat stone sold for US$36 942 per carat and a 126 carat stone which sold for US$32 685 per carat;

• H1 2009 average price for Ellendale's rough diamond sales was US$160  per carat (US$103 per carat in Q1 2009);

• Purchase of the variable rate convertible bonds leaves the Group with US$118 million of cash as of 30 June 2009 and no outstanding debt;

Gem Diamonds CEO Clifford Elphick commented: 

'The diamond market experienced further falls in prices of rough diamonds at the beginning of the first half of this year, however in recent months prices first stabilised and then strengthened. While I remain cautious about the strength of consumer demand in the important US market, large diamonds from our flagship mine Letšeng, remain some of the most sought after, attracting high prices per carat. Gem Diamonds will continue to monitor the situation and will act according to the changing market conditions and bring best value to shareholders. The company is looking to grow its cash position, has a strong balance sheet and no debt.'

Rough Diamond Prices

It has already been reported that the weakness in rough diamond prices experienced by all rough diamond producers in the last quarter of 2008 continued into the first quarter of 2009 and substantially exceeded falls experienced in polished prices. Since then rough diamond prices have firmed across almost all categories, but particularly for better qualities and larger sizes. 

Operations

Gem Diamonds remains focused on cash preservation and generating maximum cash flow from its higher value assets, the Letšeng and Ellendale E9 operations. The Letšeng Mine continues to produce large diamonds of the highest quality and remains a 'best in class' asset in the diamond industry. Since placing the operations at E4 in Ellendale on care and maintenance in February 2009, significant operational progress has been made in maximising returns from Ellendale's E9 pipe. 

Mining unit costs at both Letšeng in Lesotho and Ellendale in Australia have continued to be negatively impacted by the recent strength of the Loti (the Lesotho Loti is pegged to the South African Rand) and Australian Dollar to the US Dollar. Despite the continued operational improvements at the E9 pipe at Ellendale in Australia, the strength of the Australian dollar has meant that the E9 pipe remains marginal at current diamond prices. The Directors of Gem Diamonds will review progress at Ellendale at the August 2009 Board meeting.

Convertible Bond and Cash Generation

At the release of the IMS on 19th May 2009 and prior to the purchase of its Variable Rate Convertible Bonds, Gem Diamonds had gross cash of US$123 million. 

In Q2 2009 Gem Diamonds paid US$15.76 million (plus accrued interest) for the purchase of all of its outstanding Variable Rate Convertible Bonds. The purchase and cancellation of the Bonds was in line with the Company's strategy to use funds raised in the recent Placing to repay the Company's outstanding debts. 

At the end of H1 2009 and following the purchase of the Variable Rate Convertible Bonds, Gem Diamonds has gross cash of US$118 million on the balance sheet and has no debt.

Corporate 

On the 30th June, Lord Robin Renwick of Clifton retired from the Board of Gem Diamonds Ltd. With his retirement, Non Executive Director Richard Williams MBE MC will take over as Chairman of the Remuneration Committee. 

Gem Diamonds continues to evaluate its beneficiation strategy in light of prevailing market conditions.  

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

	H1 2009	H1 2008	% Change
Waste mined (tonnes)	3 487 514	4 932 210	-29%
Ore mined (tonnes)	3 857 891	3 215 257	20%
Ore treated (tonnes)	3 796 587	2 848 988	33%
Carats recovered	47 165	44 507	6%
Grade (cpht)	1.24	1.56	-20%

A total of 3.79 million tonnes of kimberlite ore was treated through the three Letšeng plants during the period under review. The Satellite pipe pit contributed 29% of the ore and the remainder was obtained from the Main pipe pit and Main pipe pit stockpile. Plant 1 processed 1.38 million tonnes, Plant 2 processed 1.35 million tonnes and the Alluvial Ventures pan plant processed 1.06 million tonnes. Waste stripping in the Satellite pit totalled 3.49 million tonnes.

