H1 2014 Trading Update

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29 Jul 2014

Exceptional First-Half underpinned by an excellent operational performance and strong growth potential.

Gem Diamonds Limited (LSE: GEMD) reports a trading update for the Period 1 January 2014 to 30 June 2014 (H1 2014) (the Period). Gem Diamonds’ financial results for the Period will be detailed in its Half Year 2014 Report and Results Announcement which will be released on 20 August 2014.

Highlights during the Period:

Letšeng:
Letšeng delivers exceptional performance
  • 80% increase in Letšeng’s revenue* to US$ 147.8 million compared to H1 2013
  • 29% increase to 54 678 in carats recovered compared to H1 2013.
  • 14% increase to 53 799 in carats sold* in the first five tenders of 2014, compared to H1 2013.
  • 58% increase in average value per carat of US$ 2 747* achieved for the first five tenders of 2014, compared to H1 2013.
  • 37 rough diamonds achieved a value in excess of US$ 1.0 million each.
  • 77 rough diamonds achieved a value in excess of US$ 20 000 per carat.
  • 5 rough diamonds achieved a value in excess of US$ 60 000 per carat.
  • A total of 311 rough diamonds greater than 10.8 carats in size were sold.
  • Three exceptional quality +100 carat diamonds – a 162.02 carat, a 161.31 carat and a 132.55 carat, were sold for US$ 11.1 million, US$ 2.4 million and US$ 7.5 million, respectively.
  • Tonnes of ore treated up 6% on H1 2013.

*Includes carats extracted for polishing at rough valuation.

Ghaghoo:
First diamonds recovered, underpinning long-term potential at Ghaghoo
  • Development of Phase 1 of the Ghaghoo mine achieved on time and on budget.
  • Processing plant being commissioned, with 2 400 carats recovered from commissioning as at end of June 2014.
  • Development of three production tunnels on Level 1 underway.
  • Build-up to planned production levels by end 2014 on track.
  • Photographs of Ghaghoo's diamonds are now available on Gem Diamonds’ website.

Cash:

Robust financial position and cashflows providing financial flexibility to meet medium to long-term objectives
  • The Group increases its strong cash position to US$ 114 million cash as at 30 June 2014, of which US$ 98 million is attributable to Gem Diamonds. (US$ 71 million as at 31 December 2013, of which US$ 62 million was attributable to Gem Diamonds).
  • During the Period, Letšeng declared dividends of US$ 40 million which resulted in a net cash flow of US$ 25 million to Gem Diamonds and a cash outflow from the Group as a result of withholding taxes of US$ 3 million and payments of the Government of Lesotho’s portion of the dividend of US$ 12 million.
  • During the Period Letšeng concluded a debt facility of Maloti 140 million (in addition to the Maloti 250 million working capital facility currently available, but undrawn, at Letšeng) for the full cost of the new coarse recovery plant.
  • Of the additional US$ 25 million facility available for Ghaghoo Phase 1, US$ 16 million had been drawn down by the end of the Period.

Dividend:

  • In March 2014, Gem Diamonds’ Board of Directors announced its intention to pay a maiden dividend to shareholders at the end of the 2014 financial year. The Group remains on track to meet this objective.
Gem Diamonds’ CEO, Clifford Elphick commented:

“This has been a strong half-year for Gem Diamonds with one of the best ever performances at Letšeng.  This, reflects the current mine plan and the technical improvements and optimisation programmes which are taking place at Letšeng. Additionally, good progress has been made with the development of the Ghaghoo mine. The mine has been built and commissioning has begun. This new mine will unlock considerable long-term value. The Company has increased its cash position to a Group cash balance of US$ 114 million which is significant given the Board’s stated intention to pay a maiden dividend for the 2014 year.

Letšeng continues to prove its world class asset status. The ongoing focus on low capex, value accretive projects is delivering value resulting in increased diamond liberation and reduced diamond damage. This, together with the current mine plan and the higher proportion of Satellite Pipe ore mined, has resulted in a 29% increase in carats recovered compared to the corresponding 2013 period. This has, in turn, supported strong sales meeting robust demand throughout the Period.

At Ghaghoo the first sale of diamonds is scheduled to take place before the year end. The first diamonds produced during the commissioning of the plant have, as anticipated, been of a significantly higher quality and average size than those mined during the exploration phase. A 20 carat and two 10 carat diamonds have been recovered from the first 2 400 carats recovered as at end of June 2014. This compares to the largest diamond recovered in the exploration sampling of 7 carats. During the development of the production level there has been a greater quantity of water encountered than indicated by the exploration drilling. Steps have been taken to deal with this and it is not anticipated that there will be any impact on the planned production targets for 2014.

It is also very pleasing to see the greatly enhanced reserves and resources position of the company after the latest drilling and evaluation campaign. All of Letšeng’s optimal open pit now falls within the indicated resource category and thus converts to probable reserves, approximately doubling the in-situ value of the reserve to US$ 4.6 billion and the open pit life of mine has been extended to 22 years.”

29 Jul 2014 H1 2014 Trading Update (439KB PDF)