Gem Diamonds Limited (GEMD) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Gem Diamonds Annual Results presentation. [Operator Instructions] Please note that this is being recorded. I would now like to turn the conference over to Clifford Elphick. Please go ahead, sir.

Thanks very much, and good morning, everybody, and welcome to our full year results presentation for the year ended 2020. If you turn to pass the disclaimer to the next page, which is a year in review, you'll see our revenue of $190 million reflects a year in which we effectively had 6 weeks of lockdown and shutdown at the mine. But apart from that, the results in review, as you'll see, we are very pleased with. In particular, I'd like to point your attention to the bottom left-hand U.S. dollar per carat achieved of $1,908 per carat. We think that's a good result in a year when a massive crisis emerged. And many of the diamond companies were unable to sell. We adapted our processes and the outcome, we think, was a good one. The other point is the net cash position, the bottom right-hand side, which then has allowed us to declare a dividend again this time of USD 0.025, which is a yield of about 3.5%. And so those are the main points. We would also like to point you to the all injury frequency rate on the right-hand column just down from the top. And this is the best effort we have as a company achieved so far. Turn over the page to our key strategic priorities. Really, we've -- as we did previous year, we have put these under 3 headings. It's extracting maximum value from operations and how do we go about doing that. Our operating model has, over time, really focused on the cost control and cash preservation. And then we are constantly looking at optimizing our mine plan, both in the short-term and in the long term. Diamond damage, of course, we are a slightly unique ore body, in that our large diamonds are the source, and we'll get to that later, the source of all of our revenues and damage to the diamonds really reflects in our revenues. And so we're constantly chasing that goal. The business transformation has now been in place for some time. We will talk about that later on. It's been a great success, and we're pretty confident that we're going to achieve our goals. But we're at a point now where we're moving past the business transformation and transitioning into continuous improvement strategy. Working responsibly and maintaining a social license. There's a massive effort in respect of zero harm and responsible care. And allied to that is, of course, building the relationships with our stakeholders and the surrounding communities. A huge amount of work has gone into that. As far as the UN Sustainable development goals are concerned, we are adopting those and doing our best in respect of what are quite lofty and ambitious goals. The GIS Diamonds Origin report block chain initiative. This is something we've been working on for quite some time. And many of our diamonds are finding their way into this process. Our customers enjoy this. It adds value as far as they're concerned and allows them to sell the polished on in a way which tracks the history and the origin, and it's proving to be popular. The next bucket, preparing for our future, we are constantly searching and working on various innovative technologies, mainly, as I say, really focused on our sorts of diamonds, very large, very high-value goods. And the ambition is to be able to reduce what damage occurs because of processes to the bare minimum. As far as external growth opportunities are concerned, we've looked at a number of things during the year, but nothing meets hurdle rates, nothing meets margin requirements, nothing meets geographies which work for us, unfortunately. But we keep looking at this. And a lot of opportunities come across our desks, but nothing really to talk about there. The long-term mine planning and optimization, we are, of course, we've been mining for 16 years in this ore body -- these ore bodies. And we have a life of mine open pit stretches into the 2030s. But at some point, we need to start looking at the underground, and that will come at some point in time. Climate change, adoption plan, a lot of work gone into doing what we can to assist this lofty ideal and as you can see together with the UN Sustainable development goals, there's a lot of work which goes into this, and we make a major effort there. The turnover in respect of the diamond market, I think, fortunately, for us, things have changed. And the growth, particularly in China, the U.S., India and Australia, showing a strong recovery from the shock, the COVID shock, and that is pushing its way through to stock market valuations. And we know that there's a correlation between stock market valuations and diamond prices, that correlation, a little bit disturbed, but now back we think it was diamond prices rising quite strongly. Inflation started to appear, but the very most recent information, it seems as it's not quite as frothy as one might have expected, but no doubt as the world rows back from the COVID crisis, I think we may well see some inflation. And of course, that's helpful for diamond prices. The diamond market itself, the 2020 holiday retail season was strong. We have that data, and I suspect that people had spent a year lockdown, and we're starting to look at alternative investment opportunities and the spending patterns changed. And certainly, Polish started trading well. So that was good news for us. Next point, China and India consumer markets continue to mature and showing strong growth in respect of diamonds. And the diamond manufacturing, particularly in India, as you can imagine, was very hard hit early on. But towards the back end of the year, started to find a way to come out of the difficulties which they had, had in the first half of the year. Inventory and debt levels down substantially without the Alrosa and De Beers sales, obviously, stocks were low. And this part of the diamond pipeline is in relatively much better shape than it has been for some time. And we are not finding, at this point, the synthetic diamonds are having any impact on the demand or the prices for the sorts of goods, which the Letšeng orebody delivers. The right-hand bucket there, we remain the highest U.S. dollar per carat kimberlite producer. It's very good position to be in. And we had a good year in terms of recoveries on almost all categories, but particularly the top end, we recovered very good diamonds, and that's, of course, also taking account of the fact that for 6 weeks, we weren't really able to operate. Bottom point in that bucket there. We have been participating in trials to capture additional value. And this is -- our goods are being polished into high-end luxury brands strategy, and we capture some of the additional value which happens between rough and polished and finding its way into the brand. So far, we've had a good experience, and we're pushing these trials out further to see what it might mean in a more longer-term view. So good news there. And we're quite excited about that. This is a picture of some -- the zero harm and responsible care, a photograph of some rehabilitated wet lands, beautiful photograph, it just has really been a job well done. You may have seen the rare frog, which has been reintroduced. And hopefully, next year, we can show you 3 frogs, not 1, but things are going well in respect of this part of our business. I wanted to spend some time on what we did in respect to COVID, because I think this is a story we're proud of. And it was necessary not just to protect our people, but to persuade the government to allow us to operate much quicker than otherwise might have been the case. And so we really reacted immediately. It became clear that the COVID pandemic was going to result in lockdowns and shutdowns. And we knew, of course, that this would hit the mining industry. And so we immediately established and equipped a laboratory on site. And of course, the gold standard is the PCR testing, and this is, as you can imagine, not without its challenges, but we managed to overcome all of those and very quickly had a world-class lab up and running on the site. We did all of the normal things that most people do, taking temperature screening, PPE, et cetera. But the differentiator was being able to test our staff in a very, very aggressive way. And you'll see that so far, we have run 18,000, just over 18,000 tests, PCR, rapid antibody and the antigen test. And this is -- this allowed the cabinet of Lesotho to get us into a definition of essential service, which had sufficient screening and protocols that they could rely on. And so that was what allowed us to open up again and get operating. We have -- I'm pleased to say over 99% of our staff have recovered, and we've only got 2 active cases at the moment. We now are focusing on the vaccines. We don't believe we can rely on the state in the normal course of events. And what we're trying to do is to fast-track the procurement of vaccines, and we've been working very closely with the British government and UNICEF, who have been allocated the responsibility to procure vaccines on our behalf. And to get these vaccines to us, and we will roll those up to our own employees as well as the communities around the mine. We, obviously, our prime concern is our own staff, but it doesn't really help if the broader area around the mine is not dealt with too. And so this is a major initiative. We're working hard. We've made a lot of progress here. I mustn't mislead you, we don't have any vaccines in the country nor on site, obviously. But this is something that is a major focus for us for the medium term. There is concern in South and Southern Africa about the third wave. And we're doing what we can from our existing processes. But again, vaccine is the answer. And so we're pushing very hard there. Turn over to the next page, Page 8, you will see the -- what we've done in our communities, it really -- we're very -- the government of Lesotho was struggling in the beginning and their testing lab was really set up for age testing, HIV age testing, and they didn't want to contaminate that lab. And so we help them to get their own lab up and running and with a donation of a mobile structure, which we quickly got down to the Department of Health, and that was set up. The normal distribution of PPE sanitizers and hand wash systems distributed around our communities, and we trained up 48 community care health care workers and the result is that the statistics in -- the infection statistics in our area when compared to the rest of the country, we are significantly lower. And I think that is the result of this initiative. A lot of food parcels because of lockdown and shutdown, people weren't able to easily earn a living. And so we came to the party as it were there. These food parcels, as you can see, they're quite substantial. But included in those parcels were things like seeds, food and not just a parcel which runs out in a short period of time. So there's -- a lot of thought went into this and this was really well received. I've spoken about the vaccine initiative. I'd like to just hand over to Brandon on the upside to talk about the zero harm scenario.

