Fewer Large Stone Recoveries Send Gem Diamonds into 2016 Loss

Mining and Exploration
15/03/2017 09:53

Gem Diamonds fell to an annual loss in 2016 as the decline in the recovery of diamonds larger than 100 carats has had a "disappointing impact" upon revenue and cash flow, while poor prices achieved from its smaller diamonds from the Ghaghoo mine in Botswana forced it to book a large exceptional charge and led it to stop production at the mine. The $176.5m non-cash impairment related to its Ghaghoo mine has pushed the London-listed group to a 2016 attributable loss of US$158.8 million from a $77.6m profit (after exceptional items) in 2015. Attributable profit before exceptional items fell 28% to $17.7 million ($41.8 million in 2015). Underlying EBITDA fell 39% to $62.8 million ($103.5 million in 2015).

Revenue fell 24% to $190m from $249.5m as the average value per carat achieved from diamonds from its Letšeng mine in Lesotho (70% ownership) tumbled 26% year-on-year to $1.695 from $2,299 a year earlier, while the group also recovered fewer +100 carat diamonds (5) compared to 2015 (11). Despite the poor financial results, Gem Diamonds recovered the same amount of carats as the year prior (108,206) and treated the same amount of ore (6.6m tons), so the lower average value per carat was the clear culprit. Nonetheless, 34 rough diamonds achieved a greater value than $1.0 million each, they soled an 11.8 carat pink diamond for $187,700 per carat, making it the third highest price per carat sold by Letšeng, and the largest recovered diamond was a 160.2 carat Type II white diamond.

Operational results from Gem's Ghaghoo mine in Botswana were reported as follows: Ore treated 217,372 tons (326,922 in 2015); Carats recovered 40,976 (91,499 in 2015); Average value of $152 per carat ($162 per carat in 2015); Total sales of $7.2 million for 47,266 carats sold. Operation of the mine was placed on care and maintenance in February 2017 due to low prices achieved for this category of diamonds. 

Clifford Elphick, Chief Executive of Gem Diamonds, stated the following about the results: "Letšeng has performed well operationally and achieved all production metrics within targets and guidance. Demand and prices achieved for the large, high quality diamonds recovered from Letšeng have remained firm, but the decline in 2016 in the recovery of diamonds larger than 100 carats has had a disappointing impact upon revenue and cash flow. This recovery rate is consistent with the normal, short term variability of the resource. Based on a detailed geological understanding of the resource, we remain confident that Letšeng will continue to produce exceptional diamonds." He adds, "At Ghaghoo, solid progress was made developing the mine. Given the low prices achieved for this category of diamonds, the mine was placed on care and maintenance in February 2017. Ghaghoo provides Gem Diamonds with flexibility to restart operations, when prices for this category of diamonds recover."

"The supply demand fundamentals for the diamond industry remain strong. Focus in 2017 will be on cash generation. At Letšeng, the implementation of the updated life of mine plan is expected to improve cash flows through an optimised waste mining profile," he said.