GEM Diamonds is building a cutting and polishing plant in Lesotho as it doubles production from its Letseng mine, which is a source of some of the world's biggest diamonds.

Gem, which is listed in London, had begun a $280m expansion programme of its Letseng mine high in the Lesotho mountains to double production by July 2014 and the increased production was forecast to double profit, CEO Clifford Elphick said on Tuesday.

Gem plans to cut and polish 50% of its Letseng diamonds, as measured by value, from 2017. That plan includes the construction of the plant in Lesotho to beneficiate rough diamonds, he said.

Gem bought a diamond-cutting technology business a few years ago and has spent time on research and development before it starts production in the second half of this year.

"We are building a cutting and polishing factory in Lesotho and it will use this technology. The will take about 18 months to complete," Mr Elphick said. It would also house the head office, he said.

A smaller version of the business would be set up outside Lesotho and begin in operation in the second half of this year, he said.

Gem targeted 11% of Letseng's diamonds by value for internal beneficiation, but it reached 23%. This year it has a target of 15%. There is a considerable increase in value for cut and polished diamonds compared with rough stones.

Gem reported record results on Tuesday, with a 49% increase in revenue to $396m and record net profit of $68m.

The company has been accused of having raised money with little to show for it, having had to dispose of assets that it had bought in Indonesia and Africa.

The second big project Gem is building, to start production next year, is the Ghaghoo mine in Botswana. Gem is spending $85m on the first phase to go underground.

"The first phase will essentially give us a giant bulk sample and, based on that, we will decide how to expand the project, whether we stay an underground mine and double production or, if the results shoot the lights out, we could then go back to the original concept of an open pit," Mr Elphick said.

The reason for this approach is to avoid the large upfront cost of $180m in clearing away a thick sand layer over the ore body, with the attendant risk that the deposit may not be what Gem thinks it is. "We don't want to go gangbusters on this to find it is not as attractive as we think it might be," he said.

Gem was speaking to potential buyers for its Ellendale mine in Australia and had appointed advisers to assist in the process, Mr Elphick said. The loss-making mine turned in a small profit last year.

"The problem with Ellendale is that it's never really going to move the dial and it has a short life. There are people who have a different approach and who are looking at it. If they come up with the right offer, we'll look at it," he said.

Gem has submitted a proposal to its partner at the Chiri project in Angola. "We are reaching a fork in the road," Mr Elphick said.

"They'll either accept our proposal or not. This is something that will be resolved this year."

Gem has a carrying value of $14,5m for Chiri.

If the proposal is not accepted, Gem would need to "reassess the carrying value of this investment".

seccombea@bdfm.co.za