High-End Diamonds Continue to Sparkle Investor Presentation February - - PowerPoint PPT Presentation

high end diamonds continue to sparkle
SMART_READER_LITE
LIVE PREVIEW

High-End Diamonds Continue to Sparkle Investor Presentation February - - PowerPoint PPT Presentation

High-End Diamonds Continue to Sparkle Investor Presentation February 2016 Disclaimer The following presentations are confidential and are being made only to, and are only directed at, persons to whom such presentations may lawfully be


slide-1
SLIDE 1

High-End Diamonds Continue to Sparkle

Investor Presentation February 2016

slide-2
SLIDE 2

Investor presentation February 2016

Disclaimer

The following presentations are confidential and are being made only to, and are only directed at, persons to whom such presentations may lawfully be communicated (“relevant persons”). Any person who is not a relevant person should not act or rely on these presentations or any of their contents. Information in the following presentations relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon as a guide to the future performance of such investments. These presentations do not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in any company within the Group. Neither this documentation nor the fact of its distribution nor the making of the presentation constitutes a recommendation regarding any securities. This presentation is for information purposes only. The presentations contain forward-looking statements which are subject to risk and uncertainties because they relate to future events. These forward-looking statements include, without limitation, statements in relation to the Group’s projected growth opportunities. Some of the factors which may cause actual results to differ from these forward-looking statements are discussed in certain slides of the presentation and others can be found by referring to the information contained under the heading “Principal risks and uncertainties” in “The Strategic Report” in our Annual Report for the year ended 2014. The Annual Report can be found on our website (www.gemdiamonds.com). No statement in this presentation is intended as a profit forecast or profit estimate and no statement in the presentation should be interpreted to mean that earning per share for the current

  • r future financial years would necessarily match or exceed the historical published earnings. The presentations also contain certain non-IFRS financial information. The Group’s management

believes these measures provide valuable additional information in understanding the performance of the Group or the Group’s businesses because they provide measures used by the Group to assess performance. However, this additional information presented is not uniformly defined by all companies, including those in the Group’s industry. Accordingly, it may not be comparable with similarly titled measures and disclosures by other companies. Additionally, although these measures are important in the management of the business, they should not be viewed in isolation or as replacements for or alternatives to, but rather as complementary to, the comparable IFRS measures such as revenue and other items reported in the consolidated financial statements. The distribution of this presentation or any information contained in it may be restricted by law in certain jurisdictions, and any person into whose possession any document containing this presentation or any part of it comes should inform themselves about, and observe such restrictions. Information in this presentation is correct as at 31 January 2016

2

slide-3
SLIDE 3

Investor presentation February 2016

Agenda

 Gem Diamonds at a Glance  Diamond Market  Financial Highlights  Operations Overview  Investment Proposition

3

Light of Letšeng 478ct

(recovered in 2008)

slide-4
SLIDE 4

Investor presentation February 2016

Background

 Gem Diamonds is a leading global producer of high value diamonds  The Company owns the Letšeng Mine in Lesotho and is bringing the Ghaghoo Mine in Botswana into production  Letšeng is famous for the production of large, top colour, exceptional white diamonds, making it the highest average dollar per carat kimberlite in the world  Gem Diamonds has a clear focus on delivering value through

  • ptimising the Letšeng mine and ramping up production at

the Ghaghoo mine when market conditions allow  The Company seeks to maximise revenue through its internal sales & marketing operations in Belgium and also through additional margin by pursuing cutting and polishing initiatives of its high-end value diamonds  Gem Diamonds aims to continue to return cash to shareholders through annual dividend payments

4

slide-5
SLIDE 5

Investor presentation February 2016

Major recoveries from Letšeng

5

2015 Letšeng Destiny 314ct 2014 Yellow 299ct 2011 Letšeng Star 550ct 2008 Leseli La Letšeng 478ct 2007 Letšeng Legacy 493ct 2006 Lesotho Promise 603ct 2015 Letšeng Dynasty 357ct

slide-6
SLIDE 6

Investor presentation February 2016

Operational Footprint

6 Gem Diamonds Limited UK, BVI 2 employees Gem Diamonds Sales, Marketing and Manufacturing Belgium 16 employees Ghaghoo Mine Botswana 361 employees/contractors Letšeng Mine Lesotho 1 299 employees/contractors Gem Diamond Technical Services South Africa 24 employees

slide-7
SLIDE 7

Diamond Market

Letšeng’s sparkle remains

slide-8
SLIDE 8

Investor presentation February 2016

Diamond Market

 Diamond market for Letšeng’s high end diamonds remained stable but overall market subdued in 2015  Slow down in Chinese retail demand  Inventory and liquidity concerns  Medium to long term market outlook remains strong  Reduced sales from De Beers and Alrosa leads to firmer prices  Improved outlook as 2016 starts to show green shoots

