High value stones specialist Gem Diamonds appears to be emerging from the worst of the crisis that has hammered the diamond sector since late 2008. Focusing on preserving cash and maximising cash flow from its two mines - Letseng in Lesotho and Ellendale in Australia - Gem managed to return to profitability in the period. With diamond prices having stabilised, and even improved in the second quarter, the high quality output of the two mines could deliver robust long-term returns.
Letseng continues to produce large, high quality diamonds. In the six months, it recovered 20 stones that sold at prices of over $20,000 (£12,323) per carat, achieving an average price of $29,563 per carat. Firmer diamond prices raised the overall first-half average price at Letseng to $1,308 per carat. The strategy at Ellendale has switched from high volume, maximum production to cost efficiency, which helped generate an operating profit in the period. A $98.8m fund-raising let Gem repay its borrowings and retain a strong balance sheet with which to face the remainder of the downturn. Moreover, headcount has been reduced by half to 1,400 staff, and central costs have been reduced by 23 per cent year-on-year to $6.6m.
Broker Cazenove expects an adjusted full-year loss per share of 13¢.
| GEM DIAMONDS (GEMD) | ||||
|---|---|---|---|---|
| ORD PRICE: | 249p | MARKET VALUE: | £344m | |
| TOUCH: | 248-250p | 12-MONTH HIGH: | 960p | LOW: 116p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 235¢ | NET CASH: | $120m | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 167 | 25.2 | 2.14 | nil |
| 2009 | 118 | 17.2 | 7.07 | nil |
| % change | -29 | -32 | +230 | - |
£1=$1.62 | ||||