Thank you, Clifford, and good morning, everybody. From a health perspective, notwithstanding an extremely challenging year brought on by COVID, safety remained our #1 priority to ensure that our workers were safe through the shutdown and through the restarts and opening. I'm pleased to say, as Clifford has mentioned, our all injury frequency rate, we've seen the downward trend continue, and we've had our lowest level since in the last decade. From our lost time injury frequency rate, again, we brought it back into levels that they need to be. And coming off 7 in 2019, we only had 1 LTI at the end of the year where an unfortunate incident with 1 of our employees, that was pushing a wheelbarrow at a CSI project twisted his ankle. So a really good effort from a health and safety perspective from all on-site and in the operations to maintain a zero harm priority. I'm pleased to also say that we had no major or significant environmental incidents and also no major significant social incidents. Turning over to sustainability. Our commitment to a sustainable business focuses on our risk and risk management. And as a whole, we aim to take a holistic view of our business performance and integrate sustainability into all areas of our operation. And that includes safety, environment, our communities and our people. In this, from a safety perspective, I'm going to touch on our focused tailings and water storage facilities and confirm that we do employ best practices in our monitoring and in our management of these facilities. With the introduction of the global industry standard on tailings in August 2020 last year, we have put in place a task force to assess any gaps that we have in our current processes to what the new standard may require. And that gap analysis is ongoing and should be completed soon, whereafter we will put actions in place to address any gaps as appropriate in our operations. As Clifford mentioned, we've also adopted 6 of the UN sustainable development goals, 6 of the 17. These goals really promote social priority, prosperity and offer environmental protection for the planet. And in our small way and our small part that we can play, we've launched a focus initiative to integrate these into our business and to play our part in achieving these goals in the communities and in the countries in which we operate. I'm pleased to say for the fourth year running, we've also retained our ISO 4001 certification at Letšeng. And this is really just best practice on environmental management. Clifford mentioned our steamed frog, and we're very pleased and excited that the frog reintroduced itself into the rehabilitated wetlands, and we're obviously monitoring that progress and success of that project. We're also working towards the incorporation of the climate-related financial disclosures, and we're hoping to include those disclosures as recommended in the 2021 reporting. For further detail on this, we have a sustainable development platform on our website, and I'd like to refer people to that, which has been updated and has all the information on our sustainability through the group. Clifford, if you are okay, I'll move on to the business transformation?

