Good morning, ladies and gentlemen, and welcome to Gem Diamonds' 2023 half-year results presentation for the six months ended June 30. Our presenters today are Clifford Elphick, CEO, Michael Michael, CFO, and Brandon de Bruin, COO. Please note that you are able to pose questions using the Q&A function at the bottom of your screen. All questions will be answered at the end of the presentation. I will now hand over to Clifford Elphick. Clifford?
Thank you, Janine. Good morning, everybody, and welcome to our half-year results presentation. Skipping over the disclaimer, we get to the summary of half one 2023. If you look at the top left-hand corner revenue, $71.8 million, this is a disappointingly low figure compared to normal, and the effect of the lower revenue flows through to the EBITDA basic loss per share of $0.007 and to the net debt position of $2.2 m illion. If you look at the bottom block in the center, you will see that the U.S. dollar per carat achieved is a disappointingly low $1,373 per carat. Our target and what we generally aim for is closer to $1,800 per carat. So this is some $400 less than what has been achieved over the last few years.
It is the case that in the first half of 2021, we had a similarly low figure for a six-month period. The other point I would like to draw your attention to is that we currently have a tender beginning next week, and we anticipate those diamonds to be up closer to the normal $1,800 per carat. So the story of this first half is a low revenue story because of low dollar achieved. We will go through the detail of how that was made up as we go through the presentation. Looking at the diamond market as a whole, as far as the global economic backdrop is concerned, you are all very much aware of this. But there continues to be a negative impact on our operations due to the Russia-Ukraine conflict. In particular, diesel prices have been high.
I am happy to say there is, in the very recent past, a drop in these prices, but nevertheless, the impact has been severe on us. Various supply chain disruptions, in line with the higher diesel prices, explosives and other consumables prices have been expensive. In general, there has been a great fluctuation in commodity prices. The other point as far as the diamond industry is concerned, it is a bigger point, is that the 17 odd interest rate increases in a row have, of course, been targeted at inflation. But given that many of our customers operate on some quite high levels of borrowings, this has had an impact on them and of course on the consumer too. Specifically talking about the diamond market, rough diamond prices have been under pressure in 2023. That has continued throughout the first half of the year, and this has variously been demonstrated.
Of course, De Beers as the major marker of prices, although we are selling different diamonds, nevertheless, it is an indicator of what has happened in the industry. You will all have seen that Petra postponed some of its sales and has only recently entered the market. However, luxury jewelry brands have continued to expand and show quite significant growth. They, of course, are supplying diamonds, which are the sort of diamonds which we mine at Letšeng, and so that gives us quite a lot of comfort. That brings me to the next point, the impact of lab-grown diamonds. This is growing. The number of goods which are supplied into the industry is really quite substantial now, and you will all have seen much commentary about this.
It is unclear to us where this settles, but it appears that matters are coming to a head because of the rapid decline in the price of lab-grown diamonds. In fact, the prices per carat are as low as $200 per carat for gem-quality lab-grown diamonds. So it appears that this business is finding a level which is quite different to what it is that we do in the top end of the market, the largest, the most valuable, the highest quality goods. Turning to the column on the right, where Gem Diamonds fits in. Obviously, we remain the highest dollar per carat producer of diamonds out of kimberlites. This is a position which we think is important and points to the future value of our business. On the revenue, which I spoke about earlier, it is a twin set of reasons for the lower revenue.
There has been a market impact. More importantly, though, the number and the quality of larger diamonds recovered from the ore that we have mined in this first six months has been disappointing. That really is the story. The combination of market and the number and quality of diamonds recovered in the first six months is the story of the disappointing revenue position in the first half. We continue to seek opportunities to add value to our diamonds. Our program of supplying goods into the major brands, Louis Vuitton, Bulgari, Tiffany & Co., Dior, all of these major brands. That program is gathering steam, gathering momentum, and is delivering and is building the relationships of trust which one needs in this part of the industry.
We look forward to moving from the quite small trials, which we have been running now for the last 12 months, and moving this forward into a more important part of our business. We will always sell a significant proportion of our rough into the market, because our view, I think quite correctly, is that the window on the market is vitally important to give us accurate information as to exactly what the market price for rough diamonds is. Turning on to sustainability, I will hand over to Brandon to speak on this topic, please.
