RBC Downgrades Gem Diamonds
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02.03.09, 09:42
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Mining
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RBC Capital Markets has downgraded its buying recommendation for Gem Diamonds, following an interim management statement earlier this month and meetings with management.
RBC said it has reduced its forecasts for Gem Diamonds and downgraded its recommendation from 'Outperform' to 'Sector Perform' with a reduced target price of £2.25/share (£3.80/share).
It increased its forecast for the full year of 2008 to a loss of $0.95 per share, from $0.35 per share, reflecting lower sales and lower diamond prices in 2008, as well as losses at its Ellendale diamond mine in Australia and Cempaka diamond mine in Indonesia.
RBC said it only sees a return to positive earnings in the full year of 2010.
It also expects to see an impairment charge in excess of 150 million when the group reports full year 2008 results on 1 April “as management creates charges against capitalized spending in the DRC and CAR, as well as against the prices paid for Ellendale and Cempaka."
“While Gem Diamond's major asset, a 70% holding in the Letseng diamond mine, continues to generate cash and the Ellendale diamond mine is benefiting from an off take agreement with a major US jewelry retailer, the balance of the group's portfolio has effectively been suspended. This will make the group more sensitive to a relatively high group overhead which was created to build Gem Diamonds into a large diamond producer,” it said.
RBC has modeled lower diamond prices in 2009, with an increase in 2010.
In Botswana, where Gem Diamonds is continuing to prepare applications for a diamond mining license for Gope, RBC said “capital market conditions make it unlikely the group will be able to raise the +/- $500 million needed to build a diamond mine.”
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By: PolishedPrices
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