Gem Diamonds suffers after alert over price falls

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Jeweller Lawrence Graff, who bought a 4.5% stake in the firm just six days ago, is sitting on an estimated loss of more than £4 million on his shareholding.

Gem Diamonds admitted in today's trading statement that it could make a loss after posting a £46 million profit last year.

The global price of diamonds has halved in the last six months to less than $1200 a carat.

At Gem's flagship Letseng mine in Southern Africa, the price fell from $2512 in the first half of 2008 to $1557 in the third quarter and slumped a further 24% in October and November to around $1382. Gem maintained that even if diamond prices remain at current levels, the firm will be in a position to turn around performance in 2009.

The jewellery firm added that Letseng "continues to perform well" but is set to stop production at some less-profitable sites in Democratic Republic of Congo, the Central African Republic and Indonesia. "Non-essential" capital expenditure and project development will be slashed immediately.

Gem said sales in the run-up to Christmas are traditionally slow because dealers have already stocked up for the season. But it admitted revenues have slumped and indicated it may hold on to some of its precious stones in December rather than put them up for sale.