Thank you, Clifford, and good morning, everyone. In running our operations sustainably, responsibly, and safely, zero harm remains a priority for us. I am pleased to highlight that the implementation of our adopted safety culture maturity strategy, which we implemented over a three-year period, has now been finalized and implemented, and we certainly have seen an overall improved safety performance. Unfortunately, we did suffer one LTI, but our Lost Time Injury Frequency Rate is down to 0.09, and our All-Injury Frequency Rate is down to the lowest we have seen in the last 10 years at 0.57. We obviously maintain our focus on safety as our number one priority in our operations at all times, and we are operating well below industry standards in these two safety indicators.
We saw during the period no major or significant environmental incidents and no major or significant social incidents. If we flip over the page to our sustainability slide, we continue to drive our adoption, our recently adopted decarbonization strategy of a 30% decrease or reduction by 2030. In H1 2023 versus our H1 2022 performance, we did see a reduced energy consumption by 29% due to focused initiatives on looking at our energy consumption throughout our operations. We also saw reduced Scope 1, 2, and 3 carbon emissions by 24%, largely attributed to reduced volumes of waste this year, but also to other initiatives focused on the Scope 1 and 2 carbon emissions in particular.
In terms of our tailings facilities, we have aligned ourselves to the global industry standard on tailings management with full implementation of the recommendations that are applicable and aligned to our operations by the end of this year. That alignment and management of those dams is being well managed. In terms of the integration of our eight adopted UN SDGs, we are focused on the full integration of this into our businesses, including the two newly adopted SDGs, which we adopted during the period being SDG 2, Zero Hunger and 13, Climate Action. Our CSI initiatives are progressing well. Our focus is on education infrastructure and SMEs, and the projects that we have implemented and are supporting are performing well and with an overall goal to ensure that over a longer period, they become self-sustaining projects without support from the company.
If I move over to our operations review, I will just start with the graphs. In terms of mining performance, the performance over the period was good. We had no major mining issues. In terms of waste mining, we have mined the necessary waste in terms of our mine plan and the same with the ore mining. Where we have seen challenges this period was in our tons, ore tons treated. Although we are in line with our H2 2022, we are below our H1 2022, but that is mainly attributable to the AV contract, which ended in June 2022. Challenges that we have seen throughout the period were largely driven by electricity grid interruptions and, obviously, our reliance then on our diesel-generated power provision.
Also, we saw higher levels of internal basalt, which is a bedrock dilution in our ore, which caused instability in both the plants and our recovery units. To address this, we have implemented a number of actions, including the slowing down of the feed rate to both plants to ensure that the plants run more stable and consistent, albeit at a lower rate. This has shown initial positive results in the improvement of recovery efficiency and a potential reduction in diamond damage. Although we are seeing the positive results that these actions brought about, it does impact our tons to be treated for the year, and we have therefore revised our guidance and forecast for our annual production on tons treated. We will talk about that later in the presentation.
A strong focus currently is on cost reduction throughout the operations, starting, if you are seeing, with our steeper slopes implementation in the main pits to reduce waste. We have reduced our haulage distances. We are reviewing our contracts and the margins therein. We have also had a change in management, bringing in Gideon Scheepers with exceptional experience, not only in the diamond industry but within Lesotho, to manage the operations and a strong drive on cost reduction. In terms of carats recovered, although we are pretty much in line with H2 2022, as Clifford mentioned earlier, if you flip over the page to the recovery of large diamonds. Although volumes of carats was in line with our plan, our recovery of the larger high-value diamonds, we have seen a reduction of that during the period.
As Clifford mentioned, this has a significant impact on our revenue, and that is what we have seen through the numbers that Michael will speak to a bit later. If you have a look at the column on the left, H1 2023, you can see the lower numbers of our largest stones between 10, 20 carats, 20, 30 carats, 30- 60 carats, 60- 100, and above 100 in comparison, in particular, to H1 2022 and our average since 2008. In terms of our material capital projects, I am pleased to announce that our PCA, the primary crushing area project, is nearing completion on budget and pretty much on schedule. We had some recent delays in the last two months, largely driven by inclement weather with high winds and very cold temperatures. However, we commenced the commissioning in July with the final handover in mid-September.
