TRADING UPDATE FOR THE SIX MONTHS ENDED 30 JUNE 2007Back
12 July 2007
Gem Diamonds Limited (LSE: GEMD) is aiming to become a leading diamond producer and is pursuing an accelerated growth strategy through acquisitions and the development of existing assets. Gem Diamonds has a balanced portfolio consisting of both a producing kimberlite mine and alluvial mine, numerous development projects and a number of exploration assets with long-term prospects. The Company's current operations are situated in, Angola, Botswana, the Central African Republic, the Democratic Republic of Congo, Lesotho and Indonesia.
Established in July 2005, Gem Diamonds listed on the main board of the London Stock Exchange in February 2007 raising over US$600 million. It is currently capitalised at approximately US$1,25 billion and has US$519 million of cash on its balance sheet. Senior Management at Gem Diamonds has more than 150 years experience in the diamond mining industry.
Gem Diamonds issues this statement as an unaudited trading update for the six months ended 30 June 2007 (the period), in advance of its half year results to be announced on 13 September.
- 39 204 carats sold from LetÅ¡eng Mine, compared to 30 549.sold in the same period last year (28% increase)
- US$69,6 million total sales value from LetÅ¡eng Mine, compared to US$38,0 million for the same period last year (83% increase)
- LetÅ¡eng average price per carat over the period of US$1,894 from Satellite Pipe (2006: US$1281) and US$1128 from Main Pipe (not previously mined)
- Cempaka sales of US$2.3 million to end June
- First export of diamonds from the DRC, awaiting sale
- 215 carat D-colour flawless diamond recovered in January, sold for US$8.3 million
- LetÅ¡eng Mine continues to produce large stones â€“ with 226 diamonds of more than 10.8 carats recovered in the period
- Improved recovery techniques at LetÅ¡eng achieve grade of 2.26 cpht from the Satellite Pipe
- Construction of second plant at LetÅ¡eng to double processing capacity on time for completion early 2008 and currently on budget
- Mining of second LetÅ¡eng kimberlite begun, recovery of 58 carat diamond, sold for US$2.1 million
- Commissioning of plant commenced at Mbelenge Mine in DRC, ahead of schedule
- Trial mining set to commence in 2008 at Longatshimo in DRC, ahead of original planned date
- Two acquisitions, BDI Mining and Gope, completed since listing; for a combined net purchase consideration of US$114 million
- BDI Mining acquisition gives Gem Diamonds its second producing mine at Cempaka, Indonesia
- Ramp up of Cempaka production set to commence shortly
- Sale of Woodlark gold asset underway
- Gope acquisition concluded, resource subsequently upgraded and updating of feasibility study begun
Gem Diamonds CEO Clifford Elphick comments:
"In executing its business plan and investing the capital provided to it, Gem Diamonds is establishing itself as a gem diamond producer of significance. The LetÅ¡eng Mine has delivered excellent production increases and sales prices achieved have exceeded expectations. The expansion project at LetÅ¡eng is on time and budget. Since the Company listed on the London Stock Exchange in February 2007, it has acquired BDI Mining and Gope. With the acquisition of BDI Mining, Gem Diamonds has added another producing mine with significant growth potential to its portfolio. We will continue to seek further strategic acquisition opportunities that offer further growth potential."
Gem Diamonds holds a 70% shareholding in LetÅ¡eng Diamonds (Pty) Ltd (LetÅ¡eng) in partnership with the Government of the Kingdom of Lesotho which owns the remaining 30%.
1.1 LetÅ¡eng Operational Update
A total of 1 367 113 tonnes were mined and treated from the Satellite Pipe over the six months. Carats recovered were 30 876.53 at a recovered grade of 2.26 cpht, 14% above the budget grade of 1.98 cpht.
Alluvial Ventures, who are contracted to mine and process alluvial, eluvial and dump material on behalf of LetÅ¡eng, successfully completed the double up in its plant capacity during H1 2007 and treated a total of 508 193 tonnes and recovered 6 976.98cts at a grade of 1.37 cpht, 11.4% above budget grade of 1.23 cpht. All ore treated by Alluvial Ventures from early February 2007 was weathered kimberlite from the Main Pipe.
1.1.2 Diamond Sales
Tender results for the period are as follows:
|Tenders||Carats sold||Total tender value US$||Achieved US$/ct|
|Satellite Pipe||33 153.33||62 808 167||1 894|
|Main Pipe||6 050.48||6 828 441||1 128|
|Total||39 203.81||69 636 608||1 776|
These compare to the tender results for the six month period ended 30 June 2006 as follows:
|Tenders||Carats sold||Total tender value US$||Achieved US$/ct|
|Satellite Pipe||26 487.85||33 921 432||1 281|
|Main Pipe||4 060.71||4 067 650||1 135|
|Total||30 548.56||37 989 082||1 244|
1.2 LetÅ¡eng Expansion Project
LetÅ¡eng is currently engaged in a doubling up of its processing capacity with the construction of a second plant. Combined, the two plants will process 5.2 million tonnes per annum from forecast full production date of end Q2 2008.
