Gem Diamonds prepares key Gope report

MBONGENI MGUNI
Staff Writer | Friday August 27, 2010 00:00

Although Gem Diamonds acquired the Gope project from De Beers in 2007, development stalled due to last year's global recession and resultant cash squeeze. The diamond miner placed Gope on care and maintenance last June, lifting the status earlier this year as the diamond industry recovered from the recession.

Unveiling 2010 half-year results yesterday, Gem Diamonds' officials revealed that an updated feasibility study would be handed over to government before the end of August, critical for the commencement of negotiations towards a mining licence.

Last month, Gope Operations Manager, Howard Marsden explained that the updated feasibility study was required under the terms of the Project's retention licence which expires in December. The retention licence's terms made it incumbent upon Gem Diamonds to provide the updated study by August.

According to the half-year results, the UK miner is confident of meeting the requirement.

'Towards the end of August 2010, Gem Diamonds will present an updated study on Gope to the Botswana government and negotiations for a mining licence will commence during the second half of 2010,' said Gem Diamonds' CEO, Clifford Elphick.

'After that, the company will commence the building of an underground mine in a phase approach.'

Available information indicates that the updated study to be submitted to government will indicate a 'radical shift' in Gope's modelling. A year after taking over Gope, Gem Diamonds had planned a large open pit mine with capital expenditure of more than US$500 million (P3.4 billion).

Tough lessons from the recession forced the UK group to review its plans with a view to reducing capital and operating costs while improving revenue. Thus, Gem Diamonds' plans for Gope now involve an underground mine - at least for the first 10 years - with installed plant capacity of 150 tonnes per hour. Open pit operations will then be developed after 10 years with plant capacity of 900 tonnes per hour.

Gope Project officials believe that once underground mining has taken place for three years, the mine will have produced about 600 000 carats facilitating a better understanding of diamond price trends and the resource available. Revenues from this initial period will also allow Gem Diamonds to make appropriate capital decisions regarding open pit operations.

An evaluation in May indicated that Gope - with an estimated resource of 105 million tonnes at 19.4 carats per hundred tonnes (cpht) - could yield stones valued at US$162 per carat.

Gem Diamonds' first half 2010 results also reflect the rising activity at Gope, with a total loss of US$22,000 (P150,000) for the period, compared to a loss of US$10,000 (P68,300) for the first half of 2009.

Meanwhile, buoyed by restocking in the retail sector, Gem Diamonds recorded an average increase of 73.3 percent in the value of diamonds sold in the first half of 2010 from its two operating mines, when compared to the first half of 2009. Gem Diamonds operates Letseng and Ellendale mines in Lesotho and Australia respectively.

According to Elphick, a 27.91 carat white rough diamond sold for US$58 724 per carat in May, marking the highest price paid for a Letseng white diamond since July 2008. At Ellendale, prices of fancy yellow stones sold by agreement to Tiffany & Co rose marginally, while other production increased by 182 percent in value when compared to the corresponding period last year.

Overall, Gem Diamonds recorded pre-tax profits of US$7.8 million (P53.2 million) from its continuing operations for the first half of 2010. Gross cash amounting to US$108.3 million (P739.6 million) and no debt provides a platform for Gem Diamonds' growth, including ramping Gope to production by 2013.