Gem Diamonds' Profit Plunges in 2019, Share Price Falls With It

Mining and Exploration
12/03/2020 14:34

Gem Diamonds yesterday announced that its profit for 2019 took a plunge as weaker diamond prices and fewer large diamond recoveries put pressure on a miner whose product was expected to shelter it somewhat from a challenging market. Gem's profit for the year from continuing operations fell 71% to $15.0 million from $52.4 million in 2018, while its attributable profit lost 77%, falling to $7.1 million from $31.7 million a year ago. The stock market was not kind to Gem's share price, which this week sunk to an all-time low.

While signs of an improving market in Q4 offered hope, revenue for the full calendar year dropped 32% to $182.1 million compared to $266.6 million in 2018. The miner recorded an average price of $1,637 per carat in 2019, representing a 23% decline against the $2,131 earned in 2018. Gem last year recovered 113,974 carats of rough diamonds, including 11 diamonds greater than 100 carats in 2019 as compared to 126,875 carats in 2018 and 15 such recoveries in 2018. Following the recoveries in 2019, Gem Diamonds has now unearthed 100 diamonds larger than 100 carats at Letšeng since Gem Diamonds began operating the mine in 2006. The miner sold 27 diamonds for more than US$1.0 million each during 2019, generating revenue of $68.2 million. This means that 27 diamonds were responsible for 37% of Gem Diamonds' total revenue.

In a live audio webcast presentation yesterday, CEO Clifford Elphick said, “We have a tender coming up in two weeks and we have not seen any cancellations that give us cause for concern,” he said. “But we will see how it translates into price. I would not be surprised if there was some impact (of COVID-19) given the loss of confidence and the impact of the unknown.” Elphick during the presentation said the London-listed firm’s 2019 revenue declines were impacted by the lower grade obtained from its satellite pipe of the Letseng mine in Lesotho as well as the lower selling prices. Underlying earnings before interest, tax, depreciation and amoritisation (EBITDA) fell 58% year-on-year to $41m. 

Some of the positive takeaways from the year was that the company achieved $55m in repeatable business savings ahead of its $100m a year target by 2021. It has also signed a new 10-year lease with the Lesotho government securing mining from Letseng. “This [long-term stability], together with the continued emphasis on cost controls, positions the company well for an upturn in the market for Letšeng’s quality production which appears to have begun,” Elphick assured shareholders.