To date the project is running on budget however the final estimated cost of the project is being challenged by legitimate scope changes and increased costs due to shortage of skilled resources.
An extensive review of funding options for the project was undertaken earlier in the year. However, strong production results and high diamond prices achieved, have resulted in LetÅ¡eng being in a position to self fund this expansion project. As such no debt funding will be raised.
On 29 May 2007, the Company announced its acquisition of 100% of the shares of Gope Exploration Company (Pty) Ltd (Gope) from De Beers and Xstrata for US$34 million.
2.1 Resource development and exploration
An independent review of the GEMCOM model available on the Gope kimberlite deposit was undertaken by Competent Persons Venmyn Rand. The results of this independent review have resulted in a resource upgrade to indicated down to 500m from the De Beers model of indicated to 300m and inferred to 400m. The result is an increase in the total resource to 97 million tonnes and 18.8 million carats at a grade of 19.3cpht, from a previous 79 million tonnes and 15 million carats at similar grade.
2.2 Gope Project Update
The process of updating the existing feasibility study and completing a revised EIA on the Gope kimberlite has commenced with relevant advisors appointed. Discussions with relevant stakeholders and affected persons are ongoing. The application for a Mining Licence will be submitted as and when appropriate.
Gem Diamonds successfully completed the acquisition of BDI Mining Corp (BDI Mining), first announced in April 2007 at a net cost of US$80 million. BDI Mining owns 80% of PT Galuh Cempaka (PTGC), which holds the mining rights to the Cempaka alluvial diamond mine in Indonesia. The remaining 20% is held by ANTAM, an Indonesian state mining company. BDI Mining also owns 100% of the Woodlark Gold Project in Papua New Guinea.
Integration of BDI Mining into Gem Diamonds is proceeding well. A restructuring of the boards of BDI Mining and its subsidiaries has been completed and a review of the BDI Mining group structure, with a view to simplification, is in progress. Gem Diamonds appointees have been made to the boards of BDI Mining and its subsidiaries. Neil Kaner, formerly LetÅ¡eng Diamonds Consulting Mining Engineer has been appointed as Managing Director and Lee Spencer, the former CEO, has been appointed as New Business and Development Director. Lee will continue to be closely involved in the development of the Cempaka Mine.
3.1 Resource development and exploration
Following a site inspection of Cempaka in April 2007, the existing fluvial geological model was further refined. Although the basal, quartzose gravels constitute the principal diamond placer, additional resource potential was identified in the overlying sand dominated package. Using the extensive drilling and sampling results generated from previous exploration campaigns, preliminary 3-D modelling of the Cempaka deposit has now commenced.
3.2 Cempaka Operational Review
Production, pre Gem Diamonds ownership, for the first half of the year was adversely affected by a lack of capital which resulted in low levels of overburden stripping leading to diamondiferous gravel shortages for feed to the plant.
Following the acquisition, plans have been implemented to ramp up production to 80 000 bank cubic metres (BCM) per month during H2 2007. The first batch of new mining equipment has been ordered and delivery is due in Q3 2007 as part of a move from contractor to owner mining.
Due to the size of the deposit Gem is evaluating upscaling the operation significantly beyond 80 000 BCM per month. Investigations into this have commenced alongside a review of the mining method with a view to reducing unit costs.
3.3 Woodlark Operational Review
As a focused diamond mining company, Gem Diamonds has elected to dispose of the Woodlark Gold Project and is actively pursuing a sale process.
Democratic Republic of Congo (DRC)
Gem Diamonds has interests in four projects in the DRC at Mbelenge, Lubembe, Longatshimo and Tshikapa. These interests are held via a number of companies in which Gem Diamonds has between a 49.99 and 100% shareholding.
4.1 Resource development and exploration
Detailed mapping of river features and trapsites along the Lubembe, Tshiumbu, Tshikapa, Longatshimo and Kasai Rivers was completed using Quickbird satellite imagery and limited ground-truthing. Additional field mapping and manual sampling of river terraces and floodplains is ongoing.
A helimag follow up survey was completed over 74 aeromagnetic anomalies, 55 in the Lubembe area and 19 in the Longatshimo area. These detailed surveys generated an additional anomaly in Lubembe and an additional three anomalies in Longatshimo. In Lubembe, 23 of the 55 aeromagnetic anomalies were drilled and resolved. No kimberlites have been intersected to date. Drilling will continue at Lubembe and will shortly commence at Longatshimo.
4.2 Mbelenge Operational Review
More than 60% of the earthmoving fleet has arrived and the first mine cut has been prepared ahead of the scheduled production start-up. The Treatment Plant facility has been erected and tested successfully with a first pass of gravel material. Commissioning of the DMS plant commenced at Mbelenge in late June, ahead of the scheduled start date in Q3 2007.
