Over 250 job cuts as Ghaghoo mine closes
Brian Benza | Friday February 17, 2017 18:00
Gem Diamonds Botswana managing director, Haile Mphusu told BusinessWeek that the prices of the smaller commercial goods mined at Ghaghoo have come under pressure rendering production unprofitable.
The mine employs 298 workers including contractors and according to Mphusu all but between 30 and 40 workers will have their contracts terminated.
“The material fall in the prices of its diamonds from $210 per carat in early 2015 to $142 per carat at its most recent sale in December 2016, emphasises the weak state of the diamond market for this category of diamonds.
The demonetisation issues in India have also made the situation worse for us. The process to mothball the mine begins immediately with consultations to conform with labour laws. We anticipate to retain between 30 and 40 workers who will carry out care and maintenance while the mine is closed,” he said.
In the production update for the last quarter of 2016, London Stock exchange-listed Gem Diamonds said diamond prices at Ghaghoo fell 30% over 2016 while production was cut by 55%.
In 2016, Ghaghoo mine produced 40,976 carats from 91,499 carats in 2015, representing a 55% fall in output.
In what could be an indication of a gloomy outlook for the mine, Mphusu does not see any improvements in prices of the kind of diamonds mined at Ghaghoo in the near future.
“We anticipate that the mine will be closed for about two years, but if there is an improvement in diamond prices before that, the better for us,” Mphusu said.
Care and maintenance is expected to cost about $3 million per year.
Apart from the recent Indian demonetisation and high levels of polished inventory available, the supply of the category of diamonds mined at Ghaghoo is expected to increase significantly in 2017 from new mines coming on stream in Lesotho and Canada.
Gem Diamonds had previously announced that it would downsize output in order to preserve its balance sheet until prices for diamonds improved.
Ghaghoo had an original production target of 720,000 tonnes per annum but cut it to 300,000 tonnes per annum in 2016.
As a result of a huge impairment charge related to downsizing of operations at Ghaghoo mine, Gem Diamonds swung to a loss in the first half of 2016.
The miner reported a loss of $15.9 million (P167 million) in the six months that ended June 30 versus a profit of $25.6 million a year ago largely due to a $40 million (P420 million) charge representing the estimated impact of a decision to cut the Ghaghoo mine’s output to 300,000 tonnes per year, from an earlier plan of reducing it to 720,000.
The $40 million non-cash impairment related to its Ghaghoo mine pushed the London-listed group to a half-year pre-tax loss from continuing operations of $836,000 from a $40.7 million profit during the same period a year earlier.
The company had anticipated ramping up to production of around 220,000 carats a year during its 25-year mining licence.