Q4 2014 Trading Update

27 Jan 2015

Letšeng ends a good year with continued strong performance. Ghaghoo production ramp-up progressing.

Gem Diamonds Limited (LSE: GEMD) is pleased to report a Trading Update detailing the Company's operational and sales performance for Q4 2014 (1 October to 31 December 2014) (the Period).

Highlights:

Letšeng:

Continued strong performance at Letšeng

• 25 525 carats were recovered in Q4 2014 (28 365 carats in Q3 2014).
• The year ended very positively, with the December tender achieving an average of US$ 2 799* per carat. This resulted in an average value of US$ 2 140* per carat being achieved in Q4 2014 (US$ 2 603* per carat in Q3 2014), bringing the average for 2014 to US$ 2 540* per carat (US$ 2 043* per carat for FY 2013).
• 13 rough diamonds achieved a value of greater than US$ 1.0 million each during the Period, including a 112.6 carat white diamond and a 90.4 carat white diamond which sold for US$ 5.8 million and US$ 4.2 million, respectively.
• A 299.3 carat yellow diamond was recovered and extracted at rough valuation during the Period. It was sold into a partnership arrangement in January 2015 with Letšeng to share in 50% of the polished uplift.

*Includes carats extracted at rough valuation for polishing.

Ghaghoo:

Ghaghoo mine development progresses well with encouraging initial diamond recoveries

• A total of 10 167 carats were recovered during commissioning up to Period end, including a 20 carat white diamond, a 17 carat white diamond, and a 3 carat orange diamond which confirms the presence of valuable coloured diamonds in the orebody.
• A 35 carat diamond was recovered in January 2015, the largest diamond recovered at Ghaghoo to date.
• An initial sale of c.10 000 carats will be held in Gaborone and Antwerp during January and February 2015.
• The development of Phase 1 is progressing well and the ingress of water has been arrested and steps taken to prevent any further interruption to production from water intersections.

Financial:

Robust operational results generates positive cashflows, providing financial flexibility to meet medium to long-term objectives

• The Group ended the year with US$ 110.7 million cash as at 31 December 2014, of which US$ 99.4 million is attributable to Gem Diamonds.
• The Group has drawn down US$ 37.1 million of its total available facilities of US$ 78.7 million, resulting in a net cash position of US$ 73.6 million at Period end.
• In December 2014, Letšeng paid dividends of US$ 51.8 million, which resulted in a net cash flow of US$ 32.6 million to Gem Diamonds and a cash outflow from the Group as a result of withholding taxes of US$ 3.6 million and payment of the Government of Lesotho's dividend portion of US$ 15.6 million. In total for the year, Letšeng paid dividends of US$ 92.0 million of which US$ 57.9 million flowed to Gem Diamonds.
• The Group remains on track to declare a maiden dividend to shareholders following its final results announcement in March 2015.

Gem Diamonds' CEO, Clifford Elphick, commented:

"The fourth quarter of 2014 saw an encouraging end to a very positive year for Gem Diamonds, with the December Letšeng tender achieving an average of US$ 2 799 per carat. At Letšeng, a year of solid operational performance saw an improvement over the prior year's production results, with costs well controlled. Both the implementation of the Plant 2 Phase 1 upgrade and the new Coarse Recovery Plant projects remain on track for commissioning in Q1 and Q2 of 2015 respectively - on time and budget.

At Ghaghoo the development of Phase 1 has progressed well and significant work was undertaken to arrest the fissure water intersected in the basalt country rock and to ensure that any further water ingress is handled efficiently. The production ramp-up has begun and the first sale of diamonds recovered from commissioning will take place in February. There have been some encouraging recoveries made of larger and coloured diamonds during this commissioning period.

The long term outlook for the diamond market remains strong, however during the fourth quarter the diamond market saw a weakening of prices following a year of price growth. This trend may continue into the first quarter of 2015.

Based on the positive results achieved in 2014, Gem Diamonds remains on track to declare a maiden dividend to shareholders following the 2014 full year results announcement in March 2015."

A presentation of the Q4 2014 Trading Update is available here.

27 Jan 2015 Q4 2014 Trading Update (325KB PDF)