Gem Diamonds Q4 2009 Trading Update
22 January 2010
Gem Diamonds (LSE: GEMD) reports a trading update for the period from 1 October 2009 to 31 December 2009 ("Q4 2009").
Q4 2009 Highlights:
• Q4 2009 saw strong rough diamond prices; especially for larger top quality, top colour diamonds and showed an improvement over Q3 2009: -
o Letšeng Diamonds averaged US$1 894 per carat in Q4 2009 (US$1 710 per carat in Q3 2009) with the December 2009 tender achieving US$2 070 per carat.
o A 35.51ct D colour Type IIa Letšeng diamond sold for US$51 253 per carat.
o In Q4 2009 Letšeng sold 178 individual rough diamonds, each larger than 10.8 carats.
o In Q4 2009 Kimberley"s fancy yellow production averaged US$2 500 per carat.
• Kimberley Diamonds signed a long term agreement to sell its fancy yellow diamonds to a subsidiary of Tiffany & Co.
thereby assuring it of a long term market price and revenue stream and allowing Kimberley"s fancy yellow diamonds to benefit from Tiffany"s impressive global marketing reach.
• Kimberley"s Ellendale Mine continued to exceed planned targets with respect to tonnages mined, ore treated and carats recovered.
• Gem Diamonds currently has no debt and US$113 million cash on its balance sheet.
• Gem Diamonds has sold its alluvial assets in the DRC and has retained the right to a 65% interest and a 3% royalty payment in respect of any economic kimberlite that may be discovered on the concessions sold.
Gem Diamonds CEO, Clifford Elphick commented:
"The recovery in sentiment in the rough diamond market and resultant recovery in rough diamond prices through 2009 has been impressive, even though prices are still below the 2008 highs.
Prices for rough diamonds from the Letšeng Mine, which continues to produce some of the world"s rarest large, top quality, top colour diamonds, have risen from an average of US$1 017 per carat in Q1 2009 of to
US$2 070 per carat in December 2009.
We have also signed an agreement with Tiffany to ensure long term market prices and a revenue stream for the Ellendale Mine in Australia.
The medium to long term supply/demand equation for diamonds remains positive, especially at the top end of the market where Gem Diamonds is focused.
We have weathered the worst downturn in the diamond industry in living memory and with the support of our shareholders Gem Diamonds has emerged with no debt,
US$113 million cash and is well positioned to continue to take advantage of the recovery of the global diamond industry.
Gem is also continuing to assess ways of further enhancing the performance of its producing assets and of assessing other opportunities in light of the improvement of the rough diamond market."
Diamond Market
The substantial price weakness in the rough diamond market experienced in the first half of 2009 was ameliorated by extensive producer cutbacks in production and sales.
2009 was characterised by lower US retail diamond jewellery sales with an associated inventory destocking.
This resulted in an exaggerated fall in polished imports into the US (still the largest consumer of diamond jewellery) against rising demand in India and China, albeit from a lower base.
Recent reports from the very important Thanksgiving to Christmas holiday season in the US indicate a rise in diamond jewellery retail sales compared to the same period in 2008.
Anecdotal evidence also suggests continued strong demand from India and China.
Lesotho - Letšeng Diamonds (Pty) Ltd - Letšeng Mine
Gem Diamonds holds a 70% shareholding in Letšeng Diamonds (Pty) Ltd ("Letšeng") in partnership with the Government of the Kingdom of Lesotho which owns the remaining 30%.
Highlights:
• The Letšeng Mine in Lesotho has had a satisfactory performance during the period and continues to produce large, top quality diamonds.
• In Q4 2009, Letšeng sold 26 294 carats of rough diamonds and achieved an average price of US$1 894 per carat (US$1 710 per carat for Q3 2009 and US$1 308 per carat in H1 2009).
In Q4 2009, Letšeng sold 178 individual rough diamonds (3 823 carats) each of which was larger than 10.8 carats.
During the year ended 31 December 2009, Letšeng sold over 700 rough diamonds which exceeded 10.8 carats in size, representing 78% of Letšeng"s total sales revenue.
• In Q4 2009, 33 diamonds sold at prices greater than US$20 000 per carat, with an average price of US$29 820 per carat.
During 2009 a total of 68 rough diamonds were sold for more than US$20 000 per carat.
• Letšeng achieved an average of US$1 534 per carat for the full year 2009.
• 19 957 carats of rough diamonds were recovered from Letšeng in Q4 2009 (90 878 carats for
FY 2009).
1.1 Production
Q4 2009 Q3 2009 % Change FY 2009
Waste stripped (tonnes) 2 307 969 2 276 549 1% 8 072 032
Ore mined (tonnes) 1 704 533 1 897 372 (10%) 7 459 796
Ore treated (tonnes) 1 748 805 2 003 994 (13%) 7 549 386
Carats recovered 19 957 23 756 (16%) 90 878
Grade recovered (cpht) 1.14 1.19 (4%) 1.20
During Q4 2009 a total of 1.7 million tonnes of ore was treated through the three Letšeng plants during the fourth quarter.
