Founded in 2005 with seed capital of US$10 million (R76 million), Gem Diamonds grew rapidly to a business valued at US$1.1 billion (more than R8.0 billion) after its listing on the London Stock Exchange in February 2007. It came to the market with one producing asset, Letseng Diamonds in Lesotho, and a suite of development projects in central Africa.
The company then focused on the execution of its acquisition strategy and the development of existing assets, spending close to US$400 million (R3 billion) of the US$636 million (R4.8 billion) it had raised in its initial public offering, on acquiring prospects and projects in Botswana, the DRC, Angola, Australia and Indonesia. Today it has assets in seven countries, five of them in Africa.
Gem Diamonds owns 70% of Letseng Diamonds in partnership with the government of Lesotho, which owns the other 30%. Production at Letseng mine rose 37% from 54,000 carats in 2006 to 74,000 carats in 2007, and Gem Diamonds chief operating officer Alan Ashworth predicts, “We expect it to increase by another 35% to 101,000 carats this year. Average price is estimated to be between US$1,900 (R14,440) and US$2,000 (R15,200) per carat, which would mean revenue of up to US$200 million (R1.5 billion) for 2008.”
Ashworth says the company’s main objective in Lesotho had been to complete a second processing plant at Letseng, which cost US$57 million (R440 million). “Production began in March and we are in the final stages of ramping up to full production of 220,000 tpm. This will double current production capacity from plant one to 440,000 tpm, plus another 110,000 tpm treated by a contractor.”
Life of mine was originally calculated at 70 years, which triggered the decision to put up the second plant. “Of course this has reduced the life of mine to about half of that, although with the increasing resource it could be raised even higher,” Ashworth explains. “Our life of mine is now up to 47 years after recent resource upgrades.”
Seeking a strategic presence in the politically stable diamond-rich country of Botswana, Gem Diamonds moved to acquire Gope Exploration from De Beers and Xstrata in May 2007 when it came onto the market. Gope, which was acquired for US$34.1 million (R260 million), is a well-defined kimberlite which, with the necessary licences, can be developed into a mine capable of producing one million carats a year.
“A mining licence application was submitted in July last year, and negotiations to determine the key terms of the licence are scheduled to start soon,” Ashworth says. “Should a mining licence be granted, the company will spend approximately US$450 million (R3.5 billion) to develop Gope into a 6.0 million tonne per annum (mtpa) mine.
“In addition, the feasibility study on the Gope project has been completed and we are looking through the document to see where we can refine it. We are investigating certain possible improvements, and we are undertaking detailed design work, so the technical side is progressing.
“Once we have our mining licences approved we will go to our board to get the capital approved for the project. We hope to reach that stage by the end of this year.”
Gem Diamonds’ operations in the DRC comprise a number of alluvial diamond projects and a kimberlite exploration programme across three broad areas, Mbelenge, Lubembe and Longatshimo. These interests are held via a number of companies in which Gem Diamonds has between 80% and 100% shareholdings.
“The intention with our alluvial projects was to get into production as quickly and cheaply as possible, and we’ve achieved this at both Mbelenge and Lubembe, where operations were set up on time and on budget in the face of significant logistical hurdles,” Ashworth says.
“Commissioning of a DMS plant at Mbelenge commenced in June last year, and it was achieving design throughput by the end of the year. Mining was focused on the terraces of the Kasai River, and grades were rather disappointing, but we have achieved better than expected grades in the rivers, particularly the modern-day river at Lubembe.
“At Longatshimo there’s a certain amount of resource development going on to examine the extent and potential in the terraces. We’re also looking for kimberlites – we have about 70 identified targets, of which we have drilled 35 – but no luck so far. It’s early days yet and there are obviously diamonds in the area. The question is whether they are mineable, and how you define the resource. We are hoping to get results from the river diversion during the current dry season, which is the middle part of the year, so we would hope to be in a position to make an appraisal and mining decision before the end of the year.”
The Gem Diamonds operation in the Central African Republic is a very small sampling resource development operation. “Again we had been targeting the river terraces, and again grades have been disappointing,” Ashworth says. “The good news here is that we managed to put in a couple of river diversions on the Mambere River, and we have recovered much better grades from those diversions. The thrust now is to try and determine the extent of those gravels in an attempt to establish a resource which could lead to mining. We will, however, need about another year before we will have a much clearer indication of the extent of the target.
Gem Diamonds is also on the ground at Chiri, in the northeast of Angola. “We signed a cooperation agreement with Avantis Angola in January 2007 for a feasibility study of the Chiri kimberlite, as well as an option agreement whereby we can acquire an effective 11.25% interest in Chiri, and have a further opportunity to increase our interest to 20%.”
Gem Diamonds regards Chiri as a highly promising undeveloped kimberlite. “We are undertaking drilling and geophysical work, and are constructing a sampling plant there,” Ashworth says. “We should be in a position to start taking samples in the second half of 2008, and a preliminary feasibility report is expected by the end of the year."
In November 2007 the company moved into Australia by acquiring Kimberley Diamonds, whose Ellendale mine processed 5.5 million tonnes last year, producing close to 600,000 carats. “Our intention is to ramp up production and improve the mining operation at Ellendale, to reach an annual level of 8.0 to 8.5 million tonnes in 2008 and 10.5 million tonnes in 2009,” Ashworth predicts.
In Indonesia, BDI Mining was acquired by Gem Diamonds in May 2007 for an effective US$51 million (R400 million). Again, the company’s intention is to increase tonnage through the plant and improve the quality of mining. It reached its targeted production rate of 216,000 tpm in February this year.
Looking ahead, Ashworth reveals that Gem Diamonds, to date a diamond exploration and mining company, intends assessing and evaluating the possibility of moving into the field of beneficiation.
“We have run some trials on cutting and polishing, and they have proved to be an overall success, so beneficiation is an area we will be looking to move into. We hope to finalise our plans in that regard within the year,” Ashworth says