London-listed Gem Diamonds’ share price fell by more than 22% on July 23 after the company announced plans to scale back operations at its Letšeng mine, in Lesotho, to reduce costs in a difficult market.

“Considering the prolonged weakness in global diamond prices, compounded by a weak dollar and ongoing US tariff uncertainties, Gem has implemented decisive measures to conserve cash and protect shareholder value.

“While the company has met its production targets, it has not been immune to the sustained pressure on rough diamond prices and adverse exchange rate movements,” it said in a statement to shareholders.

Gem undertook a comprehensive review of its short-term mine plan and cost base to reduce costs by between $1.4-million and $1.6-million a month.

To achieve that goal, it has decided to reduce waste mining volumes in both the Main and Satellite pits at Letšeng to a minimum for an initial 12-month period.

The mine will, however, continue to operate both plants at existing treatment volumes of about five-million tonnes a year. An additional 500 000 t of high-value Satellite pipe material has also been made accessible to mine and process during the second half of this year.

To align with the scaled-back waste mining operations and other necessary operational changes, Gem warned that it may have to reduce its workforce by about 250 employees, representing about 20% of the current workforce.

“Engagement with employees and relevant stakeholders has commenced and is ongoing to ensure that the rationalisation process is managed responsibly and transparently,” it said.

Further, to reduce corporate costs, the company is taking actions to reduce cash outflow at the corporate office, including temporary salary reductions for board members, executives and management personnel.

Gem said it was considering awarding shares in lieu of salary to partially compensate the executives and management personnel for the reduction in cash remuneration and to further align the interests of key management with shareholders.

As a result of the cost reduction measures, the company has revised its guidance for the current financial year. Waste tonnes mined are expected to be between 1.8-million and two-million tonnes, compared with the previously guidance five-million to 5.5-million tonnes.

Ore treatment guidance remains unchanged, at between 4.9-million and 5.1-million tonnes, as does carat recovery, at between 87 000 ct and 90 000 ct.

Carat sales guidance has, however, decreased to 84 000 ct to 87 000 ct, from the previously guided 86 000 ct to 89 000 ct.

The diamond miner assured shareholders that it remained committed to its long-term strategy of producing exceptional-quality diamonds, adding that it was confident that the measures being implemented would position the company for a strong recovery when market conditions improve.

Lesotho's economy is already reeling from the impact of US tariffs, particularly its impact on the country's textiles industry. Global news agency AFP reported on July 8 that the country, with an already high unemployment rate, had declared a national state of disaster as a result of increasing job losses.

The country is heavily reliant on the export of textiles, with much of those exports destined for the US; however, with the 50% import tariff imposed by the US, many US companies have cancelled orders with factories in Lesotho.

FIRST-HALF PERFORMANCE
Gem also provided an update on its trading performance for the first half of this year, with waste tonnes stripped having decreased by 46% year-on-year to 1.7-million tonnes.

Carats recovered decreased by 16% year-on-year to 47 125 ct, while carats sold decreased by 22% year-on-year to 44 360 ct.

During the six months under review, Gem recovered four diamonds weighing more than 100 ct each. Three of those diamonds were also sold during the period under review.

Further, six diamonds had been sold for more than $1-million each during the period, generating $9.3-million in revenue.

The average price decreased by 26% year-on-year to $1 008/ct, while total sales value for the half-year decreased by 43% year-on-year to $44.7-million.

Meanwhile, the company reported that it had recovered, after June 30, a 250 ct Type II white diamond. However, while being a large diamond, its quality was such that it was expected to yield a relatively low polished diamond.