The Satellite pipe contributed 39% of the ore treated in the quarter, with the remaining ore being obtained from the Main pipe and the stockpile.
Plant 1 processed 0.69 million tonnes, Plant 2 processed 0.64 million tonnes and the Alluvial Ventures pan plant processed 0.42 million tonnes.
Waste stripping at 2.31 million tonnes was ahead of plan for the quarter in preparation for the increased stripping required in 2010.
The average recovered grade for Letšeng for the full year 2009 was 1.20 cpht.
The figure is slightly lower than in 2008 due to:
• The planned change in the mix of ore treated from the higher grade Satellite pipe to predominantly lower grade Main pipe.
• Alluvial Ventures continues to stockpile oversize material which is reported in the total of ore treated, but is as yet untreated and therefore has a negative impact on reported grade.
The slightly lower average recovered grade for Letšeng in Q4 2009 was due to the mining of a large bulk sample that was taken from an area in the south part of the Main pipe, which yielded a lower than average grade.
The effect of this lower grade was, however, more than offset by higher diamond values which resulted in an overall increase in revenue per tonne.
Mining costs at Letšeng continue to be impacted negatively by the weakening of the US dollar against the Lesotho maloti (pegged to the South African rand).
From 1 January 2009 to 31 December 2009 the South African rand strengthened against the US dollar by 22%.
1.2 Rough Diamond Sales
Q4 2009 Q3 2009 % Change FY 2009
Carats sold 26 294 18 642 41% 101 599
Total sales value
(US$ millions) 49.8 31.9 56% 155.8
Achieved US$/ct 1 894 1 710 11% 1 534
Prices achieved for Letšeng diamonds continued to improve through Q4 2009 with 4th quarter sales averaging almost US$1 900 per carat.
The following D colour Type IIa rough diamonds achieved the highest unit prices during the fourth quarter:
35.51 carat stone for US$51 253 per carat
46.12 carat stone for US$46 009 per carat
11.92 carat stone for US$44 052 per carat
14.06 carat stone for US$41 828 per carat
16.28 carat stone for US$38 698 per carat
16.31 carat stone for US$37 902 per carat
25.91 carat stone for US$36 711 per carat
15.01 carat stone for US$34 522 per carat
33.54 carat stone for US$34 322 per carat
In addition a 6.09 carat pink diamond was sold for US$53 640 per carat.
1.3 Polished Diamond Sales
In Q4 2009 three exceptional D colour, internally flawless polished diamonds, weighing a total of 25.7 carats, were sold for US$2.5 million, at an average price of US$97 234 per carat.
These three polished diamonds came from two rough diamonds which were purchased by Gem Diamonds at Letšeng tenders for US$1.8 million and were processed through the Matrix Diamond Technology in Antwerp.
Gem Diamonds sold a total of 206.6 carats of polished, beneficiated diamonds during 2009, for a consideration of US$12.5 million at an average price of US$60 559 per carat.
It is management"s intention to continue to develop this side of the business.
2.
Australia - Kimberley Diamonds Company NL - Ellendale Mine
The Ellendale Mine, located in Western Australia, is owned and operated by Gem Diamonds" wholly owned subsidiary, Kimberley Diamond Company.
Highlights:
• Kimberley"s Ellendale Mine in Australia also reports a satisfactory performance for the period and remains one of the largest producers of rare fancy yellow diamonds.
• In Q4 2009, Kimberley Diamonds signed a long term agreement with a subsidiary of Tiffany & Co.
for the supply and sale of its fancy yellow diamond production.
• The E9 operation continued to exceed planned targets with respect to tonnages mined, ore treated, carats recovered and grade.
• The average prices achieved for Ellendale"s production have shown continued improvement during 2009.
In Q4 2009 Kimberley achieved an average price of over US$2 500 per carat for the fancy yellow diamonds sold to Tiffany (US$2 428 per carat for Q3 2009) and US$110 per carat for Ellendale"s commercial goods (US$102 per carat for Q3 2009).
• During Q4 2009, Kimberley sold a total of 81 026 carats of diamonds at an average price of US$272 per carat.
• Total sales for the year amounted to 312 450 carats sold, at an average price of US$232 per carat (US$184 per carat for 2008).
• 53 526 carats were recovered from the E9 pipe at Ellendale in Q4 2009, bringing total Ellendale production for the year ended 31 December 2009 to 198 825 carats.
2.1 Production
Operations continued to focus on delivery against the stated strategy of being a low volume, high value operation.
