TIDMGEMD
RNS Number : 1627D
Gem Diamonds Limited
27 January 2015
27 January 2015
GEM DIAMONDS LIMITED
Trading Update for Q4 2014
Letšeng ends a good year with continued strong performance.
Ghaghoo production ramp-up progressing.
Gem Diamonds Limited (LSE: GEMD) is pleased to report a Trading
Update detailing the Company's operational and sales performance
for Q4 2014 (1 October to 31 December 2014) (the Period).
Highlights:
Letšeng:
Continued strong performance at Letšeng
-- 25 525 carats were recovered in Q4 2014 (28 365 carats in Q3 2014).
-- The year ended very positively, with the December tender
achieving an average of US$ 2 799* per carat. This resulted in an
average value of US$ 2 140* per carat being achieved in Q4 2014
(US$ 2 603* per carat in Q3 2014), bringing the average for 2014 to
US$ 2 540* per carat (US$ 2 043* per carat for FY 2013).
-- 13 rough diamonds achieved a value of greater than US$ 1.0
million each during the Period, including a 112.6 carat white
diamond and a 90.4 carat white diamond which sold for US$ 5.8
million and US$ 4.2 million, respectively.
-- A 299.3 carat yellow diamond was recovered and extracted at
rough valuation during the Period. It was sold into a partnership
arrangement in January 2015 with Letšeng to share in 50% of the
polished uplift.
*Includes carats extracted at rough valuation for polishing.
Ghaghoo:
Ghaghoo mine development progresses well with encouraging
initial diamond recoveries
-- A total of 10 167 carats were recovered during commissioning
up to Period end, including a 20 carat white diamond, a 17 carat
white diamond, and a 3 carat orange diamond which confirms the
presence of valuable coloured diamonds in the orebody.
-- A 35 carat diamond was recovered in January 2015, the largest
diamond recovered at Ghaghoo to date.
-- An initial sale of c.10 000 carats will be held in Gaborone
and Antwerp during January and February 2015.
-- The development of Phase 1 is progressing well and the
ingress of water has been arrested and steps taken to prevent any
further interruption to production from water intersections.
Financial:
Robust operational results generates positive cashflows,
providing financial flexibility to meet medium to long-term
objectives
-- The Group ended the year with US$ 110.7 million cash as at 31
December 2014, of which US$ 99.4 million is attributable to Gem
Diamonds.
-- The Group has drawn down US$ 37.1 million of its total
available facilities of US$ 78.7 million, resulting in a net cash
position of US$ 73.6 million at Period end.
-- In December 2014, Letšeng paid dividends of US$ 51.8 million,
which resulted in a net cash flow of US$ 32.6 million to Gem
Diamonds and a cash outflow from the Group as a result of
withholding taxes of US$ 3.6 million and payment of the Government
of Lesotho's dividend portion of US$ 15.6 million. In total for the
year, Letšeng paid dividends of US$ 92.0 million of which US$ 57.9
million flowed to Gem Diamonds.
-- The Group remains on track to declare a maiden dividend to
shareholders following its final results announcement in March
2015.
Gem Diamonds' CEO, Clifford Elphick, commented:
"The fourth quarter of 2014 saw an encouraging end to a very
positive year for Gem Diamonds, with the December Letšeng tender
achieving an average of US$ 2 799 per carat. At Letšeng, a year of
solid operational performance saw an improvement over the prior
year's production results, with costs well controlled. Both the
implementation of the Plant 2 Phase 1 upgrade and the new Coarse
Recovery Plant projects remain on track for commissioning in Q1 and
Q2 of 2015 respectively - on time and budget.
At Ghaghoo the development of Phase 1 has progressed well and
significant work was undertaken to arrest the fissure water
intersected in the basalt country rock and to ensure that any
further water ingress is handled efficiently. The production
ramp-up has begun and the first sale of diamonds recovered from
commissioning will take place in February. There have been some
encouraging recoveries made of larger and coloured diamonds during
this commissioning period.
The long term outlook for the diamond market remains strong,
however during the fourth quarter the diamond market saw a
weakening of prices following a year of price growth. This trend
may continue into the first quarter of 2015.
Based on the positive results achieved in 2014, Gem Diamonds
remains on track to declare a maiden dividend to shareholders
following the 2014 full year results announcement in March
2015."
1. Diamond Market
The announcement of the closure of the Antwerp Diamond Bank
(ADB) in October 2014 has led to concerns over the availability of
liquidity in the rough diamond market. Although the market has for
a while been aware of the continuing issue of constrained
liquidity, the official announcement of ADB's closure weakened
market sentiment during the Period. The overall sentiment in both
the rough and polished diamond market leading up to and following
the Hong Kong Jewellery Show in September 2014 was cautious,
resulting in downward pressure on the price of rough diamonds
during the Period. Notwithstanding these market conditions,
Letšeng's high value rough production remained relatively resilient
during the Period, with high value large rough diamonds achieving
strong prices in the quarter. It is, however, expected that this
cautious approach in the market will continue into Q1 2015.
