Q4 2018 Trading Update

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Thursday, 7 February 2019

Gem Diamonds Limited (LSE: GEMD) (“Gem Diamonds” or the “Company” or the “Group”) provides the following Trading Update detailing the Group’s operational and sales performance for the Period from 1 October 2018 to 31 December 2018 (“Q4 2018” or the “Period”).

Letšeng:

  • Recovered three greater than 100 carat diamonds during the Period, bringing the number of diamonds greater than 100 carats recovered during 2018 to fifteen, a record for the Company.
  • Carats recovered during 2018 increased by 13% to 126 875 carats (2017: 111 811 carats).
  • Sold 33 140 carats during the Period, up 9% from Q3 2018.
  • Sold nine diamonds for more than US$ 1.0 million each, generating revenue of US$ 14.6 million during the Period. This resulted in 44 diamonds being sold for more than US$ 1.0 million each during 2018, generating revenue of US$ 137.2 million.
  • Achieved an average price of US$ 2 131 per carat for 2018, up 10% from US$ 1 930 per carat in 2017.
  • Subsequent to Period end, strong pricing was achieved at the first tender of 2019, with an average price of US$2 004 per carat*.
  • No Lost Time Injuries (LTI’s) occurred during Q4 2018.

Innovation:

  • The manufacturing of the pilot plant has commenced, and the project remains on target to be commissioned at the end of Q2 2019. This project employs innovative technology to identify diamonds within kimberlite, in line with the continuing strategy of early detection of large diamonds and diamond damage reduction.

Business Transformation:

  • The Company remains on track to achieve its cumulative target of US$ 100 million in incremental revenue, productivity improvements and cost savings for the 4-year period to end 2021. Initiatives that have been implemented to date, are expected to deliver US$ 60 million of the targeted US$ 100 million. Further details will be released at the Full Year Results, on 13 March 2019.

Financial:

  • At the end of the Period, the Group had US$ 50.8 million of cash on hand of which US$ 43.3 million is attributable to Gem Diamonds. The Group’s net cash position was US$ 17.5 million (of which US$ 14.0 million was attributable to Gem Diamonds). At Period end, US$ 33.3 million of available facilities had been drawn down, with undrawn and available facilities of US$ 57.8 million.
  • During the Period, Letšeng paid dividends of US$ 17.4 million, resulting in a net cash flow of US$ 11.0 million to Gem Diamonds and a cash outflow from the Group for withholding taxes of US$ 1.2 million and payment of the Government of Lesotho’s share of dividend of US$ 5.2 million.

Gem Diamonds’ CEO, Clifford Elphick commented:

“The large diamond recoveries continued during the Period with three diamonds greater than 100 carats being recovered, resulting in the highest number of these recoveries in a single calendar year. Production in 2018 also included a record number of diamonds greater than 20 carats being recovered in a single year.

The revised mine plan results in a significant reduction in Letšeng’s overall stripping ratio due to steeper slope angles, which is expected to result in a significantly improved NPV of the mine.

Good progress has been made on the business transformation process which remains on track to achieve its cumulative 4-year target of US$ 100 million, with already implemented initiatives expected to deliver US$ 60 million over the 4-year target period.”

1. Diamond Market

The demand and prices for Letšeng’s large high-quality white rough diamonds have remained firm.

2. Letšeng

2.1. Production

  Q4 2018 Q3 2018 % Change FY 2018 FY 2017 % Change
Waste tonnes stripped 5 622 965 6 693 245 -16% 25 809 076 29 718 985 -13%
Ore tonnes treated 1 734 156 1 806 638 - 4% 6 532 596 6 439 299 1%
Carats recovered* 29 523 35 755 -17% 126 875 111 811 13%
Grade recovered (cpht)* 1.70 1.98 -14% 1.94 1.74 11%

* Includes carats recovered through the mobile XRT sorting machine.

Waste stripping continued in line with the requirements of the long-term mine plan. Letšeng treated a total of 1.4 million tonnes of ore during the Period, 71% of which was sourced from the Main pipe and 29% from the Satellite pipe. The remaining balance of the ore was treated through the Alluvial Ventures contractor plant. Although tonnes treated for the Period was slightly lower than the previous period due to planned maintenance and repairs undertaken in the Plants, tonnes treated for H2 2018 was 3.5 million tonnes, significantly up from H1 2018 of 3.0 million tonnes.

Grade recovered for the Period decreased to 1.70cpht compared to the previous Period mainly driven by the lower contribution of Satellite pipe tonnes treated. Overall grade for 2018 was 1.94cpht, due in part to the Business Transformation initiative to re-treat tailings material through a mobile XRT sorting machine. This machine recovered 11 905 carats in 2018 of which 6 233 related to historical (pre-2018) tailings material.