Yes, please.

From a business transformation perspective, I'm pleased to say that the initiatives have been embedded in our part of our business plan. And we'll continue to deliver value and has been an extremely successful program. We've achieved USD 79 million to date. And we remain on track, as Clifford mentioned, to deliver our $100 million target by the end of 2021. As you can see from the pie graph at bottom left, these were the work streams, the mining, processing, working capital and overheads and corporate activities and the percentage of contribution that we expect from them from the implemented initiatives. And the remaining $21 million is what we're targeting for this year to achieve our goal. And the transition to continuous improvement is proceeding extremely well despite the challenges that we had with COVID and people get into sites and gatherings. And I'm pleased to say that it has now rolled out in the mining department, and we're starting to see the benefits of that, and I'll just give 2 examples of where we've seen the impact. On this slide, we can see from our drilling department, the performance in June 2009 (sic) [ 2019 ] prior to continuous improvement, you can see the outside our targeted optimum targets there. And with focused daily KPIs that were set, daily meeting leadership and team training, problem solving, et cetera, you can see the improvement where we've brought all of those in the performance into the targeted optimal zones and that is the same. So with our improved stemming, we've seen the same results. We'll be getting the optimization and accuracy by implementing a behavior and culture of continuous improvement. From an operational perspective, as Clifford says, I think we're all very pleased with the performance over the year. It was an extremely challenging year for all. And following the COVID-19 lockdown focus was to become operational and remain operational in a safe and responsible manner. And I think the operations managed to do that extremely well. We had a 30-day complete shutdown in April. We then modified our mine plan, and we implemented a new mine plan during that period. We were able to start -- as Clifford says, following our COVID protocol implementation and testing, we were able to restart in May. We actually do a phased ramp-up of 50% production in May, and we were back to full production by June with our waste mining starting at the beginning of July. The impact of this was less tonnes. As you can see on the graph at the bottom right, we produced -- completed 5.4 million tonnes as opposed to 6.7 million tonnes a year before, major impact of that being the shutdown of approximately 6 weeks. During this time, we also had focused contracting engagement and collaboration through the crisis, and this really assisted us in remaining operational, get everybody aligned and ensure continued operations. The waste tonnes mined -- less waste tonnes mined is largely as a result of the lower tonnes treated and the carats also are proportional to the tonnes treated. Again, just to highlight the productivity and the production from the mine. We were able to keep operational and had a record year in terms of our large diamond recoveries. As Clifford has mentioned, we adopted a few new strategies where we -- on one hand, we reduced the processing throughput to improve plant stability and diamond recoveries. We had a significant contribution from the satellite pipe. Last year, we treated approximately 2.8 million tonnes of satellite. And the record recoveries in the large diamonds, as you can see in the table below, in each category of greater than 100 carats, 60 to 100 carats, 30 to 60 carats, et cetera. These were record years for 2020. On that note, if I can hand back to you, Clifford, on the sales and marketing.

Yes. Thanks, Brandon. So I think the challenge was that it was very difficult to move product out of Lesotho and get it into Antwerp. It was very difficult to get customers to look at the diamonds and to make offers because people couldn't move around for a large part of the year. So we had to change the way we did things. It was travel restrictions, mainly India, Israel, et cetera. And so what we did was, selected for each particular part of our production those customers who were our top customers over time and we targeted them. We ran all the analysis in our office, and we shared that analysis with those customers. And so because of the relationships of trust, which have been built up over a long period of time, many of these customers bid on these goods with are physically seeing the goods, which is quite unusual, but on the basis of the analysis, which we were able to share with him. On the one hand, we were nervous that this would limit the upside, but it certainly protected the downside. And the fact of the matter is, is that we were able to get our goods moved, sold, collected the cash often in difficult circumstances, too. But things went well. We have seen quite a strong start to the year, as you would all know, both De Beers and Alrosa, put their prices up. We've seen, on a like-for-like basis, good demand, particularly for the sort of goods that we produce. There is a -- yes, some -- it's always nice to see beautiful diamonds. And here are some of the more important diamonds that we recovered during the year. And we hope that this year turns out similarly. Mike, over to you.

