US Edition Gem Diamonds
205.2p -4.8
Questor says HOLD
However, Clifford Elphick, chief executive, accepted production at its Ellendale mine in Australia was "disappointing". Measures are being taken and the feasibility study for expansion at its key Letseng mine is progressing well.
However, pricing of the yellow "fancy" diamonds produced by the Ellendale mine was better than analysts' expectations. The mine achieved an average price of $5,153 (£3,216) per carat, compared with $2,791 (£1,742) per carat last year.
The Letseng mine in South Africa produced 29,800 carats, up 23pc from the equivalent period last year. It also increased its sales guidance to 103,000 to 108,000 carats, up from previous guidance of 95,000 to 103,000 carats.
However, the big negative was in pricing, which fell 30pc to $2,426 (£1,514) a carat at Letseng. This excludes the sale of the unique 553 carat Letseng Star, which sold for $16.5m ($10.4), or almost $30,000 (£18,824) a carat. There seems to have been further falls in October, as its tender sold for $2,300 (£1,443) a carat.
The group has found 15 rough diamonds each valued at more than $1m ($627,500) in the past four months. It has also found 171 diamonds at Letseng weighing more than 10.8 carats each.
The long-term outlook for the diamond price is sound. The US used to be the largest market for gems, with more than 40pc of the market. However, the economic crisis has meant lower sales across the Atlantic, with the focus now on Asian emerging markets, particularly India and China.
Luxury goods consumption is surging across Asia and the Far East, particularly China, where it is now common to give diamond engagement rings.
Questor's view on the shares is unchanged. The initial recommendation to buy into Gem was given too early and the shares are now down 29pc from the tip in January 2009. Trading on a current year earnings multiple of 11.8, falling to just 8.1 next year, the shares remain a hold until the diamond price stabilises.