Good morning, ladies and gentlemen, and welcome to Gem Diamonds' half year results presentation for the six months ending 30 June 2026. This webcast is being recorded and will be available on our website later today. Our presenters today are Clifford Elphick, CEO of Gem Diamonds, Michael Michael, CFO, and Brandon De Bruin, COO. Please use the Q&A function on your screen to submit any questions. All questions will be answered at the end of the presentation. I'll now hand over to Clifford.
Welcome, everybody, and thank you for your attendance. We are addressing our half year results. If you could go to the next slide, please, Janine. The disclaimer, I'm sure all of you are very familiar with this, so we can move past this. You're going to be hearing from me, Michael, and Brandon, covering operations, finance, and the sales and marketing. Then, of course, at the end, we're happy to take questions. The half year in review, relatively good half year. Skipping across the top row. Carats recovered, 41.5 million carats. Three greater than 100 carats in the first half of the year. That's slightly behind or below par. But I'm happy to say that in short order, we've recovered a couple more. So we are tracking our long-term average now. Top right-hand corner, average USD per carat achieved. This shows the beginnings of an improvement.
It started January, February, and has continued. We'll need a few more sales and then we'll be able to determine if the trend is now firmly in place. But certainly, that is my feeling. Big demand for our goods. Lots of people chasing after them, and it's resulted in price increases. That gave us a revenue of close to $60 million and an EBITDA of $8.6 million. Of course, that translates into the earnings per share. Pleasingly, if you're looking at the bottom left-hand block, the net debt position is reduced substantially, and we are almost on a positive position. Of course, our facilities of some $70 million are available to us. On the injury side, again, a decent performance, but Brandon will talk to that in more detail. I can talk to the diamond market.
There's certainly because of the massive drop in supply, my numbers are a peak supply of some 172 million rough carats per year, and that has now dropped to approximately 90 million carats. So not quite half, but almost half. I think actually it may well be that the number is a little bit less, because apart from the well-known mines which have closed or gone into care and maintenance, some closed for good, others into care and maintenance for a period of time, such as big mines such as Venetia. But I think that there's a myriad of small mines, smaller producers. I'm talking the likes of the alluvial diggers, but who are substantial in total, substantial producers along the rivers in South Africa and elsewhere. Many of those too have closed, and of course, their data is not that accurately reflected overall.
I think with supply having almost halved and demand now settling as the understanding of what lab-grown or synthetic diamonds, as it is more accurately called now, the role it is going to play, it is a case that the diamond market is resetting. I think on the macro front, unfortunately, the conflicts in the Ukraine in particular, dragging on the Middle East too, does not seem to come to an end. On top of that, China does not seem to be able to pick itself up and get out of the deflation and the difficulties that its economy is experiencing. However, down in the bottom row, Gem Diamonds is well-positioned. We really have gone after our costs in a major way to meet the prices which we were achieving last year and at the back end of last year.
The result has been that our Business Resilience Programme has right-sized our cost base for those prices. Now as prices are increasing, we are starting to reap the benefits of that. The diamond market certainly has- I would not say a huge spring in its step, but it seems to me that if you look across the size categories, across the quality spectrum, things are improving. You may have seen, even at the very bottom end, there have been some price improvements. Not huge, but nevertheless, it sort of has the feel that the bottom of the market may well have been found. So that really has translated well as far as we are concerned at the very top end of quality and size. We see that in the results that we are able to deliver. Hand over to Brandon to deal with these matters, please.
Thank you, Clifford, and good morning, everyone. As Clifford mentioned, our first half of the year, we have seen a very positive and pleasing performance, both through our sustainability and operations. Starting with sustainability and our first priority, safety. Again, we have maintained a very solid safety performance, in H1. We had one unfortunate LTI of one of our contractors slipping on a pipe near the pump house and sustaining a fracture to his arm. But other than that, we have maintained a very good safety record for the half year. Our all-injury frequency rate is at 0.5, which compares to H1 last year at 0.51, which is very pleasing to see. We obviously work hard to maintain that. The lost time injury frequency rate, you can see, is at 0.17. We had no LTIs last year. Unfortunately, the one LTI has pushed that up for the first half.
