GEM Diamond -- interm result

• Revenue’s were down 10% at US$103.9m yoy, EBITDA was down 29% yoy to US$18.5m taking profit before tax to US$7.8m down 57% yoy.  EPS stood at 2.18c/share down from 3.6c/share, and EPS from continuing operations were down more substantially from 9.38c/share to 1.72c/share.  Profit for the period was down 27% at US$6.125m.  The figures for 2009 were restated for the reclassification impact of accounting for discontinued operations.

• The worse financial performance was partially a consequence of diamonds held over from 2008 into 2009, a one off royalty payment received from an offtake agreement then in place, and the sale of polished diamonds produced in beneficiation trials by Letseng.  Consequently, on a like for like basis, revenues have in fact risen by US$17.3m.

• Letseng diamonds have seen prices increase as with the rest of the diamond industry, and are up 32% yoy to US$1,728/carat. Non fancy yellow production from Ellendale has seen prices increase by 182% to US$144/carat, although this was partially a consequence in changes to the mine plan as there are significant differences in value per carat from different parts of the deposit.
• At the end of June, the company had no debt and US$108.3m in cash on hand, of which US$89.6m is attributable and US$4.8m is restricted.  The cash position is down 5% yoy.  During the period, investments into property plant and equipment stood at US$7.2m, and a further US$22.5m was invested in waste stripping in both mining operations.
• The company sees its results adversely impacted by strong currencies in South African and Australia, although significantly higher diamond prices have offset this to a large extent.  Cash reserves remain robust and the elimination of costs on care and maintenance projects and cost savings initiatives of producing operations should have a positive impact on future earnings.
• The company is looking to increase production at Letseng and evaluate underground potential as well as minimising diamond damage at the mine.  Management is also looking to proceed with license application and development of an underground mine at Gope as well as increase the resource base at Ellendale.  External growth opportunities are also being evaluated.

Conclusion:  The company has suffered from high currency rates at operations but stronger diamond prices have rescued it.  The results are down substantially year on year, although this has been attributed to a number of factors.