Gem Diamonds Starts Road to Recovery in 2017, Returns To Profit

Mining and Exploration
14/03/2018 12:48

Gem Diamonds returned to profit in 2017 as it recovered seven diamonds over 100 carats, but the miner's prospects are looking even better for the year ahead, as today's announcement of the recovery of a 169 carat stone is the seventh diamond of over 100 carats recovered already in 2018. Gem returned to profitability for the year ending 31 December, recording a profit before tax of $30.3m, up from a loss the previous year of $124.1m; profit after tax was $17.2m (-$144.1m) and attributable profit was $5.5m (-$158.8), after exceptional items. Revenues in 2017 totalled $214.3m, up from $189.8m the previous year, but underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $45m from $62.8m in 2016 due to higher costs. The company has initiated a cost-reduction program targeting savings of $100 million over the next four years.

Gem recovered 111,811 carats from its Letšeng mine in Lesotho, up from 108,206 carats in 2016, including seven diamonds larger than 100 carats, up from five the previous year. So far in 2018, Gem has already recovered seven diamonds of more than 100 carats (including the one announced today). The "Lesotho Legend", a 910 carat diamond, sold earlier this week in Antwerp for $40m. The average value achieved of $1,930 per carat also trended up from the $1,695 per carat earned in 2016, and increased steadily in the second half of the year. Highlights of the year included the sale of a 7.87 carat pink diamond, which achieved $202,222 per carat, making it the second highest price per carat achieved by a Letšeng rough diamond. They also sold a 58.38 carat white diamond, which achieved $ 61,905 per carat, making it the highest price per carat achieved for a white diamond for 2017.

The London-based miner said that it focused on strengthening the firm's foundation in 2017 following a painful year in 2016. CEO Clifford Elphick said the company began to benefit from operational improvements in the second half of the year, with a "significant" improvement in the recovery of large diamonds from Letšeng. The company also installed an XRT system in H2 2017 to re-treat recovery tailings. "The focus on enhancing the efficiency of our operations identified a potential of US$20.0 million of annualised and once-off efficiency and cost reduction initiatives at the end of last year. A target has now been set of obtaining US$100.0 million of cash savings by the end of 2021, with an ongoing target of US$30.0 million per year thereafter“, he said in a statement. He also noted that themarket for the mine’s large, high quality white rough diamonds remained strong over the course of 2017, a trend which has continued into early 2018. 

Gem Diamonds has issued a FY 2018 guidance of 114,000 - 118,000 carats, up from the 111,811 recovered in 2017During the course of the year, Gem placed its Ghaghoo mine on care and maintenance and says a formal sale process underway. Looking further down the line, the company has completed initial testing of non-mechanical crushing prototype designed to reduce breakage of large stones, as well as reduce costs. These complimentary key technologies are designed to identify diamonds within kimberlite prior to crushing process and to iberate diamonds through electric pulse technologies.