No one ever doubted the quality of the Letseng mine. In terms of dollars realised per carats sold, as it’s owner Gem Diamonds (LON:GEMD) proudly boasts, its among the best in the world.
The perennial question for the market all along though, has been how much is the company that owns it worth?
In the context of the billion dollar price tag the company hawked around to investors when it listed back in 2007, the question looks particularly pertinent. Today the company’s worth just £43mln, albeit that there’s no debt and it does look as though, unlike some, it will survive the coronavirus crisis.
What’s more, that £43mln market capitalisation is around 12% more than it was earlier in the week, after investors bought in following news of the recovery of a 442 carat stone from Letseng.
A back-of-the-envelope calculation put into the market by broker Liberum - happily not involved in the original listing – puts the potential value of the newly recovered stone at between US$10mln and US$15mln, or around a fifth of the company’s overall value.
Now, is it right that a company should be valued at only four times the value of one stone?
Perhaps it wouldn’t be, if such stones were recovered frequently enough. Yes, Letseng has been consistent in yielding up good quality, high value stones over time, but they’ve never been quite good enough to justify that original ambitious 2007 valuation.
On the other hand, Petra (LON:PDL) and Firestone (LON:FDI) have been sinking for months if not years, while Lucara (TSE:LUC) and others like it are doing exotic sales deals in the face of collapsed, or partially collapsed markets, and the majors are just quietly keeping their heads down as prices bump along the bottom.
In that context, Gem isn’t doing too badly. The question really is, whether you measure it in absolute terms, or against its peers. And the answer to that may depend on whether you put your own money in, or are just managing someone else’s