Gem Diamonds has sold its Ellendale mine in Australia to Goodrich Resources for $14.9 million (AUD 14.3 million), the companies announced Monday.
"The sale of Ellendale, at a value that we feel is
appropriate given the relatively short life of mine of the E9 pipe, is
consistent with our aim of refocusing our management and capital
resources on our core assets and long term growth projects,” said
Clifford Elphick, the chief executive of Gem Diamonds.
has approximately 18 months remaining, according to the current mine
plan and reserve estimate; but Alex Alexander, the chairman of Goodrich,
stressed the company intends to carry out an aggressive exploration
program to increase the reserve and life of mine.
is currently mining the E9 pipe, while the E4 pipe is on care and
maintenance. Goodrich reported that a further 47 lamporite pipes exist
on the Ellendale property, of which about half are thought to be
diamond-bearing. Production at the mine rose 42 percent year on year to
120,561 carats in the first nine months of 2012, while sales increased
46 percent to $83 million. Sales include the off-take agreement with
Tiffany & Co. for Ellendale’s fancy yellow diamonds, which account
for about 80 percent of revenue from the mine, according to Goodrich.
the agreement, Goodrich, an Australia-based exploration company, will
acquire Gem Diamonds subsidiary Kimberley Diamonds, which holds the
Ellendale lease. An initial payment of $3.2 million (AUD 3.1 million)
will be paid, while the remainder will be paid in 12 monthly
installments from the completion of the deal, expected in January
Analysts at Liberum Capital Mining said the deal was
good for Gem Diamonds given that the market values Ellendale at zero or
less due to the rehabilitation costs expected when the mine closes in a
few years’ time. Liberum added that the deal enables management to
better focus on its Kholo expansion project at Letšeng and its Ghaghoo
mine development in Botswana.
Gem Diamonds announced in
November that it was extending the implementation of the Kholo
project’s development schedule due to the weak economic environment. The
company revealed Monday that the revised plan will still go ahead with
development on plant 1 and plant 2, while development of the third
plant has been placed on hold.
“The revisions to project
Kholo at Letšeng, as a result of the rescheduling of capex, allows Gem
Diamonds to execute the project in a more appropriate manner taking into
consideration the current financial climate,” Elphick said. “We
continue to see sound fundamentals supporting the long term strength of
the diamond market which support our continued investment into our key
Shares of Gem Diamonds were down less than 1 percent at 160 pence in early morning trade on the London Stock Exchange.