Gem Diamonds, which owns 70% of the Letšeng mine in Lesotho, reports they recovered 30,774 carats during Q3 2017 (July 1 - Sept. 30 2017), up 23% from 24,999 carats in Q2 2017 and up 26% YoY, as the grade of recovery increased 14% to 1.88 cpht. This is a welcome return to form for Letšeng. During the three month period, the junior miner achieved an average price of $1,858 per carat, up 4% from $1,779 per carat in H1 2017. This included an average price of $2,397 per carat for the July tender, making it the highest achieved US$ per carat for a tender since September 2015.
As a result, Letšeng sales grew 19% year on year to $48.1 million during Q3, despite the sales volume falling 3% to 25,909 carats. “The market for Letšeng’s high-quality diamonds has remained firm over the period, with the July tender achieving nearly $2,400 per carat,” said Gem Diamonds CEO Clifford Elphick. Trade analyst Kieron Hodgson of Panmure Gordon writes, "with recoveries at Letšeng improving and prices at a level that generates positive cash flows, we maintain the view that the company is now past the worst, despite a few niggling operational issues."
The high average sale price is in part due to a 7.87 carat pink diamond that achieved $202,222 per carat, making it the second highest price per carat achieved by a Letšeng rough diamond. A 55.58 carat white diamond realized $61,778 per carat, making it the highest price per carat achieved for a Letšeng rough white diamond for the year to date. The 126.75 carat diamond recovered in July achieved $56,402 per carat, while the 115.29 carat diamond recovered in September will be sold in Q4. For the year to date (Jan - Sept), Gem has recovered six diamonds larger than 100 carats, and 24 diamonds sold for more than $1.0 million each generating revenue of $56.9 million. The company has also not had any lost time injuries in the past year. The Group reports $25.4 million cash on hand at the end of the period, of which $19.1 million is attributable to Gem Diamonds, an increase compared to the end of June 2017 ($20.0 million and $16.1 million respectively).
Gem Diamonds notes, "As part of its strategic focus on reducing diamond breakage, the Company has been working in collaboration with leading experts from The University of Johannesburg for the deployment of innovative technologies. These technologies are designed to reduce breakages through identifying diamonds within kimberlite prior to the crushing process; and liberating diamonds through electrical pulse technologies." Gem Diamonds’ CEO, Clifford Elphick commented: “The market for Letšeng’s high-quality diamonds has remained firm over the period." Concerning their processing issues, he adds, "The group-wide efficiency and cost reduction review is progressing well and has already identified annual and once off cost savings of $20 million, which is an increase of $5 million over the figure announced at the time of our interim results. In addition, a number of innovative diamond identification and liberation technology initiatives are being actively pursued and I look forward to updating the market on further progress during Q4.”
Gem Diamonds notes that their guidance for ore tons treated has been revised marginally downwards, but they have implemented various initiatives at Letšeng to ensure carats recovered and sold remain within original guidance. In addition to this, Gem has increased the contribution from the higher-grade higher-value Satellite pipe material to 2.2m tons, up 22% from previous guidance. As a consequence, their unit cost guidance is also revised. Operating costs per ton treated are expected to increase as a result of the higher amortisation charge associated with the increased contribution from Satellite pipe material. They also not that in line with the revised mine plan, the waste tons for the year is expected to be lower than original guidance, positively impacting cash flow.