Gem Diamonds Limited (GEMD) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Gem Diamonds Half Year Results Presentation. [Operator Instructions] I would now like to turn the conference over to Clifford Elphick. Please go ahead, sir.

Thank you very much, Dinara, and welcome, everybody to the half year results. As you will have seen from the presentation, we've titled this presentation Operating Responsibly in Uncertain Times. And of course, that's really going to be the focus of our presentation today, how we've handled the COVID lockdown and all of the implications thereof. Page #2 is the disclaimer. There's a lot of verbiage there, if you wouldn't mind reading that at your pleasure. If we turn over then to page #3, this is the overview slide, captures all of the numbers, which I'm sure you'll be interested in. Revenue is down compared to normal, but still a very pleasing $70 million for us. EBITDA, important figure, obviously, the average dollar per carat too is something which we're pleased to have achieved an increase compared to the previous period, in a very, very challenging and difficult market. So that's something that we'd like to just highlight. The other point is cash flow during this period and the ability to reduce our debt by a further $5 million, not that our debt is huge, but nevertheless, important to keep moving in the right direction. Business transformation. So far, we have delivered a $65 million benefit to the business towards our $100 million target. We'll go into some details later, but pleased to say that this continues to track in the right direction, and we're confident that we're going to get to the $100 million, which we have spoken about previously. The safety record is something which has gone well in challenging times. And we now are at a historical low for the business, and the number which compares very favorably to everybody in the industry. The earnings per share is there, it's the function, obviously, flows down from the EBITDA. And then on the carats recovered, notwithstanding a 30-day shutdown and then a ramp-up to 50%. And then finally, back towards more normal full operation. Nevertheless, carats recovered 43,000, and then the cash flow per share comes through. With the next slide, on Page 4 is a time line. We thought we would just highlight what has happened during this period on a time line to give you an idea of in terms of the story of this time period. So the pandemic in our neck of the woods was declared as a pandemic on 11th of March. We were in the middle of our smallest tender. We were able to get that concluded in the normal course of events. And shortly thereafter, the government announced a national lockdown of all businesses and people were confined to barracks, as it were, and the mines shut. We immediately went into a serious effort to make sure our people were safe and to comply with the law and the regulations. But at the same time, we were really doing 2 things. One was trying to find a way to conclude the large tender. And at the same time, influence government not to shut down for too long a period and to allow us to get operating again as soon as possible. And so that is what happened during that 30-day shutdown period. We changed our tender and sales processes slightly. Obviously, Belgium has been particularly hard hit, and Antwerp was shut down with many of the participants in the diamond industry leaving for their home countries. We, therefore, had to adapt the way we sold and what we did was reduce the number and target the tender at specific clients who have a history of succeeding in the goods. And then on top of that, we also made available to the clients our analysis of what the polished outcomes, the qualities, what the shapes and sizes, and our assessment of what was inside the rough, and I'm pleased to say that, that had a positive impact and we had a very competitive large tender on the back of that, and we were able to get that away in the sort of high point of the crisis. We were able to persuade the government that diamond mining was really -- followed suite to an essential service, and I'm pleased to say that they took our representations and shortly thereafter, allowed us to start operating, albeit in a limited fashion. We managed to get our staff back on-site and began the processing to plant 1 only. Our concern at the time was whether or not we would have a steady flow of supplies. I'm talking about ferrosilicon, diesel and the like. And at the same time, we were scrambling to implement appropriate safety protocols and testing of our staff to ensure that we could operate safely. I mean if you step back into those times, there was a moment of maximum uncertainty, frankly. We took a view, and we will go into this in some detail, that the only way for us to remain open was to really test on a large-scale and to have very careful social distancing, keeping our staff as far apart as possible. And at the same time, we made the wearing of masks compulsory right from the get-go. And I think all of these matters have come together well as we will run through. Towards the end of May, we were able to start plant number 2, and we started ramping up. Tender 3 again was conducted in difficult circumstances similarly to tender 2. But by then, we had sort of fine-tuned our processes even further, and we're able to provide much more data and information to our clients who relied on that information and who bid against that. The waste mining then started on the first of July. And although we are almost at 100% capacity, there are some constraints which we face, mainly due to the quarantine processes and that expert skilled staff have had some difficulty getting into country and out of country on leave rotation. And so we've had to adapt the way that we -- our employment conditions, how long people need to stay on-site before leaving. And so it has been a period of complete change for us managing through a pandemic, a crisis situation, none of which we had prepared for. We had no -- we did not have this scenario in our emergency planning. And so we've had to roll with the punches, think on our feet. And I'm happy to say that so far, things have gone relatively well in the circumstances. If we kick over, let me just speak about the market. Obviously, huge disruption to all countries or industries and the global economic backdrop is really uncertain as a huge GDP contraction of unimagined proportions has taken place. The longer-term issues of erosion of human capital will play out in due course. And the losses due to lockdown in terms of increasing poverty and other diseases and the impact will only play out in due course. Emerging markets, of course, had been growing at good rates other than South Africa, but emerging markets generally, and obviously, they've been hard hit, we'll see what happens there. What is pleasing is how China seems to be bouncing back extremely well. And the data which is emerging from China, which is really important for us is really pleasing and strong and the anecdotal evidence, which I get from speaking to our customers who operate there is really quite positive, and I hope that, that obviously continues. If we go to the diamond market specifically, COVID added significant downward pressure on diamond prices. I mean we think between 15% and 20% impact. Other mines might have had more or less, but that's really what we've seen. There've been mine closures, as you know, whether it's Liqhobong; Mothae; Kao, which is now open again, but Liqhobong and Mothae, I'm talking about in Lesotho and elsewhere, things have really been tough in this industry. De Beers and Alrosa, the 2 big suppliers of roughs canceled their sales, deferred sales and allowed customers not to take their goods and have recently had price decreases. But I'm pleased to say that those goods -- over $500 million worth of goods were snapped up by the market last week. And the factories are getting busy again. Opening at -- probably at 50% to 60%, is what I'm told. But it appears that there is a certain amount of optimism and buoyancy and there's speculation that [ the Rap ] price is going to go up quite soon. So let's see. Our goods, in particular, as I've said, 15% to 20% fall in prices. But the ability to have a more targeted group of clients approached and the goods, which they specialize in the ability to have that knowledge and the long relationships that we've built up over the 15 years really counted at this time. And so we were able to get these goods away when everybody else -- well, most people were not selling. So that was pleasing. The average dollar per carat is up compared to the previous period, notwithstanding a fall in prices, that's partly due to quality of goods recovered over the time. And also perhaps because of this ability to demonstrate outcomes. Therefore, to have a sort of a better approach to pricing, we shall see over the course of time. More recently, outside of the period, but very pleased to report good recovery Type IIa. The 440 now, 439.6 after cleaning and kimberlite latch has been washed off the goods. That is in Antwerp. We will have a separate sale, not in the current September tender, which is a good production. And the 233 carat yet to leave Lesotho it's on its way. And of course, we're proud of our position as the highest dollar per carat producer. I'm going to hand over to Brandon to deal with safety record, and then Michael Michael will then deal with the other financial matters later on in the presentation.