0.60 0.80 1.00 1.20 1.40 1.60 1.80 2010.5 2011 2011.5 2012 2012.5 2013 2013.5 2014 2014.5 2015 2015.5 2016

Diamond Price Indices

WWW Large Index WWW Overall Index 8

slide-9
SLIDE 9

Investor presentation February 2016

Diamond Market

 The US remains the most important market for diamonds (over 40% of demand) and continues to grow strongly  China has been a strong growth engine for diamonds (2009-2014 CAGR of 18%). Longer term, the shift in the economy from construction to consumption combined with favourable demographic trends should support strong continued growth  India is an important global jewellery market which has embraced diamonds in recent years Polished Diamond Sales by Geography

Rest of World India China Gulf Japan US

9 Source: De Beers Insight report

slide-10
SLIDE 10

Investor presentation February 2016

Diamond Pricing

  • 500

1 000 1 500 2 000 2 500 3 000 FY 2014 Q1 Q2 Q3 FY 2015

Letšeng 6 and 12 Month Rolling $/carat

6 month 12 month

Letšeng Price levels maintained due to resilience in +10.8 carat Type II diamonds Ghaghoo Weaker market impacts Ghaghoo production Third sale at $150 per carat, down from $210 (February 2015) and $165 (July 2015), dropping in line with WWW Overall index

10

slide-11
SLIDE 11

Financial Highlights

Continued cash generation in challenging markets

slide-12
SLIDE 12

Investor presentation February 2016

Financial Highlights

202 213 271

2012 2013 2014 2015* USD Millions

65 77 104

2012 2013 2014 2015* USD Millions 12

12 15 24

2012 2013 2014 2015* US Cents 17 21 30 2012 2013 2014 2015* USD Millions

Revenue EBITDA EPS Attributable profit

* 2015 figures are due to be released in March 2016. The 2015 figures below represent current market consensus

slide-13
SLIDE 13

Operations - Letšeng

Ahead of target on all fronts

slide-14
SLIDE 14

Investor presentation February 2016

Ownership

Letšeng Overview

 Located in the Maluti mountains of Lesotho  Highest average US$ per carat globally  Three treatment plants  Regular recovery of large, top-quality Type lla diamonds  Two kimberlite pipes: Main pipe 17.0ha; and Satellite pipe 5.2ha  Satellite Pipe – higher grade / higher $ per carat  Letšeng 21 year Life of Mine open pit is wholly contained within the Reserve category

14

70%

Gem Diamonds Limited

30%

Government of Lesotho

Letšeng Mine Lesotho

slide-15
SLIDE 15

Investor presentation February 2016

2015 Operational Performance

Letšeng  Strong end to 2015 – production targets achieved

  • Waste mined – 24.0 million tonnes
  • Ore treated – 6.7 millions tonnes
  • Carats recovered – 108 579
  • 1.9 million tonnes of Satellite pipe

contribution in 2015  Prices remain stable

  • Q4 2015 – US$ 2 117 per carat
  • Full year 2015 – US$ 2 299 per carat

 Costs – targets achieved  Projects successfully implemented

  • Plant 2 Phase 1 Upgrade – additional

250 000 tonnes p.a. being realised

  • Coarse Recovery Plant – addressing diamond

damage and enhanced security

ö Zero Lost Time Injuries (LTIs) for 2015

15 17.4 19.1 19.9 24.0 2012 2013 2014 2015

Waste mined (tonnes millions)

6.6 6.3 6.4 6.7 2012 2013 2014 2015

Ore treated (tonnes millions)

114 95 109 109 2012 2013 2014 2015

Carats recovered (000's)

slide-16
SLIDE 16

Investor presentation February 2016

Letšeng Large Diamond Recoveries

Frequency of +100 carat recoveries

16 2 4 6 8 10 12 14 1 2 3 4 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 2011 2012 2013 2014 2015 100 carat diamonds annually 100 carat diamonds per tender +100 cts per tender Annual Frequency of +100cts

slide-17
SLIDE 17

Investor presentation February 2016

Letšeng Resource and Reserve

As at 1 January 2014 Ore (mT) Carats (millions) Grade (cpht) US$/ct In-situ value (US$ billions) Letšeng Indicated Resource 293.9 3.23 1.73 2 086 6.7 Letšeng Reserve 131.9 2.26 1.71 2 045 4.6

