The first half of 2007 saw the company develop an increasingly strong production pipeline, with new mines coming on stream and significant production increases expected from various operations over the medium term. The Group reached mid-2007 with the bulk of its capital strategically employed in the enhancement of existing assets, development of new assets and the acquisition of producing mines around the globe.
These are the key issues emphasised by chief executive officer Clifford Elphick in releasing the company’s maiden Interim Results for the six months ended 30 June, 2007.
“Gem Diamonds is pursuing an accelerated growth strategy in its drive to become one of the world’s leading diamond producers,” he reveals. “It currently has two producing kimberlite mines (Letseng, in Lesotho and Ellendale Mine in Australia), a producing alluvial mine (Cempaka in Indonesia), four development projects in the Democratic Republic of Congo (DRC) and one in the Central African Republic, as well as an option to develop the Chiri kimberlite concession in Angola.”
In February 2007, the company listed on the London Stock Exchange and raised US$635 million (almost R4.5 billion) to fund development of its existing assets and to pursue acquisitive growth opportunities.
“In terms of growth opportunities,” Elphick adds, “it has subsequently effected three key acquisitions involving two operations overseas and one in southern Africa.”
The company acquired Canadian-based BDI Mining for US$80 million (R560 million) and Kimberley Diamond Company for US$263 million (R1.8 billion), spreading its portfolio to Indonesia and Australia.
BDI Mining owns 80% of the producing Cempaka alluvial diamond mine in Indonesia. The resource at Cempaka has been increased from the previously estimated 1.3 million to 2.6 million carats.
The Australian-listed Kimberley Diamond Company becomes Gem’s largest acquisition to date. Considerable scope exists to improve operations at Kimberley’s Ellendale Mine in north-western Australia, increasing throughput, reducing costs and improving the diamond prices achieved.
GEM’S BOTSWANA ACQUISITION
Gem’s latest African acquisition is the Gope Exploration Company (Pty) Limited (Gope) for a total cash consideration of US$34 million (R240 million). Gope was set up as a joint venture by De Beers Prospecting (Pty) Ltd (De Beers) and Falconbridge Exploration Botswana (Pty) Ltd (Falconbridg) – a subsidiary of Xstrata plc – to explore a known kimberlite deposit in the Gope region of central Botswana.
The kimberlite deposit at Gope represents a significant ore body with an indicated resource of 79 million tonnes down to 400m below surface at a grade of 19cpht. “The company will begin work shortly on updating the existing feasibility study which was completed in 1998,” Elphick explains. “This updated feasibility study will include a revised environmental impact assessment and environmental management plan. Should the findings of this updated feasibility study prove positive an application for a Mining License will be made,” he states.
The above geographical expansion and diversification to Indonesia, Botswana and Australia has enhanced the Group’s profile.
It now operates three mines with a potential fourth in Australia in the acquisition pipeline. The total in situ diamond resource of the Group has increased by 148% over the review period from 14.9 million to 36.8 million carats, while the reserve portion is up from 1.31 million to 1.52 million carats.
LETSENG PERFORMS WELL
Turning from acquisitions to the enhancement of existing assets, Letseng – the diamond mine in Lesotho which is 70% owned by Gem Diamonds – continues to perform well. “A total of 1.9 million tonnes were mined and treated from the Main and Satellite pipes over the six months, representing a 20% increase in volume over the first half of last year. A total of 37 869 carats was recovered, and sales rose 28.5% from around 30 500 to more than 39 200 carats,” Elphick reveals.
The company’s interim results show that operating profits for the first half of 2007 amounted to US$16.8 million (about R118 million), on revenue of US$69.8 million (close to R490 million).
Total tender value of the diamonds in the first six months of 2007 rocketed by more than 80% from US$38 million (about R270 million) to US$69.6 million (close to R490 million), and the price achieved per carat went up more than 40% from US$1 244 to US$ 1 776
Efforts directed at maximising the quality and quantity of diamonds recovered from material sourced from the Satellite Pipe are delivering good results, with both the grade recovered and average price per carat having improved. Grade from the Satellite Pipe is running at 2.26 cpht – 14% ahead of the expectations. A total of 226 diamonds of over 10.8 carats were recovered during the period.
