Gem Diamonds Limited Trading update for Q4 2015 (8650N)

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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February 03, 2016 02:00 ET (07:00 GMT)