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Gem Diamonds Reviews Letšeng Expansion Due to Weak Market
Letšeng's Sales -22% as Prices -30%
Jul 30, 2012 5:11 AM
By Avi Krawitz
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RAPAPORT... Gem Diamonds said it may delay its development projects in Lesotho and Botswana as rough diamond prices fell in the second quarter due to weak economic conditions.
“The global macroeconomic climate and in particular the ongoing financial crisis in the Eurozone, continue to weigh on rough and polished diamond prices,” said Clifford Elphick, Gem Diamonds' chief executive. "In light of continued economic uncertainty, the directors have initiated a review of the company’s capital investment plans."
The company explained that diamond trading has deteriorated since May as tight liquidity and reduced demand in India and other emerging markets have resulted in increased rough and polished inventory levels in the manufacturing sector.
Gem Diamonds expects continued short-term volatility and diamond prices to weaken further given that traders have become more cautious as well as the traditional slowing of the market in July and August.
Caution was evident as the average price of diamonds sold from Letšeng fell 30 percent year on year to $2,133 per carat in the first half of 2012. Sales from the mine, including goods extracted for internal polishing, dropped 22 percent to $125.2 million during the six months.
The company noted that the price reduction witnessed since May was more prevalent in sizes below 10 carats, while prices for larger, better-quality stones were more stable during the period. Letšeng’s production rose 8 percent to 57,116 carats.
Sales from the Ellendale mine in Australia rose 73 percent to $57.5 million, boosted by Gem Diamonds’ supply of fancy yellow diamonds to Tiffany & Co. The volume of goods sold from Ellendale increased 29 percent to 74,580 carats while the average price achieved grew 35 percent to $772 per carat. Production at the mine rose 51 percent to 78,881 carats.
Ellendale sales included 10,667 carats of Tiffany yellow stones with the average price for these goods rising 7 percent to $4,315 per carat. However, the average price of Ellendale’s commercial production fell 8 percent to $180 per carat.
Gem Diamonds stated that it has suspended the formal process announced in November 2011 to possibly sell Ellendale, but added that it continues to explore options to maximize value at the mine.
Given the weak market, the company is considering extending the period over which it spends the $280 million budgeted for its “Project Kholo” expansion project at Letšeng, as well as its $85 million budget to develop the Ghaghoo mine in Botswana.
Project Kholo was launched in January and projected to double output at the mine to around 200,000 carats a year by July 2014. At Ghaghoo, $39 million has so far been spent with phase 1 construction of the underground mine currently underway. Construction has been suspended due to two fatalities following a tunnel collapse at the project and is scheduled to recommence in mid-August.
Shares in Gem Diamonds were down 1 percent to 193 pence in Monday morning trade on the London Stock Exchange.
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Tags:
Avi Krawitz, diamonds, Ellendale, Gem Diamonds, Letseng, Letšeng, Rapaport
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