Gem Diamonds tests itself to get over 'challenges' in Lesotho mine

Gem Diamonds has felt the benefits of rising prices and hopes to meet its full-year production target at its flagship mine despite challenges in the first half, it said today.

First half output fell 5% to 44,748 carats at the London-listed firm's most lucrative operation, the Letseng mine in Lesotho.

"In the first half of the year we have had a number of operational challenges," said chief executive Clifford Elphick.

"With the unique nature of Letseng's very high value, low diamond content resource, fluctuations in production are expected, however management believe that production targets for 2010 will be achieved by year end."

At the Ellendale mine in Australia production targets for the second half were expected to be achieved, but Elphick said it may be slightly behind on the full-year objective.

Mining costs at both mines were still being "severely" impacted by the weaker dollar against local currencies.

Balancing some disappointment in first half production and higher costs were rising prices.

"Over the past six months both rough and polished diamond prices have strengthened, driven by demand from China and India and improving US demand," Elphick said.

The group, which has no debt, had $108.2 million of cash at the end of the first half, of which $89.6 million was attributable to Gem Diamonds.