Thank you, Clifford. In terms of our 0 harm as a priority, I'm pleased to say we've got a much improved safety record for H1. As Clifford mentioned, our All Injury Frequency Rate is at a historic low. We've seen no fatalities and no LTIs in the period. And this is really from the benefits that we've seen following the implementation of a number of actions and focus on safety, with visual leadership and training implemented since last H2 in 2019. So that has given us really good results from our safety record, which we obviously are proud of. ; In terms of our continued focus on dam safety, that is a major priority from a safety perspective for the mine and communities. The Global Industry Standard on Tailings Management, which was issued in August 2020 is something we're looking at now. We have engaged external experts to now have a look at this, and we're busy doing a gap analysis. And which will enable us in due course to close any gaps that we may have in our processes and procedures compared to these new standards. We're also pleased to say we've had no major or significant environmental incidents and also no major or significant social incidents, so a good period H1. Clifford, would you like me to move on to the COVID 19?

Yes, please.

As Clifford mentioned, our COVID-19 protocols. We immediately jumped into the development of these protocols and then implementation from the date of -- when it was declared at pandemic, we -- the protocols were immediately instituted or implemented. And from an internal perspective, the focus was on detection, isolation and then evacuation. I'll deal with the internal processes first. We instituted a number of screening actions and activities. We -- thermal screening, X-ray screening. We then introduced PCR testing, which is we were able to do that on-site from about end of May, June. And more recently, we've introduced the rapid testing, which gives us the ability to now screen people quite quickly. These tests take between 3 and 5 minutes per test. And it's able to screen people out at source of transport to the mines. So at the buses, in Maseru, in particular and other locations and then also at the mine gate. To the extent that people are identified as negative on that. They are immediately referred to quarantine at home and/or to the national institutes for the COVID in the country. So that has worked extremely well. And we've also introduced appropriate PPE, social distancing and training and counseling for both medical staff and those, which got potentially or was suspected of having contracted the virus. To date, we've had -- as at 31st of August, we have identified approximately 98 suspected positive cases, of which approximately 89 have now returned to work as full recoveries. And the remaining person are 2 unfortunate diseased, which we believe are 2 suspected cases so they have not yet been confirmed by the government as COVID related, however, were on quarantine and unfortunately passed away. The remaining people on quarantine are obviously recovering at home. In terms of our aid to surrounding communities, we have distributed PPE, sanitizers and what they term tippy taps, which is just contactless hand washing systems. We've trained community health care workers to lead COVID-19 awareness programs. And also, we did a major food distribution of food parcels to about 482 families, giving about approximately 2 months of food per family. And we've also donated a mobile structure to the Ministry of Health to use in Maseru as COVID-19 testing lab. Moving on to business transformation. As Clifford mentioned, we are confident that the implemented initiatives remain on track to deliver the $100 million. As noted, we have to date achieved the benefit of about $65 million from the start of the program. And to date, in H1, we've achieved approximately $10 million with a target of $12 million for H2. In terms of the impact of COVID-19, we have not yet assessed the full impact on the business transformation. We do not believe it will impact the value in any way. However, it may have an impact of pushing the timing into 2022. Operationally, if I move on to the next slide. We mentioned the shutdown in Lesotho from 28th of March. We immediately went into a care and maintenance process. The plants and mines and sites was shut down for 30 days with a small care and maintenance staff on-site of approximately 100 people. We've mentioned we then developed a new mine plan, a revised mine plan for 2020, which took into account a startup, a phased, responsible approach to the ramp-up, and that commenced at the end of April with Plant 1 and at the end of May, we introduced, again, full treatment with Plant 2 with full treatment or close to full treatment from June. So that was well-executed and something we did, obviously, responsibly and taking into account all the impacts that COVID and the related shutdowns and lock down in the various jurisdictions, the challenges that gave to the site. We did reduce waste mining as well in Q2, and that will -- the full waste mining then only commenced in July. The impact of that, as you can see on the graphs on the right, on our old tonnes treated, we were down approximately 1 million tonnes are treated compared to last year, and that was really the impact of the 30-day shutdown, complete shutdown and then half production for a month as well. Our recoveries to date, we're pleased to say that, in particular, we've recovered approximately 7 plus 100 carats in H1, 3 or 4 of those being -- include high quality. And then the 2 additional recoveries post the period, which is also very pleasing, as Clifford has discussed those. The carats recovered, the reduction is obviously material impact of that was due to reduced tonnes. And the waste mining, I've discussed that was reduced through the lockdown and then a conscious decision to reduce also for the purposes of cash preservation for that period. And that has now restarted as of 1st of July. If I can hand back to Clifford in terms of the diamond recovery in sales and market.