Thanks, Clifford, and good morning, everybody. I'd just like to take all through the income statement and just to run through some of the key points on the accounts. You'll see that our revenue is up by 4% at $190 million. And then that's notwithstanding the shutdown period where we lost the circa 6 weeks of production. So that's off the back of about 99,000 carats sold compared to 111,000 in the previous year and driven by the improved and higher price of $1,908 per carat, which Clifford referred to earlier. Royalty and selling costs, you were told that we signed a new lease at the end of 2019. And in that lease, we had an increase in our royalty from 8% to 10%, so the $19.8 million relative to the $16.9 million the previous year, has got an increasing rate of 10% for the full year. And that also includes some of the selling and marketing costs for our operation in Antwerp that runs and processes all our tenders. Cost of sales is 9% down from last year. I'll go into a bit more detail on those costs on the next slide. And actually, a big chunk of those costs relate to the [indiscernible]. Under the COVID standing costs, you'll see we incurred $3.9 million. That really pertains to the period when we were shut down. The fixed costs we incurred during that period couldn't be included in our normal cost management of production of income. And therefore, we had to strip those costs out, and we've disclosed them separately. And of the $3.9 million, about $1 million of that relates to the effect of protocols and systems we put in place to manage the COVID reaction and planning that we had to do that Clifford had referred to in the previous slide. Under corporate costs, you'll see that again has decreased. I'll take to a further slide later. It just shows a trend of our corporate costs, still a key focus of us to try and reduce that. But obviously, under the COVID restrictions and less travel, we were able to save some costs during that process as well. All of that leads then to $53.2 million of EBITDA, which is up from 30% on the prior year. On the depreciation and mining asset amortization, you'll see that, that has decreased significantly down to $9.1 million. The main reason for that is, following the signing of our lease, we've extended that period of depreciation assessment now to the new lease date of 2039. We previously wrote off our assets to the earlier of the previous lease, which was 2024 or the life of mine. And as a result of the extended period, we're now able to reassess a longer write-off period and having a reduction in the current year. Net finance costs of $4.4 million is down 24% from the last year. And if you recall, we ended last year in a net debt position of $10 million and obviously ended this year in a positive net cash position of $34 million. So we've had a decreased effect on our finance costs over the period. And of the $4.4 million, $3.3 million relates to interest -- direct interest costs on the facilities and IFRS lease accounting charges and roughly $1 million of that relates to the unwinding of our environmental liability over time. Noncash items, $600,000 of that relates to share-based payments and $900,000 of that relates to ForEx losses. We've ended the year then on a profit before tax on continuing operations of $38.2 million. Income tax of $10.7 million relates to the Letšeng income tax charge, in-country tax rate of 25% and then a 5% withholding tax on dividends, we declare out of Letšeng through to the holding company. That rate has reduced in the past. It used to be 10% in terms of the new double tax agreement. The rate is now down to 5%. Profit after tax from continuing operations is $27.5 million and resulting in an attributable profit for the group at continuing operational level of $16.9 million. Loss from continued operation related to the Ghaghoo operation, which is on care and maintenance. Albeit that it's still being held as an asset for sale and our process to dispose of that asset continues, we did have delays due to the COVID restrictions and in-country traveling. And a conservative effort was made to reduce those costs as we could not -- unsold the asset during the period. Some of those savings relates to the ceasing of dewatering of the tunnel and some contract negotiations. So we've managed to reduce that down by 27%. Earnings per share from continuing operations is USD 0.121, and that's off the back of a attributable profit of $16.9 million and based on a weighted average number of shares in issue of 139.3 million. If I then just go to the next slide on the Letšeng cost analysis, Brandon has spoken about our tonnes, the reduction in tonnes, and that has had a huge impact on our overall unit costs, reported unit costs, and you'll see that there has been an increase. If I go down to the direct cash cost before waste per tonne treated line, you'll see that, that is sitting at LSL 201 a tonne versus LSL 181 in the previous year, 11% increase, again, just driven mainly by the lower volumes we've incurred. I think positive for us as part of our cash management process, all our cash costs, which includes then waste cash costs reduced over the period. And our total cash cost in 2020 was ZAR 1.7 billion. And if you compare that to 2019, which was ZAR 2.1 billion. And that was part of our deferment of some of the waste costs, the delays that were incurred and how we managed the reduction during that period. Non-accounting charges was also quite high at LSL 118 a tonne. The amortization charge for the year was $43 million, which is the same as it was in the prior year, and that was relative due to the mix of our satellite to main pipe ore during the year. Although we didn't do more than what we anticipated on satellite, we did 2.8 million tonnes, and that was our original plan. That was an increase from the prior year of 1.6 million tonnes and the tonnes that we lost effectively during the year in terms of processing was through the main part and as a result, we've had a higher effective amortization charge. And that led them to a total operating cost per tonne treated -- an income statement charge for us of LSL 320 a tonne versus LSL 245. The exchange rate was relatively similar at the end of the year, 14.69 versus 14.45 in terms of an average. And that gave us then a dollar cost of $21.83 versus $17.02. On the waste mining side, similar issue, which rises to volume. You'll see that we had a 35% decrease in volumes, and that effectively had a 13% increase in our cost. But in dollar terms was relatively equal once we put in the current dollar exchange rate. The next slide on Slide 21 is just to talk through the financial position. Maybe just 1 or 2 items to highlight here. We've obviously strengthened our balance sheet through our increased cash generation in the year. You'll see that we've ended up with $49.8 million worth of cash, gross cash at the end of the year. But a point I'd just like to highlight, you'll see just above that income tax receivable. In last year's discussion, we'd mentioned that we'd ended up overpaying tax at Lesotho and had a refund of $8.2 million. I'm pleased to advise that all those overpayments we received during the course of the year and flowed in and we've now ended up with an income tax payable of $11.9 million, which is just the second last line on the bottom left-hand column to state that, that tax is now relating to a profitable year that we've had in 2020. The other point just to highlight is you'll see just under total equity that we've got interest-bearing loans and borrowings outstanding at this point in time of $16.1 million. 4 of that relates to our workshop facility, which we took out a couple of years ago in terms of that project, and that will be paid quarterly over time and be completed in September 2022. And then the balance, $10 million of that relates to a revolver credit facility where we've gone down funds at the moment. On cash management. I mentioned this before, we've had group cash of $50 million at the end of the period, a net cash position of $35 million. We have, during the period, settled some of the debts that we'd owed, $14 million in cash debt payments. Some of that was the workshop I've mentioned previously. $10 million of that related to the residual debt we had on Ghaghoo that we had to pay $2.5 million per month -- sorry, per quarter. And at the end of the period, at the end of '20 -- in December this year, we've settled the full amount. We had forgot 3 available facilities totaling $61 million available to us. We are in the process of doing a debt restructuring. We've appointed Nedbank Capital to run a sole mandate in terms of going to market to really look at our debt structuring. We've got some of our facilities maturing during the course of this year. And we're trying to look at consolidating some of our debt structures throughout the group. Before I go into the waterfall, I'd just like to point to the corporate cost table on the right-hand side there, you'll see that our trend in terms of reduction of corporate costs continues, and we've been able, over time, to keep the downward trend going. If I look at the table at the bottom of the waterfall, as mentioned, we had -- in terms of cash, $11 million at the beginning of the year, $70 million of facility. The thing generated good cash flow of $105 million. And following the refund and then some tax payment during the year, we had a net inflow of tax into our cash flows of $6 million. Waste invested of the 15 million tonnes that we mined during the year was $47 million. I mentioned the Ghaghoo debt, some net inflow -- the net financial liabilities paid was $8 million of which Ghaghoo was in that, which I mentioned previously. Corporate cost of $8 million, which we've touched on. Dividends to NCIs, noncontrolling interest, so that's the 30% of local dividends we paid out of Lesotho to the corporate office, and that amounted to $5 million. I've spoken about the net finance cost in terms of cash flows. Ghaghoo costs and investment in PPE was another trigger that we've managed to look at and defer some costs into the new year or reduce some of the capital costs. We've ended up in the year with $50 million and $61 million available facilities. Then just to cover the dividend side of it, which was an important milestone for us to reinstate dividends. We last did a dividend in 2015, paid in 2016, and we're proposing the dividend of $0.025 per share. As Clifford mentioned, that's about a yield of just -- about 3.5% over -- on a current price. The last date of registration we put down to the 13th of May with a record date for 14th of May. This is obviously all subject to AGM approval on the 2nd of June and an anticipated payment date then on the 15th of June. Just looking forward, we will annually review the dividend based on cash resources, our free cash flows and earnings generated and obviously, any capital projects we need to incur. And we will consider special dividends with significant diamond recoveries. I think that is an important area for us where we can look to start distributing some of those recoveries. And then we will continuously consider a share buyback program and implement something should there be an opportunity to do so. And then the last slide, before I hand back to Clifford is just on guidance. So this is our 2021 outlook. It's based on a normalized position for us. So it doesn't include any confided shutdowns or any incidents like that. So we believe this is just normal now back to production for us. The one area that we're just looking at, just to highlight, is just on the ore treated side. We factored in some lower rates in terms of throughput just to continue the program that we did in H2 this last year, and we saw the benefit of that. So we've reduced some of our rates for the period. But taking everything else into account, I think it takes us relatively to a normal position. Just on capital, we've got $14 million to $50 million. If you recall, last year, original guidance was around about $10 million. We ended up doing some $2 million, as mentioned, in the cash graph. A big portion of that, $4 million to $5 million is some of the carryover of that capital that we pushed out, and we would have done in 2020 in any event. There is some capital set aside for fund recovery units, some improvements there of about $1 million, some MRM work, resource development work that we want to do roughly of $1 million. And then we are looking at whether our PCA, our primary pressing area needs some replacements, so we've set some funds in these numbers of about $5 million to $6 million. And that will cover then the $40 million to $50 million range. With that, Clifford, can I hand back to you to look at our focus areas for 2021.

