GEM DI­A­MONDS (GEMD) 116.5P BUY

Shares - - TALKING POINT -

As­set qual­ity makes all the dif­fer­ence in the world of min­ing and Gem Di­a­monds’ Let­seng mine in Le­sotho is re­ally top class. It is im­pos­si­ble to ac­cu­rately pre­dict when the next big di­a­mond will be found, yet his­tory tells us to ex­pect high qual­ity ones when they do come along.

Af­ter a long pe­riod of not find­ing much, plus weak di­a­mond prices forc­ing it to close an­other mine, Gem Di­a­monds has bounced back into fash­ion this year. So far in 2018 it has found 12 di­a­monds in ex­cess of 100 carats – an out­stand­ing re­sult.

A re­newed fo­cus on mine plan­ning to re­duce the amount of waste ma­te­rial be­ing mined should help to en­hance value. Earn­ings are ex­pected to soar over the com­ing years thanks to the good run of large di­a­mond dis­cov­er­ies, cost sav­ings and pro­duc­tiv­ity im­prove­ments.

We ac­knowl­edge the share price has al­ready en­joyed a strong run this year. How­ever, we feel now is still a good time to buy the stock as the busi­ness is in a bet­ter po­si­tion both strate­gi­cally and fi­nan­cially.

In­vest­ment bank Beren­berg notes that Gem has a mixed track record with ac­qui­si­tions. While Let­seng was a su­per buy, the busi­ness has also im­paired c$739m of in­vest­ments over 11 years. It reck­ons Gem will no longer pur­sue ac­qui­si­tions, in­stead pre­fer­ring to fo­cus on Let­seng, strength­en­ing its bal­ance sheet and re­turn­ing cap­i­tal to share­hold­ers. (DC)

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