Gem Diamonds Share Discussion Threads

[salpara111] 03/9/2014 18:11

Well, I am happy to see it ease off as I want to double my holding and have been hoping to see it back at 200p

[eeza] 03/9/2014 16:54

Low volume, but a sudden lurch down into the close on a positive day for the Market doesn't bode well. IMO.

[cfro] 30/8/2014 13:34

Very interesting snippet in this weeks Shares mag:

"Chief Executive officer Clifford Elphick implies there's merit in sector consolidation, particularly with companies owning neighbouring assets. Explicitly this means Lucara Diamonds TSX:LUC, with whom it has previously held talks but which collapsed due to disagreement on valuation, Petra Diamonds and Firestone Diamonds. Elphick says he knows to which f these three he'd like Gem to be wed but refuses to disclose the name. A marriage would be predicated on synergies from shared processing and having one not two management teams for the portfolio of mines."

[nehpets81] 29/8/2014 15:18

Sorry if this has come up before or is blindingly obvious but what is all the cash being horded for? GEMD have taken out a bank loan to pay for developments at the mine but they are sitting on oodles of cash... any idea why?

[cfro] 24/8/2014 22:51

I couldnt understand why the Chronic investor used Charles Stanley'd numbers either JJHBev.

[saucepan] 23/8/2014 12:53

Well put JJHBev

[jjhbev] 23/8/2014 12:10

It's interesting/frustrating to compare the Questor write up shown above with Friday's results summary & "hold" recommendation in the Investors Chronicle.

The (generally positive)IC summary concludes with the following:-

"Broker Charles Stanley hiked its EPS forecasts for 2014 & 2015 by 18 per cent and 14 per cent respectively to 9.7p and 12.7p
>Gem Diamonds has a strong balance sheet and is considering paying a maiden dividend at year-end. But this appears to be factored into the share price which has risen about 50 per cent since July to a two-year high. Trading on 22 times current year earnings forecasts – falling to 17 times next year – the shares rate a hold"

Now, I wouldn't disagree with a hold rating for a company like GEM with a 22x PE but IMO those EPS forecasts are pure gibberish – and as per the numbers in the Questor write up I am sure that Westhouse Securities would agree!

EPS for the first half is 14.3cents or approx 8.5p. If Charles Stanley & IC really believe that the Full Year EPS will be 9.7p they must be forecasting 1.2p for the second half. Really!!! – the phrase "You cannot be serious " comes to mind!!!

Diamond pricing apparently remains firm & if the comment re the $3200 per ct in the July auction is correct then this half year is already off to a very strong start. A repeat of at least the first-half EPS does not seem too demanding even allowing nothing from Ghaghoo. So, IMO Westhouse's forecast – which requires 17.5c for this half year - may be a touch bullish but hopefully will actually be achieved assuming some contribution from Ghaghoo. But the Charles Stanley/IC numbers !!!!! – and yet some PIs will see the IC write up and act based on those numbers/recommendation.

Presumably if IC had used the Westhouse PE ratios(approx 11x for this year) they would be rating GEM a strong buy?

If ever one needed a lesson in the need for DYOR this is it!

[eeza] 22/8/2014 08:06

Questor share tip: Gem Diamonds shares sparkle
The precious gem miner is opening a new mine, will pay a maiden dividend and profits are soaring, says Questor
Revenue increased by 54pc to $148.9m and pre-tax profits more than doubled to $54.8m during the six months to the end of June.
Revenue increased by 54pc to $148.9m and pre-tax profits more than doubled to $54.8m during the six months to the end of June. Photo: ALAMY

By John Ficenec, Questor Editor - 7:00AM BST 21 Aug 2014
Gem Diamonds
221.5p+13.75p
Questor says BUY

CHINESE demand is driving up the prices for diamonds and that has resulted in a strong set of first-half results at Gem Diamonds [LON:GEMD]. What's more, with a maiden dividend on the horizon and a new mine up and running, the shares could have further to run.

Clifford Elphick, the chief executive at the South Africa-focused precious gem miner, said the Chinese are becoming increasingly active in the diamond market. At the company's rough diamond auctions, where only a select group of about 150 bidders are invited, about a quarter now come from China – double the number five years ago.

The US is still the largest single market for rough stones but the Asian interest has come at a time of rising prices. The average price per carat over the first half of the year was about $2,750 (£1,650), up 58pc from $1,740 at the same stage last year. Mr Elphick added that, in the most recent auction, prices had risen to $3,280 per carat.