Yes. Thanks, Mike. So it's really 4 important points, social license to operate. Again, we've spoken about this at the beginning of the presentation, our priorities. But clearly, we really have to have the support of our communities and operate safely. And the vaccination program is an important point. We need help from state agencies there, both the British government, the Lesotho government and UNICEF, but that's what we're going to try and get over the line. On the right-hand side, we've done well on the pit slope angles. We're going to see what further work we can implement there, and that's obviously helpful to access deeper ore. The resource and reserve statement, we've been working on that for some time. Unfortunately, COVID hit us hard here and the experts out of Canada were not able to travel, not able to get to the ore body and assess. So that was a bit of a delay, but we're back on to that. Brandon has spoken about the continuous improvement. And given an example, this is rolled out now into all areas of operations, and we hope to be able to report similar examples of good work. On the financial side of our focus areas, Mike spoke about the debt. The $100 million BT target, we're pretty comfortable we're going to get that. It was a commitment we made a number of years ago. When we first rolled this out, we have steadily chipped away at that. And so we -- now to collect the last part of this commitment, and all of those initiatives are embedded, and it's really the inflection of time, which gets us there. There's no major risks to achieving this. On the strategic box, bottom right-hand side, growth, we are obviously, a single asset, single mine. We constantly evaluate opportunities which come our way. But as I've said before, nothing meets the hurdles which we have set this so far, but who knows what's around the corner. We'll keep working hard here. The downstream value-add is exciting, interesting. It's delivering some good extra revenues to us. And we believe, given the nature of the sort of diamonds which we mine that it's appropriate that we should be pushing hard here and trying to access part of this. Because of the rarity of our goods, we think that it's an opportunity for us. And of course, on the technology front, we keep pushing. We're making slow progress there, but encouraging progress. So those are the areas we're going to look at. I think we are able to take questions at this point.

