JOHANNESBURG (miningweekly.com) – Global diamond producer Gem Diamonds posted a modest improvement in recovered carats for the fourth quarter ended December 31, 2013, as the satellite pipe at its flagship Lesotho-based Letšeng mine delivered “exceptional” quality diamonds in the three months.

Carats recovered for the period improved by 7% quarter-on-quarter, from 25 559 ct in the prior three months to 27 227 ct, while average diamond grade improved by a similar margin, from 1.63 ct in the third quarter to 1.68 ct in the period under review.

Enhanced plant availabilities and improvements to the cone crushers, installed earlier in the year, led to a lift in tons treated, which, in combination with increased access to higher-grade satellite ore at Letšeng, drove the improvement in diamond grade.

During the fourth quarter, Letšeng's plants treated 1.3-million tons of ore, 52% of which was sourced from the satellite pipe.

“As mining at Letšeng moved more into the satellite pipe in the fourth quarter, we have seen an expected improvement in the quality of diamonds produced.

“This, together with a strong market, saw the final tender of 2013 realise over $3 000/ct. This firmer trend in rough prices for Letšeng's high-value diamonds looks set to continue into the beginning of 2014,” commented CEO Clifford Elphick.

Fund manager Liberum Capital European mining analyst Ben Davis said the market had expected price improvement into the final quarter, “but this was still 15% ahead of our expectations”.

During the period, total dividends declared by Letšeng were $20-million, which resulted in a net cash flow of $12.6-million to Gem Diamonds and a cash outflow from the group, as a result of withholding taxes of $1.4-million and payments of the government of Lesotho's portion of the dividend of $6-million.

DIAMOND SALES

During the quarter, Letšeng held three tenders which, together with the diamonds extracted for own manufacture, achieved an average value of $2 533/ct, bringing the full-year average to $2 043/ct.

For the first tender of 2014, these strong prices continued, with Letšeng achieving an average of $2 673/ct, bringing the 12-month rolling average to $2 180/ct.

In October, a 12.47 ct blue diamond sold for $7.5-million, a Letšeng record of $603 047/ct, while an 83 ct white diamond sold for $4.8-million, or $59 173/ct.

Elphick said the diamond market in the fourth quarter again relied on the US as the main centre for the sale of polished diamonds through the December holiday period. 

“Although the holiday sales were ahead of last December, much of the increased sales were attributed to heavy discounting and aggressive sales promotions. Ahead of the Chinese New Year, market focus has now shifted to Asia. 

“The demand for rough diamonds remained healthy during the period, with relatively high prices achieved for Letšeng's production, in particular, the high-quality large rough diamonds,” he noted.

Although positive sentiment was expected to continue into the first quarter of 2014, sustained liquidity constraints, made worse by two major banks in Belgium recently announcing the tightening of their lending criteria, were expected to result in the continuation of the cautious approach adopted by most industry participants in both the rough and polished market. 

GHAGHOO MINE

Meanwhile, the group reported that good progress had been made at wholly owned subsidiary Gem Diamonds Botswana’s Ghaghoo mine, in Botswana, with tunnelling intersecting the kimberlite on November 26.

A further 65 m of development was required to reach the old sample tunnels, which, once intersected, would be examined for safety ahead of starting production on Level 1.

The main decline was 50 m away from the break-off to the first production level, Level 1, while development of the rim and access tunnels was expected to begin in mid-February.

Commercial production remained on schedule for the first half of 2014, with ramping-up to the planned steady-state yearly production rate of 220 000 ct/y expected by year-end.

The mining support infrastructure, camp, treatment plant and the other services were in place and operating well.

By December 31, $71.2-million of the total capital budget of $96-million had been spent.

“It's a great milestone for the company to see that the Ghaghoo kimberlite has been intersected and the main decline is now less than 50 m from the break-off to the first production level.

“In addition, a separate $25-million facility has been signed with Nedbank for capital expenditure at Ghaghoo,” said Elphick.

2014 GUIDANCE

The diamond explorer on Tuesday expected to recover between 90 000 ct and 95 000 ct in 2014, while carats sold were expected to be between 94 000 ct and 99 000 ct for the year.

An expected year-on-year increase in operating costs to between $190/t and $220/t would be largely driven by the additional waste amortisation associated with the increased mining in the satellite pipe, as this pipe had a higher waste strip ratio than the main pipe.

Commenting on the company’s outlook, Davis added that diamonds continued to be its preferred commodity in terms of investment, particularly the high-quality stones produced by Gem Diamonds.