Gem Diamonds profits drop 47% on Ghaghoo woes
Staff Writer | Friday March 17, 2017 16:28
The company recorded an impairment provision of $176.5 million (P1.8 billion) after its move last month to place the mine under care and maintenance with immediate effect.
Gem Diamonds, which mines diamonds from the Letseng Mine in Lesotho and the Ghaghoo Mine, said its full-year pretax profit fell to $52.4 million from $99 million, a year earlier.
Over 250 workers will have their contracts terminated at Ghaghoo Mine after Gem Diamonds decided last month to put the mine under care and maintenance due to depressed diamond prices.
Gem Diamonds Botswana managing director, Haile Mphusu recently told BusinessWeek that the prices of the smaller commercial goods mined at Ghaghoo have come under pressure rendering production unprofitable.
The mine employs 298 workers including contractors and according to Mphusu all but between 30 and 40 workers will have their contracts terminated.
“The material fall in the prices of its diamonds from $210 per carat in early 2015 to $142 per carat at its most recent sale in December 2016, emphasises the weak state of the diamond market for this category of diamonds. The demonetisation issues in India have also made the situation worse for us.
The process to mothball the mine begins immediately with consultations to conform to labour laws.
We anticipate to retain between 30 and 40 workers who will carry out care and maintenance while the mine is closed,” he said.
In the production update for the last quarter of 2016, the London Stock Exchange-listed Gem said diamond 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 what could be an indication of a gloomy outlook for the mine, Mphusu says he does not see any improvement in prices of the kind of diamonds mined at Ghaghoo in the near future.
“We anticipate that the mine will be closed for about two years, but if there is an improvement in diamond prices before that, the better for us,” Mphusu said.
Care and maintenance is expected to cost about $3 million per year.
Apart from the recent Indian demonetisation and high levels of polished inventory available, the supply of the category of diamonds mined at Ghaghoo is expected to increase significantly in 2017 from new mines coming on stream in Lesotho and Canada.
Gem Diamonds had previously announced that it would downsize output 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.