Q4 2011 Trading Update

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26 Jan 2012

Gem Diamonds Limited (the Company) (LSE: GEMD) reports a Trading Update for the fourth quarter period, 1 October 2011 to 31 December 2011 (Q4 2011) (the period).

KEY HIGHLIGHTS:

  • Record full year carat production at Letšeng, with continued recovery of high value, exceptionally large diamonds.
  • Strong cash position, with approximately US$158 million cash on hand. 
  • Project Kholo, Letšeng's production expansion project, received Board approval in November 2011 and it is planned that ramp up to full expanded production capacity will occur by July 2014.
During the period:
LETŠENG*:
  • The Letšeng mine continued to deliver a strong operational performance in 2011, ending the year having achieved the highest carat recovery in the history of the mine and with continued recovery of high value and exceptionally large diamonds. 
  • The 550 carat, Type IIa, D colour, Letšeng Star was sold in October 2011 into a profit sharing arrangement for a rough value of US$16.5 million and with potential for further upside.
  • Letšeng continued to market its rough diamonds on tender and to extract selected rough diamonds for own manufacturing and partnering, providing access to additional margins further down the diamond value chain.
  • The average value of the exports for the period was US$2 543 per carat (US$3 291 per carat in Q4 2010).
  • 10 rough diamonds achieved a value in excess of US$1 million each during the period.
  • A total of 46 rough diamonds, which achieved values greater than US$20 000 per carat, were recovered in the period, totaling 184 such diamonds for the full year, which have contributed circa 70% of Letšeng's revenue for the full year.
  • 168 rough diamonds greater than 10.8 carats in size were recovered in the period.
  • Letšeng exported a total of 32 353 carats for sale during Q4 2011, up 32% from Q4 2010.
ELLENDALE:

Production improved significantly during the period, with November's carat recovery being the highest of 2011.

* Includes production extracted for manufacturing at rough market valuation (further details in section 1.2 Diamond Sales and Diamonds Extracted for Manufacturing below). 

  • Ellendale achieved an average price of US$4 269 per carat during the period for its fancy yellow diamonds supplied under the long term off-take agreement with Tiffany & Co.
  • (US$3 482 per carat in Q4 2010).
  • For its commercial goods, Ellendale achieved an average price of US$180 per carat during the period (US$189 per carat in Q4 2010).
GHAGHOO:
  • Phase 1 development of the Ghaghoo diamond mine in Botswana is progressing well and remains on budget, with the box cut and portal having been completed during the period and preparations well underway to commence the development of the decline.
  • On schedule to deliver first production in mid 2013.
Cash:
  • The Group has a strong cash position of approximately US$158 million cash as at 31 December 2011, of which approximately US$141 million is attributable to Gem Diamonds.
  • During the 2011 year, the total dividends declared by Letšeng Diamonds were US$121.3 million, which resulted in a net cash flow of US$76.4 million to Gem Diamonds and a cash outflow from the Group of US$8.5 million as a result of withholding taxes and US$36.4 million in payments of the Government of Lesotho's portion of the dividend.
  • During the period, Letšeng Diamonds declared a dividend of Maloti 320 million (US$39.5 million) which resulted in a net cash flow of US$24.9 million to Gem Diamonds and a cash outflow from the Group of US$2.8 million as a result of withholding taxes and US$11.8 million in payments of the Government of Lesotho's portion of the dividend.
  • During November, Letšeng signed a three year revolving working capital facility of Maloti 250 million with Standard Lesotho Bank. This facility is available for draw-down from January 2012.
HEALTH, SAFETY, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENT (HSSE):
  • Regrettably a fatality occurred at Letšeng during November.
  • Gem Diamonds works towards zero harm, however, at year end the Group-wide Lost Time Injury Frequency Rate (LTIFR) was 0.21. The Company's target is zero.  
  • The All Injury Frequency Rate (AIFR) at year end was 4.50. The Company's threshold for 2011 is 5.05.
  • The Group recorded no major environmental or community related incidents during the year.
Gem Diamonds CEO, Clifford Elphick commented:

"Letšeng has continued to demonstrate its position as one of the world's leading diamond mines. Operationally we have delivered an excellent performance and have continued to recover some of the world's finest and largest diamonds. Through the development of our sales and marketing strategy and our cutting and polishing capabilities, we are increasingly gaining exposure to the full diamond value chain on our most valuable diamonds, working to grow and enhance our margins and increase profitability.

The strength of our asset base has supported the approval of two key growth projects and looking forward, we believe we are well placed to deliver shareholder value through the expansion of operations at Letšeng and the development of another mine at Ghaghoo.

The fourth quarter of 2011 saw rough diamond prices down from their highs in the first half of the year due, in the main, to the continuing effects of the Eurozone crisis. However, the last two Letšeng tenders of the year saw an improvement in demand, with a modest strengthening of prices in most categories.

It is with much regret that we report that Letšeng had a fatality in the past quarter. We have taken corrective actions immediately following this. We remain committed to achieving our zero fatality target and to ensuring that a safety culture is embedded across the entire group and adhered to by all our employees and contractors."

26 Jan 2012 Q4 2011 Trading Update (135KB PDF)