Gem Diamonds' profit falls due to $40m one-off cost at Bostwana mine

For the six months ended 30 June, profit before exceptional items fell 12% to $13.4m and revenue fell 7.5% to $109.1m, compared to the same period last year.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell about 6% to $43.5m.

There was a exceptional item of $40m non-cash impairment to the Ghaghoo mine in Botswana, which attributed to a loss of $26.6m and a basic loss per share of 19.23 cents. The mine recovered over 20,000 carats and achieved sales of $4.8m at an average of $157 per carat.

Chief executive Clifford Elphick, said: “At Ghaghoo we continue to make good progress to downsize the operation and reduce costs in line with the group's strategic objectives. Targeted production rates and cost levels are anticipated to be achieved in second half of 2016.

“The ongoing weak market for Ghaghoo type diamonds has resulted in a non-cash impairment of $40m being made against the carrying value of this asset.”

The company said the Letšeng mine in Lesotho continued to perform well and steady prices were achieved for high value diamonds. Over 57,000 carats were recovered during the period at an average value of $1,899 per carat, and 20 diamonds achieved sales of more than $1m each.

Basic earnings per share decreased to 9.70 cents from 10.69 cents in 2015. An ordinary dividend of 5 cents per share and special dividend of 3.5 cents per share was paid on 14 June.

Gem Diamonds said capital and cash management discipline remains a high priority in the short term and it is committed to generating and returning cash to shareholders.

The company maintained that the Letšeng mine remained cash generative and as mining moves to the higher-value area of the satellite pipe in second half of the year, cash generation is expected to improve. It also said the focus at Ghaghoo will be on cost optimisation and reduction in cash consumption.

Shares in Gem Diamonds were down 1.32% to 125.81p at 1033 BST.