In terms of our underground study, the underground study has progressed, and preliminary outcomes are being evaluated as we complete our assessment of the trade-off between a possible underground plan, or option, or another open pit cutback in the satellite pipe. With that, if I can hand back to Clifford in terms of sales and marketing.
Thank you, Brandon. Just picking up on those frequency of large diamond recoveries, if you look to the bottom right-hand corner, those of you who are familiar with how we report, that number of 66% of greater than 10.8 carat goods, that number is closer normally to 80%. So that is the impact of the lower recoveries of larger diamonds, which you saw on the previous slide. If you move to the left-hand side, the bottom on the left-hand side, there you will see the story, $1,373 per carat. It is all the difference between that $1,373, $1,755, $1,800, which flows through to the revenue of the first half. Always nice to show some beautiful diamonds.
In the first half, these three goods we brought to your attention, but normally there would be three + 100 carats of note, something like that. Unfortunately, only this one to show. The pink diamond on the right-hand side, it is the case that blue, pink, and rarer colors still manage to achieve remarkably high prices. This is an indication of that. All of this then leads to our financial results. So Michael, over to you.
Thank you, Clifford, and good morning, everyone. Looking at our income statement and our trading performance for the year, I think a lot of it has already been explained with some backdrop to the situation. Our revenue turn out for the half year was $71.8 million, and that is down from $100 million of last year. That is off the back of 52,000 carats that we sold, compared to 55,000 carats in the previous year. The main difference in the carats as well, performance-wise, carats were good, but the main difference was that the Alluvial Ventures or the third-party contractor terminated its contract at the end of June 2022, so we do not have that volume of production coming through. They used to traditionally generate about 10,000-11,000 carats per annum in looking at the production contribution to the revenue as well.
First half, we had about 1.3 million, just under 1.3 million tons of satellite contributing. About 100,000 tons less than the previous year. We often look at the contribution ratio of satellite because that is a value driver in terms of revenue. So it is slightly less than last year, but is not the ultimate contribution to the lower revenue. Royalties and selling costs is 10% royalty that we pay to the government of Lesotho, and then a 1.5% sales and marketing fee to sell the diamonds on tender in Antwerp. Cost of sales, you will see, is down 20% in dollar terms, $50.7 million compared to $63.3 million, aided with the exchange rate in the period, but I will go into more detail on costs on the next slide when we look at unit costs.
Corporate expenses are similar to that of the prior year, resulting in an EBITDA of $8.4 million this period compared to $20.9 million. Again, just to reiterate Clifford's earlier comments, any additional dollar of revenue we get will flow through to EBITDA at a rate of about 88%. The drop in revenue of just under $30 million that you can see on the revenue line would have resulted in an additional $26 million of EBITDA, and we would have been sitting at about 30-odd had we achieved last year's revenue number. Depreciation and amortization charge, again, aided by the impact of FX, that's a fairly consistent charge in terms of local currency. Under other operating costs, the $0.8, just under $1 million is the continued care and maintenance costs on Ghaghoo. We were trying to dispose of the asset.
We were close to disposing and had almost signed an agreement, and the purchaser unfortunately pulled out. But we've had to restate our costs from previously. Ghaghoo used to be disclosed as a discontinued operation in prior years' results, but it's now sitting in our main income statement charge. Playing all of that through to profit before tax, $4 million compared to $13.3 million last year, and then an income tax charge of $2.5 million. Income tax is driven by a 25% local Lesotho tax rate payable on the Letšeng operation. We obviously don't get any credits for any of the other operations in terms of tax charges, and our effective rate is slightly higher this year, this period, than the prior period. Taking into account non-controlling interest, that's the 30% government-owned portion of Letšeng.
Of the Letšeng profits attributable to them is $2.5 million. Unfortunately, we then end up in an attributable loss position of $1 million. Taking into account the circa 140 million shares in issue, we end up with a $0.007 cents per loss of share. If I go then onto the next slide in terms of unit costs. Unit costs have been impacted, in the period, by a couple of factors. We've had higher inflation. Clifford mentioned that in the beginning of the presentation. Local inflation, in the beginning of the year, was around 8%-9%. That's about 2%-3% higher than what we've always traditionally experienced in Lesotho of about 5%-6%. So that's had an impact. We've had significant increases in load shedding, requiring additional diesel usage again.
