Exceptional Recoveries Boost Gem Diamonds' Revenues in Q1
While the volume of carats Gem Diamonds sold in Q1 2019 (Jan. 1 - March 31) from its Letšeng mine in Lesotho fell by 18% from the previous quarter to 27,335 carats, those sales packed a punch, generating $51.9 million in value, a 24% increase from Q4 2018. Still, the miner could not keep pace with its torrid start to 2018.
The recovery and sale of a 13.33 carat pink diamond for a Letšeng record of $656,933 per carat, and the recovery of another two diamonds greater than 100 carats during the period boosted their returns from the quarter and increased Gem's average price per carat by 51% over last quarter to $1,900. Gem recovered 29,458 carats during the period, which was in line with their guidance targets and equal to Q4 2018 (29,523 carats).
Comparing Q1 2019 to Q1 2018, however, shows a massive decline across all categories, as the period from Jan.1 2018 to March 31 2018 set the bar almost impossibly high. In Q1 last year, the miner recovered seven diamonds greater than 100 carats, selling a total of 32,412 carats and achieving total revenues of $106.2 million at an average price of $3,276 per carat. Compared to that baseline, Gem Diamonds' sales declined 51% year-over-year, the average price per carat fell 42% and carat recoveries declined by 16%. Several hours after releasing the results, Gem's share price has fallen by 4% to 85.40GBX, which is above the year's low of 83.90GBX reached less than a month ago, and down 31% from the year's high of 124.50GBX last reached on June 25 2018.
The company notes that its business transformation focus, cost savings and innovation initiatives are still on course. "The diamond detection pilot plant project remains on target to be commissioned at the end of Q2 2019. Construction and set-up have commenced on site." The diamond detection strategy implements new technology designed for the early detection of large diamonds, enabling them to be removed from the crushers at an early stage, thereby reducing diamond damage. The Group says it remains on track to achieve its cumulative target of $100 million in incremental revenue, productivity improvements and cost savings for the 4-year period to end 2021. At the end of Q1, the Group had $40.7 million of cash on hand of which $34.0 million is attributable to Gem Diamonds. The Group’s net cash position was $11.0 million (of which $7.9 million was attributable to Gem Diamonds). Undrawn and available facilities at the end of Q1 amounted to $59.5 million.