THE Letseng mine is, if you pardon the pun, a gem. The site, which is nestled in the Kingdom of Lesotho, a tiny enclave within South Africa, isn’t the most prolific diamond mine, but when it does produce, it turns up some of the largest stones in the world. The most recent was the Letseng Star, a 550-carat white diamond that Gem Diamonds, its owner, sold last year for $16.5m (£10.4m).
The company has other operations in Botswana and Australia, but its fortunes rise and fall with Letseng. If the City is to be believed, they are on the rise.
Gem is expected to reveal a strong set of annual results on Tuesday. Bank of America Merrill Lynch has pencilled in $142m in pre-tax profit, nearly two-and-a-half times the $54.5m the company made in 2010.
To keep the momentum going, Cliff Elphick, the chief executive, approved a $280m plan to ramp up production at Letseng. At the same time he launched an auction for Gem’s Ellendale mine in Australia.
Advertisement
Elphick may be forced to hold on to the latter until it has given up its last stone. Ellendale has only a few years left and the firm will struggle to find somebody who can pay anything approaching the $263m that Gem paid in 2007.
Beyond Gem’s growth prospects — Bank of America initiated its coverage last month with a 400p price target — these are interesting times in the diamond industry.
Anglo American agreed last year to buy out the Oppenheimer family from De Beers. Beny Steinmetz, the Israeli resources tycoon, plans to float his Sierra Leone operation in Hong Kong. Private equity firms are tussling over the diamond operation of BHP Billiton.
Diamonds are sexy again, and Gem is cheap. After Ellendale, Elphick is wary of the idea of a big takeover. Others may not be.
Galliford Try
Advertisement
IF you have enjoyed centre court tennis on a rainy day at Wimbledon in the past few years, thank Greg Fitzgerald. Galliford Try, the construction and housebuilding company he runs, installed the retractable roof. Galliford Try worked on the stadium for more than 30 years, but it is the residential side of its business that is now attracting attention.
Fitzgerald launched a £125m rights issue in autumn 2009 to load up with cheap land. What seemed like a risky move has paid off. Last month, Galliford Try doubled its interim dividend as revenue rose 30% to £746.8m and pre-tax profits jumped 89% to £32.2m. In a gesture of confidence, Fitzgerald vowed to slow down the landgrab and return 50% of the company’s earnings to shareholders on a rolling basis.
It’s punchy stuff and the City loved it. Galliford Try’s shares have almost doubled over the past year, closing at 620p on Friday.
However, don’t look at this as a bricks-and-mortar bellwether — four-fifths of Galliford Try’s sites are in affluent southeast England and it has enjoyed fat margins on the bargain plots it bought during the downturn. While investors will applaud Fitzgerald’s clinical focus, they should make sure he doesn’t take his eye off the construction division, where turnover is being allowed to fall. They — and Wimbledon spectators — may need its services again at some point.