Thank you, we are on slide #10. Bottom left is the slide numbers. Here are some photographs of the recoveries, obviously, the 439.6 after acid wash is the signature stone on this page. Came outside of the period, just to remind you. And it's the sixth largest diamond that we've covered since 2006. So a significant diamond, I'm pleased to say. A reasonably good quality, it's cleaned up quite nicely. Reasonable shape so there should be some decent yield out of it. The 233 carats bottom left, that photograph comes from the mine. And as you can see, still have some kimberlite latch on it. The 233 will drop slightly. Not a lot of kimberlite latch. It's not quite in the same league as the 439, but still a good diamond. And then various other high-quality goods during the period. If you turn over to our sales and marketing, we've got the highlights there. What I'd like to draw your attention to, really, 2 points. One is the average dollar per carat bar chart on the top right-hand corner, you'll see that during 2016, '17 and '18, we showed pleasing up trends. And then 2019 was a difficult year in terms of dollar per carat. But very pleased that we've started to show and recover some of that ground, notwithstanding the really difficult market that we're filling in. So that's really to draw your attention to that point. The other thing is that a sense that -- and it's very early but I've just got to say over the last 10 days that it is a bit of buoyancy and life in the market. We're looking forward to our sale in September, and I think that will give some indications as to where things are going. A point to consider is that Lucara who really sell quite similar goods to us, not quite in our quality league, but nevertheless, very large diamonds and sometimes larger than ours, they have committed their goods for the rest of the year into a sales channel, which effectively removes them from the open market. And we shall see what the impact of that is and logically, one would assume that those customers who now are unable to access those goods might pursue our goods with a slightly more aggression on the basis that they don't have an alternative. So looking forward to the balance of this year and seeing what can be achieved and time will tell, but I am quietly optimistic about where we find ourselves right now. Right. Mike, will you get into the detail?

