TIDMGEMD
RNS Number : 8650N
Gem Diamonds Limited
03 February 2016
03 February 2016
GEM DIAMONDS LIMITED
Trading update for Q4 2015
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds" or the
"Company" or the "Group") is pleased to provide the following
Trading Update detailing the Group's operational and sales
performance for the Period 1 October 2015 to 31 December 2015 ("Q4
2015") or (the "Period").
Letšeng:
Strong end to the year with full year production above guidance.
Prices remain robust.
-- Produced 29 100 carats in Q4 2015 taking full year production to 108 579 carats.
-- Achieved planned waste tonnes and increased Satellite Pipe ore contribution.
-- Average price of US$ 2 117* per carat achieved in Q4 2015.
-- 9 rough diamonds achieved a value of greater than US$ 1.0 million each.
-- A total of three diamonds of greater than 100 carats each sold in the Period.
-- Zero Lost Time Injuries (LTIs) for the Period, resulting in a
LTI free 2015 and a total of 430 consecutive LTI free days.
(*Includes carats extracted at rough value for polishing.)
Ghaghoo:
Grade remains higher than Reserve. Production slowdown
planned.
-- Phase 1 objectives achieved:
o Treatment target of 2 000 tonnes per day achieved on 21
January 2016 after surge bin commissioned.
o Operating costs trend below US$ 50 per tonne.
o Average recovered grade of 28.6cpht (compared to the average
reserve grade of 27.8cpht).
-- Water fissure on Level 1 and the intersection in the ramp on Level 2 sealed.
-- 95 diamonds greater than 4.8 carats each were recovered
during the Period, including 9 diamonds larger than 10.8 carats,
with the largest being a 34.1 carat diamond.
-- 24 294 carats recovered during the Period.
-- Third parcel sold in December achieving an average price of
US$ 150 per carat in weaker market
conditions, bringing the total average US$ per carat achieved for 2015 to US$ 162 per carat.
-- Zero LTIs for the Period, resulting in an LTI free 2015 and a
total of 418 consecutive LTI free days.
-- Production slowdown to reduce cash outflow during current market conditions.
Financial:
Strong Balance Sheet maintained despite difficult market
conditions. Dividend on track.
-- The Group ended the year with US$ 85.7 million cash on hand,
of which US$ 71.7 million is attributable to Gem Diamonds.
-- The Group has drawn down US$ 30.4 million of its available
facilities, resulting in a net cash position
of US$ 55.3 million.
-- During the Period, Letšeng paid dividends of US$ 19.0
million, which resulted in a net cash flow of US$ 12.0 million to
Gem Diamonds and a cash outflow from the Group of US$ 7.0 million
as a result of withholding taxes and payment of the Government of
Lesotho's dividend portion.
-- A total of US$ 39.2 million was paid by Letšeng in 2015,
resulting in a total dividend cash inflow to the Company for the
year of US$ 24.7 million.
-- Dividend payment for FY 2015 remains on track.
Gem Diamonds' CEO, Clifford Elphick commented:
"It is pleasing to see that the prices achieved for Letšeng' s
diamonds during the fourth quarter have remained robust despite the
challenging market conditions experienced throughout this Period.
The large high quality diamonds, for which Letšeng is renowned,
have contributed to a Q4 2015 average price of US$ 2 117 per carat
which results in an average price for FY 2015 some 9% lower than FY
2014.
We continued to experience difficult underground conditions at
Ghaghoo, but I am pleased to report that, following the
commissioning of the surge bin on 21 January 2016, the Phase 1
planned treatment run rate of 2 000 tonnes per day was achieved. A
sale of 49 120 carats achieved revenues of US$ 7.4 million at an
average price of US$ 150 per carat, down from US$ 210 and US$ 165
per carat in the previous two sales held in February and July
respectively. The fall in prices achieved has impacted the planned
pace of the ramp up at Ghaghoo. Ghaghoo remains an important future
option for the Group, however in the short term it is considered
prudent to downsize the operation to minimise cash consumed by the
development of this asset. Options are being assessed to expand the
operation in order to achieve acceptable financial returns, as and
when the diamond prices improve.