Q4 2009 Q3 2009 % Change FY 2009
Waste mined (tonnes)
1 257 579 1 320 738 (5%) 3 956 958
Ore mined (tonnes)
1 487 888 1 602 904 (7%) 4 080 077
Ore treated (tonnes)
1 110 278 1 194 770 (7%) 4 159 482
Carats recovered
54 162 58 611 (9%) 198 825
Grade recovered (cpht) 4.88 4.91 (2%) 4.78
A significant reduction in the scale of operations on a year on year basis is due to the placing of the E4 operation on care and maintenance.
The improved performance of the operation as reported for Q3 2009 has continued and all aspects of the E9 operation have achieved or exceeded the budgets set for 2009.
As a result of plant modifications being trialed in November (ahead of the wet season) and the impact of Cyclone Laurence in the latter half of December, throughput was slightly down in Q4 2009 compared to Q3 2009.
The fleet configuration at Ellendale was changed to meet the mine plane and resulted in a more efficient mining operation.
At year end the ore stockpile at E9 contained some 1.32 million tonnes, providing sufficient ore to feed the plants during the wet season.
Mining costs at Ellendale continue to be impacted negatively by the weakening of the US dollar against the Australian dollar.
From January 2009 to 31 December 2009 the Australian dollar strengthened against the US dollar by 22%.
2.2 Rough Diamond Sales
Q4 2009 Q3 2009 %Change FY 2009
Carats sold 81 026 38 686 109% 312 450
Total sales value (US$ millions) 22.1 19.6 13% 72.4
Achieved US$/ct 272 505 (46%) 232
The average US$ per carat for Q3 2009 is higher than it would otherwise have been, primarily because of the timing of sales, which resulted in a higher proportion of fancy yellow diamonds being sold during the third quarter and a higher proportion of commercial goods being sold in the fourth quarter.
The average price achieved for H2 2009 was US$348 per carat versus US$160 per carat for H1 2009.
The average price for Ellendale"s fancy yellow diamonds which are sold to Tiffany was US$2 500 per carat in Q4 2009 (US$2 428 per carat for Q3 2009) and for Ellendale"s commercial goods was US$110 per carat (US$102 per carat for Q3 2009).
In Q4 2009 Kimberley Diamonds formalised an existing supply arrangement with Laurelton Diamonds Inc.
the diamond sourcing and polishing subsidiary of Tiffany & Co.
for the supply and sale of its fancy yellow diamond production from the Ellendale Mine.
Effective from December 2009, the agreement will run for the economic life of the Ellendale Mine, affording Kimberley a contractual revenue stream for Ellendale"s high quality fancy yellow diamond production.
3.
Other assets
Contracts for the sale of Gem Diamonds" three DRC companies were concluded with Kasai Resource Mining Limited ("KRM") in Q4 2009 and the sales have subsequently been completed for a consideration of US$5 million.
Under the terms and conditions of the sale agreements entered into with KRM, Gem Diamonds retains the right, at no further cost, to an additional 65% interest in any economic kimberlite that may be discovered on the concessions currently owned by these DRC companies.
In addition, Gem Diamonds will be entitled to a 3% royalty on the revenue from any diamonds extracted from any kimberlite discovery on these concessions.
Operations at the E4 pipe at Ellendale, the Cempaka Mine in Indonesia, the Gope project in Botswana and the Chiri project in Angola remain on care and maintenance but are subject to ongoing management reviews.
Negotiations for the sale of the alluvial operations in the CAR are ongoing.
For further information:
Gem Diamonds Limited
Clifford Elphick, Chief Executive Officer
Glenn Turner, Chief Commercial and Legal Officer
Tel: +44 (0) 203 043 0280
Richard Chetwode, Investor Relations
Tel: +44 (0) 203 043 0280
Mob: +44 (0) 759 0064 883
Gem Diamond Technical Services (Pty) Ltd
Sherryn Tedder, Corporate Affairs
Tel: +27 (0) 11 560 9600
Mob: +27 (0) 83 943 4505
Pelham Bell Pottinger PR
James Henderson
Tel: +44 (0) 207 337 1501
About Gem Diamonds:
Gem Diamonds Limited (LSE: GEMD) is a global diamond company that has been pursuing a long term growth strategy through targeted acquisitions and the development of existing assets.
Under current market conditions, the Company is focused on the development of its cash generating assets and has curtailed all non-essential capital and development expenditure.
The Company"s portfolio comprises producing kimberlite and lamproite mines, development projects and exploration assets, as well as diamond beneficiation centers.
Operations and projects are situated in Angola, Australia, Botswana, the Central African Republic, Lesotho and Indonesia.
With Letšeng"s production of the world"s most remarkable white diamonds and Ellendale"s production of rare fancy yellow diamonds, Gem Diamonds is focused towards higher value diamonds.
This segment of the market is expected to deliver attractive returns.
