Gem Diamonds Receives Offer For Botswana Ghaghoo Mine

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Gem Diamonds—the London listed miner said it has received an offer for its mothballed Ghaghoo diamond mine located in the Central Kalahari Game Reserve (CKGR) of Botswana. In a statement accompanying its half-year results for the six months ended 30 June 2017, the company revealed it was still studying the offer but could not state whether it was solicited or not.

Mr. Clifford Elphick

“At Ghaghoo, the mine was successfully placed on care and maintenance during the Period which will result in further cost optimisation during the remainder of the year. Shareholders are advised that an offer to acquire 100% of the Ghaghoo asset has been received and the Board is considering the offer,” Clifford Elphick, Chief Executive of Gem Diamonds, said.

“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.

In February 2017, the Board decided to place the Ghaghoo mine on care and maintenance 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.

The care and maintenance status was successfully achieved during the Period, in line with management’s objective to maintain the asset as a going concern. The planned annual care and maintenance cost of US$3.0 million is expected to be achieved in H2 2017.

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.

The first half of 2017 saw an improvement in the recovery of large diamonds at the Letšeng mine with four diamonds greater than 100 carats being recovered during the Period. The demand for Letšeng’s high-value diamonds remained firm, achieving an average price of US$1 779* per carat during the Period. This average price is 20% higher than that achieved for the prior six-month period (H2 2016) of US$1 480*. 

“The improvement in the greater than 100 carat diamond recoveries at Letšeng is encouraging with the US$ per carat achieved trending positively at US$1 779, up 20% from US$1 480 in H2 2016. The latest sale in July achieved US$2 385 per carat. The updated life of mine plan was implemented during the Period with the objective of reducing waste tonnes mined and improve near term cash flows, and mining progressed well against this plan during the Period,” Elphick said.

The Group ended the Period with a cash balance of US$20.0 million which included utilised facilities of US$34.2 million, resulting in a net debt position of US$14.2 million and unutilised facilities of US$36.2 million. Subsequent to Period end, the Group successfully restructured its existing US$35.0 million Revolving Credit Facility at the corporate office into a new US$45.0 million facility with a tenure of 3.5 years, thereby increasing the current available facilities to US$45.1 million.

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