The average recovered grade for all plants was 1.24 cpht. This lower recovery is due to a much higher percentage of lower grade main pipe ore being treated. 

In H2 2009 Letšeng Diamonds anticipates mining and treating similar tonnages of ore together with similar levels of diamond recovery as in H1 2009. 

1.2   Rough Diamond Sales

	H1 2009	H1 2008	% Change
	H1 2009	H1 2008	% Change
Carats sold	56 663	35 814	58%
Total sales value (US$ millions)	74.13	89.95	-18%
Average achieved US$ per carat	1 308	2 512	-48%

A total of 20 diamonds sold at prices greater than US$20 000 per carat in H1 2009, at an average price of US$29 563 per carat. The following D colour type IIA rough diamonds achieved the highest unit prices during the period:

49.99 carat stone sold for US$37 100 per carat 

52.38 carat stone sold for US$36 942 per carat

46.61 carat stone sold for US$36 614 per carat

126.23 carat stone sold for US$32 685 per carat

50.41 carat stone sold for US$32 176 per carat

41.24 carat stone sold for US$30 470 per carat

A pink diamond weighing 4.46 carats was sold for US$33 882 per carat.

Beneficiation

As reported in the May 2009 IMS, 45 polished diamonds weighing 180.91 carats derived from ten rough diamonds extracted in 2008, were sold in January 2009 for US$10 million. 

2         Australia - Kimberley Diamonds Company NL - Ellendale Mine

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

2.1 Development

The relocation of a DMS unit from the E4 Processing Facility to the E9 Processing Facility was completed in mid May. Post commissioning, the E9 plant has achieved an average production rate for June in excess of the planned 600 tonnes per hour with a record throughput of 0.39 million tonnes being achieved. 

2.2  Production

	H1 2009	H1 2008	% Change
	H1 2009	H1 2008	% Change
Waste mined (tonnes)	1 378 640	8 547 934	-84%
Ore mined (tonnes)	989 285	3 051 347	-68%
Ore treated (tonnes)	1 854 434	3 459 081	-46%
Carats recovered	86 687	233 082	-63%
Grade (cpht)	4.67	6.73	-30%

With the placing of the operations at E4 on care and maintenance on 26 February 2009, the tonnage treated and the carats recovered for H1 2009 are well below the returns for the corresponding period in 2008. The planned grade has been achieved. 

Waste and ore mining tonnages for H1 2008 included those mined from the E4 area, whereas in H1 2009 mining operations have been predominantly  focussed on the E9 operational area. H2 2009 will see the deployment of a larger 250 tonne excavator into the E9 pit in order to accommodate the increased throughput rates at the processing facility as well as the build up of the stockpile ahead of the 2009 - 2010 wet season. 

Overall tonnage mined in H1 2009 reflects just over 3 months mining following on from the end of the 2008/2009 wet season. As a result of this and to build an adequate stockpile of ore ahead of the 2009/2010 wet season, Kimberley will see an increase in waste stripping and ore mined in H2 2009 against H1 2009. Under current plans, Kimberley Diamonds would anticipate continuing to treat ore at the same level as in June 2009 for the remainder of the year. 

2.3  Rough Diamond Sales

	H1 2009	H1 2008	% change
	H1 2009	H1 2008	% change
Carats sold	192 732	287 693	-33%
Total sales value (US$ millions)	30.8	59.55	-48%
Average achieved US$ per carat	160	207	-23%

As reported previously, H1 2009 included sales of a large volume of excess commercial diamond inventories held at the year end, of which the large majority were sold in Q1 2009 at significantly reduced prices compared to the corresponding period, following the severe market downturn. The positive demand and improving price trend for the commercial diamonds experienced towards the end of Q1 2009 continued through Q2 2009. This, together with the lower value E4 pipe being placed onto care and maintenance has resulted in the improvement in the average achieved US$ per carat in Q2 2009. 

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

Sherryn Tedder, Media

Tel: [phone]
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 had 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, 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 long term returns.

 

END

 

 

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