2. 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%.
2.1 Production
Q4 2014 Q3 2014 QoQ Full year 2014 Full year 2013 YoY
% Change % Change
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Waste stripped (tonnes) 5 075 503 4 787 791 6% 19 884 721 19 072 657 4%
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Ore treated (tonnes) 1 590 855 1 601 758 -1% 6 421 704 6 225 821 3%
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Carats recovered 25 525 28 365 -10% 108 569 95 053 14%
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Grade recovered (cpht) 1.60 1.77 -9% 1.70 1.53 11%
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Improved efficiencies in the use of larger load and haul
equipment which had been commissioned during Q3 2014, resulted in a
6% increase in waste being stripped in Q4 2014 compared to the
previous quarter.
Letšeng's Plants 1 and 2 treated a total of 1.37 million tonnes
of ore in Q4 2014, 64% of which was sourced from the Main pipe and
36% from the Satellite pipe. The balance of ore was treated through
the Alluvial Ventures contractor plant, 93% of which was sourced
from the Main pipe and 7% from stockpiles. For the full year 2014,
a total of 69% of ore was sourced from the Main pipe and 31% from
the Satellite pipe.
The increase in the total carats recovered year on year is due
to the increased percentage of Satellite ore treated compared to
2013 and the grade over performance of the Reserve.
2.2 Rough Diamond Sales and Diamonds Extracted for Manufacturing
Q4 2014* Q3 2014* QoQ Full year 2014* Full year 2013* YoY
(3 tenders) (2 tenders) % Change % Change
---------------------------- ------------- ------------- ---------- ---------------- ---------------- ----------
Carats sold 31 614 23 550 34% 108 963 97 294 12%
---------------------------- ------------- ------------- ---------- ---------------- ---------------- ----------
Total value (US$ millions) 67.7 61.3 10% 276.8 198.8 39%
---------------------------- ------------- ------------- ---------- ---------------- ---------------- ----------
Achieved US$/ct 2 140 2 603 -18% 2 540 2 043 24%
---------------------------- ------------- ------------- ---------- ---------------- ---------------- ----------
*Includes carats extracted at rough valuation for polishing.
Three Letšeng tenders were held during the Period, achieving an
average price of US$ 2 140* per carat (compared to two tenders in
Q3 2014, which achieved US$ 2 603* per carat). This brings the 12
month rolling average to 31 December 2014 to US$ 2 540* per carat,
up 24% from US$ 2 043* per carat in the prior year.
*Includes carats extracted at rough valuation for polishing.
During Q4 2014, 13 exceptional rough diamonds achieved prices
greater than US$ 1 million each, including a 299.3 carat yellow
diamond, which was extracted in the Period and subsequently sold
into a partnership arrangement in January 2015 with Letšeng to
share in 50% of the polished uplift; a 112.6 carat white diamond
which sold on tender for US$ 5.8 million (US$ 51 833 per carat);
and a 90.4 carat white diamond which sold on tender for US$ 4.2
million (US$ 46 003 per carat).
For the full year, 1 232 carats (including the 299.3 carat
yellow diamond) were extracted for manufacturing at a rough value
of US$ 17.2 million. US$ 15.2 million (at rough value) remained in
polished inventory at the end of the year, compared to US$ 2.9
million at the end of 2013. The net impact of this polished
inventory movement on the overall Group revenue in 2014 is a
decrease of US$ 12.3 million.
2.3 Projects
The new Coarse Recovery Plant project remains on track for
completion in Q2 2015 for a total budget of Maloti 140.0 million
(US$ 12.1 million), of which Maloti 62.2 million (US$ 5.7 million)
was spent in 2014. The majority of the equipment is now on site,
with construction underway. The Coarse Recovery Plant project will
optimise the treatment of the high value, coarse fraction of ore
and is expected to improve the recovery of the high value Type II
diamonds and improve security measures.
Implementation of the Plant 2 Phase 1 upgrade project (which is
planned to deliver an increase in treatment capacity of 250 000
tonnes per annum, as well as further reducing diamond damage),
commenced in Q3 2014 and is on track to be completed at the end of
Q1 2015 following a planned three week implementation shutdown.
Maloti 9.8 million (US$ 0.9 million) of the total project capital
cost of Maloti 50.0 million (US$ 4.3 million) was spent in 2014.
Subsequent phases of the Plant 2 upgrade project will be considered
once Phase 1 has been implemented and plant performance has been
evaluated.
2.4 Costs
Cost management has continued to be a key focus area and Letšeng
has managed to maintain its costs within expected targets,
notwithstanding power cost increases experienced during the year.
Costs are in-line with the full year 2014 guidance and are expected
to be approximately in line with the figures below:
Direct cash costs (before waste) per tonne treated: Maloti
137
Operating costs per tonne treated*: Maloti 215
Mining waste cash costs per tonne of waste: Maloti 24
*Operating costs excludes royalty, selling costs, depreciation
and mine amortisation but includes inventory, waste and ore
stockpile adjustments.