Environmentally and socially, we have had no major or significant incidents. We remain committed to our decarbonization objectives. You will note from our report for last year, we reached our 30% target to reduce our carbon emissions as compared to our 2021 baseline. We are looking at maintaining that and currently we are trending to be above that for 2026. Our tailings facilities obviously are a priority in terms of our management and care for them. They are being well managed, and we have aligned our processes and procedures and systems to the GISTM. Moving on to our operations. We have seen a good productive six months in H1. Our production volumes have remained in line with our planned output for the year and also in terms of our long-term mine plan.
It is worth noting that we have followed the Cut-5 waste cutback in the Satellite Pipe. Therefore, the satellite contribution for the first half of the year is 16% as we now move into Main Pipe and prepare for the next cutback in satellite starting in 2027. Our Business Resilience Programme has really delivered and continues delivering. It is well managed and executed by the teams at the operation. We are seeing meaningful cost efficiencies coming through, and Michael Michael will allude to that a bit later in the financial report. Our waste mining, you can see on the graph on the right, approximately 300,000 tons. So a significant reduction in waste mining, which is in line with our optimized mine plan.
While reducing immediate cash spend, which was our target in our Business Resilience Programme that we initiated in July last year, we have also been able to maintain our ore treatment throughput at approximately 5 million tons per annum. So the waste deferral has not impacted on that, and we are confident that going ahead in the years to come, we are able to maintain our ore production at 5 million tons, given that we threw the waste cutting in our large cutback in the Main Pipe. As Clifford Elphick mentioned, we recovered three plus 100 carats in H1. A very nice 347 carat, which has appropriately been named the "Lesotho Jubilee," to celebrate Lesotho's 50th anniversary of its independence. This diamond is up for sale in our tender in September. Two additional 100 carats, 109-carat white and 104-carat faint yellow, being found post the period end.
If we just have a look at the table below, we can see that we currently, in H1 had three plus 100 carats and our 2008 to 2025 average is eight per annum. So currently, year to date, we are sitting on five, so tracking well there. We have seen a slight decrease in the other size fractions, the 60 to 100, 30 to 60, and 20 to 30, and the 10s to 20s. But that is in line with our resource and reserve statement and what we expect to get out of the resource as we move more into Main Pipe and out of Satellite Pipe, which typically gives us a higher grade, so therefore more carats and also larger diamonds from that pipe. If I can hand back to you, Clifford Elphick, on the sales and marketing.
I think it has been a very pleasing six months when you look at our achieved USD per carat compared to the same period in the prior year, some 34% better. That is in line with the demand that we have experienced for our goods. It is always quite difficult to have an absolute certain capability of commenting whether or not there was some quality improvement, some better diamonds recovered, or whether it is a straight price improvement. But I think it is a bit of both, truth be told. Nevertheless, it is certainly a more positive situation and gets us back to the 2023, 2025 sort of average USD per carat. An important fact that the 10.8 carats are back contributing about 80% of revenue, which is how we like to look at those things.
We continue. You will all have noticed that despite the diamond miners having a particularly rough time, and of course talking Alrosa, talking De Beers, the major suppliers, you will all have seen their results and issues. Of course, that flows through to all of us. But, on the other hand, you would all have seen that the luxury brands, the very top end, whether it's Richemont, Louis Vuitton, the like, their top-end jewelry stores have been performing extremely well. I think that ties in a little bit with the improved pricing that we've experienced. But we do go into the second half of the year with a measure of confidence and hope that the trends continue.
I'm sure by the back end of this year, we will hopefully have seen the nadir. The bottom of the market will have been found towards the back end of last year. Next slide, please. Over to you, Mike, for the financials.
