Gem Diamonds (LON:GEMD) expects continuing short-term volatility in the diamond market.
However, with supply forecast to remain tight and continued demand growth expected to put upward pressure on diamond prices, the longer term outlook remains positive.
The comments came as the group reported results for the first half to June 30 2012, which showed revenue dipping to US$180.2 million from US$196.5 million a year earlier, while underlying EBITDA fell to US$52.7 million from US$90.8 million.
The results have been depressed by lower prices and higher costs.
Broker Fairfax expects the strip ratio at Letseng, the company’s flagship mine in Lesotho, to rise further.
Cash in hand remains strong, with US$139 million in the bank as at 30 June 2012.
While Letseng produced 57,116 carats in the first half, up 8 from a year earlier, production from Ellendale in Australia increased production by 50 percent to 78.881 carats.
Gem Diamonds said it has made good progress during the period under review with Project Kholo, the expansion of Letseng which started in January 2012 and aims at doubling production of the mine.
Northland Capital said diamond prices have weakened reflecting the global financial slowdown and the fewer exceptional value diamonds from Letseng.
The risks to the full-year outlook risks are clearly to the downside, according to analyst Dr Ryan Long, and he has put his ‘buy’ rating for the company under review.