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Gem Diamonds warns of possible price softening in early 2015

27th January 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – Gem Diamonds CEO Clifford Elphick has cautioned that a weakening of diamond prices in the fourth quarter of last year, following a year of price growth, could continue into the first quarter of 2015.

The group said on Tuesday that the announcement of the closure of the Antwerp Diamond Bank (ADB) in October had led to concerns over the availability of liquidity in the rough diamond market.

While the market had been aware of the continuing issue of constrained liquidity, Elphick outlined that the official announcement of ADB's closure had weakened market sentiment in the quarter ended December 31. 

“The overall sentiment in both the rough and polished diamond market leading up to and following the Hong Kong Jewellery Show in September was cautious, resulting in downward pressure on the price of rough diamonds during the period. 

“It is…expected that this cautious approach in the market will continue into the first quarter of 2015,” he said in a trading update.

Notwithstanding these market conditions, the group noted that the high-value rough diamond production from its flagship Letšeng mine, in Lesotho, had remained relatively resilient during the last three months of the year, with diamonds achieving “strong prices” in the quarter.

Three Letšeng tenders were held during the period, achieving an average price of $2 140/ct, compared with two tenders in the third quarter of the year, which achieved an average price of $2 603/ct.

This brought the 12-month rolling average for the year to $2 540/ct, up 24% from $2 043/ct in the prior year.

Gem reported that, during the fourth quarter, 13 exceptional rough diamonds recovered at Letšeng achieved prices greater than $1-million each, including a 299.3 ct yellow diamond, which was sold into a partnership arrangement that would see Letšeng sharing in 50% of the polished uplift; a 112.6 ct white diamond, which sold on tender for $5.8-million; and a 90.4 ct white diamond, which sold on tender for $4.2-million.

For the full year, 1 232 ct were extracted for manufacturing at a rough value of $17.2-million, while $15.2-million remained in polished inventory at the end of the year.

EFFICIENCY GAINS
Meanwhile, improved efficiencies in the use of larger load and haul equipment, which were commissioned at the mine during the third quarter, resulted in a 6% increase in waste being stripped in the fourth quarter compared with the previous quarter. 

Letšeng's Plants 1 and 2 treated a total of 1.37-million tons of ore in the fourth quarter, 64% of which was sourced from the main pipe and 36% from the satellite pipe.

The balance of ore was treated through the Alluvial Ventures contractor plant, 93% of which was sourced from the main pipe and 7% from stockpiles.

For the full year, a total of 69% of ore was sourced from the main pipe and 31% from the satellite pipe.

PROJECT PROGRESS
The mine’s new $12.1-million coarse recovery plant project, meanwhile, remained on track for completion in the second quarter of this year with $5.7-million spent on the project in 2014.

The majority of the equipment was now on site, with construction under way.

“The coarse recovery plant project will optimise the treatment of the high-value, coarse fraction of ore and is expected to improve the recovery of the high-value Type II diamonds and improve security measures,” said Elphick.

Implementation of the Plant 2 Phase 1 upgrade project, which was planned to deliver an increase in treatment capacity of 250 000 t/y, as well as further reducing diamond damage, started in the third quarter of 2014 and was on track to be completed at the end of the first quarter.

Some $900 000 of the total project capital cost of $4.3-million was spent in 2014.

Subsequent phases of the Plant 2 upgrade project would be considered once Phase 1 had been implemented and plant performance had been evaluated.

Cost management at Letšeng continued to be a key focus area and the company stated that the mine had managed to maintain its costs within expected targets, notwithstanding power cost increases during the year under review.

GHAGHOO DEVELOPMENT
Gem Diamonds' wholly-owned subsidiary, Gem Diamonds Botswana, continued the development of the Ghaghoo mine, over the period, with development of Phase 1 “continuing to progress well”.

Three kimberlite tunnels on the first main production level had been fully developed to the northern orebody-country rock contact, while the fourth tunnel was nearing completion.

Development of the access ramp to Level 2 had started and was scheduled to reach Level 2 by June. Development of the ventilation system was progressing “satisfactorily”.

The training stope and access tunnels in the kimberlite on Level 0 had continued to provide ore for the plant during the commissioning period and would continue to do so until replaced by steady-state production from Level 1 later this year.

By the end of December, 48 023 t of ore had been treated, with 10 167 ct having been recovered.

The recovered grade during the commissioning period averaged just over 21 carats per hundred tons.

“Grade was negatively impacted by highly diluted ore derived from the margins of the pipe and normal plant inefficiencies during early commissioning. During the latter part of the period, following commissioning processes at the treatment plant, the grade improved as expected and management anticipates that reserve grades will be achieved as both the plant and mining operations achieve steady state,” the group maintained.

An initial sale of 10 000 ct recovered from all ore during commissioning would be held in Gaborone and Antwerp in January and February .

Gem Diamonds remained on track to declare a maiden dividend to shareholders following its final results announcement in March.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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