17

Reserve Reserve

slide-18
SLIDE 18

Investor presentation February 2016

Letšeng Open Pit LoM

20 40 60 80 100 120 1 2 3 4 5 6 7 8 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037

Carats recovered ‘000s Tonnes treated and waste mined - millions

Optimised Life of Mine plan: tonnes treated and carats recovered profile

Satellite pipe Main pipe Carats recovered 5 10 15 20 25 30 35 40 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037

Waste Tonnes mined - millions

Optimised Life of Mine plan: waste profile

Main pit waste Satellite pit waste

18

 Optimised Life of Mine Plan

  • Increased Satellite pipe contribution - (1.65 mt to 2019; 2.0 mt from 2020 to 2031)
  • Optimal waste profile – (peak of 36 mtpa in 2024)
  • Steeper slope angles (resulting in less waste)
  • Improved NPV
slide-19
SLIDE 19

Operations - Ghaghoo

Steady progress in challenging climate

slide-20
SLIDE 20

Investor presentation February 2016

Ownership

Ghaghoo Overview

 Located in the South-East portion of the Central Kalahari Game Reserve  Kimberlite pipe 10.4ha in size  25 year mining licence from 2011  Underground mine: access decline through

  • approx. 80 vertical metres of sand overburden

 Phase 1 Objectives – Proving Up:

  • Grade – potential upside
  • Diamond prices
  • Milling Technology
  • Operating costs

20

100%

Gem Diamonds Limited

Ghaghoo Mine Botswana

slide-21
SLIDE 21

Investor presentation February 2016

2015 Operational Performance

Ghaghoo  Phase 1 objectives completed  Grade remains steady and ahead of Reserve

  • Recovered grade of 28.0 cpht in 2015
  • Reserve grade of 27.8 cpht

 Surge bin successfully commissioned in January 2016 – daily throughput of 2 000 tonnes achieved  Water fissure

  • Level 1 sealed and mined through
  • Level 2 sealed
  • Long term sustainable solution in place

 Premature caving and sand ingress

  • No injuries or property damage
  • Long term plans in place to minimise dilution

 Three sales concluded

  • US$210; US$165;US$150 per carat
  • Average $ per carat for 2015 - US$162

 Zero LTIs for 2015

21

Underground operations at Ghaghoo Processing plant at Ghaghoo

slide-22
SLIDE 22

Investor presentation February 2016

Ghaghoo Resources

As at 1 January 2014 Ore (mT) Carats (millions) Grade (cpht) US$/ct In-situ value (US$ billions) Ghaghoo Indicated Resource 108.2 15.49 19.51 242 3.7 Ghaghoo Reserve (VKSE Phase Only) 7.5 2.08 27.81 267 0.5

22

slide-23
SLIDE 23

Investor presentation February 2016

Ghaghoo Current Status

 Phase 1 objectives achieved  Depressed diamond market – impacting Ghaghoo type production  Prudent to downsize in current market conditions  Optimising production levels to:

  • Reduce cash burn
  • Targeting approx. 300 000 tonnes for 2016

 Ghaghoo remains an important asset for the Group  Options being assessed to expand when diamond prices improve

23

1.49ct blue diamond recovered at Ghaghoo

slide-24
SLIDE 24

HSSE Overview

slide-25
SLIDE 25

Investor presentation February 2016

HSSE Performance

4.45 2.49 2.93 2.75 2012 2013 2014 2015

AIFR

0.30 0.13 0.20 0.00

2012 2013 2014 2015

LTIFR

25

 Group – Zero Lost Time Injuries for the full year 2015

  • Letšeng – 430 consecutive days LTI free to 31 December 2015
  • Ghaghoo – 418 consecutive days LTI free to 31 December 2015

 Group – AIFR 2.75 for the full year 2015 (2014 - AIFR 2.93)  Zero stakeholder or environment incidents for the year  Continued implementation of international best practice in respect of environmental and social responsibility

slide-26
SLIDE 26

Investor presentation February 2016

HSSE Overview - Group CSI initiatives

26

Classrooms and office donated to Pae la itlhatsoa School in Lesotho Lesotho community health workers Educational School tours at Ghaghoo New Xade Primary School donation ceremony in Botswana Kaudwane Primary school adopted by Ghaghoo Butha Buthe vegetable project in Lesotho

Lesotho Botswana

slide-27
SLIDE 27

Sales, Marketing and Manufacturing

Adding value throughout the pipeline

slide-28
SLIDE 28

Investor presentation February 2016

Sales, Marketing and Manufacturing Overview

Sales and marketing  Robust prices achieved for Letšeng's high quality production - average of US$2 299 per carat in 2015  35 rough diamonds achieved a value of greater than US$1.0 million each  Two + 300 carat exceptional quality Type IIa rough diamonds sold Manufacturing  336 carats extracted at a rough value of US$4.6 million for manufacturing during 2015  Uplift achieved >20 %