Gem Diamonds increased production at its Letseng mine in Lesotho by almost 30pc to 54,678 carats during the first half. The mine, located in the kingdom within South Africa, generates almost all the revenue and profits for the group.

Revenue increased by 54pc to $148.9m and pre-tax profits more than doubled to $54.8m during the six months to the end of June.

Westhouse Securities estimates that Gem's full-year pre-tax profits will be $105.8m, giving 31.8c (19p) in earnings per share.

Mr Elphick is confident there is still more to come. He expects the company to pay its first dividend next March and analysts expect a 3p final. There is also the development of a new diamond mine at Ghaghoo in Botswana.

It is hoped that Ghaghoo will be producing enough diamonds within the next four months to calculate the mine's value at full production. Analysts from Westhouse currently only ascribe a value of about 6p per share to the mine – but this could rise significantly.

Investing in diamond miners is risky. While polished stones hold their value, rough stone prices can be highly volatile.

The shares have been on a strong run this year up 47pc, but they still look reasonable, trading on 11 times forecast earnings. A speculative buy.

[smackers prudentia] 22/8/2014 03:56

Questor share tip: Gem Diamonds shares sparklehttp://www.telegraph.co.uk/finance/markets/questor/11047808/Questor-share-tip-Gem-Diamonds-shares-sparkle.html

[saucepan] 20/8/2014 17:44

I have just listened in on the webcast: just over 30 minutes of presentation and 25 minutes of questions/discussion.

It is available here for anyone else interested:



I was extremely impressed in every respect, including the slickness of having a webcast at all, getting it to work so well, and the ways in which management speakers came across.

Above all of that, of course, was the reported progress that has been made and the positivity of the future outlook.

I also thought the quality, detail, style and presentation of the RNS document itself was exemplary compared to the many RNS announcements of other Companies I routinely trawl through.

Very well done, Gem Diamonds!

A couple of specific things that stood out for me from the presentation:

* the confirmation that July and August have got H2 off to a strong chart.

* insights that sanctions involving Russia could, if anything, be positive for the diamond market.

[jjhbev] 20/8/2014 17:26

Hi Interceptor

Yes – that was also my understanding from the Q&A. However the rationale for the reduction is that the % coming from the satellite will be lower than the first half –this is also expected to negatively impact the expected level of diamonds recovered. My understanding of the comments was that they hope/expect that revenue for the second half from letseng will be of the same order as in the first half (due to ongoing pricing strength offsetting any possible volume reduction).

It is perhaps worth emphasising again that the waste cost amortisation charge is a non-cash accounting charge. If one looks at the foot of page 20 of the results presentation it can be seen that "Waste Cash Cost per Ton Mined" actually reduced from 25 maloti to 24.2 maloti (therefore a much greater reduction in $ terms).

A couple of other things that stood out for me from the Q&A =
A) Gem intend that any future development costs for Ghaghoo (beyond Phase 1 into Phase 2) will be funded at the Ghaghoo level by means of debt raised within Ghaghoo :- i.e. GEM will not be using cash generated from Letseng to provide additional funding to Ghaghoo. To quote Mr Elphick "Ghaghoo needs to be standing on its own feet". So, future cash generation from Letseng should be available for dividend distributions and not be diverted into Ghaghoo CapEx.
B) GEM's dividend policy will almost certainly be based on a % of profits rather than any form of progressive dividend policy. There was no indication of what would be deemed to be an appropriate % but I would hope that initially at least (and I do mean at least!) 25% of net profits would be a reasonable basis (particularly taking into account the current cash balances and the indication re capex funding at Ghaghoo). Based on a continuation of the first half profits that would enable a dividend of 5p+ per share. It could well be argued that a higher percentage formula would be comfortably covered (particularly taking into account the current cash balances and the apparent ongoing strength in pricing) – but IMO 5p would do for starters with the potential for significant increases assuming Ghaghoo starts to generate meaningful profits and the ongoing upward trend in diamond pricing is actually seen rather than just hoped for.

Finally, based on today's information I share the hope for an share price of £3+ before the end of next year.

[interceptor2] 20/8/2014 16:28

It sounded like all the professionals were participating in the presentation this morning, I guess it took a while to go through the DD.

Only caught the second half, but it seemed to go down well.

JJHBev, raised the "waste cost amortisation charge" here earlier today, if I understood correctly, I think management anticipate the charge to reduce in H2?

[saucepan] 20/8/2014 15:15

It looks like the 'professionals' have taken most of the day to absorb today's news. Judging by the growing afternoon strength in the share price, I am assuming they are impressed.