[Operator Instructions] The first question we have is from Kieron Hodgson from Panmure Gordon.

I just had a quick couple of questions. I just wanted to clear up on -- clearly, obviously, the dividend announcements are positive for the group. Obviously, setting a clear divi policy for a special diamond producer is a bit difficult. Is it more sensible way of thinking and this is potentially for you, Michael, is should we have a base level of cash in the bank to work from? So for example, nothing less than $20 million and then work out a sort of a payment ratio from the free cash generating -- generated from that point onwards? That's the first question. Now I'll just jump on to a couple of others if that's -- after this.

Yes. Thanks, Kieron. Kieron, the challenge that we've got is, if you look at an instant point in time to get a cash balance, it's difficult then to determine what that free cash is. I think important for us is we normally run about 3 to 4 months worth of working costs at Letšeng as a minimum working cash balance in terms of our operating requirements and then also in terms of our banking facility covenant requirements as well. Going forward, we will be looking to see if we can't sustain this and maintain this level. You'll see that we've ended up this year and our previous dividends are roughly at about 20% of our sustainable earnings in that year, it seems to be quite consistent, and it wasn't quite by design, but that's where it's ended up. And if we achieve those levels, that level of cash flow, we then continue to meet that. So I don't want to put a policy on the table, but it seems like a dividend cover ratio of 5:1 in terms of an accounting number should get you to a position, but it's not a policy that we've got. We're going to look at it annually. We're going to look at it in terms of our cash generation that year. We're going to look at our short-term to medium-term capital requirements and bring all of that into account and then determine what free cash is. But importantly, we also want to put on the table that -- a special dividend with regards to significant recovery, is something that we could allocate as extra funds for capital return.

I think if I could just add something, Kieron. I mean the fact is, is that it's a volatile business. And we've seen in the recent past, the ebbs and flows as it were. We have got some insights into what looks like coming down the track, but it's not always precise. And so one needs to have a slightly cautious approach to this. But I think the ability to deliver an unusual or special dividend on the back of significant funds, I think, is something which this company has probably got a better opportunity to do than anybody operating in this industry. And so we -- that's something we want to put on the table, too.

Great. And just 2 other things, if I may. Just firstly on the BT plan. Obviously, now that's pretty much moving into sort of continual operations. It would be fair to sort of recap what your expectations were and what was actually delivered and where you've either exceeded expectations or fallen behind? And then clearly, if I may, just we haven't really talked about the extraction technology space or the potential there. Just if you can cover off any advancement in the year, that would be great.

Okay. Just on BT. I mean, we had quite a detailed plan, which we presented, and it was to get to $100 million over the period of improvements in savings. The basket is slightly different to what we set out. But overall, we've achieved the number. And then, of course, there is the ongoing savings, which have now been embedded and revenue improvement. So I think, overall, we -- COVID sort of delayed us marginally, but not a huge amount. And I think we're very pleased. We do have something in reserve, so we're likely to be able to outperform in the sense that our commitment was for $100 million. I think we're very confident we're going to get there, and we might do marginally better than that. So I think that's on the BT. In respect of the technology, we built a plant, we got it down to site. And just to remind you, there are 2 aspects to it. The one is to get the diamonds out of the rock using nonmechanical means that we sort of picked the box there. That has gone well, and we're very comfortable with kind of the final stage of the process. The first stage of the process is to see the diamonds in the rock, there, that didn't deliver as well as we thought it might do. We have brought that plant back to Johannesburg. We have pulled it apart, taken out what wasn't working. We're busy putting it back together again. Of course, as things move, computing power improves, the detection units are improving as well as the pixilation capabilities and so we are upgrading that plant and moving to kind of, what should I say, a pilot plant to, the ambition remains the same, to be able to see diamonds in a certain size of rock and then to be able to eject them at the speed, which is required to meet the commercial need. I mean, we can do this at slow speeds, but that doesn't really help us. It's a question of improving and making this faster. So technology advances, you seem to rush forward and then crawl forward and then have a rush forward. So that's exactly where we are. We've got a team coming here from Europe in the next month to take this forward to the next step.

