GEM Diamonds is reviewing its capital expenditure in Lesotho and Botswana because of the weak state of the diamond market, the company said yesterday.

Gem, which is listed in London, has diamond mines in Lesotho and Australia and it is building an underground mine in Botswana, where ground conditions have resulted in the project falling behind schedule.

The results of the review will be released when Gem issues its interim results on August 21.

"Since May, the diamond market has experienced challenging conditions due to reduced liquidity (due to the) continuing eurozone crisis and reduced demand in the emerging markets," Gem said.

Project Kholo, at the Letseng mine in Lesotho, is designed to double treatment capacity to 10-million tons a year with a doubling in production to about 200000 carats from mid-2014. The Ghaghoo project in Botswana involves sinking a decline shaft through a thick layer of sand to reach rock. A rush of sand into the decline has killed two workers. Work will resume next month, once Gem has ensured the incident will not be repeated.

"In light of continued economic uncertainty, the directors have initiated a review of the company's capital investment plans," Gem CEO Clifford Elphick said.

"The review will focus on potentially extending the period over which capital is expended on its two development projects ... in order to protect the company's strong balance sheet in the event of further deterioration in market conditions," he said.

The review would also ensure flexibility to accelerate both projects if the diamond market improved, he said.

Gem has stopped the formal process of finding a buyer for its Ellendale mine in Australia after telling the market in November last year it was "considering all its options" regarding the mine.

seccombea@bdfm.co.za