UK Edition
Gem Diamonds profits surge on back of blockbuster finds in Lesotho
A string of blockbuster gemstone discoveries has driven a surge in revenues and profits at London-listed miner Gem Diamonds.
The company has dug up 10 major diamonds in the first half of the year, all of them above 100 carats. Earlier this year it sold the 910-carat Lesotho Legend for $40m, and it has discovered two more since the end of the reporting period.
Clifford Elphick, founder and chief executive, said: “This now positions 2018 as a record for recoveries of diamonds greater than 100 carats in a single year.”
Gem’s success is down to its sole operating mine, Letšeng in Lesotho, in which it has a 70pc stake, the rest being owned by the government. Letšeng is the most valuable diamond mine in the world in terms of average carats per stone it produces.
The company attributed its stellar first half to improvements at its processing plant, which have ensured that fewer diamonds are crushed and lost during mining.
“Geological resources are variable and the reality is we can’t predict how many large diamonds we have in a particular part of the pipeline,” said Johnny Velloza, chief operating officer. “What we’ve done is make sure we have best opportunity to recover the diamonds that are there.”
As its high-value stones target the top end of the diamond market, Gem says it is protected from a slowdown in sales that has hit producers of small gems.
“The lower end of market is under enormous stress at moment. We’re not feeling same pressure the producers of smaller diamonds are feeling,” said Mr Velloza, who will depart next week to become chief executive of a cobalt and copper miner in the Democratic Republic of Congo. He will remain on the board of Gem.
Profits in the six months to June 30 surged 2,722pc to $64.8m (£50m) on revenues that jumped 81pc to $168m.
Gem will now continue to focus on stabilising production at Letšeng and cutting costs while exploring new technology that can identify diamonds in kimberlite rock before they are extracted. It hopes a breakthrough in this area will boost recoveries even further.
Analysts at Canaccord noted that sales of “Letšeng’s larger white diamonds appear to be holding up well”. However they noted that talks to extend its lease on Letšeng through to 2034 would most likely see the government “look for some additional benefits in the form of some creep in the likes of diamond royalties”. “Given the improving efficiency of the group and higher large stone recovery, we do not see that possibility as a negative,” they added.
Gem Diamonds shares rose 2.2pc to 118.50p in afternoon trade.