From February 2007, weathered kimberlite from the Main Pipe was mined and treated with a recovered grade of 1.37 cpht. A 58-carat diamond was recovered from the Main Pipe and sold for US$2.1 million, which bodes well for the pipe’s capacity to deliver in terms of the estimated values. On 7 September 2007 – subsequent to the end of the audited first six months of the year – a 494-carat exceptional diamond was recovered at the Letseng Mine, just over a year after the recovery of the 603 carat Lesotho Promise in August 2006. It is a rare jewel and will rank within the top 20 largest diamonds ever recovered.
CAPACITY TO BE DOUBLED
The life of mine at Letseng after the resource update conducted at acquisition in 2006 was 70 years. “We therefore took the decision to double the mine’s processing capacity with the construction of a second plant,” says Elphick. “The current plant handles 2.64 million tpa, and the two plants will process 5.28 million tpa, so life of mine has therefore been reduced to 35 years.”
The construction of the second plant at Letseng is progressing well and will be commissioned during the first quarter of 2008. Full production is scheduled for the second quarter of 2008. Cost forecasts are within 15% of the initial estimated US$45 million (R310.million) budget despite material scope changes which have been implemented during the construction phase. Strong production and high diamond prices have allowed Letseng to fund this expansion project without any external financing
Elphick points out that since Gem Diamonds acquired Gope, the resource has been increased by 23% to 97 million tonnes at an indicated level of confidence, hosting some 18.8 million carats. “An updated feasibility study for a 6mtpa open pit mine at Gope is underway,” he adds.
A revised Environmental Impact Assessment (EIA) has commenced and will include consultation with all interested and affected parties. “Should the Botswana Government grant Gope a mining license, the asset is expected to be developed into a mine producing approximately one million carats per annum for 15 years,” Elphick estimates.
DEMOCRATIC REPUBLIC OF CONGO
Gem Diamonds has interests in four projects in the DRC at Mbelenge, Lubembe, Longatshimo and Tshikapa, and good progress was made over the first half of this year, according to Elphick.
At Mbelenge, in which the company holds a 49.99% interest, the target deposit was defined and a mining plan delineated, where-after the earthmoving fleet and plant were delivered to site. Commissioning of the 100 tph plant commenced ahead of schedule. After delineation of diamond trap-sites in the river at Lubembe, trial dredge mining was undertaken with 7,571 carats recovered. Whilst this was below the expected half year target of 10 500 carats, the results confirmed the company’s expectations of the deposit’s grade. “A process of up-scaling this operation is now underway, but this will not achieve initial planned levels of production during 2007,” Elphick predicts.
He adds that pit sampling continued at Longatshimo, and based on these results, combined with the historical production data from the area, a trial mining programme is expected to commence earlier than originally planned – in late 2008.
In relation to kimberlite exploration in the area, a followup heli-magnetic survey was conducted. This process generated 56 geophysical anomalies in the Lubembe area and 23 in the Longatshimo area. Of these, 21 have been drilled to date, and two have been identified for follow-up ground geophysics.
CENTRAL AFRICAN REPUBLIC
In the Central African Republic, Gem Diamonds Centrafrique SA – held 75% by Gem Diamonds – progressed exploration at Mambéré. The pit sampling programme was completed, and a bulk sampling programme was initiated, using a small earthmoving fleet and a newly installed 15 tph DMS which was commissioned in April. By the end of July, some 154 carats had been recovered from 14 109 tonnes, which represented a lower than expected grade.
The resource estimate has been updated accordingly from a previously estimated deposit of 1.5 million carats down to 0.9 million carats. Alongside this, the exploration programme has been extended along the Mambéré River where dredges will be used to recover gravels,” Elphick reveals. “In addition, reconnaissance exploration will commence further upstream in the Mambéré Valley to the north of Le Buckle.”
To date, approximately US$11 million (R77 million) has been invested by Gem Diamonds in the Central African Republic.
A co-operation agreement was signed with Avantis Angola earlier this year in relation to the Chiri Kimberlite concession. Avantis Angola and its associated companies hold a 45% interest in this concession.
“In terms of the agreement,” Elhphick explains, “Gem Diamonds is committed to spending up to US$7.5 million (more than R50 million) on evaluation and a pre-feasibility study on the exposed Chiri kimberlite. Should the results of the study be positive, the company has an option to buy an 11.25% interest in the Chiri concession for US$10 million (R70 million). Gem Diamonds will then be committed to spend up to a further US$12.5 million (close to R90 million) to complete a full bankable feasibility study,” he concludes.