Thank you, Clifford. Good morning, everybody. We're on Slide 12 now on the income statement, and I'll just run through the numbers. On the top line there, you'll see revenue. We generated $69.5 million, as Clifford mentioned earlier. We are down, obviously, to the prior year, having had 1 less tender through the lost production during the shutdown period, and in addition to not selling the June tender smalls, which was carried over and will be sold now in September. The sales of the $69 million is off the back of selling 31,644 carats, and that compares to 55,700 carats that we sold in the previous year. If I move down to cost of sales, and just talk to our costs during the period, you'll see that we're at $43.7 million of cost of sales, and that's down $8.8 million from last year, circa 17%. And that was driven by a couple of issues or a couple of matters during the period. Our cash cost and saving initiatives that we implemented and the deferment of costs through negotiations with the contractors during the lockdown resulted in a saving of LSL 300 million of cash flow during that period. That's about $18 million. Of that amount, though, LSL 62 million, about $4 million, has been deferred into H2 and will flow later in the year. However, just to be clear, though, that not all these cost savings will be seen in the income statement as a portion of the costs related to waste mining, and as you're aware, waste mining is capitalized, added to the balance sheet and not seen as a cost in our income statement in the current period. On cost of sales as well includes some of the IFRS charges and includes the amortization for the ore that we treated during the period. And that charge of $43.7 million, $18 million of that relates to amortization, which is greater than last year's charge of $15.6 million. And that was due to the higher volume of Satellite pipe, we were able to mine and process in a period of about 1.2 million. And when you compare that to the previous year of 400,000 tonnes. Just to clarify on that, as you're aware, the Satellite pipe carries a high amortization rate due to its higher strip ratio. I'd also like to just confirm that the cash costs also reduced during the period. And that was with the negotiations of the contractors during the period where we were able to eliminate some of the fixed costs. However, it's also driven by the variable cost savings that we had due to lower volumes treated. FX also impacted our overall costs. A lot of our Rand based costs. The exchange rate moved from ZAR 14.20 to ZAR 16.66. So we've seen a dollar-based improvement in our costs. Then moving on to COVID-19 standing cost, $3.3 million. Those costs relate to some of the fixed costs, which we incurred during the lock-in period and ramp up there, where we couldn't eliminate and did not contribute to any form of the production that we wanted to incur, and we've had to disclose that separately. That amount came to about LSL 55 million or $3.3 million as we disclosed in the income statement and $300,000 of that related to some of the direct costs for the PPE and protocols that we implemented that Brandon referred to earlier. Another point I'd just like to highlight is that our corporate costs that's come down by $1.5 million to $3.6 million during the period, positively impacted by FX as well, but also due to some of the cost savings and the deferments of costs that we are able to implement during that period. All of that resulted in a positive and pleasing EBITDA of 11.3%, albeit that it's down, I think, under the circumstances, we were pleased to generate as much EBITDA as that. If I then go down to profit-before-tax on continuing operations, we were down to $2.5 million. Our income tax expense was obviously lower, even though the effective rate is 28.9%, which resulted in a profit-after-tax from continuing operations of $1.8 million. Our attributable profit from continuing operations was $200,000, albeit that it's small, it was still positive and resulted in an earnings per share of $100,000 -- sorry, resulted in a $0.1 earnings per share of circa 139 million shares in issue. Just overall in our cost management. You may be aware, we previously announced it, but we have taken salary sacrifices across the group, where various rates of productions were implemented and resulted basically from 20% of senior management running down to 10% as we went through the seniority level. If I then move on to the next slide, on our unit cost slide, that is a bigger slide, but I'll just highlight a few points on this. As you can see that our ore tonnes treated is down by a 27% to 2.4 million tonnes, and that does impact our unit reported costs, obviously, as we've had less cost to run through and carry a higher portion of the fixed costs. But just overall, in terms of operating costs, our cost savings decreased compared to the prior year to LSL 468 million and costs are down from LSL 558 million. We've also ended up in the period with total direct cash cost before waste of LSL 199 per ton compared to LSL 174 a ton. So overall, increase in unit costs of 14%, notwithstanding that our volume was down by 27%. But overall, in aggregate, we've had a reduction in cash flow costs. Non accounting charges, I've mentioned before, is -- includes the effect of the LSL 18 million amortization charge coming through which was higher than the previous year and resulted in an overall operating cost per tonne treated of LSL 311 per tonne at the exchange rates that I mentioned earlier of ZAR 16.66 compared to ZAR 14.22, we've seen that drop -- a weakening of the Rand and obviously, had positively impacted our total operating costs