Thanks, Clifford Elphick , and good morning, everyone. I'll take you through the financial performance for the first half of 2026. I'm pleased to say that there's a markedly improved story compared to where we were last year this time. If you look at the overall performance, these results reflect the tangible returns from the Business Resilience Programme, which we launched in July 2025 last term. That's a tighter cost base that's come out of that, together with the improved diamond pricing that we're seeing, which Elphick alluded to. Revenue increased by 32% to $59.7 million from $45.4 million in the prior comparative period. This is from the sale of 42,624 carats at an average of $1,395 per carat. That compares to $1,008 per carat from 44,360 carats sold in H1. A noticeably higher price per carat, more than offsetting the -4% decline in volume.
The step change in pricing reflects the higher quality of diamonds sold in the period and an improvement in the market prices for the larger exception quality stones that Letšeng recovers. Royalty and selling costs decreased sharply by 86% to $700,000, down from $5.2 million in H1 2025. The 2026 selling and marketing costs, and the reduction is driven by the royalty suspension that's been agreed with the government of Lesotho at the end of August 2025, which has subsequently been extended through to the end of September 2026 this year. We actively continue to engage with the government of Lesotho regarding the royalty beyond that date. The revenue cost of sales, cost of sales increased to $47.9 million from $39.7 million, an increase of 31%. But I think I need to unpack that in a bit more detail because we're borrowing some context in that increase.
The cash element of the cost of sales, which excludes waste, which is capitalized, decreased by 1% to $31.3 million. Included in the $47.9 of cash costs is $31.3 million. Importantly, that is a 12% decrease in local currency, which went down to LSL 513 million . That is despite elevated fuel prices and broader inflationary pressures. In unit cost terms, the ore in cash cost per ton decreased by 30% in local currency to LSL 197 per ton or $12 per ton. The total ore in cash costs, which include waste capitalized, decreased 32% in local currency. Again, a significant saving in local currency terms, amounting to LSL 536 million or $32 million.
This was assisted by a reduction in waste tons mined, which fell 82% at Brandon De Bruin spoke about in the operations section, which is in line with the Business Resilience Programme and got in tons to $300,000 from $1.7 million as part of the mine plan being put in place currently. The principal driver of the overall increase in cost of sales is the non-cash accounting charges. That is the difference between the $31.3 million cash portion that I mentioned and the $47.9 in the cost of sales headline number. That was $60.6 million, and that is attributable to movements in stockpile and amortization moving volumes and costs across the different reporting areas. So another reflection of operational cost inflation. Impacting our results overall, though, is exchange rate, which has had a negative impact on the overall dollar-reported costs.
During H1 2026, the Lesotho loti, which is pegged to the rand, strengthened by 11% against the US dollar on average, and the rate moved from 18.39 in H1 2025 to 16.42 in the current period. This had an effect of increasing our dollar reported cost, as mentioned, but also reduced the local currency cash flow generation. Despite this adverse currency impact and the operational cost savings delivered in local currency that was sufficient to hold the US dollar costs flat. Corporate costs as well reduced by 19% to $2.5 million, compared to $3.1 million in H1 2025. This reflects ongoing rationalization in our South African and administration offices and our U.K. head office, and we remain disciplined in this area. All of that results into a positive EBITDA. We reached $8.6 million, a substantial swing from the negative $2.6 million we reported in the prior period.
Earnings before tax recovered to $3.1 million. Importantly, the group turned to an equitable profit of $600,000, compared to the loss of $11.7 million and you will recall that we had goodwill impairments in that prior period of $10.7 million. The group generated earnings of $0.005 on a weighted average of 179.9 million shares in issue, and that was against a loss of $0.084 in the prior period. If we just go to the next slide to just analyze some of the historical trends behind the costs. You will see that our unit costs continue to improve over the period, but slightly more from H1 2023 in half-year periods into this half-year. That is despite the cumulative inflation that has run over time. The dotted line running from left to right at the top reflects the inflation rebased to 100 in June 2023.
You will see that it is roughly increased to just under 120% cumulatively over the time. But despite that, our costs have dropped. So ore in cash costs, including waste, declined from LSL 422 per tonne to 206. The significant drop there is also driven by a decrease in volumes, as I said, reported on a per tonne treated basis. But importantly, where you see real cost savings is the second line, which excludes waste, and that has fallen to LSL 197 per tonne treated. And treatment costs have more than halved to LSL 62 a tonne. So those are the two costs that you can see the benefits of some of the initiatives that have been implemented. And that also includes the impact and the benefit of in-sourcing major activities like mining and processing. If we go to the next slide, it is the financial position.
