H1 2012 Trading Update

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30 Jul 2012

Gem Diamonds Limited (LSE: GEMD) (“Gem Diamonds”, the "Group” or the “Company”) reports a trading update for the half year period 1 January to 30 June 2012 (“H1 2012”) (“the Period”). Gem Diamonds’ financial results for the period will be detailed in its Half-yearly Results Announcement which will be released on 21 August 2012.

During the Period:

Letšeng:
  • Continued strong performance with 57 116* carats recovered during H1 2012 (up 7% from H1 2011).
  • The recovered grade was 1.68 cpht during H1 2012 (up 8% on H1 2011).
  • An average value of US$2 133 per carat was achieved for the five exports for H1 2012 (US$3 052 in H1 2011).
  • 23 rough diamonds achieved an average value in excess of US$1 million each during H1 2012 (30 in H1 2011).
  • Letšeng produced a total of 82 rough diamonds that achieved prices greater than US$20 000 per carat (105 in H1 2011), which equates to 59% of Letšeng’s revenue for H1 2012.
  • A total of 361 rough diamonds greater than 10.8 carats in size were produced in H1 2012 (295 in H1 2011).
  • A revised resource statement for Letšeng increased the resource carats by 10% and increased their valueby 5%.

* Includes 587 carats recovered in test work during the Period.

Ellendale:
  • Ore mined during the Period up 234% from H1 2011, following the commissioning of the primary plant feed section of the processing plant.
  • 78 881 carats recovered at Ellendale during H1 2012 (up 51% from H1 2011).
  • Achieved an overall average price of US$771 per carat (US$573 per carat in H1 2011), with its fancy yellow diamonds sold to Tiffany & Co. achieving an average of US$4 315 per carat during H1 2012 (US$4 045 in H1 2011).
  • A revised resource statement for Ellendale decreased the resource carats by 15% and increased their value by 16%.
Ghaghoo:
  • Construction of the decline tunnel through the sand overburden has continued through the Period as the Company progresses with Phase 1 of the Ghaghoo underground mine project.
  • Regrettably a sudden and rapid inrush of sand at the face of the tunnel in adverse ground conditions resulted in the tragic fatalities of two workers. After implementation of all the corrective action recommendations, the advancement of the decline tunnel is expected to re-commence in mid-August 2012.
  • A revised resource statement for Ghaghoo left the resource carats unchanged but increased their value by 16%.
 Group:
  • A total of three Lost Time Injuries (LTIs), including the two fatalities at Ghaghoo, have occurred in the Group during the Period.  Ellendale reached 1 000 LTI free days on 26 May, while on 4 May, Letšeng achieved six months LTI free.
  • No major stakeholder or environmental incidents have occurred in the Period.
Cash:
  • The Group has a strong cash position with US$139 million cash as at 30 June 2012, of which US$128 million is attributable to Gem Diamonds).
  • A US$31 million facility is available at Letšeng, of which no amounts have been drawn down to date.
  • Cash costs for the Period are in line with management estimates.
  • The Directors have initiated a review of the Group’s capital expenditure programme to ensure the balance sheet remains strong in the event of further deterioration in market conditions.
Gem Diamonds’ CEO, Clifford Elphick commented:

“The first half of this year has been marked by strong operating performance by Gem Diamonds in light of a challenging backdrop for the diamond industry. Our flagship mine, Letšeng continued to produce some of the world’s finest high quality diamonds, reporting an increase in both carats recovered and recovered grade compared to the same period in 2011 and cash costs were held in line with management estimates.  The global macroeconomic climate and in particular the ongoing financial crisis in the Eurozone, continue to weigh on rough and polished diamond prices. This, together with the comparatively lower quality production from Letšeng in the Period when compared to H1 2011, which saw six exceptional diamonds recovered, is reflected in the Company’s revenue generated during the Period.” 

“Gem Diamonds has a strong balance sheet and, with US$ 139 million of cash, no debt and strong operating cash flow, is well positioned to weather the current downturn in the market. However, in light of continued economic uncertainty, the Directors have initiated a review of the Company’s capital investment plans. The review will focus on potentially extending the period over which capital is expended on its two development projects, Project Kholo at Letšeng and the Ghaghoo mine development, in order to protect the Company’s strong balance sheet in the event of further deterioration in market conditions. The review will also aim to ensure that there is sufficient flexibility to allow for these projects to be accelerated should market conditions improve significantly. The Company remains committed to doubling production at Letšeng and to the development of the Ghaghoo mine and expects to provide further information on its development programme in the Half-yearly Report which will be released on 21 August 2012, once the review is complete.” 

“Our view on the long term outlook for the diamond market remains positive, with supply forecast to remain tight and growing demand in key markets expected to put upward pressure on diamond prices.”

30 Jul 2012 H1 2012 Trading Update (122KB PDF)