No one buys a diamond miner for its bond-like dependability. But even by the sector’s volatile standards, Gem Diamonds’ (GEMD) first-half turnaround takes some beating. In six months the company has recovered 124 diamonds of at least 20 carats at its Letšeng mine in Lesotho. Of those, 25 have sold for $1m or more, and 10 have exceeded 100 carats. Within the latter group, a single 910-carat stone fetched $40m (£31.2m) at auction.
That weighting to higher-value sales meant the average price per carat – a key metric for diamond miners – rose 54 per cent in the period to $2,742. From a financial perspective, the net impact has been a surge in underlying and headline profits, and a swell in cash reserves.
Ever mindful of the variability of kimberlite, a four-year $100m cumulative cost-saving initiative has begun in earnest. Almost half of that target has already been reached, thanks to a mixture of non-core asset sales and annualised self-help measures.
Whether this will be enough to offset higher royalties – the prospect of which Canaccord views as probable – remains to be seen. Renewal of Letšeng’s lease is supported by Lesotho's government, but is subject to negotiations which Gem hopes will conclude by the end of 2018. By then, analysts expect earnings per share to have hit 26¢.
| GEM DIAMONDS (GEMD) | ||||
| ORD PRICE: | 118p | MARKET VALUE: | £165m | |
| TOUCH: | 118-120p | 12-MONTH HIGH: | 125p | LOW: 66p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 6 | |
| NET ASSET VALUE: | 118¢ | NET CASH: | $29.8m | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2017 | 92.9 | 2.3 | -2.11 | nil |
| 2018 | 168 | 64.8 | 17.5 | nil |
| % change | +80 | - | - | - |
| Ex-div: | n/a | |||
| Payment: | n/a | |||
| £1=$1.28 | ||||
