Gloomy outlook for Ghaghoo Mine
Brian Benza | Tuesday February 7, 2017 15:23
In the production update for the last quarter of 2016, the London Stock Exchange listed Gem Diamonds said diamonds prices at Ghaghoo fell 30% over 2016 while production was cut by 55%.
In 2016, Ghaghoo mine produced 40,976 carats from 91,499 carats in 2015, representing a 55% fall in output.
In a statement, Gem Diamonds said due to the weak state of the market for the kind of diamonds produced at Ghaghoo, prices fell from $210 per carat in early 2015 to US$142 per carat at its most recent sale in December 2016.
“With the company’s focus on profitable production, and as indicated previously, the future of the operation remains under review with a decision scheduled to be made during the first quarter of 2017 with regards to its current financial viability,” said CEO Clifford Elphick.
In what could be an indication of a gloomy outlook for the mine, Elphick does not believe that prices of the kind of diamonds mined at Ghaghoo will improve in the near future.
“The smaller commercial goods mined at Ghaghoo remain under pressure.
The recent Indian demonetisation and high levels of polished inventory available, and because the supply of this category of diamonds will increase significantly from production of some seven million carats per annum from 2017 from the new Liqhobong, Renard and Gahcho Kué mines, the company believes prices for this category may remain constrained,” said Elphick.
Gem Diamonds had announced that it would downsize output in 2016 in order to preserve its balance sheet until prices for diamonds improved.
Ghaghoo had an original production target of 720,000 tonnes per annum but cut it to 300,000 tonnes per annum in 2016.
As a result of a huge impairment charge related to downsizing of operations at Ghaghoo mine, Gem Diamonds swung to a loss in the first half of 2016.
The miner reported a loss of $15.9 million (P167 million) in the six months that ended June 30 versus a profit of $25.6 million a year ago largely due to a $40 million (P420 million) charge representing the estimated impact of a decision to cut the Ghaghoo mine’s output to 300,000 tonnes per year, from an earlier plan of reducing it to 720,000.
The $40 million non-cash impairment related to its Ghaghoo mine pushed the London-listed group to a half-year pre-tax loss from continuing operations of $836,000 from a $40.7 million profit during the same period a year earlier.
Due to the downsizing of production at Ghaghoo, Gem Diamonds last year shed part of its 250-man full time workforce.
The company had anticipated ramping up to production of around 220,000 carats a year during its 25-year mining licence.