The balance sheet remained relatively stable. Total assets remaining roughly around $279 million, but importantly, cash has increased to $23.2 million from $3.8 million at year-end, and borrowings declined to $20.6 million from $24.9 million. And that leaves us in a much stronger position. If we then just go into our cash and inputs, then you will see that that has improved significantly during the period. The team generated about $27 million of cash before costs, waste costs, and capital, debt repayments, and financing costs. The group net debt reduced sharply to just half a million dollars, and that is down from $20.1 million at December. We also retained roughly $17 million of undrawn facilities, which provides meaningful liquidity and the refinancing of those borrowing facilities continue. I will talk about that shortly.
Capital expenditure was minimal at $300,000, compared to $2.2 million in H1 2025, a reduction of 88% and reflecting the completion of a plant modification and recovery improvement projects that commenced in 2025. That means that the bulk of our revolving credit facilities totaling approximately $75, $76 million in aggregate across the group at Gem Corporate and FSM expire in December 2026. The successful refinancing of these facilities is a key assumption underpinning our banking facility, and we are actively engaging with all our lending banks currently and progressing our discussions for that renewal before it expires in December. The board has reasonable expectation that this financing will be successfully concluded and our strengthened financial position, as we have just reported, and improved operating performance provide a constructive platform for those discussions. In summary, our H1 2026 results represents a significant financial turnaround for Gem Diamonds. Revenues are 32%.
Underlying EBITDA returned to a positive, and the group is back in a comfortable funding position. Net debt is near zero. Liquidity has materially improved. Our cost base is significantly stronger. Although we have some work to do, particularly refining signal and navigating the uncertain market conditions, the business is in a fundamentally better position than it was 12 months ago. Clifford, I will hand it back to you, to close out the presentation.
Thank you, everybody, for attending. There still is a number of significant issues out there, which are impacting confidence generally amongst miners as well as customers, traders, and manufacturers. That, of course, is the De Beers sale by Anglo American. My understanding is that this is moving towards a conclusion. Certainly, indications that I receive, I am not deeply involved, but the indications I have received is that Anglo has an intention to have wrapped this up prior to the year-end. I think the entire industry is really looking forward to getting some certainty in respect of that, and some understanding of who the new owners, new custodians of a significant part of the diamond industry from a rough perspective will be. So that is the one major uncertainty.
The other, of course, is exactly where will the consuming market finally arrive, in respect of the difference between man-made synthetic diamonds and mined diamonds. It seems that there is a greater understanding amongst consumers as to the merits of something that is natural, which was created in the bowels of the earth and has all of the romance associated with that. The issue is where does that finally end up as market share vis-à-vis mined diamonds? So those are two remaining outstandings. I am happy to say that it appears that increasingly the market is starting to differentiate between these two products. I think that will be good for all of us in the long run. We are looking forward to selling goods. We have a number of sales coming up in the near future. Hopefully, as I have said before, the trend of positivity remains.
It would be extremely helpful if some of these conflicts could come to an end, and the world's economies could start to settle and get some direction. With that, let me bring the formal part of the presentation to an end, and happy to take questions, which I think, Janine, you are going to manage those. Are you?
Yes, Clifford, I will. I have not seen any questions in the Q&A box.
See there is a message here which says from Stuart, says, "Has the 347 diamond been sold yet?" No, it has not. It will be offered to the market in the near future. We look forward to a decent result there.
Duncan, you have your hand up.
There is a hand up.
Sorry, Duncan. Can you unmute, and then please go ahead.
Okay. Sorry. I've tried then. Can you hear me?
Thank you. Yes.
Great. Thanks. Hi, Clifford. Duncan from Panmure Gordon. Just firstly, on the market, you mentioned around half of the total supply may have come out with the various closures in care and maintenance. Do you have any sense of what it might be for your peers in terms of the higher-end sort of quality of the market? I know you have limited direct peers, but is it a similar amount, or are some miners prioritizing there if they can?
