Half-year results put Gem on sure-footing
Companies: Gem Diamonds Limited
Global diamond producer Gem Diamonds (LSE:GEMD), released it's half-year results this morning, saying that strong operational performance at its Letšeng mine had underpinned its half-year 2016 results and offset difficulties at its Ghaghoo mine in Botswana.
finnCap took a positive view of the announcement, highlighting that Letšeng is operating well despite weather difficulties, and that weaker demand and prices led to a slow-down and $40m impairment at Ghaghoo. Discussing operations at the Letšeng mine, finnCap said:
"The plant upgrade that was completed in 2015 resulted in an increase in throughput and also a probable reduction in diamond damage. The mine had been working through an area of higher grade but lower quality diamonds; since the end of the period it has switched to a higher value area, which has already resulted in the recovery of two exceptional diamonds, one of 104 carats and the other of 85 carats."
According to finnCap, the company's intention is to run Ghaghoo at breakeven until market conditions improve:
"In the meantime, the carried value of this asset has been impaired by US$40m."
Panmure Gordon covered the announcement in a report out this morning, saying the results offered further evidence of Letšeng’s "robust production abilities" and that the $40m impairment at Ghaghoo had been "anticipated by many investors for some time now".
GEMD's FY2016 Interim results were in line with Panmure's expectations (aside from the impairment to Ghaghoo):
"Revenues of $109.1 million, an underlying EBITDA of $43.5 million and a pre-exceptional profit of $13.4 million highlight a strong operational performance as opposed to a reliance on pricing (H1 FY2016: $1,899/ct vs. H1 FY2015: $2,264/ct)."
Production at Letšeng remained unchanged despite extreme snow fall limited access to the mine.
"As a result, full guidance for tonnes treated has been reduced by c3%, whilst our forecasts remain, unchanged at c107kcts."
According to Panmure, the Ghaghoo impairment and slowing of production had been widely expected:
"Following the slowing of production at Ghaghoo, we believe investors have long been anticipating a write down of the carrying value of the Ghaghoo asset as prices for the diamonds produced continue to face price pressure."
But despite the disruption to production in July, Panmure say its forecasts require no significant adjustments (excluding the impairment charge to Ghaghoo):
"Gem Diamonds currently trades on a sub-average NAV/per share multiple of 0.59x, FY2017 P/E multiple of 7.8x, falling to <7.5x in FY2018 with a forecasted dividend yield of around 3%, serving to underline our positive view on the company."