4.3 Longatshimo Operational Review
Based on historical data and the results of the conventional prospecting programme conducted in 2006 and 2007, a trial mining programme has been defined. Scope of work, staffing and equipment requirements and budget have been determined and orders have been placed for long lead items. Trial mining is expected to commence in H1 2008 ahead of earlier expectations for production in 2009.
4.4 Lubembe Operational Review
Phase 1 delineation drilling of basal Kwango gravels on the terraces was completed at Lubembe. Furthermore two 8" dredges were operational in the Lubembe region recovering a total of 7,571.41 carats, below the expected half year target of 10,500 carats. This shortfall is due to prolonged flooding precluding work in the higher grade, but more turbulent, rapid reaches. The diamonds were dispatched to Antwerp with Kimberley Process certificates for further analysis and later sale.
Two aquasweeper units and associated gravel pre-treatment systems have been delivered to the Lubembe project and are expected to substantially improve the efficiency of the dredge exploration programme.
Central African Republic (CAR)
Gem Diamonds holds a 75% interest in Gem Diamonds Centrafrique SA, in partnership with the Government of the CAR which holds the remaining 25%.
5.1 Resource development and exploration
Quickbird satellite coverage of the lowermost portion of the Mambere concession, including le Buckle â€“ one of the initial target areas â€“ was carried out at the end of the dry season. A base grid of sample and observation pits was established over le Buckle of which a total of 45 pits were excavated and the gravel recovered and treated. The process delivered inconclusive grade results but yielded valuable information on the bedrock geology and the surface geomorphology. On the basis of the above observations, five mega pits were sited and the first bulk samples were excavated with material being treated through a 15 tonne per hour DMS delivered to site and commissioned during the first half of 2007.
5.2 MambÃ©rÃ© Project Update
The Treatment Plant arrived on site in mid March. The DMS section was operational by end April but the Final Recovery section was damaged during transportation to site and as a result the Plant will only be fully commissioned in early July. The plant is now operating beyond design capacity.
291 diamonds weighing 88.2cts have been recovered from both the terraces and river at this early stage, but grades achieved have been lower than anticipated. Accordingly, the sampling programme has been extended and the initiation of trial mining delayed.
A Co-operation Agreement for the evaluation of the Chiri kimberlites in the Lunda Sul province of Angola was signed with Avantis Angola Limited (Avantis), one of five companies in a joint venture that were granted exploration rights for the Chiri 1 and 2 kimberlites, in December 2006. The conditions precedent to the Co-operation Agreement were subsequently met in March 2007.
6.1 Resource development and exploration
A first reconnaissance site visit was conducted in February 2007 by Gem Diamonds and Remote Exploration Services, the geological consulting and contracting company appointed to design and manage the preliminary evaluation and feasibility studies. A preliminary evaluation programme comprising geophysical surveys and a core drilling programme over the kimberlites has been designed.
6.2 Chiri Operational Review
The Chiri Technical Committee, comprising three representatives from Gem Diamonds and two from Avantis, met at the beginning of May.
Manufacture of the sample treatment plant is nearing completion in South Africa and, when the requisite Government approvals and permissions are in place, will be transported overland to site.
As indicated at the time of the Company's IPO, discussions are ongoing to increase the representation of Non-Executive Directors on the Board and, in accordance with the Company's commitment to compliance with the Combined Code, spilt the role of Chairman and Chief Executive.
Efforts are ongoing to ensure the inclusion of the Company's shares in the FTSE250.
For further information:
Gem Diamonds Limited
Clifford Elphick / Angela Parr
Tel: +27 11 325 7652
Tel: +44 207 743 6376
Tel: +44 207 743 6673
Tel : +44 207 743 6672
About Gem Diamonds:
Gem Diamonds is a diamond mining company with a balanced portfolio of a producing kimberlite mine, a producing alluvial mine, development projects and long-term prospects. Established in July 2005, Gem Diamonds is pursuing an accelerated growth strategy and aims to become one of the world's leading diamond producers. Gem Diamonds currently has one producing kimberlite mine, LetÅ¡eng, in Lesotho, a producing alluvial mine Cempaka in Indonesia, a kimberlite development project in Botswana, four development projects in the Democratic Republic of Congo, one in the Central African Republic and an option to develop the Chiri kimberlite concession in Angola. Gem Diamonds has a specific focus towards higher value diamonds, a segment of the market that its management believes will deliver superior long term returns.
In February 2007, Gem Diamonds listed on the London Stock Exchange and raised over US$600 million (net of expenses) to fund development of its existing assets as well as to pursue acquisitive growth opportunities. Gem Diamonds trades under the code GEMD. At the time of this announcement the market capitalization of the company is approximately US$1,25 billion.
For further information about Gem Diamonds visit www.gemdiamonds.com.