[salpara111] 20/8/2014 14:08

The issue of the really big stones is more of a problem than an asset in that they account for all the reported profit in the first half which means that profitability is too heavily dependent on finding these big stones.
I am hoping that the mine in Botswana has lower operating costs going forward.
I am still happy to hold and expect the share price to re-rate up to 300p over the next 12 months as supply really comes on stream from Botswana and they start paying a divi.

[cfro] 20/8/2014 13:44

They sold three diamonds larger than 100 carats in the first half. Worth remembering that they have the 198 carat whopper to sell which will fall into second half figures.

[woodpeckers] 20/8/2014 13:16

See that FinnCap, Westhouse and Liberium have all reiterated their buy targets today at 261p/235p and 190p. First two make sense but not sure how Liberium can be saying buy with a target of 190p! Their clients can't make much money if they believe their advice!

[undervaluedassets] 20/8/2014 11:36

Was impressed by the conference call .

[woodpeckers] 20/8/2014 10:36

"Now that peak (capital expenditure) is over the company should be a cash generator if Ghaghoo gets up and running according to plan," Numis analysts said.

[salpara111] 20/8/2014 09:44

Agreed, the one thing that did not appear as good as I expected in the headline figures was the actual profit.
Having said that, cash generation was great and at this point that is more important, especially wrt to paying a divi.
This stock is very news driven and if we see any pullback in the share price over the next month I would be inclined to add to my holding.

[jjhbev] 20/8/2014 09:01

A very good set of results.

I had expected that the half year profit would exceed the full year profit for 2013 of $21m. As we have all seen the actual figure came up a bit shy at $19.7m.

However, the slightly bizarre thing is that operational & financial performance was actually better than I had expected. In fact the only reason that the result was not way over $21m was an increase in a single accounting charge – i.e. an increase in the "waste cost amortisation charge" from approx $9m to $24.4m. As a result of this increase (n.b. this is an "accounting" charge rather than a cash cost) operating cost is shown as $20 per ton treated as compared with $15.25 for 2013.

Without this increased amortisation charge :-

a) Operating costs would actually have been less than I was expecting (and in terms of "real world" cash costs they actually were!). Cost of Sales are shown as $67.2M & without the increase in amortisation they would be $52m
b) The net profit would have been $25m+


Given that waste tons mined increased by only 2% - from 9.9m tons to 10+m tons – I do not understand the 150% increase in the waste cost amortisation. An explanation is given in the figures :- See note 7 to the accounts = "The increase in amortisation is directly related to the areas that were mined during the period and their waste to ore strip ratios".
I don't really understand why that gives rise to an increase of $15m amortisation charge – perhaps someone will ask in today's presentation?!

In any event it does not affect the cash generated by the business – see Note 13.1 showing cash generated from operations up from $45.6m to $86m.

It will be very interesting to listen to the presentation at 9.30 – but these results and the outlook (including that for the dividend) look very good indeed.

[interceptor2] 20/8/2014 07:47

All positive as far as I can see :o)

EPS 8.6p for H1, bodes well to full year.

[cfro] 20/8/2014 07:42

Very pleased with that!

:0)

[saucepan] 18/8/2014 10:35

Good posts :-)

I agree, the outlook augurs well.

The large chart in the header is worth reflecting on - it underscores the significance of the break above 200p in the 'bigger picture' (a huge basing pattern there).

[jjhbev] 18/8/2014 10:32

Hi cfro

The pricing outlook is also confirmed over at Lucara.

In their Q1 presentation on 8th May their revenue outlook for the year (Page 6) was "$150-160m on sales of 400-420 thousand ct"
hxxp://www.lucaradiamond.com/i/pdf/2014Q1_Presentation.pdf


In their Q2 presentation on Aug 14th their revenue outlook for the year (Page 6) is now "240-250m on the same sales of 400-420 thousand ct"
hxxp://www.lucaradiamond.com/i/pdf/2014Q2_CP.pdf


So – From a presentation released only last week Lucara's outlook is very positive.


In pointing this out I don't mean to imply that diamond prices are continuing to strengthen at the same rate as the first half of 2014 but rather that prices remain firm and are expected to remain so through the rest of the year with possible further price upside.

Additional info from Lucara which supports the view that they expect continuing strong pricing and profit generation =
A) On Page 3 of the Q2 presentation they state that they achieved $40m from their large stone tender in July
B) They have had to increase very substantially their provision for tax. (Botswana has a taxing basis where the % charged increases based upon the level of profits expressed as a percentage of revenue. Lucara are now expecting their profit margin for the year to be so high – as a result of the increased pricing – that their tax charge will rise to be (perhaps) 45%+