in U.S. dollar reported terms, and we've ended up at $18.72 per tonne. On the waste side, we -- our volume dropped by 60%, down from 13.2 million, down to 5.2 million, resulting in a cash cost per waste tonne moved of LSL 43.3 million tonne an 18% increase. And again, at the exchange rates applied, we've only had a 4% increase in dollar terms. If I move then on to the financial position, there's not much to highlight on this, except for the fact that you will see our numbers in June 2020 are significantly down in dollar terms compared to the previous year, and that's because of the closing rates we've had to apply all our local currency assets and liabilities that which was $17.38 million at the end of June compared to $13.98 million at the end of December. And then I'd like to just move on to the cash flow for the period. We generated cash assets of $37.4 million, which includes the $3.3 million standing costs I referred to earlier. We ended up gross cash of $17.5 million and net debt of $5.5 million of the -- having drawn down facilities of $23 million, which was an improvement from the previous year. Available facilities are still at $51 million as at the period. And if I just run through the waterfall for you and just highlight a couple of items, our cash generation of $37.4 million would be full waste incurred by the $15.5 million. We had a negative impact on our working capital, where we paid down some of our creditors. There were some accruals at the end of last year that were flowed in the beginning of this year, mainly the most material of that being royalties only paid in January. Our corporate costs, as I mentioned, down to $3.6 million, incurred $2 million of net finance costs on a cash basis. In the income statement, you'll have seen, $2.7 million, but the difference for that is the rehabilitation unwinding interest charge. We spent $1.7 million on Ghaghoo. That's down from $2.4 million last year. We've had a lot of work streams to reduce that cost. The dewatering has effectively given us opportunity to the ceasing of the dewatering of the underground has reduced some of those costs. And therefore, we're starting to see the benefit now. We -- as part of our capital management and cash flow management, we were able to defer quite a bit of capital that was planned originally in our guidance, we had $9 million to $10 million worth of capital, and we only spent just under $1 million in H1. And then also importantly, I'd just like to go to the last slide as part of this presentation, which is our revised guidance. We've set out the original guidance as it was when we published this at the beginning of the year. We are now confident and more comfortable to publish where we believe we will end up at the end of the year. And as I'll just run through all the numbers. On the waste side, we believe we'll get to 15 million tonnes to 17 million tonnes. We've lost some of the tonnes in H1, and we're looking to catch that up, obviously, as part of our cash savings. Although we've reduced our headroom on the waste profile there, we're still comfortable that we've got sufficient capacity and free ore to operate appropriately. Ore treated 5.4 million tonnes to 5.6 million tonnes. Might be down of what you'd expect if we just had to use a normal H2, but Clifford had mentioned earlier that we are just cautious about some of the aspects of being able to operate at full capacity. So we've factored that in, in our numbers. We're hoping to double up our satellite contribution in H2 from 1.2 million tonnes as it is to roughly 2.4 million tonnes, so we're looking at a similar contribution. H1 was 50%, so, obviously, doing a similar amount but running at more regular rates, our contribution of satellite would drop below 50%, but we're still looking at similar volumes. That rolls out into carats recovered of just 96,000 to 100,000. We've taken into impact of boiling and timing of opening and closing inventory. We're looking at selling between 92,000 carats and 96,000 carats the year. On a direct cash cost, we're looking at LSL 210 to LSL 220 a tonne higher than we originally had. Obviously, lower volume overall will impact that. And as mentioned earlier, we have got some savings, but those savings that we incurred were mainly on the waste side. So won't be seen in the direct cash cost. Operating cost, LSL 300 to LSL 310, and that's driven by our percentage of Satellite that we will be doing during the period. And therefore, we have got a higher amortization rate that might jump up slightly if we're able to do a bit more Satellite. But obviously, there's positive impact to that on cash flow and revenue. On the mining waste cash costs' side, we're looking at LSL 40 to LSL tonne. It's slightly less than where we've achieved in H1. But we believe with the additional volume and taking into account some of the deferred costs that we're bringing into H2 will come into those -- that type of region of cost. On the capital, we're looking at spending about LSL 60 LSL to 70 million for the rest of the year. So that brings us down to about $4 million to $6 million, down from the $11 million to $13 million. We haven't finalized our 2021 plan, and we'll be working on that in due course. But in principle, we'd be looking at going back to normal type of business. And we will then probably replicate a very similar position to our original 2020 guidance to flow into 2021. We also believe that there's probably about $3 million or $4 million worth of capital that might flow into 2021 because of the deferment and the cash initiatives that we implemented. But we'll be finalizing our 2021 numbers in -- later in the year.

