Q4 2013 TRADING UPDATE

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Gem Diamonds Limited (LSE: GEMD) reports a Trading Update for the fourth quarter period 1 October 2013 to 31 December 2013 (Q4 2013) (the Period).

During the Period:

Letšeng:
The Satellite pipe delivered exceptional quality diamonds in Q4 2013, with Letšeng achieving revenue of US$ 75.6 million in Q4 2013.
  • An average value of US$ 2 533 per carat was achieved for the 3 exports in Q4 2013 (US$ 2 022 per carat in Q3 2013 and US$ 1 741 per carat in H1 2013).
  • 27 227 carats recovered in Q4 2013, up 7% on Q3 2013.
  • 11 rough diamonds achieved a value in excess of US$ 1 million each during the Period, (totalling 27 for the full year).
  • 35 rough diamonds achieved a value in excess of US$ 20 000 per carat during the Period (totalling 96 for the full year).
  • A total of 215 rough diamonds greater than 10.8 carats in size were exported in the Period, equating to 82% of Letšeng’s revenue for the Period. (566 diamonds greater than 10.8 carats have been exported for the full year, totalling 75% of Letšeng’s revenue for the full year).
  • In October 2013 a 12.47 carat blue diamond sold for US$ 7.5 million, a Letšeng record of US$ 603 047 per carat.
Ghaghoo:
Continued progress at Ghaghoo, which offers strong growth potential:
  • A total of 1 096 development meters of tunnel have been completed to date.
  • Kimberlite has been intersected on Level 0 and the main decline is 50m from the break-off to the first production level, Level 1.
  • Construction of the Plant is essentially complete, with commissioning planned for Q2 2014.

Group:

  • It is with great regret that the Company announces that on 11 January a fall of ground incident occurred in Level 0 of the underground development at Ghaghoo which resulted in an employee losing his life. The Inspector of Mines has conducted an enquiry and has granted permission for construction operations to resume.
  • Three Lost Time Injuries (LTIs) occurred in the Group for the full year 2013.
  • The Letšeng mine was awarded a 5-star rating at its 2013 IRCA audit for health and safety.
  • Zero major stakeholder and environmental incidents have occurred for the full year 2013.
  • Continued implementation of international best practice regarding environmental and social responsibility.

Cash:

  • The Group maintains its strong cash position with US$ 71.2 million cash as at 31 December 2013, of which US$ 62.6 million is attributable to Gem Diamonds. (US$ 61.5 million as at 30 June 2013, of which US$ 55.6 million was attributable to Gem Diamonds).
  • As at Period end no draw-downs have been made on either of the US$ 20 million or Maloti 250 million (US$ 23.9 million) facilities.
  • A further US$ 25 million credit facility with Nedbank Limited has been concluded for Ghaghoo. This facility will be utilised to fund the remainder of the Ghaghoo capital development.
  • During the Period, total dividends declared by Letšeng were US$ 20.0 million, which resulted in a net cash flow of US$ 12.6 million to Gem Diamonds and a cash outflow from the Group as a result of withholding taxes of US$ 1.4 million and payments of the Government of Lesotho’s portion of the dividend of US$ 6.0 million.
Gem Diamonds’ CEO, Clifford Elphick commented:

“It is with great sadness that the Company reports a fatal accident at the Ghaghoo mine which resulted in the death of one of our employees, Segolane Mashumba in January 2014. Our condolences go out to his family. This is a tragic accident given the outstanding safety record of the Group in 2013, where only 3 lost time injuries were reported for the year and where the Letšeng mine achieved the highest IRCA audited rating for health, safety and environment. Health and safety continues to be a core focus for the Company as we strive to adhere to international health and safety best practices.

It is pleasing to see the stronger Letšeng diamond prices achieved for the Period which were 25% up on the prior quarter. As mining at Letšeng has moved more into the Satellite pipe in Q 4 2013, we have seen an expected improvement on the quality of diamonds produced. This, together with a strong market saw the final tender of 2013 realise over US$ 3 000 per carat. This firmer trend in rough prices for Letšeng’s high value diamonds looks set to continue into the beginning of 2014.

It is also a great milestone for the Company to see that at Ghaghoo, the kimberlite has been intersected and the main decline is now less than 50 meters from the break off to the first production level. In addition, a separate US$ 25 million facility has been signed for capital expenditure at Ghaghoo and the Group ended 2013 with a strong cash position some US$ 10 million higher than at the half year.”