2.6 Letšeng guidance for 2015
FY 2015
-------------------------------------- ---------
Waste tonnes mined (Mt) 20 - 22
-------------------------------------- ---------
Ore treated (Mt) 6.3 - 6.5
-------------------------------------- ---------
Carats recovered (Kct) 100 - 105
-------------------------------------- ---------
Carats sold (Kct) 100 - 105
-------------------------------------- ---------
Direct cash costs (before waste) per
tonne treated (Maloti) 145 - 155
-------------------------------------- ---------
Mining waste cash costs per tonne of
waste mined (Maloti) 28 - 30
-------------------------------------- ---------
Operating costs per tonne treated(1)
(Maloti) 195 - 215
-------------------------------------- ---------
Stay in business capital (US$m) 8 - 10
-------------------------------------- ---------
Project capital(2) (US$m) 13 - 15
-------------------------------------- ---------
1. Operating costs per tonne excludes royalty, selling costs,
depreciation and mine amortisation, but includes inventory, waste
and ore stockpile adjustments.
2. Letšeng project capital includes the coarse recovery plant
and the first phase Plant 2 upgrade and second phase feasibility
studies. Exchange rates applied at Maloti 11.00.
3. Botswana
Gem Diamonds' wholly-owned subsidiary, Gem Diamonds Botswana, is
currently developing the Ghaghoo mine (Ghaghoo) in Botswana.
Development of Phase 1 at Ghaghoo has continued to progress
well. Three kimberlite tunnels on the first main production level
(Level 1) have been fully developed to the northern orebody-country
rock contact, while the fourth tunnel is nearing completion.
Development of the access ramp to Level 2 has commenced and is
scheduled to reach Level 2 by June 2015. Development of the
ventilation system is progressing satisfactorily.
The sealing of fissure water intersected in the basalt country
rock has been completed and a significant amount of work has been
done to provide adequate water storage and pumping facilities
underground so that any potential further water intersections can
be handled efficiently. Six de-watering boreholes from surface are
now in place and operating satisfactorily.
The training stope and access tunnels in the kimberlite on Level
0 have continued to provide ore for the plant during the
commissioning period and will continue to do so until replaced by
steady state production from Level 1 later in 2015.
As at the end of the December 2014, 48 023 tonnes of ore had
been treated, with 10 167 carats having been recovered. The
recovered grade during the commissioning period has averaged just
over 21cpht compared to an expectation of c.27cpht. Grade was
negatively impacted by highly diluted ore derived from the margins
of the pipe and normal plant inefficiencies during early
commissioning. During the latter part of the Period, following
commissioning processes at the treatment plant, the grade improved
as expected and management anticipates that reserve grades will be
achieved as both the plant and mining operations achieve steady
state.
An initial sale of c.10 000 carats recovered from all ore during
commissioning will be held in Gaborone and Antwerp during January
and February 2015.
As the operation is in its commissioning phase, with planned
ramp-up scheduled for the first part of the year, guidance with
respect to operating costs, production and development will be
provided after the achievement of steady state production at the
end of Q2 2015.
4. Health, Safety, Social and Environment (HSSE):
The Group continues to strive toward its goal of zero harm to
its people and environment and to operate within the Group's
sustainable development framework.
For the whole of 2014, the Group-wide Lost Time Injury Frequency
Rate (LTIFR) was 0.2 and the Group All Injury Frequency Rate (AIFR)
was 3.0.
Gem Diamonds continues to work closely with its project affected
communities to ensure that the social projects implemented continue
to be sustainable.
Zero major or significant environmental incidents have occurred
across the Group during 2014.
For further information:
Gem Diamonds Limited
Sherryn Tedder, Investor Relations
Tel: +44 (0) 203 0430 2080
Mob: +44 (0) 7778 246 321
Bell Pottinger
Daniel Thöle / Joanna Boon
Tel: +44 (0) 203 772 2500
About Gem Diamonds:
Gem Diamonds is a leading global diamond producer of high value
diamonds. The company owns 70% of the Letšeng mine in Lesotho and
100% of the Ghaghoo mine in Botswana. The Letšeng mine is famous
for the production of large, top colour, exceptional white
diamonds, making it the highest dollar per carat kimberlite diamond
mine in the world. Since Gem Diamonds' acquisition of Letšeng in
2006, the mine has produced four of the twenty largest white gem
quality diamonds ever recorded.
Gem Diamonds has a growth strategy based on the expansion of the
Letšeng mine and bringing the Ghaghoo mine into production, while
maintaining its strong balance sheet. The Company seeks to maximise
revenue and margin from its rough diamond production by pursuing
cutting, polishing and sales and marketing initiatives further
along the diamond value chain. With favourable supply/demand
dynamics expected to benefit the industry over the medium to long
term, particularly at the high end of the market supplied by Gem
Diamonds, this strategy positions the Company well to generate
attractive returns for shareholders in the coming years.
www.gemdiamonds.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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