Right, thanks very much. That's the main body of the presentation. Happy to take questions and go through the normal process. Over to questions.

[Operator Instructions] The first question we have is from Ian Rossouw from Barclays.

Just a few questions from me. First of all, on the $4.5 million carryover of the small diamonds into H2. Can you give us an idea of how much that is in carats in terms of volumes?

I guess, I think it's about 8,000 to 11,000 carats. Yes. I mean, we can find out the exact number and get back to you.

Yes. No, it would just be useful so that we don't, I guess, double count, obviously, the volumes for sort of implied guidance for the second half.

Mike, can you deal with that?

Okay.

And then just looking at the implied direct cash cost guidance for the year, that -- I mean, guidance for the full year, obviously implies there's a much higher second half number. Presumably, the standing costs related to COVID comes back into the cost of sales. But are there any other reasons why the unit costs are expected to go up quite a bit?

So on a unit cost basis, Ian, we're expecting still to be down overall volume. So that's impacting our overall unit cost to reported costs. So we are going to have a drag on that in terms of our fixed costs. We also, as mentioned, there will be some element of costs flowing into H2, where we managed to defer it. So there'll be an additional weighting coming into H2, unfortunately. So bring the averages back -- what we've gained in H1, back into H2. But overall, it is mainly a volumes issue -- matter because we can't eliminate the fixed cost element, and we've taken out the $3.3 million of fixed costs, which, unfortunately, would have been sitting probably in either inventory or in waste.

And then just Michael, on your comments around the Capex. Do you mind just sort of clarifying. So should we expect roughly $3 million to $4 million of the reduction? I guess there was a $7 million reduction, should we expect that to flow into 2021? So did you say you expect a similar number in '21 versus the original 2021 guidance?

Yes, so in 2021, we'd expect our capital to come down slightly, just generally. So it probably would have been about $7 million to $8 million. But what I'm suggesting, though, is that there's probably about $3 million or $4 million this year that's been deferred and will flow into next year. So our capital might be at a similar level to what we put into the 2020 guidance.

Original guidance.

Original guidance.

And then just on the Ghaghoo sale. Mind sort of just giving us an idea of expectations for when do you think that will conclude? I mean presumably, the coronavirus lockdown has impacted the time lines there. And then can you remind us just the terms of the deal, whether the cash flow is backdated? Or is it just effective from whenever the deal is approved?