28

357ct white diamond which was sold for US$ 19.3 million 164ct white diamond manufactured into a polished diamond

slide-29
SLIDE 29

Investment Proposition

Adding value and returning cash

slide-30
SLIDE 30

Investor presentation February 2016

Investment Proposition

30

Gem Diamonds has a unique set of diamond assets and a strong Balance Sheet Long term fundamentals for diamonds strong

(driven by US GDP growth and demographic trends in China and India)

Letšeng Mine – Long life, Proven EBITDA margin, High-end diamond pricing robust Ghaghoo mine set up - expansion

  • pportunities

Strong diamond market fundamentals - medium/long term

Letšeng is a world class diamond mine  Produces the highest value diamonds (US$2 299 per carat in 2015)  Is a long life asset  Is strongly profitable and cash flow generative  Reducing breakage, improved large stone recovery and increasing ore from the Satellite pipe offer further upside

Letšeng Mine – Long life, Proven EBITDA margin, High-end diamond pricing robust Ghaghoo mine set up - expansion

  • pportunities

Strong diamond market fundamentals - medium/long term

Ghaghoo mine – Phase 1 complete  Ready to ramp up when market conditions allow  Temporary reduction in production protects the Balance Sheet Cash flow generative and strong profitability even in current market conditions Strong Balance Sheet with net cash of US$55 million & further US$50 million undrawn facilities Dividend paid for 2014 and on track for 2015 Attractive EV:EBITDA multiple

slide-31
SLIDE 31

Thank you

Mining Indaba 2016

slide-32
SLIDE 32

Investor presentation February 2016

Annexure 1 - Corporate Profile

Gem Diamonds Limited is listed on the Main Board of the London Stock Exchange LSE : GEMD Daily average trading volume across all platforms (last 6 months) 110k Shares in issue 138 296 460 Free float

(excl. holders above 5%, ESOP and Directors holdings)

56.3% Share price (31 January 2016) £1.18 Market capitalisation (millions) £166 / US$236

32

Gem Diamonds share price performance since 1 January 2015

Source: FactSet as of 29 January 2016

Company officers Clifford Elphick Chief Executive Officer Alan Ashworth Chief Operating Officer Michael Michael Chief Financial Officer Glenn Turner Chief Legal and Commercial Officer Major shareholders As at 15 January 2016 Graff Diamonds International Limited 15.08% Lansdowne Partners Limited 14.98% Gem Diamonds Holdings Limited 6.74% Majedie Asset Management 6.26% BlackRock Investment Management 4.44% Lazard Asset Management 4.04% Other Directors’ holdings 1.59%

500 1 000 1 500 2 000 2 500 20 40 60 80 100 120 140 160 180 200

01 January 2015 01 February 2015 01 March 2015 01 April 2015 01 May 2015 01 June 2015 01 July 2015 01 August 2015 01 September 2015 01 October 2015 01 November 2015 01 December 2015 01 January 2016

Thousands

Volume (000s) Price

slide-33
SLIDE 33

Investor presentation February 2016

Annexure 2 - Global Diamond Producers

As of February1, 2016

  • Est. production in 2016

Mine Location Carats US$ Millions Jwaneng Botswana 10,500,000 ∧$2,408 Jubilee Russia 9,200,000 $966 Diavik Canada 7,000,000 $805 Orapa Botswana 8,000,000 $760 Debmarine Namibia Namibia (Offshore) 1,400,000 $700 Catoca Angola 6,500,000 $533 Ekati Canada 5,100,000 $520 Grib Russia 4,500,000 $450 Argyle Australia 16,800,000 $420 Nyurbinskaya Russia 4,500,000 $405 Almazy-Anabara Placers (A) Russia 4,400,000 $396 Udachnaya (Pit & UG) Russia 4,000,000 $360 International Russia 4,000,000 $360 Aikhal Russia 3,300,000 $297 Letšeng Lesotho 110,000 $249 Victor Canada 550,000 $248 Venetia South Africa 2,000,000 $240 Nizhne-Lenskoye Placers (A) Russia 2,600,000 $234 Karowe Botswana 350,000 $221 Mir Russia 2,200,000 $198 Nyurba Placers (A) Russia 2,200,000 $198 Finsch South Africa 2,400,000 $185 Marange (A) Zimbabwe 3,500,000 $158 Gahcho Kue Canada 1,000,000 $149 Botuobinskaya Russia 1,500,000 $135

33

Source: www.paulzimnisky.com (2016)