Gem Diamonds—the London listed miner has said discussions to sell its Ghaghoo mine in Botswana have bore no fruit and talks will not proceed with unnamed suitor. In an update to shareholders, the company said it has resumed discussions with other potential buyers.
In its Half Year 2017 results, announced on August 17, 2017, shareholders were notified that an offer to acquire 100% of the Ghaghoo asset had been received and was being considered by the Board.
“Discussions have not resulted in agreement between parties and this offer has been withdrawn,” the company headed by Clifford Elphick revealed.
“The company is presently in discussions with other parties interested in acquiring 100% of the Ghaghoo asset and will update the market as and when appropriate.”
The Board decided to place the Ghaghoo mining operation on care and maintenance in February 2017, due to market conditions. Full care and maintenance status was achieved in March 2017.
The mine was successfully placed on care and maintenance which will result in further cost optimisation during the remainder of the year.
“The cost reduction and transformation programme is firmly underway and at this early stage US$15 million of annualised efficiency and cost reduction initiatives have already been identified for implementation from October 2017.”
Gem owns 100% of Gem Diamonds Botswana (the Ghaghoo mine) which lies within the CKGR. The mine was officially opened in September 2014. Owing to the suppressed diamond market for the size and quality of goods produced by Ghaghoo, the decision to place the operation on care and maintenance was taken in February 2017, with full care and maintenance status being achieved in March 2017. The mine is being maintained in such a way to ensure that when the diamond market recovers, the operation can be brought back.
The care and maintenance was meant to preserve the value of the asset while continuing to monitor viable options for the mine. This decision was based on the decrease in the prices achieved for its diamonds from US$ 210 per carat in early 2015 to US$ 142 per carat at its sale in December 2016, reflecting the weak state of the diamond market for this category of diamonds.
During the period, an earthquake of magnitude 6.5 with an epicentre 25km from the mine occurred. There was superficial damage to the surface infrastructure; however the earthquake damaged the seal of the underground water fissure. This led to a large influx of water into the underground workings of the mine. This water is successfully being pumped out of the mine and rehabilitation of the seal will be completed in Q3 2017.
A significant amount of work has been done to put the operation on care and maintenance. All contracts have been renegotiated and modified for the new operating environment. The majority of the once off costs relating to retrenchment and the renegotiated contracts to place the operation on care and maintenance have been incurred. Once the water fissure has been sealed, the operation’s annual care and maintenance costs will return to the anticipated costs of US$3.0 million per annum.
The company continues to evaluate the diamond market conditions for the Ghaghoo diamonds. The sale of the final c.13 000 carats on hand will be finalised in Q3 2017.