March 16th, 2017
At prep school, I recall most of my friends finding Monday the worst day of the week, that was probably not because of double Latin classes in the afternoon but simply the idea of the start of another long week.
My view was rather different, thank heavens the weekend was over and another day was ticked off. Weekends in a boarding school that long ago were very long repetitive events.
My worst day was Wednesday, half way to another weekend.
Well, all has changed for me.
Gem announced their results this Wednesday, and what absolutely gloriously awful reading they made.
Just to pick out a few of the ‘high’ notes, revenue for 2016 was down 24% to $190 million, underlying EBITDA down 39%, profit after tax down 52%, and, free cash down from +$14 million to minus $28 million.
This in a year which was not too bad for other diamond producers.
I would not have thought that anyone could come up with such splendiferously awful results if they tried, and clearly Gem’s directors think they were special because despite not receiving a bonus they have awarded themselves a salary increase.
In CEO Elphick’s case this is a modest couple of percent to the even more modest figure of $566,747.
Surprisingly, the remuneration committee have decided not to raise the salaries of the three executives, Elphick, Turner and Michael for 2017, ‘in light of the current environment’.
You might query why I use the word ‘surprisingly’.
The history of Gem Diamonds has been the extraordinary tale of wealth destruction driven by ever more highly paid and appalling management.
As I look at the screen Gem’s share price has slunk down to £1.11.
Gem was listed at £9 way back in 2007 to raise some $600 million and if my memory is correct got close to £12.
In the financial crash to avoid its own demise it had to raise $100 million by doubling the shares issued.
So this $700 million plus the substantial income from Letseng has been frittered away in the most exemplarily incompetent manner on ventures from amongst others in Indonesia, Australia, CAR, Angola and now Botswana, where the Ghaghoo mine has been put on care and maintenance.
The report struts the fact that at Letseng tonnes worked in other word waste mined and ore treated has increased
But carats decreased.
One of the problems, as I understand it is that the satellite pipe, which produces the majority of very high quality large stones, has been seriously over mined to the point that one person told me that the strip ratio was up to something like 15:1, in other words 15 tonnes of crap to produce one tonne of ore, remembering that Letseng has an unbelievably low grade in the first place.
Not only has the management produced fewer carats from Letseng, a mine whose whole economic raison d'etre is the large stones, it, the management have been even more successful, according to those I speak to who go to the tenders, in ensuring that breakage has increased; to the point where I was told by one that it is not a question of breakage anymore but stones being smashed….all, presumably, to get their tonnage figure up.
The management of Gem have chased, woefully unsuccessfully, short term gains to boost their pay packages.
I have written publicly, and also directly to each of the major shareholders of Gem in the past highlighting the outrageous remuneration packages the management award themselves.
Inevitably, nothing was done in the cosy club of back scratching mutual admiration that goes on in so much of the financial world.
Gem is now a one asset mining company with huge overheads, where they have done their best to destroy the value in the one producing asset, who could possibly want to buy this dog?
Especially, a dog with such proven incompetent avaricious management.
It is not surprising that there is no dividend this year but what is real pie in the sky is the false hope that it will ‘recommence in the future’.
Oliver Cromwell’s words on the Dissolution of the Long Parliament on 20th April 1653 are just as apt to the management of Gem, ‘ It is high time… to put an end to your sitting in this place, which you have dishonoured by your contempt of all virtue, and defiled by your practice of every vice: ye are a factious crew,…..ye are a pack of mercenary wretches…..In the name of God, go!’