Our generators that were installed were installed on the premise of being backup generators, not running at the capacity that we're running now or required to run now. So even though we've got full power generation on our generators, it is decreasing the life of those generators. The maintenance plans on those generators, spares, and costs associated with maintaining the generators have increased significantly. During the period as well, and Brandon alluded to cost exercise and cost-cutting and driving cost and managing that downward, we commenced a right-sizing project at the beginning of the year. Some 300-odd people were affected. We incurred a cost of just over $1 million to close that retrenchment process, reduce our forward run rate in terms of costs. So that's included in these costs as well, a bit of an outlier in costs.
Again, if I just compare now the costs directly, you will see that our direct cash costs are 296 maloti per tonne treated versus 238 maloti of prior year. That is off the back of much lower tons, 2.467, just under 2.5 million tons compared to 3 million tons last year. The difference there is the Alluvial Ventures costs as well, tons and costs. If I had to strip that out and do a like-for-like comparison, then the increase would be some 13% because the restated costs taking AV out, AV tons and cost out, would be 262 maloti. Non-counting charges refers to movements in inventory and stockpiles together with the capitalization and amortization of waste costs, and that leads to a total operating cost, which lands in our income statement of 374 maloti a tonne versus 323 of last year.
As mentioned, the exchange rate was in our favor at 18.21 versus 15.41 last year. You can see that we end up with a lower U.S. dollar reported costs, impact cost of $20.57 compared to $21, being 2% down from last year. On the waste side, we have also reduced our waste down to 4.8 million tons. The unit cost there was also affected by the lower volumes and diesel price. You will see there 63.8 maloti a tonne versus 56.88. Again, taking exchange rate into account, we end up with a 5% dollar cost being lower than the prior year. On the next slide, we just look at our financial position. No material change in the structure of our balance sheet.
The only point to raise here is that you will see some of our balance sheet asset values and liability values are slightly lower than prior year, and that is driven by the closing exchange rate converting our local balance sheets into the U.S. dollar reported balance sheet. We closed the period at 18.89 compared to 16.38, and that has a significant impact on the values as we disclose on the closing date. On the next slide, on the cash management slide, we ended the period with group cash of $7.3 million and a net debt of $2.2 million and available facilities of just under $73 million. Overall facilities that we have in the group, we have a $30 million facility at Gem Diamonds Limited, the holding company, and we have 815 million maloti available revolving facilities at Letšeng operation.
Looking at the waterfall, you will see that Letšeng generated the 35 million maloti cash during the period. Before capital and waste, we invested 20 million maloti into the waste, which was capitalized, and that was off the back of the 4.8 million tons I referred to earlier. Working capital, again, an increase in local balance sheet working capital. There was some 5 million maloti increase in inventory and receivable, current assets at Letšeng, and a 2 million maloti reduction in liabilities. There is an FX impact on that as well. So in dollar terms, it is at $7 million, but you will see on our balance sheet it is not so significant once you take the exchange rates into account. Corporate costs, as mentioned, was 5 million maloti.
Investment in PPE. Sorry, PPE, $2 million was for the closeout of the PCA that Brandon mentioned earlier, and then about $1 million was spent on further underground work, underground study work that was running its course during the period. Ending then the period with the $7 million cash that we referred to. On the last slide, we recently released our H1 trading update statement, and in doing so, we revised our guidance.
The bold areas are the criteria that have changed. Ore treated, we have had to revise down to 4.9-5.1 from the column on the right, which was the original guidance as a result of lower tons and some impact on- Anticipated load shedding additional diesel costs. We have increased our unit costs, direct cash costs from 250- 285 at the low end, and then our all-in operating costs from 345- 380, as reflected on the table. That is the end of the presentation.
Yeah. Thank you very much, everybody. We are happy to take any questions you may have. Janine, over to you, if you would not mind putting any questions up on the screen for us to answer, please. Right. I will just get this one. From Ian Rossouw, do you expect basalt levels to remain high in H2 and into 2024? How did basalt levels in H1 compare to expectations per geological model? Okay, let us answer that, then I will go through to the rest. Brandon?
