Gem Diamonds continues to grow

In the biggest diamond mining acquisition of the year so far, Gem Diamonds is to acquire Kimberly Diamond Co. Established in July 2005, Gem Diamonds listed on the main board of the London Stock Exchange in February 2007, raising over $600 million. It is currently capitalised at approximately $1.4 billion and has $519 million of cash on its balance sheet. Senior Management at Gem Diamonds has more than 150 years experience in the diamond mining industry.

Kimberley Diamond’s signature stone is the rare, valuable and highly sought after fancy yellow diamond diamond, complimenting Gem Diamonds’ high quality white diamonds (recently recovered 603 ct white diamond, the Lesotho Promise, and a 215 ct D colour flawless diamond sold for $12.4 million and $8.3 million respectively).

The acquisition provides Gem Diamonds with immediate access to additional production.

Gem Diamonds is establishing a global presence expanding its operations from Africa to Indonesia and Australia and boosting its international portfolio of diamond producing assets.

The cash offer of A$0.70 for each Kimberley share, representing a premium of approximately 33% to Kimberley’s closing share price on July 16, 2007, values Kimberley at A$300 million. The offer is unanimously recommended by Kimberley’s directors who, in the absence of a superior offer, have agreed to accept the offer in respect of their own holdings.

Gem Diamonds will provide Kimberley with a A$10 million short term loan facility for working capital purposes. Further capital investment of A$26 million and subsequent production ramp up is planned for the Ellendale in Western Australia.

Production of high value fancy diamonds from Ellendale, Kimberley’s primary mine, is strategically attractive to Gem Diamonds. Following its acquisition of the Cempaka mine in Indonesia, the acquisition of Ellendale further enhances Gem Diamonds’ global diversity.

Cempaka diamond production is around 51 000 ct/y. Gem Diamonds believes Cempaka has the potential to increase the resource base above 1.3 Mct and is looking to spend $15  million in the near term to ramp up production to 100,000 ct/y. Thereafter, it will look to introducing a mass excavation system, at an estimated capital expenditure of more than $30 million.

The value of the Cempaka diamonds are of the order of $250/ct, well above the industry average of $82/ct. Like Gem’s Lesotho operations, Cempaka has a high proportion of gems. It also offers a wide range of colours. A dark blue diamond, which is extremely rare, was found there prior to the Gem acquisition.