Ghaghoo production halved on soft diamond prices
Brian Benza | Friday February 5, 2016 14:44
In a trading update released on Wednesday, promoters of the mine, Gem Diamonds said they will downsize output, in order to preserve its balance sheet until prices for diamonds have improved.
Ghaghoo had an original production target of 720,000 tonnes per annum, but will now cut it to 300,000 tonnes. Prices for diamonds mined from Ghaghoo averaged around $150 per carat at the firm’s latest round of sales, a decline on the average $165 per carat and $210 per carat fetched in the firm’s two previous sales.
Ghaghoo had also encountered difficult ground conditions although commissioning of a surge bin helped the project reach its first phase treatment run rate of 2,000 tonnes per day, the company said.
“The fall in prices achieved has impacted the planned pace of the ramp up at Ghaghoo. “It is considered prudent to downsize current production to achieve a modified target of approximately 300, 000 tonnes for 2016 from the original target of 60,000 tonnes per month or 720,000 per annum.
“Ghaghoo remains an important future option for the group, however, in the short term it is considered prudent to downsize the operation to minimise cash consumed by the development of this asset,” said CEO Clifford Elphick. During the fourth quarter of 2015, Ghaghoo treated 85,046 tonnes and recovered 24,294 carats achieving a recovered grade of 28.6 carats per hundred tonnes (cpht), above the reserve grade.
A parcel of 49,120 carats was sold for $7.4 million in December 2015 ($150 per carat), bringing the total average dollar per carat achieved for the year to $162 per carat. “Based on the prices achieved in the December 2015 sale, and the currently depressed state of the rough diamond market for Ghaghoo’s production, various options have been reviewed with the aim to minimise operating losses during 2016.
“Reverting back to the original phase one production levels of 60,000 tonnes per month, or expanding beyond that production level, will be largely dependent upon an improvement in the diamond pricing environment,” Elphick added. The company anticipated ramping up production of around 220,000 carats a year during its 25-year mining licence.
According to Elphick, slowing capital expenditure on Ghaghoo will also help protect GEM’s dividend payouts after paying a maiden dividend last year of $24.7 million.
GEM ended 2015 with $85.7 million in cash on hand, of which $71.7 million was attributable to Gem Diamonds. It had drawn down $30.4 million of its available facilities, resulting in a net cash position of $55.3 million.
Giving an update on the global diamond market, Elphick said the diamond market remained weak during the fourth quarter, as it had done for much of 2015.
The slowdown in Chinese retail demand, liquidity constraints and high polished inventory levels, particularly in the manufacturing sector, together with a strong US dollar contributed to a cautious approach being adopted in both the manufacturing and retail sectors.
Although these challenging market conditions continued impacting the price achieved for the Ghaghoo production, Elphick said the prices achieved for the large, high value rough production from Letšeng remained comparatively firm during the period, achieving an average of $2,117 per carat.