The next question we have is from Ian Rossouw from Barclays.

A couple of questions just on the pit wall slopes. Clifford, would it be possible to give bit more details on this? I mean, how much more waste do you think you can take out of the mine plan?

Yes. I don't want to give too much detail here, Ian, I'm afraid. It is a work in progress. Things have really gone well so far. The expert team, which is working with us, have shared that they believe there is further opportunity there for us. But of course, we've got to assess that against where are we in the overall scheme of things when measured against other mines which are coming near the limit of what is safe. And so unfortunately, there is a little bit of a lead period here because you've got to get to a particular slope angle. You've got to then allow that to stay for a period of time to be able to assess the outcome of that. But let me say this, you would have seen the pit itself, it's never -- it's frankly in the best shape, certain parts of it where we have steepened the slope angles. And we are -- and more importantly, the sort of engineering teams that we are using to assist us with this global experts in this are quite impressed with -- or very impressed, shall I say, with what's happened, and their recommendation is to go further. But we haven't had sufficient time of assessment, to be clear, how far we can go and when we will implement that, but it's ongoing work.

Okay. And then just on the -- looking at sort of costs, we should think about in 2021, outside of your guidance, just sort of COVID-related costs, I guess, cash flow at Ghaghoo, could you give a bit of details on that?

Yes. So I mean, the vaccine, we have sort of 1,600 people. So it's -- we're not talking about huge numbers here. Our preference is the AstraZeneca vaccine, which is low, but it seems as if the Johnson & Johnson -- which is a low cost, but it seems if the Johnson & Johnson vaccine seems to be best-in-class for our particular region, and that's a bit more expensive. It all depends. There are a lot of moving parts here. And it depends on what UNICEF is going to be able to access these 4. So we're going to -- but it's not a big number that the COVID, the vaccination acquisition. We will continue with our -- and that's, Mike has, I think, spoken about the COVID costs to date and what it costs per employee. So I don't think it's a really -- it's not really a big deal, the COVID costs. So I hope that sort of answers your question, Mike?

Yes, then, probably just on -- sorry, Ian, just on normal processes that we do in terms of maintaining COVID at $200,000 to $300,000 would more than cover those costs on an ongoing basis, excluding the vaccination that Clifford spoken about.

Okay. Yes, that's great. Because I guess it looked like dropped to about $600,000 in the second half of last year. So -- okay. So that is expected to come down more.

Yes. A lot of that was obviously the implementation, getting the lab going and all that. So there's some fixed costs in that, but it will probably run to a run rate of $200,000 to $300,000.

And then in respect of Ghaghoo, your second part of your question, I -- you've heard this before, but I think we're quite close to dealing with this matter.

Okay...

And Ian, let me just -- just as we said, we're probably running now at about $200,000 a month. So we're down from the $300,000, $400,000 previously.

Okay. Okay. And then just on these trials, you mentioned, Clifford, around, I guess, probably something you've done before. I mean, are you looking at taking some diamonds out of your production for that this year? I guess, what should we think about that part of the business for the next couple of years?

Yes. So what happened was we're approached by a high-end [indiscernible], and so I'm not -- I'm unfortunately not in a position to identify this, but high-end brand to who are making major inroads into the diamond industry. And they target the very top end. They are putting together a collection of goods and they needed a manufacturer. They're working with a -- with a couple of manufacturers as it turns out. And so we were approached at the back end of it, the negotiations were to run some trials. We would participate in the benefit. Previously, we did this of our own bat. It was partly to try and access some additional revenues, more to understand actually true diamond valuation principles and processes. So we know what it costs to polish our sort of goods. We would know the sort of yields, we would understand the problems. And finally, we could then price the rough in a much more scientific manner because our capabilities would be respected and understood and well thought of by our customers. And in fact, that is just jogging backwards a little bit. That's what helped us this year in selling goods because our customers kind of have very good confidence that we know what we're doing in that side of it. And our analysis were something that they could rely. So this is more about -- the brand is now after our diamonds to fit into their strategy. And of course, they need certainty and supply. And so that's really what it's about. We certainly will run additional, we will do more of this year. I can't put a number on it because we're on the receiving end of their rollout strategy. But it seems that this is becoming more prevalent with sort of high-end goods.

Okay. Okay. So this is not like in the past, we actually take some diamonds in inventory, carry some working capital and then sell that on. This stuff will come through directly in the sales numbers included in the, I guess, the carats you sell...

