Gem Diamonds rallies on 910 carat discovery at Letseng

Gem Diamonds said on Monday that it has recovered an “exceptional quality” 910 carat, D colour Type IIa diamond from the Letseng mine in Lesotho.

The diamond is believed to be the fifth largest gem quality diamond ever recovered.

Chief executive officer Clifford Elphick said: "Since Gem Diamonds acquired Letšeng in 2006, the mine has produced some of the world's most remarkable diamonds, including the 603 carat Lesotho Promise, however, this exceptional top quality diamond is the largest to be mined to date and highlights the unsurpassed quality of the Letseng mine.

“This is a landmark recovery for all of Gem Diamonds' stakeholders, including our employees, shareholders and the Government of Lesotho, our partner in the Letseng mine."

RBC Capital Markets analyst Richard Hatch said that good quality D-colour, Type IIa diamonds can sell for anywhere between $40k/ct and $60k/ct.

“Given the size of this diamond and its historical significance, we believe it could be well bid (albeit likely by only a few industry players given the size and value of the stone). Note however that Lucara struggled to sell its 1,109ct Lesedi La Rona, and eventually sold it for $53m ($47,777/ct), versus $60m expectation.

“Regardless, the successful sale of this stone will be supportive for Gem’s balance sheet and push the company into a free cash flow positive position this year (based on our existing forecast of a negative free cash flow move of $15m.

“At 1.07x NAV, the shares are currently fully valued, we believe, but with the recovery of this stone, we expect the shares push materially higher this morning.”

At 0910 GMT, the shares were up 14% to 92p.