Yes. So, Ian, look, as you can imagine, the shutdown of the government hasn't helped. We needed some statutory approval to close that deal. So that really has messed us around. We -- at the same time, paradoxically, we were approached by 2 other parties who wish to try and muscle in and become involved. So the situation is a bit more interesting than it was when we had finally sort of negotiated a deal with 1 party only, which had -- there were some suspensive conditions in terms of the approving funds and being an acceptable investor to the government, et cetera. So there were a couple of hurdles which we still had to overcome and then COVID came along. And in terms of the accounting treatment of funds which flow, Mike I don't...

We haven't accounted for any of the cash flow at this stage yet. So the funds would flow once the deal is concluded.

No, I mean, is -- if the deal closes today, is the deal effective from a date a year ago, so the buyer...

No, no.

Or would...

No sorry, Ian.

Whenever it's closed.

Whenever it closes. Whenever it closes, sorry.

Okay. Okay. No, that's okay. And then just last question on M&A. I mean, Clifford, I would -- wanted to get your -- interested to get your view on whether you think this is a good time for the industry -- for consolidation in the industry, given the distress -- there's quite a distressed amount of companies and assets around and whether you guys are looking at that?

Yes, Ian, i mean it's no secret that Petra is in a process and that they had a formal request for people to make proposals there. Clearly, we were 1 of the parties that was approached. And indeed, we have had a look at that. It's a difficult situation, obviously, some lovely assets, but a massive debt pile. So -- and I don't think -- I think everybody sees it more or less the same way. So we will see what happens there over time. It's a problem balance sheet which needs resolution. It seems to me as if all the many years of work of development have sort of now come to pass, whether there's much more capital, which needs to be spent, we don't know. But I think they're near the end of all of that. So that's 1 opportunity, obviously. It's in our neck of the woods. Then Firestones, Liqhobong mine closed, unclear when that's going to open again. We know Mothae is also closed, unclear when that's going to open again. Kao is operating. We understand there's some difficulties because one of the things that we've done over many years is skill up our local workforce. So the number of experts we have is really quite significantly reduced compared to many other operators. And as a result, it's much easier for us to operate there. Then if you look at other assets around the world, as you remarked, there are issues. So I think it is a time -- I mean, you guys, analysts have for many years, been talking about consolidation and what should happen and many similar companies where there would be benefits of taking out a management team, 1 management team could certainly manage more than 1 mine or 2 or 3 or 4. So yes, I think it is an opportunity. But you know every opportunity comes with its issues. And can one do a deal which one's own shareholders will support? Can it be positive and accretive? And what's the risks involved? And I think the problem with the market price of goods has bedeviled the consolidation story up to now because people haven't been clear where the pricing was going, and it's been sort of 1 crisis after the other. So I mean we always look at things, but there hasn't been anything which has been so overwhelming that we have come forward and put our best foot forward.

Clifford, that's useful. And maybe just the last 1 on -- you mentioned there were some mine plan changes for 2020. You have previously given us an idea of sort of mine plans going forward. How -- does that change much sort of 2021 and beyond?

Yes. Look, we always -- it's a finesse and fine-tune, always, looking at what can be done, how can it be done. No major massive changes. But indeed, as we succeed or learn or do better and find smarter ways to access ramps and slope steepening and the art of the possible becomes clearer, we fine-tune that mine plan, and it's really more fine-tuning than anything massive.

To answer your previous question about the carats, it's 11,700.

I think Kiki has also emailed me.

The next question we have is from Richard Hatch from Berenberg.

Just a point of clarification. So the 442 (sic) [ 440 ] and the 233 is the expectation that they get put up for tender in September?

Yes. It might not happen in September. It will be in October, but we hold the diamonds for sales, and we're in the process. They won't be part of our large tender, which is happening soon. Because the 233 in not over yet, but we will be selling them either in September or in October.

Okay. Cool, Clifford. And then just a couple of other ones. Diamond within Kimberlite, I don't think that's been mentioned this time around. So what's going on there? Is there any update on that one?

