Weaker prices take lustre off Gem Diamonds

A disappointing pricing environment has continued to slow the progress of Gem Diamonds in the second half of 2012, although there were signs in October of the market perking up.

Rough and polished market indices are beginning to reflect a more encouraging overall trend, the company noted, but the rough trade is expected to be quieter in November as the Indian market celebrates Diwali.

The imminent arrival of the gift-giving season in the major US market should provide some stimulus to prices in the short term, but the supply strategy of the major producers in an illiquid and fully supplied market, as well as the aftermath of Hurricane Sandy in the US may have an impact, the company added.

Production at the company's Lesotho operations have been hampered by severe winter snow conditions, with the amount of ore mined in the third quarter down 13% on a year earlier, while ore treated was down 8% and carats recovered were down 9%.

Carats from Lesotho sold during the third quarter were down 10% on a year earlier, leading to a 38% decline in the value of sales to $34.4m from $55.2m the year before.

The Ellendale operations achieved an overall average price of $618 per carat in the third quarter, down from $1,015 per carat in the corresponding quarter of 2011. Carat production at Ellendale was up 28% over the corresponding period in 2011.

The group has $94.0m cash as at October 31st, of which $79.0m is attributable to Gem Diamonds.

"Project Kholo continues and certain of the work streams have been prioritised with a view to the accelerated enhancement of revenue. In this regard new secondary crushers with improved liner profiles will be installed in the current plants in [the first half of] 2013 with the object of reducing large stone damage - thus implementing one of the key strategic objectives of Project Kholo earlier than originally planned. This has the advantage of potentially achieving revenue improvement through relatively light capital expenditure," commented Clifford Elphick, Chief Executive Officer of Gem Diamonds.

"It is pleasing to see good progress at Ghaghoo with the erection of the plant and mill progressing well and with the tunnel construction resumed and progressing - albeit at a slower rate than expected due to the adverse ground conditions encountered," Elphick added.

JH