Spike in rough prices boosts Gem Diamonds

MBONGENI MGUNI
Staff Writer | Tuesday May 11, 2010 00:00

Gem Diamonds' statistics showing a spike in rough diamond prices mirror trends De Beers' Diamond Trading Company has been seeing in its monthly sights since the beginning of the year. Gem Diamonds, which owns the Gope exploration company in Botswana, also operates the Letseng and Ellendale diamond mines in Lesotho and Australia respectively.

According to a First Quarter Management Statement released yesterday, the value of rough sold from Letseng in the first quarter of this year rose by 72 percent while Ellendale's rose by 379 percent. Letseng sold 15 468 carats at a price of US$1 753 per carat compared to the US$1 017 per carat the market was willing to buy the stones for in the first quarter of last year. Prices could climb higher for production from the Lesotho mine as its April tender achieved an average price of US$2 002 per carat.From Ellendale, Gem Diamonds sold 32 286 carats at a price of US$489 per carat, up from US$102 per carat recorded last year. Gem Diamonds CEO, Clifford Elphick, was perceptibly upbeat on the sales value being derived for the company's gemstones.

'The better-than-expected Christmas sales in the US, restocking in the cutting centres and continued strong demand for diamond jewellery in India and China have resulted in strong rough and polished diamond prices,' he said.

'It is pleasing to note that improved consumer demand in the quarter is impacting positively on polished prices, which have risen, albeit not as sharply as the rise in rough prices.

The fundamentally positive supply/demand picture remains.' Prices at Ellendale were also positively influenced by changes in the timing of sales cycles, which resulted in Gem Diamonds selling more fancy yellow and less commercial diamonds during the quarter.

Overall, analysts say while indicative of recovery the spike in diamond prices, is more a reflection of the lows the industry recorded following the onset of the global recession in the last quarter of 2008. As a luxury product, diamonds were the first to be struck by the collapse in consumer spending and confidence, resulting in the free-fall of prices late 2008 and largely throughout 2009.

Analysts said while prices were recovering, indicators for further growth remained mixed. Issues such as higher consumer confidence in the US balanced against fears of a spread in the Greek debt crisis will play a role in the direction diamond prices take this year.

Meanwhile, Gem Diamonds intends to accelerate mining licence and project development plans for the Gope project this year. The project stalled last year as the recession dried up global capital, raised project costs and depressed diamond prices. Gem Diamonds recently completed an update of the project indicating that Gope could contain 20.53 million carats with an average value of US$162 per carat. As a result, in situ revenue has been pegged at US$3.33 billion, making Gope potentially Gem Diamonds' most valuable operation after Letseng.