RBC Capital Markets said it expects LSE-listed Gem Diamonds to close the six months with a loss of $4 million - $5 million, which will be followed by a similar loss in second half for an annual loss in the region of $8.4 million, when it announces its full year interim results on August 26.



“The first-half result should be flattered by the carry over of ~10k ct of rough diamonds from the postponed December 2008 tender. These diamonds were sold in January and February 2009. In addition, Gem sold $10m of polished diamonds in H1 FY09 which were extracted from Letseng's diamond production in FY08,” RBC said in a research note to clients.



On the negative side, the first six months will likely see one-off costs for staff retrenchments as well as increased care-and-maintenance costs for the central African diamond properties and Cempaka in Indonesia, it said.



RBC Capital Markets: “The balance sheet will be strong following the $107m ($98m net) share placing in April. Gem Diamonds reported that it ended June with $118m of gross cash, some of which is held in 70%-owned diamond mine Letseng. On a net basis cash we estimate it is likely to have been around $80m.”



RBC said the major risks to its forecast for FY09 are the level of rough diamond prices and the trend in the South African and Australian currencies.



While rough diamond prices recovered strongly between March and June, RBC Capital Markets does not expect any material strength in second half. The strength of the SA rand during the first six months has also reversed to some extent since then, it said.