Yeah, Duncan. It's a complex question. Let me try and give you an intelligent answer. There's really us and Karowe that our production is skewed towards this end. However, quite a number of larger goods are supplied from the Angolan industry. All mines from time to time find a whopper as it were. For example, Jwaneng in Botswana, although they don't differentiate this, from time to time, we know that there's a decent diamond offered there. Cullinan obviously is in a constrained state, and of course, that produces those ultra-blues which are so magnificent and command such a premium. Similarly with Karowe now offline, those pinks which emerge from there are now no longer there. I wouldn't say that sort of half of the larger goods are gone, but it's a guess.
We don't have good data as you pointed out, but I would think that just as a higher order estimate, that probably 25% of those better goods are no longer appearing on the market. But of course this is constrained supply anyway. I hope that's at least a little bit helpful to you.
Yeah, no, that's great. Thank you. Yeah, so it's a significant amount. Just another question on operating costs. You've kept the guidance for the full year for the production and costs. I just wondered if you were being particularly conservative given you did have a good first half. Costs are very good. I know production is going to be down, so the denominators will be less. Yeah, your views on where you might be in the range that you've guided to.
So really the team at Letšeng have been outstanding in chasing every single contract, in turning everything over. There is a bit of diminishing returns here because we've been at this really aggressively now over, as you will have seen from those pins in the graphs, for a number of years. I would say that it's difficult to keep going at this. We've cut the fat away. We've got into muscle now. We don't want to get into bone. So I think it is fair to put that guidance there, and we would be confident that we'll get there. There just are no longer any glaring opportunities to attack, I'm afraid.
Okay. That's great.
Yeah.
Yeah. Thank you.
Okay. Keep going if you have any more questions.
No, that was good. I suppose on an absolute level, if we look at it on a dollar millions basis, it does assume significantly more in the second half if we're in that range. I was just wondering if ideally you're going to be trying to track at a similar level going forward rather than necessarily taking out further costs, whether you're hoping to sort of maintain that absolute level.
That is our hope, and of course, the maths does throw up some sort of slight anomaly there. This is where we're comfortable. We've got to. We think it's sustainable. We hope to continue at this level. Of course, inflation is always chasing us and eating away at us. There's been an increase in fuel price now. We're always fighting that. The exchange rate, on the one piece you gain and you lose because some of our dollar-based expenses, obviously with a stronger exchange rate it's helpful. Of course then on the revenue side, and we've got lots of local costs which helps with the weaker exchange rate. It's a complicated formula. We just try and really go after the controllables and then what we get on exchange rate, unfortunately we've got no control of that.
Great. Thanks very much. That's all from me. Thanks, Clifford.
Okay. There's just two written questions here. If the profits continue, will the board consider paying a dividend? Yeah, look, we would love to do that as soon as we possibly can. I would think it's probably too soon to make forecasts on that, but that's definitely the intention. We have a dividend policy. We want to give dividends to our owners and certainly that's where we're going to go. So diamond prices recover. What do you expect this to do to EBITDA? I think you can model that pretty. You can see what happens in terms of our predictions in respect of carats. We've been pretty accurate because we know where we're going to mine. We've got a very good idea of grade, and therefore forecasting our revenue if we hit the carats recovered is reasonably easy to do.
Duncan, I'm sure, has got his reports out as to what he thinks may or may not happen. But in terms of the predictability of diamond price, it's not so easy to predict because quality can really impact that. But I think that you can make a stab at the EBITDA relatively accurately given what we are forecasting with respect to carats recovered for the balance of the year. Any other questions, either written or verbal? Yes. Presentation and the recording will be available on the website shortly.
The presentation is already available and the recording will be available a little bit later today. I don't think we have any other questions, Clifford.
Okay. Well then, thank you again everybody. Appreciate you being here and thanks for the support over the years. Would you sell your house to buy the shares here? You should have done that yesterday. Then you could have bought your house back and kept the shares. Thanks everybody, and look forward to seeing you again soon.