Yes. So this is delivering to -- yes, this is delivering into orders from the brand. So we don't receive our funds once they have sold the goods. We -- an order comes in, we supply those goods into the manufacturer. The manufacturer polishes them, delivers them to the brand, and we have paid at -- the uplift we have paid. So we get 100% of rough price straight away, and then we get an addition once the polished is delivered into the brand.

Okay. Okay. No, that's clear. And then maybe just lastly, on the guidance for this year. As you said, Michael, the numbers, I guess, you sort of pulled back the throughput rate slightly versus, I guess, what you had indicated previously. Could you maybe just talk around the sort of plans and the state of it? How is it operating in terms of sort of efficiency? And you also mentioned around the benefits you're seeing from running slightly lower. Do you mind just giving bit more details?

Yes. Thanks, Ian. I'll just ask Brandon to respond to that as well.

Yes. Hi, Ian, just in terms of the plants, what this really is about is just the throughput and the capacity of the plants and nameplate capacity. In both plants, we were pushing about 450 tonnes per hour. We've reduced that nameplate 2 to 420 and in plant 1 from about the 420 to about 400. But the impact of that, we've seen improved stability in the plants, and we hopefully look at our recoveries and improved in coverage through that process. And that actually result in better uptime and less downtime due to on schedule and [indiscernible] in the plant. So I think that's worked pretty well for us, and that's what we've built into our 2021 plan. The other thing just to highlight is the plant reacts differently to different material coming from the pits. For instance, satellite material does prove to be more difficult getting through the plant and slows it down. And that we need to take into account as well. So the plant is reacting well to running at a more stable feed rates. And I think that's worked well for us last year, and that's what Mike was saying, we pulled into our BT this year, which is giving us the time and details of our guidance.

The next question we have is from Richard Hatch from Berenberg. Rich, you can go ahead, sir.

Easy to answer that question. Do you want to move on to next?

Of course, the next question we have is from Max Kaye from Liberum.

Congrats on a really set good of results. Just one from me. And the higher contribution from satellite obviously helped recoveries in the year. I'm just wondering whether you see that normalizing in the next few years or sort of staying at this higher level?

So yes, that is our plan. We did 2.8 million tonnes of satellite last year and we're scheduled to do more or less the same of that this year. Our guidance is put as 2.6 million to 2.7 million and having got through the bottleneck on cut 5 West, that certainly is, for the next few years to do between sort of 2.5 million tonnes to 2.8 million tonnes per year.

That's great. So just some of the questions, Greg. Why does it take Gem 3 months to get the declared dividend to your shareholders. Mike, do you want to -- as I understand it, it's just straightforward practice?

It's in terms of the approvals, so the final dividend has to be approved at the AGM and therefore, that's scheduled for the 2nd of June, and we then can make for payment within a couple of days after that on 15th of June as the payment days.

And then in terms of the date of record and the date that has to do with the share registers determining the list of shareholders who are eligible to receive it.

Correct. And that's in terms of guideline from the MSC, a program in terms of dates. So that won't affect the payment date as those dates will be chosen. So the payment cannot be probably earlier than that.

Great, I think we'll talk to you later about that, too. Martin Creamer, what value does Gem plays potentially having a minor in a market of carbon neutral diamonds or is the market on -- well, I mean, diamonds are carbon. So I suppose [indiscernible] to sell non-carbon diamonds. Sorry, I'm not trying to be facetious, but Michael, we haven't really got into this in as much detail as your question is assuming there is a big debate about the sort of footprint, the footprint in respect of mining, and it's quite a complicated answer. There is a bit of work being done, particularly on synthet or manmade diamonds as to what their carbon footprint is and how their carbon footprint is hugely in excess of naturally mined diamond. So what I would say is, if you wouldn't mind giving us a bit of time, we'll come back to you with a more considered answer here. As you will have seen, we tend to get into sort of best practice but at this point, frankly, I don't have an intelligent answer to give you at this stage. Buying carbon offsets, I think that's the same issue. With respect to replacing fossil electricity with renewable energy, we have looked at this in some detail and particularly solar and wind. And the combination, we have assessed this quite often. And unfortunately, the outcome of that is not good enough from a cost perspective for us to make the transition right now. It is moving in the right direction, and there will come a minute when that is right. Of course, we have to also assess, not just straightforward cost question, but the cost of not doing this and what that does to our contribution to the planet. So it's not just a simple cost answer. But just to give you comfort there that we have looked at this in great detail over a number of years. So that's all the written questions, sir.

Okay. Good. Right. How has '21 -- 2021 started in terms of 100 plus carats? We've so far recovered one. So that's a bit slow, but hope spring is eternal. Anything else there? Okay. I think that's it. That's it. Right. Well, thank you, everybody. If we haven't -- if we've missed you, if we haven't answered a question, which you were asking, then please get in touch. You know how to get in touch with Mike, Brandon or myself or send us a message, and we'd be happy to take up anything that you would like us to answer. And thank you for attending and goodbye. Goodbye.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.