Gem Diamonds Limited (LON:GEMD) has somewhat lost its sparkle, according to broker Barclays Capital (LON:BARC) .
Barclays, which changed its recommendations on several miners on Wednesday, downgraded the precious stone miner to ‘underweight’ from ‘overweight’ and reduced its price target to 110p from 180p.
Barclays said its investment case for the group, which owns the Letšeng mine in Lesotho and Ghaghoo in Botswana, was based on the company moving into a period of stronger cash flow generation due to efficiency improvements.
But the bank said the recovery of smaller stones at Letseng and unexpected capital spending increases at the plant had diluted that case.
“As the project capex rolls off higher, stripping over the next few years (peaking in 2020) will mean cash flows at Letseng will remain muted in the absence of any pickup in diamond prices,” Barclays said in a note.
Barclays also noted that downsizing of the operation at Ghaghoo was making good progress but the operation will remain cash-negative for the foreseeable future.
The bank’s analysts said: “Combining our expectations of muted cash flow generation at Letseng, with the negative cash flow from Ghaghoo plus corporate overheads and other costs of about US$15mln per year leaves our free cash flow forecasts at US$-5.4mln in 2016 and breakeven (zero) in 2017 and beyond assuming diamond index price increases of 1.3% in 2017, and 2% from 2018-2020.
“This is before the current ordinary equity dividend of US$6.9mln (including special dividend was US$11.7mln in 2016), which we expect might come under pressure as a result.”
Elsewhere, Barclays upgraded Anglo American plc (LON:AAL) to 'equal weight' and increased its price target on the miner to 845p from 550p.
But the investment bank downgraded Hochschild Mining Plc (LON:HOC) to 'equal weight', although it increased its price target to 280p from 180p.
It upgraded KAZ Minerals PLC (LON:KAZ), formerly known as Kazakhmys, to equal weight with an increased price target increase to 210p from 130p.
Meanwhile, Deutsche Bank AG (ETR:DBK) downgraded online grocer Ocado Group PLC (LON:OCDO) to ‘sell’ from ‘hold’ with an unchanged price target of 220p.
The German bank’s analysts noted the group’s warning earlier this month that margin pressure was unlikely to relent in the short term.
“Ocado continues to look expensive relative to Amazon.com Inc (NASDAQ:AMZN),” they said In a note.