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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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