Gem avails P550m for Gope mine

Brian Benza
Staff Writer | Friday March 18, 2011 00:00

Gem Diamonds has unveiled a P550 million ($85m) cash chest for the construction of the first phase of its Gope underground mining project in the Central Kgalagadi Game Reserve (CKGR), which will add fresh production to the London Stock Exchange-listed outfit by 2013.

Announcing its results for the full year for the period ended 31 December 2010, Gem Diamonds says construction of the first phase of the mine will be funded using internal resources and that once production starts this year, work will commence on the feasibility of the next expansion phase.

Said CEO Clifford Elphick yesterday: '2011 has begun on an extremely positive note. Not only have rough diamond prices continued to increase as a result of perceived supply shortages, but polished prices have too, and volumes of trading are pleasing. 'Management has been concentrating on delivery of growth and control of costs. Much effort has been expended on these aspects of the company's activities, and it is pleasing to report to shareholders the fruits of these labours.

'The company is very well-placed with a pipeline of opportunities and a balance sheet to fund them. We are able to fund all the capital expenditure required internally. There is no need to go outside the company to raise more capital.' Gem has $130m of cash and expects more to be coming in because of the strong recovery in rough diamond prices and demand. After putting the Gope project on the backburner in 2009 as a cost-cutting measure and to stay afloat in the face of the global economic crisis, the company was awarded a mining licence by the government two months ago.

The licence was granted for a period of 25 years, during which time Gem Diamonds envisages a phased approach to the construction of the mine, with an underground mine planned to improve the company's knowledge of the ore body, diamond valuation and metallurgical characteristics. After an initial period of mining, production capacity will be scaled up to a higher steady state. The lifespan of the mine at Gope is currently estimated to be in excess of 30 years. Gem Diamonds' wholly-owned subsidiary, Gope Exploration Company, is developing Gope Mine, which has a resource of 79 million tonnes at a grade of 18.5 carats per hundred tonnes (cpht).

The Gope deposit is estimated to possess 20 million carats of diamonds worth more than $3 billion, and is expected to produce up to one million carats a year when fully operational. Gem Diamonds acquired Gope Exploration Company from De Beers and Xstrata in May 2007 for US$34.1 million and inherited constant criticism due to involvement in the controversial CKGR.The company took over at a time when Basarwa were arguing that they were being removed from their ancestral homeland to make way for mining while government maintained that their presence in the reserve was not compatible with wildlife conservation.

Gem Diamonds says it is committed to implementing sustainable solutions to environmental and community-related issues in the CKGR and will embrace the opportunity to work with the communities affected by the project and other interested parties to ensure that the benefits of the Gope asset are extended to all. Integral to the mining licence approval process was approval of the Environmental Impact Assessment (EIA) by the Government of Botswana, which was obtained in late 2008.

Gope Exploration holds a retention licence covering the Gope 25km kimberlite deposit in the CKGR. Gem also has a 250m project at Letseng in Lesotho where it plans to begin underground mining at a satellite kimberlite deposit in order to avoid the high cost of removing waste rock in opencast mining. The full Letseng project, on which the company plans to spend $35m this year, will be approved in the second half of this year.

With the two growth projects, Gem is assured its diamond production will rise to about 600, 000 carats a year by 2020, offsetting the production that is expected to be lost from the company's Ellendale Mine in Australia that will expire in 2014.