"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.
Ellendale 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.
Gem Diamonds 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.
Under 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 2013.
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 growth projects.”
Shares of Gem Diamonds were down less than 1 percent at 160 pence in early morning trade on the London Stock Exchange.
Source: diamonds.net
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