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Inventory, liquidity headwinds dent Gem Diamonds’ H1 pricing

30th July 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – High inventory levels and continued liquidity concerns, paired with global macroeconomic uncertainties, have continued to place pressure on rough and polished diamond prices, denting the realised price of commercial stones recovered at Gem Diamonds’ Ghaghoo mine, in Botswana, for the first half of the year, the company said on Thursday.

Recovered grades from Ghaghoo in the six months ended June 30 fluctuated between 28 carats per hundred tons (cpht) and 30 cpht in May and June, while a second parcel of 29 891 ct of commissioning-phase production sold for $4.9-million, or $165/ct, in July in a “difficult market”.

While this was below the average price of $210/ct achieved for the sale of the first parcel during the period, Gem noted that production was not comparable from a quality perspective and this, together with a declining market for these goods, had a negative effect on the price achieved.

Gem recovered several small blue and pink coloured diamonds from the developing operation over the period, as well as a 48 ct diamond and an increasing number of diamonds in the 10 ct to 30 ct size range – still below the operation’s modelled frequencies.

The price of large, high-value diamonds recovered from the diamond miner’s Lesotho-based Letšeng mine, however, remained resilient through the six months, with an average price of $2 264/ct achieved in the first half of the year – a marginal decrease on the $2 338/ct achieved in the second half of the 2014 fiscal period.

Thirteen rough diamonds recovered over the period achieved a value of greater than $1-million each, while a 357 ct Type IIa white diamond recovered during the six months was expected to be sold in the third quarter of the year.

A further four diamonds of over 100 ct each were also sold, including a 108 ct Type IIa rough diamond, which sold for $65 226/ct.

POWER SECURE
Gem this week reiterated that the Plant 2 Phase 1 upgrade at Letšeng had been completed on schedule and within the budget of $4.2-million, with the shutdown for the changeover completed within 19 days.

The shutdown of Plant 2 limited the production days available in February and March, which was reflected in the 7% dip in carats recovered over the period to 50 019 ct.

“Following the upgrade, Plant 2 is operating well and is on track to achieve its increased headfeed target of an additional 250 000 t/y,” CEO Clifford Elphick said in a trading update.

Letšeng’s Plants 1 and 2 treated 2.6-million tons of ore during the six months to June, 67% of which was sourced from the main pipe and 33% from the satellite pipe.

The balance of the ore was treated through contractor Alluvial Ventures' plant, 80% of which was sourced from the main pipe and 20% from stockpiles.

Clifford noted that, although the power supply situation in South Africa and neighbouring States continued to be unreliable, with frequent and numerous power outages, the impact on operations at Letšeng had been minimal owing to the installation of additional on-site back-up power generating capacity in 2014.

SLOWER PROGRESS
In Botswana, 132 125 t of ore were treated, sourced mainly from Ghaghoo’s Level 0, while work continued in establishing the production section on the first production level and ramping up to steady-state production.

As the tonnage of ore from underground increases, the processing plant would continue to ramp up to the nameplate capacity of 60 000 t/m.

“The development of the Ghaghoo mine is progressing slower than planned owing to difficult ground conditions, which have hampered slot development in the first five production tunnels and constrained production ramp-up.

“Specialist expertise has been employed to ensure there is no further major ingress of water as the access decline and rim tunnel on Level 1 both begin advancing through the water fissure area to gain access to the second production section,” said Elphick.

Over 32 000 t/m of ore was treated in May and June, with recovered grades in excess of the modelled reserve grade of 27 cpht being consistently achieved, resulting in the recovery of 35 283 ct for the period, he added.

Responding to the trading update, mining analyst Liberum outlined in a noted that the company’s proposition remained attractive, despite expectations that the diamond market would struggle to recover from its liquidity and inventory challenges.

“Polished and rough diamond pricing has yet to find a floor, with midstream players reporting high levels of inventory, low liquidity availability and very low profitability.

“[Diamond major] De Beers had tried to hold prices at its last sightholding and this resulted in only $200-million of diamonds being sold – the lowest since 2008. The efforts by the majors will eventually tighten up the market but we are unlikely to see any price recovery until the end of the year and we have lowered our diamond price forecasts going forward,” it held.

Gem Diamonds ended the half-year with $83.8-million cash on hand, available drawn down facilities of $34.2-million of its available facilities and a net cash position of $49.6-million.

The company paid a maiden yearly dividend of $0.50 a share on June 9.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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