Yes. So because of the COVID lockdown, the contracting or our technical partners were unable to get to site. So nothing happened, and they still don't have the capacity to get to site. They're not our employees, they don't have work permits. And so if they get in, they have to quarantine and when they come out, they have to quarantine. So they're not on site. So that's been on hold since then. And if we saw -- as you know, there are 2 parts to that technology search. The one is getting the diamond out of the rock once you've seen it. And there, we can tick a box there and tell you that we have cracked the technology issues there very successfully. On the seeing the diamonds in the rock, that we haven't got to where we would have liked to have been by now. Well we just haven't been able to operate for 6 months or so, which was the period when we were put -- where we would have been putting all through, once we had settled the pilot plant. So yes, we've been set back there, unfortunately. But we will pick that up in the near future once, I think, things are moving towards -- we hear that borders may not be closed for very much longer. And hopefully, that rumor is correct.

And sorry, just 1 follow-up on the 442 (sic) [ 440 ] and the 233, just large stone prices. I mean, obviously, they held up pretty well up until, what, 12, 18 months ago, and then they started to drift with the rest of the market. What kind of -- can you just give a little bit of context as to what you're seeing in terms of the large stones plus 10.8 million that you're selling at the moment? What kind of -- are you still getting decent prices or reasonably decent prices for good quality Type IIa plus 10.8 million?

Yes. So your comment is fair. I mean, prices did hold up, then they started falling. In January and February, we saw 10% increase in price. And we were -- so COVID had started in China, but it didn't have an impact in Europe in January and February. And then quickly thereafter things went sort of pear shaped and prices fell between 15% and 20% thereafter in the sort of in the heart of the storm as it were. So we then -- we haven't really sold into anything positive yet. We're hoping that September is a bit more positive. We expect that it will pick up a bit. But the overall sentiment is this is a bit better than it was since sort of late February. March, April, May, June and even July, into the beginning of August, things were -- they were not putting on a happy scene. But I just have -- I hope I'm not misplaced, but certainly, the -- you will have seen that pink stone, which sold for $70 million, Chow Tai Fook, the highest price ever paid for a diamond on auction. And there are other examples of really fantastic prices for -- that's for polished, of course. But on the new prices, there's been quite a lot of trade in polished. And that, of course, is now after system that polish needs to be replaced. so we're expecting some positivity.

Helpful. And then lastly, just for Mike. Mike, should we be booking any kind of working capital swing back into the second half? And just on those corporate expenses that you've talked about, the sort of pay reductions. At what point do those get round back up to 100%?

In terms of -- in terms of the salary reductions, I'll deal with the second question?

Yes, yes.

So we've started phasing those back now. So we're looking to buy probably during quarter 4 to be back to normal salary positions.

Okay. And then the working capital?

Yes, Ian -- Richard, it's a tough one, obviously. I think we had an anomaly last year where the tender closed late in our payment process with the royalties was in the new year. So there might be a small comeback, but it won't be to the same extent of the $8 million that we had pulled back this half 1.

And then we've got a couple of questions here. Probably, I think we've spoken about that. And if it doesn't close yet, we've got to shut it down permanently. We can't keep carrying these costs for inordinately. It doesn't make sense. So -- and that would be a pity for that ore body to be sterilized in a way. So we are working hard to get this done. And let's see if we can do that. Then Mark, transformation, what is expected ongoing annual costs? So we talked about $30 million on an ongoing basis post 2021, if I remember correctly, I mean, that might slip a little bit, but that's what our ongoing annual savings as a result of this will be over and above the $100 million cumulative, which we will have achieved by then. And then William, HB -- yes. Sorry. What pricing? No, we can't, obviously -- pricing on those large diamonds. We can't sort of give that away. That will undermine our negotiating power completely. And so unfortunately, we can't do that. But there are nice quality diamonds. And it won't be long and we'll have those numbers. Are those question about HB. Yes, they have bought so HB hasn't existed as HB in the past, but the leading diamantaire there is somebody that's been a significant client of ours over a long period of time and has bought many of our goods and traded in many of our goods. He is a very well respected diamantaire, does good work. And indeed, let's see what happens with the relationship there. Right. What else is there? Is that it? Okay, good. Look, that looks like we've answered all the questions. Thanks very much. If you have anything else, which we've missed out or you think about afterwards, please send an e-mail through or call us, and we are happy to engage. But thanks very much, everybody, for attending.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference call. You may now disconnect.