Join our community of smart investors

No dividend from Gem Diamonds

Despite posting a surge in net earnings, the Lesotho-based diamond miner again vetoed a return to dividends
March 15, 2019

Last year, Gem Diamonds (GEMD) recovered more carats at its Letšeng mine, and achieved a 10 per cent premium to the average per-carat price it received at auction in 2017. It discovered and then sold the 910-carat Lesotho Legend for $40m (£30.5m), and dug up a further 14 diamonds of at least 100 carats. The group remains on course to make $100m in cost savings and efficiencies by 2021, and a pilot plant to detect diamonds within Letšeng’s kimberlite is a few months from completion.

IC TIP: Hold at 91p

So why did the markets give these results a thumbs down? First off, the second half of 2018 was soft. Just one-third of those 100-carat-plus diamonds were recovered in the six months to December, during which time revenues dropped 41 per cent versus the prior period. Added to this, net cash appears to have dipped by $12.3m, and the board once again vetoed the prospect of a dividend, nixing consensus analyst expectations for a token 1.7¢ payout.

Focusing instead on balance sheet strength and mine optimisation is all well and good, but shareholders were given no real guidance on management's view of the current diamond market, or prices, and how this might affect the group.   

On average, analysts expect earnings of 17¢ a share in 2019.

GEM DIAMONDS (GEMD)  
ORD PRICE:91pMARKET VALUE:£127m
TOUCH:88.2-91.8p12-MONTH HIGH:151pLOW: 83p
DIVIDEND YIELD:NILPE RATIO:6
NET ASSET VALUE:112¢NET CASH:$17.5m
Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201427195.424.05.0
201524910937.65.0*
2016190-124-115nil
2017214304.0nil
20182677318.8nil
% change+25+141+370-
Ex-div:n/a   
Payment:n/a   
£1=$1.31. *Excludes special dividend of 3.5¢ a share.