The statutory negotiation process relating to the renewal of the Letseng Mining Lease is progressing well and updates will be provided in due course.

Frequency of recovery of large diamonds

The recovery of large diamonds improved markedly during 2018. The table below shows the frequency of large diamonds recovered during 2018 when compared to prior years.

  2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Number of diamonds                      
>100 carats 7 6 7 6 3 6 9 11 5 7 15
60-100 carats 18 11 11 22 17 17 21 15 21 19 22
30-60 carats 96 79 66 66 77 60 74 65 70 74 83
20-30 carats 108 111 101 121 121 82 123 126 83 113 137
Total diamonds > 20 carats 229 207 185 215 218 165 227 217 179 213 257

2.2. Rough diamond sales

  Q4 2018 Q3 2018 % Change FY 2018 FY 2017 % Change
Carats sold 33 140 30 275 9% 125 111 107 152 17%
Total value (US$
millions)
41.7 55.7 -25% 266.6 206.8 29%
Achieved US$/ct 1 259 1 841 -32% 2 131 1 930 10%

During the Period, the highest diamond price achieved was US$ 64 067 per carat for a 4.06 carat, pink diamond, which is also the highest price per carat achieved during 2018. The reduction in average US$ per carat compared to Q3 2018 is a result of lower quality recoveries during the Period.

With improved quality in production, strong pricing was achieved at the first tender of 2019, with an average price of US$2 004 per carat*.

2.3. Costs

Letšeng has managed to maintain its costs within the expected targets, with the approximate figures below:

Costs Maloti Guidance
Direct cash costs (before waste) per tonne treated 1,3 152.42 155 - 165
Operating costs per tonne treated 2,3 264.77 270 - 275
Mining waste cash costs per tonne of waste mined 33.09 32 - 34

1 Direct cash costs represent all operating costs, excluding royalty and selling costs

2 Operating costs include waste stripping costs amortised, inventory and ore stockpile adjustments, and excludes depreciation

3 Costs excludes costs associated with the implementation of Business Transformation initiatives, consultancy fees and employee recognition and reward scheme related thereto and approximates LSL14 per tonne treated.

*It should be noted that included in these sales figures are the carry-over diamonds from Export 1 that have been included at valuation and will be sold with the sale to be held in March 2019.

2.4. 2019 Mine Plan and Guidance

2019 Mine Plan

The improvement in drilling and blasting practises resulted in the revised mine plan incorporating various Business Transformation initiatives, most notably the steeper inter-ramp slope angles, resulting in significantly lower stripping ratios while increasing the overall contribution from the higher-grade highervalue Satellite pipe. Mining in line with this plan has commenced and is expected to significantly increase the mine’s Life-of-Mine NPV. Further details will be released with the Full Year Results presentation on 13 March 2019.

2019 Guidance

  FY 2019
Waste tonnes mined (Mt) 25 - 27
Ore treated (Mt) 6.5 - 6.7
Satellite pipe ore contribution (Mt) 1.8
Carats recovered (Kct) 114 - 118
Carats sold (Kct) 115 - 119
Direct cash costs (before waste) per tonne treated (Maloti)2 175 - 185
Operating costs per tonne treated1,2 (Maloti) 250 - 260
Mining waste cash costs per tonne of waste mined (Maloti) 36 - 38
Total capital (US$ million) 18 - 20

1. Operating costs per tonne excludes royalty, selling costs, depreciation and mine amortisation, but includes inventory, waste and ore stockpile adjustments.

2. Guidance excludes costs associated with the implementation of Business Transformation initiatives, consultancy fees and employee recognition and reward scheme related thereto. These costs are expected to range between LSL7 – LSL8 per tonne treated.

3. Health, Safety, Social and Environment (HSSE)

The Group-wide Lost Time Injury Frequency Rate stands at 0.15 for 2018. The Group-wide All Injury Frequency Rate is 1.45, an improvement over the 2017 rate of 2.02.

No major or significant community or environmental incidents occurred across the Group during the Period.

For further information:
Gem Diamonds Limited

Susan Wallace, Company Secretarial department
ir@gemdiamonds.com

Celicourt Communications

Mark Antelme / Joanna Parker
Tel: + 44 (0) 207 520 9261

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67.

About Gem Diamonds:

Gem Diamonds is a leading global diamond producer of high value diamonds. The Company owns 70% of the Letšeng mine in Lesotho and 100% of the Ghaghoo mine in Botswana. The Letšeng mine is famous for the production of large, top colour, exceptional white diamonds, making it the highest dollar per carat kimberlite diamond mine in the world. www.gemdiamonds.com

Download: q4_trading_update__final.pdf