Gem Diamonds reports solid final quarter

Gem Diamonds updated the market on its trading for the fourth quarter on Thursday, reporting a 41% improvement in revenue to $51.3m (£39.52m).

The London-listed firm said the average price achieved for the three-month period ended 31 December increased 21% to $1,713 per carat, while carats sold were ahead 17% at 29,945.

It added that the average price achieved had further improved to $1,753 per carat for the first tender of 2020.

On 3 February, recoveries of three exceptional 183, 89 and 70 carat diamonds were made, which would be sold in March.

During the fourth quarter, Gem said it recovered four diamonds of more than 100 carats, bringing the total to 11 diamonds of more than 100 carats for 2019.

There had now been 100 diamonds of those sizes each recovered at the Letšeng mine since Gem Diamonds began operating it in 2006.

It sold seven diamonds for more than $1m each, generating revenue of $15.6m during the period.

In total, 27 diamonds were sold for more than $1m each during 2019, which generated revenue of $68.2m.

Gem Diamonds said it achieved its operational guidance metrics for the 2019 full year, adding that operating costs per tonne treated were the lowest for the last three years.

The mining lease was renewed for another 10 years, effective from 3 October 2019, with an exclusive right granted to Letšeng to renew for a further period of 10 years after that.

Looking at its finances, Gem Diamonds said the targeted $100m in incremental revenue, productivity improvements and cost savings over the four-year period to end 2021 was on track to be delivered, and had so far delivered $52m as at the end of 2019.

Corporate costs were down by $1m to below $10m for the year.

During the quarter, the group generated free cash flow of $1.5m, improving its net debt position to $10.1m from $11.6m in the third quarter.

The company said it ended the period with $11.5m of cash on hand, of which $9.2m was attributable to Gem Diamonds.

During the quarter, Letšeng entered into an LSL 100m (£5.19m) working capital facility which, including scheduled debt repayments, improved the group's available facilities to $69.9m from $49.3m in the third quarter.

“Letšeng delivered solid operational results - carats sold are up 17% on the prior quarter,” said chief executive officer Clifford Elphick.

“There was an increase in volumes treated for the year and a significant reduction in the waste profile.

“This, together with the business transformation programme delivering its targeted gains and continued emphasis on cost controls, positions the company well for the anticipated upturn in the market which appears to have begun.”

Elphick said the swing to a stronger market for Letšeng's diamonds was confirmed by the 21% increase in the average price achieved during the period, of $1,713 per carat.

“This improvement continued into 2020 with the first tender achieving $1,753 per carat.

“The first tender of 2020 did not include the remarkable recoveries of the 183, 89 and 70 carat diamonds on 3 February.”

At 1026 GMT, shares in Gem Diamonds were up 4.88% at 68.8p.