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Gem Diamonds shines

Gem Diamonds thumped first-half earnings forecasts thanks to strong diamond prices and excellent cost control

In the mining business, something usually goes wrong: costs soar, commodity prices fall, grades slip or governments hike taxes. Given those risks, investors were likely dazzled by these sparkling first-half results from Gem Diamonds (GEMD).

IC TIP: Hold at 215p

Diamond prices were remarkably strong in the period, especially for the large, high-quality diamonds for which the group's main Letseng mine in Lesotho is famous. The average value of $2,747 per carat was up 58 per cent year on year, securing Letseng's position as the highest dollar-per-carat diamond mine in the world. The group also recovered 29 per cent more carats than last year, thanks to higher-grade ore being treated and better plant throughput.

Cost control was also excellent: the average cash cost per waste tonne mined fell 1 per cent in local currency terms as a result of a newly negotiated mining contract. Measures implemented to reduce diamond breakage increased the overall value of production, too. The company's underlying cash profits consequently soared 87 per cent to $62m.

What's more, Gem Diamonds finished building its new Ghaghoo mine in Botswana - on time and on budget. The first few thousand carats have already been recovered as the processing plant gets up and running.

Broker Charles Stanley hiked its EPS forecasts for 2014 and 2015 by 18 per cent and 14 per cent, respectively, to 9.7p and 12.7p.

GEM DIAMONDS (GEMD)

ORD PRICE:215pMARKET VALUE:£297m
TOUCH:214-215p12-MONTH HIGH:216pLOW: 137p
DIVIDEND YIELD:nilPE RATIO:16
NET ASSET VALUE:228¢NET CASH:$98.4m

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20139623.26.23nil
201414954.814.3nil
% change+55+136+130-

£1=$1.67