The Company has again continued to demonstrate it's ability to
generate cash flows at Group level even in difficult market
conditions. The company paid a maiden dividend during 2015, and is
on track to recommend payment of a dividend for the 2015 financial
year."
1. Diamond Market
The diamond market remained weak during the Period as it had
done for much of 2015. The slowdown in Chinese retail demand,
liquidity constraints and high polished inventory levels,
particularly in the manufacturing sector, together with a strong US
dollar contributed to a cautious approach being adopted in both the
manufacturing and retail sectors. Although these challenging market
conditions continued impacting the price achieved for the Ghaghoo
production, the prices achieved for the large, high value rough
production from Letšeng remained comparatively firm during the
Period, achieving an average of US$2 117* per carat.
Initial data from the 2015 holiday season retail sales in the
United States has been positive and the general sentiment in the
diamond market going into 2016 has improved. The reduction in the
supply of rough diamonds from the major producers, together with
the reduction of prices seen in 2015 (and more recently at the
first De Beers sight of 2016) and concerted consumer marketing
efforts have helped to improve sentiment. Gem Diamonds' first
Letšeng tender of 2016, currently underway in Antwerp, has been
well attended and sentiment is upbeat.
2. Letšeng
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 2015 Q3 2015 QoQ Full year 2015 Full year 2014 YoY
% Change % Change
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Waste stripped (tonnes) 6 401 631 6 244 432 3% 24 010 847 19 884 725 21%
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Ore treated (tonnes) 1 810 935 1 758 295 3% 6 679 581 6 421 704 4%
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Carats recovered 29 100 29 460 -1% 108 579 108 569 -
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
Grade recovered (cpht) 1.61 1.68 -4% 1.63 1.69 -4%
------------------------- ---------- ---------- ---------- --------------- --------------- ----------
During the Period, 6.4 million tonnes of waste were mined
bringing the total for the year to 24.0 million tonnes. This is in
line with the revised life of mine plan which allows for increased
levels of higher grade ore from the higher value Satellite Pipe to
be mined annually.
Letšeng's Plants 1 and 2 treated a total of 1.53 million tonnes
of ore during the Period, of which 79% was sourced from the Main
Pipe and 21% from the Satellite Pipe. This brought the total of ore
treated through Letšeng's plants to 5.6 million tonnes for the
year. The balance of the ore (0.28 million tonnes) for the Period
was treated through the Alluvial Ventures Plant, bringing the total
tonnes treated by this contractor to 1.1 million tonnes. The higher
production levels achieved, particularly in Q4 2015, results from
the Plant 2 Phase 1 upgrade which was implemented at the beginning
of the year.
As a result of the positive progress made in the Satellite Pipe
waste stripping, the year to date contribution of ore from the
Satellite Pipe was 1.90 million tonnes against the forecast of 1.80
million tonnes.
2.2 Rough Diamond Sales and Diamonds Extracted for Manufacturing
Q4 2015* Q3 2015* QoQ Full year 2015 Full year 2014 YoY
% Change % Change
---------------------------- --------- --------- ---------- --------------- --------------- ----------
Carats sold 30 357 25 460 19% 102 778 108 963 -6%
---------------------------- --------- --------- ---------- --------------- --------------- ----------
Total value (US$ millions) 64.3 65.6** -2% 236.3 276.8 -15%
---------------------------- --------- --------- ---------- --------------- --------------- ----------
Achieved US$/ct 2 117* 2 578** -18% 2 299 2 540 -9%
---------------------------- --------- --------- ---------- --------------- --------------- ----------
(*Includes carats extracted at rough value for polishing.)
(** Includes the sale of an exceptional 357 carat white diamond
in September 2015 for US$19.3 million.)
Two Letšeng tenders were held in the Period, achieving an
average price of US$ 2 117* per carat (Q4 2014 - US$ 2 140),
bringing the 12 month rolling average at 31 December 2015 to US$ 2
299* per carat.
66 carats were extracted for own manufacturing during the Period
at a rough value of US$ 0.6 million.
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