Yeah, thanks, Clifford. In terms of the basalt content, it is inherent, it is not on the contact. So we have seen it in internal basalt coming in through some of the domains that we are processing. As I mentioned, we did slow down the rate of the plant to deal with this and open crusher gaps as well. And we seem to be getting positive results on that, with not so much concentrate reporting to the final recovery from the DMS. So, we are dealing with it.
In terms of how it continues, it is different in the different domains. So as we move around the pits, we experience different levels of it. But certainly, we did see increases of this sort of for the last six months. So, as we move through the domains, we do experience different levels. To answer your question specifically, it's difficult because we haven't seen these levels in our main domains, sort of like in the satellite pit, and some of the other ones in the main pit. Hopefully it decreases, but we are dealing with it technically as well.
Thank you. Then your question about, can you provide detail on the volume and quality of diamonds recovered in H1? How does that compare to expectations from the geological model mine plan? It was disappointing, the volume and the quality. Our expectations had been for more bigger diamonds and better qualities. That was disappointing when compared to what the plan and the model was for the first half. Given the low-grade nature of our ore body, it's not an area of exact science. As one mines deeper, you get into slightly different domains, kimberlite domains. Indeed, we had, as Brandon explained, slightly higher levels of basalt. The drilling and to try and predict what's coming in the future, we're getting much better at that. But it's not in a perfect position. I'll be the first to admit that.
Can you provide more detail on why you expect diamond prices to increase close to the $1,800 in the upcoming tender? The reason for that is that the estimates prior to export from the mine were closer to the $1,800. That's why one can speak with some confidence on that. Indeed, you talk about is it driven by product mix? Yes. The quality of the goods, the number of the goods, the size of the goods, was really the main driver of that. What is the expectations for product mix in H2 and 2024 based on the current mine plan? It is back up towards the $1,800 per carat mark. That is what our models are showing and what we expect. Of course, we have been in this area before of $1,300, $1,400 a carat. I recall the first six months, I think it was 2013.
2016.
2016. Again, had a difficult sort of $1,400 a carat period. Hopefully we're through that and we're back to normal. Next question. Can you provide an update on expectations for completion of the resource reserve update, and why is it taking longer than expected? Because of the low-grade nature of the ore body, and also because of this variability of basalts coming through, et cetera, SRK are demanding more and more drill holes deeper and into various facies. We get to a point where we think, right, all done and dusted, and then there's a view that we need actually more drilling and more confidence. That's on the one hand. On the other hand, access to the ore body in order to do the drilling is constrained.
The drill holes take a long time to complete, and it falls into a production area. Because the ore body is quite deep now, the right place to do the drilling is from the floor pit. Therefore, we have to schedule this, and you lose a couple of months here and lose a couple of months there. Our expectation is that this will be in the first, I don't know, just after the end of the first half of next year. We will have a pretty detailed document. In fact, a very detailed document with lots and lots of drill holes far, far in excess of anything that we've ever seen before. It will be quite an impressive document, frankly. Michael, question number six here. What is your expectations for working capital movements in H2?
Ian, on the payable side of working capital, the reduction in this period was driven by some of the provisions we had for retrenchment process. So that should stabilize out at current levels. On the receivable side, asset side, we've had an increase in our stockpile. Part of that was driven by insurance requirements to increase our levels of tons on our stockpiles available, mainly driven out of the COVID-19 situation and business interruption structures or business continuity plans. So there's been an increase in this period, and that should stabilize out as well. I don't expect any significant material changes in our local currency balance sheets with regards to working capital.
Right. Those are those questions. Janine, have you got any more to serve up here, please?
It doesn't look like we have any other questions. Should we provide-
Let's hang on for-
Yeah, just another minute. Please use the Q&A function at the bottom of your screen should you want to pose a question to the presenters.
Okay. Janine, I think that's it.
All right.
Thank you, everybody. The opportunity exists. If you do have other questions you would like to ask, push them through to Michael or myself or Brandon directly, and we would be happy to respond. But thank you, everybody, for attending. I appreciate your attendance and goodbye.