Letšeng Rough Diamonds Down 18% In Q4 On Industry-wide Liquidity Overhang

Image: Gem Diamonds Letšeng mine in Lesotho, April 2014. Source: Gem Diamonds 

January 27, 2015
By Paul Zimnisky

Gem Diamonds (LSE: GEMD) announced Q4 operating results for its Letšeng and Ghaghoo diamond mines on January 27th. Gem’s reporting period includes October 1 to December 31, 2014.

During the period, Letšeng produced 25,525 carats, which compares to 28,365 carats in Q3 2014. Diamonds from the mine sold for an average price per carat of $2,140, compared to $2,603 in the prior quarter, representing a 17.8% decrease.   

In the quarter, 13 Letšeng diamonds sold for greater than $1 million including a 112.6 and 90.4 carat white, which sold for $5.8 million ($51,509 per carat) and $4.2 million ($46,460 per carat), respectively. In addition, a 299.3 carat fancy yellow was recovered during the period, which was sold into a partnership arrangement this month. Letšeng retained 50% of the polished uplift of the yellow diamond, or the margin achieved after the stone is polished.

For fiscal year 2014 (which is also calendar year for Gem), Letšeng produced 108,569 carats, compared to 95,053 in 2013, marking a 14.2% increase.  The average price per carat achieved for Letšeng diamonds in 2014 was $2,540, compared to $2,043 in 2013, a 24.3% increase.

Letšeng is Gem’s flagship mine located Lesotho, a small country landlocked within South Africa. 

Gem’s Ghaghoo mine, which is located in Botswana and commenced commercial production in September 2014, produced 10,167 carats in Q4. Full year 2015 Ghaghoo production is estimated to reach 200,000 carats. 

Notable diamonds recovered in the quarter include a 20 and 17 carat white, and a 3 carat fancy orange. A 35 carat white, marking the largest diamond yet recovered at Ghaghoo, was discovered just days ago and will be accounted for in Q1 2015 reporting.

An initial sale of 10,000 Ghaghoo carats will be held in Gaborone, Botswana and Antwerp, Belgium in the coming weeks.  Ghaghoo diamonds are estimated to sell for $250-275 per carat based on market prices in 2014.

Commenting on the current state of the global diamond industry, the company noted that the closure of Antwerp Diamond Bank in October 2014, has led to liquidity concerns for rough buyers, and the related sentiment has led to downward pressure on prices. The company expects a “cautious approach in the market will continue into Q1 2015.”

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